Supreme Court Update: Reasonable Diligence Not Established

A year ago, the Dallas Court of Appeals affirmed the denial of an equitable bill of review in which the defendants claimed that the plaintiff had not exercised reasonable diligence in its attempts to effect service through registered mail and personal delivery. The Texas Supreme Court has now set aside that ruling, holding that the defendants had presented some evidence that their failure to receive notice of the default judgment resulted solely from the plaintiff’s failure to certify the defendants’ last known mailing address, and not from any negligence or fault on the defendants’ own part. The record contained evidence that the plaintiff’s owner had met with the defendants’ registered agent at their current address, rather than the outdated address on file with the Secretary of State, that raised a genuine issue of material fact as to the validity of the plaintiff’s “last known mailing address” certification.

Katy Venture, Ltd. v. Cremona Bistro, LLC, No. 14-0629

Post-Answer Default Judgment Requires Proof of Damages

In this breach of contract claim, the defendant answered the petition with a general denial, but then failed to show up at trial.  During the subsequent “prove-up” hearing, the plaintiff offered as its only evidence the contract between the parties.  Based on this evidence alone, the trial court entered judgment and awarded the plaintiff $55,000 in damages.  On appeal, the Court held that the award of damages was improper because the plaintiff did not offer proof of each element of her claim, including damages.

Correa v. Salas

Contradictory Evidence of Damages Sinks Default Judgment Award

In this restricted appeal of a default judgment, the Court found (among other things) insufficient evidence to support damages on a suit for breach of contract and on a sworn account.  The Court based its holding on the fact that there was contradictory information among the petition, the documents attached to the petition, and the business records filed.  In particular, the Court noted that there was no evidence of any amount owed by the defendant to the plaintiff.

Diaz v. Multi Service Tech. Solutions Corp.

Summary Judgment Default

A fire at a hotel in Duncanville left the property owner unable to continue paying on the $3.4 million promissory note. The lender foreclosed and the property was sold for $500,000, leaving a substantial balance on the defendants’ personal guaranty obligations. The bank prevailed on summary judgment, a result that was not helped by the failure of defendants’ counsel to respond to the motion or appear at the hearing. The Court of Appeals affirmed.

The guarantors challenged the trial court’s denial of their motion for new trial. The Court of Appeals analyzed the case as a post-answer default, applying the Craddock factors of whether (1) the failure to answer or appear was a mistake or accident, (2) the defendant had a meritorious defense, and (3) the motion was filed at a time when granting a new trial would not delay or otherwise injure the plaintiff. In this instance, the motion for new trial failed to establish item (3), as the attorney’s affidavit did not address that factor, Neither the motion nor the affidavit  stated that the defendants were ready, willing, or able to go to trial immediately or offer to reimburse the plaintiff for its expenses. The Court also rejected the defendants’ claim of newly-discovered evidence, given that the affidavits failed to establish the proffered evidence (testimony from friends of the defendants) was actually newly discovered or could not have been discovered earlier through the exercise of due diligence.

Kahrobaie v. Wilshire State Bank, No. 05-13-01459-CV

Default Judgment Upheld

The plaintiff sued his former employer, El Paisano, for unpaid wages and unpaid overtime.  After four unsuccessful attempts by a process server to serve El Paisano at the address of its registered agent, the plaintiff served the Texas Secretary of State, who then forwarded the process to the same address via certified mail.  That attempt at service also failed, and the process was returned to the secretary of state with the notation “unclaimed.”  The plaintiff then moved for a default judgment, which the trial court granted.

El Paisano eventually learned of the default judgment and sought to have it set aside.  The trial court denied its motion for a new trial, and El Paisano appealed.  El Paisano argued, among other things, that it was not properly served because the secretary of state did not send the process to its principal place of business.  The Court of Appeals rejected that argument and upheld the default judgment, noting that the plaintiff was entitled to use substituted service on the secretary of state and that the secretary of state had no obligation to send it anywhere other than the address of El Paisano’s registered agent.

El Paisano Nw Hwy v. Arzate, No. 05-12-01457-CV

Nobody’s Default But Mine

Regular readers may recall the plaintiff’s multi-year, multi-appeal quest to obtain a no-answer default judgment in the recent case of Elite Door & Trim, Inc. v. Tapia. That situation has presented itself again in another case arising out of the same trial court. This time, the case had only been reversed and remanded once before, unlike the two previous decisions in the Elite Door case. In the present case, the court of appeals had previously reversed the trial court’s order dismissing for want of prosecution because the court had not given the plaintiff sufficient notice of its intent to dismiss the case. On remand, the plaintiff amended its pleadings and filed an amended motion for entry of default. In the meantime, the trial court set another DWOP hearing. The plaintiff filed a motion to retain the case on the docket, noting that its request for a hearing on a default judgment had been denied by the court coordinator on the ground that the court did not set default motions for hearing unless it was deemed necessary by the court. The trial court then signed an order dismissing the case for want of prosecution. The court of appeals reversed, holding that the trial court erred in refusing to grant default judgment to the plaintiff, and that it was an abuse of discretion to dismiss the case for want of prosecution in light of the plaintiff’s diligence in amending its pleadings and seeking entry of a default judgment. The court therefore remanded again and directed that judgment be granted in favor of the plaintiff on its claims for liquidated damages, attorney fees, and pre- and post-judgment interest.

Harris, N.A. v. Obregon, No. 05-10-01349-CV

Note to Self: Address All Possible Grounds for Dismissal

Amy Self sued Tina King and Elizabeth Tucker for  injuries she received in a car accident purportedly caused by King.  On March 21, the trial judge sent a letter to all counsel requiring them to sign and return the enclosed scheduling order by April 8, 2011, or the court would place the matter on its dismissal docket.  Self failed to comply with this requirement and the court notified the parties of a dismissal hearing on April 21.  When Self failed to appear at this hearing, the court issued an order of dismissal.  In July 2011, Self moved to vacate the order of dismissal because, she argued, neither she nor her attorney had received notice of the scheduling order or the dismissal hearing.  The trial judge stated that, although the court lacked jurisdiction to reinstate the case, she would deny the motion to reinstate if she had jurisdiction to do so.  On appeal, the Court found that Self failed to address all possible grounds for the dismissal of the case, which was required because “[i]f a dismissal order does not state the grounds for the dismissal, a plaintiff seeking reinstatement must negate all possible grounds.”

Self v. King

At Least There Is No Remand This Time

Twice before, Elite Door & Trim had prevailed at the court of appeals in its attempt to obtain a no-answer default judgment against the defendant in a dispute between the two contractors. See Elite Door & Trim, Inc. v. Tapia, 355 S.W.3d 757 (Tex. App.-Dallas 2011, no pet.); In re Elite Door & Trim, Inc., 362 S.W.3d 199 (Tex. App.-Dallas 2012, orig. proceeding). After the trial court again proceeded to hear the default motion, it entered an order denying it once again, finding that Elite had failed to establish liability because it had not proven various non-damages elements of its claims. The court of appeals rejected that finding, because Tapia’s failure to file an answer served as an admission of the contentions in Elite’s petition. The court of appeals also reversed the trial court’s finding that Elite had not submitted competent evidence of its damages, concluding that the testimony of Elite’s president had adequately established the amount and method of calculating the company’s damages, attorney fees, and prejudgment interest. However, the court of appeals rejected Elite’s request for $15,000 in sanctions against the trial judge for requiring Elite to pursue multiple appeals and mandamuses to obtain a no-answer default judgment, as 42 U.S.C. § 1983 no longer permits such relief against a judge for an act or omission taken in the judge’s official capacity in the absence of extraordinary circumstances. In all other respects, the court of appeals rendered judgment in favor of Elite.

Elite Door & Trim, Inc. v. Tapia, No. 05-12-00725-CV

On Post-Answer Defaults

When the defendant has filed an answer but doesn’t appear for trial, the plaintiffs have to prove up all elements of their claim in order to obtain a default judgment. In this case, the plaintiffs had previously obtained a temporary restraining order and temporary injunction against their stepfather. When they appeared for trial on their request for a permanent injunction, the stepfather did not show up. The plaintiffs’ lawyer then asked the trial court to take judicial notice of the court file, and the lead plaintiff testified that she was asking the court to convert the temporary injunction into a permanent one. On appeal, the court of appeals sided with the stepfather. While the plaintiffs had asked the court to take judicial notice of the file, there had been no ruling on that request, nor had the plaintiffs pointed to any particular materials in the file. Moreover, the elements of a temporary injunction are different from a permanent injunction in any event, particularly the requirement of no adequate remedy at law in order to obtain a permanent injunction. Accordingly, the case was reversed and remanded to the trial court for further proceedings.

Young v. Smith, No. 05-10-01294-CV

Desk Drawer Default

Duffy McKenzie sued Christopher Utz and several of Utz’s companies, seeking to recover unpaid wages. The defendants did not answer, and McKenzie obtained a default judgment against them for approximately $34,000. Thirty days later, the defendants filed a motion for new trial, seeking to set aside the judgment under the familiar Craddock standards. McKenzie opposed the motion, eliciting testimony at the hearing that Utz had simply put the lawsuit in his drawer because did not want to deal with it. The trial court denied the motion for new trial, and the court of appeals affirmed. Although the court noted the defendants’ evidence that they had not answered because they thought the parties were trying to settle the lawsuit, the conflict between that evidence and the testimony during the hearing was sufficient basis for the trial court to have found that the failure to appear was intentional or the result of conscious indifference. When the evidence conflicts, the court held, the trial court was not required to accept the movant’s version of events. The court of appeals also ruled against the defendants on a motion for sanctions, holding that various alleged misstatements in McKenzie’s appellate brief were insufficient to support any sanctions.

Utz v. McKenzie, No. 05-11-01647-CV