Royal Zenith Corp. v. Martinez

• Decision Date: 25 July 1985
• Docket Number: No. 10-84-195-CV,10-84-195-CV
• Citation: 695 S.W.2d 327
• Parties: ROYAL ZENITH CORPORATION, Appellant, v. Jesse MARTINEZ, Appellee.
• Court: Texas Court of Appeals

Page 327

695 S.W.2d 327

ROYAL ZENITH CORPORATION, Appellant, v. Jesse MARTINEZ, Appellee.

No. 10-84-195-CV.

Court of Appeals of Texas,

Waco.

July 25, 1985.

Rehearing Denied Aug. 22, 1985.

Beverly Willis, Naman, Howell, Smith & Lee, P.C., Savannah Robinson, Smith, Ralston, Russell & Wright Waco, for appellant.

Dale W. Williams, Williams, Pattillo & Squires, Waco, for appellee.

OPINION

THOMAS, Justice.

This is an appeal from the denial of a motion for a new trial following the entry of a default judgment against Royal Zenith Corporation (Royal Zenith). Jesse Martinez, plaintiff-appellee, sued Royal Zenith, defendant-appellant, for personal injuries that he received while cleaning a machine that Royal Zenith had designed and manufactured. When Royal Zenith failed to answer Martinez' petition, the court entered a default judgment against Royal Zenith and awarded Martinez $750,000 damages. Royal Zenith then filed a motion to set aside the default judgment and to obtain a new trial, but the motion was denied following a hearing. Royal Zenith appeals claiming that the court abused its discretion when it denied the motion for a new trial.

The evidence at the hearing established that Martinez' petition was originally served on C.T. Corporation, Royal Zenith's registered agent for service of process in Texas. C.T. Corporation forwarded the petition to Jerome Greenstein, a senior vice-president and the chief financial officer of Royal Zenith. Greenstein sent a copy of the petition to Stuart Poller, Royal Zenith's in-house counsel, and the original petition, accompanied by a transmittal letter, to Hugo Vivero, the manager of financial analysis and cost accounting for Royal Zenith. Vivero indicated that he had received the petition by initialling the transmittal letter and sending it back to Greenstein. Under Royal Zenith's procedure, Vivero was then responsible for forwarding copies of the petition to: (1) Johnson & Higgins, the insurance brokerage firm for Royal Zenith; (2) James Doumas, the risk manager for Tyson-Kissner-Moran Corporation, Royal Zenith's parent corporation; and (3) General Adjustment Bureau (GAB), the servicing agent for American International Group (AIG), Royal Zenith's liability insurance carrier. However, none of these recipients received a copy of Martinez' petition, and an answer was never filed.

After the answer date had passed without an answer being filed, Martinez' counsel, Dale Williams, attempted to contact someone at Royal Zenith to inform them that they were in default. Williams discussed the matter with Peter Ryan, who was a claims adjuster for Liberty Mutual Insurance Company, which had previously been Royal Zenith's liability carrier. Ryan then called Doumas, the risk manager for Royal Zenith's parent corporation, to inform him of the default. Doumas thought that Ryan was referring to Meister v. Royal Zenith Corp., a Florida suit in which a default judgment had been entered against Royal Zenith a few weeks earlier. Doumas thanked Ryan for calling, explained that he had already taken care of the matter and dismissed Ryan's call from his mind. When no answer was filed following Williams' attempt to contact Royal Zenith, Martinez presented evidence of his damages to the trial court and received a default judgment for $750,000. Upon receiving notice of the default judgment, Royal Zenith hired local counsel to file a motion to set aside the default judgment and to obtain a new trial.

To obtain a new trial after the default judgment, Royal Zenith had the burden of: (1) proving that its failure to answer was not intentional or the result of conscious indifference on its part, but was due to mistake or accident; (2) setting up a meritorious defense; and (3) proving that a new trial would not injure Martinez or cause a delay. See Craddock v. Sunshine Bus Lines, 134 Tex. 388, 133 S.W.2d 124 (1939). At the hearing on the motion for a new trial, Royal Zenith agreed to pay all of Martinez' costs in taking the default judgment and defending the motion for a new trial. The parties also agreed that Royal Zenith had set up a meritorious defense and that granting the motion for a new trial would not cause a delay to Martinez. Thus, the only question for the trial court to determine was whether Royal Zenith's failure to answer was intentional, the result of conscious indifference or merely an accident or mistake.

Royal Zenith tried to show that its failure was not intentional or the result of conscious indifference. To support its claim, Royal Zenith argued that it had established a procedure for making sure that petitions were channeled to the proper persons so as to avoid default judgments. It contended that the mere existence of this procedure was evidence that the company was not indifferent toward lawsuits filed against it. Royal Zenith contended that, in this instance, something unknown had happened to Martinez' petition which prevented it from being forwarded to GAB in the usual manner. Royal Zenith suggested that the papers were lost in the mail because GAB had changed addresses and personnel without notifying it. According to Royal Zenith, no one was aware of the papers on the day the answer was due and the documents have never been found. Therefore, Royal Zenith reasoned that, whatever happened to the petition, the petition was not consciously mishandled, and therefore Royal Zenith could not have been consciously indifferent when it failed to file an answer.

Martinez controverted Royal Zenith's argument by claiming that the mere existence of a procedure did not establish that Royal Zenith was not consciously indifferent toward filing an answer in this particular case. He argued that, because Royal Zenith did not produce any evidence to explain what had happened to the petition, it had not met its burden of proof. Martinez further pointed out that the procedure broke down with Vivero, and yet Vivero did not explain what had happened to the documents. Martinez also challenged Vivero's credibility and argued that the court should not believe Vivero's conclusive statements that he did not intentionally fail to forward the papers to GAB or consciously disregard them. The court denied Royal Zenith's motion for a new trial. In five points of error, Royal Zenith claims that the court abused its discretion when it denied the motion for a new trial.

As previously noted, in a motion for a new trial following a default judgment, the defendant has the burden of alleging and proving facts to show that his failure to answer was not intentional or the result of conscious indifference. Craddock, 133 S.W.2d at 126; Motiograph, Inc. v. Matthews, 555 S.W.2d 196 (Tex.Civ.App.--Dallas 1977, writ ref'd n.r.e.). Once the defendant has alleged facts which, if true, negate intentional or consciously indifferent conduct, the defendant will have met his burden on this point unless the plaintiff controverts the defendant's claim. Strackbein v. Prewitt, 671 S.W.2d 37, 38-39 (Tex.1984). When the plaintiff controverts the defendant's allegations, the trial court must look to the knowledge and acts of the defendant to determine whether his conduct was the result of conscious indifference or intentional disregard. See Strackbein, 671 S.W.2d at 39. Once the trial court has made its determination, an appellate court will not reverse the decision unless there has been an abuse of discretion. Strackbein, 671 S.W.2d at 38.

Although the...