Jefa Co., Inc. v. Mustang Tractor and Equipment Co.

• Citation: 868 S.W.2d 905
• Decision Date: 06 January 1994
• Docket Number: No. A14-93-00394-CV,A14-93-00394-CV
• Parties: JEFA COMPANY, INC., Appellant, v. MUSTANG TRACTOR AND EQUIPMENT COMPANY, and Caterpillar, Inc., Appellees. (14th Dist.)
• Court: Court of Appeals of Texas

Page 905

868 S.W.2d 905

JEFA COMPANY, INC., Appellant, v. MUSTANG TRACTOR AND EQUIPMENT COMPANY, and Caterpillar, Inc., Appellees.

No. A14-93-00394-CV.

Court of Appeals of Texas,

Houston (14th Dist.).

Jan. 6, 1994.

Rehearing Denied Jan. 27, 1994.

Rogdan Rentea, Austin, for appellant.

Gregory L. Baker, Washington, Fred W. Stumpf, Keith D. Peterson, Houston, for appellees.

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

OPINION

ELLIS, Justice.

Jefa Company, Inc., appellant, appeals the striking of its pleadings as sanctions for discovery abuse. Appellant sued Mustang Tractor and Equipment Company ("Mustang") and Caterpillar, Inc. ("Caterpillar"), referred to collectively as "appellees," seeking damages and an injunction. Appellant alleged that appellees violated TEX.BUS. & COM.CODE ANN. § 15.01 et seq. (Vernon 1987), claiming it had been forced to cease its operations as a result of appellees' acts. The trial court, finding that appellant abused discovery and violated court orders, struck appellant's pleadings. We affirm.

Appellant is a Texas corporation with its principal place of business in Oklahoma. It sells friction material parts for construction equipment and is controlled by Charles Rayl and his family. Western Friction is another company controlled by Charles Rayl and his family. It is also a Texas corporation with its principal place of business in Oklahoma and also sells friction material parts for construction equipment. Through discovery, appellees sought to show that appellant had not been forced to cease operations, but that it simply transferred its operations to Western Friction.

Sometime in June or July of 1992, Charles Rayl visited Mr. Beller, the Texas accountant for appellant and Western Friction, and picked up some, but not all, of appellant and Western Friction documents that were in Mr. Beller's possession. At his August 18th deposition in Oklahoma, Mr. Rayl testified that he was also expecting to receive a shipment of documents from Mr. Beller that very day.

On August 3, 1992, appellees caused a subpoena duces tecum to be served on Mr. Beller. At Mr. Beller's deposition on August 27th, he testified that when he was served with the subpoena duces tecum on August 3rd, he was in possession of responsive appellant and Western Friction financial records. He testified that, at the request of Mr. Rayl, he sent subpoenaed documents out of Texas to either Mr. Rayl or Mr. Bickford (Mr. Rayl's Oklahoma attorney) in Oklahoma. Mr. Beller stated that he sent a ten inch stack of documents to Oklahoma and specifically identified computer generated inventory runs and accounts receivable runs for Western Friction as being part of that stack.

Because Mr. Beller failed to produce the subpoenaed documents at his deposition, Mustang moved to compel their production. The trial court granted Mustang's motion on October 5th, ordering the documents to be produced by November 5th.

Separately, Caterpillar moved to compel the production of the subpoenaed documents that were sent out of Texas, requested the court to impose sanctions, and sought an oral hearing. At the October 19th hearing, the trial court ordered the documents to be produced by October 23rd, imposed a $500 sanction against Mr. Beller, and warned appellant that, because it was responsible for causing the documents to be taken out of Texas, failure to produce the documents could result in further sanctions, including the striking of appellant's pleadings.

On October 21st, counsel for appellant and Mr. Beller sent to Caterpillar a stack of documents less than two inches tall. The stack of documents did not contain the computer generated inventory runs and accounts receivable runs that Mr. Beller testified had been sent to Oklahoma. On November 20th, appellees moved to strike appellant's pleadings and on November 30th, the court held an oral hearing on the motion. In opposition to the motion, appellant contended that all responsive documents had been produced and that no documents had been sent to either Mr. Rayl or Mr. Bickford in violation of the subpoena duces tecum. In support of its position, appellant produced an affidavit by Mr. Beller. In the affidavit, Mr. Beller stated that he did not measure, but only estimated the size of the stack of documents he gave to Mr. Rayl. He also stated that he never sent any documents to Oklahoma, but that Mr. Rayl picked them up at his office. Mr. Beller did not offer any explanation as to why the computer generated inventory runs and accounts receivable runs did not appear in the stack of documents that appellant produced.

Appellees refuted Mr. Beller's affidavit by highlighting the numerous contradictions between his affidavit and deposition testimony. Appellees further demonstrated that Mr. Beller's deposition testimony was consistent with the contemporaneous deposition testimony of Mr. Rayl. In addition, appellees offered, for the trial court's review, the small stack of documents produced by appellant and showed that the stack contained neither computer generated inventory runs nor accounts receivable runs. The trial court found that appellant failed to produce documents as ordered, notwithstanding the prior imposition of lesser sanctions. The court then struck appellant's pleadings.

Appellant asserts eight points of error. First, that the trial court did not give appellant the opportunity to comply with its order before imposing sanctions. Second, that striking appellant's pleadings is not appropriate under the circumstances. Third, that appellant and its counsel did not engage in past inappropriate conduct with respect to discovery. Fourth, that the trial court should have held an evidentiary hearing before ruling on the motion for new trial. Fifth, that the trial court should have held an evidentiary hearing before ruling on the motion to strike. Sixth, that findings of fact numbers 20 and 21 are in error because they are against the great weight and preponderance of evidence. Seventh, that findings of fact numbers 23-26 are in error because they are against the great weight and preponderance of the evidence. Eighth, that conclusions of law numbers 2-5 are in error because they are against the great weight and preponderance of evidence.

Appellant's first through third points of error deal with the trial court's decision concerning the discovery abuse and sanctions. The choice of sanctions to be imposed after a party abuses the discovery process is left within the sound discretion of the trial court. Transamerican Natural Gas Corp. v. Powell, 811 S.W.2d 913, 917 (Tex.1991). The only restrictions placed upon this discretion are that the sanctions must be "just" and consistent with constitutional due process. Id. The supreme court in Transamerican set out a two prong test to determine whether a sanction is "just." "First, a direct relationship must exist between the offensive conduct and the sanction imposed." Id. This means that the sanction must remedy the innocent party and punish the actual offender, i.e., either the party or its counsel. Id. "Second, just sanctions must not be excessive." Id. In other words, the punishment must fit the crime. Trial courts must consider lesser sanctions before deciding on the death penalty. Id. Furthermore, ultimate sanctions violate due process absent a party's flagrant bad faith or counsel's callous disregard for the discovery process. Id. at 918. If a trial court stays within these boundaries when imposing sanctions, its discretion is abused only if "it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law." See Walker v. Packer, 827 S.W.2d 833, 839 (Tex.1992) (quoting Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex.1985)). Thus, we will review the trial court's actions in points one through three under the abuse of discretion standard using the requirements set out in Transamerican.

Appellant asserts in its first point of error that the trial court gave neither it nor Mr. Beller the opportunity to comply with the order to produce the documents before imposing sanctions. Appellant complains that Mr. Beller still had seventeen (17) days left to comply with the October 5th order to produce by November 5th when the court amended that order to require production by October 23rd. Appellant overlooks the fact that it had fourteen (14) days prior to the amending of the October 5th order to comply with it. Furthermore, by the November 30th hearing on sanctions, appellant still had not complied with either order. The trial court did not abuse its discretion in holding that appellant's noncompliance with the two court orders by November 30th was sufficient to impose sanctions. Appellant's first point of error is overruled.

In its second point of error, appellant argues that striking its pleadings is not an appropriate remedy since the discovery dispute did not relate to the actions of appellant or its officers, directors, or managing agents, or persons designated under the Rules to testify on its behalf. Instead, the trial court ordered Mr. Beller, a nonparty, to produce the documents. Appellant relies on Pope v. Davidson, 849 S.W.2d 916 (Tex.App.--Houston [14th Dist.] 1993, no writ) for the proposition that Rule 215 sanctions do not apply to nonparties, but instead only apply to "the disobedient party" or "the attorney advising him." Id. at 920; TEX.R.CIV.P. 215(2)(b). This court in Pope held that the appropriate sanction for a nonparty's noncompliance with discovery is placing the nonparty in contempt of court. Pope, 849 S.W.2d at 920. We agree with that holding.

However, appellant overlooks the fact that it is the disobedient party in this case and thus, Rule 215 sanctions do apply. Under Transamerican, "the sanction should be visited upon the offender." Transamerican Natural Gas Corp., 811 S.W.2d at 917. Appellant is deemed the disobedient party or the "offender" because it is...