ACCEPTED
03-15-00409-CV
8019009
THIRD COURT OF APPEALS
AUSTIN, TEXAS
11/30/2015 4:14:06 PM
JEFFREY D. KYLE
CLERK
No. 03-15-00409-CV
FILED IN
3rd COURT OF APPEALS
AUSTIN, TEXAS
In the Third Court of Appeals 11/30/2015 4:14:06 PM
JEFFREY D. KYLE
Austin, Texas Clerk
SUSAN ENGLAND (LEE)
Appellant
v.
JANICE KOLBE, AS GUARDIAN OF THE ESTATE OF EDNA MOON
Appellee
APPEAL FROM CAUSE NO. 12-0361
207TH JUDICIAL DISTRICT COURT OF HAYS COUNTY, TEXAS
THE HONORABLE JUDGE GARY STEEL, PRESIDING
APPELLANT’S BRIEF
David Junkin
State Bar No. 11058020
Law Office of David Junkin
P.O. Box 2910
Wimberley, TX 78676
512/847-8600
512/847-8604
david@junkinlawoffice.com
Attorney for Appellant
ORAL ARGUMENT (CONDITIONALLY) REQUESTED
STATEMENT REGARDING ORAL ARGUMENT
Appellant believes that the Appellant’s Brief, Appellee’s Brief, Clerk’s
Record, and Reporter’s Record will adequately present the facts and legal
arguments involved in this appeal and that oral argument would not
significantly aid the decisional process of this Court. See Tex. R. App. P.
39.1. However, should the Court conclude that oral argument would be
helpful, Appellant stands ready and requests the opportunity to participate.
i
TABLE OF CONTENTS
IDENTITY OF PARTIES AND COUNSEL
The following is a complete list of all parties to the trial court’s final
judgment, as well as the names and addresses of all trial and appellate counsel.
Defendant /Appellant: Counsel for Appellant:
Susan England, now David Junkin
Susan Lee P.O. Box 2910
Wimberley, Texas 78676
Plaintiff /Appellee: Counsel for Appellee:
Janice Kolbe as Jonathan Hull
Guardian of the Estate c/o Reagan Burris PLLC
Of Edna Moon 401 Main Plaza, Suite 200
New Braunfels, TX 78130
ii
TABLE OF CONTENTS
Index of Authorities .................................................................................... vii
Statement of the Case ....................................................................................1
Issues Presented
THE SANCTIONS ORDER
A. Did the Trial Court Err in Entering Death Penalty
Sanctions Against Appellant Because There Was
No Direct Relationship Between the Offensive
Conduct and the Sanction Imposed? ..........................................3
B. Did the Trial Court Err in Entering Death Penalty
Sanctions Against Appellant Because Scope of the
Sanction Order Resulted in an Excessive Penalty? ...................3
C. Did the Trial Court Err in Entering Death Penalty
Sanctions Against Appellant Because the Scope of
The Sanction Order violated Appellant’s Constitutional
Due Process Rights? ...................................................................3
D. In Light of the General Standards for Review of
Death Penalty Sanctions, Did Section 10.001 of
the Texas Civil Practice and Remedies Code Provide
an Additional Appropriate Basis for Death Penalty
Sanctions Against Appellant? ....................................................3
E. In Light of General Standards for Review of Death
Penalty Sanctions, Did Rule 13 TRCP Provide
an Additional Appropriate Basis for Death Penalty
Sanctions Against Appellant? ....................................................3
F. In Light of the General Standards for Review of
Death Penalty Sanctions, Did Rule 215.5 TRCP
Provide an Additional Appropriate Basis for
Death Penalty Sanctions Against Appellant? ............................4
iii
THE FINAL JUDGMENT
G. As to the La Playa, Park Place, RR 12, and
Rest Haven (Lake McQueeney) Properties,
Did the Final Judgment Violate the “One-
Satisfaction” Rule by Granting Appellee a Double
or Even Triple Recovery for Actual Damages,
the Property Itself, and a Constructive Trust? ...........................4
H. Did the Trial Court Err in Imposing a “Constructive
Trust Lien” Against Appellant’s Homestead and
Vehicle Because There Was No Election of Remedies
by Appellee and There is No Evidence or Insufficient
Evidence to Support the Amount of the Constructive
Trusts Set Out in the Final Judgment? .......................................4
I. Does the Final Judgment Improperly Place a Claim
on Appellant’s Homestead? .......................................................4
J. Did the Trial Court Err in Failing to Take Into
Consideration the Specific Allocation of Ownership
in the Joint Account Agreements? .............................................4
K. Did the Trial Court Err in “Setting Aside” and
Declaring “Void and Without Effect” the Gift Deeds
Because There is No or Insufficient Evidence of
Fraudulent Inducement of Those Deeds by Appellant
and the Final Judgment Improperly Clouds Title
of Non-Parties? ...........................................................................4
L. Is the $1,000,000 Punitive Damages Award Excessive
in Light of the Facts and Sanctions Order? ................................4
M. Does the Final Judgment Refer to an Improper
Authority for Assessment of Pre- and Post-
Judgement Interest? ....................................................................4
General Statement of Facts ...........................................................................5
Summary of the Argument ...........................................................................7
iv
Standard of Review ........................................................................................8
Argument
THE SANCTIONS ORDER
A. The Trial Court Erred in Entering Death Penalty
Sanctions Against Appellant Because There is
Not a Direct Relationship Between the Offensive
Conduct and the Sanction Imposed.......................................... 11
B. The Trial Court Erred in Entering Death Penalty
Sanctions Against Appellant Because the Sanction
Order was an Excessive Penalty. ............................................. 16
C. The Trial Court Erred in Entering Death Penalty
Sanctions Against Appellant Because the Scope
of the Sanction Order Violated Appellant’s
Constitutional Due Process Rights........................................... 22
D. In Light of the General Standards for Review
of Death Penalty Sanctions, Section 10.001 of
the Texas Civil Practice and Remedies Code
Does Not Provide an Appropriate Basis for
Death Penalty Sanctions Against Appellant. ........................... 25
E. In Light of the General Standards for Review
of Death Penalty Sanctions, Rule 13 TRCP
Does Not Provide an Appropriate Basis for
Death Penalty Sanctions Against Appellant. ........................... 27
F. In Light of the Foregoing General Standards
for Review of Death Penalty Sanctions,
Rule 215.5 Does Not Provide an Appropriate
Basis for Death Penalty Sanctions Against
Appellant. ................................................................................. 31
v
THE FINAL JUDGMENT
G. The Final Judgment Violated the “One-Satisfaction”
Rule by Granting Appellee a “Double Recovery”
for Actual Damages and the Property Itself. ............................ 32
As to the La Playa and Park Place
Properties....................................................................... 33
As to the RR 12 and Rest Haven
(Lake McQueeney) Properties ..................................... 34
H. The Trial Court Erred in Imposing a “Constructive
Trust Lien” Against Appellant’s Homestead
and Vehicle Because it is Not the Proper
Remedy and There is No Evidence or Insufficient
Evidence to Support the Amount of the
Constructive Trusts Set Out in the Final Judgment. ................ 35
The Constructive Trust on Appellant’s
Homestead for $306,000 is Improper ............................ 37
The Constructive Trust on the Mercedes
Benz for $12,182.36 is Improper .................................. 39
I. The Final Judgment Improperly Places a Claim
on Appellant’s Homestead. ..................................................... 41
J. The Trial Court Erred in Using the Improper
Measure of Damages When the Joint Account
Agreements Specifically Identified the
Allocation of Ownership of Such Joint
Accounts and the Court Did Not Take Into
Consideration the Appellant’s Contractual
Ownership Interest in Those Joint Accounts............................ 42
vi
K. The Trial Court Erred in “Setting Aside” and
Declaring “Void and Without Effect” the
Gift Deeds Because There is No or Insufficient
Evidence of Fraudulent Inducement of Those
Deeds by Appellant and the Final Judgment
Improperly Clouds Title of Non-Parties................................... 44
There is Insufficient Evidence of Fraudulent
Inducement of a Contract .............................................. 44
The Final Judgment Improperly Clouded
Title of Non-Parties ....................................................... 45
L. The $1,000,000 Punitive Damages Award is
Excessive in Light of the Facts and Sanctions Order ............... 47
M. The Final Judgment Refers to an Improper
Authority for Assessment of Pre- and Post-
Judgement Interest .................................................................... 48
Conclusion and Prayer ............................................................................... 48
Certification Regarding Length of Brief .................................................. 49
Certificate of Service .................................................................................. 49
Appendix
Sanctions Order ............................................................................. Tab 1
Final Judgment .............................................................................. Tab 2
Statutes & Rules ............................................................................ Tab 3
Cases .............................................................................................. Tab 4
vii
INDEX OF AUTHORITIES
Authority Page(s)
Case Law
Alejandro v. Robstown ISD,
131 S.W.3d 663 (Tex. App.--Corpus Christi 2004, no pet.) .............. 27
American Flood Research, Inc. v. Jones,
192 S.W.3d 581 (Tex. 2006) .......................................................... 9, 10
Batmanis v. Batmanis,
600 S.W.2d 887 (Tex. Civ. App.—Houston [14th Dist.] 1980,
writ ref’d n.r.e.)................................................................................... 38
Bennett v. Grant,
460 S.W.3d 220 (Tex. App.—Austin 2015, pet. filed) ...................... 47
Birchfield v. Texarkana Memorial Hosp.,
747 S.W.2d 361 (Tex.1987) ............................................................... 32
Brooks v. Northglen Ass’n,
141 S.W.3d 158 (Tex. 2004) .............................................................. 46
Brozynski v. Kerney,
(Tex. App.-Waco Aug. 2, 2006, pet. denied) [unpublished].............. 26
Chrysler Corp. v. Blackmon,
841 S.W.2d 844 (Tex. 1992) ........................................................ 15, 16
Cunningham v. Parkdale Bank,
660 S.W.2d 810 (Tex. 1983) .............................................................. 45
Fairfield Financial Group, Inc. v. Synott,
300 S.W.3d 316 (Tex. App.—Austin 2009, no pet)........................... 41
General Ass'n of Davidian S.D.A. v. General Ass'n, Etc.,
410 S.W.2d 256 (Tex. Civ. App.—Waco 1966,
writ ref’d n.r.e.)................................................................................... 38
viii
GTE Communications Sys. Corp. v. Tanner,
856 S.W.2d 725 (Tex. 1993) ........................................................ 21, 27
Haase v. Glazner,
62 S.W.3d 795 (Tex. 2001) ................................................................ 44
In re Guardianship of Patlan,
350 S.W.2d 189 (Tex. App.—San Antonio 2011, no pet.) ................ 44
Jim Walter Homes, Inc. v. Reed,
711 S.W.2d 617 (Tex. 1986) .............................................................. 42
Karagounis v. Property Co. of Am.,
970 S.W.2d 761 (Tex. App.-Amarillo 1998, pet. denied) .................. 28
Lanfear v. Blackmon,
827 S.W.2d 87 (Tex. Civ. - Corpus Christi 1992,
orig. proceeding)................................................................................. 29
LAN/STV v. Martin K. Eby Constr. Co.,
435 S.W.3d 234 (Tex. 2014) .............................................................. 43
Lone Star Gas Co. v. Childress,
187 S.W.2d 936 (Tex. Civ. App.—Waco 1945, no writ) .................. 46
LTTS Charter School, Inc. v. Palasota,
362 S.W.3d 202 (Tex. App.—Dallas 2012, no pet.) .......................... 35
Mattly v. Spiegel, Inc.,
19 S.W.3d 890 (Tex. App.-Houston [14th Dist.] 2002, no pet.) ......... 26
Mid-South Telecommunications, Co. v. Best,
184 S.W.3d 386 (Tex. App.—Austin 2006, no pet.) ......................... 17
Moody v. Pitts,
708 S.W.2d 930 (Tex. Civ. App.—Corpus Christi 1986,
no writ) ............................................................................................... 37
ix
Moreno v. Sterling Drug, Inc.,
787 S.W.2d 348 (Tex. 1990) .............................................................. 17
Norfolk Southern Railway Co. v. Bailey,
92 S.W.3d 577 (Tex. App.—Austin 2002, no pet.)............................ 14
Overman v. Baker,
26 S.W.3d 506 (Tex. App.--Tyler 2000, no pet.) ............................... 28
R.M. Dudley Constr. Co., Inc. v. Dawson,
258 S.W.3d 694 (Tex. App.—Waco 2008, pet. denied) .................... 26
Saden v. Smith,
415 S.W.3d 450 (Tex. App.--Houston [1st Dist.] 2013,
pet. denied) ......................................................................................... 32
Southern County Mut. Ins. Co. v. First Bank & Trust of Groves,
750 S.W.2d 170 (Tex. 1988) .............................................................. 32
State v. Target Corp.,
194 S.W.3d 46 (Tex. App.—Waco 2006, no pet ) ............................. 31
Stevenson v. Koutzarov,
795 S.W.2d 313 (Tex. App.--Houston [1st Dist.] 1990,
writ denied) ......................................................................................... 32
Sw. Bell Tel. Co. v. DeLanney,
809 S.W.2d 493 (Tex. 1991) ......................................................... 42-43
TransAmerican Natural Gas Corp. v., Powell,
811 S.W.2d 913 (Tex. 1991) ............................................ 10, 22, 23, 31
Wielgosz v. Millard,
679 S.W.2d 163 (Tex. App.—Houston [14th Dist.]
1984, no writ) ..................................................................................... 45
Williams v. Akzo Chemicals,
999 S.W.2d 836 (Tex. App.—Tyler 1999, no pet.)...................... 22, 29
x
Willis v. Donnelly,
118 S.W.3d 10 (Tex. App.—Houston [14th Dist.] 2003),
aff’d in part and rev’d in part on other grounds,
199 S.W.3d 262 (Tex. 2006) ........................................................ 36, 37
W.O. Bankston Nissan v. Walters,
754 S.W.2d 127 (Tex. 1988) .............................................................. 42
Statutes
TEX. BUS. ORG. CODE § 152.101 .................................................................. 30
TEX. CIV. PRAC. & REM. CODE § 10.001 .......................................... 10, 25, 26
TEX. CIV. PRAC. & REM. CODE § 10.005 ................................................ 10, 26
TEX. CIV. PRAC. & REM. CODE § 37.006 ...................................................... 46
TEX. FIN. CODE § 304.003............................................................................. 48
TEX. FIN. CODE § 304.103............................................................................. 48
TEX. PROP. CODE § 41.001 ............................................................................ 41
Other
TEX. R. CIV. P. 13.......................................................................... 8, 10, 27, 28
TEX. R. CIV. P. 39.................................................................................. 4, 6, 47
TEX. R. CIV. P. 56.......................................................................................... 46
TEX. R. CIV. P. 97.......................................................................................... 47
TEX. R. CIV. P. 215.............................................................................. 8, 10, 28
W. Miller, NON-MONETARY RELIEF, EQUITABLE RELIEF ............................. 37
xi
TO THE HONORABLE THIRTEENTH COURT OF APPEALS:
Appellant, Susan England, now Susan Lee, (“Appellant” or “Susan England”)
files this brief asking the Court to reverse the trial court’s entry of death penalty
sanctions against her and reverse the judgment awarding Janice Kolbe, as Guardian
of the Estate of Edna Moon (“Appellee” or “Janice Kolbe”) $1,458,251 in actual
damages and $1,000,000 in punitive damages and imposing constructive trusts.
Appellant respectfully shows:
STATEMENT OF THE CASE
Judgment signed by: The Honorable Gary Steel
Trial Court: 207th Judicial District Court, Hays County, Texas.
The Appellant: Susan England (now Susan Lee)
The Appellee: Janice Kolbe as Guardian of the Estate of Edna Moon
Nature of the Case: Appellant, Susan England (Lee), and Appellee, Janice
Kolbe, are the surviving daughters of Edna and Howard
Moon.1 The underlying nature of the case is the question
of whether or not Appellant misused funds of her mother,
Edna Moon.
Course of Proceedings: The suit was filed on February 23, 2012 by Appellee under
power of attorney. C.R. at 8. On March 12, 2013,
Appellee and Barbara McHale were appointed guardians
1
Another sister, Barbara McHale, died during the course of this proceeding and a
fourth sister, Betty Jane Grossman Bish, died several years before suit was filed and
left a son, Patrick Grossman, who is an heir under Edna Moon’s will.
Appellant’s Brief – Page 1
of the estate and person, respectively, of Edna Moon. On
October 7, 2014, the trial court granted Appellee’s first
motion for sanctions for discovery abuse – primarily for
failing to identify bank account/real property information
– awarding Appellee monetary sanctions of $15,000 plus
an additional $3,000 in attorney’s fees (the “First Sanction
Order”). C.R. at 544 and R.R. Vol. 8 at 54-55. The trial
court also entered an Amended Docket Control Order
setting out various pretrial deadline and setting the matter
for jury trial on January 26, 2015.
In compliance with the Amended Docket Control Order,
on December 19, 2014 the Appellant filed her First
Supplemental Answer and Counterclaim. C.R. at 558.
Appellee sought additional discovery. The trial court was
unable to hear the case on January 26, 2015 and it was
reset for trial on March 9, 2015. C.R. at 846. The trial
court set new deadlines for filing amended pleadings. Id.
Appellant’s expert witness, Michael Turner, was deposed
on January 13, 2015 and Appellant was deposed a second
time on February 4, 2015. C.R. at 928 and 1067.
On February 20, 2015, Appellee filed a second Motion for
Sanctions based primarily on alleged inconsistencies in
Appellant’s testimony and allegations Appellant was
asserting “new” theories or claims. C.R. at 987. This
motion for sanctions was ultimately heard by the trial court
on March 2, 2015.
Trial Court’s Disposition: On March 10, 2015 the trial court signed the Order
Granting Plaintiff’s Motion for Sanctions (the “Sanctions
Order”) entering “death penalty” sanctions against
Appellant including denying the Appellant the right to a
jury trial on the damages issue. C.R. at 1621. The trial
court made it clear the sanctions were entered as a result
of false testimony and not based on Appellee’s allegations
Appellant’s Brief – Page 2
of Appellant asserting a new theory. R.R. Vol. 12 at 116,
lines 14-20.
Also on March 10, 2015, the trial court heard evidence on
Appellee’s claims for damages and entered judgment in
favor of Appellee for, among other things, $1,458,251 in
actual damages, $1,000,000 in punitive damages, and
imposed constructive trusts on accounts, a vehicle, and
Appellant’s homestead (“Final Judgment”). C.R. at 1640.
ISSUES PRESENTED
THE SANCTIONS ORDER
A. Did the Trial Court Err in Entering Death Penalty Sanctions Against
Appellant Because There Was No Direct Relationship Between the
Offensive Conduct and the Sanction Imposed?
B. Did the Trial Court Err in Entering Death Penalty Sanctions Against
Appellant Because Scope of the Sanction Order Resulted in an Excessive
Penalty?
C. Did the Trial Court Err in Entering Death Penalty Sanctions Against
Appellant Because the Scope of the Sanction Order violated Appellant’s
Constitutional Due Process Rights?
D. In Light of the General Standards for Review of Death Penalty Sanctions,
Did Section 10.001 of the Texas Civil Practice and Remedies Code
Provide an Additional Appropriate Basis for Death Penalty Sanctions
Against Appellant?
E. In Light of General Standards for Review of Death Penalty Sanctions,
Did Rule 13 TRCP Provide an Additional Appropriate Basis for Death
Penalty Sanctions Against Appellant?
Appellant’s Brief – Page 3
F. In Light of the General Standards for Review of Death Penalty Sanctions,
Did Rule 215.5 TRCP Provide an Additional Appropriate Basis for Death
Penalty Sanctions Against Appellant?
THE FINAL JUDGMENT
G. As to the La Playa, Park Place, RR 12, and Rest Haven (Lake
McQueeney) Properties, Did the Final Judgment Violate the “One-
Satisfaction” Rule by Granting Appellee a Double or Even Triple
Recovery for Actual Damages, the Property Itself, and a Constructive
Trust?
H. Did the Trial Court Err in Imposing a “Constructive Trust Lien” Against
Appellant’s Homestead and Vehicle Because There Was No Election of
Remedies by Appellee and There is No Evidence or Insufficient Evidence
to Support the Amount of the Constructive Trusts Set Out in the Final
Judgment?
I. Does the Final Judgment Improperly Place a Claim on Appellant’s
Homestead?
J. Did the Trial Court Err in Failing to Take Into Consideration the Specific
Allocation of Ownership in the Joint Account Agreements?
K. Did the Trial Court Err in “Setting Aside” and Declaring “Void and
Without Effect” the Gift Deeds Because There is No or Insufficient
Evidence of Fraudulent Inducement of Those Deeds by Appellant and the
Final Judgment Improperly Clouds Title of Non-Parties?
L. Is the $1,000,000 Punitive Damages Award Excessive in Light of the Facts
and Sanctions Order?
M. Does the Final Judgment Refer to an Improper Authority for Assessment
of Pre- and Post-Judgement Interest?
Appellant’s Brief – Page 4
GENERAL STATEMENT OF FACTS
1. Beginning as early as March of 2000, Howard and Edna Moon gifted
real property to Appellant. By way of a gift deed dated March 3, 2000, Howard and
Edna Moon deeded a lot in the Hunter’s Glen subdivision in Hays County to
Appellant (the “Hunter’s Glen” property). C.R. at 1400. Similarly, by way of a Gift
Deeds dated May 4, 2006, Howard and Edna Moon deeded a property on Ranch
Road 12 in Hays County to Appellant (the “RR 12” property) and property in
Guadalupe County, Texas (the “Rest Haven” property or “Lake McQueeney”
property). Id. at 1434 and 1439 and RR Vol. 15 at 805-12. The RR 12 and Rest
Haven deeds are together referred to herein as the “Gift Deeds.”2 Edna Moon
actively participated in the acquisition of Rest Haven property executing purchase
related documents. Id. at 1409-32. Beginning no later than April 12 of 2000,
Howard Moon, Edna Moon, and Appellant also entered into multi-party bank
accounts with rights of survivorship and allocating ownership of the account in
proportion to net contributions to the account. Id. at 1407; see also id. at 1406
(similar account for Appellant and Edna Moon).
2
The “RR 12” property description is recorded in Vol. 2916, Page 759 of the Official
Public Records of Hays County, Texas and the “Rest Haven” property is described
as Lot 140 and part of 139, Treasure Island Unit 1 in Guadalupe County, Texas.
Appellant’s Brief – Page 5
2. After Howard Moon died, Edna Moon revised her will leaving her
estate to her then living daughters (Appellant, Appellee, and Barbara McHale) and
to the son of her deceased daughter, Patrick Grossman, and acknowledging the debt
owed to her by Appellee. C.R. at 1444 (dated February 27, 2007). Appellant
continued to assisted her mother in the acquisition and disposition of other real
property interests and which have been described in this litigation as the “La Playa”
property and the “Park Place” property. Id. at 1460 and 1475.
3. By September 2008, the Appellee (and Barbara McHale) were making
complaints about the alleged misuse of Edna Moon’s estate to Mr. H.C. Kyle who
was the attorney for Howard and Edna Moon. Id. at 1467. A complaint was made
to Adult Protective Services in the summer of 2009. APS investigated and spoke to,
among others, Edna Moon, Mr. Kyle, and Edna Moon’s caregivers and ruled out
claims of exploitation of Edna Moon by Appellant as “invalid.” Id. at 1488 and R.R.
Vol. 15 at 128. Edna Moon then revised her will which included admonishments
against similar complaints against Appellant by Appellee and Barbara McHale. C.R.
at 1501 (will dated August 12, 2009). Appellee was notified of the change in the
will and the reasons for it by Mr. Kyle. Id. at 1514. Appellee responded to Mr. Kyle
in August 2009 again complaining of Appellant. Id. at 1516.
4. Upon Edna Moon’s return from an extended stay out of state, in
October of 2011 Appellee and Barbara McHale took Edna Moon to another attorney
Appellant’s Brief – Page 6
to “discuss taking over our mother’s financial affairs” and had Edna Moon change
her will and execute a statutory durable power of attorney naming Appellee as the
agent. RR Vol. 15 at 18 and 22. The Appellee then filed this suit in February 2012
alleging assorted causes of action based on alleged misuse of Edna Moon’s funds by
Appellant. In March of 2012, Appellee and Barbara McHale and Edna Moon opened
a multi-party account with rights of survivorship and with ownership in proportion
to net contributions similar to the accounts Edna Moon (and Howard Moon) opened
with Appellant. C.R. at 1521.
5. During the proceeding, the Appellee complained that Appellant would
not provide appropriate information and documents. C.R. at 306, 987. Ultimately,
the trial court agreed and entered the Sanctions Order striking all of Appellant’s
claims and defenses and prohibiting a jury trial. Id. at 1621 [Appendix 1]. The trial
court then held a bench trial solely on the issue of damages without allowing
Appellant to assert any defenses. The trial court then entered the Final Judgment.
Id. at 1640 [Appendix 2]. The trial court also entered its findings of fact and
conclusions of law in support of the Sanctions Order and the Final Judgment. Id. at
1678.
SUMMARY OF THE ARGUMENT
6. The Appellant appeals the Sanctions Order [C.R. at 1621 and
Appendix 1] and Final Judgment [C.R. at 1640 and Appendix 2] arising out of the
Appellant’s Brief – Page 7
Sanctions Order. The Appellant appeals the Sanctions Order as “unjust” because
the Sanctions Order imposed death penalty sanctions against Appellant when there
was no direct relationship between the alleged offensive conduct by the Appellant
and the ultimate scope of the Sanctions Order. The Appellant also appeals the
Sanctions Order because the scope of the Sanctions Order was excessive and
violated Appellant’s constitutional rights in striking all of Appellant’s claims and
defenses. Further, Rules 13 and 215 of the Texas Rules of Civil Procedure and
Chapter 10 of the Civil Practice & Remedies Code do not expand the analysis of
whether the Sanctions Order is “just.”
7_. If this Court upholds the Sanctions Order, the Appellant also appeals
the Final Judgment it is based on the overly broad Sanctions Order and because it
improperly purports to award the Appellee a double or even triple recovery in
violation of the one satisfaction rule. There was no allocation requested or made by
the trial court among multiple causes of action asserted by Appellee and the award
of Appellee’s actual/economic damages. However, with respect to some properties
at issue, the Final Judgment awarded Appellee not only the value of the property,
but also the property itself and, in one case the additional remedy of a constructive
trust against Appellant’s homestead for more than $300,000, resulting in a double or
even triple recovery by Appellee. Further, the damages calculations used for the
constructive trust in the Final Judgment also improperly fail to acknowledge the rule
Appellant’s Brief – Page 8
whereby the first funds taken from a co-mingled accounts are presumed to belong to
the person holding the trust funds.
8. There is insufficient evidence to support setting aside the “Gift Deeds”
from Howard and Edna Moon to Appellant, and by doing so, the Final Judgment
improperly clouds the title of third-parties who were not before the trial court. The
Final Judgment and damages awarded do not take into consideration the contractual
agreement and specific allocation of ownership of funds in, at least some, of the joint
accounts at issue. The punitive damages award in the Final Judgment is also
excessive in light of the facts and the impact of the Sanctions Order.
STANDARD OF REVIEW
9. A trial court’s ruling on a motion for sanctions is reviewed under an
abuse of discretion standard. See e.g., American Flood Research, Inc. v. Jones, 192
S.W.3d 581, 583 (Tex. 2006). The trial court entered findings of fact in support of
the Sanctions Order and Final Judgment. C.R. at 1678. However, in reviewing
sanctions orders, the appellate courts are not bound by a trial court's findings of fact
and conclusions of law and must independently review the entire record to determine
whether the trial court abused its discretion. Id. This Court should review the
appealed portions of the trial court’s judgment under an abuse of discretion standard.
The findings of fact by the trial court should be reviewed on a factual sufficiency
basis – is there sufficient evidence in the record to support the finding.
Appellant’s Brief – Page 9
ARGUMENT
10. Appellant, Susan England (Lee) requests that the Court reverse, reform
and/or render the trial court’s Sanction Order and Final Judgment based on the
following:
THE SANCTIONS ORDER
11. On March 10, 2015 the trial court entered the Order Granting Plaintiff’s
Motion for Sanctions (the “Sanctions Order”). C.R. at 1621 [Appendix 1]. The
Sanctions Order was entered pursuant to Rules 13 and 215 Tex. R. Civ. P., Chapter
10 of the Tex. Civ. Prac. & Rem. Code, and the Court’s inherent power to sanction.
Id. The Court made findings in connection with the Sanctions Order and entered
“death penalty” type sanctions including, striking Appellant’s pleadings, granting a
default judgment on issues of liability to Appellee and on all claims and defenses –
with all facts determined in favor of Appellee, and denying Appellant’s right to a
jury trial. Id. at 1628 [Appendix 1, page 8].
12. While the imposition of sanctions is left to the sound discretion of the
trial court, any sanctions imposed must be "just.” TransAmerican Natural Gas Corp.
v., Powell, 811 S.W.2d 913, 917 (Tex. 1991). There are two general standards for
measuring whether the sanction is “just” -- there must be a direct relationship
between the offensive conduct and the sanction imposed and the sanction must not
be excessive. Am. Flood Research, Inc. v. Jones, 192 S.W.3d 581, 583 (Tex. 2006).
Appellant’s Brief – Page 10
The imposition of very severe sanctions, like the “death penalty” sanctions entered
in this case, is limited, not only by these two overriding standards, but by
constitutional due process. Id. In this case, the trial court erred in entering the death
penalty sanctions against Appellant because: a) there was no direct relationship
between the offensive conduct alleged and the scope of the Sanctions Order, b) the
scope of the Sanctions Order was excessive, and c) the scope of the Sanctions Order
improperly invaded Appellant’s constitutional rights.
A. The Trial Court Erred in Entering Death Penalty Sanctions Against
Appellant Because There is Not a Direct Relationship Between the
Offensive Conduct and the Sanction Imposed.
13. In order to meet her burden of proof in justifying the death penalty
sanctions in this case, the Appellee must show that the conduct of the Appellant is
directly related to the scope of the sanction imposed. In this case, the Appellee
complains primarily of the Appellant’s failure to provide financial information and
her alleged changes in testimony/position. However, the Appellee did not offer any
evidence, and there was no finding by the Court, that anything the Appellant did
effectively prevented the Appellee’s from preparing for trial. On the contrary, the
Appellant, through her expert witness, accountant Mike Turner, accounted for all
expenditures of Edna Moon’s money from 2007 forward until Appellee took over
Edna Moon’s estate. Mr. Turner testified at the sanctions hearing:
Appellant’s Brief – Page 11
Q. (BY MR. JUNKIN) Mr. Turner, were you hired as an
expert witness in this case?
A. Yes.
Q. Approximately when?
A. January or February of 2014.
Q. And did you prepare an initial report in this case on
or about September the 11th of 2014?
A. That is correct.
Q. And is your report primarily responsive to the report
prepared by expert witnesses for the Plaintiff?
A. Yes, that part was primarily responsive.
Q. And that report, as you understand it, was provided
to opposing counsel?
A. I believe so by Mr. Morris and Mr. Wise.
Q. And did you prepare a supplemental report on or about
December 26th of 2014?
A. Yes, I did.
Q. What was the purpose of that supplemental report?
A. It was to go into more depth about the actual use of
the funds. Not just the transfer of the funds but the use.
Q. Was that supplemental report a change of your
original opinion?
A. No, it was just expounding on the information that
had not been provided.
...
Q. (BY MR. JUNKIN) Did your supplemental report
basically expand on your original report?
A. To be as clear as possible, the original report was
not comprehensive from Sol Schwartz, so I took and corrected
and, in fact, added amounts to their report that had been
transferred to Mrs. Moon and then continued forward with the
use and the proceeds of those funds, which I guess could --
could technically be considered supplementing where it went to
a conclusion.
Q. Were you able, in connection with the supplemental
report, to be able to account for the estate of Edna Moon from
back as far as 2007?
A. Yes. I was able to track all of the money that had
come out of the joint account and -- or joint accounts and
Appellant’s Brief – Page 12
where they went into the four categories that I created for
the use of funds and then to ultimately where they were spent.
Q. Are you aware of the implication that that report had
been prepared and was ready as of the date the case was
mediated?
A. Yes, I was.
Q. Are you aware of and participated some in that
mediation; is that correct?
A. Yes, I was there.
Q. And is it true that the report was prepared in
advance of the mediation?
A. No, not at all. I had to work eight-and-a-half hours
Christmas Eve, which was the 24th; I worked about nine hours
on Christmas Day; and then another seven hours to finally
finish it on Friday.
Q. And subsequent to the preparation of that
supplemental report were you deposed?
A. Yes.
Q. And are you aware of any limitations on opposing
counsels' ability to ask you questions?
A. I don't think there was any limitation, no.
Q. And did you explain to them the nature and purpose of
that supplemental report during that deposition?
A. Yes, I did.
RR, Vol. 12, Page 35, line 8 trough Page 36, Line 6; Page 37, Line 11 through Page
38, Line 23. Mr. Turner further testified:
Q. And I think you may have testified to this at the
hearing last week, but have you been able to account for --
going back as far as 2007, have you been able to account for
all of Edna Moon's financial assets as a result of a careful
review of the documentation?
A. Yes. I've been able to ascertain the dollar amounts,
yes.
Appellant’s Brief – Page 13
RR Vol. 14, Page 123, lines 10 – 16.3 In other words, it was Appellant’s expert, Mr.
Turner, who accounted for all of Edna Moon’s estate from approximately 2007
forward and expanded on the scope of the estate described by Appellee’s expert
witness (Sol Schwartz). There was no evidence presented that any record or records
that might identify the scope of Mrs. Moon’s estate was/were not provided.
14. The significance of this is that Appellee never argued or suggested that
she was not able to properly prepare for trial when all of Edna Moon’s estate had
been accounted for as early as September, 2014.4 There was also no evidence of
additional information on the scope of Edna Moon’s estate that Appellee could
produce. As the Texas Supreme Court found:
We do not doubt that a failure to produce documents can prejudice a party's
efforts to assert or defend a claim. But here, there has simply been no showing
that the Garcias are unable to prepare for trial without the additional crash-
test reports they seek. Furthermore, the record fails to demonstrate Chrysler's
ability to produce the missing crash-test reports. There is no evidence in the
record that the missing tests exist or are within Chrysler's possession, custody,
3
See also, R.R. Vol. 15 at 847, 850 -- Defendant’s Exhibit 2 where Mr. Turner
outlined the corrections/changes from his September 11, 2014 report. The trial court
did not exclude this report and relied upon it in determining Appellee’s damages.
See generally, Norfolk Southern Railway Co. v. Bailey, 92 S.W.3d 577, 581 (Tex.
App.—Austin 2002, no pet.) (“In some instances, the change in an expert’s opinion
does not require supplementation. For example, an expert may refine calculations
or perfect a report up until the time of trial. An expert also may change an opinion
without supplementation if the opinion is an ‘expansion of an already disclosed
subject.’”) (citations omitted).
4
Mr. Turner’s initial report was provided to Appellee’s counsel on September 12,
2014 in a supplemental response to request for disclosure. C.R. at 576, 579.
Appellant’s Brief – Page 14
or control, either actual or constructive. A party cannot be penalized for
failure to produce documents under such circumstances.
Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 849-50 (Tex. 1992) (“there was no
direct relationship between the offensive conduct and the sanction imposed, as the
plaintiffs did not show that they were unable to prepare for trial without the test
reports, and the record did not demonstrate Chrysler's ability to produce the test
reports”). There was no showing that all of the available records showing the
expenditures from the accounts at issue were not provided and no argument that the
Appellee could not properly prepare for trial with the information that had been
presented.
15. Further, to the extent that the testimony of Appellee was inconsistent or
even evasive with respect to the use of the funds in the accounts by Appellant vis a
vis Appellee, the Sanctions Order, in striking all of Appellant’s defenses, removed
defenses/claims (limitations, contractual, parol evidence, etc.) that were not
contingent on or did not factually depend on disputes as to the use of the funds. As
discussed in more detail in, for example, paragraphs 17-21, 36 and 37 below, the
scope of the Sanction Order was so broad in striking all of Appellant’s
defenses/claims that there was not a direct relationship between the offensive
conduct alleged and the defenses/claims impacted by the Sanctions Order.
Appellant’s Brief – Page 15
B. The Trial Court Erred in Entering Death Penalty Sanctions Against
Appellant Because the Sanction Order was an Excessive Penalty.
16. “Death penalty sanctions should not be used to deny a trial on the merits
unless the court finds that the sanctioned party's conduct "justifies a presumption
that its claims or defenses lack merit" and that "it would be unjust to permit the party
to present the substance of that position [which is the subject of the withheld
discovery] before the court." Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 850
(Tex. 1992). The trial court found that Appellant was not truthful and changed her
testimony through the course of the proceeding. Rather than exclude Appellant’s
testimony or allow Appellant’s “changes” in testimony to be used for impeachment
or even strike those defenses directly correlated with the changes in testimony, the
trial court entered death penalty sanctions striking all of Appellant’s claims and
defenses.
17. For example, Appellant has a statute of limitations defense. Many of
the allegedly wrongful transactions on which Appellee’s damages were based took
place well over four (4) years before suit was filed in February 23, 2012. C.R. at 8.5
5
For example, the Hunter’s Glen property was gifted to Appellant in March of 2000,
(C.R. at 1400), the Rest Haven property was purchased in April, 2005 (C.R. at 1427),
the RR 12 property was gifted to Appellant in May 2006 (R.R. Vol. 15 at 805), the
Rest Haven Property was gifted to Appellant in May 2006 (R.R. Vol. 15 at 809), the
La Playa property was purchased in October 2007 (C.R. at 1457), and the Hilliard
Road property was purchased in November 2007 (C.R. at 1462). See also, R.R.
Vol. 15 at 862 (timeline in Mr. Turner’s report).
Appellant’s Brief – Page 16
The accrual of Appellee’s causes of action is a question of law, to be determined by
the court and Appellant’s testimony does not turn the question of the accrual of any
asserted claims for limitations purposes into a fact question. See Moreno v. Sterling
Drug, Inc., 787 S.W.2d 348, 351 (Tex. 1990) (“[T]he question when a cause of
action accrues is a judicial one . . . .”); Mid-South Telecommunications, Co. v. Best,
184 S.W.3d 386, 390 (Tex. App.—Austin 2006, no pet.) (“When a cause of action
accrues is a question of law. A cause of action generally accrues at the time when
facts come into existence that authorize a claimant to seek a judicial remedy.”)
(citations omitted). There was no evidence that any action or inaction by Appellant
justifies a presumption that her limitations defenses lack merit. There was no
evidence or insufficient evidence of a direct correlation between the conduct of
Appellant resulting in the sanction prohibiting, for example, her limitations defense.6
18. Similarly, there were original contractual agreements with respect to
the use of the “joint accounts.” See C.R. 1403 (deposition on written questions of
Rosemary Petry, Frost Bank representative).7 The Frost Bank accounts ending in
6
The parol evidence rule and statute of frauds would also tend to prohibit testimony
that contradicts evidence in the recorded gift deeds or the purpose for them. Both
the Gift Deeds to Appellant provide for the consideration for those deeds and
describe the nature of those conveyances.
7
See RR, Vol 14 at 47, Line 17 through page 50, line 8 (admitting into evidence the
documents attached to Appellant’s Summary Response to Plaintiff’s Motion for
Sanctions).
Appellant’s Brief – Page 17
8650 and 9898 were created as multi-party accounts with right of survivorship and
provided that:
The parties to the account own the account in proportion to the parties’ net
contributions to the account. The financial institution may pay any sum in the
account to a party at any time. On the death of a party, the party’s ownership
of the account passes to the surviving parties.
Id. at 1406 and 1407. This agreement was signed by Edna Moon and Appellant for
the account ending in 8650 and initialed by Edna Moon, Howard Moon, and
Appellant with respect to the account ending in 9898. Id.8 The agreement governed
the use and ownership of the account and there is insufficient evidence to change
those terms. The Appellee made no specific claim that those agreements were
fraudulently induced.
19. There also was an Adult Protective Services investigation in July-
August of 2009 that contains evidence rebutting any presumption that may have been
raised by the conduct of Appellant. See C.R. 1485 and R.R. Vol. 15 at 125 (the
“APS Report”). In the APS Report, it is alleged that Appellant was “misusing” Edna
Moon’s funds. Id. at 1489. However, the APS investigator interviewed attorney
H.C. Kyle in August 2009 and noted:
Mr. Kyle explained he has been Howard Moon (deceased) and Edna Moon’s
attorney for years. Mr. Kyle is familiar with Deed of Gift of Lake McQueeney
8
It is interesting to note that the Frost Bank accounts ending in 8381 and 4607
naming Edna Moon and/or Appellee or Barbara McHale and Kolbe were created as
the same kind of account with rights of survivorship. C.R. at 1522.
Appellant’s Brief – Page 18
property, Deed of Gift of Ranch Road 12 property, and Edna Moon’s Last
Will and Testament. Mr. Kyle reports that Barbara and Janice have
complained to him about Ms. England’s mis-management of the client’s
money. Mr. Kyle reports Ms. Moon has not complained about Susan
England’s management of her resources or reported financial abuse.
Id. at 1495. There is no evidence or insufficient evidence that Edna Moon9 was not
aware of what she was doing with respect to signing deeds, prepared by her lawyer,
and in gifting the RR 12 and Rest Haven properties to Appellant. C.R. 1434-42.
20. Further, the investigator reported that: “Client [Edna Moon] states that
Cw should stop harassing Susan England. Client states Susan has always managed
the client’s financial affairs fairly and legally.” Id. at 1497. The allegation of
exploitation of Mrs. Moon by Appellant was found to be “invalid.” Shortly,
thereafter, Mrs. Moon amended her will, again naming Susan England as Executor,
and adding a provision:
In the event my situation is ever again investigated by Texas Adult Protective
Services or similar governmental agency, or in the event charges are ever filed
against my daughter, SUSAN K. ENGLAND, in connection with her handling
of my affairs and which charges do not result in a conviction, or in the even a
civil suit is ever brought by either BARBARA JEANNE McHALE or
JANICE LYNN KOLBE against SUSAN KAY ENGLAND for any reason,
then the disposition and administration of my estate shall be as if BARBARA
JEANNE McHALE AND JANIS LYNN KOLBE had both predeceased me
without issue.”
9
Or, for that matter, that Mr. Moon did not intend to gift the RR 12 and Rest Haven
property to Susan England.
Appellant’s Brief – Page 19
Id. at 1502-03 (Last Will and Testament of Edna Brackett Moon dated Aug. 12,
2009). At the request of Edna Moon, Mr. Kyle also notified Appellee of the change
in the will. C.R. at 1514.
21. There is additional evidence that Edna Moon was aware of what was
happening with respect to purchases of real property. For example, Mrs. Moon
signed closing documents for the purchase of the Rest Haven property. See e.g., CR
1418, 1419, and 1421. Even Tom Huth testified that:
Q. When we took your deposition, you mentioned
that you thought that Susan was a nice person but that
she had done some things wrong, that she needed to
correct that. Could you elaborate on what you think it
is that she has done wrong.
A. I -- I feel that she's just taken advantage of
her mother and all her money on there. I think that she
just needs to, you know, fess up and say, "Okay. Let's
settle this all out. Let's give all this money back.
It's all supposed to be split up four ways." And that
was Morn's -- and her dad's plan. And that's the way --
that's the way it should be.
And I think that she's used up a -- these
assets of her morn and her dad, and she used them for her
own personal use or for buying her houses and stuff, or
used them under the guise that Mom is really, you know,
the owner of these things. And without Mom's money or
-- and her dad's money, none of this would have -- could
have occurred. So -- and she needs to -- you know, I
said, "Mom intended" -- whenever Mom gave her any of
this money, she -- Mom -- in fact, Edna always had told
me this too, she said, "All this money that's going into
all this stuff that I've invested in with Susan is
basically for the" -- and it wasn't so much an
investment with -- with Susan, it was an investment for
Appellant’s Brief – Page 20
Edna, and it was supposed to be split up four ways to
all the heirs after Mom's death, if she didn't spend it
first.
CR 1542 at 1544-45.
22. There is no evidence or insufficient evidence that conduct complained
of by the Appellee justified a presumption that Appellant’s claims or defenses
relating to Mrs. Moon’s knowledge of the uses of funds in issue lack merit. At a
minimum, if such a presumption could arise, there is ample evidence outside of
Appellant’s testimony to rebut any such presumption.
23. The Appellant acknowledges that the trial court was not required to
actually impose lesser sanctions10 and that the Sanctions Order includes findings
indicating that the trial court did consider lesser sanctions and imposed a lesser
sanction in the First Sanction Order. However, there is no or insufficient evidence
that the sanction entered in the First Sanction Order was not effective. There was
sufficient information from Appellant to allow for a full accounting of all of the
10
As the Texas Supreme Court explained in GTE Communications Sys. Corp. v.
Tanner, 856 S.W.2d 725 (Tex. 1993):
We reaffirmed our TransAmerican holding in GTE, specifically noting that a
trial court was required to consider the availability of lesser sanctions before
imposing death penalty sanctions. Under this standard, the trial court need not
test the effectiveness of each available lesser sanction by actually imposing
the lesser sanction on the party before issuing the death penalty; rather, the
trial court must analyze the available sanctions and offer a reasoned
explanation as to the appropriateness of the sanction imposed.
Appellant’s Brief – Page 21
accounts in issue by Mr. Turner after the First Sanctions Order. While the Sanctions
Order does make specific findings/references to prior “admonitions” from the trial
court to Appellant and attaches some significance to them in connection with
attempts at lesser sanctions,11 admonitions are not sanctions. Williams v. Akzo
Chemicals, 999 S.W.2d 836, 843 (Tex. App.—Tyler 1999, no pet.) (“Although the
CMO [case management order] included a warning that noncompliance would result
in dismissal, neither a threat to sanction, without more, nor the intent to sanction, is
a sanction. . . . The CMO is not a sanction. It is an order and a threat.”). Any alleged
failure to comply with admonitions from the Court is no evidence or insufficient
evidence of an unwillingness to comply with a sanctions order. There is no or
insufficient evidence that Appellant failed to comply with the First Sanction Order.
C. The Trial Court Erred in Entering Death Penalty Sanctions Against
Appellant Because the Scope of the Sanction Order Violated Appellant’s
Constitutional Due Process Rights.
24. The entry of death penalty sanctions also implicates the sanctioned
party’s constitutional due process rights. As the Texas Supreme Court discussed in
TransAmerican: “When a trial court strikes a party's pleadings and dismisses its
action or renders a default judgment against it for abuse of the discovery process,
the court adjudicates the party's claims without regard to their merits but based
11
See e.g., C.R. at 1621 (paragraph 2) and 1627 (paragraph 48); see also RR Vol.
12, page 116, lines 21-23.
Appellant’s Brief – Page 22
instead upon the parties' conduct of discovery.” TransAmerican Natural Gas Corp.
v. Powell, 811 S.W.2d 913, 918 (Tex. 1991). Because of that, the Texas Supreme
Court noted:
[T]here are constitutional limitations upon the power of courts, even in aid of
their own valid processes, to dismiss an action without affording a party the
opportunity for a hearing on the merits of his cause.
Id. (citations omitted). Because of the underlying due process issues, “[d]iscovery
sanctions cannot be used to adjudicate the merits of a party's claims or defenses
unless a party's hindrance of the discovery process justifies a presumption that its
claims or defenses lack merit.” Id. However, if a party refuses to produce material
evidence, despite the imposition of lesser sanctions, the court may presume that an
asserted claim or defense lacks merit and dispose of it. Id.
25. As discussed above, Appellee did present evidence sufficient to allow
for an accounting of all the accounts in issue from 2007 until the Appellee took over
Edna Moon’s accounts. While punishment and deterrence are legitimate purposes
for sanctions, they do not justify trial by sanctions. TransAmerican, 811 S.W.2d at
918. Sanctions which are so severe as to preclude presentation of the merits of the
case should not be assessed absent a party's flagrant bad faith or counsel's callous
disregard for the responsibilities of discovery under the rules. Id. As further
discussed above, there is ample evidence supporting claims and defenses of the
Appellant and such claims are not meritless.
Appellant’s Brief – Page 23
26. The Appellee did not establish that any evidence with respect to the
accounts was withheld by Appellant sufficient to justify a presumption that all of her
claims and defenses lacked merit. The Appellee did not produce any evidence of
information about the accounts that was withheld after the trial court’s First
Sanctions Order. There is insufficient evidence that the alleged misconduct of the
Appellant justifies a presumption that all of her claims and defenses are without
merit and death penalty sanctions should not have been used to deny the Appellant
a trial on the merits.
27. There are references in the Sanctions Order to selling property and
using money to pay fees and for Appellant’s own purposes. See e.g., CR 1624 and
1626, paragraphs 20, 21, 22, 23, and 36). There are also references to Appellant
providing false deposition testimony. Id. at 1623, paragraph 12. However, there is
no legal basis – no order, statute, rule, etc. – to authorize the trial court’s imposition
of sanctions for this conduct and it should not have been taken into consideration in
connection with entering the Sanctions Order.12 It was a violation of Appellant’s
due process rights for the trial court to have relied on this conduct as a basis for the
Sanctions Order.
12
See e.g., paragraph 23 above.
Appellant’s Brief – Page 24
28. Accordingly, in striking all of the Appellant’s claims and defenses and
prohibiting a jury trial, the scope of the Sanctions Order violates the Appellant’s due
process right to presentation of the merits of her claims and defenses.
D. In Light of the Foregoing General Standards for Review of Death Penalty
Sanctions, Section 10.001 of the Texas Civil Practice and Remedies Code
Does Not Provide an Appropriate Basis for Death Penalty Sanctions
Against Appellant.
29. Section 10.001 of the Texas Civil Practice & Remedies Code provides
for imposition of sanctions in connection with the signing of pleadings and motions.
Section 10.001 provides:
The signing of a pleading or motion as required by the Texas Rules of Civil
Procedure constitutes a certificate by the signatory that to the signatory's best
knowledge, information, and belief, formed after reasonable inquiry:
(1) the pleading or motion is not being presented for any improper
purpose, including to harass or to cause unnecessary delay or needless
increase in the cost of litigation;
(2) each claim, defense, or other legal contention in the pleading or
motion is warranted by existing law or by a nonfrivolous argument for
the extension, modification, or reversal of existing law or the
establishment of new law;
(3) each allegation or other factual contention in the pleading or motion
has evidentiary support or, for a specifically identified allegation or
factual contention, is likely to have evidentiary support after a
reasonable opportunity for further investigation or discovery; and
(4) each denial in the pleading or motion of a factual contention is
warranted on the evidence or, for a specifically identified denial, is
reasonably based on a lack of information or belief.
TEX. CIV. PRAC. & REM. CODE §10.001.
Appellant’s Brief – Page 25
30. In connection with the imposition of sanctions under Chapter 10, the
party moving for sanctions must prove the pleading party's subjective state of mind.
Brozynski v. Kerney, (Tex. App.--Waco Aug. 2, 2006, pet. denied), citing, Mattly v.
Spiegel, Inc., 19 S.W.3d 890, 896 (Tex. App.--Houston [14th Dist.] 2002, no pet.).
The movant must show, and the court must describe and explain, that the pleading
was filed for the improper purpose of harassment. See TEX. CIV. PRAC. & REM.
CODE ANN. § 10.001(1); § 10.005 ("A court shall describe in an order imposing a
sanction under this chapter the conduct the court has determined violated Section
10.001 and explain the basis for the sanction imposed."). The Appellee, as the
movant for sanctions, had the burden of proving violations of sections 10.001(1) and
10.001(3). R.M. Dudley Constr. Co., Inc. v. Dawson, 258 S.W.3d 694, 709 (Tex.
App.—Waco 2008, pet. denied).
31. Under § 10.001(3), the applicable standard is whether, to the signatory's
best knowledge, information, and belief, formed after reasonable inquiry, each
allegation or other factual contention in a pleading has evidentiary support or, for a
specifically identified allegation or factual contention, is likely to have evidentiary
support after a reasonable opportunity for further investigation or discovery. TEX.
CIV. PRAC. & REM.CODE ANN. § 10.001(3).
32. The Sanctions Order in this case does not identify with particularity the
specific motion or pleading the trial court found violated §10.001 or the Appellant’s
Appellant’s Brief – Page 26
role in the filing of such pleading or motion. There is insufficient evidence that
Appellant caused any pleading or motion to be filed for the purpose of harassment.13
As discussed in detail infra, there is evidence of factual support for Appellant’s
claims and defenses.
E. In Light of the Foregoing General Standards for Review of Death Penalty
Sanctions, Rule 13 TRCP Does Not Provide an Appropriate Basis for
Death Penalty Sanctions Against Appellant.
33. Rule 13 directs a trial court to presume that a pleading was filed in good
faith. TEX. R. CIV. P. 13; GTE Communications Systems Corp. v. Tanner, 856
S.W.2d 725, 731 (Tex. 1993). “Thus, the burden is on the party moving for sanctions
to overcome this presumption." Id. Rule 13 provides:
The signatures of attorneys or parties constitute a certificate by them that they
have read the pleading, motion, or other paper; that to the best of their
knowledge, information, and belief formed after reasonable inquiry the
instrument is not groundless and brought in bad faith or groundless and
brought for the purpose of harassment. Attorneys or parties who shall bring a
fictitious suit as an experiment to get an opinion of the court, or who shall file
any fictitious pleading in a cause for such a purpose, or shall make statements
in pleading which they know to be groundless and false, for the purpose of
securing a delay of the trial of the cause, shall be held guilty of a contempt. If
a pleading, motion or other paper is signed in violation of this rule, the court,
upon motion or upon its own initiative, after notice and hearing, shall impose
13
A trial court must hold an evidentiary hearing to make the necessary factual
determinations about the party's or attorney's motives and credibility. Alejandro v.
Robstown ISD, 131 S.W.3d 663, 670 (Tex. App.--Corpus Christi 2004, no pet.). The
pleading alone cannot establish that the represented party or its attorney brought their
case in bad faith or to harass.
Appellant’s Brief – Page 27
an appropriate sanction available under Rule 215-2b, upon the person who
signed it, a represented party, or both.
Courts shall presume that pleadings, motions, and other papers are filed in
good faith. No sanctions under this rule may be imposed except for good
cause, the particulars of which must be stated in the sanction order.
"Groundless" for purposes of this rule means no basis in law or fact and not
warranted by good faith argument for the extension, modification, or reversal
of existing law. A general denial does not constitute a violation of this rule.
The amount requested for damages does not constitute a violation of this rule.
TEX. R. CIV. P. 13.
34. In determining whether a party conducted a reasonable inquiry, the
facts and evidence available to the party and the circumstances existing when the
party filed the pleading must be examined. See Karagounis v. Property Co. of Am.,
970 S.W.2d 761, 764 (Tex. App.--Amarillo 1998, pet. denied) ("the circumstances
pivotal to the determination of whether sanctions should issue are those in existence
at the time the pleading in question was signed and filed. Sanctions for frivolous or
groundless pleadings do not apply to the pursuit of an action later determined to be
groundless after pleadings were filed. Overman v. Baker, 26 S.W.3d 506, 509 (Tex.
App.--Tyler 2000, no pet.); Karagounis, 970 S.W.2d at 764 (Rule 13 "says nothing
about levying sanctions if one pursues an action or pleading thought legitimate when
filed but subsequently found baseless.").
35. The Sanctions Order in this case does not specifically identify the
motion or pleading the trial court found violated Rule 13 or the Appellant’s role in
Appellant’s Brief – Page 28
the filing of such an improper motion or pleading. As discussed herein, there are
sufficient facts to support Appellant’s claims/defenses. However, the Sanctions
Order refers to discovery responses and an affidavit filed in support of removing a
lis pendens claim as documents signed by Appellant and forming part of the basis of
the Sanctions Order.
36. As to the discovery responses, the trial court found the responses were
unreasonably frivolous, made for the purpose of delay, groundless, brought in bad
faith, and evasive. However, those findings alone are not necessarily sufficient to
support a finding that Appellant’s claims and defenses lacked merit or to justify entry
of death penalty sanctions. See Lanfear v. Blackmon, 827 S.W.2d 87, 90-91 (Tex.
Civ. App.--Corpus Christi 1992, orig. proceeding) (“That the answers were
incomplete or intentionally evasive is not such an obstruction of discovery to justify
the conclusion that the claim or defense lacked merit without more. The ‘crime’ did
not justify the punishment. The trial court abused its discretion by striking Lanfear's
pleadings in its first sanction order.”); see also Williams v. Akzo Chemicals, 999
S.W.2d 836, 843 (Tex. App.—Tyler 1999, no pet.) (“That their original answers
were incomplete or even intentionally evasive is not such an obstruction of discovery
to justify the conclusion that their claims lacked merit without more.”). No specific
discovery responses were identified in the Sanctions Order as lacking merit.
Appellant’s Brief – Page 29
37. As to the affidavit made in connection with lifting the Lis Pendens,
Appellant testified that Edna Moon “has never had any ownership interest” in the La
Playa property or the Hilliard Road property. CR at 58. The Sanctions Order makes
a finding that Appellant lied in making that statement. CR at 1623 (paragraph 11).
Both of these properties were, at one time, held in the name of Appellant. See CR
1457 and 1462. There is no evidence that either of these properties was ever deeded
to, or otherwise titled in the name of, Edna Moon. Additionally, part of Appellee’s
argument for sanctions was that Appellant “changed” her story to allege a “silent
partnership.” While Appellant denies there was a partnership relating to these two
(2) properties, if there was, Appellant would be correct that Appellee (and Appellant)
had no ownership interest in these properties. See TEX. BUS. ORG. CODE §152.101
(“Partnership property is not the property of the partners.”). While Appellant’s
intent behind the statement may differ from its technical legal veracity, it is clear
that the trial court did not rely on that statement in expunging the Lis Pendens. See
CR at 67 (the court struck out two findings relating to Appellee’s claim to the real
property but went ahead and expunged the lis pendens because Appellee did not
provide proper service of the required notice). The intent behind Rule 13 does not
justify the imposition of death penalty sanctions for the statement in the affidavit,
particularly when it was disregarded by the trial court in expunging the lis pendens.
Appellant’s Brief – Page 30
F. In Light of the Foregoing General Standards for Review of Death Penalty
Sanctions, Rule 215.5 Does Not Provide an Appropriate Basis for Death
Penalty Sanctions Against Appellant.
38. Before a court may deprive a party of its right to present the merits of
its case because of discovery abuse, it must determine that a party's hindrance of the
discovery process justifies a presumption that the party’s claims lack merit.
TransAmerican, 811 S.W.2d at 918. As discussed above, there was no direct
correlation made between any conduct by Appellant in connection with responding
to discovery that would lead to a presumption that all of Appellant’s claims and
defenses lacked merit.
39. For all the reasons set out hereinabove, the trial court erred in striking
all of Appellant’s claims and defenses because: a) there was no direct relationship
between the allegedly offensive conduct by Appellant and the scope of the Sanctions
Order, b) the scope of the Sanctions Order was excessive, and c) the scope of the
Sanctions Order improperly invaded Appellant’s constitutional rights. See State v.
Target Corp., 194 S.W.3d 46, 52 n.6 (Tex. App.—Waco 2006, no pet.) (“We do
note, however, that authority supports the State's position that a due process analysis
under TransAmerican Nat. Gas Corp. v. Powell, 811 S.W.2d 913 (Tex. 1991), is
appropriate when application of the discovery rules results in merits-preclusive or
death-penalty sanctions”).
Appellant’s Brief – Page 31
THE FINAL JUDGMENT14
G. The Final Judgment Violated the “One-Satisfaction” Rule by Granting
Appellee a “Double Recovery” for Actual Damages and the Property
Itself.
40. It is well-established law that a plaintiff may not recover the same
actual damages twice under alternative causes of action or remedies. See e.g.,
Southern County Mut. Ins. Co. v. First Bank & Trust of Groves, 750 S.W.2d 170,
173-74 (Tex. 1988); Birchfield v. Texarkana Memorial Hosp., 747 S.W.2d 361, 367
(Tex. 1987); Stevenson v. Koutzarov, 795 S.W.2d 313, 322 (Tex. App.--Houston [1st
Dist.] 1990, writ denied). The plaintiff is required to segregate or allocate economic
damages among any of the different causes of action asserted to avoid violation of
the one satisfaction rule. See e.g., Saden v. Smith, 415 S.W.3d 450, 469 (Tex. App.-
-Houston [1st Dist.] 2013, pet. denied) (“In sum, Smith demonstrated his entitlement
to a unified recovery for one broadly described injury with one damages model
sponsored by accountant Shields. Accordingly, Smith failed to justify separate
awards for alternate theories of liability, as the theories as presented at trial did not
depend on separate and distinct injuries resulting in separate and distinct damages.
14
For the reasons set out above, the Appellant also appeals the entry of the Final
Judgment based on the striking of Appellant’s pleadings, claims, and defenses in
the Sanctions Order. However, if this Court finds the Sanctions Order is proper,
the Appellant appeals the Final Judgment for the reasons set out below.
Appellant’s Brief – Page 32
Under such circumstances, allowing the recovery of actual damages for both breach
of contract and breach of fiduciary duty violates the one-satisfaction rule, and is
therefore error.”) (citations omitted).
41. The trial court entered judgment based on calculations and accounting
information primarily presented by Appellant’s expert witness, Michael Turner,
CPA. See C.R. 1699 (the trial court’s actual damages calculations) and R.R., Vol.
15 at 312-17 (portions of Mr. Turner’s revised supplemental report [2/5/15]). Those
actual economic damage calculations do not segregate or allocate economic damages
among any of the different causes of action asserted by Appellee and preclude
Appellee from now allocating damages among her causes of action. Because of that,
those damages calculations also reflect violations of the one satisfaction rule and an
improper double/triple recovery for Appellee.
La Playa and Park Place Properties
42. The first entry on the trial court’s damages calculations (C.R. at 1699)
reflects an amount of $683,394 (less $5,410) as “Funds from Edna spent by
England.” C.R. at 1699. That amount includes the funds for the purchase of the “La
Playa” (“LP”) and “Park Place” (“PP”) properties. See R.R., Vol. 15 at 313 and 315.
However, the next entry on the judgment calculation sheet includes additional actual
damages of sale proceeds from the sale of those two properties – described as the
“Cash Out at Sale” on Mr. Tuner’s report. Id. at 315. Both of these properties sold
Appellant’s Brief – Page 33
at a net loss. So, the Final Judgment awarded the Appellee not only the money used
to purchase the properties, but also the proceeds from the sale of the properties which
necessarily would have included the funds to purchase the properties – especially
when the properties sold at a loss. There was no evidence or insufficient evidence
of the market value of the properties at the time they were sold and no evidence that
more than market value was paid at the time of the purchase of those properties.
Awarding the Appellee all of the fund used to purchase the property and the sale
proceeds, when the properties sold at a loss, is not a proper measure of damages and
amounts to an improper double recovery.
RR 12 and Rest Haven (Lake McQueeney) Properties
43. The Final Judgment also includes an award of actual damages of
$338,631 for the sale proceeds from the RR 12 property and $96,524 for the sale
proceed from the Rest Haven property. C.R. 1699. However, the Final Judgement
went on to award Appellee the properties themselves by declaring the Gift Deeds
“set aside . . . void and without effect.” C.R. 1641. There was no showing by the
Appellee that the sales price for the properties was under or less than market value.
The Final Judgment awards the Appellee not only the market value of the properties,
but also the properties themselves. Accordingly, in awarding both the sales price
and voiding the Gift Deeds, the Final Judgment improperly grants the Plaintiff a
double recovery and violates the one satisfaction rule.
Appellant’s Brief – Page 34
44. Despite the plain language of the Gift Deeds and the statute of frauds
and parol evidence rule that would tend to prohibit testimony that the deeds of these
properties were not “gifts” to Appellant, the Appellee pled that Appellant
represented that she would “hold title in a nominee/agency capacity for the benefit
of . . . [Edna Moon’s] other daughters and grandson Patrick.” C.R. 1588 (page 8 of
Plaintiff’s Fifth Amended Original Petition). However, to the extent that the
Appellant was holding these assets in trust for beneficiaries (including herself) there
was no evidence of any limits placed on Appellant’s management of such trust assets
or that she not would have all rights and powers granted to a trustee under the Texas
Property Code (Texas Trust Code).15 If there was no trust relationship created, but
the transfer was not intended as a gift, the Appellee, in her representative capacity,
lacks standing to bring an action for recovery of property held for the purported
benefit of other persons.
H. The Trial Court Erred in Imposing a “Constructive Trust Lien” Against
Appellant’s Homestead and Vehicle Because it is Not the Proper Remedy
and There is No Evidence or Insufficient Evidence to Support the
Amount of the Constructive Trusts Set Out in the Final Judgment.
45. “Imposition of a constructive trust is not a cause of action, but rather an
equitable remedy.” LTTS Charter School, Inc. v. Palasota, 362 S.W.3d 202, 209
(Tex. App.—Dallas 2012, no pet.). Effectively, the Final Judgment awards the
15
See Chapters 112, 113, 114, and 115 of the Texas Property Code.
Appellant’s Brief – Page 35
Appellee a double recovery for the La Playa property and triple recovery for the RR
12 property – the sales proceeds from the sale of the RR 12 and La Playa properties,
the RR 12 property itself, and a constructive trust for the RR 12 sale proceeds. The
Final Judgment does not allocate actual damages for any particular cause of action
and there was no election of remedies. Appellee is not entitled to a combined
recovery of actual economic damages under each of her alleged claims
46. For example, in Willis v. Donnelly, the 14th Court of Appeals was faced
with the impact of a constructive trust remedy when actual damages were awarded.
The Willis court found:
Lastly, appellants argue that the constructive trust triples Donnelly's
recovery. Donnelly concedes that the constructive trust duplicates the money
judgment and seeks remand for an election of remedies. "A party who seeks
redress under two or more theories of recovery for a single wrong must elect,
before the judgment is rendered, under which remedy he wishes the court to
enter judgment." If the prevailing party fails to elect a remedy, the trial court
should render a judgment affording the greater recovery. If the trial court fails
to do so, generally, we will reform the judgment to effect such an election.
See id.
However, appellate courts sometimes remand a case for an election of
remedies. We remand the constructive trust in this case for two reasons. First,
the portion of the constructive trust imposed upon 50% of URB stock and 10%
of WHE stock duplicates recovery for breach of contract, which we have
reversed and remanded. Thus, the constructive trust on the URB and WHE
stock is also reversed and remanded. Second, we are unable to determine
which remedy for breach of fiduciary duty (the money damages or the
constructive trust on the realty) provides a greater recovery. Accordingly, we
remand for an election of remedies for breach of fiduciary duty.
Appellant’s Brief – Page 36
Willis v. Donnelly, 118 S.W.3d 10, 43-44 (Tex. App.—Houston [14th Dist.] 2003),
aff’d in part and rev’d in part on other grounds, 199 S.W.3d 262 (Tex. 2006)
(citations omitted). In this case the Final Judgment does not reflect an election of
remedies by the Appellee and improperly purports to allow for the recovery of actual
damages in addition to a constructive trust.16
The Constructive Trust on Appellant’s Homestead for $306,000 is Improper
47. If this Court finds a constructive trust is the proper remedy, the Final
Judgement purports to impose a constructive trust in the specific amount of $306,000
on Appellant’s homestead at 4919 West Frances Place in Austin. C.R. 1641 (page
2 of Final Judgment) and C.R. 1685 (findings of fact, paragraph 53). Based on the
evidence before the court, the amount of the constructive trust is incorrect and
therefore there is insufficient evidence to support it.
48. When “trust” funds are commingled with personal funds and funds are
drawn out, it is presumed that the first funds drawn out were personal funds. See
e.g., Moody v. Pitts, 708 S.W.2d 930, 937 (Tex. Civ. App.—Corpus Christi 1986,
16
See generally W. Miller, NON-MONETARY RELIEF, EQUITABLE RELIEF, Article for
State Bar of Texas 7th Annual Damages in Civil Litigation, page 2 (February 26-27,
2015) (“Where multiple causes of action are asserted at trial, if the verdict is returned
favorably to the plaintiff, they must elect their remedy. Often the imposition of the
constructive trust can be a viable option, but the plaintiff will usually have to forgo
any damages that may be awarded. Counsel will have to evaluate both the benefits
and consequences of electing the most favorable remedy.”).
Appellant’s Brief – Page 37
no writ) (“When a trustee has commingled funds and has expended funds, the money
expended is presumed to be the trustee's own.”); Batmanis v. Batmanis, 600 S.W.2d
887, 890 (Tex. Civ. App.—Houston [14th Dist.] 1980, writ ref’d n.r.e.) (“And where,
as here, the trustee comingles trust money with his own and money is expended, it
will be presumed that his own money is expended first”); General Ass'n of Davidian
S.D.A. v. General Ass'n, Etc., 410 S.W.2d 256, 259 (Tex. Civ. App.—Waco 1966,
writ ref’d n.r.e.). The Final Judgment does not take into account this rule of law and
the presumption was not rebutted by Appellee.
49. The evidence from Appellee suggests that $100,452.53 was deposited
into account 8533 from the sale of the La Playa property and then, the next day,
$100,000 was transferred into the 8739 account. R.R. 15 at 748-49. The balance of
the 8533 account just before the transfer was $103,994.76 of which $100,452.53 was
from the sale of the La Playa property and the balance, $3,542.23, were Appellant’s
funds. Because of the foregoing rule, the first $3,542.23 transferred to the 8739
account was Appellant’s and only the balance of $96,457.77 in the $100,000 transfer
could be attributable to the La Playa sale. As to the 8739 account, there is
insufficient evidence to support the trial court’s finding that a “[c]onstructive trust
of $100,000 results [sic] at this time. July 2013.” C.R. at 1685.
50. Several months later, $188,244.59 was transferred into the 8533
account from the sale of Appellant’s former homestead at 331 Hunter’s Glen in San
Appellant’s Brief – Page 38
Marcos, Texas – the Hunter’s Glen property – and the next day, $188,000 was
transferred to the 8739 account. Id. at 752-53. The trial court’s findings
acknowledge that the $188,000 was proceeds from the sale of Appellant’s property.
When the $201,000 was transferred out of the 8739 account for the purchase of
Appellant’s home at 4919 West Frances Place in Austin, the balance in the 8739
account was $278,008.89. Id. at 760 (balance on July 2 was $77,008.89 after the
$201,000 withdrawal). Using the rule referred to above, of the $201,000 paid for
the West Frances Place home, $188,000 was Appellant’s and only $13,000 could be
attributable to the sale of the La Playa property.
51. Even if the court were to find that the RR 12 property was not a gift and
that a constructive trust should be applied to the proceeds from the sale of that
property, the $206,007.09 that could be attributable to the sale of the RR 12 property
taken together with the $13,000 traceable as proceeds from the sale of the La Playa
property – a total of $219,007.09 – does not support a constructive trust in the
amount of $306,007.09.
The Constructive Trust on the Mercedes Benz for $12,182.36 is Improper
52. As discussed in paragraph 48 above, with respect to “commingled”
accounts, it is presumed that the first funds drawn out were personal funds. The trial
court found that in September 2012, a deposit of $55,752.81 was made into account
8533. C.R. at 1685. From the evidence this appears to be a typographical error
Appellant’s Brief – Page 39
because on August 31, 2012 $50,752.81 was deposited into account 8533. RR Vol.
15 at 739. The trial court found this deposit was attributable to the sale of the Park
Place property. Id. The records do reflect a transfer of $55,000 to account 8739 on
September 4, 2012. Id. at 740-41. However, after the transfer of the $55,000 on
September 4, the balance of the 8533 account was $7,567.94, meaning that under
the first out rule, the most of the $50,752.81 proceeds from the sale of the Park Place
property that could have been transferred to the 8739 account was $43,184.8717 and
therefore remaining $11,815.13 out of the $55,000 was attributable to Appellant’s
funds. Id. at 739.
53. The balance in the 8739 account just before the time of the $55,000
deposit was $10,421.53 [Id. at 741 (September 4, 2012 daily balance of $65,421.53
less $55,000 transferred)] and after the deposit the amount in that account
attributable to Appellant was $22,236.66.18 The evidence shows that between the
deposit on September 4, 2012 and the payment made to Mercedes Benz Financial
on September 9, 2012 in the amount of $12,182.36, the balance in the 8739 account
exceeded the amount attributable to the proceeds from the sale of the Park Place
property by more than the payment to Mercedes Benz Financial and, under the first
17
$50,752.81 - $7,567.94.
18
The sum of $11,815.13 and $10,421.53.
Appellant’s Brief – Page 40
out presumption, establishes that funds separately attributable to Appellant were
used to make the payment to Mercedes Benz.
54. There is insufficient evidence to support the trial court’s finding that a
“[c]onstructive trust of $12,182.36 [was] created” or that there was “no evidence by
[Appellant] that funds other than Edna Moon’s funds were used for this payoff.”
C.R. at 1685-86. The record itself establishes that the imposition of such
constructive trust in the Final Judgment is improper under the first out rule.
I. The Final Judgment Improperly Places a Claim on Appellant’s
Homestead.
55. “Constitutional homestead rights protect citizens from losing their
homes, and statutes relating to homestead rights are liberally construed to protect the
homestead.” Fairfield Financial Group, Inc. v. Synott, 300 S.W.3d 316, 320 (Tex.
App.—Austin 2009, no pet). A homestead is exempt from seizure for the claims of
creditors except for encumbrances properly fixed on homestead property. TEX. PROP.
CODE § 41.001(a). As this Court has further noted in Fairfield, the Property Code
lists the types of encumbrances that may be properly fixed upon homestead property,
which includes purchase money liens. Id. § 41.001(b)(1). Based on the foregoing,
even if there is evidence in this case warranting imposition of a constructive trust
based on a purchase money type lien, the scope of the purchase money used for the
Appellant’s homestead has not been properly established and therefore the
Appellant’s Brief – Page 41
“constructive trust lien” imposed on Appellant’s homestead in the Final Judgment is
improper.
56. In addition, the RR 12 property was a gift to Appellant and there is
insufficient proper evidence to set that conveyance aside and to impose a
constructive trust on the proceeds from the sale of that property. Accordingly, for
this additional reason the constructive trust of $206,007.09 against Appellant’s
homestead is improper.
J. The Trial Court Erred in Using the Improper Measure of Damages When
the Joint Account Agreements Specifically Identified the Allocation of
Ownership of Such Joint Accounts and the Court Did Not Take Into
Consideration the Appellant’s Contractual Ownership Interest in Those
Joint Accounts.
57. The Appellee had the burden to establish the proper measure of
damages. See generally, W.O. Bankston Nissan v. Walters, 754 S.W.2d 127, 128
(Tex. 1988) (“Walters' burden of proof in this case was to show either the difference
between the fair market value of the pickup as delivered and the value of the truck
as it was represented; or the difference in value between that with which he parted
and that which he received. He did neither. Walters had the burden of requesting
jury issues on the proper measure of damages. Having failed to do so, his cause of
action must fail.”). Further, “[w]hen the injury is only the economic loss to the
subject of a contract itself, the action sounds in contract alone." Jim Walter Homes,
Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986); see also Sw. Bell Tel. Co. v.
Appellant’s Brief – Page 42
DeLanney, 809 S.W.2d 493, 494 (Tex. 1991) ("When the only loss or damage is to
the subject matter of the contract, the plaintiff's action is ordinarily on the contract.").
The Texas Supreme Court has “repeatedly reaffirmed this rule.” LAN/STV v. Martin
K. Eby Constr. Co., 435 S.W.3d 234, 242 n.35 (Tex. 2014).
58. As discussed above,19 Howard Moon, Edna Moon, and Appellant
entered into contractual joint account agreements governing the use and ownership
of the Frost Bank joint accounts ending in 8650 and 9898. See C.R. 1406 and 1407.
These accounts were created as multi-party accounts with right of survivorship
whereby the parties agreed they owned the accounts in proportion to their
contributions to the account, that Frost Bank could pay any sum in the account to a
party at any time, and on the death of a party, the deceased party’s ownership of the
account passes to the surviving parties. Id. The subject matter of the Appellee’s
claims was, in large part, for economic losses arising out of alleged misuse of funds
in these accounts (in particular the account ending in 9898). Appellee and the Final
Judgment made no attempt to allocate damages based on the parties’ contractual
agreements20 and violated the economic loss rule by attempting to convert such
actual damages arising out of contract into tort damages/claims.
19
See paragraph 18.
20
For example, the Appellee has taken the position that none of the funds in the joint
accounts was Appellant’s. However, even if Appellant made no contributions to the
Appellant’s Brief – Page 43
K. The Trial Court Erred in “Setting Aside” and Declaring “Void and
Without Effect” the Gift Deeds Because There is No or Insufficient
Evidence of Fraudulent Inducement of Those Deeds by Appellant and the
Final Judgment Improperly Clouds Title of Non-Parties.
Insufficient Evidence of Fraudulent Inducement of a Contract
59. The Appellee asserted an untimely claim for fraudulent inducement.
The trial court overruled Appellant’s special exception to the claim seeking to
require Appellee to identify the contractual agreement. See C.R. 1609 (special
exception) and 1638 (order). However, in order to make a claim for fraudulent
inducement, Appellee needed to prove the existence of a contractual agreement. It
has been held that:
In order to bring a claim for fraud in the inducement, a plaintiff must show
the elements of fraud and must show that she has been fraudulently induced
to enter into a binding agreement.
In re Guardianship of Patlan, 350 S.W.2d 189, 198 (Tex. App.—San Antonio 2011,
no pet.), citing, Haase v. Glazner, 62 S.W.3d 795, 798 (Tex. 2001) (“Without a
binding agreement, there is no detrimental reliance, and thus no fraudulent
inducement claim. That is, when a party has not incurred a contractual obligation,
it has not been induced to do anything.”). In this case the trial court should not have
allowed the untimely filing and should not have overruled the Appellant’s special
9898 account, on Howard Moon’s death, his interest in the account would have
passed 50% to Edna Moon and 50% to Appellant.
Appellant’s Brief – Page 44
exception. The only “contracts” referred to by the Appellant as the Gift Deeds.
There was no pleading identifying the joint account agreements as being
fraudulently induced. There was no specific “contract” identified and there is no
evidence or insufficient evidence of any contract that Edna Moon was induced to
sign by Appellant.
60. There also is insufficient evidence of a fiduciary relationship to support
any presumption of fraudulent intent. Further, as noted above, the parol evidence
rule and statute of frauds would also tend to prohibit testimony that contradicts
evidence in the recorded gift deeds or the purpose for them. In this case, both the
Gift Deeds to Appellant provide for the consideration as love and affection for
Appellant and there was no evidence or insufficient evidence to set aside the stated
consideration.
The Final Judgment Improperly Clouded Title of Non-Parties
61. A party should not be granted relief in the absence of pleadings that
support that relief. See Cunningham v. Parkdale Bank, 660 S.W.2d 810, 813 (Tex.
1983). Hence, a judgment after a trial on the merits that is not supported by the
pleadings is improper. See Wielgosz v. Millard, 679 S.W.2d 163, 166 (Tex. App.—
Houston [14th Dist.] 1984, no writ).
Appellant’s Brief – Page 45
62. Despite there being no specific request for such relief,21 the Final
Judgment orders that the Gift Deeds of the RR 12 property and the Rest Haven
property are set aside, void, and without effect. C.R. 1640, 1641. However, the
Plaintiff did not join the current owners of these properties whose rights were are
issue and whose title is now clouded. Rule 39, like the Declaratory Judgment Act,
mandates joinder of persons whose interests would be affected by the judgment. See
Brooks v. Northglen Ass’n, 141 S.W.3d 158, 162 (Tex. 2004), citing, Tex. Civ. Prac.
& Rem. Code § 37.006 ("When declaratory relief is sought, all persons who have or
claim any interest that would be affected by the declaration must be made parties.")
(emphasis added); TEX. R. CIV. P. 39(a) ("A person who is subject to service of
process shall be joined as a party in the action if ... he claims an interest relating to
the subject of the action ....") (emphasis added). Because Plaintiff had not pled for
this specific relief, the trial court should not have rendered the Gift Deeds void. See
Tex. R. Civ. P. 56 (“When items of special damages are claimed, they shall be
specifically stated”); see also, Lone Star Gas Co. v. Childress, 187 S.W.2d 936, 939
(Tex. Civ. App.—Waco 1945, no writ) (“We think the rule in Texas is 'that in order
to warrant a court of equity to grant injunctive relief, the petitioner must specify the
precise relief sought and a court is without jurisdiction to grant relief beyond and in
21
See Plaintiff’s Fifth Amended Petition, at 9 (“Damages and Relief Requested”).
Appellant’s Brief – Page 46
addition to that particularly specified.”) (citations omitted). The Appellee’s prayer
controlled the nature of the relief the trial court could grant and the Final Judgment
cannot properly grant relief not prayed for by Appellee.
63. The Trial Court erred in entering a Final Judgment that exceeded the
scope of relief prayed for by Plaintiff. Based on the relief entered by the trial court,
the current owners of the RR 12 and Rest Haven properties (the Gift Deed properties)
were necessary parties needed for a just adjudication. See generally Bennett v.
Grant, 460 S.W.3d 220, 239 (Tex. App.—Austin 2015, pet. filed) (“Thus, non-
parties must be joined as additional defendants to a counterclaim if in their absence
complete relief cannot be afforded among the parties.”); see also, TEX. R. CIV. P. 39
and 97.
L. The $1,000,000 Punitive Damages Award is Excessive in Light of the
Facts and Sanctions Order.
64. Given the contractual nature of the underlying issues in this case
discussed in paragraphs 18 and 58 above, and the double recovery issues addressed
in paragraphs 40-46 above, there is insufficient evidence to support the imposition
of punitive damages. Because of that, the award of punitive damages is excessive
and an unconstitutional and unreasonable penalty and punishment in light of the facts
of this case, particularly when taken in consideration of the extreme scope of the
sanctions imposed against Appellant by way of the Sanctions Order.
Appellant’s Brief – Page 47
M. The Final Judgment Refers to an Improper Authority for Assessment of
Pre- and Post-Judgement Interest.
65. The Final Judgment incorrectly bases its award of $229.856.82 in pre-
judgment interest based on §304.003 of the Texas Finance Code because which is a
post-judgement interest rate provision and incorrectly bases its award of post-
judgment interest based on §304.103 of the Texas Finance Code which is a pre-
judgement interest provision. C.R. at 1643. However, the similarities in the actual
pre- and post- judgment rates, makes complaint more technical than substantive.
CONCLUSION AND PRAYER
The trial court erred in awarding Appellee the full scope of the death penalty
sanctions and the damages set out in the Final Judgment. Accordingly, this Court
should reverse the Sanctions Order and Final Judgment for the reasons set out above.
Appellant requests all such other and further relief to which she might be entitled.
Respectfully submitted,
_______________________
David Junkin
State Bar No. 11058020
P.O. Box 2910
Wimberley, Texas 78676
512/847-8600
512/847-8604 (fax)
david@junkinlawoffice.com
Attorney for Appellant,
Susan England (Lee)
Appellant’s Brief – Page 48
CERTIFICATION REGARDING LENGTH OF BRIEF
Counsel for Appellant, Susan England (Lee), hereby certifies that the length
of this Brief as indicated by the word processing system used to generate it,
excluding appendices, is 7,439 words. While not required, this word count includes
the caption, table of contents, index of authorities, statement of the case and issues
presented, signature block, this certificate, and the certificate of service.
_______________________
David Junkin
CERTIFICATE OF SERVICE
I hereby certify that a copy of this brief was served on the following counsel
of record and in the manner indicated on November 30, 2015.
ESERVE AND/OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED #7013 3020 0001 5964 7437
Jonathan Hull
c/o Reagan Burris PLLC
401 Main Plaza, Suite 200
New Braunfels, TX 78130
______________________________
David Junkin
Appellant’s Brief – Page 49
001621
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BUSINESS ORGANIZATIONS CODE
TITLE 4. PARTNERSHIPS
CHAPTER 152. GENERAL PARTNERSHIPS
SUBCHAPTER C. PARTNERSHIP PROPERTY
Sec. 152.101. NATURE OF PARTNERSHIP PROPERTY. Partnership
property is not property of the partners. A partner or a partner's spouse does not
have an interest in partnership property.
Acts 2003, 78th Leg., ch. 182, Sec. 1, eff. Jan. 1, 2006.
CIVIL PRACTICE AND REMEDIES CODE
TITLE 2. TRIAL, JUDGMENT, AND APPEAL
SUBTITLE A. GENERAL PROVISIONS
CHAPTER 10. SANCTIONS FOR FRIVOLOUS PLEADINGS AND
MOTIONS
Sec. 10.001. SIGNING OF PLEADINGS AND MOTIONS. The signing of
a pleading or motion as required by the Texas Rules of Civil Procedure constitutes
a certificate by the signatory that to the signatory's best knowledge, information, and
belief, formed after reasonable inquiry:
(1) the pleading or motion is not being presented for any improper purpose,
including to harass or to cause unnecessary delay or needless increase in the
cost of litigation;
(2) each claim, defense, or other legal contention in the pleading or motion
is warranted by existing law or by a nonfrivolous argument for the
extension, modification, or reversal of existing law or the establishment of
new law;
(3) each allegation or other factual contention in the pleading or motion has
evidentiary support or, for a specifically identified allegation or factual
contention, is likely to have evidentiary support after a reasonable
opportunity for further investigation or discovery; and
(4) each denial in the pleading or motion of a factual contention is warranted
on the evidence or, for a specifically identified denial, is reasonably based
on a lack of information or belief.
Added by Acts 1995, 74th Leg., ch. 137, Sec. 1, eff. Sept. 1, 1995.
Sec. 10.002. MOTION FOR SANCTIONS. (a) A party may make a motion
for sanctions, describing the specific conduct violating Section 10.001.
(b) The court on its own initiative may enter an order describing the specific
conduct that appears to violate Section 10.001 and direct the alleged violator
to show cause why the conduct has not violated that section.
(c) The court may award to a party prevailing on a motion under this section
the reasonable expenses and attorney's fees incurred in presenting or
opposing the motion, and if no due diligence is shown the court may award
to the prevailing party all costs for inconvenience, harassment, and out-of-
pocket expenses incurred or caused by the subject litigation.
Added by Acts 1995, 74th Leg., ch. 137, Sec. 1, eff. Sept. 1, 1995.
Sec. 10.003. NOTICE AND OPPORTUNITY TO RESPOND. The court
shall provide a party who is the subject of a motion for sanctions under Section
10.002 notice of the allegations and a reasonable opportunity to respond to the
allegations.
Added by Acts 1995, 74th Leg., ch. 137, Sec. 1, eff. Sept. 1, 1995.
Sec. 10.004. VIOLATION; SANCTION. (a) A court that determines that
a person has signed a pleading or motion in violation of Section 10.001 may impose
a sanction on the person, a party represented by the person, or both.
(b) The sanction must be limited to what is sufficient to deter repetition of
the conduct or comparable conduct by others similarly situated.
(c) A sanction may include any of the following:
(1) a directive to the violator to perform, or refrain from performing,
an act;
(2) an order to pay a penalty into court; and
(3) an order to pay to the other party the amount of the reasonable
expenses incurred by the other party because of the filing of the
pleading or motion, including reasonable attorney's fees.
(d) The court may not award monetary sanctions against a represented party
for a violation of Section 10.001(2).
(e) The court may not award monetary sanctions on its own initiative unless
the court issues its order to show cause before a voluntary dismissal or
settlement of the claims made by or against the party or the party's attorney
who is to be sanctioned.
(f) The filing of a general denial under Rule 92, Texas Rules of Civil
Procedure, shall not be deemed a violation of this chapter.
Added by Acts 1995, 74th Leg., ch. 137, Sec. 1, eff. Sept. 1, 1995.
Sec. 10.005. ORDER. A court shall describe in an order imposing a sanction
under this chapter the conduct the court has determined violated Section 10.001 and
explain the basis for the sanction imposed.
Added by Acts 1995, 74th Leg., ch. 137, Sec. 1, eff. Sept. 1, 1995.
Sec. 10.006. CONFLICT. Notwithstanding Section 22.004, Government
Code, the supreme court may not amend or adopt rules in conflict with this chapter.
Added by Acts 1995, 74th Leg., ch. 137, Sec. 1, eff. Sept. 1, 1995.
CIVIL PRACTICE AND REMEDIES CODE
TITLE 2. TRIAL, JUDGMENT, AND APPEAL
SUBTITLE C. JUDGMENTS
CHAPTER 37. DECLARATORY JUDGMENTS
Sec. 37.006. PARTIES. (a) When declaratory relief is sought, all persons
who have or claim any interest that would be affected by the declaration must be
made parties. A declaration does not prejudice the rights of a person not a party to
the proceeding.
(b) In any proceeding that involves the validity of a municipal ordinance or
franchise, the municipality must be made a party and is entitled to be heard, and if
the statute, ordinance, or franchise is alleged to be unconstitutional, the attorney
general of the state must also be served with a copy of the proceeding and is
entitled to be heard.
Acts 1985, 69th Leg., ch. 959, Sec. 1, eff. Sept. 1, 1985.
FINANCE CODE
TITLE 4. REGULATION OF INTEREST, LOANS, AND FINANCED
TRANSACTIONS
SUBTITLE A. INTEREST
CHAPTER 304. JUDGMENT INTEREST
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 304.003. JUDGMENT INTEREST RATE: INTEREST RATE OR
TIME PRICE DIFFERENTIAL NOT IN CONTRACT. (a) A money judgment of
a court of this state to which Section 304.002 does not apply, including court costs
awarded in the judgment and prejudgment interest, if any, earns postjudgment
interest at the rate determined under this section.
(b) On the 15th day of each month, the consumer credit commissioner
shall determine the postjudgment interest rate to be applied to a money judgment
rendered during the succeeding calendar month.
(c) The postjudgment interest rate is:
(1) the prime rate as published by the Board of Governors of the
Federal Reserve System on the date of computation;
(2) five percent a year if the prime rate as published by the Board of
Governors of the Federal Reserve System described by
Subdivision (1) is less than five percent; or
(3) 15 percent a year if the prime rate as published by the Board of
Governors of the Federal Reserve System described by
Subdivision (1) is more than 15 percent.
Amended by Acts 1999, 76th Leg., ch. 62, Sec. 7.18(a), eff. Sept. 1, 1999; Acts 2003, 78th Leg.,
ch. 204, Sec. 6.01, eff. Sept. 1, 2003; Acts 2003, 78th Leg., ch. 676, Sec. 1, eff. June 20, 2003.
Amended by:
Acts 2005, 79th Leg., Ch. 387 (S.B. 1450), Sec. 1, eff. September 1, 2005.
Acts 2005, 79th Leg., Ch. 1018 (H.B. 955), Sec. 7.01, eff. September 1, 2005.
Sec. 304.103. PREJUDGMENT INTEREST RATE FOR WRONGFUL
DEATH, PERSONAL INJURY, OR PROPERTY DAMAGE CASE. The
prejudgment interest rate is equal to the postjudgment interest rate applicable at the
time of judgment.
Amended by Acts 1999, 76th Leg., ch. 62, Sec. 7.18(a), eff. Sept. 1, 1999.
PROPERTY CODE
TITLE 5. EXEMPT PROPERTY AND LIENS
SUBTITLE A. PROPERTY EXEMPT FROM CREDITORS' CLAIMS
CHAPTER 41. INTERESTS IN LAND
SUBCHAPTER A. EXEMPTIONS IN LAND DEFINED
Sec. 41.001. INTERESTS IN LAND EXEMPT FROM SEIZURE. (a) A
homestead and one or more lots used for a place of burial of the dead are exempt
from seizure for the claims of creditors except for encumbrances properly fixed on
homestead property.
(b) Encumbrances may be properly fixed on homestead property for:
(1) purchase money;
(2) taxes on the property;
(3) work and material used in constructing improvements on the
property if contracted for in writing as provided by Sections
53.254(a), (b), and (c);
(4) an owelty of partition imposed against the entirety of the property
by a court order or by a written agreement of the parties to the
partition, including a debt of one spouse in favor of the other spouse
resulting from a division or an award of a family homestead in a
divorce proceeding;
(5) the refinance of a lien against a homestead, including a federal tax
lien resulting from the tax debt of both spouses, if the homestead is
a family homestead, or from the tax debt of the owner;
(6) an extension of credit that meets the requirements of Section
50(a)(6), Article XVI, Texas Constitution; or
(7) a reverse mortgage that meets the requirements of Sections 50(k)-
(p), Article XVI, Texas Constitution.
(c) The homestead claimant's proceeds of a sale of a homestead are not
subject to seizure for a creditor's claim for six months after the date of sale.
Amended by Acts 1985, 69th Leg., ch. 840, Sec. 1, eff. June 15, 1985; Acts 1993, 73rd Leg., ch.
48, Sec. 2, eff. Sept. 1, 1993; Acts 1995, 74th Leg., ch. 121, Sec. 1.01, eff. May 17, 1995; Acts
1995, 74th Leg., ch. 121, Sec. 2.01; Acts 1997, 75th Leg., ch. 526, Sec. 1, eff. Sept. 1, 1997; Acts
2001, 77th Leg., ch. 516, Sec. 1, eff. Sept. 1, 2001.
RULE 13. EFFECT OF SIGNING PLEADINGS, MOTIONS AND OTHER
PAPERS; SANCTIONS
The signatures of attorneys or parties constitute a certificate by them that they have
read the pleading, motion, or other paper; that to the best of their knowledge,
information, and belief formed after reasonable inquiry the instrument is not
groundless and brought in bad faith or groundless and brought for the purpose of
harassment. Attorneys or parties who shall bring a fictitious suit as an experiment to
get an opinion of the court, or who shall file any fictitious pleading in a cause for
such a purpose, or shall make statements in pleading which they know to be
groundless and false, for the purpose of securing a delay of the trial of the cause,
shall be held guilty of a contempt. If a pleading, motion or other paper is signed in
violation of this rule, the court, upon motion or upon its own initiative, after notice
and hearing, shall impose an appropriate sanction available under Rule 215-2b, upon
the person who signed it, a represented party, or both.
Courts shall presume that pleadings, motions, and other papers are filed in good
faith. No sanctions under this rule may be imposed except for good cause, the
particulars of which must be stated in the sanction order. "Groundless" for purposes
of this rule means no basis in law or fact and not warranted by good faith argument
for the extension, modification, or reversal of existing law. A general denial does
not constitute a violation of this rule. The amount requested for damages does not
constitute a violation of this rule.
Notes and Comments
Comment to 1990 change: To require notice and hearing before a court determines to impose
sanctions, to specify that any sanction imposed be appropriate, and to eliminate the 90-day “grace"
period provided in the former version of the rule.
RULE 39. JOINDER OF PERSONS NEEDED FOR JUST ADJUDICATION
(a) Persons to Be Joined If Feasible. A person who is subject to service of process
shall be joined as a party in the action if
(1) in his absence complete relief cannot be accorded among those already
parties, or
(2) he claims an interest relating to the subject of the action and is so situated
that the disposition of the action in his absence may
(i) as a practical matter impair or impede his ability to protect that
interest or
(ii) leave any of the persons already parties subject to a substantial risk
of incurring double, multiple, or otherwise inconsistent obligations by
reason of his claimed interest. If he has not been so joined, the court
shall order that he be made a party. If he should join as a plaintiff but
refuses to do so, he may be made a defendant, or, in a proper case, an
involuntary plaintiff.
(b) Determination by Court Whenever Joinder Not Feasible. If a person as
described in subdivision (a)(1)-(2) hereof cannot be made a party, the court shall
determine whether in equity and good conscience the action should proceed among
the parties before it, or should be dismissed, the absent person being thus regarded
as indispensable. The factors to be considered by the court include: first, to what
extent a judgment rendered in the person's absence might be prejudicial to him or
those already parties; second, the extent to which, by protective provisions in the
judgment, by the shaping of relief, or other measures, the prejudice can be lessened
or avoided; third, whether a judgment rendered in the person's absence will be
adequate; fourth, whether the plaintiff will have an adequate remedy if the action is
dismissed for non-joinder.
(c) Pleading Reasons for Nonjoinder. A pleading asserting a claim for relief shall
state the names, if known to the pleader, of any persons as described in subdivision
(a)(1)-(2) hereof who are not joined, and the reasons why they are not joined.
(d) Exception of Class Actions. This rule is subject to the provisions of Rule 42.
RULE 56. SPECIAL DAMAGE
When items of special damage are claimed, they shall be specifically stated.
RULE 97. COUNTERCLAIM AND CROSS-CLAIM
(a) Compulsory Counterclaims. A pleading shall state as a counterclaim any claim
within the jurisdiction of the court, not the subject of a pending action, which at the
time of filing the pleading the pleader has against any opposing party, if it arises out
of the transaction or occurrence that is the subject matter of the opposing party's
claim and does not require for its adjudication the presence of third parties of whom
the court cannot acquire jurisdiction; provided, however, that a judgment based upon
a settlement or compromise of a claim of one party to the transaction or occurrence
prior to a disposition on the merits shall not operate as a bar to the continuation or
assertion of the claims of any other party to the transaction or occurrence unless the
latter has consented in writing that said judgment shall operate as a bar.
(b) Permissive Counterclaims. A pleading may state as a counterclaim any claim
against an opposing party whether or not arising out of the transaction or occurrence
that is the subject matter of the opposing party's claim.
(c) Counterclaim Exceeding Opposing Claim. A counterclaim may or may not
diminish or defeat the recovery sought by the opposing party. It may claim relief
exceeding in amount or different in kind from that sought in the pleading of the
opposing party, so long as the subject matter is within the jurisdiction of the court.
(d) Counterclaim Maturing or Acquired After Pleading. A claim which either
matured or was acquired by the pleader after filing his pleading may be presented as
a counterclaim by amended pleading.
(e) Cross-Claim Against Co-Party. A pleading may state as a cross-claim any
claim by one party against a co-party arising out of the transaction or occurrence that
is the subject matter either of the original action or of a counterclaim therein. Such
cross-claim may include a claim that the party against whom it is asserted is or may
be liable to the cross-claimant for all or part of a claim asserted in the action against
the cross-claimant.
(f) Additional Parties. Persons other than those made parties to the original action
may be made parties to a third party action, counterclaim or cross-claim in
accordance with the provisions of Rules 38, 39 and 40.
(g) Tort shall not be the subject of set-off or counterclaim against a contractual
demand nor a contractual demand against tort unless it arises out of or is incident to
or is connected with same.
(h) Separate Trials; Separate Judgments. If the court orders separate trials as
provided in Rule 174, judgment on a counterclaim or cross-claim may be rendered
when the court has jurisdiction so to do, even if the claims of the opposing party
have been dismissed or otherwise disposed of.
215.1 Motion for Sanctions or Order Compelling Discovery.
A party, upon reasonable notice to other parties and all other persons affected
thereby, may apply for sanctions or an order compelling discovery as follows:
(a) Appropriate court. On matters relating to a deposition, an application for an
order to a party may be made to the court in which the action is pending, or to any
district court in the district where the deposition is being taken. An application for
an order to a deponent who is not a party shall be made to the court in the district
where the deposition is being taken. As to all other discovery matters, an application
for an order will be made to the court in which the action is pending.
(b) Motion.
(1) If a party or other deponent which is a corporation or other entity fails to
make a designation under Rules 199.2(b)(1) or 200.1(b); or
(2) if a party, or other deponent, or a person designated to testify on behalf of
a party or other deponent fails:
(A) to appear before the officer who is to take his deposition, after being
served with a proper notice; or
(B) to answer a question propounded or submitted upon oral
examination or upon written questions; or
(3) if a party fails:
(A) to serve answers or objections to interrogatories submitted under
Rule 197, after proper service of the interrogatories; or
(B) to answer an interrogatory submitted under Rule 197; or
(C) to serve a written response to a request for inspection submitted
under Rule 196, after proper service of the request; or
(D) to respond that discovery will be permitted as requested or fails to
permit discovery as requested in response to a request for inspection
submitted under Rule 196; the discovering party may move for an order
compelling a designation, an appearance, an answer or answers, or
inspection or production in accordance with the request, or apply to the
court in which the action is pending for the imposition of any sanction
authorized by Rule 215.2(b) without the necessity of first having
obtained a court order compelling such discovery.
When taking a deposition on oral examination, the proponent of the
question may complete or adjourn the examination before he applies
for an order. If the court denies the motion in whole or in part, it may
make such protective order as it would have been empowered to make
on a motion pursuant to Rule 192.6.
(c) Evasive or incomplete answer. For purposes of this subdivision an evasive or
incomplete answer is to be treated as a failure to answer.
(d) Disposition of motion to compel: award of expenses. If the motion is granted,
the court shall, after opportunity for hearing, require a party or deponent whose
conduct necessitated the motion or the party or attorney advising such conduct or
both of them to pay, at such time as ordered by the court, the moving party the
reasonable expenses incurred in obtaining the order, including attorney fees, unless
the court finds that the opposition to the motion was substantially justified or that
other circumstances make an award of expenses unjust. Such an order shall be
subject to review on appeal from the final judgment.
If the motion is denied, the court may, after opportunity for hearing, require the
moving party or attorney advising such motion to pay to the party or deponent who
opposed the motion the reasonable expenses incurred in opposing the motion,
including attorney fees, unless the court finds that the making of the motion was
substantially justified or that other circumstances make an award of expenses unjust.
If the motion is granted in part and denied in part, the court may apportion the
reasonable expenses incurred in relation to the motion among the parties and persons
in a just manner.
In determining the amount of reasonable expenses, including attorney fees, to be
awarded in connection with a motion, the trial court shall award expenses which are
reasonable in relation to the amount of work reasonably expended in obtaining an
order compelling compliance or in opposing a motion which is denied.
(e) Providing person's own statement. If a party fails to comply with any person's
written request for the person's own statement as provided in Rule 192.3(h), the
person who made the request may move for an order compelling compliance. If the
motion is granted, the movant may recover the expenses incurred in obtaining the
order, including attorney fees, which are reasonable in relation to the amount of work
reasonably expended in obtaining the order.
215.2 Failure to Comply with Order or with Discovery Request.
(a) Sanctions by court in district where deposition is taken. If a deponent fails to
appear or to be sworn or to answer a question after being directed to do so by a
district court in the district in which the deposition is being taken, the failure may be
considered a contempt of that court.
(b) Sanctions by court in which action is pending. If a party or an officer, director,
or managing agent of a party or a person designated under Rules 199.2(b)(1) or
200.1(b) to testify on behalf of a party fails to comply with proper discovery requests
or to obey an order to provide or permit discovery, including an order made under
Rules 204 or 215.1, the court in which the action is pending may, after notice and
hearing, make such orders in regard to the failure as are just, and among others the
following:
(1) an order disallowing any further discovery of any kind or of a particular
kind by the disobedient party;
(2) an order charging all or any portion of the expenses of discovery or taxable
court costs or both against the disobedient party or the attorney advising him;
(3) an order that the matters regarding which the order was made or any other
designated facts shall be taken to be established for the purposes of the action
in accordance with the claim of the party obtaining the order;
(4) an order refusing to allow the disobedient party to support or oppose
designated claims or defenses, or prohibiting him from introducing designated
matters in evidence;
(5) an order striking out pleadings or parts thereof, or staying further
proceedings until the order is obeyed, or dismissing with or without prejudice
the action or proceedings or any part thereof, or rendering a judgment by
default against the disobedient party;
(6) in lieu of any of the foregoing orders or in addition thereto, an order
treating as a contempt of court the failure to obey any orders except an order
to submit to a physical or mental examination;
(7) when a party has failed to comply with an order under Rule 204 requiring
him to appear or produce another for examination, such orders as are listed in
paragraphs (1), (2), (3), (4) or (5) of this subdivision, unless the person failing
to comply shows that he is unable to appear or to produce such person for
examination.
(8) In lieu of any of the foregoing orders or in addition thereto, the court shall
require the party failing to obey the order or the attorney advising him, or
both, to pay, at such time as ordered by the court, the reasonable expenses,
including attorney fees, caused by the failure, unless the court finds that the
failure was substantially justified or that other circumstances make an award
of expenses unjust. Such an order shall be subject to review on appeal from
the final judgment.
(c) Sanction against nonparty for violation of Rules 196.7 or 205.3. If a nonparty
fails to comply with an order under Rules 196.7 or 205.3, the court which made the
order may treat the failure to obey as contempt of court.
215.3 Abuse of Discovery Process in Seeking, Making, or Resisting Discovery.
If the court finds a party is abusing the discovery process in seeking, making or
resisting discovery or if the court finds that any interrogatory or request for
inspection or production is unreasonably frivolous, oppressive, or harassing, or that
a response or answer is unreasonably frivolous or made for purposes of delay, then
the court in which the action is pending may, after notice and hearing, impose any
appropriate sanction authorized by paragraphs (1), (2), (3), (4), (5), and (8) of Rule
215.2(b). Such order of sanction shall be subject to review on appeal from the final
judgment.
215.4 Failure to Comply with Rule 198
(a) Motion. A party who has requested an admission under Rule 198 may move to
determine the sufficiency of the answer or objection. For purposes of this
subdivision an evasive or incomplete answer may be treated as a failure to answer.
Unless the court determines that an objection is justified, it shall order that an answer
be served. If the court determines that an answer does not comply with the
requirements of Rule 198, it may order either that the matter is admitted or that an
amended answer be served. The provisions of Rule 215.1(d) apply to the award of
expenses incurred in relation to the motion.
(b) Expenses on failure to admit. If a party fails to admit the genuineness of any
document or the truth of any matter as requested under Rule 198 and if the party
requesting the admissions thereafter proves the genuineness of the document or the
truth of the matter, he may apply to the court for an order requiring the other party
to pay him the reasonable expenses incurred in making that proof, including
reasonable attorney fees. The court shall make the order unless it finds that (1) the
request was held objectionable pursuant to Rule 193, or (2) the admission sought
was of no substantial importance, or (3) the party failing to admit had a reasonable
ground to believe that he might prevail on the matter, or (4) there was other good
reason for the failure to admit.
215.5 Failure of Party or Witness to Attend to or Serve Subpoena; Expenses.
(a) Failure of party giving notice to attend. If the party giving the notice of the
taking of an oral deposition fails to attend and proceed therewith and another party
attends in person or by attorney pursuant to the notice, the court may order the party
giving the notice to pay such other party the reasonable expenses incurred by him
and his attorney in attending, including reasonable attorney fees.
(b) Failure of witness to attend. If a party gives notice of the taking of an oral
deposition of a witness and the witness does not attend because of the fault of the
party giving the notice, if another party attends in person or by attorney because he
expects the deposition of that witness to be taken, the court may order the party
giving the notice to pay such other party the reasonable expenses incurred by him
and his attorney in attending, including reasonable attorney fees.
215.6 Exhibits to Motions and Responses.
Motions or responses made under this rule may have exhibits attached including
affidavits, discovery pleadings, or any other documents.
NON-MONETARY RELIEF, EQUITABLE RELIEF
WILLIAM W. MILLER, JR., Texarkana
Greer & Miller
State Bar of Texas
7th ANNUAL
DAMAGES IN CIVIL LITIGATION
February 26-27, 2015
Houston
CHAPTER 10
WILLIAM W. MILLER , JR.
WILLIAM W. MILLER, JR.
Born Dallas, Texas, March 28, 1971
Admitted to Texas Bar in 1996 and the Arkansas Bar in 1997
A 2006, 2007, 2008, 2009 & 2011 Super Lawyer: Rising Star
Practice Areas:
• Business & Commercial Litigation
• Personal Injury Litigation
• Construction Litigation
• Products Litigation
Licensed by:
• Supreme Court of Texas
• Supreme Court of Arkansas
• Admitted to Practice in the United States District Courts for:
– The Eastern District of Texas
– The Northern District of Texas
– The Eastern and Western Districts of Arkansas
Admitted to practice in the Fifth & Eighth Circuit Courts of Appeals
Education:
• Vanderbilt University (B.A. 1993)
• Texas Tech School of Law (J.D.,1996),
Board of Barristers, 1995-96
Super Lawyer: Rising Star
2006, 2007, 2008, 2009 & 2011
Member:
• State Bar of Texas
- Board of Directors (2006-2009)
- SBOT EC (2006-2008)
• Arkansas Bar Association
• Texas Young Lawyers Association
- President (2007-2008)
- President-elect (2006-2007)
- Chair-Elect of the Board of Directors (2004-2005)
- Chair of the Board of Directors (2005-2006)
- District 1 Director (2001-2003, 2003-2005)
• Texarkana Young Lawyers Association
- President 1999-2000
- Vice President, 1998-1999
• Northeast Texas Bar Association
• Texarkana Bar Association
• American Bar Association
• Defense Research Institute
Civic/Other:
• Member, St. James Episcopal Church;
• Texarkana Soccer Association Referee/Coach
• University Interscholastic League (UIL) Soccer Referee
• Arkansas Association of Officials Soccer Referee
• United States Soccer Federation Referee
"Outstanding Director of the Year" 2002-2003 bar year, Texas Young Lawyers Association
"President's Award of Merit" 2001-2002 bar year, Texas Young Lawyers Association.
Non-Monetary Relief, Equitable Relief Chapter 10
TABLE OF CONTENTS
A. CONSTRUCTIVE TRUSTS................................................................................................................................... 1
B. QUANTUM MERUIT/RESTITUTION AND UNJUST ENRICHMENT............................................................. 2
C. RESCISSION AND REFORMATION................................................................................................................... 3
i
Non-Monetary Relief, Equitable Relief Chapter 10
NON-MONETARY RELIEF, 344 (Tex. 19944); Tuck v. Miller, 483 S.W.2d 898, 905
(Tex. 1972).
EQUITABLE RELIEF Because a confidential relationship can arise from
a number of different situations (including informal
A. CONSTRUCTIVE TRUSTS moral, social, or purely personal relationships, see,
Constructive trusts are an equitable remedy that Thigpen v. Locke, supra,) a jury’s determination of
permits a party wronged or damaged by another’s whether the relationship between the parties was a
fraud, duress, mistake, breach of fiduciary duty or confidential one should be raised as a fact issue when
other unconscionable conduct an opportunity to one party seeks a constructive trust. See, also Andrews
recover as against the property acquired by the v. Andrews, 677 S.W.2d 171 (Tex.App. — Austin
wrongdoer as a result of the wrongful conduct. The 1984, no writ) (Cohabitation as confidential
underlying purpose is to “do equity” and impose a relationship); Hatton v. Turner, 622 S.W.2d 450
remedy that redresses wrongs and unjust enrichment. (Tex.App. — Tyler 1981, no writ) (Family relationship
Meadows v. Bierschwale, 515 S.W.2d 125 (Tex. 1974); may support confidential relationship); Holland v.
Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848 Lesene, 350 S.W.2d 859 (Tex.App. — San Antonio
(Tex. 1980); Holmes v. Kent, 221 S.W.3d 622, n. 21 1961, writ ref’d n.r.e.) (close personal friendship may
(Tex. 2007); Medford v. Medford, 68 S.W.3d 242, 248 constitute fiduciary relationship). From a defense
(Tex. App. — Fort Worth 2002, no pet.); Hubbard v. perspective, the defeat of the confidential relationship
Shankle, 138 S.W.3d 474, 485 (Tex. App.—Fort Worth precludes the imposition of the trust. On the other
2004, pet. denied); Mowbray v. Avery, 76 S.W.3d 663, hand, simply proving a confidential relationship is only
681 n.27 (Tex. App. — Corpus Christi 2002, pet. the fist step in showing the violation of that
denied). relationship before seeking the imposition of the
It is important to note that a constructive trust is constructive trust.
not a cause of action in itself, but merely a remedy that Constructive trusts can also be imposed on
can be sought for wrongful conduct. Dawson v. fraudulent transfers or when there is an attempt to
Lowrey, 441 S.W. 3d 825, 837, n. 20 (Tex.App. — defraud creditors by selling property for less than
Texarkana 2014, no pet.). Often the underlying cause market value. See, e.g., Wheeler v. Blacklands
of action arises from claims of fraud or constructive Production Credit, 627 S.W.2d 846, Tex.App.—Ft.
fraud. See, e.g., Thigpen v. Locke, 363 S.W.2d 247, Worth, 1983 no writ). Constructive trusts have also
250 (Tex. 1962); Blankenship v. Citizens National been imposed as the result of mistakes, e.g., Cocke v.
Bank of Lubbock, 449 S.W. 2d 77, 79 (Tex.App.— Pacific Gulf Development Corp., 594 S.W.2d 545
Amarillo 1969, writ ref’d, n.r.e); Towne v. Towne, 707 (Tex.App. —Houston [1st Dist.] 1980, no writ);
S.W.2d 745 (Tex.App.—Ft. Worth 1986, no writ). Blankenship v. Citizens, supra., and to prevent unjust
enrichment generally, e.g., Pope v. Garrett, 211 S.W.2d
“To establish that a constructive trust exists, 559 (Tex. 1948); Meadows v. Bierschwale, supra,;
the proponent must prove (1) breach of a Omohundro v. Matthews, 341 S.W.2d 401 (Tex. 1960);
special trust, fiduciary relationship, or actual Bright v. Addison, 171 S.W.3d 588 (Tex.App.— Dallas
fraud; (2) unjust enrichment of the 2005, pet. granted); Ellisor v. Ellisor, 630 s.W.2d 746
wrongdoer; and (3) tracing to an identifiable (Tex.App.— Houston [1st. Dist.] 1982, no writ); Hatton
res.” Hahn v. Love, 321 S.W.3d 517 v. Turner, 622 S.W.2d 450 (Tex.App. — Tyler 1981,
(Tex.App. —Houston[1st Dist.] 2009, pet. no writ).
denied). In order to impose a constructive trust there must
be identifiable property to impose the trust upon and
Quite often the imposition of a constructive trust arises proven that the trust should be imposed on that
from the breach of a fiduciary duty or confidential particular property to remedy the wrong complained
relationship. See, e.g., Fitz-Gerald v. Hull, 237 S.W.2d about. See., e.g., Renfrow v. Lineberry, 271 S.W.2d
256 (1951); Thigpen v. Locke, supra,; International 440 (Tex.App.—El Paso 1954, writ ref’d n.r.e);
Bankers Life Ins. Co. v. Holloway, 368 S.W.2d 567 Wheeler v. Backlands, supra,; May v. Little, 473 S.W.
(Tex. 1963); Rankin v. Naftalis, 557 S.W.2d 940 (Tex. 2d 632 (Tex.App.—El Paso, 1971, writ ref’d n.r.e.);
1977); Consolidated Bearing v. First Nat. Bank, 720 Sheldon Petroleum Co. v. Peirce, 546 S.W. 2d 954
S.W.2d 647 (Tex.App.—Amarillo 1986, no writ); (Tex.App.— Dallas 1977, no writ). The property over
Stout v. Clayton, 674 S.W.2d 821 (Tex.App.—San which the trust is to be imposed, must be clearly traced
Antonio 1984, writ ref’d n.r.e.). Whether a confidential back to the wrongdoing of the defendant. “The party
relationship exists, that may be the basis for a seeking to impose a constructive trust has the burden of
constructive trust, is often a fact question itself for the tracing funds to the specific property sought to be
jury to decide. See, Macdonald v. Follen, 180 S.W.2d recovered.” Wilz v. Flournoy, 228 S.W.3d 674, 676
1
Non-Monetary Relief, Equitable Relief Chapter 10
(Tex. 2007). Once the fund have been traced to the contractual agreement exists. Generally, “quantum
property, however, the burden shifts to the defendants meruit is an equitable theory of recovery founded in
to show that property was acquired or purchased the principle of unjust enrichment based on an implied
without wrongdoing (typically through separate funds). agreement to pay for benefits received.” Vortt
Id.; Eaton v. Husted 172 S.W.2d 493, 498 (Tex. 1943). Exploration Co. v. Chevron U.S.A., Inc., 787 S.W.2d
However, even if comingled, a constructive trust 942, 944 (Tex. 1990); Bashara v. Baptist Mem'l Hosp.
can still be imposed on the comingled funds or the Sys., 685 S.W.2d 307, 310 (Tex. 1985). To meet the
proceeds of such. See, Logan v. Logan, 156 S.W.2d requirements for recovery, the pleading party must
507 (Tex. 1941); Peirce v. Sheldon Petroleum Co., 589 generally prove that “(i) valuable services and/or
S.W.2d 849 (Tex.App. — Amarillo 1979, no writ); materials were furnished, (ii) to the party sought to be
General Ass’n of Davidian Seventh Day Adventists v. charged, (iii) which were accepted by the party sought
General Ass’n of Davidian Seventh Day Adventists, to be charged, and (iv) under such circumstances as
410 S.W. 2d 256 (Tex.App.—Waco 1966, writ ref’d reasonably notified the recipient that the plaintiff, in
n.r.e.) and Wilz v. Flournoy, supra. However, if the performing, expected to be paid by the recipient.”
property that would have been subject to the trust is Heldenfels Bros., Inc. v. City of Corpus Christi, 832
sold to a bona fide purchaser by the Defendant, but the S.W.2d 39, 41 (Tex. 1992).
funds can be traced, the property itself may no longer Likewise, unjust enrichment is a theory applicable
be the subject of the trust, but the proceeds of the sale, where a party has obtained some advantage or benefit,
including any profits, can be. See, Meadows v. often by fraud, duress, or some other unfair advantage,
Bierschwale, 516 S.W.2d 125 (Tex. 1974). See, also, but in circumstances that give rise to an implied or
Marineau v. General American Life Insurance Co., quasi-contractual obligation to reimburse the proposing
898 S.W.2d 397 (Tex.App. — Ft. Worth, writ denied) party for the benefit incurred by the defendant. See,
where the constructive trust was impose on not only e.g., Sherer v. Sherer, 393 S.W.3d 480, n. 22
the amount of the traced funds, but the also the (Tex.App. — Texarkana 2013, pet. denied); Christus
increase in value. There, the premiums of a policy had Health v. Quality Infusion Care, 359 S.W.3d 719
been paid with funds wrongfully obtained, but the (Tex.App. — Houston [1st Dist.] 2011, no pet.);
court imposed the trust on the proceeds of the policy Walker v. Cotter Props, Inc. 181 S.W.3d 895
itself, which were greater than the original wrongfully (Tex.App. — Dallas 2006, no pet.).
obtained funds. Normally, where a contract has been executed
Where a third party is has knowledge of the between the parties that covers the subject matter of the
plaintiff’s wrongful conduct or is on notice of the dispute, claims for unjust enrichment are defeated.
plaintiff’s claimed right, the purchaser of the property See, e.g., Fortune Production, Co. v. Conoco, Inc., 52
can also be declared a constructive trustee for the S.W.3d 671 (Tex. 2000); Raven Res. V. Legacy
benefit of the plaintiff. See, Ginther v. Taub, 675 Reserves Operating, 363 S.W.3d 865 (Tex.App. —
S.W.2d 724 (Tex. 1984); Duncan v. Woolf, 380 S.W.2d Eastland 2012, pet. denied); Transamerican Natural
862 (Tex.App.—Ft. Worth, writ ref’d n.r.e.). Gas v. Finkelstein, 933 S.W. 2d 591 (Tex.App. — San
However, the question will usually turn on whether the Antonio 1996, writ denied). However, if the contract
new owner of the property is unjustly enriched either is void, not fully performed or otherwise
because of the reduced value in acquiring the property unenforceable, the theory may still be applicable. See,
or because of the use of the knowledge of the City of Harker Heights v. Sun Meadows Land, Ltd.,
wrongdoing. See, Ginther, supra.; Hahn v. Love, 830 S.W.2d 313 (Tex.App. — Austin 1992, no writ);
supra. McCullough v. Scarbrough, Medlin & Assocs., 435
Where multiple causes of action are asserted at S.W.3d 871 (Tex.App. — Dallas 2014, pet. denied);
trial, if the verdict is returned favorably to the plaintiff, Sherer v. Sherer, supra.
they must elect their remedy. Often the imposition of Likewise, under quantum meruit, where an
the constructive trust can be a viable option, but the express agreement has been executed between the
plaintiff will usually have to forgo any damages that parties on the subject matter, recovery under the theory
may be awarded. Counsel will have to evaluate both is denied. See, Truly v. Austin, 744 S.W.2d 934 (Tex.
the benefits and consequences of electing the most 1988); Woodard v. Southwest States, Inc., 384 S.W.2d
favorable remedy. 674 (Tex. 1964); concept Gen. Contr. V. Asbestos
Maintenance, 346 S.W.3d 172 (Tex.App. — Amarillo
B. QUANTUM MERUIT/RESTITUTION AND 2011, pet. denied). However, exceptions to this rule
UNJUST ENRICHMENT exist as well. For example, a contractor may recover
Often combined in a plaintiff’s pleadings, under quantum meruit despite breach or failure to fully
quantum meruit, restitution and unjust enrichment perform under an express contract, for the reasonable
claims seek enforcement of equity when no written value of services or materials. See, e.g., Murray v.
2
Non-Monetary Relief, Equitable Relief Chapter 10
Crest Const., Inc., 900 S.W.2d 342 (Tex. 1995); wrongful retention of the property. See, MGA Ins. Co.
Chilton Ins. v. Pate & Pate Enterprises, 930 S.W.2d v. Chesnutt, supra; Doss v. Homecomings Fin.
877 (Tex.App. — San Antonio 1996, writ denied). Network, Inc. 201 S.W.3d 706 (Tex.App. — Corpus
Also, when the contract is a unilateral contract, the Christi, 2006 pet. denied); Everett v. TK-Taito, L.L.C.,
plaintiff who has partially performed may still recover 178 S.W.3d 844 (Tex.App. — Fort Worth 2005, no
under quantum meruit as no duty is imposed on the pet.). In other words, contrary to a conversion claim,
other party to the agreement. See., e.g., Colbert v. all the plaintiff must show is that the defendant ended
Dallas Joint Stock Land Bank of Dallas, 102 S.W.2d up with the money that belonged to the plaintiff,
1031 (Tex. 1937); Truly v. Austin, supra; Benson v. regardless of whether the defendant’s acquisition of the
Harrell, 324 S.W.2d 620 (Tex.App. — Fort Worth money was fraudulent, by mistake or otherwise
1959, writ ref’d n.r.e.) wrongfully procured. See, e.g., H.E.B., LLC v.
Under both quantum meruit and unjust Ardinger, 369 S.W.3d 496 (Tex.App — Fort Worth
enrichment, the party can plead alternative claims 2012, no pet.); Edwards v. Mid-Continent Office, 252
compared to the contract and seek recovery under both S.W.3d 833 (Tex.App. — Dallas, pet. denied).
contractual and equitable theories. See, Fortune Of course, where the plaintiff can show the
Production Co. v. Conoco, Inc., supra; Fraud-Tech, wrongful acquisition of the funds, the law should find
Inc. v. Choicepoint, Inc., 102 S.W.3d 366 (Tex.App. — for the plaintiff. See, e.g., Briggs v. Rodriguez, 236
Ft. Worth 2003, pet denied). S.W.2d 510 (Tex.App — Dallas 1951, writ dism’d);
Quantum meruit is governed by the four year Wichita County v. Title, 27 S.W.2d 649 (Tex.App. —
statute of limitations, Pepsi Corp. v. Galliford, 254 Amarillo 1930), aff’d, 41 S.W.2d 11 (Tex.Comm.App
S.W.3d 457 (Tex.App. — Houston [1st. Dist.] 2007, no 1931, jdgmt adopted); Orgain v. Butler, 478 S.W.2d
pet); Quigley v. Bennett, 256 S.W.3d 356 (Tex.App. — 610 (Tex.App. — 1972, no writ); Barrett v. Ferrell,
San Antonio 2008, no pet.); while claims for unjust 550 S.W.2d 138 (Tex.App. — Tyler 1977, writ ref’d
enrichment appear to be governed by a two-year statute n.r.e.). Nonetheless, wrongdoing is not an element of
of limitations, Elledge v. Friberg-Cooper Water Supply the equitable claim and, if wrongdoing is asserted,
Corp., 240 S.W.3d 869 (Tex. 2007); Wagner & Brown, alternative claims based on the wrongdoing (such as
Ltd. v. Horwood, 58 S.W.3d 732, 737 (Tex. 2001); conversion or fraud) should also be alleged.
HECI Exploration Co. v. Neel, 982 S.W.2d 881 (Tex.
1988); Sherer v. Sherer, supra.; Mobil Producing
Texas & N.M. v. Cantor, 93 S.W.3d 916 (Tex.App. — C. RESCISSION AND REFORMATION
Corpus Christi 2002, no pet.). Rescission and reformation are equitable remedies
available when the party has a contract action, but seek
“Money had and received” is quite often to either avoid the contractual remedies or modify the
claimed under the theory of unjust agreement to conform to the actual agreement of the
enrichment. To assert such a claim, the parties. Both remedies are most often applicable when
plaintiff need only show that the defendant there has been either a provable mutual or unilateral
holds money or the equivalent of money that mistake in the making of the agreement.
“in equity and good conscious” belongs to When a party seeks rescission of the contract, the
the plaintiff. Best Buy v. Berrera, 248 proponent of the remedy must generally show that “ (1)
S.W.3d 160 (Tex. 2007); Stonebridge Life the mistake is of so great a consequence that to enforce
Ins. Co. v. Pitts, 236 S.W.3d 201 (Tex. the contract as made would be unconscionable; (2) the
2007); Staats v. Miller, 243 S.W.2d 686 mistake relates to a material feature of the contract; (3)
(Tex. 1951); See, also, Stewart Title Guar. the mistake must have been made regardless of the
Co. v. Mims, 405 S.W.3d 319 (Tex.App. — exercise of ordinary care; and (4) the parties can be
Dallas, 2013, no pet.); MGA Ins. Co. v. placed in status quo in the equity sense, i.e., rescission
Charles R. Chesnutt, P.C., 358 S.W.3d 808 must not result in prejudice to the other party except
(Tex.App — Dallas 2012, no pet.); Tri-State for the loss of his bargain.” James T. Taylor & son,
Chemicals v. Western Organics, 83 S.W.3d Inc. v. Arlington Independent School Dist., 335 S.W.2d
189 (Tex.App. — Amarillo 2002, pet 371, 373 (Tex. 1960); Monarch Marking System Co. v.
denied). Reed’s Photo Mart, Inc., 485 S.W.2d 905 (Tex. 1972).
Often, the contract is set aside because of fraud,
Money had and received is distinguished from a mistake or some other reason to prevent unjust
conversion claim in that the property need not still be enrichment and is often plead in response to a claim for
in the possession of the defendant. Moreover, the breach of contract. See, e.g., Koral Industries v.
plaintiff does not have to prove wrongdoing, in Security-Connecticut Life Ins. Co., 802 S.W.2d 650
particular, the wrongful taking of the property or the (Tex. 1990); Isaacs v. Bishop, 249 S.W.3d 100
3
Non-Monetary Relief, Equitable Relief Chapter 10
(Tex.App. — Texarkana 2008, pet. denied); Scott v. S.W.2d 939 (Tex. 1980). The successful application of
Commercial services of Perry, Inc., 121 S.W.3d 26 the remedy often includes claims of fraud or other
(Tex.App. — Tyler 2003, pet. denied); Nelson v. Najm, inequitable conduct. See., e.g., Cherokee Water Co.
127 S.W. 3d 170 (Tex.App. — Houston [1st Dist.] Forderhause, 741 S.W.2d 377 (Tex. 1977); Gail v.
2003, pet. denied); Barker v. Roelke, 105 S.W.3d 75 Berry, 343 S.W.3d 520 (Tex.App. — Eastland 2011,
(Tex.App. — Eastland 2003, pet. denied). no pet.); Veterans Land Bd. v. Lesley, 281 S.W.3d 602
Under the theory that one who seeks equity must (Tex.App. — Eastland 2009, pet. denied); Givens v.
do equity, in order to successfully seek the rescission Ward, 272 S.W.3d 63 (Tex.App. — Waco 2008, no
of a contract, a party seeking to rescind a contract must pet.). Likewise, if the other party took advantage of
generally give the other party notice that the contract is the unilateral mistake, even absent fraud, reformation
being rescinded and tender, or offer to tender, any may be appropriate. See, Hill v. Spencer & Son, 973
property received under the contract or the value of any S.W.2d 772 (Tex.App. — Texarkana 1998, no pet.).
benefit it obtained by the contract back to the other However, if the reformation sought is the reformation
party. See, e.g., Carrow v. Bayliner Marine Corp., 781 of a deed, transfer of the property to a bona fide
S.W. 2d 691 (Tex.App. — Austin 1989, no writ); purchaser may defeat the proposed reformation. See.,
David McDavid Pontiac, Inc. v. Nix, 681 S.W.2d 831 e.g., Richmond v. Wells, 395 S.W.3d 262 (Tex.App. —
(Tex. App. —Dallas 1984, writ ref’d n.r.e). However, Eastland 2012, no pet.).
see, e.g., Cruz v. Andrews Restoration, Inc. 364
S.W.3d 817 (Tex. 2012) and Morton v. Hung Nguyen,
412 S.W.3d 506 (Tex. 2013) where the Supreme Court
held that under certain statutes, i.e., the DTPA and
Chapter 5, Subchapter D of the Texas Property Code,
the tender of the benefits many not be necessary “as
long as the affirmative relief to the consumer can be
reduced by (or made subject to) the consumer's
reciprocal obligation of restitution.” Cruz, at 827
Morton, at 512. Presumably, the Supreme Court would
extend this requirement to other codes that may appear
to codify the common law remedy of rescission.
Likewise, the inability to place the parties back in their
original positions could be considered as a basis for
denying rescission. See, e.g., Isaacs v. Bishop, 249
S.W.3d 100 (Tex.App. — Texarkana 2008, ).
A party may also lose the right to rescission if the
party sits on their rights or is contributorily responsible
for the fraud or mistake. See, Barker v. Roekle, supra;
Nelson v. Najm, supra, Isaacs v. Bishop, supra.
Like other equitable remedies, the plaintiff must
elect their remedy before judgment. Accordingly, if a
verdict for damages and rescission are rendered, if
rescission is selected as the remedy for judgment, a
party may not be awarded damages. See, e.g., Dallas
Farm Mach. Co. v. Reaves, 307 S.W.2d 233 (Tex.
1957); Scott v. Sebree, 986 S.W.2d 364 (Tex.App. —
Austin 1999, pet. denied).
Reformation, in contrast to rescission, does not
seek to negate the contract, but rather seeks the Court’s
enforcement of the contract on a “rewritten” basis.
This equitable remedy is generally also only available
where a party can show the contract is subject to
mistake, accident or fraud. See, Nat’l Resort
Communities, Inc. v. Cain, 526 S.W.2d 510 (Tex.
1975). Generally, a party “must [1.] prove the true
agreement of the parties. 2. He must prove that the
provision erroneously written into the instrument was
there by mutual mistake.” Brown v. Havard, 593
4
Katarzyna Brozynski, Law offices of Cornel Walker discretion standard. Cire v. Cummings, 134 S.W.3d 835,
P.C., and Cornel Walker, Appellants 838 (Tex. 2004).
v. The determination of whether a trial court abused its
discretion is a question of law. Jackson v. Van Winkle, 660
Jared Kerney and Sheila Kerney, Appellees S.W.2d 807, 810 (Tex. 1983) , overruled in part on other
grounds by Moritz v. Preiss, 121 S.W.3d 715, 721 (Tex.
No. 10-05-00300-CV 2003). A trial court abuses its discretion when it acts
arbitrarily and unreasonably, without reference to guiding
Court of Appeals of Texas, Tenth District
rules or principles, or when it misapplies the law to the
established facts of the case. Beaumont Bank, N.A. v.
August 2, 2006
Buller, 806 S.W.2d 223, 226 (Tex. 1991); Downer v.
From the 413th District Court Johnson County, Texas Aquamarine Operators, Inc., 701 S.W.2d 238, 241 (Tex.
Trial Court No. 2004-00466 1985). “A trial court has no discretion to determine what
the law is or in applying the law to the facts and,
Before Chief Justice Gray, Justice Vance, and Justice consequently, the trial court's failure to analyze or apply the
Reyna. law correctly is an abuse of discretion.” In re American
Homestar of Lancaster, Inc., 50 S.W.3d 480, 483 (Tex.
MEMORANDUM OPINION 2001). A trial court also abuses its discretion in imposing
sanctions if it bases the order on a clearly erroneous
BILL VANCE, Justice assessment of the evidence. Monroe, 884 S.W.2d at 816.
Appellants Katarzyna Brozynski, Cornel Walker, and The Pleadings and Evidence
the Law Offices of Cornel Walker, P.C. appeal the trial
court's Rule 13 sanctions ruling that awarded $7,200 in The Brozynskis' original petition alleged the following
attorney's fees to Jared and Sheila Kerney. Their sole issue facts:
asserts that the trial court abused its discretion by imposing
sanctions. We will reverse the trial court's sanctions 5. Beginning on or about October 1, 2003, Defendants
judgment and render a take-nothing judgment. erected a large wooden play set, which site is directly south
of and immediately adjacent to Plaintiffs' property.
Background Defendants had not consulted with Plaintiffs nor had they
asked for permission to erect such construction knowing
Katarzyna (Kathy) and Krzysztof Brozynski sued the fully well that the play set had been erected in violation of
Kerneys, their next-door neighbors in Cleburne, initially the residential deed and to intentionally harass and disrupt
alleging causes of action for private nuisance, trespass, and Plaintiffs' life. Specifically, in the course of using this
assault. The Kerneys filed a counterclaim, asserting that the equipment extensively, children who are playing on the
Brozynskis' suit was groundless and was filed in bad faith play set are constantly screaming and trespassing by
and for the purpose of harassment. After the Kerneys looking into the Plaintiffs' entire backyard, and especially
moved out of state, the Brozynskis filed a motion to dismiss the swimming pool area, resulting in constant disruption of
(i.e., a nonsuit) their own claims without prejudice. The life during afternoon and evening hours when Plaintiffs
Kerneys then filed a motion for sanctions, asserting that the return from work, as well as during the weekend. In an
Brozynskis' suit was frivolous. After a hearing, the trial effort to resolve the matter amicably and avoid court
court granted the motion and sanctioned Kathy (who is an proceedings on or about August 17, 2004, Plaintiff, Kathy
attorney practicing in Dallas) and her attorney of record by Brozynski, approached Sheila Kerney and requested the
making particularized findings and entering a final play set be removed permanently or transferred further
judgment that awarded the Kerneys their attorney's fees in away from the adjacent property line. Defendant Sheila
defending the suit. Kerney used obscene and uncensored language. The
particulars of the assault are as follows: Defendant Sheila
Standard of Review
Kerney stepped very close to Kathy Brozynski and
threatened her in front of other neighbors by saying “Now,
Imposing Rule 13 sanctions is within the trial court's
I'll show you where shits like you belong.” Kathy
sound discretion. Monroe v. Grider, 884 S.W.2d 811, 816
Brozynski felt such apprehension that she immediately
(Tex. App.—Dallas 1994, writ denied). Accordingly, we
retreated to her house in fear of imminent harm. Prior to this
review a trial court's order for sanctions under an abuse of
event, Defendant Jared Kerney used obscene language
towards Plaintiffs' minor children, Max and Martina, to otherwise place this wooden construction. This was a
causing the children great distress and nervousness. direct breach of the Declaration of Covenants, Conditions,
Defendant Sheila Kerney continues to use obscene language and Restriction for Beckley Heights, Phase 3, subdivision.
whenever she hears the Brozynski family out in their Defendants never notified me nor asked for permission to
backyard. assemble the play set in such close proximity to the fence.
6. Furthermore, immediately adjacent to Plaintiffs' property 8. I observed Defendants' children as well as other children
on Defendants' driveway, the Defendants entertain the playing on this wooden construction since early October
entire neighborhood, consuming alcohol, allowing young 2003. At times there were 10-15 children playing on this
children to play on the driveway, using obscene language wooden construction, at least 4 times a week between 7
and partying until late night hours. Needless to say, this p.m. and 11 p.m. shouting and hollering at each other. I
obnoxious and harassing behavior causes disruption in observed them playing during the weekend at different
Plaintiffs' life. Furthermore, the lights which light up the hours. . . .
Defendants' driveway are illuminated from early afternoon
hours until the next morning and are intentionally and 9. I observed Defendants' child and children of their guests
maliciously focused upon Plaintiffs' master bedroom throwing trash and rocks and yelling while standing on the
windows causing constant bright glare and preventing top of the play set.
Plaintiff from getting a decent night's sleep. The viciousness
of Defendants' conduct prevents Plaintiffs from the use and 10. At all times relevant, I was working in Dallas, Texas; I
enjoyment of their property. would leave early in the morning and return at about 7 p.m.
When I was at home, I was not able to relax or enjoy my
The Brozynskis' original petition, which was filed on home, inside or out. I was frequently disturbed by yelling,
September 29, 2004, requested a temporary injunction that screaming and loud music played from the Defendants
the Kerneys be enjoined from engaging in the conduct and property. I cried frequently and was not able to sleep. . . .
activities at issue and a permanent injunction ordering either
the removal of the play set or its movement to at least 11. Our neighbors' activities on the play set escalated to the
fifteen feet from the adjacent property line. point that during spring, summer and fall of 2004, neither
myself, my husband, nor my children were able to use our
On November 2, 2004, Mr. Walker, the Brozynskis' backyard and swimming pool when Defendants were at
attorney, wrote the court to cancel the hearing on the home. I was afraid that I would be observed and my privacy
Brozynskis' request for a temporary injunction, stating: “It violated. I was depressed and withdrew socially. I was
is my understanding that the Defendants have removed the unable to invite friends over for fear of being embarrassed
play set and, therefore, there is no longer any need for a or very uncomfortable having to tell them that we are not
hearing on the Temporary Injunction since the play set able to use our backyard and swimming pool. My children
removal issue is moot.” were not able to invite their friends over because they
feared being observed and laughed at by the children on the
Thereafter, the Kerneys filed a no-evidence motion for play set.
summary judgment (which the trial court never ruled on). In
response to that motion, the Brozynskis filed their own Kathy's affidavit concludes with a reiteration of the
affidavits. Kathy's affidavit states in pertinent part: alleged assault by Sheila Kerney and with a description of
actual damages, including $480 in damage to the
6. Furthermore, Defendants illuminated their driveway Brozynskis' fence caused by hooks of the play set that had
with very bright light bulbs that were directed at my been attached to the fence. Krzysztof Brozynski's affidavit
bedroom windows. On one occasion, I approached Jared sets out nearly identical facts.
Kerney and asked him to re-direct the light. Not only was
the light not re-directed, but the existing bulbs were The Brozynskis next filed (on March 3, 2005) an
replaced with higher wattage bulbs that shined throughout amended petition whose facts remained as set out above. It
the night and sometimes during the day. Prior to their added a cause of action for intentional infliction of
moving, Defendants programmed their light system in such emotional distress but no longer sought injunctive relief. At
a way that the lights in the driveway stayed on all day, a hearing held on March 14, 2005, the trial court gave the
every day. . . . Brozynskis thirty days to amend their petition to plead
viable causes of action. Instead of repleading, the
7. Sometime in 2003, when I came from work, I noticed a Brozynskis filed their motion to dismiss without prejudice
wooden construction about 12 feet high protruding over my on April 11, and two weeks later, the Kerneys filed their
fence. It had been erected immediately adjacent to our motion for sanctions.
property fence, although Defendants had considerable space
Rule 13 Sanctions was filed in good faith. Tex. R. Civ. P. 13; GTE Comm. Sys.
v. Tanner, 856 S.W.2d 725, 731 (Tex. 1993). “Thus, the
The trial court's judgment expressly imposed sanctions burden is on the party moving for sanctions to overcome
under Texas Rule of Civil Procedure 13. Appellants first this presumption.” GTE, 856 S.W.2d at 731. A groundless
argue that the trial court abused its discretion by imposing pleading is not sanctionable unless it also was brought in
sanctions under Rule 13 when the Kerneys' motion for bad faith or for the purpose of harassment. Id. The trial
sanctions was brought under chapters 9 and 10 of the Civil court must hold an evidentiary hearing to make the
Practice and Remedies Code. See Tex. Civ. Prac. & Rem. necessary factual determinations about the party's or
Code Ann. §§ 9.011-.014, 10.001-.06 (Vernon 2002). We attorney's motives and credibility. Alejandro v. Robstown
assume without deciding that the Kerneys' motion and ISD, 131 S.W.3d 663, 670 (Tex. App.—Corpus Christi
counterclaim for sanctions is a sufficient basis for the 2004, no pet.). Without such an evidentiary hearing, the
imposition of Rule 13 sanctions. trial court has no evidence before it to determine that a
pleading was filed in bad faith or to harass. Id.;accord
Rule 13 authorizes a trial court to impose sanctions Karlock v. Schattman, 894 S.W.2d 517, 523 (Tex.
against an attorney, a represented party, or both, who file a App.—Fort Worth 1994, orig. proceeding) (“Without
groundless pleading brought in bad faith or brought for the hearing evidence on the circumstances surrounding the
purpose of harassment. Tex. R. Civ. P. 13. The rule defines filing of the pleading signer's credibility and motives, a trial
“groundless” as having “no basis in law or fact and not court has no evidence to determine that a pleading was filed
warranted by good faith argument for the extension, in bad faith or to harass.”). The party moving for sanctions
modification, or reversal of existing law.” Id. In must prove the pleading party's subjective state of mind:
determining whether sanctions are appropriate, the trial bad faith does not exist when a party exercises bad
court must examine the facts available to the litigant and the judgment or negligence; under Rule 13, bad faith exists
circumstances existing when the litigant filed the pleading. only for the conscious doing of a wrong for dishonest,
Alejandro v. Bell, 84 S.W.3d 383, 392 (Tex. App.—Corpus discriminatory, or malicious purposes. SeeMattly v. Spiegel,
Christi 2002, no pet.). The trial court uses an objective Inc., 19 S.W.3d 890, 896 (Tex. App.—Houston [14th Dist.]
standard to determine if a pleading was groundless: did the 2002, no pet.). Improper motive is an essential element of
party and counsel make a reasonable inquiry into the legal bad faith for purposes of imposing sanctions for groundless,
and factual basis of the claim? In re United Servs. Auto bad-faith pleadings. Wallace v. Investment Advisors, Inc.,
Ass'n, 76 S.W.3d 112, 115 (Tex. App.—San Antonio 2002, 960 S.W.2d 885, 889 (Tex. App.—Texarkana 1997, pet.
orig. proceeding). denied).
Rule 13 also provides: “No sanctions under this rule On the above three allegedly groundless allegations, the
may be imposed except for good cause, the particulars of trial court did not make a particular finding of bad faith or
which must be stated in the sanction order.” Tex. R. Civ. P. harassment. SeeMcCain v. NME Hosps., Inc., 856 S.W.2d
13. In reviewing an award of sanctions, we ordinarily look 751, 757 (Tex. App.—Dallas 1993, no writ) (“The trial
to the particulars of good cause set out in the sanction order. court must find that the pleadings are in fact groundless and
Woodward v. Jaster, 933 S.W.2d 777, 782 (Tex. were brought in bad faith or to harass.”). The trial court's
App.—Austin 1996, no writ). failure to make a particular finding on bad faith or
harassment is an abuse of discretion. “Trial courts are not
Analysis
at liberty to ignore the clear and unambiguous language of
this rule. When imposing Rule 13 sanctions, the trial court
The trial court's judgment found that the following
is required to make particularized findings of good cause
three allegations in the Brozynskis' original and amended
justifying the sanctions. Failure to comply with this clear
petitions were “not warranted by existing law and not
directive is an abuse of discretion.” Texas-Ohio Gas, Inc.
supported by any reasonable request for the extension,
modification, or reversal of existing law”: (1) the v. Mecom, 28 S.W.3d 129, 135-36 (Tex. App.—Texarkana
2000, no pet.).
contention—allegedly made by the Brozynskis—that the
Kerneys had a duty to secure the Brozynskis' permission to
We recognize that Mecom also holds that failure to
erect the swing set on the Kerneys' property;[1] (2) the
object to the form of the sanctions order results in the
Brozynskis' contention that the act of looking at adjacent
forfeiture of an objection to the absence of a bad faith or
property with one's eyes is a physical entry or “airspace
harassment finding.[2] See id. at 135. Other courts agree.[3]
invasion” sufficient to constitute trespass; (3) the
We have found no Texas Supreme Court case addressing
Brozynskis' contention of an “airspace invasion” by the
the issue.
use of household lighting is a trespass.
Nevertheless, because Appellants may have waived
Rule 13 directs a trial court to presume that a pleading
that objection to the order, we focus on whether the
evidentiary record supports an implied finding of bad faith moved out of state.
or harassment. See id. at 136; McCain, 856 S.W.2d at 757.
No evidence of Appellants' improper motive was adduced 6) Plaintiffs' filing of the First Amended Petition
at the hearing.[4] At the hearing, the Kerneys' attorney complaining of a continual course of conduct and seeking
testified on the amount of attorney's fees incurred in continuing damages from their next-door neighbor months
defending the suit. He also offered his opinion that the after the Kerneys removed the swing set, sold their home,
Brozysnkis' pleadings were “groundless, filed in bad faith and moved out of state constitutes a bad faith, if not outright
for the purpose of harassment,” but such conclusory fraudulent, pleading filed with the Court.
opinion testimony is not evidence of Walker's or Kathy
Brozynski's motives or credibility. Walker was not present As we note above, in filing their amended petition, the
at the hearing, and the Kerneys did not call Kathy (who Brozynskis removed their claim for injunctive relief but
argued the motion for sanctions for Appellants) as a added a claim for intentional infliction of emotional
witness. Evidence must be admitted under the rules of distress. Again, we find that the trial court had no evidence
evidence at the evidentiary hearing for a trial court to before it to determine Appellants' motives and credibility as
consider it in a Rule 13 context. Bell, 84 S.W.3d at 393; see to these particular allegations.[5] Furthermore, Appellants'
McCain, 856 S.W.2d at 757 (motions and arguments of failure to amend their petition to reflect that the situation
counsel are not evidence in a Rule 13 context). The had changed and that they were no longer seeking future
pleading alone cannot establish that the represented party or damages is only an inadvertent or negligent oversight in the
its attorney brought their case in bad faith or to harass. pleading process. See Mattly, 19 S.W.3d at 896 (“bad faith
McCain, 856 S.W.2d at 757. And the Brozynskis' filing of a does not exist when a party exercises bad judgment or
motion to dismiss (a nonsuit) is not, by itself, evidence of negligence”). These particular pleading errors were
bad faith. See Mattly, 19 S.W.3d at 896-97. borderline trivial mistakes. The trial court abused its
discretion in finding these allegations to have been made in
The trial court had no evidence before it to determine bad faith.
Appellants' motives and credibility. Accordingly, we need
not address the groundlessness findings, and we hold that Conclusion
the trial court abused its discretion in assessing Rule 13
We sustain Appellants' sole issue. We reverse the trial
sanctions against Appellants on the above three allegations
court's judgment and render judgment that the Kerneys take
in the Brozynskis' petitions. See Alejandro, 131 S.W.3d at
nothing on their counterclaim and motion for sanctions.
670; Bell, 84 S.W.3d at 393; Karlock, 894 S.W.2d at
523-24; McCain, 856 S.W.2d at 757-58.
Reversed and rendered
The only other pleading that the trial court cited in the
DISSENTING OPINION
sanctions judgment was the amended petition's allegations
of a continual course of conduct and continuing damages. TOM GRAY, Chief Justice.
The trial court faulted these allegations because the
amended petition was filed after the play set had been The complaints about frivolous lawsuits or lawsuits that
removed and after the Kerneys had moved. The trial court include frivolous claims, bombard us through the media
found: and, as in this case, requests for sanctions. On more than
this occasion, this Court has reversed or refused to consider
4) On November 9, 2004, Plaintiffs' attorney/co-counsel sanction awards for filing a frivolous case or claim.
Cornel W. Walker in a letter to the Court cancelling [sic]
the hearing on Plaintiffs' Request for Temporary Injunction At this juncture, no useful purpose will be served by
acknowledged that the Defendants had removed the swing picking apart the majority's recitation of the factual or legal
set. development of this appeal or their legal analysis. So I will
simply state that, based upon my review of the issues as
5) Plaintiffs' First Amended Original Petition seeking presented challenging the trial court's judgment for
continuing damages “of $500.00 per month from October sanctions, I do not find an abuse of discretion. I would
1, 2003 until the activity made the basis of this action affirm the judgment for sanctions. Accordingly, I
ceases” for Trespass by “airspace invasion” caused by respectfully dissent.
“children who are playing on the play set . . . (who) are
constantly screaming and trespassing by looking into the ---------
Plaintiffs' entire back yard and especially the swimming
pool area . . .” was filed with the Court on March 3, 2005, Notes:
a date well after the Plaintiffs were aware that the
Defendants had removed the swing set, sold their home and [1] Specifically, the trial court found that “the Brozynskis
requested the Court to enter a Temporary Injunction I think . . . the Motion for Sanctions is well-founded in this
requiring the removal of a swing set which Defendants case. It's well-founded because the Plaintiffs' case has not
erected on Defendants' property on the grounds that the stated a cause of action under Texas law. That's not to say
swing set was erected 'without the consent or permission of that the problems that you felt you incurred living next door
Plaintiffs.' The contention that Defendants had a duty to to the Kerneys, that's not a comment on the merits of how
secure Plaintiffs' permission to erect a swing set on you felt or how you felt your privacy was invaded or how
Defendants' property is not warranted by existing law and you felt it was living next to them.
not supported by any reasonable request for the extension,
modification, or reversal of existing law.” This part of the [5] At the March 14 hearing, Kathy acknowledged to the
trial court's judgment misquotes and mischaracterizes the trial court that the Brozynskis were seeking damages for
Brozynskis' allegations in several respects. only past conduct.
First, nothing in the record refers to the play set as a mere ---------
“swing set.” The petition refers to it as a “large wooden
play set.” Kathy's affidavit describes it as a “wooden
construction about 12 feet high . . . erected immediately
adjacent to our property fence, although Defendants had
considerable space to otherwise place this wooden
construction.” Second, the trial court's quotation from the
Brozynskis' petition ('without the consent or permission of
Plaintiffs') is inaccurate. The petition alleged: “Defendants
had not consulted with Plaintiffs nor had they asked for
permission to erect such construction knowing fully well
that the play set had been erected in violation of the
residential deed and to intentionally harass and disrupt
Plaintiffs' life.” The Brozyinskis did not allege that the
Kerneys had a duty to secure their permission to erect the
play set; they alleged (as explained in detail in Kathy's
affidavit) that the Kerneys had not received permission to
breach the subdivision's deed restrictions by building such a
large wooden structure. At the hearing, Appellants argued
that this allegation was that the Kerneys were required to
obtain the permission of the subdivision's architectural
guidelines committee. Finally, as part of the trespass claim,
the petition alleged that the play set's hooks had been
attached to the Brozynskis' fence and thus was an invasion
(i.e., without permission) of the Brozynskis' property, and
Kathy's affidavit described that damage that the play set's
hooks had caused to the Brozynskis' fence.
[2] We note that Rule 13 uses the obligatory term “must”
for the trial court's duty to state the good cause particulars
in the sanction order. See Tex. R. Civ. P. 13.
[3] Alexander v. Alexander, 956 S.W.2d 712, 714 (Tex.
App.—Houston [14th Dist.] 1997, pet. denied); Land v. AT
& S Transp., Inc., 947 S.W.2d 665, 667 (Tex. App.—Austin
1997, no writ); Campos v. Ysleta Gen. Hosp., Inc., 879
S.W.2d 67, 70 (Tex. App.—El Paso 1994, writ denied);
McCain v. NME Hosps., Inc., 856 S.W.2d 751, 755-56
(Tex. App.—Dallas 1993, no writ).
[4] During the hearing, the trial court appeared to believe
that the Brozynskis' motive was not one of bad faith or to
harass, stating to Kathy:
Page 10 Page 19
118 S.W.3d 10 (Tex.App.—Houston [14th Dist.] 2003) [Copyrighted Material Omitted]
Michael T. WILLIS, Francie Willis, Willis Hite Page 20
Enterprises, Inc., and Urban Retreat of Houston, Inc.,
Appellants, [Copyrighted Material Omitted]
v. Page 21
Dan DONNELLY, Appellee and Cross-Appellant, [Copyrighted Material Omitted]
v. Page 22
Michael T. Willis, Cross-Appellee. Billy Shepherd, Houston, for appellants.
No. 14-00-00569-CV. Jeff Nobles, Michael H. Norman, Houston, for
appellees.
Court of Appeals of Texas, Fourteenth District, Houston
Panel consists of Justices YATES, SEYMORE, and
June 19, 2003. GUZMAN.
Rehearing Oct. 30, 2003. OPINION
Page 11 CHARLES W. SEYMORE, Justice.
[Copyrighted Material Omitted] This is a double appeal involving shareholders'
ownership of two closely held corporations, breach of
Page 12 fiduciary duty, breach of contract, and attorney's fees.
[Copyrighted Material Omitted] In the first appeal, consisting of 37 issues (some
overlapping and some containing numerous subparts),
Page 13 Michael T. Willis, Francie Willis, Urban Retreat of
Houston, Inc., and Willis Hite Enterprises, Inc. seek
[Copyrighted Material Omitted]
reversal of a judgment awarding Dan Donnelly $1.7 million
Page 14 for breach of contract, $1.7 million for breach of fiduciary
duty, and a constructive trust on Urban Retreat stock and
[Copyrighted Material Omitted] realty. First, we reverse and remand the breach of contract
claim as more specifically delineated in this opinion
Page 15 because the trial court submitted an improper measure of
damages. Because liability was contested, we may not
[Copyrighted Material Omitted] reverse solely for a new trial on damages. Second, we
affirm the judgment for breach of fiduciary duty. However,
Page 16 because the constructive trust partially provides a double
recovery for breach of fiduciary duty and partially secures
[Copyrighted Material Omitted]
damages for breach of contract, which we are reversing and
remanding, we remand for an election of remedies
Page 17
pertaining to breach of fiduciary duty and reverse that
[Copyrighted Material Omitted] portion of the constructive trust relating to breach of
contract.
Page 18
In the second appeal, Dan Donnelly contends that the
[Copyrighted Material Omitted] trial court erroneously awarded $400,000 in attorney's fees
in connection with his $26,982.58 default on a loan made to
him by Mike Willis. We reverse and remand for a
determination of properly segregated and reasonable However, Urban Retreat's costs were great, and the
attorney's fees incurred in prosecuting the defaulted loan. construction expense had exceeded projections. Further,
Willis and one other minimal shareholder had provided
BACKGROUND only $1,000 as capital contribution. The $800,000
construction loan was in URB's name, although Willis
A. Urban Retreat provided a $600,000 certificate of deposit as collateral.
Additionally, although Willis personally transferred almost
Urban Retreat, a Houston day spa, had its genesis in
$297,000 to URB, he listed it as a loan instead of capital
1989 through the planning of its visionary, Mike Willis, a
contribution. [2] Thus, just six weeks after its grand
Houston businessman. He and a hired consultant, Richard
opening, URB was over $1,000,000 in debt.
Hite, located a site for the spa adjacent to an exclusive
neighborhood, negotiated a lease for the property, and Willis quickly recognized the need to "stop the
obtained a loan to renovate the facility. Willis also formed bleeding." There is evidence that he proposed suspending
two corporations, Urban Retreat of Houston, Inc. (the day Hite's $7,000 a month salary even before the grand opening.
spa, hereinafter "URB") and Willis Hite Enterprises, Inc. He also considered transferring Hite's employment to WHE
(envisioned as a management business for a chain of spas, instead of URB. In early 1990, Hite left Urban Retreat. [3]
hereinafter "WHE"). [1] On January 1, 1990, just two weeks after the spa opening,
the minimal shareholder transferred his 100 shares to
Having created the shell of Urban Retreat, Willis
Willis, leaving Willis the sole shareholder of URB's 1,000
needed only to find staff and clientele. To this end, Hite
issued shares. [4] In April 1990, Willis hired a second
approached Dan Donnelly, a popular hairstylist and
consultant as URB's "non-operating chief financial officer."
president of an established local salon. Willis and Hite
Willis promised to sell this man 25% of URB stock for $1
suggested that Donnelly could transfer his clientele and
after Willis's "capital investment" had been repaid.
staff to the soon-to-open day spa. Donnelly would manage
the spa, continue his hairstyling business, and strive to Nonetheless, URB continued to lose money. Willis
increase business. was thus faced with a financial quandary: he had personally
guaranteed URB's $14,000 a month lease, pledged his
Page 23
$600,000 CD as collateral for the construction loan, and
invested $540,500 of cash by December 31, 1990. If URB
In exchange, if certain longevity or gross revenue goals
did not meet its outside financial obligations, Willis would
were met, Donnelly would gain ownership in URB and
personally lose a large amount of money. The Letter
WHE, an increase in salary, and a seat on WHE's board of
Agreement with Donnelly added to the financial quagmire.
directors. Willis personally assured Donnelly that he would
It prevented Willis from firing Donnelly within the first 12
provide the financial backing for the business.
months of business, except for gross misconduct. It also
Donnelly executed a Letter Agreement on July 10,
1989, which set forth the levels of URB and WHE stock Page 24
ownership and salary he would attain over the years: (1)
guaranteed Donnelly's stock ownership at the 12-month
25% URB stock and 10% of WHE stock after 12 months'
mark because gross revenues were on track. After 12
employment or when the spa's gross revenues equaled those
months, Willis could fire Donnelly and his shares would be
made in Donnelly's salon the prior year; (2) annual
worthless under the Termination provision of the Letter
increases of URB stock, up to 50%, contingent on yearly
Agreement. However, Donnelly was by far the greatest
half-million-dollar gains in gross revenues; (3) $110,000
revenue producer in the spa.
salary for two years; and (4) five percent of gross revenues
as salary in year three and beyond. The Letter Agreement In March 1991 (after Donnelly met revenue goals
also provided each shareholder the right of first refusal to ensuring him 25% URB stock and 10% WHE stock), Willis
purchase another shareholder's stock. Further, it set forth sought to change Donnelly's status. Willis was no longer
the value of Donnelly's shares should his employment willing to provide 100% of the financing unless he was still
terminate: the greater of two times earnings in the prior year "100% owner." He wanted Donnelly to "step up" and "act
or assets minus liabilities. like an owner." Legal documents were prepared, but never
signed, capping Donnelly's ownership at 25% of URB stock
Donnelly transferred his profitable business to URB,
and rescinding the Letter Agreement. Willis also wanted
bringing several hairstylists, manicurists, and other salon
Donnelly to assume some of the debt, but Donnelly
personnel with him. URB held its grand opening in
declined to do so.
mid-December 1989. The gross revenues soon surpassed
those of Donnelly's previous salon. Certainly, it made good business sense for Willis to
minimize his potential losses and work towards Donnelly an additional $20,000. He rolled the previous note
profitability. However, Willis then continued to control into the second, for a total principal of $31,183.70, at eight
Urban Retreat in disregard of Donnelly throughout the percent annual interest, to be repaid from Donnelly's
years. He rationalized that Donnelly had relinquished paychecks. The entire amount would become due if
ownership when he refused to "act like an owner." When Donnelly's employment at URB terminated. After
Donnelly asked about stock issuance, Willis would assure November 1994, Donnelly stopped paying the loan. Francie
him that he intended to live up to the Letter Agreement, but sent him a demand letter, wishing him well in his new
asked to delay until the business "turned the corner." At the endeavor and urging him to "honor the trust that Mike
same time, Willis continued to use URB as a [Willis] placed in you."
wholly-owned, sub-chapter S-corporation for tax benefits.
Willis also unilaterally cut Donnelly's salary [5] in March C. The Lawsuit
1992, supposedly temporarily, and diminished his
management responsibilities. Willis continued to make When Donnelly ignored Francie's demand letter, Willis
"loans" to URB although there is no evidence such loans filed suit for the outstanding $26,982.58. Donnelly
were approved by the board of directors. [6] reciprocated by suing Willis, Francie, URB, and WHE for
breach of the Letter Agreement and breach of fiduciary
Additionally, Willis controlled Urban Retreat through duty, among other claims. The jury ultimately found that
his wife, Francie. He supposedly transferred all of his URB URB and WHE breached the Letter Agreement; Willis and
stock to her. A "unanimous consent of the board" was Francie ratified it; Donnelly was entitled to 50% of URB
prepared in March 1991, but never signed, reflecting URB's stock and 10% of WHE stock; and that contract damages
permission for Francie to convey to Willis a beneficial were $1.7 million. The jury further found that Willis had
interest in URB's option to buy its realty. Then, on July 30, breached his fiduciary duty to Donnelly and that those
1992, Willis and Francie personally purchased the URB damages were $1.7 million. The jury rejected limitations
realty for $1.6 million. On that day, Francie, acting as questions for both issues. As for the loans to Donnelly, the
president, signed a waiver of URB's option. Included in the jury found that he defaulted on the promissory note and
waiver was the statement that a "third party" wished to buy owed $26,982.56 to Willis. Finally, the jury awarded both
the realty and that "said third party has required a release" sides $400,000 in attorney's fees.
of URB's option. One week after closing, the Willises
amended URB's lease, increasing its total rent over the lease Under the trial court's judgment, Donnelly was
term by $280,000. URB's monthly rent of $14,000 remained awarded (1) $1.7 million for the fiduciary duty claim; (2)
the same, though the Willises' monthly note was then only $1.7 million for the contract claim; (3) a constructive trust
$10,800. Further, in the new lease, the Willises obligated on the Urban Retreat realty and on 50% of all URB stock
URB to pay the property taxes. Finally, in March 1993, and 10% of all WHE stock possessed by the Willises or
Francie signed a promissory note on behalf of URB, Urban Retreat; and (4) $400,000 in attorney's fees. The trial
documenting that it owed her husband $1,897,896 in loans. court awarded Mike Willis (1) $26,982.56 for the
[7] promissory note and (2) $400,000 in attorney's fees.
Over these years, Donnelly's personal hairstyling BREACH OF CONTRACT
revenues had increased, as did the overall gross revenues of
In nine of the Willises' issues and three of Urban
the spa. In fact, every revenue goal in the Letter Agreement
Retreat's issues, they attack the judgment against them for
was met. Each time he asked
breach of contract.
Page 25
A. Breach of Contract Jury Findings
about his stock, Willis would assure Donnelly that he would
In their first, second, and third issues, the Willises
live up to the agreement. Finally, in late November 1994,
argue that Donnelly waived breach of contract because he
Francie learned that Donnelly was helping a friend plan a
failed to request jury findings that Willis and Francie
new day spa. When she learned of this, she asked Donnelly
breached the Letter Agreement. However, whether a party
to leave Urban Retreat.
has breached a contract is a question of law for the court,
B. Loans to Donnelly not a question of fact for the jury. Meek v. Bishop, Peterson
& Sharp, P.C., 919 S.W.2d 805, 808 (Tex.App.-Houston
In January 1992, Donnelly asked Willis to borrow [14th Dist.] 1996, writ denied); Garza v. Southland Corp.,
$18,000. He signed a promissory note for that amount at 836 S.W.2d 214, 219 (Tex.App.-Houston [14th Dist.] 1992,
eight percent annual interest, to be repaid $500 a month no writ). "The court determines what conduct is required by
from Donnelly's paychecks. On July 1, 1993, Willis loaned the parties, and, insofar as a dispute exists concerning the
failure of a party to perform the contract, the court submits conduct. K.B. v. N.B., 811 S.W.2d 634, 638 (Tex.App.-San
the disputed fact questions to the jury." Meek, 919 S.W.2d Antonio 1991, writ denied); seeStable Energy, L.P. v.
at 808; seeITT Commercial Fin. Corp. v. Riehn, 796 S.W.2d Newberry, 999 S.W.2d 538, 547 (Tex.App.-Austin 1999,
248, 253 n. 3 (Tex.App.-Dallas 1990, no writ). When facts pet. denied) (ratification can occur if one affirmatively
are undisputed or conclusively established, there is no need acknowledges a contract). Further, whether Hite was the
to submit those issues to the jury. Willises' authorized agent is of no consequence. SeeHays v.
Marble, 213 S.W.2d 329, 333 (Tex.Civ.App.-Amarillo
Page 26 1948, writ dism'd). "One may ratify the acts or contract of
another ... whether the other was his agent and exceeded his
Sullivan v. Barnett, 471 S.W.2d 39, 44 (Tex.1971); Meek, authority as such or was not his agent at all." Id. Thus, it is
919 S.W.2d at 808. the Willises' ratification of the contract that binds them to
perform, not their signatures. We overrule the Willises'
Here, the existence of the Letter Agreement was
fourth and fifth issues.
undisputed; it was also undisputed that Donnelly never
received the benefits promised in the Letter Agreement. The C. Ratification
issues that were disputed, such as whether Donnelly waived
enforcement of the contract (Question 6) and whether the In their sixth issue, the Willises contend that their
Willises ratified it (Question 10), were submitted to the ratification of the contract is insufficient to support
jury. It is uncontroverted that the Willises failed to abide by recovery for breach of contract. They again urge that a
the Letter Agreement. Thus, it was not necessary to submit separate jury finding of breach is necessary. We have
the question about their breach to the jury, and Donnelly's already overruled this contention in our disposition of
failure to request such a question does not result in waiver. issues one through three.
Accordingly, we overrule the Willises' first three issues.
Additionally, in a single sentence in issue six, the
B. Signatories to the Contract Willises argue the evidence is legally and factually
insufficient to show that they ratified or breached the Letter
In their fourth and fifth issues, the Willises argue they Agreement. Bare assertions of error, without citation to the
could not have breached the Letter Agreement because they record, present
were not signatories to it. The parties listed in the Letter
Agreement were Willis, Hite, URB, WHE, and Donnelly. It Page 27
was signed by Hite (individually and as president of WHE)
and Donnelly. Willis's signature line was crossed out. nothing for review. TEX.R.APP. P. 38.1(h); Thedford v.
Union Oil Co. of Ca., 3 S.W.3d 609, 615 (Tex.App.-Dallas
The Willises contend their signatures or an authorized 1999, pet. denied). When a party fails to include citation of
agent's signature was required under the statute of frauds. authority or discussion of relevant facts to support its
The statute of frauds provides: sufficiency contention, we will not perform an independent
review of the record and applicable law to determine
(a) A promise or agreement ... is not enforceable unless the whether the error complained of occurred. Ryan v.
promise or agreement, or a memorandum of it, is Abdel-Salam, 39 S.W.3d 332, 336 (Tex.App.-Houston [1st
Dist.] 2001, pet. denied). Thus, the Willises' sufficiency
(1) in writing; and
challenge is waived. Further, their bald assertion of legally
(2) signed by the person to be charged with the promise or insufficient evidence is readily defeated, given Mike
agreement or by someone lawfully authorized to sign for Willis's own testimony that he intended to abide by the
him. Letter Agreement and their admission that Donnelly never
received his stock.
TEX. BUS. & COM.CODE ANN. § 26.01(a)(2) (Vernon
2002). The Willises argue that they did not sign the contract D. Waiver through Pre-Suit Conduct
nor is there evidence that Hite had authority to bind them.
In the Willises' seventh issue and Urban Retreat's first
In their argument, the Willises ignore the jury's finding and third issues, appellants contend that, as a matter of law,
that they ratified the contract. Ratification is the adoption or Donnelly waived breach of contract by his pre-suit conduct.
confirmation by a person with knowledge of all material Waiver is an affirmative defense. TEX.R. CIV. P. 94;
facts of a prior act that did not then legally bind him and Rogers v. Cont'l Airlines, Inc., 41 S.W.3d 196, 198
that he had the right to repudiate. Avary v. Bank of Am., (Tex.App.-Houston [14th Dist.] 2001, no pet.). "In Texas,
N.A., 72 S.W.3d 779, 788 (Tex.App.-Dallas 2002, pet. waiver occurs when a party intentionally relinquishes a
denied). Such approval can be given through act, word, or known right or engages in intentional conduct inconsistent
with claiming that right." Frost Nat'l Bank v. Burge, 29 Limitations is an affirmative defense, which the
S.W.3d 580, 592 (Tex.App.-Houston [14th Dist.] 2000, no asserting party must prove. Woods v. William M. Mercer,
pet.) (citing Tenneco Inc. v. Enter. Prods. Co., 925 S.W.2d Inc., 769 S.W.2d 515, 517 (Tex.1988). Generally, a cause
640, 643 (Tex.1996)). A party's express renunciation of a of action accrues, and the statute of limitations begins to
known right may establish waiver. Id. It is well established run, when facts come into existence that authorize a
that waiver turns on the question of intent. Ford v. claimant to seek a judicial remedy. Johnson & Higgins of
Culbertson, 158 Tex. 124, 308 S.W.2d 855, 865 (1958). Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 514
Whether waiver has occurred is therefore ordinarily a (Tex.1998). The time for accrual of a cause of action is a
question of fact for a jury to decide. Tenneco, 925 S.W.2d question of law. Moreno v. Sterling Drug, Inc., 787 S.W.2d
at 643. In this case, the jury found in Question 6 that 348, 351 (Tex.1990). A breach of contract claim accrues
Donnelly had not waived breach of contract. [8] when the contract is breached. Stine v. Stewart, 80 S.W.3d
586, 592 (Tex.2002). Appellants argue that when they
When an appellant attacks the legal sufficiency of an failed to transfer the first 25% of stock in 1990, the contract
adverse answer to a finding on which it has the burden of was breached and Donnelly's statute of limitations began to
proof, the appellant must overcome two hurdles. Victoria run.
Bank & Trust Co. v. Brady, 811 S.W.2d 931, 940
(Tex.1991). First, the record must be examined for evidence In contrast, Donnelly argues that his suit was timely,
that supports the finding, while ignoring all evidence to the citing two cases with facts substantially similar to the facts
contrary. Second, if no evidence supports the fact finder's in this case, Pickett v. Keene, 47 S.W.3d 67
answer, then the entire record must be examined to see if (Tex.App.-Corpus Christi 2001, pet. dism'd), and
the contrary proposition is established as a matter of law. Intermedics, Inc. v. Grady, 683 S.W.2d 842
Id.;Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex.App.-Houston [1st Dist.] 1984, writ ref'd n.r.e.). Both
(Tex.1989). Pickett and Intermedics involved contracts in which
portions of ownership in businesses were to be transferred
There is evidence in the record supporting the jury's to parties working for each business. In each case, deadlines
finding that Donnelly did not intentionally relinquish a for such transfers were delayed by the parties. In each case,
known legal right. Donnelly testified, "Mr. Willis ... the business ultimately tried to avoid transferring any
continually told me that ... once we turned the corner, you portion of ownership and fired the worker. And in each
know, that he would at some point live up to the Letter case, the business claimed on appeal that because breach
Agreement. But until that time, I had to live by whatever had occurred with the first missed deadline many years
compensation changes were enacted by Mr. Willis." before, the case was barred by the statute of limitations. In
According to Donnelly, Willis would tell him that he could both cases, the appellate court held that the cause of action
"not issue stock at this time." Mike Willis's testimony accrued at the employee's termination (when the employer
corroborates Donnelly's account. He stated that he merely clearly repudiated the agreement to transfer ownership).
delayed issuing the stock and that had he been asked, he Pickett, 47 S.W.3d at 77; Intermedics, 683 S.W.2d at 847.
would have complied with the Letter Agreement. Because
there is evidence supporting the jury's finding, we do not In asserting the statute of limitations, appellants
review the record for evidence to the contrary. Accordingly, disregard the undisputed evidence that deadlines were
we overrule postponed so the Willises could reap tax benefits and URB
could "turn the corner." "Even when an exact date of
Page 28 performance is specified in the contract, this provision can
be waived by the parties." Sieber & Calicutt, Inc. v. La
the Willises' seventh issue and Urban Retreat's first and Gloria Oil & Gas Co., 66 S.W.3d 340, 347 (Tex.App.-Tyler
third issues. 2001, pet. denied); seeIntermedics, 683 S.W.2d at 846; see,
e.g.,Pickett, 47 S.W.3d at 77. Further, an extension of time
E. Statute of Limitations
to perform can be express or implied and does not affect the
other provisions of the contract. Intermedics, 683 S.W.2d at
In the Willises' eighth issue and subpart (a) of Urban
846. The evidence indicates that appellants intended to
Retreat's second issue, they contend that Donnelly's breach
honor the agreement "at some point." Donnelly relied on
of contract claim is barred by the statute of limitations. A
breach of contract action is subject to a four-year statute of Willis's assurances and accepted the delays. There was no
clear intent by appellants to repudiate the Letter Agreement
limitations. TEX. CIV. PRAC. & REM.CODE ANN. §
until Donnelly's termination. SeePickett, 47 S.W.3d at 77;
16.004 (Vernon 2002). Donnelly filed his lawsuit in August
1995. The jury found there was no failure to comply before Intermedics, 683 S.W.2d at 847. Thus, the contract claim
August 24, 1991, making Donnelly's claim timely. did not accrue before August 24, 1991, and Donnelly's
claims were timely asserted in August 1995. We overrule
the Willises' issue eight and Urban Retreat's issue two,
subpart (a). denied) (emphasis added). Appellants' oral request is thus
unsatisfactory. Further, the appellants filed a written request
Page 29 for this question too late, after the jury returned its verdict.
Waiting until after verdict to file a request for a
F. Response to Jury Note supplemental jury instruction is untimely. SeeScott Fetzer
Co. v. Read, 945 S.W.2d 854, 871 (Tex.App.-Austin 1997),
In the Willises' ninth issue and Urban Retreat's issue
aff'd, 990 S.W.2d 732 (Tex.1999).
two, subpart (b), appellants contend the trial court
improperly responded to the following jury note about the Additionally, appellants have not provided case law
statute of limitations: that their proposed supplemental question was legally
correct, while Question 7 was not. The statute of limitations
Does an answer of yes to question no. 7 [the statute of
was their affirmative defense, and they voiced no objection
limitations question] indicate that the failure to comply
to Question 7 during the charge conference. Lastly,
[with the Letter Agreement] happened before that date and
appellants' argument about their proposed supplemental
excludes the possibility that it happened on or after that
jury question simply reiterates their previous points of error,
date? [9]
which
We find that appellants' complaint is waived because (1) the
Page 30
record fails to sufficiently reflect (a) that a supplemental
instruction was given to the jury or (b) the contents of such we have overruled, about accrual of a contract claim.
an instruction; and (2) appellants incorrectly and untimely
presented their requested supplemental instruction to the For the above reasons, we overrule the Willises' issue
trial court. nine and Urban Retreat's issue two, subpart (b).
To show error regarding a supplemental jury BREACH OF FIDUCIARY DUTY
instruction, the record must reflect the contents of the
instruction and that the instruction was given. Keene Corp. The Willises' next ten issues address Mike Willis's
v. Gardner, 837 S.W.2d 224, 228-29 (Tex.App.-Dallas breach of fiduciary duty.
1992, writ denied). In this case, neither the jury's note nor
the trial court's written response are included in the clerk's A. Existence of Majority Shareholder/Minority
record. [10] Further, while the reporter's record repeats the Shareholder Relationship
jury's question word-for-word, it does not contain the trial
court's supplemental instruction verbatim. The trial court's In their tenth, eleventh, and twelfth issues, the Willises
response was apparently written, extensively discussed by argue that there is no evidence of breach of fiduciary duty
the parties and the court, and altered throughout the because, after October 1990, there was never a
discussion. However, the final wording of the response is majority-minority shareholder relationship between Willis
not reflected in the reporter's record. Additionally, at the and Donnelly. Specifically, Willis argues that Francie
end of discussion about the jury's note, the reporter's record became sole shareholder of Urban Retreat in October 1990,
denotes only "jury deliberating," not whether an instruction and thus he had no majority shareholder's duty after that
was actually delivered to the jury. See id. (holding court time. Further, he argues that Donnelly was never a
reporter's notation that "whereupon the jury continued to shareholder.
deliberate" was insufficient to show court delivered
When a party without the burden of proof challenges
additional charge). Thus, there is an insufficient record
the legal sufficiency of the evidence to support an adverse
showing either the contents of the supplemental instruction
jury finding, we construe the issue as a "no evidence" point.
or that the instruction was given to the jury.
SeeGooch v. Am. Sling Co., 902 S.W.2d 181, 183-84
Next, appellants argue the trial court should have (Tex.App.-Fort Worth 1995, no writ). In determining a "no
provided the supplemental question, "What is the earliest of evidence" point, we are to consider only the evidence and
any breach you have found?" in response to the jury's note. inferences that tend to support the finding and disregard all
However, appellants have waived error because they evidence and inferences to the contrary. Catalina v. Blasdel,
requested this supplemental question orally during jury 881 S.W.2d 295, 297 (Tex.1994). If there is more than a
deliberations. "To complain of the trial court's omission of a scintilla of such evidence to support the finding, the claim is
requested instruction on appeal, a party is obliged to make a sufficient as a matter of law. Browning-Ferris, Inc. v.
written request to the trial court for a substantially correct Reyna, 865 S.W.2d 925, 928 (Tex.1993).
instruction." Jarrin v. Sam White Oldsmobile Co., 929
The record includes evidence that Willis transferred
S.W.2d 21, 25 (Tex.App.-Houston [1st Dist.] 1996, writ
stock to Francie as late as October or November 1991.
Additionally, Francie testified that a magazine article in (Tex.App.-Houston [1st Dist.] 1996, no writ).
January 1991 identified her husband and Donnelly as the
owners of Urban Retreat. This article was written In this case, breach of contract arose from failure to
approximately one month after the Letter Agreement transfer shares to Donnelly and failure to compensate him at
contemplated transfer of 25% of URB stock and 10% WHE the rate set forth in the Letter Agreement. Donnelly alleged
stock to Donnelly. Further, shortly after March 1991, she that breach of fiduciary duty arose from Willis's (1)
was privy to a meeting between her husband and Donnelly purchase of the URB realty; (2) lease of the realty to URB
in which Willis asked Donnelly to cap his ownership for the total debt on the property; (3) treatment of capital
interest in URB at 25%. This is more than a scintilla of contributions as loans; (4) representation that Urban Retreat
evidence showing that both Donnelly and Willis were was worthless; and (5) personal use of Urban Retreat's tax
shareholders in Urban Retreat after October 1990. benefits. The damages for breach of contract, more fully
Accordingly, we overrule issues ten, eleven, and twelve. addressed below, were the unpaid compensation and fair
market value of the Urban Retreat stock. In contrast, the
B. Claim Sounds in Contract Only damages for breach of fiduciary duty involved the value of
the realty and the benefits personally taken by Willis. Thus,
In issue 13, the Willises contend that a party cannot Donnelly's injuries did not arise solely from breach of the
claim breach of fiduciary duty when the only alleged Letter Agreement. Accordingly, we do not agree that the
damages are the subject of a contract. The Willises argue damages sought were solely contract damages. We overrule
that Donnelly's only alleged damages arise from breach of issue thirteen.
the Letter Agreement; thus, the claim sounds only in
contract. SeeSouthwestern Bell Tel. v. DeLanney, 809 C. Existence of Fiduciary Relationship
S.W.2d 493, 494 (Tex.1991). It is often difficult to
determine whether a party's cause of actions sound in In their fourteenth issue, the Willises contend the trial
contract or tort or both--i.e., a "contort." Ludlow v. court erred in finding that a fiduciary relationship existed
DeBerry, 959 S.W.2d 265, 275 (Tex.App.-Houston [14th between Willis and Donnelly and in instructing the jury that
Dist.] 1998, no pet.); seeJim Walter Homes, Inc. v. Reed, such a relationship existed. [11] Whether a fiduciary
711 S.W.2d 617, 617 (Tex.1986). A two-part test, set forth relationship exists is normally a question of fact for the
in DeLanney, guides this determination. 809 S.W.2d at jury. Procom Energy, L.L.A. v. Roach, 16 S.W.3d 377, 382
494-95. (Tex.App.-Tyler 2000, pet. denied); Hoggett v. Brown, 971
S.W.2d 472, 488 (Tex.App.-Houston [14th Dist.] 1997, pet.
First, we look to the source of the duty to act. Id. at denied); Farah, 927 S.W.2d at 675. "When the issue is one
494. If the conduct in question gives rise to liability only of no evidence or conclusive evidence, the issue is a
because it breaches an agreement between the parties, the question of law." Farah, 927 S.W.2d at 675. Here, the
claim ordinarily sounds in contract. Id. In this first step, we Willises contend that there was no evidence of a fiduciary
"must look to the substance of the cause of action and not relationship or, conversely, the evidence conclusively
necessarily the manner in which it was pleaded." Reed, 711 shows no fiduciary relationship exists.
S.W.2d at 617-18.
"[A] co-shareholder in a closely held corporation does
Page 31 not as a matter of law owe a fiduciary duty to his
co-shareholder." Hoggett, 971 S.W.2d at 488. Instead, the
Second, we consider the nature of the remedy or damages existence of such a duty depends on the circumstances.
sought by the claimant. DeLanney, 809 S.W.2d at 494. "The Pabich v. Kellar, 71 S.W.3d 500, 504-05 (Tex.App.-Fort
nature of the injury most often determines which duty or Worth 2002, pet. denied). For example, a fiduciary duty
duties are breached. When the injury is only the economic exists if a confidential or "informal" relationship exists. Id.
loss to the subject of a contract itself, the action sounds in at 505; In re Estate of Fawcett, 55 S.W.3d 214, 220
contract alone." Reed, 711 S.W.2d at 618. (Tex.App.-Eastland 2001, pet. denied). Further, fiduciary
relationships may be created by contract; through the
Additionally, the contract between the parties may repurchase of a shareholder's stock in a closely held
create both contract and tort duties. Id.; seeDeLanney, 809 corporation, seeFawcett, 55 S.W.3d at 220; in
S.W.2d at 494 n. 1 ("[S]ome contracts involve special
relationships that may give rise to duties enforceable as Page 32
torts...."). "[A] plaintiff is not precluded from asserting a
tort cause of action solely because his damages are certain circumstances in which a majority shareholder in a
analogous to the damages sought in a contractual claim." closely held corporation dominates control over the
Farah v. Mafrige & Kormanik, P.C., 927 S.W.2d 663, 674 business, Hoggett, 971 S.W.2d at 488 n. 13; and in closely
held corporations in which the shareholders "operate more
as partners than in strict compliance with the corporate extend this opportunity to Donnelly. SeeThompson v.
form." DeBord v. Circle Y of Yoakum, Inc., 951 S.W.2d Hambrick, 508 S.W.2d 949, 951-54 (Tex.Civ.App.-Dallas
127, 133 (Tex.App.-Corpus Christi 1997), rev'd on other 1974, writ ref'd n.r.e.) (fact issue whether majority
grounds, 967 S.W.2d 352 (Tex.1998). shareholder's sale of shares without offering right of first
refusal to minority shareholder was a breach of fiduciary
We disagree that there was no evidence of, or duty). Further, Willis unilaterally cut Donnelly's salary and
alternatively evidence conclusively disproving, a fiduciary tried to cap his ownership interest, after delaying issuance
relationship. There is evidence tending to show that Mike of his stock. Willis's own discovery answers reveal that he
Willis engaged in oppressive conduct [12] and dominated decided Donnelly was not acting like an owner, and he
control over the business. SeeHoggett, 971 S.W.2d at 488 n. justified treating him like a nonowner for that reason.
13. For instance, Willis alone reaped personal tax SeeDavis v. Sheerin, 754 S.W.2d 375, 382
advantages by treating URB as a wholly-owned business. (Tex.App.-Houston [1st Dist.] 1988, writ denied)
Willis, not Urban Retreat or the board of directors, hired a (conspiring to deprive one of ownership in a corporation is
new CEO and promised him ownership in URB if Willis's oppressive conduct). Finally, case law indicates Willis
capital investment was repaid. Further, the evidence shows would owe a fiduciary duty to Donnelly in repurchasing his
that although Willis promised to provide cash capital shares. SeeFawcett, 55 S.W.3d at 219-20.
contributions, he continually treated all but $1,000 of such
contributions over the years as loans. There is evidence that These examples defeat the Willises' argument that only
Willis's promises to provide capital were inducements to legal absolutes existed, i.e., no evidence supported the
Donnelly to join the business. SeeWillis, 997 S.W.2d at 801 existence of a fiduciary relationship or that they
(defining oppressive conduct as that which defeats the conclusively disproved the existence of a fiduciary
minority shareholder's expectations that were reasonable relationship. [15]
and central to the decision to join the venture). The
evidence shows that Willis kept Urban Retreat thinly Lastly, the Willises contend because it is a question of
capitalized and thus limited its on-going ability to operate. fact, the trial court erred in instructing the jury that a
And, if debts always surpassed income and assets, fiduciary relationship existed. [16] However, the Willises
Donnelly's shares would be worth little to nothing under the failed to object to Question 22 in the charge on this basis.
Termination provision of the Letter Agreement (defining [17] Instead, they objected as follows:
share value as the greater of two times prior year's earnings
or assets minus liabilities). Plaintiffs would object to Question No. 22 in that there is
no evidence to support submission of the issue.
Further, after Willis could not convince Donnelly to
cap his ownership interest, he found a way to purchase the Plaintiffs object to the submission of Question No. 22
spa realty for himself. First, a corporate document was because as a matter of law, Mike Willis owes no fiduciary
prepared allowing Francie to assign Willis an interest in the duty to Dan Donnelly.
spa's option. Later, he bought the realty, having Francie
Page 34
waive URB's option the day of closing. Although URB
supposedly could not afford to buy the realty, the Willises These objections were insufficient to alert the trial court
then charged the total debt to URB through rent. [13] By that existence of a fiduciary relationship was a fact question
purchasing the realty, Willis also ensured that Donnelly's for the jury. SeeState Dept. of Highways & Pub. Transp. v.
stock value decreased under the Letter Agreement. [14]
Payne, 838 S.W.2d 235, 241 (Tex.1992) (test is whether the
These could be construed as purposeful actions to dilute the party made the trial court aware of the complaint, timely
value of shares while employing the business and its assets and plainly, and obtained a ruling); see, e.g.,McAllister v.
solely for Willis's own benefit. See generallyDuncan v.
Oman, 2001 WL 870037, at *1 (Tex.App.-Houston [14th
Lichtenberger, 671 S.W.2d 948, 953 (Tex.App.-Fort Worth Dist.] Aug. 2, 2001, no pet.) (not designated for
1984, writ ref'd n.r.e.) (citing Patton v. Nicholas, 154 Tex. publication). Instead, the objections raise "no evidence" and
385, 279 S.W.2d 848 (1955), regarding lowering of "conclusive evidence," which we rejected above. To
minority's share value). preserve error, the Willises were required to object that the
question was omitted. See TEX.R. CIV. P. 278. The record
Page 33
is devoid of the slightest indication from the Willises that
Additionally, the evidence shows that Willis existence of a fiduciary relationship was a jury question.
transferred all the URB stock to Francie as late as Thus, the trial court's error, if any, is not a ground for
November 1991. By that time, Donnelly was a minority reversal in this case. See id.
owner in the business, and he had a right of first refusal to
Accordingly, we overrule issue 14.
purchase the shares per the Letter Agreement. Willis did not
D. Failure to Obtain Findings error. Further, we disagreed with the Willises' two
contentions that (1) there was "no evidence" of a fiduciary
In their fifteenth issue, the Willises argue that relationship; or (2) they conclusively proved the
Donnelly failed to obtain a jury finding on the existence of nonexistence of such a relationship. We believe the
a fiduciary relationship. As we addressed in regard to issue evidence raised a fact issue on the existence of a fiduciary
14, the Willises did not preserve error to complain about the relationship between Willis and Donnelly, individually.
lack of a jury finding. In their sixteenth issue, the Willises
contend that Donnelly "failed to secure a finding as to Accordingly, we overrule issue 18.
ownership of any shares." This point of error is vague, and
the Willises offer no argument, citation to the record, nor G. Statute of Limitations on Breach of Fiduciary
authority in support of it. They have waived this issue. Duty
Thedford, 3 S.W.3d at 615; Casteel-Diebolt v. Diebolt, 912
S.W.2d 302, 304-05 (Tex.App.-Houston [14th Dist.] 1995, In their nineteenth issue, the Willises contend that
no writ) (an issue not supported by authority is waived). Donnelly's claim for breach of fiduciary duty is barred by
Accordingly, we overrule issues 15 and 16. the statute of limitations. There is a four-year statute of
limitations for breach of fiduciary duty. TEX. CIV. PRAC.
E. Burden of Proof & REM.CODE ANN. § 16.004 (Vernon 2002). The
Willises argue that the only alleged breach of fiduciary duty
In issue 17, the Willises complain that the trial court was Willis's failure to disclose information before Donnelly
improperly placed the burden of proof for breach of executed the Letter Agreement on July 10, 1989. Donnelly
fiduciary duty on Mike Willis. The Willises argue that did not sue until August 25, 1995, more than four years
before the burden of proof could be placed on Mike Willis, later.
Donnelly was first required to establish the existence of a
fiduciary relationship. This argument is an attempt to However, Donnelly's petition also alleged Mike
circumvent the Willises' failure to object or to request the Willis's self-dealing, treating capital contributions as loans,
missing jury question on the existence of a fiduciary failing to keep proper and accurate financial records, and
relationship. Further, the profiting fiduciary has the burden improperly transferring stock to Francie. Evidence shows
to prove questioned transactions were "fair, honest, and that (1) Francie received 100% of the URB shares as late as
equitable." Estate of Townes v. Townes, 867 S.W.2d 414, October or November 1991; (2) Mike Willis made
417 (Tex.App.-Houston [14th Dist.] 1993, writ denied); numerous "loans" to URB after August 1991; and (3) Mike
Miller v. Miller, 700 S.W.2d 941, 947 (Tex.App.-Dallas and Francie bought the URB property and waived the spa's
1985, writ ref'd n.r.e.); seeTex. Bank & Trust Co. v. Moore, option to purchase it in July 1992. Because these alleged
595 S.W.2d 502, 508-09 (Tex.1980). The trial court did not breaches of fiduciary duty occurred within four years of
misplace the burden of proof. We overrule issue seventeen. suit, Donnelly's claims are not barred by the statute of
limitations. We overrule issue nineteen.
F. Standing to Sue
CONSTRUCTIVE TRUST
In issue 18, the Willises argue that Donnelly was
required to bring a shareholder's derivative suit to assert In their twentieth, twenty-first, and twenty-second
claims on behalf of the corporation for breaches of fiduciary issues, the Willises contend that the trial court erroneously
duty. However, from our review of Donnelly's pleadings, imposed a constructive trust on the URB realty, 50% of
we conclude that he did not sue on behalf of the URB stock and 10% of WHE stock because (1) a fiduciary
corporation. He only sued in an individual capacity. relationship did not exist or did not exist apart from the
dealings made the basis of the lawsuit; (2) no fraud was
To the extent the Willises are actually arguing that no established; (3) no pleadings support imposition of
fiduciary duties flowed to Donnelly individually, we refer equitable relief; (4) there was no commingling; (5)
to our analysis of issue fourteen. As discussed, there are equitable relief is improper to enforce contractual
instances in Texas law in which shareholders in closely held obligations and where the plaintiff gave services; (6)
corporations owe other shareholders fiduciary duties. As we post-verdict evidence was improperly admitted; (7)
acknowledged in discussing issue fourteen, the existence of imposition of the constructive trust violates their right to
such a fiduciary relationship is a question of fact for the trial by jury and due process; (8) there was no evidence,
jury. As we further held, the Willises cannot complain on insufficient evidence, and no finding upon which to impose
appeal about the absence of a jury finding because they a constructive trust; (9) constructive trusts should not be
failed to preserve imposed where money damages are available; and (10) a
constructive trust is improper because Donnelly had
Page 35 unclean hands. In issues five, six, and seven, Urban Retreat
argues many of these same subissues and also claims that closely held corporation wrongly sold corporate assets and
laches prevent imposition of the constructive trust. mingled proceeds with his own assets); Andrews v. Estate of
Andrews, 326 S.W.2d 203, 207 (Tex.Civ.App.-Waco 1971,
A. Error in Imposing Constructive Trust no writ) (plaintiffs sought percentage of deceased's estate
on theory that farm income from their land had been
We address the first eight subissues, which constitute commingled with the estate). However, neither case stands
the Willises' issue 20 and Urban Retreat's issue five and for the proposition that commingling is a prerequisite for
portions of issue six. [18] imposition of a constructive trust. Further, commingling
was not an issue at trial in this case. Appellants' argument is
Again, appellants contend no fiduciary relationship
thus inapposite.
existed. Accordingly, we refer to our disposition of issue
14. Second, appellants argue that fraud must be shown Fifth, appellants argue that a constructive trust was
before a constructive trust is imposed. However, "[a]ctual improper (1) to enforce contract rights and (2) because
fraud, as well as breach of a confidential relationship, Donnelly "parted with services, not property," and the
justifies the imposition of a constructive proper remedy for services is payment. As detailed later in
this opinion, we are reversing the contract claim because the
Page 36
jury considered the wrong measure of damages. Thus, we
are also reversing the portion of the constructive trust that
trust." Meadows v. Bierschwale, 516 S.W.2d 125, 128
addressed Donnelly's contract remedies. Additionally, we
(Tex.1974); seeGaines v. Hamman, 163 Tex. 618, 358
have already held that Donnelly sought damages for breach
S.W.2d 557, 560 (1962); Omohundro v. Matthews, 161
of fiduciary duty different from and in addition to those for
Tex. 367, 341 S.W.2d 401, 405 (1960); see alsoDuncan v.
breach of contract. Further, a constructive trust has a "very
Lichtenberger, 671 S.W.2d 948, 952, 954 (Tex.App.-Fort
broad function of redressing wrong or unjust enrichment in
Worth 1984, writ ref'd n.r.e.) (stating fraud is not required
keeping with the basic principles of equity and justice."
for breach of fiduciary duty; equitable relief is available for
such breach). Ginther v. Taub, 675 S.W.2d 724, 728 (Tex.1984). To
disallow a constructive trust because a party renders
Third, appellants contend that there are no pleadings to services only is "an unduly restrictive view of the remedy of
justify imposition of the constructive trust on the realty. constructive trust." Meadows, 516 S.W.2d at 131. We
They do not cite any authority for the proposition that overrule this subissue.
Donnelly, in seeking a constructive trust, must plead the
specific property to which it should attach. In his petition, Sixth, appellants protest that the trial court improperly
admitted evidence post-verdict, specifically the affidavit of
Donnelly sought a constructive trust because the Willises
had been unjustly enriched by retaining all the Urban Sal Rodriguez, which was attached to Donnelly's
Retreat stock. His pleadings for a constructive trust also
Page 37
refer to and incorporate pleadings about Willis's
self-dealing, false characterization of capital, complete supplemental motion to enter judgment. Donnelly attached
control of the business, and inaccurate record keeping. the affidavit as support for his post-verdict request to order
Further, Donnelly generally sought "all such other damages amended URB tax returns. Appellants objected to the
as [he] may be justly entitled," and all "relief, at law or in affidavit, but there is no ruling in the record as required by
equity[,] to which [he] is justly entitled." The appellants did Rule of Appellate Procedure 33.1(a)(2). Further, the record
not specially except to the pleadings for equitable relief. does not reflect whether the trial court actually considered
"When a party fails to specially except, courts should the affidavit. To the contrary, the trial court did not order
construe the pleadings liberally in favor of the pleader." amendments to the tax return. We thus overrule this
Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, subissue.
897 (Tex.2000). We hold that Donnelly's pleadings are
sufficient to support a claim for equitable relief, justifying Seventh, appellants contend that imposition of the
the court's imposition of a constructive trust. Accordingly, constructive trust violates their right to due process and trial
we overrule this subissue. by jury. Specifically, they complain that the trial court
entered judgment on claims neither pleaded nor submitted
Fourth, appellants argue that a constructive trust was to the jury. We have already addressed these claims as
improper because the URB realty was never commingled follows: (1) we found Donnelly's pleadings for equitable
with Urban Retreat stock. The cases appellants cite show relief sufficient for imposition of a constructive trust and (2)
that a constructive trust is proper when a fiduciary we also found that appellants failed to preserve error that
commingles assets. SeeGraham v. Turner, 472 S.W.2d 831, the existence of a fiduciary relationship was a fact question
840 (Tex.Civ.App.-Waco 1971, no writ) (shareholder in for the jury. The jury's finding of breach of fiduciary duty
permits imposition of a constructive trust. SeeCarr v. Weiss, relation."). The trial court was not precluded from imposing
984 S.W.2d 753, 767 (Tex.App.-Amarillo 1999, pet. a constructive trust. Accordingly, we overrule the Willises'
denied). issue 21 and Urban Retreat's issue seven.
Eighth, the Willises contend in one sentence, without C. Unclean Hands
citation to the record or to authority, that "there was no
evidence, no legally sufficient evidence, no factually In the Willises' issue 22 [20] and the second portion of
sufficient evidence, and no finding of any basis upon which Urban Retreat's issue six, appellants argue that Donnelly's
to impose a constructive trust on the stock or real property." claims for equitable relief are barred by the doctrine of
In the context of the Willises' issue 20, this one sentence is unclean hands. One who seeks a constructive trust must
merely a catch-all included at the end of briefing come with clean hands regarding the issue in dispute.
four-and-one-half pages long. Because it is multifarious, SeeOmohundro, 341 S.W.2d at 410; see alsoWynne v.
lacking in substantive analysis, and devoid of citation to Fischer, 809 S.W.2d 264, 267 (Tex.App.-Dallas 1991, writ
authority and the record, they have waived this eighth denied). It is within a trial court's sound discretion to
subissue. SeeRyan v. Abdel-Salam, 39 S.W.3d 332, 336 determine whether a party has unclean hands and whether
(Tex.App.-Houston [1st Dist.] 2001, pet. denied); Interstate the party's alleged fraudulent actions should bar equitable
Northborough P'ship, 8 S.W.3d at 7 n. 2; Keever v. Finlan, relief. Thomas v. McNair, 882 S.W.2d 870, 880
988 S.W.2d 300, 314 (Tex.App.-Dallas 1999, pet. dism'd). (Tex.App.-Corpus Christi 1994, no writ).
Accordingly, having addressed these eight subissues, Appellants contend Donnelly's hands are unclean
we overrule the Willises' issue 20, Urban Retreat's issue because he breached his contract with them. Specifically,
five, and the first portion of Urban Retreat's issue six. they contend he failed to bring his entire former staff to
Urban Retreat, produced less revenue than promised, and
B. Money Damages Available attempted to establish a competing business. [21] However,
breach of contract is an issue separate from breach of
We next address the ninth subissue, which comprises fiduciary duty. To bar equitable relief, a plaintiff's
the Willises' twenty-first issue and Urban Retreat's seventh inequitable conduct should arise with regard to the issue in
issue. Appellants contend that the trial court erred in dispute. Wynne, 809 S.W.2d at 267. Further, a party
awarding equitable relief because Donnelly failed to complaining of an opponent's unclean hands " 'must show
establish that he lacked an adequate remedy at law. In other that he himself has been injured by such conduct to justify
words, appellants claim that where money damages are the application of the principle to the case.' " Omohundro,
available, a constructive trust may not be imposed. [19] 341 S.W.2d at 410 (quoting 2 Pomeroy's Equity
Jurisprudence at 99); seeThomas, 882 S.W.2d at 880; see
The thrust of appellants' argument is that (1) a alsoNorris of Houston, Inc. v. Gafas, 562 S.W.2d 894, 897
constructive trust is an equitable remedy; (2) equitable (Tex.Civ.App.-Houston [1st Dist.] 1978, writ ref'd n.r.e.)
remedies such as injunctions and specific performance (hairstylist claimed salon sought equity with unclean hands,
require a lack of an adequate remedy at law; (3) thus, an but she failed to show harm). Even if we assume Donnelly
inadequate remedy at law is a prerequisite to imposition of breached his contract, appellants have neither argued nor
a constructive trust; (4) money damages are available to shown they were harmed. For instance, they do not set forth
compensate any breach of fiduciary duty in this case; and the difference in revenue promised by Donnelly versus
(5) Donnelly is accordingly not entitled to a constructive revenue earned, nor do they show that Urban Retreat's
trust. However, the forms of constructive trusts are revenue suffered because of Donnelly's assistance in
"practically without limit" and may be "applied wherever creating a competing salon.
necessary for the obtaining of complete justice, although
the law may also give the remedy of damages against the Because (1) Donnelly's alleged unclean hands involve
wrong-doer." Fitz-Gerald v. Hull, 150 Tex. 39, 237 S.W.2d contract--a separate issue--and (2) appellants have not
256, 263 (1951) (emphasis added); Wheeler v. Blacklands shown harm, the trial court did not abuse its discretion in
Prod. Credit Ass'n., 627 S.W.2d 846, 849 (Tex.App.-Fort disregarding appellants' argument of "unclean hands."
Worth 1982, no writ); cf. RESTATEMENT OF Accordingly, we overrule issue 22 and the second portion
RESTITUTION of Urban Retreat's issue six.
Page 38 D. Laches
§ 160 cmt. e (1937) (constructive trust appropriate for cases In the remainder of issue six, Urban Retreat argues that
involving title to land or where "payment or transfer was Donnelly's claim for equitable relief is barred by laches.
procured by an abuse of a fiduciary or confidential There are two essential elements of laches: "(1)
unreasonable delay by one having legal or equitable rights determining what sum would compensate the injured
in asserting them; and (2) a good faith change of position by party." Allied Vista, Inc. v. Holt, 987 S.W.2d 138, 141
another to his detriment because (Tex.App.-Houston [14th Dist.] 1999, pet. denied). The
proper measure of damages is a question of law. Id. In the
Page 39 jury charge, the trial court instructed the jury to measure the
value of Donnelly's shares under a provision in the Letter
of the delay." Rogers v. Ricane Enter., Inc., 772 S.W.2d 76, Agreement entitled "Other Matters Relating to Shares." The
80 (Tex.1989). Extraordinary circumstances, which would Letter Agreement contains two provisions about share
work a grave injustice, must exist before laches bars a suit valuation, one under the heading "Termination" and the
filed within the limitations period. Caldwell v. Barnes, 975 other under "Other Matters Relating to Shares." The
S.W.2d 535, 538 (Tex.1998). "Termination" provision requires Donnelly to sell his shares
back if his employment terminates after 12 months. [22]
Urban Retreat argues that it has been prejudiced
Under the
because memories have faded over time. However, fading
memory "is one of the policy reasons behind the statute of Page 40
limitations." Wakefield v. Bevly, 704 S.W.2d 339, 345
(Tex.App.-Corpus Christi 1985, no writ). Faded memory "Termination" provision, share value equals the greater of
does not establish laches in a suit filed before the statute of (a) assets minus liabilities or (b) two times previous year's
limitations has expired. Id. The case cited by Urban Retreat, earnings. Using this provision, Donnelly's shares are
Fazakerly v. Fazakerly, 996 S.W.2d 260, 265 valueless because Urban Retreat's liabilities and costs have
(Tex.App.-Eastland 1999, pet. denied), is distinguishable. It always outstripped its tangible assets and revenue.
involved a daughter's challenge to her father and Appellants urge that this provision should be used as the
stepmother's antenuptial agreement after expiration of the measure of damages because Donnelly was terminated.
statute of limitations; 25 years after the agreement was
signed; eight years after the father's death; and after the In contrast, the shares have value if the provision in
stepmother became incapacitated by Alzheimer's. In "Other Matters Relating to Shares" applies. Under that
contrast, in this case, the statute of limitations did not provision, share value equals the market value of the real
expire, and the essential parties are alive and competent. estate plus the previous 12 months' gross revenue. [23]
Further, Urban Retreat has not identified its good faith but Thus, Urban Retreat's debts would not be considered.
detrimental change in position due to Donnelly's delay in However, the plain language of the Letter Agreement
filing suit. SeeRogers, 772 S.W.2d at 80. For these two reveals that "Other Matters Related to Shares" is activated
reasons, we overrule Urban Retreat's assertion of laches. only in two situations: (1) when a shareholder exercises a
We overrule Urban Retreat's issue six. right of first refusal and (2) in an exchange of stock if
multiple "Urban Retreat companies" combine.
DAMAGES
The parties simply disagree regarding which of the two
In their twenty-third, twenty-fourth, and twenty-fifth provisions should be used to value the shares. However,
issues, the Willises contend that the trial court improperly neither of the two is a liquidated damages provision
instructed the jury about the measure of damages for breach applicable in the event of breach of contract. SeeLafarge
of contract and breach of fiduciary duty and improperly Corp. v. Wolff, Inc., 977 S.W.2d 181, 188 n. 13
"stacked" the damages, which permitted a triple recovery. (Tex.App.-Austin 1998, pet. denied). Although parties may
Urban Retreat urges these same issues in points of error stipulate the amount of damages to be recovered in the
eight, nine, and ten. event of breach of contract, "[s]uch an agreement ... must be
expressed, and in the absence of an express agreement for
A. Breach of Contract Damages liquidated damages the court will not make one for the
parties." Id.; see alsoNewsom v. State, 922 S.W.2d 274, 281
First, appellants argue that the trial court submitted the
(Tex.App.-Austin 1996, writ denied) ("Damages become
wrong measure of damages for breach of contract to the
'liquidated' when the parties have agreed to the amount at
jury. The jury awarded $1,707,684.30 in damages for
issue."). In the absence of an express agreement for
unpaid salary and for stock value using the equation found
liquidated damages, courts apply a common-law measure of
in the Letter Agreement's "Other Matters Relating to
damages for breach of contract. SeeGeneral Elec. Supply
Shares." We agree that the jury considered the wrong
Co. v. Gulf Electroquip, Inc., 857 S.W.2d 591, 599
measure of damages for the stock value, although we
(Tex.App.-Houston [1st Dist.] 1993, writ denied).
disagree with the measure of damages urged by appellants.
Further, appellants cannot take advantage of provisions
"Damages must be measured by a legal standard, and
favorable to them in the very contract they breached.
that standard must be used to guide the fact finder in
SeeBaker Marine Corp. v. Weatherby Eng'g Co., 710 (d) The earning capacity of the company.
S.W.2d 690, 696 (Tex.App.-Corpus Christi 1986, no writ).
One who has broken a contract cannot thereafter enforce the (e) The dividend paying capacity.
remaining terms. SeeJoseph v. PPG Indus., Inc., 674
S.W.2d 862, 867 (Tex.App.-Austin 1984, writ ref'd n.r.e.); (f) Whether or not the enterprise has good will or other
accordII Deerfield Ltd. P'ship v. Henry Bldg., Inc., 41 intangible values. [24]
S.W.3d 259, 265 (Tex.App.-San Antonio 2001, pet.
(g) Sales of stock and the size of the block of the stock to be
denied); Interceramic, Inc. v. S. Orient R.R. Co., 999
valued.
S.W.2d 920, 924 (Tex.App.-Texarkana 1999, pet. denied).
Having breached the contract, appellants cannot then (h) The market price of stocks of corporations engaged in
enforce the Termination provision as though it were a the same or similar line of business having their stocks
liquidated damages clause or the common-law measure of actively traded in a free and open market, either on an
damages, which it is not. exchange or over-the-counter.
In a breach of contract action for failure to transfer
InterFirst Bank Dallas, 739 S.W.2d at 892 (citing Rev. Rul.
shares of a closely held corporation, "[t]he proper measure 59-60, 1951-1 C.B. 237). If there is no evidence of fair
of damages is the fair market value of the stock...." market value, the value of stock in a closely held
SeeBowers Steel, Inc. v. DeBrooke, 557 S.W.2d 369, 373 corporation is predicated upon the market value of the
(Tex.Civ.App.-San Antonio 1977, no writ) (employee was assets of the company after deducting its liabilities.
promised 20% of stock in closely held corporation, but
SeeWilliams v. Gaines, 943 S.W.2d 185, 193
never received it); see alsoMiga v. Jensen, 96 S.W.3d 207, (Tex.App.-Amarillo 1997, writ denied) (op. on reh'g).
215 (Tex.2003) (in breach of agreement to purchase
securities, damages are the difference between the contract Regardless, the calculation should reflect the value at
price and the fair market value of the asset). Market value the time of injury. SeeBendalin, 406 S.W.2d at 901; Pabich,
of 71 S.W.3d at 509; Williams, 943 S.W.2d at 193-94;
Intermedics, Inc. v. Grady, 683 S.W.2d 842, 848
Page 41 (Tex.App.-Houston [1st Dist.] 1984, writ ref'd n.r.e.)
(employee entitled to stock's value at time of his
closed-corporate stock is what a willing purchaser would
termination from employment); Bowers Steel, Inc., 557
pay to a willing seller under no compulsion to sell.
S.W.2d at 373 (stock promised to employee as
InterFirst Bank Dallas, N.A. v. Risser, 739 S.W.2d 882, 889
compensation was valued at time of termination); see
(Tex.App.-Texarkana 1987, no writ); accordFisher v. Yates,
alsoMiga, 96 S.W.3d at 214 (explaining long-standing rule
953 S.W.2d 370, 378 (Tex.App.-Texarkana 1997), writ
in Texas that contract damages are measured at the time of
denied per curiam, 988 S.W.2d 730 (Tex.1998); see
breach). In this case, appellants clearly repudiated the Letter
alsoCity of Harlingen v. Estate of Sharboneau, 48 S.W.3d
Agreement in November 1994, which is coincidentally the
177, 182 (Tex.2001) (measure of damages in
date of Donnelly's termination. Donnelly is thus entitled to
condemnation). Book value "is entitled to little, if any,
damages because of appellants' wrongful breach of the
weight in determining the value of a corporation's stock,
Letter Agreement, not because he was terminated in
and many other factors must be taken into consideration."
accordance with the Termination provision.
Bendalin v. Delgado, 406 S.W.2d 897, 900-01 (Tex.1966);
accordPabich v. Kellar, 71 S.W.3d 500, 509 We hold that the correct measure of damages is the fair
(Tex.App.-Fort Worth 2002, pet. denied); McRae market value of the stock in URB and in WHE at the time
Exploration & Prod., Inc. v. Reserve Petroleum Co., 962 of Donnelly's termination in November 1994. Accordingly,
S.W.2d 676 (Tex.App.-Waco 1998, no pet.). When too few the trial court erred in submitting the wrong measure of
stock sales exist to establish a market price, other factors to damages.
assess fair market value include:
Page 42
(a) The nature of the business and the history of the
enterprise from its inception. When a trial court erroneously instructs the jury on the
measure of damages, the submission is reversible error.
(b) The economic outlook in general and the condition and
SeeArthur Andersen & Co. v. Perry Equip. Corp., 945
outlook of the specific industry in particular. S.W.2d 812, 817 (Tex.1997). When a defective damages
question is submitted, the proper remedy is to remand for
(c) The book value of the stock and the financial condition
new trial. SeeJackson v. Fontaine's Clinics, Inc., 499
of the business.
S.W.2d 87, 90 (Tex.1973). The rules of appellate procedure
do not permit a new trial solely on unliquidated damages if
liability is contested. TEX.R.APP. P. 44.1(b). Accordingly, tenth issue, appellants contend that the trial court
we reverse and remand for a new trial on Donnelly's cause erroneously stacked the damages, permitting a triple
of action for breach of contract. [25] recovery. First, they contend that the jury awarded the same
amount of money for breach of contract and breach of
B. Breach of Fiduciary Duty Damages fiduciary duty, which constitute a single injury. They then
contend that the trial court tripled the recovery by imposing
In the Willises' issue 24 and Urban Retreat's issue nine, a constructive trust.
appellants contend that the trial court erred in omitting a
measure of damages in the breach of fiduciary duty "A double recovery exists when a plaintiff obtains
question. In Question 25, the court asked the jury, "What more than one recovery for the same injury." Waite Hill
sum of money, if any, if paid now in cash, would fairly and Servs., Inc. v. World Class Metal Works, Inc., 959 S.W.2d
reasonably compensate Dan Donnelly for his damages, if 182, 184 (Tex.1998). Here, the jury awarded the same
any, that were proximately caused by such conduct [Mike amount of money for both breach of contract and breach of
Willis's breach of fiduciary duty]?" The court, however, did fiduciary duty. Appellants contend that these awards, along
not instruct the jury on what items to consider in assessing with Donnelly's jury arguments, prove that he has suffered
damages. but one injury. However, we have reversed and remanded
the breach of contract claim. Thus, there is no double
"[W]hen the trial court has erroneously failed to recovery of identical amounts for both causes of action.
include instructions on the proper measure of damages, it is Additionally, when a plaintiff pleads alternate theories of
the complaining party's burden both to object to the charge liability, a judgment awarding damages on more than one
and to tender such instructions in substantially correct theory may stand if the theories of liability arise from
form." Tex. Commerce Bank v. Lebco Constructors, Inc., separate and distinct injuries and separate and distinct
865 S.W.2d 68, 75 (Tex.App.-Corpus Christi 1993, writ damage findings are entered on each theory of liability.
denied); see TEX.R. CIV. P. 278; accordR & R Contractors SeeBirchfield v. Texarkana Mem'l Hosp., 747 S.W.2d 361,
v. Torres, 88 S.W.3d 685, 695 (Tex.App.-Corpus Christi 367 (Tex.1987). There is evidence supporting damages for
2002, no pet.); Campbell v. C.D. Payne & Geldermann two "separate and distinct" causes of action in this case: (1)
Sec., Inc., 894 S.W.2d 411, 420 (Tex.App.-Amarillo 1995, unpaid salary and stock value for breach of the Letter
writ denied); Gilgon, Inc. v. Hart, 893 S.W.2d 562, 565 Agreement; and (2) real estate value and capital
(Tex.App.-Corpus Christi 1994, writ denied). [26] contributions listed as loans for breach of fiduciary duty.
Real estate value and "loans" should not be considered in
Although appellants objected, they failed to tender an
determining breach of contract damages.
instruction in substantially correct form. Their proposed
measure of damages was the "Termination" provision from Lastly, appellants argue that the constructive trust
the Letter Agreement, which would limit damages for triples Donnelly's recovery. Donnelly concedes that the
breach of fiduciary duty to stock value calculated at the constructive trust duplicates the money judgment and seeks
greater of (1) assets minus liabilities or (2) two times the remand for an election of remedies. "A party who seeks
prior year's earnings. However, Donnelly presented redress under two or more theories of recovery for a single
evidence that Willis's purchase of the URB realty and his wrong must elect, before the judgment is rendered, under
characterization of capital contributions as loans were which remedy he wishes the court to enter judgment." Star
breaches of fiduciary duty. Appellants' proposed measure of Houston, Inc. v. Shevack, 886 S.W.2d 414, 422
damages would exclude consideration of realty value and (Tex.App.-Houston [1st Dist.] 1994), writ denied per
the amount of money mischaracterized as loans. Thus, curiam, 907 S.W.2d 452 (Tex.1995). If the prevailing party
fails to elect a remedy, the trial court should render a
Page 43
judgment affording the greater recovery. Pitman v.
assuming that Question 25 was deficient, [27] appellants Lightfoot, 937 S.W.2d 496, 533 (Tex.App.-San Antonio
have waived error by failing to tender an instruction on the 1996, writ denied). If the trial court fails to do so, generally,
we will reform the judgment to effect such an election. See
correct measure of damages. SeeMiller v. Kendall, 804
S.W.2d 933, 942 (Tex.App.-Houston [1st Dist.] 1990, no id.
writ) (complaining party waived error by tendering
However, appellate courts sometimes remand a case
instruction with incorrect measure of damages).
for an election of remedies. See, e.g.,Waite Hill Servs., 959
Accordingly, we overrule the Willises' issue 24 and Urban
S.W.2d at 185; Gunn Infiniti, Inc. v. O'Byrne, 18 S.W.3d
Retreat's issue nine.
715, 718 (Tex.App.-San Antonio 2000, no pet.); Jim Walter
Homes, Inc. v. Samuel, 701 S.W.2d 351, 354
C. Stacking
(Tex.App.-Beaumont 1986, no writ). We remand the
In the Willises' twenty-fifth issue and Urban Retreat's
constructive trust in this remand the attorney's fees issue. Because of this
disposition, we need not address issue 27 or the remainder
Page 44 of Urban Retreat's issue four.
case for two reasons. First, the portion of the constructive B. Fees Awarded to Mike Willis
trust imposed upon 50% of URB stock and 10% of WHE
stock duplicates recovery for breach of contract, which we In his cross-appeal, Donnelly contends in two issues
have reversed and remanded. Thus, the constructive trust on that the trial court erred in awarding Mike Willis $400,000
the URB and WHE stock is also reversed and remanded. in attorney's fees for a $26,982.58 defaulted promissory
Second, we are unable to determine which remedy for note. Donnelly complains that the attorney's fees were not
breach of fiduciary duty (the money damages or the segregated and thus include the costs of defending his suit
constructive trust on the realty) provides a greater recovery. against Urban Retreat and the Willises. "One of the
Accordingly, we remand for an election of remedies for thorniest and most frequently litigated issues involved in
breach of fiduciary duty. proof of attorney's fees concerns segregation of recoverable
fees." Scott A. Brister, Proof of Attorney's Fees in Texas, 24
In summary, we overrule the Willises' issue 25 and ST. MARY'S L.J. 313, 342 (1993). We agree that the
Urban Retreat's issue ten to the extent appellants contend attorney's fees awarded to Mike Willis were not properly
fiduciary duty damages are the same as contract damages. segregated, and we reverse and remand the issue.
We partially sustain the issues as follows. First, we reverse
and remand the constructive trust imposed on Urban Retreat In his first cross-issue, Donnelly argues the trial court
stock because it duplicates damages for breach of contract, erred in overruling his objections
which we have reversed and remanded for a new trial.
Second, we remand the constructive trust imposed on the Page 45
realty for an election of remedies because it duplicates
money damages awarded for breach of fiduciary duty. to Question 4, in which the trial court asked the jury to
determine Willis's reasonable attorney's fees "in this case."
ATTORNEY'S FEES [28] We interpret Donnelly's briefing to contend that the
trial court erred in awarding Mike Willis fees for all the
A. Fees Awarded to Donnelly legal work performed in the lawsuit, including defense of
Donnelly's counterclaims involving the Letter Agreement
In the Willises' issue 26 and a portion of Urban and Urban Retreat, and including fees incurred by Francie
Retreat's issue four, appellants contend that Donnelly was and Urban Retreat (who were not parties to the promissory
not entitled to attorney's fees. In the Willises' issue 27 and note). In other words, Donnelly argues that Willis failed to
the remainder of Urban Retreat's issue four, they argue that segregate the attorney's fees related to his successful
Donnelly failed to properly present his claim, timely recovery on the promissory note, which was the sole basis
disclose expert opinions regarding the fees, and offer for his entitlement to an award of attorney's fees. We agree.
evidence about a reasonable fee.
We review such a claim of jury charge error for abuse
Donnelly was awarded attorney's fees in conjunction of discretion. Tex. Dept. of Human Servs. v. E.B., 802
with his breach of contract claim. TEX. CIV. PRAC. & S.W.2d 647, 649 (Tex.1990); KPH Consolidation, Inc. v.
REM.CODE ANN. § 38.001 (Vernon 1997) (permitting Romero, 102 S.W.3d 135, 156 (Tex.App.-Houston [14th
attorney's fees for a "valid" claim on a contract). Because Dist.], 2003, no pet. h.). The trial court has broad discretion
we have reversed and remanded the contract claim, in submitting the jury charge; it abuses its discretion only
Donnelly has no longer proved a "valid" contract claim. when it acts unreasonably or arbitrarily, or without
SeeWright Way Const. Co., Inc. v. Harlingen Mall Co., 799 reference to any guiding principles. Downer v. Aquamarine
S.W.2d 415, 425 (Tex.App.-Corpus Christi 1990, writ Operators, Inc., 701 S.W.2d 238, 241-42 (Tex.1985). We
denied); Hartford Cas. Ins. Co. v. Budget Rent-A-Car Sys., may not reverse for jury charge error unless the error, when
Inc., 796 S.W.2d 763, 772 (Tex.App.-Dallas 1990, writ viewed in light of the totality of the circumstances,
denied) (attorney's fees not recoverable for claims on which amounted to such a denial of the rights of the complaining
a party does not prevail). Additionally, Donnelly may not party as was reasonably calculated and probably did cause
recover attorney's fees for his breach of fiduciary duty rendition of an improper judgment. TEX.R.APP. P.
claim. SeeMaeberry v. Gayle, 955 S.W.2d 875, 881 44.1(a)(1). Our analysis must consider the pleadings of the
(Tex.App.-Corpus Christi 1997, no pet.); Spangler v. Jones, parties, the evidence presented at trial, and the charge in its
861 S.W.2d 392, 397 (Tex.App.-Dallas 1993, writ denied). entirety. Island Recreational Dev. Corp. v. Republic of Tex.
Accordingly, we sustain the Willises' issue 26 and the first Sav. Ass'n, 710 S.W.2d 551, 555 (Tex.1986). Absent a
portion of Urban Retreat's issue four. We reverse and showing of an abuse of discretion, the award or failure to
award fees will not be disturbed on appeal. See, (Tex.App.-Austin 1986, writ ref'd) (fraud, contract, DTPA,
e.g.,Houston Lighting & Power Co. v. Dickinson Indep. and insurance code claims arose from same set of facts). In
Sch. Dist., 641 S.W.2d 302, 311 (Tex.App.-Houston [14th other words, segregation of attorney's fees is not required
Dist.] 1982, writ ref'd n.r.e.); Fowler v. Stone, 600 S.W.2d where the services rendered relate to (1) multiple claims
351, 353 (Tex.Civ.App.-Houston [14th Dist.] 1980, no arising out of the same facts or transaction and (2) the
writ). prosecution or defense entails proof or denial of essentially
the same facts, so as to render the attorney's fees
Whether attorney's fees are authorized in a particular inseparable. SeeSterling, 822 S.W.2d at 11; Flint & Assocs.
case is a question of law to be determined by the court. v. Intercont'l Pipe & Steel, Inc., 739 S.W.2d 622, 624-25
Holland v. Wal-Mart Stores, 1 S.W.3d 91, 94 (Tex.1999); (Tex.App.-Dallas 1987, writ denied) (claim and
Leon Ltd. v. Albuquerque Commons P'ship, 862 S.W.2d counterclaim arose out of same transaction--the sale of
693, 708 (Tex.App.-El Paso 1993, no writ). The Texas pipe). The determination of the amount to be awarded as a
Supreme Court has consistently held that "a prevailing party reasonable attorney's fee is a question of fact to be
cannot recover attorney's fees from an opposing party determined by the trier of fact and the award, if any, must
unless permitted by statute or by contract between the be supported by competent evidence. Great Am. Reserve
parties." Holland, 1 S.W.3d at 95. A party may not recover Ins. Co. v. Britton, 406 S.W.2d 901, 907 (Tex.1966).
attorney's fees for claims on which the party did not prevail.
Budget Rent-A-Car Sys., Inc., 796 S.W.2d at 772. Originally, Mike Willis sued Dan Donnelly for the
balance owing on a $31,183.70 promissory note. The loan
As a general rule, the party seeking to recover was made between the men in 1993, several years after
attorney's fees carries the burden of proof. Stewart Title Urban Retreat opened. The loan proceeds were for
Guar. Co. v. Sterling, 822 S.W.2d 1, 10 (Tex.1991); Lesikar Donnelly's personal use; he asserted affirmative defenses to
v. Rappeport, 33 S.W.3d 282, 317 (Tex.App.-Texarkana recovery on the note and a usury counterclaim, the facts of
2000, pet. denied). Specifically, when a lawsuit involves which were unrelated to the business of Urban Retreat or
multiple claims or multiple parties, the proponent has a duty the Letter Agreement. Donnelly stopped paying the note
to segregate non-recoverable fees from recoverable fees, when he was terminated from Urban Retreat in 1994. The
and to segregate the fees owed by different parties. Sterling, jury found he owed the balance of $26,982.58. Mike Willis
822 S.W.2d at 10-11. As a result, the fees incurred for successfully overcame affirmative defenses to the
successful prosecution of a breach of contract claim must be promissory note and the usury counterclaim.
segregated from those claims in the case for which
attorney's fees may not be recovered. Id. at 11 (remanding Donnelly's claims for breach of the Letter Agreement,
breach of fiduciary duty, fraud in the inducement, and
Page 46 tortious interference against Willis, Francie, WHE, and
URB all involved the Urban Retreat business. Most of the
for segregation of attorney's fees attributable to recovering copious discovery and trial evidence addressed these
policy benefits among various defendants); Int'l Sec. Life claims, not the promissory note. Donnelly's claims against
Ins. Co. v. Finck, 496 S.W.2d 544, 546-47 (Tex.1973) the Willises and Urban Retreat did not involve the creation,
(remanding for segregation of attorney's fees incurred for execution, and non-payment of the promissory note. The
fraud and deceit claims from recovery on policy claim); promissory note arose from a separate transaction.
Z.A.O., Inc. v. Yarbrough Drive Ctr. J.V., 50 S.W.3d 531, Prosecution and defense of the promissory note did not
550-51 (Tex.App.-El Paso 2001, no pet.) (remanding for require proof or denial of essentially the same facts. The
segregation of attorney's fees for prosecuting trespass and only similarity of facts is that Willis and Donnelly were
nuisance claims from contract claim). parties to both.
In the absence of segregation, a trial court may refuse Because Mike Willis prevailed at trial to recover the
to award attorney's fees. SeeS. Concrete Co. v. Metrotec balance of the promissory note, attorney's fees are
Fin., Inc., 775 S.W.2d 446, 450 (Tex.App.-Dallas 1989, no authorized for prosecuting that claim. See TEX. CIV.
writ); Bullock v. Kehoe, 678 S.W.2d 558, 560 PRAC. & REM.CODE ANN. § 38.001(8) (Vernon 1997).
(Tex.App.-Houston [14th Dist.] 1984, writ ref'd n.r.e.). "But However, this statute does not authorize
when the claims 'are dependent upon the same set of facts
or circumstances and thus are "intertwined to the point of Page 47
being inseparable," the party suing for attorney's fees may
recover the entire amount covering all claims.' " Stewart recovery of attorney's fees for a party's defense of breach of
Title Guar. Co. v. Aiello, 941 S.W.2d 68, 73 (Tex.1997) contract, fraudulent inducement, tortious interference, or
(quoting Sterling, 822 S.W.2d at 11); accordVillage Mobile breach of fiduciary duty claims. Id. There is no authority
Homes, Inc. v. Porter, 716 S.W.2d 543, 552 that entitles Willis to recover attorney's fees for his defense
of Donnelly's breach of the Letter Agreement, breach of SeeStewart Title, 822 S.W.2d at 12; Aetna Cas. & Sur. v.
fiduciary duty, tortious interference, and fraud in the Wild,
inducement counterclaims.
Page 48
Willis relies upon the case of RepublicBank Dallas v.
Shook, 653 S.W.2d 278 (Tex.1983), in arguing he should be 944 S.W.2d 37, 41 (Tex.App.-Amarillo 1997, writ denied).
awarded attorney's fees for defending all of Donnelly's The jury cannot award attorney's fees to Mike Willis for
claims. He asserts that his defense of them was inseparable fees incurred by WHE, URB, Francie, or Willis in
from prosecuting his claim against Donnelly on the defending Donnelly's claims for breach of fiduciary duty,
promissory note. In RepublicBank, because the facts were tortious interference, fraud in the inducement, and breach of
so integrally related, the prevailing party suing on a the Letter Agreement. Lastly, as a result of our disposition
promissory note was entitled to recover attorney's fees for of cross-issue one, we need not address Donnelly's second
successfully defending a usury claim and overcoming cross-issue.
affirmative defenses to the note's collection. We agree that
Willis is entitled to recover those attorney's fees incurred in CONCLUSION
defeating Donnelly's affirmative defenses to the promissory
In summary, we affirm the judgment against Mike
note and overcoming the usury counterclaim. However, in
Willis for breach of fiduciary duty. However, the
urging the application RepublicBank, Willis glaringly fails
constructive trust awards a double recovery for breach of
to acknowledge the existence of Donnelly's other
fiduciary duty. We therefore remand for an election of
counterclaims, i.e., the claims relating to Urban Retreat and
remedies between the constructive trust on the realty and
the Letter Agreement.
the $1.7 million awarded by the jury for breach of fiduciary
At trial, Willis was not seeking to recover only his duty.
attorney's fees on the promissory note and the usury
Next, we overrule the Willises and Urban Retreat's
counterclaim. Instead, the jury question asked: "What is a
challenges to liability for breach of contract. We further
reasonable fee for the necessary service of Mike Willis's
hold that the statute of limitations for breach of contract did
attorneys in this case, stated in dollars and cents?" The
not accrue before August 24, 1991. However, the jury
question failed to limit recovery only for attorney's fees
charge contained an incorrect measure of damages for
Mike Willis incurred in prosecuting the note, overcoming
breach of contract. Accordingly, we reverse and remand for
defenses to it, and defeating Donnelly's usury counterclaim,
a new trial on contract damages. Because we are reversing
which was the sole counterclaim inextricably related to the
and remanding the damages issue, we also reverse and
promissory note. RepublicBank is thus not support for
remand the portion of the constructive trust imposed on
Willis's assertion that, as a matter of law, all of Donnelly's
URB and WHE stock, which duplicates contract damages.
counterclaims were so intertwined with the promissory note
As a consequence of the new trial on contract damages, we
as to allow recovery of attorney's fees for the whole case.
must also reverse and remand the contract liability issues,
Willis next argues that the expert testimony of Finis found in Questions 5, 6, 8, 9, and 10. Finally, because
Cowan supports recovery of total attorney's fees. We have Donnelly is no longer a prevailing party, we reverse and
reviewed this witness's testimony. Although he testified that remand the attorney's fees awarded to him on his breach of
he considered RepublicBank in arriving at his opinion, this contract claim.
is insufficient to demonstrate that the facts surrounding
In Donnelly's cross-appeal, we hold that the trial court
Willis's recovery on the promissory note were integrally
erred in permitting the jury to consider unsegregated
related to Donnelly's other claims against the Willises and
attorney's fees incurred by the Willises and Urban Retreat,
Urban Retreat. It was Mike Willis's burden to present
instead of those incurred solely by Mike Willis in
evidence segregating the attorney's fees and he failed to do
prosecuting Donnelly for defaulting on a promissory note
so.
and prevailing on Donnelly's usury counterclaim.
Accordingly, we sustain Donnelly's cross-issue one.
Accordingly, we affirm the judgment for breach of
Question 4 was erroneous because it did not properly limit
fiduciary duty, remand for an election of remedies
recovery and because there was no evidence of segregated
consistent with this opinion, reverse and remand all breach
fees. [29] Because the determination of reasonable
of contract issues, except the limitations question, reverse
attorney's fees is a question for the trier of fact, we remand
and remand the award of attorney's fees to Donnelly, and
the attorney's fees issue for determination of what portion of
reverse and remand the award of attorney's fees to Mike
the $400,000 in attorney's fees is attributable to the
Willis.
successful prosecution of Mike Willis's claim on the
promissory note and defense of the usury counterclaim.
SUPPLEMENTAL OPINION ON REHEARING (Tex.App.-Tyler 2001, pet. denied). It is improper for an
appellant to couch such an argument in terms of standing.
Michael T. Willis, Francie Willis, Willis Hite Id. at 466.
Enterprises, Inc., and Urban Retreat of Houston, Inc., have
filed a motion for rehearing and motion for rehearing en Further, to challenge capacity, a party must file a
banc from our opinion. While we change nothing in our verified denial. See TEX.R. CIV. P. 93(2); see alsoPledger
opinion or disposition of the appeal, we supplement the v. Schoellkopf, 762 S.W.2d 145, 146 (Tex.1988). If Rule 93
opinion to address three issues raised in the motion for is not followed, the issue of capacity is waived on appeal.
rehearing. The motion for rehearing is denied. Nootsie, 925 S.W.2d at 662. In this case, appellants did not
file a verified denial of Donnelly's capacity to recover
RATIFICATION Urban Retreat's damages.
In issue eight of their motion for rehearing, appellants REMAND OF LIMITATIONS ISSUE
contend ratification by Michael and Francie Willis must
also conform to requirements of the statute of frauds In their tenth issue, appellants contend we must reverse
because the Letter Agreement was subject to the statute of and remand the limitations issue because we reversed and
frauds. This issue is raised for the first time in the motion remanded breach of contract and damages questions. Texas
for rehearing. An assignment of error raised for the first Rule of Appellate Procedure 44.1 permits an appellate court
time in a motion for rehearing is too late to be considered. to reverse those portions of a matter in controversy that are
Lee v. Lee, 47 S.W.3d 767, 799 (Tex.App.-Houston [14th affected by the error. The rule prohibits a separate trial
Dist.] 2001, pet. denied). Originally, appellants argued in solely on unliquidated damages if liability is contested.
their ratification issue that a jury finding on both ratification TEX.R.APP. P. 44.1(b). In this case, the trial court
and breach of contract was necessary as to Mike and erroneously submitted the wrong measure of damages for
Francie breach of contract. Because liability was contested, we
reversed and remanded not only the damages question, but
Page 49 also questions about breach of contract, ratification, waiver,
and percentages of ownership in the corporations. We did
Willis. They did not argue statute of frauds under their not reverse and remand the contract statute of limitations
ratification issue. [1] The sole purpose of a motion for issue.
rehearing is to provide the court an opportunity to correct
any errors on issues already presented. Phifer v. Accrual of the statute of limitations is a question of
Nacogdoches County Cent. Appraisal Dist., 45 S.W.3d 159, law. Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 351
166 (Tex.App.-Tyler 2000, pet. denied). Because this issue (Tex.1990); Waxler v. Household Credit Servs., Inc., 106
is raised for the first time in appellant's motion for S.W.3d 277, 279 (Tex.App.-Dallas 2003, no pet.).
rehearing, we do not address it. Appellants assigned error to the jury's rejection of the
statute of limitations, contending that suit was barred as a
STANDING VERSUS CAPACITY matter of law. We concluded that the cause of action for
breach
In issue seven of their motion for rehearing, appellants
contend that Donnelly lacks standing to sue for Urban Page 50
Retreat's damages. Appellants confuse "capacity," which
has been waived, with "standing," which we addressed in of contract accrued within four years of suit. On remand,
our original opinion. questions of law answered by an appellate court are
considered law of the case. SeeBriscoe v. Goodmark, Corp.,
"A plaintiff has standing when it is personally 102 S.W.3d 714, 716 (Tex.2003). As there is no issue to
aggrieved, regardless of whether it is acting with legal relitigate upon remand, we decline to reverse and remand
authority." Nootsie, Ltd. v. Williamson County Appraisal the limitations issue.
Dist., 925 S.W.2d 659, 661 (Tex.1996). In contrast, "a party
has capacity when it has the legal authority to act, Finding it unnecessary to write regarding the
regardless of whether it has a justiciable interest in the remaining seven points in their motion, we deny appellant's
controversy." Id. Standing is jurisdictional and cannot be motion for rehearing.
waived, but capacity may be waived. Tex. Ass'n of Bus. v.
Tex. Air Control Bd., 852 S.W.2d 440, 446 (Tex.1993). ---------
Whether a stockholder may recover damages personally for
a wrong done to the corporation is an argument about Notes:
capacity--that is, whether the stockholder has legal
authority. Mackie v. Guthrie, 78 S.W.3d 462, 465-66 [1] Collectively, we refer to URB and WHE as Urban
Retreat. Willis v. Bydalek, 997 S.W.2d 798, 801 (Tex.App.-Houston
[1st Dist.] 1999, pet. denied).
[2] This "loan" was not approved by resolution of URB's
board of directors, as required by the URB by-laws. In [13] The Willises argued that URB could not afford to buy
contrast, the $800,000 construction loan had been approved the realty, although evidence suggests that Willis's improper
by the board (consisting of Willis, the minimal shareholder, characterization of capital as debt helped place the business
and Hite). in its allegedly poor financial condition.
[3] By terminating his employment so quickly, Hite never [14] Under the Letter Agreement, Donnelly could sell his
earned 25% of URB stock as contemplated in his own letter stock but first had to offer to sell them to other shareholders
agreement with Willis. using the equation "real estate appraised at market value
plus previous twelve months' gross revenue."
[4] URB was authorized to issue up to 100,000 shares.
[15] The Willises include a catchall, multifarious assertion
[5] From 5% of gross revenues to $3,000 per month, 60% of error at the end of this portion of their argument,
of his hair styling, 10% of his product sales, and a 5% contending there is "no evidence, no legally sufficient
commission each month the Hair Department exceeded evidence, and no factually sufficient evidence that Michael
$100,000 in revenue. Willis had a fiduciary relationship with Donnelly...." We
are not required to address multifarious issues. SeeState v.
[6] By 1992's end, Willis's cash loans equaled $1,746,643. Interstate Northborough P'ship, 8 S.W.3d 4, 7 n. 2
At 1993's end, this amount had increased to $1,897,896. (Tex.App.-Houston [14th Dist.] 1999), rev'd on other
grounds, 66 S.W.3d 213 (Tex.2001); Shull v. United Parcel
[7] Again, no evidence exists that URB's board of directors
Serv., 4 S.W.3d 46, 51 (Tex.App.-San Antonio 1999, pet.
approved this "evidence of indebtedness ... issued in its
denied). Factual sufficiency analysis requires us to detail
name" as required by the by-laws. Supposedly, Willis,
the evidence relevant to the issue and, if reversing, clearly
Francie, Donnelly, and two others were board members
state in what regard the contrary evidence greatly outweighs
until March 17, 1993, when Francie, as "sole shareholder,"
the evidence in support of the issue. SeePool v. Ford Motor
made herself sole director.
Co., 715 S.W.2d 629, 635 (Tex.1986) (op. on reh'g). Given
[8] Question 6: "Was the failure to comply [with the Letter the Willises' bare assertion of error, without substantive
Agreement] excused? Failure to comply with an agreement analysis, legal authority regarding factual insufficiency, and
is excused ... if compliance was waived by Dan Donnelly. appropriate citation to the record for factual insufficiency,
A waiver is an intentional surrender of a known right or seeRyan v. Abdel-Salam, 39 S.W.3d 332, 336
intentional conduct inconsistent with that right." The jury (Tex.App.-Houston [1st Dist.] 2001, pet. denied); Keever v.
answered, "No." Finlan, 988 S.W.2d 300, 314 (Tex.App.-Dallas 1999, pet.
dism'd), we decline to perform a review of the record and
[9] Question 7: "Did the failure to comply ... occur prior to law to determine whether there is factually insufficient
August 24, 1991?" evidence of a fiduciary relationship.
[10] Nine other notes from the jury, and the trial court's [16] It is error for a trial court to instruct a jury that
responses, do appear in the clerk's record. shareholders in a closely held corporation owe each other a
fiduciary duty as a matter of law. Pabich, 71 S.W.3d at 505;
[11] In Question 22, the trial court instructed the jury, Kaspar v. Thorne, 755 S.W.2d 151, 155 (Tex.App.-Dallas
"Mike Willis owed Dan Donnelly a fiduciary duty." 1988, no writ).
[12] "Oppressive conduct" is defined as: [17] The Texas Pattern Jury Charges includes a chapter
about fiduciary duty. TEX. PATTERN JURY CHARGES
1. majority shareholders' conduct that substantially defeats PJC 104.1-104.2 (2000). PJC 104.1 asks whether a
the minority's expectations that, objectively viewed, were fiduciary duty exists between parties. In this case, no one
both reasonable under the circumstances and central to the requested PJC 104.1 in the charge, and Willis did not object
minority shareholder's decision to join the venture; or to its omission. PJC 104.2 then asks if one party complied
with its fiduciary duty to another. In Question 22, the trial
2. burdensome, harsh, or wrongful conduct; a lack of court tracked the language of PJC 104.2 almost
probity and fair dealing in the company's affairs to the word-for-word.
prejudice of some members; or a visible departure from the
standards of fair dealing and a violation of fair play on [18] Urban Retreat does not argue subissues three and eight.
which each shareholder is entitled to rely.
[19] The jury awarded $1,707,684.30 for Mike Willis's (Tex.App.-Fort Worth 1994, writ denied) (almost identical
breach of fiduciary duty. question held to be proper under Texas law when
challenged for improper measure of damages).
[20] The Willises fail to brief issue 22. We thus address the
argument as presented in Urban Retreat's brief. [28] Donnelly objected that in answering Question 4, the
jury was not limited to assessing attorney's fees incurred
[21] The Letter Agreement states that Donnelly agreed to solely by Mike Willis for only the promissory note claim.
"use his best efforts" to persuade his entire staff and Donnelly also objected that there was no evidence
clientele to transfer to Urban Retreat. The Letter Agreement segregating the fees.
also states that while employed at Urban Retreat, Donnelly
may not compete in the Houston area by performing [29] Donnelly does not assert points of error for legal or
"personal care, beauty, and hair" services or owning an factual insufficiency of the evidence. Even if he had done
interest in a competing business. so, we could not reverse and render. If a party does not
properly segregate attorney's fees, it is error to completely
[22] "After twelve (12) months of employment, if Mr. deny recovery of attorney's fees on a contract claim, as
Donnelly is terminated, Mr. Donnelly would likewise be evidence of unsegregated attorney's fees is more than a
required to sell his shares of the Urban Retreat and scintilla of evidence of segregated fees. Int'l Sec.Life Ins.
Willis/Hite to those companies and would receive book Co., 496 S.W.2d at 546-47; Panizo v. Young Men's
value of such shares or the value of such shares as Christian Ass'n of Greater Houston Area, 938 S.W.2d 163,
determined by multiplying two times prior year's earnings 171 (Tex.App.-Houston [1st Dist.] 1996, no writ).
..., whichever is greater. 'Book Value' is defined as the
assets minus liabilities...." [1] A brief survey of the law after the motion for rehearing
was filed uncovered divergence in whether jurisdictions
[23] "Book Value of Owners' Equity = Real Estate require ratification to conform with the statute of frauds.
Appraised at Market Value Plus Previous Twelve (12) The case law cited in the motion for rehearing was not
Months Gross Revenues." urged in the appellate briefing, further demonstrating that
the issue is newly raised in the motion for rehearing.
[24] Per the Letter Agreement, WHE owns "all rights to the
name 'The Urban Retreat.' " WHE's ownership of the name ---------
is confirmed in a "URH/URC Contract." The evidence does
not reveal whether WHE had liabilities or other assets when
Donnelly's employment terminated.
[25] Under Rule 44.1(b), we remand the portion of the
matter in controversy that is affected by the error and that is
fairly separable. Accordingly, we remand Question 5 (the
breach of contract question), Question 6 (whether the
failure to comply was excused), Question 8 (the percentage
of URB stock to which Donnelly was entitled), Question 9
(the percentage of WHE stock to which Donnelly was
entitled), Question 10 (ratification), and Question 11
(damages incurred for breach of contract).
[26] When a measure of damages is omitted, the
complaining party must request the correct measure.
TEX.R. CIV. P. 278; seeFairfield Estates, L.P. v. Griffin,
986 S.W.2d 719, 724 (Tex.App.-Eastland 1999, no pet.).
When an incorrect measure is submitted, i.e., a defective
submission, the complaining party need only object.
SeeReligious of the Sacred Heart v. City of Houston, 836
S.W.2d 606, 613-14 (Tex.1992); R & R Contractors, 88
S.W.3d at 695; see alsoOperation Rescue-Nat'l v. Planned
Parenthood of Houston & S.E. Tex., Inc., 937 S.W.2d 60,
69 (Tex.App.-Houston [14th Dist.] 1997), aff'd as modified,
975 S.W.2d 546 (Tex.1998).
[27] But seeRowe v. Rowe, 887 S.W.2d 191, 199
Page 663 verdict. We reverse the trial court's sanctions order and
render judgment that appellees' motion for Texas Rule of
131 S.W.3d 663 (Tex.App.—Corpus Christi 2004) Civil Procedure 13 sanctions be denied.
Jesus ALEJANDRO, Appellant, A. FACTUAL BACKGROUND
v. As part of his duties as RISD's Assistant
Superintendent for Business and Finance,
ROBSTOWN INDEPENDENT SCHOOL DISTRICT,
et al., Appellees. Page 666
No. 13-01-00780-CV. appellant reviewed and approved purchase orders for travel
and related expenses for RISD employees and school board
Court of Appeals of Texas, Thirteenth District, Corpus members. In September 1998, RISD school board members
Christi-Edinburg. Adolfo Lopez and Oscar Lopez went on an RISD business
trip accompanied by their spouses. RISD paid the airfare for
April 1, 2004.
both board members and their spouses. Appellant reviewed
and approved the purchase orders for the travel and
Page 664
authorized the check to be issued to the travel agency. After
[Copyrighted Material Omitted] the trip, Adolfo Lopez and Oscar Lopez reimbursed RISD
for their respective spouses' flights.
Page 665
On December 9, 1998, appellant wrote to
William J. Kolb, Alice, for Appellant. Superintendent Cano, alleging that Adolfo Lopez and Oscar
Lopez had engaged in the misuse of public funds, abuse of
Angelica E. Rodriguez Barrera, Phillip A. McKinney, office, and official misconduct. In the letter, appellant
Hornblower, Manning & Ward, Corpus Christi, for claimed that Adolfo Lopez and Oscar Lopez had illegally
Appellees. used RISD funds to pay for their respective spouses' airfare,
and that such conduct violated article 3, section 52(a) of the
Before Justices HINOJOSA, YAÑEZ, and Texas Constitution[2] and section 39.02(a) of the penal
CASTILLO. code.[3] Appellant further claimed that expenses for a
second hotel room,[4] the personal use of a van rented by
OPINION
RISD for the business trip, and $30 in valet parking were
unnecessary and unreasonable expenses and, thus, violated
HINOJOSA, Justice.
section 45.105 of the Texas Education Code.[5] Lastly,
Appellant, Jesus Alejandro, was terminated from his appellant alleged that claiming a full per diem
position as the Assistant Superintendent for Business and reimbursement when receiving a complimentary meal
Finance with the Robstown Independent School District violated section 37.10 of the penal code.[6]
("RISD"). Appellant sued the following appellees: RISD;
B. DIRECTED VERDICT
Leobardo Cano, individually and in his official capacity as
RISD's Superintendent of Schools ("Superintendent Cano");
By his first point of error, appellant contends the trial
and Adolfo Lopez and Oscar Lopez, individually and in
court erred in granting appellees' motion for directed
their official capacities as members of the RISD Board of
verdict. He asserts there are disputed issues of material fact
Trustees. Appellant alleged retaliatory discharge under the
on each element of his claim that cannot be resolved as a
Texas Whistleblower Act ("the Act").[1] The trial court
matter of law and require submission to a jury.
granted appellees' motion for directed verdict and assessed
sanctions against appellant and his attorney in the amount A court may direct a verdict when a plaintiff fails to
of $23,764.77 for the costs, expenses, and attorneys fees present evidence raising a fact issue essential to the
incurred by appellees in defending the suit. By two points plaintiff's right of recovery. Prudential Ins. Co. of Am. v.
of error, appellant contends: (1) the trial court erred in Fin. Review Servs., Inc., 29 S.W.3d 74, 77 (Tex.2000). A
granting a directed verdict; and (2) the evidence is legally trial court
insufficient to support the sanctions imposed against him.
We affirm the trial court's judgment granting the directed Page 667
may also direct a verdict for a defendant if the plaintiff conduct; (2) expression of a negative attitude toward the
admits or the evidence conclusively establishes a defense to employee's report of the conduct; (3) failure to adhere to
the plaintiff's cause of action. Reyna v. First Nat'l Bank, 55 established company policies regarding employment
S.W.3d 58, 69 (Tex.App.-Corpus Christi 2001, no pet.). decisions; (4) discriminatory treatment in comparison to
similarly situated employees; and (5) evidence that the
On review, we examine the evidence in the light most stated reason for the adverse employment action was false.
favorable to the party against whom the verdict was Id.
rendered and disregard all contrary evidence and inferences.
Qantel Bus. Sys. v. Custom Controls, 761 S.W.2d 302, The record in this case shows that in February 1999,
303-04 (Tex.1988). When reasonable minds may differ as after appellant's report concerning the actions of Adolfo
to the truth of controlling facts, the issue must go to the Lopez and Oscar Lopez, Superintendent Cano conducted
jury. Collora v. Navarro, 574 S.W.2d 65, 68 (Tex.1978); appellant's annual performance review. Despite some
Villegas v. Griffin Indus., 975 S.W.2d 745, 749 evidence of weak performance in a few vital areas,
(Tex.App.-Corpus Christi 1998, pet. denied). When no appellant's employment continued on the same terms.
evidence of probative force on an ultimate fact element
exists, or when the probative force of testimony is so weak On April 1, 1999, TEA issued its final report in an
that only a mere surmise or suspicion is raised as to the investigation of RISD that
existence of essential facts, the trial court has a duty to
instruct the verdict. Villarreal v. Art Inst. of Houston, Inc., Page 668
20 S.W.3d 792, 796 (Tex.App.-Corpus Christi 2000, no
had been initiated prior to appellant's report. TEA revealed
pet.). The reviewing court may affirm a directed verdict
several instances of deviations from RISD policy by the
even if the trial court's rationale for granting the directed
business office. For example, on one occasion, the business
verdict is erroneous, provided it can be supported on any
manager failed to obtain the superintendent's approval
other basis. Id.
before he ordered payment to the district's legal counsel, in
1. Causal Link between Report and Termination violation of local policy. In view of these problems, TEA
assigned a monitor to oversee operations at RISD and
Appellant asserts he satisfied the elements of a recommended an audit of RISD's financial practices and
whistleblower claim because he reported, in good faith, the procedures.
alleged misuse of public funds, abuse of office, and official
misconduct by Adolfo Lopez and Oscar Lopez to the Effective May 20, 1999, Superintendent Cano
County Attorney, District Attorney, and Texas Education reassigned appellant from the business office to a position
Agency ("TEA"). within RISD with supervision over: (1) the energy
conservation program; (2) the records management
Under the Texas Whistleblower Act, public program; and (3) the workers' compensation and safety
employees are protected from retaliation for reporting, in program. The letter of reassignment stated, "[n]othing in
good faith, violations of law by the employing this reassignment of your duties will cause any change in
governmental entity or another public employee to an your compensation, benefits, or contract status. You will
appropriate law enforcement authority. TEX. GOV'T continue to have the same pay rate and benefits in your new
CODE ANN. § 554.002(a) (Vernon Supp.2004). To position." The letter listed the results of the TEA
establish causation in a whistleblower action, a public investigation as support for Superintendent Cano's decision.
employee must prove that without the report of a violation The school board upheld the reassignment.
of law, the employer's prohibited conduct would not have
occurred when it did. Tex. Dep't of Human Servs. v. Hinds, Concurrently, in compliance with the TEA report and
904 S.W.2d 629, 636 (Tex.1995). The plaintiff is required the TEA monitor's request, Superintendent Cano ordered a
to establish a "but for" causal nexus between the report of special audit of the business office. As a result of that audit,
misconduct and the employer's actions. Tex. Natural Res. TEA uncovered appellant's violation of competitive bidding
Conservation Comm'n v. McDill, 914 S.W.2d 718, 723 laws and appellant's own unreimbursed expense for a trip to
(Tex.App.-Austin 1996, no writ). A jury may not infer New York City.
causation without some evidence from the plaintiff to
In August 1999, Superintendent Cano and the school
support such a finding. City of Fort Worth v. Zimlich, 29
board initiated the process to terminate appellant's
S.W.3d 62, 68 (Tex.2000). The Texas Supreme Court has
employment. Superintendent Cano provided appellant with
noted that certain circumstantial evidence may be sufficient
written notice of the reasons for termination, including
to establish a causal link between the adverse employment
failure to comply with board policies and TEA regulations,
action and the reporting of illegal conduct. Id. at 69. Such
appellant's violation of competitive bidding laws, and
evidence includes: (1) knowledge of the report of illegal
appellant's use of: (1) RISD property for personal business, Imposing an available sanction is left to the sound
(2) RISD computer to visit inappropriate internet sites, and discretion of the trial court. Koslow's v. Mackie, 796 S.W.2d
(3) unauthorized telephone recording equipment. Finally, 700, 704 (Tex.1990). Thus, we review the trial court's
on October 25, 1999, appellant's employment was actions under an abuse-of-discretion standard of review.
terminated as a result of Superintendent Cano's Rudisell v. Paquette, 89 S.W.3d 233, 236 (Tex.App.-Corpus
recommendation and school board vote. Christi 2002, no pet.). The test for determining whether the
trial court abused its discretion is whether it acted without
Considering the evidence in the light most favorable reference to any guiding rules and principles. Downer v.
to the party against whom the verdict was rendered, we Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42
cannot say that the trial court erred in directing a verdict in (Tex.1985). A trial court abuses its discretion in imposing
favor of appellees. Appellant's termination occurred more sanctions only if it bases its order on an incorrect view of
than ten months after his report. Thus, appellant was not the law or an erroneous assessment of the evidence.
entitled to a presumption that his termination was Randolph v. Jackson Walker, L.L.P., 29 S.W.3d 271, 276
retaliatory. See TEX. GOV'T CODE ANN.§ 554.004(a) (Tex.App.-Houston [14th Dist.] 2000, pet. denied).
(Vernon Supp.2004) (allowing for rebuttable presumption
of causal connection if adverse employment action occurs Rule 13 authorizes a trial court to impose sanctions
not later than 90 days after employee reports violation of against an attorney, a represented party, or both, who file a
law). groundless pleading brought in bad faith or brought for the
purpose of harassment. TEX.R. CIV. P. 13. In determining
In light of the stated reasons for appellant's termination whether sanctions are appropriate, the trial court must
and the evidence presented in support thereof, we conclude examine the facts available to the litigant and the
that the evidence fails to establish a "but for" causal nexus circumstances existing when the litigant filed the pleading.
between appellant's report and appellant's reassignment and Rudisell, 89 S.W.3d at 237.
eventual termination. Accordingly, we hold that appellant
failed to present any evidence raising a fact issue essential Courts must presume that pleadings, motions, and
to his right of recovery. SeePrudential Ins. Co., 29 S.W.3d other papers are filed in good faith, and the party moving
at 77. for sanctions bears the burden of overcoming this
presumption. TEX.R. CIV. P. 13; GTE Communications
2. Personal Liability of the Individual Defendants Sys. Corp. v. Tanner, 856 S.W.2d 725, 731 (Tex.1993)
(orig.proceeding). Rule 13 requires that the trial court
The Act creates a private cause of action against the provide notice and hold an evidentiary hearing to make the
employing "state or local governmental entity." See TEX. necessary factual determinations about the motives and
GOV'T CODE ANN. § 554.002(a) (Vernon Supp.2004). credibility of the person filing the groundless pleading. N.Y.
However, the Act limits personal liability for individual Underwriters Ins. Co. v. State Farm Mut. Auto. Ins. Co.,
defendants to a civil penalty. See TEX. GOV'T CODE 856 S.W.2d 194, 205 (Tex.App.-Dallas 1993, no writ);
ANN. § 554.008(e) Home Owners Funding Corp. of Am. v. Scheppler, 815
S.W.2d 884, 888-89 (Tex.App.-Corpus Christi 1991, no
Page 669
writ). Without such a hearing, the trial court has no
(Vernon Supp.2004).[7] Thus, under the Act, appellant has evidence before it to determine that a pleading was filed in
no private right of action against any of the appellees in bad faith or to harass. New York Underwriters, 856 S.W.2d
their individual capacities. SeeAustin v. Healthtrust, Inc., at 205.
967 S.W.2d 400, 401 (Tex.1998) (declining to create
In the instant case, appellees filed a motion for rule 13
private common-law cause of action). Therefore, the trial
sanctions after the trial court granted their motion for
court did not err in granting a directed verdict on appellant's
directed verdict. After notice, the trial court held an
claims against appellees in their individual capacities.
evidentiary hearing. At the hearing, appellees argued that
We overrule appellant's first point of error. appellant did not file his whistleblower suit in good faith,
C. SANCTIONS Page 670
By his second point of error, appellant contends the relying on the relevant facts of appellant's conduct
evidence is legally insufficient to support the sanctions introduced at trial. The trial court then stated: "All right. All
imposed against him. Appellees contend the trial court I've heard from so far are the lawyers. Do we have any
properly imposed sanctions based entirely on the testimony evidence on the sanction request?" Appellees then
adduced at trial. presented evidence regarding the amount of costs and
attorneys fees they had incurred in defending the suit. The
trial court found the suit to be groundless and ordered association, or corporation. TEX. CONST. art. III, § 52(a).
sanctions. This section is intended to prevent the gratuitous grant of
public funds for private purposes. Edgewood Indep. Sch.
A movant seeking rule 13 sanctions must establish Dist. v. Meno, 917 S.W.2d 717, 740 (Tex.1995).
both: (1) the frivolity of the opponent's claim; and (2) the
improper motives underlying the decision to file the suit, [3] Under section 39.02(a) of the penal code, a public
motion, or document. Karagounis v. Prop. Co. of Am., 970 servant commits an offense if, with intent to obtain a benefit
S.W.2d 761, 765 (Tex.App.-Amarillo 1998, pet. denied). or with intent to harm or defraud another, he intentionally
"This in turn makes it imperative for the trial court to or knowingly violates a law relating to his employment, or
convene and conduct an evidentiary hearing." Id. (Emphasis misuses government property, services, personnel, or any
in original). other thing of value belonging to the government that has
come into his custody or possession by virtue of his
While some facts adduced during the trial of this case employment. TEX. PEN.CODE ANN. § 39.02(a) (Vernon
arguably established appellant's improper motives,[8] 2003).
appellees never offered or introduced any such evidence at
the sanctions hearing. At the hearing, appellees presented [4] Appellant reasoned that because Oscar Lopez and
evidence only on the amount of costs, expenses, and Adolfo Lopez were traveling together, it was reasonable to
attorneys fees incurred in defending the suit. They did not expect them to have shared a room. But, because their
ask the trial court to consider or take judicial notice of any spouses were traveling with them, the additional cost was
evidence heard during the trial. As we have held previously, tantamount to paying for the spouses' hotel rooms.
evidence must be admitted in compliance with the rules of
evidence at the evidentiary hearing for a trial court to [5] Section 45.105 of the education code authorizes the
consider it in a rule 13 context. Alejandro v. Bell, 84 expenditure of local school funds for the purposes listed for
S.W.3d 383, 393 (Tex.App.-Corpus Christi 2002, no pet.); state and county available funds and for other purposes
see alsoMcCain v. NME Hosps., Inc., 856 S.W.2d 751, 757 necessary in the conduct of the public schools determined
(Tex.App.-Dallas 1993, no writ) (reaffirming that motions by the board of trustees. TEX. EDUC.CODE ANN. §
and arguments of counsel are not evidence in a rule 13 45.105(c) (Vernon Supp.2004).
context).
[6] A person commits an offense under section 37.10 of the
Having failed to receive into evidence the relevant penal code if he knowingly makes a false entry in a
facts regarding the circumstances surrounding the filing of governmental record or presents a record with knowledge of
the lawsuit, the trial court had no evidence before it to its falsity and with intent that it be taken as a genuine
determine the motives and credibility of the person filing governmental record. TEX. PEN.CODE ANN. §
the allegedly groundless pleading or the relevant culpability 37.10(a)(1)-(2) (Vernon 2003).
of appellant or his attorneys. SeeNew York Underwriters,
856 S.W.2d at 205. Accordingly, we hold that the trial court [7] The Act limits the personal liability of a supervisor or
abused its discretion in assessing rule 13 sanctions against other individual who violates the Act to a civil penalty not
appellant. Appellant's second point of error is sustained. to exceed $15,000, which is to be deposited into the state
treasury after prosecution by the attorney general or
We affirm the trial court's judgment granting appellees' appropriate prosecuting attorney. TEX. GOV'T CODE
motion for directed verdict. We reverse the trial court's ANN. § 554.008 (Vernon Supp.2004).
sanctions order and render judgment that appellees' motion
for sanctions be denied. [8] The evidence included, inter alia, testimony from
appellant that he probably would have dismissed his claims
--------- against Adolfo Lopez and Oscar Lopez if they only had
expressed regret to him for voting in favor of his
Notes: termination. Further, in his brief to TEA on the appeal of
his termination, appellant expressly stated it was not his
[1] In his first amended petition, appellant also alleged intention to prove retaliation.
violations of article 1, sections 8 and 19 of the Texas
Constitution. However, he does not pursue these claims on ---------
appeal. See TEX.R.APP. P. 38.1.
[2] Article three, section 52(a) of the Texas Constitution
prohibits the Legislature from authorizing a county, city,
town, or subdivision of the State to lend its credit or to grant
public money or thing of value to any individual,
Page 158 homeowners association for six Harris County subdivisions
or "sections" encompassing more than 1600 single-family
141 S.W.3d 158 (Tex. 2004) residences. Each section is governed by a separate set of
deed restrictions through which every property owner is a
Geneva BROOKS, et al, Petitioners, member of the Association. The restrictions subject each
homeowner to an annual assessment that is deposited into a
v.
maintenance fund for such services as maintaining common
areas, contracting for garbage disposal, and constructing
NORTHGLEN ASSOCIATION, Respondent.
parks.
No. 02-0492.
Page 161
Supreme Court of Texas
In 1994, Northglen's Board of Directors amended the
June 25, 2004. deed restrictions to expand the Board and to assess late fees
on unpaid assessments. Geneva Brooks and other Northglen
Argued Sept. 3, 2003 property owners ("Brooks") organized a committee, called
the Committee to Remove the Board, to remove certain
Rehearing Denied Sept. 3, 2004. Board members who, they complained, acted outside the
bounds of the deed restrictions by adopting the
Page 159 amendments. Northglen responded by suing for injunctive
and declaratory relief. Northglen sought an order enjoining
[Copyrighted Material Omitted]
the eight homeowners from conveying the false impression
that Brooks's committee was formed pursuant to
Page 160
Northglen's bylaws and from other conduct designed to
Sue Auclair, Houston, TX, pro se. disrupt the Board's activities. Northglen also sought a
judgment declaring that its actions in electing the Board and
David Alfred Kahne, Law Office of David A. Kahne, assessing late fees were valid exercises of its authority.
Robin Rankin Willis, P.C., Houston, for Petitioner. Brooks counterclaimed for a declaratory judgment that
Northglen had no authority to raise assessments or charge
John Bradley Mitchell, Clayton Rowland Hearn, Marc late fees without a vote of the property owners. Northglen
D. Markel, Stephanie Lee Quade, Roberts Markel Guerry, eventually nonsuited its claims, and the case proceeded on
P.C., Houston, for Respondent. Brooks's declaratory judgment action.
JEFFERSON, Justice. The trial court granted summary judgment for
Northglen, declaring that, without a vote of the
This is a declaratory judgment action involving eight homeowners, Northglen had the authority to: (1) raise the
property owners' challenge to their homeowners assessment for Sections One, Two, and Three; (2) raise the
association's attempt to increase and accumulate annual assessment for Sections Four, Five, and Six by ten percent
assessments and impose late fees. The trial court held that each year or accumulate and assess the increase after a
chapter 204 of the Texas Property Code [1] authorized the number of years; and (3) charge delinquent homeowners a
Board to raise assessments unilaterally. The court of $35 late fee. Finding that both parties had pursued
appeals affirmed the trial court's judgment in part and legitimate interests, the trial court elected not to award
reversed in part. Both parties petitioned this Court for attorney's fees.
review. We granted the petitions to review the interplay
between Texas Property Code chapter 204 and Northglen The court of appeals affirmed the trial court's judgment
Association's deed restrictions. We affirm the court of in part and reversed in part. 76 S.W.3d 162, 176. It reversed
appeals' judgment in part, vacate in part, and reverse and as to Sections One, Two, and Three, holding that the deed
render judgment in part. restrictions did not permit annual assessments exceeding
$120. As to Sections Four, Five, and Six, the court of
I appeals held that because the deed restrictions contained no
language expressly forbidding accumulation, Northglen
Background could accumulate previous assessments under Property
Code section 204.010(16). Id. at 167. The court also held
Northglen Association ("Northglen") is the
that section 204.010(10) gave Northglen the right to assess
a $35 late fee in addition to the interest charge permitted by named homeowners, who are "interested under a deed, ...
the deed restrictions. Id. at 174. Because the property written contract, or other writings constituting a contract or
owners did not have prior notice of the late fee, the court of whose rights, status, or other legal relations are affected by
appeals held that Northglen could not foreclose on any a statute...." Tex. Civ. Prac. & Rem.Code §§ 37.003(a) and
homesteads to collect those fees. Id. at 175. The court of 37.004(a). The question, then, is not "whether jurisdiction is
appeals affirmed the trial court's denial of attorney's fees. lacking," as Northglen asserts, but whether the trial court
Id. at 176. should have refused to enter a judgment when a subset of
the homeowners was not joined in the lawsuit. SeeCooper v.
We hold that Northglen cannot accumulate unassessed Tex. Gulf Indus., Inc., 513 S.W.2d 200, 204 (Tex.1974)
fee increases because the language in the deed restrictions ("[the] concern is less that of the jurisdiction of a court to
prevails over chapter 204, and we reverse that portion of the proceed and is more a question of whether the court ought
court of appeals' judgment. We affirm the portion of the to proceed with those who are present"). To answer that
court of appeals' judgment restricting increases in prudential question, we turn to Rule 39, which governs
assessments to $120 and holding that Northglen has the joinder of persons under the Declaratory Judgment Act.
authority to assess late charges for unpaid fees, in addition Tex.R. Civ. P. 39; Clear Lake City Water Auth. v. Clear
to the interest charges described in the deed restrictions. We Lake Util., 549 S.W.2d 385, 390 (Tex.1977) (applying Rule
conclude, however, that Northglen may not foreclose on the 39 to actions under the Declaratory Judgment Act).
property if late charges are not paid. Finally, we affirm the
court of appeals' judgment regarding attorney's fees. Rule 39, like the Declaratory Judgment Act, mandates
joinder of persons whose interests would be affected by the
II judgment. See Tex. Civ. Prac. & Rem.Code § 37.006
("When declaratory relief is sought, all persons who have
Jurisdiction or claim any interest that would be affected by the
declaration must be made parties.") (emphasis added);
We first consider Northglen's contention that the trial
Tex.R. Civ. P. 39(a) ("A person who is subject to service of
court lacked subject matter jurisdiction because Brooks did
process shall be joined as a party in the action if ... he
not join all Northglen property owners as parties. Northglen
claims an interest relating to the subject of the action ....")
argues that Brooks was required to join all property owners
(emphasis added). Rule 39 determines whether a trial court
in each affected section before the trial court could render a
has authority to proceed without joining a person whose
declaratory judgment and, alternatively,
presence in the litigation is made mandatory by the
Declaratory Judgment Act. Clear Lake City Water Auth.,
Page 162
549 S.W.2d at 390.
that the trial court was without jurisdiction to render a
Rule 39(a) (1) requires the presence of all persons who
declaratory judgment interpreting the deed restrictions for
have an interest in the litigation so that any relief awarded
Sections Three and Six because property owners from those
will effectively and completely adjudicate the dispute. In
sections were not represented in the lawsuit.
this case, nothing in the rule precluded the trial court from
We do not have the benefit of the lower courts' views rendering complete relief among Northglen and the eight
on jurisdiction because Northglen did not raise the issue homeowners who had sued for a declaration of rights.
either in the trial court or the court of appeals. Northglen Although the parties continue to litigate its correctness, the
contends that the doctrine of fundamental error excuses it trial court's judgment represents a final and complete
from "the usual requirements of preservation of the error or adjudication of the dispute for the parties who were before
briefing of the ... argument" because the absence of the court. SeeCaldwell v. Callender Lake Prop. Owners
jurisdiction may be raised for the first time on appeal. We Improvement Ass'n, 888 S.W.2d 903, 907
disagree that the absence of parties within the represented (Tex.App.-Texarkana 1994, writ denied). Rule 39(a) (2)
sections deprived the court of jurisdiction and therefore relates to situations in which the absent party:
reject Northglen's contention as to Sections One, Two, Four
and Five; however, because no property owners in Sections Page 163
Three or Six were joined in the suit, we agree with
[C]laims an interest relating to the subject of the action and
Northglen that any judgment affecting those sections would
is so situated that the disposition of the action in his absence
be advisory.
may (i) as a practical matter impair or impede his ability to
protect that interest or (ii) leave any of the persons already
A
parties subject to a substantial risk of incurring double,
No one disputes that the trial court had jurisdiction to multiple, or otherwise inconsistent obligations by reason of
declare the "rights, status, and other legal relations" for the
his claimed interest. B
Tex.R. Civ. P. 39. Sections Three and Six present a different question --
does a trial court have jurisdiction to declare the rights of
Section 37.006(a) of the Declaratory Judgment Act, parties who are not before the court? A declaratory
which provides that a trial court's declaration does not judgment requires a justiciable
prejudice the rights of any person not a party to the
proceeding, dispenses with the first of these concerns. See Page 164
Tex. Civ. Prac. & Rem.Code § 37.006(a). Any non-joined
homeowner would be entitled to pursue individual claims controversy as to the rights and status of parties actually
contesting Northglen's authority to raise assessments or before the court for adjudication, and the declaration sought
impose fees, notwithstanding the trial court's judgment in must actually resolve the controversy. See, e.g.,The M.D.
the current case. [2] SeeCooper, 513 S.W.2d at 204 ("[I]t Anderson Cancer Ctr. v. Novak, 52 S.W.3d 704, 708
would be rare indeed if there were a person whose presence (Tex.2001); Texas Workers' Comp. Comm'n v. Garcia, 893
was so indispensable in the sense that his absence deprives S.W.2d 504, 517-18 (Tex.1995). A judicial decision
a court of jurisdiction ..."). reached without a case or controversy is an advisory
opinion, which is barred by the separation of powers
We appreciate the risk that, unless each homeowner is provision of the Texas Constitution. Tex. Const. art. II, § 1;
joined in one suit, Northglen may be subject to inconsistent seeSouthwestern Elec. Power Co. v. Grant, 73 S.W.3d 211
judgments. Tex.R. Civ. P. 39(a) (2) (ii). Northglen's (Tex.2002); Texas Ass'n of Bus. v. Tex. Air Control Bd., 852
dilemma, however, is the product of its own inaction. S.W.2d 440, 444 (Tex.1993). We must decide, then,
Northglen could have sought relief at trial by urging the whether there is a case or controversy with respect to these
court, among other things, to abate the case, join absent sections.
homeowners, or grant special exceptions. See, e.g.,Pirtle v.
Gregory, 629 S.W.2d 919, 920 (Tex.1982); Dahl v. Because there are no "plaintiffs" from Sections Three
Hartman, 14 S.W.3d 434, 436 (Tex.App.-Houston [14th and Six, there is no person in those sections for whom rights
Dist.] 2000, pet. denied); Adams v. Owens, 519 S.W.2d 260, could be declared in this declaratory judgment action. As a
261 (Tex.Civ.App.-Beaumont 1975, writ ref'd n.r.e.); Pan consequence, the trial court was without jurisdiction to
Am. Petroleum Corp. v. Vines, 459 S.W.2d 911, 912 issue a judgment with respect to those sections, and any
(Tex.Civ.App.1970, writ ref'd n.r.e.); Texaco, Inc. v. opinion interpreting those sections would be purely
Lettermann, 343 S.W.2d 726, 733 (Tex.Civ.App.-Amarillo, advisory. Accordingly, we vacate those portions of the
1961, writ ref'd n.r.e.). Instead, it waited until the case lower courts' judgments relating to Sections Three and Six
reached this Court to first raise the specter of multiple or and dismiss those claims for want of jurisdiction.
inconsistent judgments.
Having resolved Northglen's appellate pleas to the
Northglen counters that the doctrine of fundamental jurisdiction, we reach the merits for Sections One, Two,
error excuses its failure to preserve error. However, when Four and Five.
Rule 39 was amended, a young law professor remarked:
III
Henceforth, it will be rare indeed when an appellate court
properly determines that the trial court lacked jurisdiction to Sections One and Two
adjudicate a dispute when the nonjoining person's absence
We first decide whether the deed restrictions for
is raised for the first time on appeal by one of the parties in
Sections One and Two, which are identical, allow
the trial court, at least insofar as the judgment affects parties
Northglen to assess additional maintenance fees above the
who participated in the trial, directly or indirectly, or who
restrictive covenant's express limitation. The restrictions
purposely bypassed the proceedings. The doctrine of
provide:
fundamental error should no longer protect persons from the
binding force of judgments when they have had an
Each Lot in said Subdivision, when said Lot is certified by
opportunity to raise the absence of the nonjoined person and
the Subdivision Engineer to be a completed building site, is
waived it.
hereby subjected to an annual maintenance charge and
assessment not to exceed $10 per month or $120 per
William V. Dorsaneo, III, Compulsory Joinder of Parties in
annum, for the purpose of creating a fund to be designated
Texas, 14 Hous. L.Rev. 345, 369 (1977). We conclude that
and and [sic] known as the "maintenance fund", [sic] which
Northglen "had an opportunity to raise the absence of the
maintenance charge and assessment will be paid by the
nonjoined person and waived it." Id.; Tex.R.App. P. 33.1.
Owner or Owners of each Lot within said Subdivision, and
any annexed areas, to Northglen Association in advance
annually, commencing as to all Lots on the first day of the another provision of that deed restriction which stated
month following their certification of completion. The rate explicitly that the assessment was "not to exceed" a
at which each Lot will be assessed will be determined particular amount.
annually by the Board of Directors of Northglen
Association at least thirty (30) days in advance of each The Northglen deed restrictions subject each property
annual assessment. Said rate and when same is payable may owner to "an annual maintenance charge and assessment
be adjusted from year to year by said Board of Directors as not to exceed $10 per month or $120 per annum, for the
the needs of the Subdivision may in the judgment of the purpose of creating ... the 'maintenance fund'...." (Emphasis
Directors require. added.) The restrictions further provide that "[t]he rate at
which each Lot will be assessed will be determined
The restrictions also outline requirements for amendment. annually" by Northglen, and that "[s]aid rate and when
Article VIII provides that "... the covenants and restrictions same is payable may be adjusted from year to year by
of this Declaration may be amended during the first forty [Northglen] as the needs of the Subdivision may in the
(40) year period by an instrument signed by not less than judgment of [Northglen] require."
ninety percent (90%) of the Lot Owners, and thereafter by
an instrument signed by not less than seventy-five percent Northglen's argument does not survive the restrictions'
(75%) of the Lot Owners." Therefore, a small number of plain language. First, the annual assessment is not to exceed
homeowners may exert enormous influence on the extent to $10 per month or $120 per year. The restrictions do not
which amendments will be adopted. [3] require that Northglen charge the maximum amount.
Rather, Northglen may charge any amount so long as the
Page 165 amount does not exceed $120 per year. So, if Northglen had
been assessing $50 per year and decided the next year that
Although there are practical hurdles to persuading $120 was necessary, it has the authority to raise the rates
seventy-five or ninety percent of homeowners to modify the unilaterally. Second, the deed restrictions neither
restrictions or agree to an additional assessment, it is clear contemplate nor permit an additional assessment once the
that the restrictions provide a mechanism by which maintenance fund is whole because the language says
Northglen can assess an annual fee greater than $120. The plainly that the assessment is not to exceed $10 per month
court of appeals agreed, holding that because the deed or $120 per year. There is no language permitting an
restriction provided that the annual assessments were "not additional assessment beyond that which is included in the
to exceed" $10 per month or $120 per annum, Northglen maintenance fund, aside from the special assessment for
did not have the authority to exceed the stated limits capital improvements.
without first obtaining the homeowners' consent in
accordance with the restrictions. 76 S.W.3d at 174. Page 166
Northglen disputes this holding, arguing that the deed We hold that the court of appeals correctly concluded
restrictions should be read in three steps. First, the that Northglen cannot increase assessments beyond the
restrictions create a maintenance fund, for which the $120 limitation set forth in the deed restrictions, and we
assessment shall not exceed $10 per month or $120 per affirm that part of the court of appeals' judgment.
annum. Second, when the maintenance fund is created, the
Board of Directors has discretion to determine the rate at IV
which each lot will be assessed above the $120. Third, the
assessment rate and date payable may be adjusted from year Sections Four and Five
to year, as the needs of the subdivision require.
Northglen argues -- and the court of appeals held --
In support of its argument, Northglen cites Samms v. that the deed restrictions permit accumulation of unassessed
Autumn Run Cmty. Improvement Ass'n. 23 S.W.3d 398 increases in maintenance fees for Sections Four and Five.
(Tex.App.-Houston [1st Dist.] 2000, pet. denied). The 76 S.W.3d at 167. Northglen contends, specifically, that
Samms court held that a deed restriction with language Property Code section 204.010 allows it to accumulate and
similar to Section One and Two granted the homeowners assess a $430 single-year increase -- raising the assessment
association the authority, from year to year, to determine from $120 to $550. That section provides:
the rate at which property owners would be assessed. Id. at
§ 204.010. Powers of Property Owners' Association
402. The court held that the homeowners association had
authority to raise the assessment without limitation because
(a) Unless otherwise provided by the restrictions or the
a phrase in the deed restriction said "the rate at which each
association's articles of incorporation or bylaws, the
Lot will be assessed ... will be determined annually by the
property owners' association, acting through its board of
Board of Directors...." Id. But the court did not discuss
directors or trustees, may: Until January 1 of the year immediately following the date
of commencement of the first annual assessment as
(16) if the restrictions allow for an annual increase in the determined by the Board of Directors, the maximum annual
maximum regular assessment without a vote of the assessment shall be $120.00 per Lot. From and after the
membership, assess the increase annually or accumulate and first day of January of the year immediately following the
assess the increase after a number of years. date of commencement of the first annual assessment, the
maximum annual assessment may be increased by the
Tex. Prop.Code § 204.010. Board of Directors of the Association, effective the first day
of January of each year, in conformance with the rise, if
The property owners counter that the trial court
any, in the Consumer Price Index for Urban Wage Earners
properly interpreted Sections Four and Five as to allowable
and Clerical Workers published by the Department of
increases. They argue that by limiting the annual
Labor, Washington, D.C., or any successor publication, for
assessment increase to ten percent, the deed restrictions
the preceding month of July or alternatively, by an amount
"otherwise provide" that accumulation is not permitted. We
equal to a ten percent (10%) increase over the prior
examine the competing contentions first by analyzing the
years [sic] annual assessment, whichever is greater,
deed restrictions and then by determining the extent to
without a vote of the Members of the Association. The
which they are affected by the Property Code.
maximum annual assessment may be increased above that
A established by the Consumer Price Index formula or the
above-mentioned percentage increase only by approval of
Determining whether the statute applies requires an two-thirds (2/3rds) of each class of Members in the
understanding of the deed restrictions. The deed restrictions Association present and voting at a meeting duly called for
for Section Four provide: this purpose. In lieu of notice and a meeting of Members as
provided by the By-Laws of the Association, a door to door
Until January 1 of the year immediately following the canvass may be used to secure the written approval of
conveyance of the first Lot to an Owner, the maximum two-thirds (2/3rds) of each class of Members for such
annual assessment shall not exceed Ten ($10.00) Dollars increase in the annual assessment or in the special
per month, or One Hundred Twenty ($120.00) Dollars per assessment for capital improvements as provided.... After
annum, per lot; provided, however, that from and after consideration of current maintenance costs and future needs
January 1 immediately following the conveyance of the first of the Association, the Board of Directors may fix the
Lot to an Owner, the Board of Directors of the Association annual assessment at an amount not in excess of the
shall be empowered to increase said rate as the needs of the maximum amount approved by the Members.
Association require; except that if any such increase shall
cause the annual assessment to be greater than the (Emphasis added.)
aforesaid $120.00 plus the rise, if any, of the Consumer
Both Sections Four and Five maintain an initial $120
Price Index as published by the United States
per annum limit on assessments, followed by discretionary
Department of Labor for the preceding month of July;
increases of up to ten percent or the rise in the Consumer
or more than One Hundred Ten (110%) percent of the
Price Index, whichever is greater. Those increases are tied
amount assessed in the preceding calendar year,
to the previous year's assessment.
whichever is greater, then shall such an increase require
the vote of two-thirds (2/3) of each class of Members of
B
the Association who are voting in person or by proxy, at a
meeting duly called for that purpose. We now consider how the Texas Property Code
applies to the preceding deed restrictions. One of the stated
(Emphasis added.)
purposes in chapter 204 is to provide a mechanism "to
Section Four thus permits an increase of ten percent readily facilitate increases in the amount of the regular or
more than the previous year's assessment, and a greater special assessments to allow the property owners'
increase if the Consumer Price Index is higher. The associations to better provide services to the subdivisions."
restriction requires a vote of the homeowners to raise the Tex. Prop.Code § 204.001 historical note, [Act of May 27,
assessment beyond those amounts. 1995, 74th Leg., R.S., ch. 1040, § 1, 1995 Tex. Gen. Laws
5170, 5171]. The Legislature observed that severe
The restrictions for Section Five are similar to Section restrictions on the ability to adjust regular assessments
Four: "may result in the inability of an ineffective property
owners' association to maintain common area facilities,
Page 167 including swimming pools, tennis courts, clubhouses,
greenbelt areas, or jogging trails, or to provide services,
including streetlights, security, architectural control, and so, whether such a construction violates the Contract Clause
deed restriction enforcement." Id. Read in isolation, the of the U.S. or Texas Constitution. The trial court held that
legislature's preamble to section 204 offers some support Northglen could charge a late fee under section 204.010(a)
for Northglen's argument that it has the authority to (10), and the court of appeals affirmed. Both courts noted
accumulate previously unassessed fee increases beyond the that the deed restrictions did not expressly prohibit late fees
maximum stated in the restrictions to maintain common nor limit penalties to the interest charge. We hold that
facilities or to provide services. The Legislature, however, Northglen may charge a $35 late fee and that such a charge
inserted a caveat that governs here: the statutory provision is constitutional.
permitting accumulation does not apply if the deed
restrictions "otherwise provide." Tex. Prop.Code § 204.010. A
In this case, the Northglen deed restrictions for The homeowners argue that permitting Northglen to
Sections Four and Five "otherwise provide" that unilaterally assess late charges would defeat the purpose of
accumulation is not permitted. Section Four limits the ten the deed restrictions, which already impose a six percent
interest charge for nonpayment. Additionally, the
Page 168 homeowners argue that by expressly including the interest
charge in the restrictions, the homeowners necessarily
percent increase to "the amount assessed in the preceding rejected late charges, under the doctrine of expressio unius
calendar year." (Emphasis added.) Section Five also limits est exclusio alterius (to include one thing implies the
the "increase over the prior years [sic] annual assessment." exclusion of the other). Black's Law Dictionary 602 (7th
(Emphasis added.) The natural consequence of each ed.1999).
restriction's language is that if the annual assessment for
this year is $120, then next year's assessment may not be The court of appeals disagreed with the homeowners'
raised to the $550 that Northglen seeks. Rather, next year's argument and held that Northglen could assess late charges.
assessment may be no more than $132. By specifically The court considered the language of section 204.010(a)
tying any increase to the previous year's annual assessment, (10), which provides, in pertinent part:
the deed restrictions do not permit accumulation over
multiple years. (a) Unless otherwise provided by the restrictions or the
association's articles of incorporation or bylaws, the
Additionally, in Section Four, Northglen may increase property owners' association, acting through its board of
fees beyond the limits by receiving a "vote of two-thirds directors or trustees, may:
(2/3) of each class of Members of the Association who are
voting in person or by proxy, at a meeting duly called for (10) impose interest, late charges, and, if applicable,
that purpose." In Section Five the Board must receive returned check charges for
"approval of two-thirds (2/3rds) of each class of Members
in the Association present and voting at a meeting duly Page 169
called for this purpose." Although a two-thirds vote may be
late payments of regular assessments or special
difficult to achieve, the deed restrictions offer Northglen a
assessments.
procedure for increasing fee assessments beyond the
ten-percent limit other than accumulation. The voting
Tex. Prop.Code § 204.010(a) (10). The court held that this
mechanism, combined with the increase being tied to the
statutory language granted Northglen authority to assess the
previous year's assessment, establishes that the deed
late charge in the absence of specific language to the
restrictions "otherwise provide."
contrary. Because the deed restrictions do not mention late
charges specifically, the court held that silence could not
Because we conclude that the statute does not permit
mean "otherwise provide." 76 S.W.3d at 174.
accumulation or fee increases above the deed restrictions,
we need not address Brooks's contention that the statute's We agree that nothing in the Northglen deed
accumulation provisions are unconstitutional.
restrictions could be considered "otherwise providing."
Each deed restriction contains the same provision for failing
V
to pay assessments:
Late Fees
Effect of Non-payment of Assessments: Remedies of the
We next consider whether section 204.010(a) (10) Association. Any assessment not paid within thirty (30)
authorized Northglen to impose a $35 late charge, in days after the due date shall bear interest from the due date
addition to the interest charge included in the deed at the rate of six percent (6%) per annum. The Association
restrictions, for failure to pay the annual assessments, and if may bring an action at law against the Owner personally
obligated to pay the same, or foreclose the lien against the remove any contractual obligation. If the statute required
property. No Owner may waive or otherwise escape the assessment of late fees where late fees were expressly
liability for the assessments provided for herein by non-use prohibited by the deed restrictions, this would likely be a
of any Common Area or abandonment of his Lot. different case. SeeTravelers' Ins. Co. v. Marshall, 124 Tex.
45, 76 S.W.2d 1007 (1934) (discussing statutes that declare
Contrary to Brooks's argument, the deed restrictions do not a complete moratorium on particular contracts). We are not
say the penalties are the exclusive remedies for late faced with that circumstance here. Thus, applying the
payments, nor do they say that late charges are not statute to authorize a late fee is not unconstitutional.
permitted. The deed restrictions only set the rate at which
Northglen may charge interest on unpaid assessments. VI
When construing a statute, the Court must presume Foreclosure
that every word of the legislation has meaning. Riverside
Nat'l Bank v. Lewis, 603 S.W.2d 169, 173 (Tex.1980). The Because we hold that Northglen may charge late fees
statute unequivocally says the Board may impose both for unpaid fee assessments, we must address whether it has
interest charges and late charges. That the deed restriction the authority to foreclose on the homestead if a property
mentions interest charges but not late charges is not owner fails to pay the late fee. This Court has clarified that
sufficient to "otherwise provide." Texas' homestead laws authorize a homeowners association
to foreclose on homesteads for the nonpayment of fee
B assessments. Inwood Homeowners' Ass'n v. Harris, 736
S.W.2d 632, 635-36 (Tex.1987). In Inwood, we considered
Brooks argues that the assessment of a late fee would whether the homestead laws of Texas protect a homeowner
violate the U.S. [4] and Texas [5] Constitutions' against foreclosure for failure to pay homeowners
impairment-of-contracts provisions because the deed association assessments. Id. at 633. As a general rule, a
restrictions do not provide for late fees. The court of homestead is protected against the debts of those who live
appeals examined the constitutionality of the statute and in the homestead. Id. at 634. However, the deed restrictions
held that Section 204.010 "is not directed to any specific for the subdivision included a vendor's lien permitting
kind of contracts, and it does not directly contradict any foreclosure on the homestead for failure to pay the fee
contractual provision...." 76 S.W.3d at 168. The court assessment. Id. at 633. Because the property owner had
further noted that the statute is a permissible exercise of the notice when purchasing the property that a lien attached to
State's police power because "it was enacted to promote the the land, we held that foreclosure was permissible. Id. at
public welfare with regard to the property owners 635-36.
associations' ability to better provide services to the
homeowners, maintain the common area facilities, and The court of appeals, in our case, focused on the notice
provide for the common security and restriction requirement and held that foreclosure was not a potential
enforcement." Id. at 168-69. We agree and hold that the remedy against unpaid late charges. 76 S.W.3d at 175. The
same rationale applies to the late fees imposed pursuant to court noted that the lien to enforce the late charges attached
chapter 204. to the property after the homestead was acquired because
late charges were not included in the deed restriction. Id.
A statute is presumptively constitutional. Barshop v.
Medina Cty. Underground Water Conservation Dist., 925 The court cited as authority an Attorney General
S.W.2d 618, 625 (Tex.1996). As such, we are obligated to opinion that said costs imposed upon property owners
avoid constitutional problems if possible. Id. In this case, because of Chapter 204, which were not part of the deed
we must consider two factors: first, whether the restriction, could not be enforced through foreclosure. Id.
(citing Tex. Att'y Gen. Op. LO-97-019 (1997)). The
Page 170 Attorney General concluded that, in determining whether
foreclosure is a remedy, the issue is "whether the lien for
statute substantially impairs the contract; and second, if so, those costs (i) attached to the property prior to the
whether the Legislature acted within its police powers in homestead right and (ii) is the result of a restriction that
enacting the legislation. SeeAllied Structural Steel Co. v. runs with the land." Tex. Att'y Gen. Op. LO-97-019. The
Spannaus, 438 U.S. 234, 244-45, 98 S.Ct. 2716, 57 L.Ed.2d court of appeals considered the two elements and held that
727 (1978). because late charges were not part of the deed restrictions
but rather a function of the statute, Northglen could not
Section 204.010 does not substantially impair
foreclose for failure to pay late charges. 76 S.W.3d at
Northglen's deed restrictions. The statute operates only
175-76.
where the deed restrictions do not "otherwise provide." Tex.
Prop.Code § 204.010. It does not serve to withdraw or
Northglen argues that a developer has the authority to Attorney's Fees
create liens to ensure the payment of fee assessments, and
under Inwood, an appropriate remedy for failure to pay The final issue is whether the property owners should
assessments is foreclosure. Northglen also contends that be awarded attorney's fees. The trial court declined to award
because property attorney fees, finding that "the parties each had legitimate
interests to pursue." The court of appeals affirmed, holding
Page 171 that "[i]n the judgment we render, neither side would be
considered a prevailing party." 76 S.W.3d at 176. The
owners were aware that delinquent assessments would be Declaratory Judgment act permits a court to "award costs
subject to late charges, in the form of an interest charge, the and reasonable and necessary attorney's fees as are
property owners had actual notice sufficient to satisfy equitable and just." Tex. Civ. Prac. & Rem.Code §§ 37.009.
Inwood. Thus, because the property owners had actual Although we reverse
notice, Northglen asserts, the late charge should also run
with the land as the interest charge does. Page 172
We disagree with Northglen and agree with the court part of the court of appeals' judgment, the basis for the trial
of appeals. Northglen's argument essentially amends the court's decision for denying fees -- that each side pursued
deed restrictions to include both late fees and interest legitimate interests -- has not changed. Accordingly, we
charges. But the restrictions did not provide any notice that will not disturb the trial court's discretionary decision in that
a late fee would be imposed in addition to the interest regard. We affirm the court of appeals' judgment on
charge. As a result, the property owners did not have notice attorney's fees.
of the late charge. Therefore, in light of Inwood 's notice
requirement, foreclosure is not an appropriate remedy for a IX
failure to pay the late charge. [6]
Conclusion
VII
We (1) affirm the court of appeals' judgment as to the
Non-profit Corporation Act increased assessments in Sections One and Two, the
assessment of late fees, and foreclosure; (2) reverse the
Northglen challenges that portion of the trial court's court of appeals' judgment and render judgment as to
judgment providing that "the bylaws may only be amended accumulation of fee increases under Sections Four and Five;
by the members...." Northglen argues that, even absent (3) vacate the trial court's and the court of appeals'
Property Code chapter 204, it had the authority to increase judgments as to Sections Three and Six and dismiss for
assessments because it may amend the deed restrictions want of jurisdiction Brooks's claim as to those sections; and
unilaterally under the Texas Non-Profit Corporation Act. (4) affirm the court of appeals' judgment regarding
Tex.Rev.Civ. Stat. art. 1396-1.01 et seq. That statute attorney's fees. Tex.R.App. P. 60.2(a), (c), (e).
provides, among other things, that a board of directors has
the authority to amend bylaws unless the articles of ---------
incorporation reserve the power exclusively to the
members. We cannot reach this issue. Northglen did not file Notes:
a notice of appeal from the trial court's judgment, did not
[1] Chapter 204 applies to residential real estate
notice a cross-appeal, and did not petition this court for
subdivisions in a county with a population of 2.8 million or
review on the point. Accordingly, Northglen did not
more. Tex. Prop.Code § 204.002. According to the 2000
preserve this issue for our review. Tex.R.App. P. 25.1(c)
U.S. Census, of the 254 counties in Texas, only Harris
("[A] party who seeks to alter the trial court's judgment or
County comes within the chapter's purview. 2000 United
other appealable order must file a notice of appeal.... The
States Census, available at
appellate court may not grant a party who does not file a
http://quickfacts.census.gov/qfd/states/48/48201.html.
notice of appeal more favorable relief than did the trial
court except for just cause."), 53.1 ("A party who seeks to
[2] Despite the notoriety this dispute engendered in the
alter the court of appeals' judgment must file a petition for
neighborhood, the record does not disclose that any other
review."); see alsoDean v. Lafayette Place (Section One)
homeowners filed suit or were otherwise disposed to contest
Council of Co-Owners, Inc., 999 S.W.2d 814, 818 Northglen's actions.
(Tex.App.-Houston [1st Dist.] 1999, no pet.).
[3] A similar, though less onerous, supermajority is
VIII required to charge a special assessment in a given year. The
restrictions provide that Northglen may:
[l]evy, in any assessment year, a special assessment
applicable to that year only for the purpose of defraying, in
whole or in part, the cost of any acquisition, construction,
reconstruction, repair or replacement of a capital
improvement ... provided that any such assessment shall
have the assent of two-thirds (2/3rds) of the votes of each
class of members....
(Emphasis in original.)
[4] "No State shall ... pass any Bill of Attainder, ex post
facto Law, or Law impairing the Obligation of Contracts...."
U.S. Const. art. I, § 10.
[5] "No bill of attainder, ex post facto law, retroactive law,
or any law impairing the obligation of contracts shall be
made." Tex. Const. art. I, § 16.
[6] We express no opinion on the court of appeals' holding
that "any new type of assessment ... or attorney's fee that is
imposed solely through the authority of Chapter 204 of the
Texas Property Code cannot be enforced by foreclosure
against a homestead." 76 S.W.3d at 175. Inasmuch as we
have reversed the court of appeals' judgment regarding
accumulation, we need not decide whether foreclosure
would be an appropriate remedy for accumulated
assessments. Similarly, attorney's fees imposed through
Chapter 204 are not at issue in this case.
---------
Page 386 The summary judgment record reflects the following.
On January 27, 1999, VidiMedix
184 S.W.3d 386 (Tex.App.—Austin 2006)
Page 388
MID-SOUTH TELECOMMUNICATIONS
COMPANY, Appellant, executed a "Convertible Promissory Note" (the "Note") in
favor of Mid-South for $250,000. The Note was made
v. payable on or before December 31, 1999. Paragraph 3 of
the Note, titled "Default," provided that VidiMedix "will be
Norman K. BEST and Philip W. Faris, Jr., Appellees. deemed in default under this Note if [it] fails to meet its
payment obligations hereunder." On the same date, in
No. 03-04-00586-CV.
consideration for the loan and Note, four guarantors,
including Faris and Best, [1] executed a guaranty under
Court of Appeals of Texas, Third District, Austin.
which
January 27, 2006
each of the undersigned guarantors. .. hereby severally,
FROM THE DISTRICT COURT OF TRAVIS unconditionally and irrevocably guarantees the prompt and
COUNTY, 200TH JUDICIAL DISTRICT NO. GN401565, complete payment of all amounts [VidiMedix] owes to
HONORABLE ROSE SPECTOR, JUDGE PRESIDING [Mid-South] under the Note, in strict accordance with its
terms.
Page 387
Each guarantor agreed to be liable for a specified pro-rata
W. Michael Stephens, Thomas W. Stephens, Houston, share of the unpaid debt and accrued interest. Best and
for appellant. Faris's shares were 8.1% and 2.36%, respectively. Further,
each guarantor explicitly waived any right to require
James G. Ruiz, Winstead Sechrest & Minick, PC, Mid-South to proceed first against VidiMedix, to exhaust
Austin, for appellees. any security held by VidiMedix, or to exercise any other
remedy Mid-South might possess before seeking recovery
Before Justices B.A. SMITH, PURYEAR and from them.
PEMBERTON.
Paragraph 6 of the Guarantee provided:
OPINION
One or more of the following shall constitute an Event of
BOB PEMBERTON, Justice. Default under the Guaranty[:] if Guarantor purports to
revoke or otherwise avoid any obligation under this
This case presents the issue of when a creditor's claim
Guaranty; or if a Guarantor dies, becomes insolvent,
against a guarantor of a debt accrues. Norman K. Best and
commences or has commenced against him an action under
Philip W. Faris, Jr. were among the guarantors of a loan
the United States Bankruptcy Code, becomes subject to any
from Mid-South Telecommunications Company to
criminal prosecution, suffers a judgment or judgments for
VidiMedix Corporation. After VidiMedix defaulted on the
the payment of money individually or in the aggregate in
loan when it came due on December 31, 1999, Mid-South
excess of $100,000, or suffers any portion of his assets to be
demanded payment from the guarantors. Eventually, in May
attached, seized or levied upon; or any circumstances
2004, Mid-South sued Best and Faris, asserting a
arising causing [Mid-South] in good faith, to become
breach-of-contract claim for failure to perform under the
insecure as to the satisfaction of any of Guarantors'
Guaranty. Mid-South sought summary judgment on that
obligations under this Guaranty.
claim. Best and Faris filed both a response and a
cross-motion for summary judgment raising the four-year It is undisputed that VidiMedix defaulted on the Note
statute of limitations. See Tex. Civ. Prac. & Rem. Code when it became due on December 31, 1999. On April 26,
Ann. § 16.004(a)(3) (West 2002). The district court denied 2000, Michael Stephens, attorney for Mid-South, sent a
Mid-South's motion and granted that of Best and Faris, letter to VidiMedix (through Faris, its President and CEO)
finding that Mid-South's claims were barred. For the demanding payment of all principal and accrued interest
reasons stated below, we will affirm. due on the Note. On the same day, Stephens also sent letters
to both Faris and Best demanding payment of their
BACKGROUND
respective pro-rata percentages of principal and accrued
interest for which they were each liable under the cross-motion for summary judgment, finding that
Guaranty.[2] Subsequently, on June 15, 2000, Michael L. Mid-South's claims were barred, denied Mid-South's
Patrick, Mid-South's Executive Vice-President, wrote Faris, motion, and rendered a take-nothing judgment in favor of
as VidiMedix's president and CEO, "relative to our Best and Faris. This appeal followed.
concerns in how you, on behalf of VidiMedix, have handled
our Note." Patrick stated that Mid-South had granted a DISCUSSION
three-month extension of the note's due date to March 2000,
that VidiMedix had still not performed, that Faris had Mid-South presents a single issue on appeal: whether
subsequently indicated that VidiMedix was experiencing the district court erred in determining that Mid-South's
financial difficulties and would likely file for bankruptcy, breach-of-contract claim accrued more than four years
and that Faris had advised that the guarantors could not before it filed suit so as to be barred by limitations. See
honor the Guaranty. Patrick added that Faris had been Tex. Civ. Prac. & Rem. Code Ann. § 16.004(a)(3).
furtive and misleading in his communications with
Standard of review
Mid-South. Patrick suggested that if the guarantors would
restructure the Guaranty, "likely Mid-South will consent to
We review the district court's summary judgment de
converting the Note into eMedSoft.com shares on the same
novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656,
basis as other Bridge Noteholders."
661 (Tex. 2005); Provident Life & Accident Ins. Co. v.
Knott, 128 S.W.3d 211, 215 (Tex. 2003). When reviewing a
Page 389
summary judgment, we take as true all evidence favorable
The record reflects further negotiations between to the nonmovant, and we indulge every reasonable
Mid-South and the guarantors over the ensuing four years. inference and resolve any doubts in the nonmovant's favor.
It is undisputed, however, that neither Faris nor Best ever Valence Operating Co., 164 S.W.3d at 661; Knott, 128
performed their obligations under the Guaranty. Mid-South S.W.3d at 215; Science Spectrum, Inc. v. Martinez, 941
ultimately filed suit against Faris and Best on May 17, S.W.2d 910, 911 (Tex. 1997). Summary judgment is proper
2004, for breach of contract based on their failure to when there are no disputed issues of material fact and the
perform under the Guaranty. Faris and Best answered with movant is entitled to judgment as a matter of law. Tex. R.
a general denial and the affirmative defense that the Civ. P. 166a(c); Shell Oil Co. v. Khan, 138 S.W.3d 288,
four-year statute of limitations barred Mid-South's claims. 291 (Tex. 2004) (citing Knott, 128 S.W.3d at 215-16).
See Tex. Civ. Prac. & Rem. Code Ann. § 16.004(a)(3) (suit When, as here, both parties move for summary judgment
on debt must be filed not later than four years after cause of and the district court grants one motion and denies the
action accrues). other, we review the summary-judgment evidence presented
by both sides, determine all questions presented,
Mid-South moved for summary judgment as to both
liability and damages on its claims against Faris and Best. Page 390
Faris and Best filed a cross-motion for summary judgment
and render the judgment the district court should have
and a response to Mid-South's motion, relying on their
rendered. Texas Workers' Comp. Comm'n v. Patient
limitations defense and their affidavits that neither ever
Advocates of Tex., 136 S.W.3d 643, 648 (Tex. 2004); FM
made payments in accordance with the Guaranty. Best and
Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872
Faris contended that, as a matter of law, Mid-South's
(Tex. 2000).
breach-of-contract claims against them accrued on
December 31, 1999, the date that VidiMedix defaulted on
Best and Faris' summary judgment motion
the Note. Mid-South countered that, under the terms of the
Guaranty, its claims accrued only upon an "Event of We will consider first whether the district court erred
Default" defined in paragraph 6 of the agreement and that in granting summary judgment for Best and Faris. Best and
Best and Faris failed to conclusively establish that such an Faris sought summary judgment on the ground that "[t]he
event occurred earlier than four years before Mid-South statute of limitations bars Mid-South's claims."[4] There is
filed suit. According to Mid-South, the earliest evidence in no dispute that this case is governed by the four-year statute
the summary judgment record of an Event of Default was of limitations for suits on debts, see Tex. Civ. Prac. & Rem.
its June 15, 2000 letter to Faris, which it characterized as a Code Ann. §16.004(a)(3), or that this provision required
memorialization of "circumstances arising causing Mid-South to bring its breach-of-contract action no later
[Mid-South] in good faith, to become insecure as to the than four years after the day its cause of action accrued. The
satisfaction of any of Guarantors' obligations under this parties' dispute centers on the date on which Mid-South's
Guaranty."[3] cause of action accrued. When a cause of action accrues is a
question of law. Moreno v. Sterling Drug, 787 S.W.2d 348,
The district court granted Best and Faris's
351 (Tex. 1990). A cause of action generally accrues at the
time when facts come into existence that authorize a tends to denote an absolute guaranty, or one made
claimant to seek a judicial remedy. Murray v. San Jacinto contingent solely upon the default of the principal obligor.
Agency, Inc., 800 S.W.2d 826, 828 (Tex. 1990). See Universal Metals & Mach., Inc. v. Bohart, 539 S.W.2d
874, 877-78 (Tex. 1976). Under an absolute guaranty, a
Best and Faris argue that Mid-South's guarantor is primarily liable on the underlying obligation;
breach-of-contract claim accrued on December 31, 1999, thus, "[t]he terms of the note must be examined to ascertain
when the Note matured and VidiMedix defaulted on its the guarantor's obligations under his unconditional
repayment obligation. Best and Faris do not purport to guarantee, for by that guaranty he agrees to pay the
adopt the date at which Mid-South's claim under the Note instrument according to its terms if it is not paid when due."
against VidiMedix accrued, nor are they attempting to Hopkins v. First Nat'l Bank at Brownsville, 551 S.W.2d
incorporate any limitations defense that VidiMedix might 343, 345 (Tex. 1977); see Reece v. First State Bank of
have asserted against such a claim. See, e.g., Beddall v. Denton, 566 S.W.2d 296, 297 (Tex. 1978).
Reader's Wholesale Distribs., Inc., 408 S.W.2d 237, 240
(Tex. Civ. App.--Austin 1966, no writ) (where guarantor Each guarantor also explicitly waived "all
can be sued independently from principal obligor, guarantor presentments, demands for performance, notices of
cannot invoke principal obligor's limitation's defense); see performance, protest, notices of protest, notices of dishonor,
also Willis v. Chowning, 90 Tex. 617, 40 S.W. 395, 396-97 and notices of acceptance of the Guaranty and its existence,
(1897) (in cases where surety could be sued without joining creation, or incurring of new or additional indebtedness"
principal, surety could not assert maker's limitations and any right to require Mid-South to proceed against
defense on note); Western Casket Co. v. Estrada, 116 S.W. VidiMedix, to exhaust any security interest held by
113, 113-14 (Tex. Civ. App.--El Paso 1909, no writ) VidiMedix, or to seek any other remedy. See, e.g., Ocean
(applying principles announced in Willis to guarantors). Transp., Inc. v. Greycas, Inc., 878 S.W.2d 256, 267-68
Instead, to determine when Mid-South's claim against them (Tex. App.-Corpus Christi 1994, writ denied). Thus,
accrued, Best and Faris recognize that we must look to the demand was not an integral part of the cause of action or a
source of their obligations to Mid-South--the terms of the condition precedent to Mid-South's right to enforce the
guarantee. See Vastine v. Bank of Dallas, 808 S.W.2d 463, Guaranty. See id.
464 (Tex. 1991); Wiman v. Tomaszewicz, 877 S.W.2d 1, 6
(Tex. App.--Dallas 1994, no writ). Paragraph 6 defines an "Event of Default" under the
Guaranty: if a guarantor "purports to revoke or otherwise
We construe a guaranty as any other contract. The avoid any obligation under this Guaranty," dies, becomes
construction of a contract is a question of law for the court. insolvent, commences bankruptcy or has bankruptcy
Buys v. Buys, 924 S.W.2d 369, 372 (Tex. 1996). We commenced against him, is criminally prosecuted, incurs a
examine the entire document and consider each part with money judgment greater than $100,000, has assets attached,
every other part so that the effect and meaning of one part seized, or levied upon; or "any circumstances aris[e]
on any other part may be determined. Heritage Res. v. causing [Mid-South] in good faith, to become insecure as to
NationsBank, 939 S.W.2d 118, 121 (Tex. 1996); Steeger v. the satisfaction of any of Guarantors' obligations under this
Beard Drilling, Inc., 371 S.W.2d 684, 688 (Tex. 1963). We Guaranty." Construing paragraph 6 in the context of the
interpret the contract by ascertaining the true objective Guaranty as a whole, seeColumbia Gas Transmission Corp.,
intentions of the parties, based on the contract language. 940 S.W.2d at 589, we find that it operates to identify acts
SAS Inst, Inc. v. Breitenfeld, 167 S.W.3d 840, 841 (Tex. and omissions that constitute a failure to perform under the
2005). We presume that the parties to a contract intend Guaranty, but it does not limit the central promise that Best
every clause to have some effect. Heritage Res., 939 and Faris made concerning "the prompt and complete
S.W.2d at 121; Ogden v. Dickinson State Bank, 662 S.W.2d payment of all amounts that Borrower owes [Mid-South]
330, 331 (Tex. 1983). We under the Note, in strict accordance of its terms." In other
words, Best and Faris made themselves bound, when
Page 391 guaranteeing the loan, to the payment obligations of the
Note. Paragraph 6, then, adds events that could constitute
give words their plain, common, or generally accepted an event of default on the part of a guarantor that do not
meaning unless the instrument shows that the parties used arise from the terms of the Note itself. In the end, the
them in a technical or different sense. Heritage Res., 939 guarantors had a payment obligation immediately upon
S.W.2d at 121. VidiMedix's default and, from that point forward, were in
breach of that obligation as long as they failed to perform.
Under the Guaranty, Best and Faris "unconditionally
Cf.Ocean Transp., 878 S.W.2d at 268.
and irrevocably" guaranteed "the prompt and complete
payment" of VidiMedix's obligations under the Note "in All parties agree that VidiMedix defaulted on the Note
strict accordance with its terms." This type of language on December 31, 1999. Best and Faris became obligated to
make payment under the terms of their guaranty agreements
on that date. Thus, Mid-South's claim against Best and Faris
accrued on December 31, 1999. Other than its reliance on
paragraph 6, Mid-South did not present any grounds for
finding a later accrual date. Accordingly, the district court
did not err in granting summary
Page 392
judgment for Best and Faris and denying Mid-South's
motion.
CONCLUSION
We affirm the district court's grant of summary
judgment in favor of Best and Faris.
---------
Notes:
[1] The record indicates that each guarantor was a principal
of VidiMedix. Faris was the company's president and CEO.
[2] The letter indicates that Stephens also enclosed a copy
of the demand letter he had sent to VidiMedix.
[3] Alternatively, Mid-South suggested that limitations did
not begin to run until it filed its petition on May 17, 2004.
[4] Best and Faris also asserted as a summary judgment
ground that a contractual waiver of limitations within the
Guaranty was void and unenforceable. Mid-South did not
dispute this proposition in the district court, nor has it
attempted to invoke the waiver on appeal.
---------
Page 936 recover from defendant the sum of $500 for damages; and
(2) that 'a strip of land thirty feet wide for each right-of-way
187 S.W.2d 936 (Tex.Civ.App. 1945) grant will be sufficient and reasonable for all use by the
defendant under its easements, that plaintiffs have no
LONE STAR GAS CO. adequate remedy at law in the premises, and that the writ of
injunction prayed for by plaintiffs should issue as herein
v.
decreed.' The court awarded the $500 to plaintiffs, with
interest and costs, and permanently enjoined defendant
CHILDRESS et ux.
from using under its right-of-way grants (and specifically
No. 2638. referred to instruments evidencing such grants and the
recording thereof) 'a strip of land in excess of thirty feet in
Court of Civil Appeals of Texas, Waco. width constituting each right-of-way in all of its operations
thereon; said defendant, its agents and employees, are
May 17, 1945 further permanently enjoined from using any gate or gates
owned by the plaintiffs and not located upon defendant's
Appeal from District Court, Eastland County; Floyd aforesaid rights-of-way.' No request was made for findings
Jones, Judge. of fact and conclusions of law and none was filed.
Action by D. L. Childress and wife against Lone Star Points 1 to 5 inclusive assail the judgment
Gas Company for damages alleged to have been done by substantially to the effect that the court erred in finding that
defendant when it removed one of its pipe lines from a strip of land thirty feet wide for each right-of-way granted
plaintiff's land, and to enjoin defendant from using any will be sufficient for all use by the defendant under its
portion of their land not included in right of way deed. The easements; that plaintiffs have no adequate remedy at law in
trial court awarded plaintiffs $500 damages and granted the the premises, and that the writ of injunction should issue;
injunction, and defendant appeals. and in permanently enjoining defendant from using a strip
of land in excess of thirty feet in width; and in permanently
Judgment granting injunction reversed, and judgment
enjoining defendant from using fence gates located on the
awarding damages affirmed.
lands covered by defendant's right-of-way deeds but not
located upon such thirty foot strip; that such decree in effect
Conner & Conner, of Eastland, and Marshall
reforms the right-of-way deeds and that the pleadings do
Newcomb, Warren J. Collins, and J. L. Toone, all of Dallas,
not warrant or support the reformation. We sustain these
for appellant.
contentions.
Turner & Seaberry, of Eastland, for appellee.
The defendant, by right-of-way deeds, duly recorded,
Page 937 acquired the right to construct, maintain and operate pipe
lines as well as telegraph and telephone lines in connection
TIREY, Justice. therewith and to build future pipe and telegraph and
telephone lines over and through the land in question prior
The plaintiffs brought this suit against the defendant to the time of the purchase of any part of the lands by the
to recover certain items of damage alleged to have been plaintiffs. Defendant constructed two pipe lines, one 10
done by defendant when it removed one of its pipe lines inches and the other twelve inches in diameter, and
from their land and to enjoin defendant from using any telephone wires over said property prior to the time
portion of their land 'not included in defendant's plaintiffs acquired the same. The provisions of said
right-of-way and from using any gate or gates owned by the right-of-way deeds are identical except as to grantors,
plaintiffs and not located upon the right-of-way, and from consideration and description of the land covered. We quote
using any portion of said premises for any purpose not the pertinent parts of one of the deeds:
contemplated by the right-of-way deed or deeds.' A jury
failed to reach a verdict and a mistrial resulted. The parties 'That for and in consideration of Thirty and 50/100
then agreed to submit the case to the trial court upon the ($30.50) Dollars to the undersigned, J. M. Ray and wife, L.
record made during the jury trial. V. Ray (herein styled Grantor, whether one or more) paid,
the receipt of which is hereby acknowledged, the said
The court rendered judgment in favor of plaintiffs and Grantor does hereby Grant, Sell and Convey unto Lone Star
found in the judgment substantially (1) that plaintiffs should Gas Company, a corporation (herein styled Grantee), its
successors and assigns, the right of way and easement to respective heirs, legal representatives, successors and
construct, maintain and operate pipe lines and assigns of the parties hereto.
appurtenances thereto, and to construct, maintain and
operate telegraph and telephone lines in connection 'It is hereby understood that the party securing this
therewith together with the necessary poles, guy wires and grant in behalf of Grantee is without authority to make any
anchors, over and through the following described lands covenant or agreement not herein expressed.'
situate in Eastland County, State of Texas, to-wit: 670
acres, more or less, out of Section 53, Block 4, H. & T. C. In November 1942, defendant began the removal of
RR. Co., survey and being the same land more fully the twelve inch pipe line. Plaintiffs were living on the ranch
described in deed from A. F. Bentley to R. W. from which the pipe line was removed and they had actual
Higginbotham recorded in Volume 84, page 74, Deed notice of the work being done. Mr. Childress testified, in
Records of said County, to which reference is here made for part, as follows:
further description.
'A. I saw them down there and I saw they had a Lone
'To have and to hold unto said Grantee, its successors Star truck and I drove up and they had cut the wire and he
and assigns, so long as such lines and appurtenances thereto didn't have anything to block it with except an ordinary
shall be maintained, with ingress to and egress from the fence post and he attempted to block it put up a brace post
premises, for the purpose of constructing, inspecting, four or five feet from the corner where he cut it.
repairing, maintaining, and replacing the property of
'Q. Did you have any conversation with that man? A. I
Grantee above described, and the removal of such at will, in
said, 'I thought you were going to put in heavy posts to
whole or in part.
block this fence to keep it from getting loose.' He said they
Page 938 were sorry, they didn't have any posts--I told him I was
disappointed in it. I didn't like for them to do it that way. *
'The said Grantor is to fully use and enjoy the said **
premises except for the purposes hereinbefore granted to the
said Grantee, which hereby agrees to bury all pipes to a 'Q. These places (where) they cut your fence, did they
sufficient depth so as not to interfere with cultivation of soil attempt to build any other gates? A. Temporary wire gates.
and to pay any damages which may arise to growing crops
'Q. Were those wire gates left open? A. Yes. I had a
or fences from the construction, maintenance and operation
young fellow, Mr. Lorance's boy. I saw it was looking kind
of said pipe, telegraph and telephone lines; said damages, if
of dangerous, and he worked for me about three weeks
not mutually agreed upon, to be ascertained and determined
guarding the pasture and looking after the cattle and stock.
by three disinterested persons, one thereof to be appointed
* * * I worked about three weeks.
by the said Grantor, one by the said Grantee, and the third
by the two so appointed as aforesaid, and the written award 'Q. How did you manage to do that, Mr. Childress? A.
of such three persons shall be final and conclusive. Should I would get up every morning and jump in my pick-up and
more than one pipe line be laid under this grant at any time, look after things, and then at noon I would get off a little
the sum of twenty-five cents per lineal rod for each early and run out to see how they were.
additional line shall be paid, besides the damages above
provided for. 'Q. That is a twenty-mile trip. A Yes.
'Upon written application to the Grantee at Dallas, 'Q. How long did that last? A. About three weeks.'
Texas, the Grantee will make or cause to be made a tap on
any gas pipe line constructed by Grantee on Grantor's And he further testified in part:
premises for the purpose of supplying gas to the Grantor for
domestic use only, the cost of meter, saddle and labor to be '* * * I didn't make any objections to anything they
borne by said Grantee, all other expenses, including fittings did. * * *
to be borne by Grantor, gas to be measured and furnished at
the main line of Grantee at the same price and under the 'Q. You are not complaining, I believe you said about
same rules and regulations as prevail in the nearest city or the Gas Company using its right of ingress and egress on its
town where Grantee is supplying gas. property there? A. No.
'The consideration first above recited as being paid to 'Q. Whatever rights the Gas Company has under its
Grantor by Grantee is in full satisfaction of every right contracts and easement you recognize them? A. I certainly
hereby granted. All covenants and agreements herein will.'
contained shall extend to and be binding upon the
After the removal of the pipe line had been completed
plaintiffs made a claim for damages to their land, fences for.' Iford v. Nickel, Tex.Civ.App., 1 S.W.2d 751, 753. It is
and grass and for other items. The Gas Company refused to equally as well settled that 'the rules which control the
pay the damages claimed by plaintiffs and this suit was courts in determining the rights under an easement are, in
filed. general, the same as those applied to deeds and other
written instruments.' Armstrong v. Skelly Oil Co.,
Plaintiffs, in their pleadings, among other things, Tex.Civ.App., 81 S.W.2d 735, 736, writ ref. It necessarily
alleged: 'That previous to their purchase of this land, the follows that under this rule the right-of-way deeds must be
grantors of these plaintiffs had executed a right-of-way or construed most strongly against the grantor, and most
right-of-way deeds to the defendant, creating an easement favorably to the grantee, so as to confer the largest estate
in each instrument, and authorizing the defendant to lay and which a fair interpretation will permit. Stevens v.
maintain a pipe line across said premises. That plaintiffs' Galveston, H. & S. F. Ry. Co., Tex.Com.App., 212 S.W.
purchase of said land was 639; Texas & N. O. Ry. Co. v. Orange County,
Tex.Civ.App., 206 S.W. 539, writ ref.; Gladewater County
Page 939 Line Independent School Dist. v. Hughes, Tex.Civ.App., 59
S.W.2d 351; Stanbery v. Wallace, Tex.Com.App., 45
subject to the rights thereby granted. That said deed or
S.W.2d 198. 'The language of a deed is the language of the
deeds granted the right to the defendant to construct,
grantor, and, if there be a doubt as to its construction, it
maintain and operate pipe lines and to remove the same
should be resolved against him.' Curdy v. Stafford, 88 Tex.
from these premises. That it further provided in said deed or
120, 30 S.W. 551, 552.
deeds that the grantors therein had the right fully to use and
enjoy the premises except for the purpose specifically Appellees say that the evidence can be summarized as
granted. In said deed or deeds the grantee agreed to pay follows: 'Appellant's employees, once or twice a week, and
damages which might arise to growing crops or fences from more often in the winter time, use appellees' private roads
such operations * * *.' and gates, not on the right-of-way; that gates are left open
so that cattle and goats go from one pasture to the other;
Plaintiffs prayed substantially for (1) $892 for
that appellees keep their registered cattle in one pasture and
damages sustained and for general and special relief in law
their grade cattle in another; that they are breeders and are
or in equity, and (2) 'that * * * the court issue its writ of
engaged in building up a desirable strain of high grade
injunction, permanently restraining the defendant, its agents
cattle.' Appellees contend substantially that since the Gas
and employees, from using any portion of the above
Company's district foreman (supervisor of pipe line
described premises not included in defendant's
construction, maintenance, repairs, regulating pressure on
right-of-way, and from using any gate or gates owned by
main line transmission, all installations relating to pipe line
the plaintiffs and not located on the right-of-way, and from
transmission and production) testified substantially to the
using any portion of said premises for any purpose not
effect that (1) twenty-five or thirty feet was sufficient width
contemplated by the right-of-way deed or deeds.'
in which to take up the twelve inch line which was
After a careful review of this record it is clear to us removed, as well as take up the ten inch line still in the
that plaintiffs are not entitled to any injunctive relief. First ground and sufficient width for trucks and cars to go on the
of all, the right-of-way deeds are clear, Plaintiffs do not ground for maintenance purposes and wide enough for any
allege any ambiguity in said deeds, nor do they allege any purpose the Gas Company might have on plaintiffs'
fraud, accident or mistake between the parties in the property and that the graded thirty foot right-of-way was a
execution of the grants. In fact, the original grantors were more convenient means of ingress and egress and that the
not parties to the action and the deeds were executed and Gas Company would stay on this right-of-way if plaintiffs
recorded and fixed the rights of the parties before the wanted them to do so, the trial court was justified in finding
plaintiffs purchased the property. There is nothing in the that a right-of-way thirty feet wide was all that defendant's
pleading of plaintiffs, nor in their prayer for relief, to put convenience and necessity required. We do not so
defendant on notice that plaintiffs would seek to limit understand that law. First of all, the right-of-way deeds did
defendant's use of their lands to a strip of land thirty feet not
wide. We think the rule in Texas is 'that in order to warrant
Page 940
a court of equity to grant injunctive relief, the petitioner
must specify the precise relief sought and a court is without stipulate that the defendant should confine its operations to
jurisdiction to grant relief beyond and in addition to that a strip of land thirty feet wide. The deeds, among other
particularly specified.' Fletcher v. King, Tex.Civ.App., 75 things, granted to the defendant 'the right-of-way and
S.W.2d 980, point 1 p. 982 (writ ref.), and cases therein easement to construct, maintain and operate pipe lines and
cited. 'The prayer controlled the nature of the relief, and the appurtenances thereto, and to construct, maintain and
latter could not be changed so as to cover relief not prayed operate telegraph and telephone lines in connection
therewith, together with the necessary poles, guy wires and would necessarily result in a multiplicity of suits. As before
anchors over and through the following described lands * * stated, there was no complaint of the use made of plaintiffs'
* so long as such lines and appurtenances thereto shall be property by defendant until the pipe line was removed. The
maintained, with ingress to and egress from the premises, injunction suit was filed after the defendant refused to pay
for the purpose of constructing, inspecting, repairing, the damages claimed by plaintiffs. The damages assessed
maintaining and replacing the property of Grantee, above by the trial court are not assailed by plaintiffs as being
described, and the removal of such at will, in whole or in inadequate to recompense them for damages sustained. We
part. * * * Should more than one pipe line be laid under this think the rule is: 'An application for injunction is uniformly
grant at any time, the sum of twenty-five cents per lineal subjected to a strict construction. * * * Mere uncertainty or
rod for each additional line shall be paid, besides the mere apprehension of injury is not sufficient.' Thomas v.
damages above provided for. * * * It is hereby understood Bunch, Tex.Civ.App., 41 S.W.2d 359, 362, affirmed 121
that the party securing this Grant in behalf of Grantee is Tex. 225, 49 S.W.2d 421. See also Southern Oil
without authority to make any covenant or agreement not Corporation v. Waggoner, Tex.Civ.App., 224 S.W. 230;
herein expressed.' Since the deeds do not confine the Browning v. Hinerman, Tex.Civ.App., 224 S.W. 236. Again:
defendant's use to a strip of land thirty feet wide, it is 'It is held that an injunction will not lie to prevent an alleged
elementary that the court could not re-define the terms of threatened act, the commission of which is speculative and
the grant and restrict the use granted by the instruments on the injury from which is purely conjectural.' Haden
the testimony of a district foreman, absent fraud, accident or Employees' Ass'n v. Lovett, Tex.Civ.App., 122 S.W.2d 230,
mistake. 'It is elementary that no agent has any implied 232. Moreover 'the court cannot grant an injunction to allay
authority to surrender the vested rights of his principal, * * the fears and apprehensions of individuals.' Southern Oil
*.' Bell v. Moody, Tex.Civ.App., 147 S.W.2d 852, writ Corporation v. Waggoner, supra [224 S.W. 232]. See also
dism., points 3-4, p. 855. See also: 2 Tex.Jur. p. 446, sec. King's Estate v. School Trustees of Willacy County,
51; Kentucky River Coal Co. v. Williams, 226 Ky. 93, 10 Tex.Civ.App., 33 S.W.2d 783, writ ref. Under the trial
S.W.2d 617. It is clear to us that the amount of space court's judgment the defendant would be required to seek
reasonably needed in the past in any particular operation is the aid of the
a question of fact, and the testimony of the district foreman
on such issue would be pertinent. But the defendant is Page 941
entitled to use in the future as much of the land as each
occasion may reasonably demand, and such testimony does court each time its operations may require the use of a strip
not authorize the court to deprive the defendant of what has of land more than thirty feet wide. We think such action of
been legally granted to it by the terms of the right-of-way the court restricts the provisions of the right-of-way deeds
deeds. 'It is for parties, and not courts, to make deeds of and necessarily such decree must fail. Moreover, the
conveyance. Men are presumed to be able among contention that defendant's agents and employees will in the
themselves to make deeds expressive of their intentions, future go through the gates on the premises and leave them
and, if they fail to do so, or to furnish the means by which open and thereby permit the herds to mix has no support in
their intention can be determined, it would be an usurpation the record. The district foreman, defendant's witness,
of authority for courts to undertake to make deeds for them.' testified in part:
Gorham v. Settegast, 44 Tex.Civ.App. 254, 98 S.W. 665,
'* * * if Mr. Childress had told me to go around we
669. See also Babler v. Shell Pipe Line Corporation, D.C.,
would go around.
34 F.Supp. 10; 15 Tex.Jur. 800, sec. 28; Gulf Pipe Line Co.
v. Thomason, Tex.Civ.App., 299 S.W. 532; 19 C.J. 907, 908, 'Q. If he wanted you to stay on the right-of-way you
909, 975; 28 C.J.S., Easements, §§ 25, 26, 27, 77; Texas would. A. We would.'
Power & Light Co. v. Casey, Tex.Civ.App., 138 S.W.2d
594, writ dis.; 110 A.L.R. 175, 176. Appellant further contends that the court erred in
finding that plaintiffs should recover from the defendants
Appellees further contend substantially that they are the sum of $500. As a basis for this contention defendant
entitled to injunctive relief because plaintiffs use the says 'that there is no evidence, or at least the evidence is
premises for a stock ranch; that it is highly improved for insufficient, to support the judgment for damages * * *
stock raising; that plaintiffs are engaged in raising both because of a lack of evidence showing that the alleged
registered and grade cattle; and that defendant, while damages were personally caused by the negligence of the
engaged in removing said pipe line, failed to close said defendant.' For rule of law, see Lone Star Gas Co. v.
gates and thereby permitted an indiscriminate mixing of the
Hutton, Tex.Com.App., 58 S.W.2d 19, points 10-11. We
registered and grade cattle, thereby interfering with overrule this contention. The award was in a lump sum of
breeding purposes; and that such injuries are irreparable and $500. Appellees sued for various items of damages
that legal remedies are inadequate and that such conduct aggregating $892, the three principal items being (a) injury
to land $250; (b) damage to fences $350; (c) damage to
surface tank $75. We have carefully reviewed the evidence
on these items and we think that it is sufficient to support
the implied finding of the trial court that the damages were
caused by the negligence of the Gas Company and
sufficient to support the amount awarded. We feel that it
would unduly extend this opinion to review the evidence as
to damages and we do not believe it would serve any useful
purpose to do so. The damages to the land and to the fences
and to the water tank are clear and it was a question of fact
for the trial court to determine whether or not such damages
were due to the negligence of the defendant, as well as to
find the amount.
It follows from what we have said that we are of the
opinion that the trial court erred in issuing the injunction
and that this injunction must be dissolved. It further
appearing to us that the cause has been fully developed,
there is no occasion to reverse and remand the cause and the
judgment with respect to the injunction must be reversed
and rendered. It further appears to us that the judgment
awarding damages to plaintiffs in the sum of $500 must be
sustained and the judgment of the trial court in this respect
is affirmed.
Accordingly, the judgment as to the injunction granted
is reversed and rendered and the judgment of the trial court
awarding damages to the plaintiffs is in all things affirmed.
We are further of the opinion that it would be
equitable for the costs incurred in the trial court to be
adjudged against the defendant and the costs incurred on
this appeal to be adjudged equally against appellant and
appellees, and it is so ordered. See Rule 448, T.R.C.P.;
Hake v. Dilworth, Tex.Civ.App., 96 S.W.2d 121, point 13,
p. 126, writ dism.; J. I. Case Threshing Machine Co. v.
Manes, Tex.Com.App., 254 S.W. 929, point 10, p. 932. See
also: Baker Hotel v. Rogers, Tex.Civ.App., 157 S.W.2d
940, error refused, 138 Tex. 398, 160 S.W.2d 522; Wichita
Nat. Bank v. United States Fidelity & Guaranty Co.,
Tex.Civ.App., 147 S.W.2d 295; Parsons v. John Deere
Plow Co., Tex.Civ.App., 113 S.W.2d 970.
Page 581 recuse the trial judge, arguing that he was biased against
attorney Jones. A hearing on the motions was scheduled for
192 S.W.3d 581 (Tex. 2006) January 10, 2003. In the meantime, Jones notified AFR that
the employees would not appear for depositions until the
AMERICAN FLOOD RESEARCH, INC., Petitioner motions had been ruled upon. As promised, his clients did
not appear on January 6. The employees later withdrew
v.
their recusal motion and then abandoned their motion for
reconsideration.
Harry JONES, Respondent.
On January 15, 2003, the employees terminated Jones,
No. 05-0271.
who then withdrew as counsel of record. AFR moved for
Supreme Court of Texas sanctions–pursuant to Texas Rules of Civil Procedure 13
and 215 and Texas Civil Practice and Remedies Code
May 5, 2006 sections 9.012 and 10.012–against both the employees and
Jones, alleging discovery abuse. After an evidentiary
On Petition for Review from the Court of Appeals for hearing, the trial court sanctioned only Jones, ordering him
the Fifth District of Texas to pay AFR $15,000. At Jones's request, the court issued
findings of fact and conclusions of law, in which the court
Page 582 found that while the employees did not abuse the discovery
process, Jones's conduct was sanctionable under Rule of
Richard M. Abernathy, Charles J. Crawford,
Civil Procedure 215.3. The trial court granted Jones's
Abernathy Roeer, Boyd & Joplin, P.C., McKinney, for
motion to sever the sanctions order against him for purposes
Respondent.
of appeal.
John R. Roach Jr., William D. Cramer, Roach LLP,
Page 583
Piano, for Petitioner.
On appeal, Jones argued that his actions did not
PER CURIAM.
amount to discovery abuse and, alternatively, that the
sanction amount was excessive. Because the trial court
Attorney Harry Jones was sanctioned for discovery
found that the attorney, but not the party, abused the
abuse committed in the course of representing a group of
discovery process, the court of appeals held that the trial
employees in a suit brought by American Flood Research,
court abused its discretion in imposing sanctions on Jones,
Inc. (AFR). Jones appealed the sanctions order, and the
since sanctions under Rule 215.3 are reserved for discovery
court of appeals reversed the judgment, holding that the trial
abuse by "a party."[1] 153 S.W.3d 718, 724. AFR now
court abused its discretion in imposing sanctions. Because
petitions for review, arguing that the court of appeals erred
the court of appeals erred in its review of the sanctions
in reversing the sanctions order.
order, we reverse and remand the matter to that court for
further proceedings.
We review a trial court's imposition of sanctions for
an abuse of discretion. Cire v. Cummings, 134 S.W.3d 835,
AFR sued three of its former employees in state
838 (Tex. 2004). The ruling will be reversed only if the trial
district court for trade secret violations and destruction of
court acted "without reference to any guiding rules and
company property. Concurrently, the employees sued AFR
principles," such that its ruling was arbitrary or
in federal court for employment discrimination. Initially,
unreasonable. Id.at 839. In determining whether the trial
the employees were represented by attorney Jones in both
court abused its discretion, the appellate court must ensure
suits. During the course of discovery, the parties disagreed
that the sanctions were appropriate or just. TransAmerican
over which side would be deposed first. AFR first noticed
Nat. Gas Corp. v. Powell, 811 S.W.2d 913, 916 (Tex.
the employees' depositions for mid-December 2002. The
1991). We have articulated a two-part inquiry that appellate
employees, through Jones, moved to quash those
courts must conduct in making this determination. Id.at 917.
depositions and requested a hearing. A few weeks later,
First, the court must ensure that there is a direct relationship
however, the employees withdrew the motion, and AFR
between the improper conduct and the sanction imposed; in
moved to compel the depositions. The state trial court
other words, the court should examine whether punishment
conducted a hearing and ordered the employees' depositions
was imposed upon the true offender and tailored to remedy
to begin on January 6, 2003. Shortly thereafter, the
any prejudice discovery abuse caused. Id.Thus, the trial
employees moved for reconsideration of this order and to
court must determine whether sanctions should be imposed
on the party, its counsel, or both. Id.Second, the court must depositions until motion is heard). Rather, Jones simply
make certain that less severe sanctions would not have been informed AFR that the employees would not appear on
sufficient to promote compliance. Id. January 6, in direct violation of the court's order. As soon as
the deposition date passed, however, Jones moved to
In this case, the court of appeals reversed the continue the motion to reconsider and withdrew the motion
sanctions order after holding that a trial court must to recuse. The employees never rescheduled a hearing on
specifically find that the party–not just the the motion to reconsider. A week after the employees
attorney–abused the discovery process in order to impose missed their deposition date, they terminated Jones, and he
sanctions under Texas Rule of Civil Procedure 215.3. 153 withdrew as counsel of record.
S.W.3d at 724. We disagree. A trial court's discretion to
impose sanctions does not depend on whether it issues a While there is no direct evidence that the employees
specific finding that the "party"–in this case, the knew of the depositions and deliberately failed to attend, in
employees–abused the discovery process. In reviewing the context of an enduring attorney-client relationship,
sanctions orders, the appellate courts are not bound by a knowledge acquired by the attorney is imputed to the client.
trial court's findings of fact and conclusions of law; rather, See Gavenda v. Strata Energy, Inc., 705 S.W.2d 690, 693
appellate courts must independently review the entire (Tex. 1986) (noting that the "attorney-client relationship is
record to determine whether the trial court abused its an agency relationship"). Jones was present when the trial
discretion. See Chrysler Corp. v. Blackmon, 841 S.W.2d judge ordered in open court that depositions begin January
844, 852 (Tex. 1992)(citing Rossa v. United States Fidelity 6, yet neither Jones nor the employees appeared. Thus, a
& Guar. Co. v. Rossa, 830 S.W.2d 668, 672 (Tex. Rule 215.2 prerequisite to imposing sanctions–a party's
App.–Waco 1992, writ denied)). Thus, the court of appeals failure to comply with an order to permit discovery–was
should have examined the entire record–not merely the satisfied. See TEX. R. CIV. P. 215.2(b). Accordingly, the
trial court's findings of fact and conclusions of law–to trial court, after serving notice and holding a hearing, had
determine whether the trial court properly sanctioned Jones. the discretion to impose any "just" sanction authorized by
Rule 215.2(b). Id. Paragraphs (2) and (8) of Rule 215.2(b)
The order imposing sanctions neither referred to a allow the trial court to impose sanctions against the party or
specific rule nor tracked the language of any particular rule; the attorney advising the party, which may include charging
thus, contrary to the court of appeals' analysis, whether the the sanctioned individual for court costs or the reasonable
trial court properly sanctioned Jones is not governed by expenses caused by the failure to comply with the discovery
Rule 215.3 alone. Contra Metzger v. Sebek, 892 S.W.2d 20, order. TEX. R. CIV. P. 215.2(b)(2), (b)(8).
51 (Tex.App.–Houston [1st Dist.] 1994, writ denied)
(holding that when a sanctions order names a specific rule Our holding in TransAmerican required the trial court
or tracks a rule's language, the appellate court is confined to to determine whether sanctions should be imposed on the
determining whether sanctions are proper employees, Jones, or both. See TransAmerican, 811 S.W.2d
at 917. Sanctions may be visited exclusively on the attorney
Page 584 if the evidence demonstrates that the offensive conduct is
attributable to counsel alone. See id.( holding that "a party
under that rule alone). Here, there is ample evidence to should not be punished for counsel's conduct in which it is
support a sanction against Jones pursuant to Texas Rule of not implicated apart from having entrusted to counsel its
Civil Procedure 215.2, a rule AFR cited in its motion for legal representation"). Here, the employees' noncompliance
sanctions. Rule 215.2 provides that the trial court may with the discovery order can be attributed to Jones's advice
impose sanctions against the party or the attorney advising and conduct during the course of his representation.
the party when the party fails to comply with an order to Specifically, the record supports the trial court's finding that
permit discovery. TEX. R. CIV. P. 215.2(b); see also TEX. Jones's dilatory tactics and his refusal to produce the
R. CIV. P. 215.1(a) (allowing for court orders compelling employees for examination directly violated the trial court's
depositions). order. The employees, who required a translator when
making court appearances, were particularly dependent on
Our review reveals that the employees did not obey
Jones's advice during the course of litigation. Because the
the court's order compelling depositions. On his clients'
record supports a finding that only Jones's conduct
behalf, Jones moved for reconsideration of the order
compelling depositions and also moved to recuse the Page 585
presiding judge. Neither the employees nor Jones, however,
moved to stay the depositions, as the Rules of Civil was sanctionable, the trial court was within its discretion to
Procedure allow. See, e.g., TEX. R. CIV. P. 199.4 (motion impose sanctions on him alone and, therefore, the court of
objecting to time and place of depositions filed within three appeals erred in reversing the sanctions order.
days of receiving notice of them automatically stays
Jones also complains, however, that the amount of the
sanctions imposed–$15,000–was excessive. See TEX. R.
CIV. P. 215.2, 215.3 (requiring that sanctions be "just" or
"appropriate"). As we held in TransAmerican, when an
appellate court reviews a sanctions order, it must ensure not
only that sanctions are visited upon the true offender, but
that less severe sanctions would not promote compliance.
811 S.W.2d at 917. Because the court of appeals' holding
that the trial court erred in imposing sanctions disposed of
the case, it did not complete the two-part TransAmerican
inquiry. Thus, we remand this matter to the court of appeals
for that analysis.
Accordingly, without hearing oral argument, we
reverse the court of appeals' judgment and remand to that
court for further proceedings consistent with this opinion.
See TEX. R. APP. P. 59.1, 60.2(d).
---------
Notes:
[1] The rule states, in relevant part:
If the court finds a party is abusing the discovery process in
seeking, making or resisting discovery . . ., then the court . .
. may, after notice and hearing, impose any appropriate
sanction authorized by paragraphs (1), (2), (3), (4), (5), and
(8) of Rule 215.2(b).
TEX. R. CIV. P. 215.3 (emphasis added).
---------
Page 46 loss of parking. Target's appraisal expert testimony included
as much as $472,457 in damages for the loss of 35 parking
194 S.W.3d 46 (Tex.App.—Waco 2006) spaces. The State's appraisal expert determined that Target's
loss-of-parking damages were only $72,000 for 24 spaces,
The STATE of Texas, Appellant, but the jury did not hear the State's expert on those damages
or on the amount of total compensation owed to Target. On
v.
the Friday before the Monday, June 7, 2004 trial, Target
filed a motion to exclude the testimony of Steven Lovett,
TARGET CORPORATION, Appellee.
the State's appraiser, and Jack Holford, the State's land
No. 10-04-00326-CV. planning consultant. After the jury had been impaneled and
the parties had made opening statements, a hearing was held
Court of Appeals of Texas, Tenth District, Waco. on Target's motion. The next day, the trial court granted
Target's motion and then later clarified its ruling to prohibit
May 10, 2006 Lovett from testifying about remainder damages (including
loss of parking) and total compensation.
Rehearing Overruled June 6, 2006.
Target's motion complained that the State's
From the County Court at Law No. 1 Brazos County, supplementation of discovery responses—done 31 days
Texas Trial Court No. 419-CC. before trial—was untimely. This supplementation included
the identity of consulting experts or persons with whom the
Page 47
State's testifying experts consulted and the persons with
knowledge of relevant facts on whom its testifying experts
Susan Desmerais Bonnen, Office of the Atty. Gen.
relied.[1] Although Target did not complain that the experts
Transportation Division, Austin, for appellant.
themselves had not been timely identified or that their
H. Dixon Montague and Charles B. McFarland, reports had not been timely produced, it complained that the
Vinson & Elkins LLP, Houston, for appellee. State untimely produced Lovett's one page of calculations
that supported his opinion that the utilization level of the
Before Chief Justice Gray, Justice Vance, and Justice remote parking spaces lost by Target was 20% and thus
Reyna
Page 49
Page 48
should be discounted by 80%.[2] This analysis, including
OPINION the 20% utilization factor, was in Lovett's timely produced
expert report and was examined by Target in Lovett's first
BILL VANCE, Justice. deposition on April 28, 2004. Lovett's working file had
been provided to Target's counsel a few days before his
In its appeal of an adverse judgment in a deposition, but during Lovett's deposition, he realized that
condemnation case, the State asserts that the trial court the calculations page was missing.[3] On May 7, the State
erred in excluding the State's expert testimony on Target's produced this page, and the State tendered Lovett for a
damages and the total compensation owed to Target. We second deposition (on May 28) in which Target was able to
agree and will reverse the trial court's judgment and remand question him about the page.
the case for a new trial.
The trial court ruled that Lovett and Holford would
The State condemned 0.184 of an acre (8,013 sq. ft.) not be allowed to testify about opinions that were based on
of a 9.0232 acre tract owned by Target in the city of information provided by persons who had not been timely
College Station. The tract is improved with a Target retail identified: Lovett could not testify to the importance of
store. The acquisition was a fifteen-foot wide strip of land parking within a 300-foot radius of a business's front door
being used by Target for landscaping and parking. The or that Target's parking situation was adequate; and Holford
acquisition's purpose was to widen Highway 6, which the could not testify about his conversations with the City
strip fronted. Special commissioners awarded Target Development Services staff about his site plan, that his plan
compensation of $156,812 for the taking, and Target would be approved if submitted, or about safety issues
objected. A jury awarded Target $564,290. affecting Target's parking lot. Lastly, the trial court ruled
that Lovett could not testify about his 20% utilization
The primary dispute at trial was Target's damages for
factor, which prevented the State from offering Lovett's
opinion testimony on remainder damages and total The discovery rule requiring disclosure of experts
compensation. before trial is intended to provide adequate information
about the experts' opinions to allow the opposing party the
Target's appraisal expert testified at trial that Target necessary information to prepare to cross-examine the
was entitled to total compensation of $704,458, including as experts and to rebut the testimony with their own experts.
much as $472,457 in damages for loss of parking. The State Taylor Foundry Co. v. Wichita Falls Gram Co., 51 S.W.3d
estimates that the jury awarded Target as much as $383,081 766, 773 (Tex. App.—Fort Worth 2001, no pet.). Rule 193.6
in loss of parking damages as a part of the total governs untimely discovery supplementation:
compensation award of $564,290.
(a) Exclusion of Evidence and Exceptions. A party who fails
The State made an offer of proof that Lovett would to make, amend, or supplement a discovery response in a
have testified that the property suffered remainder damages timely manner may not introduce in evidence the material
of $72,000 and that the total compensation amount was or information that was not timely disclosed, or offer the
$253,209 and that Holford would have testified that the testimony of a witness (other than a named party) who was
City's Development Services staff had indicated that his not timely identified, unless the court finds that:
plans would be accepted if submitted by Target and that he
was of the opinion that Target's parking lot was not unsafe (1) there was good cause for the failure to timely make,
after the State's acquisition. amend, or supplement the discovery response; or
In its first issue, the State asserts that the trial court (2) the failure to timely make, amend, or supplement the
abused its discretion in excluding Lovett's and Holford's discovery response will not unfairly surprise or unfairly
expert testimony for three reasons: (1) the State's prejudice the other parties.
supplementation was timely; (2) the State established good
cause if its supplementation was untimely; and (3) Target (b) Burden of Establishing Exception. The burden of
was not unfairly surprised or prejudiced if the State's establishing good cause or the lack of unfair surprise or
supplementation was untimely. unfair prejudice is on the party seeking to introduce the
evidence or call the witness. A finding of good cause or of
The standard of review of a trial court's ruling to the lack of unfair surprise or unfair prejudice must be
admit or exclude evidence based on the discovery rules is supported by the record.
abuse of discretion. See F & H Investments Inc. v. State, 55
S.W.3d 663, 668-72 (Tex. App.—Waco 2001, no pet.); Best Tex. R. Civ. P. 193.6(a), (b). This rule provides a less
Indus. Uniform Supply Co. v. Gulf Coast Alloy Welding, burdensome alternative to the draconian sanction of
Inc., 41 S.W.3d 145, 147-48 (Tex. App.—Amarillo 2000, automatic exclusion under former Rule 215(5), which
pet. denied). The test for abuse of discretion is whether, required a showing of good cause.[4] Elliott v. Elliott, 21
under the circumstances of the particular case, the trial S.W.3d 913, 921 n.7 (Tex. App.—Fort Worth 2000, pet.
court's action was arbitrary or unreasonable. Downer v. denied).
Aquamarine Operators, Inc., 701 S.W.2d 238, 242 (Tex.
1985). We conclude that the trial court abused its discretion
in excluding the State's expert testimony because the record
Page 50 establishes that Target would not have been unfairly
surprised or prejudiced by the State's supplementation. See,
We will assume without deciding that the State's e.g., Best, 41 S.W.3d at 148-49; Elliott, 21 S.W.3d at 921;
supplementation—done 31 days before trial—of the Rutledge v. Staner, 9 S.W.3d 469, 472
additional persons that Lovett and Holford had spoken with
and of Lovett's one page of calculations supporting his 20% Page 51
utilization factor was untimely. See Tex. R. Civ. P.
193.5(b); cf. Snider v.Stanley, 44 S.W.3d 713, 715-16 (Tex. (Tex. App.—Tyler 2000, pet. denied). Regarding the May 7
App.—Beaumont 2001, pet. denied) (trial court did not production of Lovett's one-page calculation of his 20%
abuse its discretion in excluding expert whom party utilization factor, we note first that his timely expert report
identified 31 days before trial after waiting to supplement discussed this factor and that when Target deposed Lovett
for over a year). But see Elhamad v. Quality Oil Trucking on April 28, he explained how he determined the factor.
Serv., Inc., 2003 WL 22211543, at *6-7 (Tex. App.—Fort Next, after the page was produced, Target again questioned
Worth Sept.25, 2003, no pet.) (mem. op.) (distinguishing Lovett on it in his second deposition on May 28. The trial
complete failure to identify expert from inadequacy in court, which was made aware of this history, should have
expert disclosure). found that Target would not have been unfairly surprised or
prejudiced by Lovett's trial testimony on the 20% utilization
factor, remainder damages, and the total compensation
amount. See, e.g., Parker Plaza West, Ltd. v. Boniuk Invs., ---------
Ltd., 153 S.W.3d 729, 733-34 (Tex. App.—Dallas 2005, no
pet.); Pilgrim's Pride Corp. v. Smoak, 134 S.W.3d 880, Notes:
902-03 (Tex. App.—Texarkana 2004, pet. denied); Norfolk
So. Ry. v. Bailey, 92 S.W.3d 577, 581 (Tex. App.—Austin [1] Most of these persons had previously been identified in
2002, no pet.). earlier discovery responses. Specifically, Target complained
of the following persons as to Lovett: Bill Carson, B.J.
Regarding the belated supplementation of the Cornelius, and Clint Connell. Carson and Cornelius are land
additional persons (Carson, Cornelius, and Connell) that planners whom Lovett spoke with and relied on (along with
Lovett had spoken with, Target was able to explore those Holford) in determining that the lost parking spaces that
conversations in Lovett's two depositions. As for the City's were more than 300 feet from the store's main entrance
Development Services staff (Kee, Reeves, Ruiz, and should be discounted. Lovett also relied on Connell, a real
Hardin) whom Lovett and Holford had spoken with, estate consultant for Wal-Mart, for this determination and
Holford's timely land planning report disclosed discussions for Lovett's determination of Target's peak volume periods
with the staff and specifically identified Reeves, and Target and his 80% discount factor for the remote parking spaces.
itself had identified Kee as a person with knowledge of We agree with the State that these three were not
relevant facts. Holford was deposed 32 days before trial, "consulting experts" for whom the State owed consulting
and Target was able to explore his discussions with city expert discovery to Target; they were not "consulted,
staff. Target also had the opportunity to explore Lovett's retained, or specially employed by a party." See Tex. R.
conversations with city staff in his two depositions. The Civ. P. 192.7(d). Instead, they were at most persons having
trial court should have found that Target would not have knowledge of relevant facts, and the State additionally
been unfairly surprised or prejudiced by Lovett's and identified them as such, as did Target with the persons
Holford's trial testimony on their opinions that were based whom its appraisal expert contacted. If these three persons
in part on these persons. had in fact been true consulting experts, our analysis below
on whether Target was unfairly surprised or prejudiced
The trial court's erroneous exclusion of evidence might be different.
requires reversal if the error was reasonably calculated to
cause, and probably did cause, the rendition of an improper As to both Lovett and Holford, Target principally
judgment. Tex. R. App. P. 44.1(a)(1); McCraw v. Maris, complained of the State's identification of several City
828 S.W.2d 756, 757 (Tex. 1992). In closing argument, Development Services staff members whom Lovett and
Target argued that the State had failed to provide evidence Holford had spoken with: Jane Kee, Jennifer Reeves,
on remainder damages and on the total amount of Natalie Ruiz, and Edwin Hardin.
compensation due, that the jury should award the amount
testified to by Target's expert, that Holford had no support [2] Lovett calculated remainder damages by determining
for his opinion that his land plan complied with city the net operating income per parking space and by
ordinances, and that Holford and the State did not care multiplying that number by the 20% utilization factor and
whether Target's driveways were safe. then by the number of lost spaces to arrive at a total lost net
operating income figure. He then capitalized the lost net
The jury awarded Target $564,290 in total operating income to determine a total loss in value
compensation, which was $311,081 more than the State's attributable to lost parking.
expert's opinion on total compensation of $253,209, which
was erroneously excluded from evidence. We conclude that [3] Our review of the parties' dispute over why this page
the error was reasonably calculated to cause and probably was not produced (in Lovett's working file) before his first
did cause the rendition of an improper judgment. [5] See deposition leads us to conclude that the failure was an
Crane v. Texas Dep't Transp., 880 S.W.2d 55, 59 (Tex. accident or mistake.
App.—Tyler 1994, writ denied).
[4] The rule further provides:
Page 52
(c) Continuance. Even if the party seeking to introduce the
We sustain the State's first issue.[6] evidence or call the witness fails to carry the burden under
paragraph (b), the court may grant a continuance or
We reverse the trial court's judgment and remand the temporarily postpone the trial to allow a response to be
cause to the trial court for a new trial. made, amended, or supplemented, and to allow opposing
parties to conduct discovery regarding any new information
Chief Justice Gray concurs only in the judgment but presented by that response.
not in the opinion of the Court.
Tex. R. Civ. P. 193.6(c). The State moved for a continuance
several times during trial, but each time the trial court
denied the motion. While the State does not complain of
these rulings in this appeal, we note that the obvious
purpose of Rule 193.6(c) is to alleviate the harshness of the
exclusion of evidence by vesting the trial court with
discretion to grant a continuance in situations where a party
such as Target files a motion to exclude an opponent's
critical evidence on the eve of trial.
[5] Target argues that, irrespective of the Rule 193.6
analysis, any error by the trial court was harmless because
the trial court should have granted Target's motion to
exclude Lovett's testimony on the 20% utilization factor on
the ground that it was unreliable under a Daubert/Robinson
analysis. We review a trial court's ruling on the
admissibility of expert testimony for abuse of discretion.
Exxon Pipeline Co. v. Zwahr, 88 S.W.3d 623, 629 (Tex.
2002).
Target argued in the trial court that Lovett's methodology
behind his 20% utilization factor was flawed because in
calculating the loss in net operating income per lost parking
space, he did not consider the income attributable to those
spaces during peak volume periods, but instead considered
the average income per space over the course of a year.
Lovett testified that he properly used the average income
per space because net operating income was based on rental
income that did not vary during the year. He said that he
had used this methodology before and had observed other
appraisers use it. The State also offered evidence that
Target's own appraisal expert had utilized the same
methodology in other appraisals. The trial court did not
abuse its discretion in denying Target's motion to exclude
Lovett's testimony as unreliable.
[6] Because we have sustained the State's first issue, we
need not address its second issue, which complains that the
trial court abused its discretion because its rulings were
tantamount to a death-penalty sanction. We do note,
however, that authority supports the State's position that a
due process analysis under TransAmerican Nat. Gas Corp.
v. Powell, 811 S.W.2d 913 (Tex. 1991), is appropriate when
application of the discovery rules results in
merits-preclusive or death-penalty sanctions. See, e.g.,
Wheeler v. Green, 157 S.W.3d 439, 443 (Tex. 2005); Best,
41 S.W.3d at 147-49; Vaughn v. Ford Motor Co., 91
S.W.3d 387, 391-92 (Tex. App.—Eastland 2002, pet.
denied); Crane v. Texas Dep't Transp., 880 S.W.2d 55, 59
(Tex. App.—Tyler 1994, writ denied). We also need not
address the State's third issue.
---------
Page 890 court and render judgment that appellees take nothing in
their counterclaim for sanctions.
19 S.W.3d 890 (Tex.App. —Houston [14 Dist.] 2000)
2000) FACTUAL AND PROCEDURAL HISTORY
Diane S. MATTLY and David Vallance, Appellants, Diane Mattly had experienced problems with credit
card fraud in the past. In the few years before this lawsuit,
v. imposters had obtained Mattly's name and social security
number and obtained approximately eighteen credit cards in
SPIEGEL, INC. and First Consumers National Bank, her name. Mattly contacted several credit reporting
Appellees. agencies about these problems, and they advised her to
place a red flag on her credit report. This "flag" would alert
No. 14-98-00239-CV.
credit agencies that no credit accounts should be opened in
Court of Appeals of Texas, Fourteenth District, Houston Mattly's name unless the credit application was confirmed
by calling Mattly at her home telephone number.
June 8, 2000
Mattly alleged that, after she had put a red flag on her
Page 891 credit report, Spiegel and/or FCNB issued a credit card to
an imposter without checking Mattly's credit report. [1] The
[Copyrighted Material Omitted] individual charged over two thousand dollars in
merchandise through Spiegel's catalogue. One of Spiegel's
Page 892 employees contacted Mattly about the charges. Mattly
explained that she did not apply for the credit card and had
Lori Massey Cliffe, Houston, for appellants. placed a red flag on her credit report to prevent
unauthorized charges. Spiegel alleges that seven months
Billy Marin Donely, Shari L. Heyen, Houston, for
before a representative contacted Mattly, she knew that
appellees.
Spiegel was listed in her credit report and failed to notify
Spiegel of the problem.
Panel consists of Justices YATES, FOWLER and
FROST.
Because of Mattly's refusal to pay the charges, Spiegel
gave the account to a credit agency that began efforts to
OPINION
collect the debt from Mattly. Mattly ended up hiring both an
WANDA McKEE FOWLER, Justice. investigator and an attorney to help her resolve the problem.
Even after hiring the investigator and a lawyer, Spiegel and
Diane S. Mattly and David Vallance appeal from a FCNB continued to contact Mattly regarding the debt. At
sanctions order awarding Spiegel, Inc. and First Consumers some point, FCNB sent Mattly a document entitled
National Bank (FCNB) a judgment of $5,000.00, plus "affidavit of forgery", requesting that she fill it out. Because
interest and taxable court costs. In five points of error, of her previous problems with credit card fraud, she showed
Mattly and Vallance the form to her investigator and asked him if she should fill
it out. He gave her several reasons why she should not
Page 893 complete the form. First, he noted that the form asked for
confidential information such as her social security number.
complain of the following: (1) the trial court lacked plenary Next, he told her that the name of the company requesting
jurisdiction to enter the sanctions award; (2) the sanctions the information--FCNB--was not listed with Dunn and
order was not sufficiently specific; (3) Mattly and Vallance Bradstreet. And, finally, he said that FCNB was not listed
did not bring the claim in bad faith; and (4) Mattly's claim with directory assistance in the city listed on the return
was not groundless. Spiegel and FCNB filed an appeal as address, nor did the fire department or police department in
well, complaining that the amount of sanctions awarded the city recognize the name. The investigator told her that
was so low that it was unjust and against the great weight he was worried it was not a request from a legitimate
and preponderance of the evidence. We find that the trial company. Based on this information and advice, Mattly did
court abused its discretion (1) when it entered a sanctions not return the form. However, she did give FCNB some
order that was not sufficiently specific, and (2) when it information; her investigator testified that he spoke with
found that Mattly and Vallance brought this claim in bad someone representing FCNB and provided that person with
faith. Consequently, we reverse the judgment of the trial the names of the personnel with the various law
enforcement agencies who were investigating the fraudulent S.W.2d at 880; Leon Springs Gas Co. v. Restaurant Equip.
use of Mattly's credit and name. However, not having Leasing Co., 961 S.W.2d 574, 577 (Tex.App.--San Antonio
received the affidavit of forgery form, FCNB and Spiegel 1997, no pet.). "A claim for frivolous lawsuit damages is a
continued to attempt to collect the account. claim for affirmative relief." Page v. Page, 780 S.W.2d 1, 3
(Tex.App.--Fort Worth 1989, no writ). A request for rule 13
Page 894 sanctions under the Texas Rules of Civil Procedure is also a
request for affirmative relief. See id.
Mattly originally filed this suit against Spiegel and
FCNB alleging that they negligently issued credit to an Here, Spiegel and FCNB filed counterclaims under
imposter who claimed to be Mattly. She also alleged that rule 13, seeking damages for a groundless suit brought in
they violated the Fair Credit Reporting Act. The sole actual bad faith or for purposes of harassment. Mattly's nonsuit did
damages requested in the lawsuit were (1) the attorney's not affect these claims for affirmative relief; they were still
fees incurred by Mattly through her California lawyer (who properly before the court after the nonsuit. Therefore, the
helped her clear up the problem with Spiegel), and (2) the trial court acted within its jurisdictional power when it
attorney's fees incurred through David Vallance, who granted the order awarding sanctions, and Mattly's and
represented Mattly in her suit against Spiegel. Spiegel and Vallance's first point of error is overruled.
FCNB denied the charges, and counterclaimed for
sanctions, alleging that the pleading was groundless and Specificity of Sanctions Order
should be subject to sanctions under rule 13 of the Texas
Rules of Civil Procedure. After the suit had been on file for In their second point of error, Mattly and Vallance
almost one year, Spiegel moved for summary judgment on argue that the trial court's order does not comply with (1)
the merits of Mattly's negligence claim, but it was never that part of rule 13, which requires the court to state the
heard because Mattly nonsuited her case. The counterclaim particularities upon which sanctions were issued and (2)
for damages was tried to the trial court which awarded section 10.005 of the Civil Practice and Remedies Code,
Spiegel and FCNB only $5,000 (plus interest and taxable which requires the court to describe the conduct warranting
court costs) of the $70,000 they requested. sanctions. We find nothing in the order reflecting that the
judge ruled on the basis of section 10.005; therefore, we
DISCUSSION AND HOLDINGS will address only rule 13.
Plenary Jurisdiction Page 895
In their first point of error, Mattly and Vallance argue As to that rule, Mattly and Vallance argue that the
that the trial court did not have jurisdiction to enter the trial court failed to specify facts showing that Mattly's case
sanctions award against them. They argue that a nonsuit is a was groundless, and brought in bad faith or for purposes of
final judgment disposing of all claims, and that the trial harassment. We agree.
court's plenary power extended only thirty days after the
nonsuit was signed. Because the trial court did not enter its Whether to impose rule 13 sanctions is within the
written order awarding sanctions until forty-three days after trial court's sound discretion. See Monroe v. Grider, 884
it granted Mattly's nonsuit, Mattly and Vallance claim it S.W.2d 811, 816 (Tex.App.--Dallas 1994, writ denied). We
acted outside its plenary power, rendering the sanctions will not set aside a sanctions order under rule 13 unless an
order void. As we explain below, their argument is abuse of discretion is shown. See Falk & Mayfield L.L.P. v.
misplaced. Molzan, 974 S.W.2d 821, 824 (Tex.App.--Houston [14 th
Dist.] 1998, pet. denied). Nonetheless,"rule 13 imposes a
Mattly and Vallance are correct that, "the plaintiff's duty on the trial court to point out with particularity the acts
right to take a nonsuit is unqualified and absolute as long as or omissions on which sanctions are based." Zarsky v.
the defendant has not made a claim for affirmative relief." Zurich Management, Inc., 829 S.W.2d 398, 399
BHP Petroleum Co. Inc. v. Millard, 800 S.W.2d 838, 840 (Tex.App.--Houston [14 th Dist.] 1992, no writ). Requiring
(Tex.1990); Georgiades v. Di Ferrante, 871 S.W.2d 878, the trial court to state the particulars of the good cause for
880 (Tex.App.--Houston [14 th Dist.] 1994, writ denied). imposing sanctions is mandatory. See GTE
However, when a defendant has filed a counterclaim Communications Sys. Corp. v. Curry, 819 S.W.2d 652, 654
seeking affirmative relief, a plaintiff cannot discontinue the (Tex.App.--San Antonio 1991, no writ). A mere statement
suit and preclude the counterclaim from being heard. See in the order that good cause was shown is insufficient to
TEX.R. CIV. P. 96. A claim for affirmative relief must state sustain the sanctions order. See id.
a cause of action independent of the plaintiff's claim, that
entitles the defendant to relief even if the plaintiff abandons As we explain below, this judgment ordering
or fails to establish her cause of action. See Georgiades, 871 sanctions does not meet these mandatory requirements. The
judgment recites only the ultimate conclusions the court is Murphy v. Friendswood Development Co., 965 S.W.2d 708,
required to make in assessing sanctions, and does not state 710 (Tex.App.--Houston [1 st Dist.] 1998, no pet.);
any facts to support it. The judgment states the following: Schexnider v. Scott & White Memorial Hosp., 953 S.W.2d
439, 441 (Tex.App.--Austin 1997, no pet.)
1. Plaintiff/Counter-Defendant and her attorney, Mr. David
Vallance, filed this lawsuit in bad faith and for improper Page 896
purposes, including harassment of
Defendants/Counter-Plaintiffs. . One purpose of the particularity requirement is to justify
the imposition of sanctions and to show that the trial court
2. At the time that Plaintiff/Counter-Defendant and her properly weighed the sanctions request and imposed
attorney, Mr. David Vallance, filed this lawsuit, they lacked sanctions in an appropriate manner when justified by the
any basis to believe that the contentions that were made circumstances. See Murphy 965 S.W.2d at 710.
against Defendants/Counter-Plaintiffs were warranted by
existing law or by a nonfrivolious argument for the Neither the sanctions order nor the findings of fact
extension, modification, or reversal of existing law or the contain any facts justifying the imposition of sanctions.
establishment of new law. This failure by the court to comply with rule 13 is an abuse
of discretion that renders the order unenforceable and
The trial court also entered findings of fact and warrants a reversal. See Thomas v. Thomas, 917 S.W.2d
conclusions of law. The pertinent findings are set out 425, 432 (Tex.App.--Waco 1996, no writ). Mattly's second
below. point of error is sustained. [2]
The only damages sought by Plaintiff/Counter-Defendant The Finding of Bad Faith
were attorney's fees. Plaintiff/Counter-Defendant suffered
no actual damages as a result of In her fifth point of error, Mattly contends that the
Defendants/Counter-Plaintiffs alleged negligence. trial court abused its discretion when it found that her
claims were brought in bad faith. As explained below, we
Plaintiff/Counter-Defendant lacked any basis to believe that find no evidence in the record to support the trial court's
the contentions that were made against finding that Mattly and her attorney brought the suit in bad
Defendants/Counter-Plaintiffs were warranted by existing faith.
law.
A party cannot obtain rule 13 sanctions unless the
Plaintiff/Counter-Defendant lacked any basis to believe that party proves that the claims are groundless and that the
the contentions that were made against opposing party brought the claim in bad faith or to harass
Defendants/Counter-Plaintiffs were warranted by existing the party. See TEX.R. CIV. P.13. One purpose of rule 13 is
law or by a nonfrivolous argument for the extension, to check abuses in the pleading process. See McCain v.
modification, or reversal of existing law or the NME Hospitals, Inc., 856 S.W.2d 751, 757
establishment of new law. (Tex.App.--Dallas 1993, no writ). As previously noted, rule
13 authorizes sanctions, available under rule 215(2)(b) [3] ,
Plaintiff/Counter-Defendant's pleadings were groundless against an attorney, a represented party, or both, who files a
and brought in bad faith. pleading that is groundless and brought in bad faith or
groundless and brought for the purpose of harassment. The
Plaintiff/Counter-Defendant's pleadings were brought for trial court must examine the circumstances existing when
the purpose of harassment. the litigant filed the pleadings to determine whether rule 13
sanctions are proper. See Monroe, 884 S.W.2d at 817. Bad
Plaintiff/Counter-Defendant's pleadings were signed by her
faith does not exist when a party exercises bad judgment or
attorney, Mr. David Vallance.
negligence; "it is the conscious doing of a wrong for
Plaintiff/Counter-Defendant's attorney failed to conduct a dishonest, discriminatory, or malicious purposes." Falk, 974
reasonable investigation of the law and facts before S.W.2d at 828, quoting Campos v. Ysleta Gen. Hosp., Inc.,
initiating this lawsuit. 879 S.W.2d 67, 71 (Tex.App.--El Paso 1994, writ denied).
Courts must presume that papers are filed in good faith, and
The acts that Plaintiff/Counter-Defendant complained of the party moving for sanctions bears the burden of
were consistent with the requirements of The Fair Credit overcoming this presumption. See Tarrant County v.
Reporting Act. Chancey, 942 S.W.2d 151, 154 (Tex.App.--Fort Worth
1997, no pet.). Spiegel and FCNB point to four actions
The vast majority of these findings and conclusions which, they claim, show that Mattly acted in bad faith: (1)
are conclusory; they fail to state any particulars. See Mattly voluntarily nonsuited her claim after it was pending
for a year; (2) Mattly and Vallance did not adequately usually are recoverable only if authorized by contract or
research the merits of her claims; (3) Mattly failed to statute. However, during his research he located a Texas
respond to FCNB's request to investigate her credit case recognizing that equity allows recovery of attorney's
complaint; and (4) Spiegel and FCNB gave Mattly and fees and other litigation expenses "where a party was
Vallance notice that Mattly's claims had no legal merit. required to prosecute or defend the previous suit as a
However, as we explain below, we find no evidence in the consequence of the 'wrongful act' of the defendant." Baja
record that overcomes the presumption that Mattly and her Energy, Inc. v. Ball, 669 S.W.2d 836, 838-39
attorney filed their pleadings in good faith. (Tex.App.--Eastland 1984, no writ); see also Estate of Arlitt
v. Paterson, 995 S.W.2d 713, 721 (Tex.App.--San Antonio
First, the record reflects that Mattly did not nonsuit 1999, pet. denied) (holding that although attorney's fees are
her claims because of bad faith. She testified at the hearing usually not recoverable unless permitted by statute or
on the motion for sanctions that she could no longer afford contract, contractual or statutory authorization was not
to continue her lawsuit. Up until the time of nonsuit, she necessary in a malpractice claim to recover attorney's fees
had accumulated over fourteen thousand dollars in and costs as damages). This led him to believe that Mattly's
attorney's fees and was waiting for depositions to begin. case was a unique situation, one presenting the exception
Moreover, in her motion for nonsuit, she stated that the case discussed in Baja Energy. There was no other evidence on
had become too expensive for her to continue. the issue of reasonable inquiry as to Vallance. Thus, the
only evidence in the record on the issue of reasonable
Page 897 inquiry shows that both Mattly and Vallance made a
reasonable inquiry before filing suit.
She specifically stated that she was maintaining the
merit of her claims and that she was choosing to pursue a Next, we find no evidence that Mattly's failure to
different avenue, one that would procure legislative changes respond to the FCNB's inquiry into her claim of fraud was
to make credit card fraud more difficult. The record the result of bad faith. The FCNB contacted Mattly and
contains no evidence to show that Mattly acted in bad faith asked her to fill out a form entitled "affidavit of forgery"
by filing a nonsuit, and we are unwilling to find that the and also requested other information so that it could
filing of a nonsuit is, in and of itself, evidence of bad faith. investigate her claim that the Spiegel credit card was issued
[4] See e.g. Delgado v. Methodist Hosp., 936 S.W.2d 479, fraudulently. Mattly admits she did not fill out these forms,
487 (Tex.App.--Houston [14 th Dist.] 1996, no writ); Miller but says she did not fill them out because her investigator
v. Armogida, 877 S.W.2d 361, 365 (Tex.App.--Houston [1 advised her not to complete them. The investigator, in turn,
st Dist.] 1994, writ denied)(where plaintiff, who sued testified that, because Mattly had been a victim of credit
guardian ad litem for not prosecuting a case, non-suited card fraud in the past, he wanted to insure that the company
after sanctions were filed and then re-filed in county court). requesting the data was legitimate. When he could not
locate the company with either Dunn and Bradstreet, the
We also do not find evidence that Mattly and her
local telephone directory of
attorney failed to conduct a reasonable pre-filing inquiry
into the merits of her claim. "Reasonable inquiry means the Page 898
amount of examination that is reasonable under the
circumstances of the case." Monroe, 884 S.W.2d at 817. the city listed on its return address, or with the police and
Mattly spoke with three attorneys to find out what she could fire departments in the city, he advised her not to fill out the
do to recover her expenses incurred in stopping Spiegel and form. However, he pointed out that, at some point, he gave
the Bank's collection efforts. In addition, her California FCNB the names of several law enforcement personnel in
attorney suggested she contact a Texas attorney about Houston who were investigating the fraudulent use of
recovering her fees because Spiegel and the Bank had Mattly's name and credit. This notification, both from
Texas contacts. In addition, before she hired Vallance, a Mattly and from her investigator, was sufficient under the
second attorney, her niece who lives in Texas, advised her regulations to notify the card issuer--FCNB--of
that her lawsuit had merit. We find no evidence that Mattly, unauthorized use of the card. See 12 C.F.R. § 226.12(b)(3).
a lay person, failed to make a reasonable pre-filing inquiry, This evidence does not reflect a bad faith motive in refusing
especially when every lawyer with whom she spoke advised to comply with the FCNB's request. [5]
her that she had a legitimate claim.
Lastly, we find no evidence that Mattly and Vallance
We reach the same conclusion as to Vallance, who acted in bad faith in refusing to dismiss her case when
testified that he spent at least twelve hours of research into Spiegel and the FCNB told Vallance that, in their opinion,
the merits of Mattly's claim. He spent at least a third of his they thought Mattly's claims were not viable. In this case,
time researching which statutes were applicable to Mattly's we decline to hold that this fact alone establishes bad faith.
negligence claim. He acknowledged that attorney's fees The disagreement here concerned the interpretation and
application of case law and the Fair Credit Reporting Act. contract or statutes. See Estate of Arlitt, 995 S.W.2d at 721
In virtually every case that comes before a judge, the parties (holding that, although attorney's fees usually are not
disagree on these matters. Our conclusion might be recoverable unless permitted by statute or contract,
different if Spiegel/FCNB had pointed out an easily statutory or contractual authorization was not necessary in a
verifiable fatal flaw, see Miller v. Armogida, 877 S.W.2d malpractice claim to recover attorney's fees and costs as
361, 365 (Tex.App.--Houston [1 st Dist.] 1994, writ denied) damages); Standard Fire Ins. Co. v. Stephenson, 963
(where plaintiff, sued minor's guardian ad litem, not his S.W.2d 81, 90-91 (Tex.App.--Beaumont 1997, no pet.)
attorney ad litem, for failure to prosecute a claim), or the (holding that, in a bad faith claim, an insured could recover
case clearly had no merit and no argument for an extension attorney's fees incurred as a result of the insurer's bad faith
of existing law, see e.g. Delgado, 936 S.W.2d at 487-88 where those fees were incurred in prior litigation between
(where plaintiff who had arranged for a private room but the insurer and the insured); and Nationwide Mutual Ins.
received only a semi-private room, sued for negligence, Co. v. Holmes, 842 S.W.2d 335, 340-42 (Tex.App.--San
intentional infliction of emotional distress, breach of Antonio 1992, writ denied) (holding that insured, who
contract by hospital, and tortious interference with a incurred unnecessary attorney's fees in order to induce
contract, all of which she alleged caused her mental insurer to indemnify him, may recover those fees in a later
anguish). But, as we discuss below, these situations are not suit "in the name of equitable principles"). And, even
present here. though no statute or contract authorized recovery of
attorney's fees to the plaintiff, all three opinions--which
Spiegel and FCNB alleged that Mattly's lawsuit was have not been overturned--allowed the recovery of
patently meritless because (1) Mattly had no actual attorney's fees. See Arlitt, 995 S.W.2d at 721; Standard Fire
damages--only attorneys fees--and (2) they owed no duty to Ins. Co., 963 S.W.2d at 90; Nationwide Mutual Ins. Co.,
Mattly to check her credit report before issuing a 842 S.W.2d at 341-42.
pre-approved card. At trial, the parties and the judge did not
focus on duty, they focused on actual damages. Defendants Spiegel and FCNB also rely on the Fair Credit
claimed, and the trial judge clearly believed, that Mattly Reporting Act to argue that they owed no duty to Mattly to
could not, based on the extension or modification of check her credit report before issuing a pre-approved credit
existing law or the establishment of new law, recover card and, in fact, were precluded from viewing Mattly's
attorney's fees as damages in a negligence action. credit report. However, Spiegel and FCNB have been
unable to demonstrate with any clarity that Mattly's claim
Mattly's petition prayed for Mattly to recover the was precluded by the Fair Credit Reporting Act. [6] The
attorney's fees she incurred (1) in clearing up her credit sections they cite do not directly or indirectly reveal that
problems with Spiegel, whom she alleged wrongfully Mattly had no cause of action; in fact, if anything, they
issued the credit card, and (2) in prosecuting the case show the opposite. See 15 U.S.C.A. § 1681b(a)(3)(A) (a
against Spiegel. However, by the time of the sanctions consumer reporting agency may furnish a consumer report "
hearing, Vallance argued only that the expenses (attorney's ... to a person which it has reason to believe intends to use
fees) incurred in resolving the problems created by the information in connection with: a credit transaction
Spiegel's wrongful act should be recoverable. He relied on a involving the consumer, a transaction involving the
Texas court of appeals opinion that has not been extension of credit to a consumer, reviewing an account of
overturned, and has, in fact, been cited by several other the consumer, or collection of an account of the
courts of appeals. See Baja Energy, Inc., 669 S.W.2d at consumer"); 15 U.S.C.A. § 1681b(c)(1)(B)(i) (a consumer
838-39. Baja Energy noted that, in certain situations, equity reporting agency may furnish a consumer report relating to
allows the recovery of attorney's fees and other litigation any consumer in a transaction not initiated by the consumer
expenses "where a only if the transaction consists of a firm offer of credit); 15
U.S.C.A. § 1681b(e) (concerning a consumer's right to be
Page 899 excluded from lists provided by credit reporting agencies);
15 U.S.C.A. § 1681m(d) (requiring persons who use a
party was required to prosecute or defend the previous suit
consumer report on a consumer in connection with a credit
as a consequence of the 'wrongful act' of the defendant." Id.
transaction not initiated by the customer, to provide the
at 839.
customer with a clear and conspicuous statement that
In opposition to this theory, Spiegel's counsel argued information was used in connection with the transaction,
that the Baja case did not apply because in that case, the that the consumer received the credit because the consumer
fees were recoverable because they were based in contract. satisfied the criteria for credit worthiness ... ); and 15
However, as mentioned above, three subsequent courts of U.S.C.A. § 1681t (outlining statute's relation to state laws).
appeal have noted the same exception to the general rule
Even if we look beyond what Spiegel and FCNB have
that attorney's fees are not recoverable unless authorized by
cited to us, we find nothing to indicate that Mattly's suit was
sanctionable. First, the purpose of the Act is to protect Delgado, 936 S.W.2d at 487. The case law supports the
consumers, a point Congress made very clear: imposition of sanctions in such a case. See id.; Miller, 877
S.W.2d at 365. It is a totally different matter to sanction a
It is the purpose of this Subchapter to require that party on the basis of a complex statute, especially one
consumer reporting agencies adopt reasonable procedures which does not directly address the matters in issue. We
for meeting the needs of commerce for consumer credit ... have found no case law imposing sanctions in such an
and other information in a manner which is fair and instance, and have been cited to none. This is not to say
equitable that, when a complex statute is involved, sanctions can
never be imposed. We are merely saying that judges should
Page 900 consider the complexity of the claim and underlying statute.
to the consumer, with regard to the confidentiality, Second, Spiegel and FCNB's own actions in this case
accuracy, relevancy and proper utilization of such provide some indication that the alleged lack of merit was
information.... not as readily apparent as they suggest. We find it
noteworthy that, while steadfastly maintaining the
15 U.S.C.A. § 1681(b).
frivolousness of Mattly's suit, Appellees incurred nearly
Second, there is no Texas case law holding that a card $70,000 in attorney's fees. And, this was in a case with
issuer does, or does not have, a duty to review the minimal discovery and no apparent "Rambo tactics". Again,
cardholder's credit history prior to issuing a credit card. this is not to say that parties may not incur large legal fees if
However, other state courts and federal courts have litigated they are going to allege that a suit is frivolous, [7] but, in
issues between card issuers and victims of identity theft or this case, this fact weighs against the imposition of
between card issuers and card holders. See Andrews v. sanctions.
Trans Union Corp., 7 F.Supp.2d 1056 (C.D.Ca.1998)
Rule 13 "is a tool that must be available to trial courts
(involving a suit between a victim of identity theft and
in those egregious situations where the worst of the bar uses
credit reporting agencies); In re Akins, 235 B.R. 866
our honored system for ill motive without regard to reason
(W.D.Tex.1999) (containing an interesting and lively
and the guiding principles of the law. The rule, however,
discussion of the credit card industry and the inaccuracies in
cannot become a weapon used to punish those
reporting); Guzman v. Toyota Motor Credit Corp., 745
So.2d 1123-24 (Fla.Dist.Ct.App.1999) (involving a suit Page 901
between a card issuer and a victim of identity theft). These
cases confirm that this is a relatively new area of the law with whose intellect or philosophic viewpoint the trial court
because identity theft is a relatively new crime. See finds fault." Tarrant County v. Chancey, 942 S.W.2d 151,
Higgins, Identity Thieves, 84--Oct. A.B.A. J. 42. These 154 (Tex.App.--Fort Worth 1997, no pet.). We find no
cases do not resolve the main issue in contention in this evidence that Mattly and her attorney consciously
case. However, they do contain some discussions that continued the lawsuit for dishonest, discriminatory, or
would lead one to believe that Mattly could sue, and could malicious purposes, and we sustain Mattly's fifth point of
argue that suit should be allowed as an extension of existing error.
law or as the establishment of new law.
CONCLUSION
In short, after rather extensive research, much more
extensive than either of the parties appear to have done, we In summary, the judgment and findings of fact are
cannot say that the Fair Credit Reporting Act precluded the conclusory and therefore will not support the imposition of
type of claim Mattly brought. Thus, bringing such a claim sanctions. Moreover, no evidence supports the trial court's
would not support the imposition of sanctions. finding that Mattly or her attorney acted in bad faith.
Therefore, the trial court abused its discretion in imposing
There are two other comments we feel compelled to sanctions. Because we have held that sanctions were not
make, specifically with regard to Spiegel and FCNB's claim properly imposed, we need not reach Spiegel's and FCNB's
that Mattly acted in bad faith by refusing to dismiss her case cross-appeal that the sanctions award was too low, nor do
when told that she had no cause of action and, more we reach Mattly and Vallance's points of error alleging that
generally with regard to Spiegel and FCNB's claim that the the suit was not groundless.
claim was frivolous. First, by arguing that the case had no
merit, Spiegel and FCNB relied on an extremely complex The judgment of the trial court is reversed, and we
federal statutory scheme. It is one thing to sanction a party render judgment that appellees, Spiegel, Inc. and First
for bringing a non-existent common law claim. Often, one Consumers National FCNB, take nothing in their
can easily determine if a cause of action exists. See e.g. counterclaim for sanctions.
---------
Notes:
[1] Spiegel asserted that it issued the credit card in response
to a pre-approved application that it mailed directly to
Mattly.
[2] Although our disposition of this point alone requires that
we reverse the case, it would be only a reversal and remand
of the case to the trial court. The appellate rules require us
to reverse the court's judgment and render the judgment the
trial court should have rendered, unless we must remand for
further proceedings or must remand in the interests of
justice. See TEX.R.APP. P. 43.3. Because the fifth point of
error presents an issue that requires us to reverse and
render, we address it, as well.
[3] Texas Rule of Civil Procedure 215 governs sanctions for
discovery abuse.
[4] However, in a patently meritless suit, some courts have
held that failing to nonsuit may constitute some evidence
supporting sanctions. See Delgado, 936 S.W.2d at 487.
[5] Spiegel/FCNB argue that the Official Staff Commentary
to the regulations permits a card issuer to request
information in written form from a cardholder. See 12
C.F.R. § 226.12(b)-2,3 (1995). To begin with, we do not
find any language in the Commentary remotely resembling
Speigel/FCNB's contention, much less requiring a
cardholder to return a form sent to it by the card issuer. But,
beyond this fundamental problem with the argument, the
issue here is not whether the card issuer could obtain
written information from Mattly. The issue is whether
Mattly, someone who had been the victim of credit card
abuse on numerous occasions, acted in bad faith when she
refused to return a form (which requested confidential
information) to a company her investigator could not locate
through normal investigative channels. Citing to the same
commentary, Spiegel/FCNB also argue that if the
cardholder fails to comply with these requests from a card
issuer, the card issuer can terminate its investigation and
"seek payment from the cardholder." Our reading of the
Commentary does not reveal any explicit support for this
statement.
[6] Spiegel and FCNB did not raise preemption.
[7] Mattly took no action to cause Spiegel and FCNB's legal
fees to reach nearly $70,000, unlike some frivolous actions
in which a party will file numerous motions and discovery
requests that inflate the fees.
---------
Page 694 Appellant R.M. Dudley Construction Company (Dudley
Construction), which is owned by Mark Dudley (Dudley).
258 S.W.3d 694 (Tex.App.-Waco 2008) Dudley Construction did some work for Appellee Dan
Dawson, and Martinez supervised the concrete crew on that
R.M. DUDLEY CONSTRUCTION COMPANY, INC., job. Dawson subsequently hired Martinez to do some more
Appellant construction work " on the side," and in doing so, Martinez
used Dudley Construction's equipment, supplies, and
v.
employees who were being paid by Dudley Construction
while doing the work on the side. Martinez was thus able to
Dan DAWSON, William W. Dawson, Jr. (Dan Dawson's
charge Dawson significantly less than the going rate for
Dad), Rudy Briner, Steven Clark Hays and James K.
such work.
Ashlock, Appellees.
The other Appellees in this case-William W. Dawson,
No. 10-06-00228-CV.
Jr. (Dan Dawson's Dad), Rudy Briner, Steven Clark Hays,
Court of Appeals of Texas, Tenth District, Waco and James K. Ashlock-all learned about Martinez's
discounted, on-the-side construction work from each other
May 28, 2008 and had Martinez do similarly discounted construction work
for them. Dudley learned that Martinez had done work for
Rehearing Overruled July 29, 2008. the Appellees using Dudley Construction's equipment,
supplies, and employees, and he filed constitutional and
Page 695 mechanic's and materialman's lien affidavits on the
Appellees' properties where Martinez had done the concrete
[Copyrighted Material Omitted]
work on the side.
Page 696
The Appellees filed a summary motion to remove
Dudley Construction's liens under section 53.160 of the
[Copyrighted Material Omitted]
Property Code, claiming that the liens were invalid because
Page 697 they were filed on the Appellees' homestead properties and
no written contracts were executed before the construction
[Copyrighted Material Omitted] work commenced, as required by Property Code section
53.254.[1]See TEX. PROP.CODE ANN. § § 53.160, 53.254
Page 698 (Vernon 2007). The Appellees requested the trial court to
remove the liens and to award them their attorney's fees
[Copyrighted Material Omitted] under section 53.156. See id. § § 53.156, 53.160. Dudley
Construction answered, filing a general denial. It also filed
Page 699 a counterclaim entitled " Original Counterclaim and Suit to
Foreclose Lien" and alleging claims for unjust enrichment,
[Copyrighted Material Omitted]
fraud, theft liability act, conversion, conspiracy, tortious
Page 700 interference with contractual relations, and quantum meruit.
Robert A. Swearingen, Peterson & Swearingen LLP, Page 701
College Station, TX, for Appellant.
The trial court issued an order finding that the liens
Billy M. Payne, Payne, Watson, Miller, Malecheck & are invalid and should be removed and instructing the
Scherr PC, Bryan, TX, for Appellees. county clerk of Brazos County to file the order to show that
the liens are invalid and are to be removed so as not to be a
Before Chief Justice GRAY, Justice VANCE, and cloud on the Appellees' property titles. A hearing on
Justice REYNA. attorney's fees incurred to have the liens removed took
place, but the trial court deferred ruling on the Appellees'
OPINION request for attorney's fees until all issues in the case had
been determined.
BILL VANCE, Justice.
About ten months later, the Appellees answered
Carlos Martinez was a concrete supervisor for Dudley Construction's counterclaim, asserting a general
denial and their own counterclaim in which they claimed Nothing in the record suggests that the new attorney
that Dudley Construction's counterclaim was " groundless was incapable of rendering adequate representation or did
in fact or brought in bad faith or brought for the purpose of not render adequate representation. See Rehabilitation
harassment." The Appellees also sought to recover their Facility, 962 S.W.2d at 156 (citing Echols v. Brewer, 524
attorney's fees in defending Dudley Construction's S.W.2d 731, 734 (Tex.Civ.App.-Houston [14th Dist.] 1975,
counterclaim. no writ)). Dudley Construction points to
A jury trial was held, and after Dudley Construction Page 702
had rested, the trial court granted the Appellees' motion for
directed verdict on all of Dudley Construction's claims the trial court's exclusion of some telephone records
except for its conspiracy-to-breach-fiduciary-duty claim because they had not been timely produced, but the record
against Appellees Dan Dawson and Rudy Briner. The jury does not reflect that a different ruling would have been
found against Dudley Construction on that claim, and made if Dudley Construction's original attorney had been
Dudley Construction thus took nothing on its counterclaim. present or that the records' exclusion prejudiced Dudley
The trial court did not submit any jury issues on the Construction.
Appellees' remaining claims or on attorney's fees.
Based on the circumstances in the record before us,
Continuance we cannot say that the trial court abused its discretion. See
id. at 155-56 (trial court did not abuse its discretion by
We begin with Dudley Construction's second issue, denying continuance on ground that lead counsel for
which asserts that the trial court erred by denying its first hospital was in trial for another client in another city where
and only motion for continuance. We review a ruling on a attorney from same law firm represented hospital at trial,
motion for continuance for abuse of discretion. Villegas v. and record did not indicate lead counsel had tried to avoid
Carter, 711 S.W.2d 624, 626 (Tex.1986). scheduling conflict or had demonstrated why other case
took precedence over hospital's case). We overrule Dudley
On August 12, 2005, this case was set for jury trial on Construction's second issue.
December 5, 2005, with a final pretrial on December 2. The
" notice of setting" states: " Conflicting settings of counsel Directed Verdict
will not be a reasonable ground [for a continuance] unless
the conflicting setting was given prior in time to this notice, The trial court directed a verdict and rendered
..." At the December 2 final pretrial, the trial court sua judgment in favor Appellees William W. Dawson, Jr. (Dan
sponte moved the trial to December 7. On December 6, Dawson's Dad), Hays, and Ashlock on all of Dudley
Dudley Construction filed a motion for continuance, Construction's claims (unjust enrichment, fraud, theft
alleging that its attorney had received notice on November liability act, conversion, conspiracy, tortious interference
30 that two of his clients in another legal proceeding had with contractual relations, and quantum meruit) against
just been added to a NASD arbitration that was scheduled them. It also directed a verdict in favor of Appellees Dan
to begin on December 6. The trial court denied the motion, Dawson and Briner on Dudley Construction's claims for
and another attorney from the law firm of Dudley unjust enrichment, fraud, theft liability act, conversion,
Construction's attorney tried the case for Dudley tortious interference with contractual relations, and
Construction. quantum meruit, but not on the conspiracy claim. The only
claim of Dudley Construction that the trial court submitted
In general, absence of counsel is not good cause for a to the jury was its claim for conspiracy to breach fiduciary
continuance, but the trial court has the discretion to allow a duty against Appellees Dan Dawson and Briner (i.e., that
continuance if good cause is shown. TEX.R. CIV. P. 253; they conspired with Martinez to breach his fiduciary duty to
see Rehabilitation Facility at Austin, Inc. v. Cooper, 962 Dudley Construction), and the jury found against Dudley
S.W.2d 151, 155 (Tex.App.-Austin 1998, no pet.)(citing Construction on that claim.
State v. Crank, 666 S.W.2d 91, 94 (Tex.1984)). The record
does not show the efforts, if any, taken by Dudley Dudley Construction's third issue complains that the
Construction's attorney to have the conflicting arbitration trial court erred by entering a directed verdict on Dudley
proceeding reset, nor does it adequately explain the Construction's claims for quantum meruit and unjust
arbitration's precedence over the December 5 jury trial enrichment against all the Appellees. Dudley Construction
setting for which notice was given on August 12. is not appealing the directed verdict in favor of Appellees
Furthermore, there is no explanation why the motion for William W. Dawson, Jr. (Dan Dawson's Dad), Hays, and
continuance was filed after the pretrial and on the day Ashlock on its claims for fraud, theft liability act,
before trial. conversion, conspiracy, and tortious interference with
contractual relations. Dudley Construction is not appealing
the directed verdict in favor of Appellees Dan Dawson and Unjust Enrichment
Rudy Briner on its claims for fraud, theft liability act,
conversion, and tortious interference with contractual Unjust enrichment, itself, is not an independent cause of
relations, nor is it appealing the adverse jury finding on its action but rather " characterizes the result of a failure to
conspiracy claim against Appellees Dan Dawson and make restitution of benefits either wrongfully or passively
Briner. received under circumstances that give rise to an implied or
quasi-contractual obligation to repay." Friberg-Cooper
In reviewing the granting of a motion for directed Water Supply Corp. v. Elledge, 197 S.W.3d 826, 832
verdict, we follow the standards for assessing the legal (Tex.App.-Fort Worth 2006, pet. filed) (quoting Walker v.
sufficiency of the evidence. City of Keller v. Wilson, 168 Cotter Props., Inc., 181 S.W.3d 895, 900 (Tex.App.-Dallas
S.W.3d 802, 809-28 (Tex.2005). There is legally 2006, no pet.)), [rev'd on other grounds, 240 S.W.3d 869
insufficient evidence or " no evidence" of a vital fact when (Tex.2007)]; Mowbray v. Avery, 76 S.W.3d 663, 679
(a) there is a complete absence of evidence of a vital fact; (Tex.App.-Corpus Christi 2002, pet. denied); see Best Buy
(b) the court is barred by rules of law or of evidence from Co. v. Barrera, 214 S.W.3d 66, 73 (Tex.App.-Corpus
giving weight to the only evidence offered to prove a vital Christi 2006, pet. filed), [rev'd on other grounds, 248
fact; (c) the evidence offered to prove a vital fact is no more S.W.3d 160 (Tex.2007)]. The doctrine applies the principles
than a mere scintilla; or (d) the evidence conclusively of restitution to disputes where there is no actual contract,
establishes the opposite of the vital fact. Merrell Dow based on the equitable principle that one who receives
Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex.1997); benefits that would be unjust for him to retain ought to
see also Prudential Ins. Co. v. Fin. Review Servs., Inc., 29 make restitution. Friberg-Cooper, 197 S.W.3d at 832;
S.W.3d 74, 77 (Tex.2000) (directed verdict proper only Mowbray, 76 S.W.3d at 679. Unjust enrichment is not a
when evidence conclusively establishes right of movant to proper remedy " merely because it ' might appear expedient
judgment or negates right of opponent or evidence is or generally fair that some recompense be afforded for an
insufficient to raise material fact issue); unfortunate loss' to the claimant, or because the benefits to
the person sought to be charged amount to a windfall."
Page 703 Heldenfels Bros. Inc. v. City of Corpus Christi, 832 S.W.2d
39, 42 (Tex.1992) (quoting Austin v. Duval, 735 S.W.2d
Cain v. Pruett, 938 S.W.2d 152, 160 (Tex.App.-Dallas 647, 649 (Tex.App.-Austin 1987, writ denied)); Mowbray,
1996, no writ) (directed verdict proper when evidence 76 S.W.3d at 679. To recover under an unjust enrichment
reflects no other verdict can be rendered and moving party theory, the benefits to the other party must be actually
is entitled to judgment as matter of law). unjust under the principles of equity. Mowbray, 76 S.W.3d
at 679; Burlington N. R.R. v. Sw. Elec. Power Co., 925
Quantum Meruit
S.W.2d 92, 97 (Tex.App.-Texarkana 1996), aff'd, 966
Quantum meruit is an equitable theory of recovery S.W.2d 467 (Tex.1998).
intended to prevent unjust enrichment when there is an
Argyle ISD v. Wolf, 234 S.W.3d 229, 246-47
implied agreement to pay for goods or services provided. In
(Tex.App.-Fort Worth 2007, no pet. h.).
re Kellogg Brown & Root, 166 S.W.3d 732, 740
(Tex.2005); Vortt Exploration Co. v. Chevron U.S.A., Inc., Unjust enrichment is also found under circumstances
787 S.W.2d 942, 944 (Tex.1990). " Generally, a party may in which one person has obtained a benefit from another by
recover under quantum meruit only when there is no fraud, duress, or the taking of an undue advantage.
express contract covering the services or materials Heldenfels Bros., 832 S.W.2d at 41. In its brief, Dudley
furnished." Vortt Exploration, 787 S.W.2d at 944. Stated Construction points to its allegations that the Appellees
another way, a party generally cannot recover under
quantum meruit when there is a valid contract covering the Page 704
services or materials furnished. Murray v. Crest Constr.,
Inc., 900 S.W.2d 342, 345 (Tex.1995). In this case, it in had obtained the benefit of Dudley Construction's labor and
undisputed that each of the Appellees had an express oral materials through fraud and taking undue advantage of
contract with Martinez on their respective side jobs with Dudley Construction in their transactions with Martinez,
him and that they paid him under those oral contracts. That which includes the same factual matters as the alleged
precludes recovery under quantum meruit as a matter of conspiracy with him to breach his fiduciary duty to Dudley
law, and Dudley Construction makes no contrary argument. Construction by diverting concrete jobs.
The trial court did not err in entering a directed verdict on
Dudley Construction's quantum meruit claims. As with our disposition of Dudley Construction's
quantum meruit claim, we note that on Dudley
Construction's unjust enrichment claim, each of the
Appellees had an express oral contract with Martinez on counterclaim, the Appellees filed a post-trial " motion to
their respective side jobs and they paid him under those assess attorney's fees." It first recited the history of their
contracts. Thus, the equitable remedy of unjust enrichment motion to remove the liens and their request for attorney's
is not applicable. See Argyle ISD, 234 S.W.3d at 246-47 fees in that motion, then it asserted that Dudley
(unjust enrichment doctrine applies principles of restitution Construction's conspiracy claim " was groundless, was
to disputes where there is no actual contract). brought in bad faith and for the purpose of harassment."
The motion sought recovery of all of the Appellees'
Additionally, the availability of an adequate legal attorney's fees. After Dudley Construction filed a response
remedy may render equitable claims like unjust enrichment
unavailable. See Best Buy Co. v. Barrera, 248 S.W.3d 160, Page 705
161 n. 1 (Tex.2007) (citing and quoting BMG Direct Mktg.,
Inc. v. Peake, 178 S.W.3d 763, 770 (Tex.2005) (" Like complaining that the Appellees' motion did not cite any
other equitable claims and defenses, an adequate legal rules or statutes, the Appellees filed an amended motion
remedy may render equitable claims of unjust enrichment that cited section 53.126 [sic ] for their request for
and equitable defenses of voluntary-payment unavailable." attorney's fees to remove the liens and that cited for their
)). In this case, the trial court submitted Dudley frivolous pleading claim section 53.156 " and/or" Rule of
Construction's common-law cause of action of conspiracy Civil Procedure 13 " and/or" chapter 10 of the Civil Practice
to breach fiduciary duty, and the jury found against Dudley and Remedies Code.
Construction. That adequate legal remedy was available to
Dudley Construction in its case against Appellees. Because the trial judge recused himself, an assigned
Moreover, the record shows that Dudley Construction had judge presided over the Appellees' motion to assess
yet another available legal remedy-a separate lawsuit attorney's fees. After a hearing, the assigned judge granted
pending against Martinez for his liability to Dudley the motion, and an award of attorney's fees on the
Construction over the same side jobs. Appellees' motion was incorporated in the judgment " based
on Section 53.156 of the Property Code, and/or Chapter 10
Finally, unjust enrichment based on the Appellees' of the Civil Practices & Remedies Code, and/or Rule 13,
alleged fraudulent conduct was subsumed within, or was a Texas Rules of Civil Procedure." [2] The judgment awarded
close version in equity of, Dudley Construction's conspiracy attorney's fees as follows: $35,259.93 through entry of
claim, which was submitted to the jury. Submitting a judgment; $12,500 in the event of an unsuccessful appeal;
separate jury question on unjust enrichment would have $10,000 in the event of an unsuccessful petition for review,
been superfluous and confusing. See Hyundai Motor Co. v. and $7,500 in the event oral argument is presented on an
Rodriguez, 995 S.W.2d 661, 665-66 (Tex.1999) (trial court unsuccessful petition for review.
should not submit differently worded questions that call for
same factual finding " to avoid confusing the jury and the The assigned judge issued findings of fact and
possibility of inconsistent findings" ); Texas Genco, LP v. conclusions of law, and the judgment closely tracked the
Valence Operating Co., 187 S.W.3d 118, 125 language of the findings and conclusions. The summarized
(Tex.App-Waco 2006, pet. denied). For these reasons, the findings or conclusions are:
trial court did not err in directing a verdict on Dudley
1. The Appellees filed the case to invalidate the liens
Construction's unjust enrichment claims. We overrule
wrongfully filed by Dudley Construction on their
Dudley Construction's third issue.
homesteads.
Attorney's Fees and Sanctions
2. Dudley Construction's counterclaim sought to establish
We now turn to Dudley Construction's first issue, and foreclose liens on the Appellees' homesteads.
which complains that the trial court erred in awarding
3. The liens were invalid and ordered stricken.
attorney's fees to the Appellees as sanctions. As noted
above, after the trial court ordered the removal of the liens, 4. The entire case was " of the type" referenced in section
a hearing took place on the Appellees' claim for attorney's 53.156 of the Property Code.
fees and costs incurred to have the liens removed. See TEX.
PROP.CODE ANN. § 53.156. The Appellees' attorney 5. [Actual amounts of attorney's fees awarded, as noted
testified to attorney's fees and costs in the amount of above].
$7,377.70 at that point in the litigation. The trial court
deferred ruling on the Appellees' request for attorney's fees 6. The amounts are both equitable and just.
at that time.
7. Dudley Construction's filing liens against the Appellees'
After the jury trial on Dudley Construction's
homesteads intended to harass them [as follows: [3]] arbitrarily and unreasonably, without reference to guiding
rules or principles, or when it misapplies the law to the
8. Dudley Construction's filing liens against the Appellees' established facts of the case. Beaumont Bank, N.A. v.
homesteads without written and signed contracts is contrary Buller, 806 S.W.2d 223, 226 (Tex.1991). " A trial court has
to Texas law. no discretion to determine what the law is or in applying the
law to the facts and, consequently, the trial court's failure to
9. Dudley Construction's liens were fraudulent under analyze or apply the law correctly is an abuse of
section 51.901 of the Government Code. discretion." In re American Homestar of Lancaster, Inc., 50
S.W.3d 480, 483 (Tex.2001).
10. Dudley Construction refused to release the liens after
receiving written demand delivered to it under section 32.49 Dudley Construction asserts that the assigned judge
of the Penal Code. abused his discretion in awarding attorney's fees and costs
under section 53.156 for fees and costs incurred after the
11. The specific dollar amounts claimed as due in the liens
trial court found the liens invalid and ordered them stricken
were not supported by systematically kept records.
on March 10, 2004. We agree. On March 24, 2004, the trial
12. The specific dollar amounts in a sworn affidavit in the court held a hearing on the Appellees' request for attorney's
separate case against Martinez were for substantially fees and costs under section 53.156, and the Appellees'
different amounts than the amounts sworn to in the liens. attorney testified to attorney's fees and costs in the amount
of $7,377.70. In its brief, Dudley Construction does not
13. The amounts claimed in a sworn affidavit in the dispute that the " Appellees were entitled to reasonable
separate case against Martinez were merely estimates of the attorney's fees in their efforts to remove the liens on their
amounts that Dudley Construction would have charged had respective properties." (Appellant's Brief at 21).
it done the jobs at issue.
Dudley Construction argues that once the trial court
Page 706 found the liens invalid and ordered them stricken in the
Appellees' section 53.160 summary-motion proceeding, no
14. As to Appellees Hays, Ashlock, and William W. proceeding to foreclose on a lien or to declare a lien invalid
Dawson (Dan Dawson's Dad), no credible evidence was was pending and the Appellees could not recover attorney's
introduced showing that they conspired to defraud Dudley fees under section 53.156 in defending Dudley
Construction. Construction's common-law and equitable counterclaims.
We agree, as did the trial court before recusal occurred: At
Property Code Section 53.156 a January 23, 2006 hearing on the Appellees' motion for
attorney's fees, the trial court stated that, upon the liens
Section 53.156 of the Property Code provides: " In being held unenforceable, " The way I view it at that point
any proceeding to foreclose a lien ... or in any proceeding to in time, I basically took it [the lien issue in the case] out of
declare that any lien or claim is invalid or unenforceable in the Property Code...."
whole or in part, the court may award costs and reasonable
attorney's fees as are equitable and just." TEX. The Appellees argued then and argue now that
PROP.CODE ANN. § 53.156. We review an award of because Dudley Construction left language seeking to
attorney's fees under a statute such as section 53.156 for an establish liens on the Appellees' properties in its
abuse of discretion. See, e.g., Bocquet v. Herring, 972 counterclaim, the lien issue remained in the case. The trial
S.W.2d 19, 21 (Tex.1998); cf. TEX. CIV. PRAC. & court did not necessarily agree with the Appellees, but the
REM.CODE ANN. § 37.009 (Vernon 1997) (under assigned judge apparently
Declaratory Judgments Act, trial court may award "
reasonable and necessary attorney's fees as are equitable Page 707
and just" ). " Whether to award attorney's fees, and to which
party, is a decision that is solely within the trial court's did with his conclusion that the entire case was " of the
discretion and will not be reversed absent a clear abuse of type" referenced in section 53.156 of the Property Code.
that discretion." Sammons v. Elder, 940 S.W.2d 276, 284 The language in Dudley Construction's pleading was an
(Tex.App.-Waco 1997, writ denied). alternative request for the imposition of and foreclosure on
a judicial equitable lien and a constructive trust to enable
The determination of whether a trial court abused its Dudley Construction to recover damages. That pleading
discretion is a question of law. Jackson v. Van Winkle, 660 language, however, even if construed as a " proceeding to
S.W.2d 807, 810 (Tex.1983), overruled in part on other foreclose a lien" as required by section 53.156, does not fall
grounds by Moritz v. Preiss, 121 S.W.3d 715, 721 within the ambit of section 53.156 because judicial or
(Tex.2003). A trial court abuses its discretion when it acts equitable liens are not governed by Title 5, Subtitle B of the
Property Code, which section 53.156 is a part of. See TEX. 13; see Appleton v. Appleton, 76 S.W.3d 78, 86
PROP.CODE ANN. § 51.001(2) (Vernon 2007) (" this (Tex.App.-Houston [14th Dist.] 2002, no pet.)(" the trial
subtitle does not affect ... a lien that is not treated in this court is required to make particularized findings of good
subtitle, include a lien arising under common law, in cause justifying the sanctions" ). In reviewing an award of
equity" ). sanctions, we ordinarily look to the particulars of good
cause set out in the sanction order. Woodward v. Jaster, 933
In conclusion, because the trial court ruled that S.W.2d 777, 782 (Tex.App.-Austin 1996, no writ).
Dudley Construction's liens were invalid and ordered them
stricken, thus taking them out of the case, and because the Page 708
request for the imposition of and foreclosure on a judicial
equitable lien is not governed by section 53.156, the Dudley Construction asserts that because the assigned
assigned judge abused his discretion by misapplying the judge did not make a specific finding that Dudley
law in his conclusion that the entire proceeding was of the Construction's counterclaims were groundless, the assigned
type referenced in section 53.156. We hold that the judge abused his discretion in imposing sanctions under
Appellees cannot recover attorney's fees and costs under Rule 13. We partially agree. In setting out its good cause
section 53.156 for the litigation that continued after the trial findings with particularity, the trial court must find the
court's March 10, 2004 order declaring the liens invalid and pleading groundless as part of the two-part test. See Tanner,
ordering their removal. But because the trial court held a 856 S.W.2d at 731 (to be sanctionable, pleading must be
hearing and received evidence of attorney's fees and costs at groundless and also brought in bad faith or for the purpose
the conclusion of the section 53.160 summary-motion of harassment); Estate of Davis, 9 S.W.3d at 297 (" First,
proceeding, we hold that the Appellees are entitled to the party moving for sanctions must demonstrate that the
recover attorney's fees and costs in the amount of $7,377.70 opposing party's filings are groundless, ..." ); Karlock v.
under section 53.156. Schattman, 894 S.W.2d 517, 522 (Tex.App.-Fort Worth
1994, orig. proceeding) (" The trial court must find that the
Rule 13 Sanctions pleadings are in fact groundless and brought in bad faith or
to harass." ); McCain v. NME Hosps., Inc., 856 S.W.2d 751,
Imposing Rule 13 sanctions is within the trial court's 757 (Tex.App.-Dallas 1993, no writ) (" The trial court must
sound discretion. Monroe v. Grider, 884 S.W.2d 811, 816 find that the pleadings are in fact groundless and were
(Tex.App.-Dallas 1994, writ denied). Accordingly, we brought in bad faith or to harass." ).
review a trial court's order for Rule 13 sanctions under an
abuse of discretion standard. Cire v. Cummings, 134 In their amended motion to assess attorney's fees, the
S.W.3d 835, 838 (Tex.2004). Appellees identified Dudley Construction's conspiracy
claim as the pleading in question, and in his findings and
Rule 13 authorizes a trial court to impose sanctions conclusions, the assigned judge found or concluded: " As to
against an attorney, a represented party, or both, who file a Steven Clark Hays, James K. Ashlock, and William W.
groundless pleading brought in bad faith or brought for the Dawson (Dan Dawson's Dad), no credible evidence was
purpose of harassment. TEX.R. CIV. P. 13. " The introduced showing that they conspired to defraud R.M.
imposition of Rule 13 sanctions involves the satisfaction of Dudley Construction Company, Inc." It is therefore clear
a two-part test. First, the party moving for sanctions must that, if the assigned judge found a claim groundless and
demonstrate that the opposing party's filings are groundless, sanctionable under Rule 13, it was Dudley Construction's
and second, it must be shown that the pleadings were filed conspiracy claim. We will therefore apply Rule 13's
either in bad faith or for the purposes of harassment." Estate groundlessness test to the pleading of that claim.
of Davis v. Cook, 9 S.W.3d 288, 297 (Tex.App.-San
Antonio 1999, no pet.). Rule 13 defines " groundless" as having " no basis in
law or fact and not warranted by good faith argument for
Rule 13 directs a trial court to presume that a pleading the extension, modification, or reversal of existing law." Id.
was filed in good faith. TEX.R. CIV. P. 13; GTE Comm. In determining whether sanctions are appropriate, the trial
Sys. v. Tanner, 856 S.W.2d 725, 731 (Tex.1993). " Thus, court must examine the facts available to the litigant and the
the burden is on the party moving for sanctions to overcome circumstances existing when the litigant filed the pleading.
this presumption." Tanner, 856 S.W.2d at 731. A Alejandro v. Bell, 84 S.W.3d 383, 392 (Tex.App.-Corpus
groundless pleading is not sanctionable unless it also was Christi 2002, no pet.). The trial court uses an objective
brought in bad faith or for the purpose of harassment. Id. standard to determine if a pleading was groundless: did the
party and counsel make a reasonable inquiry into the legal
Rule 13 also provides: " No sanctions under this rule and factual basis of the claim? In re United Servs. Auto
may be imposed except for good cause, the particulars of Ass'n, 76 S.W.3d 112, 115 (Tex.App.-San Antonio 2002,
which must be stated in the sanction order." TEX.R. CIV. P.
orig. proceeding). pleadings and motions: " The signing of a pleading or
motion...." TEX. CIV. PRAC. & REM.CODE ANN. §
Because of the assigned judge's finding or conclusion 10.001; see Low, 221 S.W.3d at 614. The affidavits
that Dudley Construction did not introduce any credible claiming liens that Dudley Construction filed with the
evidence that Hays, Ashlock, and William W. Dawson (Dan county clerk of Brazos County are not pleadings or
Dawson's Dad) conspired to defraud Dudley Construction, motions.
we know that the assigned judge plainly did not apply Rule
13's groundlessness test.[4] This misapplication of the law It is unclear whether the assigned judge imposed
is an abuse of discretion. See In re American Homestar, 50 sanctions for a violation of section 10.001(1) with respect to
S.W.3d at 483 (" trial court's failure to analyze or apply the Dudley Construction's counterclaim to establish and
law correctly is an abuse of discretion" ). Without a proper foreclose on the liens, or with respect to Dudley
groundlessness finding under Rule 13, the Appellees cannot Construction's filing of affidavits claiming liens. The
recover attorney's fees as sanctions under Rule 13, and any findings and conclusions refer to the counterclaim and then
recovery under Rule 13 would be an abuse of discretion. to the liens, and the judgment's principal references to the
liens are to highlight how they played a role in Dudley
Civil Practice and Remedies Code Chapter 10 Construction's intent to harass the Appellees. The findings
Sanctions and the judgment do not expressly find or conclude that
Dudley Construction's counterclaim was intended to harass
Sanctions can be ordered for a violation of section the Appellees. To the contrary, the judgment, after reciting
10.001. the case's procedural history, " concludes and finds that
R.M. Dudley Construction Company, Inc. intended to
Page 709
harass the Plaintiffs/Counter-Defendants for any one of the
TEX. CIV. PRAC. & REM.CODE ANN. § 10.002(a) following reasons: ..." Those following reasons are Findings
(Vernon 2002). The assigned judge's findings and the 8 to 14, set forth above. Therefore, to the extent that the
judgment reflect that sanctions were ordered under sections assigned judge's findings and judgment assessed chapter 10
10.001(1) and 10.001(3). Under section 10.001, signing a sanctions for the filing of the lien affidavits because their
pleading or motion constitutes a certificate by the signatory filing by Dudley Construction was intended to harass the
that to the signatory's best knowledge, information, and Appellees, in violation of section 10.001(1), the assigned
belief, formed after reasonable inquiry: judge abused his discretion by not correctly applying the
law.
(1) the pleading or motion is not being presented for any
improper purpose, including to harass or to cause Regardless, if Dudley Construction's counterclaim
unnecessary delay or needless increase in the cost of was the offending pleading, sanctions under section
litigation; 10.001(1) fail for another reason. A trial court must hold an
evidentiary hearing to make the necessary factual
... determinations about the party's or attorney's motives and
credibility. Alejandro v. Robstown ISD, 131 S.W.3d 663,
(3) each allegation or other factual contention in the 670 (Tex.App.-Corpus Christi 2004, no pet.); see, e.g., Low,
pleading or motion has evidentiary support or, for a 221 S.W.3d at 613, 617 (referring to trial court's evidentiary
specifically identified allegation or factual contention, is hearing on motion for chapter 10 sanctions); Trantham v.
likely to have evidentiary support after a reasonable Isaacks, 218 S.W.3d 750, 752, 755-56 (Tex.App.-Fort
opportunity for further investigation or discovery. Worth 2007, pet. denied) (same), cert. denied,
Id. § 10.001(1), (3) (emphases added). Page 710
Sanctions under chapter 10 are reviewed for abuse of __ U.S. __, 128 S.Ct. 340, 169 L.Ed.2d 155 (2007); Law
discretion. Low v. Henry, 221 S.W.3d 609, 614 (Tex.2007). Offices of Windle Turley, P.C. v. French, 164 S.W.3d 487,
Rule 13 directs a trial court to presume that a pleading was 491-92 (Tex.App.-Dallas 2005, no pet.)(same). Without
filed in good faith. TEX.R. CIV. P. 13; Tanner, 856 S.W.2d such an evidentiary hearing, the trial court has no evidence
at 731. " Thus, the burden is on the party moving for before it to determine that a pleading was filed in bad faith
sanctions to overcome this presumption." Tanner, 856 or to harass. Robstown ISD, 131 S.W.3d at 670; Karlock,
S.W.2d at 731. The Appellees, as the movants for sanctions, 894 S.W.2d at 523.The party moving for sanctions must
had the burden of proving violations of sections 10.001(1) prove the pleading party's subjective state of mind.
and 10.001(3). Brozynski v. Kerney, 2006 WL 2160841, at *4
(Tex.App.-Waco Aug. 2, 2006, pet. denied) (citing Mattly v.
Chapter 10, by its own terms, is limited to frivolous Spiegel, Inc., 19 S.W.3d 890, 896 (Tex.App.-Houston [14th
Dist.] 2002, no pet.)). In the case of section 10.001(1), the sanctions
movant must show, and the court must describe and
explain, that the pleading was filed for the improper Page 711
purpose of harassment. See TEX. CIV. PRAC. &
REM.CODE ANN. § 10.001(1); id. § 10.005 (" A court under section 10.001(1) is an abuse of discretion.
shall describe in an order imposing a sanction under this
The only other finding that could support the
chapter the conduct the court has determined violated
imposition of chapter 10 sanctions is Finding 14, which
Section 10.001 and explain the basis for the sanction
states that, as to Appellees Hays, Ashlock, and William W.
imposed." ).
Dawson (Dan Dawson's Dad), " no credible evidence was
Evidence must be admitted under the rules of introduced showing that they conspired to defraud" Dudley
evidence at the evidentiary hearing for a trial court to Construction. The applicable standard in section 10.001(3)
consider it in a sanctions context. Bell, 84 S.W.3d at 393; is that, to the signatory's best knowledge, information, and
see McCain, 856 S.W.2d at 757 (motions and arguments of belief, formed after reasonable inquiry, each allegation or
counsel are not evidence in a sanctions hearing context). other factual contention in a pleading has evidentiary
The pleading alone cannot establish that the represented support or, for a specifically identified allegation or factual
party or its attorney brought their case in bad faith or to contention, is likely to have evidentiary support after a
harass. McCain, 856 S.W.2d at 757. reasonable opportunity for further investigation or
discovery. TEX. CIV. PRAC. & REM.CODE ANN. §
At the hearing on the Appellees' motion to assess 10.001(3). Case law under Rule 13 is instructive in
attorney's fees as sanctions, the Appellees requested that the interpreting section 10.001(3). Griffin Indus. v. Grimes,
assigned judge take judicial notice of the file and include 2003 WL 1911993, at *4-6 (Tex.App.-San Antonio April
the evidence from the jury trial as a part of the record of the 23, 2003, no pet.).
hearing. The assigned judge, however, presided over only
this one hearing, and the only evidence filed for the In determining whether a party conducted a
Appellees' motion was Dudley's affidavit that detailed his reasonable inquiry, the facts and evidence available to the
pre-suit investigation. party and the circumstances existing when the party filed
the pleading must be examined. See Estate of Davis, 9
In some circumstances, a trial court may take judicial S.W.3d at 297; Karagounis v. Property Co. of Am., 970
notice of the case file for purposes of ruling on a sanctions S.W.2d 761, 764 (Tex.App.-Amarillo 1998, pet. denied) ("
motion. Elkins v. Stotts-Brown, 103 S.W.3d 664, 667 the circumstances pivotal to the determination of whether
(Tex.App.-Dallas 2003, no pet.)(citing Tex.-Ohio Gas, Inc. sanctions should issue are those in existence at the time the
v. Mecom, 28 S.W.3d 129, 139 (Tex.App.-Texarkana 2000, pleading in question was signed and filed" ); see, e.g., Low,
no pet.)(noting that, under some circumstances, trial court 221 S.W.3d at 616-17 (court evaluated attorney's inquiry
may be able to make determination regarding motives and and knowledge as of time of lawsuit's filing). Sanctions for
credibility of person signing petition by taking judicial frivolous or groundless pleadings do not apply to the pursuit
notice of items in case file)); see also Walston v. Lockhart, of an action later determined to be groundless after
2005 WL 428433, at *3 (Tex.App.-Waco Feb. 23, 2005, pleadings were filed. Overman v. Baker, 26 S.W.3d 506,
pet. denied); cf. Emmons v. Purser, 973 S.W.2d 696, 701 509 (Tex.App.-Tyler 2000, no pet.); Karagounis, 970
(Tex.App.-Austin 1998, no pet.)(reversing sanctions order S.W.2d at 764 (Rule 13" says nothing about levying
and noting that parties were present at hearing but weren't sanctions if one pursues an action or pleading thought
called to testify, and although court took judicial notice of legitimate when filed but subsequently found baseless" ).
case file, nothing in case file proved bad faith or
harassment). But this case is not a circumstance where the On Dudley Construction's conspiracy claim against
assigned judge could take judicial notice of the case file and Appellees Hays, Ashlock, and William W. Dawson (Dan
include the trial evidence-which the assigned judge heard Dawson's Dad), the assigned judge's finding fails to apply
none of-as a part of the evidentiary record on the Appellees' section 10.001(3)'s standard, and it also does not provide
motion for attorney's fees as sanctions. the proper temporal link to the offending pleading.
Therefore, any sanction under section 10.001(3) is an abuse
Except for Dudley's uncontroverted affidavit,[5] the of discretion.
assigned judge had no evidence before him to determine
Dudley's motives and credibility in filing Dudley We sustain Dudley Construction's first issue in part
Construction's counterclaim. With no evidence that Dudley and overrule it in part. To the extent the assigned judge
Construction's counterclaim was filed to harass the sanctioned Dudley Construction under Rule 13 or chapter
Appellees, the assigned judge's award of attorney's fees as 10 or awarded attorney's fees under section 53.156 for the
litigation that continued after the trial court's March 10,
2004 order declaring the liens invalid and ordering their
removal, he abused his discretion. And because this appeal
is part of the litigation that continued after March 10, 2004
and Dudley Construction has not appealed the trial court's
order finding the liens invalid and ordering their removal,
the Appellees cannot recover additional attorney's fees for
this appeal under section 53.156.
The Appellees are only entitled to recover attorney's
fees and costs in the amount of $7,377.70 under section
53.156, and we modify the judgment to provide that the
Appellees shall recover that sum from Dudley Construction.
Conclusion
We modify the judgment to find that the Appellees
shall recover from Dudley Construction $7,377.70 as
attorney's fees and court costs. As modified, the judgment is
affirmed.
Page 712
Chief Justice GRAY dissents. A separate opinion will
not issue.
---------
Notes:
[1] What the Appellees term a " lien" was actually Dudley
Construction's " Affidavit Claiming Constitutional and
Mechanic's and Materialman's Lien," all of which included
this notice: " Notice: This is not a Lien. This is only an
affidavit claiming a Lien."
[2] Trial courts should eschew " and/or" language like that
used in the judgment to identify the legal bases for a
sanctions award. For notice purposes and for more efficient
appellate review, trial courts should precisely specify the
legal basis for sanctions, rather than providing a " shotgun"
or " cover-all-the bases" approach.
[3] In the judgment, the assigned judge identified findings 8
to 14 as evidence of Dudley Construction's intent to harass.
[4] In response to the motion to assess attorney's fees,
Dudley Construction filed Mark Dudley's affidavit detailing
his factual investigation that formed the basis of Dudley
Construction's claims.
[5] Dudley's affidavit details his thorough pre-suit
investigation and includes alleged admissions of
wrongdoing by all five Appellees, three of whom allegedly
admitted wrongdoing to Dudley. Dudley's affidavit contains
no evidence of an intent to harass.
---------
Page 506 subsequent motions filed through White and Phenix, Baker
requested security and costs including attorney ad litem
26 S.W.3d 506 (Tex.App. —Tyler 2000) fees, contested the application as being groundless,
requested that the application be dismissed, and that
Olive OVERMAN, Appellant, sanctions be imposed on Overman for initiating the
proceeding. In her Motion to Dismiss and for Sanctions
v.
filed April 29, 1999, Baker alleged that Overman was
disqualified because Baker, in accordance with Section 679
Grace Edna BAKER, Appellee.
of the Probate Code, had expressly designated Louise
No. 12-99-00362-CV. Broussard ("Broussard"), to serve as guardian of her person
and estate and had also disqualified Overman. Baker
Court of Appeals of Texas, Twelfth District, Tyler attached to her motion her Declaration Of Guardian In The
Event Of Later Incapacity Or Need Of Guardian, which was
June 28, 2000 executed by Baker on December 28, 1998, and which
designated Broussard as her guardian and disqualified
Page 507 Overman. Because of Baker's declaration of guardianship,
Overman, on May 7, 1999, filed her motion seeking to
[Copyrighted Material Omitted]
withdraw her application. However, Baker pursued her
motion for sanctions. After a hearing, the trial court granted
Page 508
Overman's motion to withdraw and dismiss her application
Richard W. White, Henderson, for Ad Litem. but entered judgment that Baker recover from Overman, as
sanctions, her personal attorney's fees of $2,300.00 and the
John F. Berry, Tyler, for Appellant. attorney ad litem fee of $2,651.71 which had been taxed as
costs.
J.R. Phenix, Henderson, for Appellee.
On appeal, Overman brings three points of error
Panel consists of RAMEY, C.J., HADDEN, J., and asserting: 1) that the trial court abused its discretion in
WORTHEN, J. awarding Rule 13 sanctions against Overman, 2) that the
trial court erred in awarding ad litem fees after Baker
ROBY HADDEN, Justice. obtained her own attorney, and 3) that the trial court erred
in awarding
This is an appeal of a judgment which imposed Rule
13 [1] sanctions upon the applicant in a temporary Page 509
guardianship proceeding. Because we hold that the trial
court abused its discretion in imposing sanctions, we will the attorney's ad litem fees as costs of court against
reverse and render. Overman, the applicant.
On January 29, 1999, Olive Overman ("Overman"), SANCTIONS UNDER RULE 13
filed an application to be appointed temporary guardian of
the person and estate of her 93 year old aunt, Grace Edna We review a trial court's Rule 13 sanctions order
Baker ("Baker"). In her application, Overman alleged that under an abuse of discretion standard. Tarrant County v.
Baker was incapacitated, that she suffered from dementia or Chancey, 942 S.W.2d 151, 154 (Tex.App.--Fort Worth
senility, and was making decisions regarding her residence, 1997, no pet.); see also GTE Communications Sys. Corp. v.
care, and use of her funds to her detriment. She alleged that Tanner, 856 S.W.2d 725, 730-32 (Tex.1993) (original
without a temporary guardian, Baker would face immediate proceeding in which abuse of discretion standard for review
danger that her physical well being would be impaired and of Rule 13 sanctions was applied). To determine whether
her estate wasted. the trial court abused its discretion we examine whether it
acted without reference to any guiding rules or principles.
In accordance with the mandate in Section 646(a) of Stites v. Gillum, 872 S.W.2d 786, 788 (Tex.App.--Fort
the Texas Probate Code, the trial court immediately Worth 1994, writ denied). We should, however, only
appointed Richard W. White ("White") as Baker's attorney overturn a trial court's discretionary ruling when it is based
ad litem who filed an answer on behalf of Baker. In on an erroneous view of the law or a clearly erroneous
addition, Baker filed an original answer through her private assessment of the evidence. Stites, 872 S.W.2d at 788.
attorney, J.R. Phenix ("Phenix"). In her answers and
Rule 13 of the Texas Rules of Civil Procedure requires the immediate appointment of a guardian, the court
provides, in pertinent part, as follows: shall appoint a temporary guardian...." TEX. PROB.CODE
ANN. § 875(a) (Vernon Supp.2000).
The signatures of attorneys or parties constitute a certificate
by them that they have read the pleading, motion, or other We will now examine the facts and circumstances
paper; that to the best of their knowledge, information, and existing at the time Overman
belief formed after reasonable inquiry the instrument is not
groundless and brought in bad faith or groundless and Page 510
brought for the purpose of harassment.
prepared and filed her application to be appointed
... temporary guardian over Baker. For over twenty five years
Overman took care of Baker who was her aunt and who
Courts shall presume that pleadings, motions, and other lived alone. Overman gave Baker the land next door to her
papers are filed in good faith. No sanctions under this rule dwelling to build a house and live there. During this time
may be imposed except for good cause, the particulars of she took her to the doctor, the hospital, grocery shopping, to
which must be stated in the sanction order. 'Groundless' for the bank, on vacation and helped take care of her. Overman
purposes of this rule means no basis in law or fact and not and Baker were apparently very close and Overman knew
warranted by good faith argument for the extension, Baker well. Baker's physician, Dr. Sanford Ladage
modification, or reversal of existing law.... ("Ladage"), testified that Overman seemed to always act
with Baker's best interest in mind. In recent years, as Baker
TEX.R.CIV.P. 13. became older and could not drive, it was necessary for
Overman to give her more attention and care and during
Rule 13 is designed to check abuses in the pleading these recent years required a minimum of a bi-monthly visit
process, i.e. to ensure that at the time the challenged to her doctor and periodic hospitalizations. Overman, or
pleading was filed, the litigant's position was factually well someone at Overman's request, brought Baker her mail so
grounded and legally tenable. Home Owners Funding Corp. that she would not fall while going out to her mailbox and
v. Scheppler, 815 S.W.2d 884, 889 (Tex.App.--Corpus back.
Christi 1991, no writ). A court may impose sanctions
against a party if it files a pleading that is groundless and Overman began to notice changes in the personality of
either brought in bad faith or for the purpose of harassment. Baker in the last half of 1998. She testified that Baker was
McCain v. NME Hospitals, Inc., 856 S.W.2d 751, 757 not as mentally alert as in prior years. She seemed to be
(Tex.App.--Dallas 1993, no writ). Rule 13 dictates that very distant and began forgetting things. Baker accused
courts shall presume that pleadings are filed in good faith, Overman of bugging her residence, of trying to kill or hurt
and therefore, the party moving for sanctions bears the her and of being a thief and liar. At the same time, Baker
burden of overcoming this presumption. GTE, 856 S.W.2d would accept favors from Overman, such as buying
at 731. The rule does not apply to the pursuit of an action groceries and running errands. They were together as a
which is later determined to be groundless after pleadings family on Christmas Day, which was Baker's birthday, in
were filed. Karagounis v. Property Company of America, Overman's home in December 1998. Overman discussed
970 S.W.2d 761, 764 (Tex.App.--Amarillo 1998, pet. Baker's inconsistency and actions with other family
denied). In deciding whether a pleading meets the two members who confirmed that they noticed such changes as
pronged test of being both groundless and either brought in well. Baker began to not recognize family members in
bad faith or for the purpose of harassment, a trial court must family photos.
examine the facts and circumstances existing at the time the
pleading was filed. Tarrant County, 942 S.W.2d at 155; It appears that during 1998, Baker became acquainted
Home Owners Funding Corp. of America, 815 S.W.2d at with a friend, Louise Broussard, and began to rely upon her
889. for counsel and advice to the exclusion of Overman. Baker
began lying to Overman and covering up her plans,
The purpose of a temporary guardianship of an especially visits by Broussard. Overman discovered that
incapacitated person is to promote and protect the Baker had made statements to others that she was going to
well-being of the person. TEX. PROB.CODE ANN. § 602 leave her residence and move to a location closer to
(Vernon Supp.2000); see also Valdes-Fuerte v. State, 892 Broussard. Baker also made significant changes to her
S.W.2d 103, 107 (Tex.App.--San Antonio 1994, no pet.). banking arrangements, removed Overman from her bank
The Probate Code further provides that "if a court is account and appointed Broussard as a signatory of and
presented with substantial evidence that a person may be ... ultimate beneficiary under her account. Furthermore, Baker
a [n] incapacitated person, and the court has probable cause instructed her postal carrier to no longer deliver mail to her
to believe that the person or person's estate, or both, residence but instead deliver it to Broussard, who lived
several miles away. Baker withheld from Overman these giver, especially if the communication between the two
changes in her habits and did not tell Overman of the mail deteriorated. Although there was evidence that Baker
delivery change. Their relationship began to deteriorate. enjoyed a certain competence for her age, there was
substantial evidence that she was becoming incapacitated.
Overman argues that these statements, along with Thus, we conclude that Baker has failed to establish that
Baker's changes of habits, her withholding of these changes there is no basis in law or fact for Overman's pleadings and
from Overman, Broussard's involvement in the changes of has, therefore, failed to meet her burden under Rule 13.
Baker's behavior and lifestyle, and the persuasion and
control by Broussard over Baker justified filing the Baker asserts that Overman did not present a
application for temporary guardianship. Overman asserts physician's certificate of incapacity with the application as
that she was justified in fearing that Baker was being required by Section 687 and without such evidence, the
strongly influenced by Broussard, that this influence would application is groundless. We do not agree. The Texas
lead to bad decisions in her living and financial Probate Code contains a separate section covering the
arrangements which would have a disastrous effect on appointment and procedure to be followed in temporary
Baker. Baker's physician, Ladage, agreed with Overman guardianships. TEX. PROB.CODE ANN. § 875 (Vernon
that Baker had been making some bad decisions. Supp.2000). The requirements for the filing of an
application for appointment of a temporary guardian as
In her testimony, Baker agreed that she had built a found in this section of the Probate Code do not expressly
home on property adjacent to her niece, Overman, and that require a physician's certificate but simply require that a
Overman had helped take care of her for twenty five years. court be presented with substantial evidence that a person
However, she testified that she began to experience may be an incapacitated person. Furthermore, Section
problems with Overman in 1998 when she was ninety two 875(b) provides that a person for whom a temporary
years of age. Baker testified that Overman began to dictate guardian has been appointed may not be presumed to be
things to her and tell her what to do. Baker also testified incapacitated. TEX. PROB.CODE ANN. § 875(b) (Vernon
that Overman transferred $8,000.00 from Baker's account Supp.2000). We conclude, therefore, that it was not
into her own account. Although the purpose of the transfer necessary that Overman file a physician's certificate of
was disputed, it was eventually transferred back to Baker so incapacity with her application. In as much as Baker has
that it was solely in her own name. Through her Sunday failed to meet the first prong that the application was
School groundless, it will not be necessary for us to address the
second prong of bad faith or harassment.
Page 511
It is also required by Rule 13 that the trial court must
she had met a friend, Broussard. Baker testified that state with particularity the good cause for finding that
Overman began to resent her relationship with Broussard pleadings upon which sanctions are based are groundless
and testified to several conversations and a confrontation in and frivolous and brought for purposes of harassment.
Baker's home which Baker observed as demonstrating Gorman v. Gorman, 966 S.W.2d 858, 867-68
Overman's hostility toward Broussard and their friendship. (Tex.App.--Houston [1st Dist.] 1998, pet. denied). In other
Baker testified to other conduct on the part of Overman words, the court is required to properly predicate its award
which she interpreted as Overman's efforts to gain control of sanctions against Overman under Rule 13 by stating the
of her, all of which caused their relationship to deteriorate. specific acts or omissions on which the sanctions are based.
Baker presented evidence which she believed showed that Jimenez v. Transwestern Property Co, 999 S.W.2d 125, 130
she was a competent person. However, the burden on Baker (Tex.App.--Houston [14th Dist.] 1999, no pet.); Alexander
was to show that there was no basis in law or fact for filing v. Alexander, 956 S.W.2d 712, 714 (Tex.App.--Houston
the application. [14th Dist.] 1997, pet. denied). The failure to state the
particulars of good cause amounts to noncompliance with
In assessing sanctions, the trial court acted under an
the sanction rule and, therefore, is an abuse of discretion
erroneous assessment of the law and the evidence. From the
rendering the order unenforceable. Thomas v. Thomas, 917
record before us, Baker did not succeed in establishing that
S.W.2d 425, 432 (Tex.App.--Waco 1996, no writ).
there was no arguable basis for Overman's cause of action
as Rule 13 requires. The record speaks to the contrary. In the instant case, the trial court simply stated that
Overman had taken care of Baker for many years and had the "application filed herein by Olive Overman was
established a close relationship as Baker's primary care
giver. Baker was 93 years old when Overman filed the Page 512
application. Changes in Baker's behavior regarding
finances, mail delivery, living conditions and friendships, as groundless," that "the application ... was brought in bad
described in the record would reasonably alarm the care faith and for the purpose of harassment," that "good cause
exists for the imposition of sanctions against Olive proposed ward the law and facts of the case, the proposed
Overman ...," that the application "was brought for an ward's legal options regarding the disposition of the case
improper purpose and caused needless increase in the costs and the grounds on which guardianship is sought. TEX.
of litigation" and that the allegations had no evidentiary PROB.CODE ANN. § 647 (Vernon Supp.2000). The Code
support nor would likely have evidentiary support after a further provides that the court shall order the payment of a
reasonable opportunity for further investigation or fee set by the court as compensation to the attorney ad litem
discovery. Such general findings are insufficient to satisfy to be taxed as costs. TEX. PROB.CODE ANN. § 665A
the particularity requirements of Rule 13. Tarrant County, (Vernon Supp.2000). Thus, it appears that the trial court
942 S.W.2d at 155. The court must specify in its order the was correct in appointing White and assessing White's fee
particular acts or omissions on which the sanctions are as costs of the proceeding.
based. Accordingly, we also conclude that Baker has failed
to meet the Rule 13 requirement regarding the particulars of Further, Section 669 of the Probate Code provides that
good cause. We hold that the trial court abused its "in a guardianship matter, the costs of the proceeding, ...
discretion by imposing sanctions against Overman under shall be paid out of the guardianship estate or if the estate is
Rule 13. Overman's first issue is sustained. insufficient to pay for the cost of the proceeding, the cost of
the proceeding shall be paid out of the county treasurer and
AD LITEM FEES the judgment of the court shall be issued accordingly."
TEX. PROB.CODE ANN. § 669 (Vernon Supp.2000). It is
In issue number two, Overman asserts that the trial not clear whether Section 669 is intended to apply to
court erroneously awarded the ad litem attorney's fees after
the proposed ward obtained her own attorney. It appears to Page 513
be a reasonable argument that Baker did not need the
services of an attorney ad litem after she retained her a temporary guardianship application which has been
private attorney. However, there is no evidence in the successfully contested as in the instant case, but from the
record to support the conclusion that the attorney's fees reading of Section 665A of the Code, the clear implication
assessed for the attorney ad litem were for services beyond is that the attorney ad litem's fee which is assessed as costs
the date Baker retained her private attorney. Furthermore, if is to be paid out of the proposed ward's assets unless the
the fees awarded included such later services, there is court determines that the proposed ward is unable to pay for
nothing in the record which would enable the trial court or such services in which case the county is to be responsible
this Court to determine what percentage of the fee was for such costs.
incurred after Baker retained her private attorney. The
record does show that White was Baker's court appointed Thus, we conclude that under the construction of the
attorney for 10 days and that during this time he spent Probate Code cited above the court was correct in assessing
considerable time counseling with Baker, filed two motions, the attorney ad litem fees as costs in the case, but was in
and obtained one order from the court. Overman's second error in ordering such costs be paid by Overman. The costs
issue is overruled. are to be paid by the proposed ward and if the ward is
unable to pay only then is the county responsible. See E.
ASSESSMENT OF COSTS Simmons v. Harris County, 917 S.W.2d 376, 378
(Tex.App.--Houston [14th Dist.] 1996, writ denied) (dicta).
In her issue number three, Overman asserts that the Overman's third issue is sustained.
trial court erroneously awarded the ad litem attorney's fees
as costs and then assessed the costs against Overman. CONCLUSION
Overman argues that there were two options available to the
court for assessment of the attorney ad litem fees; either the Accordingly, the judgment of the trial court dated
fees are assessed against the proposed ward's estate or the August 5, 1999, granting Overman's motion to withdraw
county in the case of insolvency. Overman argues that the her application for appointment of temporary guardian of
trial court circumvented the clear provisions of the Texas the person and estate of Baker and dismissing said
Probate Code in assessing the fees as costs and in ordering application for appointment of temporary guardian is
that costs be paid by Overman. affirmed. In all other respects the judgment of the trial court
is reversed and rendered that Baker and White take nothing
Section 646(a) of the Probate Code provides that in a as against Overman and that the attorney ad litem fee in
proceeding for the appointment of a guardian, the court favor of White be assessed against Baker.
shall appoint an attorney ad litem to represent the interests
of the proposed ward. TEX. PROB.CODE ANN. § 646(a) ---------
(Vernon Supp.2000). It further provides that the attorney ad
Notes:
litem shall interview the proposed ward, discuss with the
[1] All references to Rule 13 refer to the Texas Rules of
Civil Procedure Rule 13.
---------
Page 316 affirm.
300 S.W.3d 316 (Tex.App.-Austin 2009) Page 319
FAIRFIELD FINANCIAL GROUP, INC., Appellant, The Synnotts purchased the house in Travis County
in 1984. Fairfield obtained a judgment against Glenn
v. Synnott and filed an abstract of that judgment in 1992.
Appellee asserted without contradiction that the judgment
Connie SYNNOTT, Individually and as Trustee of the debt is owed solely by Glenn Synnott. In the fall of 1997,
Connie Synnott Revocable Living Trust, Appellee. Glenn Synnott moved out of the house to Hays County and
filed for divorce. In late October 1997, his attorney drafted
No. 03-06-00429-CV.
an Agreement Incident to Divorce that included the
agreement that Glenn Synnott would convey his interest in
Court of Appeals of Texas, Third District, Austin.
the house to appellee. Although the contents of the draft
August 5, 2009 agreement evolved over the next few months, the agreement
regarding the house never changed. In January 1998, Glenn
Page 317 Synnott executed an Agreement Incident to Divorce, the
court signed the decree, and then Glenn Synnott signed a
[Copyrighted Material Omitted] special warranty deed conveying his interest in the property
to appellee. By special warranty deed dated September 15,
Page 318 1999, appellee conveyed the house to the Connie L. Synnott
Revocable Trust. She lives in the house and claims it as her
Stephen Sakonchick II, Stephen Sakonchick II, P.C.,
homestead.
Austin, TX, for appellant.
Appellee filed this suit seeking a declaration that
Molly J. Mitchell, Akin & Almanza, Austin, TX, for
Fairfield has no interest in the property through a lien or
appellee.
otherwise. She also sought sanctions and attorneys' fees.
The court declared that the property is " the homestead of
Before Justices PURYEAR, WALDROP and
Connie Synnott and ... not subject to the judgment lien
HENSON.
asserted by [Fairfield] arising out of the judgment obtained
OPINION by it in Cause No. 91-13310." The court awarded
$15,915.82 for trial attorneys' fees, plus additional fees in
G. ALAN WALDROP, Justice. the event of appellate procedures.[1] It did not award
sanctions.
Fairfield Financial Group, Inc. appeals from a
judgment declaring that Connie Synnott's homestead is not Fairfield asserts that the following portion of Glenn
subject to a judgment lien in connection with a separate Synnott's affidavit should have been struck as improper
judgment rendered solely against Glenn Synnott, her summary judgment evidence: " [A]t all times prior to
ex-husband. While married, the Synnotts bought the January 21, 1998, I considered the property as my
property in question and designated it as their homestead. homestead and continued to claim it as such, including with
Fairfield later obtained and abstracted a judgment against the local taxing authorities." Fairfield contends that this was
Glenn Synnott, individually. Although Glenn Synnott inadmissible as a statement from an interested witness that
conveyed his interest to appellee pursuant to their divorce was no more than an opinion, expression of belief, and a
decree, Fairfield contends that his former ownership share conclusion, citing Ryland Group, Inc. v. Hood, 924 S.W.2d
in the form of a community interest in the property remains 120, 122 (Tex.1996); Brownlee v. Brownlee, 665 S.W.2d
subject to Fairfield's judgment lien. Fairfield also contends 111, 112 (Tex.1984); and Harley-Davidson Motor Co. v.
that the trial court erred by denying its objection to the Young, 720 S.W.2d 211, 216 (Tex.App.-Houston [14th
admissibility of Glenn Synnott's assertion in his affidavit Dist.] 1986, no writ).
that he continued to claim the property as his homestead
during the pendency of the divorce action. Fairfield also We review a trial court's rulings concerning the
asserts that the trial court erred by awarding attorneys' fees admission of summary judgment evidence under an abuse
to appellee because this suit was essentially a suit to quiet of discretion standard. Wolfe v. C.S.P.H., Inc., 24 S.W.3d
title rather than a true declaratory judgment action. We 641, 646 (Tex.App.-Dallas 2000, no pet.). Affidavits in
support of summary judgment motions must be made on
personal knowledge, set forth such facts as would be Builders, Inc. v. Chesson, 149 S.W.3d 796, 807
admissible in evidence, and show affirmatively that the (Tex.App.-Austin 2004, pet. denied). Homestead rights
affiant is competent to testify to the matters stated. Tex.R. have historically enjoyed great protection in our
Civ. P. 166a(f). The challenged statements by Glenn jurisprudence. See id. (citing Mills v. Von Boskirk, 32 Tex.
Synnott are statements of fact, not mere belief or opinion. 360, 362 (1869)). The property code states that a homestead
In the challenged portion, he states that he considered the is " exempt from seizure for the claims of creditors except
house his homestead and continued to claim it as such. He for encumbrances properly fixed on homestead property."
does not assert in the affidavit that he was correct to Tex. Prop.Code Ann. § 41.001(a) (West Supp.2008). The
consider the house his homestead or to claim it as such. code then lists the types of encumbrances that may be "
Whether he actually considered it his homestead and properly fixed" upon homestead property, including those
whether the underlying belief was well-founded and his for mortgage financing for the property, taxes on the
actions proper and effective is a question for the courts. The property, and improvements to the property. Id. §
trial court did not abuse its discretion by overruling this 41.001(b). The implication is that types of encumbrances
objection to this portion of his affidavit. not listed may not be " properly fixed" on homestead
property. This interpretation is consistent with the holdings
The core of Fairfield's appeal is its assertion that the of other courts of appeals regarding the effect of the
summary judgment is erroneous because there is a genuine homestead exemption on most liens and provides greater
issue of protection to the homestead. See Wilcox, 103 S.W.3d at
473; Harvey, 46 S.W.3d at 285; Barrera, 2005 WL
Page 320 1691037, at *6, 2005 Tex.App. LEXIS 5634, at *18-19. We
join these courts of appeals in holding that, other than the
material fact regarding whether Glenn Synnott abandoned
types listed in property code section 41.001(b), judgment
the homestead, thereby allowing Fairfield's judgment lien to
liens that have been properly abstracted nevertheless cannot
attach to his share of the community ownership of the
attach to a homestead while that property remains a
house. To prevail, a summary-judgment movant must
homestead. Under this rule, a judgment debtor may sell
demonstrate that there is no genuine issue of material fact
property claimed as homestead and pass title free of any
and that it is entitled to judgment as a matter of law. Tex.R.
judgment lien, and the purchaser may assert that title
Civ. P. 166a(c). We review the summary judgment de novo.
against the judgment creditor. Harvey, 46 S.W.3d at 285. A
Joe v. Two Thirty Nine Joint Venture, 145 S.W.3d 150, 156
judgment lien may attach to the judgment debtor's interest,
(Tex.2004). We take all evidence favorable to the
however, if he abandons the property as his homestead
non-movant as true while deciding whether a disputed issue
while he owns it and while there is a properly abstracted
of material fact exists that would preclude summary
judgment lien against him. Id.
judgment, and we indulge every reasonable inference and
resolve any doubts in favor of the non-movant. Nixon v. Mr. Page 321
Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex.1985).
Fairfield contends that Glenn Synnott abandoned his
Under Texas law, judgment liens that have been homestead interest and that Fairfield's lien attached to his
properly abstracted cannot attach to a homestead while that ownership interest in the home before he transferred his
property remains a homestead. Wilcox v. Marriott, 103 ownership interest to appellee. Fairfield contends that there
S.W.3d 469, 473 (Tex.App.-San Antonio 2003, pet. is at least a fact question regarding when Glenn Synnott
denied); see also Cadle Co. v. Harvey, 46 S.W.3d 282, 285 abandoned his homestead interest. Thus, Fairfield contends,
(Tex.App.-Fort Worth 2001, pet. denied); Barrera v. State, the trial court erred by granting summary judgment that
No. 14-04-01030-CR, 2005 WL 1691037, at *6, 2005 appellee owns the property free from Fairfield's liens based
Tex.App. LEXIS 5634, at *18-19 (Tex.App.-Houston [14th on its judgment against Glenn Synnott.
Dist.] July 21, 2005, pet. ref'd). This statement of the law
differs from a previous interpretation by this Court. See We conclude, however, that the timing and effect of
Exocet Inc. v. Cordes, 815 S.W.2d 350, 352 Glenn Synnott's actions are irrelevant because the property
(Tex.App.-Austin 1991, no writ) (concluding that recording remained at all relevant times protected by appellee's
and indexing of abstract of judgment perfected lien attached undivided homestead interest in the property. Fairfield
to homestead, although homestead remained exempt from argues, correctly, that one spouse may abandon his
foreclosure while homestead exemption remained in place). homestead interest while his spouse retains her homestead
On reviewing the relevant statutory and case law, however, interest. See Taylor v. Mosty Bros. Nursery, Inc., 777
we are compelled to revisit our previous interpretation. S.W.2d 568, 569 (Tex.App.-San Antonio 1989, no writ);
Constitutional homestead rights protect citizens from losing Julian v. Andrews, 491 S.W.2d 721, 727
their homes, and statutes relating to homestead rights are (Tex.Civ.App.-Fort Worth 1973, writ ref'd n.r.e.); Sakowitz
liberally construed to protect the homestead. Kendall Bros. v. McCord, 162 S.W.2d 437, 438-39
(Tex.Civ.App.-Galveston 1942, writ ref'd). The United have exempt status if reinvested in a new homestead within
States Supreme Court wrote that the Texas constitution the statutory time frame. See id. § 41.001. This suggests
gives: that a judgment lien does not attach to homestead property
or its proceeds until it ceases being a homestead and the
each spouse in a marriage a separate and undivided statutory time frame runs if it is sold. The court's judgment
possessory interest in the homestead, which is only lost by forbidding the creditor from pursuing the proceeds for six
death or abandonment, and which may not be compromised months and holding that the wife may invest all of the
either by the other spouse or by his or her heirs. It bears proceeds in a new homestead within six months under
emphasis that the rights accorded by the homestead laws section 41.001(c) also strongly implies that a homestead
vest independently in each spouse regardless of whether exemption protected the entire property. Whether the
one spouse, or both, actually owns the fee interest in the creditor could seek to seize her underinvested cash proceeds
homestead. after six months does not bear on whether a lien attached to
the real property. After six months, the cash is a
United States v. Rodgers, 461 U.S. 677, 685, 103 S.Ct. non-exempt personal asset subject to execution by creditors
2132, 76 L.Ed.2d 236 (1983) (footnote omitted). Although a of the cash's owner. We conclude that the court of appeals's
lien attaches to property when it loses its homestead application in Taylor of homestead protections to the wife
character,[2] the Julian and Sakowitz courts held that the and the entire proceeds from her sale of the property
property is wholly exempt from the attachment of liens supports the view that
(other than those listed in property code section 41.001(b))
so long as the remaining spouse retains her homestead Page 323
interest. Julian, 491 S.W.2d at 727; [3] Sakowitz, 162
S.W.2d at 438-39.[4] Therefore, because appellee the judgment lien against the husband did not attach to the
homestead property.
Page 322
Whether Glenn Synnott abandoned his homestead
retained her homestead interest in the home, the trial court interest before divesting his ownership interest, it is
did not err by granting summary judgment and declaring undisputed that appellee had a homestead interest in the
that Fairfield's lien based on its judgment against Glenn property. Her homestead interest protected the entire
Synnott has not attached to the property at issue. property, and the judgment liens did not attach to any
portion of the property. The trial court did not err by
Fairfield relies heavily on the Taylor case for the granting appellee's motion for summary judgment and
contrary proposition. 777 S.W.2d at 569. In that case, after declaring that ownership of the property is unencumbered
a nursery obtained a judgment against a husband, the by Fairfield's lien.
husband abandoned his interest in the homestead by
conveying it to his wife and leaving the state.[5] Id. While Fairfield contends finally that the trial court erred by
not ordering a sale of the property, the trial court placed a awarding attorneys' fees to appellee. Attorneys' fees are
constructive trust on that part of any sale proceeds recoverable in declaratory judgment actions. See Tex. Civ.
represented by the husband's interest conveyed to his wife. Prac. & Rem.Code Ann. § 37.009 (West 2008). This suit
Id. The court of appeals modified the trial court's order by was filed and adjudicated as a declaratory judgment action.
invoking the property code's homestead protections and Fairfield asserts that this suit is instead a suit to quiet title,
declaring that, if the owner sold the property, she would to remove a cloud on title, or for trespass to try title in
have six months thereafter during which the proceeds would which attorneys' fees are not recoverable, citing cases such
be exempt from execution by the nursery, and that she as John G. & Marie Stella Kenedy Mem'l Found. v.
could reinvest the entire proceeds in a new homestead. Id. at Dewhurst, 90 S.W.3d 268, 289 (Tex.2002), and Sani v.
570; see also Tex. Prop.Code Ann. § 41.001(c) (West Powell, 153 S.W.3d 736 (Tex.App.-Dallas 2005, no pet.).
Supp.2008). Fairfield argues that this holding shows that The Kenedy Foundation case is distinguishable because it
the proceeds would be subject to seizure thereafter, and that found attorneys' fees inappropriate because the declaratory
the property therefore was encumbered by the lien. relief requested was merely incidental to a dispute over title
and those circumstances did not justify an award of
We do not share Fairfield's interpretation of the attorneys' fees against the State. Kenedy Foundation, 90
Taylor opinion. The court of appeals did not state that the S.W.3d at 289. This Court has previously distinguished
creditor's lien attached to the property. Rather, the contrary Sani and similar cases, concluding that attorneys' fees are
is indicated. By statute, the proceeds from the sale of recoverable under the declaratory judgment act even when
homestead property retain their exempt status for six the effect of a declaration is to quiet title. Florey v. Estate of
months after a homestead is sold or transferred. See Tex. Linda McConnell, 212 S.W.3d 439, 449 (Tex.App.-Austin
Prop.Code Ann. § 41.001(c). The proceeds will continue to 2006, pet. denied). The central issue in Florey was whether
the homestead interest was abandoned, thereby allowing a interest of those who held liens based on judgments against
judgment lien to attach. Id. at 442-43. The trial court the husband. Id.
concluded that the homestead interest was in place when the
owner executed a promissory note for attorneys' fees [4] In Sakowitz, a wife's action in barring her husband from
secured by a deed of trust on the homestead property, that their homestead as prelude to divorce deprived him of his
such a note and deed of trust were not among the homestead rights, but did not expose his share of the
encumbrances that can be properly affixed to homestead property to liens based on the couple's personal debts.
property, and that the lien based on the deed of trust was Sakowitz Bros. v. McCord, 162 S.W.2d 437, 438-39
invalid. Id. at 443. This Court affirmed that decision and (Tex.Civ.App.-Galveston 1942, writ ref'd). While the
further concluded that, even though the judgment had an divorce action was pending, two creditors took judgments
effect similar to that of a suit to quiet title, the use of the against the couple, and the couple sold the homestead to
declaratory judgment act was permissible as was the A.H. McCord. Id. at 438. McCord sued to have the couple's
awarding of attorneys' fees based thereon. Id. at 448-49. creditors' liens removed. Id. The court of appeals expressly
This Court opined that the " ban" on awards of attorneys' rejected the proposition that the liens attached to the
fees in suits to quiet title might be limited to cases that were husband's non-homestead half interest, holding instead that
essentially trespass to try title suits. In this suit, the central the property retained its homestead character because the
question is whether the homestead had been abandoned wife continued to live on the property as her homestead. Id.
such that an encumbrance other than one of those listed in at 438-39. The wife's undivided homestead interest
property code section 41.001(b) could properly be affixed protected the entire property from forced sale for personal
on or attach to the property at issue. We conclude that this debts. Id. (citing Crow v. First Nat'l Bank, 64 S.W.2d 377,
suit is substantially similar to Florey and, therefore, that 379-80 (Tex.Civ.App.-Waco 1933, writ ref'd) (widow's
attorneys' fees could properly be awarded in this suit. homestead exemption was undivided and served to protect
Fairfield has not demonstrated error in the trial court's all of a 300-acre tract, even though she could only spare
award of attorneys' fees.[6] 200 acres from personal creditors)). The court of appeals
concluded that McCord held title to the property and that
Affirmed. the creditors did not have an interest in the property. Id. at
439.
---------
[5] Although the court found that the husband abandoned
Notes: his homestead interest, the facts indicate not mere
abandonment but divestment of all interest. Taylor v. Mosty
[1] Judge Stephen Yelenosky ruled on the merits of the Bros. Nursery, Inc., 777 S.W.2d 568, 569 (Tex.App.-San
petition. Judge William E. Bender ruled on the attorneys' Antonio 1989, no writ). The opinion states, " Sidney
fees issue. abandoned his interest in the homestead by conveying his
interest to Mary by deed dated April 17, 1987 and by
[2] See Posey v. Commercial Nat'l Bank, 55 S.W.2d 515
leaving the State of Texas." Absent a fraudulent
(Tex. Comm'n App.1932, judgm't adopted).
conveyance that can be set aside-not mentioned as an issue
[3] In Julian, a husband abandoned his homestead interest in the opinion-there is no ownership interest by the husband
in property while judgment liens were pending against him. in the property to which the creditor's lien could properly
491 S.W.2d 721, 724 attach.
Julian v. Andrews,
(Tex.Civ.App.-Texarkana 1973, writ ref'd n.r.e.). His wife
[6] Fairfield does not challenge the amount of fees awarded,
retained her interest in the property and filed for divorce. Id.
but merely whether attorneys' fees are permitted by law to
While the divorce was pending, a third party foreclosed on
be awarded in this suit.
a mechanic's and materialman's lien on the property. Id. The
mechanic's and materialman's lienholder then sold the ---------
property, after which the property was subdivided and one
lot was sold to Eddie Julian. Id. at 724-25. At this point, the
ex-husband notified Julian that liens based on judgments
against him had attached to the property. Id. at 725.
Ultimately, the court concluded that the husband's
abandonment of the homestead had not allowed the
third-party judgment liens to attach to the property while
the wife still held her homestead interest. Id. at 727.
Accordingly, title passed from the wife to the foreclosing
lienholder and subsequent buyers unencumbered by the
Page 189 Otilia Patlan is a ninety-six-year-old woman who
suffers from senile dementia.
350 S.W.3d 189 (Tex.App.-San Antonio 2011)
Page 192
In the GUARDIANSHIP OF Otilia PATLAN, an
incapacitated person. Otilia and her husband, Jesus Patlan Sr., married in 1971,
but had no children together. However, they each had
No. 04-10-00616-CV. children from previous marriages. Appellant Mary Pena ("
Mary" ), who was appointed Otilia's guardian on June 20,
Court of Appeals of Texas, Fourth District, San Antonio 2007, is Otilia's daughter.
May 11, 2011 At the time of Otilia and Jesus Sr.'s marriage,
Appellee Jesus Patlan Jr. (" Jesus Jr." ) was the youngest in
Page 190
this blended family and considered Otilia to be his mother,
[Copyrighted Material Omitted] not a step-mother. He lived with his parents until his
mid-twenties, and as his parents grew older, he began
Page 191 taking care of them and managing their affairs. He and his
father even had a joint bank account set up so that Jesus Jr.
Daniel O. Kustoff, Kustoff & Phipps, L.L.P., San could pay his father's bills. When his father died in 2005, he
Antonio, TX, for Appellant. took over the same role for his mother. Thus, Jesus Jr., who
was an employee of Broadway National Bank, had a joint
Clayton G. Mansker, Mark Stanton Smith, Heard & account set up in his and his mother's names. Otilia signed
Smith, L.L.P., San Antonio, TX, for Appellee. all the necessary documents to set up the joint account. The
funds from his father's pension, which now belonged to his
Sitting: CATHERINE STONE, Chief Justice, mother as survivorship benefits, were deposited into that
KAREN ANGELINI, Justice, MARIALYN BARNARD, joint account. Also deposited were proceeds from his
Justice. father's life insurance policy under which Otilia was the
beneficiary.
OPINION
In January 2007, Otilia's condition deteriorated to
KAREN ANGELINI, Justice.
such an extent that she had to be admitted to a hospital. She
was later transferred to a nursing home for rehabilitation.
Appellant Mary Pena, Otilia Patlan's guardian, appeals
On June 20, 2007, her daughter Mary was appointed her
the trial court's granting of Appellee Jesus Patlan Jr.'s
guardian. In looking at Otilia's personal affairs, Mary
no-evidence and traditional motion for summary judgment.
became suspicious that Jesus Jr. was using Otilia's funds for
The main issue in this appeal is whether the time period a
his own personal benefit, and not for Otilia's. Mary hired an
previous lawsuit is pending before being dismissed for want
attorney who, on January 31, 2008, filed an original petition
of prosecution, when that lawsuit is between the same
and application for a temporary restraining order. That same
parties and contains the same allegations, should be
day, the trial court signed the temporary restraining order
considered in determining whether an adequate time for
and set the cause for a temporary injunction hearing. In
discovery has passed in the subsequent suit pursuant to
response Jesus Jr. filed an answer to the lawsuit.
Texas Rule of Civil Procedure 166a(i). Because we hold
such time can be considered in determining whether an
At the temporary injunction hearing on March 4,
adequate time for discovery has passed under Rule 166a(i),
2008, Jesus Jr. took the stand and testified. He testified that
we find the trial court did not abuse its discretion in denying
the culture of his family was such that everyone helped
Mary Pena's motion to continue the summary judgment
whoever needed the help. He testified that before his
hearing. Further, because Mary Pena did not produce
father's death, his wife had lost her job, and his father had
sufficient evidence in response to the no-evidence motion
been helping them through a tough period. After his father
for summary judgment, we hold the trial court did not err in
died, he testified that his mother also wanted to help them.
granting the no-evidence motion for summary judgment.
Jesus Jr. admitted that some of his mother's money was
Thus, we affirm the judgment of the trial court. [1]
used for the benefit of his own family, but he claimed that
these were gifts from his parents. He further testified his
BACKGROUND
mother knew he was taking money out of the joint account
and wanted him to do so because of his family's situation. August 21, 2009, the cause was transferred to the probate
court. On September 18, 2009, the trial court signed an
According to Jesus Jr., he was not aware his mother order allowing Mary to take the oral deposition of the
suffered from dementia. He testified that Mary, who corporate representative of Broadway National Bank. The
worked for Otilia's treating doctor, took care of Otilia's trial court also ordered that Mary was allowed to take the
medical care and that Mary never told him about Otilia's oral deposition of Jesus Jr., but limited the scope of such
condition. He also testified that in 2007, at some point deposition to the facts and circumstances surrounding the
before Mary was appointed Otilia's guardian, Adult signature cards relating to the joint account made the basis
Protective Services got involved in Otilia's case, and the of the suit. Mary's current attorneys took the deposition of a
case worker told him that he was not keeping a proper representative from Broadway National Bank.[4] However,
accounting of Otilia's bank account. The caseworker told they never deposed Jesus Jr.
him that he needed to be more " formal" and should not
commingle funds. Jesus Jr. also testified that Mary had On February 16, 2010, even though she had already
taken the approximate $6,000 left in Otilia's bank account filed a petition against Jesus Jr., Mary filed another "
and that he had nothing left of Otilia's money. original" petition against Jesus Jr., alleging conversion,
theft, fraud, constructive trust, and rescission. On March 12,
Jesus Jr. further testified about the family home. 2010, Jesus Jr. filed an answer and a motion to dismiss for
According to Jesus Jr., his father had owned the family want of prosecution. In his motion, Jesus Jr. emphasized
home before his marriage to Otilia and thus, the family that there had been no action on the case for a year and a
half, that Mary's second " original" petition contained the
Page 193 same allegations as her first
home was his father's separate property. And, because his Page 194
father did not have a will, he and his four siblings now
owned the house as his father's heirs. He testified that Otilia one, and that Mary had made no attempt to depose him. On
signed a deed transferring all her interest in the family April 1, 2010, Mary responded to the motion to dismiss for
home to him. However, under Texas intestate laws, Otilia want of prosecution, arguing that neither she nor her
had only a life-estate interest in the home and no longer attorneys were aware of what discovery had been conducted
lived there, as she was living with Mary. Jesus Jr. also or what pleadings were filed between January 2008 and
testified that in keeping with his family's " culture," one of January 2009 because Mary's former attorney had failed to
his step-sisters (the youngest of Otilia's daughters) now provide any of the documents. Mary's response also stated
lived in the family home with her son and paid only $250 that her current attorneys had been unaware of the previous
per month in rent, which was below the rental value of the lawsuit and that " accident and mistake" had led to the filing
house in the open market. Finally, according to Jesus Jr., his of the second " Original" Petition, which they admitted
parents would not want him to pay back the money he took should have been titled " First Amended Petition." On April
because it was not part of their family culture to require 26, 2010, the trial court granted Jesus Jr.'s motion and
repayment. At the hearing, copies of the bank statements dismissed Mary's case for want of prosecution without
from the joint bank account were not available. At the end prejudice, specifically stating that " [a]ll litigation in this
of the injunction hearing, the trial court dissolved the TRO cause filed on or prior to April 1, 2010, is dismissed without
and denied the temporary injunction. prejudice to refiling."
A month later, on April 8, 2008, Jesus Jr.'s attorney On April 5, 2010,[5] Mary filed another original
sent Mary's attorney copies of the bank statements related petition, alleging common law fraud, statutory fraud, fraud
to Jesus Jr. and Otilia's joint bank account. Then, there was by nondisclosure, and fraud in the inducement. In response,
no activity in the case for almost a year. Jesus Jr. filed an answer, which alleged the affirmative
defense of limitations, and a motion for no-evidence and
On March 4, 2009, Mary's current attorneys [2] filed traditional summary judgment. On May 12, 2010, Mary
in probate court an " Application for Authority to Retain filed a motion to continue the summary judgment hearing.
Counsel and to Enter into a Contingent Fee Contract." On She later also filed a response to the summary judgment
May 8, 2009, the trial court granted the application. Then, motion.[6] On May 20, 2010, the trial court denied Mary's
on July 15, 2009, Mary's current attorneys filed in district motion for continuance. On July 22, 2010, the trial court
court, not probate court, a " Verified Petition to Take a granted Jesus Jr.'s motion for no-evidence and traditional
Deposition Before Suit," requesting authority to take presuit summary judgment. Mary now appeals.
depositions of Jesus Jr. and Broadway National Bank. [3]
On July 23, 2009, Jesus Jr. filed in the district court a MOTION FOR CONTINUANCE
motion to transfer the case to the probate court, and on
In her motion for continuance, Mary argued that the unmeritorious claims and untenable defenses." Casso v.
trial court should continue the summary judgment hearing Brand, 776 S.W.2d 551, 555 (Tex.1989) (quotation
because an adequate time for discovery had not yet passed. omitted). Thus, under Texas Rule of Civil Procedure
She emphasized in her motion that the case had been on file 166a(i), a party may not move for a no-evidence summary
for only one month and that no discovery had been judgment until after an adequate time for discovery has
conducted in the case. Mary argued that since filing the passed. TEX.R. CIV. P. 166a(i). Notably, Rule 166a(i) does
lawsuit on April 5, 2010, she had not had the opportunity to not require that discovery must have been completed, but
depose Jesus Jr. or to send him discovery requests. Mary rather that there was " adequate time." McInnis v. Mallia,
also argued that in order to respond to Jesus Jr.'s summary 261 S.W.3d 197, 200 (Tex.App.-Houston [14th Dist.] 2008,
judgment motion, she needed to " confer with and obtain no pet.). The comment to rule 166a(i) provides that " [a]
affidavits from Plaintiff's expert, Julian R. Cantu, M.D.[7] discovery period set by pretrial order should be adequate
and Mary Pena." [8] opportunity for discovery unless there is a showing to the
contrary, and ordinarily a motion under paragraph (i) [a
On May 19, 2010, at the hearing on the motion for no-evidence motion] would be permitted after the period
continuance, Mary's attorney argued that additional time but not before." TEX.R. CIV. P. 166a(i) cmt. Unlike other
was needed to obtain testimony from Dr. Cantu about notes and comments in the rules of civil procedure, this
whether Otilia was capable of transferring her interest in the comment was specifically " intended to inform the
family home to Jesus Jr. at the time she signed the deed or construction and application of the rule." TEX.R. CIV. P.
whether she was capable of consenting to Jesus Jr. 166a(i) cmt.
withdrawing money from their joint bank account. Mary's
attorney then stated that she had requested the bank Pointing to this language, Mary emphasizes she filed
documents regarding the joint account from Broadway her lawsuit on April 5, 2010, and Jesus Jr. filed his
Bank, but had not yet no-evidence motion for summary judgment soon thereafter
on April 22, 2010. She argues that a time period of
Page 195 seventeen days from when the lawsuit is filed does not
constitute adequate time. However, in so arguing, Mary
received anything.[9] The trial court did not rule at the completely disregards the time period the previous lawsuit
hearing, but the next day signed an order denying Mary's had been on file before it was dismissed for want of
motion to continue the summary judgment hearing. prosecution. Thus, the issue in this case is whether the time
period a previous lawsuit is pending before being dismissed
In her first issue on appeal, Mary argues that the trial
for want of prosecution, when that lawsuit is between the
court abused its discretion in denying her motion to
same parties and contains the same allegations, should be
continue the summary judgment hearing because an
considered in determining whether an adequate time for
adequate time for discovery had not passed as required
discovery has passed in the subsequent lawsuit. We
under Texas Rule of Civil Procedure 166a(i). When a party
contends that it has not had an adequate opportunity for Page 196
discovery before a summary judgment hearing, it must file
either an affidavit explaining the need for further discovery have found no case addressing this issue, and the parties
or a verified motion for continuance. Tenneco Inc. v. Enter. have not directed us to such a case.
Prods. Co., 925 S.W.2d 640, 647 (Tex.1996). Here, Mary's
motion for continuance was verified by her attorney. Generally, in considering whether the trial court
permitted an adequate time for discovery, we consider the
We review the trial court's decision to grant or deny a following factors: (1) the nature of the case, (2) the nature
motion for continuance for abuse of discretion. Villegas v. of the evidence necessary to controvert the no-evidence
Carter, 711 S.W.2d 624, 626 (Tex.1986); see also Tenneco, motion, (3) the length of time the case was active, (4) the
925 S.W.2d at 647. A trial court abuses its discretion only amount of time the no-evidence motion was on file, (5)
when it acts in an unreasonable and arbitrary manner, or whether the movant had requested stricter deadlines for
when it acts without reference to any guiding rules and discovery, (6) the amount of discovery that already had
principles. Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, taken place, and (7) whether the discovery deadlines in
226 (Tex.1991). Thus, we may not reverse a trial court's place were specific or vague. McInnis, 261 S.W.3d at 201.
ruling for an abuse of discretion merely because we may We review a trial court's determination that there has been
disagree with that decision. Id. an adequate time for discovery on a case-by-case basis,
under an abuse-of-discretion standard. Id.
The function of summary judgment is not the
deprivation of a party's right to a full hearing on the merits 1. The Nature of the Case and Evidence Needed to
of any real issue of fact, but rather to " eliminate patently
Defeat Motion Page 197
This case is not of a nature that would seem to require years to conduct discovery. And, at the time the trial court
extensive or complex discovery. See Rest. Teams Int'l, Inc. granted Jesus Jr.'s no-evidence motion for summary
v. MG Sec. Corp., 95 S.W.3d 336, 340 (Tex.App.-Dallas judgment, Mary had almost two-and-a-half years to conduct
2002, no pet.). None of Mary's claims would require more discovery.
than minimal discovery to defeat a no-evidence motion for
summary judgment. See id. In fact, in her motion for Mary argues that most of the time her previous
continuance and at the hearing on the motion, all Mary lawsuit was pending should not count because her previous
argued she needed to do to respond to the motion for attorney was derelict in his duty to prosecute her case.
summary judgment was to take Jesus Jr.'s deposition, obtain However, the actions of an attorney, as his client's agent,
an affidavit from Otilia's doctor about Otilia's medical necessarily binds the client. See Gracey v. West, 422
condition, authenticate the bank records from the joint bank S.W.2d 913, 916 (Tex.1968) (holding that attorney's
account, and authenticate the deed transferring Otilia's negligence in failing to prosecute lawsuit was not ground
interest in the family home to Jesus Jr. for setting aside judgment dismissing cause for want of
prosecution because " as long as the attorney-client
2. The Length of Time the Case was Active relationship endures, with its corresponding legal effect of
principal and agent, the acts of one must necessarily bind
This factor, of course, depends on whether the time the other as a general rule" ).[10] Therefore, the actions of
the previous case had been pending should be considered in her previous attorney are not considered in looking at how
determining whether an adequate time for discovery had long her case was active. And, Mary's case was active for
passed. Mary argues that the time the previous case had an extended period of time.
been on file should not be considered, as the previous case
was dismissed without prejudice. However, whether a case 3. The Length of Time the No-Evidence Motion was on
is dismissed with or without prejudice does not really go to File
the issue of whether there has been an adequate time for
discovery. A dismissal with prejudice is a final Jesus Jr. filed the no-evidence motion for summary
determination on the merits and prevents a party from judgment on April 22, 2010. The summary judgment
re-filing a case under the doctrines of res judicata or hearing occurred on July 20, 2010. Thus, the no-evidence
collateral-estoppel. Mossler v. Shields, 818 S.W.2d 752, motion for summary judgment was on file for almost ninety
754 (Tex.1991). Thus, the plaintiff can appeal the dismissal days at the time of the summary judgment hearing. Further,
but cannot re-file the same lawsuit unless the dismissal is we note that Rule 166a(i) does not mandate a minimum
reversed on appeal. See id. In contrast, a dismissal without period of time a case must be pending before a motion may
prejudice is not a final determination on the merits. Thus, if be filed, as long as there was adequate time for discovery.
the statute of limitations has not run, a case may be re-filed Rest. Teams, 95 S.W.3d at 340; see TEX.R. CIV. P. 166a(i).
without appealing the order of dismissal. Webb v. Jorns,
488 S.W.2d 407, 409 (Tex.1972). Here, however, whether a 4. Status of Discovery
party has had an adequate time for discovery is not related
Mary argued in her motion for continuance that she
to the question of whether a case may be re-filed.
needed time to depose Jesus Jr., retrieve bank records,
Looking at the language of Rule 166a(i), the rule prepare an affidavit from Otilia's treating doctor, and
states that " [a]fter an adequate time for discovery," a party prepare her own affidavit. As noted above, because the time
may move for a no-evidence motion for summary period Mary's previous case was on file should be
judgment. TEX.R. CIV. P. 166a(i). The rule does not considered in determining whether an adequate time for
explicitly state whether " adequate time" refers to only the discovery had passed, Mary had more than sufficient time
instant suit or whether it can refer to a previous lawsuit, to accomplish these tasks.
between the same parties and involving the same
Looking at the above factors, we hold that the trial
allegations, that has been dismissed for want of prosecution.
court did not abuse its discretion in denying Mary's motion
Instead, it refers only to " adequate time." And, in this case,
for continuance.
Mary clearly had " adequate time" to conduct discovery.
Mary filed her original petition in her original lawsuit on
NO-EVIDENCE MOTION FOR SUMMARY
January 31, 2008. At the time Jesus Jr. moved to dismiss
JUDGMENT
her original lawsuit for want of prosecution, she had over
two Under Rule 166a(i), a party may move for a
no-evidence summary judgment on the ground that there is
no evidence of one or more essential elements of a claim or
defense on which an adverse party would have the burden has not been induced to do anything." ).
of proof at trial. TEX.R. CIV. P. 166a(i). The trial court
must grant the motion unless the respondent produces In his no-evidence motion for summary judgment,
summary judgment evidence raising a genuine issue of Jesus Jr. argued that Mary had no evidence that (1) he made
material fact. Id. The respondent is " not required to any sort of material misrepresentation to Otilia; (2) any
marshal its proof; its response need only point out evidence representation made by Jesus Jr. was false; (3) when any
that raises a fact issue on the challenged elements." TEX.R. alleged misrepresentation was made, he knew it was false;
CIV. P. 166a(i) cmt. In reviewing a trial court's order (4) he made any representation with the intent that Otilia act
granting a no-evidence summary on it; (5) Otilia reasonably relied on a representation made
by Jesus Jr.; and (6) Otilia entered into a binding agreement
Page 198 based on the false misrepresentation. With respect to fraud
by nondisclosure, Jesus Jr. argued in his no-evidence
judgment, we consider the evidence in the light most motion that Mary cannot show he concealed from or failed
favorable to the respondent and disregard all contrary to disclose material facts to Otilia. He emphasizes in his
evidence and inferences. King Ranch, Inc. v. Chapman, 118 appellate brief that Otilia was aware of their financial
S.W.3d 742, 750-51 (Tex.2003). Thus, a no-evidence arrangements and that she had signed signature cards and
summary judgment is improperly granted if the respondent account designation documents at the bank.
brings forth more than a scintilla of probative evidence to
raise a genuine issue of material fact. Id. at 751; see TEX.R. In her brief, Mary argues that she did present some
CIV. P. 166a(i). In determining if the respondent has evidence that Jesus Jr. concealed or failed to disclose
brought forth more than a scintilla of evidence, we consider certain facts to Otilia. She points to Jesus Jr.'s testimony
whether the evidence would enable reasonable and during the injunction hearing where he testified that he used
fair-minded jurors to differ in their conclusions. Hamilton v. some of the money from the joint bank account for his
Wilson, 249 S.W.3d 425, 426 (Tex.2008). personal expenses because his wife was unemployed.
However, Jesus Jr. also testified that his mother consented
In her live petition, Mary brought the following to these withdrawals. Mary argues that Jesus Jr. should have
claims against Jesus Jr.: common law fraud, fraud in the known that Otilia was unable to approve such withdrawals
inducement, fraud by nondisclosure, and statutory fraud. as she had been diagnosed with senile dementia. For this
She also requested the creation of a constructive trust based proposition, Mary points to her own
on fraud. In his no-evidence motion for summary judgment,
Jesus Jr. argued that Mary had no-evidence to support Page 199
specific elements of these claims.
affidavit in which she affirms that " [i]n early 2002, Dr.
1. Common Law Fraud, Fraud in the Inducement, and Julian R. Cantu diagnosed Mrs. Patlan with senile
Fraud by Nondisclosure dementia." [11] However, while this statement is evidence
that Dr. Cantu diagnosed Otilia with senile dementia, it is
To bring a claim for common law fraud, a plaintiff not evidence that Jesus Jr. knew Otilia had been diagnosed
must show the following: (1) a material misrepresentation with senile dementia. And, at the injunction hearing, Jesus
was made; (2) the representation was false; (3) when the Jr. testified that he believed Otilia was capable of giving
representation was made, the speaker knew it was false or consent and that he did not know she had been diagnosed
made it recklessly without any knowledge of the truth and with dementia. According to Jesus Jr., although he
as a positive assertion; (4) the speaker made the sometimes took Otilia to doctor's appointments, the only
representation with the intent that the other party should act thing he knew " at the time was that, you know, she was
upon it; (5) the party acted in reliance on the representation; under medications as far as for blood pressure. Trying to
and (6) the party thereby suffered injury. In re FirstMerit think RI ² she was taking a lot of medications but we were
Bank, N.A., 52 S.W.3d 749, 758 (Tex.2001) (orig. never told what everything was for. We were never told
proceeding). To bring a claim for fraud in the inducement, a what the situation was." According to Jesus Jr., " Mary was
plaintiff must show the elements of fraud, see Balogh v. the one [who] worked at the doctor's office, so she would
Ramos, 978 S.W.2d 696, 701 (Tex.App.-Corpus Christi oversee whatever Dr. Cantu said. So we relied on her to fill
1998, pet. denied), and must show that she has been us in on whatever situation was wrong with [Otilia]." When
fraudulently induced to enter into a binding agreement. asked whether Mary had told him that Otilia had been
Haase v. Glazner, 62 S.W.3d 795, 798 (Tex.2001) (" diagnosed with senile dementia, Jesus Jr. replied, " [S]he
Without a binding agreement, there is no detrimental never told us." As evidence that Jesus Jr. knew his mother
reliance, and thus no fraudulent inducement claim. That is, had senile dementia, Mary also points to Jesus Jr.'s
when a party has not incurred a contractual obligation, it testimony at the injunction hearing that a case worker from
Adult Protective Services told him that he needed to be "
more formal" with the joint bank account. However, Jesus to Otilia, or benefited by not disclosing a third party's
Jr. testified that Adult Protective Services became involved representation or promise was false. Similarly, he argued
with his mother's case right before Mary was appointed his that Mary cannot show that any representation made by him
mother's guardian in 2007. This is not evidence that relates was made for the purpose of inducing Otilia to enter into a
WRWKH WL
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LVVXH² real estate contract. He also argued that Mary cannot show
that Otilia relied on the false representation or promise by
With respect to her claim for fraud by nondisclosure, entering into the contract. And, Jesus Jr. argued that Mary
Mary also argues that Jesus Jr. had a fiduciary duty to cannot show that Otilia reasonably relied on a
disclose material facts to Otilia and that by not disclosing representation made by him, and that therefore there is no
all the money transactions made by him for his own evidence that such reliance caused injury. As evidence,
personal use, he committed fraud. In support of this Jesus Jr. attached the original warranty deed showing that
statement, Mary points to the copies of the bank records the family home was his father's separate property. Thus,
from the joint account. However, while the bank records are Jesus Jr. argued that in executing the deed to him, all Otilia
evidence that transactions occurred; they are not evidence conveyed was a life estate interest, which she abandoned
that Jesus Jr. failed to disclose those transactions to Otilia. when she moved out of the family home.
Jesus Jr. testified at the injunction hearing that Otilia knew
about the transactions. According to Jesus Jr., he was just As evidence of the above elements, Mary once again
handling the family finances, like he had for his father, and points to Jesus Jr.'s testimony at the temporary injunction
his mother knew about it. Mary, once again, points to Otilia hearing and her own affidavit. The issue again is whether
having senile dementia, but as noted above, there is no Jesus Jr. knew his mother was suffering from senile
evidence Jesus Jr. knew about her senile dementia. dementia and was thus somehow taking advantage of her
Therefore, we hold that Mary did not bring forth more than because he knew his mother was incapable of giving her
a scintilla of probative evidence to raise a genuine issue of consent. However, as noted above, Mary failed to produce
material fact with respect to her claims for common law any evidence that at the time these transactions occurred,
fraud, fraud in the inducement, and fraud by nondisclosure. Jesus Jr. had any knowledge that his mother suffered from
senile dementia.
2. Statutory Fraud
CONCLUSION
Page 200
Because the trial court did not abuse its discretion in
To bring a claim for statutory fraud, Mary must show denying Mary's motion to continue the summary judgment
the following: (1) the transaction involved real estate; (2) hearing and because Mary failed to bring forth more than a
Jesus Jr. made a false representation of a material fact or scintilla of probative evidence to raise a genuine issue of
made a false promise to do an act to Otilia, or benefited by material fact, we affirm the judgment of the trial court.
not disclosing that a third party's representation or promise
was false; (3) the false representation was made for the ---------
purpose of inducing Otilia to enter into a contract; (4) Otilia
relied on the false representation or promise in entering into Notes:
the contract; and (5) the reliance caused Otilia injury. See
TEX. BUS. & COM.CODE ANN. § 27.01 (West 2009) [1] Because we hold the trial court did not err in granting
(titled " Fraud in Real Estate and Stock Transactions" ); Jesus Patlan Jr.'s no-evidence motion for summary
Fletcher v. Edwards, 26 S.W.3d 66, 77 (Tex.App.-Waco judgment, we need not reach the issue of whether the trial
2000, pet. denied) (" A plaintiff establishes a statutory court should have granted the traditional motion for
fraudulent inducement claim under section 27.01 of the summary judgment.
Business and Commerce Code by showing: a false
[2] The record does not reflect why Mary's former attorney
representation of a material fact; made to induce a person to
was no longer an attorney in this case.
enter a contract; and relied on by that person in entering the
contract." ). The statutory cause of action differs from the
[3] The record does not reflect why Mary's current
common law only in that to recover actual damages, it does
attorneys filed a petition in district court to take a " presuit"
not require proof that the defendant made a material false
deposition of Jesus Jr. when Mary had already filed a
representation knowing it to be false or made it recklessly lawsuit in probate court against Jesus Jr. At oral argument,
as a positive assertion without any knowledge of its truth.
one of Mary's current attorneys admitted that she had been
Fletcher, 26 S.W.3d at 77. aware of the previous lawsuit filed by Mary against Jesus
Jr. in the probate court and the injunction hearing in that
In his no-evidence motion, Jesus Jr. argued that Mary
lawsuit. However, Mary's current attorney claimed to have
cannot prove that he made a false misrepresentation of fact
been unaware of what specific documents had been filed or
exchanged in that lawsuit because Mary's previous attorney 120, 122 (Tex.1996); see also Selz v. Friendly Chevrolet,
had not given Mary his file. Ltd., 152 S.W.3d 833, 837 (Tex.App.-Dallas 2005, no pet.)
(holding affidavit that is nothing more than a sworn
[4] After taking the deposition, Mary's attorneys determined statement of allegations in a pleading is conclusory and
that Otilia did not have a claim against the bank. insufficient to create a fact issue); Old Republic Sur. Co. v.
Bonham State Bank, 172 S.W.3d 210, 217
[5] A hearing was held on April 1st on the motion to (Tex.App.-Texarkana 2005, no pet.) (explaining that "
dismiss, but there is no reporter's record of the hearing. At statements of legal conclusions amount to little more than
the motion to continue the summary judgment hearing, the witness choosing sides on the outcome of the case" and
Mary's attorney makes reference to the trial court " affidavits containing conclusory statements unsupported
dismissing Mary's case on April 1st. Thus, it appears the by facts are not competent summary judgment proof" ).
trial court orally granted Jesus Jr.'s motion to dismiss on
April 1st, but did not sign the order dismissing the case for ---------
want of prosecution until April 26, 2010, at which point the
trial court was aware that Mary had filed a new petition on
April 5th.
[6] Although there is a reporter's record of the hearing on
the motion for continuance, there is no reporter's record of
the summary judgment hearing, which was held much later.
[7] Dr. Cantu was Otilia's treating doctor and Mary's
employer.
[8] Mary's attorneys did not indicate in Mary's motion for
continuance why they would need additional time to obtain
their client's affidavit.
[9] The hearing on the motion for continuance was held on
May 19, 2010. The record request to Broadway Bank was
filed in the district clerk's office on May 20, 2010. And, the
request indicates that it was sent to Broadway Bank on May
18th, the day before the hearing.
[10] We further note that although not briefed, Mary's
attorney raised the issue during oral argument that she was
prevented from fully deposing Jesus Jr. by the trial court's
presuit deposition order of September 18, 2009, which
limited the scope of any deposition of Jesus Jr. to the facts
and circumstances surrounding the signature cards relating
to the account made the basis of the suit. However, there is
nothing in the record to reflect that Mary was prevented
from fully taking Jesus Jr.'s deposition before the trial
court's order of September 18, 2009, nor is there any
indication that Mary ever went back to the trial court after
September 18, 2009, to request that the scope of Jesus Jr.'s
deposition be expanded.
[11] We note that Jesus Jr. filed written objections to
Mary's affidavit, arguing that it was based on hearsay and
speculation, and constituted improper expert testimony.
However, there is nothing in the record to reflect that Jesus
Jr. obtained a ruling on his objections. Nevertheless, we
note that Jesus Jr. did not need to object or obtain a ruling
on any conclusory statements contained in Mary's affidavit
because conclusory statements are insufficient to raise a
fact issue. See Ryland Group, Inc. v. Hood, 924 S.W.2d
Page 202 In five issues on appeal, Universal Academy asserts
(1) the trial court erred by denying its plea to the
362 S.W.3d 202 (Tex.App.-Dallas 2012) jurisdiction; (2) Universal Academy is a " local
governmental entity" for purposes of the application of
LTTS CHARTER SCHOOL, INC. d/b/a Universal Texas Local Government Code sections 271.151 through
Academy, Appellant, 271.160, which provide for waiver of immunity from suit as
to certain contract claims, see TEX. LOC. GOV'T CODE
v.
ANN.. §§ 271.151-.160 (West 2005 & Supp.2011); (3)
Universal Academy is a " governmental unit" for purposes
Jimmy PALASOTA d/b/a Palasota Property Company,
of application of the Texas Tort Claims Act (" TTCA" ),
Appellee.
which provides a limited waiver of immunity from suit on
No. 05-08-01039-CV. tort claims, see TEX. CIV. PRAC. & REM.CODE ANN. §§
101.001-.109 (West 2011 & Supp.2011); (4) Universal
Court of Appeals of Texas, Fifth District, Dallas Academy is immune from suit on the breach of contract
claims of appellee Jimmy Palasota d/b/a Palasota Property
February 28, 2012 Company (" Palasota" ); and (5) Universal Academy is
immune from suit on Palasota's tort claims.[1]
Page 203
We reverse the trial court's order denying Universal
[Copyrighted Material Omitted] Academy's plea to the jurisdiction and render judgment
granting the plea to the jurisdiction and dismissing
Page 204
Palasota's claims.
Thomas Anthony Fuller, The Fuller Law Group,
I. FACTUAL AND PROCEDURAL
Arlington, TX, for Appellant.
BACKGROUND
Scott A. Scher, Law Offices of Scott A. Scher, P.C.,
Palasota, a commercial real estate broker, filed this
Prosper, TX, Michael L. Jones, Henry & Jones, L.L.P.,
lawsuit on September 29, 2005. In his live petition at the
Dallas, TX, for Appellee.
time of the challenged order, Palasota alleged that in
approximately April 2004, Universal Academy approached
Before Justices RICHTER, LANG, and MURPHY.
him regarding the possibility of having him " list" for sale
Page 205 its campus located in Flower Mound, Texas (the " Property"
), which Universal Academy desired to sell. Palasota
OPINION ON REMAND asserted he and Universal Academy subsequently executed
an exclusive listing agreement (the " Listing Agreement" ).
LANG, Justice. According to Palasota, under the terms of the Listing
Agreement, Universal Academy agreed to provide him with
In this interlocutory appeal, appellant LTTS Charter an exclusive listing on the Property commencing on April
School, Inc. d/b/a Universal Academy (" Universal 26, 2004, and continuing through at least October 26, 2004.
Academy" ) appeals the trial court's denial of its plea to the Palasota alleged that in exchange for his services under the
jurisdiction based on immunity from suit. On original Listing Agreement, he was to receive a commission "
submission, this Court concluded it did not have jurisdiction defined by the Listing Agreement" as " six percent of the
over the interlocutory appeal because Universal Academy, first $1 million and three percent of all amounts over $1
which is an open-enrollment charter school, was not a " million and up to $10 million." The commission was " due
governmental unit" for purposes of an interlocutory appeal and payable at the closing of any sale of the Property."
under section 51.014(a)(8) of the Texas Civil Practice and Further, Palasota asserted,
Remedies Code. See LTTS Charter Sch., Inc. v. Palasota,
293 S.W.3d 830 (Tex.App.-Dallas 2009), rev'd, 344 S.W.3d Page 206
378 (Tex.2011); see also TEX. CIV. PRAC. & REM.CODE
ANN. § 51.014(a)(8) (West Supp.2011). The Texas the Listing Agreement provided for payment of the
Supreme Court reversed this Court's judgment and commission to him " [i]f said property is sold prior to the
remanded the case to this Court for further proceedings. termination of this agreement, whether by [Palasota], by
LTTS Charter Sch., 344 S.W.3d at 378. [Universal Academy], or by any other person."
Palasota stated that in late October 2004, he notified missing an " essential term" required by the waiver
Universal Academy that he was expecting to receive offers provision of section 271.152. Palasota asserted, inter alia,
for the acquisition of all or portions of the Property. At that that (1) Universal Academy's argument respecting the
time, Palasota alleged, Universal Academy disclosed to him missing term constituted a " statute of frauds claim" that
for the first time that it had sold the Property in August was not
2004. Palasota alleged Universal Academy notified him that
it would not " honor the Listing Agreement" or pay him " a Page 207
commission based upon the Sale." Palasota asserted "
causes of action" against Universal Academy for breach of pleaded and " can't be pled" because " it's too late" ; (2)
contract, fraud, fraudulent concealment, statutory fraud, and Universal Academy " can point to nothing that says that
imposition of constructive trust.[2] [the Listing Agreement] has to be submitted to, approved
by, and/or ratified by the board of the school in order to be
Universal Academy filed an answer and asserted a properly executed contract" ; and (3) the transaction at
affirmative defenses that included immunity from suit and " issue constituted a " sale."
[i]llegality as to some or all of the portions of the contract
upon which Plaintiff makes its claim." Additionally, in a Following the trial court's denial of the plea to the
verified denial, Universal Academy denied that the Listing jurisdiction, Universal Academy appealed to this Court
Agreement was signed by " a person authorized to sign such pursuant to section 51.014(a)(8). See TEX. CIV. PRAC. &
a contract on behalf of Universal Academy." REM.CODE ANN. § 51.014(a)(8) (providing for appeal of
an interlocutory order that " denies a plea to the jurisdiction
Universal Academy filed a plea to the jurisdiction of by a governmental unit as that term is defined in [the
the trial court asserting (1) it is immune from suit on TTCA]" ). This Court dismissed Universal Academy's
Palasota's claims based on the doctrine of sovereign interlocutory appeal, concluding Universal Academy was
immunity and (2) Palasota's claims do not fall within any not a " governmental unit" as that term is defined in the
legislative waiver of sovereign immunity. Specifically, TTCA. See id. § 101.001.
Universal Academy contended the TTCA limits tort claims
against charter schools to those involving the operation of a The Texas Supreme Court granted Universal
motor vehicle, thus precluding Palasota's tort claims. With Academy's petition for review. While this case was pending
respect to Palasota's contract claim, Universal Academy in the supreme court, that court issued its opinion in LTTS
contended the waiver of immunity from suit in section Charter School, Inc. v. C2 Construction, Inc., 342 S.W.3d
271.152 of the local government code does not apply in this 73 (Tex.2011) (" C2 Construction I " ). In that case, the
case because (1) the transaction pursuant to which Palasota supreme court concluded Universal Academy was a "
seeks to recover a commission consisted of " Universal governmental unit" under the TTCA and thus entitled to
Academy deeding the Property to its lender in lieu of take an interlocutory appeal pursuant to section
foreclosure," which was not a " sale" of the Property, and 51.014(a)(8). Id. at 78. In light of its opinion in C2
thus the essential terms of the Listing Agreement do not Construction I, the supreme court reversed this Court's
expose Universal Academy to any liability for paying a judgment in this case and remanded this case to us for
commission to Palasota and (2) Universal Academy's board consideration of the issues raised in the interlocutory
of directors never authorized the signatory of the Listing appeal. LTTS Charter Sch., 344 S.W.3d at 378.
Agreement to sign that agreement, and thus the Listing
II. DENIAL OF UNIVERSAL ACADEMY'S
Agreement was not properly executed by a party having
PLEA TO THE JURISDICTION
authority to bind Universal Academy. Evidence attached to
the plea to the jurisdiction included, in relevant part, the
A. Standard of Review and Applicable Law
Listing Agreement and a February 20, 2008 affidavit of
Janice Blackmon, Universal Academy's director of Whether a trial court has subject matter jurisdiction is
administrative services and a member of its board of a matter of law that is reviewed de novo. See Tex. Dep't of
directors, whose signature appears on the Listing Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226, 228
Agreement. (Tex.2004); Tex. Natural Res. Conservation Comm'n v.
IT-Davy, 74 S.W.3d 849, 855 (Tex.2002); Robinson v.
Palasota filed no response to Universal Academy's
Neeley, 192 S.W.3d 904, 907 (Tex.App.-Dallas 2006, no
plea to the jurisdiction. At the hearing on the plea to the
pet.). A party may challenge the trial court's subject matter
jurisdiction, Universal Academy presented arguments
jurisdiction by filing a plea to the jurisdiction. Miranda, 133
respecting the grounds asserted in its plea to the
S.W.3d at 225-26. In deciding a plea to the jurisdiction, a
jurisdiction. Additionally, Universal Academy contended
court may not weigh the claims' merits, but must consider
the Listing Agreement does not state the amount of the
only the plaintiff's pleadings and the evidence pertinent to
commission Palasota was to be paid and is therefore
the jurisdictional inquiry. Cnty. of Cameron v. Brown, 80 Inc. v. Dallas Indep. Sch. Dist., 333 S.W.3d 636, 641-42
S.W.3d 549, 555 (Tex.2002). (Tex.App.-Dallas 2009, no pet.). Like sovereign immunity,
governmental immunity has two components: immunity
" When we consider a trial court's order on a plea to from liability, which bars enforcement of a judgment
the jurisdiction, we construe the pleadings in the plaintiff's against a governmental entity, and immunity from suit,
favor and look to the pleader's intent." Id.; see also City of which bars suit against the entity altogether. Tooke, 197
Elsa v. Gonzalez, 325 S.W.3d 622, 625 (Tex.2010); TEX.R. S.W.3d at 332. Governmental immunity from suit deprives
CIV. P. 45 (" All pleadings shall be construed so as to do a trial court of subject matter jurisdiction and is properly
substantial justice." ). " When a plaintiff fails to plead facts asserted in a plea to the jurisdiction. See Miranda, 133
that establish jurisdiction, but the petition does not S.W.3d at 225-26.
affirmatively demonstrate incurable defects in jurisdiction,
the issue is one of pleading sufficiency and the plaintiff " [E]ven if the State acknowledges liability on a
should be afforded the opportunity to amend." Brown, 80 claim, immunity from suit bars a remedy until the
S.W.3d at 555; accord Miranda, 133 S.W.3d at 226-27; Legislature consents to suit." Learners Online, 333 S.W.3d
Clifton v. Walters, 308 S.W.3d 94, 98 (Tex.App.-Fort at 642 (quoting Ben Bolt-Palito Blanco Consol. Indep. Sch.
Worth 2010, pet. denied); City of Austin v. Leggett, 257 Dist. v. Tex. Political Subdivisions Prop./Cas. Joint
S.W.3d 456, 461 (Tex.App.-Austin 2008, pet. denied). " On Self-Ins. Fund, 212 S.W.3d 320, 324 (Tex.2006)). The
the other hand, if the pleadings affirmatively negate the plaintiff bears the burden of pleading facts affirmatively
existence of jurisdiction, then a plea to the jurisdiction may demonstrating waiver of immunity from suit and must also
be granted without allowing the plaintiff an opportunity to raise a fact question on the jurisdictional facts if a
amend." Brown, 80 S.W.3d at 555; see Miranda, 133 jurisdictional plea is supported with evidence. City of Irving
S.W.3d at 227; Leggett, 257 S.W.3d at 461. v. Seppy, 301 S.W.3d 435, 443 (Tex.App.-Dallas 2009, no
pet.). As this Court recently concluded, open enrollment
When a plea to the jurisdiction challenges the charter schools enjoy governmental immunity from suit.
existence of jurisdictional LTTS Charter Sch., Inc. v. C2 Constr., Inc., 358 S.W.3d
725, 735 (Tex.App.-Dallas 2011, no pet. h.) (" C2
Page 208 Construction II " ).
facts, the trial court must consider the relevant evidence B. Analysis
submitted by the parties when necessary to resolve the
jurisdictional issue. See City of Waco v. Kirwan, 298 1. Waiver of Immunity as to Palasota's Tort Claims
S.W.3d 618, 622 (Tex.2009); Miranda, 133 S.W.3d at 227;
Clifton, 308 S.W.3d at 98. This standard generally mirrors We begin with Universal Academy's third and fifth
that of a traditional summary judgment. See Miranda, 133 issues, which relate to Palasota's tort claims. In its third
S.W.3d at 228. We " take as true all evidence favorable to issue, Universal Academy contends it is a " governmental
the nonmovant" and " indulge every reasonable inference unit" for purposes of the TTCA, which provides only a
and resolve any doubts in the nonmovant's favor." Id. " If limited waiver of immunity from suit on tort claims. In its
the evidence creates a fact question regarding the fifth issue, Universal Academy asserts it is immune from
jurisdictional issue, then the trial court cannot grant the plea suit on Palasota's tort
to the jurisdiction, and the fact issue will be resolved by the
fact-finder." Id. at 227-28. " However, if the relevant Page 209
evidence is undisputed or fails to raise a fact question on the
jurisdictional issue, the trial court rules on the plea to the claims. According to Universal Academy, Palasota's tort
jurisdiction as a matter of law." Id. at 228. claims include his claims for fraud, fraudulent concealment,
and statutory fraud, as well as any claims for punitive
Under the common-law doctrine of sovereign damages, attorney's fees, and costs of court " resulting
immunity, the state cannot be sued without its consent. City therefrom." Further, Universal Academy asserts that to the
of Houston v. Williams, 353 S.W.3d 128, 134 (Tex.2011) extent Palasota's constructive trust claim is " tort-based,"
(citing Tooke v. City of Mexia, 197 S.W.3d 325, 331 the TTCA precludes waiver of immunity as to that claim as
(Tex.2006)); City of Galveston v. State, 217 S.W.3d 466, well.
471 (Tex.2007). Governmental immunity operates like
sovereign immunity to afford similar protection to We address Universal Academy's third issue by
subdivisions of the state, including counties, cities, and referring to C2 Construction I. In that case, the supreme
school districts.[3] Harris Cnty. v. Sykes, 136 S.W.3d 635, court concluded " [a]n open-enrollment charter school
638 (Tex.2004) (citing Wichita Falls State Hosp. v. Taylor, qualifies as a ' governmental unit' under the [TTCA]." C2
106 S.W.3d 692, 694 n. 3 (Tex.2003)); Learners Online, Constr. I, 342 S.W.3d at 76. That conclusion is dispositive
of Universal Academy's third issue. Under section 271.152 of chapter 271, " [a] local
governmental entity that is authorized by statute or the
Next, we address Universal Academy's fifth issue. constitution to enter into a contract and that enters into a
The TTCA, which is contained in chapter 101 of the Texas contract subject to this subchapter waives sovereign
Civil Practice and Remedies Code, provides, inter alia, a immunity to suit for the purpose
limited waiver of immunity from suit and from liability for
certain suits against " governmental units." See TEX. CIV. Page 210
PRAC. & REM.CODE ANN. §§ 101.021, 101.025.
However, the TTCA expressly excludes any " intentional of adjudicating a claim for breach of contract." Id. §
tort." Id. § 101.057. Fraud is an " intentional tort" for which 271.152; Learners Online, 333 S.W.3d at 642. " Contract
the TTCA provides no waiver of immunity. See Seureau v. subject to this subchapter" is defined as " a written contract
ExxonMobil Corp., 274 S.W.3d 206, 219 stating the essential terms of the agreement for providing
(Tex.App.-Houston [14th Dist.] 2008, no pet.) (" the goods or services to the local governmental entity that is
Legislature has not waived immunity with respect to the properly executed on behalf of the local governmental
intentional tort of fraud" ); Sanders v. City of Grapevine, entity." TEX. LOCAL GOV'T CODE ANN. § 271.151(2);
218 S.W.3d 772, 779 (Tex.App.-Fort Worth 2007, pet. Learners Online, 333 S.W.3d at 642. " Essential terms"
denied). Accordingly, we conclude governmental immunity have been characterized as, inter alia, " ' the time of
from suit has not been waived as to Palasota's claims for performance, the price to be paid, ... [and] the service to be
fraud, fraudulent concealment, and statutory fraud. rendered.' " See Williams, 353 S.W.3d at 138-39 (quoting
Kirby Lake Dev., Ltd. v. Clear Lake City Water Auth., 320
In addition to his fraud claims, Palasota asserted a " S.W.3d 829, 838 (Tex.2010)).
cause of action" for imposition of a constructive trust " as a
result of the fraud practiced by [Universal Academy] with We concluded in C2 Construction II that an
respect to the commission due and owing on the Property." open-enrollment charter school is a " local governmental
Imposition of a constructive trust is not a cause of action, entity" for purposes of section 271.152. C2 Constr. II, 358
but rather an equitable remedy. See Garcia v. Garza, 311 S.W.3d at 742. That conclusion is dispositive of Universal
S.W.3d 28, 40 (Tex.App.-San Antonio 2010, pet. denied); Academy's second issue.
In re Estate of Arrendell, 213 S.W.3d 496, 504
(Tex.App.-Texarkana 2006, no pet.); see also Bright v. As to its fourth issue, Universal Academy asserts the
Addison, 171 S.W.3d 588, 601 (Tex.App.-Dallas 2005, pet. criteria for waiver pursuant to section 271.152 have not
denied) (constructive trust can be imposed when party been satisfied and Palasota is therefore precluded from
commits fraud or breaches fiduciary relationship). proceeding with his breach of contract action. Specifically,
Palasota's alleged entitlement to a constructive trust is based Universal Academy asserts in part that " [t]he undisputed
on his fraud claims that we concluded above are barred by evidence before the trial court conclusively showed that the
governmental immunity. Therefore, we conclude Listing Agreement did not contain an essential term to that
governmental immunity from suit has not been waived as to FRQW UDFW² the amount and/or method of calculating the
Palasota's constructive trust " cause of action" allegedly commission."
arising from fraud.
The record shows Palasota asserted in his petition that
We decide in favor of Universal Academy on its third in exchange for his services under the Listing Agreement,
and fifth issues. he was to receive a commission " defined by the Listing
Agreement" as " six percent of the first $1 million and three
2. Waiver of Immunity as to Palasota's Breach of percent of all amounts over $1 million and up to $10
Contract Claim million." However, Blackmon testified in relevant part in
her February 20, 2008 affidavit
Now, we address together Universal Academy's
second and fourth issues. In its second issue, Universal I signed an Exclusive Listing Agreement with Palasota
Academy asserts it is a " local governmental entity" for which purported to give him the exclusive right to sell the
purposes of the application of chapter 271, subchapter I, of Flower Mound Campus for Universal Academy in
the Texas Local Government Code. See TEX. LOC. GOV'T exchange for a commission based upon a percentage of the
CODE ANN.. §§ 271.151-.160 (titled " Adjudication of sales price, to be paid at the closing of a sale (the " Listing
Claims Arising Under Written Contracts With Local Agreement" ). A true and correct copy of the Listing
Government Entities" ). In its fourth issue, Universal Agreement is attached hereto as Exhibit " A-1."
Academy contends it is immune from suit on Palasota's
breach of contract claim. Attached to Blackmon's affidavit as " Exhibit ' A-1' "
is a one-page document titled " Exclusive Listing
Agreement." That document states in part that in the event price to be paid" characterized as essential term). In light of
of a sale of the Property, Palasota will be paid " a that conclusion, we do not reach Universal Academy's
commission in cash ... equal to the following percent of the remaining arguments respecting Palasota's breach of
total sales (rental) price of the property computed as contract claim.
follows: See attached Addendum. " (emphasis original).
We decide in favor of Universal Academy on its
Blackmon's affidavit and the one-page Listing second and fourth issues. Additionally, based on our
Agreement were attached as exhibits to Universal conclusions above, we decide in favor of Universal
Academy's plea to the jurisdiction. The record shows Academy on its first issue, in which it asserts the trial court
Palasota did not file a response to the plea to the erred by denying its plea to the jurisdiction.[4]
jurisdiction, offer controverting evidence as to whether an
addendum was part of the Listing Agreement, or object to III. CONCLUSION
Universal Academy's evidence. Rather, the undisputed
evidence before the trial court showed that the Listing We decide Universal Academy's five issues in its
Agreement consisted of a single page that did not contain an favor. We reverse the trial court's order denying Universal
addendum, a " price to be paid," or any term stating the Academy's plea to the jurisdiction and render judgment
amount or method of calculating the commission. See San granting the plea to the jurisdiction and dismissing
Antonio Hous. Auth. Found., Inc. v. Smith, No. Palasota's claims.
04-10-00759-CV, 2011 WL 3627699, at *5 (Tex.App.-San
---------
Antonio Aug. 17, 2011, no pet.) (mem. op.) (affidavit
attached to plea to jurisdiction established jurisdictional fact
Notes:
as matter of law and nonmovant therefore could not prevail
absent scintilla of controverting evidence); cf. Bass v. Bass, [1] Palasota did not file a response to Universal Academy's
790 S.W.2d 113, 117-18 (Tex.App.-Fort Worth 1990, no plea to the jurisdiction in the trial court and did not file a
writ) (uncontroverted facts in movant's summary judgment brief before this Court when this case was initially
affidavit submitted on appeal. Following the supreme court's remand,
Palasota filed a motion for leave to file a brief on the merits
Page 211 in this Court pursuant to Texas Rule of Appellate Procedure
38.6. See TEX.R.APP. P. 38.6. That motion was denied by
are taken as true for purposes of appeal). Palasota
this Court.
contended in the trial court that Universal Academy's
argument that the missing term precluded application of
[2] Additionally, Palasota requested attorney's fees in
section 271.152's waiver provision constituted a " statute of connection with his breach of contract and statutory fraud
frauds claim" that was not properly pleaded. However, the
claims.
statute of frauds pertains to the enforceability of a contract.
See S & I Mgmt., Inc. v. Sungju Choi, 331 S.W.3d 849, 854 [3] To the extent Universal Academy uses the terms "
(Tex.App.-Dallas 2011, no pet.) (" Under the statute of sovereign immunity" and " governmental immunity"
frauds, certain contracts are not enforceable unless they are interchangeably, we construe the issues in this case to
in writing and signed by the person against whom address governmental immunity.
enforcement of the contract is sought." ); Lathem v. Kruse,
290 S.W.3d 922, 925 (Tex.App.-Dallas 2009, no pet.) [4] In light of our conclusions herein, we do not reach
(pursuant to statute of frauds in Real Estate License Act, Universal Academy's arguments respecting Palasota's
agreement to pay real estate commission must be in writing request for attorney's fees.
or it is not " enforceable" ). Palasota cited no authority to
the trial court, and we have found none, supporting the ---------
proposition that a plaintiff's failure to satisfy the elements of
section 271.152's waiver provision must be pleaded by the
defendant. Cf. Seppy, 301 S.W.3d at 443 (plaintiff bears
burden of pleading facts affirmatively demonstrating waiver
of immunity from suit).
On this record, we conclude waiver pursuant to
section 271.152 is inapplicable. See TEX. LOCAL GOV'T
CODE ANN. § 271.151(2) (waiver under section 271.152
requires written contract stating " essential terms" of
agreement); see also Williams, 353 S.W.3d at 138-39 ("
Page 256 distribution. Plaintiff asserted the conveyance to Street of
the properties for distribution unlawful, and that it was the
410 S.W.2d 256 (Tex.Civ.App. —Waco 1966) rightful successor to defendant association's properties.
GENERAL ASSOCIATION OF DAVIDIAN Defendants General Association of Davidian Seventh
SEVENTH DAY ADVENTISTS, Day Adventists and Tom Street answered, alleging that the
association was a religious denomination which was
INC., Appellants, dissolved by resolution of its members on March 11, 1962;
that prior to dissolution it conveyed the assets of the
v.
association to Tom Street, Trustee, for sale and distribution
to named members; and prayed for declaratory judgment
GENERAL ASSOCIATION OF DAVIDIAN
confirming the dissolution of the association, and of the
SEVENTH DAY ADVENTISTS et
conveyance of the assets to the Trustee.
al., Appellees.
The Davidian Seventh Day Adventist Association
No. 4533. (composed of some former members of the old association)
intervened, alleging that members of the old association had
Court of Civil Appeals of Texas, Waco contributed moneys to a fund called the 'Second Tithe'
which funds were represented to be for the purpose of
November 3, 1966 taking care of contributors in old age. Intervenors prayed
that they be declared owners of the assets of the defunct
Rehearing Denied Nov. 23, 1966. association, and alternatively that such assets be impressed
with a trust in favor of persons who had contributed to such
Page 257
'Second Tithe.'
Charles E. Wallace, Carl Anderson, Waco, for
The General Association of Davidian Seventh Day
appellants.
Adventists was established about 1930 under the leadership
of a Brother Houteff. From a small beginning the
David Kultgen, Waco, for appellees.
association grew to some 1000 members. The members
OPINION paid a 'First Tithe' which was for the spread of the gospel;
and many members paid a 'Second Tithe' which was for the
McDONALD, Chief Justice. purpose of their being cared for in old age. Brother Houteff
died; Mrs. Houteff was appointed Vice President of the
This is an appeal from a judgment impressing a trust on association, and in early 1962 sent notices
assets and properties of the defunct General Association of
Davidian Seventh Day Adventists, in favor of all persons Page 258
living on March 11, 1962, who had contributed to the
'Second Tithe' fund of such association. The judgment calling a meeting of the association to be convened on
appointed Tom Street receiver of the properties; and March 11, 1962. At the March 11, 1962 meeting,
required him to sell and liquidate the property subject to dissolution of the association was voted by those present,
approval of the Court. purporting to act for the association. The group who voted
the dissolution conveyed the properties and assets of the
Plaintiff General Association of Seventh Day association to Tom Street as Trustee for named members of
Adventists, Inc. brought this suit against the General the association. Plaintiff filed this suit to set aside the trust,
Association of Seventh Day Adventists and Tom Street, and to acquire the assets of the defunct association.
Trustee, to set aside a trust agreement conveying all assets
of the General Association of Davidian Seventh Day Trial was to a jury which found:
Adventists to Tom Street, Trustee, for sale and distribution
1, 2) The General Association of Seventh Day Adventists is
to named members; and for title and possession of such
a defunct church; which may not be revived in a reasonable
assets. Plaintiff alleged the General Association of Davidian
time.
Seventh Day Adventists was a defunct church; that on
March 11, 1962 a resolution was passed by a portion of its
3, 4) The General Association of Seventh Day Adventists,
membership dissolving the organization and appointing
Inc. is a church of like faith as the defunct group; and is a
Tom Street, Trustee, of all assets for sale and specified
successor organization of the defunct group. that plaintiffs and intervenors are not entitled to the funds;
that
5, 6) The Davidian Seventh Day Adventists Association is a
church of like faith as the defunct group; and is a successor Page 259
organization of the defunct group.
the resolution transferring the properties to Tom Street,
7) The Executive Council of the old association had Trustee, was ineffective to modify the rights of the parties;
authority to appoint Mrs. Houteff Vice President of the old that such assets are impressed with a trust of which all
association. contributors who were living on March 11, 1962 are
beneficiaries; that defendant association being defunct, is
8) Notices of the Session of March 11, 1962 were not sent no longer qualified to act as trustee; that it will not be
to all members entitled to receive them. revived within a reasonable time; that the appointment of a
Receiver is required to take care of those being cared for at
9) Proxy votes used in the March 11, 1962 session were not the time the old association became defunct, and to pay
actually received. bequeathment certificates.
10) Contributors to the Second Tithe were induced to make The Court further decreed all persons living on March
such contributions by representations as to the purposes for 11, 1962 who had contributed to the 'Second Tithe'
which such Tithe was to be used. beneficiaries of the trust; required the Receiver to file
inventory of the properties; a list of 'Second Tithers' to the
11) Contributors relied on such representations.
best of his ability; to file bond and oath; and further ordered
12) Contributors to the 'Second Tithe' would not have Receiver reimbursed for his expenses and compensated for
contributed if they had not relied on such representations. his services.
13) The assets and property here involved were purchased Plaintiff appeals on 15 points, contending:
with 'Second Tithe' funds.
1) There is no evidence, or insufficient evidence, to support
14) The defunct association represented it would hold the the jury's finding (Issue 13) that the assets were purchased
assets in trust for the use and benefit of the contributors. with 'Second Tithe' funds; and the undisputed evidence is
that the assets and properties were purchased from a
16) There was not a majority of the membership of the common fund which included both 'First Tithe' and 'Second
defunct association either present or by proxy voting for the Tithe' funds.
resolution on March 11, 1962.
2) The trial court erred in overruling its motion for
17, 20) Plaintiffs and Intervenors did not wait an judgment appointing plaintiff Receiver to take charge of all
unreasonable length of time before bringing this suit, after assets of the defunct association.
discovering the assets of the defunct association had been
transferred to Tom Street, Trustee. 3) The trial court erred in failing to apply the doctrine of cy
pres.
19) It was not the understanding of the members of
Intervenor Association that a contributor had to remain a 4) The trial court erred in permitting the trust to fail for
member of the (defunct) association in order to participate want of a trustee.
in benefits of the 'Second Tithe.'
5) There were no pleadings and no evidence to support the
22) A majority of those present in person at the meeting of judgment .
March 11, 1962 voted for the resolution to dissolve.
6) The trial court erred in appointing a receiver not
23) A majority of those present in person or by proxy at the qualified under Article 2294.
meeting of March 11, 1962 voted for the resolution to
7) The judgment is void because Article 4412a, V.A.T.S.
dissolve.
requires the Attorney General to be a party to suits
The trial court entered judgment that the General pertaining to a charitable trust.
Association of Davidian Seventh Day Adventists was
Contention 1 complains of the jury's finding that the
owner of the properties involved; was a defunct church; that
properties here involved were purchased with 'Second Tithe'
such properties were acquired with funds contributed to the
funds; and asserts the evidence undisputed that such were
'Second Tithe'; that such funds were not for general church
purchased from a common fund which included 'First Tithe'
purposes but were for the caring for contributors in old age;
and 'Second Tithe' funds. no evidence to support the judgment. Intervenor's pleadings
and the evidence support the judgment. And where a trust
'First Tithe' funds were funds which had been fails, the appointment of a Receiver to take charge of and
contributed for gospel work. 'Second Tithe' funds were dispose of the trust corpus is proper. Bogert, Trusts &
funds which had been contributed by the members of the Trustees, Secs. 14 and 861; O'Dell v. Grubstake Inv. Ass'n,
association for the purpose of the association caring for the Tex.Civ.App., Er.Dis., 38 S.W.2d 151; Crawford v.
contributors in their old age. Plaintiffs concede in their brief Crawford, Tex.Civ.App. (nwh), 163 S.W. 115; Hunt v. State,
that 'Second Tithe' funds were subject to a trust. While there Tex.Civ.App. (nwh), 48 S.W.2d 466.
is evidence that the assets and properties here involved were
purchased with 'Second Tithe' funds, if such properties were Plaintiff's 6th contention is that Article 2294 precludes
purchased with commingled 'First' and 'Second' Tithe funds, the appointment of Tom Street as Receiver. Tom Street was
the cestui's right of recovery is not destroyed by reason of not a party, an attorney in the case, or otherwise a person
the fact the Trustee commingled the trust property with its interested in an action for the appointment of a receiver, as
own property. The entire commingled fund or property will precluded by Article 2294.
be treated as subject to the trust. Eaton v. Husted, 141 Tex.
349, 172 S.W.2d 493. And if the Trustee invests the trust Contention 7 complains that the judgment is void
fund or its proceeds in other property, the cestui que trust because Article 4412a, V.A.T.S., requires the Attorney
may follow the fund into the new investment. Kennedy v. General to be a party to suits pertaining to a charitable trust.
Baker, 59 Tex. 150. And where the Trustee mingles the The 'Second Tithe' trust is not a charitable trust, and Article
trust money with his own, whenever he pays out * * * he is 4412a is inapplicable.
presumed to have paid out with his own money.
Continental Nat. Bank v. Weems, 69 Tex. 489, 6 S.W. 802. Defendants, by counter-point, assert the trial court
erred in not confirming title to the property in Tom Street as
Under the authorities cited, the beneficiaries are Trustee.
entitled to follow the trust funds into the assets and
properties here involved. Plaintiff's points, (and defendants' counter-point) are
overruled.
Page 260
Affirmed.
Plaintiff's 2nd contention is that the trial court erred in
not appointing it to take charge of all assets of the defunct
association under Articles 2293 et seq., Vernon's Ann
.Tex.St. These statutes concern the administration of
properties belonging to defunct churches. The property
which we are concerned with is property subject to a trust in
favor of 'Second Tithe' contributors; and Articles 2293 et
seq., V.A.T.S. are inapplicable.
Plaintiff's 3rd contention is that the trial court erred in
not applying the cy pres doctrine. The cy pres doctrine
applies to a charitable trust, and has no application here.
This trust is not charitable. This is a trust, the assets of
which were to give old age protection to the contributors.
Plaintiff's 4th contention is that the trial court erred in
permitting the trust to fail for want of a trustee. The trial
court did not permit the trust to fail for want of a trustee.
When the association became defunct and broke up, the
accomplishment of the trust became impossible. (Plaintiff
has only 6 members; intervenors but few more; some 8
groups claim to be successors to the old association). If the
purposes of a valid trust, as here, become impossible of
accomplishment, the trust will be terminated. Restatement
of Trusts, Sec. 335; Scott Trusts, Sec. 335.
Plaintiff's 5th contention is there are no pleadings and
Page 450 included additional unauthorized findings, and we remand
to the trial court to allow Smith to elect a remedy and for
415 S.W.3d 450 (Tex.App.-Houston [1 Dist.] 2013) entry of a new judgment.
Charles R. SADEN, Appellant I. Appellate jurisdiction
v. After the jury's verdict but before the trial court
entered judgment, Saden informed the court that he had
Brian SMITH, Appellee. filed for bankruptcy and that the automatic bankruptcy stay
applied to all further matters in the case. The bankruptcy
No. 01-11-00202-CV.
court converted Saden's bankruptcy from a reorganization
Court of Appeals of Texas, First District, Houston. proceeding under Chapter 11 to a liquidation proceeding
under Chapter 7, and it appointed a bankruptcy trustee. The
September 26, 2013 bankruptcy court granted Smith's motion for relief from the
automatic stay to continue the state court litigation. The
Page 451 order stated:
[Copyrighted Material Omitted] [It is] ORDERED that the automatic stay pursuant to 11
U.S.C. § 362 is modified to permit the continuation of the
Page 452 State Court Lawsuit, specifically the automatic stay is
modified to allow the state court to enter judgment as to
[Copyrighted Material Omitted] liability and to award damages on of Movant's claims
against the Debtor and the Debtor's claims against the
Page 453
Movants and allow the parties to prosecute any appeals of
the final judgment, provided, however, the automatic stay
Matthew Luke Hoeg, Andrews & Kurth, LLP
shall not be modified to allow enforcement of such
Houston, TX, for Appellee.
judgment against the Debtor or pursue any right to
Alan Brandt Daughtry, Houston, TX, for Appellant. collection against the Debtor that may arise out of the State
Court Lawsuit....
Panel consists of Justices JENNINGS, BLAND, and
MASSENGALE. (Footnote omitted.)
OPINION The trial court then rendered judgment on the jury's
verdict. On Smith's breach of contract claim, the trial court
MICHAEL MASSENGALE, Justice. awarded $941,907, plus prejudgment interest and attorney's
fees. For Smith's breach of fiduciary duty claim the trial
Charles R. Saden and Brian Smith were the sole court awarded an additional $393,000 in actual damages
shareholders of POS Card Processing, Inc. Saden appeals (plus prejudgment interest), as well as $941,907 (plus
from a judgment against him for breach of contract and prejudgment interest) in equitable disgorgement of the
breach of fiduciary duty arising from actions taken in profits " found by the jury to have been obtained
connection with his management of the company. Smith
moved to dismiss this appeal for want of jurisdiction, while Page 454
Saden raised four appellate issues, alleging: (1) Smith
lacked standing to recover damages for injuries to the by [Saden] as a result of his acts of fraud, defalcation and
corporation; (2) the trial court erred by not requiring Smith embezzlement while acting and serving in a fiduciary
to elect a remedy; (3) the trial court erred in rendering capacity with respect to [Smith]." Saden filed a motion for
judgment for breach of fiduciary duty because Saden owed new trial, a motion for judgment notwithstanding the
Smith no fiduciary duty individually; and (4) the trial court verdict, and a motion to modify, correct, or reform the
erred in rendering judgment on claims not submitted to the judgment. Saden's motions were overruled by operation of
jury. law, and he timely filed a notice of appeal.
We conclude that we have jurisdiction over this Smith filed a motion to dismiss the appeal for lack of
appeal. We reverse the trial court's judgment to the extent appellate jurisdiction, arguing that the bankruptcy trustee
that it permitted duplicative recovery of damages and had exclusive standing to pursue an appeal of the adverse
judgment, and because the trustee did not file a notice of dischargeability by the Trustee. The underlying judgment
appeal, this court lacks appellate jurisdiction. In response, against Mozer, even if final, is not prima facie
Saden pointed out that the bankruptcy court allowed the non-dischargeable. Mozer has represented to this Court
appeal to proceed by its order that modified the automatic that " additional facts would need to be established and that
stay to allow the trial court to enter judgment and the debt would not be non-dischargeable even if the state
authorized " the parties to prosecute any appeals of the final court judgement were to become final. " (Appellants'
judgment." Saden also noted that the bankruptcy court, in Opposition to Shorten Briefing Schedule and Waive Oral
the course of declining to discharge the debt, has rejected Argument, p. 2).
Smith's argument in a " Judgment of Non-Dischargeability,"
which provided: Page 455
For the reasons set forth on the record of February 10, 2011, To be sure, sale of the Defensive Appellate Rights may be
Charles R. Saden's liability under the judgment of the 270th unhelpful to her in defeating a non-dischargeability claim,
Judicial District Court of Harris County, Texas in Cause but she is in no worse position than if she were permitted to
2009-00593 is excepted from discharge pursuant to 11 pursue the state court appeal and lost.
U.S.C. § 523.
Id. (emphasis added).
If the state court's judgment is reversed or modified on
appeal, this Court will reconsider this judgment pursuant to In this case, the opposite is alleged and the Court has
Rule 9024 of the Federal Rules of Bankruptcy Procedure. already determined that the state court judgment bars
further litigation over whether the claim is excepted from
Finally, Saden argues that he has standing because a discharge. Accordingly, to the extent that the automatic stay
state-court judgment cannot be collaterally attacked in the bars Saden from pursuing his appeal for the purposes of
bankruptcy court, and the bankruptcy court in this case challenging findings that adversely affect his discharge, the
relied on the state-court judgment against him, which stay is modified.
recited the trial court's findings that he committed acts of
fraud, defalcation, and embezzlement, in holding that the $3 By modifying the stay, this Court expresses no view on
million judgment underlying this appeal is not whether the First Court of Appeals has jurisdiction over
dischargeable in bankruptcy. He argues that a conclusion Saden's appeal.
that the Bankruptcy Code's automatic stay terminates his
Subject-matter jurisdiction is essential to the
standing to challenge the otherwise unreviewable
authority of a court to decide a case and is never presumed.
state-court judgment that is the basis of the
Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440,
nondischargeability holding is " circular reasoning and
443-44 (Tex.1993); see also Bland Indep. Sch. Dist. v. Blue,
would be a denial of constitutional rights of due process and
34 S.W.3d 547, 553-54 (Tex.2000). Standing is a necessary
due course of law."
component of subject-matter jurisdiction and cannot be
Meanwhile, after Smith filed his motion to dismiss in waived. Blue, 34 S.W.3d at 553-54. If a party lacks
this court, Saden filed in the bankruptcy court an standing, the trial court does not have jurisdiction to hear
emergency motion to confirm his authority to appeal the the case. Id. A party has standing only when he raises " an
state-court judgment. The bankruptcy court issued an order actual, not merely a hypothetical or generalized grievance."
which provided: Brown v. Todd, 53 S.W.3d 297, 302 (Tex.2001); see also
Texas Ass'n of Bus., 852 S.W.2d at 443 (explaining that
The Court cannot, should not and will not determine concept of standing arises from separation of powers and
whether the First Court of Appeals has jurisdiction over constitutional prohibition on the issuance of advisory
Saden's notice of appeal. That is a matter left solely to the opinions).
Texas courts.
The filing of a voluntary petition for bankruptcy
The principal case cited by Brian Smith in opposition to the impacts the issues of standing and jurisdiction due to the
Debtor's motion is In re Mozer, 302 B.R. 892 creation of the bankruptcy estate and the automatic stay.
(C.D.Cal.2003). Mozer indeed deals with a similar situation When a debtor voluntarily files a petition for bankruptcy, an
as the present one-but with a major distinction. The state " estate" is created, comprised of " all legal or equitable
court findings in Mozer were insufficient to establish an interests of the debtor in property as of the commencement
exception to discharge: of the case." 11 U.S.C. § 541 (2012). This includes causes
of action or legal claims that belonged to the debtor before
However, sale of the Defensive Appellate Rights by her the petition was filed. Douglas v. Delp, 987 S.W.2d 879,
Trustee is not literally nor is it tantamount to a waiver of 882 (Tex.1999); Hous. Pipeline Co. LP v. Bank of Am.,
N.A., 213 S.W.3d 418, 424-25 (Tex.App.-Houston [1st necessary to preserve issues for appellate review under our
Dist.] 2006, no pet.); Kane v. Nat'l Union Fire Ins. Co., 535 procedural rules. See, e.g., TEX.R. CIV. P. 324(b). Saden's
F.3d 380, 385 (5th Cir.2008). timely filed post-judgment motions extended the timeline
for filing his notice of appeal, which was also timely filed.
The filing of a bankruptcy petition further operates as See TEX.R.APP. P. 26.1(a). Saden's timely filing of a
a stay of the " continuation ... of a judicial ... action or notice of appeal invoked this court's jurisdiction. See
proceeding against the debtor that was ... commenced TEX.R.APP. P. 25.1(b).
before the commencement of the [bankruptcy] case." 11
U.S.C. § 362(a)(1). " The automatic stay deprives state We hold that Saden has standing, and we otherwise
courts of jurisdiction over the debtor and his property until have jurisdiction over this appeal. Accordingly, we deny
the stay is lifted or modified." Hous. Pipeline Co., 213 Smith's motion to dismiss the appeal.
S.W.3d at 428-29 (internal quotations omitted). Thus a
judgment rendered in derogation of the automatic II. Saden's appeal on the merits
bankruptcy stay is void. York v. State, 373 S.W.3d 32,
38-40 (Tex.2012) (approving holding in Cont'l Casing Appellee Brian Smith is the owner of Cash Register
Corp. v. Samedan Oil Corp., 751 S.W.2d 499, 501 Sales and Service of Houston, Inc., which does business as
(Tex.1988)). CRS, Texas. The company was founded by Smith's father
more than 30 years ago to sell cash registers, and in more
Smith moved to dismiss the appeal for want of recent years it sold " point of sale systems" commonly used
jurisdiction based on Saden's alleged lack of standing to in restaurants. Appellant Charles Saden worked as a
initiate an appeal after his bankruptcy filing, which vested salesman for a company in the business of processing credit
exclusive standing in the trustee. In response, Saden argues card payments. Saden called on CRS, Texas to solicit leads
that he has standing because of the bankruptcy court's or referrals for customers in 1999, which is when he first
non-dischargeability determination and because of the order met Smith. From 1999 to 2001, Saden and Smith worked
that modified the automatic bankruptcy stay. Thus, in together on such deals, but in 2001 Saden resigned from his
determining our jurisdiction, we must ascertain whether (1) job and approached Smith about forming a new credit card
Saden has standing to appeal the state-court judgment and processing company.
(2) the assumption of jurisdiction would violate the
automatic stay. Smith agreed and contributed $10,000 to enable the
newly formed company to pay for an affiliation with
Page 456 National Processing, which would allow the company to
enter the credit card processing market. Smith testified that
While discharge in bankruptcy under Chapter 7 he did not mind being the only one to contribute money
extinguishes a debtor's personal liability for a debt, see because he knew that Saden was unemployed.
Johnson v. Home State Bank, 501 U.S. 78, 82-83, 111 S.Ct.
2150, 115 L.Ed.2d 66 (1991), a " debtor remains personally Smith testified that they agreed that Saden would run
responsible for any debt not discharged in bankruptcy." In the business. " His position would be the president and
re Cousins, 209 F.3d 38, 40 (1st Cir.2000). Here, the everything from top to bottom. Obviously, if it's just Chuck
bankruptcy court's judgment ofQRQ GLVFKD UJHDELOL
W\² and I, I was president of CRS, Texas, and that was my
applying bankruptcy law to the state-courtM XGJPH QW² full-time job so Chuck's responsibility would be to run the
means that despite his bankruptcy filing Saden continues to company and to make it grow." Smith said, " I was to be a
retain a pecuniary interest in the outcome of this case. He is silent partner, I was not involved in working there
personally, actually aggrieved by the trial court's judgment, day-to-day." But he also said that he brought expertise and
which affects the scope of the discharge of his liabilities in experience in the point-of-sale business to the venture. In
bankruptcy. See Brown, 53 S.W.3d at 302. Accordingly we particular, Smith's point-of-sale customers needed card
conclude that Saden maintains standing to maintain this processing services, so he brought the potential to generate
appeal despite the pending bankruptcy proceeding. business by referring customers to the new company. Smith
said that Saden was bringing " [h]is experience and
We also have subject-matter jurisdiction to decide the knowledge in the credit and processing
appeal in light of the bankruptcy court's modification to the
automatic stay of bankruptcy to permit the parties to Page 457
prosecute any appeals of the final judgment. Thus, our
assumption of jurisdiction in this case does not violate the business. This is what he was experienced in so he was
stay. See Hous. Pipeline Co., 213 S.W.3d at 428-29; see going to facilitate in helping to grow the POS Card
also York, 373 S.W.3d at 38-40. This modification Processing business."
necessarily authorized the filing of postjudgment motions
In 2001, Saden and Smith formed and became
co-owners in POS Card Processing, Inc. POS sold terminals agreements together, not acting independently or separately
for card processing and facilitated processing agreements from each other." However Saden repeatedly testified that
between merchants and banks. It generated revenue by the parties varied their initial agreement by later verbal
receiving a fraction of the fees that the bank charged on agreements, and that they did not operate the business in
each card transaction. POS initially received its share of the accordance with the articles of incorporation and bylaws.
fees by check and later by direct deposit into a bank He said, " Everything about this case is all about verbal
account. agreements...."
Saden and Smith each owned a 50% share of POS, For example, Saden testified that he and Smith had a
and both were directors of the company. Smith testified: verbal agreement that in the first year of POS's existence,
Saden was entitled to all of the profits from the sale of card
From the onset it was a 50/50 deal. We were to be paid processing terminals. But Smith testified that he never had a
equally, the board, me and him, it required us both to agree. conversation with Saden about his keeping the equipment
sales revenue for himself. Both Saden and his adult
.... daughter, Charlyn, received salaries from POS. Saden
testified that the board of directors " verbally agreed" to pay
I was half owner of the company, and the agreement was
the salaries. But Smith
we would share equally in the revenues that POS Card
Processing generated. Page 458
.... said they only discussed Charlyn working on commission,
not for a salary. Smith testified that he first learned during
We would be paid equally, we were 50 percent owners.
the course of litigation that POS had been paying Saden and
Saden was appointed president of POS and chairman Charlyn salaries, which Smith called " exorbitant." Saden
of the board of directors, and Smith was appointed as testified that Smith verbally agreed that POS would pay
secretary and treasurer. They agreed in writing that " until Saden's expenses for attending a trade show. But Smith said
further action of the Directors, no Director of the that he did not agree to that and that he expected Saden to
Corporation shall receive a salary in such capacity" and that pay his own expenses to attend the show, just as he did.
the directors and officers were authorized to hire and
POS had a bank account with Klein Bank, which later
supervise employees and independent contractors to
became Amegy Bank. Initially, POS received its share of
accomplish the goals of the business. However, Smith
card processing fees by direct deposit into this bank
testified that he understood that they would hire only
account. While Smith testified that from 2001 to September
independent contractors. And the bylaws included the
2008, CRS, Texas exclusively referred its customers to POS
following provision:
for services, Saden testified that he had grown frustrated by
Smith's lack of interest and participation in the business.
3.01 Powers.
Saden testified that CRS, Texas was not referring business
The Directors shall act only as a board and an individual and, therefore, he was generating the business on his own.
Director shall have no power as such. All corporate powers So Saden began doing business separately as " Precision
of the corporation shall be exercised by or under the Payment Company," engaging in exactly the same line of
authority of the Board of Directors and the business and business as POS. Saden created a bank account at Klein
affairs of the corporation shall be controlled by the Board of Bank in his own name for this purpose.
Directors subject to such limitations as are imposed by law,
the articles of incorporation or these Bylaws regarding From that point on, Saden engaged in a course of
actions to be authorized or approved by the shareholders. action that caused revenue from existing and new POS
The Board of Directors may by contract or otherwise give clients to be deposited in his personal bank account at Klein
general, limited or special power and authority to agents of Bank. At trial, Saden did not deny that he had engaged in
the corporation to transact any special business requiring such actions. He conceded he created fraudulent checks
such authorization. bearing the POS name and his personal checking account
number. And he conceded that he diverted money that
Saden agreed that, as directors, neither he nor Smith should have gone to POS's bank account into his own
could unilaterally enter into a management contract. Rather, account, falsified the POS records so it would appear that
the articles of incorporation, bylaws, and minutes of annual lesser amounts were being deposited into the POS account
meetings indicated that they had to take such actions from bank agents who processed the credit card
together as board of directors. Smith testified that the transactions, and failed to inform Smith of or lied to him
arrangement required them " to discuss and ... to come to about the amount of money that POS was earning. Saden
did not distribute POS revenue equally. For example, Saden personal account. Smith also first learned in litigation that
testified that in 2002 he paid himself $63,000 and paid Saden sold two separate POS account portfolios for far
Smith only $10,000. more than he deposited into POS accounts or told Smith
(one for $92,000 and the other for $286,000, but in each
Saden said that, despite his conduct, Smith earned case the amount actually received by POS was
more money than he would have under prior business approximately $53,000 to $54,000).
arrangements. He blamed Smith for not being aware of his
wrongful conduct. At trial, Saden was questioned about his Around July 2008, after Smith had sought but not
" skimming off the top" of the POS accounts: received additional information about the management and
finances of the business, he and Saden, who was also
Q. Did you think that's something that your business partner unhappy with the arrangement, discussed ending the
would want to know? business. They met again in September 2008, and Smith
asked for an accounting. Saden provided some information,
A. If he wanted to participate and get to know things he but he did not give Smith " source information" that would
could have spent a lot more time involved in the operation, have shown which processor deposited which amounts at
including referring like kind businesses. which times. Smith said, " I think his attitude was like this
is all you're going to get. I knew we weren't getting too
Q. So, your position is then hey, if he had gotten more
terribly far with that information. I left with maybe ten
involved he would have caught this theft but shame on him
pages of printout and that was it."
for not getting more involved?
Smith ultimately sued Saden for, among other things,
A. He was secretary-treasurer and he certainly didn't have
breach of contract and breach of fiduciary duty. Smith
an idea of what was going on in the corporation.
alleged that he was bringing his claims both in his personal
.... capacity and in a derivative capacity as a shareholder of
POS. He alleged that Saden breached a fiduciary duty owed
Q. You're not telling the ladies and gentlemen of the jury to him personally because POS was operated as a
that you told Mr. Smith you were skimming this money off partnership, the articles of organization and by-laws of POS
the top, are you? vested control of the company in Saden and gave rise to a
contractual fiduciary duty, and the circumstances
A. I didn't tell Mr. Smith I was skimming off of the account. surrounding the creation and operation of POS gave rise to
a confidential relationship between Saden and Smith. As to
Q. You didn't tell him, hey I'm getting 100 percent over his personal breach of contract claim, Smith alleged that
here and I'm going to give 60 percent of that to POS, did Saden breached his " contractual obligations, and Smith's
you? contractual rights, under the several agreements signed by
the parties; including without limitation, the articles of
A. I can't remember that conversation. organization and the by-laws of POS."
Q. Right. But so you would then decide, to use my The case was tried to a jury. At trial, both Saden and
example, if you got 50 or 60 in one particular month you Smith testified, among other things, about their history of
would then write a check over to working together, the formation and operation of POS, and
their agreement as to sharing revenue. Smith also presented
Page 459
the testimony of Bill Shields, an accountant who analyzed
POS and Precision accounting records, including balance
POS, put it in their bank account and say 25. Right?
sheets, profit and loss statements, general ledgers, and tax
A. They got what they deserved. records. The accounting spreadsheets that formed the basis
for his testimony were admitted into evidence. Based on
Smith testified that he " relied totally" on Saden with information he received from Smith, Shields assumed that
respect to his expectations of revenue and growth of POS. the parties' agreement required an equal division of
Early on, he did not review the company's books. He revenues, and his analysis did not credit Saden for expenses
received monthly checks for what he believed was his which were disputed by Smith. Shields testified that
portion of the revenue, but he discovered during the course between 2002 and 2008, POS had actual revenue of $3.77
of litigation that Saden never followed the parties' million, and in addition to that, $2.41 million was diverted
agreement that both directors would be paid equally. He from POS to Precision. Shields explained his calculations
testified that he first learned during the litigation of many of and the spreadsheets that were admitted into evidence at
Saden's actions, including his creation of Precision Payment trial. He calculated the amount of money which in his
Company and that he had deposited POS money in his opinion was due to Smith, based on sharing the revenues
but not the disputed expenses, and including revenue Answer in dollars and cents if any.
diverted to other entities that
Saden objected to Question No. 1 on the grounds that
Page 460 there was no evidence of reasonable and necessary
expenses and there was no definition of reasonable and
should have accrued to POS. Based on his calculations, necessary expenses. The trial court overruled both
Shields testified that Saden owed Smith $941,907. Shields objections. Neither party objected to questions 2 or 4.
also testified that $941,907 " represents the excess portion
of the income that was either received by or directed to the The relevant breach of fiduciary duty questions asked:
benefit of Saden." He said that $941,907 was " solely" what
Smith was entitled to receive. QUESTION NO. 8
Shields also testified about the expenses charged to Did Charles Saden comply with his fiduciary duties to
POS. Although POS had gross income of $3.77 million, it Brian Smith?
turned a total profit of only approximately $4,000 over the
relevant years. He explained that the money Saden had paid Because a relationship of trust and confidence existed
to himself and family members, including personal living between them, Charles Saden owed Brian Smith a fiduciary
expenses, accounted for the entire difference between the duty. To prove he complied with his duty, Charles Saden
company's revenue and its profit. must show:
Two causes of action against6D GHQ² breach of a. The transactions in question were fair and equitable to
contract and breach of fiduciary GXW\² were submitted to Brian Smith;
the jury. The breach of contract questions asked:
b. Charles Saden made reasonable use of the confidence
QUESTION NO. 1 that Brian Smith placed in him;
Did Brian Smith and Charles Saden agree to equally split c. Charles Saden acted in the utmost good faith and
the revenues, less reasonable and necessary expenses, exercised the most scrupulous honesty toward Brian Smith;
derived from the business agreed to be conducted by POS?
d. Charles Saden placed the interests of Brian Smith before
In deciding whether the parties reached an agreement, you his own, did not use the advantage of his position to gain
may consider what they said and did in light of the any benefit for himself at the expense of Brian
surrounding circumstances, including any earlier course of
Page 461
dealing. You may not consider the parties' unexpressed
thoughts or intentions. Smith, and did not place himself in any position where his
self-interest might conflict with his obligations as a
If your answer to Question No. 1 is " Yes," then answer the
fiduciary; and
following question. Otherwise, do not answer the following
question. e. Charles Saden fully and fairly disclosed all important
information to Brian Smith concerning the transactions.
QUESTION NO. 2
....
Did Charles Saden fail to comply with the agreement?
If your answer to Question No. 8 is " No," then answer the
....
following question. Otherwise do not answer the following
QUESTION NO. 4 question.
What sum of money, if any, if paid now in cash, would QUESTION NO. 10
fairly and reasonably compensate Brian Smith for his
What sum of money, if any, if paid now in cash, would
damages, if any, that resulted from Charles Saden's failure
fairly and reasonably compensate Brian Smith for his
to comply with the agreement?
damages, if any, that were proximately caused by Charles
Lost profits that are a natural, probable, and foreseeable Saden's failure to comply with his fiduciary duties to Brian
consequence of Chuck Saden's failure to comply with the Smith?
agreement.
" Proximate cause" has two parts:
1. A proximate cause is a substantial factor that in a natural Page 462
and continuous sequence brings about an event and without
which the event would not have occurred; and Defense counsel: And we would like to submit our
proposed Question No. ² actually, 8 should have been
2. A proximate cause is foreseeable. " Foreseeable" means with regard to my last question. I apologize, Your Honor.
that a person using ordinary care would have reasonably
anticipated that his acts or failure to act would have caused Court: Well, whatever.
the event or some similar event.
Defense counsel: I'm guessing the last one should have been
There may be more than one proximate cause of an event. with regard to this. And, I'll go ahead and on the same basis
we object to Question No. 9, 10, 11, 12 again on the basis
Consider the following elements of damages, if any, and there is no evidence of written formal fiduciary duty or
none other. You shall not award any sum of money on any UHODWL
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S² FRQI L
GHQWLDOU HO
DWLRQVKLS
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XV W
element if you have otherwise, under some other element,
awarded a sum of money for the same loss. That is, do not Court: Overruled, overruled, overruled, overruled.
compensate for the same loss twice, if any.
The jury found that Smith and Saden had an
Lost profits that are a natural, probable, and foreseeable agreement, which only Saden had breached. It also found
consequence of Chuck Saden's failure to comply with his that Saden did not comply with his fiduciary duties. The
fiduciary duties to Brian Smith. jury awarded damages in the following amounts: (1)
$941,907 for breach of contract, (2) $393,093 for breach of
.... fiduciary duty, and (3) $941,907 for Saden's profit from the
conduct found to be a breach of his fiduciary duties. Smith
If your answer to Question No. 8 is " No," then answer the moved for entry of judgment on the verdict, for a turnover,
following question. Otherwise, do not answer the following and for permanent injunctive relief.
question.
The trial court rendered judgment for (1) $941,907 for
QUESTION NO. 11 breach of contract, plus attorney's fees of $465,173.27 (and
contingent appellate attorney's fees in the aggregate amount
What was the amount of Charles Saden's profit from the of $125,000) and prejudgment interest in the amount of
conduct, if any, that you have found to be a breach of $91,255.35; (2) $393,093 for breach of fiduciary duty, plus
Charles Saden's fiduciary duties to Brian Smith? prejudgment interest in the amount of $38,090.24; and (3)
$941,907 for equitable disgorgement of profits " found by
Smith objected to the omission of separate questions
the jury to have been obtained by [Saden] as a result of his
pertaining to his derivative claims for breach of fiduciary
acts of fraud, defalcation and embezzlement while acting
duty, and he requested their inclusion. The trial court denied
and serving in a fiduciary capacity with respect to [Smith],"
these requests. Saden made the following objections to
plus prejudgment interest in the amount of $91,255.35. The
questions 8, 10, and 11:
judgment also characterized the assets in possession of the
Defense counsel: Defendants also object to Question No. 8 receiver as having been " received or obtained as a result of
in the jury charge. The H[LV W
HQF H
² first of all, defendants Defendant, Charles R. Saden's acts of fraud, defalcation and
object to the inclusion of an informal fiduciary duty because embezzlement while acting and serving in a fiduciary
there is no evidence of a confidential relationship that capacity to Plaintiff, Brian Smith."
predates the POS transaction and for that reason we don't
Saden raises four issues on appeal. In his first issue,
believe there should be an informal fiduciary duty question.
Saden argues that Smith, in his individual capacity, lacked
Court: Overruled. standing to pursue the claims pleaded against Saden for
damages related to POS. Second, Saden contends that Smith
Defense counsel: To the extent that it is included we do should have been required to elect a remedy instead of
require-we object to the extent there is no language to recovering duplicative damages for lost profits. Third,
support or there isn't a definition given to [the] jury that the Saden challenges Smith's recovery for breach of fiduciary
relationship must have existed prior to and separate from duty because no question on the existence of a duty was
the transaction giving rise to the alleged breach of fiduciary submitted to the jury and because there was no preexisting
duty. special relationship sufficient to support a finding of an
informal fiduciary duty. Finally, in his fourth issue Saden
Court: Overruled. asks this court to reform the judgment to eliminate language
not supported by any jury finding, specifically the
judgment's reference to fraud, defalcation, and circumstances of the relationship between Saden and Smith
embezzlement. prior to the formation of POS.
A. Smith's standing At the charge conference, Smith sought to include
jury questions on his derivative claims and the court refused
Smith's original petition included causes of action for his requests. Saden does not challenge Smith's standing to
breach of contract and breach of fiduciary duty. Saden bring a derivative claim, and the only apparent basis for the
challenges Smith's standing as a 50% shareholder of POS to trial court's failure to separately submit questions on the
individually recover the company's lost profits pursuant to derivative claims stems from the fact that POS was a
those claims. As noted above, standing is a component of closely held corporation. See TEX. BUS. ORGS.CODE
subject matter jurisdiction, it cannot be waived, and it is ANN. § 21.563(a) (West 2012). If justice requires, a court
never presumed. See Tex. Ass'n of Bus., 852 S.W.2d at may treat a derivative proceeding brought by a shareholder
443-44; Blue, 34 S.W.3d at 553-54. Smith had standing to of a closely held corporation as if it were a direct action
assert the causes of action submitted to the jury if he raised brought by the shareholder for the shareholder's own
" an actual, not merely a hypothetical or generalized benefit. Id. § 21.563(c)(1). Smith met these criteria and
grievance." Brown, 53 S.W.3d at 302. therefore the trial court was authorized to act as it did,
treating his derivative claim as a direct claim.
Saden relies on Wingate v. Hajdik, 795 S.W.2d 717
(Tex.1990), for the proposition that Smith cannot recover We hold that Smith had standing to assert his claims,
personally whether individually or derivatively, and we overrule
Saden's first issue.
Page 463
B. Breach of fiduciary duty
for damages incurred by a corporation of which he is a
shareholder. In that case, the Supreme Court of Texas held Saden argues that Smith cannot recover for breach of
that " [a] corporate stockholder cannot recover damages fiduciary duty because any duty was owed to the
personally for a wrong done solely to the corporation, even corporation, no duty question was submitted to the jury, and
though he may be injured by that wrong." Wingate, 795 there was no pre-existing special relationship to support an
S.W.2d at 719. A shareholder may nevertheless recover informal fiduciary duty.
damages " for wrongs done to him individually" when he
pleads and proves that the defendant has violated a duty that We again note the special circumstances applicable to
he owed the shareholder, which arises from contract or a closely held corporation. Smith pleaded his claims both in
otherwise. Id. his individual capacity and also derivatively on behalf of
the closely held corporation. The evidence conclusively
Saden filed special exceptions arguing that " the established that POS was a closely held corporation and that
essence of Smith's allegations is to vindicate for wrongs Smith was one of its two 50% shareholders. Accordingly,
allegedly done to POS, as opposed to wrongs directed at the trial court was authorized to treat the derivative claims
Smith individually." The trial court denied the special as individual claims. See id. Moreover, " a recovery in a
exceptions, and Smith later amended his petition, direct or derivative proceeding by a shareholder may be
specifically pleading that he was alleging various causes of paid directly to the plaintiff or to the corporation if
DF W
LRQ² including breach of contract and breach of necessary to protect the interests of creditors or other
fiduciary GXW\² as both individual and derivative claims. shareholders of the corporation."
Specifically, Smith alleged a claim for a personal breach of
contract based on " contractual obligations, and Smith's Page 464
contractual rights, under the several agreements signed by
the parties; including without limitation, the articles of Id. § 21.563(c)(2); Swank v. Cunningham, 258 S.W.3d 647,
organization and the by-laws of POS." Smith also alleged 665 (Tex.App.-Eastland 2008, pet. denied). Saden devotes
that Saden breached a fiduciary duty owed to him his briefing on this issue to the lack of jury findings that a
personally because of the circumstances surrounding the relationship of trust and confidence existed between Saden
creation and operation of POS which allegedly created a and Smith before the formation of POS. In his brief, Saden
confidential relationship between them. argues about Smith's failure to secure jury findings that
there was " a pre-existing special or fiduciary relationship."
At trial, there was evidence that Smith and
6DGH
Q² He notes that the trial court denied his motion for directed
the sole directors, officers, and shareholders of the verdict, in which he argued, " The evidence has shown they
FRUSRUDWL
RQ² agreed to split the revenues from POS had no relationship whatsoever before they met with regard
equally. There was also evidence of the factual to the POS venture." He also notes his objection to jury
question no. 8 on the basis that there was no evidence of " a ground that evidence had been presented sufficient to
confidential relationship that predates the POS transaction." disprove that the individuals were shareholders of the
subject company, and the individuals failed to come
Question No. 8 presupposed the existence of a forward with evidence to raise a fact issue as to whether
fiduciary duty, and asked, " Did Charles Saden comply with they owned stock
his fiduciary duties to Brian Smith?" There is no question
that as an officer of POS, Saden owed a fiduciary duty to Page 465
the corporation as a matter of law. See, e.g., Int'l Bankers
Life Ins. Co. v. Holloway, 368 S.W.2d 567, 576 (Tex.1963). in the company. Swank, 258 S.W.3d at 662-64. In an
Because POS was a close corporation and Smith was one of alternative holding, the court suggested that even if the
its shareholders, the trial court was authorized to allow individual claimants had been shareholders, the trial court
Smith to pursue his derivative claim on behalf of POS as if acted within its discretion by declining to allow them to
it were his own. See TEX. BUS. ORGS.CODE ANN. § pursue derivative claims in their individual capacities and
21.563(c)(1) & (2). Smith does not contest that sufficient for their own benefit because they only claimed to own
evidence supports the jury's answer to Question No. 8 40% of the company and the record reflected " substantial
regarding breach. Because Smith owed a fiduciary duty as a and longstanding disputes" between them and the majority
matter of law, the trial court did not err in submitting this shareholder, which would have required that any recovery
claim to the jury. The jury's finding of a breach of fiduciary for the company would have to be paid to the company to
duty was supported by the evidence. protect the majority shareholder's interest. Id. at 664-66.
The factual circumstances of Smith's pursuit of derivative
In an attempt to avoid the application of section claims on behalf of POS do not share the characteristics that
21.563(c), Saden primarily relies upon Guerra v. Guerra, led the Swank court to observe, in dicta, that the trial judge
No. 04-10-00271-CV, 2011 WL 3715051 (Tex.App.-San would have acted in his discretion to refuse to authorize
Antonio Aug. 24, 2011, no pet.) (mem. op.), for the individual shareholders to pursue derivative claims. See
proposition that Smith cannot use the provision to obtain an TEX. BUS. ORGS.CODE ANN. § 21.563(c)(1).
individual recovery. In Guerra, a minority shareholder in a
family business asserted claims " on her own behalf ... Because Saden and Smith are the only shareholders of
based solely on her individual damages, not on any damage POS, the injury suffered by the corporation is the injury
to the corporation." 2011 WL 3715051, at *5. In that suffered by Smith as 50% shareholder to the extent it inured
circumstance, the court of appeals held that although to the other 50% shareholder's benefit. Considering that
section 5.14 of the Business Corporation Act (the Smith was the only shareholder injured by Saden's wrongful
predecessor to section 21.563) allowed a derivative claim to conduct (while Saden himself, as the only other
be " treated by a court as a direct action brought by the shareholder, benefited from it), the recovery could be paid
shareholder for the shareholder's own benefit," the to Smith directly to protect his interests.
provision nevertheless " does not allow a shareholder an
individual claim." Guerra, 2011 WL 3715051, at *5. That We therefore overrule the challenge to the liability
reasoning does not apply to this case, in which Smith finding on the claim for breach of fiduciary duty.
actually has alleged and demonstrated injury to the
C. Election of remedies
corporation, POS.
Saden argues that the trial court erred in awarding
The other two cases referenced by Saden in this
Smith duplicative damages and that Smith was required to
regard are also distinguishable. In 2055 Inc. v. McTague,
elect a remedy. Specifically Saden objects to the cumulative
No. 05-08-01057-CV, 2009 WL 2506342 (Tex.App.-Dallas
award of three separate measures of profits as actual
Aug. 18, 2009, no pet.), the defendants attempted to use a
damages for breach of contract, actual damages for breach
release signed by an individual to bar that individual's
of fiduciary duty, and for equitable disgorgement as a
derivative claim asserted on behalf of a corporation of
further remedy for breach of fiduciary duty. Saden raised
which she was a shareholder. The court of appeals declined
this issue in a post-trial motion to modify, correct, or reform
to apply article 5.14 to treat the corporation's claims as ones
the judgment, which the trial court denied. In this context,
" in reality" filed by the individual shareholder subject to a
we review the trial court's judgment for abuse of discretion.
contractualU H OH
DVH² a completely inapposite scenario.
See Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 226
2055 Inc., 2009 WL 2506342, at *8.
(Tex.1991); Wagner v. Edlund, 229 S.W.3d 870, 879
In Swank v. Cunningham, 258 S.W.3d 647 (Tex.App.-Dallas 2007, pet. denied). A trial court abuses its
(Tex.App.-Eastland 2008, pet. denied), the court affirmed a discretion if it acts without reference to guiding rules and
summary judgment against two individuals who purported principles, or if it fails to follow such guiding rules and
to assert derivative claims on behalf of a corporation on the principles. Columbia Rio Grande Healthcare, L.P. v.
Hawley, 284 S.W.3d 851, 856 (Tex.2009); Downer v. S.W.3d 150, 157 (Tex.2012) (" a business owner's
Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 conclusory or speculative testimony of lost profits will not
(Tex.1985). " Another way of stating the test is whether the support a judgment" ).
act was arbitrary or unreasonable." Downer, 701 S.W.2d at
242. At trial, Smith testified about various acts of
self-dealing that Saden committed, such as selling POS
" A party is generally entitled to sue and to seek accounts and keeping some of the money for himself in the
damages on alternative theories." Waite Hill Servs., Inc. v. Precision account. There were many questions about the
World Class Metal Works, Inc., 959 S.W.2d 182, 184 sums of money generated as a result of POS business and
(Tex.1998); see also Madison v. Williamson, 241 S.W.3d whether the money was deposited in the POS account or a
145, 158 (Tex.App.-Houston [1st Dist.] 2007, pet. denied). Precision account, whether the money was split evenly, and
" If a plaintiff pleads alternate theories of liability, a whether Saden used the money for his personal use. There
judgment awarding damages on each alternate theory may were also questions about expenses and what or whether
be upheld if the theories depend on separate and distinct POS expenses were paid by money kept in the Precision
injuries and if separate and distinct damages findings are account. And Smith was asked about the nature of the
made as to each theory." Madison, 241 S.W.3d at 158 injury that he suffered as a result of the actions alleged in
(citing Birchfield v. Texarkana Mem'l Hosp., 747 S.W.2d this lawsuit. Smith said, " I as a shareholder, owner of POS
361, 367 (Tex.1987)). A corollary to this principle is the Card Processing was deprived of any income that I should
one-satisfaction rule: for one injury there can only be one have received out of the profits that were earned by POS
recovery. See, e.g., Tony Gullo Motors I, L.P. v. Chapa, 212 Card Processing, so the company was damaged, and I was
S.W.3d 299, 303 (Tex.2006); see also Crown Life Ins. Co. damaged." Smith testified that " the reduction of the value
v. Casteel, 22 S.W.3d 378, 390 (Tex.2000); Stewart Title to POS" was " was the primary reason" he was " damaged
Guar. Co. v. Sterling, 822 S.W.2d 1, 7 (Tex.1991). When a individually."
defendant's
To prove his damages at trial, Smith presented the
Page 466 testimony of Bill Shields, an accountant who analyzed the
records of POS and Precision. Shields relied on certain
acts result in a single injury, and the jury returns favorable assumptions in determining the amount of money Saden
findings on more than one theory of liability, the plaintiff is owed Smith. Basing his analysis on Smith's version of
entitled to judgment on the theory affording him the events, he assumed that the men agreed to share the
greatest relief. See Birchfield, 747 S.W.2d at 367; Madison, company's revenue equally but did not agree to all of the
241 S.W.3d at 158-59. expenses incurred by Saden and charged to POS. Thus,
Shields did not consider as reasonable and necessary
In order to answer the question of whether an election business expenses the money that Saden spent on salaries
of remedies was required in this case, it is therefore for him and his relatives or the expenses that otherwise
necessary to carefully review the record to determine personally benefited Saden (such as traveling and meals).
whether the claimant supported alternate theories of liability Shields included as part of the revenue that should have
with evidence indicating separate and distinct injuries accrued to POS under the agreement $2.41 million that was
resulting in separate and distinct damages. In this case, the diverted from POS to Precision. He testified that based on
jury was asked to quantify " profits" in three different his analysis, Saden owed Smith " solely" $941,907,
questions: in question no. 4 (breach of contract lost-profits explaining that this amount " represents the excess portion
damages), in question no. 10 (breach of fiduciary duty of the income
lost-profits damages), and in question no. 11 (equitable
disgorgement of profits). Questions 4 and 10 specifically Page 467
instructed the jury to award only " lost profits," if any,
defined in each case as the " natural, probable, and that was either received by or directed to the benefit of
foreseeable consequence" of Saden's failure to comply with Saden."
his contractual or fiduciary duty. While " [r]ecovery for lost
profits does not require that the loss be susceptible of exact As was the case in Madison v. Williamson, 241
calculation," the amount of lost profits " must be shown by S.W.3d 145 (Tex.App.-Houston [1st Dist.] 2007, pet.
competent evidence with reasonable certainty." Holt denied), Smith made no attempt in the trial court to
Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 distinguish between the damages he suffered as a result of
(Tex.1992). " As a minimum, opinions or estimates of lost Saden's breach of contract and his breach of fiduciary duty.
profits must be based on objective facts, figures, or data Instead, Smith presented a unified damages model through
from which the amount of lost profits can be ascertained." the testimony of Shields, who explained that he included
Id.; see also Natural Gas Pipeline Co. v. Justiss, 397 the elements of self-dealing that were apparent from the
accounting records in determining the distributions that footnote in Smith's brief,[1] that category
Smith should have received from POS. There was no
attempt to segregate damages attributable to breach of the Page 468
parties' agreement from any other damages that somehow
may have been attributable to separate disloyal acts in also is incorporated into the Shields damages model.
breach of Smith's fiduciary duty. Moreover, the evidence at Finally in this regard, Smith's reference to the " theft of
trial did not clearly show two separate injuries in this $200,000 in certificates of deposit" is not further supported
regard. Rather, it showed generally that Saden diverted or explained with any citation to the record, but it
revenue to himself and failed to evenly divide what revenue apparently refers to a CD that Saden testified that he
was actually received by POS. The expert testimony purchased from the Precision account with funds that were
indicated that Smith's share of the POS proceeds, which obtained from the sale of POS accounts. The Shields
Shields calculated to be $941,907, was effectively the same analysis includes $1,188,846 of distributions from Precision
as the profit Saden wrongfully obtained by breaching his for the benefit of Saden, and while the record evidence does
fiduciary duty. not include detailed individual transactions supporting that
figure, it does show total amounts of distributions broken
In his appellate brief, Smith contends that the separate down by year in amounts ranging from $65,061 in 2004 to
awards for breach of contract and breach of fiduciary duty $397,995 in 2007. There is no evidence to suggest that
are supported by the record, arguing: Saden's purchase of a $200,000 certificate of deposit from
Precision funds for his own benefit is not included in
The contract damages were limited to that portion of the Shields's calculation of $1,188,846 of distributions to Saden
fifty percent (50%) of the business profits that were not from Precision.
paid to Smith by Saden, whereas the fiduciary breach
damages were, inter alia, caused by Smith's [a] failure to Second, the record reveals no competent evidence
secure the best price possible for the POS accounts that he from which a fact finder could determine with reasonable
secretly sold; [b] failure to secure commission rates for POS certainty the amount of lost profits separately attributable
equal to those he secured for himself; [c] sale of POS only to breach of contract or only to breach of fiduciary
accounts and equipment;[d] theft of $200,000 in certificates duty. See Holt Atherton, 835 S.W.2d at 84. The only
of deposit;[e] use of POS funds to pay personal living element of damages listed in questions 4 and 10 was " lost
expenses for himself and his family; [f] theft of POS funds profits." The charge instructed the jury to consider that
after the appointment of the Receiver; and [g] enriching element of damages, " if any, and none other." Neither party
himself through a series of self-dealing transactions. The objected to the lost-profits language in the charge, and
damages caused by Saden's breach of his fiduciary duty neither party requested a different or additional measure of
were different from, and not part of, the contract damages damages be submitted to the jury.
because they were of a nature that they did not cause an
unequal division of the profits from the business. The jury awarded the full measure of lost profits
supported by the accountant's testimony as contract
Appellant's Brief at 27-28 (footnotes omitted); see damages: $941,907. It may have been possible to categorize
also Dissent at 7. Saden's various bad acts between breaches of contract and
other separate breaches of fiduciary duty, and then to
We disagree. First, there is significant overlap quantify lost profits or other damages attributable to each so
between this litany of Saden's misdeeds and the misconduct as to identify separate injuries leading to separate amounts
documented and accounted for in the Shields damages of damages. But as this case was presented, tried, and
model, which represented " the excess portion of the charged to the jury, the actual evidence of injury and lost
income that was either received by or directed to the benefit profits did not show separate and distinct injuries resulting
of Saden." For example, Shields's calculations expressly in separate and distinct lost profits. See Madison, 241
accounted for acts of corporate waste, most significantly S.W.3d at 158. Smith's damages model showed that he
including the " use of POS funds to pay personal living suffered one injury: he was deprived of all the money he
expenses for himself and his family" in that his analysis did was due from POS because of the various faithless actions
not treat those expenses as reasonable and necessary taken in violation of the parties' agreement and Saden's
corporate expenses, but instead treated $1,379,369 of fiduciary duties.
expenses paid by POS as " Distributions to/for the benefit
of C. Saden." Likewise, to the extent that Smith's reference Page 469
to " enriching himself through a series of self-dealing
transactions" is also a reference to the payment of Saden's To the extent Smith suggests that other lost profits
living expenses with POS funds, as strongly suggested by a may have been attributable to other bad acts not addressed
by the Shields analysis, his brief has pointed us to no such
evidence in the record, and our own review has found none. duty. We overrule Saden's issue to the extent that he argues
Smith's brief points to no evidence of any YDOXH ² much that the one-satisfaction rule disallows an award of both
less a valuation that would satisfy Holt Atherton² actual damages and the equitable remedy of disgorgement
assigned to the lost profits attributable to Saden's " failure to of profits. Ordinarily we would reform the judgment to
secure the best price possible for the POS accounts that he effect an election of the remedy that affords the prevailing
secretly sold," " failure to secure commission rates for POS party the greatest relief. See, e.g., Star Houston, Inc. v.
equal to those he secured for himself," " sale of POS Shevack, 886 S.W.2d 414, 423 (Tex.App.-Houston [1st
accounts and equipment" (other than the purchase of the Dist.] 1994), writ denied, 907 S.W.2d 452 (Tex.1995) (per
$200,000 certificate of deposit apparently included in curiam). However, this case is complicated by the fact of
Shields's calculation of distributions from Precision to Saden's bankruptcy and the
Saden), or " theft of POS funds after the appointment of the
Receiver." See Appellee's Brief at 28. Page 470
In sum, Smith demonstrated his entitlement to a bankruptcy court's order of non-dischargeability. Because
unified recovery for one broadly described injury with one it is not readily apparent from the appellate record which
damages model sponsored by accountant Shields. See id. theory of liability Smith would elect, we will remand to
Accordingly, Smith failed to justify separate awards for permit Smith to make an election.
alternate theories of liability, as the theories as presented at
trial did not depend on separate and distinct injuries D. Findings of fraud, defalcation, embezzlement
resulting in separate and distinct damages. See Madison,
In his fourth issue, Saden argues that the court erred
241 S.W.3d at 158. Under such circumstances, allowing the
by including recovery and findings on issues that were not
recovery of actual damages for both breach of contract and
submitted to the jury or conclusively established.
breach of fiduciary duty violates the one-satisfaction rule,
Specifically, Saden objects to the inclusion of language
and is therefore error. See, e.g., Downer, 701 S.W.2d at
stating that he committed " acts of fraud, defalcation and
241-42.
embezzlement while acting and serving in a fiduciary
We reach a different conclusion with respect to the capacity." Saden also specifically objects to the following
award of equitable disgorgement of profits. Question no. language on page 4 of the trial court's judgment:
11, the basis for the equitable forfeiture award, was
The Court finds that all of the business and assets that are
predicated on the liability question for breach of fiduciary
currently in the Receiver's possession, custody and control
duty, and it was phrased in terms of the " profit" Saden
belong to POS, that any such assets that are currently in the
obtained by his tortious conduct. Nevertheless, equitable
Receiver's possession, custody and control belong to POS,
forfeiture is distinguishable from an award of actual
that any such assets received or obtained by, or in the name
damages, in that it serves a separate function of protecting
of Defendants Charles R. Saden or Precision Payments
fiduciary relationships. ERI Consulting Eng'rs, Inc. v.
Company were received or obtained as a result of
Swinnea, 318 S.W.3d 867, 874 (Tex.2010). Even if a
Defendant, Charles R. Saden's acts of fraud, defalcation and
fiduciary does not obtain a benefit by violating his duty, he
embezzlement while acting and serving in a fiduciary
still may be required to forfeit the right to compensation for
capacity to Plaintiff, Brian Smith.
his work. Id. at 873 (citing Burrow v. Arce, 997 S.W.2d
229, 237 (Tex.1999)). Saden did not present any legal
Saden's complaint appears to be two-fold, that: (1) the
challenge to the amount of the equitable disgorgement
court erred by including in the judgment findings of " fraud,
award, so we express no opinion about the measure of the defalcation, and embezzlement" that were not submitted to
equitable remedy awarded. Instead, Saden only challenges
the jury and that Smith relied upon in the bankruptcy court
the award on the basis that it is duplicative of the other
to argue for an order of non-dischargeability of the debt,
awards of damages, in violation of the one-satisfaction rule.
and (2) the court erred by making a determination regarding
We hold that the one-satisfaction rule does not preclude the the assets that were then in the Receiver's possession.
recovery of both actual damages and the equitable remedy
of disgorgement of profits, as these remedies are intended to An issue must be submitted to the jury when it is (1)
address separate and distinct injuries. Cf. ERI Consulting, raised by the pleadings and the evidence, (2) disputed, and
318 S.W.3d at 882 (remanding case for further proceedings (3) properly requested. See Cianfichi v. White House Motor
on both equitable disgorgement and lost-profits awards). Hotel, 921 S.W.2d 441, 443 (Tex.App.-Houston [1st Dist.]
1996, writ denied); see also T.O. Stanley Boot Co., Inc. v.
We sustain Saden's issue in part and hold that on the
Bank of El Paso, 847 S.W.2d 218, 223 (Tex.1992). Texas
facts of this case, the trial court erred in rendering judgment
Rule of Civil Procedure 279 provides, " Upon appeal all
that permitted duplicative recovery of actual lost-profit
independent grounds of recovery or of defense not
damages for both breach of contract and breach of fiduciary
conclusively established under the evidence and no element Fellers v. State, 138 Tex.Crim. 307, 308, 136 S.W.2d 217,
of which is submitted or requested are waived." TEX.R. 218 (Tex.Crim.App.1940); see TEX. PENAL CODE ANN.
CIV. P. 279. § 32.45 (West 2011) (misapplication of fiduciary property
or property of financial institution).
Common-law fraud includes both actual and
constructive fraud. Cotten v. Weatherford Bancshares, Inc., Smith did not raise in his pleadings the issues of
187 S.W.3d 687, 702 (Tex.App.-Fort Worth 2006, pet. whether Saden committed acts of fraud, defalcation, and
denied). " A plaintiff seeking to prevail on claim of actual embezzlement. Nor did he request a jury question on these
fraud must prove that (1) the defendant made a material issues. Comparing the elements of fraud, defalcation, and
misrepresentation; (2) the defendant knew the embezzlement to the jury charge, we conclude that not all
representation was false or made the representation of the elements of fraud, defalcation, and embezzlement
recklessly without any knowledge of its truth; (3) the were submitted to the jury. Accordingly, we hold that the
defendant made the representation with the intent that the trial court erred by including this language in the judgment,
other party would act on that representation or intended to and we sustain this issue in part.
induce the party's reliance on the representation; and (4) the
plaintiff suffered an injury by actively and justifiably Finally, we consider Saden's challenge regarding the
relying on that representation." Exxon Corp. v. Emerald Oil portion of the judgment concerning the assets in the
& Gas Co., L.C., 348 S.W.3d 194, 217 (Tex.2011). receiver's possession. The court appointed a receiver in
However, constructive fraud is " the breach of some legal or February 2009, and the receiver took possession of POS
equitable duty which, irrespective of moral guilt, the law along with the entities Saden created and used to divert
declares fraudulent because of its tendency to deceive POS revenues. Section 11.403 of the Business
others, to violate confidence, or to injure public interests." Organizations Code provides: " The court appointing a
Archer v. Griffith, 390 S.W.2d 735, 740 (Tex.1964). " receiver under this section has and shall retain exclusive
Evidence supporting a breach of fiduciary duty may, in jurisdiction over the specific property placed in
appropriate circumstances, support a constructive-fraud receivership. The court shall determine the rights of the
finding." Murphy v. Am. Rice, Inc., No. 01-03-01357-CV, parties in the property or its proceeds." TEX. BUS.
2007 WL 766016, at *10 (Tex.App.-Houston [1st Dist.] ORGS.CODE ANN. § 11.403(c) (West 2012). Here, the
Mar. 9, 2007, no pet.); accord judgment noted that the trial court lacked authority to
dispose of the property held by the receiver due to the
Page 471 automatic bankruptcy stay and ordered the future delivery
of the assets held by the receiver to the bankruptcy trustee.
Flanary v. Mills, 150 S.W.3d 785, 795 (Tex.App.-Austin
2004, pet. denied). Saden argues, without citation to authority, that " [t]he
jury did not make any findings about POS assets, nor was it
The Fifth Circuit has defined defalcation, as relevant asked anything about Precision Payment Company or
to the context of a discharge in bankruptcy, as a " willful Hohen-Saden, LLC. The jury was asked about damages, not
neglect of fiduciary duty," which need not be accompanied these issues of ownership or entitlement, and to make any
by fraud or embezzlement. In re Schwager, 121 F.3d 177, such award or finding here would also be a duplicative
184-85 (5th Cir.1997); see also Bullock v. BankChampaign, recovery." But this particular aspect of the final judgment
N.A., __ U.S. __, __ - __, 133 S.Ct. 1754, 1758-59, 185 does not award a duplicative recovery: it defers
L.Ed.2d 922 (2013) (in the course of holding that " determination of the ownership of the assets held by the
defalcation" as used in 11 U.S.C. § 523(a)(4) requires an receiver to the bankruptcy court. We hold that the court did
intentional wrong, generally observing broad disagreement not err in doing so.
among legal authorities about the meaning of " defalcation"
); Balusik v. Kollatschny, No. 01-99-01342-CV, 2002 WL Conclusion
1822360, at *4 (Tex.App.-Houston [1st Dist.] Aug. 2, 2002,
no pet.) (not designated for publication) (" Defalcation is We reverse the trial court's judgment to the extent
also defined as ' [l]oosely, the failure to meet an obligation; that it permitted duplicative recovery of damages for breach
a nonfraudulent default.' " ). of contract
Embezzlement requires proof that (1) the defendant Page 472
was the agent of the person or corporation alleged to have
been harmed and was charged with the duty of receiving and breach of fiduciary duty and included additional
money of his principal, (2) he received money belonging to unauthorized findings that Saden committed acts of "
his principal in the course of his employment, and (3) that fraud," " defalcation," and " embezzlement," and we remand
he embezzled, misapplied, or converted it to his own use. to the trial court to allow Smith to elect a remedy and for
entry of a new judgment, which does not include language judgment about Saden's acts of " fraud, defalcation, and
purporting to make findings based on fraud, defalcation, or embezzlement."
embezzlement.
However, in contrast to Saden's assertions and two of
TERRY JENNINGS, Justice, dissenting. the majority's holdings, the record reveals that (1) the trial
court carefully instructed the jury on two different measures
Because the majority errs in concluding that the trial of damages on two distinct claims for two distinct injuries,
court, in its judgment, " permitted duplicative recovery of (2) Smith presented evidence that supports the jury's two
damages and included additional unauthorized findings," I separate and distinct damages findings, (3) as noted by the
respectfully dissent. majority, the trial court's equitable disgorgement of Saden's
profit from his breach of fiduciary duty to Smith did not
In this case, appellee, Brian Smith, sued appellant, result in a " damages" award duplicative of the jury's
Charles Saden, for breach of contract and breach of
fiduciary duty, two separate and distinct causes of action for Page 473
two separate and distinct injuries and remedies, arising out
of Saden's conduct in the operation of POS Card awards, and (4) the trial court, in concluding that Saden, in
Processing, Inc. (" POS" ), a closely held corporation in breaching his fiduciary duties to Smith, committed fraud,
which Smith and Saden were the sole shareholders. As defalcation, and embezzlement, did so in support of its
noted by the majority, both Smith and Saden each owned 50 equitable disgorgement of Saden's profits derived from
percent of the company, were both directors, and were to be POS, not in regard to any separate claim upon which it
paid equally. thought Smith might be entitled to recover.
In his third issue, Saden argues that the trial court's Breach-of-Contract Damages
judgment should be " reformed to require election of one
remedy for lost profits" because " the jury was asked to find In regard to Smith's breach-of-contract claim, the jury,
lost profits on multiple theories of liability" and Smith " did in response to question one in the trial court's charge,
not distinguish his damages among any of these theories, all expressly found that Smith and Saden " agree[d] to equally
of which had the same measure of damages. " (Emphasis split the revenues, less reasonable and necessary expenses,
added.) Although Saden generally asserts that " Smith made derived from the business agreed to be conducted by POS."
no attempt to distinguish damages from among any of [the] (Emphasis added.) And the jury further found that Saden
theories of recovery," he does not challenge the legal or failed to comply with the agreement to equally split with
factual sufficiency of the evidence supporting the jury's Smith the revenues from POS.
specific damages findings. Rather, after quoting in his brief
questions four, ten, and eleven of the trial court's charge to In question four, the trial court instructed the jury that
the jury, Saden makes his complaint that " the jury was " [l]ost profits are a natural, probable, and foreseeable
asked to find the same lost profits measure of damages " consequence of ... Saden's failure to comply with the
and " Smith was allowed to recover a judgment that agreement. " (Emphasis added.) The trial court expressly
awarded all three of these overlapping recoveries for lost asked the jury to measure the lost profits that flowed from
profits. " (Emphasis added.) Saden's breach of contract. It then asked the jury, " What
sum of money, if any, if paid now in cash, would fairly and
In his fifth issue, Saden argues that the trial court's reasonably compensate ... Smith for his damages, if any,
judgment must be " reformed to eliminate findings and that resulted from ... Saden's failure to comply with the
recoveries for fraud, defalcation and embezzlement" agreement ?" (Emphasis added.) And the jury answered, "
because these issues " were not submitted to the jury" and $941,907."
recovery on them by Smith has been " waived by
omission." Again, Saden does not challenge the sufficiency As noted by the majority, this answer is consistent
of the evidence supporting the trial court's conclusions that with the testimony of Smith's expert, Bill Shields, an
he, in breaching his fiduciary duties owed to Smith, accountant who reviewed the records of POS. Based on his
committed fraud, defalcation, and embezzlement. review of the records and the agreement of Smith and Saden
to split the revenue of POS equally, Shields opined that
The majority concludes that in this case " recovery of Saden had withheld $941,907 from Smith. Accordingly, the
actual damages for both breach of contract and breach of jury reasonably concluded that Saden, in violation of his
fiduciary duty violates the one-satisfaction rule," and it agreement with Smith, withheld and failed to pay Smith
holds that the trial court erred in rendering judgment that " $941,907, Smith's half of the revenues derived from POS.
permitted duplicative recovery" of damages. It further holds From this answer, it necessarily follows that Saden's half of
that the trial court erred in including " language" in its the revenues of POS also totaled $941,907.
Breach-of-Fiduciary-Duty Damages consequence of ... Saden's failure to comply with his
fiduciary duties " included revenue lost by POS due to
In regard to Smith's claim against Saden for breach of Smith's failure to secure the best price possible for POS
fiduciary duty, the trial court, in question seven of its accounts that he secretly sold, failure to secure commission
charge, defined the term " relationship of trust and rates for POS equal to those he secured for himself, sale of
confidence," and the jury found that " a relationship of trust POS accounts and equipment, theft of $200,000 in
and confidence exist[ed] between" Smith and Saden. In certificates of deposit, use of POS funds to pay personal
question eight, the trial court instructed the jury on living expenses for himself and his family, theft of POS
fiduciary duties, and the jury found that Saden did not " funds after the appointment of a receiver, and enriching
comply with his fiduciary duties to ... Smith." himself through a series of self-dealing transactions. Thus,
there is ample evidence in the record from which the jury
In question ten, the trial court instructed the jury that " could have reasonably found that Saden, in breaching his
[l]ost profits are a natural, probable, and foreseeable fiduciary duties to Smith, caused Smith damages of
consequence of ... Saden's failure to comply with his $393,093 above and beyond his breach-of-contract damages
fiduciary duties to ... Smith." (Emphasis added.) Here, in of $941,907.
contrast to question four, the trial court expressly asked the
jury to measure the lost profits that resulted from Saden's Nevertheless, the majority conducts a sua sponte
breach of fiduciary duties, not those that resulted from his analysis of the evidence and makes a different finding. In
breach of contract. It then asked the jury, " What sum of support its finding, the majority relies in part on Holt
money, if any, if paid now in cash, would fairly and Atherton Indus., Inc. v. Heine, 835 S.W.2d 80 (Tex.1992).
reasonably compensate ... Smith for his damages, if any, In Holt, the Texas Supreme Court did explain that the
that resulted from ... Saden's failure to comply with his amount of lost profits must be " shown by competent
fiduciary duties to ... Smith?" (Emphasis added.) And the evidence with reasonable certainty" and " opinions or
jury answered, " $393,093" in stark contrast to its answer to estimates of lost profits must be based on objective facts,
question four, which was " $941,907." figures or data from which the amount of lost profits can be
ascertained." 835 S.W.2d at 84. However, the court further
Again, Saden does not challenge the sufficiency of explained that " [r]ecovery for lost profits does not require
the evidence supporting the jury's award of $393,093. He that the loss be susceptible of exact calculation. " Id.
simply assumes that the measure of damages in question (emphasis added). And Holt is readily distinguishable
four is the same as that in question ten. Based on this because (1) Holt specifically argued there was " no
assumption, Saden further assumes that the lost profits evidence supporting the trial court's award of damages for
awarded in answer to question ten are lost profits" and (2) the court held that a conclusory
statement about lost income " is not the correct measure of
Page 474
damages" and the testimony was " legally insufficient
because it [did] not provide any indication" of how the lost
duplicative of those awarded in answer to question four. Of
profits were determined. Id. at 83-84.
course, the important difference in what lost profits the jury
was instructed to consider in answering questions four and
Here the majority, as did the court in Holt, engages in
ten and the substantial difference in the jury's awards in
a " fact intensive determination" in reaching its finding that
answer to both questions illustrates the fallacy of these
Smith did not present reasonably certain evidence of lost
assumptions.
profits on his breach-of-fiduciary-duty claim. See id.
Regardless, the majority asserts, first, " there is a However, as noted above, Saden has not made a
no-evidence challenge in this appeal. Thus, the majority,
significant overlap between [Smith's] litany of Saden's
based on its sua sponte review of the evidence, is reversing
misdeeds and the misconduct documented and accounted
the trial court's judgment on unassigned error. More
for in the Shield's damages model," and, second, " the
record reveals no competent evidence from which a fact important, Smith, as noted above, did present
legally-sufficient evidence to support the jury's award of
finder could determine with reasonable certainty the amount
$393,093 for his damages resulting from Saden's breach of
of lost profits separately attributable to breach of contract or
fiduciary duties. See City of Keller v. Wilson, 168 S.W.3d
only to breach of fiduciary duty."
802, 822 (Tex.2005) (" If the evidence at trial would enable
However, as noted by Smith, he presented evidence reasonable and fair-minded people to differ
that the lost profits that resulted from Saden's breach of
contract were different from those that resulted from Page 475
Saden's breach of fiduciary duties. Smith asserts that the
in their conclusions, then [the factfinder] must be allowed
lost profits that were " a natural, probable, and foreseeable
to do so." ). POS.
Equitable Disgorgement In question eighteen, which also concerned the issue
of the appropriateness of equitable disgorgement and which
It has long been the law in Texas that courts " may was predicated on the jury's negative answer to question
fashion equitable remedies such as profit disgorgement and eight, the trial court defined the terms " malice" and " clear
fee forfeiture to remedy a breach of fiduciary duty." ERI and convincing." It defined malice as " a specific intent" by
Consulting Eng'rs, Inc. v. Swinnea, 318 S.W.3d 867, 873 Saden " to cause substantial injury or harm to" Smith. And
(Tex.2010). And the Texas Supreme Court has clearly eleven jurors expressly found by clear and convincing
explained that " a fiduciary may be punished for breaching evidence that " the harm caused by" Saden's breach of
his duty." Id. at 872 (emphasis added). Indeed, " [t]he main fiduciary duty " resulted from malice."
purpose of forfeiture is not to compensate an injured
principal.... Rather, the central purpose ... is to protect And, as noted above, the trial court, in its judgment,
relationships of trust by discouraging ... disloyalty." Id. at did conclude that " Saden's profit" of $941,907 should be
872-73 (quoting Burrow v. Arce, 997 S.W.2d 229, 238 equitably disgorged from him " as a result of his acts of
(Tex.1999)). fraud, defalcation and embezzlement while acting and
serving in a fiduciary capacity with respect to" Smith.
A plaintiff need not even establish actual damages in However, these conclusions were apparently made by the
order to receive the equitable remedy of disgorgement, and trial court to further show that it considered
" even if a fiduciary does not obtain a benefit from a third
party by violating his duty, a fiduciary may be required to Page 476
forfeit the right to compensation for the fiduciary's work."
Id. at 873 (citing Burrow, 997 S.W.2d at 237 (" [A] person Saden's behavior so egregious that Saden should be "
who renders service to another in a relationship of trust may punished" by being disgorged of his profit from his
be denied compensation for his service if he breaches that wrongful acts. The trial court's conclusions did not at all, as
trust." )). However, the equitable remedy of forfeiture must asserted by Saden, concern issues that should have been "
" fit the circumstances" presented. Burrow, 997 S.W.2d at submitted to the jury" which Smith " waived by omission."
241. Here, though, Saden does not assert that the trial
court's equitable disgorgement did not fit the circumstances. The bottom line is that the trial court's equitable
disgorgement from Saden of " $941,907," which equals his
Rather, Saden argues only that (1) the trial court's half of the revenues derived from POS, is firmly supported
equitable disgorgement constituted a double recovery or " by (1) the jury's finding that Saden profited in the amount
windfall" to Smith because it was based on lost profits and of " $941,907" by breaching his fiduciary duties to Smith,
(2) the trial court's judgment must be " reformed to (2) the jury's finding by clear and convincing evidence that
eliminate findings and recoveries for fraud, defalcation and " the harm caused by" Saden's breach of fiduciary duty "
embezzlement" because these issues " were not submitted to resulted from malice," and (3) the trial court's conclusion
the jury" and recovery on them by Smith has been " waived that Saden obtained this profit from Smith " as a result of
by omission." his acts of fraud, defalcation and embezzlement while
acting and serving in a fiduciary capacity with respect to"
In question eleven, the trial court asked the jury, " Smith. These findings and conclusion serve to show that the
What was the amount of ... Saden's profit from the conduct, trial court's equitable disgorgement of Saden's
if any, that you have found to be a breach of ... Saden's compensation " fit the circumstances." See Burrow, 997
fiduciary duties to ... Smith?" (Emphasis added.) And the S.W.2d at 241.
jury answered " $941,907." Because this question
concerned the issue of the appropriateness of equitable Conclusion
disgorgement, i.e., whether it would " fit the
circumstances," a question of equity solely in the province In its judgment, the trial court, in accord with the
of the trial court, the trial court, did not, as asserted by jury's findings, awarded Smith $941,907 on his
Saden, instruct the jury to consider any lost profits as it did breach-of-contract claim and $393,093 on his claim for
in answering question ten. Instead, the trial court breach of fiduciary duty. And, concluding that Saden, in
specifically asked the jury to determine " Saden's profit" breaching his fiduciary duties to Smith, had committed "
from his wrong doing, which equaled not only what he acts of fraud, defalcation and embezzlement," the trial court
withheld from Smith, but also, necessarily, the profit to further awarded Smith $941,907 " in equitable
which Saden himself was entitled as compensation under disgorgement of the profits" obtained by Saden. In doing so,
their agreement to split equally the revenues derived from the trial court did not permit a " duplicative recovery of
damages" or " include[ ] additional unauthorized findings."
It simply awarded Smith separate and distinct damages for
his separate and distinct injuries, and it reasonably
concluded that based on Saden's egregious conduct, he
should further be disgorged of his half of the revenues
derived from POS.
Accordingly, I would overrule Saden's third and fifth
issues and affirm the true and correct judgment of the trial
court.
---------
Notes:
[1] In Smith's appellee's brief, the reference to Saden "
enriching himself through a series of self-dealing
transactions" is followed by a footnote, which reads:
In fact, Shields, the accounting expert, allowed for
$1,600,000 in expenses in computing the contract damages,
even though many of those payments were to or for
self-dealing transactions for the benefit of Saden and his
family (e.g., meals, insurance and utilities including, gas,
water, electricity and other expenses). See PX 301.
Although those payments are not included in Smith's
contract damages, but they are tort damages in Smith's
breach of fiduciary duty claim, and they far exceed the
$393,093.00 found by the jury. Kinzbach Tool Co. v.
Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509,
512-14 (1942). Appellee's Brief at 28 n. 42. Though the
source of the $1,600,000 figure is unexplained, to the extent
Smith argues that the Shields model did not include
payments " for the benefit of Saden and his family (e.g.,
meals, insurance and utilities including, gas, water,
electricity and other expenses)," he plainly misstates the
record. The examination and cross-examination of Shields
made quite clear that between POS and Precision, Shields
determined that Saden " paid himself through either salary,
commissions, benefits, personal expenses, home expense,
whatever it may be, $2,740,927." Of this amount, the only
expenses that Shields treated as legitimate business
expenses were commissions and director fees. The Shields
damages model accounts for payments made for the benefit
of Saden and his family, and it compensates Smith for his
injury to the extent the revenues of POS and Precision were
not evenly split between him and Saden as a result of such
payments.
---------
Page 234 in every situation; it allows recovery of economic damages
in tort, or not, according to its underlying principles.[4] The
435 S.W.3d 234 (Tex. 2014) issue in this case is whether the rule permits a general
contractor to recover the increased costs of performing its
57 Tex.Sup.Ct.J. 816 construction contract with the owner in a tort action against
the project architect for negligent misrepresentations --
LAN/STV, A JOINT VENTURE OF LOCKWOOD,
errors -- in the plans and specifications. We conclude that
ANDREWS & NEWMAN, INC. AND STV
the economic loss rule does not allow recovery and
INCORPORATED, PETITIONER,
accordingly reverse the judgment of the court of appeals[5]
and render judgment for the architect.
v.
MARTIN K. EBY CONSTRUCTION COMPANY, I
INC., RESPONDENT
The Dallas Area Rapid Transportation Authority ("
No. 11-0810 DART" ) contracted with LAN/STV to prepare plans,
drawings, and specifications for the construction of a light
Supreme Court of Texas rail transit line from Dallas's downtown West End to the
American Airlines Center about a mile away. LAN/STV
June 20, 2014 agreed to " be responsible for the professional quality,
technical accuracy, and . . . coordination of all designs,
Argued October 8, 2013 drawings, specifications, and other services furnished", and
to be " liable to the Authority . . . for all damages to the
ON PETITION FOR REVIEW FROM THE COURT Authority caused by [LAN/STV's] negligent performance
OF APPEALS FOR THE FIFTH DISTRICT OF TEXAS. of any of the services furnished" . DART incorporated
LAN/STV's plans into a solicitation for competitive bids to
For CCE, Inc., Amicus Curiae: Charles R. 'Skip'
construct the project. Martin K. Eby Construction
Watson Jr., Locke Lord LLP, Austin, TX.
Company, which had built two other DART light rail
projects, one of which was designed by LAN/STV,
For LAN/STV, a joint Venture of Lockwood,
submitted the low bid on this project, just under $25
Andrews & Newnam Inc., Petitioner: Bradley Wayne
million, and was awarded the contract. The contract
Snead, Henry S. Platts Jr., Thomas C. Wright, Wanda
provided an administrative procedure for Eby to assert
McKee Fowler, Wright & Close LLP, Houston, TX.
contract disputes with DART, including complaints about
For Martin E. Eby Construction Company, Inc., design problems. Eby and LAN/STV had no contract with
Respondent: Daniel J. Davis, Davis Law Firm, Dallas, TX; each other. Thus, LAN/STV was contractually responsible
Jeffery A. Ford, Ford Nassen & Baldwin PC, Dallas, TX; to DART for the accuracy of the plans, as was DART to
Jeffrey S. Levinger, Levinger PC, Dallas, TX. Eby, but LAN/STV owed Eby no contractual obligation.[6]
OPINION Days after beginning construction, Eby discovered
that LAN/STV's plans were full of errors -- about bridge
Nathan L. Hecht, Chief Justice structures, manhole and utility line locations, subsurface
soil conditions, an existing retaining wall, and many other
Page 235 aspects of the proposed construction. While Eby expected
that, as on any project, 10% of the plans would be changed,
In actions for unintentional torts, the common law has it found that 80% of LAN/STV's drawings had to be
long restricted recovery of purely economic damages changed. This disrupted Eby's construction schedule and
unaccompanied by injury to the plaintiff or his property[1] required additional labor and materials. In all, Eby now
-- a doctrine we have referred to as the economic loss calculates it lost nearly $14 million on the project.
rule.[2] The rule serves to provide a more definite limitation
on liability than foreseeability can and reflects a preference Page 237
for allocating some economic risks by contract rather than
by law.[3] But the rule is not generally applicable Only seven months into what would turn out to be a
25-month job, Eby sued DART for breach of contract in the
Page 236 United States District Court.[7] The court dismissed the
case because Eby had not exhausted its administrative
remedies against DART under their contract and Texas negligent delay was the business of the owners and of
law.[8] Eby then invoked DART's contract dispute nobody else. . . . [The charterers'] loss arose only through
procedures, claiming $21 million. The hearing officer not their contract with the owners . . . . [N]o authority need be
only rejected Eby's claim in its entirety, he concluded that cited to show that, as a general rule, at least, a tort to the
DART was entitled to $2.4 million in liquidated damages person or property of one man does not make the tort-feasor
from Eby. Eby filed an administrative appeal, but, before it liable to another merely because the injured person was
was resolved, settled with DART for $4.7 million. under a contract with that other unknown to the doer of the
wrong. . . . The law does not spread its protection so
Meanwhile, Eby filed this tort suit against LAN/STV, far.[16]
asserting causes of action for negligence and negligent
misrepresentation. After Eby and DART settled, this case Nearly sixty years later, Judge Higginbotham
proceeded to trial,[9] but only on Eby's claim that observed in State of Louisiana v. M/V Testbank that "
LAN/STV negligently misrepresented the work to be done Robins broke no new ground . . . . [T]he prevailing rule [in
in its error-ridden plans.[10] The jury agreed and assessed the United States and England] denied a plaintiff recovery
Eby's damages for its losses on the project at $5 million, but for economic loss if that loss resulted from physical damage
they also found that the damages were caused by Eby's and to property in which he had no proprietary interest." [17]
DART's negligence as well, and apportioned responsibility Judge Higginbotham cited Professor James's 1972 article,
45% to LAN/STV, 40% to DART, and 15% to Eby. The Limitations on Liability for Economic Loss Caused by
trial court concluded that Eby's $4.7 million settlement with Negligence: A Pragmatic Appraisal :
DART should not be credited against the damages found by
the jury, but that LAN/STV should be liable only for its Under the prevailing rule in America, a plaintiff may not
apportioned share of the damages. Accordingly, the trial recover for his economic loss resulting from bodily harm to
court rendered judgment for Eby for $2.25 million plus another or from physical damage to property in which he
interest. has no proprietary interest. Similarly, a plaintiff may not
recover for economic loss caused by his reliance on a
Both LAN/STV and Eby appealed, and following the negligent misrepresentation that was not made directly to
court of appeals' affirmance,[11] both petitioned for review. him or specifically on his behalf.[18]
We granted both petitions,[12] but as we view the case, we
need only address LAN/STV's argument that Eby's " The reasons for this difference in treatment of
recovery for negligent misrepresentation is barred by the indirect economic loss and physical damage," Professor
economic loss rule.[13] We begin by surveying James continued, " do not derive from the theory or the
logic of tort law" .[19] Economic loss may be no less real
Page 238 than physical injury and just as foreseeable.
the development of the rule in American law and its status Page 239
in Texas. We then turn to its application in this case.
In Robins, for example, the charterers' loss of business
II from the dry dock's negligent delay in repairing the
steamship was readily foreseeable, but so would have been
A the charterers' clients' loss of business, and so on. Justice
Holmes' abrupt curtailment of this rippling liability -- "
The law has long limited the recovery of purely [t]he law does not spread its protection so far" [20] -- could
economic damages in an action for negligence. An early have been achieved by taking a more restrictive view of
example, oft-cited, is Justice Holmes's opinion in Robins foreseeability. But, wrote Professor James,
Dry Dock & Repair Co. v. Flint,[14] a suit by the charterers
of a steamship against a dry dock for damages for loss of judges who have been unwilling to accept narrow and
the use of the vessel from a delay in repairs due to the dry unrealistic views of what is foreseeable -- or of what a jury
dock's negligence. The Supreme Court held that the may find to be unforeseeable -- remain generally unwilling
charterers could not recover their economic damages from to allow recovery for indirect economic loss. The
the dry dock, either as third-party beneficiaries of the explanation for this reluctance, repeated in decisions over
contract between the owners and the dry dock,[15] or for the years, is a pragmatic one: the physical consequences of
the dry dock's negligence. Justice Holmes explained: negligence usually have been limited, but the indirect
economic repercussions of negligence may be far wider,
Of course the contract of the [dry dock] with the owners indeed virtually open-ended. As Cardozo put it in a passage
imposed no immediate obligation upon the [dry dock] to often quoted, liability for these consequences would be "
third persons [the charterers] as we already have said, and liability in an indeterminate amount for an indeterminate
whether the [dry dock] performed it promptly or with
time to an indeterminate class." [21] negligible from the victim's standpoint. For several reasons,
however, courts impose tort liability for economic loss
Liability for economic loss directly resulting from more selectively than liability for other types of harms.
physical injury to the claimant or his property -- such as lost
wages or medical bills -- is limited by the scope of the (1). Indeterminate and disproportionate liability . Economic
injury. Liability for a standalone economic loss is not.[22] losses proliferate more easily than losses of other kinds.
Physical forces that cause injury ordinarily spend
Often, a more appropriate remedy for the victim is to themselves in predictable ways; their exact courses may be
allocate the risk of loss by contract or to cover it through hard to predict, but their lifespan and power to harm are
insurance.[23] In Judge Posner's view: limited. A badly driven car threatens physical harm only to
others nearby. Economic harm is not self-limiting in this
This is simply generalizing to tort law the contract-law rule way. A single negligent utterance can cause economic loss
of Hadley v. Baxendale . . . . The point in Hadley . . . was to thousands of people who rely on it, those losses may
that the carrier could not estimate the loss that the customer produce additional losses to those who were relying on the
would incur from a delay in the delivery of the repaired mill first round of victims, and so on. Consequences of this sort
shaft to the customer, but the customer could estimate this may be at least generally foreseeable to the person who
cost and, therefore, was in a better position to avoid the loss commits the negligent act. Defendants in such cases thus
by taking appropriate precautions or by buying might face liabilities that are indeterminate and out of
insurance.[24] proportion to their culpability. Those liabilities may in turn
create an exaggerated pressure to avoid an activity
Thus, for example, " when a defective product
altogether.
purchased in a commercial transaction malfunctions,
injuring only the product itself and causing purely (2). Deference to contract . Risks of economic loss tend to
economic loss", protection from that kind of harm, the be especially well suited to allocation by contract. First,
United States Supreme Court has held (in an admiralty economic injuries caused by negligence often result from a
case), should be " left entirely to the law of contracts" decision by the victim to rely on a defendant's words or acts
because " the parties may set the terms of their own when entering some sort of transaction -- an investment in a
agreements." [25] Determining whether a provision company, the purchase of a house, and so forth. A potential
plaintiff making such a decision has a full chance to
Page 240
consider how to manage the risks involved, whether by
for recovery of economic loss is better left to contract helps inspecting the item or investment, obtaining
delineate between tort and contract claims. As one
Page 241
commentator has explained:
insurance against the risk of disappointment, or making a
If there is a convincing rationale for the economic loss rule,
contract that assigns the risk of loss to someone else.
it is that the rule performs a critical boundary-line function,
Second, money is a complete remedy for an economic
separating the law of torts from the law of contracts. More
injury. Insurance benefits, indemnification by agreement, or
specifically, " [t]he underlying purpose of the economic
other replacements of money payments are just as good as
loss rule is to preserve the distinction between contract and
the money lost in a transaction that turns out badly. This
tort theories in circumstances where both theories could
fungibility makes those other ways of managing risk --
apply." [26]
insurance, indemnity, and the like -- more attractive than
Since Professor James's seminal article, much has they might be to a party facing a prospect of personal
been written on the development of the rule limiting injury.
recovery of economic damages in tort actions.[27] From our
Those same points often will make it hard for a court to
review of the cases and commentary on the subject, we
know what allocation of responsibility for economic loss
think the principal rationales for the rule are
would best serve the interests of the parties to a risky
well-summarized by Dean Farnsworth in the recently
situation. A contract that settles responsibility for such a
approved Restatement (Third) of Torts: Liability for
risk will therefore be preferable in most cases to a judicial
Economic Harm, which we quote at length:
assignment of liability after harm is done. The contract will
Economic injuries may be no less important than injuries of better reflect the preferences of the parties and help prevent
other kinds; a pure but severe economic loss might well be the need for speculation and litigation later. Contracts also
worse for a plaintiff than a more modest personal injury, are governed by a body of commercial law that has been
and the difference between economic loss in itself and developed to address economic loss, and thus will often be
economic loss resulting from property damage may be better suited for that task than the law of torts. In short,
contracts to manage the risk of economic loss are more Page 244
often possible, and more often desirable, than contracts to
manage risks of other types of injury. As a result, courts cases are an exception. A client can recover purely
generally do not recognize tort liability for economic losses economic losses from a negligent lawyer, regardless of
caused by the breach of a contract between the parties, and whether the lawyer and client have a contract.[40] Lawyer
often restrict the role of tort law in other circumstances in malpractice is actionable as negligence no doubt because
which protection by contract is available.[28] agreements regarding legal representation are not required
in Texas, except for contingent fees,[41] and until relatively
Thus, the Restatement concludes, while there is " no recently have not been the norm. Also, the standards
general duty to avoid the unintentional infliction of governing legal representation are deeply developed and
economic loss" ,[29] the duty may exist when the rationales their application uniform and well-settled. These factors
just stated for limiting recovery are " weak or absent" [30] also support negligence actions against other
-- cessante ratione legis cessat et ipsa lex .[31] professionals.[42]
B Although Texas courts have repeatedly invoked the
economic loss rule to disallow recovery of purely economic
The absence of a bright-line rule, and the failure to losses in actions for negligent services not involving
analyze whether denying tort recovery for an economic loss professionals, this Court, without citing the rule, has
in a particular kind of situation is justified by the rationales allowed recovery of such losses in an action for negligent
for limiting recovery of such losses, has led to some misrepresentation, the cause of action in the present case.
confusion. In a 1992 article, then-Professor Powers called We first recognized the action, defined by section 552 of
Texas law on the subject " murky" .[32] One thing certain the Restatement (Second) of Torts,[43] in Federal Land
was that the damage caused by a defective product to itself Bank Association
cannot be recovered in an action for strict products
liability,[33] even if there is also personal Page 245
Page 242 of Tyler v. Sloane, where we held that prospective
borrowers could recover the costs they incurred (but not lost
injury or injury to other property.[34] Recovery of such profits) in relying on their lender's negligent
damages must be for breach of contract or warranty. It was misrepresentation to them that their loan application would
also fairly clear that one party to a contract cannot recover be approved.[44] Later, in McCamish, Martin, Brown &
from another party, in an action for negligence, an Loeffler v. F.E. Appling Interests , we held that while a
economic loss to the subject of the contract.[35] non-client cannot recover against a lawyer for
negligence,[45] a lawyer may be liable for negligent
Page 243 misrepresentation to a non-client, but only in narrow
circumstances, " when information is transferred by an
The Restatement now concludes generally that " there
attorney to a known party for a known purpose", liability is
is no liability in tort for economic loss caused by negligence
not expressly limited or disclaimed but invited, and the
in the performance or negotiation of a contract between the
claimant has " justifiably rel[ied] on a lawyer's
parties." [36] It was less clear twenty years ago, and still is
representation of material fact", which cannot ordinarily
today, the extent to which Texas precludes recovery of
occur in an adversarial context.[46] Most recently, in Grant
economic damages in a negligence suit between contractual
Thornton LLP v. Prospect High Income Fund, Ltd., we held
strangers, notwithstanding the rule's genesis in such cases,
that an accountant may be liable to a strictly limited group
like Robins . As Professor Powers observed, " [a]lthough
of investors who justifiably rely on negligent
cases between contractual strangers are the paradigm of the
misrepresentations in a corporate audit report.[47] But we
traditional 'economic loss' rule, no Texas case involving
denied the claims in that case because the plaintiffs were
'strangers' expressly addresses the economic loss rule." [37]
merely potential investors with no special relationship to
Professor Powers noted that this Court had suggested in
the audited corporation, and given their knowledge of the
dicta that purely economic damages are recoverable in a
corporation and the marketplace, their reliance was not
negligence action between contractual strangers but later
justified.[48]
appeared to have rejected that possibility.[38]
These cases should not be read to suggest that
Since then, Texas courts of appeals have uniformly
recovery of economic loss is broader for negligent
applied the economic loss rule to deny recovery of purely
misrepresentation than for negligent performance of
economic losses in actions for negligent performance of
services. We agree with the Restatement that " [t]he general
services.[39] Professional malpractice
theory of liability is the same" for both torts, which is that performance of its obligations to its contractual partner, not
as the breach of a duty in tort to other subcontractors on the
[a] plaintiff's reliance alone, even if foreseeable, is not a same job, or to the owner of the project. This way of
sufficient basis for recovery; under either [tort] a defendant describing the subcontractor's role is not inevitable in all
generally must act with the apparent purpose of providing a cases. General rules are favored in this area of the law,
basis for the reliance. It may be useful to say that a however, because their clarity allows parties to do business
defendant held liable under either [tort] must " invite on a surer footing. In this setting, a rule of no liability is
reliance" by the plaintiff, so long as the expression is made especially attractive by the number and intricacy of
understood to refer to the defendant's apparent purpose and the contracts that define the responsibilities of
not to a temptation incidentally created by the defendant's subcontractors on many construction projects. That web of
words or acts.[49] contracts would be disrupted by tort suits between
subcontractors or suits brought against them by a project's
And for both torts, whether and how to apply the owner.[51]
economic loss rule " does not lend itself to easy answers or
broad pronouncements." [50] Rather, as we have already The issues are whether to treat the architect differently
observed, the application of the rule depends and whether to distinguish between an action for negligent
performance of services and an action for negligent
Page 246 misrepresentations. On the latter issue, we agree with the
Restatement : " [b]oth [torts] are based on the [same] logic"
on an analysis of its rationales in a particular situation.
and " [t]he general theory of liability is the same" .[52] The
economic loss rule should not apply differently to these two
III
tort theories in the same situation.
Eby argues that the economic rule should not apply in
On the former issue, we diverge from the Restatement
this case when it did not bar recovery in our other negligent
misrepresentation cases, Sloane, McCamish, and Grant . We agree that
Thornton . LAN/STV counters that to allow such recovery
[t]he plans drawn by the architect are intended to serve as a
on construction projects, where relationships are contractual
basis for reliance by the contractor who forms a bid on the
and certainty and predictability in risk allocation are crucial,
would be disruptive. Page 247
Construction projects operate by agreements among basis of them and is then hired to carry them out. The
the participants. Typically, those agreements are vertical: architect's plans are analogous to the audit report that an
the owner contracts with an architect and with a general accountant supplies to a client for distribution to potential
contractor, the general contractor contracts with investors -- a standard case of liability [for negligent
subcontractors, a subcontractor may contract with a misrepresentation].[53]
sub-subcontractor, and so on. The architect does not
contract with the general contractor, and the subcontractors But we think the contractor's principal reliance must
do not contract with the architect, the owner, or each other. be on the presentation of the plans by the owner, with
whom the contractor is to reach an agreement, not the
We think it beyond argument that one participant on a architect, a contractual stranger. The contractor does not
construction project cannot recover from another -- setting choose the architect, or instruct it, or pay it. Under
aside the architect for the moment -- for economic loss McCamish, the contractor could not recover economic
caused by negligence. If the roofing subcontractor could damages from the owner's lawyer's negligent drafting of the
recover from the foundation subcontractor damages for construction contract. And while there is some analogy
extra costs incurred or business lost due to the latter's between the architect's plans and an accountant's audit
negligent delay of construction, the risk of liability to report, under Grant Thornton, the latter is not an invitation
everyone on the project would be magnified and to all investors to rely, but only those to whom it is more
indeterminate -- the same result Justice Holmes rejected in specifically directed. Here, the architect's plans are no more
Robins . As the Restatement explains: an invitation to all potential bidders to rely.
There is no liability in tort . . . when the owner of a The Restatement adds that if allowing recovery
construction project sues a subcontractor for negligence against the architect in negligence " is not congenial to the
resulting in economic loss; nor is liability found when one parties, they are free to change it in the contracts that link
subcontractor is sued by another because the negligence of them." [54] But the parties are just as free to provide for
the first drives up the costs of the second. A subcontractor's liability by contract that the law does not allow in tort. The
negligence in either case is viewed just as a failure in the
Restatement acknowledges this, noting that if the architect contractors can take less compensation from the owner, so
is contractually liable to the owner for defects in the plans, that the owner can in turn compensate the architect for the
and the owner in turn has the same liability to the added risk.
contractor, the contractor is protected.[55] But the
Restatement concludes that while this assignment of risk by The issue is who will buy business protection insurance. It
contract should be encouraged, it jeopardizes makes sense to let the parties bargain about this rather than
unsophisticated parties: impose a " legal" solution. . . .
Forbidding tort claims between parties who are indirectly There are two additional reasons to decline imposing a
linked by contract would put pressure on them to specify general tort duty on architects and engineers. First,
their rights carefully in advance, thus sparing courts the imposing the risk of economic loss on the architect requires
need to inquire into them later. But that incentive is most the architect to pass the cost along to the owner. The owner
likely to be noticed by sophisticated parties negotiating will then pass the cost along to the various contractors and
large projects, and for them the rule is unlikely to be of subcontractors. Different contractors and subcontractors
great importance. They will negotiate allocations of risk have different susceptibilities to economic loss, but the
that look similar in the end notwithstanding the rule of tort owner has no way of distinguishing among the various
law in the background. Meanwhile, less sophisticated contractors and subcontractors. Some contractors and
parties would stand a good chance of being tripped up by a subcontractors will benefit greatly, some will not. Yet all
broad rule, as when they fail to provide for indemnification will pay the price for this protection, not in proportion to
in some direction and inadvertently leave a party who has their benefit from the protection, but roughly in proportion
to the dollar value of their services. This will lead to a
Page 248 cross-subsidization. Contractors and subcontractors who are
not subject to losses from delays effectively " pay" for
been wronged with no remedy.[56] protection that they do not need. In effect, they subsidize
other contractors and subcontractors who are more
We think it more probable that a contractor will susceptible to this type of loss.
assume it must look to its agreement with the owner for
damages if the project is not as represented or for any other This inequity could be remedied if the owner could
breach. determine which contractors and subcontractors benefit
most and then charge them more by paying them less. But
Though there remains the possibility that a contractor this would require the owner to be in the business of
may not do so, we think the availability of contractual evaluating contractors' susceptibility to economic loss,
remedies must preclude tort recovery in the situation which would effectively put the owner in the insurance
generally because, as stated above, " clarity allows parties evaluation business. Individual contractors and
to do business on a surer footing" .[57] " Where contracts subcontractors are in a better position to evaluate their own
might readily have been used to allocate the risk of a loss," susceptibility to economic
the Restatement observes, " a duty to avoid the loss is
unlikely to be recognized in tort -- not because the Page 249
economic loss rule applies, but simply because courts
prefer, in general, that economic losses be allocated by loss and determine whether to buy insurance. Thus,
contract where feasible." [58] We see no reason not to fairness and efficiency support leaving these losses on the
apply the economic loss rule to achieve this end. contractors and subcontractors, who can decide for
themselves whether and for how much to insure. I assume
Analyzing the economics of the construction site, this is part of the explanation why current contractual
Professor Powers proposed this result more than twenty practice does not shift these obligations to the architect.
years ago, and we quote his analysis at length:
Second, . . . contracts between owners and supervising
In fact, construction disputes . . . are good candidates for architects can vary. Sometimes the supervising architect
precluding recovery under the " economic loss" rule, might be hired for the benefit of the contractors and
because the parties are in a position to protect themselves subcontractors. However, in most cases, the architect is
through bargaining. Though the parties do not necessarily hired either as a neutral arbitrator or, most often, as the
have contracts with each other, they typically all have agent of the owner. . . . If the architect is supposed to be
contracts with the owner, or subcontracts with someone neutral or to operate as the agent of the owner, negligence
who does have a contract with the owner. If contractors principles -- which would be decided by the jury after the
want to be protected, they can insist on that protection from fact -- would create a chilling effect on the architect's
the owner who will get protection from the architect. The
neutrality or fiduciary duty to the owner. Restatement, T.D. 1" ). Sections 1 through 5 of this draft
were approved by the membership of the American Law
This analysis suggests that each situation is different and Institute at the 2012 Annual Meeting, subject to the
that courts should use contract principles[,] not tort discussion at the Meeting and to editorial prerogative.
principles, to determine whether the architect has " Proceedings at 89th Annual Meeting: American Law
contractual" obligations to the contractors and Institute, 89 A.L.I. Proc. 46-47 (2012). According to the
subcontractors.[59] Institute: " Once it is approved by the membership at an
Annual Meeting, a Tentative Draft or a Proposed Final
Finally, the courts are fairly evenly divided over Draft represents the most current statement of the American
whether to apply the economic loss rule in this Law Institute's position on the subject and may be cited in
situation.[60] We side with those who do. opinions or briefs . . . until the official text is published."
Overview, Project Development , American Law Institute,
DART was contractually responsible to Eby for
http://www.ali.org/-index.cfm?fuseaction=projects.main
providing accurate plans for the job. Eby agreed to
(last visited June 18, 2014). A second draft, Restatement
specified remedies for disputes, pursued those remedies
(Third) of Torts: Liability for Economic Harm (Tentative
(when the federal court would not allow it to sue), and
Draft No. 2, 2014) (" Restatement, T.D. 2" ), was approved
settled its claims for $4.7 million. Had DART chosen to do
at the 2014 Annual Meeting. Proceedings at 91st Annual
so, it could have sued LAN/STV for breach of their contract
Meeting: American Law Institute, 91 A.L.I. Proc. (2014);
to provide accurate plans. But Eby had no agreement with
see also Actions Taken at the 91st Annual Meeting , ALI'S
LAN/STV and was not party to LAN/STV's agreement with
91st Annual Meeting,
DART. Clearly, the economic loss rule barred Eby's
http://2014annualmeeting.org/actions-taken/(last visited
subcontractors from recovering
June 18, 2014). Tentative Draft No. 2 covers the last three
sections bearing on the unintentional infliction of economic
Page 250
loss, sections 6 through 8, and seven sections on the law of
their own delay damages in negligence claims against fraudulent misrepresentation; as the Reporter notes, section
LAN/STV. We think Eby should not be treated differently. 6, on " Negligent Performance of Services", refers to and "
is complementary to" section 5, on " Negligent
**** Misrepresentation" . Restatement, T.D. 2, Reporter's
Memorandum, at xvii.
The reasons for the economic loss rule support its
application in this case to preclude a general contractor [4] Sharyland, 354 S.W.3d at 415 ( " '[T]here is not one
from recovering delay damages from the owner's architect. economic loss rule broadly applicable throughout the field
Accordingly, we reverse the judgment of the court of of torts, but rather several more limited rules that govern
appeals and render judgment that Eby take nothing from recovery of economic losses in selected areas of the law.'" )
LAN/STV. (quoting Vincent R. Johnson, The Boundary-Line Function
of the Economic Loss Rule , 66 Wash. & Lee L. Rev. 523,
--------- 534-535 (2009)); see Restatement, T.D. 1, § 1 cmt. b ("
[D]uties of care with respect to economic loss are not
Notes: general in character; they are recognized in specific
circumstances according to the principles stated in
[1] See, e.g., Fleming James, Jr., Limitations on Liability for
Comment c." ). Another scholar also thought there was no
Economic Loss Caused by Negligence: A Pragmatic
single " economic loss rule" but instead a " constellation of
Appraisal, 25 Vand. L. Rev. 43, 43 (1972) ( " Under the
somewhat similar doctrines that tend to limit liability" that
prevailing rule in America, a plaintiff may not recover for
seemed to work in different ways in different contexts, for
his economic loss resulting from bodily harm to another or
not necessarily identical reasons, " with exceptions where
from physical damage to property in which he has no
the reasons for limiting liability were absent." Oscar S.
proprietary interest." ).
Gray, Some Thoughts on " The Economic Loss Rule" and
Apportionment, 48 Ariz. L. Rev. 897, 898 (2006) (" The
[2] See, e.g., Sharyland Water Supply Corp. v. City of Alton,
core concept of this constellation, not quite a 'rule', seems to
354 S.W.3d 407, 415 (Tex. 2011) ( " [P]arties may be
me to be an inhibition against liability in negligence for
barred from recovering in negligence or strict liability for
economic harm not resulting from bodily injury to the
purely economic losses. This is often referred to as 'the
claimant or physical damage to property in which the
economic loss rule.'" (citations omitted)).
claimant has a proprietary interest." ) (footnotes omitted).
[3] See Restatement (Third) of Torts: Liability for
[5]350 S.W.3d 675 (Tex.App.--Dallas 2011).
Economic Harm § 1 cmt. c (Tentative Draft No. 1, 2012) ("
[6]Eby does not contend that it was a third-party DART. LAN/STV also argues that Eby's claim is barred by
beneficiary of the LAN/STV-DART contract. derivative immunity, that Eby's measure of damages is
improper, and that Eby failed to prove all the elements of its
[7]Eby alleged: negligent misrepresentation claim.
In providing voluminous and detailed plans and [14]275 U.S. 303, 48 S.Ct. 134, 72 L.Ed. 290 (1927).
specifications for Eby's use in preparing a bid price for this
competitive bid project, DART was obliged to provide [15] Id. at 307-308.
accurate and adequate information which could be
reasonably relied upon for developing a competitive bid [16] Id. at 308-309 (citations omitted).
price. The information provided by DART, and upon which
Eby relied, was in fact materially inaccurate and inadequate [17]752 F.2d 1019, 1022 (5th Cir. 1985) (en banc).
for performing the work resulting in extraordinary excess
[18]25 Vand. L. Rev. 43, 43 (1972) (footnotes omitted).
costs for performance and denying Eby the ability to
perform the work in a productive and profitable fashion. [19] Id. at 44. See also Oliver Wendell Holmes, the
Common Law 1 (Boston, Little Brown & Co., 1881) (" The
***
life of the law has not been logic: it has been experience.
DART's failure, through LAN/STV, to provide Eby with The felt necessities of the time, the prevalent moral and
adequate and accurate plans and specifications upon which political theories, intuitions of public policy, avowed or
to bid and perform this project, together with the lack of unconscious, even the prejudices which judges share with
direction and cooperation in resolving the problems their fellow-men, have had a good deal more to do than the
encountered due to these inadequacies and refusal to syllogism in determining the rules by which men should be
compensate Eby for these inadequacies, constitutes a governed." ).
material breach of contract . . . .
[20] Robins, 275 U.S. at 309.
Eby also asserted a claim for misrepresentation, which was
[21]James, supra note 18, at 45 (footnotes omitted)
determined on appeal to be " just a subset of its breach-of
(quoting Ultramares Corp. v. Touche , 255 N.Y. 170, 174
contract claim." Martin K. Eby Constr. Co. v. Dallas Area
N.E. 441, 444 (N.Y. 1931)).
Rapid Transit, 369 F.3d 464, 472 (5th Cir. 2004).
[22] See William Powers, Jr. & Margaret Niver,
[8]The dismissal was affirmed on appeal. Id. at 465.
Negligence, Breach of Contract, and the " Economic Loss"
[9]The trial court initially granted LAN/STV summary Rule, 23 Tex. Tech L. Rev. 477, 481 (1992) (" One
judgment on its claim of derivative immunity under Tex. rationale for precluding recovery of pure economic loss in
Transp. Code § 452.056(d), but the court of appeals these cases is a fear that the purely economic consequences
reversed. Martin K. Eby Constr. Co. v. LAN/STV, 205 of a defendant's negligence are not limited by the normal
S.W.3d 16, 21 (Tex.App.--Dallas 2006, pet. denied). tort limit on the scope of a negligent defendant's liability,
foreseeability on a case-by-case basis." ).
[10]Eby alleged: " In the course of providing the referenced
plans, drawings and specifications, LAN/STV made [23] See id. at 481-482 (" Another rationale is that plaintiffs
representations, in a transaction for which it was are in a better position than defendants to evaluate their
compensated, where those representations were false, own susceptibility to pure economic loss and protect against
misleading and/or inaccurate and were made with the the economic loss through first-party insurance." ).
knowledge that contractors such as Eby would rely upon
[24]Richard A. Posner, Common-Law Economic Torts: An
them."
Economic and Legal Analysis , 48 Ariz. L. Rev. 735, 739
[11]350 S.W.3d 675 (Tex.App.--Dallas 2011). (2006) (citing Hadley v. Baxendale, 9 Exch. 341, 156 Eng.
Rep. 145 (1854)).
[12]56 Tex. S.Ct. J. 277, 2013 Tex. LEXIS 105 (Feb. 15,
2013). [25] East River S.S. Corp. v. Transamerica Delaval, Inc .,
476 U.S. 858, 859, 872-873, 106 S.Ct. 2295, 90 L.Ed.2d
[13]LAN/STV and Eby each complain of the damage 865 (1986).
award: LAN/STV contends that it is entitled to a credit for
Eby's $4.7 million settlement with DART, and Eby argues [26]Vincent R. Johnson, The Boundary-Line Function of
that the damages found by the jury should not have been the Economic Loss Rule, 66 Wash. & Lee L. Rev. 523, 546
reduced by the percentage of responsibility apportioned to (2009) (footnotes omitted) (quoting Stewart I. Edelstein,
Beware the Economic Loss Rule, Trial, June 2006, at 42, 43 defeated an action for strict liability. . . . The reason that
(2006)). Nobility . . . held there was no strict liability case for the
product itself was the absence of proof and findings that
[27] See, e.g., Symposium, Dan B. Dobbs Conference on there was a defect that was unreasonably dangerous that
Economic Tort Law, 48 Ariz. L. Rev. 687 (2006); Anita produced the accident." Id. at 314-315 (Pope, J.,
Bernstein, Keep It Simple: An Explanation of the Rule of No dissenting). In a case decided the same day as Mid
Recovery for Pure Economic Loss , 48 Ariz. L. Rev. 773, Continent, the Court reiterated its view of Nobility Homes,
778 (2006) (citing James, supra note 18, at 45-46); Mark P. that when " only the product itself is damaged, such damage
Gergen, The Ambit of Negligence Liability for Pure constitutes economic loss recoverable only as damages for
Economic Loss , 48 Ariz. L. Rev. 749, 764 (2006) (citing breach of an implied warranty under the [UCC]." Signal Oil
James, supra note 18, at 44-45); see also Jim Wren, & Gas Co. v. Universal Oil Prods ., 572 S.W.2d 320, 325
Applying the Economic Loss Rule in Texas , 64 Baylor L. (Tex. 1978). We have since reaffirmed: " The economic
Rev. 204, 229 (2012) (citing James, supra note 18, at 45). loss rule applies when losses from an occurrence arise from
failure of a product and the damage or loss is limited to the
[28] See Restatement, T.D. 1, § 1 cmt. c. product itself." Equistar Chems., L.P. v. Dresser-Rand Co.,
240 S.W.3d 864, 867 (Tex. 2007) (citations omitted) (the
[29] Id. § 1.
Court, however, did not reach the court of appeals'
[30] Id. § 1 cmt. d. application of the economic loss rule).
[31]" When the reason of the law ceases, the law itself also [34]In Signal Oil, a defective reactor charge heater installed
ceases." Black's Law Dictionary App. A 1622 (7th ed. in a refinery's isomax unit ruptured, causing an explosion
1999). and fire that damaged the heater itself as well as other
property; the refinery company sued for property damage
[32]Powers, supra note 22, at 477. In fairness, Texas does and economic loss based on, inter alia , strict liability and
not have a monopoly on the confusion. See Johnson, supra implied warranty theories. 572 S.W.2d at 322-323. The
note 26, at 546 (" The confusing mass of precedent relating Court remanded the breach-of-warranty claim for retrial,
to tort liability for economic loss has yet to be disentangled but concluded that the strict liability claim failed for failure
and expressed with the clarity commonly found with to obtain a matching causation finding. Id. at 324-329, 331.
respect to other tort law topics." ). In so doing, however, the Court noted that plaintiff, in
alleging that the explosion and fire damaged not only the
[33]This rule was first stated in Nobility Homes of Texas, reactor heater, but also the catalyst, refinery product, other
Inc. v. Shivers : " strict liability does not apply to economic equipment in the unit, and other property in the area, "
losses." 557 S.W.2d 77, 80 (Tex. 1977). The plaintiff properly alleged a cause of action in strict liability" -- the
suffered only economic damages -- the difference between Court explained: " Where such collateral property damage
what he paid for a rickety mobile home and what it was exists in addition to damage to the product itself, recovery
worth. Id. at 78. But his strict products liability claim also for such damages are recoverable under Section 402A of
failed because the mobile home, though defective, was not the Restatement (Second) of Torts as damage to property or
unreasonably dangerous. Id. at 79-80; see also McKisson v. under the Texas Business and Commerce Code, Section
Sales Affiliates, Inc., 416 S.W.2d 787, 788-789 (Tex. 1967) 2.715, as consequential damages for a breach of an implied
(adopting the strict liability action defined in section 402A warranty. To the extent that the product itself has become
of the Restatement (Second) of Torts, which provides for part of the accident risk or the tort by causing collateral
damages caused by a defective product that is unreasonably property damage, it is properly considered as part of the
dangerous). Less than a year after the Court issued its property damages, rather than as economic loss." Id. at 325
unanimous opinion in Nobility Homes, the Court could not (footnote omitted). This language, in context, recognizes
agree on what had been the basis for that decision. In Mid only that collateral property damage may be recoverable,
Continent Aircraft Corp. v. Curry County Spraying Service, and cannot be read as permitting recovery based on a
Inc., the Court held that the decision in Nobility Homes had products liability theory for damages to a defective product
been based on the economic loss rule: " In transactions itself if there is also personal injury or injury to other
between a commercial seller and commercial buyer, when property. Cf. Equistar, 240 S.W.3d at 868 (noting, in
no physical injury has occurred to persons or other holding that Dresser's no-evidence objections failed to
property, injury to the defective product itself is an preserve a complaint about the jury charge, that " [e]ven if
economic loss governed by the Uniform Commercial there had been no evidence of a tort duty, there was still no
Code." 572 S.W.2d 308, 313 (Tex. 1978). Justice Pope, the question that Dresser sold the compressor and impellers to
author of the Court's opinion in Nobility Homes, disagreed: Equistar and that implied warranties of merchantability
" We did not hold that damages to the product itself existed at some point as to both" ; the damages questions
existed in the suit independent of the tort issues). The Consumers have other remedies for economic loss against
damage to the product is an economic loss recoverable in an persons with whom they are not in privity. One of these
action for breach of contract or breach of warranty. See remedies is a cause in negligence." 557 S.W.2d at 83.
Murray v. Ford Motor Co., 97 S.W.3d 888, 892 Professor Powers discounted the statement because the
(Tex.App.--Dallas 2003, pet. denied) (stating that " [n]o Court cited no authority, and because the defendant had not
Texas court has applied the Signal Oil & Gas Co. dicta [to challenged its liability in negligence in this Court, hence the
permit recovery of damages to the product in a strict statement was unnecessary for the judgment. Powers, supra
liability action when accompanied by other injury]" ). note 22, at 486-487. In any event, Professor Powers
concluded, Jim Walter Homes had " laid to rest" any
[35]This Court had held in Jim Walter Homes, Inc. v. Reed : confusion, id. at 487, by stating that " [w]hen the injury is
" When the injury is only the economic loss to the subject only the economic loss to the subject of a contract itself, the
of a contract itself, the action sounds in contract alone." 711 action sounds in contract alone", 711 S.W.2d at 618. In
S.W.2d 617, 618 (Tex. 1986). See also Sw. Bell Tel. Co. v. Sharyland Water Supply Corp. v. City of Alton, we agreed,
DeLanney, 809 S.W.2d 493, 494 (Tex. 1991) (" When the despite the fact that the parties in Jim Walter Homes were in
only loss or damage is to the subject matter of the contract, privity. 354 S.W.3d 407, 416 n.10 (Tex. 2011).
the plaintiff's action is ordinarily on the contract." ). We
have repeatedly reaffirmed this rule. Wansey v. Hole , 379 [39] Equistar Chems., L.P. v. Dresser-Rand Co., 123
S.W.3d 246, 248 (Tex. 2012) (per curiam) (" [A] duty in S.W.3d 584, 587 (Tex.App.--Houston [14th Dist.] 2003) ("
tort does not lie when the only injury claimed is one for [a]ssuming the compressors themselves are the product, any
economic damages recoverable under a breach of contract claim for damage to them had to be brought in a contract or
claim." ); 1/2 Price Checks Cashed v. United Auto. Ins. Co., warranty action . . ." ), overruled on other grounds , 240
344 S.W.3d 378, 387 (Tex. 2011) (" [U]nder the economic S.W.3d 864, 867 n.2, 868 (Tex. 2007) (because the Court
loss rule, we have held that a claim sounds in contract when held that Dresser failed to preserve any complaint that the
the only injury is economic loss to the subject of the jury charge improperly allowed the jury to find both tort
contract itself." ); Med. City Dallas, Ltd. v. Carlisle Corp., and contract damages by a single answer, the Court "
251 S.W.3d 55, 61 (Tex. 2008) (" 'When the injury is only express[ed] no opinion" on the court of appeals' discussion
the economic loss to the subject of a contract itself, the and application of the economic loss rule); Murray v. Ford
action sounds in contract.'" (quoting Am. Nat'l Petroleum Motor Co., 97 S.W.3d at 891 (recovery denied for fire
Co. v. Transcon. Gas Pipe Line Corp., 798 S.W.2d 274, damage to negligently constructed vehicle) (" The economic
282 (Tex. 1990), and Jim Walter Homes , 711 S.W.2d at loss rule applies to negligence claims as well as claims for
618)); Lamar Homes, Inc. v. Mid-Continent Cas. Co ., 242 strict liability." ); Trans-Gulf Corp. v. Performance Aircraft
S.W.3d 1, 12 (Tex. 2007) (" The economic-loss rule . . . Servs., Inc., 82 S.W.3d 691, 695 (Tex.App.--Eastland 2002,
generally precludes recovery in tort for economic losses no pet.) (recovery denied for negligent repairs to a plane) ("
resulting from the failure of a party to perform under a Simply stated, a duty in tort does not lie under the economic
contract." ). These cases have effectively limited loss rule when the only injury claimed is one for economic
Montgomery Ward & Co. v. Scharrenbeck , 146 Tex. 153, damages." ); Coastal Conduit & Ditching, Inc. v. Noram
204 S.W.2d 508, 510 (Tex. 1947); see Formosa Plastics Energy Corp., 29 S.W.3d 282, 286, 289-290
Corp. v. Presidio Eng'rs & Contractors, Inc ., 960 S.W.2d (Tex.App.--Houston [14th Dist.] 2000, no pet.) (gas lines
41, 45 (Tex. 1998) (explaining and distinguishing, in a operator not liable, for negligently marking and placing its
fraudulent inducement suit, DeLanney and Jim Walter lines, to company excavating for electrical conduits in the
Homes ); DeLanney, 809 S.W.2d at 494-495 (in absence of a contractual relationship or a claim for personal
Scharrenbeck, the defendant agreed to repair a water heater; injury or property damages); Hou-Tex, Inc. v. Landmark
in failing to repair the water heater properly, the defendant Graphics, 26 S.W.3d 103, 107 (Tex.App.--Houston [14th
breached its contract, and, " [i]n burning down plaintiff's Dist.] 2000, no pet.) (seismic survey software developer not
home, the defendant breached a common-law duty as well, liable for negligence to a third-party oil and gas company
thereby providing a basis for plaintiff's recovery in tort" ) that suffered only economic loss of drilling a dry well);
(citing Jim Walter Homes ); Jim Walter Homes, 711 S.W.2d Indelco, Inc. v. Hanson Indus. N. Am.-Grove Worldwide ,
at 618 (" The acts of a party may breach duties in tort or 967 S.W.2d 931, 932-933 (Tex.App.--Houston [14th Dist.]
contract alone or simultaneously in both." (citing 1998, pet. denied) (recovery denied for fire damage to
Scharrenbeck )). negligently designed crane); see also Hininger v. Case
Corp., 23 F.3d 124, 127 (5th Cir. 1994) (recovery denied
[36] See Restatement, T.D. 1, § 3. for lost business due to negligently designed combine).
[37]Powers, supra note 22, at 482. [40] Belt v. Oppenheimer, Blend, Harrison & Tate, Inc.,
192 S.W.3d 780, 783 (Tex. 2006) (" Legal malpractice
[38] Id. at 486-487. In Nobility Homes , the Court stated: " claims sound in tort." ); Cosgrove v. Grimes , 774 S.W.2d
662, 664 (Tex. 1989) (" An attorney malpractice action in [44]825 S.W.2d 439, 442-443 (Tex. 1991).
Texas is based on negligence." ); Willis v. Maverick , 760
S.W.2d 642, 644 (Tex. 1988) (" A cause of action for legal [45] Barcelo v. Elliott, 923 S.W.2d 575 (Tex. 1996).
malpractice is in the nature of a tort . . . ." ).
[46]991 S.W.2d 787, 794 (Tex. 1999).
[41]Tex. Discip. R. Of Prof'l Conduct 1.04(d).
[47]314 S.W.3d 913, 920 (Tex. 2010).
[42] See, e.g., Murphy v. Campbell , 964 S.W.2d 265, 269
(Tex. 1997) (" A plaintiff may obtain full redress [for [48] Id. at 921, 923-926.
accounting malpractice] in an action for negligence or
[49] See Restatement, T.D. 1, § 5 cmt. a.
breach of contract." ); Tex. Civ. Prac. & Rem. Code §
150.001-.003 (governing negligence suits against " licensed [50] Sharyland Water Supply Corp. v. City of Alton , 354
or registered professionals", defined to include " a licensed S.W.3d 407, 419 (Tex. 2011).
architect, licensed professional engineer, registered
professional land surveyor, registered landscape architect, [51]Restatement, T.D. 2, § 6 cmt. b (the comment adds: "
or any firm in which such licensed or registered Allowing a suit against the architect of a project by a party
professional practices, including but not limited to a who made a bid in reliance on a defective plan does not
corporation, professional corporation, limited liability create comparable problems." ).
corporation, partnership, limited liability partnership, sole
proprietorship, joint venture, or any other business entity", [52]Restatement, T.D. 1, § 5 cmt. a.
id. § 150.001(1-a)).
[53]Restatement, T.D. 2, § 6 cmt. b.
[43]Section 552, entitled " Information Negligently
Supplied for the Guidance of Others", states: [54] Id.
" (1) One who, in the course of his business, profession or [55]The Restatement posits the following situation in
employment, or in any other transaction in which he has a illustration 8 to section 3, borrowed from illustration 9 to
pecuniary interest, supplies false information for the section 552 of the Restatement (Second) :
guidance of others in their business transactions, is subject
to liability for pecuniary loss caused to them by their City hires Engineer to test soil conditions at a site where it
justifiable reliance upon the information, if he fails to plans to erect a large building. City explains that Engineer's
exercise reasonable care or competence in obtaining or report will be distributed to prospective building contractors
communicating the information. for use in estimating their costs. Engineer negligently
submits an inaccurate report. Contractor wins the right to
" (2) Except as stated in Subsection (3), the liability stated perform the construction, having relied on Engineer's report
in Subsection (1) is limited to loss suffered in preparing its bid. Engineer's errors cause Contractor to
suffer losses in performing its contract with City. The
" (a) by the person or one of a limited group of persons for contracts between Contractor and City, and between City
whose benefit and guidance he intends to supply the and Engineer, do not preclude a claim by Contractor against
information or knows that the recipient intends to supply it; Engineer [for negligent performance of services or
and negligent misrepresentation]. Engineer remains potentially
liable to Contractor under either of those [torts].
" (b) through reliance upon it in a transaction that he intends
the information to influence or knows that the recipient so Restatement, T.D. 1, § 3 cmt. f. But the Restatement adds:
intends or in a substantially similar transaction.
Contractor could have insisted that City guarantee the
" (3) The liability of one who is under a public duty to give soundness of Engineer's report, and City could have insisted
the information extends to loss suffered by any of the class that Engineer indemnify City for claims brought against it
of persons for whose benefit the duty is created, in any of by Contractor. In effect, those contracts would have
the transactions in which it is intended to protect them." protected Contractor against the risk of errors by Engineer,
and would have ensured that Engineer would bear the costs
Restatement (Second) of Torts § 552 (1977). Section 5 of of its negligence.
the Restatement (Third) of Torts: Liability for Economic
Harm " repeats § 552 with small changes." Restatement, Id.
T.D. 1, § 5 cmt. a.
[56] Id. § 3, reporter's note to cmt. f.
[57]Restatement, T.D. 2, § 6 cmt. b.
[58]Restatement, T.D. 1, § 3 cmt. f.
[59]Powers, supra note 22, at 521 n.205 (citation omitted).
[60]The following cases apply the economic loss rule:
BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66 (Colo. 2004);
Hercules & Co., Ltd. v. Shama Restaurant Corp., 566 A.2d
31 (D.C. 1989); Fireman's Fund Ins. Co. v. SEC Donohue,
Inc., 176 Ill.2d 160, 679 N.E.2d 1197, 223 Ill.Dec. 424
(1997); Terracon Consultants Western, Inc. v. Mandalay
Resort Grp., 125 Nev. 66, 206 P.3d 81 (Nev. 2009); Floor
Craft Floor Covering, Inc. v. Parma Cmty. Gen. Hosp.
Ass'n, 54 Ohio St. 3d 1, 560 N.E.2d 206 (Ohio 1990); SME
Indus., Inc. v. Thompson, Ventulett, Stainback and Assocs.,
Inc., 2001 UT 54, 28 P.3d 669 (Utah 2001); Blake Constr.
Co., Inc. v. Alley , 233 Va. 31, 353 S.E.2d 724, 3 Va. Law
Rep. 1868 (Va. 1987); Berschauer/Phillips Constr. Co. v.
Seattle Sch. Dist., 124 Wn.2d 816, 881 P.2d 986 (Wash.
1994); Excel Constr., Inc. v. HKM Eng'g, Inc., 2010 WY
34, 228 P.3d 40 (Wyo. 2010).
The following do not: Sullivan v. Pulte Home Corp ., 232
Ariz. 344, 306 P.3d 1 (Ariz. 2013) (noting that Donnelly
Constr. Co. v. Oberg/Hunt/Gilleland , 139 Ariz. 184, 677
P.2d 1292 (Ariz. 1984), correctly implied that the economic
loss doctrine would not apply to negligence claims by a
plaintiff who has no contractual relationship with the
defendant (citation omitted)); A. R. Moyer, Inc. v. Graham,
285 So.2d 397 (Fla. 1973) (though this case was limited to
its facts, the economic loss doctrine was thereafter limited
to products liability cases; see Tiara Condo. Ass'n v. Marsh
& McLennan Cos., 110 So.3d 399 (Fla. 2013)); Craig v.
Everett M. Brooks Co., 351 Mass. 497, 222 N.E.2d 752
(Mass. 1967); Prichard Bros., Inc. v. Grady Co., 428
N.W.2d 391 (Minn. 1988); Bilt--Rite Contractors, Inc. v.
The Architectural Studio , 866 A.2d 270, 581 Pa. 454 (Pa.
2005); Forte Bros., Inc. v. Nat'l Amusement, Inc., 525 A.2d
1301 (R.I. 1987); Tommy L. Griffin Plumbing & Heating
Co. v. Jordan, Jones & Goulding, Inc., 320 S.C. 49, 463
S.E.2d 85 (S.C. 1995); Eastern Steel v. City of Salem, 209
W.Va. 392, 549 S.E.2d 266 (W. Va. 2001).
For a survey of case law both ways, see Marc Schneier,
Annotation, Tort Liability of Project Architect or Engineer
for Economic Damages Suffered by Contractor or
Subcontractor, 61 A.L.R.6th 445 (2011).
---------
Page 220 P.C., Austin, TX.
460 S.W.3d 220 (Tex.App.-Austin 2015) Before Chief Justice Rose, Justices Pemberton and
Field.
Tom Bennett and James B. Bonham Corp., Appellants
Page 228
v.
ON MOTION FOR REHEARING
Larry Wayne Grant, Appellee
Scott K. Field, Judge
No. 03-11-00669-CV
OPINION
Court of Appeals of Texas, Third District, Austin
We withdraw the opinion dated August 13, 2014, and
March 20, 2015 the supplemental opinion and judgment dated September
26, 2014, and substitute the following opinion and judgment
Petition for review filed by, 07/06/2015 in their place. We deny the Appellants' motion for
rehearing.
Page 221
This suit arises from a now infamous feud between
[Copyrighted Material Omitted]
neighboring cattle ranchers in San Saba, the details of
Page 222 which have been thoroughly relayed in prior opinions of
this Court and the Texas Supreme Court. See Bennett v.
[Copyrighted Material Omitted] Reynolds, 242 S.W.3d 866 (Tex.App.--Austin 2007), rev'd
& remanded in part by 315 S.W.3d 867 (Tex. 2010) (
Page 223 Bennett I ). The feud between cattle ranchers Thomas O.
Bennett and Randy Reynolds has many turbulent twists and
[Copyrighted Material Omitted] turns, see id., but the gist of the dispute and subject of prior
appeals involved allegations that thirteen head of cattle
Page 224 belonging to Reynolds had wandered onto Bennett's ranch,
and that instead of returning them in a neighborly fashion,
[Copyrighted Material Omitted]
Bennett ordered his ranch hand--Larry Grant--to round up
the cattle and sell them at auction. Grant testified that he
Page 225
raised concerns with Bennett that the cattle did not belong
[Copyrighted Material Omitted] to him, but Bennett ignored his concerns.[1] Worried that
he could be implicated in cattle theft, Grant purchased a
Page 226 disposable camera and took several photos of the cattle
loaded on Bennett's trailer prior to the sale. Within two
[Copyrighted Material Omitted] months of the sale, Grant left his employment with Bennett
but kept the secret photos stashed away in a box in his
Page 227 home where they were seemingly forgotten and left
undisturbed for almost a year. Reynolds, however,
FROM THE DISTRICT COURT OF SAN SABA
eventually learned of the secret photos after a chance
COUNTY, 33RD JUDICIAL DISTRICT. NO. 8086,
encounter with Grant's brother-in-law and demanded that
HONORABLE GUILFORD L. JONES III, JUDGE
Grant turn the photos over to the authorities. What happens
PRESIDING.
next is hotly disputed and the subject of litigation between
Bennett and his former ranch hand, Grant, which gave rise
Reformed and, as Reformed, Affirmed on Motion for
to this appeal.
Rehearing.
After Reynolds attempted to obtain the photos, Grant
For Appellee: Mr. Don Cruse, Law Office of Don
testified that he was distressed and began drinking beer and
Cruse, Austin, TX.
smoking marijuana to relieve tension. He then made a series
For Appellant: Mr. D. Todd Smith, Smith Law Group, of phone calls to Bennett and Bennett's friend and
employee, Don " Ex" Rogers. Grant testified that the
purpose of the calls was to inform Bennett of the pictures otherwise uphold the trial court's judgment.
and give him an opportunity to " make it right" with
Reynolds. Bennett and Rogers' version, however, depicts MALICIOUS PROSECUTION
Grant as calling to try and sell the photographs to Bennett.
Grant acknowledged he had some discussion with Rogers A. Background Facts
about selling the photos to Bennett but testified that they
On the evening of October 4, 2001, telephone records
only " joked about it." It was no joke, however, when Grant
confirm that Grant called and spoke with Bennett for
turned the photos over to law enforcement about a month
thirteen minutes, but the topic of conversation that evening
after these conversations and triggered an extraordinary
is hotly disputed by the parties. As previously discussed,
series of events. First, Bennett was indicted for cattle theft
Grant testified that he called to inform Bennett about the
based in part on Grant's testimony and photos. Although
pictures and to give him an opportunity to " make it right"
ultimately acquitted of the criminal charges, Bennett and his
with Reynolds. Bennett, however, testified that Grant called
cattle company,
to try and sell the photos to him for $5,000. What is
Page 229 undisputed, however, is that Bennett waited nearly two
years to report his allegations against Grant to the
the James B. Bonham Corporation, were found liable for authorities. Indeed, Bennett testified that it was not until
conversion in a civil suit brought by Reynolds resulting in a after his criminal trial that he decided to report the incident
judgment of $5,327.11 in actual damages. The actual to authorities and acknowledged at trial that his sole " goal"
damages, however, paled in comparison to the combined in reporting the incident was to put " Grant in prison . . . for
exemplary damages of $1.25 million awarded amidst what he's done to me." In furtherance of his goal, Bennett
allegations that Bennett had willfully sold his neighbor's testified he met with law enforcement authorities in four
cattle to settle a score in a long-standing feud and then separate counties in an attempt to get Grant indicted for
attempted to cover his actions by--among other attempted blackmail. After authorities in San Saba County,
allegations--threatening and bribing witnesses, tampering Llano County, and Coleman County refused to prosecute
with the photographs Grant had taken to alter the images of Grant, Bennett met with the district attorney in Navarro
the brands on the cattle to look like his own brand, and even
attempting to register his neighbor's brand as his own with Page 230
the district clerk of San Saba County. Such allegations and
County and requested he prosecute the case.
such a large exemplary damages award are extraordinary by
themselves,[2] but it is only half of the story and less than
According to the district attorney's testimony, the
half of the total liability adjudged against Bennett and the
following events then transpired. After his initial meeting
Bonham Corporation from these events.
with Bennett, the district attorney believed that if an
attempted blackmail had occurred, it was a federal offense
The other half is the subject of this appeal--a $2.28
and referred the matter to the federal authorities. Unhappy
million judgment awarded to Grant for a successful
with this outcome, Bennett again approached the district
malicious prosecution claim brought against Bennett and
attorney but this time with a new theory--requesting that
the Bonham Corporation. This claim arose from Bennett's
Grant be prosecuted for attempted theft. The district
admitted, yet ultimately unsuccessful, campaign to have
attorney informed Bennett he could not bring charges for
Grant imprisoned after he turned the photos over to
misdemeanor attempted theft because it was barred by the
authorities. In this appeal, Bennett and the Bonham
two-year statute of limitations. Undeterred, Bennett then
Corporation (collectively, Appellants) contest the judgment
provided the district attorney with new information,
in Grant's malicious prosecution suit, contending: (1)
alleging--for the first time--that Grant had attempted to
legally insufficient evidence supported the malicious
extort money from him a second time within the limitations
prosecution claim; (2) legally and factually insufficient
period. The district attorney testified that he was "
evidence supported the $10,703 awarded in compensatory
skeptical" of this new evidence because it " appeared that
damages; (3) legally insufficient evidence supported the
there was maybe some tailoring of the facts going on to fit
jury's findings allowing for the imposition of exemplary
the statute." Indeed, in his sworn testimony in this case,
damages over the statutory cap; and (4) the total $2 million
Bennett made no mention of a second attempted blackmail
exemplary damages award ($1 million against Bennett and
by Grant. Rather, he unequivocally testified that all the
$1 million against the Bonham Corporation) violated due
factual accusations against Grant occurred in a single
process. Individually, the Bonham Corporation raises
evening on October 4, 2011. The district attorney further
several arguments challenging its liability in the suit, and
testified that, based on his conversations with Bennett about
Bennett challenges a $269,644.50 sanction. We conclude
the case, he formed the impression that Bennett's motive for
that the award of exemplary damages failed to comport with
prosecuting Grant was to gain an advantage in civil
due process requirements and required remittitur, but
litigation arising from the case. Being " suspicious" of Ultimately, Bennett was successful in his goal of
Bennett's new evidence, the district attorney decided to " getting Grant indicted, as the special prosecutor presented
dig in his heels" and refused to prosecute. the case for a second time to the grand jury--more than four
years after the phone call between Grant and Bennett
Still undeterred, Bennett met with an attorney who occurred--but this time obtained indictments for the felony
testified that he had represented the Bonham Corporation offenses of tampering with a witness and attempted bribery.
for over twenty years and that Bennett directed him to The special prosecutor testified that in deciding whether to
research and draft a legal brief advocating that Grant's present the case to the grand jury, he interviewed both
alleged actions constituted a criminal offense that should be Bennett and Rogers but exercised independent discretion in
prosecuted. The district attorney testified that it was this ultimately determining whether there was sufficient
brief or another meeting with Bennett that finally was the " evidence to prosecute the case. He testified further that he
catalyst" that prompted him to bring the case to the grand relied on evidence other than Bennett's and Rogers'
jury. He further testified that it was " rare" for him to bring statements in his decision to prosecute. When asked,
misdemeanor cases to the grand jury because he himself however, whether Bennett's and Rogers' statements were "
had the authority to bring misdemeanor charges without very material to [his] decision to proceed to the grand jury,"
grand jury involvement. But, in this case, he finally yielded the special prosecutor acknowledged that the statements
to Bennett's demands because he did not want to appear " were " definitely" very material to his decision. Further, he
draconian" in his refusal to bring charges. The district acknowledged testifying during his deposition that he "
attorney may have been finally persuaded to present the would not have presented" the case to the grand jury if he
case, but the grand jury was not as persuaded and refused to had believed Bennett " was making untrue statements." He
indict Grant. also testified that if he believed there had been a " tailoring
of the facts" by Bennett--as the Navarro County district
Frustrated that the grand jury had not indicted Grant, attorney believed--that it would have affected his decision
Bennett testified he again met with the same attorney who to go to the grand jury.[5] Grant maintained throughout trial
this time advised him to get a special prosecutor appointed that both men had lied to the authorities about the alleged
in Navarro County to bring the case before the grand jury a blackmail.
second time. After the attorney explained to him the
procedure for appointing a special prosecutor, Bennett Further, some of the evidence Bennett presented to the
testified he had the attorney draft a petition alleging the special prosecutor appears from the record to have differed
district attorney had a conflict of interest and accusing him from the initial evidence presented to the district attorney.
of taking no action in the case.[3] The petition further First, there is no evidence in the record that Bennett
sought the appointment of Robert Dunn--a local attorney reported to the special prosecutor two incidents of alleged
and neighbor of Bennett's--as a special prosecutor for the extortion occurring on different dates--as he had to the
case. Bennett, who resided and ran a cattle ranch in Navarro district attorney. Rather, the special prosecutor testified
County, testified that he then led the effort to circulate and only as to the alleged misconduct occurring during phone
obtain over 250 signatures from Navarro County residents conversations on October 4, 2011, and the indictment
for the petition seeking the appointment of Dunn as special alleged only one count--not two--of the charged offenses.
prosecutor for the case. Bennett testified that others helped Second, Bennett added a new detail to his allegations,
with the contending for the first time that Grant had specifically
asked him to pay $5,000 for the pictures. In a previous
Page 231 written statement to the authorities, Bennett did not allege a
specified amount in his extortion claims. The Navarro
petition but that " it was mostly me . . . I think I done most
County district attorney also did not recall Bennett telling
of it." The district attorney, who was now seeking
him this detail, and it would have been material to how he
reelection in a hotly contested race, testified that he was
presented the case to the grand jury because
unaware that Bennett was leading this campaign throughout
the county until Bennett showed up at his office for a final Page 232
meeting. Bennett, with the signed petitions in hand, then
accused the district attorney of being partial and unfair the amount of money at issue increased the degree of the
when he presented Grant's case to the grand jury and offense.[6] See Tex. Penal Code § 31.03(e) (value of
demanded that Dunn be appointed special prosecutor in the property involved in theft dictates classification of offense).
case. Feeling that Bennett's petition campaign " wasn't Finally, the special prosecutor additionally testified that in
helping" his chances of reelection, the district attorney deciding to prosecute the case, he relied--in part--on a
testified that he agreed to the appointment of Dunn as transcript from Bennett purportedly transcribing
special prosecutor in the case.[4] secretly-taped " conversations" with Grant that
substantiated Bennett's claim that Grant had sought $5,000
from him. If this transcript was also given to the district Page 233
attorney, he made no reference to it in his testimony.
balance society's interest in protecting private persons who
Regarding the transcript, the special prosecutor report criminal conduct with the individual citizen's interest
testified that initially Bennett presented him with a tape in being protected against unjustifiable and oppressive
recording of " conversations" but that he was unable to litigation of criminal charges. Browning-Ferris Indus. v.
understand it because it was " awful garbled." Bennett then Lieck, 881 S.W.2d 288, 290-91 (Tex. 1994). In that regard,
gave him a transcript purportedly transcribing the tape. The the Texas Supreme Court has instructed us that the balance
special prosecutor could not testify as to when the tape was between these important interests is maintained by strictly
allegedly recorded, but it appears from his testimony that he adhering to the defined elements of an action for malicious
believed the tape was a recording of the actual telephone prosecution and that even a small departure from the exact
conversations reflected on Grant's telephone bill or prerequisites for liability may threaten this delicate balance.
conversations related directly to those phone records. He Id. But, " as with any other cause of action, if the elements
further testified that the taped conversations substantiated of malicious prosecution are proved, liability is
Bennett's claim that Grant had specifically sought " $5,000" established." Id. at 291. Those elements are: (1) the
for the pictures. This transcript, however, was destroyed commencement of a criminal prosecution against the
when Grant's record was later expunged. Besides this plaintiff; (2) causation of the action by the defendant; (3)
information, there is no additional information in the record termination of the prosecution in the plaintiff's favor; (4) the
as to what was reflected in the transcript or the tape. plaintiff's innocence; (5) the absence of probable cause for
Bennett himself testified at trial that he had secretly the proceedings; (6) malice in filing the charges; and (7)
recorded a conversation with Grant and had presented this damages. Richey v. Brookshire Grocery Co., 952 S.W.2d
tape to law enforcement, but this tape recorded only a single 515, 517 (Tex. 1997).
conversation between Grant and Bennett occurring almost a
year prior to Grant's alleged extortion. As such, there is no Appellants do not dispute the jury's findings that there
mention on the tape of the photographs or a demand for was no probable cause to prosecute Grant, that Grant was
$5,000. Indeed, when the special prosecutor was presented innocent of the charges, and that Bennett acted with malice
with a transcript of the tape Bennett testified to presenting in pursuing the charges. Rather, they argue only that there is
to other law enforcement, the special prosecutor testified legally insufficient evidence that Bennett's conduct caused
that he had never seen it before, and it was " completely the commencement of a criminal prosecution against Grant.
different" than the transcript Bennett had given him. The causation element of malicious prosecution requires
evidence that a defendant " initiated" or " procured" a
Bennett's plan to imprison Grant seemed to finally be criminal prosecution. Lieck, 881 S.W.2d at 292. A person
coming to fruition when the special prosecutor then took initiates a criminal prosecution if he makes a formal charge
this evidence to a second grand jury and succeeded in to law enforcement authorities. Id. Here, there is no
obtaining two felony indictments, and Grant surrendered evidence in the record that Bennett filed any formal
himself to authorities. But Bennett's long and hard-fought charges; Grant, therefore, relies on procurement. A person "
quest ended nine months later, when both of Grant's procures" a criminal prosecution " if his actions are enough
indictments were quashed because the charges had been to cause the prosecution, and but for his actions the
filed past the statute of limitations. Further, the trial court prosecution would not have occurred." Id. Thus,
granted Grant's motion to have his arrest and indictments procurement requires that a person's actions be both a "
expunged from his record as void. Upon expunction, necessary and a sufficient cause of the criminal
Grant--who was already being sued by Bennett for prosecution." Id. Appellants argue there is no evidence
slander--added a counterclaim against Bennett and the Bennett " procured" Grant's criminal prosecution because
Bonham Corporation for malicious criminal prosecution.[7] the prosecutors involved acted with independent discretion,
Upon hearing the preceding evidence, the jury found that and their exercise of discretion was a superceding,
Bennett and the Bonham Corporation had indeed intervening cause of the prosecution that destroyed his own
maliciously prosecuted Grant. They appeal, contending liability in bringing about the charges. Appellants are
there is insufficient evidence of a malicious prosecution. correct that generally a person cannot procure a criminal
Appellants' claim requires us to first expound upon the law prosecution when the decision whether to prosecute is left
of malicious prosecution. to the discretion of another because the independent
exercise of discretion destroys the necessary causal link
B. Malicious Prosecution between the defendant and the prosecution. See id. There
are, however, two important exceptions to this rule where a
Malicious prosecution is an unusual tort in that it defendant may still be liable for malicious prosecution
requires the court to because his actions are such that it makes an intelligent
exercise of discretion impossible: (1) when a defendant
provides information which he knows is false that causes a procurement.
criminal prosecution, or (2) when a defendant's conduct was
the determining factor in the prosecutor's decision to Reviewing the evidence in the light most favorable to
prosecute. See id. at 292--94. We conclude there is legally the jury's verdict, the Navarro County district attorney
sufficient evidence to support the jury's finding of causation believed Bennett's claims were barred by limitations and
under both exceptions. would never have brought this case before the grand jury
but for Bennett changing his story to add an additional
1. Legally sufficient evidence Bennett procured claim of extortion occurring within the limitations period.
Grant's prosecutions by providing false information. As Grant testified this was a false allegation, we will
assume--for purposes of our analysis--that the allegation
The first exception is when a defendant provides was false, and there is more than sufficient evidence that the
information which he knows is false that causes a criminal false allegation was the but-for cause of the prosecutor
prosecution. See id. at 293. For this exception, the plaintiff presenting the case to the grand jury. Traditionally,
must prove both that the defendant knowingly furnished however, the tort of malicious prosecution does not arise
false information to authorities, and that but for such until process is issued, an indictment is returned,
information filed, or the accused is arrested. See
Page 234 Restatement (Second) of Torts § 654 (1977). Here, there is
no evidence in the record that any of these events occurred
false information, the prosecutor would not have decided to
with regard to this first proceeding before the grand jury or
prosecute. King v. Graham, 126 S.W.3d 75, 76 (Tex. 2003).
that Grant was aware of or suffered damages from this
The prosecutor's reliance on the false information makes an
proceeding. Accordingly, the bulk of our analysis must
intelligent exercise of discretion impossible and establishes
focus on the second presentment of the case to the grand
the causal link necessary to hold the defendant liable for
jury by the special prosecutor, which ultimately resulted in
malicious prosecution. See id. at 78. But, if the decision to
two indictments and Grant's arrest.
prosecute would have been made with or without the false
information, the defendant did not cause the prosecution by Viewing the evidence regarding the second grand jury
supplying false information. A single prosecution may, proceeding in the light most favorable to the verdict, we
however, be procured by more than one person. Lieck, 881 conclude there was more than a scintilla of evidence to
S.W.2d at 292. support the jury's finding that Bennett procured the
prosecution. The special prosecutor acknowledged in his
Appellants challenge only the legal sufficiency of the
testimony that Bennett's statements were " definitely . . .
jury's finding that Bennett procured Grant's prosecution. A
very material" to his decision to proceed to the grand jury.
party challenging the legal sufficiency of the evidence
He further acknowledged
supporting an adverse finding on an issue for which the
opposing party bears the burden of proof will prevail if Page 235
there is a complete absence of evidence of a vital fact or if
the evidence offered to prove a vital fact is no more than a that if he had believed Bennett's statements were
scintilla. See Waste Mgmt. of Tex., Inc. v. Texas Disposal untruthful, then he " would not have presented" the case to
Sys. Landfill, Inc., 434 S.W.3d 142, 2014 WL 1875637, at the grand jury. Assuming Bennett's statements were false,
*8 (Tex. 2014); City of Keller v. Wilson, 168 S.W.3d 802, the special prosecutor's testimony provides more than a
810 (Tex. 2005). More than a scintilla exists when the scintilla of evidence that Bennett was a necessary and
evidence as a whole rises to a level enabling reasonable and sufficient cause of the prosecution. Compare King, 126
fair-minded people to have different conclusions. Merrell S.W.3d at 79 (holding insufficient evidence of causation
Dow Pharms., Inc. v. Havner , 953 S.W.2d 706, 711 (Tex. where " [n]othing in the record shows that the false
1997). In conducting a legal-sufficiency review, we information was material to the decision to prosecute" ).
consider the evidence in the light most favorable to the Further, there was additional evidence that the special
judgment, crediting evidence that a reasonable fact finder prosecutor relied on the transcript that Bennett had given
could have considered favorable and disregarding him allegedly transcribing secretly-taped conversations with
unfavorable evidence unless the reasonable fact finder Grant. From the record, there was sufficient evidence for
could not. City of Keller , 168 S.W.3d at 807. We indulge the jury to infer that Bennett had fabricated this evidence
every reasonable inference that supports the jury's findings. and that it was a material cause of the prosecution, as the
Id. at 822. Therefore, we must uphold the jury's verdict special prosecutor testified that the transcript substantiated
unless--after viewing the evidence in the light most Bennett's claim that Grant had sought $5,000 from him.
favorable to the jury's verdict and disregarding contrary
evidence unless a reasonable jury could not--there is no For legal sufficiency review, we consider the
more than a scintilla of evidence to support the finding of evidence in the light most favorable to the judgment,
crediting evidence that a reasonable fact finder could have Grant's prosecution by other improper conduct.
considered favorable and disregarding unfavorable evidence
unless a reasonable fact finder could not. See City of Keller, The second exception in which a defendant may be
168 S.W.3d at 827. We note here the special prosecutor liable for malicious prosecution is " when his conduct is the
testified that--in addition to the information provided by determining factor in the prosecutor's decision to
Bennett--he also relied on Grant's sworn testimony from prosecute." [10] See Lieck, 881 S.W.2d at 294. For this
Bennett's prior criminal trial for cattle theft. At that trial, the exception to be applicable, it must " appear that [the
special prosecutor testified Grant purportedly admitted defendant's] desire to have the proceedings initiated,
making a phone call to Rogers seeking money for the expressed by direction, request or pressure of any kind, was
pictures but alleged he was only " joking." [8] The special the determining factor in the official's decision to
prosecutor testified that in his opinion Grant " tried to cover commence the prosecution." Id. (quoting Restatement
himself" by alleging that it was a joke, and when asked (Second) Torts § 653 (1977)). The Texas Supreme Court in
whether he would have prosecuted based solely on this 1994 adopted this exception set out in the Restatement of
testimony, he responded: " I think so, because the fact is Torts. See id. We note, however, that the parties have not
that he admitted making the calls." (emphasis added). When cited to, and we have not found, any Texas case that has
a prosecutor relies on evidence independent of the false determined what type of conduct would constitute "
information provided by the defendant, the defendant " procurement" under this exception. See Michol O'Connor,
cannot be said to have caused the prosecution if the [false] O'Connor's Texas Causes of Action, ch. 19-A, at 572 (2014)
information was immaterial to the decision to prosecute." (" No Texas court has determined what type of conduct,
King, 126 S.W.3d at 78. The special prosecutor, however, other than providing false information, would constitute
had previously acknowledged that Bennett's evidence was procurement." ). After careful review of the record in this
definitely very material to his decision to prosecute and that case, we conclude this is the rare case where the defendant
he would not have presented the case if he had thought engaged in such an intentional and systematic abuse of the
Bennett was providing false information.[9] justice system that there was sufficient evidence his conduct
was the determining factor in the prosecution.
To the extent there is any conflict in the special
prosecutor's testimony as to the cause of the prosecution, As there are no examples under Texas case law, we
causation is generally a question of fact for the jury, see will draw upon the Restatement itself for guidance. The
Rodriguez v. Moerbe, 963 S.W.2d 808, 818--19 Restatement provides the following example as illustration
(Tex.App.--San Antonio 1998, pet. denied), and there is of this exception:
more than a scintilla of evidence to support the jury's fact
finding A goes to B, a district attorney and informs him that C has
committed a battery upon A. A is a political boss to whom
Page 236 B owes his election. A demands that B prosecute C. The
battery is one that has created no public disturbance and is
that Bennett's false information was a necessary and therefore an offense for which a public prosecutor would
sufficient cause of the prosecution. Further, the jury was not ordinarily institute proceedings. In compliance
entitled to resolve any conflicts in the special prosecutor's
testimony and could choose to believe or disbelieve all or Page 237
part of his testimony. See McGalliard v. Kuhlmann , 722
S.W.2d 694, 697 (Tex. 1986) (jury may " resolve with A's demand, B files an information against C. A has
inconsistencies in the testimony of any witness" ); see also procured the institution of the proceeding.
City of Keller , 168 S.W.3d at 819 ( " Jurors are the sole
Restatement (Second) Torts § 653 (1977). In the example,
judges of the credibility of the witnesses and the weight to
the defendant procured the prosecution by exerting
give their testimony. . . . Reviewing courts cannot impose
improper pressure on the district attorney to bring charges
their own opinions to the contrary." ). Consequently, we
that ordinarily would not have been filed. Similarly, in this
conclude a reasonable jury could find that the false
case, there is legally sufficient evidence in the record that
information provided by Bennett was a necessary and
Grant would not have been prosecuted but for Bennett's
sufficient cause of Grant's prosecution and disregard any
acknowledged and systematic campaign to improperly
contrary evidence. After reviewing the evidence under the
influence the proceedings. First, the Navarro County district
appropriate standard, we conclude there is legally sufficient
attorney testified emphatically that although he had the
evidence to support the jury's finding that Bennett procured
authority to file an information charging Grant with
Grant's criminal prosecution by providing false information.
misdemeanor attempted theft, he " dug in his heels" and
2. Legally sufficient evidence Bennett procured steadfastly refused to press charges against Grant because
of the statute of limitations and because he believed Bennett
had been tailoring the facts to create a chargeable offense. evidence to support the jury's findings of corporate liability.
Only after immense pressure from Bennett and some
altering of the facts, did the district attorney finally yield Page 238
and agree to bring the misdemeanor case before the grand
jury. He testified, however, that ordinarily he would not A. Joinder
have presented this misdemeanor case to the grand jury but
In its first individual issue, Bonham contends that it
only did so because of Bennett's unceasing demands. Like
was improperly joined as a party to this suit. A trial court is
the example in the Restatement, this proceeding before the
given a great deal of discretion in matters of joinder, and its
grand jury would never have occurred but for Bennett
decision on such procedural issues will not be disturbed on
exerting such pressure on the district attorney that his desire
appeal absent an abuse of discretion. Varme v. Gordon, 881
to have the proceeding commenced was the determining
S.W.2d 877, 882 (Tex.App.--Houston [14th Dist.] 1994,
factor in the district attorney's decision to prosecute.
writ denied). A trial court abuses its discretion when it has
After the grand jury refused to indict, acted in an unreasonable or arbitrary manner, or when it
Bennett--undeterred in his goal of having Grant acts without reference to any guiding principle. Coburn v.
imprisoned--then organized and led an extraordinary Moreland, 433 S.W.3d 809, 823 (Tex.App.--Austin 2014,
petition campaign to put in place a hand-picked special no pet.). A trial court's decision on the matter of the joinder
prosecutor to indict Grant. At a time when the district of an additional party is " generally based on practical
attorney was facing a heavily-contested election, Bennett considerations with a view to fair, orderly and timely
then came to the district attorney's office with the petitions prosecution and disposal of pending litigation." Fireman's
demanding the appointment of his special prosecutor to the Fund Ins. Co. v. McDaniel, 327 S.W.2d 358, 373
case. Feeling Bennett's petition campaign " wasn't helping" (Tex.Civ.App.--Beaumont 1959, no writ).
his chances of reelection, the district attorney again yielded
Bonham's misjoinder claim necessitates a brief review
to Bennett's demands. Here, like the example in the
of this case's procedural history. This suit was originally
Restatement, Grant's second prosecution was a proceeding
initiated by Bennett--the plaintiff in this suit--filing an
that would have never occurred but for Bennett's exertion of
original petition suing Grant for slander. In his original
untoward pressure on the district attorney. Undoubtedly,
answer, Grant asserted a counterclaim against Bennett for
there is more than a scintilla of evidence that Bennett's
intentional infliction of emotional distress. Later, in an
acknowledged and systematic campaign to improperly
amended pleading, Grant added Bonham as an additional
influence judicial proceedings was the determining factor in
counter-defendant to his intentional infliction of emotional
the prosecution.
distress claim. Upon request of the trial court, Grant then
Accordingly, we conclude there is legally sufficient filed a motion seeking leave to include Bonham in the suit.
evidence that Bennett procured Grant's prosecution by Grant's motion for leave sought to add Bonham as a party to
either providing false information to authorities or by the suit on the grounds that Bonham was Bennett's alter
engaging in such a systematic and untoward campaign to ego, and his claims of intentional infliction of emotional
influence judicial proceedings that his conduct was the distress against both Bennett and Bonham " arose from the
determining factor in the prosecution. same transaction, occurrence, or series of transactions or
occurrences . . . and the questions of law and fact in this
CORPORATE LIABILITY case are common to both [Bennett and Bonham]." After a
hearing, the trial court granted the motion without stating
Having found sufficient evidence of Bennett's liability the grounds for the joinder and ordered Grant to serve
in this suit, we next address Bonham's liability. With regard Bonham with process. After being served, Bonham
to Bonham, the jury made several alternate findings answered as a party to the suit without further objection.
imputing corporate liability on Bonham for the malicious Later, after Bonham had entered an appearance in the suit,
prosecution. First, under the malicious prosecution Grant again amended his pleadings to add--after his
question, the jury found that both Bennett and indictments were expunged--an additional counterclaim
Bonham--through an agent--had maliciously prosecuted against Bennett and Bonham for malicious prosecution.
Grant. Second, the jury found that Bennett was acting in his Bonham answered the malicious prosecution claim without
capacity as a vice-principal of Bonham when he objection.
maliciously prosecuted Grant. Finally, the jury found that
Bonham was responsible for Bennett's conduct under a " On appeal, however, Bonham contends it was
reverse-piercing" theory of liability. In two individual improperly joined in the lawsuit under Texas Rule of Civil
issues, Bonham contests its liability, arguing: (1) that it was Procedure 38. See Tex. R. Civ. P. 38. Rule 38 provides that
improperly joined as a party to the suit and (2) there is no a defendant may bring in a third party to a suit if that person
is or may be liable to him or the plaintiff for all or part of
the plaintiff's claim against him. Id. A third-party action given great discretion over joinder questions." ).
under Rule 38 is not an independent cause of action but is Accordingly, we overrule Bonham's joinder arguments.[12]
derivative of the plaintiff's claim. Id.; see In re Seven-O
Corp., 289 S.W.3d 384, 390 (Tex.App.--Waco 2009, orig. B. Corporate Liability
proceeding [mand. denied]). Here, we agree with Bonham
that Grant's claim asserting an independent cause of action In its second individual issue, Bonham contends there
against it for intentional infliction of emotional distress was is no evidence to support the jury's finding of corporate
not a third-party claim as contemplated by Rule 38. Grant liability. Corporations can act only through human agents,
did not assert--as Rule 38 requires--that Bonham was liable and when " actions are taken by a vice-principal of a
for all or part of Bennett's slander claim against him. corporation, those acts may be deemed to be the acts of the
Rather, Grant sought to join Bonham as an additional party corporation itself." See GTE Sw., Inc. v. Bruce, 998 S.W.2d
to his counterclaim seeking affirmative relief for intentional 605, 618 (Tex. 1999); see also Qwest Int'l Commc'ns, Inc. v.
infliction of emotional distress. AT& T Corp., 167 S.W.3d 324, 326 (Tex. 2005)
(corporation is liable for exemplary damages if it acts with
We cannot, however, conclude that Bonham has malice through the actions of a vice-principal). A
proven the trial court abused its discretion by allowing the corporation, however, cannot be liable for damages " if the
joinder because our rules of civil procedure otherwise vice-principal's misconduct occurred while he was acting in
permit the joinder of a non-party to a previously filed a personal capacity unrelated to his authority as a corporate
counterclaim. Texas Rule of Civil Procedure 97 vice-principal." Bennett I, 315 S.W.3d at 884. A
vice-principal of a corporation is a person who " represents
Page 239 the corporation in its corporate capacity, and includes
persons who have authority to employ, direct,
provides that additional persons--other than those made
parties to the original action--may be made parties to a Page 240
counterclaim in accordance with the provisions of Rule 39
(" Joinder of Persons Needed for Just Adjudication" ) and and discharge servants of the master, and those to whom a
Rule 40 (" Permissive Joinder of Parties" ). See Tex. R. Civ. master has confided the management of the whole or a
P. 39, 40, 97(f); see also Tex. R. Civ. P. 37 (" Before a case division of his business." Id. at 883.
is called to trial, additional parties necessary or proper
parties to the suit, may be brought in, either by the plaintiff Regarding Bennett's relationship with Bonham, the
or the defendant upon such terms as the court may Texas Supreme Court in Bennett I concluded that Bennett
prescribe." ). Thus, non-parties must be joined as additional was " indisputably a vice-principal of the Bonham
defendants to a counterclaim if in their absence complete Corporation, he was most likely the only vice-principal and
relief cannot be afforded among the parties. See Tex. R. the only person whose conduct and decisions could subject
Civ. P. 39, 97(f). In addition, the trial court has the the corporation to exemplary damages." Id. at 884. In this
discretion to permit the joinder of additional defendants to a case, similar evidence was presented that, although Bonham
counterclaim under the permissive joinder provisions of was putatively owned by Bennett's daughters, the daughters
Rule 40. See Tex. R. Civ. P. 40 (" All persons may be had no control over the corporation and received no profits,
joined in one action as defendants if there is asserted and Bennett himself exclusively controlled and profited
against them jointly, severally, or in the alternative any from Bonham. Bennett testified that he did not own a home
right to relief in respect of or arising out of the same or a vehicle and did not have a bank account but lived
transaction, occurrence, or series of transactions or rent-free in a home owned by Bonham, drove Bonham
occurrences and if any question of law or fact common to vehicles, and " did whatever [he] wanted to with the
all of them will arise in the action" ), 97(f) (persons other corporation bank account." On this record, Bonham
than those made parties to the original action may be made concedes that Bennett was indisputably a vice-principal of
parties to a counterclaim in accordance with the provisions Bonham. Instead, Bonham argues only that there is
of Rule 40).[11] insufficient evidence to support the jury's finding that
Bennett was acting in his capacity as a vice-principal of
Further, we note that once Bonham entered an Bonham when he maliciously prosecuted Grant.
appearance in this suit, Grant was entitled to assert his
additional counterclaim against Bonham for malicious In its brief, Bonham attempts to distinguish this case
prosecution without further service of process. See Tex. R. from Bennett I, in which the Texas Supreme Court found
Civ. P. 97(b), 124. Under these circumstances, we cannot there was " ample evidence" that Bennett was acting in his
conclude--nor has Bonham proven--that the trial court corporate capacity when he converted Reynolds' cattle
abused its discretion by permitting the joinder. See Varme, using " corporate authority over corporate employees, on
881 S.W.2d at 883 (" We emphasize that the trial court is corporate land, [and] using corporate equipment." Id. at
885. Bonham argues in its brief that in contrast to Bennett I, DAMAGES
" the instant case does not involve the use of corporate
property or the exercise of corporate privileges to After finding Bennett and the Bonham Corporation
accomplish the underlying tort." We conclude, however, maliciously prosecuted Grant, the jury found Grant was
that in this case there is, again, more than ample evidence to entitled to the following damages: $5,000 in mental anguish
impart corporate liability on Bonham. damages; $60,000 in attorneys' fees incurred defending the
malicious prosecution; $1 million in punitive damages
Reviewing the record, Bennett's malicious prosecution awarded against Bennett; and another $1 million in punitive
of Grant involved several courses of conduct that implicate damages awarded against the Bonham Corporation. The
Bonham. First, Bennett contacted an attorney who had an trial court's final judgment reduced the award of
ongoing attorney-client relationship with Bonham and compensatory damages to $10,703 but awarded Grant, in
directed him to research whether Grant's alleged actions accordance with the jury's verdict, $2 million in punitive
constituted a criminal offense. The attorney then drafted a damages. Appellants challenge the entire award. We will
brief based on his legal research advocating that Grant be begin by reviewing the compensatory damages awarded to
charged with attempted theft. The brief was sent to the Grant, which are comprised of $5,000 for mental anguish
Navarro district attorney and described as a " catalyst" in damages and $5,703 in attorneys' fees.
the district attorney's decision to bring the case before a
grand jury. This same attorney was also pivotal in later A. Mental Anguish
advising Bennett to seek the appointment of a special
prosecutor to the case and then drafted the petition accusing Appellants first contend there is no evidence to
the Navarro County district attorney of bias. The attorney support the trial court's award of $5,000 in mental anguish
testified at trial that he had an ongoing attorney-client damages. Although Grant was indicted and arrested as a
relationship with Bonham since 1982. When asked whether result of their malicious prosecution, Appellants challenge
he had ever done any personal work for Bennett, the the mental anguish damages contending there is insufficient
attorney answered: " I don't remember ever doing anything evidence Grant suffered the " high degree of mental pain
for Mr. Bennett except a will one time." and distress necessary for compensable mental anguish." To
support an award of mental anguish damages, there must be
Bennett's malicious prosecution of Grant was further both evidence of the existence of compensable mental
accomplished by traveling many miles in a Bonham vehicle anguish damages and evidence to justify the amount
to meet with officials in four different counties to have awarded. Hancock v. Variyam , 400 S.W.3d 59, 68 (Tex.
Grant prosecuted. Bennett testified at trial that he did not 2013). Mental anguish is only compensable if it causes a "
own a vehicle and acknowledged that he used Bonham substantial disruption in daily routine" or " a high degree of
vehicles to accomplish this phase of the malicious mental pain and distress." Id.; Parkway Co. v. Woodruff ,
prosecution. When asked whether he ever used Bonham's 901 S.W.2d 434, 444 (Tex. 1995).
vehicles for personal use, Bennett responded " I don't have
much personal business." Bennett's lack of personal Regarding Grant's mental anguish damages, Grant
business was further exemplified when he testified that he testified that--long before his indictment--he " knew
directed a Bonham employee to type a transcript of his Bennett would come after [him]" for turning his photos over
alleged secretly-taped conversation with Grant. He then to the authorities. Fearful " for [his] life and [his] family,"
testified that he Grant testified he moved four times in an effort to keep his
family safe from Bennett. Each time he would move,
Page 241 however, Grant testified that Bennett would show up at
depositions with his tape recorder and pencil in hand to
presented this typed transcript to law enforcement in his record Grant's new address. At one such deposition taken
attempts to prosecute Grant. The employee who typed the prior to his indictment, Grant testified that he heard Bennett
transcript served as Bonham's corporate representative at avow that " he would see me go to the penitentiary."
trial." [13]
Page 242
Viewing the foregoing evidence in the light most
favorable to the jury's verdict, we conclude there is more He further testified that he was aware of other instances
than a scintilla of evidence to support the jury's finding that when Bennett " had seen that people went to prison" and
Bennett was acting in his capacity as a vice-principal of believed Bennett was " fully capable of seeing that [he]
Bonham when he maliciously prosecuted Grant.[14] We went to prison." After hearing Bennett's testimony that it
overrule Bonham's individual issues on appeal. was his goal to put him in prison, Grant testified he was
fearful to leave home and would lock himself in his house
to protect his family. When Grant was finally indicted, his
lawyer informed him he had been charged with a felony and could not have . . . allocated 95 percent of the fees incurred
was facing prison time. Grant and his mother then drove the on both charges solely to attempted bribery." We disagree.
three and half hours from Coleman, Texas, where he lived, Submitting to the jury an attorney's testimony concerning
to Corsicana, Texas, where he had been indicted. Grant the percentage of hours relating to specific claims--even a
surrendered himself to the authorities in Corsicana and was percentage a high as 95%--is sufficient to satisfy a party's
released that day on a surety bond posted by his mother. For burden to segregate its attorneys' fees. See Tony Gullo
the next nine months, the charges remained pending against Motors I, L.P. v. Chapa, 212 S.W.3d 299, 314 (Tex. 2006)
Grant. Grant testified that he worried how his family would
be taken care of if he went to prison and that he was afraid Page 243
to leave his family alone. He further testified that as a result
of worrying about what Bennett was going to do, " I would (" an opinion would have sufficed stating that, for example,
have bad headaches, weak stomach, couldn't eat, couldn't 95 percent of their drafting time would have been necessary
sleep." Grant additionally testified that the experience even if there had been no [non-recoverable] claim" ).
affected his mental state as he went from being " a Further, to the extent attorneys' fees " would have been
happy-go-lucky" person to feeling like a " completely incurred on a recoverable claim alone, they are not
different person" who struggled with self-esteem and disallowed simply because they do double service" with a
distanced himself from friends and family. Grant's sister non-recoverable claim. See id. at 313. Grant's indictments
confirmed that she noticed a change in Grant's demeanor, were based on the same facts and he asserted the same
testifying that her brother " just closed himself and defense of limitations to both charges. His attorney testified
sequestered himself from everyone." that the legal work performed for both charges was
essentially the same, as he drafted the same motions,
Based on the foregoing, we conclude there is conducted the same discovery, and attended the same
sufficient evidence to support the jury's finding that Grant hearings and meetings for both charges. As such, the
suffered the degree of mental pain and distress that will attorney testified " that 95% of the work that was required
support an award of mental anguish damages and that the on those two charges would've been necessary on just the
award of $5,000 was well within the range supported by the attempted bribery charge itself alone. . . . I would have done
evidence. the same work on the attempted bribery charge even if there
hadn't been the attempted tampering with a witness charge."
B. Attorneys' Fees As there was sufficient evidence that Grant would have
incurred $5,703 in attorneys' fees on the bribery charge
When a defendant has caused attorneys' fees to be alone, we conclude there is sufficient evidence to support
incurred in defense of a criminal charge which was the damages award. Finding sufficient evidence to support
maliciously prosecuted, attorneys' fees in defending the the award of actual damages, we overrule Appellants'
prior criminal charge are recoverable in the malicious second issue on appeal.
prosecution suit as damages. See IBP, Inc. v. Klumpe , 101
S.W.3d 461, 478 (Tex.App.--Amarillo 2001, pet. denied). C. Exemplary Damages Cap
Here, Grant was charged with two felonies: attempted
bribery and tampering with a witness. In his pleadings and The Texas Civil Practice and Remedies Code limits
at trial, however, Grant sued for malicious prosecution the maximum amount of exemplary damages a trial court
based on the attempted bribery charge only. With regard to can award. See Tex. Civ. Prac. & Rem. Code § 41.008(b).
recovering attorneys' fees for the malicious prosecution as The cap, however, does not apply when a plaintiff seeks
damages, Grant's attorney testified at trial that Grant recovery of exemplary damages based on certain felony
incurred $6,003.19 in attorneys' fees for defending against criminal conduct enumerated under the statute, i.e.,
both charges, but that 95% of the work--or $5,703--would cap-busting conduct. Id. § 41.008(c). One such felony
have been necessary for defending the attempted bribery cap-busting exception--defined under Penal Code §
charge alone. The jury, however, found Grant incurred 32.46--is when a person, with the intent to defraud or harm
$60,000 in reasonable and necessary attorneys' fees any person, by deception causes another to sign or execute
defending against the malicious prosecution. The trial court, any document affecting the pecuniary interest of any person
in accordance with Grant's voluntary remittitur, reduced this in the amount of $1,500 or more. Id. § 41.008(c)(11); see
amount to $5,703 to conform to the evidence at trial. also Tex. Penal Code § 32.46. Here, the jury made a
Appellants nevertheless contend there is insufficient cap-busting finding that the Appellants, with the intent to
evidence to support the amount of attorneys' fees awarded harm Grant, caused another by deception to sign or execute
as damages. his criminal indictment for attempted bribery, and the
indictment affected Grant's pecuniary interest in the amount
Appellants do not challenge the reasonableness of the of $1,500 or more. Appellants contend there is legally
fees. Rather, they argue only that a " reasonable fact-finder insufficient evidence to support this finding because: (1) an
indictment is not a document affecting the pecuniary under altered judgment).
interest of any person; and (2) there is no evidence Bennett
caused anyone to sign the indictment. Viewing the evidence in the light most favorable to
the jury's finding, we conclude there is more than a scintilla
1. Document Affecting Pecuniary Interest of evidence that Grant's pecuniary or financial interests
were affected by the indictment, which--on its
Appellants first contend that indictments--as a matter face--required him to find a means to post a $10,000 bond
of law--are not documents that affect a defendant's or face immediate and indefinite imprisonment. He then
pecuniary interest, and therefore Grant cannot qualify for was required to obtain legal counsel to quash the
the cap-busting exception. We are not persuaded by indictment, incurring an additional $5,703 in attorneys' fees.
Appellants' argument. The term " pecuniary interest" is not Further, if convicted of the offense of attempted bribery,
defined by the statute; therefore, courts have defined the Grant faced further potential liability as the offense carried
term using its common meaning of having a " financial a monetary penalty of up to $10,000. See Tex. Penal Code §
stake" in a matter. See Briones v. State, 76 S.W.3d 591, 595 § 12.34; 15.01; 36.02. Thus, we conclude there is legally
(Tex.App.--Corpus Christi 2002, no pet.); Goldstein v. sufficient evidence Grant had a financial stake in the
State, 803 S.W.2d 777, 791 (Tex.App.--Dallas 1991, pet. indictment, as the execution of the document caused him
ref'd). Therefore, the narrow question presented is whether both immediate financial liability and potential financial
there is legally sufficient evidence of Grant having a liability in the future.
financial stake in the grand jury's indictment.
2. Causation
Appellants contend that Grant had no financial stake
because indictments as a whole are excluded from the class Appellants next contend that Bennett cannot be the
of documents that affect pecuniary interests because--unlike legal cause of Grant's indictment because (1) the causal link
a " bank draft, a promissory between Bennett's actions and the indictment is too
attenuated to satisfy causation requirements under the Penal
Page 244 Code; and (2) it is impossible to prove causation because "
grand jury proceedings are secret, so there is no way of
note, [or] a deed" --no monetary interest " flow[s] directly knowing which evidence persuaded the grand jury to
from the document." The statute, however, does not require indict." Criminal liability is predicated on but-for causation
the complainant to have a pecuniary interest in the but also requires consideration of the foreseeability of the
document itself. See Lewis v. State , No. 05-09-00299-CR, injurious consequences of the defendant's conduct. Williams
2010 WL 4400515, at *4 (Tex.App.--Dallas Nov. 8, 2010, v. State , 235 S.W.3d 742, 764--65 (Tex.Crim.App. 2007).
pet. ref'd) (not designated for publication). Rather, it Appellants, relying on the Texas Court of Criminal Appeals'
requires only that the execution of the document affect the discussion of causation in Williams v. State, argue the chain
pecuniary interest of any person. See Tex. Penal Code § of causation linking Bennett to the indictment is too
32.46. Further, a complainant is not required under the attenuated to impose criminal responsibility. In Williams,
statute to prove actual pecuniary loss. See Smith v. State , the Court found that a mother who left her two daughters in
681 S.W.2d 71, 75--76 (Tex.App.--Houston [14th Dist.] a room with a lit candle under another adult's supervision
1983), aff'd, 722 S.W.2d 408 (Tex.Crim.App. 1986) was not criminally responsible for the children's burning
(offense complete when person causes another to execute deaths because it was not reasonably foreseeable: (1) that
document with intent to defraud or harm; there is no the other adult would forget to blow the candle out before
requirement to prove resulting harm). Therefore, when a falling asleep; (2) that a sheet or clothing would then fall
person purposely uses deception to cause a court official to
execute a document, the executed document may affect Page 245
pecuniary interests if it subjects a person to potential
financial liability. See Fisher v. State, 803 S.W.2d 828, 830 on the burning candle; and (3) that the other adult would
(Tex.App.--Dallas 1991, pet. ref'd) (securing issuance of not be able to get children out of the house after the fire
citation through deception affected pecuniary interests as started. Id. In this excerpt from their brief, Appellants argue
citation made defendant in suit potentially liable for the following is the but-for causal chain linking Bennett to
monetary damages); Woodley v. State, No. Grant's indictment in this case:
08-00-00470-CR, 2003 WL 550298, at *6 (Tex.App.--El
Paso 2003, pet. ref'd) (mem. op.) (securing trial court's o If Bennett had not asked for a special prosecutor, and
execution of agreed judgment that had been altered to add
new defendant and increase amount of award affected o If Bennett had not given the prosecutor the facts he had
pecuniary interests as defendants faced potential liability gathered, and
o If the prosecutor had not brought the case to the grand
jury, and possibly, found Bennett used deception to create a false impression
that was likely to affect the judgment of another: Bennett's
o If the prosecutor had not presented those facts, and, statements that Grant had called trying to sell him
possibly, incriminating photos for $5,000 and a transcript from
Bennett--which the jury could have found was
o If the grand jury had not relied on those facts, and fraudulent--purportedly transcribing a secretly-taped
conversation with Grant that substantiated Bennett's claim
o If the prosecutor had not recommended an indictment or
that Grant
the grand jury had not disregarded the prosecutor's
recommendation, and Page 246
o If at least nine of the grand jurors had not voted to issue had sought $5,000 for the photos. The record further
the indictment, reflects that Bennett testified at the grand jury proceeding
but that Grant was not present. In exact accordance with
o Then Grant never would have been indicted.
Bennett's evidence, the grand jury's indictment charges that
Appellants then argue this causal chain is similar to Grant " with the specific intent to commit the offense of
bribery, called [Bennett], with the purpose of soliciting a
Williams because it " is too disconnected from the putative
cause to support any finding" of causation. What Appellants bribe of $5,000."
fail to account for, however, is that the Court in Williams
Under the Penal Code, " a person is criminally
found that causal link insufficient because the events
responsible if the result would not have occurred but for his
leading to the children's deaths were " not reasonably
conduct, operating either alone or concurrently with another
foreseeable." Id. at 765 (emphasis added). The facts of this
cause, unless the concurrent cause was clearly sufficient to
case are much different. The evidence in this case reflects
produce the result and the conduct of the actor clearly
that Bennett set out on a course of conduct to have Grant
insufficient." Tex. Penal Code § 6.04. Here, Appellants do
indicted and was successful in that endeavor. Indeed,
not challenge the jury's finding that Bennett used deception
Appellants do not contest the jury's finding that Bennett
to indict Grant, and the allegations in the indictment
intended to harm Grant by causing the grand jury to sign his
identically mirror the evidence provided by Bennett. Under
indictment. It is reasonably foreseeable that if Bennett
this record, viewed in the light most favorable to the jury's
intended to put Grant in prison, then provided evidence that
finding of causation, there is more than a scintilla of
a reasonable juror could infer was fabricated or
evidence in the record that Bennett's conduct alone was
manipulated, and then led a campaign to have a special
sufficient to have caused the indictment and to incur
prosecutor appointed in the case--all of which is more than
criminal responsibility. See id. Having found sufficient
adequately supported by the record--the end result of these
evidence to support the jury's cap-busting finding, we
efforts would be Grant's indictment. It is abundantly
overrule Appellants' third issue on appeal.
apparent that Grant's indictment was the natural, probable
and foreseeable consequence of Bennett's actions. D. Constitutionality of Exemplary Damages
Appellants next contend that " Grant could not have Appellants lastly attack the award of exemplary
sustained his burden to prove causation because it is damages, contending the dual $1 million exemplary
impossible to show that Bennett's conduct was necessary damages awards against Bennett and the Bonham
for the indictment to issue [given that] grand jury Corporation violate their federal substantive due process
proceedings are secret." First, as we have already discussed, rights. While state law governs the amount properly
there was sufficient evidence that but for Bennett's awarded as exemplary damages, that amount is also subject
aggressive and untoward efforts to improperly influence the to an ultimate federal constitutional check for exorbitancy.
criminal justice system, the case would have never been put Tony Gullo Motors I, 212 S.W.3d at 307. This is because
before the grand jury, not once, but twice. Further, Bennett the Due Process Clause of the Fourteenth Amendment
does not dispute the jury's finding that he used deception to prohibits a state from imposing a " grossly excessive"
cause the grand jury to execute the indictment. Deception is punishment on a tortfeasor. BMW of N. Am., Inc. v. Gore ,
defined, as " creating or confirming by words or conduct a 517 U.S. 559, 562, 116 S.Ct. 1589, 134 L.Ed.2d 809
false impression of law or fact that is likely to affect the (1996). But punitive damages " may properly be imposed to
judgment of another in the transaction, and that the actor further a State's legitimate interests in punishing unlawful
does not believe is true." Tex. Penal Code § § 31.01(1)(A), conduct and deterring its repetition," and " States
32.46(d)(1). Here, the special prosecutor testified candidly necessarily have considerable flexibility in determining the
that he had the following evidence from Bennett--at the level of punitive damages that they will allow in different
time he presented the indictments--from which the jury classes of cases and in any particular case." Id. at 568. "
Only when an award can be categorized as grossly 3. The target of the conduct had financial vulnerability;
excessive in relation to these interests does it enter the zone
of arbitrariness that violates" due process. Id. 4. The conduct involved repeated actions, not just an
isolated incident; and
In this case, the State has a legitimate interest in both
punishing individuals who purposely manipulate the legal 5. The harm resulted from intentional malice, trickery, or
system to imprison innocent persons and in deterring its deceit, as opposed to mere accident.
repetition. We must therefore determine whether the
punitive damages award in this case was grossly excessive State Farm Mut. Auto. Ins ., 538 U.S. at 419. One of these
in relation to these interests. See id. In determining whether reprehensibility factors alone " may not be sufficient to
an award is excessive, the United States Supreme Court has sustain a punitive damages award; and the absence of all of
identified three " guideposts" by which we must assess the them renders any award suspect." Id.
constitutionality of the punitive damages award:
a. Harm resulted from intentional malice, trickery or
1. the degree of reprehensibility of the defendant's deceit.
misconduct;
Appellants concede there is evidence that Grant's
2. the disparity between the actual or potential harm indictment resulted from " intentional malice, trickery, or
suffered by the plaintiff and the punitive damages award; deceit" but argue that none of the other factors weigh in
and favor of punitive damages. We certainly agree with
Appellants that the fifth reprehensibility factor weighs in
3. the difference between the punitive damages awarded by favor of punitive damages. The jury heard evidence that
the jury and the civil penalties authorized or imposed in Bennett's goal was to put Grant in prison to settle a personal
comparable cases. vendetta and to influence pending civil litigation, and that
he set out on a campaign of legal thuggery--including
State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, allegations of lying, tailoring evidence, and even outright
418, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003); see also fabrication of evidence--to ensure that Grant was
Bennett I, 315 S.W.3d at 873. Whether a punitive damages imprisoned. When Bennett could not win at this game, the
award passes constitutional muster under this standard is a record reflects he decided to change the playing field by
question of law exerting political pressure on a district attorney to appoint
his own hand-picked special prosecutor to the case.
Page 247
Further, when considering exemplary damages, we
that we review de novo. Bunton v. Bentley, 153 S.W.3d 50, may examine Bennett's misconduct beyond the malicious
54 (Tex. 2004). prosecution itself when it " demonstrates the deliberateness
and culpability" of his actions and bears " a nexus to the
1. Reprehensibility of Bennett's Misconduct specific harm suffered" by Grant. Bennett I, 315 S.W.3d at
875. Here, Bennett's efforts to manipulate the legal system
The first guidepost, the degree of reprehensibility of
to imprison Grant were part of a larger escapade designed to
the defendant's misconduct, focuses on the " enormity" of
thwart justice and abuse the court system. We conclude the
the misconduct and is " the most important indicium of the
following allegations of malfeasance may properly inform
reasonableness of a punitive damages award." BMW of N.
the reprehensibility analysis, as they demonstrate the
Am., 517 U.S. at 575. Punitive damages are not
deliberateness, culpability, and motive behind Bennett's
compensation for injury; rather, they operate as private
actions and relate back to the underlying malicious
fines intended to punish the defendant and to deter future
prosecution:
wrongdoing. Cooper Indus., Inc. v. Leatherman Tool Grp.,
Inc., 532 U.S.424, 432, 121 S.Ct. 1678, 149 L.Ed.2d 674 Urging Grant to Lie and Attempting to Bribe Him.
(2001). Exemplary damages should therefore reflect the " Grant testified that, prior to turning his photos over to the
enormity of [the] offense." BMW of N. Am., 517 U.S. at authorities, Bennett visited his home and urged him to lie
575. In evaluating the enormity of a person's misconduct, about what he had seen. Grant's sister
we consider five nonexclusive factors--whether:
Page 248
1. The harm inflicted was physical rather than economic;
testified that Bennett then attempted to offer Grant a
2. The tortious conduct showed an indifference to or lucrative job under the guise of helping his family after a
reckless disregard for the health or safety of others; car accident. She testified Bennett offered that if Grant "
can come and help him for a couple of days, he had a job
that he can get $4,000 for . . . a couple of days of work." Saba District and County Clerk testified that Bennett
When Grant had worked for Bennett the previous year, his attempted to register Reynolds' brand as his own. Finally,
salary was $1,100 a month. At the time Bennett offered this during the course of this trial, Bennett--outside the presence
money, Grant was posed to be the star witness testifying of the jury and without permission from the trial
against Bennett in his criminal trial for cattle theft and in court--altered an exhibit depicting a hand-drawn diagram of
Reynolds' civil suit. Reynolds' brand. We conclude these cover-up efforts show
culpability and
Threatening Grant. When money was not enough to
persuade Grant, there was evidence at trial that Bennett then Page 249
tried a new tactic to silence Grant. Grant's sister testified
that Bennett called her more than 15 times trying to obtain deliberateness and sought to extend and exacerbate harm to
Grant's new contact information. Frustrated that Bennett Grant by discrediting him as a witness and bolstering
would not stop calling, the sister provided Bennett with her Bennett's claims in his civil lawsuits against Grant.[16]
husband's cell phone number and said it was Grant's
number. Bennett testified that he then asked Rogers to call b. Harm inflicted was not merely an economic injury
the number. Shortly thereafter, Rogers called the number and showed a reckless disregard for Grant's health and
and reached Grant's brother-in-law. Believing he was safety.
speaking to Grant, Rogers then--according to the
Regarding the first and second reprehensibility
brother-in-law--demanded that Grant turn over the pictures
factors, Appellants argue Grant suffered a purely economic
and threatened " if he didn't get the pictures, that he had a
injury and this is not a case involving physical harm
jake-leg lawyer that would obtain them" and " that he was
warranting a greater award of exemplary damages, and that
going to take care of [Grant] one way or the other." The
his actions do not show an indifference to or reckless
brother-in-law testified that he relayed these threats to
disregard for Grant's health or safety. We disagree.
Grant.
Malicious prosecution is not a purely economic injury;
Litigation Against Grant. Being unsuccessful in rather, the Restatement recognizes that a plaintiff may
silencing Grant, Bennett then filed this suit alleging Grant recover for the physical harm caused by reason of his arrest.
had slandered him by saying that he had stolen Reynolds' See Restatement (Second) of Torts § 671 (1977). Here,
cattle and sought $50,000 in damages. The jury found Bennett did not intend to inflict a mere financial injury on
against Bennett on his slander claim, finding that Grant's Grant; rather, he succeeded in having Grant's actual person
statement that Bennett had stolen from Reynolds was seized, held in captivity, and stripped of personal liberties.
substantially true. In addition to this suit, Bennett filed--the Appellants further contend that: " Bennett's mere desire that
day after Grant's criminal record was expunged--a second Grant serve prison time does not equate to indifference or
civil lawsuit against Grant and others alleging they had reckless disregard for Grant's health or safety. . . . At best,
conspired to have him indicted for cattle theft. Bennett this factor is neutral and therefore carries no weight in the
sought $2 million dollars in compensatory damages, in reprehensibility analysis." We are confident that if Bennett
addition to punitive damages, in that suit.[15] himself or any person were arrested and facing a prison
sentence in Texas, he would not view his health and safety
Pressuring Grant's Attorney to Resign . During the neutrally affected. See also id. (maliciously prosecuted
course of this litigation, Bennett filed two grievances plaintiff may recover for impairment to health sustained
against Grant's attorney that were dismissed as not alleging from arrest).
professional misconduct. In addition to the grievances,
Bennett sued Grant's lawyer, contending he had conspired c. Target of the conduct had financial vulnerability.
with Grant and others to have him indicted for cattle theft.
Regarding the third reprehensibility factor, we note
The attorney testified that after he was sued by Bennett for
that Bennett's actions were further reprehensible because
$2 million, he was " angry" and " scared" and decided to no
Bennett was aware that Grant and his family were
longer represent Grant in this suit because " he couldn't do
financially vulnerable. Grant testified he first met Bennett
as good a job as somebody that wasn't being sued
because he was desperate for work, and Bennett agreed to
themselves."
hire him as a hand. During the time Grant worked for
Tampering With Evidence. At trial, there were Bennett, the Bonham Corporation paid him a salary of
allegations that one of the photos Grant had taken depicted $1,100 for a full month of work and allowed him to live in a
Reynolds' brand on the sold cattle. There were further trailer on the property. A salary of $13,200 a year, even
allegations that Bennett had doctored this photo during his when the housing allowance is considered, was hovering on
criminal trial to change the incriminating image of his the federal poverty line.[17] Further, Grant's financial
neighbor's brand and conceal his theft. In addition, the San situation worsened when his wife and baby were in a major
traffic accident shortly after Grant turned his photos over to ratio . . . will satisfy due process" and that an " award of
the authorities. Grant and others testified that both his wife more than four times the amount of compensatory damages
and baby were hospitalized after the accident, that his wife might be close to the line of constitutional impropriety."
had been permanently injured, and that Grant had to take a State Farm Mut. Auto. Ins., 538 U.S. at 425.
significant amount of time off from work to stay home and
care for her. The record reflects that Bennett was fully Appellants contend that there is no meaningful
aware of the car accident and perhaps attempted to use the distinction between this case and the large punitive damages
situation to take advantage of Grant's financial vulnerability award the Texas Supreme Court overturned in Bennett I, in
by offering him an extremely lucrative job immediately which the Court found that the ratio of $5,327.11 in actual
after the accident under the guise of helping Grant's family. damages compared to the $250,000 in exemplary damages
Amidst this backdrop of financial vulnerability, Bennett awarded against Bennett--a ratio of 47:1--and the $1 million
then began his quest to have Grant imprisoned and exemplary damages awarded against Bonham--a ratio of
188:1--violated due process. See Bennett I, 315 S.W.3d at
Page 250 869. As the U.S. Supreme Court has recognized, however, "
a jury imposing a punitive damages award must make a
ultimately indicted. Further, Grant's indictment carried a qualitative assessment based on a host of facts and
prison sentence of two to ten years' imprisonment. See Tex. circumstances unique to the particular case before it.
Penal Code § § 12.34, 15.01, 36.02. Undoubtedly, Bennett's Because no two cases are truly identical, meaningful
actions threatened to financially ruin Grant and his family. comparisons of such awards
In sum, we conclude four of the five reprehensibility Page 251
factors are present in this case and weigh in favor of
punitive damages: (1) the harm to Grant resulted from are difficult to make." TXO Prod., 509 U.S. at 458. While
intentional malice, trickery, or deceit; (2) Bennett's this case and Bennett I share some nucleus of operative
malicious prosecution of Grant was not merely an economic facts, the present case is distinguishable and therefore must
injury but resulted in a seizure of Grant's person and loss of be examined on its own facts. In Bennett I, the jury found
physical liberties; (3) Bennett's tortious conduct showed an Bennett converted thirteen of his neighbor's cattle and
indifference to and reckless disregard for Grant's health and assessed actual damages at the market value of the cattle,
safety; (4) and his actions threatened to financially ruin $5,327.11. Bennett I, 315 S.W.3d at 871. While the Court
Grant. Thus, all but one of the reprehensibility factors found that Bennett's malfeasance in attempting to cover-up
weigh in favor of exemplary damages.[18] his initial conversion showed heightened reprehensibility, it
concluded:
2. Ratio Between Exemplary and Compensatory
Damages At heart, though, this is an economic-injury, actual-harm
case seeking recovery for the conversion of thirteen head of
The second and perhaps most commonly cited cattle. Reynolds alleges a broader " criminal escapade" that
indicium of an excessive punitive damages award is the aimed to ruin him, but the theoretical possibilities of greater
ratio between the punitive damages awarded and the actual harm strike as marginally relevant at best in assessing
or potential harm inflicted on the plaintiff. See BMW of N. exemplary damages, absent proof of the likelihood of such
Am., 517 U.S. at 580. In analyzing this ratio, " the proper harms.
inquiry is 'whether there is a reasonable relationship
between the punitive damages award and the harm likely to Id. at 877.
result from the defendant's conduct as well as the harm that
actually has occurred.'" Id. at 581 (quoting TXO Prod. In striking contrast, Bennett in this case did not
Corp. v. Alliance Res. Corp., 509 U.S. 443, 460, 113 S.Ct. merely steal cattle; rather, he attempted to deprive a man of
2711, 125 L.Ed.2d 366 (1993) (emphasis in original)). two to ten years of his liberty. See Tex. Penal Code § §
Thus, we are to examine the difference between the punitive 12.34, 15.01, 36.02 (sentencing for offense of attempted
damages award and the harm actually suffered and the harm bribery). While Appellants attempt to equate theft of cattle
" that would have ensued if the tortious plan had to the theft of years from a man's life, there is no
succeeded." See id.; see also TXO Prod ., 509 U.S. at 460. comparison between the two acts. This is reflected in the
While there is not " a mathematical bright line between the reprehensibility analysis, in which we concluded that four
constitutionally acceptable and constitutionally of the five reprehensibility factors were present in this case.
unacceptable [award of exemplary damages] that would fit In contrast, in Bennett I, the Texas Supreme Court found
every case," see Pacific Mut. Life Ins. Co. v. Haslip , 499 that Bennett inflicted a purely economic injury on his
U.S. 1, 18, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991), we have neighbor by stealing his cattle and therefore only one of the
been instructed that " few awards exceeding a single-digit reprehensibility factors--the harm resulted from intentional
malice, trickery, or deceit--was present. See Bennett I, 315 a lump-sum payment of $800,000 for serving the maximum
S.W.3d at 877. ten-year sentence, plus potential lifetime annuity payments
which could potentially push the final award to over $1
Further, and perhaps most important for our million.[20] Although there is no way to precisely put a
discussion, the Texas Supreme Court found that Bennett I dollar value on the potential harm in this case, the State's
was an actual-harm case only--meaning that beyond the restitution payments reflect the value the Legislature has
actual harm suffered by Reynolds from the theft of his placed on a year of life lost to wrongful imprisonment and
cattle, there was only marginal evidence of any other provide a guidepost for the potential damages in this case.
potential harm faced by Reynolds or anyone else as a result
of Bennett's conversion. Id. Therefore, in Bennett I, Based on this analysis, we conclude the potential
potential harm was not relevant in the Court's ratio analysis. damages in this case can be prudently and rationally valued
See id. But in this case, the evidence of potential harm is not at a minimum of $160,000. This is the minimum amount
marginal or speculative; rather, the record conclusively Grant would have received from the State if he had been
shows that Grant would have been imprisoned for two to wrongfully convicted of attempted bribery and served the
ten years if Bennett had succeeded in his illicit scheme. See minimum sentence available. When combined with the
Tex. Penal Code § § 12.34, 15.01, 36.02. In analyzing the actual damages, the total actual and potential damages for
exemplary damages ratio in a potential-harm case, the U.S. this case would therefore be at least $170,703. Using these
Supreme Court has unequivocally instructed us that " [i]t is figures, the ratio between the actual and potential harm
appropriate to consider the magnitude of the potential harm compared to the dual $1 million exemplary damages awards
that the defendant's conduct would have caused to its would be over 5:1 for both Bennett and Bonham. See BMW
intended victim if the wrongful plan had succeeded." TXO of N. Am., 517 U.S. at 581 (" the proper inquiry is whether
Prod., 509 U.S. at 460 (emphasis in original) (holding there is a reasonable relationship between the punitive
dramatic disparity between $19,000 compensatory damages damages award and the harm likely to result from the
award compared to $10 million exemplary damages award defendant's conduct as well as the harm that actually has
did not violate due process " in light of the [millions] occurred" ). We note that--even with careful consideration
potentially at stake" if the defendant " had succeeded in its of both the actual and potential damages in this case--this
illicit scheme" ). Thus, U.S. Supreme Court precedent ratio likely exceeds constitutional limits. See State Farm
requires us to compare the exemplary damages awarded in Mut. Auto. Ins., 538 U.S. at 425 (" award of more than four
this case to both " the harm that has actually occurred" and times the amount of compensatory damages might be close
the potential harm that Grant would have sustained if to the line of constitutional impropriety" ). As such, this
Bennett's " wrongful plan had succeeded." See id.; see also guidepost weighs in favor of reducing the punitive damages
BMW of N. Am., 517 U.S. at 581 (" the proper inquiry is award.
whether there is a reasonable relationship between the
punitive damages award and the harm likely to result from 3. Legislative Penalties for Similar Misconduct
the defendant's conduct as well as the harm that actually has
occurred" ). The final guidepost compares the exemplary damages
with legislatively authorized civil penalties in comparable
Page 252 cases. This factor fortifies the notion that legislatures make
policy and are well positioned to define and deter undesired
Appellants stress in their brief the disparity between behavior. Bennett I, 315 S.W.3d at 880. Here, we note there
the dual $1 million punitive damages awarded in this case is no comparable civil
compared to the $10,703 compensatory damages award.
That disparity lessens, however, when we consider the Page 253
potential prison sentence faced by Grant. Although it is
difficult to place a monetary value on the loss a person penalty for Bennett's conduct. We may, however, also look
experiences from losing years of his life to an erroneous to criminal penalties that could be imposed, as " the
prison sentence, the State compensates persons who have existence of a criminal penalty does have bearing on the
been wrongfully convicted to the tune of $80,000 for each seriousness with which a State views the wrongful action."
year of wrongful imprisonment plus lifetime annuity State Farm Mut. Auto. Ins., 538 U.S. at 428. When used to
payments. See Tex. Civ. Prac. & Rem. Code § § 103.052 determine the dollar amount of an exemplary damages
(Lump-Sum Compensation), 103.053 (Annuity award, though, the U.S. Supreme Court has cautioned us
Compensation). Thus, if Grant had been wrongfully that criminal penalties have " less utility" than civil
imprisoned for the minimum sentence of two years' penalties. See id.; see also Bennett I, 315 S.W.3d at 881. In
imprisonment, he would have been entitled at a bare this case, we conclude criminal penalties have some
minimum to a lump-sum payment of $160,000.[19] And, on relevance to our discussion, as they demonstrate that
the high end of the spectrum, he would have been entitled to Bennett had fair notice that his conduct could subject him to
the following punishment: justice system for personal gain.
o Tampering With or Fabricating Physical Evidence After careful analysis of these three guideposts, we
conclude: (1) four of the five reprehensibility factors weigh
o 2 to 10 Year Prison Sentence in favor of punitive damages; (2) potential harm is relevant
in evaluating the ratio to exemplary damages, but that even
o $10,000 fine when we consider potential harm, the resulting ratio of 5:1
likely exceeds constitutional boundaries; and (3) there are
o Aggravated Perjury Before Grand Jury
no comparable civil sanctions, but Bennett was on notice
o 2 to 10 Year Prison Sentence that the State had a significant interest in protecting the
integrity of the criminal justice system and would
o $10,000 fine vigorously prosecute, fine, and imprison persons who
engaged in such behavior.
o Execution of a Document by Deception
Our remaining task is to determine--under the unique
o 180 days to 2 years in State Jail facts of this case and these guideposts--what amount of
exemplary damages would pass constitutional muster. In
o $10,000 fine this regard, we have been instructed that an award " four
times the amount of compensatory damages might be close
o Making a False Report to Peace Officer or Law to the line of constitutional impropriety" and that "
Enforcement Employee [p]ushing exemplary damages to the absolute constitutional
limit in a case like this leaves no room for greater
o Up to 180 Days in State Jail
punishment in cases involving death, grievous physical
injury, financial ruin, or actions that endanger a large
o $2,000 fineo $16,000 fine for committing offense eight
segment of the public." Tony Gullo Motors I, 212 S.W.3d at
times[21]
308--310. While we find Bennett's conduct abhorrent, we
Thus, Bennett had fair notice of the seriousness with recognize that his actions did not actually cause any of
which the State viewed his wrongful conduct, as his actions these enumerated unfortunate circumstances. We do,
could subject him to up to $46,000 in monetary fines and however, also recognize that the State has a significant
four to twenty-two years' incarceration.[22] interest in punishing and deterring this type of conduct and
that Bennett's actions were particularly reprehensible.
Appellants contend in their brief that we should--as Weighing these competing concerns, we conclude that a
we did on remand from Bennett I --reduce the exemplary ratio of 3:1 exemplary damages compared to the combined
damages award to the comparable criminal fines. In that actual and potential damages passes constitutional muster.
case, we concluded that the criminal monetary sanction for This results in an award of $512,109 against each defendant
cattle theft was comparable to the civil offense of (three times the actual and potential damages of $170,703)
conversion and provided an objective basis for setting a and reduces the total punitive damages award from $2
constitutionally permissible exemplary damages award. million to $1,024,218 ($512,109 against Bonham and
Bennett v. Reynolds, No. 03-05-00034-CV, 2010 WL $512,109 against Bennett).[24] This award recognizes the
4670270, at *5 (Tex.App.--Austin Nov. 18, 2010, no pet.) potential harm caused by Bennett and Bonham, their
(mem. op.) supplemented, 440 S.W.3d 660, 2011 WL reprehensibility, and the State's interest in punishing and
182876 (Tex.App.--Austin 2011, no pet.). In this case, deterring, but also leaves room for greater punishment for
however, there simply is no criminal offense comparable to cases with more egregious injuries.
the civil offense of malicious prosecution. While we can
examine specific criminal actions Bennett took in his SANCTIONS
ultimate effort to maliciously prosecute Grant, none of these
In addition to the actual and exemplary damages at
offenses take into account that Bennett's ultimate goal was
issue in this suit, Grant alleged Bennett's slander claim
to put Grant in prison.[23] We do, however, conclude that
against him was frivolous and brought in bad faith for
under this record the applicable prison sentences and fines
purposes of harassment and sought sanctions. See Tex. Civ.
put Bennett on notice that the State has a significant interest
Prac. & Rem. Code § 10.001; Tex. R. Civ. P. 13. Bennett
in
originally initiated this suit--as discussed previously--by
Page 254 suing Grant for slander, alleging that Grant's statement that
Bennett had stolen Reynolds' cattle was slanderous. The
deterring this type of conduct and would prosecute and jury found that Grant's statement was substantially true and
imprison those who attempt to manipulate the criminal this finding has not been challenged on appeal. The trial
court granted the request for sanctions and ordered Bennett filed this suit for improper purposes specifically prohibited
to pay Grant's attorneys' fees incurred defending the claim by Chapter 10, we conclude the trial court could have relied
in the on Chapter 10 as the legal basis for the award. Further,
Bennett has not challenged on appeal the trial court's
Page 255 finding that he filed this suit against Grant for improper
purposes. Generally, an appellant must attack all
amount of $269,644.50, concluding that this amount independent bases or grounds that fully support a
adequately punished Bennett and fairly compensated Grant complained-of ruling or judgment. See Britton , 95 S.W.3d
for defending against the groundless claim. In his only at 681. As Bennett has failed to attack this basis that
individual issue, Bennett contends the sanctions award was supports the sanctions order, we cannot conclude the trial
an abuse of discretion. court's imposition of sanctions was an abuse of discretion.
We review the trial court's imposition of sanctions for In addition, Rule 13 similarly authorizes a trial court
an abuse of discretion. See Low v. Henry, 221 S.W.3d 609, to sanction a person, a represented party, or both for signing
614 (Tex. 2007). In reviewing the sanctions order, we a pleading that is groundless and brought in bad faith or to
review the entire record to determine whether the trial court harass. Tex. R. Civ. P. 13. Pleadings are presumed filed in
abused its discretion. American Flood Research, Inc. v. good faith under Rule 13, and the burden is on the moving
Jones, 192 S.W.3d 581, 583 (Tex. 2006). An appellate court party to demonstrate both that the
may reverse the trial court's ruling only if the trial court
acted without reference to any guiding rules and principles, Page 256
such that its ruling was arbitrary or unreasonable. Low, 221
S.W.3d at 614. At the very least, this requires a showing opposing party's filings: (1) are groundless; and (2) were
that the trial court based its order on an incorrect filed either in bad faith or for the purpose of harassment. Id.
interpretation of the law or a clearly erroneous assessment In determining whether sanctions are appropriate, the trial
of the evidence. Robson v. Gilbreath, 267 S.W.3d 401, 405 court must examine the facts available to the litigant and the
(Tex.App.--Austin 2008, pet. denied). The trial court does circumstances existing when the litigant filed the pleading.
not abuse its discretion if it bases its sanctions on Robson, 267 S.W.3d at 409. Further, under Rule 13, the
conflicting evidence and some evidence supports its trial court is required to state in the order the particulars of
decision. Unifund CCR Partners v. Villa , 299 S.W.3d 92, good cause justifying the sanctions. See Tex. R. Civ. P. 13.
97 (Tex. 2009).
The trial court's order here concludes, consistent with
Here, the trial court's order did not specify the legal a violation of Rule 13, that Bennett's slander claim was "
basis for the sanctions, so we begin our review by groundless," " part of a plan to harass and intimidate Grant,"
identifying all the potential legal bases for the order. See and brought in " bad faith." [25] As such, we conclude that
Citibank, N.A. v. Estes, 385 S.W.3d 671, 675 Rule 13 could have also been the legal basis for the trial
(Tex.App.--Houston [14th Dist.] 2012, no pet.). Chapter 10 court's award. Further, the sanctions order states the
of the Civil Practice and Remedies Code, in pertinent part, particulars of good cause justifying sanctions under Rule
authorizes a court to sanction a person, a party who 13. First, there are numerous findings in the order that
represents the person, or both for signing a pleading that Bennett brought this suit in bad faith and for purposes of
was brought for any improper purpose--including to harass, harassment, including findings that: (1) Bennett had filed
cause unnecessary delay, or needlessly increase the cost of this suit to punish Grant for testifying against him in
litigation. Tex. Civ. Prac. & Rem. Code § § 10.001, 10.004; previous lawsuits; (2) Bennett had " doctored" or " altered"
see Mattox v. Grimes Cnty. Comm'rs Court , 305 S.W.3d evidence to cover up his conversion of Reynolds' cattle and
375, 386 (Tex.App.--Houston [14th Dist.] 2010, pet. give grounds to his baseless slander claim against Grant; (3)
denied) (" Sanctions under chapter 10 of the Civil Practice and that Bennett's true purpose in the suit was not to recover
and Remedies Code are authorized if the evidence money damages from Grant--who lacked the financial
establishes that . . . a pleading or motion was brought for an resources to pay an award--but to subvert a separate civil
improper purpose." ). Here, the trial court's order concludes trial, Bennett I, and to harass Grant. Bennett does not
that Bennett filed his slander claim for at least two improper challenge the legal sufficiency of any of these findings on
purposes--" to punish a witness who had testified against appeal.
him in previous lawsuits" and " to subvert a separate trial, [
Bennett I ]." The trial court further concluded that Bennett's With regard to groundlessness, Bennett pleaded that
refusal to nonsuit his slander claim, " substantially he had instructed Grant not to sell any cattle that did not
increased the burden on this case on the defendant and on belong to him, and therefore, Grant's allegation that he had
the court system" and " required in essence a re-trial of [ stolen the cattle was slander. The trial court, however,
Bennett I ]." As the trial court made findings that Bennett found in its order that Bennett had converted Reynolds'
cattle and then engaged in a " design to cover up his Page 258
conversion" that implied " willfulness and bad faith, not
inadvertence or an honest mistake." This finding states with CONCLUSION
particularity the trial court's good cause for concluding the
slander claim was groundless--as the trial court found there This is an unusual case. Malicious prosecution itself is
was no factual basis to support Bennett's pleadings that an unusual tort, and it is exceptionally unique under Texas
Reynolds' cattle had been sold accidentally and there was jurisprudence for a defendant to procure a prosecution by
no legal basis for his slander claim because substantial truth both providing false information to authorities and by
is a complete defense to slander. See id. ( groundless means engaging in such other improper activities that his conduct
no basis in law or fact and not warranted by good faith became the determining factor in the decision to prosecute.
argument for change of existing law); see also Randall's Looking to the exemplary damages award, this case is also
Food Mkts., Inc. v. Johnson , 891 S.W.2d 640, 646 (Tex. unique because another exemplary damages award, in
1995) ( substantial truth of an alleged defamatory statement Bennett I, has already been adjudicated by the Texas
is complete defense to slander action). Further, while Supreme Court and found unconstitutional. The facts and
Bennett testified in support of his allegations, the trial court circumstances of this case, however, are vastly different
does not abuse its discretion when there is conflicting than those in Bennett I and justify the imposition of a larger
evidence that supports its decision, see Unifund CCR exemplary damages award. This case differs from Bennett I
Partners, 299 S.W.3d at 97, and Bennett has not challenged --and again is somewhat unique under Texas
the legal sufficiency of this finding on appeal. In addition, jurisprudence--because it is a potential-harm case and all
the trial court finds in its order that Bennett's deceit in but one of the five reprehensibility factors are present. As
covering up his wrongdoing by doctoring or altering remitted, we are confident the exemplary damages award
evidence, " confirms the groundlessness of the slander passes constitutional muster under current federal
claim" and was to " further his attempts to give grounds to standards.[29] Accordingly, we reform the trial court's
his baseless harassment of Grant." As such, we cannot agree judgment to award Grant $512,109 in exemplary damages
with Bennett's contention in his brief that the sanctions against Bennett and $512,109 in exemplary damages
order " fails to state good cause for finding groundlessness against Bonham. We affirm the trial court's judgment as
with the particularity Rule 13 requires." reformed.
Page 257 Reformed and, as Reformed, Affirmed on Motion for
Rehearing
Rather, we conclude the sanctions order states with
particularity the reasons and circumstances justifying the ---------
trial court's finding of good cause to issue sanctions under
Notes:
Rule 13.[26]
[1]The facts recited herein are taken from the record on
Bennett further contends the award of sanctions
appeal.
against him individually was an abuse of discretion because
his lawyer signed and filed his pleadings, and " a party [2]Indeed, the Texas Supreme Court found the exemplary
should not be sanctioned for its attorney's conduct unless
damages violated due process and remanded the case for
the party is implicated apart from having entrusted its legal
remittitur. See Bennett I, 315 S.W.3d at 883.
representation to counsel." See Loeffler v. Lytle Indep. Sch.
Dist., 211 S.W.3d 331, 349--50 (Tex.App.--San Antonio [3]The petition alleged the district attorney had a conflict of
2006, pet. denied). Again, we disagree. While Bennett's interest in the case because he had previously worked for
attorneys filed and signed his pleadings, Bennett provided the district attorney's office in Llano County.
the factual basis for the slander claim and authorized his
attorneys to file suit based on those allegations. Further, the [4]Later that year, the district attorney lost his reelection.
trial court made several specific findings that sanctionable Almost immediately after starting private practice, Bennett
conduct was attributable to Bennett himself[27] and that came to the former district attorney's office and retained
Bennett had brought the slander suit as revenge for Grant him as counsel for himself and the Bonham Corporation in
testifying against him in previous suits. As such, we cannot two separate lawsuits.
conclude the trial court abused its discretion in finding that
Bennett was implicated in the sanctionable conduct. [5]The Navarro County district attorney testified that he had
Concluding he has failed to prove on appeal that the trial informed the special prosecutor of his belief that there had
court's award of sanctions was arbitrary or unreasonable, we been some tailoring of the facts by Bennett. The special
overrule Bennett's sole individual issue on appeal.[28] prosecutor denied this, testifying that " no one had told
[him]" of any manipulation of the facts by Bennett. [12]Bonham hints in its brief that " Grant's claims against
the Corporation were thinly veiled--yet ultimately
[6]Interestingly, the district attorney testified that the successful--efforts to avoid limitations." The statute of
amount at issue increased the degree of the offense from a limitations issue was not submitted in the jury charge, and
misdemeanor to a felony. The statute of limitations for Bonham does not assert in an issue on appeal that the
felony theft is five years, rather than the two year statute of evidence conclusively proves Grant's claims were barred by
limitations for misdemeanor theft. See Tex. Code Crim. limitations. Nor does Bonham appeal any ruling it sought
Proc. arts. 12.01(4)(A), 12.02. with sufficient specificity to make the trial court aware of
its limitations complaint. We need not address the merits of
[7]The jury found against Bennett on his slander claim, the limitations issue.
which Bennett does not appeal.
[13]We also note that the Navarro County district attorney
[8]The transcript from Grant's sworn testimony is not in the testified that he had formed the impression that Bennett was
record. Grant advanced the same theory of innocence at this attempting to prosecute Grant in order to influence civil
trial. For purposes of the malicious prosecution claim, the litigation arising from this case. The jury further heard
jury found Grant innocent of Bennett's allegations. testimony that Grant was the " star witness" in the
Reynolds' civil suit against both Bonham and Bennett,
[9]The special prosecutor also testified that he relied on
which eventually resulted in a $1 million punitive damages
Rogers' statement that Grant had telephoned him and
award against Bonham.
acknowledged attempting to sell the photos to Bennett. At
trial, Bennett testified that Rogers " was in on the efforts to [14]The jury alternatively found that Bonham was liable for
get [Grant] charged." Rogers is described in the record as Bennett's malicious prosecution of Grant based on agency
Bennett's best friend and an employee of the Bonham and reverse-piercing theories. We do not address Bonham's
Corporation. At trial, Grant denied Rogers' accusations, and challenges to these findings, as we have already concluded
the jury was free to disbelieve his testimony. The Texas there was sufficient evidence to impart corporate liability
Supreme Court has instructed that " [j]ust as there may be on Bonham as a vice-principal.
more than one proximate cause of an event, a single
prosecution may be procured by more than one person." [15]Grant, Reynolds, and Miller obtained a favorable
Browning-Ferris Indus., Inc. v. Lieck, 881 S.W.2d 288, 292 summary judgment and sanctions against Bennett, Bonham,
(Tex. 1994). The fact that Rogers may also be liable for and their attorney in that suit, which is currently pending on
procuring Grant's prosecution does not negate Bennett's appeal before this Court in Bennett, Bonham & Paris v.
own liability. Reynolds, No. 03-12-00568.
[10]Appellants contend this is not a recognized exception [16]An award of punitive damages for some of these
under Texas law. We disagree. In accordance with the actions has already been awarded against Bennett in
Restatement of Torts, the Texas Supreme Court has stated Bennett I. See Bennett I, 315 S.W.3d at 876. In that suit,
that a defendant may procure a prosecution " not only when however, he was punished for how his actions affected
he gives information he knows is false to a prosecutor, but Reynolds. In this suit, the award of punitive damages is to
also when his conduct is the determining factor in the punish Bennett for how these actions affected Grant. See id.
prosecutor's decision to prosecute." Browning-Ferris Indus.,
Inc. v. Lieck, 881 S.W.2d 288, 294 (Tex. 1994) (citing [17]Pursuant to federal poverty guidelines in 2001, a person
Restatement (Second) of Torts § 653 (1977)); see also with two dependents was poverty-stricken if his annual
Turner v. Roadway Express, Inc., 911 S.W.2d 224, 226 income was less than $14,630. See
(Tex.App.--Fort Worth 1995, writ denied) (recognizing http://aspe.hhs.gov/poverty/01poverty.htm.
Texas Supreme Court's holding in Lieck that malicious
prosecution may occur when either a person gives false [18]The remaining reprehensibility factor is whether the
information to authorities or when a person's conduct was defendant's conduct involved repeated actions, not just an
determining factor in decision to prosecute). isolated incident. For purposes of the reprehensibility
analysis, the Texas Supreme Court has found that this factor
[11]On rehearing, the Appellants contend they had no refers to recidivism and not a course of conduct resulting in
notice that Grant was seeking to join Bonham under a single injury. See Bennett I, 315 S.W.3d at 878 n.55.
permissive venue. Grant's motion for leave sought to add Here, Grant alleges Bennett engaged in a course of conduct
Bonham as a party to his counterclaim and tracked the resulting in a single injury--his indictment for attempted
language of the permissive joinder rule. See Tex. R. Civ. P. bribery. There is no evidence in the record that Bennett had
40. engaged in other acts of malicious prosecution
demonstrating recidivism. Grant never noticed any formal hearing on his request for
sanctions." See Tex. R. Civ. P. 13 (sanctions may be
[19]Annuity payments would not begin until the first imposed upon motion or upon court's own initiative, after
anniversary of this lump-sum payment and would be notice and hearing); Tex. Civ. Prac. & Rem. Code §
awarded only if Grant was still living on that date. See Tex. 10.002--3 (same). The record, however, shows that
Civ. Prac. & Rem. Code § § 103.151(b), 103.154(b). Bennett's counsel was served with notice of the sanctions
hearing. Moreover, " the proper method to preserve
[20]The annuity payments are somewhat speculative as [Bennett's] notice complaint was to bring the lack of
they are determined by the number of years a person adequate notice to the attention of the trial court at the
survives after release from prison. See id. § 103.154(b). hearing, object to the hearing going forward, and/or move
Unlike the lump-sum compensation, the annuity payments for a continuance." See Low v. Henry, 221 S.W.3d 609, 618
do not transfer upon death to the person's estate. See id. § § (Tex. 2007). Bennett additionally complains on rehearing
103.151(a), 103.154(b). that " Grant never filed a formal motion for sanctions."
Bennett failed to raise this issue at the trial court or in his
[21]Bennett acknowledged at trial that, in his efforts to
appeal. Grant did plead for attorneys' fees based on
prosecute Grant, he spoke with at least eight different law
Bennett's filing of a groundless claim, and the trial court
enforcement officials on separate occasions.
had submitted a jury question asking whether Bennett's
[22] See Tex. Penal Code § § 32.46 (execution of document slander claim was groundless and brought in bad faith or for
by deception), 38.03 (aggravated perjury), 37.09 (evidence purposes of harassment. The jury answered affirmatively.
tampering), 37.08 (false report). Grant then moved the court to enter final judgment
sanctioning Bennett for filing a groundless claim brought in
[23]In truth, for most cases the monetary criminal penalties bad or for purposes of harassment. Prior to the court's
under the Texas Penal Code have little utility in sanctions order, Bennett also filed a brief with the court
determining the dollar value of an exemplary damages contending that he should not be sanctioned because his
award. See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 claims were not groundless nor brought in bad faith or for
U.S. 408, 428, 123 S.Ct. 1513, 155 L.Ed.2d 585 (2003). purposes of harassment. Thus, on the record, Grant moved
The monetary penalty for all felonies in Texas, except for the trial court to issue sanctions and Bennett plainly had
capital felony offenses which do not carry any monetary notice of the grounds on which Grant was seeking sanctions
penalty, is a fine not to exceed $10,000. Tex. Penal Code § and an opportunity to respond.
§ 12.31--.35. There is no variance in the amount of the fine
to account for the State's varied interests in preventing and [27]The trial court's order provides many instances of
punishing various degrees of reprehensible felony conduct. Bennett personally implicating himself, including one
instance where he--outside the presence of the jury--altered
[24]When corporate liability is warranted based on the a hand-drawn exhibit depicting Reynolds' brand. When
actions of a vice-principal, the Texas Supreme Court has confronted about the alteration, Bennett claimed he was
affirmed the propriety of awarding exemplary damages merely highlighting the exhibit so the jury could see it
against both the individual vice-principal and his employer. better, and that it was okay because the Judge was in the
See Bennett I, 315 S.W.3d at 869 (affirming exemplary courtroom when he made the alteration. The trial court
damages awarded against both individual who was notes in its order that " although the Judge was present in
corporate principal and corporation itself but remanding the room, such alteration was not observed or sanctioned by
because awards were excessive under due process); see also anyone, the Court included." In addition to the sanctions
Qualicare of E. Tex., Inc. v. Runnels, 863 S.W.2d 220, 224 expressly authorized by Rule 13 and Chapter 10, the trial
(Eastland 1993--no writ.) (award of exemplary damages court has the inherent power to sanction such bad faith
against both employer and vice-principal " is proper and conduct that occurs during the course of litigation. See
does not impose a double punishment" ). Public Util. Comm'n v. Cofer , 754 S.W.2d 121, 124 (Tex.
1988); Eichelberger v. Eichelberger, 582 S.W.2d 395, 398
[25]The trial court also submitted this question to the jury, (Tex. 1979).
which concluded that Bennett's suit was groundless and
brought in bad faith or for the purpose of harassment. [28]We acknowledge that the amount of attorneys' fees
Bennett contends the trial court erred in submitting the awarded as sanctions is significant. Chapter 10 and Rule 13,
sanctions issue to the jury because it was a question of law. however, specify that attorneys' fees caused by improper
Regardless, the sanctions order indicates the trial court conduct are an appropriate sanction. See Tex. Civ. Prac. &
made its own findings to support the sanctions order Rem. Code § 10.004(c)(3); Tex. R. Civ. P. 13. Bennett has
separate from the jury's findings. not raised any challenge to the amount of the award on
appeal. On rehearing, Bennett contends he is entitled to
[26]On rehearing, Bennett contends for the first time that " remand to allow the trial court to reconsider the amount of
the award in light of the Texas Supreme Court's recent
opinion in Nath v. Texas Children's Hospital . See 446
S.W.3d 355, 372 (Tex. 2014) (holding that sanctions were
warranted but remand was necessary to determine whether,
by litigating for over four years before seeking sanctions,
the moving party bore some responsibility for the attorneys'
fees it incurred). In Nath, however, the sanctioned party
preserved error by challenging the excessiveness of the
attorneys' fees at the trial court and on appeal. See 446
S.W.3d at 361, 364. Here, Bennett did not raise the issue of
excessiveness at the trial court nor on appeal. Under these
circumstances, we cannot conclude he is entitled to remand
under Nath.
[29]In response to our opinion issued in this appeal on
August 13, 2014, Grant filed with the district court a
remittitur reducing his $2 million exemplary damages
award against Bennett and Bonham to an award of
$512,109 against each defendant. See Tex. R. App. P. 46.3.
---------
Page 887 deceased's separate property. The court sustained the
motion as to the real estate, the six community bank
600 S.W.2d 887 (Tex.Civ.App.—Houston [14 Dist.] 1980) accounts, and the stock without objection from counsel for
appellant. The court denied the motion as to the remaining
Georgia BATMANIS, Appellant, bank accounts, and twelve special issues, prepared by
counsel for appellee, were approved by the court for
v.
submission to the jury. The special issues inquired (1)
whether the funds in six certificates of deposit or
Elizabeth BATMANIS, Appellee.
certificates of savings were on deposit prior to the marriage,
No. B2331. (2) whether the deceased had purchased certain certificates
of savings during the marriage with checks drawn on his
Court of Civil Appeals of Texas, Fourteenth District, checking account, and (3) whether the deceased had
Houston deposited certain dividends and rentals collected by him
into his checking account. The jury answered each special
April 30, 1980 issue in the negative. Counsel for appellant moved for
judgment on the jury verdict while counsel for appellee
Rehearing Denied May 21, 1980. moved for judgment notwithstanding the verdict. The
judgment non obstante veredicto was entered on October 2,
Page 888
1979.
Don E. Kilpatrick, Houston, for appellant.
The first point of error urged by Mrs. Batmanis
contends that the trial court erred in sustaining appellee's
Eugene J. Pitman, DeLange, Hudspeth, Pitman & Katz,
motion for judgment non obstante veredicto because there
John J. Toomey, Houston, for appellee.
existed evidence of probative force to support the jury's
Before COULSON, SALAZAR and JUNELL, JJ. findings. The argument pertaining to this first point of error
makes it clear that appellant's complaint is actually directed
COULSON, Justice. only to the following:
The suit made the basis of this appeal was one to Certificate of Savings, San Jacinto Savings Association,
determine the community interest of a widow, Georgia No. 48-805692-1
Batmanis (appellant or Mrs. Batmanis), after she had filed
her election to take against the will of her deceased Certificate of Savings, San Jacinto Savings Association,
husband, Paul Batmanis. Appellee, the respondent below, is No. 48-002310
Dr. Elizabeth Batmanis, independent executrix of the estate
Certificate of Savings, Houston First Savings, No. 254418
of Paul Batmanis and his daughter born of his first
marriage. Paul and Georgia Batmanis had each been
Certificate of Deposit, Gibraltar Savings Association, No.
previously widowed prior to their marriage on October 25,
7-861388
1973. After Mr. Batmanis's death on May 22, 1976, his
executrix prepared an inventory of his estate. Appellant and Certificate of Savings, Benjamin Franklin Savings, No.
appellee could not agree as to which property held at 48-112813-1
Page 889 Certificate of Deposit, American Savings & Loan
Association, No. 48-021179-7
the time of Mr. Batmanis's death was separate and which
was community. This suit resulted. If we are to affirm the trial court's granting of appellee's
motion for judgment notwithstanding the verdict, we must
Trial was to a jury. After both sides rested, counsel for
determine that there was no evidence to sustain the jury's
appellee moved for a peremptory finding that all the real
findings that the six certificates of deposit or savings were
estate involved in the estate was the separate property of the
not on deposit prior to the marriage of appellant and the
deceased, that six of the bank accounts on the inventory
deceased. In our review we must view all evidence in the
were community property, that the remaining bank accounts
light most favorable to the jury findings and indulge every
were separate property of the deceased, and that certain
reasonable inference from the evidence to support those
stock was community property since it was purchased after
findings. All evidence and inferences not supporting the
the marriage and the remainder of the stock was the
jury verdict must be disregarded. Dodd v. Texas Farm $19,272.33, (2) the funds were deposited in Mr. Batmanis's
Products Co., 576 S.W.2d 812 (Tex.1979). checking account, and (3) funds were withdrawn from that
bank account and were used to purchase certain certificates
After a thorough review of the evidence concerning the of savings and to open certain passbook savings accounts.
six certificates in dispute, we find that, as a matter of law, The total amount contained in these certificates, passbook
they are each directly traceable to certificates held by the accounts and the checking account was $41,341.23. Since
deceased prior to the marriage and, therefore, were Mr. appellant did not even attempt to distinguish which of this
Batmanis's separate property. Thus, there was no evidence money came from the rents and dividends collected as
to support the jury's answers to Special Issues No. 1-6, and constructive trustee and which came from other sources, the
the granting of judgment notwithstanding those answers entire amount will be subject to the trust. Eaton v. Husted,
was proper. Appellant's first point of error is overruled. 141 Tex. 349, 172 S.W.2d 493 (1943). Where, as here, the
trustee invests the trust money in other property, the
Appellant's second point of error concerns the beneficiaries of the trust may follow the fund into the new
overruling of her objections to page 1 of Respondent's investment. General Ass'n of Davidian S.D.A. v. General
Exhibits Number 13 and 14 and the admission of Ass'n, Etc., 410 S.W.2d 256 (Tex.Civ.App. Waco 1966,
Respondent's Exhibits Number 13 and 14 into evidence. writ ref'd n. r. e.). And where, as here, the trustee comingles
trust money with his own and money is expended, it will be
Page 1 of the complained of exhibits are handwritten
presumed that his own money is expended first. 410 S.W.2d
summaries of the activity of two certificates of deposit,
at 259. Thus, the trial court was correct in holding that the
alleged to be community property, which were manually
$19,272.33 held in trust for the estate of Erato Batmanis
copied from a visual display on a computer terminal. In
should be recovered from community property, and
each case, the summary is unnecessary to explain the
appellant's third point of error is overruled.
remainder of the exhibit which contains signature cards
from the two certificates. The certificates are Finally, appellant urges error in the trial court's refusal
to allow her interest on her one-half of the community
Page 890
property withheld from her since the date of death of Paul
traceable without the summaries, and, thus, the possible Batmanis. The trial court awarded appellant her one-half of
inadmissability of the summaries was not calculated to the dividends collected on shares of stock owned by the
cause and did not cause the rendition of an improper community. We find that appellant is also entitled to her
judgment. Any error in the overruling of the objection to the proportionate share of the interest contracted for in the
admission of the summaries was, therefore, harmless. certificates of savings and passbook account found to be
Tex.R.Civ.P. 434. community property. In addition, if it be found that
appellant's share of the community was wrongfully
The objection made to the admission of Exhibits 13 and withheld from her, she may be entitled to interest as
14 was that the proffered exhibits were copies and, damages. McKinney v. Nunn, 82 Tex. 44, 17 S.W. 516
therefore, not the best evidence. It is clear from the record (1891); Tex.Rev.Civ.Stat.Ann. art. 5069-1.01 (Vernon
that appellant's objection was in reference to the summaries, 1971).
page 1 of the exhibits. The accuracy of the reproduction of
the signature cards was never disputed. Inasmuch as we It is clearly the law in Texas that interest is allowed as
have already found the admission of the summaries to have damages for the failure to pay a sum due. Davidson v.
been harmless error, and the accuracy of the reproduction of Clearman, 391 S.W.2d 48 (Tex.1965). Interest attaches
the remaining pages of the exhibits was never in dispute, whenever it is ascertained that money was due at a
those reproductions were admissable under particular time and was withheld. Hayek v. Western Steel
Tex.Rev.Civ.Stat.Ann. art. 3731c (Vernon Supp. 1980). Company, 469 S.W.2d 206 (Tex.Civ.App. Corpus Christi
Appellant's second point of error is overruled. 1971) aff'd, 478 S.W.2d 786 (Tex.1972). If an award is
made to appellant for interest as damages, that interest
Appellant's third point of error complains that the trial should be at the rate of 6% from the date the amount
court incorrectly held that the sum of $19,272.33, held in became due until the date of judgment. Southline
constructive trust for the estate of Erato Batmanis (the Equipment Co. v. National Marine Service Incorporated,
deceased first wife of Paul Batmanis) by Paul Batmanis as 598 S.W.2d 340 (Tex.Civ.App. Houston (14 Dist.), 1980).
trustee, be satisfied from community property. The
undisputed evidence shows that (1) during the marriage of Page 891
appellant and Paul Batmanis, Mr. Batmanis collected rents
We remand to the trial court for further consideration
and dividends from real property and shares of stock owned
the questions of (1) whether appellant's share of the
by the estate of Erato Batmanis in the amount of
community was wrongfully withheld from her and (2) the
amount of contractual interest due appellant from the
certificates of savings and passbook account found to be
community property.
The remainder of the judgment of the trial court is
affirmed.
Page 795 Glazner alleges that in 1994, he and Haase entered into a
contract in which Haase agreed to allow Glazner to build an
62 S.W.3d 795 (Tex. 2001) additional Whataburger in south Longview, in Haase's
franchise area. According to Glazner, Haase promised to
45 Tex.Sup.Ct.J. 141 help Glazner secure a franchise by guaranteeing the success
of Glazner's proposed new restaurant to Whataburger Inc.,
R.E. HAASE and PRH Investments, Inc., Petitioners,
the corporate franchisor. Glazner further claims that Haase
agreed to sell Glazner his restaurants when Haase decided
v.
to retire, and that Glazner agreed to sell Haase his proposed
Joseph K. GLAZNER, Respondent. restaurant should he ever decide to sell "for some reason."
Glazner asserts that the consideration to Haase for this
No. 00-1076. agreement was to be two percent of the net sales from
Glazner's new restaurant. Glazner argues that the contract's
Supreme Court of Texas terms appear in three letters to Whataburger either signed
by Haase or incorporated by reference in a letter that Haase
November 29, 2001 signed, along with a proposed cash-flow statement Glazner
prepared assuming a payment to Haase of two percent of
Argued Oct. 19, 2001.
projected net sales.
Rehearing Overruled Jan. 17, 2002.
In May 1995, Glazner quit working for Haase. He
never obtained a Whataburger franchise. The record shows
Page 796
that Whataburger did not grant any new franchises during
Bradley R. Echols, Gary Shaver, Boon, Shaver, the time that Glazner worked for Haase. In November 1996,
Echols & Coleman, Longview, for Petitioner. Haase was granted a Whataburger franchise for a south
Longview location. He opened a restaurant there in June
Kenneth L. Ross, Ross Hudgens & Associates, 1997.
Longview, John R. Mercy Carter & Elliott, Texarkana, for
Respondents. Glazner sued Haase, alleging breach of contract,
fraud, fraudulent inducement, and unjust enrichment.
Justice ENOCH delivered the opinion of the Court. Glazner named as defendants both Haase and PRH
Investments, Inc., a corporation that Haase and his wife
This case requires us to decide whether a party can formed, alleging that Haase and PRH were jointly and
maintain a claim based on either fraud or fraudulent severally liable and that the corporate veil should be pierced
inducement when that claim is premised on a contract that
the Statute of Frauds makes unenforceable. We hold that a Page 797
plaintiff cannot assert a fraudulent inducement claim in the
absence of a contract. We further hold that under the facts because Haase had not observed appropriate corporate
of this case, to the extent that Glazner seeks to recover the formalities. Haase moved for summary judgment on the
benefit-of-the-bargain damages related to a contract that is following grounds: 1) the alleged contract is unenforceable
unenforceable under the Statute of Frauds, the Statute bars because of the Statute of Frauds; [1] 2) the Statute of Frauds
the fraud claim, but that Glazner's fraud claim for bars Glazner's fraud claims; 3) Glazner offered no evidence
out-of-pocket damages, if any, may survive the Statute of of a valid contract; 4) there is no cause of action for unjust
Frauds. We therefore affirm the court of appeals' judgment enrichment; and 5) Glazner offered no evidence to support
in part, reverse in part, and render judgment that Glazner piercing the corporate veil. The trial court granted summary
take nothing on his fraudulent inducement claim and on his judgment without specifying the grounds for its decision.
fraud claim to the extent that he seeks
Glazner appealed. The court of appeals upheld the
benefit-of-the-bargain damages.
summary judgment on all claims except those for fraud and
Petitioner R.E. Haase owns the Whataburger franchise fraudulent inducement. With respect to the breach of
rights for the City of Longview. In 1992, respondent Joseph contract claim, the court of appeals noted that there was no
K. Glazner went to work for Haase as a manager trainee. By dispute that the Statute of Frauds applied to the alleged
the end of 1992, Glazner had been promoted to supervisor contract because it was both a promise to answer for
for Haase's five Longview Whataburger restaurants. another's debt and an agreement that could not be
performed within one year. [2] The Court concluded that no
writing existed that satisfied the Statute. [3] Moreover, the claim. That is, when a party has not incurred a contractual
court reasoned, the agreement did not satisfy the Statute of obligation, it has not been induced to do anything. At least
Frauds because it was not final. [4] Rather, the letters two courts of appeals have previously reached this
Glazner relied on showed ongoing negotiations, not a conclusion. [13]
binding agreement. [5] Thus, the court of appeals affirmed
summary judgment on the breach of contract claim because Here, the court of appeals concluded that the parties
there was no enforceable contract. Glazner does not never reached a final agreement; rather, the letters that
challenge that ruling. make up the alleged contract simply evidence ongoing
negotiations. [14] Glazner does not challenge this
The court of appeals further held that the Statute of conclusion before us, and it is fatal to his fraudulent
Frauds does not bar Glazner's claims for fraud and inducement claim. Thus, the court of appeals erred when it
fraudulent inducement because of this Court's opinion in reversed the summary judgment on Glazner's fraudulent
Formosa Plastics Corporation USA v. Presidio Engineers inducement claim.
and Contractors, Inc. [6] Citing Formosa Plastics, the court
reasoned that Glazner's fraud and fraudulent inducement We next consider Haase's argument that the court of
claims alleged a breach of legal duties completely appeals erred in holding that the Statute of Frauds does not
independent of those under the alleged contract. [7] Thus, bar Glazner's fraud claim because of Formosa Plastics.
the court of appeals determined that the trial court erred in Haase relies on several opinions from the courts of appeals
granting summary judgment on those claims and remanded holding that the Statute of Frauds bars a fraud claim when,
them to the trial court. [8] as here, the plaintiff seeks to obtain the benefit of an
otherwise unenforceable bargain. [15] Glazner counters that
We granted Haase's petition for review. He asserts Formosa Plastics reaffirmed that tort damages for fraud can
that the court of appeals erred by permitting Glazner to be recovered even where the plaintiff suffers only economic
assert a fraudulent inducement claim when there is no loss related to the contract's subject matter. [16] Again, we
contract, and by holding that the Statute of Frauds does not agree with Haase.
bar Glazner's fraud claim because of Formosa Plastics.
When reviewing a summary judgment under Rule 166a(c), In Formosa Plastics, we concluded that Presidio could
we consider whether the successful movant in the trial court bring a fraudulent inducement claim even though its
carried its burden to show that there is no genuine issue of damages consisted only of economic losses related to the
material fact and that judgment should be granted as a performance and subject matter of the parties' contract. [17]
matter of law. [9] We take all evidence favorable to the Some of our language in that opinion suggests that there is
nonmovant as true, and we make all reasonable inferences no distinction between a claim for fraud and one for
in the nonmovant's favor. [10] fraudulent inducement. [18] Fraudulent inducement,
however, is a particular species of fraud that arises only in
We first consider Haase's contention that the court of the context of a contract and requires the existence of a
appeals erred in concluding that Glazner may assert a contract as part of its proof. That is, with a fraudulent
fraudulent inducement claim in the absence of a contract. inducement claim, the elements of fraud must be
Haase argues that by established
Page 798 Page 799
its nature a fraudulent inducement claim presupposes that a as they relate to an agreement between the parties. Formosa
party has been induced to enter a contract. When a party has Plastics involved a fraudulent inducement claim based on
not been induced into a contract, he asserts, there is no representations contained in the bid packet upon which
detrimental reliance and therefore no fraudulent inducement Presidio based its contract offer, which resulted in a written
claim. We agree. contract between the parties. Thus, the case was correctly
decided as to fraudulent inducement. Although economic
As we observed in Formosa Plastics, "Texas law has losses may be recoverable under either fraud or fraudulent
long imposed a duty to abstain from inducing another to inducement, Formosa Plastics should not be construed to
enter into a contract through the use of fraudulent say that fraud and fraudulent inducement are
misrepresentations." [11] Certainly there can be no breach interchangeable with respect to the measure of damages that
of that duty when one is not induced into a contract. More would be recoverable.
significantly, proof that a party relied to its detriment on an
alleged misrepresentation is an essential element of a fraud Moreover, nothing in Formosa Plastics prevents the
claim. [12] Without a binding agreement, there is no Statute of Frauds from precluding a fraud claim that seeks
detrimental reliance, and thus no fraudulent inducement to recover the benefit of an unenforceable bargain. The
Statute simply was not an issue in that case--neither party reliance. Consequently, under the circumstances presented
argued that the Statute of Frauds had anything to do with here, Glazner's fraud claim may survive Haase's motion for
enforcing the parties' contract. As a result, in Formosa summary judgment to the extent that he seeks to recover
Plastics we had no occasion to consider the Statute of these kinds of out-of-pocket damages.
Frauds' effect on a fraud claim premised on an
unenforceable contract. Haase points out that the trial court granted his
special exceptions to Glazner's petition and ordered Glazner
This Court did, however, consider that question in to replead, specifically stating the maximum amount of
Nagle v. Nagle. [19] In that case, the plaintiff sued her damages claimed, the factual basis underlying the alleged
former husband to enforce his oral promise to convey to her material misrepresentations, and the factual and legal basis
his half-interest in their home. She alleged fraud and sought underlying Haase's alleged common-law and statutory
specific performance or damages from his failure to fraud. Glazner never did. Haase asserts that Glazner's
perform. The jury found for the plaintiff, and the court of failure to replead is grounds for upholding the summary
appeals affirmed. This Court reversed, because enforcing an judgment on both the fraud and fraudulent inducement
oral promise to convey land despite the Statute of Frauds claims, citing our opinion in Friesenhahn v. Ryan. [24]
would render the statute meaningless. [20] While Haase is correct that summary judgment may be
granted when a party is ordered to replead and fails to, [25]
, [9] That same reasoning holds true here. If in the we again note that Haase did not move for summary
face of the Statute of Frauds we permit Glazner's fraud judgment on this ground. We therefore cannot uphold the
claim to the extent he seeks to recover the benefit of the summary judgment on that basis. [26]
unenforceable bargain, we deprive the Statute of any effect.
The Statute exists to prevent fraud and perjury in certain In sum, we hold that a plaintiff cannot assert a
kinds of transactions by requiring agreements to be set out fraudulent inducement claim when there is no contract. We
in a writing signed by the parties. [21] But that purpose is further hold that under the facts of this case, to the extent
frustrated and the Statute easily circumvented if a party can that Glazner seeks to recover the benefit-of-the-bargain
use a fraud claim essentially to enforce a contract the damages related to a contract that is unenforceable under
Statute makes unenforceable. We therefore hold that the the Statute of Frauds, the Statute bars the fraud claim, but
Statute of Frauds bars a fraud claim to the extent the that Glazner's fraud claim for out-of-pocket damages, if
plaintiff seeks to recover as damages the benefit of a any, may survive the Statute of Frauds. We therefore
bargain that cannot otherwise be enforced because it fails to reverse the court of appeals' judgment insofar as it remands
comply with the Statute of Frauds. Glazner's fraudulent inducement claim and his fraud claim
for benefit-of-the-bargain damages, and render judgment
But Glazner's fraud claim may not contravene the that Glazner take nothing on those claims. We otherwise
Statute of Frauds to the extent that he seeks out-of-pocket affirm the court of appeals' judgment.
damages incurred in relying upon Haase's alleged
misrepresentations. [22] With respect to such damages, ---------
Glazner is not attempting to enforce the otherwise
unenforceable contract. Relying on Glazner's deposition Notes:
testimony, Haase argues that Glazner's only alleged
damages are the lost profits from the franchise he never [1] See TEX. BUS. & COM.CODE § 26.01.
secured. But Glazner's petition is not so limited. Rather,
[2] 61 S.W.3d 10, 14; see also TEX. BUS. & COM.CODE
Glazner's petition alleges that he made
§§ 26.01(b)(2), (b)(6).
Page 800
[3] 61 S.W.3d 10, 14.
"efforts concerning demographics, decor, potential profits,
[4] Id. at 15.
and location." And the summary judgment record reveals
that Glazner hired a surveyor and entered into an [5] Id.
earnest-money contract for a site on which he proposed to
build his restaurant. These kinds of damages are not part of [6] 960 S.W.2d 41 (Tex.1998).
the benefit of any alleged bargain between the parties.
[7] 61 S.W.3d at 15 (citing Formosa Plastics, 960 S.W.2d at
Haase did not move for summary judgment on the 52).
grounds that there was no evidence of damages aside from
lost profits. [23] Nor did he move for summary judgment on [8] Id. at 16.
the grounds that there was no evidence of reasonable
[9] KPMG Peat Marwick v. Harrison County Hous. Fin. S.W.2d 337, 341 (Tex.1993).
Corp., 988 S.W.2d 746, 748 (Tex.1999).
---------
[10] Id.
[11] 960 S.W.2d at 46.
[12] See Eagle Prop., Ltd. v. Scharbauer, 807 S.W.2d 714,
723 (Tex.1990).
[13] John Wood Group USA, Inc. v. ICO, Inc., 26 S.W.3d
12, 24 (Tex.App.--Houston [1st Dist.] 2000, pet. denied);
Coastal Corp. v. Atlantic Richfield Co., 852 S.W.2d 714,
720 (Tex.App.--Corpus Christi 1993, no writ).
[14] 61 S.W.3d at 15.
[15] Flameout Design & Fabrication, Inc. v. Pennzoil
Caspian Corp., 994 S.W.2d 830, 837 (Tex.App.--Houston
[1st Dist.] 1999, no pet.); Leach v. Conoco, Inc., 892
S.W.2d 954, 960 (Tex.App.--Houston [1st Dist.] 1995, writ
dism'd w.o.j.); Collins v. Allied Pharmacy Mgmt., Inc., 871
S.W.2d 929, 936 (Tex.App.--Houston [14th Dist.] 1994, no
writ); Webber v. M.W. Kellogg Co., 720 S.W.2d 124, 129
(Tex.App.--Houston [14th Dist.] 1986, writ ref'd n.r.e.).
[16] 960 S.W.2d at 47.
[17] Id.
[18] See, e.g., id. at 44, 46-47.
[19] 633 S.W.2d 796 (Tex.1982).
[20] Id. at 801; see also Wade v. State Nat'l Bank, 379
S.W.2d 717, 720 (Tex.Civ.App.--El Paso 1964, writ ref'd
n.r.e.).
[21] See RESTATEMENT (SECOND) OF CONTRACTS
§ 131 cmt. c (1981); 9 WILLISTON ON CONTRACTS §
21:1 (4th ed.1999); see also Hooks v. Bridgewater, 111
Tex. 122, 229 S.W. 1114, 1116 (1921).
[22] See Carr v. Christie, 970 S.W.2d 620, 625
(Tex.App.--Austin 1998, pet. denied); see also Collins v.
McCombs, 511 S.W.2d 745, 747 (Tex.Civ.App.--San
Antonio 1974, writ ref'd n.r.e.); General Corp. v. General
Motors Corp., 184 F.Supp. 231, 235 (D.Minn.1960); cf.
RESTATEMENT (SECOND) OF CONTRACTS § 139
(1981).
[23] See TEX.R. CIV. P. 166a(i).
[24] 960 S.W.2d 656, 658 (Tex.1998).
[25] Id.
[26] See McConnell v. Southside Indep. Sch. Dist., 858
Page 810 The basis for the judgment of the probate court is the
advancement, by Maston, of $26,938.79 to himself and
660 S.W.2d 810 (Tex. 1983) $10,668.78 to his sister Nancy. These advancements were
properly reflected in the final account filed on behalf of
Maston Nixon CUNNINGHAM, Petitioner, Maston as claims of the estate. No evidentiary hearing was
held to consider the propriety of the final account nor was
v.
Maston present to submit evidence in support thereof.
Rather, the probate court, upon the motion of Mr. Pearson,
PARKDALE BANK et al., Respondents.
rendered a personal judgment against Maston for the total
No. C-2024. sum of $37,607.57. This judgment was rendered in favor of
the successor administrator, Parkdale Bank, despite the fact
Supreme Court of Texas. that Parkdale Bank filed no pleadings praying for such a
judgment and never assumed the status of a party plaintiff.
November 30, 1983
In his motion for new trial and in the court of appeals,
Page 811 Maston urged that the judgment of the probate court was
void or voidable because there were no pleadings seeking a
Charles R. Cunningham, Corpus Christi, for petitioner. judgment against him and because no citation was issued to
him personally. He also urged there was no basis in law for
Head & Kendrick, Richard E. Fling, Corpus Christi, for
rendition of the judgment against him because he is entitled
respondents.
to more funds from the distribution of the estate than the
amount advanced to him. [1] Both lower courts found no
BARROW, Justice.
merit in these contentions. The dissenting justice in the
This is an appeal from a personal judgment rendered by court of appeals concluded that the probate court exceeded
the Nueces County Court, sitting in probate, against Maston its jurisdiction in summarily rendering a personal judgment
Nixon Cunningham (Maston), the resigned independent because of the absence of pleadings, notice, opportunity for
administrator of the Estate of Nancy Nixon Cunningham. hearing, and other procedural irregularities. We agree. [2]
The judgment of the probate court was based upon an
The Texas Rules of Civil Procedure govern
alleged deficiency in the assets of the estate, which
proceedings in probate matters except in those instances in
deficiency resulted from two advancements made by
which a specific provision has been made to the contrary.
Maston to his sister and himself. The court of appeals, with
Tex.R.Civ.P. 2. In Texas, "[a] civil suit in the district or
one justice dissenting, affirmed. 650 S.W.2d 484. We hold
county court shall be commenced by a petition filed in the
that the probate court erred in rendering a personal
office of the clerk." Tex.R.Civ.P. 22. "The office of
judgment against Maston and, accordingly, reverse the
pleadings is to define the issues at trial," Murray v. O & A
judgments of the lower courts and
Express, Inc., 630 S.W.2d 633, 636 (Tex.1982) and to "give
Page 812 the opposing party information sufficient to enable him to
prepare a defense." Roark v. Allen, 633 S.W.2d 804, 810
remand this proceeding to the probate court. (Tex.1982). Also, the judgment of the court must conform
to the pleadings of the parties. Tex.R.Civ.P. 301.
Nancy Nixon Cunningham died testate on February 14,
1980, but both of the executors named in her will The probate court is vested with substantial potential
predeceased her. Her three children, who were her only jurisdiction regarding "matters incident to an estate,"
heirs, agreed upon the appointment of her son, Maston, as Tex.Prob.Code Ann. § 5(d) (1980). This jurisdiction is
independent administrator of the estate. See Tex.Prob.Code activated and becomes actual jurisdiction over a party only
Ann. § 145(d) (1980). Paul Pearson, III, an attorney, was after the filing of a petition the subject matter of which is
hired to assist in the administration and distribution of the within the jurisdiction of the court. Hughes v. Atlantic
estate. Eventually, an application to resign and an order Refining Co., 424
accepting same were filed on behalf of Maston. A detailed
account of the estate's claims and assets was prepared and Page 813
filed also. After these documents were filed with the court,
S.W.2d 622, 625 (Tex.1968). Further, a judgment must be
notice was posted for the benefit of all interested parties.
supported by the pleadings and, if not so supported, it is
erroneous. City of Fort Worth v. Gause, 129 Tex. 25, 101
S.W.2d 221, 223 (1937). Thus, a party may not be granted Roddey, 613 S.W.2d 360, 365 (Tex.Civ.App.--Waco 1981,
relief in the absence of pleadings to support that relief. writ dism'd); see also City of Houston v. Fore, 412 S.W.2d
Stoner v. Thompson, 578 S.W.2d 679, 682 (Tex.1979); 35, 39 (Tex.1967); Martinez v. Texas State Bd. of Medical
Tex.R.Civ.P. 301. Examiners, 476 S.W.2d 400, 405 (Tex.Civ.App.--San
Antonio 1972, writ ref'd n.r.e.), cert. denied, 409 U.S. 1020,
In the instant case, we are unwilling to construe the 93 S.Ct. 463, 34 L.Ed.2d 312 (1972). Similarly,
final account filed by Maston as being sufficient to fundamental fairness dictates that a party must be given a
empower the probate court to render a judgment against reasonable opportunity to be heard on the merits of his case;
Maston in his individual capacity. The final account fails to such an opportunity must be granted at a meaningful time
set forth a plaintiff and defendant, states no cause of action, and in a meaningful manner. See Read v. Gee, 551 S.W.2d
alleges no statutory basis upon which a personal judgment 496, 501 (Tex.Civ.App.--Fort Worth 1977), writ ref'd n.r.e.
may be based and, in fact, was prepared for Maston by Mr. per curiam, 561 S.W.2d 777 (Tex.1977); accord Ex Parte
Pearson, who currently serves as counsel for Parkdale Gordon, 584 S.W.2d 686, 688 (Tex.1979); cf. Brown v.
Bank. To hold that the mere filing of the exhibit and McLennan County Children's Protective Svs., 627 S.W.2d
account is sufficient to support the judgment herein 390 (Tex.1982). Under this record, we conclude that
rendered would be untenable. Maston did not have fair notice of the proposed action of
the probate court so as to afford him the opportunity to be
Equally as important as the absence of any pleadings to present and to
invoke the jurisdiction of the trial court is the apparent
disregard by the court of rudimentary requirements of Page 814
notice and the right to be heard. Pursuant to Maston's
request in his application for discharge, the trial court set a explain or defend his actions at the hearing, before
hearing for May 25, 1981. The record is devoid of any judgment against him was rendered. Cf. Clanton v. Clark,
evidence that a formal hearing was, in fact, held on that 639 S.W.2d 929 (Tex.1982).
date. The trial court's order adjudging Maston liable for the
deficiency was "entered" June 4, 1981. Maston disputes that The probate court erred in rendering a personal
he was notified of the date on which the actual hearing was judgment against Maston without pleadings, notice, and an
held, that he had notice of the court's intention to render opportunity to be heard. The judgments of the lower courts
judgment against him, or that he had an opportunity to are set aside and the proceedings remanded to the probate
object to such action. court to conclude the administration of the estate.
The Probate Code sets forth numerous provisions ---------
governing the necessity and sufficiency of notice and
citation in probate matters. Tex.Prob.Code Ann. § 33 Notes:
(1980). We have been directed to no section of the Code
[1] We find it difficult to understand the substitute
that authorizes the action of the trial court in this case. "The
administrator's vigorous pursuit of this matter. The principal
general rule is that the legislature in its discretion may
asset of the estate, to-wit, the residence of the deceased, has
prescribe what notice shall be given to a defendant in a suit,
been sold, the debts paid, and administrator's attorney
subject to the condition that the notice prescribed must
concedes that there are more than enough funds on hand to
conform to the requirement of due process of law. The
satisfy these advancements. Furthermore, there has been no
requirement of due process of law is met if the notice
controversy at any time in the proceedings among the heirs.
prescribed affords the party a fair opportunity to appear and
The general purpose of independent administration is to free
defend his interests." Mexia Independent School Dist. v.
the independent executor from "the often onerous and
City of Mexia, 134 Tex. 95, 133 S.W.2d 118, 121 (1939);
expensive judicial supervision" and thereby "to effect the
Sgitcovich v. Sgitcovich, 150 Tex. 398, 241 S.W.2d 142,
distribution of the estate with a minimum of cost and
146 (1951).
delay." Corpus Christi Bank and Trust v. Alice National
Those sections of the Code that specifically concern Bank, 444 S.W.2d 632, 634 (Tex.1969).
personal representatives guilty of misapplication of estate
[2] Both the majority and the dissent in the intermediate
property require that the guilty party be personally served
court concluded that the probate court had jurisdiction,
before action may be taken against him. See Tex.Prob.Code
under Tex.Prob.Code Ann. § 221 (1980), over a resigning
Ann. §§ 149C(a)(2), 222(b)(1) (1980). [3] This undoubtedly
independent administrator. This is a question of jurisdiction
is based upon the postulate that procedural due process
that we need not today decide.
"requires notice that is reasonably calculated to inform
parties of proceedings which may directly and adversely [3] Parkdale Bank has now filed a suit in district court
affect their legally protected interests." City of Waco v. seeking a personal judgment against Maston for
misapplication of these estate funds.
---------
Page 163 Mobile Hydraulic Company, Metro Ford Truck Sales and
Allied Cypress Bank. Respondent alleged that Stanley
679 S.W.2d 163 (Tex.App. —Houston [14 Dist.] 1984) Wielgosz was general manager of Tri-W Rentals, a division
of the W.W. Williams Company, [1] from mid-1979 until
H. Anne WIELGOSZ, Administratrix of the Estate of his death in mid-1981, and that during the time he was
Stanley F. employed as general manager he embezzled $176,214 from
the Tri-W Rentals division.
Wielgosz, Jr., et al., Relators,
In November 1982, Seaboard amended its petition to
v.
include Relator as a defendant in her individual capacity,
alleging that she conspired with her husband to take the
Honorable Richard W. MILLARD, Judge of the 152nd
funds and "has continued to conceal the existence of such
District
funds and to convert them to her own use and benefit."
Court of Harris County, et al., Respondents. Subsequent to this amendment, Relator filed a plea to the
jurisdiction in both capacities, alleging that exclusive
No. A14-84-342CV. jurisdiction over the parties was in Harris County Probate
Court Number Two where the administration of Stanley
Court of Appeals of Texas, Fourteenth District, Houston Wielgosz's estate was pending. The district court sustained
Relator's plea and dismissed the suit against her, both
September 27, 1984 individually and as Administratrix. Respondent then filed
an original petition in Probate Court Number Two against
Page 164
Relator, but only in her individual capacity. The probate
court sustained Relator's plea to the jurisdiction and
[Copyrighted Material Omitted]
dismissed the suit, stating that the cause of action as alleged
Page 165 by Respondent against Relator was not incident to, nor did
it pertain to, the Estate of Stanley Wielgosz, Jr. On May 23,
Philip M. Shafer, Houston, for relators. 1983, Respondent filed a motion in the district court asking
for reinstatement of its suit against Relator, individually. On
John Michael Webb, Bruce R. Hardesty, Webb, June 21, 1983, the court set aside the dismissal and ordered
Zimmerman, Flaum & Suetlik, Houston, for respondents. the reinstatement of Relator as a defendant, both
individually and as Administratrix of her husband's estate.
Before J. CURTISS BROWN, C.J., and DRAUGHN In June 1983, Respondent served Relator with a request for
and CANNON, JJ. production of documents to which Relator objected.
Following a hearing on the matter, Judge Millard ordered
OPINION
production of the documents requested by Respondent.
Relator now brings this
J. CURTISS BROWN, Chief Justice.
Page 166
This is an original mandamus proceeding filed under
TEX.REV.CIV.STAT.ANN. art. 1824 (Vernon Supp.1984).
mandamus action, complaining of Judge Millard's order.
Relator, H. Anne Wielgosz, in her individual capacity and
as Administratrix of the Estate of Stanley F. Wielgosz, Relator first argues that the district court has no subject
Deceased, seeks the writ to require the Honorable Richard matter jurisdiction over the cause against Relator as
W. Millard, Judge of the 152nd Judicial District Court of Administratrix of her husband's estate or individually
Harris County, to vacate his discovery order of April 13, because exclusive jurisdiction of this cause rests in the
1984. This order requires Relator to supply documents probate court. We find it unnecessary to determine whether
regarding both the personal and professional financial the district court would have had jurisdiction over Relator
affairs of Relator and her deceased husband, Stanley in her capacity as Administratrix. After dismissal in the
Wielgosz, from 1978 to 1983. probate court, Respondent filed its Motion for Rehearing,
asking the district court to "rescind, revoke and set aside the
We will summarize the facts of this case for clarity. In
Order of Dismissal previously entered in this cause and that
May 1982, Respondent, Seaboard Surety Company, filed
the cause of action of Plaintiff against H. Anne Wielgosz,
suit in the district court of Harris County against Relator as
Individually be reinstated and enter its further order that H.
Administratrix of the Estate of Stanley Wielgosz, Jr.,
Anne Wielgosz, Individually will, henceforth be treated as a
Defendant in this action ...." However, the trial court in and § 5A (Vernon 1980).
reinstating the cause, ordered "H. Anne Wielgosz,
Administratrix of the Estate of Stanley F. Wielgosz, Jr. and Relator further argues that even if the district court had
H. Anne Wielgosz, Individually ... reinstated as party jurisdiction to hear the case, she cannot be compelled to
defendants in this cause of action ...." produce the documents demanded by Relator because to do
so would violate her Fifth Amendment privilege against
As a general rule, a trial court may not grant relief self-incrimination. We disagree. The Fifth Amendment is
which is not supported by the pleadings, and a judgment not not violated solely because certain
supported by the pleadings is improper. Hubbard v. Lagow,
576 S.W.2d 163 (Tex.Civ.App.--Austin 1979, writ ref'd Page 167
n.r.e.); Crozier v. Horne Children Maintenance and
Educational Trust, 597 S.W.2d 418 (Tex.Civ.App.--San documents, on their face, might be incriminating. The
Antonio 1980, writ ref'd n.r.e.); Harry Hines Medical privilege protects a person only against being incriminated
Center, Ltd. v. Wilson, 656 S.W.2d 598 (Tex.App.--Dallas by his own compelled testimonial communications. United
1983, no writ); TEX.R.CIV.P. 301. Since there were no States v. Doe, 465 U.S. 605, 104 S.Ct. 1237, 79 L.Ed.2d
pleadings to support the reinstatement of Relator as 552 (1984); Fisher v. United States, 425 U.S. 391, 96 S.Ct.
Administratrix, the trial court was without authority to enter 1569, 48 L.Ed.2d 39 (1976). However, this privilege is
such an order. In light of this circumstance, we do not find limited to prohibiting the use of physical or moral
it necessary to further address an issue which calls into compulsion exerted on the person asserting the privilege.
question this Court's jurisdiction. It is, therefore, left for us Fisher, 425 U.S. at 397, 96 S.Ct. at 1574. If the ingredient
to determine whether the district court has jurisdiction over of personal compulsion against the accused is lacking there
Relator, individually, in this cause of action. In its Second is no such privilege. Couch v. United States, 409 U.S. 322,
Amended Original Petition, Respondent alleged the 93 S.Ct. 611, 34 L.Ed.2d 548 (1973). Therefore, documents
following: belonging to or prepared by others are not protected, even if
they contain incriminating matters. Fisher, 425 U.S. at 408,
As such, Mrs. Wielgosz knowingly and wrongfully engaged 96 S.Ct. at 1579. Further, in United States v. Doe, 104 S.Ct.
in a conspiracy with her now deceased husband to defraud at 1241-1242, the Supreme Court held that where the
and conceal from the Plaintiff sums rightfully belonging to preparation of business records is voluntary, a demand for
it and has continued to conceal the existence of such funds production of such documents does not compel oral
and to convert them to her own use and benefit. The testimony nor does it compel a party to "restate, repeat, or
Inventory and Appraisement filed by Mrs. Wielgosz as affirm the truth of their contents." Id.
Administratrix fails to list Wielgosz' community interest in
said funds or their proceeds as property of the Wielgosz' The documents sought by Respondent include: (1)
estate. It is alleged by Plaintiff that Mrs. Wielgosz does not documents belonging to or about the deceased; (2)
consider the funds withdrawn from said account as documents prepared by others, such as bank records,
community property and accordingly, those funds must be invoices, receipts; (3) business records (including corporate
considered by Mrs. Wielgosz as her separate property. and partnership tax returns); and (4) Relator's individual tax
These funds have been converted to the personal benefit of returns, personal financial statements, and records of
H. Anne Wielgosz by the said H. Anne Wielgosz. Plaintiff household accounts. In view of the authorities cited above,
herein sues H. Anne Wielgosz for the return of the sums of the first three categories of documents are clearly not
money wrongfully taken from W.W. Williams Co. by H. privileged, and Relator cannot refuse to produce them based
Anne Wielgosz and converted to her own benefit which on a claim of self-incrimination.
amount is in excess of $176,000.00.
We must now examine the fourth category set out
Without addressing the merits of the case, we believe above which relates to documents prepared personally (or
the allegations set out above are sufficient to establish under her immediate supervision) by Relator. In Texas,
Respondent's right to maintain its cause of action against income tax returns are subject to discovery to the extent of
Relator, individually, in district court, separate and apart relevancy and materiality by the party seeking discovery
from any claims incident to or appertaining to the estate of and as determined by the court. Maresca v. Marks, 362
her deceased husband. Despite the fact the administration of S.W.2d 299 (Tex.1962); Crane v. Tunks, 160 Tex. 182, 328
the estate is currently pending in Probate Court Number S.W.2d 434 (1959). However, it is the duty of the trial
Two of Harris County, we do not feel the matter before us judge to personally examine the returns and to segregate the
is exclusively within the province of that court. See Pullen relevant from the irrelevant portions of same before making
v. Swanson, 667 S.W.2d 359 (Tex.App.--Houston [14th such information available to the moving party. Maresca,
Dist.] 1984, writ ref'd n.r.e.); TEX.PROB.CODE ANN. § 5 362 S.W.2d at 300-301. The Court in Maresca stated:
The assumption is implicit in the opinions of this court
that a trial judge will discriminate in ordering discovery
between information disclosed by income tax returns which
is relevant and material to the matters in controversy and
information which is not. The protection of privacy is of
fundamental--indeed, of constitutional--importance.
Subjecting federal income tax returns of our citizens to
discovery is sustainable only because the pursuit of justice
between litigants outweighs protection of their privacy. But
sacrifice of the latter should be kept to the minimum, and
this requires scrupulous limitation of discovery to
information furthering justice between the parties which, in
turn, can only be information of relevancy and materiality
to the matters in controversy. Id. at 301.
We see no reason to exclude Relator's other personal
financial records, such as her financial statements and
records of household accounts from similar considerations.
We therefore hold Judge Millard abused his discretion
in ordering Relator to produce her entire tax returns,
financial statements, and personal household records
without examining them and separating the relevant parts
from the irrelevant. As stated in Maresca, 362 S.W.2d at
301, it is not this court's function to supervise the trial judge
in exercising his discretion in his rulings on relevancy and
materiality. However, we should grant extraordinary relief
when no discretion has been exercised, as in the case before
us.
We feel certain the trial judge will act in a manner
consistent with this opinion and that it will be unnecessary
for a writ of mandamus to issue at this time. However, in
the event he fails to do so, a writ will
Page 168
issue to insure compliance with this opinion.
---------
Notes:
[1] ... Seaboard Surety Company brought suit as the insurer
of the W.W. WILLIAMS COMPANY.
---------
Page 930 which was subject to the trust, to their mother, Helen Pitts.
Appellant (Jacqueline Pitts Moody, a daughter) refused to
708 S.W.2d 930 (Tex.App. —Corpus Christi 1986) convey her interest to her mother. Between December 1976
and March 1977, Helen Pitts (as trustee, as executor, and as
Jacqueline MOODY, Appellant, an individual) conveyed several pieces of real property
which were part of the corpus of the trust to her son
v.
William and his wife and her daughter Geraldine and her
husband.
Helen Marion PITTS, et al., Appellees.
The portions of Johnny T. Pitts' will relevant to this
No. 13-85-356-CV.
appeal are as follows:
Court of Appeals of Texas, Thirteenth District, Corpus
ARTICLE THREE
Chritsi
All of the rest, residue and remainder of the property
April 17, 1986
which I may own at the time of my death, real, personal and
Page 931 mixed, tangible and intangible, ... I give, devise and
bequeath to my Trustee, hereinafter named, IN TRUST
[Copyrighted Material Omitted] NEVERTHELESS, for the following uses and purposes:
Page 932 I. I direct my Trustee to hold, manage, control, invest and
reinvest the same, to collect the income therefrom and to
J.D. Sherlock, Jr., Austin, for appellant. pay the net income therefrom to my beloved wife, Helen, so
long as she shall live, in monthly or other convenient
Richard Davis, Harlingen, for appellees. installments.
Before NYE, C.J. and KENNEDY and DORSEY, JJ. II. I further direct that my Trustee may, in her discretion, at
any time and from time to time, pay over to or apply for the
OPINION
benefit of my wife so much or all of the principal of the
Trust as will, when coupled with the income of the Trust,
NYE, Chief Justice.
support her in her accustomed manner of living and pay her
This case involves the construction of a will. Appellant, medical, dental, hospital and nursing expenses of
Jacqueline Pitts Moody, is the daughter of the testator, invalidism. Restoration of principal in case of such invasion
Johnny T. Pitts. She brought this action against appellees: shall not be required as a condition of further distribution of
Helen Marion Pitts (her mother and the wife of testator), income. In determining the amounts of principal to be so
William Terry Pitts (her brother) and his wife, and disbursed, my Trustee shall take into consideration the other
Geraldine Pitts Floyd (her sister) and her husband. The income resources, but not capital resources, of such
fourth child of Johnny and Helen Pitts is not a party to this beneficiary.
action. Suit was brought to invalidate the testamentary trust
III. Upon the death of my beloved wife, Helen, ... I then
created by the will, to declare void conveyances of certain
give, devise and bequeath all of the rest, residue and
real estate, to impose a constructive trust on appellant's
remainder of my Estate to my children, namely Geraldine
purported share of the transferred real estate, for an
Pitts Floyd, ... Johnny T. Pitts, Jr. ... William Terry Pitts ...
accounting, and for the removal of the trustee. Appellant
and Jacqueline Pitts Melton ... in equal shares, per stirpes;
appeals from a take-nothing judgment. We reform and, as
... (Emphasis in the original.)
reformed, affirm.
ARTICLE FOUR
Testator executed his will on July 23, 1973, and died
September 2, 1976. The will was probated on September
I nominate, constitute and appoint my beloved wife, Helen
30, 1976. It made a direct bequest to Helen Pitts (his wife)
Marion Pitts, as Independent Executrix and as Trustee,
and devised the remainder of his estate (particularly certain
without bond, under this, my Last Will and Testament, and
real estate) to a trustee (Helen Pitts) in trust for the wife,
I direct that no other action shall be had in the County Court
Helen Pitts, for life with the remainder to their four
or other probate court in relation to the
children. On November 24, 1976, three of the children
conveyed their remainder interest in the real property,
Page 933 4. To sell, exchange, assign, transfer, partition, or otherwise
dispose of any property, real or personal, of which I may
settlement of my Estate than the probating and recording of die seized or possessed, or which may at any time form part
this, my Will, and return of statutory Inventory, of my estate or the trust created hereby, at public or private
Appraisement and List of Claims of my Estate. In event of sale, for such purposes and on such terms, including sales
the death, resignation, inability or refusal of my said on credit, with or without security, in such manner and at
Executrix and Trustee to act in either capacity, I then such prices as to my fiduciary appears advisable.
nominate, constitute and appoint my son, Johnny, and
daughter, Jacqueline, to act as Substitute Independent ***
Co-Executors and as Successor Co-Trustees, as the case
may be, without bond, and grant such Successors all of the ***
rights, powers and duties of the original fiduciary, without
any act of conveyance or transfer.... 28. Except as may be otherwise expressly provided in my
Will, whenever my fiduciary is required or permitted to
*** divide or distribute my estate or any trust created hereby, to
make such division or distribution in money or in kind, or
*** partly in money and partly in kind; to allot different kinds
of property among the beneficiaries; and to determine the
ARTICLE FIVE relative value of the property so allotted, and, in the absence
of a showing of bad faith, the valuation assigned by my
No beneficiary of any Trust created hereunder shall fiduciary of assets for the purpose of distribution in kind
have any right to anticipate, alienate, encumber or shall be conclusive and binding upon all persons interested
hypothecate his or her interest in the principal or income of in my estate. (Emphasis added.)
such Trust in any manner, nor shall the interest of any such
beneficiary be subject to the claim of his or her creditors, or Appellant testified that she and the other members of
liable to attachment, garnishment, execution and other the family had an understanding as to how the real property
process of law. Title to all such principal and income shall should be divided among the children. According to
remain solely and exclusively in my Trustees until actually appellant, her brother William was to get a one hundred and
distributed by my Trustees to such beneficiary under the ninety-nine-acre tract. Geraldine was to get one hundred
terms of the instrument. acres, and their other brother was to get the homesite
(approximately 57 acres). Appellant was to get one hundred
I direct that my Executors with respect to my Estate and eighty acres, consisting of a one hundred and sixty-acre
and my Trustees with respect to any Trust herein created block and a twenty-acre block with a two-story house, in
shall have, and they are each hereby invested with the which her sister Geraldine was living at the time of their
administrative powers set forth in Annex A to this, my Will, father's death.
which is attached hereto, ... which powers may be exercised
by my Executors and my Trustees at any time or from time It was appellant's testimony that her mother initially
to time as they, in their sole discretion, deem advisable. stated that appellant was to get the one hundred eighty
acres, but
***
Page 934
***
then retracted because Geraldine wanted the twenty acre
ANNEX A portion and two-story house. Appellant felt this was unfair
and refused to join her brothers and sister in conveying their
To the Last Will and Testament of
remainder interests to their mother. On cross-examination,
Johnny Thomas Pitts appellant answered negatively when asked whether she
would have objected had her mother conveyed the one
ADMINISTRATIVE POWERS GRANTED TO MY hundred eighty acres to her. Appellant answered
EXECUTOR AND TRUSTEE AND TO THE affirmatively when asked if she understood that her father's
SUBSTITUTE OR SUBSTITUTES AND THE will provided for an equal division of the property among
SUCCESSOR OR SUCCESSORS OF THEM: the children and did not provide that certain children would
receive certain portions of the property.
***
In its judgment, the trial court ordered that (1) the trust
*** under the will failed due to a merger of legal and equitable
titles during the lifetime of Helen Pitts; (2) the will created
a life estate in Helen Pitts by which she was vested with all Grigsby, 35 S.W. at 690.
the powers set forth in Exhibit A of the will; (3) Helen Pitts
correctly disposed of the assets of the estate; (4) the Although appellant has argued that a merger resulted, it
conveyances of the real property to William and Geraldine was her refusal to convey her equitable interest in the
were valid; and (5) Jacqueline Moody retains a one-fourth property to Helen Pitts that prevented a merger of the legal
remainder interest in the estate of her father as it exists at and equitable titles and ensured the viability of the
the time of Helen Pitts' death. All other relief was denied, testamentary trust. We hold that the legal and equitable
and all costs were adjudged against appellant. interests have not completely merged so as to defeat this
trust. See First Church of Christ, Scientist v. Snowden, 276
By their sole cross-point, appellees contend that the S.W.2d 571, 574
trial court erred in holding there was a merger of the two
estates which resulted in the failure of the testamentary trust Page 935
because there existed an outstanding equitable interest in
the remaindermen that, as a matter of law, prevented a (Tex.Civ.App.--Beaumont 1955, writ ref'd n.r.e.).
merger of the estates. We agree with appellees and sustain
Appellant brings eleven points of error to this court.
this cross-point.
These points are inartfully drafted. We have attempted to
It is a well-settled principle that where a greater estate determine the substance of the complaints through the
and a lesser estate are united in the same person, the estates statements, authority and arguments under each point. We
merge, and the lesser is absorbed by the greater. Olivas v. have discretion in such instances to consider faulty points of
Zambrano, 543 S.W.2d 180, 182 (Tex.Civ.App.--El Paso error. Cleaver v. Dresser Industries, 570 S.W.2d 479, 483
1976, no writ); Cole v. Grigsby, 35 S.W. 680, 690 (Tex.Civ.App.--Tyler 1978, writ ref'd n.r.e.); TEX.R.CIV.P.
(Tex.Civ.App.1894), affirmed, 89 Tex. 223, 35 S.W. 792 422, See also Pool v. Ford Motor Co., --- S.W.2d ----, 29
(1896); 34 Tex.Jur.3d, Estates § 49 (1984). This rule is TEX.SUP.CT.J. 301 (April 2, 1986). Essentially, appellant
applicable to trusts. TEX. PROPERTY CODE § 112.034 complains of each of the trial court's rulings (with the
(Vernon 1984); see also RESTATEMENT (Second) OF exception of the ruling that the trust failed due to a merger),
TRUST § 99 (1959). Where one person has both the legal and the trial court's refusal to impose a constructive trust on
title to the property and the entire beneficial interest, he her share of the real property in her father's estate.
holds it free of trust. There is no separation of the legal and
In her first five points of error, appellant complains of
beneficial interests, and there are no duties to assume or to
the trial court's rulings that Helen Pitts acted correctly in
provide.
disposing of certain real property of the estate. Appellant's
It is also plain from the will that Helen Pitts is the life interpretation of the will seems to be that Helen Pitts was
beneficiary under this trust, which is terminated at her death devised a life estate free of a trust (because of a merger),
with the remaining corpus to be distributed to the but the life estate was subject to the spendthrift provision of
remaindermen (the four children). The children's future the trust prohibiting the beneficiary from alienating any
interests under this will are vested remainders. Vested trust assets. She specifically argues that Helen Pitts was not
remainders are fixed interests with a present right of future devised a life estate with the power to invade the corpus of
enjoyment with only the right of possession postponed until the trust.
the ending of a particular estate. Caples v. Ward, 107 Tex.
This argument completely ignores the second
341, 179 S.W. 856, 857-58 (1915).
paragraph of Article Five of the will in which the testator
Thus, when the testamentary trust in this case became vests the powers delineated in "Annex A" in the executor of
operative, there existed four persons with vested remainder the estate and the trustee of the testamentary trust, each
interests in the residuary estate. Even after three of the position to which he named his wife. In this particular
children conveyed their remainder interests to their mother, instance, it matters little whether Helen Pitts acted as
a vested remainder still existed. At no time since the death executor or trustee. She had the same powers under the will
of the testator has Helen Pitts owned the legal title and all and comparable fiduciary duties to the remaindermen
of the equitable interest in all of the trust property. There whether she acted as trustee or executor.
has been a vested remainderman to whom Helen Pitts has
The primary objective in construing wills and trusts is
had a duty as trustee, and who can maintain an action
to determine the intent of the maker. Corpus Christi
against her for her acts as trustee, as evidenced by the
National Bank v. Gerdes, 551 S.W.2d 521, 523
instant litigation. See TEX. PROPERTY CODE ANN. §§
(Tex.Civ.App.--Corpus Christi 1977, writ ref'd n.r.e.). The
113.151(b) and 111.004(7) (Vernon 1984). The general rule
testator's intent must be ascertained from the four corners of
is that courts will not allow a merger to defeat a vested
the will. Farah v. First National Bank of Fort Worth, 624
remainder. Olivas v. Zambiano, 543 S.W.2d at 182; Cole v.
S.W.2d 341, 345 (Tex.App.--Fort Worth 1981, writ ref'd provide the life tenant funds for her support. At trial, Helen
n.r.e.). If possible, we are to construe a will in such a way Pitts was asked if she gave the properties to her son and
as to give effect to every provision of the will. Gonzalez v. daughter. She answered: "I sold them." She answered
Gonzalez, 457 S.W.2d 440, 443 (Tex.Civ.App.--Corpus affirmatively when asked if she received any monies for
Christi 1970, writ ref'd n.r.e.). If the language used by the them. When asked where these monies had gone, she
maker of a will or trust is unambiguous, it is unnecessary to answered: "That's what I live off of."
construe the instrument. Gerdes, 551 S.W.2d at 523. If the
trustee's powers are unambiguously conferred by the Helen Pitts also testified that she had recently made
instrument, neither the trustee nor the courts can add to or improvements to her home. She added a garage and
take away from the powers so conferred. bedroom at an approximate cost of $30,000.00. She stated
that the addition increased the number of bedrooms in her
Article Five of the will provides that no beneficiary of home from three to four. She was asked if it was her
the trust may alienate trust property or their interest therein, accustomed manner to live in four bedrooms, and she
that title shall remain exclusively in the trustee, and that the replied: "Well, I'm there by myself. I guess I can just go in
trustee shall have the power of sale (through "Annex A"). any of them I want." It was undisputed that Helen Pitts had
Helen Pitts conveyed the real property as trustee, as four children.
executor, and as an individual.
We hold that the testator intended his wife to have the
Based on the language used by the testator, there is no power, as trustee, to convey the real property, and that she
question that he intended his wife to wear three different has not exceeded the authorizations in the will by so doing.
hats in his testamentary scheme: executor, trustee, and life Appellant's first through fifth points of error are overruled.
beneficiary. Clearly, his purpose was to provide for his
wife's support "in her accustomed manner of living and [to] In her points of error six through ten, appellant
pay her medical, dental, hospital and nursing expenses and complains of the trial court's ruling that appellant, if she
expenses of invalidism." He provided that she serve as survives her mother, retains a one-fourth remainder interest
executor and trustee without bond and with no more than in the estate of Johnny Pitts as it exists at the time of her
minimum court supervision. As trustee, she had broad mother's death. Her argument here seems to be that her
powers of sale and limited powers of invasion. We hold that interest in the estate was a vested remainder and that it was
the conveyances by Helen Pitts, as trustee, did not violate error for the trial court to require that she survive the life
the spendthrift or other provisions of the testamentary trust. tenant (her mother, the trustee) in order for her interest to
vest.
The result is the same even if the authorization is
limited, and only may be for the "purpose of meeting her The point at issue is whether appellant's remainder is
expenses of life and to pay doctor or hospital bills incurred completely indefeasible. The testator devised, after the
and necessary," as long as the invasion of principal was for death of the life tenant, the remainder of his estate to his
the purposes provided for in the will and not done in bad four children in equal shares, per stripes. If a remainderman
faith. Guest v. Bizzell, 271 S.W.2d 472, 476 predeceases the life tenant, without issue of his body, the
(Tex.Civ.App.--Eastland 1954, writ ref'd). The person remainder interest would not pass to the remainderman's
challenging the exercise of the power estate as contended by the appellant. See Power v.
Landram, 464 S.W.2d 99, 101 (Tex.1970). The
Page 936 remainderman's interest is defeasible in that sense.
to invade principal has the burden of showing it was Appellant's remainder interest is also defeasible
exercised in bad faith or went beyond that authorized. If a because it is subject to the life estate of Helen Pitts and the
life tenant exercises the power of sale, the proceeds of that powers of sale and invasion of the trustee. The power of
sale are still part of the estate. The principal still exists, only sale does not prevent the remainder interest from vesting.
its form changes. Edds v. Mitchell, 143 Tex. 307, 184 Caples v. Ward, 179 S.W. at 858. There is no uncertainty as
S.W.2d 823, 826 (1945). The proceeds of the sale which to who will take, only as to the "quantity and value" of the
remain undisposed of at the time of the life tenant's death principal left to be taken. Id.
pass to the remaindermen unless the will provides
otherwise. It is true that a life tenant (and a trustee) has a fiduciary
duty to the remaindermen not to destroy their remainders
In the instant case, there is no evidence of how much except as authorized by the terms of the will. Maxwell v.
income, if any, the real property produced before the sales. Harrell, 183 S.W.2d 577, 579 (Tex.Civ.App.--Austin 1944,
It is entirely possible that the property did not produce any ref'd w.m.). However, Helen Pitts, as trustee, was expressly
income. If so, its liquidation would be necessary in order to empowered to sell the property and consume any principal
necessary to maintain her in her accustomed standard of
living. Appellant had the burden to bring forth evidence that
her mother exceeded her authority. This, she has failed to
do. Points of error six through ten are overruled.
In her eleventh point of error, appellant complains of
the trial court's refusal to impose a constructive trust on her
one-fourth share of the specific real property conveyed.
Constructive fraud (necessitating a constructive trust) is
defined as a breach of a legal or equitable duty which,
regardless of moral guilt, the law considers
Page 937
fraudulent because of its tendency to deceive others, violate
confidence or injure public interests. Becknal v. Atwood,
518 S.W.2d 593, 598 (Tex.Civ.App.--Amarillo 1975, no
writ).
The only evidence of any breach of fiduciary duty in
this case was the fact that Helen Pitts closed out the trust
account and commingled that money with her own funds. If
a trustee commingles trust funds with the trustee's own, the
entire commingled fund is subject to the trust. General
Association of Davidian Seventh Day Adventists, Inc. v.
General Association of Davidian Seventh Day Adventists,
410 S.W.2d 256, 259 (Tex.Civ.App.--Waco 1966, writ ref'd
n.r.e.). When a trustee has commingled funds and has
expended funds, the money expended is presumed to be the
trustee's own. Batmanis v. Batmanis, 600 S.W.2d 887, 890
(Tex.Civ.App.--Houston [14th Dist.] 1980, writ ref'd n.r.e.).
Thus, upon Helen Pitts' death, all commingled funds in her
bank account, along with any of the trust property not sold
or consumed, will be subject to an undivided remainder
interest among the children of the testator then surviving.
Appellant's interest does not attach to certain specific
property, only to the trust corpus, in whatever form, at the
life tenant's death. Point of error eleven is overruled.
We reform the judgment of the trial court to hold: (1)
that the testamentary trust under the will of Johnny Thomas
Pitts did not fail due to a merger of the legal and equitable
estates during the lifetime of Helen Marion Pitts; (2) that,
under the will of Johnny Thomas Pitts, Helen Marion Pitts
was the executor of the estate, life beneficiary of the
testamentary trust, and the trustee of the trust, by which she
was vested with all the powers set forth in "Annex A" of his
will; and (3) that Jacqueline Moody, if she survives Helen
Marion Pitts, retains an undivided defeasible vested
remainder interest in the estate and testamentary trust of
Johnny Thomas Pitts as it may exist at the death of Helen
Marion Pitts. As reformed, the judgment of the trial court is
affirmed.
Page 617 v. Smith, 145 Tex. 399, 198 S.W.2d 729 (1946).
711 S.W.2d 617 (Tex. 1986) The contractual relationship of the parties may create
duties under both contract and tort law. Montgomery Ward
JIM WALTER HOMES, INC., Petitioner, & Co. v. Scharrenbeck, 146 Tex. 153, 204 S.W.2d 508
(1947). The acts of a party may breach duties in tort or
v. contract alone or simultaneously in both. The nature of the
injury most often determines which duty or duties are
Ray REED et ux., Respondents.
breached. When the injury is only the economic loss to the
subject of a contract itself, the action sounds in contract
No. C-4691.
alone. Mid-Continent Aircraft Corp. v. Curry County
Supreme Court of Texas. Spraying Service, 572 S.W.2d 308, 312 (Tex.1978);
Nobility Homes of Texas, Inc. v. Shivers, 557 S.W.2d 77
May 14, 1986 (Tex.1977). The Reeds' injury was that the house they were
promised and paid for was not the house they received. This
Rehearing Denied July 16, 1986. can only be characterized as a breach of contract, and
breach of contract cannot support recovery of exemplary
Mike Mills, Atlas & Hall, McAllen, for petitioner. damages. Bellefonte Underwriters Insurance Co. v. Brown,
704 S.W.2d 742 (1986); Amoco Production Co. v.
F.I. Gandy, Jr., Corpus Christi, for respondents.
Alexander, 622 S.W.2d 563 (Tex.1981).
ROBERTSON, Justice.
The jury found Jim Walter Homes, Inc. to have been
grossly negligent in its supervision of construction. Gross
This case involves whether there is an independent tort
negligence is a mental state lower in culpability than
to support an award of exemplary damages.
intentional or willful acts. Luna v. North Star Dodge Sales,
Ray Reed and his wife sued Jim Walter Homes, Inc., Inc., 667 S.W.2d 115 (Tex.1984). Gross negligence in the
seeking damages arising out of the sale and construction of breach of contract will not entitle an injured party to
a house. The jury found that Jim Walter Homes, Inc. exemplary damages because even an intentional breach will
breached the warranty of good workmanship in the contract not. Amoco Production Co. v. Alexander, 622 S.W.2d 563,
and that it was grossly negligent in the supervision of the 571 (Tex.1981); City Products Corp. v. Berman, 610
construction of the house. Our concern is with the award of S.W.2d 446, 450 (Tex.1980).
punitive or exemplary damages.
To support an award of exemplary damages in this
The jury found actual damages, additional damages as case, the plaintiff must prove a distinct tortious injury with
provided under the Deceptive Trade Practices Act, Tex.Bus. actual damages. Bellefonte Underwriters Insurance Co. v.
& Com.Code § 17.46 (Vernon Supp.1985), exemplary Brown, supra; Luna v. North Star Dodge Sales, Inc., supra;
damages and attorney's fees. The trial court awarded actual City Products Corp. v. Berman, supra. The only issue on
damages and attorney's fees, disallowed the additional actual damages inquired as to the cost of repairing the home
DTPA damages, and remitted a portion of the exemplary to the condition it was represented to be in at the time of
damages. The court of appeals modified the judgment of the sale. Although the Reeds sought recovery for mental
trial court by awarding DTPA damages only and attorney's anguish in their petition, no issue was submitted on those
fees. In addition the court ordered a remittitur reducing the damages. There were no other injuries found by the jury
exemplary damages. 703 S.W.2d 701 at 708. other than loss of the benefit of the bargain. Therefore, we
reverse the court of appeals award of exemplary damages
Although the principles of contract and tort causes of and affirm the remainder of the judgment.
action are well settled, often it is difficult in practice to
determine the type of action that is brought. We must look
to the substance of the cause of
Page 618
action and not necessarily the manner in which it was
pleaded. International Printing Pressmen and Ass't Union
Page 361 initially affirmed the judgment, 718 S.W.2d 313, but on
rehearing, reversed and remanded for trial. 718 S.W.2d at
747 S.W.2d 361 (Tex. 1987) 345. We reverse the judgment of the court of appeals and
render judgment for the Birchfields.
Phillip J. BIRCHFIELD et al., Petitioners,
As a premature infant, Kellie was administered
v. approximately 400 hours of supplemental oxygen without
adequate monitoring of arterial blood gases. This occurred
TEXARKANA MEMORIAL HOSPITAL d/b/a Wadley
even though a 1971 report published by the American
Hospital et al., Respondents.
Academy of Pediatrics cautioned the medical community
about the danger of RLF in premature infants receiving
No. C-5895.
supplemental oxygen, and advised practitioners to closely
Supreme Court of Texas. monitor arterial blood gases of such infants. In the wake of
the report Dr. Lowe predicted at a pediatrics section
October 28, 1987 meeting, attended by a Wadley administrator, that the
hospital was "going to have blind babies" unless it acquired
Rehearing Denied April 20, 1988. the facilities to adequately monitor blood gases. However,
during the period from 1971 through 1973 Wadley
Page 362 expended approximately $200 per year for nursery
improvements. Kellie was born in August of 1974.
[Copyrighted Material Omitted]
The jury found the individual doctors negligent and
Page 363
Wadley both negligent and grossly negligent in failing to
properly treat Kellie. It also found that Wadley had violated
[Copyrighted Material Omitted]
the D.T.P.A. by holding out to the Birchfields that the
Page 364 hospital was adequately equipped to handle premature
babies when it was not. The damage award was
Frank L. Branson and Paul N. Gold, Law offices of
Frank L. Branson, P.C., Dallas, Prof. J. Hadley Edgar, Page 365
Texas Tech University, Lubbock, for petitioners.
$2,111,500 actual damages against all defendants, jointly
Victor Hlavinka, Atchley, Russell, Waldrop & and severally, plus $1,200,000 exemplary damages against
Hlavinka, John C. Hawkins, Jr., Texarkana, William A. Wadley.
Eldredge, Jr., Friday, Eldredge and Clark, Little Rock, Ark.,
The issues before us fall within five groups:
for respondents.
evidentiary, cumulative error, trial court bias, errors in the
WALLACE, Justice. jury charge, and failure to award both exemplary and
D.T.P.A. treble damages. We will discuss them in that
Kellie Birchfield was born prematurely with a order.
congenitally functionless right eye. Shortly after her release
from the hospital, she was diagnosed as having retrolental EVIDENTIARY ISSUES
fibroplasia (RLF) in her left eye and is now totally blind.
Reference to Other "Blind Babies" and Other RLF Cases.
Her parents, Phillip and Mary Jo Birchfield, individually
and as next friends of Kellie, sued Texarkana Memorial
The court below held that evidence of other RLF cases
Hospital (Wadley) and her three treating physicians, Dr. Jon
was inadmissable, and that repeated references to "other
Hall, Dr. Noel Cowan, and Dr. Betty Lowe. The petition
blind babies" constituted harmful error. 718 S.W.2d at
alleged negligence on the part of all four defendants plus a
341-45. We disagree. Evidence of a defendant's subjective
D.T.P.A. action against Wadley under the 1973 version of
knowledge of the peril created by his conduct is admissible
the Act. Deceptive Trade Practices Act, ch. 143, 1973 TEX.
to prove gross negligence. Williams v. Steves Industries,
GEN. LAWS at 322-43. The jury answered all issues
Inc., 699 S.W.2d 570, 573 (Tex.1985). Dr. Lowe's
favorably to the Birchfields. The trial court rendered
prediction of "blind babies," the lack of remedial action by
judgment for actual damages against all defendants and
Wadley and the occurrence of other RLF cases were
exemplary damages against Wadley, but refused to render
admissible to show Wadley's conscious indifference to the
judgment on the D.T.P.A. action. The court of appeals
peril its conduct created. Wadley did not request an was cumulative of other similar evidence and therefore
instruction limiting the evidence to that purpose, therefore it harmless.
waived any complaint to general admission of the evidence.
TEX.R.EVID. 105(a). This is some evidence of gross Reference to Minutes of Hospital Section Meeting.
negligence and defeats Wadley's no evidence contention.
In questioning Wadley's administrator, the Birchfields'
Reference to Settlement of Another RLF Case. counsel asked if
Reference to settlement of another case is generally not Page 366
admissible. TEX.R.EVID. 408. The Birchfields' expert
witness made three passing remarks to the settlement. No the administrator had reviewed the minutes of the pediatrics
timely objections to these remarks were made by the section in preparation for his testimony. Such records are
defendant and no timely request was made for instruction to privileged from discovery. TEX.REV.CIV.STAT.ANN. art.
the jury to disregard these references. The Birchfields' 4447d(3) (Vernon 1976). In this single reference to the
counsel referred to the settlement during voir dire and upon minutes, no mention was made of their contents. We hold
objection by defendant's counsel the court instructed the that a mere reference to the existence of the minutes was at
jury to disregard the reference. Counsel again referred to most harmless error.
the settlement during closing argument and no objection
Evidence of Financial Condition of the Hospital.
was made nor instruction requested. During voir dire the
jury was closely questioned by defendant's counsel about The Birchfields contended that Wadley was grossly
any bias arising from publicity about settlement of another negligent in refusing to provide proper facilities to monitor
RLF case. In view of the careful voir dire, the volume of blood gases of premature infants even though they had the
testimony, and the full development of the case, we hold financial ability to do so. Evidence of the hospital's
that the error was not reasonably calculated to cause and financial condition was admissible to show financial ability
probably did not cause the rendition of an improper to provide proper facilities.
judgment. TEX.R.APP.P. 184(b); Standard Fire Insurance
Co. v. Reese, 584 S.W.2d 835, 839-40 (Tex.1979). Transcript of a Meeting Between Doctors and an Attorney.
Admissibility of an Expert's Opinion on a Mixed Question The trial court admitted into evidence portions of the
of Law and Fact. transcript of a meeting attended by Dr. Hall, Dr. Lowe and
other doctors with an attorney who had represented some of
The Birchfields' expert witness testified on direct them in a prior lawsuit. The transcript indicated that both
examination that Wadley's conduct constituted doctors were aware of the inadequate facilities at Wadley
"negligence," "gross negligence," and "heedless and and it contradicted statements made by the doctors at the
reckless conduct," and that certain acts were "proximate trial. The transcript was admissible as admissions by the
causes" of Kellie's blindness. Contrary to the holding of the doctors and its probative value outweighed the danger of
court of appeals, such testimony is admissible. undue prejudice and confusion. TEX.R.EVID.
TEX.R.EVID. 704. Fairness and efficiency dictate that an 801(e)(2)(A), (B) and 403. Also, no limiting instructions
expert may state an opinion on a mixed question of law and were requested by Wadley, so it waived any objection that
fact as long as the opinion is confined to the relevant issues the testimony was inadmissible to prove its liability.
and is based on proper legal concepts.
CUMULATIVE ERROR AND TRIAL COURT BIAS
Testimony of Expert Based on Conversation with Another
Expert. The issues in this case were clearly defined, and all
theories of all the parties were ably presented to the jury.
Ordinarily an expert witness should not be permitted to The record consisted of approximately 4,500 pages. The
recount a hearsay conversation with a third person, even if few minor errors were insignificant when considered in the
that conversation forms part of the basis of his opinion. context of the entire case. We hold that any error did not
TEX.R.EVID. 801, 802. However, in this instance Dr. individually or in the aggregate constitute reversible error.
Eichenwald was invited to err by defendant's counsel telling
him to "go right ahead" and explain an apparent The court of appeals did not rule on several of the
inconsistency in his testimony. His explanation was based defendants' points of error which assert failure of the trial
upon a conversation with another doctor. Also, Dr. court to conduct the trial in a fair and impartial manner.
Ehrenkranz was permitted to testify as to a telephone Those points are within our jurisdiction so we will rule on
conversation with another doctor concerning transfer them rather than remand them to the court of appeals.
facilities at Wadley. This testimony was inadmissible but it McKelvy v. Barber, 381 S.W.2d 59, 64 (Tex.1964). Our
review of the record reveals no discernible bias or any F. As to charting ______
suggestion to the jury that the trial court desired a particular
result or that it favored the plaintiff. The defendants assert that the wording of these issues
could be construed as indicating the trial court's opinion that
ALLEGED ERRORS IN THE COURT'S CHARGE one or more of the acts or omissions listed in subdivisions
A-F was a proximate cause. We find the comments, if any,
The Locality Rule were at most incidental, and agree with the court of appeals'
analysis and conclusion that the wording of these issues did
The charge defined negligence of the hospital as "the not likely lead to the rendition of an improper judgment.
doing of that which an ordinary prudent hospital ... in the 718 S.W.2d 330-32. In view of the record, we believe that
exercise of ordinary care would not have done under the the jury fully understood that the issue of proximate cause
same or similar circumstances...." (Emphasis added.) was entrusted to its decision.
Ordinary care was defined as "that degree of care that a
hospital of ordinary prudence ... would have exercised DAMAGES
under the same or similar circumstances." (Emphasis
added.) Negligence and ordinary care of the physicians D.T.P.A. Damages
were similarly defined. These definitions closely parallel
those contained in the Texas Pattern Jury Charges. See, 3 The Birchfields challenge the rulings of both the trial
STATE BAR OF TEXAS, TEXAS PATTERN JURY court and the court of appeals concerning questions of
CHARGES, PJC 40.01, 40.02. The defendants attacked damages. At trial, the Birchfields secured jury findings that
these definitions because they failed to refer to hospitals Wadley violated the Deceptive Trade Practices Act, that the
and physicians in "this or similar communities," and thus do Birchfields were adversely affected by that violation, and
not reflect the "locality rule." The purpose of the locality that Wadley was negligent and grossly negligent. The
rule is to prevent unrealistic comparisons between the Birchfields argue that the courts below erred in failing to
standards of practice in communities where resources and award both exemplary damages as found by the jury and
facilities might vastly differ. The definitions in the court's treble damages under the D.T.P.A. We disagree. This
charge meet this concern, because the means available to argument overlooks the fact that the jury found that
the defendant are part of the pertinent "circumstances." See, Wadley's deceptive act or practice, as well as each
Hood v. Phillips, 554 S.W.2d 160, 165 (Tex.1977). We defendants' acts of negligence, were the proximate or
hold that these definitions were proper, as did the court producing cause of the same damages. See, Allstate Ins. Co.
below. 718 S.W.2d at 332. v. Kelly, 680 S.W.2d 595, 606 (Tex.App.--Tyler 1984, writ
ref'd N.R.E.) The Birchfields' special issues on damages
Purported Comments on the Weight of the Evidence merely requested the jury to fix a sum of money which
would compensate Kellie and her parents, "for the damages
The Birchfields' Issues one through four were intended proximately resulting from the occurrence in question." In
to broadly submit the absence of separate and distinct findings of actual
damages on both the acts of negligence and the deceptive
Page 367 acts or practices, an award of exemplary damages and
statutory treble damages would be necessarily predicated
the questions of negligence and proximate cause. See,
upon the same findings of actual damages and would
TEX.R.CIV.P. 277. The wording of these issues is fully set
amount to a double recovery of punitive damages. Id.
forth in the court of appeals' opinion. 718 S.W.2d at 329.
Issue No. 1 is demonstrative of the form of each of these In the alternative, the Birchfields claim that they were
issues: entitled to elect whether to recover the exemplary damages
as found by the jury or statutory treble damages. In light of
Do you find from a preponderance of the evidence that
our holding that the Birchfields were not entitled to both
Wadley Hospital ... [was] negligent in the care and
treble and exemplary damages, they were confronted with a
treatment of Kellie Lee Birchfield with respect to any of the
situation where an election would be required. Kish v. Van
following which was a proximate cause of her blindness?
Note, 692 S.W.2d 463, 466-67 (Tex.1985). The court of
Answer "yes" or "no" to each item. appeals held that since the Birchfields, before entry of
judgment, failed to unequivocably waive the findings on
A. As to adequate nursing services ______ exemplary damages, they had waived their right to
complain on appeal that the trial court erred in failing to
*** award treble damages. 718 S.W.2d at 339. We find no
support for that proposition. The judgment of the court
should be "so framed as to give the party all the relief to
which he may be entitled." TEX.R.CIV.P. 301, (emphasis Birchfield was not a consumer within the meaning of the
added). While a formal waiver by the Birchfields would D.T.P.A. A plaintiff establishes her standing as a consumer
have been in order, it was not a prerequisite to the recovery in terms of her relationship to a transaction, not by a
of all of the damages to which they were lawfully entitled. contractual relationship with the defendant. Flenniken v.
Hargrove v. Trinity Universal Insurance Co., 152 Tex. 243, Longview Bank & Trust Co., 661 S.W.2d 705, 707
256 S.W.2d 73, 75 (1953). We hold that where the (Tex.1983). Wadley sold its goods and services and Kellie
prevailing party fails to elect between alternative measures Birchfield "acquired" them, regardless of the fact that she
of damages, the court should utilize the findings affording obviously did not contract for them.
the greater recovery and render judgment accordingly.
Finally, we reject Wadley's argument that there was no
In light of its holding that the Birchfields had waived finding of actual damages resulting from the deceptive act
their complaints as to the trial court's judgment, the court of or practice. The jury found that both Kellie and her parents
appeals did had suffered damages "proximately resulting from the
occurrence in question." Wadley argues that the term
Page 368 "occurrence in question" was too vague, and did not limit
the jury's attention to the amount of damages resulting from
not reach the question of whether the Birchfields were the D.T.P.A. violation. Therefore, Wadley asserts that it
entitled to D.T.P.A. damages under the facts and the would be inappropriate to simply equate the jury's general
applicable version of the Act. 718 S.W.2d at 339. By way damage findings with the amount of actual damages caused
of cross-points, Wadley asserts that the Birchfields could by its deceptive practice. We disagree. Wadley failed to
recover D.T.P.A. damages even if they hadn't waived their complain that the damage issues did not specifically relate
right to do so by failing to elect. Wadley contends that the to the Birchfields' grounds of recovery. Cf. Wilgus v. Bond,
jury findings do support such a recovery because (1) the 730 S.W.2d 670 (Tex.1987). The objection was thereby
D.T.P.A. does apply to health care providers; (2) the jury's waived. TEX.R.CIV.P. 274.
verdict purportedly does provide an appropriate factual
basis for recovery under the D.T.P.A.; (3) Kellie Birchfield Shock/Mental Anguish
was a "consumer" within the meaning of the act; and (4)
there was allegedly no finding of actual damages upon The jury awarded Kellie's parents $1,000 each for
which to predicate an award of treble damages. In the mental anguish suffered "in the past," and also awarded the
interest of judicial economy, we will address those same amount for shock and emotional trauma sustained
contentions. McKelvy v. Barber, supra. upon learning of her total and permanent blindness. The
court of appeals set aside the latter award on the grounds
According to Wadley, the Legislature never intended that it constituted a double recovery for the same injury
that the D.T.P.A. should be applied to physicians and health already compensated by the mental anguish award. 718
care providers. As evidence of such intent, Wadley points to S.W.2d at 337. We agree. Mental anguish consists of the
the enactment of TEX. REV. CIV. STAT. art. 4590i, § emotional response of the plaintiff caused by the tortfeasor's
12.01 (Vernon Supp.1987). However, Wadley concedes conduct. See, Moore v. Lillebo, 722 S.W.2d 683, 687
that this statute did not become effective until 1977, long (Tex.1986). On these facts, the "shock and emotional
after the incidents which gave rise to this suit. We find trauma" constituted
nothing in the 1973 version of the Act which manifests a
legislative intent to exempt health care providers from Page 369
liability. Accordingly, we find no basis for Wadley's claims
of immunity or exemption from D.T.P.A. liability. part of the past "mental anguish," and the trial court erred in
rendering judgment for both shock and mental anguish.
We also reject Wadley's contentions that the jury
findings were inadequate because they made no inquiry as We reverse the judgment of the court of appeals and
to any affirmative deceptive act, practice or representation. render judgment as follows:
Under the 1973 version of the Act, a "failure to disclose"
could be an adequate factual predicate for a D.T.P.A. Kellie Birchfield shall recover $2,077,500 from
violation, provided that the jury found that the failure to Texarkana Memorial Hospital, Dr. Jon Hall, Dr. Noel
disclose was deceptive. Cobb v. Dunlap, 656 S.W.2d 550, Cowan, and Dr. Betty Lowe, jointly and severally. In
552 (Tex.App.--Corpus Christi 1983, writ ref'd n.r.e.). In addition, Kellie Birchfield shall recover $4,155,000 from
this case, the jury so found. The jury's verdict thus provides Texarkana Memorial Hospital under the D.T.P.A. Phillip
an adequate basis for a recovery under the act. and Mary Jo Birchfield shall each recover $16,000 from
Texarkana Memorial Hospital, Dr. Jon Hall, Dr. Noel
Equally unpersuasive is Wadley's contention that Kellie Cowan, and Dr. Betty Lowe, jointly and severally. In
addition, Phillip Birchfield and Mary Jo Birchfield shall
each recover $32,000 from Texarkana Memorial Hospital
under the D.T.P.A.
Page 170 into an 18-wheeler. State Farm informed Kraehnke that it
would not insure a "single-shot" 18-wheeler.
750 S.W.2d 170 (Tex. 1988)
On May 27, 1982, Kraehnke telephoned Charles Tuttle,
SOUTHERN COUNTY MUTUAL INSURANCE an agent with the uncontested authority to issue binding
COMPANY et al., Petitioners, insurance, who worked for R.O. Williams Company,
regarding the possibility of procuring insurance on his
v. 18-wheeler. Tuttle then checked with the underwriters at
R.O. Williams Company to see if an admitted insurance
FIRST BANK AND TRUST OF GROVES, Texas,
company in Texas would insure a single unit 18-wheeler.
Respondent.
Tuttle learned that no Texas companies would write such
coverage.
No. C-6628.
Tuttle then contacted Norman Edwards at Colonial
Supreme Court of Texas.
Surplus Underwriters Agency, a surplus lines agency which
May 11, 1988 places coverage with insurance companies not licensed in
Texas, to see if there was any surplus insurance available
Rehearing Denied June 15, 1988. for Kraehnke's tractor. Edwards quoted a rate for the
coverage and told Tuttle that the surplus lines carrier would
Daniel D. Clayton, Howard Close, Orgain, Bell and be Southern County Mutual.
Tucker, Gordon R. Pate and Joe Michael Dodson, Pate &
Dodson, Beaumont, for petitioners. Tuttle called Kraehnke and told him the coverage price.
Kraehnke agreed to the quoted price, inasmuch as his
Frank Lamson, Provost, Umphrey, Swearingen & primary concern was the cost of the coverage as opposed to
Eddins, Port Arthur, for respondent. which company would provide the coverage. That same
day, Kraehnke went to Tuttle's office to secure coverage
ROBERTSON, Justice. with Southern County Mutual. Tuttle gave Kraehnke a
typed binder which provided coverage on the 18-wheeler
This is a suit to recover on a temporary insurance
from May 27, 1982, to June 27, 1982. The binder reflected
policy, commonly known as a binder of insurance. First
(1) Kraehnke as the insured, (2) Southern County Mutual as
Bank and Trust of Groves, Texas, as a loss payee on an
the insurer, (3) Colonial as the insurance agency, and (4)
insurance binder, sued Southern County Mutual Insurance
the Bank as loss payee. In exchange for the binder,
Company, R.O. Williams, Jr., R.O. Williams, Jr., d/b/a
Kraehnke gave Tuttle approximately $900, which was the
Colonial Surplus Underwriters Agency, R.O. Williams Co.,
quoted first premium.
Inc., Norman Edwards, Norman Edwards d/b/a Colonial
Surplus Underwriters Agency, and Colonial Surplus Some two to three days later, Edwards telephoned
Underwriters Agency. The Bank sued on alternate theories: Tuttle and told him that he had made a mistake in quoting
(1) that Southern County Mutual was liable pursuant to an the price of the policy and that Southern County would not
insurance binder in effect on the date of loss, or, if Southern write Kraehnke's coverage for the price Edwards had
County Mutual was not liable, (2) that R.O. Williams and previously given Tuttle. However, Edwards informed Tuttle
the other five defendants were strictly liable for violations that he could secure insurance at the quoted price through
of the Texas Insurance Code. Trial was to the jury which Amherst Insurance Company. Tuttle, without notifying
answered all issues against the Bank. The court of appeals Kraehnke, authorized a substitution of insurance companies
reversed and rendered against all of the defendants. 732 from Southern County Mutual to Amherst. Tuttle never
S.W.2d 69. We affirm in part and reverse in part. relayed this information to Kraehnke. In fact, sometime
during the week before June 27, 1982, Kraehnke called
Page 171
Tuttle inquiring about receiving his payment book and
policy. During this conversation, Tuttle failed to mention
In 1980, Melvin Kraehnke purchased a new White
the substitution of carriers.
Auto Car tractor for use as a dump truck. Kraehnke had the
tractor insured with State Farm Insurance. The Bank, which
On or about June 29, 1982, R.O. Williams Company
financed the purchase, obtained a security interest in any
executed an extension binder which was in effect from June
insurance proceeds issued under Kraehnke's tractor
27, 1982, until July 27, 1982. Due to a clerical error, the
coverage. In May of 1982, Kraehnke converted his tractor
extension binder listed the insurance company as Southern
County Mutual instead of Amherst. of the loss. Further, the court of appeals found that R.O.
Williams, Jr. and the other defendants were strictly liable to
On July 2, 1982, Kraehnke's 18-wheeler was totally the Bank for violating various sections of the Texas
destroyed in a collision. Four days later, Kraehnke called Insurance Code. In accordance with its holdings as to
R.O. Williams Company and provided information for the liability, the court of appeals held that the Bank was to
proof of loss. It was at this time that the personnel at R.O. recover $35,000 (the $36,000 market value of the tractor
Williams discovered the clerical error on the extension less the $1,000 deductible in the binder) from Southern
binder. Thereafter, the proof of loss was sent to Amherst. County Mutual and $35,000 from R.O. Williams, Jr. and
Kraehnke first learned that Amherst, and not Southern the others. We affirm the court's judgment as to Southern
County Mutual, was his insurance company when an County Mutual but reverse that portion of the judgment
Amherst adjuster telephoned him in order to prepare the imposing liability against R.O. Williams, Jr. and the five
proof of loss. Amherst approved Kraehnke's claim and other defendants for violations of the Insurance Code.
authorized payment.
When Kraehnke left Tuttle's office on May 27, 1982,
On September 24, 1982, the Insurance Commissioner he had a valid insurance binder with Southern County
of Pennsylvania entered a Suspension Order against Mutual. The only action which remained was for R.O.
Amherst which prohibited the payment of any claims by Williams Company to forward Kraehnke a copy of his
Amherst without prior written consent of the Insurance insurance policy. Therefore, any subsequent changes in
Commissioner. Thereafter, on November 10, 1982, the insurance companies would have required approval either
Commonwealth Court of Pennsylvania issued an order by Kraehnke or his authorized agent. As stated earlier, the
declaring Amherst Insurance Company insolvent. Amherst's first time Kraehnke learned that Amherst was his new
charter was dissolved and insurance company was when an Amherst adjuster
contacted him concerning his proof of loss. Obviously,
Page 172 Kraehnke never authorized a substitution of insurance
companies. Therefore, the question then becomes whether
the Insurance Commissioner was appointed as liquidator.
Tuttle, as Kraehnke's agent, had the authority to order
In November of 1984, the Bank filed suit against Edwards to cancel the binder with Southern County Mutual
Southern County Mutual alleging that Southern County and obtain coverage with Amherst. Southern County
Mutual was liable on the extension binder which was in Mutual argues that Tuttle had such authority. We disagree.
effect on July 2, 1982, when Kraehnke's 18-wheeler was
The crux of Southern County Mutual's argument is that
destroyed. In the alternative, if no Southern County Mutual
Tuttle, as Kraehnke's agent, had the authority to substitute
binder was found to be in effect on the date of loss, the
insurance companies. Thus, Southern County Mutual had
Bank alleged that R.O. Williams, Jr. and the five other
the burden of pleading and proving this agency relationship.
defendants were strictly liable for violating portions of the
Buchoz v. Klein, 143 Tex. 284, 286, 184 S.W.2d 271, 271
Texas Insurance Code pertaining to surplus lines coverage.
(1944). The Bank was entitled to fair and adequate notice
Southern County Mutual filed a cross-action against R.O.
that Southern County Mutual was going to rely upon an
Williams, Jr. and the others seeking "indemnity and
agency theory at trial. Murray v. O & A Express, Inc., 630
contribution" in the event that the jury found Southern
S.W.2d 633, 636 (Tex.1982); TEX.R.CIV.P. 45.
County Mutual was liable on the extension binder. The case
was submitted to the jury on twenty issues, each of which Southern County Mutual failed to plead that Tuttle was
the jury answered against the Bank. The jury did, however, acting as an agent for Kraehnke. In fact, Southern County
find that the difference in the tractor's market value before Mutual first suggested that Tuttle was Kraehnke's agent in
and after the collision was $36,000. The trial judge its Motion for Directed Verdict. Southern County Mutual
overruled the Bank's Motion for Judgment Notwithstanding thus failed to carry its burden on its theory that Tuttle had
the Verdict, and on March 5, 1986, signed the final the authority to substitute insurance companies without first
judgment ordering that the Bank take nothing in its suit obtaining Kraehnke's authorization to do so.
against Southern County Mutual, R.O. Williams, Jr. and the
other five defendants. In addition to this procedural misstep, this court's
holding in Shaller v. Commercial Standard Fire Ins. Co.,
On appeal, the court of appeals, with one justice 158
dissenting, reversed the judgment of the trial court and
rendered judgment against all defendants. 732 S.W.2d at 81. Page 173
The court found that as a matter of law, the extension
binder, listing Southern County Mutual as the insurance Tex. 143, 309 S.W.2d 59 (1958), also leads to the
company, was "legally in full force and effect" on the date conclusion, on the merits, that Tuttle had not attained the
status of Kraehnke's agent with the authority to cancel the how R.O. Williams, Jr. and the others were strictly liable to
binder with Southern County Mutual and bind Kraehnke the Bank for violating certain provisions of the Insurance
with Amherst. In Shaller, one of the issues presented was Code. Not only did this unnecessary finding of strict
whether an insurance recording agent, who was employed liability go further than any relief the Bank requested, it
solely to procure insurance, could act as the insured's agent also resulted in an erroneous double recovery for the Bank.
for the purpose of accepting cancellation of an insurance
policy. In holding that such an agency relationship did not In rendering judgment, the court of appeals stated that
exist, we stated that
we adjudge and order that the Bank recover, firstly,
it is settled law that one who authorizes another to procure $35,000. plus interest from date of judgment, from R.O.
insurance for him does not thereby constitute such person Williams, Jr., R.O.W., Inc., and Norman Edwards, jointly
his agent to receive notice of cancellation or for the purpose and severally; secondly, that the Bank recover the same
of agreeing to a proposed cancellation of the policy. amount from Southern County Mutual Insurance Company;
also, jointly and severally against the Appellees.
Id. at 150, 309 S.W.2d at 64.
732 S.W.2d at 81. This language, which exemplifies
In the case before us, Kraehnke contacted Tuttle for the the entire court of appeals opinion, is ambiguous and
sole purpose of acquiring insurance on his 18-wheeler. Such reasonably subject to differing interpretations. Indeed, one
a limited solicitation by Kraehnke cannot serve as the basis such interpretation is that the court has authorized the Bank
for establishing a broad agency relationship between to recover a total of $70,000--$35,000 from Southern
Kraehnke and Tuttle. See Alliance Ins. Co. v. Continental County Mutual and $35,000 from the other defendants.
Gin Co., 285 S.W. 257, 258 (Tex.Comm'n App.1926,
judgmt adopted) (holding that insurance agent, authorized The Bank's pleadings set forth alternative grounds of
only to acquire insurance on property, did not have recovery. The court of appeals, however, rendered a
authority, as insured's agent, to accept cancellation of policy judgment based upon both grounds of recovery pleaded.
and substitution of carriers). Not only does this judgment grant an impermissible double
recovery to
We therefore conclude that, as a matter of law, a valid
Southern County Mutual Insurance binder was in effect on Page 174
July 2, 1982. Accordingly, we affirm that portion of the
court of appeals judgment that (1) Kraehnke had a valid the Bank, it fails to conform to the Bank's pleadings.
binder with Southern County Mutual and (2) Southern Cunningham v. Parkdale Bank, 660 S.W.2d 810, 812
County Mutual was liable to the Bank, as loss payee on (Tex.1983); TEX.R.CIV.P. 301. We therefore reverse that
Kraehnke's policy, for $35,000. portion of the court of appeals judgment which finds the
other defendants strictly liable and grants the Bank recovery
In both its pleadings and court of appeals brief, the against these individuals. The resulting judgment will
Bank sought relief on two alternative theories. First, the correctly reflect Southern County Mutual's liability to the
Bank claimed that Southern County Mutual was liable Bank.
because a valid Southern County Mutual binder was in
force on the date of the accident. Alternatively, if no binder Finally, Southern County Mutual alleges that the court
was in effect, the Bank claimed that R.O. Williams, Jr. and of appeals erred in rendering judgment against all
the other defendants were strictly liable because they had defendants because such a judgment foreclosed its
violated selected provisions of the Insurance Code. By cross-action for contribution and indemnity against R.O.
framing its grounds of recovery in this manner, the Bank Williams, Jr. and the others. We disagree.
was, in effect, stating that the existence of a Southern
Southern County Mutual's cross-action is in the nature
County Mutual binder precluded any imposition of strict
of an independent ground of recovery. Therefore, by failing
liability under the Insurance Code. For if Southern County
to submit any issues on its cross-action, Southern County
Mutual was liable to the Bank, this meant that R.O.
Mutual has waived this ground of recovery. TEX.R.CIV.P.
Williams, Jr. and the other defendants had satisfied the
279.
Insurance Code requirements that govern the placement of
surplus line insurance companies in Texas. In conclusion, we affirm that portion of the court of
appeals judgment stating that a valid Southern County
The court of appeals, however, did not view the
Mutual binder was in effect at the time of Kraehnke's loss.
situation in this manner. After establishing Southern County
Further, we reverse that portion of the court of appeals
Mutual's liability under its binder with Kraehnke, the court
judgment which granted the Bank an erroneous double
nevertheless immersed itself into a lengthy discussion of
recovery against these individuals.
Page 127 experienced additional problems with the pickup. During
this time, Walters' Credit Union notified him that the truck
754 S.W.2d 127 (Tex. 1988) was a 1981 model, not a 1982 model, and that it would not
finance the truck. Walters then demanded that Bankston
W.O. BANKSTON NISSAN, INC., Petitioner, take back the pickup and return his 280-ZX. He was
informed that the 280-ZX had been sold and was offered the
v.
difference between the $7,700 agreed value and the loan
balance Bankston had paid. Walters refused and filed suit.
Kelly Joe WALTERS, Respondent.
The jury found that Bankston represented that the
No. C-6531.
pickup was a 1982 model; that the misrepresentation was a
Supreme Court of Texas. producing cause of actual damages; that the actual damages
included loss of the 280-ZX; and that the 280-ZX had a fair
May 11, 1988 market value of $9,800 on the date of the sale. No other
damage issues were submitted. Bankston objected to the
Rehearing Denied July 13, 1988. submission of the above issues, asserting that the issues did
not present a proper measure of damages.
Nathan K. Griffin, Thomas, Neilon & Griffin, P.C.,
Dallas, for petitioner. The dispositive issue in this case is the correct measure
of damages. In a DTPA case, the plaintiff is entitled to
Tom S. McCorkle, McCorkle & Westerburg, P.C., for actual damages. TEX.BUS. & COMM.CODE §
respondent. 17.50(b)(1). This court has defined actual damages as those
recoverable at common law. Farrell v. Hunt, 714 S.W.2d
WALLACE, Justice.
298, 300 (Tex.1986); Brown v. American Transfer &
Storage Co., 601 S.W.2d 931, 939 (Tex.1980). Under
This is a Deceptive Trade Practices Act case arising out
common law, there are two measures of damages for
of the purchase of a pickup truck by Kelly Joe Walters from
misrepresentation: (1) the "out of pocket" measure, which is
W.O. Bankston Nissan, Inc. The trial court entered
the "difference between the value of that which was parted
judgment n.o.v. that Walters take nothing. The court of
with and the value of that which was received"; and (2) the
appeals, in an unpublished opinion, reversed the trial court's
"benefit of the bargain" measure, which is the difference
judgment and rendered judgment on the jury verdict. We
between the value as represented and the value actually
reverse the judgment of the court of appeals and affirm the
received. The DTPA permits a plaintiff to recover either the
judgment of the trial court.
"out of pocket" or the "benefit of the bargain" damages,
Walters contacted his friend Buddy Wood, who was a whichever is greater. Leyendecker & Associates, Inc. v.
salesman for Bankston, to discuss trading in his 280-ZX for Wechter, 683 S.W.2d 369, 373 (Tex.1984); Sobel v.
a pickup truck. Walters test drove the pickup in question Jenkins, 477 S.W.2d 863 (Tex.1972); Chrysler Corp. v.
and agreed to purchase it. He and Wood agreed upon a Schuenemann, 618 S.W.2d 799, 805
trade-in value of $7,700 for the 280-ZX. Wood prepared a (Tex.Civ.App.--Houston [1st Dist.] 1981, writ ref'd n.r.e.);
Workup Sheet which showed the pickup to be a 1982 Smith v. Kinslow, 598 S.W.2d 910, 912
model. He also prepared an Odometer Statement and a (Tex.Civ.App.--Dallas 1980, no writ); Jack Criswell
Warranty Sheet, both of which showed the pickup to be a Lincoln-Mercury, Inc. v. Haith, 590 S.W.2d 616
1981 model. Walters took possession of the pickup and (Tex.Civ.App.--Houston [1st Dist.] 1979, writ ref'd n.r.e.).
Bankston took possession See, Vista Chevrolet, Inc. v. Lewis, 709 S.W.2d 176
(Tex.1986).
Page 128
Walters' burden of proof in this case was to show either
of the 280-ZX and sold it for $7,700, the value agreed upon the difference between the fair market value of the pickup
by Wood and Walters. Bankston then paid off the $5,832.01 as delivered and the value of the truck as it was represented;
balance owed by Walters on the 280-ZX. or the difference in value between that with which he parted
and that which he received. He did neither. Walters had the
Several days later, Walters experienced mechanical burden of requesting jury issues on the proper measure of
difficulty with the pickup and returned it to Bankston, who damages. Having failed to do so, his cause of action must
repaired the problem at no cost. Walters subsequently fail.
The judgment of the court of appeals is reversed and
the judgment of the trial court is affirmed.
ROBERTSON, J., not sitting.
MAUZY, Justice, concurring on Motion For
Rehearing.
I concur in the result reached by the majority. I would
however like to add that in cases brought under the
Deceptive Trade Practices-Consumer Protection Act,
Tex.Bus. & Com.Code Ann. § 17.41 et seq. (Vernon 1987),
damages are recoverable "to compensate for the actual loss
sustained as a result of the defendant's conduct." Kish v.
Van Note, 692 S.W.2d 463, 466 (Tex.1985). I would further
note that under the facts of this case, either an "out of
pocket" or "benefit of the bargain" measure of damages was
appropriate. Nevertheless, as this court held in Kish, the
"out of pocket" and "benefit of the bargain" rules are not the
exclusive means of measuring damages in a DTPA action.
692 S.W.2d at 466. The allowable measure of damages may
appropriately include related and necessary expenses that
are incurred after the deceptive act or practice has become
apparent,
Page 129
and the measure of damages under either the "out of
pocket" or "benefit of the bargain" theory should in no way
be read as exclusive.
Chief Justice Phillips joins in this Concurring Opinion
on Rehearing.
Page 348 us on certified questions from the Fifth Circuit. This is a
very limited procedural device; we answer only the
787 S.W.2d 348 (Tex. 1990) questions certified and nothing more. See Tex.R.App.P.
114. Thus, the whole case is not before this court as it
Alfred MORENO et al., Appellants, would be in an ordinary appeal.
v. The essential facts of this case have been certified to
this court. On January 21, 1981, Alfred Moreno, Jr., the
STERLING DRUG, INC., Appellees.
infant son of Alfred and Emma Moreno, died of Reye's
syndrome. On September 19, 1981, Shawna Rae Sloan, the
No. C-7744.
infant daughter of James and Camilla Sloan, died of Reye's
Supreme Court of Texas. syndrome. In the days preceding their deaths,
March 28, 1990 Page 350
Rehearing Overruled May 9, 1990. the infants had been administered doses of Bayer Children's
Aspirin, manufactured by Sterling Drug, Inc. Sometime
Page 349 after the deaths of the infants the parents were informed that
in some instances the use of aspirin factored into Reye's
Les Mendelsohn, Randall C. Jackson, Jr., San Antonio, syndrome deaths. On October 22, 1985, the parents filed
for appellants. separate wrongful death suits against Sterling Drug in state
district court. Sterling Drug removed the actions to the
P. Michael Jung, Mark Donheiser, Dallas, for United States District Court for the Western District of
appellees. Texas.
OPINION Following removal, Sterling Drug moved for summary
judgment in both suits, claiming that the actions were
SPEARS, Justice.
barred by the Texas Wrongful Death Statute of Limitations,
TEX.CIV.PRAC. & REM.CODE ANN. §
This case is before us upon certified questions from the
16.003(b)(Vernon 1986). The federal district court
United States Court of Appeals for the Fifth Circuit.
dismissed the suits, citing the recent Fifth Circuit decision
Pursuant to TEX. CONST. art. V § 3-c, we have
of Tennimon v. Bell Helicopter Textron, Inc., 823 F.2d 68
jurisdiction to answer the following certified questions:
(5th Cir.1987), wherein that court held the discovery rule
1. Does the "discovery rule" apply to the Texas Statute does not apply to section 16.003(b). The cases were
of Limitations, TEX.CIV.PRAC. & REM.CODE § consolidated on appeal, and Moreno and Sloan (collectively
16.003(b), in an action brought pursuant to the Texas "Moreno") moved for certification of the legal questions to
Wrongful Death and Survival Statutes, TEX.CIV.PRAC. & this court. A panel of the Fifth Circuit denied the motion to
REM CODE § 71.001 et seq. and § 71.021, respectively? certify and affirmed in an unpublished opinion on the basis
of Tennimon. On rehearing and after en banc
2. If the discovery rule does not apply to the Texas reconsideration of the certification question, the Fifth
Statute of Limitations in wrongful death and survival Circuit granted the motion to certify.
actions, does that statute of limitations as applied to the
plaintiffs herein, violate the open courts provision of the The first question is whether the "discovery rule"
Constitution of the State of Texas, TEX. CONST. art. I § applies to the statute of limitations for actions based on
13? injuries resulting in death. The relevant limitations statute,
section 16.003, TEX.CIV.PRAC. & REM.CODE ANN.,
For the reasons stated in this opinion, we answer that provides as follows:
the discovery rule does not apply to the wrongful death
statute of limitations found in section 16.003(b), and, that (a) A person must bring suit for ... personal injury ... not
section 16.003(b) as applied to the plaintiffs in this case later than two years after the cause of action accrued.
does not violate article I, section 13 of the Texas
(b) A person must bring suit not later than two years after
Constitution.
the day the cause of action accrues in an action for injury
For clarity, we emphasize that these issues are before resulting in death. The cause of action accrues on the death
of the injured person. to compel the exercise of a right of action within a
reasonable time so that the opposing party has a fair
The only courts to construe section 16.003(b) have opportunity to defend while witnesses are available. Willis
found it clear and unambiguous in prescribing an absolute v. Maverick, 760 S.W.2d 642, 644 (Tex.1988). Section
two-year limitation period for bringing a wrongful death 16.003 embodies a legislative determination of what a
case. Tennimon v. Bell Helicopter Textron, Inc., 823 F.2d "reasonable time" is for bringing both an action for injuries
68, 73 (5th Cir.1987); Stiles v. Union Carbide Corp., 520 not resulting in death (subpart a), and one for injuries
F.Supp. 865, 867 (S.D.Tex.1981). Those decisions, along resulting in death (subpart b). Under both subparts (a) and
with a literal reading of section 16.003(b), would suggest (b), an action must be brought within two years of the date
that Moreno's wrongful death action is barred because it the cause of action "accrues." Only subpart (b), however,
was brought after the two-year limitations period had goes on to specify that a cause of action "accrues" at a
expired. Moreno, however, argues that the "discovery" rule certain time--the date of death. When the legislature
should apply to section 16.003(b), because he neither knew employs the term "accrues" without an accompanying
nor could have known the cause of his injury within the definition, the courts must determine when that cause of
two-year limitation period. Specifically, he asserts that his action accrues and thus when the statute of limitations
suit was timely brought because it was filed within two commences to run. Indeed, on three previous occasions this
years of the discovery of the link between aspirin and court has adopted and relied upon the following language
Reye's syndrome. from Fernandi v. Strully, 35 N.J. 434, 173 A.2d 277, 285
(1961):
Moreno offers a number of arguments for why this
court should disregard the plain language of section [T]he question when a cause of action accrues is a judicial
16.003(b) and apply the discovery rule to the limitations one, and to determine it in any particular case is to establish
period for wrongful death actions. First, he points out that a general rule of law for a class of cases, which rule must be
this court has applied the discovery rule in determining the founded on reason and justice.... In the absence of
limitations period under the statutory predecessor to section legislative definition and specification, the ... courts have
16.003(a), which governs actions for personal injury not often been called upon to delineate the statute; they have
resulting in death. Citing Ex parte Pruitt, 551 S.W.2d 706, consciously sought to apply it with due regard to the
709 (Tex.1977) for the proposition that statutes should be underlying statutory policy of repose, without, however,
read as a whole and construed to give purpose and meaning permitting unnecessary individual injustices.
to every part, Moreno argues that the underlying purpose of
section 16.003 is to authorize application of the discovery Willis, 760 S.W.2d at 644; Robinson v. Weaver, 550
rule to subparts (a) and (b). Second, Moreno contends that S.W.2d 18, 20 (Tex.1977); Gaddis v. Smith, 417 S.W.2d
the second sentence of section 16.003(b) only fixes the 577, 580-81 (Tex.1967).
earliest time the cause of action may accrue and was
intended to "save" the cause of action from being barred For purposes of the application of limitation statutes, a
when more than two years elapse between injury and death. cause of action can generally be said to accrue when the
See DeHarn v. Mexican Nat'l Ry. Co., 86 Tex. 68, 23 S.W. wrongful act effects an injury, regardless of when the
381 (1893). Moreno argues that this court should set the plaintiff learned of such injury. Robinson, 550 S.W.2d at
latest date of accrual beyond death (i.e. at discovery of 19. The discovery rule represents an exception to this
cause of action) because the purpose of section 16.003(b) is general rule of accrual. Id. The discovery rule is a judicially
to expand the time in which a wrongful death action can be constructed test which is used to determine when a
brought. Finally, Moreno maintains that if subparts (a) and plaintiff's cause of action accrued. Weaver v. Witt, 561
(b) are not interpreted consistently it will result in the S.W.2d 792, 794 (Tex.1977). When applied, the rule
absurdity of allowing a defendant to be exonerated for operates to toll the running of the period of limitations until
conduct which the time that the plaintiff discovers, or through the exercise
of reasonable care and diligence should discover, the nature
Page 351 of his injury. Id. at 793-94. This court has applied the
discovery rule to medical malpractice cases in which the
kills but held liable for conduct which merely maims. See plaintiff did not, and could not, know of the injury at the
Hanebuth v. Bell Helicopter International, 694 P.2d 143, time it occurred. See Gaddis v. Smith, 417 S.W.2d 577, 580
147 (Alaska 1984). Moreno argues that this court should (Tex.1967) (negligence action against physician for leaving
avoid this absurdity by construing subpart (b) to allow sponge in patient's body accrues when patient learns of, or
application of the discovery rule. in exercise of reasonable care and diligence, should have
learned of presence of sponge); Hays v. Hall, 488 S.W.2d
We begin our analysis by observing that the primary 412 (Tex.1972) (action for negligent performance of
purpose of section 16.003, as with all limitation statutes, is vasectomy accrues when plaintiff discovers or should have
discovered that he remains fertile). Similarly, this court has purpose was not to extend the beginning of the running of
applied the discovery rule in a limited number of other the statute beyond the date of death. Nothing in the wording
cases when the injured party did not, and could not, know of Article 3202 or our discussion in DeHarn indicates such
of his injury at the time it occurred. See e.g., Bayouth v. a purpose. Moreover, to engraft such a purpose on to
Lion Oil Co., 671 S.W.2d 867 (Tex.1984); Kelley v. Rinkle, section 16.003(b) would be to ignore our oft-repeated
532 S.W.2d 947 (Tex.1976); Quinn v. Press, 135 Tex. 60, pronouncement that the "purpose" of all limitation statutes
140 S.W.2d 438 (1940). In each of these cases, this court is to compel the exercise of a right of action within a
applied the discovery rule to a statute of limitations which reasonable time so that the opposing party has a fair
left the phrase "accrual" undefined. By contrast, section opportunity to defend while witnesses are available. See
16.003(b) specifically defines "accrual" as the date of death. e.g., Willis, 760 S.W.2d at 644; Robinson, 550 S.W.2d at
The question here is whether the discovery rule should be 20; Price v. Estate of Anderson, 522 S.W.2d 690, 692
applied to a limitations statute which has clearly and (Tex.1975); see also United States v. Kubrick, 444 U.S.
unequivocally prescribed that a cause of action accrues 111, 117, 100 S.Ct. 352, 356, 62 L.Ed.2d 259 (1979)
upon the occurrence of a specified event. For a number of ("[s]tatutes of limitation ... afford plaintiffs what the
reasons, we legislature deems a reasonable time to present their claims
[and] ... protect defendants and courts from having to deal
Page 352 with cases in which the search for truth may be seriously
hold that it should not. [1] Page 353
Plain Meaning of Section 16.003(b). impaired by loss of evidence, memory, or disappearance of
witnesses.").
Moreno's argument that the discovery rule should be
applied to section 16.003(b) as a matter of statutory The Discovery Rule.
construction ignores the plain language of the statute.
Where language in a statute is unambiguous, this court must Notwithstanding the plain language of section
seek the intent of the legislature as found in the plain and 16.003(b), Moreno argues that the discovery rule should be
common meaning of the words and terms used. applied to the statute because our past decisions have
RepublicBank Dallas, N.A. v. Interkal, Inc., 691 S.W.2d applied the rule to section 16.003(a) involving injuries and,
605, 607 (Tex.1985); Cail v. Service Motors, Inc., 660 in the interest of consistency, section 16.003(b) should be
S.W.2d 814, 815 (Tex.1983). Section 16.003(b) specifically similarly construed. This argument, however, misconceives
provides that in a wrongful death action "a person must both the function of the discovery rule and the power of this
bring suit not later than two years after the day the cause of court to craft exceptions to legislative enactments.
action accrues" and goes on to fix "accrual" at the injured
person's death. The express language of the statute, As we have said, the discovery rule is a judicially
therefore, evidences the legislative intent to fix the only conceived exception to statutes of limitation to be used by
date of accrual, and not merely the earliest, as Moreno courts to determine when a cause of action accrues. This
contends. [2] court has only applied the rule to "accrual" limitation
statutes--i.e. statutes which have failed to define when a
Moreno's reliance on our decision in DeHarn is also cause of action accrues. Because these statutes did not
misguided. In DeHarn, this court interpreted the accrual specify a time of "accrual," this court did not violate a
language in TEX.REV.CIV.STAT. art. 3202 (1879), which specific legislative directive when it interpreted them to
was the statutory predecessor to section 16.003(b). The allow for application of the discovery rule. Section
opinion describes the reason for Article 3202 as follows: 16.003(b), however, prescribes an absolute limitations
period by expressly specifying that "accrual" is the date of
Since no action could be brought by the relatives of the death. Since section 16.003(b) specifies death as the accrual
injured person until death had ensued, and since a great deal date for wrongful death actions, there is no need for this
of time might elapse between the injury and the death, it court to employ the discovery rule--the legislature has
was reasonable that the time of death should be taken as the completed the task. [3] Furthermore, when faced with other
point from which limitation should begin to run. absolute statutes of limitations in which the legislature has
specifically defined the date or event which triggers accrual,
DeHarn, 23 S.W. at 381-82. Moreno construes this this court has enforced the literal terms of the statute and
single passage as evidencing a legislative purpose to extend refused to engraft a discovery rule. See e.g., Safeway
the beginning of the running of the statute beyond the date Stores, Inc. v. Certainteed Corp., 710 S.W.2d 544, 546-48
of death. But Article 3202 was meant solely to prevent the (Tex.1986); Morrison v. Chan, 699 S.W.2d 205, 208
potential anomaly of limitations running before death. Its
(Tex.1985). one event as the date upon which the action accrues. By
specifying that date, the legislature has foreclosed judicial
Other Jurisdictions. application of the discovery rule. If we concluded
otherwise, we would be disregarding the plain meaning of
The overwhelming majority of states construing section 16.003(b), distorting the clear function of the
absolute statutes with similar or identical language to that discovery rule, frustrating
found in section 16.003(b) have held that the discovery rule
does not apply. [4] These courts offer several rationales for Page 355
refusing to apply the discovery rule, including: (1) that the
rule applies only to accrual statutes but not absolute the legitimate purposes of limitation statutes, and ignoring
statutes, see, e.g., Presslaff, 403 A.2d at 940; White, 693 the well-reasoned opinions of most other jurisdictions.
P.2d at 692; (2) that the fact of death itself is an event
which should trigger any and all relevant inquiry, see, e.g., "Open Courts".
DeCosse, 319 N.W.2d at 51; (3) that there is a substantial
state interest in promoting the prompt settlement of the Article I, section 13 of the Texas Constitution provides:
affairs of the deceased, see, e.g., Cadieux, 593 F.2d at 145;
All courts shall be open, and every person for an injury
Pastierik, 526 A.2d at 323; and (4) that the clear language
done him, and his lands, goods, person or reputation, shall
of the statute cannot be judicially rewritten under the "guise
have remedy by due course of law.
of statutory construction," see, e.g., Trimper, 501 A.2d at
449; Morano, 420 N.Y.S.2d at 95. In many of these This provision, known as the "open courts" provision,
decisions, the factors suggested is premised upon the rationale that the legislature has no
power to make a remedy by due course of law contingent
Page 354
upon an impossible condition. Morrison, 699 S.W.2d at
by Moreno--"fairness of result" and "legislative 207; Nelson v. Krusen, 678 S.W.2d 918, 921 (Tex.1984). In
purpose"--were, in fact, considered and weighed by the order to establish an "open courts" violation, a litigant must
court. satisfy a two-part test: first, he must show that he has a
well-recognized common-law cause of action that is being
The only case cited by Moreno that directly supports restricted; and second, he must show that the restriction is
his position is Hanebuth v. Bell Helicopter International, unreasonable or arbitrary when balanced against the
694 P.2d 143 (Alaska 1984). In Hanebuth, the majority purpose and basis of the statute. Lucas v. United States, 757
applied the discovery rule to an absolute limitations statute S.W.2d 687, 690 (Tex.1988); Sax v. Votteler, 648 S.W.2d
on the basis that failure to do so would result in injustice 661, 666 (Tex.1983).
and would make it more profitable for a tortfeasor to kill
rather than scratch a plaintiff. Id. at 146-47. However, as Moreno contends that if section 16.003(b) does not
the dissent in Hanebuth points out, the majority reached its provide for application of the discovery rule, it is
decision only after it ignored its own recent and controlling unconstitutional because he neither discovered, nor could
precedent, the plain language of the statute, and the vast have discovered through the exercise of reasonable
majority of decisions to the contrary from other diligence, his cause of action within the two-year
jurisdictions. Id. at 147 (Moore, J., dissenting). We decline limitations period. In other words, Moreno contends that
to follow Hanebuth for these reasons, and because the section 16.003(b) is unconstitutional because it makes his
decision both relies on distinguishable cases [5] and fails to remedy contingent on an impossible condition, namely, the
recognize the distinction between personal injury and death discovery of the connection between aspirin and Reye's
actions. [6] syndrome within two years after his child's death. Moreno
argues that the "open courts" provision applies because
Summary. Texas recognizes a common-law right to assert a wrongful
death action. See Moragne v. States Marine Lines, Inc., 398
The language used in section 16.003(b) reflects a clear U.S. 375, 90 S.Ct. 1772, 26 L.Ed.2d 339 (1970).
legislative intent to adopt an absolute two-year limitations Alternatively, Moreno argues that wrongful death should be
period for wrongful death actions. The legislature could accorded common-law status for purposes of review under
have either left "accrual" undefined in section 16.003(b) or the "open courts" provision because a death action
could have stated that the cause of action accrues "on the incorporates common-law elements and because there is no
death of the injured person or upon discovery of the cause fundamental distinction between a common-law action for
of death "; either route would have allowed the discovery non-fatal personal injuries and a statutory action for
rule to be applied to section 16.003(b). Instead, the statute wrongful death. See Vassallo v. Nederl-Amerik Stoomy
unambiguously specifies one event--death--and only that Maats Holland, 162 Tex. 52, 344 S.W.2d 421, 423 (1961).
Finally, Moreno contends that section 16.003(b) is action owe their existence to statutes changing this
unreasonable and arbitrary because it denies him a remedy common-law rule. TEX.CIV.PRAC. & REM.CODE ANN.
that would have been available to him had his child lived § 71.002; Duhart, 610 S.W.2d at 742 n. 2; Marmon, 430
instead of died. S.W.2d at 182. [7] Moreno relies on Moragne v. States
Marine Lines, Inc., 398 U.S. 375, 90 S.Ct. 1772, 26 L.Ed.2d
Common-law Requirement. 339 (1970) to support his argument that the common law
recognized an action for wrongful death. In Moragne,
We first consider the question of whether Moreno is however, while the majority recognized a common-law
asserting a common-law cause of action. See Waites v. action for wrongful death in maritime law, it readily
Sondock, 561 S.W.2d 772, 774 (Tex.1977); Lebohm v. City acknowledged that no such action existed at common law.
of Galveston, 154 Tex. 192, 275 S.W.2d 951, 954-55 398 U.S. at 382, 384, 90 S.Ct. at 1778, 1779. Similarly,
(1955); Hanks v. City of Port Arthur, 121 Tex. 202, 48 Moreno's argument that a wrongful death action is really a
S.W.2d 944 (1932). In Hanks, this court applied the "open common-law action because it incorporates common-law
courts" provision to a municipal ordinance which required elements ignores the fact that it is the Wrongful Death Act
notice to a municipality of a defective condition prior to the itself which incorporates and sets forth the "elements" of
filing of suit. Essential to this court's holding in that the cause of action. TEX.CIV.PRAC. & REM.CODE §
case--that the ordinance violated the "open courts" 71.002(b)(1986). The fact that common-law elements are
provision--was a determination that the cause of action at required is the result of an express statutory provision and
issue, municipal liability, was common law rather than does not change the fact that the underlying right to bring
statutory. Implicit in the opinion was a recognition of the the action is statutory. [8]
distinction between a court's power to apply "open courts"
protection to common-law causes of action on the one hand, Summary.
and statutorily created actions on the other. A common-law
cause of action exists without a legislative enactment. As Our most recent open courts decisions have
such, article I, section 13 of the Texas Constitution consistently required that the cause
mandates that the courts be open to pursuing such claims.
The legislature is not entitled to restrict or abrogate a Page 357
common-law cause of action without a reasonable basis and
without providing an adequate substitute. If, however, a of action restricted be one that is well defined in the
cause of action was not recognized at common law, but was common law. Lucas v. U.S., 757 S.W.2d 687, 690
itself created by the legislature, any legislative abrogation (Tex.1988); Nelson v. Krusen, 678 S.W.2d 918, 922
of the cause of action would not be a true abrogation of a (Tex.1984). Moreno's constitutional attack on section
constitutional right. Rather, the legislature would simply not 16.003(b) is not premised upon restriction of a common-law
have granted as extensive a right as it might have. See cause of action, and, therefore, necessarily fails the first
Castillo v. Hidalgo County Water Dist. 1, 771 S.W.2d 633, prong of the open courts test. See Castillo v. Hidalgo
636 (Tex.App.--Corpus Christi 1989, no writ) ("Open County Water Dist. 1, 771 S.W.2d 633, 636
Courts" provision does not apply to wrongful (Tex.App.--Corpus Christi 1989, no writ) (wrongful death
action did not exist at common law, and it is only by virtue
Page 356 of statutory authority that such suits can be maintained;
therefore, "open courts" provision simply does not apply).
death action, which is a statutory cause of action "that
expands the rights of an individual beyond those granted by Finally, and notwithstanding the dissent's argument to
the common law"); see also Stout v. Grand Prairie Indep. the contrary, we believe today's decision is entirely
School Dist., 733 S.W.2d 290, 295 (Tex.App.--Dallas 1987, reconcilable with our decision in Nelson, 678 S.W.2d at
writ ref'd n.r.e.); Tarrant County Hosp. Dist. v. Ray, 712 918. First, Nelson involved limitations on a malpractice
S.W.2d 271, 273 (Tex.App.--Fort Worth 1986, writ ref'd action--a well-established common law cause of action.
n.r.e.). See, e.g., Sax v. Votteler, 648 S.W.2d 661, 664-666; Texas
& P. Ry. Co. v. Morin, 66 Tex. 225, 18 S.W. 503 (1886).
This court has repeatedly said there was no recognized Second, because the injury complained of in Nelson did not
common-law cause of action for wrongful death. See Witty, manifest itself until after limitations had run, the Nelsons
727 S.W.2d at 505-06; Duhart v. State, 610 S.W.2d 740, had no reason to know of their injury, and thus their ability
742 n. 2 (Tex.1980); Marmon v. Mustang Aviation, Inc., to bring suit, until after limitations had expired. In the
430 S.W.2d 182, 186 (Tex.1968); Elliott v. City of instant case, the injury--i.e. death--was immediately known.
Brownwood, 106 Tex. 292, 166 S.W. 1129 (1914); Even in those Texas cases which have applied the discovery
Galveston, Harrisburg and San Antonio R.R. Co. v. Le rule the courts have held that limitations begin to run when
Gierse, 51 Tex. 189, 199 (1879). Wrongful death causes of the fact of injury is known. See, e.g., Rascoe v. Anabtawi,
730 S.W.2d 460, 463 (Tex.App.--Beaumont 1987, no writ) Gaddis v. Smith, 417 S.W.2d 577, 580, 581 (Tex.1967).
(injury evident and limitations commenced on day plaintiff
died); Love v. Zales Corp., 689 S.W.2d 282, 285 678 S.W.2d at 923 (emphasis supplied). Yet today's
(Tex.App.--Eastland 1985, writ ref'd n.r.e.) (discovery rule decision reaches such an equally shocking and unjust result.
does not apply in wrongful death cases to toll running of The limited facts of this case, certified to this court by the
limitations until plaintiff discovers that he has a cause of Fifth Circuit, are no less compelling than those in Nelson.
action); cf. Coody v. A.H. Robins Co., 696 S.W.2d 154, 156 The Morenos and the Sloans both had infant children who
(Tex.App.--San Antonio 1985, no writ) ("The discovery died of Reye's Syndrome after being administered doses of
rule speaks only of discovery of the injury [and] does not Bayer's Childrens Chewable Aspirin, manufactured by
operate to toll the running of the limitations period until Sterling Drug, Inc. After the death of the infants, the parents
such time as plaintiff discovers all of the elements of a were informed that the use of aspirin sometimes contributed
cause of action."); Otis v. Scientific Atlanta, Inc., 612 to Reye's Syndrome. The only real difference between this
S.W.2d 665, 666 (Tex.Civ.App.--Dallas 1981, writ ref'd case and Nelson is that here the injured parties had the bad
n.r.e.) (limitations run from date injury is discovered, not luck to die. [1]
from date of discovery of responsible party). [9]
Page 359
For the reasons stated, our answer to the first certified
question is that the discovery rule does not apply to The court's opinion thus provides a perverse incentive for a
TEX.CIV.PRAC. & REM.CODE § 16.003(b). In response tortfeasor to kill rather than merely maim.
to the second certified question, we answer that §
The asserted rationale to support this untenable result is
16.003(b), as interpreted, is not inconsistent with and
two-fold. First, the court examines the "plain meaning" of
violative of Article I, section 13 of the Texas Constitution.
the "unambiguous" limitations statute and concludes that
[10]
the legislature has intentionally foreclosed application of
DOGGETT, J., joined by RAY and MAUZY, JJ., the discovery rule. This approach directly conflicts with the
dissenting. instruction given to us in the Code Construction Act that
"whether or not the statute is considered ambiguous on its
Page 358 face," we must consider both the object sought to be
obtained and the consequences of a particular construction.
DOGGETT, Justice, dissenting. Tex. Gov't Code Ann. § 311.023 (Vernon 1988) (emphasis
supplied). [2] We are further mandated that in construing
Tortfeasors take heart. Today this court grants you this enactment "a just and reasonable result is intended." Id.
absolution--provided, of course, that you inflict only mortal § 311.021; see also Witty v. American General Capital
wounds. Treating our century-old statute of limitations for Distributors, Inc., 727 S.W.2d 503, 504 (Tex.1987) (the
wrongful death like some Strasbourg goose, the court's Texas "wrongful death statute is remedial in nature and
opinion crams it full of fictional legislative intent, and then must be liberally construed ..."). [3] As conceded in Nelson,
ties to it the baggage of ancient English common law which what the court has achieved in foreclosing the discovery
a number of American courts, including the United States rule is the converse--a totally unjust and unreasonable
Supreme Court, have rejected as totally lacking in logical or result. The parents are permanently denied an opportunity
historical justification. In this process, the opinion to have their claims for the infants' deaths considered on the
conveniently ignores or superficially distinguishes opinions merits. The court twists the statute to achieve an artificial,
from this court. Because I cannot join in this broad grant of but complete bar to these families recovering by requiring
a license to kill, I dissent. that they bring a cause of action before they could
reasonably have discovered its existence.
Today's decision is irreconcilable with Nelson v.
Krusen, 678 S.W.2d 918 (Tex.1984), in which this court Any careful analysis of the legislative intent and
held unconstitutional a similar "absolute" statute of history of Section 16.003(b) contradicts the court's
limitations. Justice Spears, writing for the majority, conclusion. An action for wrongful death has been tied to
condemned that statute in no uncertain terms, stating: the date of death since the first passage of a death act in
Texas and has survived in virtually identical form to this
The limitation period of [the medical malpractice statute], if date. [4] Given this background, the legislature cannot be
applied as written, would require the Nelsons to do the charged with the intent to abolish the discovery rule in
impossible--to sue before they had any reason to know they wrongful death actions.
should sue. Such a result is rightly described as "shocking"
and is so absurd and so unjust that it ought not to be Page 360
possible. Hays v. Hall, 488 S.W.2d 412, 414 (Tex.1972);
It was not until 1967 that this court recognized the discovered through the exercise of reasonable care and
application of the discovery rule in an action for personal diligence the facts establishing the elements of his cause of
injuries. Gaddis v. Smith, 417 S.W.2d 577 (Tex.1967). action.
While the 1879 Texas Legislature no doubt had its strong
points, it cannot be said that it was sufficiently foresighted 760 S.W.2d at 646 (emphasis supplied). [7] Knowledge
to have as its objective the abolition of a doctrine that did of Petitioners' causes of action was not complete upon
not exist in either name or substance until almost a century discovery of the injury (i.e., death) as the opinion suggests;
later. [5]
Page 361
This court examined the applicable legislative purpose
many years ago in De Harn v. Mexican National Ry., 86 the element of the causative link between the use of aspirin
Tex. 68, 70, 23 S.W. 381, 381-82 (1893): and Reye's Syndrome was equally critical. [8]
The reason of the provision is obvious. Since no cause of Rather than following the great weight of our own
action could be brought by the relatives of the injured precedent, the court instead relies on two cases in which the
person until death had ensued, and since a great length of court refused to apply the discovery rule. Yet in those cases,
time might elapse between the injury and the death, it is unlike here, the legislature had taken more than ample steps
reasonable that the time of the death should be taken as the to bar application of the rule. In the first of these two cases
point from which limitation should begin to run. construing the "absolute" statute of limitations applicable to
health care liability claims, this court had before it abundant
The court completely misapplies this case. The materials reflecting the legislative intent underlying the
question is not whether De Harn deals with the issue of the Medical Liability and Insurance Improvement Act.
application of the discovery rule--as stated above, it could Morrison v. Chan, 699 S.W.2d 205, 208 (Tex.1985). At the
not. The issue is rather to determine the general legislative time that limitation provision was passed, the discovery rule
intent in setting the date of death as the commencement was well known to the Texas Legislature. A key legislative
point for the running of limitations. As De Harn states in objective was to: "reduce excessive frequency and severity
unmistakable terms, that purpose was solely to protect the of health care liability claims." Tex.Rev.Civ.Stat.Ann. art.
beneficiaries of one who lingered after receiving a lethal 4590i, §§ 1.02(a)(5) and 1.02(b)(1) (Vernon Supp.1989).
injury; the statute is designed to preserve, not to destroy, a As evidenced by De Harn, supra, the objective in defining
cause of action. The result reached by today's opinion the accrual date for wrongful death as the date of death was
stands in clear contradiction of this legislative objective. to expand and not to contract the cause of action. Unlike the
statute applicable to actions for wrongful death, the health
As evidenced by previous decisions of this court, care liability limitation provision makes no reference to an
labelling a statute of limitations "absolute" does not, as the "accrual" of a cause of action and disclaims the effect of
opinion asserts, make it impenetrable to tolling principles. other laws that would toll the time period for bringing suits,
For example, in Borderlon v. Peck, 661 S.W.2d 907 including for minority and other disabilities. The limitations
(Tex.1983), we tolled an "absolute" statute of limitations on statute for wrongful death is markedly different in this
the basis of the common-law doctrine of fraudulent regard; that statute is subject to tolling for minority and
concealment. That doctrine has been held applicable by this other disabilities. Tex.Civ.Prac. & Rem.Code Ann. § 16.001
court to toll the statute of limitations in actions for wrongful (Vernon 1986 & Supp.1990).
death. Texas & P. Ry. v. Gay, 86 Tex. 571, 576, 26 S.W.
599, 614 (Tex.1894). [6] The other cited case, Safeway Stores, Inc. v.
Certainteed Corp., 710 S.W.2d 544 (Tex.1986), is even
As a review of the cases cited by the court evidences, more persuasive authority to construe the statute before us
tolling of limitations to permit discovery is the rule rather to permit application of the discovery rule. The issue
than the exception. See, e.g., Willis v. Maverick, 760 presented in that case was whether the statute of limitations
S.W.2d 642 (Tex.1988) (discovery rule applicable in legal for breach of warranty ran from the date of the breach or
malpractice action); Weaver v. Witt, 561 S.W.2d 792 that of discovery. The statute sets the date of accrual and
(Tex.1977) (medical malpractice); Kelley v. Rinkle, 532 explicitly disclaims the applicability of the discovery rule,
S.W.2d 947 (Tex.1976) (action for libel of credit providing that a "cause of action accrues when the breach
reputation). These cases are not limited, as the court's occurs, regardless of the aggrieved party's lack of
opinion concludes, to tolling limitations until the fact of the knowledge of the breach." Tex.Bus. & Comm.Code Ann. §
injury is known. In Willis, we held that: 2.725 (Vernon 1968) (emphasis supplied). Thus, in
adopting Section 2.725, the legislature determined that
[T]he statute of limitations for legal malpractice does not more was needed to bar the discovery rule than just
begin to run until the claimant discovers or should have referring to the date of accrual; that rule needed to be
expressly disclaimed. This statute demonstrates an The cause of action accrues on the death of the injured
appropriate way to preclude application of the discovery person.
rule. The court ignores the fact that the legislature is quite
capable of expressly disclaiming the discovery rule but has Tex.Civ.Prac. & Rem.Code Ann. § 16.003(b) (1986).
not done so in the context of wrongful death. In today's opinion, the court determines from the "plain
language" of this minimal statute that the legislature
To support its improbable position the court resorts to intended to bar the yet-to-be-judicially-created discovery
case law from other jurisdictions which have little rule even though this statute permits tolling under
comparability to the Texas statute. Most if not all of these exceptions not just grounded in statute, such as for minors,
cases appear to involve a limitations provision contained but also those judicially-created, such as for fraudulent
within the wrongful death statute itself and not one, like concealment. I cannot concur in such a complete
ours, that is part of a general limitations statute. The courts manipulation of legislative intent.
thus viewed the limitations as a condition upon the right,
not merely the remedy, subject to strict construction in The second asserted basis for the decision today is its
derogation of the common law. No such interpretation is refusal to extend constitutional protection to a cause of
applicable in this state. Because the Texas statutes action for wrongful death which it conveniently
concerning wrongful death and limitations are separate, the pigeonholes as "wholly statutory." Because it is claimed
latter is procedural rather than a substantive qualification or that the "open courts" provision of article I, section 13 of
condition restricting the right to bring an action for death. the Texas Constitution protects only common-law causes of
Franco v. Allstate Ins. Co., 505 S.W.2d 789, 792-93 action, the court concludes that it is powerless to review a
(Tex.1974). restriction on the exercise of a statutory wrongful death
action. This conclusion is based on two flawed assumptions.
An approach far superior to that taken by today's
opinion is contained in Hanebuth v. Bell Helicopter First, the distinction between common law and
International, 694 P.2d 143, 144 (Alaska 1984). In statutory causes of action for purposes of review under the
considering "open courts" provision is more honored in the breach than
the observance. LeCroy v. Hanlon, 713 S.W.2d 335
Page 362 (Tex.1986), authored by Justice Spears, is a prime example.
There this court struck as unconstitutional under the "open
a requirement that a wrongful death action be "commenced courts" provision a filing fee that went to state general
within two years after the death," that court's considerations revenues. The effect of the fee with respect to the individual
tracked the same concerns delineated under Texas law. plaintiff in that case was to bar his filing of suit under the
Echoing Nelson, the Alaskan court applied the discovery Texas Deceptive Trade Practices Act and the Texas
rule to comport with principles of "fundamental fairness," to Insurance Code, i.e., wholly statutory causes of action. 713
be "consistent with the purposes of the act," and to avoid S.W.2d at 336. For reasons indiscernible, the court in
"unjust and absurd results." 694 P.2d at 146. The court said LeCroy was not troubled by today's controlling distinction
it was "profoundly unfair to deprive a litigant of his right to between common law and statutory causes of action. Yet
bring a lawsuit before he has any reasonable opportunity to the failure to apply the discovery rule so as to prohibit
do so." Id. at 147. Further, "a tortfeasor whose conduct has completely a family's exercise of its legal rights closes the
been so grievous as to cause death would be exonerated, door to the Texas courts far more permanently than
while another tortfeasor, guilty of the same conduct except charging the extra forty dollar filing fee rejected in LeCroy.
for the fortuity that it merely caused injury, would be held The constitutional guarantee that "[a]ll courts shall be open"
responsible." Id. [9] The reasoning of today's opinion in to "every person" is a hollow one to families like the
rejecting Hanebuth is insightful. One who is only maimed, Morenos and the Sloans.
we are told at note 5, may be "in need of time to recover
before beginning an investigation." Why shouldn't parents Second, this injustice cannot simply be defined away
whose child has been wrongfully taken from them be in by claiming a wrongful death action is "wholly statutory."
need of time to recover and discover as well? Solely While a
because an insensitive court refuses Texas families that
right. Page 363
The statute before us for interpretation contains only wrongful death action may have once been considered a
two sentences: creature of statute, it has evolved into a complex
hybrid--part constitutional, part statutory and part
A person must bring suit not later than two years after the judicially-developed common law. An early decision of this
day the cause of action accrues for injury resulting in death. court recognized the multi-faceted nature of a wrongful
death action. While noting the statutory nature of the action, S.W.2d 409, 410 (1934), the issue presented was whether
this court nonetheless stated: the plaintiffs in a death action covered by the worker's
compensation statute were first required to present a claim
In our own state, this right of action is wisely recognized by for exemplary damages to the Industrial Accident Board
the organic law, supplemented by guarded legislative prior to recovery in court. This court stated:
provisions enacted for the purposes of securing to the
beneficiaries just compensation in a case meriting it.... We agree with the Court of Civil Appeals that the district
court had original jurisdiction, without the presentation of
Nelson v. Galveston, H. & S.A. Ry., 78 Tex. 621, 624, the claim for exemplary damages to the Industrial Accident
14 S.W. 1021, 1022 (1890) (emphasis supplied). [10] Board. The cause of action here asserted is one given by the
Constitution, and the Legislature was without power to add
Even the most cursory examination of the history of the to or take from the conditions under which, by virtue of the
Texas Wrongful Death Act reveals its tripartite nature. As Constitution, it could be maintained, nor did it attempt to do
first adopted in Texas in 1860, the statute was a mere four so.
paragraphs in length, setting out the beneficiaries, the
potential defendants (basically providers of public 70 S.W.2d at 410. A similar unconditional analysis was
transport) and the basis of the cause of action (negligence or employed in Hanks v. City of Port Arthur, 121 Tex. 202, 48
carelessness), permitting the recovery of damages and S.W.2d 944 (1932), a case cited with frequency in today's
requiring suit to be brought within one year after death. opinion. Port Arthur's attempt to preclude liability through
Law of February 2, 1860, ch. 35, 1860 Tex.Gen.Laws 32. its municipal charter by requiring it be notified of a
While the statute has been amended several times over the defective condition prior to the occurrence of an injury was
last 129 years, primarily to expand the class of potential held unconstitutional under both the "open courts"
defendants and to permit recovery of exemplary damages, it provision, article I, section 13 of the Texas Constitution,
remains a "bare bones" enactment. Over that lengthy time and article I, section 17, guaranteeing just compensation for
period, many interstices of the statute have been left to the a taking of property for public use. 121 Tex. at 206, 48
courts to fill, relying on common-law concepts. [11] In fact, S.W.2d at 945. In examining the question of whether the
writing for the court in Sanchez v. Schindler, 651 S.W.2d charter could condition the constitutional right to bring suit
249, 252 (Tex.1983), Justice Spears indicated a strong for compensation, this court stated:
preference for this judicial development of the wrongful
death statute. Because of the symbiotic relationship The Constitution admits of no such limitation.
between the common law and statute, an action for
wrongful death merits review under the "open courts" When a city violates the Constitution to the damage or
provision of article I, section 13 of the Texas Constitution. injury of a complaining party, a constitutional cause of
Labelling this action "statutory" rather than engaging in action arises, and the Legislature is powerless to make
thoughtful analysis provides a convenient escape provision for a notice of the type here involved. The
mechanism from the Houdini-defying task of reconciling Constitution, sec. 17, art. 1, having fixed the method by
this opinion with Nelson v. Krusen. which a city may take or damage private property without
liability for tort, the constitutional method is exclusive, and
A cause of action for wrongful death is also in part the Legislature is without power to prescribe any other
constitutionally given. As initially adopted, the Texas method to accomplish the same purpose.
Wrongful Death Act made no provision for exemplary
damages. To correct this omission, the Texas Constitution 121 Tex. at 208, 48 S.W.2d at 946 (emphasis supplied).
of 1869 included a provision permitting recovery of The court is content to ignore this well-entrenched principle
exemplary damages for "homicide, through wilful act, or of constitutional law. [12]
omission." Tex.Const. art. XVI, § 26, interp. commentary
(Vernon 1955). The provision was amended in 1879 to An exercise in somnambulism, today's opinion merely
expand the grounds for recovery to include "gross neglect." sleepwalks through the law, reciting the rule that there was
Id.; see also Demarest, The History of Punitive Damages in no cause of action for death at common law but not
Texas, 28 S.Tex.L.J. 535, 540 (1987). engaging in conscious thought. Of the five cases cited as
authority for the proposition that there was no action for
This constitutional right may not be legislatively death at common law, not one of them engages in any
abolished or restricted. In Morton Salt Co. v. Wells, 123 in-depth analysis. Only two reference the rule's origin as
Tex. 151, 70 dictum in Lord Ellenborough's decision in Baker v. Bolton
in England in 1808. Marmon v. Mustang Aviation, Inc., 430
Page 364 S.W.2d 182, 184 n. 4 (Tex.1968); Galveston, H. & S.A. Ry.
v. Le Gierse, 51 Tex. 189, 198-99 (1879). One commentator
has described the rule as "a magical intoned incantation common law prohibition and soundly rejected them all. The
recited by rote," followed by courts without analysis of the first, deemed the "sole substantial basis," is the
validity of its historical origins or current applicability. S. felony-merger doctrine:
Speiser, Recovery for Wrongful Death 2d §§ 1:1 and 1:5
(1975). That criticism accurately describes today's opinion According to this doctrine, the common law did not allow
and the precedent it cites. civil recovery for an act that constituted both a tort and a
felony. The tort was treated as less important than the
A hard look at this common-law prohibition reveals offense against the Crown, and was merged into, or
that it lacks any rational basis and should not be blindly pre-empted by, the felony. The doctrine found practical
followed by this court. The Baker v. Bolton case was a nisi justification in the fact that the punishment for the felony
prius case (i.e., a case tried in the local court before a single was the death of the felon and the forfeiture of his property
judge rather than en banc in the superior court at to the Crown; thus, after the crime had been punished,
Westminster) without authority or supporting reasoning for nothing remained of the felon or his property on which to
its statement that the common law barred redress for a fatal base a civil action.
injury. Moragne v. States Marine Lines, Inc., 398 U.S. 375,
382-83, 90 S.Ct. 1772, 1778-79, 26 L.Ed.2d Page 366
Page 365 Moragne, 398 U.S. at 381, 90 S.Ct. at 1778 (citations
omitted); see also Le Gierse, 51 Tex. at 198-99. The
339 (1970). [13] Contrary to the importance it later Moragne opinion rejected the applicability of this historical
achieved, the decision in Baker v. Bolton went unnoticed by justification in the United States, noting that American law
the English courts until 1873. [14] See Malone, The never recognized forfeiture of property as felony
Genesis of Wrongful Death, 17 Stan.L.Rev. 1043, 1059 punishment. Moragne, 398 U.S. at 384, 90 S.Ct. at 1779.
(1965). In fact, the first court anywhere to treat it as Texas law is in accord; the early laws of the Republic of
precedent was an American one, Carey v. Berkshire R.R., Texas do not appear to recognize forfeiture, and this
55 Mass. (1 Cush.) 475, 48 Am.Dec. 616 (1848), some 40 sanction was expressly barred by the Texas Constitution of
years after Baker v. Bolton was decided. [15] During that 1876. Tex. Const. art. I, § 21.
interval, there was no reported opinion denying a wrongful
death claim in this country, while several early decisions The second basis for the rule reviewed in Moragne is
expressly recognized such a common-law action. Malone, the asserted difficulty of computing damages because of a
The Genesis of Wrongful Death, supra, at 1066-67; Crofs v. "repugnance ... to setting a price upon human life."
Guthery, 2 Root 90, 1 Am.Dec. 61 (Conn.1794); Ford v. Moragne, 398 U.S. at 385, 90 S.Ct. at 1779 (citations
Monroe, 20 Wend. 210 (N.Y.Sup.Ct.1838); James v. omitted). Recognizing that damages are regularly
Christy, 18 Mo. 162 (1853). determined in statutory wrongful death actions and such
calculation poses no greater difficulty than awarding
This historical timeline suggests that the English damages for nonfatal injuries, the Court found this basis of
common-law prohibition was never truly part of the the rule unpersuasive. The third basis is the ancient
common law of Texas. In 1840, the Congress of the common-law rule that a personal cause of action did not
Republic of Texas enacted a law which adopted the survive the death of its possessor. The Court noted that rule
common law of England to the extent consistent with the applies only to the victim's personal claims and has no
Constitution and laws of this state. This law has been bearing on whether a dependent should be permitted
interpreted by this court to mean the common law of recovery for the injury he suffers because of the victim's
England as "declared by the courts of the different states of death. Id. at 385, 90 S.Ct. at 1779. The Court then
the United States." Grigsby v. Reib, 105 Tex. 597, 600, 153 concluded that:
S.W. 1124, 1125 (1913) (emphasis supplied). As discussed
above, in 1840 the American courts recognized a The American courts never made the inquiry whether this
common-law action for wrongful death. particular English rule, bitterly criticized in England, "was
applicable to their situation," and it is difficult to imagine
Building on virtually universal commentary critical of on what basis they might have concluded that it was.
the English common-law rule barring actions for wrongful
death [16] and the questionable historical basis for the rule's Id. at 386, 90 S.Ct. at 1780. [17]
adoption, the United States Supreme Court in the landmark
Moragne decision recognized a common law action for The Moragne decision noted the prevalence of statutes
wrongful death in maritime cases. Writing for the permitting recovery for wrongful death, adopted in all fifty
unanimous court, Justice Harlan engaged in a scholarly states and by numerous federal statutes, and concluded:
examination of the three asserted justifications of the
These numerous and broadly applicable statutes, taken
as a whole, make it clear that there is no present public this case; nor has the Fifth Circuit requested that we address
policy against allowing recovery for wrongful death. The this issue. The doctrine of fraudulent concealment provides
statutes evidence a wide rejection by the legislatures of that where a defendant is under a duty to make disclosure
whatever justifications may have once existed for a general but fraudulently conceals the existence of a cause of action
refusal to allow such recovery.... The policy thus from the party to whom it belongs, the defendant is
established has become itself a part of our law, to be given estopped from relying on the defense of limitations until the
its appropriate weight not only in matters of statutory party learns of the right of action or should have learned
construction but also those of decisional law. thereof through the exercise of reasonable diligence.
Borderlon v. Peck, 661 S.W.2d 907, 908 (Tex.1983).
398 U.S. at 390-91, 90 S.Ct. at 1782. [18] Although Because the question of the doctrine's applicability in the
this analysis in Moragne was employed in an opinion by present case is not properly before us, we express no
Justice Spears to justify extending comparative causation to opinion on the issue.
a products liability action, Duncan v. Cessna Aircraft Co.,
665 S.W.2d 414, 427 (Tex.1984), today Moragne is [2] A number of other states construing absolute statutes
curiously limited to its facts. with similar or identical language to that found in section
16.003(b) have held that the clear language of the statute
The facts of the case before us differ vastly from the precluded application of the discovery rule. See, e.g.,
stagecoach and railway accidents for which, over a century Trimper v. Porter-Hayden, 305 Md. 31, 501 A.2d 446, 449
ago, the scope of the wrongful death statute was originally (1985) (clear language of statute could not be rewritten
envisioned. We are in an age of more insidious, less under the "guise of statutory construction"); Presslaff v.
obvious causes of death, many of which are simply not Robins, 168 N.J.Super. 543, 403 A.2d 939, 941
discoverable within the two-year limitations period. Thus, (App.Div.1979) ("The court may not strain on policy
not simply the occasional family, but an entire class of grounds to manufacture a signification of the statutory
families will be deprived of their claims by the court's language to achieve a result obviously not intended by the
decision. This deprivation cannot be justified on the legislature and in direct conflict with the unequivocal
traditional ground that these victims "slept on their rights," proscription in [the statute]."); Morano v. St. Francis
because they could not have been aware of the basis of their Hospital, 100 Misc.2d 621, 420 N.Y.S.2d 92, 95
cause of action until after their claims were barred. The (N.Y.Sup.Ct.1979) ("The language leaves no room for
opinion thus defies the very purpose of the discovery judicial construction and there are no statutory spaces to be
rule--to prevent legislation from merely affording "a filled."); Cadieux v. International Tel. & Tel. Corp., 593
delusive remedy." Urie v. Thompson, 337 U.S. 163, 169, 69 F.2d 142, 144 (1st Cir.1979) (applying Rhode Island law)
S.Ct. 1018, 1024, 93 L.Ed. 1282 (1949). ("date of death" cannot be construed to mean "date of
discovery of the cause of death").
Page 367
[3] This is the exact position taken by the court in Stiles v.
The court's opinion can rightly be recorded as one of Union Carbide Corp., 520 F.Supp. 865, 867 (S.D.Tex.1981)
the most anti-family decisions in recent memory. It says to ("When the legislature has clearly and unequivocally
a wife who has lost a husband, to a child who has lost its prescribed that a cause of action accrues on the occurrence
parents, to the parents whose lives have been torn apart by of a specified event," the courts have neither the necessity
the death of a child, your rights are denied; the merits of nor the authority to invoke the discovery rule.). A good
your claim against a hidden killer will never be considered argument can be made that the legislature has adopted this
by a Texas judge and jury. [19] interpretation by recodifying the statute in 1985 without
adding any substantive changes. See Cunningham v.
The goose is fattened and the table set, compliments of
Cunningham, 120 Tex. 491, 40 S.W.2d 46, 51 (1931)
today's opinion. Pull up a chair, tortfeasors, and dine on
("Nothing is better settled than that the legislature must be
pate de foie gras. You have been absolved from the
regarded as intending statutes, when repeatedly re-enacted,
infliction of lethal wounds, at least in the forum of the
... to be given that interpretation which has been settled by
Texas courts. I dissent.
the courts.").
RAY and MAUZY, JJ., join in this dissent.
[4] See, e.g., With v. General Electric Co., 653 P.2d 764
--------- (Colo.App.1982); Farmers Bank & Trust Co. of Bardstown
v. Rice, 674 S.W.2d 510, 512 (Ky.1984); Trimper v.
Notes: Porter-Hayden, 305 Md. 31, 501 A.2d 446, 449 (1985);
Szlinis v. Moulded Fiber Glass Cos., 80 Mich.App. 55, 263
[1] Moreno has not argued that the doctrine of fraudulent N.W.2d 282 (1977); DeCosse v. Armstrong Cork Co., 319
concealment operates to toll the running of limitations in N.W.2d 45 (Minn.1982); Morano v. St. Francis Hospital,
100 Misc.2d 621, 420 N.Y.S.2d 92, 95 (N.Y.Sup.Ct.1979); Moreover, the dissent's argument that the Morenos were
Cadieux v. Inter. Tel. & Tel. Corp., 593 F.2d 142, 144 (1st unaware of their ability to assert a cause of action is
Cir.1979) (applying Rhode Island law); Presslaff v. Robins, undermined by the fact that the Morenos, after receiving
168 N.J.Super. 543, 403 A.2d 939, 942 (App.Div.1979); presumptive certificates of death describing Reye's
Anthony v. Koppers, 436 A.2d 181, 183 (1981); Pastierik v. syndrome as the cause of death, hired a "medical expert"
Duquesne Light Co., 514 Pa. 517, 526 A.2d 323 (1987); who reviewed the file and determined that no medical
White v. Johns-Manville Corp., 103 Wash.2d 344, 693 P.2d malpractice had occurred. Faced with similar facts, the
687, 692 (1985); see also W. Keeton, D. Dobbs, R. Keeton United States Supreme Court denied relief to a tardy
& D. Owen, Prosser and Keeton on the Law of Torts § 127, plaintiff under the Federal Torts Claim Act, stating:
at 957 (5th ed. 1984) (noting that majority rule is that
limitations in wrongful death actions begin to run on date of If [the plaintiff] fails to bring suit because he is
death and that courts have rejected applying discovery rule incompetently or mistakenly told that he does not have a
to wrongful death actions). case, we discern no sound reason for visiting the
consequences of such error on the defendant by delaying
[5] The few cases relied on by the Hanebuth majority are the accrual of the claim until the plaintiff is otherwise
distinguishable. See Hanebuth, 694 P.2d at 147. In informed or himself determines to bring suit, even though
Frederick v. Calbio Pharmaceuticals, 89 Cal.App.3d 49, 152 more than two years have passed from the plaintiff's
Cal.Rptr. 292 (1979), the court was interpreting an discovery of the relevant facts about injury.
"accrual" statute and not an "absolute" statute like §
16.003(b). In Myers v. McDonald, 635 P.2d 84 (Utah United States v. Kubrick, 444 U.S. 111, 100 S.Ct. 352, 62
1981), the plaintiff did not become aware of the decedent's L.Ed.2d 259 (1979).
death until 3 years after it had occurred, whereas in the
present case death was known immediately. Indeed, the [7] The common-law not only "denied a tort recovery for
Myers court expressly distinguished its decision from other injury once the tort victim had died, it also refused to
decisions holding that limitations begin to run when the fact recognize any new and independent cause of action in the
of death is known even if its cause is not. The decision in victim's dependents or heirs for their own loss at his death."
Shaughnessy v. Spray, 55 Or.App. 42, 637 P.2d 182 (1981) W. Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser and
provides no support because that case was interpreting a Keeton on the Law of Torts § 127, at 945 (5th ed. 1984).
statute which required an action to be commenced within 3 (citations omitted). This rule denying a common-law right
years after the occurrence "of the injury causing the death," to assert a wrongful death action was confirmed in Baker v.
rather than within 2 years after "death." Finally, it is not so Bolton, 1 Camp. 493, 170 Eng. Reprint 1033 (1808). In
clear that the discovery rule applies to the Illinois absolute response to Baker, the English Parliament, in 1846, enacted
statute; the Hanebuth majority omitted cases which have "an Act for Compensating the Families of Persons Killed by
held that it does not, see Greenock v. Rush Presbyterian St. Accident," otherwise known as Lord Campbell's Act. 9 &
Luke's Med. Center, 65 Ill.App.3d 266, 22 Ill.Dec. 1, 3, 382 10 Vict., ch. 93 § 2 (1846). See Witty v. American General
N.E.2d 321, 323 (1978), and the Illinois Supreme Court has Distrib., Inc., 727 S.W.2d 503, 504 (Tex.1987) ("Prior the
not yet resolved the conflict. passage of Lord Campbell's Act, there was no statutory or
common-law cause of action for wrongful death.") This
[6] The Hanebuth decision concludes that it is "absurd" and statute served as the pattern for Texas' first wrongful death
arbitrary to only allow application of the discovery rule in statute, enacted in 1860. Tex.Gen.Laws 32; March v.
personal injury cases, and not in wrongful death actions. Walker, 48 Tex. 372, 375 (1877); Sanchez v. Schindler, 651
Yet, application of the discovery rule in personal injury S.W.2d 249, 251 (Tex.1983).
cases is reasonable because the live plaintiff may either be
unaware of an injury at the time of its occurrence, or in [8] The dissent attempts to establish that Texas recognizes a
need of time to recover before beginning an investigation. common law action for wrongful death despite the fact that
Neither of these considerations, however, are present in every reported Texas decision considering the issue has
wrongful death actions because survivors are put on held otherwise. For support, the dissent cites commentary
immediate notice by the event of death that an investigation and cases from other jurisdictions which argue that a
into the cause of action must occur to preserve the claim. wrongful death action should be recognized in the common
This definitive notice is what differentiates wrongful death law, and not that it was. The dissent also argues that Texas,
and survival actions from personal injury actions. By in 1840, implicitly adopted two cases from other
disallowing application of the discovery rule to § 16.003(b), jurisdictions which recognized the common-law right to
our opinion recognizes this distinction and effectuates the assert a wrongful death action. See Crofs v. Guthery, 2 Root
state interest in the prompt settlement of a decedent's 90, 1 Am.Dec. 61 (Conn.1794); Ford v. Monroe, 20 Wend.
affairs. See Pastierik v. Duquesne Light Co., 514 Pa. 517, 210 (N.Y.Sup.Ct.1838). Crofs was decided fourteen years
526 A.2d 323 (1987); Cadieux, 593 F.2d at 144-45. prior to Baker v. Bolton and "could not withstand the
greater weight" of the latter decision, Green, The Texas Tex.Const.Ann. art. 16, § 26 (Vernon 1955). The dissent
Death Act, 26 Tex.L.Rev. 133, 136 n. 9 (1947), and Ford suggests that § 16.003(b) unduly restricts this constitutional
apparently recognized the action without comment. Neither right to exemplary damages by placing an "impossible
Crofs nor Ford, however, was mentioned in Carey v. condition" upon the assertion of the underlying statutory
Berkshire R.R., 55 Mass. (1 Cush.) 475, 48 Am.Dec. 616 wrongful death action, and, therefore, it is unconstitutional,
(1848), where a leading American jurisdiction, the Supreme or, at the very least, subject to an "open courts" challenge.
Judicial Court of Massachusetts, confirmed the rule set out This argument fails for two separate reasons.
in Baker v. Bolton (and universally accepted law ever
since) that no action existed at common law for wrongful First, as parents of a deceased child, the Morenos have no
death. See W. Malone, The Genesis of Wrongful Death, 17 constitutional right to recover exemplary damages under
Stanford L.Rev. 1043, 1066-68 (1965). Finally, the dissent's art. 16, § 26. See Hofer v. Lavender, 679 S.W.2d 470, 475
argument does not answer the question of why the Texas (Tex.1984) (Supreme Court has consistently held that class
Legislature would find it necessary to pass a wrongful death of beneficiaries listed in art. 16, § 26 does not include
act in 1860 if there already was in existence a Texas parents of deceased child). Indeed, even if this court (or the
common-law right to assert such an action. The dissent's legislature) wanted to broaden the class of persons entitled
approach would suggest that the 1860 act was superfluous. to recover exemplary damages to include parents of
On the contrary, the 1860 act was designed to fulfill the deceased children, we would be without authority to do so.
same purpose as Lord Campbell's act: "... to fill the gap in Id.; see also Scoggins v. Southwestern Electric Service Co.,
the common law which had been created by the failure of 434 S.W.2d 376 (Tex.Civ.App.--Tyler 1968, writ ref'd
the courts ... to provide a remedy for injuries resulting in n.r.e.) (holding that provision in Wrongful Death Act that
death." Green, The Texas Death Act, 26 Tex.L.R. 133, 136 allowed parents to recover exemplary damages was invalid
(1947). under art. 16, § 26, since legislature could not enlarge on
exemplary damages).
[9] The dissent proposes not only that the discovery rule
should apply to § 16.003(b), but also that the rule should Second, the question of whether § 16.003(b) would operate
operate to toll limitations until a plaintiff discovers a in other cases to unduly restrict the constitutional right to
specific cause of action against a specific defendant. More exemplary damages is not properly before this court
specifically, the dissent proposes that courts allow wrongful because the second certified question only asks whether §
death claims to be maintained whenever new scientific 16.003(b) "as applied to the plaintiffs herein violate[s] the
evidence links a particular disease with exposure to a open courts provision...." Since it cannot be shown that
particular substance, even though the death had occurred 16.003(b) violates Moreno's rights under art. 16, § 26, the
years, or even decades, earlier. This approach, however, statute's application to other plaintiffs in other cases is,
would effectively "expand ... to infinity the time period according to the terms of the certified question, irrelevant.
during which wrongful death actions could be brought." Moreover, this court has repeatedly reaffirmed the rule that
Pastierik, 526 A.2d at 325. No cause of action would ever if a plaintiff cannot prove the unconstitutionality of a
accrue until the plaintiff learned or should have learned of limitations statute as applied to him, the statute will not be
that specific cause of action, and no case would be struck down merely because it might operate in an
concluded until every potential cause of action was unconstitutional manner in another case. See Morrison v.
discovered. This approach is also questionable from a Chan, 699 S.W.2d 205, 207 (Tex.1985); Nelson v. Krusen,
public policy standpoint. It is hardly in the public interest 678 S.W.2d 918, 923 (Tex.1984).
"to encourage, literally, the unearthing of wrongful death
causes of action long after death has occurred because there [1] Relying upon facts taken from the summary judgment
is some suspicion that death was caused by a wrongful act." record of the federal district court, rather than those
DeCosse, 319 N.W.2d at 52. certified by the Fifth Circuit, the court asserts at footnote 6
that even if the discovery rule were applied, the Petitioners'
[10] Art. 16, § 26 of the Texas Constitution provides as wrongful death actions would still be barred by limitations.
follows: If that analysis were correct, the proper disposition of this
case would be to return the certified questions to the Fifth
Every person, corporation, or company, that may commit a Circuit unanswered. Further, the court ignores an affidavit
homicide, through wilful act, or omission, or gross neglect, stating that, although the ability to bring suit for medical
shall be responsible, in exemplary damages, to the malpractice against the doctors and the hospitals treating the
surviving husband, widow, heirs of his or her body, or such infant children was investigated and found wanting, no
of them as there may be, without regard to any criminal investigation of the possibility of a link between the use of
proceeding that may or may not be had in relation to the aspirin and Reye's Syndrome (which would serve as a basis
homicide. of a products liability action) was made at that time.
Moreno Record 284-85; Sloan Record 62-63. The facts of
this case are not similar to those in United States v. that interpretation. While the legislature may indeed adopt a
Kubrick, 444 U.S. 111, 100 S.Ct. 352, 62 L.Ed.2d 259 judicial interpretation by reenacting a statute, see Robinson
(1979), as the opinion states. In Kubrick, the Court held that v. Central Texas MHMR Center, 780 S.W.2d 169, 170-71
the statute of limitations began to run when the plaintiff had (Tex.1989), that interpretation must be by a court of last
knowledge of the injury and its causative link to use of a resort. See Texas Employer's Ins. Ass'n v. Lightfoot, 139
particular drug. Tex. 304, 162 S.W.2d 929 (1942). Cunningham v.
Cunningham, 120 Tex. 491, 40 S.W.2d 46, 51 (1931), cited
[2] The opinion cites RepublicBank Dallas, N.A. v. in the opinion refers to an "interpretation which has been
Interkal, Inc., 691 S.W.2d 605, 607 (Tex.1985), for the settled by the courts." The fact that this question has been
proposition that rules of statutory construction may not be certified to this court by the Fifth Circuit indicates that there
applied when a statute is unambiguous. That case stands in is no well-settled interpretation by the Texas courts.
clear conflict with the dictates of the Code Construction
Act, quoted above. Interkal, however, involved [5] This situation is fundamentally different from that
interpretation of a statute and not a code provision to which presented to the court today in Dow Chemical Co. v.
the Code Construction Act is applicable. 691 S.W.2d at 607 Alfaro, 786 S.W.2d 674 (Tex.1990). Unlike the discovery
n. 1. Nor did the court in Cail v. Service Motors, Inc., 660 rule, the concept underlying the doctrine of forum non
S.W.2d 814 (Tex.1983), consider the effect of the Code conveniens was in existence and being applied on the date
Construction Act. the statute was enacted. That this old concept later acquired
a new label--"forum non conveniens"--did not affect the
[3] Further, "[t]his court has always endeavored to interpret original legislative action in abolishing it.
the laws of Texas to avoid inequity." Sanchez v. Schindler,
651 S.W.2d 249, 252 (Tex.1983) (opinion construing [6] The court miscomprehends this argument. The question
Wrongful Death Act by Spears, J.). is not whether the doctrine of fraudulent concealment
applies to the facts of this case. Rather, the question is
[4] That act provided: "The action shall be brought within whether statutes of limitations labelled "absolute" are
one year after the death of the deceased." Law of February subject to common-law tolling principles such as the
2, 1860, ch. 35, § 3, 1860 Tex.Gen.Laws 33. The limitations doctrine of fraudulent concealment and the discovery rule.
provision was subsequently moved from the wrongful death Our decisions in Borderlon and Gay indicate that they are.
act to be included as part of a general limitations statute.
Tex.Rev.Civ.Stat.Ann. art. 3202 (Vernon 1879) provided: [7] See also Gaddis v. Smith, 417 S.W.2d 577, 581
"There shall be commenced and prosecuted within one year (Tex.1967) (discovery of the "wrongful act" triggers
after the cause of action shall have accrued ...: 4. Actions limitations); Neagle v. Nelson, 685 S.W.2d 11, 12
for injuries done to the person of another where death (Tex.1985) (discovery of the "wrong"). The cases cited in
ensued from such injuries; and the cause of action shall be the court's opinion addressed factual situations where the
considered as having accrued at the death of the party plaintiff was aware of both the injury and its cause. See,
injured." See also Tex.Rev.Civ.Stat.Ann. art. 3353 (same e.g., Coody v. A.H. Robins Co., 696 S.W.2d 154, 156
language). The time for bringing an action for death was (Tex.App.--San Antonio 1985, no writ) (stating that
later expanded to two years. Law of March 4, 1897, ch. 14, plaintiff learned of injury and its cause simultaneously);
§ 1, 1897 Tex.Gen.Laws 12. Other than replacing the plural Otis v. Scientific Atlanta, Inc., 612 S.W.2d 665, 666
"injuries" with the singular "injury," the accrual language (Tex.Civ.App.--Dallas 1981, writ ref'd n.r.e.) (plaintiffs do
was unchanged. The statute was amended in 1979 to delete not assert that they did not know the cause of their injury).
the two-year limitations period for actions for debts and
accounts, but the limitations provision for a wrongful death [8] In Willis, we concluded that "any burden placed upon
action was not changed. Act of June 13, 1979, ch. 716, § 1, an attorney by application of the discovery rule is less
1979 Tex.Gen.Laws 1768-69; see also onerous than the injustice of denying relief to unknowing
Tex.Rev.Civ.Stat.Ann. art. 5526 (Vernon 1958) (repealed victims." 760 S.W.2d at 646. Yet the injury worked in that
1985). The statute was repealed and codified, with no case was much less severe than the deaths that occurred
substantive change intended, as part of the Texas Civil here allegedly due to distributing a dangerous
Practice and Remedies Code. Act of June 16, 1985, ch. 959, pharmaceutical product to the Texas public. Surely the
§§ 1 (new provision), 9 (repealer), and 10 (no substantive burden placed upon the drug manufacturer is equally less
change intended). onerous than the injustice of denying relief to unknowing
families, like the Morenos and the Sloans, whose children
The court asserts that this reenactment and codification after have died.
the decision of Stiles v. Union Carbide Corp., 520 F.Supp.
865 (S.D.Tex.1981), refusing to apply the discovery rule in [9] A similar result has been reached as to an Illinois statute
a wrongful death action, worked a legislative adoption of requiring that actions be commenced within two years after
death. See Eisenmann v. Cantor Brothers, Inc., 567 F.Supp. [13] One commentator has pointed out that Baker v. Bolton
1347 (N.D.Ill.1983) (to deny application of discovery rule was not extensively argued, that the reported opinion is
would produce absurd result); Matter of Johns-Manville very brief and that the controversial rule was "laid down
Asbestosis Cases, 511 F.Supp. 1235 (N.D.Ill.1981); Fure v. without either sustaining reasoning or supporting
Sherman Hospital, 64 Ill.App.3d 259, 21 Ill.Dec. 50, 380 authority." S. Speiser, Recovery for Wrongful Death 2d §
N.E.2d 1376 (1978); Praznik v. Sport Aero, Inc., 42 1:2 (1975); see also Smedley, Wrongful Death--Bases of
Ill.App.3d 330, 355 N.E.2d 686 (1976). the Common Law Rule, 13 Vand.L.Rev. 605 (1960)
(concluding the case was wrongly decided as well as
[10] A number of our sister states have recognized this overbroad). Even Dean Prosser has condemned the trial
hybridization to permit application of common-law judge in Baker v. Bolton, stating that Lord Ellenborough's
principles in a wrongful death action. See, e.g., "forte was never common sense." W. Prosser, Law of Torts
Summerfield v. Superior Court, 144 Ariz. 467, 698 P.2d § 127 (4th ed. 1971).
712, 718 (1985) (en banc) (the wrongful death "statute and
precedent have combined to produce a cause of action with [14] This rule never even made it as far as Scotland; that
common law attributes"); Hanebuth v. Bell Helicopter Int'l, country recognized a common-law action for wrongful
694 P.2d 143, 146 (Alaska 1984) (wrongful death statute death. Moragne, supra, 398 U.S. at 398 n. 13, 90 S.Ct. at
treated like other common law tort actions, finding 1786 n. 13.
discovery rule applies to "absolute" statute of limitations);
O'Grady v. Brown, 654 S.W.2d 904, 908, 911 (Mo.1983) [15] The Carey case was subsequently overruled by the
(en banc) (wrongful death statute "mends the fabric of the Massachusetts Supreme Court in Gaudette v. Webb, 362
common law" and incorporates common law principles); Mass. 60, 284 N.E.2d 222, 229 (1972).
Haakanson v. Wakefield Seafoods, Inc., 600 P.2d 1087,
1091-92 (Alaska 1979) (no legislative intent to treat [16] The common-law prohibition against maintaining an
wrongful death action different from other common law tort action for wrongful death has been universally denounced
actions, thus limitations statute tolled for minors); Gaudette by commentators as having no logical or historical basis
v. Webb, 362 Mass. 60, 284 N.E.2d 222, 229-30 (1972) and as unfairly differentiating between wrongful conduct
(declaring existence of common-law wrongful death action resulting in mere injury and that resulting in death. See,
and tolling limitations provision for minors). See also e.g., F. Pollock, Law of Torts 55 (Landon ed. 1951)
Restatement (Second) of Torts § 925 comment k (1979) (terming rule "barbarous"); Smedley, Wrongful
(noting trend to "allow ameliorating common-law principles Death--Bases of the Common Law Rules, 13 Vand.L.Rev.
to apply" to wrongful death actions). 605 (1960) (rule has outlived its usefulness); Holdsworth,
The Origin Of the Rule in Baker v. Bolton, 12 Law Q.Rev.
[11] See, e.g., Clifton v. Southern Pacific Transp. Co., 709 431, 437 (1916) (rule cannot be justified on precedential or
S.W.2d 636, 640 (Tex.1986) (gross negligence standard of technical grounds); F. Tiffany, Death by Wrongful Act § 12
Burk Royalty applied to wrongful death action); Yowell v. (2d ed. 1913) ("[n]o satisfactory reason for the rule has ever
Piper Aircraft Corp., 703 S.W.2d 630, 632-33 (Tex.1986) been suggested"); P. Keeton, Prosser and Keeton on Torts §
(loss of inheritance damages recoverable in wrongful death 125 (5th ed. 1984) (criticizing rule on basis that "it was
action); Sanchez v. Schindler, 651 S.W.2d 249, 252-54 cheaper to kill a person than to injure him").
(Tex.1983) (damages for loss of society and mental anguish
recoverable). See generally Tex.Civ.Prac. & Rem.Code [17] The compelling logic of Moragne has given rise to
Ann. §§ 71.001-011 (Vernon 1986 and 1989 Supp.) state court cases that recognize in some manner a common
(extensive annotations). law action for wrongful death. See, e.g., Haakanson v.
Wakefield Seafoods, Inc., 600 P.2d 1087, 1092, n. 11
[12] The majority dismisses the problem of a conflict with (Alaska 1979); Gaudette v. Webb, 362 Mass. 60, 284
the constitutional right to exemplary damages in a wrongful N.E.2d 222, 229 (1972); see also Restatement (Second) of
death action on the grounds that no such damages are Torts § 925 comment k (1979).
allowed to a parent for the death of a child. A similar
argument in Hanks was found unpersuasive: [18] Accord Pound, Comments on Recent Important
Admiralty Cases, 13 NACCA L.J. 188-89 (1954) ("[t]oday
It is true that in the case before us the question of taking we should be thinking of the death statutes as part of the
property in violation of the Constitution is not in issue, but general law"); Panama Railroad Co. v. Rock, 266 U.S. 209,
the validity of the charter section may be raised, and, if void 216, 45 S.Ct. 58, 60, 69 L.Ed. 250 (1924) (Holmes, J.,
for any reason, it cannot be enforced in this case. dissenting) (pervasive legislation indicates no public policy
bar to common-law cause of action for wrongful death).
121 Tex. at 208-09, 48 S.W.2d at 947.
[19] We have not been asked by the Fifth Circuit to answer
in this case the question of whether the statute of limitations
for wrongful death, interpreted to bar application of the
discovery rule, conflicts with our state constitutional due
process provision, article I, section 19 of the Texas
Constitution. This court in Nelson v. Krusen, while
recognizing that the due process and "open courts"
provision are not coterminous, specifically left that question
unanswered. Nelson, 678 S.W.2d at 921. Another
unexplored question is whether the legislative distinction
between the quick and the dead passes muster under article
I, section 3 of the Texas Constitution, our state guarantee of
equal protection, or the federal equivalent, U.S. Const.
amend. XIV, § 1.
---------
Page 313 new trial and reinstated the judgment, less the remittitur.
The trial court's final award to the husband against the
795 S.W.2d 313 (Tex.App. —Houston [1 Dist.] 1990) Stevensons was $965,300 in actual and exemplary damages.
The Stevensons appeal from that judgment.
Donald and Rosie STEVENSON, Appellants,
I. Deposition testimony
v.
In their first point of error, the Stevensons claim the
Ivan KOUTZAROV, Appellee. trial court erred in admitting the deposition testimony of
three witnesses offered by the husband. The Stevensons
No. 01-89-00207-CV.
objected to the depositions because they were not parties
when the husband took the depositions. The Stevensons
Court of Appeals of Texas, First District, Houston
argue they were denied their right to cross-examine the
August 23, 1990 witnesses.
Page 314 The Stevensons rely on Tex.R.Civ.P. 207(1)(a), which
states in part:
[Copyrighted Material Omitted]
At the trial ... a deposition taken in the same
Page 315 proceeding, insofar as admissible under the Texas Rules of
Civil Evidence, may be used by any person for any purpose
Jo Ann Storey, Jacqueline Taylor, Norman Riedmuller, against any party who was present or represented at the
Houston, for appellants. taking of the deposition or who had reasonable notice
thereof.
Lynne Little St. Leger, John F. Nichols, Lynn S.
Kuriger, Houston, for appellee. (Emphasis added.) The Stevensons cite Heldt Bros.
Trucks v. Silva, 464 S.W.2d 931, 937
ON MOTION FOR REHEARING (Tex.Civ.App.--Corpus Christi 1971, no writ), Elizondo v.
Tavarez, 596 S.W.2d 667, 670 (Tex.Civ.App.--Corpus
O'CONNOR, Justice.
Christi 1980, writ ref'd n.r.e.), and Couch v. Mallory, 638
S.W.2d 179, 181 (Tex.App.--Corpus Christi 1982, writ
This suit, which arises out of a divorce action, is a suit
dism'd), to support their interpretation of rule 207, that the
for damages by a husband against his wife's friends. We
depositions were inadmissible against them.
reverse and remand. On motions for rehearing, we grant
appellants' motion for rehearing on point of error nine, deny
In Heldt, a corporate defendant complained on appeal
the remainder of appellants' motion, deny appellee's motion,
that the trial court permitted plaintiff to use depositions that
withdraw our earlier opinion, and substitute the following:
were taken before it was joined as a party. 464 S.W.2d at
937. The Corpus Christi Court of Appeals held that there
Ivan Koutzarov (the husband) filed for divorce against
was no privity between the two defendants. Further, to
Maria Arnaldina Koutzarov (the wife). In an amended
admit the deposition into evidence would be highly
petition, the husband named Donald and Rosie Stevenson as
prejudicial to the corporate defendant because it did not
third-party defendants. The divorce was tried to the court.
have an opportunity to cross-examine the witness. Id. The
The case against the Stevensons was tried to a jury, which
Heldt court said the corporate defendant should have been
awarded the husband $2,712,500 in actual and exemplary
afforded an opportunity to cross-examine the witnesses. Id.
damages. The final judgment in the case incorporated both
the jury's verdict against the Stevensons and
In Elizondo, plaintiff sued a doctor in April, and in
September, took the deposition of a nurse. 596 S.W.2d at
Page 316
670. Nine days after taking the deposition, plaintiff added
the court's findings and conclusions in the divorce action. the hospital as a party. At trial, four years later, plaintiff
offered the nurse's deposition. Id. at 669. When the hospital
The Stevensons filed a motion for new trial and for a objected, the trial court excluded the nurse's deposition
remittitur. After the trial court granted the motion for new against the hospital. On appeal, the Corpus Christi court
trial, the husband volunteered a remittitur, which the trial affirmed and said that plaintiff had the obligation to re-take
court accepted. The trial court then set aside the order for a the deposition after it joined the hospital as a party to the
suit. Id. at 671. See also Couch, 638 S.W.2d at 181 (where, were filed with the trial court on August 1, 1985. The
without details, the court restated the rule that a deposition Stevensons were joined in January 1986, and the case was
taken before a party is joined is inadmissible against that tried in September 1988.
party). [1]
The husband argues that the Stevensons had
The Texarkana Court of Appeals' application of the rule constructive notice of the court's file because, with due
is consistent with the Corpus Christi court's interpretation. diligence, the Stevensons could have learned of the
In Safeco Ins. Co. v. Gipson, 619 S.W.2d 275, 278 depositions on file. We do not need to reach the
(Tex.Civ.App.--Texarkana 1981, writ dism'd w.o.j.), after constructive notice issue because the Stevensons had actual
filing suit against Ms. Phillips and her employer, a church, notice that the depositions were on file about three months
plaintiff deposed Ms. Phillips. About a year later, plaintiff before trial. On their attorney's billing records, he indicated
dismissed the church and added Safeco, the insurance that his office researched the "use of deposition testimony
carrier for the before the Stevensons were parties." Also, the husband in
his deposition on September 16, 1986, told the Stevensons
Page 317 that Singer's deposition had been taken and that Connors
was also a person with knowledge of relevant facts.
church, as a defendant. At a venue hearing, plaintiff
introduced Ms. Phillips' deposition without objection from The Stevensons argue that they had no reason to
Safeco. On appeal, the court rejected Safeco's argument that redepose these witnesses because the witnesses only
the deposition was hearsay because the attorney for Safeco testified as to "confrontations, harassment, threats and
was present at Ms. Phillips' depositions, as the attorney for surveillances." The Stevensons assert that this testimony
the church, and there was a contractual relationship between was not relevant to any issue in the case before the
the church and its insurance carrier. additional causes of action were added, 10 days before trial.
Applying the principles of these cases, we note that the Applying rule 207(1)(c) and the cases discussed above,
husband did not re-depose the witnesses after the we hold the Stevensons did not have an interest sufficiently
Stevensons were joined as parties to the suit; the Stevensons similar to the wife to impose a burden on them to depose
did not have a contractual relationship with either the the witnesses. Thus, the trial court erred in permitting the
husband or the wife; and, the Stevensons' attorney was not husband to use the depositions.
present when the witnesses were deposed. Thus, the
Stevensons did not have an opportunity to cross-examine We sustain point of error one.
the deponents.
II. The rebutting witness
The husband urges that the depositions were admissible
pursuant to Tex.R.Civ.P. 207(1)(c), which provides: In point of error two, the Stevensons contend the trial
court abused its discretion when it refused to let their
If one becomes a party after the deposition is taken and has witness, Mary Jo Spangler, testify. When the Stevensons
an interest similar to that of any party described in a. or b. offered Spangler as a witness, the trial court ruled she could
above, the deposition is admissible against him only if he not testify because she was not listed as a witness in
has had a reasonable opportunity, after becoming a party, to response to discovery requests. When Spangler was offered
redepose the deponent, and has failed to exercise that as a rebuttal witness, the court again refused to allow her to
opportunity. testify. On appeal, the Stevensons contend they offered her
testimony to rebut the deposition testimony of the three
(Emphasis added.) Section (1)(c) of rule 207 was added witnesses.
in 1988, after the decisions in the above cited cases. Rule
207 now extends the admissibility of depositions to any Page 318
party with a similar interest. The rule now charges the late
parties to redepose the witness if they have a reasonable When a party offers a witness it did not list in its
opportunity. answers to discovery requests, the trial court should
automatically exclude the witness. Morrow v. H.E.B., Inc.,
The husband claims the second amended petition put 714 S.W.2d 297 (Tex.1986). It is immaterial that the
the Stevensons on notice as early as January 1986 that his witness' testimony is offered as rebuttal. Ramos v.
claims against them were similar to his claims against the Champlin Petroleum Co., 750 S.W.2d 873, 876-77
wife. In that pleading, the husband alleged collusion, (Tex.App.--Corpus Christi 1988, writ denied); Walsh v.
conspiracy, and secreting funds. The husband argues that Mullane, 725 S.W.2d 263, 264-65 (Tex.App.--Houston [1st
the Stevensons had a reasonable opportunity to redepose the Dist.] 1986, writ ref'd n.r.e.). To escape the automatic
deponents, which they did not exercise. The depositions sanction, the party who wants to call the unidentified
witness must show good cause why the witness was not III. Statute of limitation
listed. Gutierrez v. Dallas Indep. School Dist., 729 S.W.2d
691, 694 (Tex.1987). The fact that a party has little or no In point of error three, the Stevensons argue that the
use at trial for a witness' testimony will not ordinarily trial court erred in denying their motion for judgment
excuse his failure to name the witness as a source of notwithstanding the verdict (j.n.o.v.) and in rendering
relevant facts because the party seeking discovery may have judgment for the husband because the causes of action for
an important use for such testimony. Walsh, 725 S.W.2d at invasion of privacy, intentional infliction of emotional
265. distress, and conspiracy to invade privacy and inflict
emotional distress contained in the third and fourth
To prove good cause, the Stevensons argued to the trial amended petitions were barred by the statute of limitations.
court that they did not name Spangler as a witness because The Stevensons assert that these claims are all governed by
they did not know they would need Spangler until the the two-year statute of limitations.
husband amended his pleadings, 10 days before trial. The
Stevensons also contend they could not anticipate that the Texas Civil Practice & Remedies Code Annotated §
trial court would admit the depositions of the witnesses 16.003(a) (Vernon 1986) provides:
taken when they were not parties to the suit. For these
reasons, the Stevensons claim they did not know they A person must bring suit for ... personal injury ... not later
needed Spangler's testimony until trial. than two years after the day the cause of action accrues.
The burden was on the Stevensons to show a good Civil conspiracy is governed by the two-year statute of
cause for not listing Spangler as a witness. Yeldell v. limitations. Cathey v. First City Bank of Aransas Pass, 758
Holiday Hills Retirement & Nursing Center, Inc., 701 S.W.2d 818, 821-22 (Tex.App.--Corpus
S.W.2d 243, 246-47 (Tex.1985). We hold that the
Page 319
Stevensons proved good cause when they said they did not
list Spangler because they had no idea they needed her until Christi 1988, writ denied). Invasion of privacy is governed
the trial court refused to strike the late amendments and also by the two-year statute of limitations. See Covington v.
permitted the husband to use the three depositions. 743 S.W.2d 345, 347-48
Houston Post,
(Tex.App.--Houston [14th Dist.] 1987, no writ) (held the
We hold that, once the trial court permitted the husband
two-year statute applicable to placing a person in a false
to use the depositions of the three witnesses, the trial court
light); Wood v. Hustler Magazine, Inc., 736 F.2d 1084,
abused its discretion when it refused to permit the
1087 (5th Cir.1984), cert. denied, 469 U.S. 1107, 105 S.Ct.
Stevensons to call Spangler.
783, 83 L.Ed.2d 777 (1985) (applied the two-year statute of
To show the trial court abused its discretion by limitations to public disclosure of private facts).
rejecting Spangler as a witness, the Stevensons must
No Texas court has decided the statute of limitations
convince us that the trial court's decision was arbitrary and
for intentional infliction of emotional distress. Generally, a
unreasonable. Simon v. York Crane & Rigging Co., 739
tort-based cause is subject to the two-year statute. Church v.
S.W.2d 793, 795 (Tex.1987).
Ortho Diagnostic Sys., Inc., 694 S.W.2d 552, 555-56
To obtain reversal of a judgment based on error in the (Tex.App.--Corpus Christi 1985, writ ref'd n.r.e.). Thus, the
exclusion of testimony, an appellant must show that the trial tort of intentional infliction of emotional distress should be
court's ruling was in error, and that the error was calculated governed by the two-year statute of limitations.
to cause, and probably did cause, rendition of an improper
The Stevensons complain that the causes of action
judgment. TEX.R.APP.P. 81(b)(1); see Texaco, Inc. v.
added in the third and fourth amended petitions filed on
Pennzoil, Co., 729 S.W.2d 768, 837 (Tex.App.--Houston
August 26 and 28, 1988 were barred by limitations. The
[1st Dist.] 1987, writ ref'd n.r.e.). Unless an appellant can
husband argues that the two amendments related back to the
show that the whole case turns on the evidence the court
second amended petition, and therefore, the new claims
admitted or excluded, it is difficult to prove the ruling on
were not barred by limitations. Texas Civil Practice &
the evidence resulted in reversible error. Id.
Remedies Code Annotated § 16.068 (Vernon 1986)
We hold that Spangler's testimony was material to rebut provides:
the testimony of the three deposition witnesses. The
If a filed pleading relates to a cause of action ... that is
exclusion of her testimony, therefore, was reversible error
not subject to a plea of limitations when the pleading is
under TEX.R.APP.P. 81(b)(1).
filed, a subsequent amendment ... that changes the facts or
We sustain point of error two. grounds of liability or defense is not subject to a plea of
limitations unless the amendment ... is wholly based on a
new, distinct, or different transaction or occurrence. Page 320
The supreme court found that the purpose of § 16.068 of conspiracy to invade, invasion of privacy, conspiracy to
was to limit the application of the statutes of limitations to inflict, and intentional infliction of emotional distress
amended pleadings. The test is as follows: if the amended because these claims were barred by the statute of
pleading does not allege a wholly new, distinct, or different limitations.
transaction, then it relates back to the original filing, and is
not subject to a limitations defense. Ex parte Goad, 690 We sustain point of error three. Because our holding is
S.W.2d 894, 896 (Tex.1985). Even if the amended petition law of the case, we reverse and render judgment in favor of
contains new causes of action, the new causes are not the Stevensons on the claims barred by limitations.
barred by the statute of limitations unless they arise from a
wholly different transaction. Providence Hosp. v. Truly, 611 IV. The trial amendment
S.W.2d 127, 133-34 (Tex.Civ.App.--Waco 1980, writ
In point of error four, the Stevensons assert that the
dism'd).
trial court abused its discretion in denying their motion for
The husband's third and fourth amended petitions leave to file a trial amendment because the husband did not
alleged new causes of action. The question is whether these show the amendment would prejudice him. The husband
new causes of action were based on new, distinct, and objected to the inclusion of special issues 11A and 12A in
different transactions. The transaction referred to in the the court's charge to the jury, which related to the accrual of
husband's second amended petition was "using their own the causes of action. In response, the Stevensons asked to
personal banks and bank accounts to launder and hide amend their pleadings to include a statute of limitations as
money." In the husband's fourth amended petition, the an affirmative defense. Although the trial court denied their
transactions were "physical surveillance," "harassing trial amendment, it submitted the special issues 11A and
telephone communications," and "harassing physical 12A.
encroachments." The conspiracy to invade, invasion of
Because their requested questions were submitted to the
privacy, conspiracy to inflict, and intentional infliction of
jury, the Stevensons have no cause for complaint. The
emotional distress causes of action did not arise out of the
objective of the trial amendment was accomplished without
same transactions between the Stevensons and the wife as
the amendment. Thus, any error the trial court may have
did the causes of action in the second amended petition,
committed was harmless.
which joined the Stevensons as parties. Thus, these new
causes of action do not relate back to the second amended We overrule point of error four.
petition. Each new cause of action alleged in the third and
fourth petition must satisfy the two-year statute of V. The Stevensons' motion to strike amended pleadings
limitations.
In point of error five, the Stevensons contend that the
The jury's answers to the limitations issues establish trial court abused its discretion in denying their motion to
that all of the conduct comprising these new claims strike the husband's third and fourth amended petitions,
occurred before August 26, 1986. The husband's claims of filed 10 and eight days, respectively, before trial. The
conspiracy to invade, invasion of privacy, conspiracy to husband responds that the Stevensons did not preserve this
inflict, and intentional infliction of emotional distress, error because they did not file a motion for continuance.
raised for the first time in his third amended petition on
August 26, 1988, therefore, are all barred by the statute of The Stevensons were brought into the divorce action by
limitations. the husband's second amended petition, filed in January
1986. In that petition, the husband asked for damages for
The husband argues that the new claims were a mere the money the Stevensons helped his wife secret and
amplification of his claim for mental anguish in the second launder. From the five sentences of allegations directed at
amended petition. The mental anguish alleged in the second the Stevensons, the Stevensons estimated the husband
petition was not cited as a transaction or occurrence, but as sought $30,000 dollars in damages.
an element of damage--the "result" of the Stevensons'
alleged conduct of conspiring to secret funds and defraud After being joined in the suit, the Stevensons deposed
the community estate. the husband. At the husband's deposition, he was asked
what kind of claims he intended to pursue against the
The trial court erred in denying the Stevensons' motion Stevensons. The husband's counsel interrupted his client to
for j.n.o.v. and in rendering judgment for the husband on say that the only claims against the Stevensons would be
the claims
[B]asically money matters, nothing else. I think we have
claimed conspiracy to defraud kind of stuff. If you are need to obtain leave of court. Surprise is the only issue.
talking about assault or some kind of tortious claim other
than what's already in [the pleadings], I am not anticipating We will not disturb a trial court's ruling on refusal to
that. strike the late amended pleadings, unless the complaining
party shows that the court abused its discretion. Hardin v.
Relying on that description of the suit, the Stevensons Hardin, 597 S.W.2d 347, 349-50 (Tex.1980). Some courts
did not pursue liability or damage issues relating to tortious require the party opposing the late amendment to claim
claims not in the pleadings. surprise and move for a continuance. See, e.g., Louisiana &
Arkansas Ry. v. Blakely, 773 S.W.2d 595, 597
Two and a half years after joining the Stevensons, and (Tex.App.--Texarkana 1989, writ denied); Howard v.
just 10 and eight days before trial the husband filed two Phillips, 728 S.W.2d 448, 450-51 (Tex.App.--Fort Worth
amended petitions. On Friday, August 26, 1988, at 7:59 1987, no writ).
p.m., 10 days before trial, the husband filed his third
amended petition. In that petition, the husband added causes The husband contends the Stevensons were required to
of action for conversion, invasion of privacy, intentional file a motion for continuance to preserve the error. The
infliction of emotional distress, and conspiracy to do these Stevensons contend they were not required to file a motion
acts. In that petition, the husband expanded the earlier five for continuance, and cite Hajdik v. Wingate, 753 S.W.2d
sentences of allegations to 22 pages, and increased the 199, 202-204 (Tex.App.--Houston [1st Dist.] 1988), aff'd,
estimated $30,000 damage claim to $2.7 million. 795 S.W.2d 717 (Tex.1990). In Hajdik, we held a trial court
abused its discretion when it permitted appellee to amend
On Sunday, August 28, 1988, at 8:24 a.m., the husband pleadings on the eve of trial, raising a totally new cause of
filed the fourth amended petition, adding a cause of action action. In defense of the trial court, appellee argued that
for a lost job opportunity. In that petition, the husband appellant should have filed a motion for continuance to
expanded the earlier 22 pages of allegations to 25 pages, preserve error on appeal. Id. at 203. We held a motion for
and increased the damage claim from $2.7 million to $16.5 continuance was only one factor to consider.
million.
The factors we held important in Hajdik were: (1) the
The Stevensons, who received notice of the amended petition was filed two years after the suit was
amendments on August 29, seven days before trial, filed a filed; (2) the amendment was made on the eve of trial; (3)
motion to strike the late pleadings. The trial court refused. the amendment introduced a totally new cause of action; (4)
The Stevensons contend that the late pleadings changed the the late cause of action was not based on recently
entire tenor of the suit and the new causes of action required discovered matters; and (5) the complaining party alleged
different discovery than that already undertaken. surprise and that he was not prepared to try the new cause
of action. Hajdik, 753 S.W.2d at 204.
Page 321
The factors present in this case are: (1) the amended
The rule that controls the right to amend is rule 63 of petitions were filed more than two years after the
the Texas Rules of Civil Procedure, which provides: Stevensons were added to the suit; (2) the amendments
were made 10 and eight days before trial (the Stevensons
Parties may amend their pleadings ... at such time as not to
received them seven days before trial); (3) the amendments
operate as a surprise to the opposite party; provided, that
introduced five totally new causes of action, increasing
any amendment offered for filing within seven days of the
liability from an estimated $30,000 to over $16.5 million;
date of trial ... shall be filed only after leave of the judge is
(4) the late causes of action were not based on recently
obtained, which leave shall be granted by the judge unless
discovered matters; and (5) the Stevensons alleged surprise
there is a showing that such amendment will operate as a
and that they were not prepared to try the new cause of
surprise of the opposite party.
action.
(Emphasis added.)
A significant similarity between this case and Hajdik is
There is not, under rule 63, an unlimited right to amend the short period between filing the amendment and trial: In
pleadings. A party has a right to amend pleadings eight days Hajdik, the plaintiff amended his pleadings within five days
or more before trial if the amendment does not "operate as a before trial. [2] Here, the husband filed the first of the
surprise to the opposite party." Tex.R.Civ.P. 63. If a party amended pleadings on a Friday evening, after the
files pleadings seven days or less before trial, the pleadings courthouse had closed, and filed the last of the amended
must not operate as a surprise and the party must obtain pleadings on a Sunday morning. The Stevensons did not
leave of court. Id. Here, the husband filed his last amended receive notice of the pleadings until seven days before trial.
pleading eight days before trial. Thus, the husband did not
We hold that, because the two amendments were a S.W.2d 240, 242 (Tex.1988).
wholesale revision of the husband's suit against the
Stevensons, the trial court abused its discretion when it A. Fraud
denied the motion to strike late pleadings. Accordingly, we
sustain point of error five. In point of error six, the Stevensons contend the trial
court erred in denying their motions for instructed verdict
Page 322 and for j.n.o.v. because there is no evidence of fraud or
conspiracy to defraud, because the Stevensons made no
VI. The double recovery misrepresentations of material fact to the husband on which
he relied.
In point of error eight, the Stevensons argue that the
trial court erred in denying their motion for j.n.o.v. and The Stevensons sought reimbursement from the
motion for new trial, and in rendering a damage judgment husband for expenditures for medical bills, furniture, and
for defrauding the community estate and for converting cash advances on credit cards made for the wife. Although
community property because such an award is a double the copies of the documents were noted as "for Nalda," the
recovery. wife, the hospital bill was incurred by Rosie Stevenson.
Some of the furniture, purchased with community funds,
Double recoveries are not permitted. Southern County was delivered to the Stevensons' home. Although the
Mut. Ins. Co. v. First Bank and Trust of Groves, 750 Stevensons claimed they advanced $9,300 of $12,100 from
S.W.2d 170, 173-74 (Tex.1988). When the prevailing party credit card advances to the wife, $10,600 of that was
fails to elect between alternative measures of damages, the deposited back into the Stevensons' personal account within
court should utilize the findings affording the prevailing hours or days of the withdrawal.
party the greater recovery and render judgment accordingly.
Birchfield v. Texarkana Memorial Hosp., 747 S.W.2d 361, We find there is more than a scintilla of evidence to
367 (Tex.1987). support the finding, and we overrule point of error six.
In American Baler Co. v. SRS Sys., Inc., 748 S.W.2d B. Conversion of community property
243, 246 (Tex.App.--Houston [1st Dist.] 1988, writ denied),
we held that when the trial court errs in not requiring In point of error seven, the Stevensons contend the trial
plaintiff to elect between damages on alternative causes of court erred in denying their motions for instructed verdict
action, the court of appeals will make the election for him. and for j.n.o.v. because there is no evidence of conversion
In such a case, the court will choose the cause of action for or conspiracy to convert, because the husband expressly or
which the jury made the highest award. Id. implicitly consented to or ratified the taking.
If the claims of defrauding the community estate and Although Rosie Stevenson was aware of the temporary
converting community property amounted to a double orders forbidding the sale or other disposal of community
recovery, the trial court should have granted judgment to property, the Stevensons helped the wife sell a 1977
the husband only for the greater recovery, not for both. Cadillac. The buyer testified that he bought the car from
Because the entire case will be retried, we need not decide Rosie Stevenson, and gave her a cashier's check payable to
this issue. Rosie Stevenson. Donald Stevenson paid Noff North
American movers to move some of the
VII. The sufficiency of the evidence
Page 323
Because we already have sustained points of error that
require us to remand, we do not need to address any factual Koutzarovs' property to Canada. The husband deposited
sufficiency points that, if sustained, merely compel retrial. money in a Canadian bank account in the name of Natasha
We, therefore, need not address the factual sufficiency Gomez da Costa (the wife's child) for tax purposes. The
challenges in points of error 6, 7, 9, 10, 11, and 12. wife withdrew two checks totaling about $30,000 from the
account, and with Rosie Stevenson's help, deposited the
We must, however, address the points which, if money in the Stevenson's bank account.
granted, would compel a rendition of judgment for the
Stevensons. Thus, we will consider the challenges to the We find there is more than a scintilla of evidence to
legal sufficiency of the evidence. support the finding and we overrule point of error seven.
When we review the record, if we find there is more C. Conversion of separate property
than a scintilla of evidence to support a finding, we must
overrule the point of error. Sherman v. First Nat'l Bank, 760 In point of error nine, the Stevensons assert that the
trial court erred in denying their motion for j.n.o.v. and [1] There are two other cases from the Corpus Christi Court
motion for new trial because there is no evidence of of Appeals that are relevant. In Morehouse v. Brink, 647
conversion and conspiracy to convert the husband's separate S.W.2d 712, 715 (Tex.App.--Corpus Christi 1982, no writ),
property. plaintiff orally deposed a witness before joining defendant
Morehouse. After Morehouse was joined, plaintiff
The jury identified certain silver flatware and jewelry re-deposed the witness by written questions. Morehouse
as the husband's separate property. The husband kept his had notice of the deposition by written questions, but did
separate property in a safety deposit box. During the week not propound questions. The court of appeals held that
of June 25, 1984, the wife removed the jewelry from the Morehouse waived his right to cross-examine the witness
safety deposit box. and his objection to the oral deposition. In Academy
Welding v. Carnes, 535 S.W.2d 917, 920
The husband admits that the only evidence that (Tex.Civ.App.--Corpus Christi 1976, no writ), plaintiff
supports the jury's finding that the Stevensons conspired to deposed a witness before adding Academy Welding as a
convert his separate property is circumstantial. In his brief, defendant. At a venue hearing, the trial court permitted the
the husband claims that he talked to Mrs. Stevenson about use of the deposition. On appeal, the court reversed, holding
the settlement during the week of June 25, the same week that plaintiff was required to re-take the deposition of the
the jewelry was removed. The husband claims that the witness if it wanted to use it.
Stevensons' "involvement" with his former wife during the
week of June 25 is some evidence that they conspired to [2] The exact date of filing the amended petition in Hajdik
convert his separate property. We disagree. is disputed.
We find there is no evidence to support the finding and [3] Justice Warren participated upon original submission,
we sustain point of error nine. but not on rehearing. Justice Warren died August 13, 1990.
D. Damages ---------
In point of error 10, the Stevensons argue that the trial
court erred in denying their motion for j.n.o.v. because there
is no evidence to support the judgment for $70,100 in
damages for conversion and conspiracy to convert the
husband's separate property. In point of error 11, the
Stevensons argue that the trial court erred in denying their
motion for j.n.o.v. because there is no evidence to support
judgment for $75,000 in damages for conspiracy to defraud
and conspiracy to convert community assets. Both points
may well have merit. We need not address them, however,
because the entire case will be retried.
VIII. Summary
We reverse and render judgment as to point of error
three, holding that the causes of action for invasion of
privacy, intentional infliction of emotional distress, and
conspiracy to invade privacy and inflict emotional distress
were barred by the statute of limitations. We reverse and
render judgment as to point of error nine, holding that there
is no evidence to support the finding that the Stevensons
converted or conspired to convert the husband's separate
property. We reverse the remainder of the judgment and
remand the cause for a new trial.
DUGGAN, J., also participating. [3]
---------
Notes:
Page 493 promised, DeLanney sued Bell, alleging negligence and
violation of the Texas Deceptive Practices--Consumer
809 S.W.2d 493 (Tex. 1991) Protection
SOUTHWESTERN BELL TELEPHONE COMPANY, Page 494
Petitioner,
Act ("DTPA"), TEX.BUS. & COM.CODE §§ 17.41-17.63.
v. Bell answered and urged by special exception that
DeLanney's petition failed to state a cause of action for
Eugene C. DeLANNEY, Respondent. negligence. No ruling was made on this special exception,
and DeLanney proceeded to trial on both claims.
No. C-8282.
After DeLanney rested his case in chief, Bell moved for
Supreme Court of Texas.
a directed verdict on both theories of liability. The trial
court granted Bell's motion as to the DTPA claim, but
March 6, 1991
denied it as to negligence. The remaining issues were
Rehearing Overruled June 19, 1991. submitted to a jury.
Andrew J. Mytelka, John A. Buckley, Jr., Galveston, The jury found that Bell was negligent in omitting
Richard Billeaud, Houston, for petitioner. DeLanney's advertisement from the Yellow Pages and that
such negligence was a proximate cause of damages to
Anthony P. Griffin, Galveston, for respondent. DeLanney. The jury assessed these damages at $109,000
for lost profits in the past and $40,000 for lost profits in the
OPINION future. After ordering a partial remittitur which reduced
future lost profits to $21,480, the trial court rendered
PHILLIPS, Chief Justice. judgment for DeLanney. Bell appealed.
We consider whether a cause of action for negligence is Breach of Contract or Negligence
stated by an allegation that a telephone company
negligently failed to perform its contract to publish a The court of appeals, with one justice concurring and
Yellow Pages advertisement. The court of appeals held that one justice dissenting, affirmed. A majority of the court
the company's failure to perform its contract was a basis for held that Bell's cancellation of DeLanney's Yellow Pages
recovery in tort as well as contract, and that the clause advertisement was correctly submitted as a negligence
limiting the telephone company's liability could not apply to claim. The dissenting justice argued that because DeLanney
limit tort damages. 762 S.W.2d 772. We reverse the sought damages for breach of a duty created under the
judgment of the court of appeals and render judgment in contract, rather than a duty imposed by law, the claim
favor of Bell. sounded only in contract. We agree with the dissent.
Facts The majority below relied on Montgomery Ward & Co.
v. Scharrenbeck, 146 Tex. 153, 157, 204 S.W.2d 508, 510
Eugene DeLanney advertised his real estate business in (1947), where we quoted from 38 AM.JUR. Negligence §
the Galveston Yellow Pages for several years. For the 20 (1941) as follows:
1980-1981 directory, he again contracted with Bell for a
Yellow Pages advertisement. At this time DeLanney had Accompanying every contract is a common-law duty to
two business phones, a rotary line and a single line. Prior to perform with care, skill, reasonable expedience and
publication of the 1980-1981 directory, DeLanney's wife faithfulness the thing agreed to be done, and a negligent
asked Bell to cancel the single line and add a third number failure to observe any of these conditions is a tort, as well as
to their existing rotary line. The Yellow Pages a breach of the contract.
advertisement was billed to DeLanney's single line. When
that line was canceled, DeLanney's Yellow Pages In Scharrenbeck, the defendant agreed to repair a water
advertisement was automatically deleted from the directory heater in plaintiff's home. A short time after repair, the
due to Bell's internal procedures. heater ignited the roof, destroying the house and its
contents. Although the contract obligated the defendant to
When the advertisement was not published as put the water heater back in good working order, the law
also implied a duty to the defendant to act with reasonable breach of contract. Because the jury was asked only
skill and diligence in making the repairs so as not to injure a questions as to liability resulting from Bell's negligence,
person or property by his performance. In failing to repair DeLanney waived any claim for breach of contract. Ramos
the water heater properly, the defendant breached its v. Frito-Lay, Inc., 784 S.W.2d 667, 668 (Tex.1990) (the
contract. In burning down plaintiff's home, the defendant plaintiff has the "burden to obtain affirmative answers to
breached a common-law duty as well, thereby providing a jury questions as to the necessary elements of his cause of
basis for plaintiff's recovery in tort. action") (citing TEX.R.CIV.P. 279).
The principle recognized in Scharrenbeck has also been DeLanney did obtain an affirmative answer to the
recognized by commentators in this area. As one prominent question whether there was a disparity in bargaining power
authority has explained: "Tort obligations are in general between the parties in negotiating the Yellow Pages
obligations that are imposed by law--apart from and agreement. The court of appeals correctly determined that
independent of promises made and therefore apart from the disparity in bargaining power is irrelevant in a negligence
manifested intention of the parties--to avoid injury to suit. Perhaps the issue was submitted because DeLanney
others." W. KEETON, D. DOBBS, R. KEETON & D. pled that Bell's conduct was unconscionable under the
OWEN, PROSSER AND KEETON ON THE LAW OF DTPA. Because of his failure to comply with the notice
TORTS § 92 at 655 (5th Ed.1984) [hereinafter "PROSSER requirements of the DTPA, however, DeLanney's entire
AND KEETON"]. If the defendant's conduct--such as cause of action under the DTPA, including any claim of
negligently burning down a house--would give rise to unconscionability, was dismissed by a directed verdict. For
liability independent of the fact that a contract exists this reason, and because DeLanney submitted no contract
between the parties, the plaintiff's claim may also sound in issues, the jury finding concerning disparity of bargaining
tort. Conversely, if the defendant's conduct--such as failing power is of no effect.
to publish an advertisement--would give rise to liability
only because it breaches the parties' agreement, the For the foregoing reasons, the judgment of the court of
plaintiff's claim ordinarily sounds only in contract. [1] appeals is reversed, and judgment is rendered that
DeLanney take nothing.
In determining whether the plaintiff may recover on a
tort theory, it is also instructive to examine the nature of the GONZALEZ and DOGGETT, JJ., concur.
plaintiff's loss. When the only loss or damage is to the
subject matter of the contract, the plaintiff's action is MAUZY, J., dissents.
ordinarily on the contract. See PROSSER AND KEETON
GONZALEZ, Justice, concurring.
at 656; 1 J. EDGAR, JR. & J. SALES, TEXAS TORTS
AND REMEDIES § 1.03[b] at 1-36 (1990). We applied this I agree with the court that Bell's failure to publish the
analysis in Jim Walter Homes, advertisement was not a tort and that it sounded solely in
contract. I also agree that DeLanney failed to discharge his
Page 495
burden to obtain affirmative findings to jury questions on
Inc. v. Reed, 711 S.W.2d 617, 618 (Tex.1986), where we the contract. However, I do not fault the court of appeals for
wrote: its confusion. We have muddled the law of "contorts" and
an all encompassing bright line demarcation of what
The acts of a party may breach duties in tort or contract constitutes a tort distinct from breach of contract has proven
alone or simultaneously in both. The nature of the injury to be elusive. See generally W. PROSSER & W. KEETON,
most often determines which duty or duties are breached. THE LAW OF TORTS § 1 (5th ed. 1984); see also
When the injury is only the economic loss to the subject of American Nat'l Petro. Co. v. Transcontinental Gas Pipe
a contract itself the action sounds in contract alone. Line Corp., 798 S.W.2d 274, 280 (1990) (Gonzalez, J.,
dissenting).
Bell's duty to publish DeLanney's advertisement arose
solely from the contract. DeLanney's damages, lost profits, DeLanney and the court of appeals rely heavily on the
were only for the economic loss caused by Bell's failure to statement in Montgomery Ward & Co. v. Scharrenbeck, 146
perform. Although DeLanney pleaded his action as one in Tex. 153, 157, 204 S.W.2d 508, 510 (1947), that:
negligence, he clearly sought to recover the benefit of his
bargain with Bell. We hold that Bell's failure to publish the Accompanying every contract is a common-law duty to
advertisement was not a tort. [2] Under our analysis in perform with care, skill, reasonable expedience and
Reed, DeLanney's claim was solely in contract. faithfulness the thing agreed to be done, and a negligent
failure to observe any of these conditions
DeLanney, however, did not request jury questions on
Page 496 his telephone service. In this manner, the court endeavored
to connect the omission of the Yellow Pages advertisement
is a tort, as well as a breach of the contract. to Bell's duty of public service.
Despite this broad language, not every breach of The gravamen of DeLanney's complaint, however, was
contract accompanied by negligence creates a cause of not with his telephone service, which was changed
action in tort. In International Printing Pressman & according to request and apparently to his satisfaction.
Assistants' Union v. Smith, 145 Tex. 399, 198 S.W.2d 729, Rather, his complaint was with Bell's failure to publish his
735 (1946), we acknowledged that no single concise rule advertisement as promised, and this was a matter of private
will define the rights of parties in every situation. We contract. A-ABC Appliance, Inc. v. Southwestern Bell Tel.
nonetheless wrote: Co., 670 S.W.2d 733, 735 (Tex.App.--Austin 1984, writ
ref'd n.r.e.). Although Bell is a regulated public utility, all of
[G]enerally speaking, "actions in contract and in tort are to its functions are not in the realm of public service. The
be distinguished in that an action in contract is for the "printing, distribution, or sale of advertising in telephone
breach of a duty arising out of a contract either express or directories" is not a public service function.
implied, while an action in tort is for a breach of duty TEX.REV.CIV.STAT.ANN. art. 1446c, § 3(s) (Vernon
imposed by law...." "[I]f the action is not maintainable Supp.1991).
without pleading and proving the contract, where the gist of
the action is the breach of the contract, either by Limitation of Liability
malfeasance or nonfeasance, it is, in substance an action on
the contract, whatever may be the form of the pleading." The connection drawn by the court of appeals between
(citations omitted). the Yellow Pages advertisement and DeLanney's telephone
service also affected the court's view regarding the validity
Id., 198 S.W.2d at 735. I believe that this formulation of a limitation of liability clause contained in the contract
comes closer than Scharrenbeck to stating a general rule to between Bell and DeLanney. This clause provided:
distinguish contract from tort and that the broad language in
Scharrenbeck must be read in light of the particular The applicant agrees that the telephone company shall not
circumstances of that case. The opinion in Scharrenbeck is be liable for errors in or omissions of the directory
correct in its observation that a contract may be the advertising beyond the amount paid for the directory
occasion that brings the parties together, but it is the advertising omitted in which error occurs for the issue life
relationship or situation of the parties that gives rise to a of the directory involved.
duty in law, the breach of which is a tort. See Greater
Houston Transp. Co. v. Phillips, 801 S.W.2d 523 DeLanney argued that the clause was unenforceable
(Tex.1990). Had Montgomery Ward repaired the water and, in the context of DeLanney's
heater gratuitously, it would have owed Scharrenbeck a
duty not to create a dangerous condition. See Colonial Sav. Page 497
Ass'n v. Taylor, 544 S.W.2d 116, 119 (Tex.1976); Fox v.
negligence claim, the court of appeals agreed. 762 S.W.2d
Dallas Hotel Co., 111 Tex. 461, 240 S.W. 517, 520 (1922);
at 776.
RESTATEMENT (SECOND) OF TORTS § 323 (1965).
Thus the duty to not create a dangerous condition existed In an apparent attempt to resolve conflicting decisions,
independent of any contractual relationship. the court of appeals suggested that the clause might be
enforced to limit a claim for breach of contract, see Wade v.
In summary, when a party must prove the contents of
Southwestern Bell Tel. Co., 352 S.W.2d 460
its contract and must rely on the duties created therein, the
(Tex.Civ.App.--Austin 1961, no writ), but could not be
action is "in substance an action on the contract, even
applied to limit liability for negligence. See Reuben H.
though it is denominated an action for negligent
Donnelley Corp. v. McKinnon, 688 S.W.2d 612
performance of the contract." Bernard Johnson, Inc. v.
(Tex.App.--Corpus Christi 1985, writ ref'd n.r.e.); see also
Continental Constructors, Inc., 630 S.W.2d 365, 368
Helms v. Southwestern Bell Tel. Co., 794 F.2d 188 (5th
(Tex.App.--Austin 1982, writ ref'd n.r.e.) (emphasis in
Cir.1986). The conflict between Wade and McKinnon
original).
mirrors a larger split of authority regarding the validity of
Bell's Duty such limitation of liability clauses. See Annotation,
Liability of Telephone Company for Mistakes in or
The majority in the court of appeals also suggested that Omissions From its Directory, 47 A.L.R. 4th 882 (1986).
negligence was a proper theory because Bell carelessly
deleted DeLanney's advertisement while making changes to McKinnon follows a minority line of cases which
refuse to enforce such provisions. See Morgan v. South
Cent. Bell Tel. Co., 466 So.2d 107 (Ala.1985); Allen v. more favorable terms rendered the limitation of liability
Michigan Bell Tel. Co., 61 Mich.App. 62, 232 N.W.2d 302 clause unenforceable. In support of this argument, he relies
(1975); Rozeboom v. Northwestern Bell Tel. Co., 358 on a jury finding that a disparity in bargaining power
N.W.2d 241 (S.D.1984); Discount Fabric House, Inc. v. existed between himself and Bell when the contract was
Wisconsin Tel. Co., 117 Wis.2d 587, 345 N.W.2d 417 made. [1]
(1984). The unifying theme of these decisions is that
directory advertising is a unique advertising medium Page 498
inextricably linked to the telephone company's public
service function. Thus on the premise of Bell's status as a Bell responds that the validity of the clause limiting
public utility monopoly, these courts have rejected the liability was not a question of fact for the jury, but one of
limitation of liability as contrary to the public interest or law for the court. I agree. [2] This is clearly the case under
unconscionable. the Uniform Commercial Code. TEX.BUS. & COM.CODE
§ 2.302 comments 1 & 3 (Tex.UCC) (Vernon 1968); G.
A larger number of jurisdictions, however, have upheld WALLACH, THE LAW OF SALES UNDER THE
similar liability limitation clauses for directories. In Helms UNIFORM COMMERCIAL CODE p 5.04 at 5-5 (1981);
v. Southwestern Bell Telephone Co., the Fifth Circuit lists see also RESTATEMENT (SECOND) OF CONTRACTS §
decisions from twenty-six states which have upheld similar 208, comment f (1979). Although the UCC does not
clauses. Helms, 794 F.2d at 192 n. 9; see generally expressly apply to service transactions, such as the sale of
Annotation, Liability of Telephone Company for Mistakes advertising in the Yellow Pages, the provision pertaining to
in or Omissions From its Directory, 47 A.L.R. 4th 882. unconscionability "has been applied to numerous
These decisions have generally recognized Yellow Pages transactions outside the coverage of Article 2 of the Code."
advertising to be a matter of private contract, rather than a J. CALAMARI & J. PERILLO, THE LAW OF
public service function. The majority view is compatible CONTRACTS § 9-39 at 420 (3d Ed.1987); see also J.
with Texas law, which also excludes the sale of advertising WHITE & R. SUMMERS, THE UNIFORM
in directories from Bell's public service function. COMMERCIAL CODE § 4-32 at 200 (3d ed. 1989).
TEX.REV.CIV.STAT.ANN. art. 1446c, § 3(s); see also
A-ABC Appliance, 670 S.W.2d at 735. I therefore believe I also agree with Bell that bargaining disparity alone
that the majority view presents the sounder approach. does not establish unconscionability. Comments to the UCC
indicate that the principle of unconscionability is "not of
Unconscionability disturbance of allocation of risks because of superior
bargaining power." TEX.BUS. & COM.CODE ANN. §
Even though the Yellow Pages is a matter of private 2.302 comment 1. A comment to the Restatement provides
contract, DeLanney may still recover the full value of the that a "bargain is not unconscionable merely because the
consequential damages caused by Bell's breach of contract parties to it are unequal in bargaining position, nor even
if the clause limiting Bell's liability is unenforceable because the inequality results in an allocation of risks to the
because a court may deny enforcement of an weaker party." RESTATEMENT (SECOND) OF
unconscionable clause or contract. See Tri-Continental CONTRACTS § 208 comment d. The Code and
Leasing Corp. v. Burns, 710 S.W.2d 604, 609 Restatement thus agree that a disparity in bargaining power,
(Tex.App.--Houston [1st Dist.] 1985, writ ref'd n.r.e.) while relevant, is not the litmus test for unconscionability.
(Levy, J., dissenting); see also Universal C.I.T. Credit See Wade v. Austin, 524 S.W.2d 79, 85-86
Corp. v. Daniel, 150 Tex. 513, 243 S.W.2d 154, 159-60 (Tex.Civ.App.--Texarkana 1975, no writ). Something more
(1951); RESTATEMENT (SECOND) OF CONTRACTS § must be shown.
208 (1979); TEX.BUS. & COM.CODE ANN. § 2.302
(Tex.UCC) (Vernon 1968). We must consider then whether How much more is a difficult question, however,
the clause limiting Bell's liability for errors or omissions to because the term unconscionable has no precise legal
the cost of the Yellow Pages advertising is unconscionable definition. Courts and commentators have struggled with its
under the circumstances of this case. meaning. In Wade v. Austin, the court wrote that a
determination of unconscionability must be made from "the
DeLanney argues that it is. Because he had no entire atmosphere in which the agreement was made." Id. at
meaningful choice and no bargaining power in the 86. One authority has written that unconscionability cannot
transaction, he contends that his contract with Bell was one be defined because "(i)t is not a concept, but a
of adhesion. Yellow Pages was the only commercial determination to be made in light of a variety of factors not
telephone directory in DeLanney's market area at the time. unifiable into a formula." 1 J. WHITE & R. SUMMERS,
The only way to buy space in this directory was on Bell's UNIFORM COMMERCIAL CODE § 4-3 at 203 (3d ed.
terms dictated through a non-negotiable, standardized 1988) (emphasis in original). The UCC [3] and Restatement
contract. DeLanney concludes that his inability to negotiate [4] recognize the doctrine of unconscionability, but provide
only a rough outline of its meaning. Realtors, yard signs, radio and television. After weighing all
of the above, I am not convinced that the clause limiting
Although many factors are relevant and no single Bell's liability for errors or omissions to the cost of the
formula exists, [5] proof of a claim Yellow Pages advertising is unconscionable.
Page 499 For the foregoing reasons, I concur with the judgment.
of unconscionability begins with two broad questions: (1) DOGGETT, Justice, concurring.
How did the parties arrive at the terms in controversy; and
(2) Are there legitimate commercial reasons which justify I concur in the court's judgment but write separately
the inclusion of these terms? Mallor, Unconscionability in because it should, and could, be based solely upon our
Contracts Between Merchants, 40 Sw.L.J. 1065, 1072 holding in Jim Walter Homes, Inc. v. Reed, 711 S.W.2d
(1986); 1 J. WHITE & R. SUMMERS, UNIFORM 617, 618 (Tex.1986). Today's brief writing concerning the
COMMERCIAL CODE, § 4-3, 4-4 (3d ed. 1988); J. nature of torts and contracts unnecessarily adds more
CALAMARI & J. PERILLO, THE LAW OF confusion than clarity.
CONTRACTS, § 9-40 (3d.1987); R. HILLMAN, J.
MCDONNELL & S. NICKLES, COMMON LAW AND Page 500
EQUITY UNDER THE UNIFORM COMMERCIAL
CODE p 6.02[b-d] (1985); Williams v. Walker-Thomas The court does recognize that in some as yet
Furniture Co., 350 F.2d 445 (DC Cir.1965). The first unspecified instances a tort action may lie between
question, often described as the procedural aspect of contracting parties. It appropriately observes that a tort
unconscionability, [6] is concerned with assent and focuses action may arise based upon a number of relationships that
on the facts surrounding the bargaining process. Mallor, could be created by contract. Although the court offers only
Unconscionability in Contracts Between Merchants, 40 one example of a contractual relationship creating duties the
Sw.L.J. 1065, 1072 (1986). The second question, often breach of which gives rise to actions both in tort and
described as the substantive aspect of unconscionability, is contract, at 497 n. 1 (the relationship between a professional
concerned with the fairness of the resulting agreement. Id. and client), our developing jurisprudence recognizes others.
See, e.g., Viles v. Security Nat'l Ins. Co., 788 S.W.2d 566,
DeLanney concentrates on the procedural aspect, 567 (Tex.1990) (relationship between insured and insurer).
emphasizing the absence of any meaningful choice in the In addition, the court correctly recognizes that the breach of
bargain. Bell, on the other hand, contends that the provision certain common-law duties creates liability in tort; the
was nevertheless fair and reasonable under the existing existence of a contract does not alter those duties.
commercial circumstances.
It is thus incumbent upon the trial courts not to begin
Bell submits that its contract merely sought to and end their inquiry with the contract but to examine the
reallocate the commercial risk inherent in its business in a circumstances surrounding the parties' relationship,
reasonable manner. This risk existed because the directory including any duties imposed by law, in determining
was to run for one year and mistakes could not be corrected whether a tort action may be maintained.
during this period. Bell contends that the enormous benefit
derived from Yellow Pages advertising by some subscribers MAUZY, Justice, dissenting.
when compared to the relatively modest amount charged by
I respectfully dissent. The contractual relationship
Bell, coupled with Bell's inability to mitigate damages,
creates duties not only under contract law, but under tort
created a business risk it needed to reallocate. This it
law as well. A contract may create the state of things which
attempted to do by limiting its liability.
furnishes the occasion for the tort. Montgomery Ward &
Bell further submits that the clause limiting liability Co. v. Scharrenbeck, 146 Tex. 153, 157, 204 S.W.2d 508,
was not one-sided or grossly unfair because it benefitted 510 (1947).
both parties. It benefitted the subscriber by keeping Yellow
Every contract is accompanied by a duty to perform
Pages rates low in relation to other types of advertising and
that contract with care, skill, reasonable expedience and
in relation to the return expected by the subscriber. It
faithfulness. The negligent failure to observe any of the
benefitted Bell by shielding it from a risk of potential
conditions imposed by this duty constitutes a tort. Id. In
liability which was out of proportion to the consideration
determining whether the action is one in contract or tort or
charged by Bell. Although it would not negotiate, Bell
both, the court must look to the substance of the cause of
argues that DeLanney had other suitable advertising
the action, and not necessarily the manner in which it was
alternatives such as newspapers, magazines, direct mail,
pleaded. Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617,
phone solicitation, the Multiple Listing Service, Board of
617-18 (Tex.1986) (citing International Printing Pressman
and Ass't Union v. Smith, 145 Tex. 399, 198 S.W.2d 729 has never adopted the old forms of action; thus, "it makes
(1946)). When the injury involves failure to perform a no difference in what shape a plaintiff presents his cause of
contract and the only loss is that economic loss that is the action, the courts will look to the substance of it, and not be
substance of the contract itself, the action sounds only in controlled by the mere form in which it is set forth." Rector
contract and not in tort. Jim Walter Homes, 711 S.W.2d at v. Orange Rice Mill Co., 100 Tex. 591, 102 S.W. 402, 403
618. (1907). The option to proceed in contract or tort is available
not to diminish the plaintiff's rights, but rather to afford the
This case involves more than the mere failure to plaintiff a suitable remedy. See Briggs v. Rodriguez, 236
perform or negligent performance of the Yellow Pages S.W.2d 510, 514-15 (Tex.Civ.App.--San Antonio 1951,
contract. The action of Bell that gave rise to DeLanney's writ ref'd n.r.e.).
tort cause of action was the negligent performance of its
contract to provide telephone service to DeLanney, not the "In jurisdictions where the old forms of action have
negligent performance of its contract to provide the Yellow been totally abolished, there should be nothing left of the
Pages advertisement. DeLanney had two contracts with whole doctrine excepting a few historical echoes." Corbin,
Bell. For several years he had contracted with Bell for Waiver of Tort and Suit in Assumpsit, 19 Yale L.J. 221,
Yellow Pages advertisements, and he had already 246 (1910). The echo heard from the majority today is out
contracted with Bell for a 1980-81 Yellow Pages listing of tune with modern jurisprudence, and wrongly deprives
prior to the incident the subject of this lawsuit. In addition DeLanney of an adequate remedy at law.
to the Yellow Pages advertisement contract, DeLanney had
a separate contract with Bell for telephone service. Prior to This case was correctly tried in the trial court. The
the publication of the 1980-81 telephone directory, jury's verdict formed the basis of the trial court's judgment,
DeLanney contracted to alter his telephone service by which the court of appeals rightly affirmed. I would affirm
canceling his single line and adding a third number to his the judgment of the court of appeals.
two-number rotary line. When the alteration of the
telephone service was requested, the separate contract for ---------
the Yellow Pages advertisement was not modified or even
Notes:
mentioned by either party. Cancellation of the single
telephone line, pursuant to the telephone service contract, [1] Of course, some contracts involve special relationships
resulted in the cancellation of the Yellow Pages that may give rise to duties enforceable as torts, such as
advertisement because the advertisement was billed to that professional malpractice.
number. The Yellow Pages advertisement itself was not
even contemplated within the telephone service contract. It [2] Prosser and Keeton suggest seven generalizations as
was the negligent performance of the telephone service helpful in distinguishing between tort and contract liability.
contract that the jury found was the proximate cause of Those which are useful to this case include: (1) obligations
DeLanney's damages. [1] Southwestern Bell breached its imposed by law are tort obligations; (2) misfeasance or
negligent affirmative conduct in the performance of a
Page 501 promise generally subjects an actor to tort liability as well
as contract liability for physical harm to persons and
duty to perform the telephone service contract with care,
tangible things; (3) recovery of intangible economic losses
skill and faithfulness. The negligent performance of the
is normally determined by contract law; and (4) there is no
telephone service contract caused damages to DeLanney
tort liability for nonfeasance, i.e., for failing to do what one
that were unrelated to the subject of the telephone service
has promised to do in the absence of a duty to act apart
contract. If Bell had not negligently performed the
from the promise made. PROSSER AND KEETON at
telephone service contract, DeLanney's advertisement
656-57.
would have been published as it had been in the past.
[1] The following question was submitted to the jury over
To confine DeLanney to recovery in contract, when his
Bell's objections:
damages clearly extend beyond the contract itself, is to step
back into the days of the common-law forms of action. Do you find from a preponderance of the evidence that
Originally, forms of action were rigidly prescribed, and a there was a disparity of bargaining power between the
plaintiff had no cause of action unless he could fit his claim plaintiff and the defendant in negotiating the contract for
"into the form of some existing and recognized writ." W. Yellow Page advertising.
Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser and
Keeton on the Law of Torts § 6 at 28 (5th ed. 1984); see Instruction: A disparity of bargaining power exists when
Nelson v. Krusen, 678 S.W.2d 918, 932 (Tex.1984) one party has no real choice in accepting an agreement
(Kilgarlin, J., concurring and dissenting). Texas, though,
limiting the liability of the other party. Tel. Co., 219 Kan. 755, 549 P.2d 903, 906-07 (1976).
The jury found there was a disparity of bargaining power. [6] As a framework for decision commentators and courts
have generally followed the analysis proposed by Professor
[2] Here we are concerned with unconscionability under the Arthur Leff. Leff, Unconscionability and the Code--The
common law as distinguished from unconscionability under Emperor's New Clause, 115 U.Pa.L.Rev. 485, 487 (1967).
the DTPA. The DTPA defines "unconscionable action or Professor Leff labelled the different types of
course of action" and, unlike the common law, makes it an unconscionability as "substantive" and "procedural,"
issue of fact for the jury. Tex.Bus. & Com.Code Ann. § distinguishing the content of the contract from the process
17.45(5); see also Chastain v. Koonce, 700 S.W.2d 579, by which the allegedly offensive terms found their way into
582 (Tex.1985). the agreement.
[3] The comment to UCC section 2.302 provides: [1] In its answers to the special issues, the jury specifically
found Bell to be negligent.
The basic test is whether, in light of the general commercial
background and the commercial needs of the particular Issue (1)(a) Whether Bell was negligent in failing to inform
trade or case, the clauses involved are so one-sided as to be DeLanney that the installation of a rotary system would
unconscionable under the circumstances existing at the time cancel the Yellow Pages listing.
of the making of the contract.... The principal is one of the
prevention of oppression and unfair surprise ... and not of Issue (1)(b) Whether Bell was negligent in failing to
disturbance of allocation of risks because of superior adequately train and inform its employees that an order to
bargaining power. cancel one of the telephone numbers would cancel the
Yellow Pages advertisement; and
Tex.Bus. & Com.Code Ann. § 2.302 comment 1.
Issue (1)(c) Whether Bell was negligent in failing to
[4] A comment to section 208 of the Restatement provides: recognize that the automatic cancellation of the Yellow
Pages advertisement would occur when the billing
The determination that a contract or term is or is not procedure was changed.
unconscionable is made in the light of its setting, purpose
and effect. Relevant factors include weaknesses in the The jury further found that each of these acts of negligence
contracting process like those involved in more specific proximately caused DeLanney's injuries.
rules as to contractual capacity, fraud, and other
invalidating causes; the policy also overlaps with rules ---------
which render particular bargains or terms unenforceable on
grounds of public policy.
RESTATEMENT (SECOND) OF CONTRACTS § 208
comment a (1979).
[5] The Supreme Court of Kansas has identified ten factors
as useful aids in determining unconscionability questions.
They are: (1) the use of printed form contracts drawn by the
party in the strongest economic position, which establish
industry-wide standards offered on a take it or leave it
basis; (2) excessive price; (3) a denial of basic rights and
remedies to a consumer buyer; (4) the inclusion of penalty
clauses; (5) the circumstances surrounding the execution of
the contract, including commercial setting; (6) the hiding of
disadvantageous clauses in a mass of fine print or in
inconspicuous places; (7) phrasing clauses in language that
is incomprehensible to a layman or that diverts his attention
from the problems they raise; (8) an overall imbalance in
the obligations and rights imposed by the bargain; (9)
exploitation of the underprivileged, unsophisticated,
uneducated, and the illiterate; and (10) inequality of
bargaining or economic power. Wille v. Southwestern Bell
Page 913 other parties also joined in the litigation.
811 S.W.2d 913 (Tex. 1991) On July 3, 1988, the district court issued a docket
control order pursuant to Rule 166
TRANSAMERICAN NATURAL GAS
CORPORATION, Relator, Page 915
v. of the Texas Rules of Civil Procedure, which set a
discovery cutoff date of April 3, 1989. The order allowed
Hon. William R. POWELL, Judge of the 80th District discovery to be conducted beyond that date only upon
Court of agreement of the parties.
Harris County, Texas, Respondent. On March 7, 1989, Toma noticed the deposition of
TransAmerican's president, K. Craig Shephard, to take
No. C-9294. place March 16. Two days later TransAmerican's counsel,
who at that time was one of the attorneys in its legal
Supreme Court of Texas.
department, telephoned Toma's counsel to inform him that
Shephard could not be available on March 16 because of a
June 19, 1991
previously scheduled deposition in another case. When
Page 914 counsel could not agree on another date for Shephard's
deposition, TransAmerican filed a motion for protection to
James Kronzer, Don Henderson, Robert V. Holland, Jr., quash the deposition notice and postpone the deposition.
John C. Nabors, Karen Zuckerman, Bill Jones, Kenneth E. The motion stated that it would be submitted to the trial
McKay and Joe H. Reynolds, Houston, for relator. court for ruling on March 17. [1] However, the trial court
did not rule on the motion on that date.
Michael C. Feehan, Beverly Arleen Sandifer, G. Byron
Sims, Daniel J. Kasprzak, Jonathan C.S. Cox, Ann Ryan Beginning April 3, the deadline set by the district court
Robertson and Donald F. Hawbaker, Houston, for for completion of discovery, the parties' smoldering
respondent. discovery problem started to flare. On that date, counsel for
TransAmerican and Toma agreed that Shephard would be
OPINION deposed after April 10 on a date to be agreed upon. Despite
this understanding, counsel again failed to agree upon a
HECHT, Justice. date, and on April 19 Toma noticed Shephard's deposition
for May 2 without TransAmerican's consent. On April 20,
In this original mandamus proceeding, TransAmerican
upon receipt of this second deposition notice,
Natural Gas Corporation seeks to compel the Hon. William
TransAmerican's counsel wrote a letter to Toma's counsel
R. Powell, Judge of the 80th District Court, to set aside his
informing him that Shephard would not be available May 2
orders imposing sanctions for discovery abuse. The district
because, as before, he already had a deposition in another
court struck TransAmerican's pleadings, dismissed its
matter scheduled for that day. Toma's counsel replied by
action against Toma Steel Supply, Inc., and granted Toma
letter that he would not agree to reschedule the deposition.
an interlocutory default judgment on its counterclaim
On April 27, TransAmerican reset the date for submission
against TransAmerican, reserving for trial only the amount
of its motion for protection to the trial court for ruling to
of damages due Toma. We conditionally grant the writ of
May 12. By this time, of course, the motion was moot, and
mandamus.
it is not apparent why TransAmerican continued to seek a
ruling. TransAmerican did not move the trial court to
I
postpone the May 2 deposition.
The underlying case is a complex, multi-party action
Also on April 27, Shephard's other deposition
arising out of Toma's sale of allegedly defective pipe casing
scheduled for May 2 was cancelled, leaving him available
to TransAmerican. TransAmerican withheld payment for
to be deposed by Toma. However, TransAmerican's counsel
the casing, apparently some $2.3 million, and sued Toma in
did not advise Toma's counsel that Shephard's schedule had
April 1987 for damages allegedly caused by its use. Toma
changed so that he could be deposed on May 2 after all, nor
counterclaimed for $52 million damages resulting from
did Shephard appear on May 2 as noticed. TransAmerican
TransAmerican's refusal to pay for the casing. Numerous
ascribes its failure to produce Shephard for deposition to
miscommunication concerning his schedule changes with proper discovery requests or to obey an order to
between attorneys in its legal department. Toma alleges that provide or permit discovery, ... the court in which the action
Shephard's failure to appear was purposeful and part of is pending may, after notice and hearing, make such orders
TransAmerican's intentional obstruction of the discovery in regard to the failure as are just, and among others the
process. following:
On May 8, Toma filed a response to TransAmerican's .....
March 14 motion for protective order, even though it
acknowledged that that motion was moot. Toma included in (5) An order striking out pleadings or parts thereof, ...
its response, however, a motion for sanctions against or dismissing with or without prejudice the action or
TransAmerican based on Shephard's failure to appear at the proceedings or any part thereof, or rendering a judgment by
May 2 deposition. In return, TransAmerican filed its own default against the disobedient party....
sanctions motion on May 11, urging that Toma's motion for
sanctions was itself an abuse of the discovery process. At the time of the district court's rulings, paragraph 3 of
Toma's and TransAmerican's motions for sanctions both Rule 215 stated in part:
stated that they would be submitted to the court for ruling
If the court finds a party is abusing the discovery
on May 12, the date set for submission of TransAmerican's
process in seeking, making or resisting discovery ..., then
original motion for protection.
the court in which the action is pending may impose any
On May 12, without hearing oral argument, [2] the sanction authorized by paragraphs (1), (2), (3), (4), (5), and
district court signed an order (8) of paragraph 2b of this rule. Such order of sanction shall
be subject to review on appeal from the final judgment. [4]
Page 916
Page 917
granting Toma's motion for sanctions and striking
TransAmerican's pleadings in their entirety. TransAmerican Both paragraphs leave the choice of sanctions to the
moved for reconsideration, which the district court denied sound discretion of the trial court. Bodnow Corp. v. City of
after hearing argument of counsel but refusing to hear any Hondo, 721 S.W.2d 839, 840 (Tex.1986). However,
evidence. Based upon his May 12 order striking paragraph 2(b) explicitly requires that any sanctions
TransAmerican's pleadings, the district court issued an imposed be "just". By referring to paragraph 2(b),
order on October 6 dismissing TransAmerican's action with paragraph 3 incorporates the same requirement. Thus,
prejudice, rendering an interlocutory default judgment whether the district court imposed sanctions under
against TransAmerican and in favor of Toma on its paragraph 2(b) or paragraph 3, we consider whether those
counterclaim, and setting the case for trial solely on the sanctions were just. [5] See Bodnow, 721 S.W.2d at 840.
issue of the damages to be awarded Toma.
In our view, whether an imposition of sanctions is just
TransAmerican sought mandamus relief from the court is measured by two standards. First, a direct relationship
of appeals to compel the district court to set aside his May must exist between the offensive conduct and the sanction
12 and October 6 orders. A divided court of appeals denied imposed. This means that a just sanction must be directed
TransAmerican leave to file its petition for writ of against the abuse and toward remedying the prejudice
mandamus in an unpublished per curiam opinion. [3] caused the innocent party. It also means that the sanction
TransAmerican then moved for leave to file its petition in should be visited upon the offender. The trial court must at
this Court. We granted the motion in order to review the least attempt to determine whether the offensive conduct is
propriety of the discovery sanctions imposed by the district attributable to counsel only, or to the party only, or to both.
court. This we recognize will not be an easy matter in many
instances. On the one hand, a lawyer cannot shield his client
II from sanctions; a party must bear some responsibility for its
counsel's discovery abuses when it is or should be aware of
The sanctions imposed by the district court are among counsel's conduct and the violation of discovery rules. On
those authorized for various discovery abuses under Rule the other hand, a party should not be punished for counsel's
215 of the Texas Rules of Civil Procedure. The district conduct in which it is not implicated apart from having
court did not specify what provision of Rule 215 it relied entrusted to counsel its legal representation. The point is,
upon. The portions of the rule applicable to the the sanctions the trial court imposes must relate directly to
circumstances here are paragraphs 2(b)(5) and 3. Paragraph the abuse found.
2(b)(5) provides in part:
Second, just sanctions must not be excessive. The
If a party or an officer ... of a party ... fails to comply punishment should fit the crime. A sanction imposed for
discovery abuse should be no more severe than necessary to [7]
satisfy its legitimate purposes. It follows that courts must
consider the availability of less stringent sanctions and In the present case, it is not clear whether
whether such lesser sanctions would fully promote TransAmerican or its counsel or both should be faulted for
compliance. Shephard's failure to attend his deposition. Moreover, there
is nothing in the record to indicate that the district court
These standards set the bounds of permissible sanctions considered imposition of lesser sanctions or that such
under Rule 215 within which the trial court is to exercise sanctions would not have been effective. If anything, the
sound discretion. [6] The imposition of very severe record strongly suggests that lesser sanctions should have
sanctions is limited, not only by these standards, but by been utilized and perhaps would have been effective. The
constitutional due process. The sanctions the district court district court could have ordered Shephard's deposition for a
imposed against TransAmerican are the most devastating specific date and punished any failure to comply with that
order by contempt or another sanction. He also could have
Page 918 taxed the costs of the deposition against TransAmerican and
awarded Toma attorney fees. The range of sanctions
a trial court can assess against a party. When a trial court available to the district court under Rule 215 is quite broad.
strikes a party's pleadings and dismisses its action or The district court dismissed TransAmerican's claims against
renders a default judgment against it for abuse of the Toma and rendered default judgment for Toma on its
discovery process, the court adjudicates the party's claims counterclaim solely because, as the record before us
without regard to their merits but based instead upon the establishes, TransAmerican's president failed to present
parties' conduct of discovery. "[T]here are constitutional himself for his deposition. [8] Nothing in the
limitations upon the power of courts, even in aid of their
own valid processes, to dismiss an action without affording Page 919
a party the opportunity for a hearing on the merits of his
cause." Societe Internationale v. Rogers, 357 U.S. 197, record before us even approaches justification for so severe
209-10, 78 S.Ct. 1087, 1094, 2 L.Ed.2d 1255 (1958), citing a sanction. [9]
Hammond Packing Co. v. Arkansas, 212 U.S. 322, 350-51,
29 S.Ct. 370, 379-80, 53 L.Ed. 530 (1909), and Hovey v. We recognize that we affirmed a similar sanction in
Elliott, 167 U.S. 409, 17 S.Ct. 841, 42 L.Ed. 215 (1897); Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238,
accord Insurance Corp. of Ireland, Ltd. v. Compagnie des 241-42 (Tex.1985), cert. denied, 476 U.S. 1159, 106 S.Ct.
Bauxites de Guinee, 456 U.S. 694, 705-06, 102 S.Ct. 2099, 2279, 90 L.Ed.2d 721 (1986). In that case the trial court
2105-06, 72 L.Ed.2d 492 (1982). Discovery sanctions struck defendant's answer and rendered a default judgment
cannot be used to adjudicate the merits of a party's claims or against it based upon the failure of defendant and his
defenses unless a party's hindrance of the discovery process employees to appear for their depositions on three separate
justifies a presumption that its claims or defenses lack occasions without explanation. Even assuming that Downer
merit. Insurance Corp. of Ireland, 456 U.S. 694, 705-06, was correctly decided, the instant case does not show the
102 S.Ct. 2099, 2105-06; Rogers, 357 U.S. at 209-10, 78 same pattern of abuse present in Downer. Furthermore,
S.Ct. at 1094; Hammond Packing, 212 U.S. at 350-51, 29 Downer 's approval of the sanction of default judgment was
S.Ct. at 379-80. However, if a party refuses to produce specifically based upon the facts of that case, and the
material evidence, despite the imposition of lesser holding in that case is limited to those facts. Rendition of
sanctions, the court may presume that an asserted claim or default judgment as a discovery sanction ought to be the
defense lacks merit and dispose of it. Insurance Corp. of exception rather than the rule.
Ireland, 456 U.S. at 705-06, 102 S.Ct. at 2105-06. Although
punishment and deterrence are legitimate purposes for There are cases, of course, when striking pleadings,
sanctions, National Hockey League v. Metropolitan Hockey dismissal, rendition of default and other such extreme
Club, Inc., 427 U.S. 639, 96 S.Ct. 2778, 49 L.Ed.2d 747 sanctions are not only just but necessary. See National
(1976) (per curiam); Bodnow Corp. v. City of Hondo, 721 Hockey League, 427 U.S. at 642, 96 S.Ct. at 2780. In this
S.W.2d at 840 they do not justify trial by sanctions, case, however, the record before us establishes that the
Hammond Packing, 212 U.S. at 350-51, 29 S.Ct. at 379-80; severe sanctions the district court imposed against
Hovey, 167 U.S. at 413-14, 17 S.Ct. at 843. Sanctions TransAmerican were manifestly unjust in violation of Rule
which are so severe as to preclude presentation of the merits 215.
of the case should not be assessed absent a party's flagrant
III
bad faith or counsel's callous disregard for the
responsibilities of discovery under the rules. See National We next consider whether TransAmerican has an
Hockey League, 427 U.S. at 642-643, 96 S.Ct. at 2780-81. adequate remedy by appeal. If it does, then the writ of
mandamus must be denied. State v. Walker, 679 S.W.2d GONZALEZ, Justice concurring.
484, 485 (Tex.1984). Rule 215, paragraph 3 states that
orders imposing discovery sanctions "shall be subject to I concur with the court's opinion and judgment. The
review on appeal from the final judgment." Today we have sanction in this case was clearly out of proportion to the
held in Braden v. Downey, 811 S.W.2d 922 (1991), that offense committed by relator and the opinion appropriately
sanctions should not be imposed in such a way that disposes of the present controversy. However, neither our
effective appellate review is thwarted. Whenever a trial rules nor the court have set guidelines for imposing
court imposes sanctions which have the effect of sanctions. They envision a large degree of discretion vested
adjudicating a dispute, whether by striking pleadings, in the trial court and innovation should not be discouraged
dismissing an action or rendering a default judgment, but in attempting to fashion an appropriate sanction. However,
which do not result in rendition of an appealable judgment, trial judges should not be trigger happy. They should first
then the eventual remedy by appeal is inadequate. issue orders compelling discovery. In all but the most
Specifically, in this case TransAmerican does not have an egregious circumstances, other lesser sanctions should be
adequate remedy by appeal because it must suffer a trial tried first before imposing the ultimate sanction of the
limited to the damages claimed by Toma. The entire "death penalty" (dismissal of pleadings). Cases should be
conduct of the litigation is skewed by the removal of the won or lost on their merits, not on discovery or sanctions
merits of TransAmerican's position from consideration and gamesmanship. Thus I write separately to offer additional
the risk that the trial court's sanctions will not be set aside guidance to the bench and bar.
on appeal. Resolution of matters in dispute between the
parties will be influenced, if not dictated, by the trial court's In assessing sanctions under Rule 215 of the Texas
determination of the conduct of the parties during Rules of Civil Procedure, the punishment must fit the crime.
discovery. Some award of damages on Toma's counterclaim Furthermore, a sanction should be a function of both the
is likely, leaving TransAmerican with an appeal, not on facts presented and the purpose of the rule the court is
whether it should have been liable for those damages, but enforcing. G. JOSEPH, SANCTIONS: THE FEDERAL
on whether it should have been sanctioned for discovery LAW OF LITIGATION ABUSE § 16 (1989). If this is not
abuse. This is not an effective appeal. clear from the record, the trial court is more apt to be
second guessed by the appellate courts.
Page 920
The Litigation Section of the American Bar Association
We therefore hold that when a trial court imposes promulgated the following standards and guidelines to be
discovery sanctions which have the effect of precluding a considered when determining whether to assess sanctions
decision on the merits of a party's claims--such as by under Federal Rule 11:
striking pleadings, dismissing an action, or rendering
default judgment--a party's remedy by eventual appeal is a. the good faith or bad faith of the offender;
inadequate, unless the sanctions are imposed
b. the degree of willfulness, vindictiveness, negligence,
simultaneously with the rendition of a final, appealable
or frivolousness involved in the offense;
judgment. If such an order of sanctions is not immediately
appealable, the party may seek review of the order by c. the knowledge, experience, and expertise of the
petition for writ of mandamus. Although not every such offender;
case will warrant issuance of the extraordinary writ, this
case does. TransAmerican's remedy by appeal from a final d. any prior history of sanctionable conduct on the part
judgment eventually to be rendered in Toma's favor is of the offender;
inadequate.
e. the reasonableness and necessity of the out-of-pocket
*** expenses incurred by the offended person as a result of the
misconduct;
Accordingly, we hold that TransAmerican is entitled to
the mandamus relief it seeks. We are confident that Judge f. the nature and extent of prejudice, apart from
Powell will vacate his orders of May 12 and October 6, out-of-pocket expenses, suffered by the offended person as
after which he may conduct further proceedings consistent a result of the misconduct;
with this opinion. Our writ of mandamus will issue only in
the event he fails promptly to comply. g. the relative culpability of client and counsel, and the
impact on their privileged relationship of an inquiry into
Concurring opinions by GONZALEZ and MAUZY, JJ. that area;
h. the risk of chilling the specific type of litigation
involved; (7) An order precluding the litigation of certain issues;
i. the impact of the sanction on the offender, including (8) An order precluding the litigation of certain claims
the offender's ability to pay a monetary sanction; or defenses;
j. the impact of the sanction on the offended party, (9) Dismissal of the action or entry of a
including the offended person's need for compensation;
Page 922
Page 921
default judgment. [5]
k. the relative magnitude of sanction necessary to
achieve the goal or goals of the sanction; ABA Standards and Guidelines, 121 F.R.D. at 124.
l. burdens on the court system attributable to the Sanctions are tools to be used by a court to right a
misconduct, including consumption of judicial time and wrong committed by a litigant. Any given sanction should
incurrence of juror fees and other court costs; be designed to accomplish that end. Sanctions can be
compensatory, punitive or deterrent in nature. See G.
m. the degree to which the offended person attempted JOSEPH, SANCTIONS: THE FEDERAL LAW OF
to mitigate any prejudice suffered by him or her; LITIGATION ABUSE § 16 (1989). The court should assess
the type of sanction most likely to prevent a recurrence of
n. the degree to which the offended person's own the offending conduct. The court should also consider the
behavior caused the expenses for which recovery is relative culpability of the counsel and client when selecting
sought.... [1] the appropriate sanction. See, e.g., Westmoreland v. CBS,
Inc., 770 F.2d 1168, 1178-79 (D.C.Cir.1985).
American Bar Association, Standards and Guidelines
for Practice Under Rule 11 of the Federal Rules of Civil The foregoing guidelines are simply suggestions to
Procedure, reprinted in 121 F.R.D. 101 (1988). guide a trial court in its struggle to make the punishment fit
the crime.
I recognize that Federal Rule 11 is not comparable to
Rule 215 of Texas Rules of Civil Procedure and that MAUZY, Justice, concurring.
Federal Rule 11 does not specify the types of sanctions that
may be imposed. However, we do not have to re-invent the I concur in the Court's judgment, but write separately to
wheel. In my opinion, the ABA guidelines developed for outline the guidelines which I feel are necessary to explain
determining when to assess sanctions under Federal Rule 11 the parameters of our decision today. Whether or not a
are instructive whenever sanctions are imposed or denied sanction is appropriate must be determined by the particular
under Texas Rule 215. facts of the individual case. In order to determine the
appropriate sanctions in each case, the trial court should
As the court notes, the range of sanctions available to a engage in a three-part inquiry. First, the trial court must
trial court under Rule 215 is quite broad. Some of these resolve the question of whether the offending conduct
sanctions include: actually constitutes an abuse of the discovery process.
Second, the court must determine who is actually
(1) A reprimand of the offender; [2] responsible for the offensive conduct and the extent of their
culpability. Third, the court must determine what sanctions
(2) Mandatory continuing legal education;
would be appropriate under the circumstances. The trial
(3) A fine; [3] court should impose sanctions only upon those who actually
abuse the discovery process and only in a manner consistent
(4) An award of reasonable expenses, including with the goals of deterring such conduct and correcting the
reasonable attorney's fees, incurred as a result of the resulting injustice. Courts must strike a careful balance in
misconduct; imposing sanctions. On one hand, the trial court should
make clear that abuse of the discovery process is
(5) Reference of the matter to the appropriate attorney reprehensible and completely contrary to the orderly
disciplinary or grievance authority; [4] administration of justice. On the other hand, the trial court
must avoid rulings that would serve to chill vigorous
(6) An order precluding the introduction of certain advocacy. In making its determination as to what sanctions
evidence; would be appropriate in a particular case, the court should
also consider the offending behavior in terms of the duty
owed the court system. Attorneys, as officers of the court,
should be held to a higher standard than others. Parties, case as relief from sanctions. Street v. Second Court of
however, should only be sanctioned for conduct in which Appeals, 715 S.W.2d 638, 639-640 (Tex.1986).
they are actually implicated. For example, a party which, by
virtue of contract, incapacity or incompetency, or the very The motion for leave is overruled.
nature of the lawsuit, has only limited control of his
attorney and the course of litigation, should not be PER CURIAM
sanctioned for actions over which it had no control. Courts
Motion for leave to file petition for writ of mandamus
should strive to curb abuses of the judicial process by
overruled June 16, 1989, and Opinion filed June 29, 1989.
litigants and their attorneys, and should impose sanctions
upon those who abuse the process in order to deter such Panel consists of Chief Justice J. Curtiss Brown and
misconduct. However, trial judges have an obligation, when Justices Junell and Draughn.
imposing sanctions, to ensure that the punishment must fit
the crime and is imposed only upon the actual offender or Do Not Publish. TEX.R.APP.P. 90.
offenders.
Justice Draughn would grant.
---------
[4] Rule 215, paragraph 3 was amended, effective
Notes: September 1, 1990, to require that sanctions be imposed
only after notice and hearing and only as "appropriate".
[1] The local rules governing civil cases in Harris County (Similar amendments were made at the same time in Rule
provide: "Motions shall state a date of submission which 13, TEX.R.CIV.P.) However, the requirement that sanctions
shall be at least 10 days from filing, except on leave of be appropriate was implicit in the rule before the
court. The motion will be submitted to the court for ruling amendment. Koslow's v. Mackie, 796 S.W.2d 700, 703 n. 1
on that date or later." Rule 3.3.2, Local Rules of the Civil (Tex.1990). In the context of Rule 215, "appropriate" and
Trial Division of the Harris County District Courts (1987). "just" are equivalent standards.
The March 17 submission date stated in TransAmerican's
motion was only three days from the date of filing of the [5] TransAmerican contends that Toma's notice to take
motion and the day after the deposition was scheduled. Shephard's deposition on May 2 was not a "proper"
discovery request under Rule 215, paragraph 2(b) because it
[2] Rule 3.3.4 of the Local Rules of the Civil Trial Division issued after the discovery cutoff date set by Judge Powell.
of the Harris County District Courts (1987) allows any Toma responds that its request was proper because
party to request oral argument on a motion if the party TransAmerican agreed that Shephard could be deposed
"views it as necessary." Neither TransAmerican nor Toma after the cutoff, as permitted by the district court's
appears to have requested oral argument on any of their scheduling order. TransAmerican answers even if there
motions before May 12. were a binding agreement to depose Shephard after the
cutoff, no date was ever agreed to.
[3] Because of its brevity, we reproduce the court of
appeals' opinion below rather than order it published as we TransAmerican also contends that the hearing required by
would ordinarily do when granting relief: Rule 215, paragraph 2(b) is an oral hearing, not merely a
submission of the issue on written motion and response, and
OPINION
that it was denied such a hearing before the imposition of
Relator asks us to order respondent to withdraw his order sanctions. Further, TransAmerican argues that the notice
imposing sanctions. This is a breach of contract case required by Rule 215, paragraph 2(b) is at least ten days'
involving the failure of defective casing on gas wells. notice, and that Toma's motion for sanctions was filed only
Relator filed suit against Toma Steel Supply, Inc. Toma four days before the district court ruled on it. Toma
filed a counterclaim against relator. Toma filed numerous responds that TransAmerican did not request an oral
third party claims against suppliers. Those suppliers have hearing, that an oral hearing was not necessary and is not
filed cross actions against Toma. required by the rule, and that in any event, TransAmerican
received an oral hearing on its motion to reconsider, thus
On May 12, 1989, respondent granted Toma's motion for satisfying any requirement of the rule. Toma also argues
sanctions against relator, striking relator's pleadings for the that Rule 215, paragraph 2(b), requires only reasonable
failure of its president, K. Craig Shephard, to appear for a notice, and that four days' notice to TransAmerican in this
May 2, 1989, deposition. Relator argues respondent's action case was reasonable because TransAmerican was able to
constitutes an abuse of discretion. respond fully to the motion before the district court ruled.
A writ of mandamus is not properly granted in an ordinary Our resolution of the matter before us does not require that
we address these arguments, and we express no view on any helpful for appellate review of sanctions, especially when
of them. severe, to have the benefit of the trial court's findings
concerning the conduct which it considered to merit
[6] JUSTICE GONZALEZ' concurring opinion sets out sanctions, and we commend this practice to our trial courts.
guidelines for assessing sanctions which have been See Thomas v. Capital Security Services, Inc., 836 F.2d
identified in the context of applying Rule 11, FED.R.CIV.P. 866, 882-883 (5th Cir.1988). Precisely to what extent
Post, at 920-922. Our analysis of this case does not require findings should be required before sanctions can be
us to consider whether those factors or others are imposed, however, we leave for further deliberation in the
appropriate considerations in imposing sanctions. However, process of amending the rules of procedure.
we do subscribe to the principle, inherent in the effort to
state guidelines, that the trial court's discretion in assessing [1] The omitted guidelines are specifically tailored to
sanctions must be guided by a reasoned analysis of the address the concerns of Federal Rule of Civil Procedure 11
purposes sanctions serve and the means of accomplishing and therefore are not appropriate for inclusion in this
those purposes. general discussion of sanctions.
[7] National Hockey League cites Rogers but not Hammond [2] Although this is typically the least serious sanction
Packing, and does not refer to the rule of the latter that available, some courts have attempted to use the reprimand
discovery sanctions cannot be used to dispose of the merits as a method of embarrassing the lawyer who has committed
of a claim or defense unless the offending party's the offense. For example the court could require the
withholding of evidence warrants a presumption that its reprimanded lawyer to provide a certified copy of the
claim or defense is without merit. Nevertheless, the conduct reprimand order to the members of his law firm. See
sanctioned in National Hockey League was so egregious Huettig & Schromm, Inc. v. Landscape Contractors
that it clearly would have justified the same ultimate Council, 582 F.Supp. 1519, 1522-23 (N.D.Cal.1984), aff'd,
sanctions under Hammond Packing. The Hammond 790 F.2d 1421 (9th Cir.1986).
Packing rule is not in doubt. That it has not been abandoned
is further demonstrated in Insurance Corp. of Ireland, which [3] If a monetary fee is imposed, other factors should be
came after National Hockey League and reasserted the rule considered by the trial court, including:
of Hammond Packing.
(1) The time and labor involved;
[8] Toma's motion for sanctions was based solely upon
Shephard's failure to attend his deposition. As Toma itself (2) The novelty and difficulty of the questions involved;
stated in its response to TransAmerican's motion to refile its
(3) The skill requisite to perform the legal service properly;
pleadings after they were struck: "[O]n May 12, 1989, the
Court granted [Toma's] Motion for Sanctions against (4) The customary fee;
[TransAmerican] for TransAmerican's refusal to agree to a
date certain for Mr. Craig Shephard's deposition and for the (5) Whether the fee is fixed or contingent;
failure of its President, Mr. Craig Shephard, to appear for a
properly noticed deposition on May 2, 1989, and struck (6) Time limitations imposed by the client or the
TransAmerican's pleadings in their entirety." circumstances;
Notwithstanding this rather clear statement in the trial court,
during this mandamus proceeding Toma has suggested that (7) The amount involved and the results obtained;
the district court properly sanctioned TransAmerican
because it had abused the discovery process on other (8) The experience, reputation and ability of the attorneys;
occasions. TransAmerican disputes Toma's assertions. and
While the district court would have been entitled to
(9) Awards in similar cases;
consider a pattern of discovery abuse in imposing sanctions,
the record does not reveal the existence of any such pattern,
ABA Standards and Guidelines, 121 F.R.D. at 125-26.
Toma did not complain of one, and the district court does
not appear to have found one. The authority of a trial judge to assess a monetary fine as a
sanction for abuse of the discovery process was disputed in
[9] The district court made no findings to support the
Owens-Corning Fiberglas Corp. v. Caldwell, 807 S.W.2d
sanctions imposed. Rule 215 does not require a trial court to
413, 415 (Tex.App.--Houston [1st Dist.] 1991, orig.
make findings before imposing discovery sanctions, and we
proceeding). The court of appeals held that the trial court
do not add such a requirement here. We note only that we
had no such authority under rule 215(3). However, in
do not have the benefit of any explanation by the district
Braden v. Downey, 811 S.W.2d 922 (Tex.1991, orig.
court for the severity of its ruling. It would obviously be
proceeding), we held that the trial judge did have such
authority. A few days ago, the United States Supreme Court
held that federal courts had inherent power to impose
monetary sanctions on a litigant for bad-faith conduct.
Chambers v. Nasco, Inc., 501 U.S. 32, 111 S.Ct. 2123, 115
L.Ed.2d 27 (1991).
[4] Sanctionable conduct may not necessarily be an ethical
violation, however. See Golden Eagle Distrib. Corp. v.
Burroughs Corp., 801 F.2d 1531, 1538-39 (9th Cir.1986).
[5] These remedies are essentially equivalent in degree
depending on whether the plaintiff or the defendant is the
offending party.
---------
Page 87 denied Cox's claim of partnership, and claimed that Cox
was only hired to work by the day and that he was paid
827 S.W.2d 87 (Tex.App. —Corpus Christi 1992) accordingly.
Richard D. LANFEAR, Relator, Shortly after receiving these responses from Eads, Cox
sued Lanfear in the same action. Lanfear answered with a
v. general denial, asserted the defense of statute of frauds, and
filed a counterclaim alleging that the suit was malicious.
Honorable Robert BLACKMON, Presiding Judge of
Cox sent his first set of interrogatories and admissions to
the 117th
Lanfear on March 12, 1991, which included requests for
production of documents.
District Court of Nueces County, Texas, Respondent.
After Lanfear responded incompletely to the
No. 13-92-038-CV.
interrogatories, Cox informed him by letter that five of the
Court of Appeals of Texas, Thirteenth District, Corpus answers were incomplete and evasive, and that three of the
Chritsi responses to the requests for production were inadequate.
Lanfear then supplemented his answers to the
March 19, 1992 interrogatories, expanding his answers somewhat. In his
response to one interrogatory, he stated that he never sold,
Page 88 transferred, assigned, conveyed or made a gift of any
leasehold, overriding royalty or other similar interest in the
Michael B. Schmidt, Paul Dodson, White, Huseman, Malo Sueno area. He also designated himself as an expert
Pletcher & Powers, Corpus Christi, for intervenor. witness.
M.W. Meredith, Jr., Robert J. Sigler, Clay E. Coalson, Cox addressed a second set of interrogatories to
Meredith, Donnell & Abernethy, Corpus Christi, for relator. Lanfear, restating some of the earlier questions that had not
been answered, and requesting information concerning the
Before DORSEY, KENNEDY and SEERDEN, JJ.
counterclaim, his net worth, credentials and long distance
telephone bills. Lanfear objected to many of these inquiries,
OPINION
and answered some in part.
DORSEY, Justice.
Cox then filed a motion to compel answers to
Richard Lanfear, Relator, seeks a writ of mandamus, interrogatories claiming Lanfear's answers were still
complaining of two orders by the Honorable Robert incomplete. The trial court heard the motion on two
Blackmon, presiding judge of the 117th district court. Both separate days which were more than thirty days apart.
orders were sanctions in response to perceived discovery Lanfear was the only witness to testify at these hearings.
abuses and perjury. The first struck certain defenses and a The judge indicated at the end of the first part of the hearing
counterclaim, and awarded attorney's fees. The second had that he was troubled by some of Lanfear's responses.
the effect of a default judgment and imposed a constructive
After the first part of the hearing and before the second,
trust in favor of the plaintiff, as well as awarding attorney
Lanfear again supplemented his answers, responding in part
fees. We conditionally grant the writ.
that he obtained a critical geological log between July and
Welton Cox, the real party in interest, filed suit against August, 1989. He also responded concerning his salary and
Lyn Eads seeking an interest in the Malo Sueno oil and gas arrangement with Tri-C Resources, an associated oil
prospect that Cox claimed they developed together. Cox company involved in the sale or development of the Malo
pleaded that Eads agreed that they would be 50-50 partners Sueno prospect. He again stated that he had not sold,
in the prospect transferred, assigned or conveyed any leasehold, overriding
royalty or other similar interest in the Malo Sueno area.
Page 89
The trial court found that Lanfear intentionally filed
in exchange for Cox performing land work and obtaining a evasive and incomplete answers to Cox's interrogatories and
farmout. Eads' answers to interrogatories disclosed that requests for production. It ordered the material requested by
Eads worked on the project with Richard Lanfear and that Cox produced, and directed that certain enumerated
Lanfear and Eads were equal partners in the deal. Eads interrogatories be answered. The court ordered relator to
pay $1,500 in attorney's fees, and struck all of Lanfear's complained of by relator, we will limit our review to legal
defensive pleadings other than his general denial. Lanfear's issues, and will assume as correct those factual conclusions
counterclaim was also struck, and a protective order was found by the court below to support the relief it granted.
granted Lanfear to protect the confidentiality of his maps The issue is whether the factual conclusions found by Judge
and data. Blackmon authorize the sanctions imposed by him under
the circumstances. In this instance, we will not analyze the
After the sanctions were imposed, Lanfear filed a third court's findings that Lanfear answered untruthfully under
supplemental response to the interrogatories. In it he oath in the second order, or that he intentionally filed
acknowledged that he signed a power of attorney in favor of incomplete or evasive answers in the first order imposing
Tri-C Resources. This statement appeared to contradict his sanctions. Rather, we will review whether those findings
previous testimony, given during the second phase of the support the sanctions imposed.
first sanctions hearing, that he had not transferred or
assigned any interest in the Malo Sueno prospect. As a In Transamerican Natural Gas Corp. v. Powell, [3] the
result of this statement, Cox filed a motion for sanctions Supreme Court set forth in detail the rules to be followed in
pursuant to Rule 215, asserting Lanfear's perjury as a reason determining if sanctions were properly imposed for
for sanctions. discovery abuse. First, a direct relationship must exist
between the offensive conduct and the sanction imposed. Id.
A hearing on this motion was held on October 22, at 917. In this regard, the trial court should attempt to
1991. In its order, the judge found that Lanfear answered determine if the offensive conduct is attributable to the
untruthfully, under oath and during a prior hearing, about attorney, the party or both. Second, the sanctions must fit
the sale of his interest in the Malo Sueno Area for $835,000 the crime; they must not be excessive. Id. at 917. Sanctions
through an agent. The court held such conduct to constitute which are so severe that they preclude presentation on the
flagrant bad faith in the exercise of Lanfear's discovery merits should not be assessed absent a party's bad faith or
responsibilities, and an abuse of discovery under counsel's flagrant disregard for the responsibilities of
Tex.R.Civ.P. 215. The trial court granted the motion for discovery under the rules. Discovery sanctions should not
sanctions, entering an order which had the effect of entering be used to adjudicate the merits of a claim or defense unless
a default against relator. Lanfear was required to pay a party's obstruction of the discovery process justifies the
$10,000.00 in attorney's fees, and the court ordered a presumption that the claim or defense lacks merit. Id. at
918.
Page 90
The first sanctions struck Lanfear's counterclaim and
constructive trust on the amount of money relator was paid affirmative defense, and charged him with $1500 of Cox's
for his involvement with the Malo Sueno project. attorney's fees. Lanfear was punished because he
intentionally filed incomplete or evasive answers when
Relator Lanfear seeks a writ of mandamus compelling
responding to interrogatories. The order prevented Lanfear
Judge Blackmon to withdraw his two orders imposing
from presenting his counterclaim and his affirmative
sanctions. Mandamus will issue to compel the performance
defense of statute of frauds, thereby adjudicating those
of a ministerial act or duty [1], or to correct a clear abuse of
matters without a hearing on their merits. Transamerican
discretion [2]. A trial court clearly abuses its discretion "if it
instructs that in order to strike pleadings, the party's
reaches a decision so arbitrary and unreasonable as to
obstruction of the discovery process must be so blatant that
amount to a clear and prejudicial error of law." Johnson v.
it justifies the presumption that the claim or defense lacks
Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex.1985).
merit. Transamerican, 811 S.W.2d at 918. Nothing in the
Factual issues decided by the trial court, or other issues record indicates that the trial court made any attempt to
in which the judge has discretion, will not be disturbed determine whether the client or the lawyer was the one at
unless the evidence is such that the court could have fault. No previous orders compelling discovery or relating
reached only the contrary decision. Johnson, 700 S.W.2d at to discovery had been entered. That the answers were
918. However, a trial court's decisions on matters of law are incomplete or intentionally evasive is not
not afforded the same deference as its factual conclusions.
Page 91
A "clear failure by the trial court to analyze or apply the law
correctly will constitute an abuse of discretion, and may such an obstruction of discovery to justify the conclusion
result in appellate reversal by extraordinary writ." Walker v. that the claim or defense lacked merit without more. The
Packer, 827 S.W.2d 833, 840 (Tex.1992), citing Joachim, "crime" did not justify the punishment. The trial court
815 S.W.2d at 240. abused its discretion by striking Lanfear's pleadings in its
first sanction order.
In reviewing the propriety of the two sanction orders
Cox argues that complaints concerning the first 22, 1991 and October 24, 1991. Mandamus will issue only
sanction order have been waived by the relator. We agree if the trial court fails to comply.
with regard to the payment of attorney's fees and the
striking of his counterclaim. In relator's motion, entitled "... ---------
Motion for Rehearing of Plaintiff's Motion to Compel and
for Sanctions," relator specifically stated that he accepted Notes:
the rendition of $1,500 in attorney's fees and does not
[1] See Wortham v. Walker, 133 Tex. 255, 128 S.W.2d
contest the striking of his counterclaim. Relator has waived
1138, 1150 (1939).
his complaint on those issues.
[2] See Joachim v. Chambers, 815 S.W.2d 234, 237
However, in that same motion, relator prayed that the
(Tex.1991).
trial court modify the order striking relator's statute of
frauds defense. This issue has not been waived. [3] 811 S.W.2d 913 (Tex.1991).
Accordingly, the first sanction order is modified, omitting
as a sanction the striking of Lanfear's affirmative defenses. [4] The order here does not purport to be a final judgment.
No language exists indicating that the trial court intended it
Relator also argues that the trial court abused its as such. In fact, the court indicated that it was imposing the
discretion by imposing the second sanctions order, which trust but was waiting to require the payment of the money
entered a default judgment against him and imposed a until additional matters could be addressed.
constructive trust on the monies he received from his
involvement with the Malo Sueno project. The trial court's ---------
order recites that the sanctions were imposed because
relator answered untruthfully in a prior hearing before the
trial court concerning the sale of his interest in the Malo
Sueno area. The court found that conduct to be in flagrant
bad faith in the exercise of his responsibility for discovery,
an abuse of discovery under Rule 215, and a violation of his
oath as a witness. The actions of relator in this case are not
to be condoned. However, a trial court may not effectively
adjudicate the merits of a case based on testimony of a party
during a sanctions hearing because he was later impeached
on testimony given at that hearing. The witness' credibility
should be tested when the case is tried. Otherwise, a trial
court could at any time interrupt a trial proceeding if it
believed a witness was being untruthful, and simply enter a
default against the party procuring that witness for that
reason. The statement of relator, whether perjurious or not,
does not go to the heart of the controversy here. It did not
justify the conclusion that relator's claim lacked merit so
that he should be precluded from his day in court.
We do not believe the action of the trial court was
justified; the Transamerican factors were not met. There
was no showing that lesser sanctions would not have been
effective. A "death penalty" sanction is not proper
punishment for what was perceived by the court to be
perjured testimony.
Mandamus is proper in this instance because the
actions of the trial court in this case had the effect of
adjudicating relator's case, but did not result in the rendition
of an appealable judgment. [4] Transamerican, 811 S.W.2d
at 919.
We conditionally grant the writ of mandamus. We
presume that the trial court will rescind its orders of August
Page 844 wrongful death suit against Chrysler and the estate of the
driver, alleging, among other things, that the Dodge
841 S.W.2d 844 (Tex. 1992) Diplomat was defective because it was not crashworthy.
CHRYSLER CORPORATION, Relator, The parties acknowledge that the standards for
appellate review of discovery sanctions announced in
v. Transamerican Natural Gas Corp. v. Powell and Braden v.
Downey control this proceeding, including a party's right to
The Honorable Robert BLACKMON, Judge,
mandamus relief if a violation of those standards is
Respondent.
demonstrated. [2] We consider, then, whether the record
demonstrates a violation of those standards.
No. D-1637.
I.
Supreme Court of Texas.
This record painfully illustrates the problems of
October 14, 1992
modern discovery practice and the attendant expenses and
Rehearing Overruled Dec. 31, 1992. difficulties of judicial administration, at all levels,
especially in complex litigation. From April 10, 1989, when
Page 845 the Garcias served Chrysler with their first request for
discovery, until August 8, 1991, when the trial court
Ronald B. Brin, Richard W. Crews, Jr., Corpus Christi, granted a default judgment against Chrysler on liability, the
Richard A. Salomon, Chicago, Ill., Richard Josephson, Garcias served five discovery requests on Chrysler.
Dallas, Travis J. Sales, Houston, Joe R. Greenhill and Bob Chrysler served five responses, including objections to
E. Shannon, Austin, for relator. those requests. The Garcias filed three Motions to Compel
Discovery and for Sanctions, and the parties participated in
David L. Perry, Mikal C. Watts, Corpus Christi, seven hearings on discovery disputes before three district
Franklin S. Spears, San Antonio, Charles B. Lord, C.L. judges. By the time the Sanctions Order was signed,
Ray, Austin and Elaine Stone, Corpus Christi, for Chrysler claims to have produced more than 80,000
respondent. documents, made 100,000 more available for inspection,
and to have spent more than $250,000 in the process. [3]
OPINION
The parties have filed with this court twelve volumes of
exhibits, including motions, responses, transcripts of
CORNYN, Justice.
hearings, correspondence, and affidavits, which they ask us
In this product liability suit, Chrysler Corporation seeks to consider in assessing the propriety of the Sanctions
a Writ of Mandamus directing the Honorable Robert Order.
Blackmon, Judge of the 117th District Court, Nueces
The record reflects that the Garcias first served
County, Texas, to vacate his Order Regarding Plaintiffs'
Chrysler with three discovery requests, including requests
Amended Motion for Sanctions Against Chrysler for
for admission, requests for production, and interrogatories,
Discovery Abuse (Sanctions Order) by which he struck
Chrysler's pleadings and rendered a default judgment
Page 846
against Chrysler on all issues of liability for both
compensatory and punitive damages. [1] Chrysler claims to which Chrysler responded with answers and objections,
that the trial court's Sanctions Order violates the standards leading to a hearing on the Motion to Compel Discovery on
for the imposition of "death penalty" discovery sanctions, April 12, 1990. Admirably, the parties settled "probably 70
those that terminate the presentation of the merits of a per cent" of their differences before the hearing, and
party's claims, that we recently adopted in Transamerican submitted only the remaining issues for the court's
Natural Gas Corp. v. Powell, 811 S.W.2d 913 (Tex.1991, determination. Ultimately, the parties submitted an Agreed
orig. proceeding) and Braden v. Downey, 811 S.W.2d 922 Order On Motion to Compel Discovery to the trial court,
(Tex.1991, orig. proceeding). which it signed on June 13, 1990, resolving all their
differences on the Garcias' first, second, and third requests
Ambrocio Garcia Jr. was killed on July 26, 1986, when
for discovery. The Agreed Order granted no sanctions.
a drunk driver drove across the median and hit Garcia's
Dodge Diplomat head-on. Garcia's family filed this On the same day that the trial court signed the parties'
Agreed Order, the Garcias served Chrysler with Plaintiffs' retained, but even then, not in the ordinary course of
Second Motion to Compel Discovery, Motion for business.
Sanctions, and Motion for Entry of Order. The court
convened a hearing on the Garcias' Second Motion to Following a hearing that lasted approximately eight
Compel on August 30, 1990. The "hearing," as it turned out, hours and consumed 196 pages of the record, the trial court
consisted of an announcement of counsels' agreement that signed an Order in which he denied Plaintiffs' Motion for
Chrysler would identify a specific discovery request to Default Judgment, Plaintiffs' Motion to Strike Chrysler's
which it claimed the documents it had produced were Pleadings, and
responsive; in return, the Garcias would then provide
Chrysler with a list of contended deficiencies in Chrysler's Page 847
production efforts. To this point, the tenor of the parties'
Plaintiffs' Motion for Monetary Sanctions. The trial court
relationship appears to have been accurately characterized
did, however, order Chrysler to produce by April 1, 1991:
by one of the Garcias' lawyers when he stated to the trial
(1) the crash test files and results, (2) unedited,
court that "some of our trouble may be more [of a]
computerized records of its entire crash-test index for all
communication problem as opposed to an actual production
M-body type vehicles, and (3) affidavits detailing Chrysler's
problem."
explanation for all requested documents that it claims were
However, discovery proceedings grew contentious in destroyed pursuant to its document retention policy. In the
early 1991. On January 4, 1991, the Garcias filed Plaintiffs' event that Chrysler failed to timely comply with his Order,
Third Motion to Compel Discovery and Motion for Judge Dunham conditionally ordered a monetary sanction
Sanctions in which they complained of Chrysler's alleged of $7,500 for each day it failed to do so.
failure to adequately respond to nineteen requests for
Thereafter, the Garcias served Chrysler with their
production in Plaintiffs' Second Request for Discovery and
fourth discovery request. Chrysler's 28-page response raised
three interrogatories contained in Plaintiffs' Third Request
objections to the request on both general and specific
for Discovery. In its written response, Chrysler alleged that
grounds, including the objection that some portions of the
the Garcias had not pointed out gaps in Chrysler's responses
fourth request, containing 105 separate items for
as agreed but instead had responded with a Motion for
production, duplicated previous requests.
Sanctions. This resulted in Chrysler's accusation that
opposing counsel was trying to set up a sanctions "tort." See On March 29, 1991, Chrysler filed a Response to the
William Kilgarlin, Sanction for Discovery Abuse: Is the trial court's Order, asserting that it was in compliance with
Cure Worse than the Disease?, 54 TEX.BAR J. 659 (1991); that Order, and requesting a hearing on April 10, 1991, so
Charles Herring, The Rise of the "Sanctions Tort", Texas that its compliance could be certified to avoid assessment of
Lawyer, Jan. 28, 1991, at 22-23. the $7,500 daily sanction conditionally ordered by Judge
Dunham. [7] The hearing of April 10th, however, primarily
The hearing on Plaintiffs' Third Motion to Compel and
involved Chrysler's objections to the Garcias' fourth request
Motion for Sanctions was held on February 15, 1991. The
for discovery and spanned two days and 188 pages of the
Garcias accused Chrysler of failing to comply with the
record. The anticipated hearing on Chrysler's Response to
Agreed Order, complaining primarily of Chrysler's failure
the trial court's Order was deferred until April 26, 1991, to
to produce certain M-body crash tests, [4] a crash test index
be heard with Plaintiffs' Motion for Sanctions.
"that we know about that they haven't given us," [5] an
organizational chart, and information about Chrysler's At the hearing on the Garcias' Motion for Sanctions on
document retention policies. [6] The sanctions requested April 26, 1991, the primary concerns were crash test reports
included the striking of Chrysler's pleadings. The Garcias' and Chrysler's electronic crash-test database. Counsel for
counsel argued: "[W]hat is needed is punishment and it the Garcias acknowledged that Chrysler did "provide a lot
needs to be rather harsh, it needs to be harsh enough to get of stuff to us on April 1st" but stated that he had acquired
people's attention...." A harsh punishment would be from other sources [8] indices that referred to 245 M-body
appropriate, claimed the Garcias' counsel, because of crash tests and that he had only received 191 crash test
Chrysler's lying and bad faith. reports. In response, Chrysler claimed that crash test reports
were destroyed pursuant to its document retention policy.
In response, Chrysler contended that it had produced
But this could not be true, the Garcias' attorney retorted,
everything that it was able to produce. For example, it
because "some of the allegedly missing reports had been
contended that it had produced "some 100 crash test files"
produced to other plaintiffs in other lawsuits during the
but that others, dating back more than six model years, had
same time that we've been trying to get them in this case
been destroyed pursuant to its document retention policy.
and, therefore, clearly have not been destroyed."
Chrysler claimed that only if a crash test had been produced
in other litigation and maintained in a case file would it be
Chrysler's attorney told Judge Blackmon that two other opinion that striking Chrysler's pleadings was too severe.
district judges had "already heard these issues." He pointed
out that this lawsuit concerned a frontal impact to an Chrysler responded that if sanctions were to be
M-body style vehicle--not side and rear-end impacts--and assessed, sanctions providing for an award of expenses,
that the previous court ordered production was so limited. including reasonable attorneys fees, or an award of
He also asserted that the difference between the lists of discovery expenses or court costs, would be appropriate.
crash tests produced in other cases and those produced here See TEX.R.CIV.P. 215(2)(b)(8) & (2). On the other hand,
was explained by Chrysler's document retention policy. the Garcias recommended that the trial court prohibit
Finally, he claimed that Chrysler had no way to locate all of Chrysler from calling any expert witness whose opinion
the crash tests produced at other times in other lawsuits and was based on documents that had not been produced or that
should be required to produce only those maintained by a fine of $292,500 be assessed ($7,500 per day for 39 days)
Chrysler in the ordinary course of its business. for alleged non-compliance with Judge Dunham's Order.
Ultimately, the trial court overruled all of Chrysler's Finally, on August 8, 1991, Judge Blackmon
objections and set the date for Chrysler's compliance with announced his ruling on Plaintiffs' Request for Sanctions.
the Garcias' fourth discovery request for May 31, 1991. He proceeded to grant the Garcias' request to strike
Chrysler's pleadings and ordered that the case proceed to
On April 16, 1991, the Garcias filed an Amended trial on damages alone because, as he said, he could think of
Motion for Sanctions. [9] Chrysler no way to "quote divide the baby unquote." The trial court
further ordered that Chrysler could not call expert witnesses
Page 848 regarding any aspect of liability at the trial on damages.
Chrysler alleges that the Garcias' attorneys prepared the
filed a 21-page response specifically denying each of the written Sanctions Order, which was signed that same day,
Garcias' contentions and asserting that the plaintiffs had without extending Chrysler's counsel an opportunity to
themselves been guilty of discovery abuse related to review it or to lodge any objection to it before it was signed.
Chrysler's discovery requests.
II.
The final hearing on sanctions began on April 26, 1991,
and occupies 129 pages of the record. [10] The Garcias' The legitimate purposes of discovery sanctions are
complaints at that time related to Chrysler's alleged failure threefold: 1) to secure compliance with discovery rules; 2)
to produce crash tests, a crash test index, an organizational to deter other litigants from similar misconduct; and 3) to
chart, and certain seatbelt-related documents, and its alleged punish violators. Bodnow Corp. v. City of Hondo, 721
failure to disclose all other lawsuits involving similar S.W.2d 839, 840 (Tex.1986). However, discovery sanctions
claims. Chrysler's attorney reiterated to the trial court his must also be "just." TEX.R.CIV.P. 215(2)(b);
explanation for the discrepancy between references to crash Transamerican Natural Gas Corp., 811 S.W.2d at 917. Two
tests in other lawsuits obtained by the Garcias' counsel and factors mark the bounds of the trial court's discretion in
Chrysler's production in this suit: order for sanctions to be just: first, a direct relationship
between the offensive conduct and the sanction imposed
What we are finding here and what I'm afraid will continue must exist; and second, the sanction imposed must not be
to happen throughout this entire case is that in some excessive. In other words, "the punishment should fit the
engineer's file somewhere at Chrysler Corporation or crime." Id.
somewhere else, somebody back
A permissible sanction should, therefore, be no more
Page 849 severe than required to satisfy legitimate purposes. This
means that a court must consider relatively less stringent
then may have copied a piece of a crash test, maybe a page,
sanctions first to determine whether lesser sanctions will
may have made some notes about a crash test, may have
fully promote compliance, deterrence, and discourage
actually--may have written a preliminary memo about a
further abuse. Id.; Braden, 811 S.W.2d at 929.
crash test that was ongoing that has the same number as one
of those crash tests that is on our list of being shredded. So, although punishment, deterrence, and securing
compliance with our discovery rules continue to be valid
The trial court ultimately took the Motion for Sanctions
reasons to impose sanctions, these considerations alone
under advisement. On May 10, 1991, the judge wrote to
cannot justify a trial by sanction. Sanctions that by their
counsel expressing his opinion that discovery abuse had
severity, prevent a decision on the merits of a case cannot
occurred and requesting their suggestions for appropriate
be justified "absent a party's flagrant bad faith or counsel's
alternative sanctions. Judge Blackmon then expressed his
callous disregard for the responsibilities of discovery under
the rules." Transamerican at 918 (citation omitted). Even Third, no lesser sanction was first imposed. Although
then, lesser sanctions must first be tested to determine potentially exposed to a substantial daily fine, such fine was
whether they are adequate to secure compliance, deterrence, never imposed because there was no judicial determination
and punishment of the offender. See id. that Chrysler failed to meet Judge Dunham's deadline for
production of the items specified in his Order. Thus, we do
III. not consider the conditional fine to be, as the Garcias argue,
an imposition of a required lesser sanction.
We now measure the Sanctions Order by these
standards. We conclude, for reasons that follow, that the Fourth, and perhaps most significantly, death penalty
trial court's actions failed to meet the Transamerican and sanctions should not be used to deny a trial on the merits
Braden standards in four ways. unless the court finds that the sanctioned party's conduct
"justifies a presumption that its claims or defenses lack
First, there is no direct relationship between the merit" and that "it would be unjust to permit the party to
offensive conduct and the sanction imposed. As we stated in present the substance of that position [which is the subject
Transamerican, the sanction must be directed against the of the withheld discovery] before the court."
abuse and toward remedying the prejudice caused an Transamerican, 811 S.W.2d at 918; Braden, 811 S.W.2d at
innocent party. We do not doubt that a failure to produce 929. This record contains no evidence to justify such a
documents can prejudice a party's efforts to assert or presumption. In fact, the record conclusively refutes any
such suggestion. [12] Nor do we find any evidence in the
Page 850
record of flagrant bad faith or counsel's callous disregard
defend a claim. But here, there has simply been no showing for the obligations of discovery.
that the Garcias are unable to prepare for trial without the
IV.
additional crash-test reports they seek. Furthermore, the
record fails to demonstrate Chrysler's ability to produce the In Braden, we held that in the event the trial court
missing crash-test reports. There is no evidence in the chooses to impose a substantial monetary sanction, unless
record that the missing tests exist or are within Chrysler's the court defers payment until entry of final judgment, it
possession, custody, or control, either actual or should make express written findings, after a prompt
constructive. A party cannot be penalized for failure to hearing, articulating the reasons why the award does not
produce documents under such circumstances. See impede a resolution of the case on the merits. Braden, 811
TEX.R.CIV.P. 166b(2)(b). S.W.2d at 929 (citing Thomas v. Capital Security Serv.,
Inc., 836 F.2d 866 (5th Cir.1988)). We also noted the
The Garcias also contend that Chrysler failed to
helpfulness of such findings that give the trial court's
disclose all similar lawsuits, pointing to the omission of a
reasons for imposing severe discovery sanctions in
single lawsuit. Chrysler explains that this omission occurred
Transamerican, 811
because the case was classified on its computer as an "air
bag" case, rather than a "seatbelt" case. Once Chrysler was Page 851
advised that the Garcias considered their request to include
this type of suit, it made an additional search and disclosed S.W.2d at 919 n. 9. Since then, courts of appeals have
ten air bag suits in advance of the April 1st deadline. The reviewed trial court findings regarding death penalty
Garcias have made no showing as to how they have been sanctions in at least two distinct ways. See e.g. Hartford
hindered in their preparation for trial by this omission. Accident & Ind. Co. v. Abascal, 831 S.W.2d 559, 560
(Tex.App.--San Antonio 1992, orig. proceeding); United
It seems obvious that the Garcias would be prejudiced States Fid. & Guar. Co. v. Rossa, 830 S.W.2d 668, 672
by the expenditure of attorneys' fees and expenses in (Tex.App.--Waco 1992, writ denied). This case also
pursuing motions to compel discovery and sanctions. presents the question of what deference, if any, an appellate
However, reimbursement of those expenses would appear to court must give such findings. [13]
be better calculated to remedy such prejudice than would
death penalty sanctions. Page 852
Second, striking Chrysler's pleadings and rendering a At least one court of appeals has gone so far as to order
default judgment on liability is more severe than necessary the trial court to make findings of fact and conclusions of
to satisfy the legitimate purposes of sanctions for discovery law in support of its sanctions order under the
abuse. Judge Blackmon himself conceded as much in his Transamerican standard. Hartford Accident & Ind. Co. v.
letter to counsel of May 10, 1991, requesting alternative Abascal, 831 S.W.2d 559, 560 (Tex.App.--San Antonio
sanction proposals. [11] 1992, orig. proceeding). In reviewing the trial court's order
for sanctions in Abascal, the court held that the legal the trial court made extensive findings, only two appear
presumptions in favor of a judgment following a nonjury pertinent to the Transamerican standards: whether
trial likewise applied to its review of the order for sanctions Chrysler's discovery abuse justifies the presumption that its
on mandamus, and that if any evidence supported the trial defenses to the suit lack merit; and, whether the conditional
court's findings of fact, they were binding on the reviewing monetary sanctions order of March 8, 1991 can be fairly
court. Id. at 561. Another court of appeals has varied this characterized as a lesser sanction. We have reviewed the
approach, holding that findings in the discovery context entire record
should not be treated like findings of fact made pursuant to
Rule 296, which apply to appellate review of nonjury trials Page 853
on the merits. Rossa v. United States Fidelity & Guar. Co.,
830 S.W.2d 668, 672 (Tex.App.--Waco 1992, writ denied). and conclude that it contains no evidence that would justify
the presumption of lack of merit of Chrysler's defense; [14]
In Transamerican, we noted merely that trial court further, we conclude that the conditional monetary
findings would be "helpful" in assisting an appellate court sanctions order is not the type of lesser sanction required
in determining "that the trial court exercised its discretion in before the imposition of death penalty sanctions, which we
a reasonable and principled fashion." 811 S.W.2d at 919 n. contemplated in Transamerican. We, therefore, hold that the
9. We did not mention Rule 296. Further, it is apparent that trial court abused its discretion by ordering death penalty
the standard of review articulated by the court of appeals in sanctions under the circumstances of this case. While trial
Abascal is not, in fact an "abuse of discretion" standard that court findings in a death penalty sanctions case can be
we most recently restated in Walker v. Packer, 827 S.W.2d helpful in demonstrating how the court's discretion was
833, 839-40 (Tex.1992), and which we apply here, but a guided by a reasoned analysis of the purposes sanctions
legal and factual sufficiency standard of review applicable serve and the means of accomplishing those purposes,
to appeals of nonjury trials. W. Wendell Hall, especially in complex cases where the record is
STANDARDS OF APPELLATE REVIEW IN CIVIL voluminous, such findings must be pertinent to the
APPEALS, 21 ST. MARY'S L.J. 865, 919-20 (1990). Transamerican standards and supported by the record.
Accordingly, we reject the approach used by the court of Findings specifically tied to an appropriate legal standard
appeals in Abascal as incorrect and approve the approach of are the only type of findings that can be truly beneficial to
the court of appeals in Rossa as the correct approach. appellate review. [15]
Written findings that support the decision to impose ***
such sanctions have at least three salutary effects: 1) such
findings aid appellate review, demonstrating that the trial For the reasons we have explained, we trust that the
court's discretion was guided by a reasoned analysis of the trial court will vacate its Sanctions Order of August 8,
purposes sanctions serve and the means of accomplishing 1991. The clerk is instructed to issue the Writ of Mandamus
those purposes according to the Transamerican and Braden to compel such action only in the event the trial court
standards; (2) such findings help assure the litigants, as well declines to voluntarily do so.
as the judge, that the decision was the product of thoughtful
GONZALEZ, MAUZY, DOGGETT and GAMMAGE,
judicial deliberation; and (3) the articulation of the court's
JJ., note their dissent.
analysis enhances the likely deterrent effect of the sanctions
order. See Thomas v. Capital Sec. Servs., Inc., 836 F.2d ---------
866, 883 (5th Cir.1988) (citation omitted). But we do not
wish to unnecessarily burden our trial courts by requiring Notes:
them to make written findings in all cases in which death
penalty sanctions are imposed. First, the benefit of the trial [1] A trial on damages was scheduled for approximately
court's explanation in the record of why it believes death three months later.
penalty sanctions are justified may be sufficient to guide the
appellate court. Second, written findings are not needed in [2] In Transamerican Natural Gas Corp. we held that
the vast majority of relatively uncomplicated cases or even
more complex cases involving only a few issues pertinent to when a trial court imposes discovery sanctions which have
the propriety of death penalty sanctions. We doubt that the effect of precluding a decision on the merits of a party's
findings in such cases would meaningfully assist appellate claims--such as by striking pleadings, dismissing an action,
review. or rendering default judgment--a party's remedy by appeal
is inadequate, unless the sanctions are imposed
There are even instances when extensive findings in simultaneously with the rendition of a final appealable
support of a sanctions order cannot be considered helpful to judgment.
appellate review. This suit falls into that category. Although
Id. at 920. previously been destroyed when they had not been
destroyed;
[3] At oral argument, Chrysler's attorney claimed that
Chrysler had, by that time, produced 100,000 documents (6) Making false statements regarding discovery responses
and spent in excess of $300,000 responding to the Garcias' to the effect that it does not maintain a master crash test
discovery requests. index, when it does maintain such an index;
[4] At oral argument Chrysler's attorney claimed to have (7) Making false statements through counsel to the Court
produced "approximately 250 or [sic] 300" crash tests in that its master crash test index does not reflect whether
this case. crash tests reports have been destroyed, when the electronic
crash test index which Chrysler maintains does contain such
[5] The Garcias' attorney at oral argument claimed that information;
Chrysler had withheld 63 major frontal M-body crash tests.
(8) Failure to disclose 14 similar lawsuits responsive to
[6] Pursuant to its document-retention policy, Chrysler Interrogatories Nos. 26 and 27;
claims to have periodically destroyed certain of the
requested documents in the ordinary course of its business. (9) Failure to provide names and addresses of Plaintiffs'
counsel and other identifying information regarding similar
[7] On the day before the hearing on April 10th, the lawsuits in response to Interrogatories Nos. 26 and 27,
Garcias' counsel transmitted by facsimile a Motion for notwithstanding Judge Dunham's Order of February 15,
Sanctions based on alleged misrepresentations made to the 1991;
trial court at the hearing of February 15, 1991, but the
hearing on this Motion was postponed until April 26, 1991. (10) Failure to produce underlying data for compliance
reports relevant to FMVSS 203, 204, and 207, contrary to
[8] For example, he acquired a crash-test master index for the agreed production order;
the years 1962 to 1978 from a 1978 deposition taken in
another case. Another time, the Garcias' attorney called (11) A continuing failure to produce Chrysler's document
Chrysler a "liar" when it claimed that certain crash tests retention policies pursuant to which responsive documents
were destroyed, based on the affidavit of a Chicago area "may" have been destroyed, and frivolously objecting to
paralegal who claims Chrysler produced those tests recently requests for their production;
in a case handled by her firm. Chrysler's attorneys later took
her deposition to discover that the crash test reports in her (12) Falsely stating to the Court that it had produced
file consisted of one page from each of three destroyed test Chrysler's document retention policies, when it had not;
reports and involved a non-M-body type vehicle, which was
the subject of the paralegal's firm's case. (13) Additional failure to produce all M-body crash tests
after being specifically ordered to do so by Judge Dunham's
[9] The Garcias' Second Amended Motion for Sanctions order of February 15, 1991;
Against Chrysler for Discovery Abuse is really their fourth
such motion. It alleges: (14) Massive failure to produce relevant and critical
documents regarding Chrysler's testing of M-body seat belts
I. and steering columns.
Defendant Chrysler has engaged in a pattern and practice of II.
discovery abuse in this case which includes:
Chrysler's conduct in this case constitutes a continuing
(1) A long history of needless and obstreperous delay; pattern of discovery abuse which required the imposition of
sanctions pursuant to the provisions of Rule 215,
(2) Needless delay in making discovery required by the Tex.R.Civ.P. Indeed, some of Chrysler's conduct violates
Agreed Order of June 13, 1990; Judge Dunham's Order of February 15, 1991, which
specifically provided that failure to comply with the Order
(3) Leading opposing counsel to believe that discovery would result in sanctions of $7,500.00 per day pending full
required by the Agreed Order of June 13, 1990 was compliance.
completed when, in fact, it had not been completed;
[10] By May 31st, Chrysler had produced 11,000 additional
(4) False statements that it had produced all crash tests documents but asked for and received a 60-day extension at
which it was ordered to produce, when it had not; a hearing on June 21, 1991 as well as a limitation on the
scope of the Garcias' fourth request for discovery. At the
(5) Failure to produce crash tests which it claimed had
June 21, 1991 hearing, Judge Blackmon stated: 1. The Court finds that Chrysler has engaged in a
long-standing, continual, repeated and wilful abuse of the
[I]'ll tell you something that's worrying me about the case, discovery process including, but not limited to, failure to
and it does worry me, and one of the reasons I haven't ruled comply with this Court's discovery orders entered on the
on sanctions per se that I still have on my desk is we 13th day of June, 1990, the 8th day of March, 1991, and the
probably have already spent five or six days, we should 11th day of April, 1991; said discovery abuse includes, but
have been trying this lawsuit. And we've had five or six is not limited to, the following conduct:
days in pretrial things. Plaintiff is obviously trying to
posture the case so he can win the case in pretrial and does a. REGARDING THE DISCOVERY ORDER ENTERED
not have to try the lawsuit. HEREIN ON JUNE 13, 1990, the Court finds:
I am not in a position to say that lawyers are lying when 1. Chrysler failed to produce in a reasonably timely manner
they make representation in this Court in open court about numerous significant documents ordered produced by such
what their clients can do or not do. I believe those Order;
representations are made in all good faith. * * * [I]'m just
not convinced that the lawyers here have done bad things 2. Chrysler made false and misleading representations to the
and consequently, I'm not convinced that the Defendant Court and to opposing counsel indicating that it had made
here has done evil in--in regard to the discovery. * * * I still full production of documents and was in full compliance
don't know what I'm going to do with the sanctions, I just with said Order, when it was not;
haven't made up my mind. One of you suggested some
attorneys' fees and letting these fellas travel up somewhere. 3. Chrysler made false representations to the Court that it
I thought that probably was the most reasonable suggestion. did not maintain a Master Vehicle Crash Test Index, when
The problem is I'm going to have to have a hearing on it, in fact, did;
attorneys fees, and I really don't want to do that. I would
4. Chrysler failed to truthfully respond to discovery, and
like to resolve that matter because I want to get the case to
responded to discovery in a misleading and incomplete
trial and try it.
manner so as to conceal information detrimental to its case;
Between April 26, 1991 to June 21, 1991, Chrysler and
compiled documents responsive to the Garcias' fourth
5. Chrysler's unreasonable delay (more than 10 months) and
discovery request. During this period, the Garcias' counsel
its continual failure to produce documents it was required to
served on Chrysler two additional requests for discovery.
produce under said Order, constitute gross violations of the
[11] See supra p. 13. Agreed Order;
[12] In Chrysler's Request for Admission No. 6 to the b. REGARDING THE DISCOVERY ORDER ENTERED
Garcias, it asks them to "Admit that Oscar Garcia was HEREIN ON MARCH 8, 1991, the Court finds:
negligent and that such negligence was a proximate cause
1. Chrysler failed to timely and reasonably produce
of the accident on July 26, 1986 between he and Ambrocio
important documents ordered produced by such Order;
Garcia," to which the Garcias responded, "Admitted."
2. Chrysler represented to this Court and to opposing
In other words, the Garcias admitted that Chrysler was not
counsel that it had made full production of documents and
the sole cause of the accident, but under Judge Blackmon's
was in full compliance with said Order, when it was not;
sanctions order, Chrysler could contest only the amount of
and
actual and punitive damages assessed, not liability,
causation, or Oscar Garcia's comparative responsibility for 3. Chrysler produced incomplete and redacted portions of
the death of Ambrocio Garcia. If it had been allowed to try documents in direct violation of such Order, and has failed
the issue of liability, Chrysler would not have been jointly to rectify such violation after being informed of the same;
and severally liable for Ambrocio Garcia's death if a jury
assigned 80 per cent or more of the responsibility for Mr. c. REGARDING THE DISCOVERY ORDER ENTERED
Garcia's death to the drunk driver. See TEX.CIV.PRAC. & HEREIN ON APRIL 11, 1991, the Court finds:
REM.CODE § 33.013(b)(1).
1. Chrysler has failed to comply with the Orders of this
[13] Judge Blackmon's Sanctions Order includes the Court regarding Request for Production No. 1 of Plaintiffs'
following findings: Fourth Discovery to Defendant Chrysler, as it has, to this
date, failed, refused and neglected to produce the
FINDINGS OF FACT information necessary for Plaintiffs to decipher and
interpret the information contained within the computerized applicable law;
data base produced pursuant to this Court's orders; and
7. Although the Court fully recognizes the severity of the
2. Such failure, neglect and refusal to produce the materials sanctions ordered herein, Chrysler's longstanding and
referenced in the preceding paragraph continued to this date flagrant discovery conduct in this case can only be
despite letters from counsel for Plaintiffs requesting certain described as a wilful failure to comply with its
information which had been ordered to be produced by this responsibilities of discovery under our state's Rules of Civil
Court's orders; Procedure and orders of this Court. Such a callous disregard
for its responsibilities therein will not be tolerated by this
2. The Court finds that Chrysler, by and through its Court;
Houston counsel, has made repeated false and misleading
statements to the Court and to opposing counsel regarding 8. Chrysler's lengthy and continuous obstruction of
the status of discovery in this litigation, both in writing and Plaintiffs' discovery efforts clearly justifies the presumption
in open court; held by this Court that Chrysler believes its defenses to
Plaintiffs' allegations lack merit.
3. The Court finds that the imposition of monetary
sanctions as included in the Court's Order of March 8, 1991, [14] See supra at n. 12.
was ineffective in causing Chrysler to alter its pattern of
misconduct; the Court finds that Chrysler has continued to [15] As we have previously stated, the court has appointed
engage in a continuing pattern of misconduct including various task forces to study and recommend any needed
discovery abuse and violations of this Court's orders revisions in the Rules of Civil Procedure, including the
following this Court's Order for monetary sanctions; rules relating to sanctions. See Alvarado v. Farah Mfg. Co.,
Inc., 830 S.W.2d 911 (Tex.1992). We anticipate that the
4. The Court finds that Chrysler is being represented herein task forces' recommendations will include proposals
by Corpus Christi counsel, Houston counsel and relating to trial court findings in death penalty sanctions
Washington, D.C. "National" counsel; the Court finds from cases.
the evidence that Chrysler itself, as well as its counsel, are
fully aware of Chrysler's obligations and that the offensive ---------
conduct herein is attributable, in large part to Chrysler
itself. The Court finds that the offensive conduct is not
attributable in any part to Corpus Christi counsel. The Court
finds that Chrysler itself, by and through its Discovery
Manager Jeffery Podorsek and its National Counsel David
Kikel, has been actively involved in the conduct at issue;
5. The Court has considered for almost three and one-half
months the availability of less stringent sanctions and
whether less stringent sanctions would fully promote
compliance by Chrysler with this Court's discovery order;
the Court had initially declined to strike Chrysler's
pleadings and has been seeking to determine less stringent
sanctions which could be expected to obtain proper
compliance by Chrysler with this Court's orders and with
the discovery rules; the Court notes that substantial
monetary sanctions previously imposed herein on Chrysler
had not successfully promoted full compliance with this
Court's orders and that the pattern of misconduct has
continued; the Court, reluctantly, finds that no sanction less
stringent than those ordered herein will secure compliance
with the Court's orders and applicable rules;
6. The Court finds that the discovery sought is directly,
materially and substantially related to the major issues of
the case; Chrysler's refusal to comply with the discovery
rules and orders of this Court prevent Plaintiffs from
preparing their case for trial and preclude a fair trial under
Page 725 cable, which was several feet long, had been made by
unwinding the 18"' flexible sheath that protected the cord of
856 S.W.2d 725 (Tex. 1993) electric wires connecting a telephone handset to the body of
a pay telephone mounted on the wall outside the grocery
GTE COMMUNICATIONS SYSTEMS store. Police investigating Duran's death obtained
CORPORATION, Relator, information that a young man, the grandson of the
proprietor of the grocery store, had stretched the cable
v.
across the sidewalk as a prank. Before the young man could
be
The Honorable Martha TANNER, Judge, Respondent.
No. D-3089. Page 727
arrested and charged with murder, he committed suicide.
Supreme Court of Texas.
Duran's estate and survivors, along with Ramirez and
June 30, 1993
his next friends, filed suit claiming that the telephone was
Page 726 unreasonably dangerous as designed, manufactured and
distributed, because the metal sheath covering the telephone
Ruth Greenfield Malinas, J. Michael Ezzell, Thomas H. handset cord could easily be disassembled and stretched
Crofts, Jr., San Antonio, for relator. into a cable. In their original petition, plaintiffs alleged that
defendant ATS Pay Phone Supply, Inc., had manufactured
Rene R. Barrientos, Pat Maloney, Sr., Timothy Patton, the telephone, and did not name GTE Communication
San Antonio, for respondent. Systems Corporation as a defendant. Subsequently,
plaintiffs amended their petition to add GCSC as a
OPINION defendant, alleging that it was the manufacturer of the
telephone. In answer to plaintiffs' allegations, GCSC denied
HECHT, Justice.
that it had designed, manufactured, marketed, sold or
distributed the sheathed cord.
In this original mandamus proceeding, relator GTE
Communication Systems Corporation, a defendant in
After some discovery had been conducted, GCSC
pending litigation, seeks review of sanctions imposed
moved for summary judgment on several grounds,
against it by the respondent district court. The district court
including: that it had not designed, manufactured, or
concluded that four of GCSC's amended answers, its motion
marketed the sheathed cord that caused Duran's injuries;
for summary judgment, and two affidavits in support of the
that the sheath was not defective; that if the sheath was
motion were groundless and filed in bad faith, in violation
unreasonably dangerous, it was solely because it had been
of Rule 13, TEX.R.CIV.P. The district court also concluded
altered; that the alteration of the sheathed cord which led to
that GCSC failed to produce a certain document in response
plaintiffs' injuries was unforeseeable; and that the criminal
to a discovery request, in violation of Rule 215,
conduct involved in stretching the cable across the sidewalk
TEX.R.CIV.P. As sanctions, the district court struck
was a new, independent, superseding or intervening cause
GCSC's pleadings and ordered it to pay plaintiffs $150,000
of plaintiffs' injuries. The first of these grounds was
in attorney fees. We granted leave to file application for
supported by the affidavits of Robert Zimmerman, a
writ of mandamus to review these rulings. For reasons that
long-time employee of GCSC, and Oscar Jiminez, an
follow, we conditionally grant the writ.
employee of General Cable Company, a manufacturer of
telephone handset cables. Zimmerman's affidavit stated that
I
in manufacturing telephone handsets GCSC had used only
The litigation pending in the district court arises out of sheathed cords made by General Cable, and that if the
the following circumstances. Rene Duran and Jesse sheath that injured Duran was not General Cable's, then the
Ramirez, Jr. were riding bicycles along the sidewalk outside handset was not GCSC's. Jiminez' affidavit stated that he
a grocery store when Duran struck a sharp-edged metal had examined the remnants of the sheath that injured Duran
cable which had been stretched across the sidewalk at the and found six distinct differences between those remnants
level of his neck. Duran was nearly decapitated by the cable and sheaths manufactured by General Cable. Thus, Jiminez
and died of his injuries. At the shock of this accident, concluded that General Cable had not designed, assembled
Ramirez fell from his bicycle and sustained injuries. The or distributed the cord involved in the accident.
In response to GCSC's motion for summary judgment, GCSC was aware of the memo and had failed to produce it,
plaintiffs asserted that the identity of the manufacturer of plaintiffs offered as their only evidence the testimony of
the cord had not been established but was much in dispute. Charles James, president of ATS, the corporation plaintiffs
Plaintiffs argued that even if GCSC had not made the cord, once alleged was the manufacturer of the sheath. James
it had certainly made the telephone, and that the telephone stated that, based upon his experience in the pay telephone
was defective because the cord was part of it. The trial court industry, it was "totally inconceivable" that GCSC did not
denied summary judgment without indicating a specific have the memo, and GCSC could compel its production
reason. from GTFL because the two corporations were affiliated.
The district court "credited" James' testimony and
Several months later, plaintiffs filed a motion for "discredited" GCSC's evidence that it was unaware of the
sanctions requesting that the district court strike GCSC's memo and that it had no control over GTFL to compel that
pleadings and award plaintiffs $150,000 in attorney fees. entity to produce the memo. James also admitted, however,
This motion complained that GCSC's assertions that it was that he had never worked for GCSC or GTFL and did not
not involved in making and distributing the sheathed cord actually know whether GCSC had ever been in possession
which injured the plaintiffs had been interposed in bad faith of the GTFL memo.
and with knowledge that the assertions were false. The
motion also complained that GCSC had failed to produce A second reason the district court gave for imposing
unspecified documents (actually, as it later developed, a sanctions was that GCSC had acted in bad faith in asserting
single document) which showed that it knew of the dangers in its summary judgment motion that, as a matter of law,
inherent in the cord and could have foreseen the type of plaintiffs' accident was unforeseeable. The court assumed
accident in which plaintiffs were injured. The motion that GCSC knew of the GTFL memo when it filed its
requested sanctions for discovery abuse and under Rule 13, motion for summary judgment, and therefore knew of the
TEX.R.CIV.P. After an evidentiary hearing the district problems with the sheathed cord. Possessed of this
court granted plaintiffs' motion without indicating the knowledge, the court reasoned, GCSC's assertion that
reasons for its ruling. plaintiffs' accident was unforeseeable as a matter of law was
groundless and could only have been made in bad faith.
GCSC petitioned the court of appeals for a writ of Based upon this analysis, the district court concluded that
mandamus directing the district court to vacate its order. GCSC's summary judgment motion violated Rule 13.
The appeals court conditionally granted its writ, holding
that the order did not state "the particulars" of good cause The district court also concluded, as its third reason for
warranting the imposition of sanctions, as required by Rule sanctions, that GCSC's amended answers, motion for
13. GTE Communication Systems Corp. v. Curry, 819 summary judgment and supporting affidavits in which it
S.W.2d 652, 653 (Tex.App.--San Antonio 1991, orig. denied that it had manufactured the sheathed cord were
proc.). Immediately after the court of appeals issued its groundless and brought in bad faith, in violation of Rule 13.
opinion, the district court vacated its original order and, The court based this conclusion upon the testimony of two
without notice to GCSC, signed a new order prepared by experts, one of whom was James. Plaintiffs first developed
plaintiffs, setting out in 24 paragraphs three reasons for this testimony after GCSC's motion for summary judgment
sanctioning GCSC by dismissing its pleadings and was denied and offered it at the hearing on the motion for
assessing $150,000 attorney fees against it. sanctions. Both witnesses testified that they had concluded
from examining the sheath that GCSC had manufactured it.
Page 728 At the hearing, GCSC introduced the affidavits that it had
filed in support of its motion for summary judgment, in
One reason the district court gave for imposing addition to other evidence that it had not manufactured the
sanctions was that GCSC had abused the discovery process sheath.
by failing to produce a certain memorandum prepared by
employees of a corporation, GTE of Florida, Inc., for GCSC again sought a writ of mandamus from the court
circulation to several departments within that corporation. of appeals, but this time the court denied leave to file the
GTFL, as it is referred to, and GCSC are separate petition. GCSC then moved for leave to file its petition in
corporations. It is unclear from the record before us how or this Court, which we granted. 36 TEX.SUP.CT.J. 686
even whether they are related. The relevant portion of the (April 3, 1993).
memorandum states: "Presently GTFL is using over 5,000
handsets per year for maintenance change out because the II
armored handset cord has been uncoiled by an excessive
pull by the end user. Several of these handset failures have We first consider whether the district court abused its
resulted in litigation against GTFL." Plaintiffs obtained this discretion in sanctioning GCSC for abuse of the discovery
memo from another party in the litigation. To show that process under Rule 215, TEX.R.CIV.P. To answer this
question we must answer two others: did the district court compel its production. Plaintiffs adduced no evidence
properly find that GCSC had "possession, custody or regarding the corporate relationship between GTFL and
control" of the GTFL memo within the meaning of Rule GCSC, or any right of the latter to control the former. In
166b(2)(b), TEX.R.CIV.P., such that GCSC should have fact, the only testimony regarding control was James'
produced it; and if so, were the sanctions imposed for the speculation regarding the ability of GCSC's parent to
failure to produce the memo just. We conclude that both control its subsidiaries, assuming both GCSC and GTFL
these questions must be answered negatively. were subsidiaries of the same parent. There is no evidence
that GCSC ever actually did exercise control of any type
Rule 166b(2)(b), TEX.R.CIV.P., provides in pertinent over GTFL.
part:
As a rule, the district court's resolution of a factual
A person is not required to produce a document or tangible issue is entitled to deference in a mandamus proceeding and
thing unless it is should not be set aside unless it is clear from the record that
only one decision could have been reached. Walker v.
Page 729 Packer, 827 S.W.2d 833, 839-40 (Tex.1992). Here, it is
quite clear that from the record before it the district court
within the person's possession, custody or control.
could not have found that GCSC had possession, custody or
Possession, custody or control includes constructive
control over the GTFL memo within the meaning of Rule
possession such that the person need not have actual
166b(2)(b) such that GCSC should have produced it.
physical possession. As long as the person has a superior
right to compel the production from a third party (including Furthermore, even if GCSC had failed to produce the
an agency, authority or representative), the person has GTFL memo, the district court's sanction of striking
possession, custody or control. GCSC's pleadings would not have been just, as required by
Rule 215, TEX.R.CIV.P. "[J]ust sanctions must not be
The phrase, "possession, custody or control", within the
excessive.... [C]ourts must consider the availability of less
meaning of this rule, includes not only actual physical
stringent sanctions and whether such lesser sanctions would
possession, but constructive possession, and the right to
fully promote compliance." TransAmerican Natural Gas
obtain possession from a third party, such as an agent or
Corporation v. Powell, 811 S.W.2d 913, 917 (Tex.1991).
representative. The right to obtain possession is a legal right
The record must reflect that the court considered the
based upon the relationship between the party from whom a
availability of lesser sanctions. Otis Elevator Co. v.
document is sought and the person who has actual
Parmelee, 850 S.W.2d 179, 181 (Tex.1993). Case
possession of it. For example, in State v. Lowry, 802
determinative sanctions may be imposed in the first instance
S.W.2d 669, 673-674 (Tex.1991), we held that a request for
only in exceptional cases when they are clearly justified and
production directed to the Attorney General required
it is fully apparent that no lesser sanctions would promote
production of documents held by all divisions of that office.
compliance with the rules. Here, the order which the district
A party seeking sanctions has the burden of court signed stated that lesser sanctions would have been
establishing his right to relief. Thus, when a motion for ineffective, but the court did not explain why, and the
sanctions asserts that a respondent to a discovery request record does not indicate why. We give no deference to such
has failed to produce a document within its possession, unsupported conclusions. Chrysler Corp. v. Blackmon, 841
custody or control, the movant has the burden to prove the S.W.2d 844, 853 (Tex.1992). We fail to see why any
assertion. In this case, plaintiffs failed to meet that burden. number
The only evidence plaintiffs offered to show that GCSC Page 730
had actual possession of the memo was the testimony of
of lesser sanctions, from fines to contempt, would not have
Charles James that it was "totally inconceivable" to him that
promoted compliance with discovery, if there had been
GCSC did not have the memo. James admitted, however,
abuse here.
that he had never worked for GCSC and had no personal
knowledge of whether GCSC had ever had the GTFL The sanctions imposed by the district court precluded
memo. The memo has not been located in GCSC's files, no GCSC from presenting the merits of its position at trial.
GCSC employee has acknowledged ever seeing it, and there Before a court may deprive a party of its right to present the
is no circumstantial evidence that would indicate that GCSC merits of its case because of discovery abuse, it must
ever had the memo. Under these circumstances, James' determine that "a party's hindrance of the discovery process
testimony is no more than mere surmise. justifies a presumption that its claims or defenses lack
merit." TransAmerican, 811 S.W.2d at 918. No such
Likewise, there is no evidence that GCSC had
presumption is warranted here. We have concluded that
constructive possession of the document or a right to
GCSC did not fail to comply with discovery. Even in the district court relied, unless the papers are "groundless" as
district court's view, GCSC only failure was to produce a defined by the rule. Plaintiffs contend, and the district court
single document which states that "several ... handset concluded, that GCSC's amended answers and summary
failures have resulted in litigation" without any indication judgment motion are groundless because there is no basis in
of the nature of such litigation or whether personal injuries fact for GCSC's denial that it was involved in the
had occurred. Even if GCSC had failed to comply with manufacture or distribution of the sheathed cord which
discovery, there is nothing in the record to justify striking caused plaintiffs' injuries. Plaintiffs make two arguments in
GCSC's pleadings as a consequence. support of their contention.
Accordingly, we conclude that the district court clearly Plaintiffs' first argument is that the evidence establishes
abused its discretion in sanctioning GCSC for an abuse of as a matter of law that GCSC manufactured the sheathed
the discovery process under Rule 215. cord, and that GCSC's denial of this fact was therefore
groundless. The evidence in the record before us
III demonstrates that the identity of the manufacturer of the
cord is vigorously disputed, and certainly not established as
We next consider whether the district court abused its a matter of law. GCSC's effort
discretion in imposing sanctions under Rule 13,
TEX.R.CIV.P. Rule 13 states in pertinent part: Page 731
The signatures of attorneys or parties constitute a to establish that it was not the manufacturer of the cord was
certificate by them that they have read the pleading, motion, not groundless.
or other paper; that to the best of their knowledge,
information, and belief formed after reasonable inquiry the Plaintiffs' second argument is that because, at the very
instrument is not groundless and brought in bad faith or least, a fact question existed regarding GCSC's involvement
groundless and brought for the purpose of harassment.... If a in the manufacture and distribution of the sheathed cord,
pleading, motion or other paper is signed in violation of this GCSC's assertion in its motion for summary judgment that
rule, the court, upon motion or upon its own initiative, after no such fact question existed was groundless. In other
notice and hearing, shall impose an appropriate sanction words, plaintiffs argue that a party who knows that material
available under Rule 215-2b, upon the person who signed it, facts are in dispute may be sanctioned for moving for
a represented party, or both. summary judgment. While we do not disagree that the filing
of a motion for summary judgment may give rise to
Courts shall presume that pleadings, motions, and other sanctions under Rule 13, just as the filing of any other
papers are filed in good faith. No sanctions under this rule pleading or motion, this is not such a case. At the time
may be imposed except for good cause, the particulars of GCSC filed its motion, the only evidence adduced by the
which must be stated in the sanction order. "Groundless" for parties indicated that GCSC had not made or distributed the
purposes of this rule means no basis in law or fact and not sheathed cord. Indeed, plaintiffs themselves originally
warranted by good faith argument for the extension, pleaded that ATS manufactured the cord, not GCSC. By
modification, or reversal of existing law. their own admission, plaintiffs did not develop any
evidence to contradict GCSC's assertions until after GCSC's
The district court sanctioned GCSC for filing amended motion was denied. Even if GCSC was not entitled to
answers, a motion for summary judgment and the summary judgment, it cannot be said that its motion had no
supporting affidavits of Zimmerman and Jiminez, which basis in law or fact.
deny that GCSC was involved in making or distributing the
sheathed cord which caused plaintiffs' injuries. By its Thus, the district court clearly abused its discretion in
express language, Rule 13 applies only to pleadings, determining that GCSC's assertions were groundless. To
motions and other papers signed by attorneys. Since the impose sanctions under Rule 13, the district court was also
Zimmerman and Jiminez affidavits were not signed by required to find that GCSC's assertions were made in bad
GCSC's attorneys, it was a clear abuse of discretion for the faith or for the purpose of harassment. Since plaintiffs do
district court to base an imposition of sanctions under Rule not contend, and the district court did not find, that GCSC's
13 on them. The issues, then, are whether the district court assertions were harassing, a finding of bad faith was a
abused its discretion GCSC's in concluding that GCSC's prerequisite to sanctions. Rule 13 prescribes that courts
amended answers and motion for summary judgment are presume that papers are filed in good faith. Thus, the burden
sanctionable, and in striking GCSC's pleadings. is on the party moving for sanctions to overcome this
presumption. Plaintiffs failed to carry this burden. The only
Such papers cannot serve as a basis for sanctions under basis the district court gave for finding that GCSC had
that portion of Rule 13 quoted above, and on which the acted in bad faith was that GCSC had ignored or concealed
evidence that it had been involved in making and TransAmerican, 811 S.W.2d at 920; Chrysler, 841 S.W.2d
distributing the sheathed cord that injured the plaintiffs. As at 845 n. 2. For the same reasons expressed in those cases,
we have seen, however, there is no proof that GCSC, before GCSC has no adequate remedy by appeal in this case, and
it moved for summary judgment, was aware of any we exercise our discretion to issue the extraordinary writ.
evidence that it was involved in the manufacture or
distribution of the sheathed cord. We have held that an assessment of attorney fees which
is not to be paid until final judgment is rendered may be
Furthermore, a motion for summary judgment asserting adequately challenged by appeal. Braden v. Downey, 811
that no genuine issue of material fact exists is not proved S.W.2d 922 (Tex.1991). Here, however, where we have
groundless or in bad faith merely by the filing of a response concluded in considering case determinative sanctions that
which raises an issue of fact, even if the response was or the district court clearly abused its discretion in awarding
could have been anticipated by the movant. Nor is denial of any sanctions at all, there remains no basis for the award of
a motion for summary judgment alone grounds for attorney fees.
sanctions. Rule 13 does not permit sanctions for every
pleading or motion that requests relief which is denied. In Accordingly, we conclude that GCSC is entitled to
this case, the district court abused its discretion in finding have the district court's sanction order set aside.
that GCSC had acted in bad faith.
******
The district court also sanctioned GCSC for asserting in
its motion for summary judgment that it did not know of We therefore direct the district court to vacate its orders
any defects in the sheathed cord and could not have of November 14, 1991, and June 12, 1992, assessing
foreseen an accident like plaintiffs', when it was aware of sanctions and attorney fees. We assume the district court
the GTFL memo. Since we have determined that there is no will promptly comply. The writ of mandamus will issue
evidence that GCSC was aware of the GTFL memo when it only if it does not.
filed its motion for summary judgment, and plaintiffs have
DOGGETT and SPECTOR, JJ., not sitting.
offered no other evidence of GCSC's knowledge of any
defects in the cord, we conclude that such assertions were
not groundless or made in bad faith.
Even if GCSC's assertions in its amended answers and
motion for summary judgment had been sanctionable, they
would not have warranted striking GCSC's pleadings. Rule
13 requires that sanctions imposed be "appropriate", which
is the equivalent of "just" under Rule 215. TransAmerican,
811 S.W.2d at 916-17 n. 4. Neither standard allows
imposition of excessive sanctions. Moreover, while the due
process concerns under the two rules are not completely
congruent, case determinative sanctions may not be
imposed under either rule unless the violation warrants
adjudication of the merits. Even if GCSC had violated Rule
13, there is nothing in the record to suggest that the
violation could not have been fully redressed far short of
striking GCSC's pleadings.
Page 732
Thus, we hold that the district court clearly abused its
discretion in imposing sanctions under Rule 13.
IV
Finally, we consider whether GCSC has an adequate
remedy by appeal. We have previously held that appeal
from the imposition of case determinative, or "death
penalty", sanctions is inadequate, unless the sanctions are
imposed simultaneously with a final, appealable judgment.
Page 577 Darcey testified in his deposition that Bailey had mild
asbestosis with no evidence of impairment.
92 S.W.3d 577 (Tex.App. —Austin 2002)
The case was reset for trial in late 1999 and again in
NORFOLK SOUTHERN RAILWAY COMPANY, October 2001. In the summer of 2001, Bailey had another
Appellant, pulmonary test, which showed that the asbestosis had
progressed to "mild impairment." Bailey produced this
v. pulmonary test to Norfolk Southern in early August 2001,
approximately two months before trial. The week before
James Allen BAILEY, Appellee.
trial began, Dr. Darcey gave a second deposition in which
he revised Bailey's diagnosis to asbestosis with mild
No. 03-02-00097-CV.
impairment.
Court of Appeals of Texas, Third District, Austin
At a hearing before trial, Norfolk Southern moved to
October 24, 2002 strike Dr. Darcey's testimony about his revised diagnosis on
the ground that Bailey failed to timely supplement his
Page 578 discovery responses to reflect the change in Dr. Darcey's
opinion. The district court denied the motion to strike the
[Copyrighted Material Omitted] testimony with the caveat that "if we were dotting all our i's
and crossing our t's, this should have been taken care of in
Page 579 supplementing opinions and mental impressions." The
district court concluded that Norfolk Southern would have
Leo D. Figueroa, Jackson Walker, LLP, San Antonio,
the opportunity on cross-examination to point out any
for appellant.
discrepancies in Dr. Darcey's testimony.
Carla M. Burke, Brent M. Rosenthal, Baron & Budd,
Norfolk Southern also sought to exclude any evidence
PC, Dallas, for appellee.
about Bailey's fear of cancer. As part of its motion in
limine, Norfolk Southern requested no mention be made
Before Chief Justice ABOUSSIE, Justices
that "Plaintiff or any lay witnesses have been told anything
PATTERSON and PURYEAR.
by any expert witness or witnesses concerning any matter."
JAN P. PATTERSON, Justice. At the pretrial hearing, Norfolk Southern specified that it
did not want Bailey or any other witness to testify about
In this personal injury action by appellee James Allen what expert witnesses told Bailey concerning his potential
Bailey against appellant Norfolk Southern Railway for contracting cancer. The district court granted the motion
Company, we address whether certain evidentiary rulings in limine with the modification that Bailey could testify
by the district court led to the rendition of an improper about what Dr. Darcey, his treating physician, had told him,
judgment. In two issues, Norfolk Southern contends that the but not about what other experts may have said. Norfolk
district court erred in denying its motion to strike part of the Southern
testimony of an expert witness and in failing to exclude
evidence of Bailey's fear of contracting cancer. [1] Having Page 580
concluded that the district court acted within its discretion
also challenged the reliability of portions of Dr. Darcey's
in the evidentiary rulings at issue and, in any event, that the
second deposition, specifically concerning people with
rulings did not lead to the rendition of an improper
asbestosis having an increased risk of cancer. The district
judgment, we affirm the judgment of the district court.
court overruled Norfolk Southern's objection to this
FACTUAL AND PROCEDURAL deposition testimony. The case proceeded to trial.
BACKGROUND
The jury returned a verdict in favor of Bailey. It found
Bailey is a seventy-four-year-old man who was that Bailey had sustained an asbestos-related disease and
exposed to asbestos while working for Norfolk Southern in that Norfolk Southern caused the disease. The jury then
the 1940s and 1950s. In 1997, Dr. Dennis Darcey diagnosed awarded Bailey a total of $500,000 in damages ($25,000 for
Bailey with asbestosis with no evidence of impairment, past pain, suffering, and mental anguish; $315,000 for
based on a pulmonary test performed around the same time. future pain, suffering, and mental anguish; $10,000 for past
In July 1998, shortly before the original trial setting, Dr. physical impairment; and $150,000 for future physical
impairment). The district court rendered a final judgment When a party fails to supplement a discovery
for $428,910.03 in compensatory damages, plus response in a timely manner, the evidence may be excluded.
post-judgment interest, after an offset for settlements. Tex.R. Civ. P. 193.6(a); see also Alvarado v. Farah Mfg.
Norfolk Southern filed a motion for new trial and motion Co., 830 S.W.2d 911, 914 (Tex.1992)
for remittitur, which the district court denied. Norfolk
Southern appeals from the final judgment of the district Page 581
court.
. The remedy is mandatory and automatic unless the
ANALYSIS court finds that there was good cause for the failure to
amend or supplement, or the failure will not unfairly
In two issues, Norfolk Southern contends that the surprise or prejudice the other party. Tex.R. Civ. P.
district court erred in evidentiary rulings by (i) failing to 193.6(a); Morrow v. H.E.B., Inc., 714 S.W.2d 297, 297-98
strike portions of the testimony of Dr. Darcey because (Tex.1986). The burden of establishing good cause or lack
Bailey did not timely supplement his discovery responses to of unfair surprise is on the party seeking to introduce the
include Dr. Darcey's revised diagnosis and (ii) failing to evidence. Tex.R. Civ. P. 193.6(b). The trial court has
exclude evidence of Bailey's fear of cancer on the ground discretion to determine whether the offering party has met
that fear of cancer is not recoverable under the Federal its burden of showing good cause. Aluminum Co. of Am. v.
Employers' Liability Act ("FELA") if there is no evidence Bullock, 870 S.W.2d 2, 3 (Tex.1994). The record must
of injury related to fear of the disease. support a finding of good cause or lack of unfair surprise.
Tex.R. Civ. P. 193.6(b).
We apply an abuse of discretion standard to the
question of whether a district court erred in an evidentiary In some instances, the change in an expert's opinion
ruling. City of Brownsville v. Alvarado, 897 S.W.2d 750, does not require supplementation. For example, an expert
753 (Tex.1995). We may reverse a district court under this may refine calculations or perfect a report up until the time
standard only when we find that "the court acted in an of trial. Exxon Corp. v. West Tex. Gathering Co., 868
unreasonable or arbitrary manner," Beaumont Bank, N.A. v. S.W.2d 299, 304 (Tex.1993). An expert also may change an
Buller, 806 S.W.2d 223, 226 (Tex.1991), or "without regard opinion without supplementation if the opinion is an
for any guiding rules or principles." Owens-Corning "expansion of an already disclosed subject." Navistar Int'l
Fiberglas Corp. v. Malone, 972 S.W.2d 35, 43 (Tex.1998) Transp. Corp. v. Crim Truck & Tractor Co., 883 S.W.2d
(quoting Alvarado, 897 S.W.2d at 754). 687, 691 (Tex.App.-Texarkana 1994, writ denied).
However, a party may not present a material alteration of an
When seeking to reverse a judgment based on an expert's opinion at trial that would constitute a surprise
improper evidentiary ruling, a complaining party "need not attack. See West Tex. Gathering, 868 S.W.2d at 305. The
prove that but for the error a different judgment would purpose of requiring timely disclosure of a material change
necessarily have been rendered, but only that the error in an expert's opinion is to give the other party an
probably resulted in an improper judgment." Alvarado, 897 opportunity to prepare a rebuttal. See id. at 304.
S.W.2d at 753; accord Malone, 972 S.W.2d at 43. To
prevail, the party must demonstrate that "the judgment turns Bailey's counsel acknowledged at oral argument that
on the particular evidence excluded or admitted." Alvarado, he should have supplemented the discovery responses with
897 S.W.2d at 753-54. We review the entire record to Dr. Darcey's revised diagnosis. We agree. It would have
determine whether a party has met this burden. Id. at 754. If been the better practice for Bailey to timely supplement his
any legitimate basis exists to support a district court's discovery responses; nevertheless, the record supports the
evidentiary ruling, then we must uphold the court's district court's ruling to admit the revised diagnosis.
decision. Malone, 972 S.W.2d at 43; State Bar v. Evans,
774 S.W.2d 656, 658 n. 5 (Tex.1989) (citing McCormick on First, the record shows that Norfolk Southern was not
Evidence § 52, at 131 (3d ed.1984)). unfairly surprised by the revised diagnosis. Norfolk
Southern received a copy of the later pulmonary test in
In its first issue, Norfolk Southern argues that the early August 2001, almost two months before trial. It was
district court erred in denying its motion to strike part of the logical that Dr. Darcey would base his trial testimony on the
testimony of Dr. Darcey. In its motion to strike, Norfolk newer pulmonary test, given that the earlier pulmonary test
Southern sought to exclude Dr. Darcey's revised diagnosis, figured prominently in his original diagnosis. Because
changed from "asbestosis with no impairment" to asbestosis is a progressive disease, see, e.g., Robinson v.
"asbestosis with mild impairment," because Bailey did not Global Marine Drilling Co., 101 F.3d 35, 36 (5th
timely supplement his discovery responses to reflect the Cir.1996); Pustejovsky v. Rapid-American Corp., 35
revised diagnosis. S.W.3d 643, 646 (Tex.2000), it should have been no
surprise to Norfolk Southern that Bailey's condition might
worsen between the original diagnosis in early 1997 and the Fibreboard Corp. v. Pool, 813 S.W.2d 658, 675 n. 2
trial over four years later in October 2001. The results of (Tex.App.-Texarkana 1991, writ denied), cert. denied, 508
the later pulmonary test were admitted into evidence U.S. 909, 113 S.Ct. 2339, 124 L.Ed.2d 250 (1993). The
without objection. Additionally, Norfolk Southern had the Texas Supreme Court has not decided whether fear of
opportunity to point out discrepancies in Dr. Darcey's cancer is a compensable element of damage for a person
testimony on cross-examination, which was a factor in the who manifests symptoms of an asbestos-related disease. See
district court's ruling. Pustejovsky, 35 S.W.3d at 650; Temple-Inland, 993 S.W.2d
at 94. Under the current state of the law, then, because
Second, although we find no cases directly on point Bailey already manifests symptoms of an asbestos-related
about admitting a change in testimony based on the disease, the district court did not act outside of the bounds
progression of asbestosis, Dr. Darcey's revised diagnosis of its discretion in admitting the fear-of-cancer evidence.
falls somewhere between a refinement in calculations, see We need not reach this issue, however, because it has not
West Tex. Gathering, 868 S.W.2d at 304, and an expansion been preserved for our review.
of an already disclosed subject, see Navistar, 883 S.W.2d at
691, both of which are admissible without the need for Norfolk Southern argues that it sought to prevent the
supplementation. We therefore conclude that the district presentation of fear-of-cancer evidence through a motion to
court acted within the bounds of its discretion when it exclude, but the record reflects that the district court ruled
denied Norfolk Southern's motion to strike Dr. Darcey's on Norfolk Southern's motion in limine. The record
testimony about his revised diagnosis. Even if the district contains two instances of Norfolk Southern's efforts to
court admitted Dr. Darcey's testimony in error, Norfolk exclude evidence of fear of cancer. First, at the beginning of
Southern has failed to show how the admission of Dr. the pretrial hearing, counsel for Norfolk Southern said that
Darcey's revised diagnosis led to the rendition fear of cancer "is something we want to keep from the
jury." He explained that "this is something that is going to
Page 582 come up in the motion in limine and with respect to the
experts." The district court did not rule on the issue at that
of an improper judgment, especially in light of other time. Second, Norfolk Southern's motion in limine included
evidence in the record reflecting Bailey's medical a request that no mention be made that "Plaintiff or any lay
impairment. We overrule Norfolk Southern's first issue. witnesses have been told anything by any expert witness or
witnesses concerning any matter" without first approaching
In its second issue, Norfolk Southern argues that the
the bench. Norfolk Southern specified at the pretrial hearing
district court erred in denying its motion to exclude
on the motion in limine that it did not want Bailey or any
evidence about Bailey's fear of getting cancer. Norfolk
other witness to testify about what experts told Bailey
Southern urges that this evidence should have been
concerning the possibility of contracting cancer. The district
excluded because fear of getting cancer is not compensable
court ruled that Bailey could testify about what his treating
under the FELA when there is no physical manifestation of
doctor, Dr. Darcey, told him but not about what other expert
injury related to the fear of cancer.
witnesses may have told him concerning the possibility of
Under the FELA, a person who has no contracting cancer.
asbestos-related disease cannot recover for fear of a
Page 583
possible future disease. See Metro-North Commuter R.R.
Co. v. Buckley, 521 U.S. 424, 427, 117 S.Ct. 2113, 138 [2] The record on appeal contains no motion to
L.Ed.2d 560 (1997). Texas applies this rule to all asbestos exclude cancer evidence, nor any order overruling such a
cases, not just those involving the FELA. See motion.
Temple-Inland Forest Prods. Corp. v. Carter, 993 S.W.2d
88, 94 (Tex.1999). Texas does, however, generally It is well established that denial of a motion in limine
"authorize [ ] recovery of mental anguish damages in is not a final ruling on admission of evidence; a party must
virtually all personal injury cases" that include object at trial when the testimony is offered to preserve
manifestation of a physical injury. Krishnan v. Sepulveda, error. Hartford Accident & Indem. Co. v. McCardell, 369
916 S.W.2d 478, 481 (Tex.1995). Specifically concerning S.W.2d 331, 335 (Tex.1963); see also Tex.R.App. P.
asbestos-related diseases, the United States Court of 33.1(a)(1). A ruling on a pretrial motion to exclude
Appeals for the Fifth Circuit and our sister court in evidence, however, can be a ruling on the admission of
Texarkana have determined that a person who already evidence. Huckaby v. A.G. Perry & Son, Inc., 20 S.W.3d
manifests symptoms of an asbestos-related disease may 194, 203-204 (Tex.App.-Texarkana 2000, pet. denied).
recover for fear of contracting another asbestos-related What occurred here was a ruling on a motion in limine, not
disease. See Gideon v. Johns-Manville Sales Corp., 761 a final ruling on the evidence. McCardell, 369 S.W.2d at
F.2d 1129, 1138 (5th Cir.1985) (applying Texas law); 335. To preserve error after the ruling on its motion in
limine, Norfolk Southern needed to object at trial to the 922 (Tex.App.-Beaumont 1999, pet. denied). "The failure to
admissibility of fear-of-cancer evidence and obtain a ruling. address an element of damages results in waiver of the
Id.; see also Tex.R.App. P. 33.1(a). sufficiency challenge." Price, 931 S.W.2d at 688. By failing
to challenge each element of the damages award, Norfolk
As Norfolk Southern points out in its brief, the record Southern has failed to preserve error. We therefore overrule
is replete with references to Bailey's fear of cancer and the Norfolk Southern's second issue.
possibility that he may contract cancer. What is missing
from the record are Norfolk Southern's objections to most CONCLUSION
of this evidence. Norfolk Southern objected once during
Bailey's testimony and received a limiting instruction that The district court acted within the bounds of its
the jury consider Bailey's testimony about the possibility of discretion in the evidentiary rulings that Norfolk Southern
contracting cancer only for Bailey's state of mind, not for disputes. Furthermore, the rulings at issue did not lead to
the truth that he might contract cancer. Norfolk Southern the rendition of an improper judgment in this case. Having
failed to object, however, to many subsequent references to overruled Norfolk Southern's issues, we affirm the
fear of cancer. "The general rule is that error in the judgment of the district court.
admission of testimony is deemed harmless if the objecting
party subsequently permits the same or similar evidence to ---------
be introduced without objection." See Richardson v. Green,
Notes:
677 S.W.2d 497, 501 (Tex.1984). Therefore, any error in
the admission of fear-of-cancer evidence was harmless
[1] At oral argument, Norfolk Southern withdrew a third
because Norfolk Southern failed to object to subsequent
evidentiary issue from consideration on appeal.
references. See id. More importantly, Norfolk Southern has
failed to show how the admission of fear-of-cancer [2] Norfolk Southern argues that it also sought to exclude
evidence led to the rendition of an improper judgment. fear-of-cancer evidence through objections to portions of
Dr. Darcey's second deposition. The record shows,
Norfolk Southern also failed to preserve error with a
however, that it objected to Dr. Darcey testifying about an
sufficient challenge to the jury's broad-form damages increased risk of cancer, not about a fear of cancer. The
findings. At the charge conference, Norfolk Southern did
district court overruled Norfolk Southern's objection.
not object to the submission of damages questions in broad
form. The jury awarded damages for pain, suffering, and ---------
mental anguish that Bailey sustained in the past, and pain,
suffering, and mental anguish that Bailey would in all
probability sustain in the future. The record substantially
supports the jury's damages award, even setting aside the
fear-of-cancer evidence. Experts for both Bailey and
Norfolk Southern testified that asbestosis is a progressive
disease, and Bailey's asbestosis worsened between 1997 and
2001. The jury could have based its award for future
damages on the possibility that Bailey's asbestosis would
further worsen.
When a damages issue is submitted in broad form, it
is difficult to determine the amount that the jury awarded
for each element of damages. See Haryanto v. Saeed, 860
S.W.2d 913, 921 (Tex.App.-Houston [14th Dist.] 1993, writ
denied); Greater Houston Transp. Co. v. Zrubeck, 850
S.W.2d 579, 589 (Tex.App.-Corpus Christi 1993, writ
denied). Consequently, to successfully challenge a
multi-element damage award on appeal, an appellant
Page 584
must address all of the elements and show that the evidence
is insufficient to support the entire damage award. See Price
v. Short, 931 S.W.2d 677, 688 (Tex.App.-Dallas 1996, no
writ); accord Brookshire Bros. v. Lewis, 997 S.W.2d 908,
Page 761 set for trial on March 24, 1997. Karagounis appeared in
court pro se on that date, announced that he was not ready
970 S.W.2d 761 (Tex.App. —Amarillo 1998) to proceed because he lacked an attorney, and requested a
continuance. [2] Continuance was denied. Nevertheless,
Vasilios KARAGOUNIS, Appellant, trial was postponed until the next day. Karagounis failed to
appear when the case was called for trial on the 25th of
v.
March. However, the court proceeded to hear PCA's request
for sanctions under Rule 13 of the Texas Rules of Civil
PROPERTY COMPANY OF AMERICA, Appellee.
Procedure. The request had been included in its amended
No. 07-97-0287-CV. answer filed several weeks earlier. Sanctions were sought
because Karagounis' suit was allegedly groundless and
Court of Appeals of Texas, Seventh District, Amarillo initiated in bad faith. After hearing evidence presented by
PCA's legal counsel, the trial court entered the
June 23, 1998 aforementioned final judgment.
Page 762 Karagounis then timely moved for a new trial,
contending that he had discovered new evidence and that
Law Offices of Charles Nicholson (Charles Nicholson), PCA "had not file [sic] a Counterclaim on February 28th
San Antonio, for appellant. [sic] 1997, as required by TRCP 47, [sic] and 97." When
that relief was denied him by written order, he again moved
Davis & Wilkerson, P.C. (Kelly A. McDonald), San
the court to "reconsider new trial." Though colored in a
Antonio, for appellee.
different shade, the grounds alleged therein again involved
newly discovered evidence and the impropriety of the court
Before BOYD, C.J., and QUINN and REAVIS, JJ.
awarding sanctions. That motion too was denied by written
ON MOTION FOR REHEARING order.
QUINN, Justice. Issue One--The Applicability of Rule 13
Vasilios Karagounis ("Karagounis") has moved for Under this issue, Karagounis posits that sanctions could
rehearing. We deny the motion, withdraw our original not be awarded under Rule 13 of the Texas Rules of Civil
opinion dated May 1, 1998, and substitute the following in Procedure because chapter 10 of the Texas Civil Practice
its stead. and Remedies Code supplanted the rule. Both deal with the
levy of sanctions against litigants who file groundless
Page 763 pleadings in bad faith. Furthermore, the legislation enacting
chapter 10 dictates that the provisions of the chapter take
Karagounis appeals from a final judgment declaring effect on September 1, 1995, and that they apply "only to a
that he take nothing against Property Company of America pleading or motion in a suit commenced on or after that
("PCA") and sanctioning Karagounis for initiating in bad date." TEX. CIV. PRAC. & REM.CODE ANN. § 10.001
faith and pursuing a groundless suit. Though encompassed historical note (Vernon Supp.1998) [Act of May 18, 1995,
within two points, he actually presents four issues for 74th Leg., R.S., ch. 137, § 1, 1995 Tex. Gen. Laws 977,
review. The first concerns whether Texas Rule of Civil 978]. A pleading or motion "in a suit commenced before the
Procedure 13 applied to the proceeding, the second, effective date ... is governed by the law applicable to the
whether sanctions could issue when a party simply lacked pleading or motion immediately before the effective date ...
sufficient evidence to support its claim, [1] the third, and that law is continued in effect for that purpose." Id.
whether he was afforded proper notice of the sanctions Since the action from which this appeal arose was initiated
hearing, and fourth, whether the Texas Rules of Civil after September 1, 1995, concludes Karagounis, Rule 13
Procedure prevented the trial court from entering a had no application. We disagree.
judgment on the merits. We affirm in part and reverse in
part. Section 10.006 of the Texas Civil Practice and
Remedies Code states that "[n]otwithstanding Section
Background 22.004, Government Code, the supreme court may not
amend or adopt rules in conflict with this chapter." From
Karagounis initiated a suit against PCA and others for this we glean the legislature's intent. It did not purport to
damages sustained in a fire at his apartment. The case was supercede the supreme court's authority to enact rules of
court concerning sanctions. Nor did it purport to negate any what Rule 13 regulates is the signing and filing of
rules of court which may also regulate the topic of groundless pleadings in bad faith or for purposes of
sanctions. Rather, it prohibited the court from enacting rules harassment, not the pursuit of an action later determined to
which conflict with chapter 10. In other be groundless after pleadings were filed. As much is
revealed in the rule itself when it declares that "[i]f a
Page 764 pleading, motion or other paper is signed in violation of this
rule, the court ... shall impose an appropriate sanction...."
words, as long as the court's rules do not conflict with the TEX.R. CIV. P. 13 (emphasis added). It says nothing about
provisions of the chapter, they can enjoy force and effect. levying sanctions if one pursues an action or pleading
[3] If the legislature intended anything more, it could have thought legitimate when filed but subsequently found
so said. Consequently, we overrule this contention. [4] baseless. As a result, the circumstances pivotal to the
determination of whether sanctions should issue are those in
Issue Two--Sanctions Because a Party Lacks Evidence to
existence at the time the pleading in question was signed
Prove a Claim
and filed. Monroe v. Grider, 884 S.W.2d at 817; Campos v.
Under this issue, Karagounis' argument is twofold. Ysleta Gen. Hosp., Inc., 879 S.W.2d 67, 71 (Tex.App.--El
Initially, he asserts that sanctions could not issue simply Paso 1994, writ denied); McCain v. NME Hosps., Inc., 856
because he failed to present sufficient evidence to support S.W.2d at 757; Home Owners Funding Corp. v. Scheppler,
his claim. Then, he suggests that in denying PCA's motion 815 S.W.2d at 889.
for summary judgment, the trial court implicitly found that
Next, since it is presumed that counsel acted in good
his allegations were supported by some evidence. We
faith, TEX.R. CIV. P. 13, the burden lies with the movant to
sustain the argument in part.
prove the criteria prerequisite to recovering sanctions. GTE
Standard of Review Communications Sys. Corp. v. Tanner, 856 S.W.2d 725,
729 (Tex.1993); Campos v.
In addressing a request for sanctions under Rule 13 of
the Texas Rules of Civil Procedure, the trial court exercises Page 765
its considered discretion. Monroe v. Grider, 884 S.W.2d
Ysleta Gen. Hosp., Inc., 879 S.W.2d at 71. That is, it must
811, 816 (Tex.App.--Dallas 1994, writ denied). Given this,
establish not only the frivolity of its opponent's claim but
we cannot interfere with the decision reached unless we
also the improper motives underlying the decision to file the
conclude that the trial court's discretion was abused. Id. At
suit, motion, or document. This in turn makes it imperative
the very least, this requires a showing that the court acted
for the trial court to convene and conduct an evidentiary
arbitrarily or unreasonably, such as when it bases its order
hearing. Bisby v. Dow Chemical Co., 931 S.W.2d 18, 21
on an incorrect interpretation of the law or a clearly
(Tex.App.--Houston [1st Dist.] 1996, no writ); McCain v.
erroneous assessment of the evidence. Id. So too can
NME Hosp., Inc., 856 S.W.2d at 757-58; see TEX.R. CIV.
discretion be abused if the procedural mechanisms in place
P. 13 (stating that the court must provide the litigants
to guide the court's determination are ignored. For instance,
"notice and hearing"). "Without hearing evidence on the
if the rule of law requires the court to conduct a hearing and
circumstances surrounding the filing of the pleading and the
receive evidence before it can make a decision and the court
signer's credibility and motives, the trial court ha[s] no
does neither, then the court fails to do those things
evidence to determine that the appellants or their attorneys
necessary to enable it to soundly exercise its discretion. The
filed the pleading in bad faith or to harass." McCain v. NME
result is an abuse of discretion.
Hosps., Inc., 856 S.W.2d at 757-58; accord Bisby v. Dow
Texas Rule of Civil Procedure 13 dictates that in Chemical Co., 931 S.W.2d at 21 (stating the same).
signing a pleading, motion, or other paper, counsel certifies Similarly, it is equally imperative that notice of the
that he read the document and that the allegations contained foregoing hearing be afforded the parties. TEX.R. CIV. P.
in it are, to the best of his knowledge, neither 1) groundless 13. If one or the other is denied to the litigant against whom
and brought in bad faith or 2) groundless and brought for sanctions are sought, then it can hardly be said that the
the purposes of harassment. Monroe v. Grider, 884 S.W.2d litigant received due process before being punished.
at 817; McCain v. NME Hosps., Inc., 856 S.W.2d 751, 757
Application of the Standard
(Tex.App.--Dallas 1993, no writ). This rule serves to "check
abuses in the pleading process, i.e. to insure that at the time As to the contention that sanctions were inappropriate
the challenged pleading was filed the litigant's position was because the court denied PCA's motion for summary
factually well grounded and legally tenable." Home Owners judgment, we disagree. [5] Simply put, nothing of record
Funding Corp. v. Scheppler, 815 S.W.2d 884, 889 indicates that the court ever granted or denied the motion.
(Tex.App.--Corpus Christi 1991, no writ). In other words, Given this, we can hardly conclude that the court denied
summary judgment, which in turn, prevents us from not be awarded given the court's failure to provide him
inferring that the court implicitly determined that some sufficient prior notice of the hearing. In reviewing this
evidence existed to buttress Karagounis' claim. ground, we found that he filed a motion for new trial and to
reconsider the order denying new trial. Yet, in neither did
As to the contention that sanctions could not issue he raise the assertion now before us. Nor was it presented to
simply because he failed to present sufficient evidence to the trial court via any other means. Such was required to
support his claim, we interpret it as questioning the legal preserve it for appeal. [8] TEX.R.APP. P. 33.1(a)(1).
basis upon which the court acted. As revealed by Consequently, it has been waived. See HBA East, Ltd. v.
testimonial evidence at the sanctions hearing, PCA's JEA Boxing Co., 796 S.W.2d 534, 538-39
counsel provided Karagounis' counsel with evidence which (Tex.App.--Houston [1st Dist.] 1990, writ denied), cert.
allegedly established that the suit was baseless. Yet, denied, 501 U.S. 1218, 111 S.Ct. 2828, 115 L.Ed.2d 998
Karagounis continued to proceed with the action, rather (1991) (holding that the appellant waived his claim that he
than dismiss it. To "continue to maintain this suit after the was denied prior notice of the hearing on a motion for
date that we got this information and fully disclosed it to the default judgment because the issue was not first presented
Plaintiff's lawyer, fully produced all documents necessary to the trial court).
to prove it to the Plaintiff through his Attorney," said PCA's
counsel, was to act in a manner warranting sanctions. Issue Four--Judgment Adjudicating the Merits
(emphasis added). The court agreed as evinced by its
finding "that Plaintiff's continued assertions against Under this issue, Karagounis posits that the judgment is
Defendant after February 27, 1997 are groundless and defective since the trial court could not rule upon the merits
brought in bad faith or for the purpose of harassment." of the case. That is, according to Karagounis, when a party
(emphasis added). [6] See TEX.R. CIV. P. 13 (obligating fails to appear for trial, Texas Rule of Civil Procedure 165a
the court to state the particular basis upon which sanctions restricts the trial court to dismissing the suit as opposed to
were issued); TEX. CIV. PRAC. & REM.CODE ANN. § addressing its merits. See Tewell v. Tewell, 599 S.W.2d
10.005 (requiring the court to describe the conduct which 351, 354 (Tex.Civ.App.--Corpus Christi 1980, writ ref'd
warranted sanctions). n.r.e.) (stating that dismissal, as opposed to an adjudication
on the merits, is the appropriate relief vis-a-vis a suit that
As can be seen from PCA's argument and the court's has not been diligently prosecuted). Moreover, in ordering
declaration, Karagounis was not sanctioned for signing and that he take nothing against PCA after he failed to appear
filing a frivolous suit, but for continuing his suit once PCA for trial, Karagounis argues that the court purportedly
provided him with evidence which allegedly rebutted his adjudicated the merits of his claim, which it could not. We
contentions. Yet, Rule 13, by its very words, only overrule the point for several reasons.
encompasses the initiation of a frivolous action for
improper motive not the continuation of a suit after it is First, we need not consider the issue for Karagounis did
shown to be baseless. Thus, sanctions could not be levied not include it within his motion for new trial or for
under Rule 13. And, in doing so, the trial court abused its reconsideration or otherwise present it first to the trial court.
discretion by misinterpreting Rule 13. Finally, given that That was a prerequisite. TEX.R.APP. P. 33.1(a)(1); Smith v.
sanctions were assessed to punish conduct outside the scope Babcock & Wilcox Constr. Co., 915 S.W.2d 22, 26
of the rule, we must also conclude that the trial court's error (Tex.App.--Austin 1994, no writ); McCain v. NME Hosps.,
was harmful. Inc., 856 S.W.2d at 755; Andrews v. ABJ Adjusters, Inc.,
800 S.W.2d 567, 568-69 (Tex.App.--Houston [14th Dist.]
This is not to say that we condone a litigant's conscious 1990, writ denied). Consequently, the matter has been
decision to further prosecute a claim or defense if same is waived.
shown to be groundless prior to trial. Such conduct is as
Second, even if it were not waived, we find no error.
Page 766 This is so because Karagounis' argument is premised on the
mistaken belief that the court entered judgment against him
reprehensible as knowingly filing a frivolous lawsuit in the simply because he failed to appear. He ignores the fact that
first place. But we cannot read into rules or laws that which, the court had before it, when the cause came to trial, what it
by their own terms, is not there. Nevertheless, we would considered to be a counterclaim for sanctions. See New
invite the appropriate governing bodies to adopt rules York Underwriters Ins. Co. v. State Farm Mut. Auto. Ins.
addressing situations like those discussed today. [7] Co., 856 S.W.2d 194, 205 (Tex.App.--Dallas 1993, no writ)
(recognizing that a counterclaim for relief under Rule 13
Issue Three--Failure to Notice Sanctions Hearing was an appropriate way to obtain sanctions). As previously
mentioned, PCA requested such relief since it believed that
Under this issue, Karagounis posits that sanctions could
the suit was groundless and initiated in bad faith or for
purposes of harassment. coincide with any date on which Karagounis signed and
filed a pleading or motion. Rather, it was the date on which
Another fact ignored by Karagounis is that the court PCA forwarded Karagounis' information which it thought
concluded that his suit was "frivolous" conclusively disproved his cause of action. By that time, the
suit had been pending for some seventeen months.
Page 767
[7] Rule 11 of the Federal Rules of Civil Procedure
and "groundless." More importantly, logic dictates that addresses this issue:
before the court could have so concluded, it had to have
adjudicated his claims. And, having adjudicated them for (b) Representations to Court. By presenting to the court
purposes of awarding sanctions, the court did not err in (whether by signing, filing, submitting, or later advocating )
entering a judgment on the merits rejecting the claims. [9] a pleading, written motion, or other paper, an attorney or
In sum, the court did not act upon Texas Rule of Civil unrepresented party is certifying that ...
Procedure 165a. Indeed, the latter was never mentioned by
anyone below. It simply adjudicated Karagounis' claims, (1) it is not being presented for any improper purpose, such
found them wanting, and entered judgment on that finding. as to harass or to cause unnecessary delay or needless
increase in the cost of litigation;
Accordingly, we reverse that portion of the judgment
levying sanctions upon Karagounis and remand that issue (2) the claims, defenses, and other legal contentions therein
for further proceedings. In all other respects, however, the are warranted by existing law or by a nonfrivolous
judgment is affirmed. argument for the extension, modification, or reversal of
existing law or the establishment of a new law....
---------
FED.R.CIV.P. 11 (italics added)
Notes:
[8] Additionally, we note that our reversal of the sanctions
[1] We note that Karagounis' statement and argument of this moots the issue of notice.
particular issue is highly abbreviated and obtuse. However,
we construe his points of error liberally and consider both [9] Our conclusion that the trial court erred in awarding
the points and related arguments in interpreting them. See sanctions does not affect its finding that the suit was
Anderson v. Gilbert, 897 S.W.2d 783, 784-85 (Tex.1995) groundless. Again, we found error because the court could
(holding that a party's arguments, and not just the wording not sanction Karagounis for continuing to prosecute a
of a point of error, should be considered). groundless suit. Whether or not the claims were groundless
went unaddressed. Nor did Karagounis question the legal or
[2] Karagounis released his counsel, with approval of the factual sufficiency of the evidence underlying the
court, shortly before the date on which he was to appear at determination that his claims were frivolous.
trial.
---------
[3] Since Karagounis does not argue that Rule 13 and
section 10, et seq., of the Civil Practice and Remedies Code
conflict, we need not address whether the latter pre-empted
the former on that basis.
[4] A motion or counterclaim requesting sanctions for a
groundless filing after September 1, 1995 may utilize both
Rule 13 and section 10.001. In Alexander v. Alexander,
sanctions were requested due to violations of both Rule 13
and section 10.001 for a groundless filing that took place on
July 26, 1996. 956 S.W.2d 712 (Tex.App.--Houston [14th
Dist.] 1997, pet. denied).
[5] PCA moved for summary judgment on the grounds that
it owed no legal duty to Karagounis. Owing no duty to
Karagounis, it was argued, PCA could not be held
responsible for any injury Karagounis suffered.
[6] The February 27th date referred to by the court did not
Page 836 entities and companies that generate waste sent to the
disposal facility. During the discovery process, the trial
999 S.W.2d 836 (Tex.App. —Tyler 1999) court dismissed Appellants' claims for failure to comply
with a court order. Appellants assert that the trial court
MARTI WILLIAMS, INDIVIDUALLY AND AS NEXT erred in entering the order and in dismissing their claims.
FRIEND OF We reverse the trial court's orders of dismissal and remand
the case to the trial court for further proceedings
MICHAEL WILLIAMS AND LINDA SMILEY,
INDIVIDUALLY Appellants filed this lawsuit in October of 1993,
alleging that they suffered personal injuries and property
AND AS NEXT FRIEND OF COURTNEY SMITH,
damage as a result of continuing exposure to toxic
APPELLANTS
emissions released from the Facility. Both sides served
interrogatories and requests for production on the other in
v.
mid-1995. Unhappy with Appellants' responses, some of the
AKZO NOBEL CHEMICALS, INC., F/K/A AKZO Appellees filed a motion to compel and for sanctions.
CHEMICALS, INC., ET AL., APPELLEES However, before the scheduled hearing, the parties came to
an agreement and no ruling was obtained on the motion.
No. 12-97-00295-CV Because Appellees felt that Appellants did not comply with
that agreement, they filed another motion to compel and for
Court of Appeals of Texas, Twelfth District, Tyler sanctions. The result was an agreed order entered March 16,
1996, which ordered Appellants to further respond to
June 30, 1999 discovery within a specified period. The order did not
mention sanctions.
APPEAL FROM THE 241ST JUDICIAL DISTRICT
COURT OF SMITH COUNTY, TEXAS. Hon. Diane The parties continued to spar with discovery requests
DeVasto, Judge. and objections for several months. In November 1996 many
Appellees filed a motion for entry of a case management
Page 837
order ("CMO"). The stated purpose of the order was to
narrow the issues, streamline discovery, and weed out
[Copyrighted Material Omitted]
meritless claims. The movants also sought to obtain
Page 838 consistent treatment concerning all "companion cases."[3]
Movants asked the court to order Appellants to provide
[Copyrighted Material Omitted] affidavits from experts specifying the illness or condition
attributable to exposure to substances from the Facility,
Page 839 naming the substances, stating when and how the exposure
occurred, naming which Appellee is responsible, and
Robert W. Buchholz, Dallas, for appellants. explaining the basis of the expert's opinion. Movants also
asked for a stay of discovery. They did not ask for
Jeffrey M. Tillotson, Dallas, James M. Garner, New
sanctions.
Orleans, Gregory D. Smith, Tyler, F. Walter Conrad,
Houston, Don David Martinson, Phillip S. Brown, Diana C A hearing was held on the motion on December 20,
Dutton, Dallas, Robert G Newman, San Antonio, Ms. Sally 1996, at which the court heard arguments from both sides.
A. Longroy, Dale Gene Markland, William Stephen Boyd, Movants explained that they wanted an order requiring
Dallas, for appellees. Appellants to produce affidavits supporting the basic
elements of their case
Panel consisted of Chief Justice Ramey, Jr. , Justice
Worthen, and Justice Hadden. Page 841
Page 840 so that Movants could defend against specific allegations.
After Appellants have provided that information, Movants
TOM B. RAMEY, Jr. Chief Justice.
asserted, the case should proceed in accordance with the
court's normal scheduling order. Appellants argued against
Appellants[1], brought suit against Appellees[2], a
entry of the CMO, stating that the appropriate course for
hazardous waste disposal facility and numerous related
Movants was to file special exceptions. While they have
obtained some documents from some Appellees, Appellants claims against those defendants. The court invited motions
argued, those documents are general and incomplete. to dismiss for its consideration and delayed ruling on
Appellants asserted that they could not provide the Appellants' pending motion. The court, however, explicitly
affidavits requested by Movants, with the level of stated that the discovery stay was still in effect.
specificity requested, without doing further discovery. The
trial court stated on the record that "at this time I'm going to Thereafter, Appellees moved the court to dismiss
enter the case management order as requested by the Appellants' claims for failure to comply with the CMO. The
Defendants." The court also announced a stay of discovery. court signed motions to dismiss the claims against most
The specific terms of the order were not dictated into the defendants on May 12, 13, 15, and 21, 1997. Pursuant to
record. The court also stated that it would review the Appellees' request to enter an amended order, the trial court
affidavits when presented and would consider amendments entered amended orders of dismissal on September
to the order at that time.
Page 842
A written CMO was signed on January 15, 1997. That
order required Appellants to present, on or before sixty days 9 and 12, 1997, dismissing Appellants' claims against fifty
after the date of the order, affidavits from experts describing defendants. The amended orders more completely explain
the injury or condition suffered by each plaintiff that was the grounds for dismissal against those fifty defendants. The
caused by exposure to materials from the Facility, orders state that those dismissals were justified under Texas
identifying the substance that caused the injury, the manner, Rules of Civil Procedure 13, 166, and 215, and the court's
date, time, duration, and dosage of each incident of inherent power.
exposure and the source of each substance. The order also
Initially, we consider an issue raised by Appellants in
required the affidavits to include a description of the
their supplemental brief concerning whether the trial court
scientific and medical bases for the expert's opinions. Also
had jurisdiction to enter the amended orders. They assert
included was the decree "that any plaintiff that fails to
that, because they filed motions for new trial concerning all
comply with this order shall have his or her claims
of the May dismissal orders, the trial court's plenary
dismissed." Finally, the order stayed all discovery as to all
jurisdiction ended, at the latest, seventy-five days after May
parties until thirty days after the submission of the
21, on August 4, 1997. Therefore, they argue, the court did
affidavits.
not have jurisdiction when it signed the September orders.
On March 3, 1997, Appellants filed a motion to
A trial court has plenary jurisdiction over its judgment
reconsider the CMO. They claimed that the documents they
until it becomes final. Fruehauf Corp. v. Carrillo, 848
have are incomplete and not specific. They asserted that
S.W.2d 83, 84 (Tex. 1993) (per curiam). The trial court also
certain Appellees can supply them with the information
retains continuing control over interlocutory orders and has
they need to comply with the CMO. Therefore, they
the power to set those orders aside any time before a final
requested that the discovery stay be lifted and they be
judgment is entered. Id. To be final a judgment must
allowed additional time to obtain the required affidavits.
dispose of all issues and parties in a case. North East Indep.
Alternatively, if the stay was to remain in place, they
Sch. Dist. v. Aldridge, 400 S.W.2d 893, 895 (Tex. 1966).
requested an additional thirty days to obtain the affidavits.
Any action taken by the trial court after the expiration of its
A hearing was held on the motion to reconsider on plenary jurisdiction is a nullity. See Jackson v. Van Winkle,
April 4, 1997. Appellants argued that they need documents 660 S.W.2d 807, 808 (Tex. 1983).
from Appellees showing what was shipped, what specific
Here, the trial court signed dismissal orders in May
materials were in the waste stream, their concentrations,
disposing of most defendants. However, those orders did
when they were shipped, where they were shipped and
not dispose of all defendants. Defendants Eagle-Picher
confirmation that they were received. Appellants claimed
Industries and Atrium Doors and Windows were not
they could not provide affidavits in the absence of this
included in those orders. Eagle-Picher Industries was
information. Appellees asserted that the Facility had made
non-suited by order dated September 2, 1997, and Atrium
available for review by Appellants over 200,000 documents
Doors and Windows was non-suited on November 3, 1997.
and Appellants had reviewed and copied a large number of
Therefore, the May dismissal orders were interlocutory and
these documents. Further, some defendants had notified
not final. See Aldridge, 400 S.W.2d at 895. Accordingly,
Appellants that documents were available for their review
the trial court had jurisdiction to enter the September orders.
but Appellants never made arrangements to review those
See Carrillo, 848 S.W.2d at 84. We overrule Appellants'
documents. Finally, Appellees pointed out that Appellants
supplemental issue.
actually reviewed documents produced by other defendants
and made some copies of those documents. Even so, We address now Appellants' second issue, which is
Appellants did not provide affidavits concerning their
dispositive of the case. In their second issue, Appellants obstruction of the discovery process justifies the
contend that the trial court erred in dismissing their claims presumption that the claim lacks merit. TransAmerican, 811
because death penalty sanctions were not proper. We agree. S.W.2d at 918. Even then, lesser sanctions should be tested
The trial court's orders rely on rules of civil procedure 13, first to determine if they are adequate to secure compliance,
166, and 215 and the court's inherent power as justification deterrence, and punishment of the offender. Hamill v. Level,
for the dismissals. We conclude that the dismissals cannot 917 S.W.2d 15, 16 n.1 (Tex. 1996) (per curiam); Chrysler
be upheld under any of these grounds. Corp., 841 S.W.2d at 849; Humphreys v. Meadows, 938
S.W.2d 750, 752 (Tex. App. - Fort Worth 1996, writ
In order to assist in the disposition of the case, rule 166 denied). In exceptional situations, determinative sanctions
permits trial courts to hold pretrial conferences and to enter may be imposed in the first instance when they are clearly
orders establishing the agreements of the parties as to any justified and no lesser sanctions will promote compliance.
of the matters considered which controls the subsequent GTE Communications Sys. Corp. v. Tanner, 856 S.W.2d
course of the case up to trial. TEX. R. CIV. P. 166. The trial 725, 729 (Tex. 1993) (orig. proceeding).
court has power, implicit under rule 166, to sanction for
failing to obey the court's pretrial orders. Koslow's v. The trial court has inherent power to sanction to the
Mackie, 796 S.W.2d 700, 703 (Tex. 1990). Rule 215 extent necessary to deter, alleviate, and counteract bad faith
authorizes a trial court to impose sanctions for violations of abuse of the judicial process. Metzger v. Sebek, 892 S.W.2d
discovery orders or for abuse of the discovery process. 20, 51 (Tex. App. - Houston [1st Dist.] 1994, writ denied),
TEX. R. CIV. P. 215. cert. denied, 516 U.S. 868, 133 L.Ed. 2d 124, 116 S.Ct. 186
(1995); Shook v. Gilmore & Tatge Mfg Co., 851 S.W.2d
Imposing an available sanction for a violation of rules 887, 891 (Tex. App.-Waco 1993, writ denied); Kutch v. Del
166 or 215 is left to the sound discretion of the trial court. Mar College, 831 S.W.2d 506, 509 (Tex. App. - Corpus
TransAmerican Nat. Gas Corp. v. Powell, 811 S.W.2d 913, Christi 1992, no writ). For inherent power to apply, there
917 (Tex. 1991) (orig. proceeding); Koslow's, 796 S.W.2d must be some evidence and factual findings that the conduct
at 704. An appellate court will set aside the decision only complained of significantly interfered with the court's
on a showing of a clear abuse of discretion. The test for administration of its core functions: hearing evidence,
abuse of discretion is whether the trial court acted without deciding issues of fact raised by the pleadings, deciding
reference to any guiding rules and principles, or whether questions of law, entering final judgment, and enforcing
under all the circumstances of the particular case the trial that judgment. Shook, 851 S.W.2d at 891; Kutch, 831
court's action was arbitrary or unreasonable. S.W.2d at 510. However, the rights of litigants may not be
infringed by this power. Shook, 851 S.W.2d at 891.
Page 843 Therefore, a sanction imposed pursuant to the court's
inherent power must be just and appropriate. Id. The
Koslow's, 796 S.W.2d at 704. The circumstances of the case
appellate court applies the test set out in TransAmerican to
include the reasons offered and proved or established as a
determine whether sanctions imposed under the trial court's
matter of law on the record. Id.
inherent power were proper or an abuse of discretion.
If the sanctions imposed are not just, a trial court Shook, 851 S.W.2d at 892; Kutch, 831 S.W.2d at 512.
abuses its discretion. TransAmerican, 811 S.W.2d at 917.
Initially, we consider the first prong of the
To determine whether sanctions are just we apply a
TransAmerican test, whether there is a direct relationship
two-prong test. The first prong requires that a direct
between the offensive conduct and the sanction imposed. At
relationship exist between the offensive conduct and the
the April 4 hearing, the court heard argument by counsel for
sanction imposed. Id. Under this prong, the trial court
each side. No evidence was presented. The trial court made
should attempt to determine if the offensive conduct is
no attempt to determine if the offensive conduct is
attributable to the attorney, the party, or both. Id. The
attributable to the parties, the attorneys, or both. Therefore,
second prong requires that the sanctions must be no more
the trial court could make no determination as to whether
severe than necessary to satisfy its legitimate purposes. Id.
there was a direct relationship between the failure to
A death penalty sanction is any sanction that comply with the CMO and the death penalty sanction. The
adjudicates a claim and precludes the presentation of the first prong of the TransAmerican test has not been met.
merits of the case. Chrysler Corp. v. Blackmon, 841 S.W.2d
Page 844
844, 845 (Tex. 1992). Such sanctions should not be
assessed absent a party's flagrant bad faith or counsel's We turn now to the second prong which requires that
callous disregard for the responsibilities of discovery under the sanctions be no more severe than necessary. As
the rules. Id. at 849. Discovery sanctions should not be used explained above, the Supreme Court requires a trial court to
to adjudicate the merits of a claim unless a party's attempt to obtain compliance with its orders by first
ordering sanctions that are not case determinative. Hamill, and if it is fully apparent that no lesser sanctions would
917 S.W.2d at 16 n.1; Chrysler Corp., 841 S.W.2d at 849. promote compliance with the rules. See Tanner, 856 S.W.2d
The trial court was authorized to assess any of several lesser at 729. Both amended dismissal orders contain the
sanctions. Rule 215 provides a partial list including following: "Lesser sanctions would not promote compliance
disallowing further discovery, charging discovery expenses and discourage further abuse. If the threat of "death
to the disobedient party, ordering that certain designated penalty" sanctions was not enough to promote compliance
facts shall be taken as established, refusing to allow the with the Court's CMO, lesser sanctions would not promote
disobedient party to support or oppose designated claims or compliance either." We are unpersuaded by the Court's
defenses, or prohibiting him from introducing designated circular logic. Noncompliance in the face of a threat of
matters in evidence, or holding the disobedient party in death penalty sanctions
contempt. TEX. R. CIV. P. 215.2(b). Additionally, the trial
court may require a party to pay attorney's fees or order Page 845
other monetary sanctions such as heavy fines. See Bosnich
v. National Cellulose Corp., 676 S.W.2d 446, 447-48 (Tex. cannot justify the failure to impose lesser sanctions in the
App. - Houston [1st Dist.] 1984, no writ). first instance. There is nothing in the record to indicate that
some lesser sanction would not have been effective to
No written orders relating to discovery or compelling promote compliance. See 856 S.W.2d at 729-30.
discovery had been entered prior to entry of the CMO. The
trial judge did not impose any lesser sanctions prior to The sanctions imposed by the trial court precluded
dismissing Appellants' claims. Even assuming that the Appellants from presenting the merits of their case. Before
CMO should be characterized as an order to compel, entry a court may deprive a party of its right to present the merits
of an order to compel cannot be construed as a lesser of its case because of discovery abuse, it must determine
sanction under rule 215. Westfall Family Farms v. King that a party's hindrance of the discovery process justifies a
Ranch, 852 S.W.2d 587, 592 (Tex. App. - Dallas 1993, writ presumption that its claims lack merit. TransAmerican, 811
denied). Although the dismissal orders recite that the trial S.W.2d at 918. No such presumption is warranted here.
court considered lesser sanctions, this does not satisfy the Appellants did not refuse to provide discovery. That their
requirement that the trial court first impose lesser sanctions original answers were incomplete or even intentionally
before entering death penalty sanctions. See Hamill, 917 evasive is not such an obstruction of discovery to justify the
S.W.2d at 16 n.1; Chrysler Corp., 841 S.W.2d at 849. conclusion that their claims lacked merit without more.
Although the CMO included a warning that noncompliance Lanfear v. Blackmon, 827 S.W.2d 87, 90-91 (Tex. Civ. -
would result in dismissal, neither a threat to sanction, Corpus Christi 1992, orig. proceeding). Appellants did not,
without more, nor the intent to sanction, is a sanction. See at any time, refuse to comply with the CMO. They asserted
TEX. R. CIV. P. 215(2)(b); Chrysler Corp., 841 S.W.2d at that they were unable to comply without more information
850; GTE Mobilnet of South Tex. Ltd. Partnership v. and more time. Over fifty defendants were involved. The
Telecell Cellular, Inc., 955 S.W.2d 286, 298 (Tex. App. - information Appellants had to sift through was voluminous
Houston [1st Dist.] 1997, writ denied) (on reh'g). The CMO and of a technical nature. Given these facts, we do not
is not a sanction. It is an order and a threat. Thus, the trial conclude that this was such flagrant bad faith or callous
court did not impose any lesser sanctions before dismissing disregard to preclude a trial on the merits. See Perez v.
Appellants' claims in compliance with the general rule. Murff, 972 S.W.2d 78, 83 (Tex. App. - Texarkana 1998,
writ denied). Appellants' failure to comply with the CMO
Appellees direct our attention to Andras v. Memorial does not justify the presumption that their claims lack merit.
Hospital System, 888 S.W.2d 567 (Tex. App. - Houston [1st See Hamill, 917 S.W.2d at 16. Accordingly, death penalty
Dist.] 1994, writ denied), to which the trial court cited in its sanctions are not justified. See Tanner, 856 S.W.2d at 730.
dismissal orders. In Andras, the First District Court of
Appeals held that an order to compel coupled with a threat The trial court imposed no lesser sanctions as required
to dismiss for noncompliance is a lesser sanction within the by TransAmerican. It has not been shown that lesser
meaning of Chrysler Corporation. Andras, 888 S.W.2d at sanctions would have been totally ineffective. See Tanner,
573. Because we conclude that the Supreme Court requires 856 S.W.2d at 729. The record does not support a
that a lesser sanction actually be assessed to further test presumption that Appellants' claims lack merit thereby
compliance before imposition of the death penalty, we justifying a death penalty sanction. See 856 S.W.2d at 730.
decline to follow the Andras court in that respect. We conclude, therefore, that the trial court's imposition of
death penalty sanctions was not "just" under the standards
Finally, we consider whether this case presents an set out in TransAmerican. Accordingly, the trial court
exceptional situation where determinative sanctions should abused its discretion in entering the dismissal orders
be imposed in the first instance. Case determinative pursuant to rules of civil procedure 166 and 215 and the
sanctions would be appropriate here only if clearly justified
court's inherent power. does not support the imposition of the ordered sanctions.
Rule 13 authorizes the imposition of sanctions against Further, rule 13 requires that the sanctions assessed be
an attorney, a represented party, or both, who files appropriate. Tanner, 856 S.W.2d at 731. Rule 13's
pleadings, motions, or other papers that are both groundless "appropriate" standard is equivalent to rule 215's "just"
and brought in bad faith or to harass. TEX. R. Civ. P. 13. standard. Id. Thus, to determine whether sanctions imposed
The court may impose any appropriate sanction available for violating rule 13 are appropriate, we employ the same
under rule 215(2)(b). Id. "Groundless" means without basis test used to determine whether sanctions imposed by rule
in law or fact and not warranted by good faith argument for 215 are just. Metzger, 892 S.W.2d at 53. As explained
the extension, modification, or reversal of existing law. Id. above, the sanction employed by the trial court was more
Before a trial court may impose sanctions under rule 13, it severe than authorized and not just. While this Court does
must hold an evidentiary hearing. Id. We set aside the trial not condone filing a lawsuit without first investigating to
court's decision to impose rule 13 sanctions upon a showing determine if the plaintiff has a viable case, unless a case
of abuse of discretion. Monroe v. Grider, 884 S.W.2d 811, meets the requirements of Tanner's exception, it should not
816 (Tex. App. - Dallas 1994, writ denied). be finally concluded without first imposing lesser sanctions
to obtain compliance with court orders. Accordingly, the
When determining whether rule 13 sanctions are trial court abused its discretion in dismissing Appellants'
proper, the trial court must examine the circumstances claims pursuant to rule 13.
existing when the litigant filed the pleadings. Id. at 817.
Courts should presume parties and their counsel file all We conclude that the trial court was not justified in
papers in good faith and the party seeking sanctions must imposing death penalty sanctions under rules of civil
overcome that presumption. Tanner, 856 S.W.2d at 731. procedure 13, 166, or 215, or under the trial court's inherent
Further, the trial court can presume that a plaintiff has power. Accordingly, we sustain Appellants' second issue.
investigated his case prior to filing. McAllister v. Samuels, Our disposition of Appellants' second issue makes it
857 S.W.2d 768, 773 (Tex. App. - Houston [14th Dist.] unnecessary for us to consider Appellants' remaining issues.
1993, no writ). The party seeking sanctions has the burden TEX. R. APP. P. 47.1.
of showing his right to relief. Tanner, 856 S.W.2d at 731.
Motions and arguments of counsel are not evidence. We reverse the trial court's orders of dismissal and
McCain v. remand this cause to the trial court for further proceedings
consistent with this opinion.
Page 846
---------
NME Hosps., Inc., 856 S.W.2d 751, 757 (Tex. App. -
Dallas 1993, no writ). Notes:
The dismissal orders stated that the April 4, 1997 [1]. Marti Williams, individually and as next friend of
hearing was an evidentiary hearing held under rule 13 and Michael Williams, and Linda Smiley, individually and as
Appellants had the opportunity to submit any evidence. next friend of Courtney Smiley.
Further, according to the dismissal orders, Appellants' lack
of compliance with the CMO and the excuses offered by [2]. American Ecology Environmental Services
Appellants at the April 4 hearing, demonstrated that Corporation, formerly known as Gibraltar Chemical
Appellants' claims and their pleadings were groundless and Resources, Inc. ("the Facility"), American Ecology
brought in bad faith or to harass. The reporter's record of Corporation, American Ecology Management Corporation,
the hearing confirms that no evidence was presented. Mobley Environmental Services, Inc., Mobley Company,
Without hearing evidence on the circumstances surrounding Inc., David Mobley, James Mobley, Thomas Mobley,
the filing of the pleading and the signer's credibility and Numetco, SSI Mobley, Dixie Chemical Company, Texas
motives, the trial court had no evidence to determine that Utilities Electric Company, Arco Chemical Company,
the Appellants or their attorneys filed the pleading in bad Houston Lighting & Power Company, Lyondell
faith or to harass. Further, as evidenced by the language in Petrochemical Company, Motorola, Inc., Philllips 66
the dismissal orders, the trial court improperly placed the Company, Safety-Kleen Corporation, The
burden on Appellants to prove good faith. The trial court Sherwin-Williams Company, Texaco, Inc., American
must presume good faith and Appellees had the burden to Airlines, AnaLab Corporation, Aptus, Inc., Aviall, Inc.,
prove bad faith or that the claim was brought to harass. Akzo Nobel Chemicals, Inc., Chemical Leaman Tank
Tanner, 856 S.W.2d at 731. Appellees did not meet their Lines, Inc., Cedar Chemical Corporation, Chromium
burden to prove an element of rule 13. Therefore, the record Corporation, Devoe & Raynolds, Company, Helena
Chemical Company, Hitachi, Semiconductor of America,
Inc., Hoechst Celenese Corporation, Intercontinental
Manufacturing Company, International Business Machines,
Inc., Laidlaw Environmental Serves (TES), Inc., The
Lubrizol Corporation, McDonnell Douglas Corporation,
Mobil Oil Corporation, Mobil Chemical Corporation,
Phelps Dodge Refining Corporation, Pure Solve, Inc.,
Rho-Chem, Inc., Sandoz Agro, Inc., Solvent Service
Company, Inc., Texas Instruments Incorporated, Texas
Electric Cooperatives, Inc., The Valspar Corporation,
United States Pollution Control, Inc., and Zoecon
Corporation.
[3] At the time, there were also other similar cases pending
in other courts involving the same defendants and attorneys,
but different plaintiffs.
---------
ACCEPTED
03-15-00409-CV
8022650
THIRD COURT OF APPEALS
AUSTIN, TEXAS
11/30/2015 6:35:13 PM
JEFFREY D. KYLE
CLERK
No. 03-15-00409-CV FILED IN
3rd COURT OF APPEALS
AUSTIN, TEXAS
11/30/2015 6:35:13 PM
JEFFREY D. KYLE
Clerk
In the Third Court of Appeals
Austin, Texas
SUSAN ENGLAND
Appellant
v.
JANICE KOLBE, AS GUARDIAN OF THE ESTATE OF EDNA MOON
Appellee
APPEAL FROM CAUSE NO. 12-0361
207 JUDICIAL DISTRICT COURT OF HAYS COUNTY, TEXAS
TH
HON. GARY STEEL, PRESIDING
AMENDED CERTIFICATION REGARDING LENGTH OF BRIEF
TO THE HONORABLE THIRD COURT OF APPEALS:
Susan England (now Susan Lee), the Appellant, files this Amended
Certification Regarding the Length of Appellant’s Brief based on the following:
1. On this day, Counsel for Appellant, Susan England (Lee), filed an
incorrect certificate regarding the length of Appellant’s brief. Counsel for Appellant
notifies the Court that the certification as to the length of Appellant’s Brief that was
Amended Certification – Page 1
filed with that brief is incorrect. The correct certification is as follows:
Counsel for Appellant hereby certifies that the length of the Appellant’s
Brief filed today as indicated by the word processing system used to
generate it, excluding appendices, is not 7,439 words, but is 14,252 words.
While not required, this word count includes the caption, table of
contents, index of authorities, statement of the case and issues presented,
signature block, this certificate, and the certificate of service.
I apologize for any confusion this may have caused.
Respectfully submitted,
Law Office of David Junkin
15401 RR12, Suite 105
P.O. Box 2910
Wimberley, TX 78676
512/847-8600
512/847-8604 (fax)
david@junkinlawoffice.com
________________________________________
David Junkin
State Bar No. 11058020
Attorney for Appellant, Susan Lee
Amended Certification – Page 2
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of this pleading was served on
November 30, 2015, in the manner indicated below and on the following person(s):
VIA FACSIMILE AND/OR ESERVE
Jonathan Hull
c/o Reagan Burris, LLC
401 Main Plaza, Suite 200
New Braunfels, TX 78130
________________________________
David Junkin
Amended Certification – Page 3