Paradise Living Inc and Mary Arthur v. Blackburne & Brown Mortgage Fund I ( 2019 )

Opinion issued June 11, 2019
In The
Court of Appeals
For The
First District of Texas
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NO. 01-18-00194-CV
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PARADISE LIVING, INC. AND MARY ARTHUR, Appellants
V.
BLACKBURNE & BROWN MORTGAGE FUND I, Appellee
On Appeal from the 11th District Court
Harris County, Texas
Trial Court Case No. 2017-56890
MEMORANDUM OPINION
The trial court entered a take-nothing summary judgment against Paradise
Living, Inc. and Mary Arthur, holding that their claims against Blackburne &
Brown Mortgage Fund I were barred by res judicata. The trial court also imposed
sanctions against their attorneys, Ike Okorafor and Larry Boje.
In five issues, Paradise Living, Inc. and Mary Arthur contend the trial court
erred in granting summary judgment against them, erred in sanctioning their
attorneys, and did not have plenary power to enter an amended order for summary
judgment and sanctions more than 75 days after its original order for summary
judgment and sanctions.
We affirm.
Background
Paradise Living operated an assisted living facility in Houston in a multi-unit
complex originally purchased by Mary Arthur and James Arthur. The Arthurs
wished to renovate their property and, in 2006, one of their limited partnerships
borrowed $774,000 from Blackburne & Brown Mortgage Fund I. The Arthurs
guaranteed the note and deed of trust. By 2016, Blackburn began taking action
against the Arthurs and their related entities, claiming the loan payments were
delinquent. Blackburne sought to foreclose on the property.
While facing pre-foreclosure demands for payment, Paradise Living and
Arthur Holdings, L.P.—an entity related to the Arthurs in a way the record does
not make clear—sued Blackburne for conversion of mortgage payments, tortious
interference with business relationship, an accounting, injury to business
reputation, breach of the duty of good faith and fair dealing, and breach of contract.
Their suit was filed in Harris County District Court and assigned Cause Number
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2016-12403. They sought damages, declaratory relief, and an injunction. Their
second amended petition removed Paradise Living from the list of plaintiffs and
added James P. Arthur.
Blackburne answered the lawsuit with a general denial. In the same
pleading, Blackburne asserted a counterclaim for breach of contract against Arthur
J. Holdings, Inc., Legonite, Inc., James Arthur, Mary Arthur, “and any other owner
or partner of Arthur LP or Legonite.”
A settlement agreement was reached in May 2016 that established new
payment deadlines for mortgage payments. The settlement agreement lists all
parties to the agreement. The parties to the agreement are, on the one side, “Arthur
Holdings, LP; Arthur P. Holdings, LP; Legonite, Inc.; Arthur J. Holdings, Inc.;
Paradise Living, Inc. d/b/a The Cottage Health Services; James Arthur; and Mary
Arthur; including the principals, partners, directors, officers, assignees, or agents of
the aforementioned,” and, on the other side, “Blackburne & Brown Mortgage Fund
I; including its principals, partners, directors, officers, assignees, or agents.”
The settlement agreement states that it “disposes of all Parties and all claims.
Such disposal includes but is not limited to claims or defenses that were filed in
this lawsuit or could or should have been filed in this lawsuit, as well as claims or
defenses associated” with various Property Code provisions. The agreement is
signed as “approved as to form and substance” by James O. Okorafor, who is listed
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as “counsel for Arthur Holdings, LP; Arthur P, Holdings, LP; James Arthur; Mary
Arthur; Arthur J. Holdings, Inc.; Legonite, Inc; and Paradise Living Inc. d/b/a The
Cottage Health Services.”
Along with the settlement agreement, the parties entered into an agreed final
judgment. The agreed final judgment lists the same parties and recounts the same
terms as the settlement agreement. It also states that the agreed final judgment
“finally disposes of all Parties and all claims. Such disposal includes but is not
limited to claims or defenses that were filed in this lawsuit or could or should have
been filed in this lawsuit.” Like the settlement agreement, the agreed final
judgment is signed as “approved as to form and substance” by James O. Okorafor,
who is listed as “counsel for Arthur Holdings, LP; Arthur P, Holdings, LP; James
Arthur; Mary Arthur; Arthur J. Holdings, Inc.; Legonite, Inc; and Paradise Living
Inc. d/b/a The Cottage Health Services.” The agreed final judgment was entered
August 24, 2017.
The same day the judgment was entered, three of the parties to the
settlement agreement and to the agreed final judgment filed suit against
Blackburne in another Harris County District Court, which was assigned Cause
Number 2017-56890. Paradise Living, Inc., Legonite, Inc., and Mary Arthur
asserted claims against Blackburne for wrongful foreclosure, conversion, breach of
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contract, unjust enrichment, and other causes of action. The plaintiffs sought
damages, declaratory relief, an injunction, and attorney’s fees.
Blackburne answered; sought transfer to the district court that entered the
agreed final judgment; asserted defenses, including res judicata; and asserted a
counterclaim for breach of contract, specifically the settlement agreement.
After the motion to transfer was granted, Blackburne moved for summary
judgment on all plaintiff claims, arguing that they are barred by res judicata
because the plaintiffs were parties to the earlier agreed final judgment. Blackburne
also sought sanctions for filing a groundless pleading in bad faith.
The plaintiffs amended their petition to drop Legonite, Inc. from the list of
plaintiffs, leaving only Paradise Living, Inc. and Mary Arthur. The amended
petition asserted only two causes of action: (1) tortious interference with an
existing contract with “government agencies” related to the placement and funding
of individuals in the assisted living facility and (2) business disparagement. The
plaintiffs sought actual and exemplary damages, plus attorney’s fees.
Blackburne filed an amended motion for summary judgment and sanctions.
The trial court granted Blackburne’s summary-judgment motion; rendered
judgment for Blackburne; sanctioned Mary Arthur, Paradise Living, Inc., and
Legonite, Inc., $3,000; and ordered their attorneys, Ike Okorafor and Larry Boje, to
attend 2.5 hours of continuing legal education ethics courses.
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Paradise Living, Inc. and Mary Arthur (hereafter referred to collectively as
PL/MA) filed a motion to reconsider. Blackburne filed a responsive pleading in
which it requested that the trial court deny the motion for reconsideration and grant
Blackburne attorney’s fees “as sanctions for Plaintiffs’ continued violations of
Texas Rule of Civil Procedure 13 and §§ 9.011 and 10.001 of the Texas Civil
Practice & Remedies Code.” The record does not contain an order ruling on
PL/MA’s motion for reconsideration or Blackburne’s request for attorney’s fees as
sanction.
On March 9, 2018, Blackburne filed a motion for damages and additional
fees, arguing that the amount of sanctions imposed earlier was considerably less
than the expense to respond to ongoing frivolous filings and would not sufficiently
deter such filings in the future.
James Arthur and “entities in his name” filed a “nonparty response” to
Blackburne’s motion, arguing, first, that the court already lost plenary power
before Blackburne filed its motion for damages and additional fees, and second, in
the alternative, that the trial court should sanction Blackburne.
On March 28, 2018, the trial court entered an amended summary-judgment
and sanctions order. Among other rulings, the order grants Blackburne’s amended
summary-judgment motion; renders judgment for Blackburne on PL/MA’s claims;
grants Blackburne summary judgment on its breach-of-contract claim and awards
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attorney’s fees on that claim; finds that PL/MA and their attorneys, Larry Boje and
Ike Okorafor failed to comply with Chapter 10 of the Texas Civil Practice and
Remedies Code and Texas Rule of Civil Procedure 13; and orders Boje and
Okorafor to attend 2.5 hours of continuing legal education on ethics as a sanction.
PL/MA appeal.
Trial Court’s Plenary Power
In their third issue, PL/MA argue that the “trial court erred in granting
defendant’s motion for new trial more than 75 days after judgment,” citing Civil
Procedure Rule 329b. We understand their argument to be that plenary power
expired following the trial court’s entry of its first summary judgment order,
making its subsequent amended summary-judgment and sanction order void.
The trial court initially granted Blackburne summary judgment on December
20, 2017. That order states that it is a final judgment. The trial court retained
jurisdiction for 30 days after signing the final judgment. TEX. R. CIV. P. 329b(d).
PL/MA extended plenary power by timely filing a motion for reconsideration. TEX.
R. CIV. P. 329b(e), (g); In re T.G., 68 S.W.3d 171, 176–77 (Tex. App.—Houston
[1st Dist.] 2002, pet. denied) (orig. proceeding). Their filing extended the trial
court’s plenary power until 30 days after their motion was overruled. TEX. R. CIV.
P. 329b(e); In re T.G., 68 S.W.3d at 176–77. Because the trial court did not
expressly rule on their 329b motion, their motion was overruled as a matter of law
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75 days after the judgment was signed. TEX. R. CIV. P. 329b(c); see In re T.G., 68
S.W.3d at 176–77.
Under these facts, the trial court’s plenary power extended 105 days after the
December 20, 2017 final judgment was signed; thus, plenary power extended to
early April 2018. The trial court signed the judgment granting Blackburne’s
amended summary-judgment motion and ordering sanctions on March 28 while it
retained plenary power.
We overrule issue three.
Take-Nothing Judgment on PL/MA’s Two Causes of Action
In their first and fifth issues, PL/MA contend the trial court erred in granting
summary judgment to Blackburne on their two causes of action and entering a
take-nothing judgment against them. PL/MA argue they were two of several
plaintiffs asserting a variety of claims against Blackburne in the 2016 suit, they had
a right to nonsuit their claims at any time, they nonsuited their claims before the
remaining parties attended mediation and settled, they were not parties to the
settlement, their claims are not the same as those that did settle, and, as a result, res
judicata does not apply to bar their second suit against Blackburne. PL/MA’s
argument fails for several reasons.
First, it is immaterial that PL/MA nonsuited their affirmative claims for
relief before the settlement. Because the nonsuit was without prejudice, PL/MA
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had the ability to reassert their claims at any time so long as the limitations period
had not expired. See Aetna Cas. & Sur. Co. v. Specia, 849 S.W.2d 805, 806 (Tex.
1993) (“Subject to certain conditions, a plaintiff who takes a nonsuit is not
precluded from filing a subsequent suit seeking the same relief.”). A person or
entity with a legal claim does not have to have a lawsuit pending to settle its
claims. See Banda v. Garcia, 955 S.W.2d 270 (Tex. 1997) (affirming judgment
enforcing presuit settlement).
Second, PL/MA’s claims against Blackburne were not the only claims for
affirmative relief between those three parties. Blackburne filed its original answer
and, in it, asserted a counterclaim against PL/MA for breach of contract based on
assertions that they had failed to tender payments due under the terms of the
settlement agreement. Blackburne asserted its counterclaim before PL/MA
nonsuited their claims. While PL/MA had the right to nonsuit their claims when
they did so, their nonsuit did not also extinguish Blackburne’s pending claim for
affirmative relief. See Villafani v. Trejo, 251 S.W.3d 466, 469 (Tex. 2008). PL/MA
were still parties to the litigation even after they nonsuited their claims: they were
counter-defendants.
Third, PL/MA were named as parties to the settlement agreement and the
agreed final judgment. Their attorney approved both pleadings “as to form and
substance” on their behalf. The agreed final judgment specifically lists PL/MA as
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parties and states that it “finally disposes of all Parties and all claims. Such
disposal includes but is not limited to claims or defenses that were filed in this
lawsuit or could or should have been filed in this lawsuit.”
Thus, at the time of settlement and rendition of judgment, PL/MA had
unlitigated claims against Blackburne, Blackburne had pending claims against
them, and all parties had agreed to dispose of their “claims or defenses that were
filed . . . or could or should have been filed” and to rendition of an agreed final
judgment. PL/MA’s assertion that they were no longer litigants and therefore could
not have been parties to the settlement is unavailing.
The parties settled their claims and agreed to entry of a final judgment. Any
future efforts to reassert the same adjudicated claims or related matters that should
have been litigated in the prior suit would be barred by res judicata. See Barr v.
Resolution Tr. Corp., 837 S.W.2d 627, 628 (Tex. 1992) (“Res judicata, or claims
preclusion, prevents the relitigation of a claim or cause of action that has been
finally adjudicated, as well as related matters that, with the use of diligence, should
have been litigated in the prior suit.”).
The elements of res judicata are (1) a final prior judgment on the merits by a
court of competent jurisdiction, (2) identity of the parties or those in privity with
them, and (3) a subsequent action based on the same claims raised or those that
could have been raised in the first action. Amstadt v. United States Brass Co., 919
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S.W.2d 644, 652 (Tex. 1996). Here, Blackburne established there was a prior
judgment, PL/MA were parties to the agreed final judgment, and the claims
asserted in their 2017 suit could have been (and were, earlier on) raised in the first
action. PL/MA’s claims are barred by res judicata. The trial court did not err in
granting Blackburne’s summary-judgment motion and entering a take-nothing
judgment against PL/MA on their two causes of action.
We overrule issues one and five.
Sanctions
In their final two issues, PL/MA argue the trial court erred by imposing
sanctions on their attorneys for filing their second lawsuit. They contend it was not
groundless or in bad faith to refile their suit because they had a right to nonsuit
their claims in the first suit.
A. Standard of review and applicable law
We review the imposition of sanctions for an abuse of discretion. Low v.
Henry, 221 S.W.3d 609, 614 (Tex. 2007). We may reverse the trial court’s ruling
only if it acted without reference to any guiding rules and principles, such that its
ruling was arbitrary or unreasonable. Id. To determine if the sanctions were
appropriate or just, we must ensure there is a direct nexus between the improper
conduct and the sanction imposed. Id. We generally presume that pleadings and
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other papers are filed in good faith, and the party seeking sanctions bears the
burden of overcoming this presumption of good faith. Id.
There are several sources of authority for a trial court to impose sanctions on
a party or a party’s attorney. See, e.g., TEX. R. CIV. P. 13; TEX. CIV. PRAC. & REM.
CODE ch. 9, 10. Chapter 10 provides that the signing of a pleading or motion
constitutes a certificate by the signatory that, to the signatory’s best knowledge,
information, and belief—formed after reasonable inquiry—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, and, among other
things, each claim, defense, or other legal contention is warranted by existing law
or by a nonfrivolous argument for the extension, modification, or reversal of
existing law or the establishment of a new law. TEX. CIV. PRAC. & REM. CODE
§ 10.001. A court that determines a signatory violated Section 10.001 may impose
sanctions on the signatory, a party represented by the signatory, or both. Id.
§ 10.004(a). The sanction may include a directive to perform or refrain from an act,
an order to pay a penalty into the court, and an order to pay the opposing litigant
the amount of reasonable expenses incurred because of the filing, including
reasonable attorney’s fees. Id. § 10.004(c).
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B. Trial court did not abuse discretion in ordering sanctions
The trial court found that PL/MA filed their second suit while aware of the
proceedings and pleadings in the first suit and did so for purposes of harassment
and to delay enforcement of the agreed final judgment. The trial court found that
PL/MA’s attorneys, Larry Boje and Ike Okorafor, failed to comply with Chapter
10 of the Civil Practice and Remedies Code and with Rule 13 of the Rules of Civil
Procedure. The trial court found that good cause existed to assess sanctions against
them and ordered Boje and Okorafor to attend 2.5 hours of continuing legal
education on ethics. The trial court did not impose any monetary sanctions on
PL/MA or their attorneys, and it did not sanction PL/MA at all.
As discussed above, PL/MA had unlitigated claims against Blackburne that
they settled. And Blackburne had a pending claim against PL/MA that it settled.
All parties agreed to rendition of an agreed final judgment disposing of their
claims. On the same day that judgment was entered, PL/MA filed a second suit
asserting the same claims they settled. This required Blackburne to incur additional
attorney’s fees and expenses to enforce its rights under the settlement agreement
and the terms of the agreed final judgment.
Blackburne established the amount of attorney’s fees incurred in litigating
already settled claims and moving for and obtaining judgment on res judicata
grounds. Blackburne provided summary judgment evidence of $57,286 in
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attorney’s fees and $1,437.21 in expenses through entry of judgment in the second
suit. Blackburne’s counsel, John Michael Raborn, averred that the time spent and
fees charged were reasonable and necessary.
Section 10.004(a) permits a trial court to impose sanction against a signatory
whom the trial court determines has, after reasonable inquiry, signed a pleading for
any improper purpose (including to harass or to cause unnecessary delay) or to
raise a claim or defense that is not warranted by existing law or a nonfrivolous
argument for change in existing law or the establishment of a new law. TEX. CIV.
PRAC. & REM. CODE §§ 10.001, 10.004(a).
The underlying suit involved a foreclosure for nonpayment of mortgage
payments. The settlement agreement established new deadlines for the mortgage
payments. When those payments were not made and Blackburne took steps to
foreclose on the property as permitted under the terms of the agreed final
judgment, PL/MA filed a second lawsuit asserting the same claims they just
settled. At the sanctions hearing, counsel argued that it was seeking to have the
court in the second lawsuit review the merits of the first lawsuit. There is no basis
in law to do so.1 Counsel also stated, at the sanctions hearing, “I have yet to see
any counterclaim the defendant is referring to.” But the original answer contained
1
Further, Blackburne pointed to counsel’s affidavit that is not in the record but is
described by Blackburne’s counsel as stating a desire to pursue additional
litigation to delay foreclosure. Whether this affidavit is in the trial court’s file, we
do not know. We do not find it in the appellate record.
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Blackburne’s counterclaim. Blackburne argued there was no other purpose for the
second suit than harassment and delay of foreclosure.
We conclude the trial court did not err in concluding that Boje and Okorafor
violated Section 10.001. The trial court reasonably could have concluded that a
reasonable inquiry by counsel would have revealed the plaintiffs’ claims were
barred by res judicata because they were parties to the agreed final judgment. The
trial court reasonably could have concluded further that, without any nonfrivolous
basis for relitigating settled claims, those claims were pursued for an improper
purpose, such as to harass or delay. The trial court was within its discretion to infer
that the second suit was filed to harass and delay. See Ketterman v. Texas Dep’t of
Family & Protective Servs., No. 01-12-00883-CV, 2014 WL 7473881, at *13 (Tex.
App.—Houston [1st Dist.] Dec. 30, 2014, no pet.) (mem. op.) (stating that “trial
court could reasonably infer from this testimony and evidence that [the attorney]
filed the second amended petition in bad faith or with the intent to harass”). The
trial court did not abuse its discretion in imposing sanctions under Section
10.004(a).
Pl/MA do not challenge the type of sanction imposed, only the propriety of a
sanction order. Because we have held that the trial court did not abuse its discretion
in issuing a sanction order under Chapter 10, we do not reach the other bases for
sanctions listed in the trial court’s order. See Zeifman v. Nowlin, 322 S.W.3d 804,
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809 (Tex. App.—Austin 2010, no pet.) (stating trial court’s imposition of sanctions
can be affirmed on any legal basis relied upon by court).
We overrule issues two and four.
Conclusion
We affirm.
Sarah Beth Landau
Justice
Panel consists of Justices Lloyd, Landau, and Countiss.
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