Opinion
No. 05-15-00824-CV
08-05-2016
MATTHEW MALOUF, MALOUF INTERESTS, INC., AND MINERVA PARTNERS, LTD., Appellants v. ELANA SPITZBERG TRUST, JRR VENTURES, LTD., AND MDC PRIVATE RETAIL INVESTORS, LTD., Appellees
On Appeal from the 192nd Judicial District Court Dallas County, Texas
Trial Court Cause No. DC-11-14800-K
MEMORANDUM OPINION
Before Justices Lang-Miers, Fillmore, and Brown
Opinion by Justice Brown
Appellants Matthew Malouf, Malouf Interests, Inc. and Minerva Partners, Ltd. (collectively "Malouf") appeal the trial court's denial of their motion for sanctions. In four issues, Malouf generally asserts the trial court abused its discretion in failing to sanction appellees and/or their counsel for filing pleadings in violation Texas Rule of Civil Procedure 13 and Chapter 10 of the Civil Practice and Remedies Code. For the following reasons, we affirm the trial court's order.
Background
In 2011, appellees Elana Spitzberg Trust, JRR Ventures, Ltd., and MDC Private Retail Investors, Ltd. sued Malouf and the Margaux City Lights Partnership ("MCL") for claims arising out of the MCL partnership. Appellees asserted both direct claims as limited partners of MCL and derivative claims on behalf of MCL.
About ten months later, appellant Malouf Interests, Inc., the general partner of MCL, caused MCL to file a voluntary petition for protection under Chapter 11 of the bankruptcy code, automatically staying the instant suit. The bankruptcy judge subsequently approved MCL's Plan of Reorganization, which included the appointment of a Plan Agent to act on behalf of MCL in pursuing the derivative claims appellees had asserted in this case. The Plan Agent subsequently filed a motion to reopen the instant suit and a plea in intervention.
After the case was reopened, appellees filed a Second Amended Petition purporting to allege only direct claims against Malouf, including claims for breach of contract, breach of fiduciary duty, fraudulent inducement, and civil conspiracy. Meanwhile, the Plan Agent and Malouf settled MCL's derivative claims. The bankruptcy court approved that settlement and found that it covered all of the claims appellees had asserted in their Second Amended Petition except claims arising from Malouf's failure to provide tax returns and tax-related information to appellees and their fraudulent inducement claim. Appellees and the Plan Agent then nonsuited MCL's claims.
On the same date as the nonsuit, Malouf filed a no-evidence motion for summary judgment on all of appellees' claims. Shortly thereafter, on December 19, 2014, Malouf filed a motion for sanctions under Texas Rule of Civil Procedure 13, Chapter 10 of the Civil Practice and Remedies Code, and the trial court's inherent powers. In its motion, Malouf complained that, in order to allege a direct claim that was not subject to the Plan Agent's control, appellees and/or their counsel concocted the claims asserted in their Second Amended Petition. Malouf asserted appellees and/or their counsel knew the claims were groundless and filed them in bad faith to extort a settlement from Malouf.
Appellees subsequently amended their petition three more times. Malouf did not amend its motion for sanctions, but filed a brief in support of its motion specifically complaining about the later amended pleadings.
The trial court heard the motion for sanctions at the same time as it heard Malouf's motion for summary judgment. At that hearing, Malouf neither presented nor requested to present any evidence. The trial court granted Malouf's no-evidence motion for summary judgment and denied its motion for sanctions. Malouf subsequently filed a motion to reconsider, which the trial court denied. This appeal followed.
Sanctions
We review a trial court's ruling on a motion for sanctions for an abuse of discretion. Low v. Henry, 221 S.W.3d 609, 614 (Tex. 2007). A trial court abuses its discretion if its ruling is unreasonable or arbitrary or made without reference to any guiding rules or principles. See id. In reviewing the trial court's order, we ordinarily look to its formal findings of fact and conclusions of law. McCain v. NME Hosps., Inc., 856 S.W.2d 751, 756 (Tex. App.—Dallas 1993, no writ ). However, when, as here, the trial court does not make findings of fact and conclusions, the trial court's order implies all necessary fact findings to support it. Id. We must uphold the order on any applicable theory that finds support in the record. Id.
Rule 13 provides that a person who signs a pleading certifies that (1) he has read the pleading and (2) to the best of his knowledge, information and belief formed after reasonable inquiry, the pleading is not (3) groundless and brought in bad faith or brought for purposes of harassment. Tex. R. Civ. P. 13. To award sanctions under rule 13, the trial court must conduct an evidentiary hearing and the movant must present evidence at that hearing to show a pleading was groundless and brought in bad faith or for purposes of harassment. Cherry Petersen Landry Albert LLP v. Cruz, 443 S.W.3d 441, 453 (Tex. App.—Dallas 2014, pet. denied); D Design Holdings, L.P. v. MMP Corp., 339 S.W.3d 195, 204 (Tex. App.—Dallas 2011, no pet.).
Chapter 10 of the civil practice and remedies code requires a pleading's signatory to certify that, after conducting a reasonable inquiry, the legal contentions asserted in the pleadings are warranted by existing law or a good faith argument for the extension of or a change in existing law and that the factual allegations either have evidentiary support or are likely to have evidentiary support after a reasonable opportunity for further investigation and discovery. See TEX. CIV. PRAC. & REM. CODE ANN. § 10.001 (West 2002). A party may file a motion for sanctions, "describing the specific conduct violating section 10.001." See id. at § 10.002(a). If a court determines a person has signed a pleading that violates Chapter 10, it may impose a sanction on the person, a party represented by the person, or both. See id. at § 10.004(a).
A trial court may not, however, award monetary sanctions against a party represented by counsel for legal contentions made in a pleading. Id. at § 10.004(d). A sanction may include (1) a directive to the violator to perform or refrain from performing an act, (2) an order to pay a penalty to the court, and (3) an order to pay the other party the amount of the reasonable expenses incurred because of the pleading. Id. at § 10.004(c).
Application
In four issues, Malouf asserts the trial court abused its discretion in denying its motion for sanctions under rule 13, Chapter 10, and pursuant to its inherent authority. Malouf argues these issues together without identifying specific pleadings that allegedly violated the specific requirements of rule 13 or Chapter 10 or specifically differentiating between its complaints about appellees and their counsel.
It was Malouf's burden to overcome the presumption that appellees filed their pleadings in good faith. Cherry Petersen Landry Albert, 443 S.W.3d at 453. To meet that burden, Malouf was required to show the facts and circumstances that existed at the time the pleadings were filed. Id; Monroe v. Grider, 884 S.W.2d 811, 817 (Tex. App.—Dallas 1994, writ denied).
Beginning with Rule 13, Malouf was required to present evidence to support its motion at an evidentiary hearing. As noted above, Malouf did not do so. D Design Holdings, L.P. v. MMP Corp., 339 S.W.3d 195, 204 (Tex. App.—Dallas 2011, no pet.); O'Donnell v. Vargo, 05-14-00404-CV, 2015 WL 4722459, at *4 (Tex. App.—Dallas Aug. 10, 2015, no pet.) (in order for trial court to consider documents as evidence in rule 13 context, documents must be admitted into evidence in compliance with rules of evidence at evidentiary hearing). Therefore, Malouf's assertion the trial court abused its discretion in failing to award sanctions under rule 13 is without merit.
Malouf has also failed to show the trial court abused its discretion in failing to award sanctions under Chapter 10. To justify such an award, Malouf was required to, among other things, file a motion describing a specific violation of Chapter 10 and persuade the trial court as a factual matter that the complained-of pleadings were filed without a reasonable inquiry into the legal contentions and factual allegations asserted therein. Because we have no findings of fact or conclusions of law, we do not know the trial court's reason or reasons for denying Malouf's motion for sanctions.
In fact, at the hearing on the motion for sanctions, the trial judge noted the lack of "candidness and transparency" on both sides and, as a result, the trial court stated they had all lost credibility.
Nevertheless, to show the trial court abused its discretion, Malouf relies almost entirely on Nash v. Texas Children's Hosp., 446 S.W.3d 355, 372 (Tex. 2014), and Low v. Henry, 221 S.W.3d 609, 614 (Tex. 2007), and specifically the factors the supreme court held trial courts, who have made a determination to assess monetary sanctions, should consider when deciding the amount of the monetary sanction to assess. The supreme court enumerated these factors to provide trial courts with guidelines to ensure their sanctions awards are not excessive. See Low, 221 S.W.3d at 620 ("Generally, a sanction cannot be excessive nor should it be assessed without appropriate guidelines."); see also TransAmerica Natural Gas Corp. v. Powell, 811 S.W.3d 913, 917 (Tex. 1991) (because a sanctions award must fit the "crime," trial court must first consider lesser sanctions before imposing death penalty sanction); TEX. CIV. PRAC. & REM. CODE ANN. § 10.004 (sanction must be limited to what is sufficient to deter repetition of conduct or comparable conduct by others similarly situated).
In this case, however, Malouf must show the trial court abused its discretion in failing to award monetary sanctions. Instead, Malouf, at most, has shown only that the evidence would have supported a sanctions award had the trial court ruled in its favor. For example, Malouf asserts the trial court could have inferred that appellees filed their pleadings for an improper purpose. But as the losing party on appeal, who had the burden of proof at trial, Malouf must show the trial court was required to make such an inference. We conclude Malouf has not done so.
Furthermore, the question before us is not whether sanctions may have been appropriate, but whether they were mandatory. See Smithson v. Cessna Aircraft Co., 665 S.W.2d 439, 443 (Tex. 1984). Thus, even if Malouf could show the trial court was required to make all the necessary findings in its favor, Malouf must further show the trial court had no discretion to refuse to assess sanctions. However, Chapter 10 itself states that the trial court "may" award sanctions if a pleading was filed in violation of its provisions. See Rogers v. Walker, 13-12-00048-CV, 2013 WL 2298449, at *10 (Tex. App.—Corpus Christi May 23, 2013, pet. denied) (Chapter 10 allows, but does not require, trial court to impose sanctions); cf. Spellmon v. Collins, 970 S.W.2d 578, 581 (Tex. App.—Houston [14th Dist.] 1998, no pet.) ("According to the plain language of the rule, the trial court has discretionary authority to decide whether a party should be sanctioned for failing to comply with rules 21 and 21a."). One of the sanctions a trial court is permitted to assess is a monetary sanction in favor of the movant. TEX. CIV. PRAC. & REM. CODE ANN. § 10.004. Malouf cites no authority that sanctions are mandatory under Chapter 10. Nor has Malouf cited any case in which a trial court was reversed for failing to award a discretionary sanction. Under these circumstances, we cannot conclude the trial court's failure to award sanctions was arbitrary, unreasonable, or made without reference to guiding rules or principles.
Finally, Malouf claims the trial court abused its discretion in failing to award sanctions under its inherent authority. Malouf does not separately argue this issue, instead relying on its assertion that appellees violated rule 13 and Chapter 10. When a statute or rule addresses sanctions for particular conduct, a trial judge may not generally assess sanctions under its inherent authority. Cherry Petersen Landry Albert, 443 S.W.3d at 451. Regardless, we cannot conclude the trial court's failure to do so constitutes an abuse of discretion.
Having reviewed Malouf's complaints, we cannot conclude the trial court abused its discretion in denying its motion for sanctions. For the same reasons, Malouf has not shown the trial court abused its discretion in denying its motion to reconsider. Malouf's motion to reconsider was based entirely on its assertion that the trial court's prior ruling was erroneous. Thus, by denying Malouf's motion to reconsider, the trial court merely rejected Malouf's contention. Cf. In re VSDH Vaquero Venture, Ltd., 05-15-01513-CV, 2016 WL 2621073, at *7 (Tex. App.—Dallas May 6, 2016, no. pet. h.) (purpose of motion for new trial is to give a trial court an opportunity to correct its own errors). Thus, that ruling presents us nothing further to review.
To the extent Malouf sought to use the motion to reconsider to relitigate the sanctions issue, it was insufficient to provide appellees' notice of that intent. --------
We affirm the trial court's order.
/Ada Brown/
ADA BROWN
JUSTICE 150824F.P05
JUDGMENT
On Appeal from the 192nd Judicial District Court, Dallas County, Texas
Trial Court Cause No. DC-11-14800-K.
Opinion delivered by Justice Brown. Justices Lang-Miers and Fillmore participating.
In accordance with this Court's opinion of this date, the judgment of the trial court is AFFIRMED.
It is ORDERED that appellees ELANA SPITZBERG TRUST, JRR VENTURES, LTD., AND MDC PRIVATE RETAIL INVESTORS, LTD. recover their costs of this appeal from appellants MATTHEW MALOUF, MALOUF INTERESTS, INC., AND MINERVA PARTNERS, LTD.. Judgment entered this 5th day of August, 2016.