NOVOSAD v. BRIAN CUNNINGHAM

• Decision Date: 01 February 2001
• Citation: 38 S.W.3d 767
• Parties: <!--38 S.W.3d 767 (Tex.App.-Houston 2001) B. L. NOVOSAD, D.D.S., Appellant v. BRIAN K. CUNNINGHAM, P.C., Appellee NO. 14-98-01213-CV In The Fourteenth Court of Appeals
• Court: Texas Court of Appeals

Page 767

38 S.W.3d 767 (Tex.App.-Houston [14th Dist.] 2001)

B. L. NOVOSAD, D.D.S., Appellant v BRIAN K. CUNNINGHAM, P.C., Appellee

NO. 14-98-01213-CV

In The Fourteenth Court of Appeals

February 1, 2001.

On Appeal from the County Court at Law No. 2 Fort Bend County, Texas Trial Court Cause No. 16382

[Copyrighted Material Omitted] Panel consists of Justices Sears, Draughn, and Lee.^*

OPINION

Ross A. Sears, Justice (Assigned).

B. L. Novosad, D.D.S., (Novosad) appeals from a no-answer default judgment against him in favor of Brian K. Cunningham, P. C. (Cunningham) in a suit on a sworn account for professional accounting services. In four points of error, Novosad contends the trial court erred: (1) in holding that the bankruptcy stay for his professional corporation was not applicable to this cause of action; (2) in denying his motion for new trial; (3) in holding that notice was properly given in Cunningham's nonsuit against his professional corporation and motion for default judgment; and (4) in awarding Cunningham damages. We affirm.

BACKGROUND

Cunningham performed accounting services for Novosad for four months in 1995, and sent bills for $4,395.00 to both Novosad's professional corporation and Novosad individually. Neither Novosad nor his professional corporation paid, and Cunningham sued Novosad's professional corporation and Novosad individually for his services. On April 14, 1998, Novosad was personally served with two citations, individually and as the agent for his professional corporation. On May 6, 1998, Novosad's professional corporation filed notice of bankruptcy in these proceedings. Novosad did not file bankruptcy for himself, and gave notice of bankruptcy for his professional corporation only. Novosad did not file an answer for his professional corporation or himself. Cunningham nonsuited Novosad's professional corporation on July 2, 1998. On the same date, Cunningham filed his motion for default judgment against Novosad individually. Cunningham did not send Novosad notices of his nonsuit or motion for default judgment. On July 28, 1998, the trial court entered final default judgment against Novosad individually. Novosad filed his motion for new trial on August 25, 1998. Cunningham filed his motion in opposition to Novosad's motion for new trial. Novosad did not appear at the hearing on his motion for new trial, and the trial court heard argument only on affidavits filed by the parties. The trial court entered its order denying Novosad's motion for new trial on September 22, 1998.

THE AUTOMATIC STAY

In point one, Novosad contends the trial court erred in holding that the bankruptcy stay under Section 362 of the Bankruptcy Code for his corporation did not halt the proceedings against him individually. 11 U.S.C.A. § 362 (West 1993 & Supp. 2000). Novosad filed no answer for himself individually, and contends that he is a nondebtor defendant to which his corporation's stay applies because Cunningham alleged that Novosad and his corporation were the alter ego of each other and were jointly and severally liable. Because Cunningham was proceeding on the theory of joint liability, joint enterprise, and alter ego, Novosad asserts he is entitled to protection of the automatic stay granted his corporation under S.I. Acquisition, Inc., v Eastway Delivery Serv., Inc., 817 F.2d 1142, 1147-50 (5th Cir.1987) in order to protect the assets of the corporation from any "joint" liability.

Ordinarily, the automatic stay under section 362 does not extend to actions against parties other than the debtor, such as codebtors, guarantors, sureties, or other nondebtor parties. Audio Data Corp. v. Monus, 789 S.W.2d 281, 286 (Tex.App.--Dallas 1990, no writ); In re Chugach Forest Products, Inc., 23 F.3d 241, 246 (9th Cir.1994); United States v. Dos Cabezas Corp., 995 F.2d 1486, 1491 (9th Cir.1993); Wedgeworth v. Fibreboard Corp., 706 F.2d 541, 544 (5th Cir.1983). An exception to this general rule is sometimes utilized in situations where the assets of the bankruptcy estate would be jeopardized in allowing court proceedings to proceed against the codefendant. Dos Cabezas, 995 F.2d at 1491; S.I. Acquisition, Inc. v. Eastway Delivery Serv., Inc., 817 F.2d 1142, 1147-50 (5th Cir.1987); A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 999 (4th Cir.), cert. denied, 479 U.S. 876, 107 S.Ct. 251, 93 L.Ed.2d 177 (1986). To be entitled to this exception, however, the codefendant must demonstrate either that (1) there is such identity between the debtor and the codefendant that the debtor may be said to be the real party defendant and that a judgment against the third-party defendant will in effect be a judgment or finding against the debtor, or (2) that extending the stay against the codefendant contributes to the debtor's efforts of rehabilitation. Dos Cabezas, 995 F.2d at 1491 n. 3. Novosad offered no evidence to establish either of these two conditions. Therefore, Novosad is not entitled to the exception. See Beutel v. Dallas County Flood Control Dist., No. 1, 916 S.W.2d 685, 692-693 (Tex.App.-Waco 1996, pet. denied). Novosad's first point of error is overruled.

MOTION FOR NEW TRIAL

In his second point of error, Novosad contends the trial court erred in denying his motion for new trial. He asserts that he proved he has met the three requirements of Craddock v. Sunshine Bus Lines, 133 S.W.2d 124, 126 (Tex.1939) and should be entitled to a new trial.

The test set forth in Craddock requires that a defaulting defendant seeking a new trial: (1) demonstrate that its failure to file an answer or appear was not intentional or the result of conscious indifference, but was due to mistake or accident; (2) offer a meritorious defense; and (3) demonstrate that granting a new trial will not result in delay or prejudice to the plaintiff. See id. The appropriate standard of review of a trial court's decision to grant or deny a motion for new trial is abuse of discretion. See Jackson v. Van Winkle, 660 S.W.2d 807, 809 (Tex.1983); Vannerson v. Vannerson, 857 S.W.2d 659, 663 (Tex.App.--Houston [1st Dist.] 1993, writ denied). When all three elements of the Craddock test are met, the trial court abuses its discretion by not granting a new trial. See Bank One, Texas, N.A. v. Moody, 830 S.W.2d 81, 85 (Tex.1992).

In his motion for new trial, Novosad alleged that he satisfied the first prong of Craddock because his failure to file an answer was not the result of intentional or conscious indifference, "but [was] Defendant's reliance upon the statutory automatic stay against proceedings in this matter." The motion further stated that Cunningham did not give him notice of his nonsuit against Novosad's professional corporation. Because of this lack of notice, he was not "apprised that proceedings in this cause could commence" and he did not answer.

The only evidence submitted with Novosad's motion was an affidavit of one of his attorneys in this cause, Michael L. Durham. Mr. Durham first concluded that his firm entered a general appearance on behalf of Novosad's professional corporation by filing a notice of bankruptcy as to his corporation. He then alleges that he received no notice of Cunningham's nonsuit of Novosad's corporation and his motion for default judgment. He then contends: "[A]s a result of Plaintiff's failure to properly notify counsel of record, Defendant B. L. Novosad, D.D.S., had no notice that this cause of action could proceed, and that it was permissible to file an answer to the lawsuit allegations." He then concludes that "[D]efendant B. L. Novosad, D.D.S.'s failure to file an answer in this matter was neither intentional nor the result of conscious indifference, but was due to mistake or accident. Defendant B. L. Novosad, D.D.S. has a meritorious defense to Plaintiff's allegations. A new trial would not occasion delay or otherwise work injury to the Plaintiff."

In his motion, Novosad stated his meritorious defense was that "he is not liable in the capacity in which he has been sued in this matter." He asserts that the debt which Cunningham seeks to collect is corporate debt of Novosad's professional corporation, and Novosad has no individual liability for this debt.

Novosad contends in his brief that Cunningham's failure to serve notices of his nonsuit and motion for default judgment, as well as Novosad's reliance on the automatic stay, led to his failure to answer. After Cunningham received the notice of bankruptcy, he sent a FAX to Novosad's attorney telling him that the bankruptcy stay did not stay the proceedings against Novosad individually and if he had any information or case law to the contrary, to please advise Cunningham. Novasad's attorney replied that "no further pleadings should be filed while the stay is in effect," and "any attempt to proceed in state court shall constitute contempt in the United States Bankruptcy Court." Novosad makes no legal argument nor cites any authority as to why his failure to receive notices of Cunningham's motion for nonsuit and motion for default judgment prevented him from filing a timely answer. This subpoint, under point of error two, is waived. Tex. R. App. P. 38.1(h); Howell v. Murray Mortg. Co., 890 S.W.2d 78, 81 (Tex.App.-Amarillo 1994, writ denied).

Novosad's professional corporation could rely on the automatic stay as to the case against it, but as we stated under point one, Novosad has not produced any evidence to show that the exception to the general rule for nondebtors applies here. Novosad was informed that Cunningham did not agree that the stay applied to his case individually, but he chose to disagree with Cunningham on this point and not file an answer.

Novosad's attorney now contends these factors should demonstrate that he has complied with the first prong of Craddock and his failure to file was not intentional or the result of conscious indifference, but was due to mistake or accident. The essence of Novosad's evidence is that he did not file an answer...