Paradigm Oil, Inc. v. Retamco Operating, Inc.

• Decision Date: 17 August 2012
• Docket Number: No. 10–0997.,10–0997.
• Citation: 372 S.W.3d 177,55 Tex. Sup. Ct. J. 962
• Parties: PARADIGM OIL, INC., Pacific Operators, Inc., Pacific Operators of Texas, Inc. and Finley Oil Well Service, Inc., Petitioners, v. RETAMCO OPERATING, INC., Respondent.
• Court: Texas Supreme Court

372 S.W.3d 177

55 Tex. Sup. Ct. J. 962

PARADIGM OIL, INC., Pacific Operators, Inc., Pacific Operators of Texas, Inc. and Finley Oil Well Service, Inc., Petitioners,

v.RETAMCO OPERATING, INC., Respondent.

No. 10–0997.

Supreme Court of Texas.

Argued Feb. 9, 2012.

Decided June 22, 2012.

Rehearing Denied Aug. 17, 2012.

Susan S. Vance, Douglas W. Alexander, Alexander Dubose & Townsend, LLP, Thomas R. Phillips, Dustin Mark Howell, Baker Botts, LLP, Austin, TX, Juan M. Castillo, Roger G. Bresnahan, Farrimond Castillo & Bresnahan PC, Jeffrey D. Small, Law Office of Jeff Small, San Antonio, TX, Leslee N. Haas, Hays McComm Rice & Pickering, Houston, TX, Craig Price, Nathan C. Rogers, Griffith & Thornburgh, LLP, Santa Barbara, CA, Charles Rudolph Grebing, Wingert Grebing Brubaker & Juskie LLP, San Diego, CA, for Paradigm Oil, Inc.

James L. Drought, Calhoun Bobbitt, Drought Drought & Bobbitt LLP, Timothy Patton, Timothy Patton, PC, San Antonio, TX, for Retamco Operating, Inc.

Justice MEDINA delivered the opinion of the Court.

Texas Rule of Civil Procedure 215.2(b)(5) authorizes a trial court to render a default judgment against a defendant for discovery abuse, justice and due process permitting. Commonly known as the death-penalty sanction, it is the remedy of last resort.

Discovery abuse in this case caused the trial court to strike the defendants' answer and render a default judgment. In addition to striking the defendants' answer, the discovery sanction also barred the defendants from contesting the plaintiff's damages. Because these damages were unliquidated, however, the plaintiff was required to prove them at an uncontested hearing.

The defendants do not deny their discovery abuse, nor do they question the trial court's decision to strike their pleadings and render judgment by default. Rather, they complain that the trial court abused its discretion by barring them from the damages trial. The defendants maintain that this extension of the death-penalty sanction was excessive, unjust, and therefore an abuse of discretion.

The court of appeals did not agree, holding that the discovery sanction was neither excessive nor an abuse of the trial court's discretion. The court of appeals, however, remanded the case twice on legal insufficiency grounds before affirming the uncontested damages award in this, the third appeal. See Paradigm Oil, Inc. v. Retamco Operating, Inc., 161 S.W.3d 531 (Tex.App.-San Antonio 2004, pet. denied) (Paradigm I ), on remand,242 S.W.3d 67 (Tex.App.-San Antonio 2007, pet. denied) (Paradigm II ), on remand,330 S.W.3d 342 (Tex.App.-San Antonio 2010) (Paradigm III ). Because we conclude that the defaulted defendants should have been permitted to participate in the hearing on unliquidated damages, we reverse the court of appeals' judgment and remand the case to the trial court for further proceedings.

I

The case arises out of the conveyance of oil and gas properties by Retamco Operating, Inc. almost thirty years ago. Following an economic downturn in 1984, Retamco conveyed 572 oil and gas leases to PNB Securities Corporation under a debt workout agreement (the 1984 Agreement). The agreement was complex. Under it, Retamco retained certain rights, including overriding royalty interests ¹ and after-payout working interests ² in certain wells PNB financed. The 1984 Agreement further allowed Retamco to continue operating certain leases in production, entitled Retamco to notice of lease terminations, sales, or assignments, and granted Retamco the option to retain certain leases that might otherwise terminate. Retamco was also to be notified when certain wells reached payout so it could elect to share in the working interest. The agreement obligated PNB to prepare a document describing Retamco's rights and record it in all applicable counties. PNB was further to notify those acquiring an interest in any of the leases of Retamco's rights and interests under the 1984 Agreement.

In 1999, Retamco sued multiple parties for damages under the 1984 Agreement. By the time of the suit, PNB had divested itself of all the leases covered under the agreement, with the last sixty-two leases having been sold to Paradigm Oil, Inc. in 1993. Before this sale, Paradigm operated one of the leases for PNB for a number of years.

Retamco's suit named both PNB and Paradigm as defendants. Retamco also joined other defendants, including PNB's successor, Bank of America,³ and three Paradigm affiliates, Pacific Operators, Inc., Pacific Operators of Texas, Inc., and Finley Oilwell Service, Inc.⁴ Alleging breach of contract and fraud, Retamco complained that it had not been notified of well proposals as required under the 1984 Agreement and had thereby lost the opportunity to participate in several wells. Retamco also accused Paradigm of overcharging for operating expenses and otherwise diverting proceeds, which allegedly caused Retamco to lose royalty and working-interest revenues. Retamco further alleged that Paradigm had succeeded to PNB's obligations under the 1984 Agreement by its purchase of the sixty-two leases in 1993 and was therefore jointly and severally liable for its damages.

Paradigm denied Retamco's allegations but after answering the lawsuit generally refused to participate in discovery. Retamco sought sanctions. The trial court conducted hearings on the matter, and Paradigm was ordered to pay discovery-related expenses and to provide discovery. When Paradigm failed to meet the trial court's discovery deadline, Retamco again moved for sanctions. Another hearing was conducted after which the court granted Retamco's motion, striking Paradigm's answer and rendering a $1.6 million default judgment. ⁵ In sanctioning Paradigm for discovery abuse, the trial court's order not only precluded Paradigm from contesting its liability but also Retamco's damages, stating:

Paradigm Oil, Inc., Pacific Operators, Inc. and Pacific Operators of Texas, Inc., may not, and are disallowed to, oppose Plaintiff's ... claims to overriding royalty interests, damages, exemplary damages, pre-judgment interest, or attorney's fees, whether by cross examination, objection to evidence offered, or offer of evidence[.]

Paradigm moved for a new trial, produced everything it believed Retamco requested, and offered to reimburse Retamco's legal expenses. The trial court denied the motion and thereafter severed the default judgment into a separate cause, making it a final judgment. Paradigm appealed.

The court of appeals affirmed the discovery sanction in the first appeal but did not affirm the default judgment itself. See Paradigm I, 161 S.W.3d at 534. Concluding that the record contained no evidence to support the $1.6 million award, the court reversed the judgment and remanded the case for a new damages hearing. Id. at 540. Meanwhile in the trial court, Retamco obtained a similar death-penalty sanction against Finley, the Paradigm affiliate that had not been included in the previous default judgment.

After the remand in Paradigm I, Retamco endeavored to prove its damages in two separate trials—one against Paradigm and affiliates Pacific Operators and Pacific Operators of Texas and the other against Finley. The two trials together resulted in approximately $5.6 million in actual damages and $40 million in punitive damages ($10 million for each of the four defendants). Paradigm and Finley separately appealed their respective judgments, and the court of appeals again reversed, holding the evidence to be legally insufficient to support the damages awarded in either trial. See Paradigm II, 242 S.W.3d at 69;Finley Oilwell Serv., Inc. v. Retamco Operating, Inc., 248 S.W.3d 314 (Tex.App.-San Antonio 2007, pet. denied).

After these reversals, the severed actions against Paradigm and Finley were consolidated for a fourth damages trial. Once again the defendants were not permitted to participate. At the conclusion of this uncontested trial, Retamco was awarded more than $35 million, which included $20 million in exemplary damages. On the third appeal, the court of appeals reduced the judgment by $1.25 million ⁶ but otherwise affirmed the trial court's judgment. See Paradigm III, 330 S.W.3d at 347. As it had done in the previous two appeals, Paradigm petitioned this Court for review.

II

Paradigm's petition does not contest the trial court's decision to strike its answer as a discovery sanction or the default judgment rendered against it on liability. Paradigm's appeal focuses instead on its exclusion from the trial on damages. As a general rule, a defaulted defendant has the right to participate in such a trial when, as here, the plaintiff's damages are unliquidated. Rainwater v. Haddox, 544 S.W.2d 729, 733 (Tex.Civ.App.-Amarillo 1976, no writ) (citing, inter alia, Maywald Trailer Co. v. Perry, 238 S.W.2d 826, 827–28 (Tex.Civ.App.-Galveston 1951, writ ref'd n.r.e.)). Paradigm contends that the trial court therefore abused its discretion by extending the discovery sanction to bar its participation at this trial.

Retamco responds that Paradigm waived this complaint by not raising the issue in the court of appeals. It points out that Paradigm's most recent brief in the court of appeals complained about several things but not about the discovery sanction itself. Even though the court of appeals previously upheld the sanction in the first appeal, Retamco maintains that Paradigm needed to brief and argue the issue in the court of appeals once again to preserve it for our review.

Retamco's argument, however, ignores the law-of-the-case doctrine. Under this doctrine, a decision rendered in a former appeal of a case is generally binding in a later appeal of the same case. Briscoe v. Goodmark Corp., 102 S.W.3d 714, 716 (Tex.2003). Having decided the issue in Paradigm I, the court of appeals was not obligated to reconsider the matter in subsequent appeals. Id. Neither was Paradigm required to reargue the issue in a court that already decided the matter.

Such a...