Hoa Dao v. Maryland Casualty Company and Craig Raus

In The
Court of Appeals
Ninth District of Texas at Beaumont
_________________
NO. 09-13-00353-CV
_________________
HOA DAO, Appellant
V.
MARYLAND CASUALTY COMPANY AND CRAIG RAUS, Appellees
________________________________________________________________________
On Appeal from the 359th District Court
Montgomery County, Texas
Trial Cause No. 10-07-07575 CV
________________________________________________________________________
MEMORANDUM OPINION
This is an appeal from the trial court’s order imposing sanctions for
discovery abuse. The trial court struck the pleadings of Hoa Dao and Keystone
Management and dismissed with prejudice their lawsuit against Maryland Casualty
Company (MCC) and Craig Raus. On appeal, Dao and Keystone contend that the
sanctions imposed by the trial court are not justified under the precedent
established in TransAmerican Natural Gas Corporation v. Powell, 811 S.W.2d
913, 917-20 (Tex. 1991) (orig. proceeding). We reverse and remand.
1
I. Procedural Background
On July 16, 2010, Dao filed suit against MCC and Raus in the Ninth District
Court of Montgomery County. Therein, Dao alleged that MCC issued a policy
covering the property located at 2218 Northpark Drive, Kingwood, Montgomery
County, Texas (the “Property”). Dao alleged that on September 12, 2008,
Hurricane Ike caused windstorm damage to the Property. Dao alleged that she filed
a claim with MCC under the policy for damage to the Property. Dao alleged that
MCC assigned Raus to adjust her claim and together, they wrongfully denied her
claims under the policy. Dao alleged a number of causes of action against MCC,
including: (1) unfair settlement practices pursuant to the Insurance Code; (2)
common law fraud; (3) non-prompt payment of claims pursuant to the Insurance
Code; (4) breach of contract; and (5) breach of duty of good faith and fair dealing.
Dao alleged Raus’ conduct constituted an unfair settlement practice, fraud, and
breach of the duty of good faith and fair dealing. We note the first amended
pleading is not part of the appellate record, but the record supports that Dao
amended her petition in 2010 to add Keystone Management as a plaintiff to the
lawsuit.
On November 22, 2010, defendants sent interrogatories, requests for
admission, requests for production, and a request for disclosure to Dao. On
2
December 27, 2010, the trial court entered a docket control order, setting the case
for trial March 21, 2011. Pursuant to the docket control order, the discovery
deadline was thirty days before trial. Because of the holiday season, Dao asked for
and received permission to file her objections and responses to discovery on
January 4, 2011. On January 4, 2011, Dao responded to the interrogatories,
requests for production, and requests for admission. On April 1, 2011, defendants
sent a letter to plaintiffs indicating that Dao’s discovery responses were
inadequate, incomplete, and needed supplementation. In the letter, defendants
provided numerous examples of deficiencies in the responses.
In the meantime, on March 1, 2011, the trial court granted the parties’ joint
motion for a continuance and reset the case for trial on August 29, 2011. The trial
court issued a new docket control order setting July 15, 2011 as the new discovery
deadline.
On April 14, 2011, defendants filed a motion with the court seeking to
compel Dao to supplement her responses to the written discovery. On May 24,
2011, the trial court granted defendants’ motion to compel adequate written
discovery responses and ordered Dao to respond to defendants’ discovery within
seven days. On May 31, 2011, Dao filed a motion to reconsider the trial court’s
order granting defendants’ motion to compel.
3
On July 18, 2011, the trial court denied Dao’s motion to reconsider the
court’s order compelling discovery responses and Dao’s motion to file an untimely
response. The trial court overruled Dao’s objections to defendants’ first set of
interrogatories and requests for production. The trial court affirmed its prior order
compelling discovery responses.
While the motion is not in the record, the record before us supports that
defendants filed a motion for continuance of the trial setting and complained that
plaintiffs had not complied with the trial court’s order and had failed to produce
documents responsive to such order. On August 4, 2011, plaintiffs’ responded to
defendants’ motion for continuance and for entry of an amended docket control
order. In plaintiffs’ response, plaintiffs contested defendants’ claims that plaintiffs
had not fully complied with the trial court’s orders. Specifically, plaintiffs
maintained that they had complied with all defendants’ requests for production by
producing all requested documents in plaintiffs’ custody and control, including
documents relating to the maintenance and repair records prior to Hurricane Ike;
communications from tenants; communications, estimates, invoices, opinions,
reports, appraisals, and photographs from contractors and consultants; and,
documents related to the Property before Hurricane Ike.
4
On August 5, 2011, the trial court held a hearing on defendants’ motion for
continuance and, at the same time, heard a motion filed by plaintiffs’ counsel for
withdrawal as counsel of record for plaintiffs. Dao opposed her counsel’s request
to withdraw, but indicated she did not object to defendants’ request for a
continuance and asked the court “to take control of this case and set a firm [trial]
date before 2011 year end[.]” At the hearing, plaintiffs’ counsel (at the time
seeking withdrawal) indicated that he had represented Dao for approximately one
year, that communications with her had “become very difficult[,]” and that
representing Dao had become “unreasonably difficult.” The court decided not to
rule on either motion and explained to the parties that the administrative judges
planned to “put a hold on all the Ike cases and transfer them into one particular
court and then that judge will handle all of the discovery issues” and pretrial issues.
On August 9, 2011, the trial court entered an order indefinitely abating the case.
However, on October 25, 2011, over plaintiffs’ objections, the trial court granted
plaintiffs’ attorney’s motion to withdraw as attorney of record.
Plaintiffs eventually obtained new legal counsel. On March 19, 2012,
plaintiffs’ second attorney supplemented Dao’s discovery responses. The letter
accompanying the supplement states, “[P]lease find documents Bates stamped
#HD00001 to #HD000172.” The letter further states “[b]ecause I cannot tell
5
exactly where the Bates numbers stopped with respect to documents produced to
you by my client’s previous counsel, I decided to just start over.” The letter
explains that the supplementation includes an appraisal of the Property as of
August 3, 2007 to respond to defendants’ request for documents related to the
condition of the Property before Hurricane Ike. The letter also states that counsel
will forward any additional responsive documents if counsel determines they exist.
Defendants deposed Dao on May 16, 2012. Dao produced a number of documents
to defendants at her deposition. According to a letter Dao sent to the trial court, her
attorney requested to withdraw as plaintiffs’ counsel immediately after her
deposition. Thereafter, plaintiffs obtained new legal counsel. On August 23, 2012,
plaintiffs’ attorney further supplemented plaintiffs’ document production.
On December 18, 2012, the administrative judges in Montgomery County
transferred plaintiffs’ case to the 359th District Court of Montgomery County. On
February 13, 2013, the trial court entered a new scheduling order, setting trial for
November 4, 2013, and a new discovery deadline of August 6, 2013.
On March 22, 2013, plaintiffs’ third attorney filed a motion to withdraw as
counsel of record. Counsel indicated that the request to withdraw was unopposed
and being filed because of “long standing issues concerning time constraints and
additional issues regarding Plaintiffs’ and counsel’s views as to ongoing legal
6
representation.” On April 3, 2013, plaintiffs, acting pro se, filed a letter with the
trial court indicating they were opposed to the court granting counsel’s request to
withdraw from the case until they could secure new counsel.
On April 12, 2013, defendants filed a motion to compel Dao’s compliance
with the trial court’s May 24, 2011 order compelling adequate responses. 1
Defendants also sought sanctions. In their motion to compel, defendants alleged
that the information and documents that they had requested Dao provide were
“necessary to properly evaluate Plaintiffs’ alleged damages.” Defendants explained
that between January 2012 and May 2012, they made numerous written requests to
plaintiffs’ counsel seeking the following:
(a) maintenance and repair records prior to Hurricane Ike, (b)
communications from tenants indicating that they were vacating the
property due to damage from Hurricane Ike, (c) other documents
relevant to Plaintiffs’ business interruption claim, (d)
communications, estimates, invoices, opinions, reports, appraisals,
and photographs from contractors and consultants who inspected or
examined the property after Ike, (e) documents reflecting the
corporate structure of Plaintiff Keystone Management, which is
owned by Ms. Dao, and (f) documents related to the condition of
property prior to Ike, among other items.
1
Defendants’ motion to compel requested the trial court to compel Dao’s
compliance with the court’s May 24, 2011 and July 18, 2011 orders. In their
motion, defendants describe both orders as orders compelling discovery; however,
the July 18, 2011 order did not, in and of itself, order Dao to comply with
defendants’ discovery. As explained above, the July 18, 2011 order denied Dao’s
motion for reconsideration and upheld the court’s May 24, 2011 order.
7
Defendants argued that Dao failed to produce any of the requested documentation
until her deposition on May 17, 2012. According to defendants’ motion, Dao had
identified additional responsive documents during her deposition and had not
produced those documents to defendants. According to defendants, because there
were so many outstanding documents, they were required to postpone Dao’s
deposition until Dao produced the requested documents. Defendants asked the
court to compel Dao to supplement her discovery responses and document
production within seven days.
Defendants also asked the trial court to strike plaintiffs’ pleadings and
dismiss their claims with prejudice “[i]n light of [Dao’s] prolonged and blatant
disregard of the [c]ourt’s prior discovery Orders, as well as her general refusal to
cooperate in the discovery process[.]” As an alternative to striking her pleadings,
defendants asked the court to order Dao to pay defendants’ reasonable expenses
and attorneys’ fees caused by her failure to respond adequately to discovery, or
other just orders regarding Dao’s failure to comply with the rules of discovery.
On April 15, 2013, the trial court granted the motion to withdraw filed by
plaintiffs’ third attorney. On April 24, 2013, plaintiffs, again acting pro se, filed a
verified letter with the trial court to respond to defendants’ motion to compel. In
their letter, plaintiffs argued that their first attorney filed a response to defendants’
8
first motion to compel and therein indicated that “defendants had all requested
documents which are in Plaintiff’s custody and control that relate to this lawsuit[.]”
Plaintiffs further argued that in March 2012 her counsel again “provided all
requested documents to include all additional requested documents a [second]
time.” Plaintiffs contended that when defendants made another request in late May
and July 2012 for documents, her third counsel responded and produced additional
documents and indicated that “‘all other requests have either been adequately
answered through previous document production, or responsive materials simply
do not exist at this time[.]’” Plaintiffs maintained that defendants brought the
motion to compel in bad faith to take advantage of plaintiffs while they were
without legal counsel. Plaintiffs argued sanctions were inappropriate because
plaintiffs had produced all the requested documents in their possession related to
Hurricane Ike.
Defendants filed a reply to plaintiffs’ response and argued that plaintiffs had
a pattern of conduct as demonstrated from their numerous other lawsuits in Harris
County, wherein they change counsel whenever key deadlines or trial dates
approach. Defendants attached exhibits from other lawsuits to support their
contentions.
9
Plaintiffs asked the court to continue defendants’ motion to compel and
motion for sanctions until they could obtain new legal counsel. The trial court
granted plaintiffs a number of continuances to give plaintiffs time to obtain legal
counsel. The trial court ultimately heard this matter on July 16, 2013, and entered
judgment on July 18, 2013, granting defendants’ motion for sanctions, striking
plaintiffs’ pleadings, and dismissing all plaintiffs’ claims with prejudice to refiling.
The trial court’s order recited findings of fact to support its judgment.
Thereafter, plaintiffs secured new legal counsel and filed a motion for new
trial seeking to set aside the trial court’s judgment. Therein, plaintiffs contend that
they also supplemented their discovery responses with over one thousand pages of
documents. Defendants responded that plaintiffs had previously produced the
majority of the “supplemented” documents and had still failed to produce the
documents Dao identified in her deposition. Plaintiffs’ motion was denied by
operation of law. Dao filed a notice of appeal.
II. Keystone Management
In their first issue, appellants contend that the trial court erred in sanctioning
Keystone and dismissing its claims with prejudice when defendants’ motion to
compel did not seek relief directly against Keystone. Appellees contend that
Keystone is Dao’s doing-business-as name, and as such, Dao and Keystone are the
10
same. Appellants concede this point in their reply brief when they state, “Appellees
are correct in contending that Hoa Dao and Keystone Management are one and the
same.” The evidence in the record supports that Dao was doing business under the
assumed name of Keystone Management. Therefore, under the facts contained in
this record, we conclude that Dao and Keystone are the same legal entity and the
trial court did not err in entering judgment against Keystone and Dao. See Salyers
v. Tex. Workers’ Comp. Ins. Fund, No. 03-03-00011-CV, 2003 WL 22024670, at
*2 (Tex. App.—Austin Aug. 29, 2003, pet. denied) (mem. op.) (“Because they do
not enjoy the protection of corporate status, individuals who do business as an
unincorporated entity are personally liable for the entity’s obligations.”); Old
Republic Ins. Co. v. EX-IM Servs. Corp., 920 S.W.2d 393, 396 (Tex. App.—
Houston [1st Dist.] 1996, no writ) (stating that when a judgment is rendered
against an individual doing business as an unincorporated association that
judgment is binding on the individual); see also Tex. R. Civ. P. 28 (“Any
partnership, unincorporated association, private corporation, or individual doing
business under an assumed name may sue or be sued in its partnership, assumed or
common name for the purpose of enforcing for or against it a substantive right[.]”).
We overrule appellants’ first issue.
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III. Discovery Sanctions
In their second issue, appellants contend the trial court erred in granting
defendants’ motion to compel and for sanctions.
A. Standard of Review
We review a trial court’s imposition of discovery sanctions for an abuse of
discretion. TransAmerican, 811 S.W.2d at 917. A trial court abuses its discretion
when it acts arbitrarily, unreasonably, or without reference to guiding rules or
principles. See Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42
(Tex. 1985). We review the entire record, including the evidence, arguments of
counsel, written discovery on file, and the circumstances surrounding the party’s
alleged discovery abuse. U.S. Fid. & Guar. Co. v. Rossa, 830 S.W.2d 668, 672
(Tex. App.—Waco 1992, writ denied). In assessing sanctions for discovery abuse,
the trial court may consider everything that has occurred during the litigation.
Berry-Parks Rental Equip. Co. v. Sinsheimer, 842 S.W.2d 754, 757 (Tex. App.—
Houston [1st Dist.] 1992, no writ) (citing Downer, 701 S.W.2d at 241).
When the trial court includes findings of fact in its sanctions order, we do
not give those findings of fact the same deference as fact-findings made by a trial
judge after a full trial on the merits where the judge serves as the fact finder. In re
Polaris Indus., Inc., 65 S.W.3d 746, 750 (Tex. App.—Beaumont 2001, no pet.);
12
see also Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 852 (Tex. 1992). However,
we are required to view any conflicts in the record in the light most favorable to
the trial court’s ruling, and resolve all inferences in favor of the trial court’s
judgment. Finley Oilwell Serv., Inc. v. Retamco Operating, Inc., 248 S.W.3d 314,
319 (Tex. App.—San Antonio 2007, pet. denied).
B. Discovery Sanctions
It is within the trial court’s discretion to impose sanctions for discovery
abuse. See Tex. R. Civ. P. 215.1, 215.2, 215.3. Rule 215.2 allows a trial court to
impose a number of sanctions, including disallowing further discovery; charging
certain expenses, costs, or attorney’s fees of one party against the offending party;
ordering certain facts to be established as true; limiting a party’s ability to defend
against or bring certain claims; striking pleadings or parts of pleadings; or finding a
party in contempt of court. Tex. R. Civ. P. 215.2(b). A trial court is not limited to
the list of sanctions specifically identified in Rule 215.2. Braden v. S. Main Bank,
837 S.W.2d 733, 740 (Tex. App.—Houston [14th Dist.] 1992, writ denied).
For the trial court to impose sanctions, it must first determine that the
complaining party proved that the alleged offending party failed to produce a
document within its possession, custody, or control. GTE Commc’ns Sys. Corp. v.
Tanner, 856 S.W.2d 725, 729 (Tex. 1993). MCC produced deposition testimony
13
from Dao indicating that Dao was in actual possession of documents responsive to
discovery. For example, Dao testified that she had a box at her office containing
records of the building’s history. She testified that the prior owner had some
repairs made to the building in 2007 and 2008, including roof repairs. Dao was
unable to testify regarding the specifics of the repairs performed to the building
prior to her purchase of the building. She indicated she needed to look in the box of
records at her office containing the building’s history to confirm what work was
actually performed.
In her deposition, Dao also testified that she possibly had documentation of
tenant complaints made while she managed the property, but she was not certain
she actually possessed such documentation. However, Dao testified that after her
anchor tenant vacated the building, plaintiffs started maintaining a written log of
all the complaints being made about the building. She testified that she kept the
“maintenance log” at her office. She testified that after her anchor tenant left, she
started having tenants complete complaint forms. She testified that she possessed
written communications from other tenants concerning their decision to leave the
building.
Dao also testified that she possessed email correspondence from the public
adjuster, but indicated that she did not have a copy of his report. Finally, during the
14
deposition, Dao’s legal counsel agreed to give defendants a copy of his fee
agreement with plaintiffs.
In correspondence defendants sent to plaintiffs after Dao’s deposition,
defendants identified eight categories of documents that Dao allegedly testified
that she maintained, including (1) historical building maintenance/repair records;
(2) maintenance and repair records for the building from August 2007 to the
present; (3) tenant complaints (maintenance/leak log); (4) communications with
former tenants regarding their respective lease renewal negotiations, move-outs,
and “resulting loss rents” to plaintiffs; (5) reports, estimates, notes, photographs,
and fee agreements from public adjuster; (6) Dao and Keystone’s fee agreement
with counsel; (7) calendar and notes reflecting meetings and calls with defendant
Raus and the public adjuster; and (8) e-mail correspondence with the public
adjuster, tenants, prospective tenants, and roofers concerning the building
condition and lease negotiations, as well as roofing proposals.
In a letter to the trial court dated June 20, 2012, Dao, acting pro se, notified
the court that her second attorney presented her for deposition on May 16, 2012,
and due to “[s]ome mysterious mishap” that occurred during the deposition, her
second attorney immediately requested withdrawal as her counsel of record after
15
the deposition. There is no further explanation in the record indicating the reasons
for the requested withdrawal.
On August 23, 2012, plaintiffs’ third attorney sent the following
correspondence to defendants:
I have received and reviewed your correspondence in which
you had requested additional materials from my client. In that regard,
please find the attached materials, which respond to your request
numbers 1, 2, 3, and 8. Based upon our review of the file, as it
currently exists, any and all other requests have either been adequately
answered through previous document production, or responsive
materials simply do not exist at this time.
Defendants continued to assert that Dao failed to produce all documents in her
possession and eventually filed the second motion to compel and first motion for
sanctions with the court.
At the hearing on defendants’ motion to compel compliance with the May
24, 2011 order and motion for sanctions, Dao appeared pro se. She explained to the
court that she was in the process of finalizing a retainer agreement with new
counsel. During the hearing, defendants represented to the trial court that Dao
produced some new documents about fifteen to twenty minutes after her deposition
began. Defendants told the trial court that at this point in time, Dao’s counsel “was
very apologetic” and told defendants that he had been asking Dao for the
documents and had just learned they existed two days before the deposition.
16
Defendants informed the trial court that this exchange was part of Dao’s deposition
transcript, which was attached to their motion. However, we note that the portion
of the record cited by defendants as allegedly evidencing this exchange is not part
of the appellate record. Defendants argued that the issue is not with Dao’s
attorneys, who were all “professional, courteous, [and] cooperative.” Defendants
argued that previous counsel was no longer representing Dao “because they were
equally frustrated with [Dao.]”
The trial court specifically asked Dao at the hearing if she had answered the
discovery in full and Dao responded that she had. Relying on Dao’s deposition
testimony, defendants responded that they did not believe Dao’s assertion to be
true. Dao maintained to the trial court that she had produced everything. The trial
court asked Dao where the documents were that she identified in her deposition,
and Dao responded that based on correspondence she had read from her former
counselors to defendants, those documents had already been produced to the
defendants. The trial court obviously rejected Dao’s assertions, and found that Dao
failed to produce the documents she had identified in her deposition.
The evidence supports the trial court’s finding that “Plaintiffs have failed to
produce all responsive documents in their possession, including, by way of
example, maintenance/leak logs[.]” The trial court is in the best position to judge
17
Dao’s credibility with regard to her attempts to explain delays and her
unresponsiveness to discovery. See McMillin v. State Farm Lloyds, 180 S.W.3d
183, 199 (Tex. App.—Austin 2005, pet. denied). Because we defer to the trial
court’s firsthand assessment of the parties’ credibility, we do not find the trial court
abused its discretion in determining that discovery abuse has occurred.
The trial court then found that plaintiffs’ failure to produce all responsive
documents warranted court sanctions and struck all of plaintiffs’ pleadings and
dismissed plaintiffs’ claims with prejudice pursuant to the court’s authority under
Rule 215.2 of the Texas Rules of Civil Procedure.2 We must next determine
whether the trial court’s sanctions were just.
2
Appellees further assert that because appellants have not challenged any
implied findings that could support the trial court’s judgment under the court’s
inherent authority, we should summarily affirm the judgment based on the concept
of unassigned error. “Texas courts have the inherent power to sanction for an abuse
of the judicial process that may not be covered by any specific rule or statute.”
Island Entm’t Inc. v. Castaneda, 882 S.W.2d 2, 5 (Tex. App.—Houston [1st Dist.]
1994, writ denied). “Assessing sanctions under the trial court’s inherent powers
requires a two-step process.” Kings Park Apartments, Ltd. v. Nat’l Union Fire Ins.
Co. of Pittsburgh, Pa., 101 S.W.3d 525, 541 (Tex. App.—Houston [1st Dist.]
2003, pet. denied). First, the court must rely upon the rules and statutes that
expressly authorize sanctions. Second, in applying its inherent power to impose
sanctions, the trial court must make factual findings to determine whether there is
some evidence that the conduct complained of significantly interfered with the
court’s legitimate exercise of its core functions. Id. The subject order of the trial
court is clear that the trial court relied upon its authority to enter sanctions pursuant
to Rule 215.2 of the Texas Rules of Civil Procedure.
18
C. Sanctions Must Be Just
A court order striking pleadings is commonly referred to as a “death-penalty
sanction.” See Paradigm Oil, Inc. v. Retamco Operating, Inc., 372 S.W.3d 177,
179 (Tex. 2012). Although the trial court has the discretion to impose sanctions,
the sanctions it chooses to impose must be just. TransAmerican, 811 S.W.2d at
917; see also Tex. R. Civ. P. 215.2(b). Whether the trial court imposed a just
sanction is measured by two standards. TransAmerican, 811 S.W.2d at 917. First,
the sanctions must bear a direct relationship to the offensive conduct. Id. Second,
the sanctions must not be excessive. Id.
1. Direct Relationship
A just sanction is directed against the abuse and toward remedying the
prejudice caused to the innocent party, and the sanction should be visited upon the
offender. Spohn Hosp. v. Mayer, 104 S.W.3d 878, 882 (Tex. 2003);
TransAmerican, 811 S.W.2d at 917. “The trial court must attempt to determine
whether the offensive conduct is attributable to counsel only, to the party only, or
to both.” Spohn Hosp., 104 S.W.3d at 882; TransAmerican, 811 S.W.2d at 917.
“[T]he sanctions the trial court imposes must relate directly to the abuse found.”
TransAmerican, 811 S.W.2d at 917. According to appellants, the trial court failed
to determine whether the offensive conduct was attributable to counsel, to the
19
party, or to both. However, the trial court’s order belies this argument. The trial
court specifically found as follows:
Plaintiffs, and not Plaintiffs’ various attorneys since November 2010,
are responsible for the discovery abuse, as the pattern of egregious
conduct remained unchanged while Plaintiffs have acted pro se and
while represented by three different law firms. Further, through each
representation, it was ultimately within the exclusive province of
Plaintiffs to provide the documents at issue to Plaintiffs’ counsel
and/or to Defendants. Plaintiffs’ counsel could not provide the
documents to Defendants unless and until Plaintiffs furnished the
same to their counsel, which Plaintiffs refused to do.
The trial court concluded that there is a direct relationship between plaintiffs’
conduct and the sanction of dismissal because plaintiffs’ conduct “has frustrated
Defendants’ legitimate attempts to define Plaintiffs’ causes of action, explore the
bases for Plaintiffs’ claims and alleged damages, and investigate potential
defenses.”
In her appellate brief, Dao argues that her failure to respond properly to
discovery was attributable to her legal counsel and not to her. The record supports
that at least Dao’s initial failure to comply with the trial court’s order compelling
discovery was attributable to her counsel’s failure and not her own. In the motion
for reconsideration filed by plaintiffs after the trial court granted the first motion to
compel, counsel stated that he did not file a response to defendants’ motion to
compel and was unaware of the seven-day deadline set by the trial court for Dao’s
20
supplementation. In the motion, plaintiffs’ counsel took full responsibility for the
omission and asked the court for permission to file a late response. The motion for
reconsideration also stated that in conjunction with filing the motion for
reconsideration, Dao was supplementing her discovery responses to many of
defendants’ discovery requests at issue in the motion to compel.
During the hearing on the second motion to compel and motion for
sanctions, Dao asked for additional time, specifically, “part of the day” to confer
with her former counsel to determine what documents were not produced before
she further supplemented the record. The trial court told Dao that because of Dao’s
past behavior the court could not trust Dao and that Dao could “take it for a given
that they did not produce everything.” Dao indicated that the court could sanction
her if she did not respond as she stated she would.
2. Excessiveness of Sanction
When a trial court imposes a sanction for discovery abuse, the sanction
should be no more severe than necessary to satisfy its legitimate purposes.
TransAmerican, 811 S.W.2d at 917. The legitimate purposes of discovery
sanctions are to secure compliance with the discovery rules, deter other litigants
from abusing the discovery rules, and punish parties who violate the discovery
rules. Chrysler Corp., 841 S.W.2d at 849; see also Tex. Integrated Conveyor Sys.,
21
Inc. v. Innovative Conveyor Concepts, Inc., 300 S.W.3d 348, 384 (Tex. App.—
Dallas 2009, pet. denied); Response Time, Inc. v. Sterling Commerce (N. Am.),
Inc., 95 S.W.3d 656, 659-60 (Tex. App.—Dallas 2002, no pet.). Therefore, courts
must first consider the availability of less stringent sanctions to determine whether
such lesser sanctions would fully promote compliance, deterrence, and discourage
further abuse. Chrysler Corp., 841 S.W.2d at 849; TransAmerican, 811 S.W.2d at
917. “Case determinative sanctions may be imposed in the first instance only in
exceptional cases when they are clearly justified and it is fully apparent that no
lesser sanctions would promote compliance with the rules.” GTE, 856 S.W.2d at
729. We give no deference to a trial court’s conclusory statement that lesser
sanctions would have been ineffective when the record does not include evidence
to support this conclusion. See id.; see also Spohn Hosp., 104 S.W.3d at 883
(“[T]he record should contain some explanation of the appropriateness of the
sanctions imposed.”).
The imposition of the death-penalty sanction is limited by constitutional due
process and therefore, “ought to be the exception rather than the rule.”
TransAmerican, 811 S.W.2d at 917, 919. “Discovery sanctions cannot 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
22
merit.” Id. at 918; see Hammond Packing Co. v. State of Ark., 212 U.S. 322, 351
(1909) (“[T]he preservation of due process was secured by the presumption that
the refusal to produce evidence material to the administration of due process was
but an admission of the want of merit in the asserted defense.”). If, after the
imposition of lesser sanctions, a party continues to refuse to produce material
evidence, the court may presume that an asserted claim or defense lacks merit and
take action to dispose of it. TransAmerican, 811 S.W.2d at 918. However,
“[s]anctions which are so severe as to preclude presentation of the merits of the
case should not be assessed absent a party’s flagrant bad faith or counsel’s callous
disregard for the responsibilities of discovery under the rules.” Id. Even when a
party has demonstrated “flagrant bad faith[,]” “lesser sanctions must first be tested
to determine whether they are adequate to secure compliance, deterrence, and
punishment of the offender.” Chrysler Corp., 841 S.W.2d at 849. The Texas
Supreme Court has emphasized the continued validity of the rule that generally
lesser sanctions should be tested first. Cire v. Cummings, 134 S.W.3d 835, 842
(Tex. 2004); Hamill v. Level, 917 S.W.2d 15, 16 n.1 (Tex. 1996).
In their brief, appellants contend that the trial court abused its discretion in
granting the death-penalty sanction and at most, the trial court should have signed
a new order to compel responses or imposed some lesser sanction. Appellants also
23
argue that the trial court’s sanctions were excessive because the record does not
justify a presumption that appellants’ claims lack merit. 3
While the trial court did attempt to accommodate plaintiffs’ efforts to retain
new counsel, we note that the first time the trial court considered sanctions for
discovery abuse occurred at a time when plaintiffs were not represented by
counsel. From the record, it is apparent that Dao does not communicate well using
the English language. In its order, the trial court includes statements that its
sanctions were not excessive because plaintiffs’ conduct was exceptional and
egregious and that lesser sanctions would not promote plaintiffs’ compliance. The
trial court also noted that it considered lesser sanctions, but found the sanction of
dismissal the only viable choice. The court reasoned that lesser sanctions would be
ineffective because plaintiffs have refused to comply with defendants’ discovery
requests even after two court orders and defendants having filed a motion
requesting death-penalty sanctions. The trial court concluded that plaintiffs’
conduct justifies the presumption that plaintiffs’ claims lack merit. In its findings
of fact, the court indicated that plaintiffs’ flagrant behavior was demonstrated
3
Appellees argue that appellants failed to properly brief their argument and
thus, waived any error related to the presumption of “meritlessness[.]” However,
appellants identified and applied relevant case law sufficiently to meet the standard
under the rules of appellate procedure. See Tex. R. App. P. 38.1.
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when Dao “testified that she possesses many documents responsive to Defendants’
discovery made the subject of the Court’s May 24, 2011 and July 18, 2011
Orders.”
In Cire, the Court found the facts of the case to be exceptional and
concluded it was within the trial court’s discretion to determine that plaintiff
deliberately destroyed dispositive evidence thereby warranting the imposition of
death-penalty sanctions. 134 S.W.3d at 841. The Court explained that the trial
court’s order not only noted that lesser sanctions would be ineffective, but also
“contain[ed] an extensive, reasoned explanation of the appropriateness of the
sanction imposed, demonstrating that the trial court considered the availability of
less stringent sanctions[.]” Id. at 842. The trial court’s order noted that lesser
sanctions would be ineffective because plaintiff concealed or destroyed critical
evidence and plaintiff had refused to pay a previously ordered small monetary
sanction. Id. at 841-42. The trial court also noted that monetary sanctions could not
cure plaintiff’s wrongdoing of destroying evidence. Id. at 841. The Court explained
that ordinarily the trial court would be required to test the effectiveness of lesser
sanctions, but “because of the egregious conduct and blatant disregard for the
discovery process . . . including the violation of three court orders ordering
production of the audiotapes,” the death-penalty sanctions were clearly justified.
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Id. at 842. The Court held that “striking pleadings is a harsh sanction that must be
used as a last resort after the trial court has considered lesser sanctions, and that in
all but the most egregious and exceptional cases, the trial court must test lesser
sanctions before resorting to [death-penalty] sanctions.” Id. The Court further held
that in cases of “exceptional misconduct” the trial court is not required to test the
lesser sanctions before striking a party’s pleadings so long as the record reflects
that the trial court considered the lesser sanctions first and the party’s conduct
justified the presumption that plaintiff’s claims lack merit. Id. In such cases, the
trial court is required to “analyze the available sanctions and offer a reasoned
explanation as to the appropriateness of the sanction imposed.” Id. In Cire, the
Court found the facts in that case represented an exceptional circumstance, “where
the only objective evidence that would have supported or disproved [plaintiff’s]
claims was deliberately destroyed after the trial court thrice ordered it produced”
and that such “intentionally egregious behavior” warrants the death-penalty
sanction. Id. at 843.
In contrast to the Cire case, there is no evidence in this case that appellants
have destroyed or tampered with relevant evidence. At most, the record reflects
that appellants failed to comply fully with appellees’ discovery requests and failed
to comply with the trial court’s May 24, 2011 order compelling responses. We do
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not find this behavior to be “exceptional misconduct,” such that the trial court is
not required to test the lesser sanctions before striking a party’s pleadings. See id.
at 842. The record does include evidence supporting the dilatoriness of appellants
in responding to discovery, and we agree with the trial court’s determination that
the conduct was sanctionable. We do not condone appellants’ discovery abuse, but
we conclude the sanctions the trial court imposed were excessive and fail to satisfy
the standards pronounced in TransAmerican. We find no evidence to justify a legal
presumption of lack of merit of all of Dao’s claims. We find no effort by the trial
court to first test lesser sanctions and no evidence that lesser sanctions would have
been ineffective. During the hearing on the motion for sanctions, the trial court
asked defendants to summarize what lesser sanctions had already been imposed.
Defendants responded that the trial court had entered an order compelling
discovery responses in 2011 and had reaffirmed that order in denying plaintiffs’
motion for reconsideration. However, the entry of an order to compel is not a lesser
sanction. See Polaris, 65 S.W.3d at 753. No threat of sanctions, much less death-
penalty sanctions, for noncompliance with the court’s orders was made prior to the
entry of those sanctions here. Thus, we conclude the trial court abused its
discretion in entering death-penalty sanctions against appellants and that “lesser
sanctions must first be tested to determine whether they are adequate to secure
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compliance, deterrence, and punishment of the offender.” See Chrysler Corp., 841
S.W.2d at 849; see also Cire, 134 S.W.3d at 842. We resolve appellants’ second
issue in their favor.
Having found the trial court abused its discretion in imposing case
determinative sanctions, we reverse the trial court’s judgment and remand the
cause for further proceedings consistent with this opinion.
REVERSED AND REMANDED.
______________________________
CHARLES KREGER
Justice
Submitted on October 15, 2014
Opinion Delivered May 14, 2015
Before McKeithen, C.J., Kreger, and Horton, JJ.
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