Allied Chemical Co. v. DeHaven

• Decision Date: 16 January 1992
• Docket Number: No. A14-90-01045-CV,A14-90-01045-CV
• Citation: 824 S.W.2d 257
• Parties: ALLIED CHEMICAL COMPANY, Appellant, v. Jay DeHAVEN, Appellee. (14th Dist.)
• Court: Texas Court of Appeals

Page 257

824 S.W.2d 257

ALLIED CHEMICAL COMPANY, Appellant, v. Jay DeHAVEN, Appellee.

No. A14-90-01045-CV.

Court of Appeals of Texas Houston (14th Dist.).

Jan. 16, 1992.

Rehearing Denied Jan. 30, 1992.

J. Rufus Wallingford, Jennifer Hogan, Houston, for appellant.

George E. Pletcher, John L. Russell, David J. Mullican, Jr., Houston, for appellee.

Before J. CURTISS BROWN, C.J., and MURPHY and ELLIS, JJ.

OPINION

J. CURTISS BROWN, Chief Justice.

Appellant, Allied Chemical Company (Allied), is appealing from a judgment in the amount of $1,593,800.23 in favor of appellee, Jay DeHaven (DeHaven). The trial court struck Allied's answer as a discovery sanction. At the trial on damages, the jury awarded $330,000. actual damages and the trial court awarded prejudgment interest at a rate of 10% compounded daily. Allied, in eleven points of error, complains of the trial court striking its answer, making findings of fact and conclusions of law, and awarding actual damages and prejudgment interest without rendering judgment for Allied on its offset claim. We affirm in part and reverse and remand in part.

In October of 1977, DeHaven brought suit against Allied, the Maglon Partnership (Maglon), Steve Novak (Novak), Foy Phillips (Phillips), Charles Reams (Reams), Maglon, Inc., L.M. Gambrell (Gambrell), Skyland Enterprises Corporation (Skyland), and other parties. DeHaven alleged fraud and conspiracy in the breach of a contract and prayed for an accounting among the parties. The contracts on which this lawsuit is based, are exchange agreements AX-563 and AX-564. These agreements were entered into on September 28, 1974 by I.W. Swisher (Swisher), on behalf of Allied, and Novak, on behalf of Maglon. Maglon consisted of DeHaven, Novak, Phillips, and Reams as partners. Novak entered into all contracts with Allied as the representative of Maglon. The agreements were superseded and voided by a third exchange agreement, AX-566, executed by Novak and Gambrell. Gambrell signed the new agreement on behalf of Allied, because Swisher's supervisor instructed him that something was improper about agreement AX-566. Under the terms of the new agreement, Allied was to receive $330,000. more than it did under the original agreements and Skyland was to receive $173,000.

On October 4, 1974, Maglon received a $346,000. check from Allied. From these proceeds each partner received $20,000. and Skyland received $173,000. Skyland was a corporation formed by Gambrell. Gambrell was a vice-president of Allied at the time Skyland was formed, at the time agreement AX-566 was signed with Novak, and at the time the $173,000. from Maglon was deposited to Skyland. The $173,000. was shared equally by Gambrell and Novak without the knowledge or consent of the other partners of Maglon.

DeHaven discovered the deception by Gambrell and Novak when he was called as a possible witness in an unrelated case in federal district court, Triple T Liquid Supplements, Inc. v. Allied Chemical Corp. The fact that a conspiracy had existed between Gambrell and Novak came to light and DeHaven brought suit. On December 11, 1989 this case was called for trial. Mike Crawford (Crawford), the attorney who represented Triple T in the federal court case, was in the courtroom. Crawford happened to examine DeHaven's exhibit 22 containing photographs of Allied's chief executive officer and members of the executive committee. Brian Forrow (Forrow), General Counsel for Allied was in one of the pictures. After examining the exhibit, Crawford realized that he had taken Forrow's deposition in the Triple T case. During the course of the deposition, Crawford had questioned Forrow about the facts of this case. Despite numerous requests, none of this information had been provided by Allied during discovery in this case.

Crawford provided DeHaven with Forrow's deposition, and DeHaven brought a motion to strike Allied's pleadings as a sanction for discovery abuse. The trial court held a hearing on the matter, granted Allied's motion for a continuance, and held a rehearing. The trial court found that Allied had violated the court's orders and the rules of discovery by misleading the trial court and DeHaven. Allied's answer was struck. A trial was held on damages. The jury awarded $330,000. actual damages and no punitive damages. The trial court awarded prejudgment interest in the amount of $1,263,800.23. Final judgment was entered containing an accounting among the partners of Maglon.

SANCTION

Allied complains, in its first three points of error, that the trial court committed error and abused its discretion in striking Allied's answer.

A trial court's right to, and method of, assessing sanctions is in a state of transition at this time. The Texas Supreme Court has recently recognized that there are constraints on the trial court in deciding to strike a party's pleadings as a sanction for discovery abuse. Transamerican Natural Gas Corp. v. Powell, 811 S.W.2d 913 (Tex.1991). In an effort to give trial courts guidance, the supreme court set out factors to be followed in making a decision on sanctions. Id. at 917-18. The sanction must be just. In other words, "a direct relationship must exist between the offensive conduct and the sanction imposed...." and the "sanction ... should be no more severe than necessary to satisfy its legitimate purposes." Id. at 917. A trial court should "consider the availability of less stringent sanctions and whether such lesser sanctions would fully promote compliance." Id. A court's decision to strike a party's pleadings "should not be assessed absent a party's flagrant bad faith or counsel's callous disregard for the responsibilities of discovery under the rules." Id. at 918. "[I]f a party refuses to produce material evidence, despite the imposition of lesser sanctions, the court may presume that an asserted claim or defense lacks merit and ... [strike that party's pleadings]." Id. Although a trial court must be cautious about disposing of a case without a trial on the merits, "the most severe in the spectrum of sanctions provided by statute or rule must be available to the district court in appropriate cases, not merely to penalize those whose conduct may be deemed to warrant such a sanction, but to deter those who might be tempted to such conduct in the absence of such a deterrent." National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 643, 96 S.Ct. 2778, 2781, 49 L.Ed.2d 747 (1976); Transamerican, 811 S.W.2d at 919.

The trail of discovery orders ¹ in this case leading up to this final sanction against Allied is set out and discussed below for clarification.

1/24/84:

Order for Defendant Allied Chemical Corp. to Execute, and File by 3/22/84, an Affidavit Ratifying the Testimony of Swisher signed;

1/31/84:

Order Deeming Facts Admitted by Defendant, Allied Chemical Corp. signed, and

Order for Allied Chemical Corp. to pay $100. in attorney's fees to DeHaven;

2/10/84:

Order to Compel Answers by Defendant Allied Chemical Corp. to Plaintiff's Request for Admissions signed, and

Order for Allied Chemical Corp. to pay $500. in attorney's fees to DeHaven;

2/14/84:

Order on Plaintiff's Motion for Relief under TRCP 168 due to the Failure of Allied Chemical Corp. to Answer Certain Interrogatories signed, and

Order for Allied Chemical Corp. to pay $150.00 in attorney's fees to DeHaven;

1/15/86:

Affidavit of William F. Reichenbach filed;

DeHaven made several efforts to depose persons with Allied who were knowledgeable about the facts leading up to this lawsuit. The only person ever produced by Allied for deposition testimony was Swisher. In response to further deposition attempts by DeHaven, Allied stated it "had no other employee other than Swisher knowledgeable of relevant matters," and no other corporate knowledge of the facts. The trial court ordered Allied to file an affidavit within 60 days swearing to these statements and adopting Swisher's testimony as its testimony. Allied did not comply with the court's order. The affidavit was finally filed, upon notification of noncompliance by DeHaven's counsel, two years after the order was given.

That Allied's general counsel, Forrow, had supervised an investigation into Gambrell's dealings with Maglon and made a report to the executive committee, is evidence of other Allied employees with knowledge of relevant information. Forrow testified, at the rehearing on the motion to strike Allied's pleadings, that the report he made was in the minutes of the executive committee meeting. He stated that he seriously doubted, and would be surprised to learn, that the minutes of this meeting had been destroyed. Yet, Allied never produced this information. These minutes containing the substance of Forrow's investigation is corporate knowledge of other relevant facts.

Despite Allied's contentions to the contrary, this is a very serious discovery offense. The sanction imposed by the trial court in this case is directly related to the discovery abuse. Unlike the facts in Transamerican where the only discovery abuse was the failure of a corporate representative to show up for his deposition, in this case there had already been discovery orders deeming facts admitted, compelling answers to admissions and interrogatories, and assessing reasonable attorney's fees against Allied. The trial court had previously considered and utilized lesser sanctions, and they did not "fully promote compliance." Transamerican, 811 S.W.2d at 917. Statements made to the trial court and opposing counsel which were purposefully misleading is evidence of a party's bad faith. Additionally, we disagree with Allied's contention that the trial court's statement of more than one reason for striking Allied's pleadings was evidence of an arbitrary decision. The judge was entitled to consider the entire history of the case before him. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241 (Tex.1985), cert. denied, 476 U.S. 1159, 106 S.Ct. 2279, ...