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reversing order of sanctions that awarded attorney’s fees because "the ordering of attorney’s fees as a sanction …. under these circumstances offended [cross-appellant’s] due process rights and amounted to an abuse of discretion"
Summary of this case from B.B. v. A.C.B.Opinion
NUMBER 13-14-00516-CV
03-10-2016
PATRICK HLAVATY AND JEFF STRNADEL, Appellants, v. COMMERCIAL STATE BANK OF EL CAMPO, TEXAS, INC., Appellee.
On appeal from the 329th District Court of Wharton County, Texas.
MEMORANDUM OPINION
Before Justices Garza, Benavides, and Longoria
Memorandum Opinion by Justice Benavides
By one issue, appellants/cross-appellees Patrick Hlavaty and Jeff Strnadel assert that the trial court erred by dismissing this case for want of jurisdiction and vacating all of its prior orders entered after September 1, 2010. By cross-appeal and by one issue, appellee/cross-appellant Commercial State Bank of El Campo, Texas, Inc. ("Commercial State Bank") asserts that the trial court acted without jurisdiction, or in the alternative, abused its discretion, when it issued an order of sanctions in Hlavaty and Strnadel's favor. We reverse and remand.
I. BACKGROUND
On October 23, 2009, Commercial State Bank filed suit against Hlavaty, Strnadel and seven others asserting various causes of action, including: theft, fraud, breach of fiduciary duty, and negligence. Under its cause of action for breach of fiduciary duties, Commercial State Bank asserted that any proceeds that Hlavaty should retain from his conduct alleged in the lawsuit, should be placed in a constructive trust and that the trial court should make a determination "of how the proceeds so received were retained by him." After filing their respective answers, on March 29, 2010, Hlavaty and Strnadel each filed what is titled a "counterclaim" stating that:
The complete list of defendants is: Hlavaty, Strnadel, Michael Shawthakumar Paul, The Lending Center, Inc., Larry Durwood Tew, Waldron Development Company, Inc., Mark Steven Waldron, Blake Waldron, and Marshall Waldron.
[Hlavaty/Strnadel] would show that [Commercial State Bank's] pleadings herein seek, inter alia, a declaration that some unspecified property of [Hlavaty/Strnadel] is held in constructive trust for [Commercial State Bank]. Pursuant to [Texas Civil Practice & Remedies Code] § 37.009, [Hlavaty/Strnadel] is entitled not only to recover costs of court but also such reasonable and necessary attorneys' fees as are equitable and just.Additionally, both Hlavaty and Strnadel also requested sanctions under rule 13 of the Texas Rules of Civil Procedure. On May 14, 2010, Commercial State Bank filed an amended petition that removed the allegation concerning the constructive trust.
On June 24, 2010, the trial court signed an order of nonsuit without prejudice as to Commercial State Bank's claims against Hlavaty and Strnadel. On July 20, 2010, Commercial State Bank nonsuited four more defendants; the trial court signed the order of nonsuit on July 28, 2010. On September 1, 2010, Commercial State Bank filed a notice of nonsuit without prejudice as to the remaining two defendants, The Lending Center, Inc. and Larry Durwood Tew. The September 1, 2010 notice of nonsuit recited the following: "This Notice of Non-Suit disposes of all remaining Defendants in this litigation and this case should be dismissed. All costs in this matter have been paid."
On November 15, 2013, the trial court signed an "Agreed Order of Nonsuit" as against The Lending Center, Inc. and Larry Durwood Tew.
From September 3, 2010 until April 8, 2014, both parties filed various pleadings with the trial court. Commercial State Bank filed, for example: (1) a motion to void Hlavaty and Strnadel's counterclaims; (2) a motion to invalidate Hlavaty and Strnadel's counterclaims; (3) two motions for summary judgment on Hlavaty and Strnadel's purported declaratory action; and (4) motion to modify an order nunc pro tunc. Hlavaty and Strnadel filed, for example: (1) amended counterclaims; (2) a motion to compel and motion for sanctions regarding discovery; and (3) a motion to enter an order nunc pro tunc.
On April 8, 2014, Commercial State Bank filed a motion to dismiss and vacate orders on grounds that the trial court lacked jurisdiction over this case. Hlavaty and Strnadel responded that the trial court retained jurisdiction by virtue of each of their motions for Rule 13 sanctions.
On June 3, 2014, the trial court issued the following relevant findings and orders:
(1) Hlavaty and Strnadel's respective March 29, 2010 pleadings were "not counterclaims seeking affirmative relief independent of [Commercial State Bank's] claims . . . which survived the non-suit, with the exception of the claim for Rule 13 sanctions, which did survive the non-suit";
(2) on "September 1, 2010, the trial court had a ministerial duty to timely sign orders of non-suit as to all of plaintiff's claims against all of the defendants in the case, and that it had no reason to delay signing orders of non-suit";
(3) "the trial court timely signed orders of non-suit as to defendants [Hlavaty and Strnadel] on June 24, 2010 and as to defendants Mark Waldron, Marshal [Waldron], Blake Waldron, Waldron Development and Michael Paul on July 28, 2010, but did not sign an order of non-suit as to . . . The Lending Center and Larry Tew until November 15, 2013";
(4) Hlavaty and Strnadel "pursued discovery in the case, and the trial court declined to rule on several motions . . . to void the alleged 'counterclaims' of Hlavaty and Strnadel and to dismiss the case, including a motion for summary judgment by [Commercial State Bank] seeking dismissal on the same grounds";
(5) Hlavaty and Strnadel "filed amended counterclaims seeking new types of relief against [Commercial State Bank], alleging fraud and other causes of action . . . more than six months after the ministerial duty of the trial court to sign orders dismissing the entire case arose";
(6) "[the] notice of non-suit as to Hlavaty and Strnadel did not prevent them from pursuing sanctions from the trial court under Rule 13" as a claim for Rule 13 sanctions is "a claim for procedural relief for sanctions under Rule 13 which the aggrieved party must be allowed to pursue in spite of the non-suit because a rule permitting non-suit to cut off Rule 13 sanctions would defeat the purpose of Rule 13";
(7) "Rule 13 and Rule 162 . . . place upon a party an obligation to pursue such sanctions with reasonable diligence and within a reasonable time after the date of a non-suit or other dismissal of the pleadings complained of";
(8) Hlavaty and Strnadel instead pursued discovery regarding their alleged counterclaims and new causes of action asserted in their March 15 and March 29, 2011 pleadings;
(9) the trial court's signing the September 1, 2010 notice of nonsuit against Lending Center and Larry Tew on November 15, 2013, "triggered the expiration of [the trial court's] plenary jurisdiction on December 15, 2013, thirty days later";
(10) "all orders entered in this cause after September 1, 2010, other than the order of non-suit on November 15, 2013, are a nullity, and to the extent this court has the authority to do so, they are hereby VACATED";
(11) Hlavaty and Strnadel's respective filings on March 15 and 29, 2011 "are a nullity, and to the extent this court has the authority to do so, they are hereby STRICKEN"; and
(12) "all claims and causes of action against all parties in this case have been fully and finally disposed of by its orders of non-suit entered on June 24, 2010, July 28, 2010, and November 15, 2013. No remaining case or controversy exists, and this matter has been completely DISMISSED."
On June 6, 2014, counsel for Hlavaty and Strnadel wrote a letter to the trial court stating that although the trial court had concluded that it was without jurisdiction in this case, it nevertheless had "authority to sanction [Commercial State Bank]" and requested that the trial court award sanctions under "its inherent power to sanction any party" in the amounts of $12,113.50 for Hlavaty and $6,151.00 for Strnadel for attorney's fees. On June 11, 2014, the trial court ordered as a sanction $12,113.50 to Hlavaty and $6,151.00 to Strnadel in attorney's fees.
On July 31, 2014, Commercial State Bank filed a motion to vacate the trial court's order for sanctions in Hlavaty and Strnadel's favor alleging that the trial court "lost its plenary jurisdiction on December 15, 2013" and "had no authority to award sanctions against [Commercial State Bank] on June 11, 2014" and the June 11, 2014 order was also invalid because the trial court had "ruled that it did not have jurisdiction to enter any of the orders that could possibly serve as a basis for the [trial court's] finding that [Commercial State Bank] failed to abide by such orders." On August 28, 2014, Hlavaty and Strnadel filed a motion to set aside or for new trial regarding the trial court's June 3, 2014 final order. On August 29, 2014, the trial court denied Commercial State Bank's motion to vacate as well as Hlavaty and Strnadel's motion to set aside its June 3, 2014 final order. This appeal and cross-appeal ensued.
II. JURISDICTION
By their sole issue, Hlavaty and Strnadel assert that the trial court erred by dismissing this case on June 3, 2014.
A. Standard of Review
Whether a trial court has subject-matter jurisdiction is a question of law subject to de novo review. Tex. Nat. Res. Conserv. Comm'n v. IT-Davy, 74 S.W.3d 849, 855 (Tex. 2002).
B. Discussion
The trial court's June 3, 2014 order concluded that the trial court's signing the order of nonsuit as to Commercial State Bank's claims against Lending Center and Larry Tew on November 15, 2013 "triggered the expiration of [the trial court's] plenary jurisdiction on December 15, 2013, thirty days later" and that "all orders entered in this cause after September 1, 2010, other than the order of non-suit on November 15, 2013, are a nullity, and to the extent this court has the authority to do so, they are hereby VACATED." Furthermore, the trial court concluded that "all claims and causes of action against all parties in this case have been fully and finally disposed of by its orders of non-suit entered on June 24, 2010, July 28, 2010, and November 15, 2013" and "[n]o remaining case or controversy exists, and this matter has been completely DISMISSED." Thus, the first relevant question to answer regarding these conclusions is whether the June 24, 2010, July 28, 2010, and November 15, 2013 orders of nonsuit collectively created a final judgment. We hold that they did not.
When there has been no traditional trial on the merits, as here, no presumption arises regarding the finality of a judgment. Crites v. Collins, 284 S.W.3d 839, 840 (Tex. 2009) (per curiam) (citing Lehmann v. Har-Con Corp., 39 S.W.3d 191, 200 (Tex. 2001)). To determine whether an order is final, courts and parties must examine the express language of the order and whether the order actually disposes of all claims against all parties. Id. A judgment dismissing all of a plaintiff's claims against defendants, such as an order of nonsuit, does not necessarily dispose of any cross-actions, such as a motion for sanctions, unless specifically stated within the order. Id. If other claims remain in the case, an order determining the last claim is final. Id. at 841. A plaintiff has an absolute right to nonsuit a claim before resting its case-in-chief, but a nonsuit shall not prejudice the right of an adverse party to be heard on a pending claim for affirmative relief, TEX. R. CIV. P. 162, such as a motion for sanctions, because to hold otherwise would defeat the purpose of sanctions. CTL/Thompson Tex., LLC v. Starwood Homeowner's Ass'n, Inc., 390 S.W.3d 299, 300 (Tex. 2013).
We turn now to the specific language of the orders of nonsuit in this case. First, the trial court's June 24, 2010 order of nonsuit as to Commercial State Bank's claims against Hlavaty and Strnadel specifically addresses Commercial State Bank's claims, but does not mention Hlavaty and Strnadel's pending motions for Rule 13 sanctions filed on March 29, 2010. Second, the July 28, 2010 order of nonsuit as to Mark Waldron, Marshall Waldron, Blake Waldron, Waldron Development, and Michael Paul likewise dismisses Commercial State Bank's claims against them, but does not expressly mention Hlavaty and Strnadel's pending motions for sanctions. Finally, the November 15, 2013 order dismisses all claims brought by Commercial State Bank against The Lending Center, Inc. and Larry Tew, but does not mention or dispose of Hlavaty and Strnadel's pending motions for sanctions. As a result, we hold that a final judgment was not in place at the time of the trial court's June 3, 2014 order stating otherwise. To the contrary, the trial court retained jurisdiction over the case with regard to Hlavaty and Strnadel's pending motions for Rule 13 sanctions. See Unifund CCR Partners v. Villa, 299 S.W.3d 92, 95 ("The expiration date for a trial court's plenary power is calculated from the date the court enters a final order disposing of all the claims and parties."). We sustain Hlavaty and Strnadel's sole issue on appeal.
We note that this November 15, 2013 order is an agreed order signed by counsel for Commercial State Bank, The Lending Center, Inc. and Tew. However the record shows that Hlavaty's counsel sent a letter to the trial court on September 2, 2010 complaining of a "problem with the form" of the proposed order of nonsuit submitted by the parties regarding the September 3, 2010 notice of nonsuit "for reasons [Hlavaty's counsel was] not comfortable stating" in the letter.
We are unpersuaded by Commercial State Bank's argument that consideration of a motion for sanctions must be accomplished under a "reasonable amount of time" after an order of nonsuit has been signed due to the trial court's "limited jurisdiction" provided by Rule 162. See TEX. CIV. P. 162. Nothing in Rule 162 nor in the cases cited by Commercial State Bank in its brief indicate that pending motions for sanctions that survive a nonsuit must be decided within a reasonable amount of time or risk falling outside of the trial court's plenary power to act. To the contrary, "a nonsuit does not affect the trial court's authority to act on a pending sanctions motion; it does not purport to limit the trial court's power to act on motions filed after a nonsuit." Scott & White Mem'l Hosp. v. Schexnider, 940 S.W.2d 594, 598 (Tex. 1996).
III. ORDER OF SANCTIONS
On cross-appeal, Commercial State Bank asserts in an alternative argument that the trial court abused its discretion by entering the June 11, 2014 order of sanctions.
Commercial State Bank's primary argument on this issue was contingent upon our decision regarding whether the trial court possessed subject-matter jurisdiction after the last order of nonsuit which was signed on November 15, 2013. Because we have held in this opinion that the trial court had subject-matter jurisdiction at the time the sanction order was entered, Commercial State Bank's primary argument regarding the trial court's jurisdiction to enter this sanctions order is moot, and we will address Commercial State Bank's alternative arguments instead.
A. Standard of Review
In its order, the trial court cites its "inherent authority" to sanction Commercial State Bank by awarding Hlavaty and Strnadel attorney's fees "for [Commercial State Bank's] deliberate misbehavior in the course of these proceedings" such as representation by "a succession of different attorneys of record," and "disrespect for the judicial process."
Texas courts have the inherent power to sanction for bad faith conduct during litigation. Kutch v. Del Mar College, 831 S.W.2d 506, 509 (Tex. App.—Corpus Christi 1992, no writ). The power is derived from the institutional aspects that courts possess, including the power to impose silence, respect, and decorum, and submission to their lawful mandates, the power to punish for contempts, and the power to dismiss for failure to prosecute. See id. (internal citations omitted). However, these inherent powers are not without their limits. For example, a link must exist between the inherent power to sanction and a court's administration of justice to deter, alleviate, and counteract bad faith abuse of the judicial process, such as any significant interference with the traditional core functions of Texas courts. Id. Additionally, because of its amorphous nature and potency, a court's inherent power to sanction demands sparing use, with reliance on rules and statutes expressly authorizing sanctions whenever possible. Id. Further, a litigant's due process rights shall not be infringed by the abusive exercise of this inherent power, with traditional protections of notice and hearing necessarily in place before such imposition of sanctions. Id. at 511. Under these Due Process principles, the imposition of sanctions must have a direct relationship between the offensive conduct and must not be excessive. Id. (citing TransAm. Nat. Gas v. Powell, 811 S.W.2d 913, 917 (Tex. 1991)).
Therefore, when reviewing a trial court's sanctions order pursuant to its inherent power, we review the entire record to determine whether the trial court abused its discretion. Kutch, 831 S.W.2d at 512. An assessment of sanctions will be reversed only if the trial court acted without reference to any guiding rules and principles, such that its ruling was arbitrary or unreasonable. Villa, 299 S.W.3d at 97.
B. Discussion
We begin this discussion by highlighting the lengthy procedural history of this case. Commercial State Bank initiated its lawsuit against Hlavaty, Strnadel and others on October 23, 2009. The notices of appeal and cross-appeal were filed on September 11, 2014 and September 17, 2014, respectively. As such, this case remained pending on the trial court's docket for nearly five years without a trial on the merits. This case took a detour into the procedural weeds for an extended period of time before the trial court eventually, yet erroneously, disposed of the case entirely. Our review of the record, however, does not indicate that this detour was brought about by "deliberate misbehavior" by Commercial State Bank through a "disrespect for the judicial process." To the contrary, Commercial State Bank raised the issue of the trial court's jurisdiction as early as October 6, 2010.
In a June 6, 2014 letter to the trial court, following a May 21, 2014 hearing, Hlavaty and Strnadel's attorney stated that he "respectfully disagree[d] with" the trial court's decision to dismiss for want of subject-matter jurisdiction, but requested inherent power sanctions for their attorney's fees "prior to the non-suit of [Commercial State Bank's] claims against Hlavaty and Strnadel." Hlavaty and Strnadel's attorney further requested an attorney's fees sanction award of $6,151.00 for Strnadel and $12,113.50 for Hlavaty. An examination of the May 21, 2014 hearing referenced in the letter reveals the following exchange between the trial court and Hlavaty and Strnadel's attorney:
The Court: Okay. Let me ask you a different question. Let's say that you're right and we go to trial and you get Rule 13 sanctions.
How much were your attorney's fees on June 29, 2010? I assume not a whole lot, right?
[Counsel]: Not as much as the attorney's fees are now.
The Court: Right. But on a scale of things when they nonsuited this case, how much would your claim for attorney's fees have been on that day? I'm not going to hold you to it. I'm not going to—this is not a judicial admission. I'm just wondering what range you think that might be.
[Counsel]: I would have to guess or speculate. We did make a demand at the beginning and so that—there's a figure out there that says exactly—
The Court: What your attorney's fees—
[Counsel]: —what this is.
The Court: Okay. The more important part of my question is: what legal theory would allow you to recover the attorney's fees that you've incurred since that date if the sanction is for the conduct that had occurred as of June of 2010?
[Counsel]: Great question, Judge. And the answer is that we're also entitled to recover attorney's fees expended on recovering—
The Court: Attorney's fees—
[Counsel]: —for a frivolous pleading. In addition to that, we have numerous motions for sanctions for their failure to comply with previous court orders—
The Court: That I haven't ruled upon.
. . . .
Okay. I think I have a clear understanding of the arguments by both parties. And let me say this: I don't want to take up the issue of sanctions until I rule on the issue of the motion to dismiss. But what I'd like you to do—I mean, I think you kind of already have—but I want you to articulate for me what sanctions or what things they need to produce. I want to hear what it's going to take to produce and how expensive it is, why you haven't done it, and then I think we can kind of shortcut this a little bit. But I want to get the—get to the bottom of this discovery—last discovery dispute.
After reviewing the record in its entirety, we conclude that the trial court sought information regarding Hlavaty and Strnadel's attorney's fees as it related to their pending motions for sanctions under Rule 13. However, the ordering of attorney's fees as a sanction in this situation was done without affording Commercial State Bank the requisite due process protections of notice and a proper hearing regarding these attorney's fees and ordered the sanctions pursuant to a post-hearing letter filed with trial court. See Kutch, 831 S.W.2d at 511. We hold that ordering sanctions under these circumstances offended Commercial State Bank's due process rights and amounted to an abuse of discretion. Accordingly, we sustain Commercial State Bank's sole issue on cross appeal.
IV. CONCLUSION
We reverse the trial court's (1) June 4, 2014 order dismissing this case for want of jurisdiction and (2) June 11, 2014 order of sanctions. We remand this case for further proceedings consistent with this opinion.
GINA M. BENAVIDES,
Justice Delivered and filed the 10th day of March, 2016.