In re United Fire Lloyds

• Decision Date: 24 April 2019
• Docket Number: NO. 12-19-00065-CV,12-19-00065-CV
• Parties: IN RE: UNITED FIRE LLOYDS, Relator
• Court: Texas Court of Appeals

578 S.W.3d 572

IN RE: UNITED FIRE LLOYDS, Relator

NO. 12-19-00065-CV

Court of Appeals of Texas, Tyler.

Opinion delivered April 24, 2019

W. Perry Zivley Jr., Kirk Mathis, George E. Chandler, Houston, for Real party in interest Inner Pipe Pipeline, LLC.

Joe M. Dodson, Beaumont, for Relator United Fire Lloyds.

Panel consisted of Worthen, C.J., Hoyle, J. and Neeley, J.

MEMORANDUM OPINION

Greg Neeley, Justice.

United Fire Lloyds filed this original proceeding in which it challenges Respondent's decision to quash Lloyds's depositions on written questions with subpoena duces tecum to non-parties.¹ We conditionally grant the writ in part.

BACKGROUND

Inner Pipe Pipeline, LLC, the Real Party in Interest, owned a Commercial Property, Commercial Auto, and Inland Marine insurance policy issued by Lloyds. When Inner Pipe's property was damaged by fire, Inner Pipe filed a claim with Lloyds. Alleging that Lloyds refused to cover the damage and denied Inner Pipe's claim, Inner Pipe subsequently sued Lloyds for fraud, breach of contract, breach of the duty of good faith and fair dealing, and violations of the Texas Deceptive Trade Practices Act and the Texas Insurance Code.

In its answer, Lloyds alleged that Inner Pipe's principal, Edward D. Dailey, "intentionally set the fire or otherwise caused the fire to be set" and had the "motive, opportunity and means to set the fire, and there is substantial other evidence linking Dailey to the fire." Lloyds alleged that Inner Pipe's "coverage is void and/or otherwise excluded as a result of fraud and/or misrepresentations committed by [Inner Pipe], acting by and through [Dailey]," including the following:

(1) In committing arson by intentionally setting the fire in issue or causing it to be set;

(2) In concealing and failing to disclose, after directly asked, that previous businesses of which he had an interest had previous fire claims, when in truth he had multiple previous fire losses involving equipment belonging to DaileyCo, including one in which he was paid $ 80,000 in 2007, and another in which he was paid $ 140,000 in 2008;

(3) In failing to provide key documents to [Lloyds] in its investigation, including, but not limited to the invoice from Vermeer dated March 22, 2016, less than two months before the fire, documenting serious conditions to one of the pieces of equipment requiring replacement or repair, for which [Inner Pipe's] principal chose not to make, instructing Vermeer to re-install as is. Dailey provided other repair invoices to one of [Lloyds's] agents, but failed to provide the March 22, 2016 invoice;

(4) In making false claims in his sworn proof of loss, including, but not limited to, making a claim for three bear mounts with a value of $ 9600, as well as other animal mounts; in claiming he had a Rolex watch valued at $ 6500, kept in a bed side drawer which was destroyed by the fire; in claiming to have lost in the fire two F-5 Locators, valued at $ 10,500 each; and in claiming to have lost a $ 3000 Drone as a result of the fire; and

(5) In providing false testimony in his examination under oath.

Lloyds asserted arson and fraud, and denied liability on grounds that the fire resulted from an "incendiary origin," and Dailey intentionally set the fire or otherwise caused the fire to be set.

Lloyds also sought discovery of information regarding allegedly fraudulent tickets. According to an affidavit from Dailey's former bookkeeper, Darlene Estes, Dailey purchased blank tickets from Lufkin Printing with the name "Far South Mining," completed the tickets with false information indicating materials purchased from Far South, and submitted the tickets to Pumpco, Inc. for payment. She further averred that this occurred during her employ with both DCI Construction, which she maintained was owned by Edward and Debra Dailey, and Inner Pipe. Thus, Lloyds sought to take depositions by written questions with a subpoena duces tecum of the custodians of records for Pumpco, Far South Mining, Western Gas Partners, L.P., Lufkin Printing, and Gabriel/Jordan Ford.² The notices requested various documents, such as tickets, from January 1, 2012 or 2013 through July 1, 2016. Inner Pipe filed a motion to quash and for protection from discovery. After a hearing, Respondent concluded that the discovery was overly broad, overly burdensome, and not reasonably calculated to lead to admissible evidence. He granted Inner Pipe's motion to quash.

On December 12, 2018, Lloyds signed new deposition notices to the custodians of records for Far South, Western Gas, Lufkin Printing, and Pumpco. Lloyds asked the four non-parties to provide information regarding a range of ticket numbers that Lufkin Printing printed for Dailey, some of which Lloyds believed Dailey later fraudulently submitted for payment. From Far South, Lloyds sought "[a]ll invoices, tickets and/or statements pertaining to: Far South Mining Ticket Nos. 10851-10897 and 71502-77000." Western Gas was asked to provide "[a]ll invoices, tickets, checks and/or statements pertaining to: Inner Pipe Pipeline, LLC and/or DCI Timber Inc. dba DCI Construction referencing Far South Mining Ticket Nos. 10851-10897 and 71502-77000." The notice to Lufkin Printing requested "[a]ll records pertaining to the purchase of Far South Mining Receipt Books (Reference No. 143267) purchased by Inner Pipe Pipeline, LLC and/or Edward Dailey." And the notice to Pumpco sought the following:

1. All invoices, tickets, checks and/or statements pertaining to: Inner Pipe Pipeline, LLC and/or DCI Timber Inc. dba DCI Construction referencing Far South Mining Ticket Nos. 10851-10897 and 71502-77000

2. All invoices, tickets, checks and/or statements pertaining to: Inner Pipe Pipeline, LLC and/or DCI Timber Inc. dba DCI Construction referencing Tuleta Stone Ticket Nos. 6200-6417

On December 19, Inner Pipe filed another motion to quash and for protection. Inner Pipe asked Respondent to prohibit or severely limit the requested discovery in scope and time. At the hearing on Inner Pipe's motion, Lloyds's counsel explained that the range of tickets requested was based on the number printed by Lufkin Printing at Dailey's request and the range could not be narrowed down any further because of uncertainty regarding which tickets Daily submitted that were fraudulent. Counsel further explained that the evidence would be admissible to prove intent, absence of mistake, and motive or scheme. According to counsel, Lloyds discovered numerous false acts allegedly committed by Dailey and Dailey's business was in "dire trouble" before the fire. Lloyds represented that it would accept the first forty documents, within the range, secured by the non-parties that are responsive to the propounded requests.

At the conclusion of the hearing, Respondent granted Inner Pipe's motion, finding that the discovery was overburdensome and would not reasonably lead to admissible evidence. Respondent did not believe the evidence to be relevant "because it still has to go to who set the fire, why was a fire set, was he defrauding the insurance company." On January 4, 2019, Respondent signed an order granting the motion and holding that the proposed discovery is overly broad, harassing, unduly burdensome, and not reasonably calculated to lead to the discovery of admissible evidence. Respondent also granted the motion for protection "in its entirety." This original proceeding followed.³

PREREQUISITES TO MANDAMUS

Mandamus is an extraordinary remedy. In re Sw. Bell Tel. Co., L.P. , 235 S.W.3d 619, 623 (Tex. 2007) (orig. proceeding). A writ of mandamus will issue only when the relator has no adequate remedy by appeal and the trial court committed a clear abuse of discretion. In re Cerberus Capital Mgmt., L.P. , 164 S.W.3d 379, 382 (Tex. 2005) (orig. proceeding). The relator has the burden of establishing both prerequisites. In re Fitzgerald , 429 S.W.3d 886, 891 (Tex. App.—Tyler 2014, orig. proceeding.). In the discovery context, the remedy by appeal is inadequate when (1) the appellate court would be unable to cure the trial court's discovery error, (2) the party's ability to present a viable claim or defense at trial is vitiated or severely compromised by the trial court's discovery error, or (3) the trial court disallows discovery and the missing discovery cannot be made part of the appellate record or the trial court, after a proper request, refuses to make it part of the record, and the reviewing court cannot evaluate the effect of the trial court's error. Walker v. Packer , 827 S.W.2d 833, 843-44 (Tex. 1992) (orig. proceeding). Because the quashed discovery pertains to Lloyds's alleged defenses and, having been quashed, cannot be made part of the appellate record, mandamus review is available. See id.

ABUSE OF DISCRETION

Lloyds disputes Respondent's findings that the requested discovery is overly broad, harassing, unduly burdensome, and not reasonably calculated to lead to the discovery of admissible evidence. Thus, Lloyds maintains that Respondent abused his discretion by granting Inner Pipe's motion to quash and for protection from discovery.

Standard of Review and Applicable Law

A trial court abuses its discretion when it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law or if it clearly fails to correctly analyze or apply the law. Cerberus Capital , 164 S.W.3d at 382. This standard has different applications in different circumstances. Walker , 827 S.W.2d at 839. When reviewing the trial court's resolution of factual issues or matters committed to its discretion, we may not substitute our judgment for that of the trial court. Id. The relator must show that the trial court could reasonably have reached only one conclusion. Id. at 840. Our review of the trial court's determination of the legal principles controlling its ruling is much less deferential. Id. This is because a trial court has no discretion in determining what the law is or applying the law to the facts. Id.

...