Arrow Automatic Fire Protection, Inc. v. Wesleyan Corporation

Opinion filed March 3, 2017
In The
Eleventh Court of Appeals
__________
No. 11-14-00295-CV
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ARROW AUTOMATIC FIRE PROTECTION, INC., Appellant
V.
WESLEYAN CORPORATION, Appellee
On Appeal from the 91st District Court
Eastland County, Texas
Trial Court Cause No. CV1242779
MEMORANDUM OPINION
This appeal arises from a summary judgment based in part upon deemed
admissions. Appellant, Arrow Automatic Fire Protection, Inc., failed to timely
respond to requests for admission served on it by Appellee, Wesleyan Corporation.
The requests for admission were deemed “admitted” by operation of law. See
TEX. R. CIV. P. 198.2(c). After Wesleyan filed a motion for partial summary
judgment based in part upon the deemed admissions, Arrow filed a motion to
withdraw the deemed admissions. The trial court denied the motion to withdraw the
deemed admissions. Wesleyan then filed a supplemental motion for summary
judgment and no-evidence summary judgment. Wesleyan relied upon on the trial
court’s order denying Arrow’s request to withdraw the deemed admissions in
seeking this summary judgment. The trial court granted summary judgment in favor
of Wesleyan.
In two issues, Arrow asserts that (1) the trial court erred when it denied
Arrow’s motion to withdraw the deemed admissions and (2) the trial court erred
when it granted Wesleyan’s motions for summary judgment. We reverse and
remand.
Background Facts
Arrow entered into an agreement with Wesleyan to install fire sprinkler
systems in buildings in Eastland and Brownwood. A dispute arose between the
parties concerning the placement of a sprinkler control panel in the Eastland
building. The sprinkler system was never installed in Brownwood.
Wesleyan filed the underlying suit against Arrow in Eastland County.
Arrow’s initial counsel, Jarrod S. Busby from Lubbock, retained attorney
Dietrich O. Odom to serve as local counsel in the Eastland County suit. Busby
prepared an original answer, which contained a general denial as well as a motion to
transfer venue and a motion to abate, and e-mailed it to Odom for filing.
Wesleyan’s original petition contained requests for admission that asked for
Arrow to admit liability and damages for breach of contract. Odom subsequently
obtained a copy of the original petition. When Odom realized that it contained
requests for admission that had not been answered, he contacted Busby who
informed him that he and Wesleyan’s attorney had agreed to extend discovery
deadlines.
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Over the course of three months, Odom made numerous attempts to contact
Busby and Wesleyan’s attorney to determine the status of this case and obtain a copy
of the Rule 11 agreement extending the discovery deadline. Odom eventually
received a Rule 11 agreement signed by Wesleyan’s attorney, although it had not
been signed by Busby. After making numerous calls and sending numerous e-mails,
as well as a certified letter to Busby, Odom contacted Arrow and worked with it
directly to prepare a response to the requests for admission, which Odom served on
Wesleyan in December 2013. Odom filed the response as the only attorney listed
for Arrow.
In June 2014, Wesleyan filed a motion for partial summary judgment
premised on the deemed admissions. A week later, Odom filed a motion seeking to
withdraw the deemed admissions on behalf of Arrow. After holding a hearing on
Arrow’s motion to withdraw the deemed admissions, the trial court denied Arrow’s
request to withdraw the deemed admissions. Wesleyan subsequently filed a
supplemental no-evidence motion for summary judgment. The trial court granted
both of Wesleyan’s motions for summary judgment.
Analysis
In its first issue, Arrow asserts that the trial court abused its discretion when
it denied Arrow’s motion to strike deemed admissions. A request for admission is a
“written request[ ] that the other party admit the truth of any matter within the scope
of discovery.” TEX. R. CIV. P. 198.1. “If a response is not timely served, the request
is considered admitted without the necessity of a court order.” TEX. R. CIV. P.
198.2(c). An admitted matter is “conclusively established as to the party making the
admission unless the court permits the party to withdraw or amend the admission.”
TEX. R. CIV. P. 198.3.
A trial court may allow the withdrawal of a deemed admission upon a showing
of (1) good cause and (2) no undue prejudice. Id.; see Marino v. King, 355 S.W.3d
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629, 633 (Tex. 2011). The Texas Supreme Court addressed the requisite
demonstration of good cause and undue prejudice in Wheeler v. Green. 157 S.W.3d
439, 442–43 (Tex. 2005). Good cause “is established by showing the failure
involved was an accident or mistake, not intentional or the result of conscious
indifference.” Id. at 442. Undue prejudice depends “on whether withdrawing an
admission or filing a late response will delay trial or significantly hamper the
opposing party’s ability to prepare for it.” Id. at 443.
“Although trial courts have broad discretion to permit or deny the withdrawal
of deemed admissions, they cannot do so arbitrarily, unreasonably, or without
reference to guiding rules or principles.” Marino, 355 S.W.3d at 633 (citing
Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42 (Tex. 1985)). Due
process concerns are implicated when “merits-preclusive” requests for admission
are involved and a party uses deemed admissions to try to preclude presentation of
the merits of a case. Id. at 633–34 (citing Wheeler, 157 S.W.3d at 443–44). Due
process bars merits-preclusive deemed admissions “absent flagrant bad faith or
callous disregard for the rules.” Wheeler, 157 S.W.3d at 443.
Thus, “[a] different standard applies when the deemed admissions are merit-
preclusive.” In re Sewell, 472 S.W.3d 449, 455 (Tex. App.—Texarkana 2015, orig.
proceeding). Ordinarily, the burden of showing good cause lies with the party
seeking withdrawal of deemed admissions. Id. at 456; Time Warner, Inc. v.
Gonzalez, 441 S.W.3d 661, 665 (Tex. App.—San Antonio 2014, pet. denied). But
when the deemed admissions are merit-preclusive, the party opposing the
withdrawal of the admissions has the burden to show that the party seeking the
withdrawal acted with bad faith or callous disregard for the rules. See Medina v.
Raven, 492 S.W.3d 53, 61–62 (Tex. App.—Houston [1st Dist.] 2016, no pet.); Time
Warner, 441 S.W.3d at 666 (citing Marino, 355 S.W.3d at 634); In re TT-Fountains
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of Tomball, Ltd., No. 01-15-00817-CV, 2016 WL 3965117, at *6 (Tex. App.—
Houston [1st Dist.] July 21, 2016, orig. proceeding) (mem. op.).
“[R]equests for admission should be used as ‘a tool, not a trapdoor.’” Marino,
355 S.W.3d at 632 (quoting U.S. Fid. and Guar. Co. v. Goudeau, 272 S.W.3d 603,
610 (Tex. 2008)). “Requests for admission are intended to simplify trials. They are
useful when ‘addressing uncontroverted matters or evidentiary ones like the
authenticity or admissibility of documents.’” Id. (quoting Wheeler, 157 S.W.3d at
443). As was the case in Marino, Wesleyan’s requests for admission included
requests asking Arrow to admit to the validity of Wesleyan’s claims—matters
Wesleyan knew to be in dispute. Specifically, Wesleyan requested that Arrow admit
or deny the following matters:
That Arrow “did not timely perform its work at the Eastland property
resulting in a breach of its agreement with Wesleyan” (No. 3);
That Arrow “wholly failed to perform its work at the Brownwood
property resulting in a breach of its agreement with Wesleyan” (No. 4);
That Arrow “proceeded forward with installing the fire sprinkler
system without any regard to the objections and/or modifications required by
Wesleyan which constituted a breach of Arrow’s agreement with Wesleyan”
(No. 10);
That Arrow “proceeded forward with installing the fire sprinkler
system controls in a location without regard to the engineered drawings
submitted to the City of Eastland which is unlawful” (No. 11);
That Arrow “proceeded forward with installing the fire sprinkler
system controls in a location without regard to the instructions of Wesleyan
which constituted a breach of Arrow’s agreement with Wesleyan (No. 12);
That “in connection with the Eastland project, Arrow has no evidence
to dispute that Wesleyan had to incur over $4,800 in costs associated with
Arrow’s breach” (No. 14); and
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That “in connection with the Brownwood project, Arrow has no
evidence to dispute that Wesleyan had to incur over $27,959 in costs
associated with Arrow’s breach” (No. 15).
“Requests for admission were never intended for this purpose.” Id. (citing Stelly v.
Papania, 927 S.W.2d 620, 622 (Tex. 1996) (per curiam)); see Sanders v. Harder,
227 S.W.2d 206, 208 (Tex. 1950) (stating that requests for admission were “never
intended to be used as a demand upon a plaintiff or defendant to admit that he had
no cause of action or ground of defense”). Accordingly, we must determine if the
record establishes flagrant bad faith or callous disregard for the rules. See Marino,
355 S.W.3d at 633.
Arrow supported its motion to withdraw the deemed requests with an affidavit
from Odom detailing his communications with Busby. Odom asserted that he had
difficulty communicating with Busby, made numerous calls to Busby without
hearing back from him, and eventually contacted Arrow directly so that he could file
a response to the requests for admission. At the hearing, Odom advised the trial
court that Busby “had sort of semi shut down his practice to go back to his family
business of farming” and that Odom “was unable to get in touch with him.”
Both parties focused their attention at the hearing on Busby’s conduct and the
fact that he had “dropped the ball.” Wesleyan’s counsel emphasized that Busby had
missed the deadline for responding to the requests for admission twice because he
did not timely respond to them after being granted an extension. Wesleyan asserts
on appeal that Odom should have intervened sooner to respond to the requests for
admission.
Because the deemed admissions included merit-preclusive admissions,
Wesleyan had the burden to establish flagrant bad faith or callous disregard for the
rules even though Arrow was the party seeking to withdraw the deemed admissions.
We conclude that Wesleyan did not satisfy this burden. We are guided in our
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conclusion by the Texas Supreme Court’s decision in TransAmerican Natural Gas
Corp. v. Powell, 811 S.W.2d 913, 918–19 (Tex. 1991). When courts impose
sanctions that preclude the presentation of the case on the merits, TransAmerican
requires the trial court to determine whether the sanctions should be imposed on the
party, the attorney, or both. 811 S.W.2d at 918–19. The record in this case does not
support the imposition of merit-preclusive sanctions against Arrow for the
shortcomings of its counsel. Furthermore, there is nothing to justify a presumption
that Arrow’s claims lack merit. See Marino, 355 S.W.3d at 634; Wheeler, 157
S.W.3d at 443–44. Accordingly, we find good cause to withdraw the deemed
admissions.
We must next consider whether the withdrawal of the deemed admissions
would have caused undue prejudice or whether presentation of the merits of the
action would be subserved by permitting Arrow to withdraw the admissions. See
TEX. R. CIV. P. 198.3(b). Undue prejudice depends on whether withdrawing an
admission or filing a late response will delay trial or significantly hamper the
opposing party’s ability to prepare for it. Wheeler, 157 S.W.3d at 443. Wesleyan
filed its initial motion for summary judgment five months after it received Arrow’s
untimely response to the requests for admission. Arrow filed its motion to withdraw
the deemed admissions within a week, and the trial court heard the motion the next
month. The hearing on the motion for summary judgment occurred two months
later. We conclude that withdrawing the deemed admissions would not have delayed
trial, which was never set, or significantly hampered Wesleyan’s ability to prepare
for trial. Furthermore, presentation of the merits is not served when “the case is
decided on deemed (but perhaps untrue) facts.” Wheeler, 157 S.W.3d at 443 n.2.
We conclude that the trial court should have allowed the deemed admissions to be
withdrawn. See TEX. R. CIV. P. 198.3. Accordingly, we sustain Arrow’s first issue.
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In Arrow’s second issue, it asserts that the trial court erred in granting
Wesleyan’s motion for summary judgment. Arrow premises this issue on its first
issue and asserts that the trial court erred in granting summary judgment on the
deemed admissions. In response, Wesleyan asserts that the summary judgment “was
not based entirely upon the deemed admissions.” In light of our disposition of
Arrow’s first issue, we have reviewed the motions for summary judgment to
determine if they could be upheld without consideration of the deemed admissions.
We conclude that they cannot be affirmed because of fact issues in the summary
judgment evidence.
We review a grant of summary judgment de novo. Travelers Ins. Co. v.
Joachim, 315 S.W.3d 860, 862 (Tex. 2010). After an adequate time for discovery,
a party may move for summary judgment on the ground that there is no evidence of
one or more essential elements of a claim or defense on which an adverse party
would have the burden of proof at trial. TEX. R. CIV. P. 166a(i). A no-evidence
summary judgment motion under Rule 166a(i) is essentially a motion for a pretrial
directed verdict; it requires the nonmoving party to present evidence raising a
genuine issue of material fact supporting each element contested in the motion. Id.;
Timpte Indus., Inc. v. Gish, 286 S.W.3d 306, 310 (Tex. 2009); Mack Trucks, Inc. v.
Tamez, 206 S.W.3d 572, 581–82 (Tex. 2006). When reviewing a no-evidence
summary judgment, we “review the evidence presented by the motion and response
in the light most favorable to the party against whom the summary judgment was
rendered, crediting evidence favorable to that party if reasonable jurors could, and
disregarding contrary evidence unless reasonable jurors could not.” Timpte Indus.,
286 S.W.3d at 310; Mack Trucks, 206 S.W.3d at 582 (citing City of Keller v. Wilson,
168 S.W.3d 802, 827 (Tex. 2005); Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d
193, 208 (Tex. 2002)).
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When reviewing a traditional summary judgment, the appellate court takes as
true evidence favorable to the nonmovant. Valence Operating Co. v. Dorsett, 164
S.W.3d 656, 661 (Tex. 2005). A trial court must grant a traditional motion for
summary judgment if the moving party establishes that no genuine issue of material
fact exists and that the movant is entitled to judgment as a matter of law. TEX. R.
CIV. P. 166a(c); Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex. 1991); City
of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979). The
nonmovant is not required to file a response to defeat the movant’s summary
judgment motion; however, once the movant establishes a right to judgment as a
matter of law, the nonmovant must come forward with evidence or law that
precludes summary judgment. Clear Creek, 589 S.W.2d at 678–79.
After reviewing the summary judgment evidence submitted by Arrow to the
trial court, it is clear that material issues of fact exist as to whether Arrow breached
the contracts for both the Eastland project and the Brownwood project. A party
breaches a contract when it fails to perform an act that he has expressly or impliedly
promised to perform. Examination Mgmt. Svcs., Inc. v. Kersh Risk Mgmt., Inc., 367
S.W.3d 835, 844 (Tex. App.—Dallas 2012, no pet.). If the breach is material, the
other party is discharged or excused from further performance. Mustang Pipeline
Co. v. Driver Pipeline Co., 134 S.W.3d 195, 198 (Tex. 2004). Whether a party’s
breach is so material as to render the contract unenforceable is ordinarily a question
of fact. Id. at 199.
Regarding the Eastland project, an affidavit signed by a representative of
Arrow provides that a representative of Wesleyan “specifically told [Arrow] that he
wanted the riser installed [in] the corner of the building.” This contradicts
Wesleyan’s assertion in its first motion for summary judgment that “Arrow
disregarded the specific terms and conditions expressed in Wesleyan’s November
20, 2011 letter by not placing the sprinkler controls ‘in a suitable place that is out of
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reach of the AHS clients’ or adhered to the engineered drawings submitted to the
City.”
Regarding the Brownwood project, Arrow’s affidavit provides that “it was
understood between [the parties] that Arrow would complete the Eastland Project
and receive payment in full before moving on to the Brownwood Project.” This
contradicts Wesleyan’s assertion in its first motion for summary judgment that “[a]s
to the Brownwood agreement, Arrow completely breached its agreement by
performing no work or services.” We find that a genuine issue of material fact exists
as to the alleged breaches of contract on both projects and that the trial court erred
in granting Wesleyan’s motions for summary judgment. Accordingly, we sustain
Arrow’s second issue.
This Court’s Ruling
We reverse the trial court’s order denying Arrow’s motion to withdraw
deemed admissions, vacate the trial court’s order granting both of Wesleyan’s
motions for summary judgment, and remand this cause to the trial court for further
proceedings consistent with this opinion.
JOHN M. BAILEY
JUSTICE
March 3, 2017
Panel consists of: Wright, C.J.,
Willson, J., and Bailey, J.
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