Larry Lott D/B/A Larry Lott Interiors v. Chaley McCain ( 2015 )

ACCEPTED
12-15-00244-CV
TWELFTH COURT OF APPEALS
TYLER, TEXAS
12/23/2015 11:28:20 PM
Pam Estes
CLERK
NO. 12-15-00244-CV
IN THE TWELFTH COURT OF APPEALS FILED IN
TYLER, TEXAS 12th COURT OF APPEALS
TYLER, TEXAS
12/23/2015 11:28:20 PM
PAM ESTES
LARRY LOTT D/B/A LARRY LOTT INTERIORS, Clerk
Appellant,
V.
CHALEY MCCAIN,
Appellee.
ON APPEAL FROM THE 7TH JUDICIAL DISTRICT COURT
SMITH COUNTY, TEXAS
TRIAL COURT CAUSE NO. 15-0053-C
FIRST AMENDED BRIEF OF APPELLANT
Respectfully submitted,
s/Amy D. Long
Amy D. Long
TBN: 24036984
100 E. Ferguson, Suite 610
Tyler, Texas 75702
903-592-1641
888-407-7724 fax
amy@amydlong.com
ORAL ARGUMENT REQUESTED
IDENTITY OF THE PARTIES & COUNSEL
Appellant: Larry Lott d/b/a Larry Lott Interiors
Counsel: At trial and on appeal:
Amy D. Long
TBN: 24036984
100 E. Ferguson, Suite 610
Tyler, Texas 75702
903-592-1641
888-407-7724 fax
amy@amydlong.com
Appellee: Chaley McCain
Counsel: At trial and on appeal:
Vance L. Metcalf
TBN: 24037102
Kent, Good & Anderson, PC
Woodgate I, Suite 200
1121 ESE Loop 323
Tyler, Texas 75701
903-579-7500
903-581-3701 fax
vmetcalf@tyler.net
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TABLE OF CONTENTS
Page
IDENTITY OF PARTIES AND COUNSEL ................................................................. i
INDEX OF AUTHORITIES .......................................................................................... iii
STATEMENT OF THE CASE ...................................................................................... iv
ISSUES PRESENTED ................................................................................................... iv
Issue 1: Was the “death penalty sanction” - striking Defendant’s Original
Answer--An abuse of discretion where Plaintiff presented no evidence
to overcome Defendant’s assertion of Trade Secret Privilege and the
trial court failed to conduct the requisite inquiry?............................1
Issue 2: Did the Court err in denying Defendant’s Motion for New Trial?...4
Issue 3: Did the Court abuse its discretion in granting a default judgment for
“liquidated damages” of $242,050.82 against Defendant when no
evidence supported the amount of Judgment, and no hearing was held
on the amount of damages?...............................................................6
SUMMARY OF THE ARGUMENT…………………………………………………..v
STATEMENT OF FACTS……………………………………………………………..vi
STATEMENT REGARDING ORAL ARGUMENT…………………………………vii
ARGUMENT AND AUTHORITIES ............................................................................ 1
PRAYER FOR RELIEF ................................................................................................. 6
APPENDIX .................................................................................................................... 9
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INDEX OF AUTHORITIES
Cases Page
Cire v. Cummings, 134 S.W.3d 835 (Tex. 2004). 1
Craddock v. Sunshine Bus Lines, 133 S.W.2d 124 (Tex. 1939). 4
In re Bass, 113 S.W.3d 735 (Tex. 2003). 3
In re Bridgestone/Firestone, Inc., 106 S.W.3d 730, 732 (Tex. 2003) 3
In re Continental Gen. Tire, 979 S.W.2d 609 (Tex. 1998) 3
In re Union Pac. R.R., 294 S.W.3d 589, 591, 592 (Tex. 2009) 4
Morgan v. Compugraphic Corp., 675 S.W.2d 729 (Tex.1984) 6
Spohn Hospital v. Mayer, 104 S.W.3d 878 (Tex. 2003) 1,2,3
TransAmerican Natural Gas Corp. v. Powell, 811 S.W.2d 913 (Tex. 1991) 1,2
Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 664 (Tex.2005) 5
Statutes/Rules
Tex. R. Civ. P. 215(b) 1
Tex. R. Civ. P. 241 6
Tex. R. Civ. P. 243 6
Tex. R. Evid. 507 4
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STATEMENT OF THE CASE
This appeal arises as a result of an entry of default judgment against Larry Lott
d/b/a Larry Lott Interiors (“Lott”). Chaley McCain (“McCain”) filed suit against
Lott for alleged breach of an oral contract. CR. 2. On June 26, 2015 the trial court
determined Lott had willfully failed to comply with court-ordered discovery, struck
Defendant’s original answer, and entered default judgment against Lott. The order
entered granted McCain “liquidated damages” of $242, 050.82, interest of
$5,748.71, attorney’s fees in the amount of $2,500, and post-judgment interest at
5.0% per annum. CR. 64. It is from this order Appellant appeals.
ISSUES PRESENTED
Issue 1: Was the “death penalty sanction” - striking Defendant’s Original
Answer--An abuse of discretion where Plaintiff presented no evidence
to overcome Defendant’s assertion of Trade Secret Privilege and the
trial court failed to conduct the requisite inquiry?
Issue 2: Did the Court err in denying Defendant’s Motion for New Trial?
Issue 3: Did the Court abuse its discretion in granting a default judgment for
“liquidated damages” of $242,050.82 against Defendant when no
evidence supported the amount of Judgment, and no hearing was held
on the amount of damages?
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SUMMARY OF THE ARGUMENT
The trial court abused its discretion when it struck Lott’s pleadings as a
discovery sanction when the Court did not conduct the requisite analysis after
Lott asserted trade secret privilege in response to requested documents. The
sanction imposed by the trial court was not just. There was no nexus between
the conduct and the offender. The death penalty sanction in this case was
issued without a hearing and resulted in denial of a fair trial for Lott without
any evidence of his wrong-doing. This is especially true where Lott asserted a
discovery privilege which was not met with a showing of necessity by McCain.
The trial court also violated Texas Rules of Civil Procedure and well-
established case law by awarding “liquidated” damages which were not
supported by a written instrument and where no evidence was produced
regarding the amount of damages. The trial court never conducted a hearing on
damages.
Finally the trial court erred in denying Lott’s motion for new trial when Lott
showed the failure to appear was not intentional or the result of conscious
indifference, that he had a meritorious defense and where no prejudice to
McCain would result in the granting of a new trial.
For these reasons, this case should be remanded to the trial court for a new
trial on liability and damages.
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STATEMENT OF FACTS
Larry Lott is an individual doing business as Larry Lott Interiors (“Lott”).
McCain is a licensed Texas realtor (“McCain”). McCain alleges that in 2013 she and
Lott entered into an agreement where Lott agreed to pay McCain 10% of the net
amount billed to a client for a furnishing and renovation project. CR. 2. On January
8, 2015, McCain, filed a Plaintiff’s Original Petition in the 241st Judicial District
Court of Smith County, Texas against Lott for breach of an oral contract. CR 1.
Attached as Exhibit “A” to Plaintiff’s Original Petition was “Plaintiff’s Chaley
McCain’s Request for Admissions, Requests for Production and First Set of
Interrogatories to Defendant Larry S. Lott D/B/A/ Larry Lott Interiors”. CR 6-9.
Citation was returned served on that same day. CR 13. Defendant, Lott, filed
an Original Answer, Special Exceptions and Request for Disclosure on January 30,
2015. CR 16. In addition, Lott requested and paid for a jury trial. Supp.CR. 4.
On February 26, 2015 Lott served upon McCain Defendant’s Answers to First
Set of Interrogatories (CR 29) and Defendant’s Answers to Request for Production
(CR 32). Defendant Lott also served upon McCain Defendant’s Response to
Request for Admissions which were not filed by Plaintiff. A true and correct copy
of the email transmission from counsel for Lott to counsel for Plaintiff with attached
discovery responses is under Appendix “A”. Plaintiff did not file the documents in
their entirety with the trial court therefore Appellant includes them to aid the Court
- vi -
in Appendix “A”.
After receipt of Lott’s responses and prior to the transfer, on March 19, 2015,
McCain filed Plaintiff Chaley McCain’s Motion to Compel and Motion for
Sanctions. CR 23-32. Said motion complained of Lott’s Answers to Interrogatories
numbers 2 and 3 and Answers to Request for Production numbers 1, 2 and 3. CR
23-25. Plaintiff filed a First Amended Motion to Compel and for Sanctions on May
12, 2015. CR. 46.
Without hearing, the Hon. Judge Kerry L. Russell signed an Order Granting
Plaintiff’s First Amended Motion to Compel and Motion for Sanctions on May 12.
2015. CR. 46. On May 27, 2015 McCain filed Plaintiff Chaley McCain’s Motion
for Contempt and for Default Judgment. CR. 57. The Hon. Judge Kerry L. Russell
signed an Order Granting Plaintiff’s Motion for Contempt and Motion for Default
Judgment on June 26 2015. CR. 64.
STATEMENT OF ORAL ARGUMENT
This appeal raises significant issues related to the justness of “death penalty”
discovery sanctions imposed when a court fails to properly analyze or apply the law
where a trade secret privilege was asserted and not properly challenged. See Walker
v. Packer, 827 S.W.2d 833 (Tex. 1992); TransAmerican Natural Gas Corp. v.
Powell, 811 SW.2d 913 (Tex. 1991); Tex. R. Civ. P. 215(b); T. R. Civ. P. 507; In re
Bass, 113 S.W.3d 735 (Tex. 2003). The appeal further presents the Court an
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opportunity to review whether it is an abuse of discretion for a court to refuse a
hearing on damages where there is no written instrument to support the judgment.
See Tex. R. Civ. P. 241, 243; Morgan v. Compugraphic Corp., 675 S.W.2d 729
(Tex. 1984).
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ARGUMENT
I. Was the “death penalty sanction” - striking Defendant’s Original
Answer--An abuse of discretion where Plaintiff presented no evidence
to overcome Defendant’s assertion of Trade Secret Privilege and the
trial court failed to conduct the requisite inquiry?
A trial court’s sanctions order under Texas Rule of Civil Procedure 215.2(b) is
reviewed for abuse of discretion. Cire v. Cummings, 134 S.W.3d 835, 838 (Tex.
2004). “The test for an abuse of discretion is not whether, in the opinion of the
reviewing court, the facts present an appropriate case for the trial court’s action,
‘but whether the court acted without reference to any guiding rules or legal
principles’.” Cire, 134 S.W.3d at 838-839 (quoting Downer v. Aquamarine
Operators, Inc., 701 S.W.2d 238, 241 (Tex. 1985). The trial court’s discretion in
imposing sanctions is limited by due process, the Rules of Civil Procedure, and
TransAmerican Natural Gas Corp. v. Powell, 811 S.W.2d 913 (Tex. 1991).
Death penalty sanctions must be reserved for exceptional circumstances where
a party has so abused the rules of procedure, that despite imposition of lesser
sanctions, the party’s argument is presumed to lack merit. TransAmerican, 811
S.W.2d at 918. A trial court may not impose sanctions that are more severe than
necessary to satisfy legitimate purposes. Cire, 134 S.W.3d at 839 citing Hammill v.
Level, 917 S.W.2d 15, 16 (Tex. 1996). Further, Rule 215.2(b) explicitly requires
that any sanction under this rule be “just.” Tex.R.Civ.P. 215.2(b). The supreme
court, in Spohn Hosp. v. Mayer, 104 S.W.3d 878 (Tex. 2003) explained the
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required analysis a court must conduct in imposing sanctions.
TransAmerican set out a two-part test for determining
whether a particular sanction is just. First, there must be a direct
nexus among the offensive conduct, the offender, and the
sanction imposed. See TransAmerican, 811 S.W.2d at 917. A just
sanction must be directed against the abuse and toward
remedying the prejudice caused to the innocent party, and the
sanction should be visited upon the offender. Id. The trial court
must attempt to determine whether the offensive conduct is
attributable to counsel only, to the party, or to both. Id. Second,
just sanctions must not be excessive. Id. In other words, a
sanction imposed for discovery abuse should be no more severe
than necessary to satisfy its legitimate purposes, which include
securing compliance with discovery rules, deterring other
litigants from similar misconduct, and punishing violators. Id;
Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 849 (Tex. 1992).
Spohn Hosp. v. Mayer, 104 S.W.3d 878, 882 (Tex. 2003).
The trial court must consider less stringent sanctions and whether such lesser
sanctions will fully promote compliance, deterrence, and discourage any further
discovery abuse. Spohn Hospital, 104 S.W.3d at 882 citing TransAmerican, 811
S.W.2d at 917. Discovery sanctions that are so severe as to inhibit presentation of
the merits of the case are considered to be exceptional, and reserved only in instances
where the court finds the party’s actions were flagrant, in bad faith, or as a result of
counsel’s callous disregard for the rules of discovery. Spohn Hospital, 104 S.W.3d
at 883 (citing TransAmerican, 811 S.W.2d at .918).
The trial court’s final order prevented Lott from presenting the merits of the case
by striking his answer at McCain’s request. The record indicates the trial court failed
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to comply with procedural and substantive requirements to address whether the
imposition of any lesser sanctions would have been effective. In addition, the court
did not identify whether the conduct was attributable to Lott, to Lott’s counsel, or
both. Instead, the court arbitrarily granted McCain’s Motion for Contempt, struck
Lott’s Answer, and entered default judgment. The trial court’s decision does not
indicate that its decision considered any possible lesser sanctions, and whether the
evidence warrants an exceptional circumstance to justify severe sanctions as
required by Spohn.
Further, by properly asserting trade-secret privilege in his original discovery
responses, Lott presented a meritorious defense to McCain’s claims. The burden
then shifted to McCain to present reasonable necessity of the information withheld.
Texas Rule of Evidence 507 provides that party has a privilege to refuse to disclose
a trade secret to opposing parties, unless nondisclosure will tend to conceal fraud or
otherwise work injustice. The party asserting trade secret privilege must establish
the information withheld qualifies as a trade secret by affidavit or otherwise. Id.
The party seeking discovery must then show how the information it seeks will
assist in preparation of the case and how the lack of such information will impair the
case’s presentation. In re Bridgestone/Firestone, Inc., 106 S.W.3d 730, 732 (Tex.
2003). After hearing any evidence as to a party’s necessity to such privileged
information, the court must then balance the need for discovery against the need for
3
nondisclosure. In re Cont’l Gen. Tire, 979 S.W.2d 609, 615 (Tex. 1998).
[W]hen trade secret privilege is asserted as the basis for resisting
production, the trial court must determine [(1)] whether the requested
production constitutes a trade secret; [(2)] if so, the court must require
the party seeking production to show reasonable necessity for the
requested materials." In re Bass, 113 S.W.3d 735, 738 (Tex.2003). If
the information is a trade secret and the requesting parties do not
need it, an order that requires disclosure is a clear abuse of
discretion. Id. at 745.In re Union Pac. R.R., 294 S.W.3d 589, 591,
592 (Tex. 2009)(orig. proceeding)(per curium).
If any evidence is deemed admissible, the court must take any protective measure
required by the interests of the privilege holder and the parties and to further
justice. Tex. R. Evid. 507(c). In the trial court, Lott properly asserted trade
privilege in his affidavit, which was attached to his discovery responses. Appendix
A. The only remedy under these circumstances, in furtherance of justice and
fairness, would be for this Court to remand the matter for new trial.
II. Did the Court err when it denied Lott’s Motion for New Trial?
A trial court abuses its discretion in denying a motion for new trial if the
movant satisfies the three elements set forth in Craddock v. Sunshine Bus Lines,
133 S.W.2d 124 (Tex. 1939). In Craddock, the movant must demonstrate (1) the
party’s failure to appear was not intentional or the result of conscious indifference;
(2) the motion for new trial sets forth a meritorious defense; and (3) the granting of
a new trial will not operate to cause delay or injury to the opposing party. Id.
4
In the matter before this Court, it is clear Lott met all three requirements under
Craddock. Lott’s failure to respond or appear was neither intentional nor as a result
of conscious indifference. Lott’s motion provides “[this motion is as a result of] the
undersigned attorney’s calendar and email system and network system, [sic]… [and]
counsel did not receive notice and missed the deadline.” CR 66. Lott presented a
meritorious defense to McCain’s original claim: 1) no evidence had been submitted
to the court by McCain; and 2), the lack of such evidence demonstrates no contract
existed between the parties. The court’s record reflects Lott filed his motion for new
trial when the granting thereof would not otherwise delay or otherwise injure
McCain. The original default judgment was entered on June 26, 2015, and Lott filed
his subsequent motion for new trial on July 24, 2015. Given the time between entry
of judgment and Lott’s motion for new trial was less than a period of 30 days, Lott
respectfully asserts no injury or delay would result to McCain.
III. Did the trial court abuse its discretion by entering an order consisting of
liquidated damages without holding a separate hearing, despite the
requirements of Tex. R. Civ. P. 241 and 243?
McCain admits in her original petition there was no written instrument to
memorialize their agreement. CR. 2. It is well-settled in the common law as well
as case-law that “[l]iquidated damages" ordinarily refers to an acceptable measure
of damages that parties stipulate in advance will be awarded to the non-breaching
in the event of a breach. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 664
5
(Tex.2005). McCain’s original complaint and basis for her suit is based upon an
oral contract between the parties.
Rule 243 expressly provides for the trial court’s discretion in awarding such
liquidated damages when evidence demonstrates damages are “proved by an
instrument in writing.” Id. [emphasis added]. Further, Rule 241 of the Texas Rules
of Civil Procedure provide
When a judgment by default is rendered against the defendant, or all of
several defendants, if the claim is liquidated and proved by an instrument in
writing, the damages shall be assessed by the court, or under its direction,
and final judgment shall be rendered therefor, unless the defendant shall
demand and be entitled to a trial by jury. (emphasis added)
Id.
Once a default judgment is taken on an unliquidated claim, all allegations of fact
set forth in the petition are deemed admitted, except the amount of damages. Morgan
v. Compugraphic Corp., 675 S.W.2d 729, 731 (Tex.1984). A court rendering
a default judgment must hear evidence of unliquidated damages. Tex.R. Civ. P. 243.
The trial court, in this case, failed to hold a hearing to determine the amount of
damages. As such, the trial court abused its discretion.
PRAYER FOR RELIEF
WHEREFORE, PREMISES CONSIDERED, Appellant Larry S. Lott, d/b/a,
Larry Lott Interiors, prays this Honorable Court reverse and remand the trial
court’s order with instructions, and that Appellant Lott be granted such other and
further relief, either at law or in equity, to which he shows just entitlement.
6
CERTIFICATE OF SERVICE
I hereby certify that the foregoing instrument was delivered via email and by
certified mail return receipt requested, to the following attorney on this the 23rd
day of December 2015.
Vance L. Metcalf
Kent, Good & Anderson, PC
Woodgate I, Suite 200
1121 ESE Loop 323
Tyler, Texas 75701
903-579-7500
903-581-3701 fax
vmetcalf@tyler.net
s/Amy D. Long
Amy D. Long
TBN: 24036984
100 E. Ferguson, Suite 610
Tyler, Texas 75702
903-592-1641
888-407-7724 fax
amy@amydlong.com
7
CERTIFICATE OF COMPLIANCE
Pursuant to TEX. R. APP. P. 9.4, I hereby certify that this First Amended
Brief of Appellant contains 2,686 words. This is a computer-generated document
created in Microsoft Word, using 14-point typeface for all text. In making this
certificate of compliance, I am relying on the word count provided by the software
used to prepare the document.
s/Amy D. Long
TBN: 24036984
100 East Ferguson, Suite 610
Tyler, Texas 75702
903-592-1641
888-407-7724 Fax
amy@amydlong.com
8
APPENDIX
TAB
A. Defendant, Lott’s, Discovery Responses with email and fax
transmission.
9