Charles W. Sullivan v. Arguello Hope & Associates, PLLC Philip K. Broderick, Individually Andres A. Arguello, Individually Samantha Fenwick, Individually Schavon J. Jahn And Albert Zavala ( 2018 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-18-00144-CV
Charles W. Sullivan, Appellant
v.
Arguello Hope & Associates, PLLC; Philip K. Broderick, Individually;
Andres A. Arguello, Individually; Samantha Fenwick, Individually;
Schavon J. Jahn; and Albert Zavala, Appellees
FROM THE DISTRICT COURT OF COMAL COUNTY, 433RD JUDICIAL DISTRICT
NO. C2017-0422D, HONORABLE DANIEL H. MILLS, JUDGE PRESIDING
MEMORANDUM OPINION
Charles W. Sullivan challenges the trial court’s imposition of sanctions against him
under rule 13 of the Texas Rules of Civil Procedure and chapters 9 and 10 of the Texas Civil
Practice and Remedies Code. See Tex. R. Civ. P. 13; Tex. Civ. Prac. & Rem. Code §§ 9.001-.014,
10.001-.006. Sullivan contends that the trial court erred in sanctioning him for filing a suit that was
alleged to be groundless as a result of requests for admissions that were deemed admitted by
procedural default. See Tex. R. Civ. P. 198.2(c) (“If a response [to a request for admissions] is not
timely served, the request is considered admitted without the necessity of a court order.”). We will
reverse the trial court’s sanctions order.
BACKGROUND
In January 2016, Arguello Hope & Associates, PLLC, filed suit against an insurance
carrier asserting causes of action arising out of alleged mishandling of a claim for insurance benefits.
The suit also named an individual adjuster, Connie Evans, as a defendant. According to Arguello
Hope, it located Evans’s name and address from the Texas Department of Insurance website but,
because there were a number of individuals listed on the website who shared Evans’s name, it
“accidentally” served process on the wrong Connie Evans. After Evans contacted Arguello Hope
to explain that she was not a correct party to the suit, Arguello Hope filed a nonsuit removing Evans
from the suit. According to Sullivan, Arguello Hope again served Evans in a suit filed in September
2016 on behalf of a different client who also asserted causes of action against an insurance company
arising out of the alleged mishandling of a claim for insurance benefits. Evans was nonsuited from
the second suit as well.
In March 2017, Sullivan, as counsel for Evans and her husband, filed suit against
Arguello Hope, three attorneys affiliated with the firm—Philip K. Broderick, Andres A. Arguello,
and Samantha Fenwick—and Arguello Hope’s clients Schavon J. Jahn and Albert Zavala.1 The
petition alleged that, as a result of being named in the two lawsuits, Evans and her husband
encountered professional difficulties, including impairment of Evans’s professional license and
impediments to obtaining security clearances required for desired employment with agencies of
1
Jahn and Zavala were the plaintiffs in the suits Arguello Hope filed against the insurance
company and its adjuster.
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the federal government. The petition included causes of action for invasion of privacy by
misappropriation of a name, defamation, and intentional infliction of emotional distress.
Arguello Hope served written discovery requests on Evans and her husband, including
requests for admissions. The subsequent events are disputed by the parties2 but ultimately Arguello
Hope secured an order from the trial court stating: “Further, Defendant propounded its first set of
requests for admission on September 23, 2017, and Plaintiffs failed to respond in a timely and
appropriate fashion, and therefore, Defendant’s requests for admission are considered admitted,
pursuant to Rule 198.2(c).” A week later, Sullivan filed a notice of nonsuit of all claims asserted
against all parties in the suit. Thereafter, Arguello Hope filed a motion to impose sanctions on
Sullivan pursuant to chapters 9 and 10 of the Texas Civil Practice and Remedies Code and rule 13
of the Texas Rule of Civil Procedure. Arguello Hope asserted that sanctions were warranted because
Sullivan filed an original petition that was “groundless, frivolous and filed merely for the purpose
of harassment.” After conducting a hearing, the trial court signed an order directing Sullivan to pay
Arguello Hope $11,170 as “sanctions for violation of Texas Rule of Civil Procedure 13; Texas Civil
Practice and Remedies Code § 9.011; and Texas Civil Practice and Remedies Code § 10.001.”
Sullivan then perfected this appeal.
STANDARD OF REVIEW
We review the trial court’s imposition of sanctions for an abuse of discretion. Low
v. Henry, 221 S.W.3d 609, 614 (Tex. 2007). We review the entire record to determine whether the
2
Because the parties are familiar with the facts of the case and its procedural history, we do
not recite them in this opinion except as necessary to advise the parties of the Court’s decision and
the basic reasons for it. See Tex. R. App. P. 47.1, 47.4.
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trial court abused its discretion. American Flood Research, Inc. v. Jones, 192 S.W.3d 581, 583 (Tex.
2006) (per curiam). In deciding whether the trial court abused its discretion, “[a]n appellate
court may reverse the trial court’s ruling only if the trial court acted without reference to any guiding
rules and principles, such that its ruling was arbitrary or unreasonable.” Id. (citing Cire v.
Cummings, 134 S.W.3d 835, 838 (Tex. 2004)). When it comes to deciding what law applies or in
applying that law to the facts of the case, however, the trial court has no discretion. Walker v.
Packer, 827 S.W.2d 833, 840 (Tex. 1992) (orig. proceeding) (trial court’s failure to correctly
analyze or apply law constitutes abuse of discretion). The party seeking sanctions bears the burden
of overcoming the presumption that pleadings and other papers are filed in good faith. Low,
221 S.W.3d at 614.
DISCUSSION
Sanctions pursuant to Rule 13
Rule 13 of the Texas Rules of Civil Procedure states:
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. [] 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 under Rule 215, upon the person who signed it, a
represented party, or both.
Tex. R. Civ. P. 13. Rule 13 authorizes the imposition of sanctions against an attorney who files a
pleading that is (1) both groundless and brought in bad faith; or (2) groundless and brought for the
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purpose of harassment. McCain v. NME Hosps., Inc., 856 S.W.2d 751, 757 (Tex. App.—Dallas
1993, no writ). Rule 13 does not permit sanctions on the issue of groundlessness alone. Nath v.
Texas Children’s Hosp., 446 S.W.3d 355, 362-63 (Tex. 2014). The burden is on the movant to
establish not only the frivolity of its opponent’s claim but also the improper motives underlying the
decision to file the suit, motion, or document.
In imposing rule 13 sanctions, the trial court is required to state with particularity
good cause justifying sanctions in the order. See Tex. R. Civ. P. 13. Failure to comply with this
directive is an abuse of discretion. Texas-Ohio Gas v. Mecom, 28 S.W.3d 129, 135 (Tex.
App.—Texarkana 2000, no pet.). In this case, the trial court did not state the particulars of good
cause for sanctions, such as whether the suit was groundless and brought in bad faith or groundless
and brought for the purpose of harassment. The order awarding sanctions against Sullivan states:
The Court, having considered this matter, and after reviewing Defendant’s Motion,
Plaintiff’s response (if any), and arguments of counsel, the Court FINDS good cause
and ORDERS that Defendant’s Motion is GRANTED.
However, because Sullivan did not object to the form of the sanctions order, he has waived any
objection to the absence of a bad faith or harassment finding. See id.; Land v. AT & S Transp., Inc.,
947 S.W.2d 665, 667 (Tex. App.—Austin 1997, no writ).3 Thus, we consider whether the record
contains any evidence to support an implied finding that the lawsuit was brought in bad faith or for
3
Sullivan, on behalf of his clients, requested that the court file findings of fact and
conclusions of law pursuant to Texas Rule of Procedure 296, but did not object to the form of the
sanctions order. Arguello Hope submitted proposed findings of fact and conclusions of law, but the
record does not reflect that the proposed findings and conclusions were ever filed by the court.
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the purpose of harassment. See Robson v. Gilbreath, 267 S.W.3d 401, 407 (Tex. App.—Austin
2008, pet. denied).
Rule 13 regulates the signing and filing of groundless pleadings in bad faith or for
purposes of harassment, not the pursuit of an action later determined to be groundless after pleadings
were filed. Karagounis v. Property Co. of Am., 970 S.W.2d 761, 764 (Tex. App.—Amarillo 1998,
pet. denied). The rule states that the court shall impose an appropriate sanction “[i]f a pleading,
motion or other paper is signed in violation of this rule.” Tex. R. Civ. P. 13 (emphasis added). The
rule says nothing about levying sanctions if one pursues an action or pleading thought legitimate
when filed but subsequently found baseless. “As a result, 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.” Karagounis, 970 S.W.3d at 764; see also Baird v. Villegas,
No. 03-03-00156-CV, 2004 WL 524460, at *4 (Tex. App.—Austin Mar. 18, 2004, no pet.) (mem.
op.) (rule 13 authorizes sanctions only for bringing or signing pleadings containing frivolous or
groundless claims).
In the context of rule 13, “bad faith” means the conscious doing of a wrong for
dishonest, discriminatory, or malicious purpose, and not simply bad judgment or negligence. Elkins
v. Stotts-Brown, 103 S.W.3d 664, 668 (Tex. App.—Dallas 2003, no pet.). Trial courts must presume
that pleadings, motions, and other papers are filed in good faith. Tex. R. Civ. P. 13. The party
moving for sanctions has the burden of overcoming this presumption. GTE Commc’ns Sys. Corp.
v. Tanner, 856 S.W.2d 725, 731 (Tex. 1993) (orig. proceeding).
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In deciding whether a pleading was filed in bad faith or for the purpose of harassment,
the trial court must consider the acts or omissions of counsel, not merely the legal merit of a pleading
or motion. See Parker v. Walton, 233 S.W.3d 535, 540 (Tex. App.—Houston [14th Dist.] 2007, no
pet.). A party acts in bad faith if he has been put on notice that his understanding of the facts may
be incorrect and he does not make reasonable inquiry before pursuing a claim further. Robson,
267 S.W.3d at 407. Intent to harass may be proven with either direct or circumstantial evidence.
See Scheel v. Alfaro, 406 S.W.3d 216, 227 (Tex. App.—San Antonio 2013, pet. denied); Schexnider
v. Scott & White Mem’l Hosp., 953 S.W.2d 439, 441 (Tex. App.—Austin 1997, no writ).
At the hearing on the motion for sanctions, Arguello Hope did not put on any
evidence and called no witnesses. Instead, Arguello Hope argued that the deemed admissions
“conclusively establish that the original petition and subsequent pleadings were groundless” and that
“the deemed admissions establish bad faith in filing the lawsuit.” The record reflects that the
requests were deemed admitted as the result of procedural default—failing to timely file responses
by October 23, 2017. There was no evidence that any of the requests would have otherwise been
admitted or that they properly should have been. The deemed admissions do not constitute either
direct or circumstantial evidence that, at the time the petition was filed, Sullivan knew or had reason
to believe that the claims were groundless such that his having signed and filed a pleading asserting
those claims could be found to have been in bad faith or for an improper purpose.
Having failed to receive into evidence any relevant facts regarding the circumstances
surrounding the filing of the lawsuit, the trial court had no evidence before it to determine the
motives and credibility of the person filing the allegedly groundless pleading or the relevant
culpability of Sullivan or his clients. See New York Underwriters Ins. Co. v. State Farm Mut. Auto.
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Ins. Co., 856 S.W.2d 194, 205 (Tex. App.—Dallas 1993, no writ). We conclude that Arguello Hope
did not rebut the presumption that the lawsuit was filed in good faith. The trial court therefore
abused its discretion when it granted the motion for sanctions under rule 13.
Sanctions pursuant to Chapter 10
Chapter 10 of the Texas Civil Practice and Remedies Code allows sanctions for
pleadings filed with an improper purpose or that lack legal or factual support. It provides that on
signing a pleading or motion, a signatory attests that:
(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; [and]
(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 . . . .
Tex. Civ. Prac. & Rem. Code § 10.001. Pleadings that violate these Chapter 10 requirements are
sanctionable. Id. § 10.004(a).
We have already concluded that there was no evidence to support an implied
finding that the claims were brought in bad faith or for the purpose of harassment. “Improper
purpose” under chapter 10 is the equivalent of “bad faith” under rule 13. Kramer v. Kastleman,
No. 03-13-00133-CV, 2017 WL 5119211, at *13 (Tex. App.—Austin Nov. 3, 2017, pet. denied)
(mem. op.); Dike v. Peltier Chevrolet, Inc., 343 S.W.3d 179, 183-84 (Tex. App.—Texarkana 2011,
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no pet.). Thus, the trial court could not have awarded sanctions under chapter 10 on the ground that
the pleadings were brought for an improper purpose. However, chapter 10 provides that a claim that
lacks a legal or factual basis—without more—is sanctionable. See Tex. Civ. Prac. & Rem. Code
§ 10.001; Low, 221 S.W.3d at 617 (discussing disjunctive nature of chapter 10’s bases for sanctions).
Legally, the claim must be warranted by existing law or a nonfrivolous argument to change existing
law. Tex. Civ. Prac. & Rem. Code § 10.001(2).
On appeal, Arguello Hope asserts that the deemed admissions rendered the claims
Sullivan brought on behalf of his clients frivolous. However, the Texas Supreme Court has
instructed that “the vantage point for assessing evidentiary support is at the time the pleading was
filed.” Nath, 446 S.W.3d at 369. At the time the claims were filed, the requests for admissions had
not even been propounded, let alone deemed admitted. The subsequent legal effect of the deemed
admissions cannot be considered in assessing whether the claims were frivolous when they were
filed. A claim that lacks evidentiary support may be the basis for sanctions if, after it was filed, a
party learns that no support for the contentions exists and still pursues litigation. See id. (recognizing
difference between sanctions for groundless pleadings and sanctions for discovery abuse). Here,
however, the record reflects that Sullivan nonsuited all claims against Arguello Hope shortly after
entry of the trial court’s order stating that the requests for admissions were deemed admitted.
Arguello Hope also asserts that the claims Sullivan filed on behalf of his clients were
groundless because they were barred by attorney immunity. Attorney immunity is an affirmative
defense and is not an absolute bar to claims asserted against attorneys. The focus in evaluating
attorney liability to a non-client is “on the kind—not the nature—of the attorney’s conduct.” Cantey
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Hanger, LLP v. Byrd, 467 S.W.3d 477, 483 (Tex. 2015). “An attorney who pleads the affirmative
defense of attorney immunity has the burden to prove that his alleged wrongful conduct [] is part of
the discharge of his duties to his client.” Id. at 484. This immunity does not bar, from the outset,
the assertion of all claims against attorneys. Rather, immunity is a defense that must be raised, and
the burden of establishing a right to such immunity is on the defendant. The doctrine of attorney
immunity does not, on its own, render suits against attorneys groundless. Although Sullivan might
not ultimately have prevailed on his claims, the mere fact that a trial court grants summary judgment
or a jury rejects a plaintiff’s claims does not justify sanctions under section 10.001. Rather, the
inquiry is whether “to the signatory’s best knowledge, information, and belief, formed after
reasonable inquiry . . . [the] claim . . . 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” or “has
evidentiary support or . . . is likely to have evidentiary support after a reasonable opportunity for
further investigation or discovery.” See Tex. Civ. Prac. & Rem. Code § 10.001(2), (3) (emphasis
added). Arguello Hope cites no evidence, and presents no analysis, regarding Sullivan’s “best
knowledge, information, and belief, formed after reasonable inquiry” concerning whether an
attorney-immunity defense would, as a matter of law, defeat the claims asserted in the petition. We
conclude that, on this record, the trial court could not properly have awarded sanctions under chapter
10 and abused its discretion in doing so.
Sanctions pursuant to Chapter 9
Chapter 9 of the Texas Civil Practice and Remedies Code also addresses frivolous
pleadings and claims, but its application is limited to proceedings in which neither rule 13 nor
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chapter 10 applies. See Tex. Civ. Prac. & Rem. Code § 9.012(h); see also Low, 221 S.W.3d at 614
(noting “Chapter 9 of the Texas Civil Practice and Remedies Code only applies in proceedings in
which neither Rule 13 nor Chapter 10 applies”). The Texas Supreme Court has observed that
“[c]hapter 9 has largely been subsumed by subsequent revisions to the code.” Nath, 446 S.W.3d at
362 n.6 (citing Cynthia Nguyen, An Ounce of Prevention is Worth a Pound of Cure?: Frivolous
Litigation Diagnosis Under Texas Government Code Chapters 9 and 10, and Texas Rule of Civil
Procedure 13, 41 Tex. L. Rev. 1061, 1083-84 (2000) (theorizing “it would be difficult to conceive
of a scenario in which Chapter 9 would be applicable,” and noting that “there are only a handful of
cases that even cite Chapter 9, and these date from before the 1999 amendment to Section 9.012”)).
Since chapter 10 and rule 13 both apply to alleged misconduct occurring at the time of pleading or
motion filing, chapter 9, by its own terms, is inapplicable to the area of frivolous litigation and does
not apply to this case. The trial court could not properly award sanctions pursuant to chapter 9 and
abused its discretion in doing so.
CONCLUSION
For the reasons stated above, an award of sanctions pursuant to chapter 9, chapter 10,
or rule 13 constituted an abuse of the trial court’s discretion. Consequently, we reverse the sanctions
order and render judgment that the motion for sanctions be denied.
_________________________________________
David Puryear, Justice
Before Justices Puryear, Goodwin, and Bourland
Reversed and Rendered
Filed: December 7, 2018
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