Hahn v. Whiting Petroleum Corp.

• Citation: 171 S.W.3d 307
• Decision Date: 15 September 2005
• Docket Number: No. 13-02-391-CV.,13-02-391-CV.
• Parties: Keith HAHN, Appellant, v. WHITING PETROLEUM CORP., RK Petroleum Corp. and Tremont Energy, L.L.C., Appellees.
• Court: Supreme Court of Texas

171 S.W.3d 307

Keith HAHN, Appellant, v. WHITING PETROLEUM CORP., RK Petroleum Corp. and Tremont Energy, L.L.C., Appellees.

No. 13-02-391-CV.

Court of Appeals of Texas, Corpus Christi-Edinburg.

June 9, 2005.

Rehearing Overruled September 15, 2005.

COPYRIGHT MATERIAL OMITTED

Troy Gilreath, Walker, Keeling & Carroll, Victoria, for appellant.

Duane G. Crocker, Anderson, Smith, Null, Stofer & Murphree, James Stofer, Victoria, for appellees.

Before Justices YANEZ, CASTILLO, and GARZA.

OPINION

Opinion by Justice GARZA.

By nine issues, Keith Hahn challenges a default judgment entered against him on a suit filed by Whiting Petroleum Corporation, RK Petroleum Corporation, and Tremont Energy, LLC. Because we conclude that Hahn satisfied Craddock's three-prong test for a new trial following entry of a default judgment, we sustain Hahn's seventh issue, reverse the case, and remand it to the trial court for further proceedings consistent with this opinion. See Craddock v. Sunshine Bus Lines, Inc., 134 Tex. 388, 133 S.W.2d 124, 126 (1939).

The plaintiffs' suit against Hahn asserted causes of action for breach of fiduciary duty and constructive fraud. In addition to the claims against Hahn, the suit also asserted causes of action against Core Exploration & Production Corporation for (1) an accounting, (2) relief under section 91.404 of the natural resources code, (3) breaches of two different contracts, (4) breach of fiduciary duty, and (5) constructive fraud. The plaintiffs also sued Del Rio Energy, LLC under a single business enterprise theory, alleging that Del Rio was jointly and severally liable for the acts and omissions on which the claims against Core were premised. The trial court entered a default judgment against all three defendants, jointly and severally, for damages in excess of $1.6 million, including $30,000 in attorney's fees. Only Hahn has appealed.

By two issues, Hahn argues that this Court should reverse the judgment against him and render a take-nothing judgment against the plaintiffs because (1) the judgment is based on a contract theory of recovery which was not pled in the suit against Hahn and (2) the facts alleged in the plaintiffs' petition do not support a cause of action against Hahn for breach of contract, breach of fiduciary duty, or constructive fraud. Notwithstanding Hahn's contention to the contrary, if we were to sustain either of these issues, we would remand the case to the trial court for further proceedings—not render a take-nothing judgment against the plaintiffs. See Roberts v. Mullen, 417 S.W.2d 74, 77-79 (Tex.Civ.App.-Dallas 1967) (reversing default judgment and remanding for jury trial because judgment failed to conform to pleadings), aff'd, 423 S.W.2d 576 (Tex.1968); C & H Transp. Co. v. Wright, 396 S.W.2d 443, 446-47 (Tex.Civ.App.-Tyler 1965, writ ref'd n.r.e.) (reversing default judgment and remanding for jury trial because petition did not state a cause of action). Because we sustain Hahn's seventh issue and therefore reverse the judgment and remand the case for further proceedings, we do not reach Hahn's other issues, which would entitle Hahn to equal or lesser relief. See Tex.R.App. P. 47.1.

In his seventh issue, Hahn argues that the trial court erred by failing to grant his motion for new trial. Following the entry of a default judgment, a defendant may establish its entitlement to a new trial by satisfying the following three-prong test articulated by the supreme court in Craddock: (1) present facts showing that the failure to appear was not intentional or the result of conscious indifference but was due to accident or mistake, (2) set up a meritorious defense, and (3) file the motion for new trial when it would not cause delay or otherwise injure the prevailing party. Craddock, 133 S.W.2d at 126.

We begin with the first prong: the reason for Hahn's failure to appear. See id. To meet this prong, Hahn had to prove that his failure to appear was not intentional on his or his agent's part nor the result of his or his agent's conscious indifference. Lowe v. Lowe, 971 S.W.2d 720, 723 (Tex.App.-Houston [14th Dist.] 1998, pet. denied). In Lowe, the Fourteenth Court explained that if (1) a lawyer has misled his client, or wholly failed to perform his professional duties, and (2) the client is free of responsibility and knowledge, the client meets the first prong of Craddock by showing his own lack of knowledge or lack of responsibility. Id. at 724.

Having reviewed the evidence adduced in support of Hahn's motion for new trial, we conclude that the first element of the Craddock test has been established. Hahn produced uncontroverted evidence to show that his attorney failed to perform his professional duties. Therefore, Hahn needed to show only his own lack of knowledge and responsibility. See id.

The uncontroverted evidence establishes the following facts: upon being served with the plaintiffs' petition, Hahn forwarded the petition and citation to attorney Brian T. McLaughlin, who routinely handled Hahn's legal matters, and asked McLaughlin to file an answer on his behalf. McLaughlin, who works for the law firm of Kerr & Ward, LLP, never filed an answer and did not inform Hahn that he would not represent him. Meanwhile, Kerr & Ward hired attorney Brad Miller, who represented the plaintiffs in the suit against Hahn. Miller continued to represent the plaintiffs against Hahn until April 17, 2002, when attorney James N. Stofer was designated lead counsel for the plaintiffs. On the same day Stofer took over the case for the plaintiffs, a default judgment was entered against Hahn.

Upon review of the Texas Rules of Professional Conduct, we conclude that McLaughlin had a professional duty to inform Hahn that he could no longer represent him because of a conflict of interest. Rule 1.06(a) states, "A lawyer shall not represent opposing parties to the same litigation." TEX.R.PROF'L CONDUCT 1.06(a). Rule 1.06(e) explains that "[i]f a lawyer would be prohibited by this Rule from engaging in particular conduct, no other lawyer while a member or associated with that lawyer's firm may engage in that conduct." Id. 1.06(e). Given that Miller represented the plaintiffs, neither McLaughlin nor any other attorney working for Kerr & Ward could represent Hahn, as Hahn and the plaintiffs were opposing parties to the same litigation. See id. Under rule 1.15, McLaughlin had to "give reasonable notice" to Hahn that he could not continue to represent him. See id. 1.15(d). McLaughlin also had a duty to take steps to the extent reasonably practicable to protect Hahn's interests. See id. The uncontroverted evidence shows that Hahn was never notified that McLaughlin would no longer represent him.

Given that McLaughlin did not perform his duties under the rules of professional conduct, the Craddock analysis focuses on whether Hahn proved that his failure to appear was unintentional and not the result of conscious indifference. See Lowe, 971 S.W.2d at 724. The uncontroverted evidence shows that on March 18, 2002, the same day Hahn was served, Hahn mailed the petition and citation to his attorney, along with instructions for his attorney to file an answer on his behalf. The evidence also shows that Hahn had no knowledge of his attorney's failure to file an answer until after the default judgment was entered against him on April 17, 2002. Based on this evidence, we conclude that Hahn satisfied the first prong of the Craddock test by negating the possibility of intentional or consciously indifferent conduct.

Next, we address the second prong of the Craddock test: whether Hahn set up a meritorious defense. See Craddock, 133 S.W.2d at 126. A meritorious defense is one that, if proved, would cause a different result upon retrial of the case, though it need not be a totally opposite result. Ferguson & Co. v. Roll, 776 S.W.2d 692, 698 (Tex.App.-Dallas 1989, no writ). A motion for new trial should be granted if the facts alleged in the motion and supporting affidavits set up a meritorious defense, regardless of whether those facts are controverted. Id. If the motion for new trial and affidavits raise several defenses, the second prong of the Craddock test will be satisfied if any one of its defenses qualifies as meritorious. Id.

The plaintiffs' petition asserted causes of action against Hahn for breach of fiduciary duty and constructive fraud. The plaintiffs' causes of action are both based on a fiduciary relationship between themselves and Hahn; however, Hahn's evidence in support of his motion for new trial showed that he was not a party to any contract with the plaintiffs and owed the plaintiffs no fiduciary duties. Hahn's evidence further showed that he had no agreements with his co-defendants, Core and Del Rio, to defraud the plaintiffs of their revenues. This evidence set up defenses that, if proved, would cause a different result upon retrial of the case. See id. Accordingly, we conclude that Hahn has met the second prong of the Craddock test.

The third prong of the Craddock test is that the defendant "file the motion for new trial when it would not cause delay or otherwise injure the prevailing party." Craddock, 133 S.W.2d at 126. In determining this factor, courts should deal with the facts on a case-by-case basis in order to do equity. Angelo v. Champion Rest. Equip. Co., 713 S.W.2d 96, 98 (Tex.1986). That a defendant offers to reimburse the plaintiff for costs associated with the default judgment and states it is prepared for immediate trial are factors to be considered in making such a case-by-case determination. Cliff v. Huggins, 724 S.W.2d 778, 779 (Tex.1987). Once a defendant alleges the granting of a new trial will not injure the plaintiff, the burden shifts to the plaintiff to establish proof of injury. Dir., State Employees Workers' Comp. Div. v. Evans, 889 S.W.2d 266, 270 (Tex.1994).

Hahn's motion stated that a new trial would not cause delay or prejudice to the plaintiffs. It...