L'Art De La Mode, Inc. v. the Neiman Marcus Group, Inc. , 2013 Tex. App. LEXIS 598 ( 2013 )

REVERSE and REMAI1); Opinion Filed January 23, 2013.
In The
Itiitrt Lif \ppra1
Fifth ithitrirt uf xaa at a11ai
No. 05-1 1-01440-CV
L’ARTE DE LA MODE, INC., Appellant
V.
THE NEIMAN MARCUS GROUP, Appellee
On Appeal from the 193rd District Court
Dallas County, Texas
Trial Court Cause No. 09-05138-L
OPINION
Before Justices Lang-Miers, Myers, and Richter
1
Opinion By Justice Myers
L’Arte de Ia Mode, Inc.
2 appeals the post-answer default judgment in favor of The Neiman
Marcus Group. L’Arte brings two issues asserting (1) the trial court erred by overruling L’Arte’s
motion for new trial, and (2) the evidence is insufficient to support the award of exemplary damages
against L’Arte. We reverse the trial court’s judgment and remand the cause for further proceedings.
The Honorable Main Richter, Justice, Court of Appeals, Fifth District of Texas Dallas, Retired. sitting by assignment.
2
The first word of appellant’s name appears throughout the record as both “L’AiIe” and “L’Art” The style of the case in the trial court
identified appellant as “L’Arte.” and appellant identifies itself in its brief as “L’Artc” Accordingly, we refer to appellant as ‘L’Arte” in this
opinion.
BACKGROUND
Wells Fargo l’rade Capital Services, Inc. loaned money to l.’Arte, and L’Arte transferred its
accounts receivable to Wells Fargo under a factoring agreement. Wells Fargo handled collections
on the accounts receivable and credited L’Arte’s customers’ payments on the receivables to L’Arte’s
loan account.
In 2007. Neiman Marcus placed several purchase orders with L’Arte totaling over $150,000.
On December 12. 2007. Neiman Marcus sent L’Arte a check for $1 55.644.48. Neiman Marcus
canceled the check the next day and then paid the same amount to L’Arte through Wells Fargo in
smaller transactions. On March 3, 2008, Neiman Marcus erroneously paid L’Arte through Wells
Fargo an additional $155,644.48. Neiman Marcus discovered the mistake on March 25,2008, but
the check had already been cashed and had cleared the bank. Neiman Marcus demanded L’Arte
return the overpayment, and L’Arte told Neiman Marcus to work with Wells Fargo on the
overpayment issue. In August 2008, Wells Fargo told Neiman Marcus it had credited L’Arte’s
account for the $1 55.644.48. and Wells Fargo sent Neiman Marcus documents verifying the credit
to the account. Neiman Marcus forwarded this information to L.’Arte and demanded a check for the
overpayment Neiman Marcus followed up with L’Arte several times in September and October
2008, but L’Arte responded that it had no record of the original canceled check. L’Arte again told
Neiman Marcus to work with Wells Fargo to determine the whereabouts ofthe money.
Neiman Marcus sued L.’Arte on April 29. 2009 for money had and received seeking actual
damages for the amount ofthe overpayment, $155,644.48. Neiman Marcus also sought exemplary
damages, alleging L’Arte acted maliciously by receiving and knowingly keeping the funds. L’Arte
filed a third party petition alleging Wells Fargo was liable to Neiman Marcus for the $155,644.48
because Wells Fargo received, held, and retained the funds for which Neiman Marcus was suing
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L’Arte. Wells Fargo filed a special appearance, which the trial court granted.’
The case was set for trial on August 2. 2011. On June 23, 2011. L’Arte’s attorneys filed a
motion to withdraw from representing L’Arte because L’Arte had filled to make any payment or
submit a payment plan bswith respect to the very large amount owed.. for attorney’s fees.” The .
attorneys also requcsted the trial court continue the case until October 25,2011 to allow L’Arte time
to hire new counsel and prepare for trial. On July 20,2011, the trial court granted the attorneys’
motion to withdraw but denied the request for a continuance, stating, “the Court finds that any
prejudice to the Defendant [L’Arte] as a result of its attorney withdrawing at this stage in the
litigation is a result ol’ Defendant’s own conduct.”
The case was not reached for trial on August 2,2011; however, pursuant to the court’s local
rule, the case setting applied to the entire week. On August 5, 2011, the trial court called the case
for trial, and L’Arte did not appear. Neiman Marcus filed a motion for default judgment and
presented evidence on its claim, actual damages, and costs. The court granted Neiman Marcus’s
motion for default judgment and awarded Neiman Marcus actual damages of $155,644.48 plus
prejudgment interest, exemplary damages of $311,288.96, costs, and postjudgment interest
L’Arte timely filed a motion for new trial, asserting its failure to appear at trial was due to
accident or mistake from the withdrawal of its attorneys, of which it asserted it had no notice, and
was not intentional or the result ofconscious indifference. The trial court denied the motion for new
trial by written order.
MOTION FOR NEW TRIAL
In its fust issue, L’Arte contends the trial court erred by denying L’Arte’s motion for new
seeL An de Ia Mode, Inc. v. Wells Fargo Trade Capital Se’n. Inc.. No. 05-10.00742-CV. 2011 WI.. 1493988 (Ta App.—DalIas Apr.
3
20.2011, no pet) (man. op.; (affirming trial couit’s judgment granting Wells Fargo’s special appearance).
-3--
trial. When a trial court grants a default judgment, and the defendant moves for a new trial, the
default judgment should be set aside and a new trial granted if the defendant establishes three
elements from Craddock v. 5inshine Bus Line. (I) the failure to appear was not intentional or the
result of conscious indifference, but was the result ofan accident or mistake, (2) the motion for new
trial sets up a meritorious defense, and (3) granting the motion will occasion no delay or otherwise
injure the plaintiff. Dolgencoip of Tex,, Inc. v, Lerma, 288 S.W.3d 922, 925 (Tex. 2009) (citing
&addockv. SunshineBusLines, inc., 133 S.W.2d 124, 126(Tex. 1939)). Wereviewatrialcourt’s
refusal to grant a motion for new trial for abuse of discretion. Id. at 926. When a defaulting party
moving for new trial meets all three elements of the Craddock test, the trial court abuses its
discretion if it fails to grant a new trial. Id.
Whether the Failure to Appear was Intentional
or the Result of Conscious Indifference
L’Arte asserts in its brief that its failure to appear at trial was neither intentional nor the result
of conscious indifference because L’Arte did not receive notice that the court had set the case for
trial on August 2, 2011, that its counsel had filed a motion to withdraw, or that the court had granted
the motion to withdraw. At oral argument, L’Arte’s counsel conceded that L’Arte had received
notice of the trial setting, but he stated that L’Arte was relying on counsel appearing on its behalf at
trial. L’Arte argues that because it had no notice its attorneys had withdrawn from representing it,
its failure to appear at trial was not intentional or the result of conscious indifference.
Rule 21a of the Rules of Civil Procedure provides that all notices, other than citation, may
be served by delivering a copy to the party either in person, by agent, or by certified or registered
mail at the party’s last known address. TEx. R. Civ. P. 21a. Rule 21a creates a presumption that a
mailed letter, properly addressed and with postage paid, is received by the addressee. Cliff v.
fluggins, 724 SW.2d 778, 780 (Tex. 1987). In the absence of evidence to the contrary, the
presumption has the force of a rule oC law, However, this presumption is not evidence, and it
vanishes when evidence is introduced that the notice was not received. Id.
L’Arte asserts it did not receive notice of its attorneys’ motion to withdraw or of the order
granting the motion to withdraw. The record shows L’Arte’s attorneys sent notice of the motion to
withdraw to L’Arte at its last known address by certified mail. The letter stated the attorneys would
send L’Arte notice of the date of the hearing on the motion to withdraw in a separate letter. The
attorneys sent L’Arte notice of the date and time for the hearing on the motion to withdraw via
regular first class mail. Thus, the presumption of service under rule 21a arose for the notice of the
motion to withdraw, but no presumption of service arose for the notice of the date and time of the
hearing because it was sent by regular first class mail, not by certified or registered mail. See
Ashworth v. Brzoska, 274 S.W.3d 324, 331 (Tex. App—-Houston [14th Dist.] 2008, no pet.).
L’Arte’s vice president, Elizabeth Prozer, testified in her affidavit that she was L’Arte’s
primary contact with the attorneys in this case. She stated she never received a copy of the motion
to withdraw from the attorneys, nor did she receive from anyone any notice or order allowing
L’Arte’s attorneys to withdraw. She also stated she reviewed L’Arte’s business records and did not
find the motion to withdraw, a copy of the order granting the motion to withdraw, “or anything to
indicate that such motion or order was received by L’Art Dc La Mode, Inc.” Neiman Marcus did
not present any evidence that L’Arte actually received notice of either the motion to withdraw or of
the order granting the motion to withdraw. Prozer’s affidavit rebuts the presumption of notice of the
motion to withdraw.
Generally, a corporation, such as L’Arte, can appear in court only through a licensed attorney.
See Kunstoplast of Am., inc. v.Formosa Plastics Corp., USA, 937 S.W.2d 455,456 (Tex. 1996) (per
curiam). The evidence before the trial court showed L’Arte was not aware on Auuust 2 that it was
no longer represented by counsel, Even if a non-attorney corporate representative for L’Arte had
been present for the trial setting, the representative’s presence would not have constituted an
“appearance” at trial by L’Arte. See Custom-Crete, Inc. v. K-Bar Servs., Inc., $2 SW. 3d 655, 659
(Tex. App.—San Antonio 2002, no pet.). The representative could not have objected to Neiman
Marcus’s evidence, cross-examined Neiman Marcus’s witnesses, presented a case for L’Arte, or
presented argument to the trier of fact. See id. Therefore, even if L’Arte had sent a representative
to the trial setting, because L’Arte had no attorneys to represent it, the result would have been the
same.
Because the uncontroverted evidence shows L’Arte was unaware on the day of the trial
setting that its attorneys had moved to withdraw and had been permitted to withdraw by the trial
court, the evidence shows L’Arte was unaware it lacked representation on the day of the trial setting,
and its failure to appear at trial was not intentional or the result of conscious indifference. We
conclude L’Arte met the first element of c’raddock.
Meritorious Defense
The second element of Craddock requires the defendant to set up a meritorious defense. A
defendant does so by alleging facts that would in law constitute a defense, supporting the allegations
by affidavits or other evidence providing prima facie proof that the defendant has such a defense.
See Dolgencorp, 288 S.W.3d at 92$. A meritorious defense is one that would cause, if true, a
different result on retrial. Jaco v. Rivera, 278 S.W.3d 876, $73 (Tex. App—Houston [14th Dist.]
2009, no pet.). Once the defendant has met these requirements, controverting evidence offered by
the plaintiff should not be considered. Dolgencorp, 28$ S.W.3d at 928.
To prove a claim for money had and received, a plaintiff must show that a defendant holds
money which in equity and good conscience belongs to the plaintiff “A cause of action for money
had and received is not premised on wrongdoing, but looks only to the justice of the case and
inquires whether the defendant has received money which rightfully belongs to another.” AlGA Ins.
Co. v. Charles I?. Chesnutt, P.C., 358 S.W.3d 808, 813 (Tex. App—Dallas 2012, no pet.) (quoting
Everitt ‘. TK-Taito, L.L.C., 178 S.W.3d 844, 860 (Tex. App.—Fort Worth 2005, no pet,)), “A
recovery under assumpsit for money had and received does not ‘depend on the parties’ agreement
or intent but rather the law’s presumption of a promise of compensation if one receiving another’s
money would thereby be unjustly enriched.” Id. (quoting Amoco Prod. GA. v. Smith, 946 S.W.2d
162, 164 (Tex. App.——El Paso 1997, no writ)).
L’Arte’s alleged defense is that Wells Fargo, not L’Arte, holds Neiman Marcus’s money.
Prozer stated in her affidavit that Wells Fargo had been L’Arte’s factor for nineteen years. Under
the factoring agreement with Wells Fargo, L’Arte would bill the customer for the merchandise and
send the invoice to Wells Fargo for collection of the payment. Wells Fargo would advance L’Arte
the amount of the invoice, making a debit to L’Arte’s account. When the customer paid the invoice
by making the payment to Wells Fargo directly, Wells Fargo would credit L’Arte’s account by the
amount of the payment. When a customer overpaid, Wells Fargo handled the customer’s inquiries
about the overpayment. When Wells Fargo determined there was an overpayment, it would return
the excess funds to the customer and debit L’Arte’s account by that amount. Prozer stated that the
usual and customary practice in the garment industry was for the customer to address matters of
overpayment with the factor directly. L’Arte had no knowledge of the status of the collection of its
accounts receivable.
Prozer stated that L’Arte never received the funds Neiman Marcus mistakenly sent to Wells
Fargo. “In fact, L’Art never received those funds. [Wells Fargo] never sent those funds to L’Art.
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L’Art has never exercised possession, custody or control over those funds. L’Art has never received
any benefit or enrichment from those funds.” Prozer also stated that L’Arte played no part in cashing
the check and that no one at L’Arte knew Wells Fargo had received and cashed the cheek. Prozer
also stated that even if Wells Fargo had credited the overpayment to its account, Wells Fargo later
debited L’Arte’s account by the amount of the overpayment. “Therefore, if anyone holds (Neiman
Marcus’s] mistakenly paid funds and has been benefit[tjing from the retention of those funds, it is
[Wells Fargo] and [Wells Fargo] should return those funds.”
This evidence sets up the defense that L’Arte did not receive, hold, or benefit from the funds
Neiman Marcus claims, which refutes an element of Neiman Marcus’s cause of action for money
had and received, This defense, if true, could cause a different result on retrial. Accordingly, we
conclude L’Arte has met the second element of the Craddock test.
Injury to Plaintiff
The third element of the Craddock test is that the motion for new trial be filed at a time when
the granting thereof will occasion no delay or otherwise work an injury to the plaintiff. Director,
State Employees Workers’ Comp. Div. v. Evans, 889 S.W.2d 266, 270 (Tex. 1994); Craddock, 133
S.W.2d at 126. The goal is to avoid undue delay or injury to the plaintiff by granting the motion that
would disadvantage the plaintiff in presenting the merits of its case, such as a loss of witnesses or
evidence. Dolgencorp, 288 S.W.3d at 929; Evans, 889 S.W.2d at 270. Once a defendant has
alleged that granting a new trial will not injure the plaintiff, the burden of proof of injury shifts to
the plaintiff. Dolgencorp, 288 S.W.3d at 929 (quoting Evans, 889 S.W.2d at 270).
In this case, L’Arte alleged in its motion for new trial that it agreed to pay Neiman Marcus’s
reasonable costs and expenses incurred in obtaining the default judgment and that it “is prepared to
proceed to trial before a jury.” Prozer stated in her affidavit that L’Arte agreed to pay Neiman
Marcus’s reasonable costs and expenses in obtaining the default judgment and that L’Arte had
always opposed Neiman Marcuss claim and intended to defend itself against those claims.
Neiman Marcus aruned to the trial court and asserts on appeal that L’Artes thilure to pay its
previous attorneys “casts serious doubt on LArtc’s willingness-—or ability--- to pay its opponents
costs and attorneys fees.” Neiman Marcus states on appeal that L’Arte has not posted a l)Ofld to
supersede the judument against it, which Neiman Marcus argues casts doubt on L’Arte’s credibility
as to its willingness or ability to reimburse Neiman Marcus’s expenses. Neiman Marcus also asserts
that it “will suffer continued harm if L’Arte is granted a new trial diie to the unlikelihood that its fees
incurred in obtaining the default judgment will ever be recovered.”
Neiman Marcus’s suspicion that L’Arte ,night he unwilling or unable to pay Neiman
Marcus’s expenses in obtaining the default judgment is not grounds for denying the motion for new
trial. As the supreme court stated in Do/gencoij and Evans, all that is necessary to meet the third
clement of Cmadhnk is that the defendant “allege[i that granting a new trial will not injure the
plaintiff.’ Evans, 9 S.W.2d at 27O see Dolgencoep, 288 S.W.3d at 929. Here, L’Arte met this
requirement by stating in the motion for new trial that it would pay Neiman Marcus’s reasonable
costs and expenses in obtaining the defaultjudgment and that it was prepared to proceed to trial. The
burden then shifted to Neiman Marcus to prove injury. Neiman Marcus presented no evidence that
L’Arte lacked the resources or willingness to pay Neiman Marcus’s expenses in obtaining the default
judgment. Nor did it present evidence of any other injury it would suffer from the granting of the
motion for new trial. Neiman Marcus presented no evidence that granting the motion “would
disadvantage the plaintiff in presenting the merits of its case, such as a loss of witnesses or
evidence.” Dolgencoip, 288 S.W.3d at 929; Evans, 889 S.W.2d at 270. Neiman Marcus does not
assert that the trial court lacks authority to provide a remedy should L’Arte fail in its obligation to
pay Neiman Marcus’s reasonable costs and expenses in obtaining the dethult judgment. The trial
court may not dens’ the motion for new trial based solely on the plaintiff’s unsupported allegations
that the defendant xviii not keep its promise to pay the plaintiff’s costs and expenses in obtaining the
default tudunient. We conclude LArtc met the third element of the Craddouk lest.
Because L’Arte’s motion for new trial satisfied all three elements ol the ( ruddock test, we
conclude the trial cowl abused its discretion by denying L’Arte’s motion for new trial. We sustain
L’Arte’s first issue. Because of our disposition ot the first issue, we do not reach L’Arte’s second
issue.
CONCLUSION
We reverse the trial court’s judgment. and we remand the cause fbr further proceedings.
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JUDGMENT
L’ARTE DE LA MODE, INC., Appellant Appeal from the 193rd District Court of
Dallas County, Texas. (Tr.Ct.No. 09-05 138-
No, 05-i l-01440-CV V. L).
Opinion delivered by Justice Myers, Justices
THE NEIMAN MARCUS GROUP, Appellee Lang-Miers and Richter participating.
In accordance with this Court’s opinion of this date, the judgment of the trial court is
REVERSED and this cause is REMANDED to the trial court for further proceedings. It is
ORDERED that appellant L’Arte Dc La Mode, Inc. recover its costs of this appeal from appellee
The Neiman Marcus Group.
Judgment entered January 23, 2013.
LANA v{YERS 7
JUSTICE