Finlay v. Olive

• Court: Texas Court of Appeals
• Writing for the Court: Lee Duggan
• Citation: Finlay v. Olive, 77 S.W.3d 520 (Tex. App. 2002)
• Decision Date: 31 May 2002
• Docket Number: No. 01-98-01388-CV.,01-98-01388-CV.
• Parties: Ellen FINLAY; Giessel, Barker & Lyman, Inc.; and Kenneth Stalling, Appellants, v. Jenny E. OLIVE, Appellee.

77 S.W.3d 520

Ellen FINLAY; Giessel, Barker & Lyman, Inc.; and Kenneth Stalling, Appellants, v. Jenny E. OLIVE, Appellee.

No. 01-98-01388-CV.

Court of Appeals of Texas, Houston (1st Dist.).

May 31, 2002.

John S. Wallace, Giessel, Barker & Lyman, Inc., Houston, for Appellant.

Jeffrey B. McClure, Mayor, Day, Caldwell & Keeton, Houston, for Appellee.

Richard L. Flowers, McEviley & Flowers, Houston, for Appellee.

Panel consists of Justices MIRABAL, JENNINGS, and DUGGAN.^*

OPINION

LEE DUGGAN, Jr. Justice (Retired).

Attorney Ellen Finlay, her client, Kenneth Stalling, and her law firm, Giessel, Barker & Lyman, Inc., appellants, appeal the trial court's judgment levying sanctions against them and shifting costs.

Background

In August 1996, Jenny Olive filed suit against Kelsey-Seybold Medical Group P.A. d/b/a Kelsey-Seybold Clinic, Caremark, Inc. d/b/a Kelsey-Seybold Clinic and Kenneth Stalling (collectively "defendants").¹ Jenny Olive was represented by Richard Flowers with McEvily & Flowers. Kenneth Stalling was represented by Ellen Finlay with Thompson & Knight when suit was filed and during most of discovery, and later with Giessel, Barker & Lyman, Inc.²

Disagreements among counsel erupted as soon as discovery began. The parties filed motions to compel, motions to quash, and objections to discovery requests; the court's docket sheet reflects that the parties called the trial judge more than once to resolve disputes that arose during depositions. Prior to trial, plaintiff filed motions for sanctions for conduct related to (1) defendants' alleged refusal to produce Stalling for deposition, (2) Finlay's alleged threats to sue the witness during the deposition of a plaintiff's expert, Dr. Davis, (3) defendants' filing of a motion to exclude an audio tape, and (4) Stalling's filing of a temporary injunction action in another district court after the trial court ruled the audio tape was not the product of an illegal wiretap. The first three of these motions were filed pursuant to Rule 215 of the Texas Rules of Civil Procedure and Section 10 of the Texas Civil Practices &amp Remedies Code; the fourth was filed pursuant to Rule 13 of the Texas Rules of Civil Procedure.

The trial court held a series of pretrial hearings on April 8, 1998, May 27, 1998, and June 1, 1998, but expressly declined to hear plaintiff's motions for sanctions at each of those hearings and instructed counsel to complete discovery and come back if sanctions were still necessary. The trial court did not rule on any motion for sanctions prior to trial.

The trial

Trial took place July 22 through August 14, 1998. On August 3, 1998, the trial court found attorney Finlay in criminal contempt of court for asking questions during cross-examination that the court found improper and designed to embarrass the witness. On August 6, 1998, outside of the presence of the jury, the trial court heard testimony from Flowers regarding evidence he proposed to present to the jury about reasonable attorney's fees of $34,297 his client would be entitled to recover as a patient or a former patient, if she prevailed in her suit against the defendant mental health providers. See Tex. Civ. PRAC. & REM.CODE ANN. § 81.004(b) (Vernon 1997). The attorney's fees in question were largely the attorney's fees plaintiff incurred as a result of the pretrial conduct complained of in her four prior motions for sanctions. The court did not hear testimony from defendants on August 6, 1998. On August 14, 1998, the jury returned a verdict favorable to the defendants.

The September 8, 1998 Sanctions Order and Final Judgment

On September 8, 1998, the trial court signed a Sanctions Order, Final Judgment, and Order Adjudicating Contempt and Punishment. The September 8, 1998 Sanctions Order awards Olive $34,297 against Finlay, Stalling, and Giessel, Barker & Lyman, Inc. as sanctions for violations of Texas Rule of Civil Procedure 215 and Chapter 10 of the Texas Civil Practices and Remedies Code. The Sanctions Order recites that the trial court, during trial, heard evidence concerning discovery abuse that occurred prior to trial, including evidence of (1) the threatening of a witness with legal action related to an audio tape that was ultimately admitted into evidence, (2) dilatory tactics employed by defendants requiring four motions to compel the deposition of Stalling, and (3) the filing of a separate lawsuit to circumvent rulings of the trial court concerning the audio tape.³

The September 8, 1998 Final Judgment orders that Olive take nothing on her claims,⁴ that Olive recover "discovery" sanctions in the amount of $34,297 against Stalling, Finlay, and Giessel, Barker & Lyman, Inc., and that Olive recover her costs from defendant Stalling.

The September 8, 1998 Final Order Adjudicating Contempt and Punishment finds Finlay guilty of criminal contempt and assesses a fine of $500.⁵

Olive's Post-judgment motion for sanctions and the sanctions order for attorney's fees

Defendant Stalling, Finlay, and Giessel, Barker and Lyman, Inc. filed post-judgment motions seeking to reform the final judgment and sanctions order. Plaintiff filed a post-judgment motion for sanctions related to Finlay's filing of a purported post-judgment Rule 11 Agreement that plaintiff's counsel denied was legitimate. After a November 24, 1998 hearing, the trial court on December 22, 1998, entered its Order that denied defendants' motions, granted plaintiff's motion to strike the Rule 11 Agreement and for sanctions, and ordered Stalling, Finlay, and Giessel, Barker & Lyman, Inc., jointly and severally, to pay $450 attorney's fees to plaintiff's counsel, McEvily & Flowers. The trial court's September 8, 1998 Final Judgment, the September 8, 1998 Sanctions Order, and the December 22, 1998 Order granting post-judgment sanctions are the subject of this appeal.

Issues Presented

In four issues on appeal, appellants assert the trial court erred: (1) in awarding sanctions against them post-trial for alleged pre-trial discovery abuse and post-judgment conduct; (2) in ordering sanctions against Stalling, the defendant/client in particular, an innocent party; (3) in ordering sanctions against trial attorney Finlay's law firm, Giessel, Barker, and Lyman, Inc., in particular; and (4) in shifting Olive's costs of court to the prevailing party, Stalling.

Standard of Review

We review a trial court's sanctions award for abuse of discretion. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241 (Tex.1985). The test is whether the court acted without reference to any guiding rules and principles, i.e., whether the act was arbitrary and unreasonable. Id. at 242.

Analysis

Sanctions for pre-trial conduct

The September 8, 1998 Sanctions Order, which was incorporated into the Final Judgment, was expressly based on the trial court's finding that appellants violated Chapter 10 of the Texas Civil Practices and Remedies Code and Texas Rule of Civil Procedure 215. When an order of sanctions refers to one specific rule, either by citing the rule, tracking its language, or both, we are confined to determining whether the sanctions are appropriate under that particular rule. Metzger v. Sebek, 892 S.W.2d 20, 51 (Tex.App.-Houston [1st Dist.] 1994, writ denied).

Chapter 10 of the Civil Practices and Remedies Code provides two ways to initiate sanctions proceedings concerning frivolous pleadings and motions: (1) a party-initiated motion, as authorized by section 10.002(a), describing specific conduct in violation of section 10.001, or (2) a court-initiated motion with a show cause order from the court, as authorized by section 10.002(b). Here, the trial court never issued a show cause order. On May 13, 1998, plaintiff filed a pretrial motion for sanctions complaining about a separate lawsuit filed by defendants in an attempt to negate the trial court's pretrial ruling on evidence admissibility. Section 10.003 requires that "[t]he court shall provide a party who is the subject of a motion for sanctions under Section 10.002 notice of the allegations and a reasonable opportunity to respond to the allegations." No notice of hearing was given to defendants, and no hearing under Section 10.003 was conducted. Further, no ruling was made on the motion for sanctions before trial started.⁶

Plaintiffs also alleged that defendants violated Texas Rule of Civil Procedure 215, which prohibits abuse of the discovery process. Sanctions for discovery abuse under Rule 215 may be imposed only after notice and hearing. TEX.R. CIV. P. 215.3; See Jefa Co. v. Mustang Tractor and Equip. Co., 868 S.W.2d 905, 909 (Tex.App.-Houston [14th Dist.] 1994, writ denied) (due process requires that a party be given an adequate opportunity to be heard). As noted above, the court declined to hear plaintiff's sanctions motions prior to trial. The only hearings that appellee/intervenor points to as "sanctions hearings" occurred during trial on August 6, 1998, and post-trial on September 8, 1998 and November 24, 1998.

The transcripts of those hearings make clear that none constituted a sanctions hearing. On September 8, 1998, the trial judge stated "[t]his is the final judgment. This isn't a hearing." The November 24, 1998 hearing occurred well after entry of the Sanctions Order and Final Judgment and clearly did not constitute a sanctions hearing. That leaves only the trial proceedings of August 6, 1998 as possibly including a sanctions hearing. On that day, the trial court heard testimony as to plaintiff's attorney's fees, but did not hear testimony or argument regarding the underlying facts plaintiff was relying upon to justify sanctions. The docket sheet notes only that evidence was heard on that date relating to attorney's fees; it does not mention a hearing on sanctions. Moreover, the record does not contain any notice that sanctions would be heard on August 6, 1998. Because there was no sanctions hearing, the trial court abused its discretion in imposing sanctions...