Joe Alfred Izen v. Gefforey Sjostrom and the Don Belton Legal Defense Fund A/K/A Atlas Legal Defense Fund ( 2007 )

Reversed and Remanded and Memorandum Opinion filed April 3, 2007

Reversed and Remanded and Memorandum Opinion filed April 3, 2007.

In The

Fourteenth Court of Appeals

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NO. 14-06-00142-CV

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JOE ALFRED IZEN, JR., Appellant

V.

GEOFFREY SJOSTROM AND THE DON BELTON LEGAL DEFENSE FUND A/K/A ATLAS LEGAL DEFENSE FUND, Appellees

On Appeal from the 61st District Court

Harris County, Texas

Trial Court Cause No. 2002-23947

M E M O R A N D U M   O P I N I O N

This case arises out of appellant, Joe Alfred Izen Jr.=s (AIzen@), claims for attorney=s fees, libel, and breach of fiduciary duties.  In eleven issues, Izen appeals a take-nothing judgment entered in favor of appellees, Geoffrey Sjostrom (ASjostrom@) and The Don Belton Legal Defense Fund a/k/a Atlas Legal Defense Fund (collectively referred to as Athe Fund@).  After reviewing Izen=s issues, we reverse and remand.

I.  Background

Sometime during 1985, Izen began representing a group of investors involved in litigation (Aunderlying litigation@) with the Internal Revenue Service over the federal tax consequences of an investment program set up by the late Henry Kersting (AKersting@).  Kersting hired Izen to represent the investors and was Izen=s primary contact regarding the underlying litigation.  Kersting set up a fund, The Don Belton Legal Defense Fund, which the investors contributed to in support of their defense in the underlying litigation.  Izen was paid his fees out of the Fund. Kersting also gave periodic updates as to the status of the case to the investors.

While the history of the underlying litigation is quite compelling, a detailed recitation of those facts is unnecessary in this appeal.  Suffice it to say that Izen tried the case for at least fifteen years through various tax and appeals courts obtaining reversal of judgments on two different occasions.

When Kersting passed away in the spring of 2000, a group of the investors (Athe Steering Committee@) purported to take over The Don Belton Legal Defense Fund and the management of the investors= representation in the underlying litigation.  The Steering Committee also renamed the Fund, Atlas Legal Defense Fund.  Sjostrom, while not an investor or committee member, acted in some representative capacity for Atlas Legal Defense Fund.^[1]

The course of events following Kersting=s death is highly contentious, and we provide only a general overview of the facts leading to the dispute at hand.  At some point after the Steering Committee took over the Fund, they decided to explore alternatives to Izen=s representation. Eventually, the Fund allegedly fired Izen as counsel and hired Michael Minn. It is during this period that Izen claims AThe Wayne Young Story@^[2] was circulated by Sjostrom and the Fund with the intention of persuading the investors to acquiesce in the change of counsel.  Additionally, Izen claims that Sjostrom and the Fund refused to pay  attorney=s fees which had accrued prior to him being fired.

Izen brought suit against the Fund, the members of the Steering Committee, and Sjostrom alleging breach of contract for the unpaid attorney=s fees, libel arising out of The Wayne Young Story, and breach of fiduciary duties.  Izen either failed to secure service on or settled with all members of the Steering Committee.^[3] Izen tried his claims against the Fund and Sjostrom and the jury returned a verdict against him.^[4]

II.  Analysis

We first address Izen=s seventh issue, as it entails matters that are dispositive to most of his other issues.  In his seventh issue, Izen contends the trial court erred in refusing his motion to compel discovery from Sjostrom.  We review a trial court=s discovery rulings under an abuse of discretion standard.  Johnson v. Davis, 178 S.W.3d 230, 242 (Tex. App.CHouston [14th Dist.] 2005, pet. denied); Wheeler v. Methodist Hosp., 95 S.W.3d 628, 643-44 (Tex. App.CHouston [1st Dist.] 2002, no pet.).  A trial court abuses its discretion when it acts in an arbitrary or unreasonable manner or without reference to any guiding rules or principles.  Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985).

In general, a party may obtain discovery regarding any matter that is not privileged and is relevant to the subject matter of the pending action.  Tex. R. Civ. P. 192.3. A party has thirty days to respond to a request for production and an interrogatory request.  Tex. R. Civ. P. 196.2, 197.2.  A party may respond to a discovery request by providing the information, objecting to the request, or asserting a privilege.  See Tex. R. Civ. P. 193.1-193.3.  It is the affirmative duty of the party from whom discovery is requested to provide an objection or assert a privilege protecting them from the discovery.  See In re Union Pac. Res. Co., 22 S.W.3d 338, 340 (Tex. 1999) (holding that a party who Aseeks to exclude documents, records or other matters from the discovery process has the affirmative duty to specifically plead the particular privilege or immunity claimed@).

Izen requested information from Sjostrom through interrogatories and requests for production.  The record shows that Sjostrom never responded to Izen=s requests and that Izen, following thirty days after he requested the discovery, filed a motion to compel.  Without providing findings, the trial court denied Izen=s motion to compel.  We find this was an abuse of discretion.  The rules clearly mandate that the party from whom discovery is requested must respond to the discovery request in some way, whether by producing the information, providing an objection, or asserting a privilege.  See Tex. R. Civ. P. 193.1 (stating that a party Amust respond to written discovery in writing within the time provided by court order or these rules@) (emphasis added).  Sjostrom simply failed to respond.  Because the record does not reveal any basis upon which the court could have properly refused to compel Sjostrom=s response in the face of rules that clearly mandate that a response be provided, we find that the trial court abused its discretion.

We also find the trial court=s error in denying Izen=s motion to compel requires reversal.  Much of the information that Izen requested through the interrogatories and requests for production appears to be essential to the development of his case.  For instance, Izen requested information inquiring into the Fund and Sjostrom=s knowledge of The Wayne Young Story, and he requested production of all letters or other correspondence authored by Sjostrom or the Fund which mentions his name.  It does not appear from the record that Izen was able to obtain the information he requested from other sources.  Many of Izen=s requests might have been subject to various objections or privileges, however, it is not the duty of this court to supply such.  See In Re Union Pac., 22 S.W.3d at 340.  We find that, because Izen was denied access to information that is critical to the pursuit of his claims, he was prevented from properly presenting his case to this court.  See Tex. R. App. P. 44.1(a)(2). We sustain Izen=s seventh issue.

In his tenth issue, Izen complains that Athe trial court erred in denying Izen judgment against Don Belton Legal Defense Fund based on service on the Fund=s trustee/manager, Sjostrom, and the Fund=s default.@  The record does not show that the trial court denied Izen judgment against the Fund because of a failure to serve process.  However, for purposes of the proceedings on remand, we find that the Fund was in fact properly served.

The entity in this case appears to be an unincorporated nonprofit association (AUNA@).  Texas law defines an UNA as Aan unincorporated organization, other than one created by a trust, consisting of three or more members joined by mutual consent for a common, nonprofit purpose.@  Tex. Rev. Civ. Stat. Ann. Art. 1396‑70.01, ' 2(2).  In this case, there is no evidence that this association was either incorporated or created by a trust.^[5] The record shows that the Fund was made up of at least three members^[6] and that the Fund=s only ostensible purpose was to pool the investors= money together for common representation in the tax litigation.  Such a purpose is likely not for profit.  Thus, the Fund appears to fall into the category of an UNA. 

The Texas Uniform Unincorporated Nonprofit Association Act (ATUUNAA@) states that an unincorporated association may be served through Aan agent authorized by appointment to receive service of process, an officer, a managing or general agent, or a person authorized to participate in the management of [the association=s] affairs.@  Tex. Rev. Civ. Stat. Ann. art. 1396‑70.01, ' 14.  The return of service on record states that the Fund was served through AGeoffrey Sjostrom, Auth. Agent.@  A return showing delivery of process to an agent authorized by law to receive process on behalf of the principal is prima facie evidence that the person served is in fact such an authorized agent.  Pleasant Homes, Inc. v. Allied Bank of Dallas, 776 S.W.2d 153, 154 (Tex. 1989); see also Conseco Fin. Servicing Corp. v. Klein Indep. Sch. Dist., 78 S.W.3d 666, 671 (Tex. App.CHouston [14th Dist.] 2002, no pet.) (following the majority rule that Aa recital in the petition that a named person or entity is the registered agent for service on the defendant is prima facie evidence of that fact, sufficient to support a default unless the defaulted defendant proves otherwise@).  The party claiming that the person served is not in fact a proper agent has the burden to show that.  Pleasant Homes, 776 S.W.2d at 154; see also Conseco, 78 S.W.3d at 671.  Therefore, the return of service on the Fund through Sjostrom as the authorized agent was prima facie evidence of proper service and the Fund has failed to rebut that presumption, up to this point, by establishing service was improper.  As a result, it appears the trial court had jurisdiction over the Fund.  Therefore, we remand all of Izen=s original issues against both Sjostrom and the Fund.

In Izen=s eleventh issue, he argues that the trial court erred in denying his motion for substitute service on Gary Tjossem.  In his original complaint, Izen brought suit against all of the members of the Steering Committee, including Gary Tjossem.  Izen attempted to secure service on Tjossem by having a constable deliver the citation to Tjossem at his residence.  The constable attempted to serve Tjossem on four separate occasions but was unsuccessful.  Izen twice petitioned the court for substitute service on the basis of these attempts, and the trial court denied both of those motions.

We must first determine the applicable standard of review. Generally, an abuse of discretion standard applies when a trial court has discretion to either grant or deny relief based on its factual determinations. In re Doe, 19 S.W.3d 249, 253 (Tex. 2000); Karlen v. Karlen, 209 S.W.3d 841, 843 (Tex. App.CHouston [14th Dist.] 2006, no pet.). Texas Rule of Civil Procedure 106(b) states that:

Upon motion supported by affidavit stating the location of the defendant=s usual place of business or usual place of abode or other place where the defendant can probably be found and stating specifically the facts showing that service has been attempted under either (a)(1) or (a)(2) at the location named in such affidavit but has not been successful, the court may authorize service.

Tex. R. Civ. P. 106(b) (emphasis added).  The use of the term Amay@ indicates that the legislature intended to give the courts discretionary authority.  See Tex. Gov=t Code ' 311.016 (use of the term Amay@ in a statute creates discretionary authority).  The court=s determination as to whether to allow substitute service is clearly based on factual considerations, such as the attorney=s due diligence in securing service.  Therefore, we examine the trial court=s denial of Izen=s motion for substitute service for abuse of discretion.

A trial court abuses its discretion when it acts in an arbitrary or unreasonable manner or without reference to any guiding rules or principles.  Downer, Inc., 701 S.W.2d at 241-42.  A court of appeals may not reverse a trial court for abuse of discretion merely because it disagrees with a decision by the trial court, if that decision was within the trial court=s discretionary authority.  In re EPIC Holdings, Inc., 985 S.W.2d 41, 56 (Tex. 1998); Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 226 (Tex. 1991).

We hold that the trial court did not abuse its discretion in denying Izen=s motions for substitute service.  In recording on its docket sheet that it denied Izen=s first motion for substitute service, the trial court noted that service was only attempted Aduring working hours between nine a.m. and three p.m.@  Izen=s affidavits in support of his motions support the court=s observation. Additionally, instead of making another attempt at securing service on Tjossem after his first motion was denied, Izen simply filed another motion supported by the same affidavits he used in support of his first motion.  Finally, Izen testified at trial that he had reached a settlement agreement with Tjossem to release him from the suit, but it had not been Aformalized.@  In order to reach an agreement with Tjossem, Izen ostensibly had contact with him, which makes one pause as to why he could not have similarly secured service on Tjossem.  Based on these facts, it appears that Izen did not exercise the reasonable diligence required under Texas law to secure service on an individual.  See Rigo Mfg. Co. v. Thomas, 458 S.W.2d 180, 182 (Tex. 1970) (holding that plaintiff must continuously exercise due diligence in obtaining service over an individual in order to toll the statute of limitations).  Consequently, we find that the trial court did not act arbitrarily, unreasonably, or without reference to any guiding principles or authority.  We overrule Izen=s eleventh point of error.

Izen additionally asks this court to render judgment in his favor against Sjostrom for unpaid attorney=s fees arising out of Izen=s work on the underlying litigation.  Izen does not point to facts proving that Sjostrom, personally, reached an agreement with Izen to pay his attorney=s fees.  In fact, as Izen observes, ASjostrom admitted that Izen had an agreement with the defense fund to provide legal services (emphasis added).@  Generally, Sjostrom would not be personally liable for the contractual obligations of the Fund.  The only theory that Izen appears to propose is that Sjostrom, as a member of the Fund, was liable for the Fund=s contracts because all members of an unincorporated association are liable for its contracts.  We briefly address that theory.

As discussed above, the entity in this case appears to be an unincorporated nonprofit association (AUNA@).  The recently passed TUUNAA changes the common law rule in stating that a person is not liable for the contracts of the nonprofit association merely because that person is a member or a person authorized to participate in the management of the association=s affairs.  Tex. Rev. Civ. Stat. Ann. art. 1396‑70.01, ' 7(b).  Therefore, even assuming Sjostrom was a member of the Fund,^[7] Izen would be required to prove more to show that Sjostrom was liable for the Fund=s contracts.  Izen has failed to prove such.  

We reverse the trial court=s judgment as to Izen=s claims against both Sjostrom and the Fund.  Because of our finding that the trial court committed reversible error in denying Izen=s motion to compel, we need not reach his other issues seeking reversal.  We also find that the trial court did not abuse its discretion in denying substitute service on Gary Tjossem. We further decline to render judgment in Izen=s favor with respect to his claim against Sjostrom for breach of the fee agreement.  We remand Izen=s claims to the trial court for further proceedings consistent with this opinion. 

/s/      Frank Price

Former Justice

Judgment rendered and Memorandum Opinion filed April 3, 2007.

Panel consists of Justices Fowler and Edelman and Former Justice Price.^[8]

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^[1]  Sjostrom described himself differently at different points in the trial.  At one point he described himself as an accountant of the Fund, while another time he referred to himself as the trustee of the Fund.

^[2]  AThe Wayne Young Story@ purports to be a brief description of Izen=s representation of one of the investors, Wayne Young.  The document alleges that Wayne Young was Asingled out@ by the IRS following the tax court=s unfavorable ruling and that the IRS put liens on Wayne Young=s property.  The document further alleges that Wayne Young tried to contact Izen during this period of time but was unsuccessful.  As a result, the document states, Wayne Young Awas left to fend for himself.@ 

^[3]  The trial court never obtained jurisdiction over Gary Tjossem, a member of the Committee, as he was not properly served.  Izen complains on appeal that the trial court, in denying his motion for substitute service, prevented him from securing service on Tjossem.  We address this issue below.

^[4]  The jury was charged only as to Sjostrom=s liability, and only as to Izen=s attorney=s fees claim against Sjostrom.  Izen brings various issues on appeal regarding the trial court=s failure to submit his other claims against Sjostrom and the Fund. 

^[5]  Izen referred to Sjostrom as a trustee (in addition to other labels) during trial and, at times, Sjostrom refers to himself as the trustee of the Fund=s bank account.  However, there was no evidence offered to substantiate that the Fund=s legal form was a trust.

^[6]  It is unclear whether the Fund members were the investors themselves, who totaled over 100 individuals, or the Steering Committee members, of which Sjostrom testified there were at least five.

^[7]  At trial, Izen attempted to prove that Sjostrom was a member while Sjostrom denied this status.

^[8]  Former Justice Frank Price sitting by assignment.