Opinion
No. 14-05-00061-CV
Memorandum Opinion filed May 18, 2006.
On Appeal from the 113th District Court, Harris County, Texas, Trial Court Cause No. 2000-29229A.
Reversed and Remanded.
Panel consists of Chief Justice HEDGES and Justices YATES and ANDERSON.
MEMORANDUM OPINION
Appellant Reliance Capital, Inc. ("Reliance") appeals the granting of a summary judgment in favor of G.R. Hmaidan, Inc. and Isam Hmaidan individually ("Hmaidan"). In four points of error, Reliance contends that the trial court erred in: (1) granting summary judgment based on res judicata; (2) allowing Hmaidan's attorney's affidavit to serve as the sole basis for granting summary judgment; (3) granting summary judgment when a Mary Carter agreement existed; and (4) denying Reliance's motion for summary judgment. We reverse and remand.
Background
This appeal arises out of Hmaidan's non-payment of three promissory notes currently owned by Reliance. Hmaidan had entered into an asset purchase agreement with Bert Wheeler's Liquor's Inc. to buy several liquor stores, and the notes were used to finance the agreement. G.R. Hmaidan, Inc. d/b/a Copperfield Liquor executed and delivered the first note ("Note A") on June 6, 2000. Isam Hmaidan, individually, also executed and delivered a note ("Note B") on June 6, 2000, and G.R. Hmaidan, Inc. d/b/a Copperfield Liquor executed and delivered the third note ("Note C") on August 8, 2000. All three notes were made payable to corporation La Villita del Norte ("La Villita"). La Villita transferred the notes to Reliance in September 2000, at which time Hmaidan began making payments to Reliance. Hmaidan defaulted on the notes.
Note A was for $411,417.01 and was signed by G.R. Hmaidan. Note B was for $191,200.45 and was signed by Isam Hmaidan. Note C was for $136,922.62 and was signed by G.R. Hmaidan. All three notes were secured by personal guarantees.
The original underlying litigation ("the main case") involved landlord Greatland Investments, Inc. ("Greatland"), who sued tenant Bert Wheeler's Inc. and BWI Merger Co. (collectively "Bert Wheeler's One") and Bert Wheeler Liquors, Inc. ("Bert Wheeler's Two") for breach of a lease agreement for one of the liquor stores involved in the Hmaidan purchase. Attorney Todd A. Prins represented Bert Wheeler's Two and filed an original answer. Bert Wheeler's One filed, inter alia, a third-party action against Hmaidan.
In April 2001, Greatland added La Villita as a defendant in the main case to include a claim for fraudulent conveyance. Specifically, Greatland alleged that Bert Wheeler's Two had sold its inventory and other assets to Hmaidan in exchange for the promissory notes made payable to La Villita in an attempt to defraud Greatland. Prins also represented La Villita, but he withdrew as attorney of record for both Bert Wheeler's Two and La Villita in May 2001. The trial court granted summary judgment for Greatland on September 4, 2001, declaring that the transfer was void and that the notes belonged to Bert Wheeler's Two.
In September 2001, Hmaidan brought a third-party claim against Reliance after discovering that La Villita had transferred the notes to Reliance. Hmaidan's claims against Reliance were severed on November 14, 2001, creating the "A" cause from which this appeal directly derives. This severance occurred after Hmaidan had settled with Greatland in what Reliance characterizes as a Mary Carter agreement. Reliance also alleges that it was not served with Hmaidan's third-party action until November 29, 2001.
In January 2003, Todd A. Prins, now representing Reliance in the A cause, filed a counterclaim against Hmaidan, seeking to recover on claims based on the promissory notes at issue in the main case. In May 2004, Reliance filed its motion for summary judgment based on breach of contract. Hmaidan filed a motion for summary judgment on June 25, 2004 on theories of res judicata and collateral estoppel. After overruling Reliance's objection to the admission of Hmaidan's attorney's affidavit, the trial court granted Hmaidan's motion for summary judgment and denied Reliance's on November 12, 2004.
Standard of Review
Under the traditional standard for summary judgment, the movant has the burden to show that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c); KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). When, as here, both parties move for summary judgment and the trial court grants one motion and denies the other, the reviewing court should review the summary judgment evidence presented by both sides, determine all questions presented, and render the judgment the trial court should have rendered. Tex. Workers' Comp. Comm'n v. Patient Advocates of Tex., 136 S.W.3d 643, 648 (Tex. 2004). When, as here, a trial court's order granting summary judgment does not specify the grounds relied upon, we must affirm summary judgment if any of the summary judgment grounds are meritorious. Oliphint v. Richards, 167 S.W.3d 513, 515-16 (Tex.App.-Houston [14th] 2005, pet. denied).
Attorney's Affidavit
Reliance also made an evidentiary challenge in this case. We review a trial court's ruling on an evidentiary matter under an abuse of discretion standard. Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 43 (Tex. 1998). A trial court abuses its discretion when it rules without regard for any guiding rules or principles. Id. We must uphold the trial court's evidentiary ruling if there is any legitimate basis for the ruling. Id. Moreover, we will not reverse an erroneous evidentiary ruling unless the error probably caused the rendition of an improper judgment. Id.
In its second point of error, Reliance argues that the trial court should not have granted summary judgment based solely on the affidavit of Richard Kaplan, Hmaidan's attorney. Reliance characterizes Kaplan's affidavit as a violation of Rule 3.08 of the Texas Disciplinary Rules of Professional Conduct. Rule 3.08 prohibits attorneys from serving as advocates when they know or believe that they may be witnesses necessary to establish an essential fact on behalf of their clients, unless:
The record includes two affidavits from Kaplan. The second affidavit recites the wording of the first verbatim, including Kaplan's opinion that privity exists between Reliance and La Villita. In addition, the second affidavit contains paragraphs concerning the addresses of the corporations' principles and the asset purchase agreement. It is this affidavit to which we refer.
(1) the testimony relates to an uncontested issue;
(2) the testimony will relate solely to a matter of formality and there is no reason to believe that substantial evidence will be offered in opposition to the testimony;
(3) the testimony relates to the nature and value of legal services rendered in the case;
(4) the lawyer is a party to the action and is appearing pro se; or
(5) the lawyer has promptly notified opposing counsel that the lawyer expects to testify in the matter and disqualification of the lawyer would work substantial hardship on the client.
TEX. R. DISCIPLINARY P. 3.08(a)(1)-(5) (Vernon 2005). When an attorney who represents a party is an affiant in support of a motion for summary judgment, he or she is a witness. Aghili v. Banks, 63 S.W.3d 812, 817 (Tex.App.-Houston [14th] 2001, pet. denied).
In his affidavit, Kaplan testified that according to the records of the Nevada Secretary of State and the Texas Secretary of State, the registered addresses for La Villita's agent and Helen Berridge, Reliance's president, were identical. According to Kaplan, that address also belonged to Columbia Industries, Inc., whose president, Ronald J. Hermann, was also the president of Bert Wheeler's Two and La Villita. Kaplan further testified that Hermann presumably was the same corporate representative whom attorney Prins formerly "represented to this Court in his Motion to Withdraw that he was unable to `communicate with' but is now apparently representing in the instant case." Kaplan also testified that Prins had filed a lawsuit on behalf of Reliance that was dismissed on November 14, 2001. According to Kaplan, the complaint was verified by Berridge and dealt with one of the promissory notes.
Based on the above facts, Kaplan concluded:
In my professional opinion, there is an identity of parties or those in privity with them between this suit and the underlying lawsuit, a final judgment on the merits of the claims at issue here was entered in the underlying lawsuit by a court of competent jurisdiction and this action is based on the same claims as were or could have been raised in the underlying lawsuit. It is also my professional opinion that the facts sought to be litigated in this action were fully and fairly litigated in the underlying lawsuit, the facts at issue in this suit were essential to the judgment in the underlying lawsuit and the parties litigating this action and the issues in it were cast as adversaries in the underlying lawsuit.
We agree with Reliance that Kaplan's testimony violated Rule 3.08. In Mauze v. Curry, 861 S.W.2d 869, 70 (Tex. 1993), the Texas Supreme Court held that the trial court abused its discretion in failing to disqualify the plaintiff's attorney, John Bevil, who testified as an expert witness in an affidavit to defeat the defendant's motion for summary judgment in a legal malpractice case. In his affidavit, Bevil opined that defendant George W. Mauze's negligence caused the plaintiff's injuries. Id. at 869. Bevil's affidavit was the only expert testimony regarding malpractice and causation. Id. Mauze filed a motion to disqualify Bevil, which the trial court denied. Id. at 869-70. The supreme court held that the trial court abused its discretion in admitting the affidavit because Bevil's testimony did not fall within any of the exceptions under Rule 3.08. Id. at 870.
Similarly, in Aghili v. Banks, 63 S.W.3d 812, 819 (Tex.App.-Houston [14th] 2001, pet. denied), we held that the trial court abused its discretion in overruling the plaintiffs' objection that the defendant's attorney's affidavit was incompetent as summary judgment evidence. In Aghili, the plaintiffs' homes were foreclosed after they failed to pay certain fees to a homeowners' association. Id. at 815. The plaintiffs then sued attorney John Banks, who had facilitated the sale, as well as the owners' association, its management company, and the buyer, for unlawful foreclosure. Id. Banks represented himself and the other defendants in that action. Id. at 818. Quoting Justice Phillips' dissenting opinion in Anderson Producing, Inc. v. Koch Oil Co., 929 S.W.2d 416, 426 (Tex. 1996), we asserted that courts "should not allow attorneys . . . to sign on as counsel, prepare the entire case for trial, and then present the case . . . through their own testimony" and stated that this rationale is also applicable to summary judgment proceedings. Id. at 818. We also reasoned that Banks should not have been permitted to testify by affidavit in the summary judgment proceeding because "[t]he preservation of public trust both in the scrupulous administration of justice and in the integrity of the bar is paramount" and "[t]he practice of attorneys furnishing from their own lips and on their own oaths the controlling testimony of their client is one not to be condoned by judicial silence. . . . nothing short of actual corruption can more surely discredit the profession." Id. at 818 (quoting Warrilow v. Norrell, 791 S.W.2d 515, 523 (Tex.App.-Corpus Christi 1989, writ denied)).
In Anderson Producing, Inc., the Texas Supreme Court held that an attorney who performed pretrial matters and testified on behalf of his client as the principal witness at trial did not violate Rule 3.08 because the attorney did not serve as trial counsel. 929 S.W.2d at 423.
In Warrilow, the Thirteenth Court of Appeals held that the trial court abused its discretion by failing to disqualify an attorney who testified on behalf of his client as both a material fact witness and an expert regarding ultimate issues in a jury trial. 791 S.W.2d at 523. The court noted that the attorney participated actively in the trial and that his testimony, which went to the core of the case, could have been offered by other sources. Id. at 522-23.
We realize that Warrilow was decided under Disciplinary Rule 5-102(A) and Disciplinary Rule 5-101(B), which are precursors to Rule 3.08. Id. at 519; see also Anderson Producing Inc., 929 S.W.2d at 423 (stating that Rules 5-102(A) and 5-101(B) are "the forerunners of current rule 3.08"). However, because the rule's substance has not changed, we believe that Warrilow is instructive in the instant case.
In the instant case, Kaplan's statements regarding the address shared by Berridge, La Villita, and Hermann as well as their representation by Prins were intended to establish privity between Reliance and La Villita, which is an ultimate issue in the A cause. Because Kaplan represented Hmaidan in the summary judgment proceeding and his testimony does not fall within any of the exceptions to Rule 3.08, we hold that the trial court abused its discretion when it admitted the affidavit. We sustain Reliance's second point of error, and accordingly, we need not address its first and third points of error.
Reliance's Motion for Summary Judgment
In its final point of error, Reliance argues that the trial court should have granted its motion for summary judgment because it conclusively proved all of the elements of breach of contract and no issue of material fact exists. Reliance also argues that the court erred in striking Berridge's affidavit in whole and in part without providing Reliance an opportunity to amend it. Finally, Reliance contends that the trial court erred in denying it attorney's fees.
We hold that the trial court properly excluded Berridge's affidavit and therefore did not err in denying Reliance's motion for summary judgment. In her affidavit, Berridge states that as Reliance's president, she is responsible for the Hmaidan accounts, that she is the custodian of "the business records of Reliance in regard to [Hmaidan]," and that she is familiar with Hmaidan's obligations to Reliance. Berridge also describes the three promissory notes that Hmaidan "promised to pay to the order of La Villita Del Norte, Inc." and avers that G.R. Hmaidan executed and delivered personal guarantees of payment to La Villita. Berridge also states that "Reliance Capital, Inc. is the present owner and holder of the Notes." This last statement is conclusory. Therefore, there is no evidence that Reliance is the present owner and holder of the notes.
Although Reliance attached an assignment agreement between Reliance and La Villita as an exhibit to its motion for summary judgment, the trial court sustained Hmaidan's hearsay objection, and Reliance does not challenge this ruling on appeal.
In support of its argument that it should have been given an opportunity to amend Berridge's affidavit, Reliance cites Texas Rule of Civil Procedure 166a(f), which provides:
The court may permit affidavits to be supplemented or opposed by depositions or by further affidavits. Defects in the form of affidavits or attachments will not be grounds for reversal unless specifically pointed out by objection by an opposing party with opportunity, but refusal, to amend.
However, because the above-mentioned defects in Berridge's affidavit were substantive, the trial court did not abuse its discretion by not affording Reliance an opportunity to amend. Finally, because Reliance is not entitled to summary judgment, the trial court did not err in failing to award attorney's fees to Reliance. We overrule Reliance's final point of error.
Reliance argues that Hmaidan presented no evidence contradicting Reliance's summary judgment evidence because its response to Reliance's motion did not contain Kaplan's affidavit. However, because Reliance filed a traditional motion for summary judgment, Hmaidan had no burden to produce evidence. TEX. R. CIV. P. 166a(c); Casso v. Brand, 776 S.W.2d 551, 556 (Tex. 1989) (stating that the non-movant does not have a burden to respond to a motion for summary judgment unless a movant establishes its right to judgment as a matter of law).
In conclusion, we hold that the trial court did not err in denying Reliance's motion for summary judgment. However, we hold that the trial court did err in admitting Kaplan's affidavit. Accordingly, we reverse and remand this case for proceedings consistent with this opinion.