Interconex, Inc. v. Ugarov

224 S.W.3d 523 (2007)

INTERCONEX, INC. d/b/a Interdeaninterconex, Appellant,
v.
Nick UGAROV, Appellee.

No. 01-05-00524-CV.

Court of Appeals of Texas, Houston (1st Dist.).

May 3, 2007. Rehearing Overruled June 14, 2007.

Jim L. Culpepper, Jim L. Culpepper & Associates, JoAnn Storey, JoAnn Storey, P.C., Houston, TX, for appellant.

Robert D. Green, Houston, TX, for appellee.

Panel consists of Chief Justice RADACK and Justices JENNINGS and ALCALA.

OPINION ON REHEARING

TERRY JENNINGS, Justice.

We grant appellant's motion for rehearing. See TEX.R.APP. P. 49.3. We withdraw our August 31, 2006 opinion, substitute this opinion in its place, and vacate our August 31, 2006 judgment.

Appellant, Interconex, Inc. doing business as InterdeanInterconex ("Interconex"), challenges the trial court's judgment entered, after a jury trial on the sole issue of damages, in favor of appellee, Nick Ugarov, in Ugarov's suit for breach of contract, negligence, and defamation. In five issues, Interconex contends that there is legally and factually insufficient evidence to support the required causal nexus between the events sued upon and Ugarov's damages for past and future lost earnings and that the trial court erred in denying its motion to compel arbitration, denying its motion to set aside partial default judgment, excluding Interconex's evidence contesting the causal link between its conduct and Ugarov's damages and evidence of its prior settlement with Ugarov, informing the jury that Interconex had admitted that its conduct caused Ugarov's inability to return to Russia, permitting Ugarov to read to the jury the allegations from his pleadings, denying Interconex's requested jury instruction, overruling Interconex's objections to the jury charge, and awarding Ugarov prejudgment interest.

We reverse and remand for a new trial on damages.

Factual and Procedural Background

Ugarov filed suit on December 23, 2003, alleging that in October 2002, he was relocated by his employer, ChevronTexaco ("Chevron"), from Moscow, Russia to Houston, Texas and that Chevron hired Cendant Mobility Services Corporation ("Cendant") to handle his relocation. Cendant then "contracted with [Interconex] to coordinate Ugarov's international move, including the preparation of all documents and export permits required by the Ministry of Culture of the Russian Federation." Interconex "inventoried and packed [his] family's possessions . . . prior to the Russian Customs inspection" and, during the government inspection on October 23, 2002, Russian authorities confiscated nine of his timepieces, "claiming that they were not backed by the appropriate export permits."

Ugarov further alleged that although Interconex "had full authority to make decisions regarding the necessity of permits regarding all the property," Interconex "did not take responsibility for [its] error, but instead attempted to shift the blame to Ugarov by claiming that he had concealed the timepieces from them during the packing process."

Consequently, after Ugarov arrived in the United States in late October 2002, Interconex "informed him that he should not return to Russia because of concerns over his possible arrest relating to the confiscated property" and "recommended that [he] wait at least six months before attempting to return to Russia." Ugarov contended that "[d]ue to the situation with the Russian Ministry of Culture, [he] was unable to return to Russia, specifically having to abandon an employment opportunity that presented itself in late 2002," that he "was out of work from the October 2002 move until November 2003," and that "[t]o date, he has neither worked again in Russia nor earned a salary commensurate with that earned pre-October 2002."

In his breach of contract claim, Ugarov alleged that he was the third-party beneficiary of the contract between Cendant and Interconex and that Interconex breached the contract "by failing to properly pack and inventory [his] goods and by failing to acquire the proper export permits." In his negligence claim, Ugarov alleged that Interconex had a duty to exercise ordinary care in packing and moving his property and that Interconex breached that duty. In his defamation claim, Ugarov alleged that Interconex published defamatory accusations to both Russian Customs officials and Chevron that Ugarov attempted to smuggle property out of Russia.

On January 7, 2004, Interconex received service of citation and Ugarov's petition through its registered agent, Will Tiongson, at Interconex's Houston offices, but it did not file an answer by its February 2, 2004 deadline. After Ugarov filed his motion for partial default judgment, the trial court, on March 3, 2004, entered partial default judgment "as to liability" against Interconex. In its judgment, the court found that Interconex had received service on January 7, 2004 and that Ugarov's damages were unliquidated.

The trial court set a damages hearing, but before the hearing, Interconex filed an answer on April 22, 2004. On June 4, 2004, Interconex filed a motion to set aside default judgment, attaching Tiongson's affidavit testimony that he "did not receive service of any papers, documents, citation, or process by any person" in the lawsuit, but that "if for whatever reason [he] did receive service of any such papers, [he] would have immediately turned such documents and papers over to the attorneys for Interconex for their proper handling and legal services." Ugarov responded to Interconex's motion, asserting that Interconex had failed to offer any evidence of accident or mistake or a meritorious defense and that the granting of Interconex's motion would delay the case.

On October 15, 2004, Interconex filed an amended motion to set aside default judgment, in which it asserted that it had never received service in this case. Alternatively, Interconex asserted that in the event the court found that Interconex had received service of the citation and petition, the default judgment should be set aside under Craddock v. Sunshine Bus Lines, Inc., 134 Tex. 388, 133 S.W.2d 124 (1939). Specifically, Interconex asserted that its failure to answer the lawsuit was not intentional or the result of conscious indifference, but was due to mistake or accident, that it had a meritorious defense to Ugarov's claims because none of the activities giving rise to Ugarov's claims were performed by Interconex employees, and that setting aside the default judgment would not cause delay or injury to Ugarov. In support of its amended motion, Interconex filed a second amended affidavit from Tiongson, in which Tiongson testified that he had not been served, but also testified that "the signature on the citation [did] appear to be [his] signature, but [he] still [denied] that [he] received service of citation, or the petition." He stated that "assuming that [he] signed the citation, apparently a mistake or accident occurred either by the process server, or [himself], or perhaps some other employee of either the process server's company or Interconex" and that "[w]hatever occurred to cause [him] not to receive a copy of the citation and petition . . . it was a mistake and/or accident." He also stated that "if [he] had received the citation and petition . . . [he] would have forwarded it immediately to the company's attorneys" and that "it is [his] intention to always have any lawsuit with which [he is] served delivered immediately to the company attorneys, and to have a timely answer filed." In regard to Interconex's meritorious defense, Tiongson testified that the "services which are the basis of the claims in . . . this lawsuit may have been provided by Interdean AO, a Russian company" and that "Interconex has no employees in Russia, nor does Interconex exercise any control or authority over the employees of Interdean AO."

On October 15, 2004, the trial court conducted a hearing on Interconex's motion to set aside default judgment, and, during the hearing, Tiongson testified that he did not receive the citation and petition on January 7, 2004. Although Tiongson agreed that his signature appeared on the citation, he maintained that he did not receive a copy of the citation and petition. During Ugarov's cross-examination of him, Tiongson stated that "it is the fact that I signed it, that means I saw the paper and signed it, but that was-that was it." Tiongson further agreed that somebody handed the citation to him, that he saw it and signed it, and that there was "no doubt" that it was his signature that appeared on the citation. After hearing Tiongson's testimony and the testimony of the process server, who testified that he had served Tiongson, the trial court found that Interconex had been served as set out in the return.

The trial court then instructed Interconex to "proceed with the Craddock v. Sunshine elements." Interconex again called Tiongson, who testified that as registered agent for Interconex, when served with papers, he immediately sends them to Interconex's counsel and that as far as he knows he has "always been [sic] turning over any legal documents that [he] received" to Interconex's attorney.

At the conclusion of the hearing, the trial court denied Interconex's motion and set a trial on damages for the existing trial date of October 25, 2004. Interconex then asserted that it had paid a jury fee, and the trial court, pursuant to Interconex's request, reset the case for a December 13, 2004 trial on damages. On December 1, 2004, Interconex filed an amended answer and a motion to compel arbitration and stay judicial proceedings, which the trial court denied. Interconex then filed a motion to reconsider, which, after a hearing, the trial court denied.

On December 13, 2004, the trial court conducted a jury trial on the sole issue of damages and, based on the default judgment, submitted the following single question to the jury: "What sum of money, if any, if paid now in cash, would fairly and reasonably compensate Nick Ugarov for his damages, if any, that resulted from [his] inability to return to Russia?" (emphasis added). The only elements of damages submitted to the jury were "[l]ost earnings that were sustained in the past" and "[l]ost earnings that in reasonable probability will be sustained in the future." The jury awarded Ugarov $455,000 in "past lost earnings" and $85,000 in "future lost earnings," and the trial court rendered a final judgment in favor of Ugarov based on the jury's verdict.

Legal Sufficiency

In its first issue, Interconex argues that the trial court's judgment should be reversed and that judgment should be rendered that Ugarov take nothing because there is legally insufficient evidence of the required causal nexus between the events sued upon and the damages claimed. Interconex asserts that the default judgment established only that the confiscation of Ugarov's timepieces was caused by Interconex's breach of contract, negligence, and defamatory statements, but that it did not establish the causal connection between the confiscation of the timepieces and Ugarov's inability to return to Russia or his loss of an employment opportunity. Interconex further asserts that Ugarov failed to present any evidence of the causal connection between the confiscation of the timepieces and the loss of Ugarov's employment opportunity. Interconex also argues that there is legally insufficient evidence to support the jury's award for Ugarov's past and future lost earnings because its damages findings are supported only by Ugarov's conclusory testimony that amounts to nothing more than sheer conjecture and speculation.

We will sustain a legal sufficiency or "no-evidence" challenge if the record shows one of the following: (1) a complete absence of evidence of a vital fact, (2) rules of law or evidence bar the court from giving weight to the only evidence offered to prove a vital fact, (3) the evidence offered to prove a vital fact is no more than a scintilla, or (4) the evidence establishes conclusively the opposite of the vital fact. City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex.2005). In conducting a legal sufficiency review of the evidence, a court must consider evidence in the light most favorable to the verdict and indulge every reasonable inference that would support it. Id. at 822. If the evidence allows only one inference, neither jurors nor the reviewing court may disregard it. Id. However, if the evidence at trial would enable reasonable and fair-minded people to differ in their conclusions, then jurors must be allowed to do so. Id. A reviewing court cannot substitute its judgment for that of the trier-of-fact, so long as the evidence falls within this zone of reasonable disagreement. Id.

Although a default judgment conclusively establishes a defendant's liability, i.e., the "causal nexus between the conduct of the defendant and the event sued upon," a "defaulting defendant does not admit that the event sued upon caused any of the plaintiff's alleged injuries." Morgan v. Compugraphic Corp., 675 S.W.2d 729, 732 (Tex.1984). Proving that the event sued upon actually caused the plaintiff's alleged injuries "is part and parcel of proving the amount of damages to which the plaintiff is entitled." Id.

Here, the trial court, based on its misapplication of Morgan. as we explain in more detail below in our discussion of Interconex's fourth issue, instructed the jury that it was undisputed that Ugarov was unable to return to Russia, lost an employment opportunity, and did not earn as much as he otherwise would have earned. Interconex argues that because Ugarov "was under the mistaken impression that he only had to show the damages he lost as a result of his inability to return to Russia for employment, there understandably is no evidence that any of [Interconex's] conduct caused [Ugarov's] inability to return to Russia."

However, the record reveals that Ugarov, in his testimony, detailed his prior work history, including his significant earnings history, and explained that his ability to speak English and Russian made him a valuable employee in certain markets. Ugarov explained that in the fall of 2002, he was offered a job as a project manager for the "Reforma Project," which involved managing the development of a new planned community in Russia "from the beginning through the life of the project." Ugarov noted that Reforma was a new development aiming to bring Canadian technology for prefabricated housing to Russia and to build a planned community of single family dwellings in Russia. Reforma made him an offer of "$300,000 [per year] after taxes and five percent bonus or commission," "the anticipated life of the project was from three to five years," and Ugarov was supposed to start the job on January 1, 2003. Ugarov had agreed to accept the job, and he and a principal of Reforma had agreed to terms, including the salary that he would receive.

Ugarov further explained that he could not return to Russia and that he did not start the job as scheduled because "I was told that . . . I could be arrested if I would show in the country ... any time soon. . . . [T]hey told me with time eventually it may be removed from your record, but . . . they said at least for six months, don't go because you can be arrested." Ugarov tried to resolve the situation by talking with representatives of Chevron and Interconex, and he asked Reforma to hold the position for him. Reforma agreed to hold his job open until April or March 2003, but Ugarov finally lost the job because Reforma could not wait any longer. Consequently, Ugarov began looking, "using all means that were available," for another job that was not in Russia, and he found a job with an oil company in Kiev, Ukraine. He began work for this company in November 2003, worked for approximately one and one-half of one month in 2003, and earned "around $15,000" as compared to the $300,000 he would have earned with Reforma. Ugarov stated that, in 2003, he lost $285,000 in earnings as a result of losing the Reforma job. In 2004, Ugarov earned $130,000 from his job in the Ukraine as compared to the $300,000 he would have earned with Reforma, and lost $170,000 in earnings as a result of losing the Reforma job. In 2005, Ugarov would have earned $130,000 from his job in the Ukraine as compared to the $300,000 he would have earned with Reforma, and he would lose another $170,000 in earnings in 2005 as a result of losing the Reforma job.^[1]

During cross-examination, Ugarov reiterated that he could not return to Russia for a period of approximately six months once the criminal case had been opened against him. Interconex told him that it had "official word" from Russian Customs that a criminal case had been opened against him and that he should wait to return to Russia until the "dust settled." Ugarov had consulted with two attorneys and concluded that he could not risk returning to Russia to take the Reforma job. On redirect examination, Ugarov confirmed that Reforma was still in business as of the date of trial and was still doing what he had originally been hired to do. Ugarov also stated that the real estate market in Russia was booming from the date he had been offered the job up until the time of trial, Reforma had a business plan "based on the projected number of units" it intended to sell, and Reforma had made accommodations to operate for at least one year without profit. Ugarov also introduced into evidence a copy of two emails from Dmitri Gudkov, who Ugarov contended was a representative from Interconex or one of its affiliates, stating that Interconex had been informed by a Russian Customs employee that a "legal case" had been opened against Ugarov.

Thus, even though the trial court misapplied Morgan, as we explain below, Ugarov presented evidence supporting his claims that, as a result of Interconex's breach of contract, negligence, and defamation, a criminal case was opened against him in Russia, causing him to be unable to return to Russia and to lose his job at Reforma. Ugarov testified that he had accepted a specific position with Reforma, he and Reforma agreed to certain terms of employment, including salary and duration, he lost this job as a result of his inability to return to Russia, and Reforma remained in business and continued to perform the job for which he had been selected. Ugarov further testified that he had sought alternative employment, but it offered significantly lower compensation than Reforma. Moreover, Ugarov provided testimony concerning the specific salary he would have received at Reforma compared to the salary he received with his job in the Ukraine.

In sum, Ugarov's testimony, consisting of statements of affirmative facts, was not "conclusory."^[2] Although we agree with Interconex that the default judgment did not establish the causal connection between its conduct and Ugarov's inability to return to Russia or his loss of an employment opportunity, Ugarov did present evidence on these issues. Accordingly, we hold that Ugarov presented legally sufficient evidence to support the jury's damages findings.

Interconex also contends in a sub-issue that Ugarov failed to comply with section 18.091 of the Texas Civil Practice and Remedies Code, which provides,

If any claimant seeks recovery for loss of earnings, loss of earning capacity, loss of contributions of a pecuniary value, or loss of inheritance, evidence to prove the loss must be presented in the form of a net loss after reduction for income tax payments or unpaid tax liability pursuant to any federal income tax law. TEX. CIV. PRAC. & REM.CODE ANN. § 18.091 (Vernon Supp.2006). Interconex asserts that Ugarov's testimony that "I would still have to pay taxes in the United States no matter where I earn the money," establishes that Ugarov's testimony concerning his "lost earnings" failed to comply with section 18.091. It argues that because Ugarov failed to meet his burden of proving net loss, we should reverse and render a take nothing judgment in favor of Interconex. Ugarov asserts that he substantially complied with section 18.091 and, alternatively, that section 18.091 is unconstitutional.

However, we need not address these arguments. Interconex did not object to the trial court's jury instruction not to consider taxes in regard to answering the questions that would be submitted in the charge, and it did not specifically object to the damages question on the ground that it failed to comply with section 18.091. See TEX.R. CIV. P. 272, 274. Accordingly, Interconex has waived this sub-issue for our review. See TEX.R.APP. P. 33.1.

We overrule Interconex's first issue.

Arbitration

In its second issue, Interconex argues that the trial court abused its discretion in denying its motion to compel arbitration because there is no evidence that it intentionally waived its right to arbitration or that Ugarov was prejudiced by any delay in Interconex's request for arbitration. Ugarov asserts that the parties never agreed to arbitrate, that Interconex is not a party to the arbitration agreement, that the "Arbitration Court in Moscow" referred to in the arbitration agreement does not conduct arbitration, and that Interconex waived its right to arbitration.

"A party seeking to compel arbitration has the initial burden to establish the arbitration agreement's existence and to show that the claims asserted against it fall within the arbitration agreement's scope." Williams Indus., Inc. v. Earth Dev. Sys. Corp., 110 S.W.3d 131, 134 (Tex. App.-Houston [1st Dist.] 2003, no pet.) (citing Mohamed v. Auto Nation USA Corp., 89 S.W.3d 830, 835 (Tex.App.-Houston [1st Dist.] 2002, no pet.)). If the party seeking to compel arbitration carries its initial burden, the party resisting arbitration must then present evidence on any defenses to the arbitration agreement. Id.

Waiver is the intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right. Jernigan v. Langley, 111 S.W.3d 153, 156 (Tex.2003); In re Citigroup Global Mkts, Inc., 202 S.W.3d 477, 481 (Tex. App.-Dallas 2006, combined appeal and original proceeding [mand. pending]). As with any contractual right, a party may waive its right to arbitration. Williams Indus., 110 S.W.3d at 135. However, because public policy favors arbitration, there is a strong presumption against finding a waiver of the right to arbitration, and any doubts regarding waiver are resolved in favor of arbitration. In re Bruce Terminix Co., 988 S.W.2d 702, 704, 705 (Tex. 1998). Whether waiver occurs "depends on the individual facts and circumstances of each case." Williams Indus., 110 S.W.3d at 135. Waiver may be express or implied. Id.; In re Citigroup Global Mkts., Inc., 202 S.W.3d at 481. A party may waive its right to arbitration "by expressly indicating that it wishes to resolve the case in a judicial forum." In re Citigroup Global Mkts., Inc., 202 S.W.3d at 481. Alternatively, a party may waive its right to arbitrate "by taking an action inconsistent with that right to the opposing party's prejudice." Id. at 481-82. Thus, waiver will be found only when (1) the party seeking arbitration has substantially invoked the judicial process and (2) the party opposing arbitration suffers actual prejudice as a result. Williams Indus., 110 S.W.3d at 135.

An attempt to resolve the merits and still retain the right to arbitration is clearly impermissible. In re Citigroup Global Mkts., Inc., 202 S.W.3d at 482. Substantially invoking the judicial process has also been described as "taking specific and deliberate actions, after the suit's filing, that are inconsistent with the right to arbitrate." Williams Indus., 110 S.W.3d at 135 (citing Sedillo v. Campbell, 5 S.W.3d 824, 827 (Tex.App.-Houston [14th Dist.] 1999, no pet.)). Examples include moving for summary judgment or seeking a final resolution of the dispute. Williams Indus., 110 S.W.3d at 135. A party may establish prejudice by showing that the movant acquired access to information in the court proceedings that is not discoverable in arbitration. In re Bruce Terminix Co., 988 S.W.2d at 704; Williams Indus., 110 S.W.3d at 135. A party may also establish prejudice by showing that it incurred costs and fees due to the movant's actions or delay. Williams Indus., 110 S.W.3d at 135; Pennzoil Co. v. Arnold Oil Co., 30 S.W.3d 494, 499-500 (Tex.App.-San Antonio 2000, no pet.). Typically, a party must present evidence of prejudice, and may not rely on general allegations of harm. See In re Oakwood Mobile Homes, Inc., 987 S.W.2d 571, 573 (Tex.1999); Pennzoil Co., 30 S.W.3d at 499.

Here, the trial court did not directly address whether a valid arbitration agreement existed, and instead limited its findings to whether, if such an agreement existed, Interconex waived its right to compel arbitration. We review the trial court's finding of waiver de novo. Tex. Residential Mortgage, L.P. v. Portman, 152 S.W.3d 861, 863 (Tex.App.-Dallas 2005, no pet.); The Courage Co. v. The Chemshare Corp., 93 S.W.3d 323, 337 (Tex.App.-Houston [14th Dist.] 2002, no pet.).^[3]

In regard to whether Interconex impliedly waived its right to arbitration, i.e., whether it acted inconsistent with its right to arbitration, we note that Interconex was served through its registered agent on January 7, 2004 and that the trial court entered a partial default judgment "as to liability" against Interconex on March 3, 2004. Although Interconex filed a motion to set aside default judgment on June 2, 2004, it did not set a hearing or file its amended motion to set aside default judgment, which included more extensive allegations, until October 15, 2004. At the conclusion of the October 15, 2004 hearing, the trial court denied Interconex's motion and initially stated that it would set the damages trial for the existing trial date, October 25, 2004. Interconex then asserted that it had paid a jury fee and was entitled to a jury trial on damages. The court, pursuant to Interconex's request, then reset the damages trial for December 13, 2004.

Interconex waited until December 1, 2004, ten days prior to the damages trial, to file its motion to compel arbitration, asserting for the first time that the case should be sent to arbitration. In its motion to compel arbitration, Interconex asserted that to handle the moving of his personal belongings, Ugarov had entered into a written contract, which contained an arbitration agreement. Interconex attached the contract containing the arbitration agreement, and asserted that Ugarov's allegations were within the subject matter of the agreement.

On December 2, 2004, Ugarov filed a response, asserting, among other things, that the arbitration agreement was no longer valid and that Interconex had delayed in asserting its right to arbitration. On December 3, 2004, the trial court signed an order denying Interconex's motion stating "that, by failing to file an answer before default judgment was granted, [Interconex] waived its right, if any, to insist on arbitration." The court also stated in its order that it made no finding "as to whether or not [Interconex] would have had such right if [Interconex] had chosen to answer the lawsuit in a timely manner."

Here, the merits of the case regarding Interconex's liability had been established when the trial court denied Interconex's motion to set aside the default judgment. At that point, Interconex asserted that it had paid a jury fee and was entitled to a jury trial on damages, and the trial court reset the case for a trial on damages. Interconex acted inconsistently with its right to arbitrate by failing to timely answer the lawsuit after it had been served through its registered agent and by failing to move for arbitration before its liability had been established. Moreover, it acted inconsistently with its right to arbitrate when it requested that the case be reset from its existing October trial date to a December 13, 2004 jury trial on the issue of damages. It did not file its motion to compel arbitration until shortly before the jury trial, which Interconex had specifically requested and caused to be set in December 2004. Accordingly, we conclude that Interconex had substantially invoked the judicial process before it moved to compel arbitration.

In regard to whether Ugarov suffered actual prejudice as a result of Interconex's invocation of the judicial process, we note that Ugarov, in his response to Interconex's motion to compel arbitration, attached an affidavit from his counsel, who testified that the parties were only four days away from a jury trial, that Ugarov had gone to the expense of flying from Kiev, Ukraine to Houston for the sole purpose of attending the jury trial on damages that had been requested and set by Interconex, that he and Ugarov had been spending time getting ready for the jury trial, and that Ugarov had been prejudiced by Interconex's utilization of the discovery process before requesting arbitration because he did not believe that the arbitration in Russia would require the advanced production of documents. In its order denying Interconex's motion to reconsider, the trial court found that Interconex's delay in seeking arbitration caused prejudice to Ugarov. Thus, Ugarov established that he had incurred costs and expended time in preparation for the jury trial on damages. Accordingly, we conclude that Ugarov demonstrated that Interconex's invocation of the judicial process caused him to suffer actual prejudice.

In support of its argument that the judgment should be set aside, Interconex cites Home Club, Inc. v. Barlow, 818 S.W.2d 192, 193 (Tex.App.-San Antonio 1991, orig. proceeding). In Barlow, the court held that a party who had contested jurisdiction and sought to set aside default judgments had taken only a defensive posture and thus had not substantially invoked the judicial process. Id. Importantly, in Barlow, the court set aside the default judgments that had originally been entered. Id. The situation presented in the instant case is distinguishable. Here, not only did Interconex fail to timely file an answer, the trial court found that Interconex had received service and denied Interconex's motion to set aside the default judgment filed pursuant to Craddock. Thus, at the time that Interconex sought to compel arbitration, the trial court had already entered, and affirmed, its default judgment that Interconex was liable for the events sued upon in Ugarov's petition. See Gen. Star Nat'l Ins. Co. v. Administratia Asigurarilor de Stat, 289 F.3d 434, 438 (6th Cir. 2002) (holding that defendant who did not assert right to arbitrate until seventeen months after receiving actual notice of lawsuit and after entry of default judgment "remained idle while [the plaintiff] incurred the costs associated with this action" waived any right to arbitrate); State ex rel. Barden and Robeson Corp. v. Hill, 208 W.Va. 163, 539 S.E.2d 106, 112 (2000) (stating that unless defendant is able to show good cause for default, it has waived its right to assert arbitration as affirmative defense and that "[u]nexcused conduct that results in the entry of a default judgment is no less of an implicit waiver of a right to arbitration than any other procedural forfeiture"). Here, it simply cannot be said, as in Barlow, that at the time Interconex filed its motion "the litigation was still in its infancy." Id. Accordingly, we hold that Interconex waived any right to arbitration that it may have had.

We overrule Interconex's second issue.

Default Judgment

In its third issue, Interconex argues that the default judgment should be set aside and that the case should be remanded because Ugarov adduced no evidence of delay or prejudice. Interconex asserts that the trial court expressly found that it had met the first and second elements of Craddock and that the only issue on appeal in regard to the default judgment "concerns the trial court's implied finding that [Ugarov] met his burden of proving undue delay or injury." Ugarov disputes that the trial court found that Interconex met the first two elements of Craddock, and challenges all three elements of Craddock on appeal.^[4]

A default judgment should be set aside when the defendant establishes that (1) the failure to answer was not intentional or the result of conscious indifference, but the result of an accident or mistake, (2) the motion for new trial sets up a meritorious defense, and (3) granting the motion will occasion no undue delay or otherwise injure the plaintiff. Craddock, 133 S.W.2d at 126. "While trial courts have some measure of discretion in the matter, as, in truth, they have in all cases governed by equitable principles, it is not an unbridled discretion to decide cases as they might deem proper, without reference to any guiding rule or principle." Id. Thus, a trial court's decision to overrule a motion to set aside a default judgment and grant a new trial is subject to review for abuse of discretion. Old Republic Ins. Co. v. Scott, 873 S.W.2d 381, 382 (Tex.1994).

As the defendant seeking to set aside the default judgment, Interconex presented Tiongson, who testified,

[Counsel]: And when you are served with papers as registered agent, what do you do with those papers?

[Tiongson]: Well, knowing that these are important, very important documents, I immediately send them over to our attorney and—I copy or give the original to the president of the company or . . . whoever it is ... that is the head of the company at that time.

. . . .

[Counsel]: And as far as you know, any papers that you have received as registered agent for Interconex, have you turned those over to the president of the company and to the attorney for the company?

. . . .

[Tiongson]: As far as I know, yes, I've always been turning over any legal documents that I received as registered agent for Interconex to our attorney and to the president of the company.

Interconex also refers to Tiongson's affidavit testimony that

I did not receive service of any papers, documents, citation, or process by any person in the . . . lawsuit, but if for whatever reason I did receive service of any such papers, I would have immediately turned such documents and papers over to to the attorneys for Interconex, Inc. for their proper handling and legal services.

The affidavit containing the above testimony was admitted into evidence at the beginning of the hearing. However, later in the hearing, Ugarov presented substantive objections to Tiongson's affidavit testimony. Specifically, Ugarov objected to Tiongson's testimony that "assuming that I signed the citation, apparently a mistake or accident occurred," that "whatever occurred to cause me not to receive a copy of the citation and petition . . . it was a mistake and/or accident," that "if I had received the citation and petition ... I would have forwarded it immediately to the company's attorneys," and that it is his intention "to always have any lawsuit with which I am served delivered immediately to the company attorneys, and to have a timely answer filed." The trial court sustained Ugarov's objections to this testimony.^[5]

Interconex did not offer any additional evidence related to the issues of accident or mistake, and Interconex does not challenge the trial court's rulings on those objections on appeal. Furthermore, neither the president of Interconex nor counsel for Interconex testified as to whether they had received the papers in this lawsuit from Tiongson and whether they had, by accident or mistake, failed to file an answer to the lawsuit.

The Texas Supreme Court has recently stated that to establish accident or mistake a party does not necessarily have to present an affidavit from the person who lost the papers describing how the papers were lost because, logically, "[p]eople often do not know where or how they lost something—that is precisely why it remains ``lost.'" Fidelity & Guar. Ins. Co. v. Drewery Constr. Co., 186 S.W.3d 571, 575 (Tex.2006). Furthermore, the court has "often set aside default judgments when papers were misplaced, though no one knew precisely how." Id. (citing Old Republic Ins. Co., 873 S.W.2d at 382; Estate of Pollack v. McMurrey, 858 S.W.2d 388, 391 (Tex.1993); Hanks v. Rosser, 378 S.W.2d 31, 32, 36 (Tex.1964)). Finally, while "[a]n excuse need not be a good one to suffice," "a conclusory statement that documents were ``lost' must generally be supported by some explanation from the person most likely to have seen them, or of the efforts made to find them." Id. at 575-76.

For example, in Fidelity & Guaranty Insurance Company, the defaulting defendant provided affidavit testimony that its registered agent received the citation and petition, and that computer records indicated that, contrary to the ordinary course of business, the registered agent did not forward an electronic scan of the documents to the defendant's affiliate. 186 S.W.3d at 575. The affiliate's agent also averred that she never received the documents. Id. The supreme court rejected the contention that the defendant's affidavits were general or conclusory, instead finding that they "detail[ed] the procedures for handling service papers in general and what is known about [the plaintiff's] papers in particular" and that "[i]n the case of electronic records, they explain[ed] precisely where the breakdown occurred...." Id.

Similarly, in Old Republic, the defaulting defendant presented affidavit testimony from a claims handler assigned to investigate a lost citation, who testified that the defendant had transferred claim files to another facility around the time that the citation was served and that to the best of her knowledge, the citation "was inadvertently included among the transferred files and misplaced." 873 S.W.2d at 382. The supreme court found, based on this evidence, that Old Republic satisfied its burden to set forth facts establishing that its failure to answer was mistaken or accidental and not the result of conscious indifference. Id.; cf. Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 83 (Tex.1992) (finding affidavit that merely stated that "the failure of the corporation to file an answer herein was due to accident and mistake due to the complete lack of knowledge of any knowledge as to the facts or circumstances" involved in case provided "merely a conclusory allegation" with "no explanation of the nature of the mistake").

Here, Tiongson contended, even after he admitted that there was "no doubt" that his signature appeared on the citation, that he had not been properly served in this lawsuit. After the trial court apparently rejected Tiongson's testimony and found that he had been served, Tiongson offered testimony regarding how he generally performs the duties of a registered agent, but there was no testimony establishing whether he had actually forwarded the papers in this lawsuit to the appropriate person at Interconex or what may have happened to the papers in this lawsuit. The only evidence concerning Interconex's receipt of papers in this lawsuit was Tiongson's testimony at the hearing that, "[a]s far as [he knew]," he had "always been turning over any legal documents" to Interconex's attorney and president.

However, even if Tiongson's testimony could be considered sufficient to support a finding that Tiongson, in the ordinary course, forwarded the papers in this lawsuit to the Interconex's president and counsel, neither the president nor the counsel testified whether or not they had received the papers, whether or not such papers were lost on their way to their offices, whether or not these papers had been misplaced by representatives in their office, and, importantly, whether or not Interconex failed to file an answer to the lawsuit through a mistake or accident. See Holt Atherton Indus., 835 S.W.2d at 83 ("When a defendant relies on his agent to file an answer, he must demonstrate that both he and his agent were free of conscious indifference."). Additionally, even assuming that we could consider Tiongson's affidavit testimony that, if he had received the legal papers, he "would have forwarded [them] immediately to the company's attorneys," and that it was his intention "to always have any lawsuit . . . delivered immediately to the company attorneys, and to have a timely answer filed," this testimony simply addresses Tiongson's forwarding of papers to others at Interconex who would be responsible for filing an answer, none of whom testified. It does not address whether such papers were lost after being forwarded to these agents or employees of Interconex, or whether those agents or employees ignored the papers and did not file an answer.

Unlike the evidence presented in Fidelity & Guaranty Insurance Company, here there is no evidence concerning the papers in this lawsuit and there is no explanation of where the "the breakdown occurred." Simply put, although Interconex forcefully argued that, assuming it had been served, its failure to file an answer was not intentional or the result of conscious indifference but instead was due to accident or mistake, Interconex failed to offer any evidence on the first Craddock element. Accordingly, we hold that the trial court did not abuse its discretion in denying Interconex's motion to set aside default judgment. Having so held, we need not address whether Interconex satisfied the second and third elements of Craddock.

We overrule Interconex's third issue.

Trial on Damages

In its fourth issue, Interconex contends, among other things, that the trial court erred in excluding Interconex's evidence contesting the causal link between its conduct and Ugarov's damages, informing the jury that Interconex had admitted that its conduct caused Ugarov's inability to return to Russia, permitting Ugarov to read to the jury allegations from his pleadings, and overruling Interconex's objections to the jury charge.

Based on the default judgment, the trial court read the following paragraph to the jury at the commencement of voir dire in the damages trial:

Plaintiff was employed by Chevron-Texaco and was relocated in October 2002 from Moscow, Russia to Houston, Texas. Defendant failed to obtain export permits for nine watches belonging to Plaintiff and as a result, the watches were confiscated by Russian authorities. After Plaintiff returned to the United States, Defendant informed the Plaintiff that he should not return to Russia for at least six months because of concerns regarding Plaintiff's possible arrest relating to the confiscated property. Plaintiff lost an employment opportunity because of this problem and did not earn as much as he otherwise would have earned after October 2002. The jury will be asked to decide only questions about the amount of damages. The Defendant has already admitted liability for the acts alleged in Plaintiff's petition.

(emphasis added).

The trial court also permitted Ugarov to read to the jury the following statement as "undisputed fact" during the presentation of his evidence in the damages trial:

In October 2002, Ugarov was relocated by his former employer, [Chevron], from Moscow, Russia to Houston, Texas. . . . [Chevron] hired [Cendant] to handle Ugarov's relocation. [Cendant] subsequently contracted with [Interconex] to coordinate Ugarov's international move, including the preparation of all documents and export permits required by the Ministry of Culture of the Russian Federation. [Interconex] held a power of attorney executed by Ugarov relating to all aspects of moving his property. [Interconex] inventoried and packed Ugarov's family possessions at his Moscow apartment for a two-day period prior to the Russian customs inspection.

During the government inspection which occurred on or about October 23, 2002, Russian authorities confiscated nine timepieces claiming that they were not backed by the appropriate export permits. Nonetheless, when the nine unpermitted watches were discovered by Russian Customs officials at the inspection in October 2002, [Interconex] representatives did not take responsibility for their error but instead attempted to shift the blame to Ugarov by claiming that he had concealed the timepieces from them during the packing process. . . . [Interconex's] false accusation as to Ugarov's attempt to conceal the watches and thus smuggle them out of the country were communicated not only to Russian custom officials, but ultimately also to Ugarov's former employer, [Chevron].

After Ugarov's return to the United States in late October 2002, [Interconex] representatives informed him that he should not return to Russia because of concerns over his possible arrest relating to the confiscated property. . . . [Interconex] officials recommended that Ugarov wait at least six months before attempting to return to Russia.

Ugarov is an engineer by training whose career has evolved into business management. Prior to October 2002, he worked for 25 years coordinating business projects with various Russian and American entities.... Indeed, his Russian business experience and his contacts within his native country are essential components to Ugarov maintaining his livelihood.

Due to the situation with the Russian Ministry of Culture, Ugarov was unable to return to Russia specifically having to abandon an employment opportunity that presented itself in late 2002. Ugarov was out of work from the October 2002 move until November 2003. To date[,] he has neither worked again in Russia [n]or earned a salary commensurate with that earned pre-October 2002.

Ugarov was the third party beneficiary of the above mentioned contract between [Cendant] and [Interconex] in that the contract was made for his benefit and the contracted parties intended for him to benefit from such contract. Not only did he lose possession of the nine timepieces, but because he was under threat of arrest and therefore unable to return to Russia, he also has lost valuable employment opportunities.

(emphasis added).

At the conclusion of trial, over Interconex's objection, the trial court submitted the following question to the jury: "What sum of money, if any, if paid now in cash, would fairly and reasonably compensate Nick Ugarov for his damages, if any, that resulted from the Plaintiff's inability to return to Russia?" (emphasis added). Thus, pursuant to the trial court's rulings, the jury was instructed throughout the damages trial that Ugarov, in fact, could not return to Russia and that, in fact, he lost a job as a result of being unable to return to Russia. The jury was then asked, in the sole question in the charge, to award Ugarov damages based on the "undisputed" fact that he could not return to Russia and lost a job as a result.

The complaints raised by Interconex in its fourth issue largely relate to the issue of what facts are established by a default judgment, and both parties cite the Texas Supreme Court's decision in Morgan as controlling authority. See Morgan, 675 S.W.2d at 732. In Morgan, an employee brought suit for negligence and strict liability for injuries sustained as a result of inhaling chemical fumes emitted from a typesetting machine in her office. Id. at 730. The employee had alleged that Compugraphic's manufacturing and installing of a defective typesetting machine or, alternatively, its negligent installation of the typesetting machine resulted in the release of chemical fumes in her office, "causing her a variety of injuries." Id. at 730, 732. Compugraphic failed to file an answer, and the trial court rendered default judgment against it. Id. at 730. The supreme court, noting that "Compugraphic's default did not establish that the release of chemical fumes caused [the employee] any injuries," stated that the employee "had the burden of presenting competent evidence of a causal nexus between the release of chemical fumes and her alleged injuries." Id. at 733. The court emphasized that although the default established that the machine was leaking fumes, the employee, as proof of her injuries, presented evidence showing that she was working within inches of the machine and that she had experienced breathing and swelling problems and other physical symptoms. Id. Based on this evidence, the court concluded that the trier of fact could have properly inferred that the release of fumes "caused [the employee] to suffer injuries." Id. Thus, the default in Morgan established only that fumes were released from the machine, either through Compugraphic's negligence or through a manufacturing defect, but it did not establish that the employee was exposed to the fumes in a sufficient nature to cause her personal injuries; the employee was required to present evidence of these facts. Id. In sum, the facts established by the default in Morgan appear to have been more closely related to Compugraphic's conduct rather than any injury to the employee.

The supreme court, in affirming the default judgment, explained that, in a personal injury case, there are "two distinct aspects of causation." Id. at 731. It further explained that, "[i]n a personal injury case, the plaintiff typically alleges that the defendant's conduct caused an event—an automobile accident, a fall, or in this case, the release of chemical fumes—and that this event caused the plaintiff to suffer injuries for which compensation in damages should be paid." Id. Thus, the supreme court concluded that a plaintiff must establish two causal nexuses in order to be entitled to recovery: "(a) a causal nexus between the defendant's conduct and the event sued upon; and (b) a causal nexus between the event sued upon and the plaintiff's injuries." Id. at 731.

The first nexus, which "relates to the liability portion of [a] plaintiff's cause of action," is the nexus admitted by default. Id. at 732. As noted above, liability, as used in this context, means the "legal responsibility for the event upon which suit is based." Id. at 732. In regard to the second nexus, the court noted,

Whether the event sued upon caused any injuries to the plaintiff is another matter entirely. The causal nexus between the event sued upon and the plaintiff's injuries is strictly referable to the damages portion of the plaintiff's cause of action. Even if the defendant's liability has been established, proof of this causal nexus is necessary to ascertain the amount of damages to which the plaintiff is entitled. This is true because the plaintiff is entitled to recover damages only for those injuries caused by the event made the basis of the suit; that the defendant has defaulted does not give the plaintiff the right to recover for damages which did not arise from his cause of action.

Id. (emphasis added). The court explained that "a judgment taken by default admits all allegations of fact set out in a petition, except for the amount of damages," but also that "[p]roving that the event sued upon caused the plaintiff's alleged injuries is part and parcel of proving the amount of damages to which the plaintiff is entitled."^[6]Id. (emphasis added); see also Kirkpatrick v. Mem'l Hosp. of Garland, 862 S.W.2d 762, 772-74 (Tex.App.-Dallas 1993, writ denied).

In accord with Morgan, we agree that the default in this case established that Interconex failed to obtain the proper export permits, falsely accused Ugarov of concealing the timepieces and attempting to smuggle them out of the country, and communicated these false accusations to Russian Customs officials and Ugarov's former employer. These facts relate to the liability portion of Ugarov's suit.

However, the default judgment did not establish that Ugarov was unable to return to Russia or, more significantly, that Ugarov lost a specific job for which he had been hired, which are facts related to the second causal nexus recognized in Morgan. 675 S.W.2d at 732-33. Even though the default in Morgan established that a negligently installed or defective machine released chemical fumes in the employee's office, the employee still had to offer evidence as to her proximity to the release of the fumes and that she actually sustained personal injuries as a result of the exposure. Id. at 733. There, the employee did not merely prove up her medical bills or present evidence as to the extent of her personal injuries. Id.; see also Kirkpatrick, 862 S.W.2d at 772 ("Although the default establishes liability, the plaintiff must prove the causal nexus between the event sued upon and his injuries as part of the proof to determine the amount of damages a plaintiff may recover."). Rather, she offered evidence of "a sequence of events" permitting the trier of fact to properly infer "that the release of chemical fumes from the typesetting machine caused [her] to suffer injury." Morgan, 675 S.W.2d at 733.

Similarly, in this case, although the default judgment established that Interconex failed to obtain the proper permits and defamed Ugarov to both his employer and Russian Customs officials, it did not establish, as "undisputed" facts, that Ugarov was unable to return to Russia and that he lost a specific job opportunity for which he had been hired. See Kirkpatrick, 862 S.W.2d at 773 (stating that defaulting defendant has right to be heard and participate and is entitled to present evidence by cross-examining plaintiff's witnesses or presenting own witnesses to show that event made basis of plaintiff's suit did not cause plaintiff's injuries).

Here, under the trial court's interpretation of Morgan, the sole issue at the damages hearing was determining the exact amount of Ugarov's damages by calculating the difference between the amount he would have earned at a job with Reforma with the amount he actually earned in alternative employment. Thus, the judgment was necessarily founded upon the presumption that Ugarov had lost a job for which he was entitled to be compensated, not on evidence of a nexus between the events sued upon and Ugarov's damages.

Accordingly, we hold that the trial court erred in instructing the venire at the beginning of trial that it was undisputed that Ugarov was unable to return to Russia, lost a job opportunity, and did not earn as much as he otherwise would have earned. The trial court also erred in permitting Ugarov to present to the jury, as undisputed facts, that he was not able to return to Russia and that he lost a job opportunity. The trial court further erred in overruling Interconex's objections to the charge and submitting a jury question stating, as undisputed fact, that Ugarov was "unable to return to Russia."

We also hold that the trial court abused its discretion in making impermissible comments on the weight of the evidence in instructing the jury that the default judgment established that Ugarov could not return to Russia and lost a valuable job opportunity and in submitting in the jury question, as undisputed fact, that Ugarov was unable to return to Russia. See H.E. Butt Grocery Co. v. Bilotto, 985 S.W.2d 22, 24 (Tex.1998) (stating that trial court makes a "direct comment on the weight of the evidence" if it submits issue "suggest[ing] to the jury the trial court's opinion on the matter"); In re D.R., 177 S.W.3d 574, 581 (Tex.App.-Houston [1st Dist.] 2005, pet. denied) (stating that trial court's broad discretion in submitting jury questions is subject to requirement that questions submitted fairly place disputed issues before jury); First Nat'l Bank of Amarillo v. Jarnigan, 794 S.W.2d 54, 62 (Tex.App.-Amarillo 1990, writ denied) (stating that "[a]n impermissible comment on the weight of the evidence occurs, when after examining the entire charge, it is determined that the judge assumed the truth of a material controverted fact, or exaggerat[ed], minimiz[ed], or with[drew] some pertinent evidence from the jury's consideration"); see also TEX.R. CIV. P. 277.

Moreover, because, in making these comments to the jury, the trial court instructed the jury on the resolution of material, disputed issues of fact, we further hold that the improper comments and jury question probably caused rendition of improper judgment. TEX.R.APP. P. 44.1(a)(1); see also In re D.R., 177 S.W.3d at 581, 584 (stating that error in jury charge is only reversible if it probably caused the rendition of an improper judgment or probably prevented appellant from properly presenting case on appeal).

We sustain Interconex's fourth issue in regard to its complaints that the trial court erred in excluding its evidence contesting the causal link between its conduct and Ugarov's damages, in informing the jury that Interconex had admitted that its conduct caused Ugarov's inability to return to Russia and loss of a job opportunity, and in overruling Interconex's objections to the trial court's sole question to the jury.^[7]

Conclusion

We reverse the judgment of the trial court and remand the case for a new trial on damages and further proceedings consistent with this opinion.

NOTES

[1] The jury trial was held in December 2004. Thus, the parties submitted Ugarov's earnings in 2003 and 2004 as "past lost earnings" and Ugarov's earnings in 2005 as "future lost earnings." Ugarov contends that, even though the initial term of the Reforma job was three to five years, in order to be conservative, he only sought damages for the first three years of the job and did not seek any possible bonus he might have earned.

[2] "Conclusory" is defined as "[e]xpressing a factual inference without stating the underlying facts on which the inference is based." BLACK'S LAW DICTIONARY 284 (7th ed.1999).

[3] Although, like the trial court, we do not directly address whether a valid agreement to arbitrate existed, we note that Interconex does not appear to be a signatory to the agreement containing the arbitration provision.

[4] As noted above, after finding that Interconex had been properly served, the trial court instructed Interconex to proceed with proving the Craddock elements. Initially, after Interconex presented its evidence on the Craddock elements, the trial court found that Interconex had met the first two Craddock elements, but was "still thinking" about the third element. However, the trial court then expressly permitted Ugarov to address the first Craddock element. After hearing additional argument from the parties concerning whether Interconex's evidence satisfied all of the Craddock elements, including extensive argument concerning the first Craddock element, the trial court denied Interconex's motion to set aside default judgment.

[5] Interconex seeks to avoid the effect of the trial court's orders sustaining Ugarov's objections to Tiongson's affidavit testimony by noting that the affidavit introduced into evidence at the beginning of the hearing, which was labeled an "amended affidavit," and the affidavit that was actually considered by the parties and the court during the hearing, which was labeled a "second amended affidavit," are different affidavits and, thus, Ugarov's objections applied only to the second amended affidavit discussed during the hearing. We note that both the amended affidavit, which does not appear to be attached to any document in the clerk's record, and the second amended affidavit, which was attached to Interconex's amended motion for default judgment filed on October 15, 2004, the day of the hearing, were both executed on October 15, 2004 and that the testimony in both affidavits, at least as related to the present issue, is substantively similar, except that the second amended affidavit provides some additional detail.

[6] The supreme court also cited Texas Rule of Civil Procedure 243, which provides that "[i]f the cause of action is unliquidated or be not proved by an instrument in writing, the court shall hear evidence as to damages and shall render judgment therefor, unless the defendant shall demand and be entitled to a trial by jury in which case the judgment by default shall be noted, a writ of inquiry awarded, and the cause entered on the jury docket." TEX.R. CIV. P. 243.

[7] In light of these holdings, we need not address Interconex's complaints in its first and fourth issues regarding factual sufficiency, the admission of evidence regarding Ugarov's purported settlement agreement with Interconex, and the trial court's failure to provide the jury instruction proffered by Interconex. See TEX.R.APP. P. 47.1. We also need not address Interconex's fifth issue regarding prejudgment interest. Id.