B & Sons Construction, LLC v. Rood Holdings, LLC

Opinion issued February 18, 2016
In The
Court of Appeals
For The
First District of Texas
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NO. 01-15-00355-CV
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B & SONS CONSTRUCTION, LLC, Appellant
V.
ROOD HOLDINGS, LLC, Appellee
On Appeal from the 164th District Court
Harris County, Texas
Trial Court Case No. 2013-60986
MEMORANDUM OPINION
B & Sons Construction, LLC, appeals the trial court’s denial of its motion
for new trial following entry of default judgment in favor of Rood Holdings, LLC.
B & Sons contends that the trial court abused its discretion in not setting aside the
default judgment and granting a new trial because B & Sons never received service
of process providing notice of the pending litigation. We reverse and remand for a
new trial.
Background
This dispute concerns the construction of an industrial park at 11810 Messa
Drive in Houston, Texas (the “industrial park”). B & Sons Construction and
United Rentals were involved in the construction of the industrial park while it was
owned by VR Wood, Inc. In January 2013, after construction was complete, Rood
purchased the industrial park.
On February 14, 2013, B & Sons filed a Mechanic and Materialman’s Lien
Affidavit, claiming $430,329.00 was owed to B & Sons for materials and labor
furnished during construction of the industrial park. On May 20, 2013, United
Rentals also filed a Mechanic and Materialman’s Lien Affidavit, claiming
$18,967.47 was owed to United Rentals for rental equipment and related materials
used at the property. On May 22, 2013, United Rentals amended the lien to claim
$38,659.55 was owed.
In October 2013, United Rentals sued the original owner of the property, VR
Wood, as well as the subsequent owner, Rood, and certain other individuals for
alleged failures to pay for goods and equipment supplied to Wood for construction
of the industrial park.
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In April 2014, Rood filed a third-party complaint against B & Sons to quiet
title and to remove the cloud on the property resulting from B & Sons’ mechanic’s
and materialman’s lien. B & Sons’ registered agent for service of process is Larry
Pham, and its registered office is located at 600 Shane Street, Houston, Texas
77037. After making three unsuccessful service attempts at the registered address
and four unsuccessful service attempts at 522 Shane Street—which was believed to
be the residence of Larry Pham—Rood moved for substituted service.
The trial court granted Rood’s motion for substituted service and authorized
substituted service on B & Sons “by one of the following methods”:
1) Leaving a true copy of the Citation, along with the Petition with
anyone more than sixteen years of age at 600 Shane Street,
Houston, Texas 77037;
2) Securely attaching a copy of the Citation, along with the
Petition on the front door or on the front gate of the property at
600 Shane Street, Houston, Texas 77037;
3) By mailing a copy of the Citation along with the Petition, by
certified mail (return receipt requested) and/or by regular mail
to the registered agent’s office at 600 Shane Street, Houston,
Texas 77037; or
4) By any alternative method which the Court deems as
reasonably effective to give Third-Party Defendant B & Sons
Construction notice of the suit.
According to an affidavit of substitute service filed by Joseph Rodriguez, he served
B & Sons on October 13, 2014, at 7:30 p.m., by posting a copy of the petition and
citation to the front door of 600 Shane Street.
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B & Sons failed to timely file an answer or otherwise appear. On
November 17, 2014, Rood moved for default judgment. On December 10, 2014,
the trial court entered an interlocutory default judgment against B & Sons. By an
order entered on January 22, 2015, the trial court dismissed certain parties and
made its December 2014 default judgment against B & Sons “Final and
Appealable.”
On February 10, 2015, B & Sons moved for a new trial, arguing that the
default judgment should be set aside as B & Sons was never served with the
citation or petition and was unaware of the suit until after December 10, 2014,
when the clerk of the court mailed notice of default judgment to 600 Shane Street.
In support, B & Sons provided an affidavit from its registered agent, Larry Pham.
As explained in the affidavit, B & Sons’ “office is located at 600 Shane Street,” but
“[t]he Company does not currently have, and has not had, during the relevant time
frame, any employees working at 600 Shane Street.” Pham’s uncle and
grandmother reside at 600 Shane Street. His grandmother does not read or speak
English and his uncle works off the property from 9:00 a.m. to 11:00 p.m. Pham
further averred that 600 Shane Street is a gated property that includes a total of
three houses. Pham resides at 522 Shane Street. Pham averred that he was not
served with process nor was he notified by anyone at either 600 Shane Street or
522 Shane Street that a process server was looking for him or that any legal
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documents had been delivered or affixed to the property. Thus, Pham averred that
the failure to answer the suit was not intentional, but was the result of never
receiving notice of the suit until after the December, 10, 2014 default judgment had
been entered.
On March 11, 2015, the trial court denied B & Sons’ motion for a new trial.
B & Sons appealed.
Discussion
In its sole issue, B & Sons contends that the trial court erred in refusing to
set aside its default judgment and grant a new trial because B & Sons never
received notice of suit.
A. Standard of Review
We review a trial court’s decision to overrule a motion to set aside a default
judgment and grant a new trial for abuse of discretion. Dolgencorp of Tex., Inc. v.
Lerma, 288 S.W.3d 922, 926 (Tex. 2009) (per curiam); Interconex, Inc. v. Ugarov,
224 S.W.3d 523, 536 (Tex. App.—Houston [1st Dist.] 2007, no pet.). A trial court
abuses its discretion if it acts in an arbitrary or unreasonable manner, or if it acts
without reference to any guiding rules or principles. In re Barber, 982 S.W.2d
364, 366 (Tex. 1998); Miner Dederick Constr., LLP v. Gulf Chem. & Metallurgical
Corp., 403 S.W.3d 451, 465 (Tex. App.—Houston [1st Dist.] 2013, pet. denied)
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B. Applicable Law
The Texas Supreme Court established the standard for setting aside a default
judgment in Craddock v. Sunshine Bus Lines, Inc., 134 S.W.2d 124, 126 (Tex.
1939). Under the Craddock test, post-answer as well as no-answer default
judgments should be vacated and a new trial granted when the defaulting party
establishes that: (1) the failure to answer or to appear was not intentional, or the
result of conscious indifference, but was due to a mistake or an accident; (2) the
motion for a new trial sets up a meritorious defense; and (3) granting a new trial
will not occasion delay or work other injury to the prevailing party. In re R.R., 209
S.W.3d 112, 115 (Tex. 2006); Craddock, 134 S.W.2d at 126. To successfully
challenge a default judgment, the movant must allege, and support with sworn
proof, the three Craddock requirements. Ivy v. Carrell, 407 S.W.2d 212, 214 (Tex.
1966); Wal–Mart Stores, Inc. v. Kelley, 103 S.W.3d 642, 644 (Tex. App.—Fort
Worth 2003, no pet.); Pickell v. Guar. Nat'l Life Ins. Co., 917 S.W.2d 439, 443
(Tex. App.—Houston [14th Dist.] 1996, no writ).
However, when a defendant does not receive actual or constructive notice of
suit, due process relieves that defendant of the burden of proving the second and
third prongs of the Craddock test. See Lopez v. Lopez, 757 S.W.2d 721, 722 (Tex.
1988) (per curiam) (explaining Supreme Court decision in Peralta v. Heights Med.
Center, Inc., 485 U.S. 80, 108 S. Ct. 896 (1988), to hold that, when defaulting
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party claims no actual or constructive notice of suit or trial setting, requiring
showing of meritorious defense as a condition to granting motion for new trial
violates due process); Mahand v. Delaney, 60 S.W.3d 371, 375 (Tex. App.—
Houston [1st Dist.] 2001, no pet.) (extending Lopez in lack-of-notice cases to also
dispense with third Craddock factor requiring a showing that motion for a new trial
would not cause delay or injury). “When a default judgment is attacked by a
motion for a new trial, the critical question is: ‘Why did the defendant not
appear?’” Milestone Operating, Inc. v. Exxon Mobil Corp., 388 S.W.3d 307, 309
(Tex. 2012) (quoting Sutherland v. Spencer, 376 S.W.3d 752, 755 (Tex. 2012)).
“If the defendant did not appear because he or she never received the suit papers,
then the court should generally set aside the default judgment.” Sutherland, 376
S.W.3d at 755 (citing Fidelity & Guar. Ins. Co. v. Drewery Constr. Co., 186
S.W.3d 571, 574 (Tex. 2006) (per curiam)). “But if the defendant received the suit
papers and has some other reason for not appearing, then the default judgment
must be set aside if the defendant proves the three elements of the Craddock test.”
Id.
C. Analysis
Here, the first prong of the Craddock analysis is satisfied if B & Sons’
motion and supporting affidavit “set forth facts that, if true, would negate intent or
conscious indifference” and the excuse is not controverted. See Old Republic Ins.
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Co. v. Scott, 873 S.W.2d 381, 382 (Tex. 1994) (per curiam); Comanche Nation v.
Fox, 128 S.W.3d 745, 750 (Tex. App.—Austin 2004, no pet.) (requiring that “a
defaulting party must provide some excuse, though not necessarily a good excuse,
for failing to timely file an answer or appear”). In its motion for a new trial, B &
Sons asserted that its failure to file an answer and to appear was not intentional or
the result of conscious indifference, but instead resulted from never having
received actual notice of the suit.
To support its motion, B & Sons included an affidavit of its registered agent,
Larry Pham, who averred that he had not been personally served with process or
notified that any attempt at service of process was made at 600 Shane Street. Thus,
B & Sons has provided some excuse explaining its failure to appear. See
Sutherland, 376 S.W.3d at 755–56 (finding no conscious indifference when
defendant received proper service but failed to appear because “the citation was
left in a stack of papers on a desk and forgotten about because of limited time spent
at the office due to weather conditions over a nearly three-week period during the
Christmas holiday season”). Rood has not controverted this evidence. See
Fidelity, 186 S.W.3d at 575. Accordingly, we conclude that B & Sons met the first
prong of Craddock. See Old Republic Ins. Co. v. Scott, 873 S.W.2d 381, 382 (Tex.
1994) (per curiam) (explaining that defendant satisfies first Craddock factor if
plaintiff fails to controvert defendant’s factual assertions).
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Because B & Sons adduced uncontroverted evidence that it had no notice of
suit, the first Craddock factor is met and analysis of the second and third prong is
unnecessary. See Mahand, 60 S.W.3d at 375 (explaining that analysis of existence
of meritorious defense or possibility of undue delay or injury is unnecessary where
record establishes lack of notice). This holding is consistent with the policy that
“an adjudication on the merits is preferred in Texas.” Holt Atherton Indus. Inc. v.
Heine, 835 S.W.2d 80, 86 (Tex. 1992).
We sustain B & Sons’ sole issue.
Conclusion
The trial court’s denial of B & Sons’ motion for new trial constituted an
abuse of discretion. Accordingly, we reverse the judgment of the trial court and
remand the cause for a new trial.
Rebeca Huddle
Justice
Panel consists of Justices Higley, Huddle, and Lloyd.
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