William R. and Susan M. Knoderer v. State Farm Lloyds, Penni Perkins and Tom Roberts ( 2014 )

In The
Court of Appeals
Sixth Appellate District of Texas at Texarkana
No. 06-13-00027-CV
WILLIAM R. AND SUSAN M. KNODERER, Appellants
V.
STATE FARM LLOYDS, PENNI PERKINS AND TOM ROBERTS, Appellees
On Appeal from the 354th District Court
Hunt County, Texas
Trial Court No. 74,037
Before Morriss, C.J., Carter and Moseley, JJ.
Memorandum Opinion by Chief Justice Morriss
MEMORANDUM OPINION
In this case, both sides—William R. Knoderer and wife, Susan M. Knoderer, as plaintiffs
(collectively, the Knoderers), and State Farm Lloyds, Penni Perkins, and Tom Roberts, as
defendants (collectively, State Farm)—have gone to remarkable lengths in fighting an insurance
dispute over a house flooded by a leak in its plumbing system. The record reveals voluminous
discovery, the substantial use of experts by both sides, the apparently intentional destruction of
evidence by William in direct violation of a trial court directive, the substantial disembowelment
of the Knoderer house, and the remarkable discovery sanctions of the procedural “death
penalty” 1 together with monetary sanctions assessed against the Knoderers of over one million
dollars. This appeal is about those sanctions.
State Farm requested these death penalty sanctions based on its allegations that the
Knoderers—after they allegedly pried a water valve fitting from the water pipe causing their
house to flood February 20, 2008—first, fabricated six photographs in an attempt to discredit
State Farm’s analysis and, then, intentionally destroyed evidence concerning these six fabricated
photographs just hours after being explicitly directed by the trial court to preserve it. The trial
court granted State Farm’s latest motion for sanctions, rendered judgment deciding the case in
favor of State Farm, and ordered the Knoderers to pay State Farm $142,339.44 in expert fees,
$33,474.57 in costs, and $1,000,000.00 in attorneys’ fees.
1
Rule 215.2(b)(5) of the Texas Rules of Civil Procedure authorizes a trial court, in certain extreme cases of
discovery abuse, to strike pleadings, dismiss with prejudice, or render a default judgment. TEX. R. CIV. P.
215.2(b)(5). Such sanctions are commonly called the “death penalty.”
2
On appeal, the Knoderers attack the sanctions. They claim that it was error to assess
sanctions against Susan and that the “death penalty” sanctions were improper. State Farm
disagrees and argues that the Knoderers failed to assign error challenging the monetary
sanctions.
We reverse and remand this case to the trial court, because (1) “death penalty” sanctions
are not sustainable on this record against either of the Knoderers, (2) the Knoderers fairly
presented the claim that the monetary sanctions are excessive, (3) the monetary sanctions are
excessive, and (4) without evidence that Susan committed any sanctionable conduct, sanctions
were improperly assessed against her.
The ill will between the parties apparently originates from a prior lawsuit the Knoderers
lost seeking compensation from State Farm for mold resulting from an earlier water leak. Before
the current case arose, a water filter valve had burst and flooded the Knoderers’ home. Mold had
been discovered, but, after restoration was completed, State Farm refused to “pay to completely
redo those repairs to access and address hidden mold.” State Farm also had prevailed in the
precursor lawsuit in its position that the Knoderers’ policy did not cover mold.
After losing that first lawsuit, the Knoderers added specific mold coverage to their
homeowner’s policy. On January 30, 2008, State Farm, after determining the coverage should
not have been issued, sent the Knoderers a letter advising that their mold coverage would cease
effective March 6, 2008. On the evening of February 20, 2008, a blue PEX pipe supply line
separated from a brass “SharkBite” fitting inside the wall of a utility closet, flooding the
Knoderers’ residence.
3
State Farm hired Dr. Antoine Rios, Ph.D., a mechanical engineer, to conduct an expert
analysis of the fitting. Rios released his initial report on the pipe fitting March 13, 2008. This
report concluded that it was “unlikely that pull out occurred due to water pressure alone.” State
Farm requested additional testing.
Meanwhile, State Farm sent the Knoderers a letter demanding access to the home 2 and
representing, “In accordance with your contract, we will pay for water damages and necessary
mold remediation resulting from the February 20, 2008[,] water loss.” Two additional letters
dated April 29, 2008, and May 7, 2008, can reasonably be interpreted to represent that
demolition was necessary and that State Farm would pay for the restoration. After the Knoderers
granted State Farm access to the house, the cabinets, countertops, fixtures, appliances, doors,
trim, flooring, and bottom four feet of sheetrock were removed from the house.
A more detailed report was issued by Rios May 18, 2008. This report stated,
The failed fitting shows slight drag marks instead of grooves, as demonstrated in
the pull out test samples. The witness marks of the failed fitting indicate that the
tube was appropriately inserted. The witness marks are deeper than the drag
marks. This is an indication that the teeth had to be partially released to allow the
tube to be pulled out. Additionally, the drag marks are not symmetrical on the
tube, which indicates that some teeth were released further than others.
In two later reports issued March 12, 2009, and July 1, 2010, Rios conducted additional testing,
including various pressure tests, and concluded that the “tests clearly show that the collar
partially retracted the teeth consistent with the use of a screwdriver, or similar tool, to press the
collar of the actual fitting.”
2
The letter states that the Knoderers were denying access until State Farm committed to what it would pay for and
the cost of those repairs.
4
The Knoderers filed this lawsuit claiming State Farm used deception to increase the
Knoderers’ damages by misrepresenting in their letters to the Knoderers that State Farm would
pay for the demolition and restoration of the house. The Knoderers’ cause of action was based
on the Texas Insurance Code. 3 Section 541.060(a)(1) provides in pertinent part:
(a) It is an unfair method of competition or an unfair or deceptive act or
practice in the business of insurance to engage in the following unfair settlement
practices with respect to a claim by an insured or beneficiary:
(1) Misrepresenting to a claimant a material fact or policy provision
relating to coverage at issue . . . .
TEX. INS. CODE ANN. § 541.060(a)(1) (West 2009). Section 541.061 provides in pertinent part:
It is an unfair method of competition or an unfair or deceptive act or practice in
the business of insurance to misrepresent an insurance policy by:
(1) making an untrue statement of material fact;
....
(3) making a statement in a manner that would mislead a reasonably
prudent person to a false conclusion of a material fact. . . .
TEX. INS. CODE ANN. § 541.061 (West 2009). The Knoderers’ latest petition alleges violations
only of subsections (1) and (3).
The record contains evidence that State Farm suspected the claim might be denied when
it sent the letter promising to pay for the restoration. Tom Roberts, the State Farm agent who
sent the letter, states in his affidavit,
After receiving, considering and analyzing the initial report from The Madison
Group, opining that it was unlikely the loss occurred due to water pressure on the
fitting alone, it was determined that State Farm needed outside legal assistance
and advice in connection with its ongoing investigation.
3
Although the Knoderers initially alleged other causes of action, including breach of contract, their last petition
limits their cause of action to the Texas Insurance Code.
5
The Knoderers claim this admission establishes that the letter contains misrepresentations.
The Knoderers denied State Farm’s claims of fraud. Although the Knoderers did not
contest the evidence with competing scientific experts, the Knoderers have some compelling
contrary evidence. The Knoderers were in Vermont for six days starting February 13. Kelly
Gaudreau, Acting Director of the Greenville YMCA, states in his affidavit that he was a
housesitter for the Knoderers for ten years and took care of the house on the weekend in
question. Gaudreau states he did laundry Sunday, February 17, and did not notice any water
leaks in the utility closet. Gaudreau left the house at 9:00 a.m. February 19. Scott Mooney 4
testified in his deposition that it was impossible to disconnect the pipe, re-sheetrock the wall,
have the sheetrock dry, and then paint the wall “in that short amount of time.” Randy Wineinger,
owner of R.L. Wineinger Construction, 5 identified the sheetrock patch 6 as the same sheetrock
patch he installed nine months before. Wineinger states in his affidavit:
Those photos depict exactly the sheetrock repair I made before the leak involved
in this matter occurring. The reason the texture and finish are different in my
repair to that area is that when I was making the two sheetrock repairs to the
utility closet, I was using texture from an aerosol spray can. I ran out of spray
texture before I could finish the sheetrock repair in the exact area where the leak
in this case occurred. The sheetrock patch over the area where the leak in this
case occurred was exactly as I left it in the repair I made there some nine months
before the leak involved in this matter occurred. I recognize my work, and that
sheetrock patch that was removed after the leak in this matter is the exact patch
which I installed before the leak involved in this matter. The texture and finish of
my repair in that area are different simply because I ran out of the spray texture
4
The record contains only excerpts from Mooney’s deposition, and the parties have not represented what Mooney’s
qualifications are other than that he is a disinterested witness.
5
Wineinger is also the Hunt County Tax Assessor.
6
State Farm claimed this patch was evidence that the Knoderers had caused the leak.
6
before I could complete the texturing and finishing of the sheetrock repair in that
area.
The affidavit of Ronny Hobbs, the plumber who repaired the leak and removed the
fitting, casts even more doubt on State Farm’s evidence. Hobbs states that the fitting had been
placed in a box with other fittings. Hobbs further states, “I informed Mr. Tayler that we could
not say if this was the pipe from Mr. Knoderer’s house and that we had attempted to see why the
fitting failed and had assembled and disassembled the piece he took many times.” Hobbs also
states that the State Farm agent also left with “a fitting from my stock” which Hobbs had used to
“show and discuss with [the agent] how it worked.”
In his deposition, William disclosed for the first time that he had six photographs proving
the fitting examined by Rios was not the fitting that failed. William testified that, after the fitting
had failed, but before he had given it to State Farm, he had marked the fitting with an engraving
tool and photographed the fitting. The Knoderers moved to strike Rios’ testimony. The
Knoderers attached to the motion the contested six photographs of the marked fitting. The fitting
examined by Rios was not marked in the same manner as the fitting in the photographs. The
implication of the motion is that State Farm had fabricated evidence. After producing the digital
photographs in print, in PDF format, in PDF format with printed metadata, and in JPEG format
with metadata deleted, the Knoderers finally produced in October 2010 the digital photographs in
native format.
State Farm filed a Second Motion for Sanctions alleging the six photographs, purporting
to be evidence that State Farm had fabricated evidence, actually were fabricated evidence
themselves. State Farm presented an affidavit of Dr. Gavin Manes, who examined the metadata
7
of the digital photographs. Manes believed the “date/time” metadata had been altered to make
the photographs appear to have been taken the day after the leak because (a) the numbering of
the files differs from the automatic format and there is no gap in the sequence of photographs
with the automatic format numbering, (b) the copyright metadata filed was set to “WRK”—an
option not available until an update which occurred after July 28, 2008, and (c) the shuttercounts
values confirm a lack of a gap in the sequence of photographs with the automatic format
numbering and, when compared with the shuttercounts on other photographs, establish the six
photographs were taken sometime between December 12, 2008, and March 15, 2010.
The Knoderers did attach the affidavit of George Reis, a former police detective, which
controverts Manes’ opinion, to their response. 7 Reis, disagreed with Manes’ conclusion that the
photographs had been fabricated. Reis explained deviation from automatic numbering and the
shuttercount conflict could be explained by corruption of the files. 8 Reis noted at least two of the
photographs had the same shuttercount. Since the shuttercount should be unique for each
photograph, Reis concluded the files must have been corrupted and then recovered. Reis further
noted the copyright metadata may have been added after the photograph had been taken by either
the camera or photo-processing software such as Adobe Photoshop. Noting that the background
7
State Farm objected to Reis’ affidavit for relying on information not disclosed and for lacking a proper verification.
We have not been directed to where State Farm brought this contention to the attention of the trial court or where the
trial court ruled on this objection. State Farm claimed it would supplement the record with the trial court’s “order
sustaining State Farm’s objections to the declaration of George Reis,” but the supplementation includes just the
order denying the second motion for sanctions and states that the trial court considered all evidence.
8
At a later hearing on the motion to compel production of the hard drives, William testified that the camera’s
memory card had gotten wet and that he had used a recovery program to recover the pictures.
8
of the photographs shows the Knoderers’ kitchen countertop intact, 9 Ries concluded the
photographs must have been taken before the kitchen was gutted in April 2008.
The trial court denied State Farm’s Second Motion for Sanctions. In a letter explaining
its rulings, the trial court explained that the motion required a finding as to whether fraud or
fabrication of evidence occurred. Specifically, the court stated, “Although much of Defendant’s
evidence as to the allegedly fabricated pictures is compelling . . . the Court is not the fact-finder
in this case, the jury is.”
State Farm filed a third motion for death penalty sanctions asking for reconsideration of
its previous arguments and a motion to compel William to produce his hard drives for forensic
testing. At the hearing on this third motion, William testified the files had been deleted by
“Active Eraser,” a software program that deletes files by overwriting the file location, during a
scheduled process. 10 On August 9, 2011, the trial court ordered the hard drives produced. 11 The
trial court ordered digital imaging of the hard drive and also explicitly directed the Knoderers
that any CDs, hard drives, or flash drives containing photographs were “not to be in any way
altered or disposed of” and “[e]verything is to be preserved and not altered in any way.” When
asked by State Farm to “preserve [the hard drives] in the state that they’re in as of today” and to
9
The photocopies in the record are difficult to see clearly, but the background appears to just show a granite
countertop without any other distinguishing features. The fitting had been placed on a countertop and then
photographed.
10
William claims he used Active Eraser to ensure compliance with medical privacy laws including HIPPA.
11
The Texas Supreme Court has held discovery of electronic storage devices is “particularly intrusive and should be
generally discouraged.” In re Weekley Homes, L.P., 295 S.W.3d 309, 317 (Tex. 2009). The requesting party must
make a threshold showing (a) that “the responding party has somehow defaulted in its obligation to search its
records and produce the requested data,” (b) that the responding party’s production has been inadequate, and
(c) that a search of the hard drive could recover deleted relevant materials. Id. The parties do not assign any error
concerning the trial court’s implied finding that State Farm met this threshold.
9
“no longer run an automatic delete program to wipe information,” William responded, “Yes,
ma’am.”
After examining the hard drives, State Farm filed a Fourth Motion for Sanctions. At the
hearing, Manes testified that the files had been deleted and overwritten by two different
“scrubbing” software programs that had been run on the hard drive—Active Eraser and SDelete.
Manes found a deleted email purchase receipt for Active Eraser indicating it was purchased on
the day after William promised the trial court to preserve the files. Manes testified the Active
Eraser setting was “manual” meaning that it did not run pursuant to a schedule and that the
program was last run August 20, 2011. Manes further testified that, based on his testing of the
product, the run date would not change if an erase is started but cancelled. The run date would
change only on completion of a successful erase. Manes also testified that the computer settings
indicated a user would have to confirm an erasure by clicking “yes” before the program would
run. Manes also testified that the computer’s registry files had been altered by a program called
Registry Mechanic on August 19, 2011. Manes testified that, if Active Eraser or SDelete had not
been run, the photographs could have been recovered.
The trial court granted State Farm’s last motion for sanctions and struck the Knoderers’
pleadings. The trial court specifically noted that it considered the conduct of the Knoderers
during the entire litigation. State Farm sought a million dollars in attorneys’ fees and filed
almost 300 pages of billing records purporting to support a total of $1,316,497.37 in attorneys’
fees. 12 In addition to the death penalty sanctions, the trial court assessed monetary sanctions in
12
This Court did not attempt to independently verify this total.
10
the amount of $142,339.44 in expert fees, $33,474.57 in costs, and $1,000,000.00 in attorneys’
fees.
At oral argument held by this Court, the parties agreed that the trial court issued no
findings of fact. In the absence of findings of fact, we imply that the trial court found all facts
necessary to support its decision so long as they are also supported by the evidence. BMC
Software Belg., N.V. v. Marchand, 83 S.W.3d 789, 795 (Tex. 2002); see Betts v. Reed, 165
S.W.3d 862, 867 (Tex. App.—Texarkana 2005, no pet.). The validity of implied findings may
still be challenged on appeal for want of legal and factual sufficiency when the appellate record
includes the reporter’s and clerk’s records. Marchand, 83 S.W.3d at 795; Betts, 165 S.W.3d at
867.
We review a trial court’s ruling on a motion for sanctions for an abuse of discretion. Cire
v. Cummings, 134 S.W.3d 835, 838 (Tex. 2004). An abuse of discretion occurs when a ruling is
arbitrary or unreasonable, such as when a ruling is issued “without reference to any guiding rules
and principles.” Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42 (Tex. 1985).
This much the parties agree on. The parties do not agree concerning the rest of our standard of
review.
State Farm argues we must defer to the trial court’s fact-findings if there is any evidence
supporting the trial court’s decision. It is true that no abuse of discretion has occurred if the
ruling is based on conflicting evidence, some of which supports the decision under applicable
law. Unifund CCR Partners v. Villa, 299 S.W.3d 92, 97 (Tex. 2009) (citing In re Barber, 982
S.W.2d 364, 366 (Tex. 1998)). On the other hand, if the ruling is “contrary to the only
11
permissible view of probative, properly-admitted evidence,” an abuse of discretion has occurred.
Id.
As correctly explained by one of the cases relied on by State Farm—Wein v. Sherman,
No. 03-10-00499-CV, 2013 Tex. App. LEXIS 10666, at *20 (Tex. App.—Austin Aug. 23, 2013,
no pet.) (mem. op) (citing Unifund CCR Partners v. Villa, 273 S.W.3d 385, 388 (Tex. App.—
San Antonio 2008), rev’d, 299 S.W.3d 92 (Tex. 2009)—sufficiency of the evidence is a factor to
consider when reviewing for an abuse of discretion. See, e.g., Saint v. Bledsoe, 416 S.W.3d 98,
111 (Tex. App.—Texarkana 2013, no pet.); In re Marriage of Moncey, 404 S.W.3d 701, 707
(Tex. App.—Texarkana 2013, no pet.); Brooks v. Brooks, 257 S.W.3d 418, 425 (Tex. App.—
Fort Worth 2008, pet. denied).
In addition, State Farm argues, without citing authority in support of the argument, that
we are restricted to the evidence presented at the hearing and cannot consider the Knoderers’
affidavit evidence. We are to review sanctions from the entire record, including the evidence,
arguments of counsel, written discovery on file, and the circumstances surrounding the party’s
discovery abuse. Am. Flood Research, Inc. v. Jones, 192 S.W.3d 581, 583 (Tex. 2006); Gunn v.
Fuqua, 397 S.W.3d 358, 366 (Tex. App.—Dallas 2013, pet. denied); Daniel v. Kelly Oil Corp.,
981 S.W.2d 230, 234 (Tex. App.—Houston [1st Dist.] 1998, pet. denied). We consider the full
record.
(1) “Death Penalty” Sanctions Are Not Sustainable on this Record Against Either of the
Knoderers
The Knoderers claim error by the trial court in assessing death penalty sanctions.
Additionally, their fourth issue, the validity of State Farm’s defenses, is intertwined with the
12
death penalty sanctions. 13 The Knoderers argue that the death penalty sanction is inappropriate
because the fabrication of evidence and destruction of evidence “did not go to the heart of the
case,” whether the Knoderers committed fraud is a fact issue for the jury, and no evidence
justifies a presumption that the Knoderers’ claims lack merit.
Any discovery sanctions must be just under the circumstances. In re Ford Motor Co.,
988 S.W.2d 714, 718 (Tex. 1998). Two factors are used when determining whether any sanction
is just—a relationship factor and a proportionality factor. Id.; In re Supportkids, Inc., 124
S.W.3d 804, 807 (Tex. App.—Houston [1st Dist.] 2003, orig. proceeding). First, we consider
whether a direct relationship exists between the sanctionable conduct and the resulting sanctions.
Ford Motor Co., 988 S.W.2d at 718; Supportkids, Inc., 124 S.W.3d at 807. Second, we consider
whether the sanction is excessive. Ford Motor Co., 988 S.W.2d at 718; Supportkids, Inc., 124
S.W.3d at 807. A sanction is excessive if it is more severe than is necessary to satisfy its
legitimate purpose. TransAmerican Natural Gas Corp. v. Powell, 811 S.W.2d 913, 917 (Tex.
1991); see Paradigm Oil, Inc. v. Retamco Operating, Inc., 372 S.W.3d 177, 184 (Tex. 2012).
The sanctioning court must consider whether less stringent sanctions are available and whether
they would fully promote compliance. Powell, 811 S.W.2d at 917.
The so-called “death penalty” sanctions, which effectively decide a case on the merits,
are more extreme than other sanctions and are to be used in only a limited range of cases. Our
reading of the more stringent factors for review of “death penalty” sanctions suggests that they
13
State Farm argues that the Knoderers’ fourth issue seeks an advisory opinion. As discussed below, State Farm, at
least partially, places these defenses in dispute. State Farm’s argument that the fabricated evidence and destroyed
evidence go to the heart of the lawsuit explicitly relies on two of these defenses. We have addressed State Farm’s
defenses to the extent they are relevant to this appeal and not as an advisory opinion.
13
use the relationship and proportionality factors, but raise the bar in each case. In evaluating the
relationship between the sanction and the conduct it addresses, “death penalty” sanctions can be
appropriate where a party’s conduct “justifies a presumption that its claims or defenses lack
merit.” Cire, 134 S.W.3d at 840. Then, evaluating proportionality, before a sanction that
effectively disposes of a case on the merits is appropriate, lesser sanctions must at least be
considered to remedy the problem. Id. at 840, 842. In all but the most egregious cases, the
sanctioning court must actually test lesser sanctions before striking pleadings. Id. at 842. In all
cases, the record must reflect that the trial court considered the availability of appropriate lesser
sanctions and must contain an explanation of the appropriateness of the sanction imposed. Id.
The trial court need not test the effectiveness of each available lesser sanction by actually
imposing the lesser sanction on the party before issuing the death penalty sanction; rather, the
trial court must analyze the available sanctions and offer a reasoned explanation as to the
appropriateness of the sanction imposed. Id. at 840.
Although (a) we defer to the implied findings that the six fitting photographs were
fabricated and that evidence concerning the fabrication was destroyed, we conclude that the
death penalty sanctions in this case fail to survive either the relationship test or the
proportionality test, because (b) the abuse does not justify the required implied finding that the
Knoderers caused the February 20, 2008, water leak and (c) the record does not reflect the
required consideration of appropriate sanctions lesser than the death penalty.
14
(a) We Defer to the Implied Findings that the Six Fitting Photographs Were
Fabricated and that Evidence Concerning the Fabrication Was Destroyed
State Farm contends we must defer to the implied finding that William fabricated the six
photographs of the fitting. We agree.
As discussed above, Manes testified that, based on his examination of the metadata of the
digital photographs, that the photographs had been fabricated. As also discussed above, Reis,
after examining the same metadata, concluded the files must have been corrupted and then
recovered. Reis’ affidavit, while it provides a reasonable alternative to fabrication, is not so
persuasive that it is conclusive. The evidence is sufficient to support an implied finding that
William fabricated the photographs. The resolution of this conflicting evidence is within the
zone of reasonable disagreement. William’s destruction of the computer data related to the six
photographs in question certainly allows a reasonable inference that he fabricated those
photographs. We defer to the trial court’s implied finding that William fabricated the six
photographs of the fitting.
(b) The Abuse Does Not Justify the Required Implied Finding that the Knoderers
Caused the February 20, 2008, Water Leak
State Farm argues that the discovery abuse justifies a conclusion that the Knoderers
intentionally flooded their house. If that position is incorrect, the death penalty sanctions cannot
be authorized. Id. Because the destroyed evidence did not go to the heart of this case, but was,
instead, impeachment evidence, such a conclusion does not follow from this discovery abuse.
This factor, alone, renders the death penalty sanction improper.
15
Although a trial court may make factual determinations in assessing sanctions, sanctions
should not “be used to adjudicate the merits of a party’s claims or defenses unless a party’s
hindrance of the discovery process justifies a presumption that its claims or defenses lack merit.”
Powell, 811 S.W.2d at 918; see Retamco Operating, Inc., 372 S.W.3d at 184; Lanfear v.
Blackmon, 827 S.W.2d 87, 91 (Tex. App.—Corpus Christi 1992, orig. proceeding) (judge erred
in granting death penalty sanctions when it concluded witness was committing perjury).
The meaning of that rule, that is, an understanding of what “justifies” a presumption in
this context, becomes clearer when one realizes that the rule originates from constitutional due
process requirements. See Hammond Packing Co. v. State of Arkansas, 212 U.S. 322, 350–51
(1909); see also Ins. Corp. of Ireland, Ltd. v. Compagnie, 456 U.S. 694, 705 (1982). In
Hammond Packing, the United States Supreme Court recognized that, under the exigencies of
due process, a court’s presumption that a claim lacks merit must be made based on the wrongful
destruction or withholding of evidence that could have proven or disproven the claim.
Hammond Packing Co., 212 U.S. at 350–51. Here, the destroyed evidence could have supported
or undercut only the argument that the six photographs were fabricated, not the ultimate issues in
the lawsuit. Therefore, the destruction of the data related to the six photographs does not justify
a conclusion that the Knoderers’ claims lack merit.
Here, the destroyed evidence does not go to the heart of this case. At the heart of this
case lie two ultimate questions: (1) whether the Knoderers intentionally caused a water leak in
their house to trigger an insurance payment and (2) whether State Farm made misrepresentations
about repairs in the aftermath of the water damage. The destroyed evidence concerned the
16
Knoderers’ attempted impeachment of State Farm’s expert. Unlike the audio tapes in Cire, the
destroyed evidence concerned impeachment evidence, 14 not evidence that goes to the heart of the
case.
In two of the cases relied on by State Farm, the fabricated evidence went to the heart of
the case. See Daniel v. Kelly Oil Corp., 981 S.W.2d 230, 234 (Tex. App.—Houston [1st Dist.]
1998, pet. denied) (fabricated tape of act of harassment in sexual harassment suit); JNS Enter.,
Inc. v. Dixie Demolition, LLC, 430 S.W.3d 444, 455 (Tex. App.—Austin 2013, pet. denied)
(“[T]hese fabricated documents would have been the principal evidence that Leesboro and JNS
needed to succeed in most of their claims against Dixie, AAR, and Velez.”). The fabricated
evidence in this case does not go to the heart of the case.
The remaining case relied on by State Farm to prove William’s conduct goes to the heart
of the case is Response Time v. Sterling Commerce, 95 S.W.3d 656, 660 (Tex. App.—Dallas
2002, no pet.). This case does not discuss whether the evidence went to the heart of the case. Id.
In Response Time, the fabricated evidence concerned a counterclaim that was later abandoned.
Id. However, the conduct in Response Time demonstrated a pattern of conduct intended to
obstruct due process. Id. The sanctioned party had violated an injunction, had provided false
interrogatory responses, had fabricated a letter, and had provided irreconcilable testimony. Id.
The Dallas Court of Appeals held this demonstrated a pattern of conduct sufficient to create a
presumption the claims lacked merit. Id. Response Time is distinguishable from this case
14
In Lanfear, the court explicitly rejected that credibility goes to the heart of a case. Lanfear, 827 S.W.2d at 91. The
court held that “[t]he statement of relator, whether perjurious or not, does not go to the heart of the controversy
here” and was not grounds to grant death penalty sanctions. Id. Similarly, the fabricated and destroyed evidence in
this case concerned impeachment of State Farm’s expert.
17
because, as discussed above, this case does not demonstrate a pattern of discovery abuse and
obstruction of due process.
State Farm asserts that the Knoderers engaged in a pattern of discovery violations that
justifies a conclusion that their claims lack merit. State Farm points to four instances of conduct.
According to State Farm, the Knoderers asserted undue influence on their appraiser, asked one
expert to destroy evidence, destroyed their handwritten notes used in preparing witness
statements, and failed to timely produce the six fabricated fitting photographs and information
regarding them.
We find no evidence in this record that the first two instances of conduct are discovery
violations. State Farm alleges the Knoderers exercised undue influence on their appraiser and
drafted the appraisal themselves. The appraiser’s affidavit states he was impartial. We have not
been directed to any evidence the appraiser was not impartial, and the trial court did not make
any factual determination on this issue. Second, while William sent emails to an expert
suggesting that he “dump” emails, we find no evidence where material emails were destroyed.
Without evidence that the expert actually destroyed emails, the record does not support a
discovery violation. The claim falls short that these two instances of conduct were part of a
pattern of discovery violations.
The third instance of conduct is best characterized as inappropriate behavior by an
overzealous non-lawyer party than an intentional discovery violation. The Knoderers gathered
handwritten statements from various witnesses and then destroyed the handwritten statements
before disclosing them. Although the Knoderers had been through at least one previous
18
contentious litigation, the record does not demonstrate the level of knowledge of the rules
governing discovery possessed by the Knoderers. Viewed in context, we do not view this
instance as an intentional discovery violation.
The fourth instance could demonstrate an intentional discovery violation. William’s
production concerning the six fabricated photographs was not as forthcoming as it could have
been. Despite State Farm’s request to produce all photographs before William’s deposition,
these photographs had not been produced. 15 When Knoderer produced black and white
photographs, State Farm objected and requested electronic copies. The Knoderers then produced
a Blu-ray disc with thumbnails. When Knoderer produced the photographs in PDF format, State
Farm objected and requested metadata. Knoderer produced a printout of the metadata.
Eventually, Knoderer produced the photographs in jpeg format with the relevant metadata. State
Farm argues this conduct was an attempt to prevent discovery that the photographs were
fabricated. That may very well be, but the Knoderers’ lack of cooperation regarding the six
photographs is, in our opinion, cut from the same fabric as the destruction of the computer files
related to the same photographs. That recalcitrance, even along with the destruction of the
computer data regarding the photographs, does not justify a conclusion that the Knoderers’
ultimate claims are meritless. 16
15
A number of audio recordings William had made of his conversations with State Farm had also not been produced.
The trial court ordered these audio recordings be produced when it granted State Farm’s first motion to compel.
16
State Farm alternatively argues that the fabricated evidence and destroyed evidence go to the heart of this case
based on two other legal theories. One of these theories is that the fabrication of evidence constitutes fraud and
should be considered as a factor to bar recovery. See Dugger v. Arredondo, 408 S.W.3d 825, 830 (Tex. 2013). The
other theory is that the fraud permits coverage to be denied under the policy apart from the Texas Insurance Code.
19
(c) The Record Does Not Reflect the Required Consideration of Appropriate
Sanctions Lesser than the Death Penalty
A discovery sanction should be only as severe as necessary to achieve its legitimate
purpose. Powell, 811 S.W.2d at 917. State Farm argues sanctions are justified based on both the
fabrication of evidence and the destruction of the fabricated evidence.
At one time, language used by the Texas Supreme Court suggested that a trial court must
impose lesser sanctions before imposing death penalty sanctions. See Chrysler Corp. v.
Blackmon, 841 S.W.2d 844, 849 (Tex. 1992) (“Even then, lesser sanctions must first be tested to
determine whether they are adequate to secure compliance, deterrence, and punishment of the
offender.”). Subsequently, that court clarified that the trial court must either consider lesser
sanctions on the record or test lesser sanctions. Cire, 134 S.W.3d at 840.
[I]n all but the most exceptional cases, the trial court must actually test the lesser
sanctions before striking the pleadings.
....
[I]n cases of exceptional misconduct[,] . . . the trial court need not test the
effectiveness of each available lesser sanction by actually imposing the lesser
sanction on the party before issuing the death penalty; rather, the trial court must
analyze the available sanctions and offer a reasoned explanation as to the
appropriateness of the sanction imposed.
Id. The court specifically noted it had not overruled the language in Chrysler and emphasized
that case-determinative sanctions may be imposed only in exceptional cases where they are
clearly justified and it is “‘fully apparent that no lesser sanctions would promote compliance with
the rules.’” Id. at 840–41 (quoting GTE Commc’ns Sys. Corp. v. Tanner, 856 S.W.2d 725 (Tex.
See TEX. INS. CODE ANN. §§ 541.060(a)(1), 541.061. These are substantive arguments on the merits and do not
make Knoderer’s offending behavior go to the heart of the case for the purposes of this discussion.
20
1993)); see Ross v. Nat’l Ctr. for the Empl. of the Disabled, 197 S.W.3d 795, 798 (Tex. 2006)
(death penalty sanctions not appropriate as initial step). Thus, a trial court either must impose
lesser sanctions first or must clearly explain on the record why the case is an exceptional case
where it is fully apparent that no lesser sanctions could promote compliance.
The trial court’s September 20, 2012, letter finds that “[s]anctions previously imposed on
Plaintiffs have failed to dissuade Plaintiff’s egregious conduct.” State Farm claims in its brief
that the trial court had earlier assessed monetary sanctions against the Knoderers. But we are not
directed to any place in the record demonstrating that monetary sanctions were assessed. The
trial court granted some part of three discovery motions against the Knoderers. On April 27,
2011, the trial court ordered the production of approximately 100 digital photographs “numbered
_DSC5000.jpg through _DSC5100.jpg” and ordered all future productions to be made in native
or original format of the file in question. State Farm claims the trial court assessed $8,000.00 in
sanctions on that occasion, but the order strikes the request for monetary sanctions with the
handwritten explanation “will be determined at later time.” State Farm conceded at oral
argument that monetary sanctions had not been previously assessed.
Some confusion arises because many motions by State Farm seek sanctions as well as
compelled discovery. There is a significant distinction between a motion to compel and a motion
for sanctions. Our review of the record indicates the trial court granted motions to compel that
were titled motions for sanctions but never actually imposed any sanctions until the death penalty
sanctions at issue here.
21
Other than the incorrect conclusion in the September 20, 2012, prejudgment letter that
lesser sanctions had been imposed, the trial court did not consider lesser sanctions on the record.
Thus, the record does not contain any explanation as to why lesser sanctions—a spoliation
instruction, monetary sanctions, contempt, or some combination of those three—would not have
been sufficient. The record reveals no compliance with the Texas Supreme Court’s mandate to
“analyze the available sanctions and offer a reasoned explanation as to the appropriateness of the
sanction imposed.” Cire, 134 S.W.3d at 840. Error occurred in the absence of either testing
lesser sanctions or explaining why this case is an extreme case where lesser sanctions would not
be adequate.
We do not wish to minimize the egregious nature of William’s conduct. The trial court
clearly would have had discretion to find William in contempt or to assess lesser sanctions
targeted to address any prejudice suffered by State Farm. Nor do we wish to chastise the trial
court—frustration in cases such as these is not unusual. The fact remains, however, that this is
not one of the extreme cases permitting death penalty sanctions.
(2) The Knoderers Fairly Presented the Claim that the Monetary Sanctions Are Excessive
Although the Knoderers’ brief challenges the trial court’s entire sanctions award, the
brief fails to explicitly and clearly assign error concerning the excessiveness of the million dollar
sanction for attorneys’ fees. State Farm argues that the Knoderers have not assigned the
monetary sanction for our review. In their reply brief, the Knoderers disagree. In essence, the
Knoderers claim that they have challenged the monetary sanctions by challenging the entire
order assessing sanctions and by praying for reversal of the entire order.
22
The Texas Supreme Court has repeatedly cautioned against addressing unassigned error.
See, e.g., Pat Baker v. Wilson, 971 S.W.2d 447, 450 (Tex. 1998); Estate of Pollack v. McMurrey,
858 S.W.2d 388, 395 (Tex. 1993); Allright, Inc. v. Pearson, 735 S.W.2d 240 (Tex. 1987).
“Except for fundamental error, appellate courts are not authorized to consider issues not properly
raised by the parties.” Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 577 (Tex. 2006) (citing
In re B.L.D., 113 S.W.3d 340, 350–52 (Tex. 2003)); Bankhead v. Maddox, 135 S.W.3d 162,
163–64 (Tex. App.—Tyler 2004, no pet.) (“[A]n appellate court has no discretion to fabricate an
issue not raised in the appellant’s brief.”). To determine whether we should address the
monetary sanctions on the merits, we must first resolve error preservation.
New issues cannot be raised in a reply brief. See, e.g., Martin v. Martin, 363 S.W.3d
221, 237 (Tex. App.—Texarkana 2012, pet. dism’d by agr.); Ledig v. Duke Energy Corp., 193
S.W.3d 167, 177 n.8 (Tex. App.—Houston [1st Dist.] 2006, no pet.). Because the Knoderers
made a general challenge in their appellate brief, this case falls between a new issue being raised
in a reply brief and a clear assignment of error in an appellants’ brief.
The Texas Supreme Court has discouraged a technical approach to assignment of error.
The Texas Supreme Court has held that “disposing of appeals for harmless procedural defects is
disfavored.” Perry v. Cohen, 272 S.W.3d 585, 587 (Tex. 2008) (per curiam) (citing Verburgt v.
Dorner, 959 S.W.2d 615, 616 (Tex. 1997)). “Appellate briefs are to be construed reasonably, yet
liberally, so that the right to appellate review is not lost by waiver.” Perry, 272 S.W.3d at 587.
We must treat the statement of an issue “‘as covering every subsidiary question that is fairly
included.’” Weeks Marine, Inc. v. Garza, 371 S.W.3d 157, 162 (Tex. 2012) (quoting TEX. R.
23
APP. P. 38.1(f)). Appellants can assign error “in the body of their appellate brief,” even if it is
not separately listed in the notice of appeal or presented as an issue in the brief. Perry, 272
S.W.3d at 586; see Weeks Marine, 371 S.W.3d at 162; Holley v. Watts, 629 S.W.2d 694, 696
(Tex. 1982) (Appellate courts “look not only at the wording of the points of error, but to the
argument under each point to determine as best we can the intent of the party.”).
That latitude, though, does not permit us to wholly rewrite the issue. Christopher
Boehringer & Enginuity Eng’g, Inc. v. Konkel, 404 S.W.3d 18, 27 (Tex. App.—Houston [1st
Dist.] 2013, no pet.) (unassigned jury charge error is not a subsidiary question to a legal
sufficiency challenge); see TEX. R. APP. P. 38.9. The question is whether the Knoderers’ general
challenge assigned the issue for our review even though it failed to provide the specific
arguments in support of that issue.
We conclude that the Knoderers’ general challenge to the sanction award did assign for
our review the issue of the excessiveness of the monetary sanctions. As demonstrated by the
following cases, an appellant is not required to advance a perfect legal argument and, when an
appellant raises only a general challenge, specific arguments are generally considered subsidiary
questions fairly included in the general challenge.
The Texas Supreme Court recognizes that arguing the incorrect law does not prevent the
correct law from being assigned for appellate review. See Williams v. Khalaf, 802 S.W.2d 651,
658 (Tex. 1990) (petitioner, while arguing claim was not barred by limitations, failed to argue
correct statute of limitations in court of appeals and did not argue correct statute of limitations
until supplemental writ of error); Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989)
24
(when wrong standard of review argued, court of appeals erred in applying incorrect standard of
review and should have instead analyzed legal sufficiency under correct standard of review).
A specific argument not advanced until a reply brief, however, can be “fairly
encompassed within the issue framed.” Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat’l Dev.
& Research Corp., 299 S.W.3d 106, 119 n.7 (Tex. 2009). In that case, the issue framed for
review was whether the court of appeals erred in concluding the evidence supporting attorneys’
fees was legally insufficient. Id. The petitioner’s brief challenged the legal sufficiency of the
evidence, but did not specifically argue the evidence of fees paid to “two attorneys who were not
members of the firm” provided sufficient evidence to support the award reversed by the court of
appeals. Id. The Texas Supreme Court held the specific argument was fairly included and
addressed it. Id. at 119. Similarly, where a petition for discretionary review argued factually and
legally insufficient evidence to support “the implied finding by the trial court that Michiana
committed a tort in Texas,” but did not argue lack of minimum contacts, it was held that the
minimum-contacts doctrine was a fairly included subsidiary question assigned for review.
Michiana Easy Livin’ Country, Inc. v. Holten, 168 S.W.3d 777, 781 (Tex. 2005).
Although the better practice would have been to make an explicit challenge to the
monetary sanctions in their brief, the Knoderers have assigned error for our review. The
excessiveness of the monetary sanctions is a subsidiary question fairly included within that
general challenge.
25
(3) The Monetary Sanctions Are Excessive
The trial court awarded $142,339.44 in expert fees, $33,474.57 in costs, and a million
dollars in attorneys’ fees. While we acknowledge State Farm presented billing records totaling
$1,316,497.37, a cursory review of these records establishes that these records include all the
attorneys’ fees incurred by State Farm in this litigation. As noted above, the discovery abuse
does not justify an implied finding that the Knoderers flooded their own house February 20,
2008. Thus, the question is whether the discovery abuse justifies the award of attorneys’ fees,
expenses, and costs for the entire case.
The Texas Supreme Court has suggested sanction awards of attorneys’ fees are limited to
those fees “incurred because of the sanctionable conduct.” Low v. Henry, 221 S.W.3d 609, 621
(Tex. 2007). Also, a monetary sanction “should be no more severe than necessary to satisfy its
legitimate purposes.” PR Invs. & Specialty Retailers, Inc. v. State, 251 S.W.3d 472, 480 (Tex.
2008). “A sanction imposed for discovery abuse should be no more severe than necessary to
satisfy its legitimate purposes.” Powell, 811 S.W.2d at 917.
The award in this case is for essentially the total of State Farm’s attorneys’ fees in the
case—not the attorneys’ fees incurred due to the sanctionable conduct. Only the attorneys’ fees,
expert fee, and costs related to the six fabricated photographs should be included in the
sanctions. We find an abuse of discretion in the award of attorneys’ fees, expert fees, and costs
for the entire case, rather than those related only to the sanctionable conduct.
26
(4) Without Evidence that Susan Committed Any Sanctionable Conduct, Sanctions Were
Improperly Assessed Against Her
Susan argues that the trial court erred in assessing sanctions against her because she was
not the true offender and because there is no evidence William was acting as her agent. After the
trial court assessed sanctions against both William and Susan, the Knoderers argued there was no
evidence Susan committed any discovery violations and asked the trial court to reconsider. The
trial court issued a letter stating, “As Mr. Scott’s letter correctly points out Plaintiff Susan has not
been directly connected to any misconduct” but left the sanctions intact.
It is inappropriate to hold one party liable for another party’s misconduct. Bodnow Corp.
v. Hondo, 721 S.W.2d 839, 840 (Tex. 1986). In Hondo, it was held inappropriate to impose joint
and several liability on an intervenor for the misconduct of other plaintiffs. Id. The court
reasoned, “Making a party liable for discovery expenses that are caused by another party’s
misconduct does not further any of the purposes that discovery sanctions were intended to
further.” Id. The Texas Supreme Court has repeatedly reaffirmed this principle. Sanctions must
be imposed against the “true offender.” Am. Flood Research, 192 S.W.3d at 583. The direct
relationship requirement “means that the sanction should be visited on the offender,” and the trial
court must attempt to determine against whom “the offensive conduct is attributable.” Powell,
811 S.W.2d at 917. Because there is no evidence Susan committed any wrongdoing, Susan was
not the true offender.
State Farm claims Susan should be held liable because she is William’s wife. The
common law once imposed liability on a husband for the torts of his wife. State Farm Lloyds v.
27
Williams, 791 S.W.2d 542, 548 (Tex. App.—Dallas 1990, writ denied). That common law rule,
however, has been abolished. Id. The Texas Family Code provides,
(a) A person is personally liable for the acts of the person’s spouse only if:
(1) the spouse acts as an agent for the person; or
(2) the spouse incurs a debt for necessaries as provided by Subchapter F,
Chapter 2.
(b) Except as provided by this subchapter, community property is not subject
to a liability that arises from an act of a spouse.
(c) A spouse does not act as an agent for the other spouse solely because of
the marriage relationship.
TEX. FAM. CODE ANN. § 3.201 (West 2006). Thus, one spouse may not be held personally liable
for the other spouse’s acts in the absence of an agency relationship or some participation by the
spouse. Williams, 791 S.W.2d at 547–48. Susan cannot be held personally liable for the actions
of her husband. 17
State Farm argues William acted as Susan’s agent. It is well established that a marital
relationship does not, by itself, make one spouse the agent of the other. See Wilkinson v.
Stevison, 514 S.W.2d 895, 898 (Tex. 1974); Parker v. Carnahan, 772 S.W.2d 151, 157 (Tex.
App.—Texarkana 1989, writ denied). Further, an agency relationship cannot be presumed. IRA
Res., Inc. v. Griego, 221 S.W.3d 592, 597 (Tex. 2007). “An agent is one who consents to the
control of another, the principal, where the principal manifests consent that the agent shall act for
17
This does not mean that all of Susan’s property is completely exempt from liability. Susan’s joint management
community property is subject to tortious liability even in the absence of evidence of an agency relationship. TEX.
FAM. CODE ANN. § 3.202(d) (West Supp. 2013); Lawrence v. Hardy, 583 S.W.2d 795, 798–99 (Tex. Civ. App.—
San Antonio 1978, writ ref’d n.r.e.).
28
the principal.” First Nat’l Acceptance Co. v. Bishop, 187 S.W.3d 710, 714 (Tex. App.—Corpus
Christi 2006, no pet.). This Court has noted,
An essential element of the principal-agent relationship is the alleged principal’s
right to control the actions of the alleged agent. . . . This right includes not only
the right to assign tasks, but also the right to dictate the means and details of the
process by which an agent will accomplish the task.
Townsend v. Univ. Hosp.-Univ. of Colo., 83 S.W.3d 913, 921 (Tex. App.—Texarkana 2002, pet.
denied) (citations omitted).
State Farm has not directed us to where the record contains evidence establishing agency.
At oral argument, State Farm argued William’s affidavit indicates he was making decisions for
both Susan and himself. An agency relationship may be implied from the conduct of the parties
or from the facts and circumstances surrounding the transaction in question. See CNOOC Se.
Asia Ltd. v. Paladin Res. (Sunda) Ltd., 222 S.W.3d 889, 899 (Tex. App.—Dallas 2007, pet.
denied); Walker Ins. Servs. v. Bottle Rock Power Corp., 108 S.W.3d 538, 550 (Tex. App.—
Houston [14th Dist.] 2003, no pet.). State Farm did not advance any argument based on
William’s affidavits in its appellee’s brief. State Farm has not directed us to which affidavits
demonstrate an agency relationship. Finally, we are not convinced these affidavits establish
William was acting as Susan’s agent rather than merely announcing collective decisions. The
fact that William announced the couple’s collective decisions is not sufficient to imply an agency
relationship.
State Farm alternatively argues that Susan had a duty to prevent William from destroying
evidence. A duty to preserve evidence arises only under specific circumstances. See Wal-Mart
Stores, Inc. v. Johnson, 106 S.W.3d 718, 723 (Tex. 2003). State Farm cites the majority opinion
29
in Trevino v. Ortega, 969 S.W.2d 950 (Tex. 1998), for the proposition that Susan had a duty to
preserve the evidence. The majority opinion in Trevino, though, does not support such a
conclusion. The duty at issue was a duty created by statute. See TEX. HEALTH & SAFETY CODE
ANN. § 241.103 (West Supp. 2013); Trevino, 969 S.W.2d at 953. Later in its brief, State Farm
cites from Justice Baker’s concurrence, Trevino, 969 S.W.2d at 956 (Baker, J., concurring), and
Offshore Pipelines v. Schooley, 984 S.W.2d 654, 666 (Tex. App.—Houston [1st Dist.] 1998, no
pet.). Both Justice Baker’s concurrence and Offshore Pipelines hold that (a) once a party has
notice of a potential claim, that party has a duty to exercise reasonable care to preserve
information relevant to that claim, and (b) a party who intentionally or negligently fails to
preserve relevant information may be held accountable for the loss of such evidence. Trevino,
969 S.W.2d at 956; Offshore Pipelines, 984 S.W.2d at 666. Neither of these opinions concerns
when one party has a duty to prevent destruction by another party. State Farm has not provided
us with any Texas authority that a wife has a duty to prevent her husband from destroying
evidence. 18
Even if we assume Susan had such a duty, evidence that she breached that duty would
still be necessary. At a minimum, State Farm would have been required to present evidence that
Susan intentionally or negligently permitted William to use the Active Delete and SDelete
programs. The record does not contain any evidence Susan, herself, breached any duty.
18
State Farm relies on a Pennsylvania case, Papadoplos v. Schmidt, No. 1930 CV 2002, 2010 Pa. Dist. & Cnty. Dec.
LEXIS 168 (PA Common Pleas Court 2010), which imposes sanctions against both a husband and wife for
destroying a hard drive that had been ordered to be produced. State Farm has failed to brief whether Pennsylvania
has abandoned the common law rule that spouses are liable for each other’s torts. Further, we are not bound by
Pennsylvania opinions. We do not find this case persuasive.
30
The sanctions, both death penalty and monetary sanctions, assessed against Susan must
fall.
We reverse the judgment of the trial court. We render judgment deleting all sanctions
against Susan and remand for further proceedings consistent with our opinion including, at the
discretion of the trial court, an assessment of other lesser sanctions against William.
Josh R. Morriss, III
Chief Justice
Date Submitted: April 2, 2014
Date Decided: September 19, 2014
31