State Farm Life Ins. Co. v. Mosharaf, 01-89-00344-CV

• Decision Date: 02 August 1990
• Docket Number: No. 01-89-00344-CV,01-89-00344-CV
• Citation: 794 S.W.2d 578
• Parties: STATE FARM LIFE INSURANCE COMPANY, Appellant, v. Ferial MOSHARAF and Narjes Vahdati, Appellees. (1st Dist.)
• Court: Texas Court of Appeals

Page 578

794 S.W.2d 578

STATE FARM LIFE INSURANCE COMPANY, Appellant, v. Ferial MOSHARAF and Narjes Vahdati, Appellees.

No. 01-89-00344-CV.

Court of Appeals of Texas,

Houston (1st Dist.).

Aug. 2, 1990.

Rehearing Denied Aug. 30, 1990.

Tom Connally, Richard Josephson, Patrick Appel, Bennett Bartlett, & Travis S. Sales, Houston, for appellant.

Charles Orsburn, Susan W. Vandiver, and W. James Kronzer, Houston, for appellees.

Before MIRABAL, WARREN and DUGGAN, JJ.

OPINION

DUGGAN, Justice.

This is an appeal from a default judgment rendered against appellant, State Farm Life Insurance Company. Appellant's first point of error complains that the trial court's refusal to grant a new trial was an abuse of discretion. Because we sustain the first point of error, we do not reach the remaining points, but reverse and remand.

Appellees, Ferial Mosharaf and Narjes Vahdati, filed suit on July 27, 1988, against Sykes Roofing & Contracting Company ("Sykes Roofing") and appellant, alleging property damage, emotional distress, and medical expenses incurred as a result of a fire at their Houston apartment unit in the Northwood Apartment complex, owned by appellant. Appellees alleged that appellant hired Sykes Roofing to repair their apartment building's roof, and that a roofer's torch ignited roofing materials on the building and "burned it completely."

On September 28, 1988, appellant's registered agent for service, Bruce Romig, was served in Austin, Texas, by certified mail, return receipt requested, with citation and a copy of appellees' original petition. No answer was filed. On November 1, 1988, the trial court entered an interlocutory default judgment in favor of appellees, with a hearing on damages to be held at a later date. On December 12, 1988, the trial court granted appellees' motion to dismiss Sykes Roofing without prejudice, and entered a final judgment in favor of appellees. The judgment awarded: (1) $298,159 in actual damages and $1,192,636 in exemplary damages to appellee Mosharaf; (2) $804,700 in actual damages and $3,218,800 in exemplary damages to appellee Vahdati; and (3) pre- and post-judgment interest.

On January 13, 1989, appellant filed a motion for new trial and to set aside default judgment. Appellant's motion, accompanied by affidavits from employees of appellant and its affiliated companies, set out facts relied upon to prove that appellant's failure to answer was the result of an accident and mistake, and not conscious indifference.

Appellant's motion and affidavits asserted the following: Bruce Romig was a State Farm Mutual Automobile Insurance Company ("State Farm Auto") regional vice-president for the Texas region, was appellant's registered agent for service of process, and was served on September 28, 1988. That same day, Romig forwarded the citation and petition to Tommy Stinson, a State Farm Auto divisional claims superintendent, also in Austin. Under Stinson's supervision, the lawsuit was entered that day on State Farm Auto's "lawsuit log" used to keep track of incoming lawsuits; the next day, September 29, 1988, the petition was sent by interoffice mail to Charles Owens, State Farm Fire and Casualty Insurance Company's divisional claims superintendent, in Houston.

Owens received the petition in Houston on September 29, 1988, as evidenced by the acknowledgment receipt he signed and returned, which Stinson received on October 5, 1988. On October 6, 1988, Owen telecopied the petition to William J. Hess, State Farm Auto's senior assistant investment counsel, at State Farm's corporate office in Bloomington, Illinois; Hess received it that day.

By an interoffice routing slip, Hess directed the petition to Cynthia Weaver, a real estate administrator employed by State Farm Auto in its investment real estate department. Weaver is responsible for the operations of appellant's Northwood apartment complex. A copy of Hess's routing slip was attached as an exhibit to appellant's motion, and showed Weaver's name and Hess's notation, "Please make sure or [sic] liability carrier is aware of this. B.H."

Somewhere in the routing process between Hess and Weaver, the routing slip and petition were inadvertently filed before Weaver received them. Weaver never saw Hess' instruction or received a copy of the citation and petition, and did not learn of the lawsuit until she received the notice of the final default judgment on December 28, 1988, 12 days after the judgment was signed.

Appellant's motion also set forth the defense that Sykes Roofing's negligence was the sole cause of appellees' losses, and asserted that a new trial in the cause would neither occasion delay nor cause prejudice to appellees.

Appellees filed a controverting plea, but presented no evidence that directly controverted the facts alleged and shown by appellant; the trial court overruled appellant's motion. Appellant filed a motion to reconsider and a motion to supplement the record on motion for new trial, accompanied by affidavits which further detailed the activities of various State Farm entities and appellant's reasons for not answering the original petition. Appellees objected that appellant's motions were untimely under Tex.R.Civ.P. 329b(b), citing L.B. Foster Co. v. Glacier Energy, Inc., 714 S.W.2d 48, 49 (Tex.App.--San Antonio 1986, writ ref'd n.r.e.). The trial court declined to consider these filings and overruled the motion to reconsider; this appeal followed. We likewise decline to consider appellant's motions and affidavits that were not before the trial court at the time of the hearing on appellant's motion for new trial. L.B. Foster, 714 S.W.2d at 49.

The Craddock Test

Appellant's first point of error alleges that the trial court abused its discretion in overruling appellant's motion for new trial and to set aside the default judgment. The standard for granting a motion for new trial and setting aside a default judgment was established in Craddock v. Sunshine Bus Lines, Inc.:

A default judgment should be set aside and a new trial ordered in any case in which the failure of the defendant to answer before judgment was not intentional, or the result of conscious indifference on his part, but was due to mistake or accident; provided the motion sets up a meritorious defense and is filed at a time when the granting thereof will occasion no delay or otherwise work an injury to the plaintiff.

134 Tex. 388, 393, 133 S.W.2d 124, 126 (Tex.Comm'n App.1939, opinion adopted).

A motion for new trial is addressed to the trial court's discretion, which will not be disturbed on appeal absent a showing of abuse of discretion. Strackbein v. Prewitt, 671 S.W.2d 37, 38 (Tex.1984). However, the trial court's discretion is not unbridled. Craddock, 134 Tex. at 388, 133 S.W.2d at 126. Because appellant's evidence at the motion for new trial hearing was undisputed, the issue on appeal is whether the trial court's exercise of discretion was erroneous as a matter of law. Strackbein, 671 S.W.2d at 39.

The trial court must test the motion for new trial and accompanying affidavits against the Craddock requirements, and grant a new trial if those requirements are met. Strackbein, 671 S.W.2d at 39.

Conscious Indifference

The first prong of the Craddock test requires the determination of whether appellant's failure to answer was due to mistake or accident, or was the result of conscious indifference. Craddock and its progeny establish no criteria for applying this test, but "it is clear that courts have applied this prong liberally, and that each case depends on its own facts." Gotcher v. Barnett, 757 S.W.2d 398, 401 (Tex.App.--Houston [14th Dist.] 1988, no writ).

Mistakes virtually identical to those of appellant in the present case, all resulting in a failure to answer, have repeatedly been excused under Craddock as not being the result of conscious indifference or of bad faith. See Craddock, 134 Tex. at 393, 133 S.W.2d at 126 (insurance company, faced with numerous claims because of a flood, inadvertently placed defendant's citation with mail not requiring immediate attention); Southland Paint Co. v. Thousand Oaks Racket Club, 724 S.W.2d 809, 811 (Tex.App.--San Antonio 1986, writ ref'd n.r.e.) (late answer filed due to staff shortage at defendant's insurance broker's office); Evans v. Woodward, 669 S.W.2d 154, 155 (Tex.App.--Dallas 1984, no writ) (answer not filed due to confusion in attorney's office); Drake v. McGalin, 626 S.W.2d 786, 788 (Tex.Civ.App.--Beaumont 1981, no writ) (answer prepared by secretary presumably lost by volunteer exchange student who was assisting defendant's attorney as an "office boy"); Dallas Heating Co. v. Pardee, 561 S.W.2d 16, 19 (Tex.Civ.App.--Dallas 1977, writ ref'd n.r.e.) (suit papers inadvertently misplaced in defendant's office); Leonard v. Leonard, 512 S.W.2d 771, 773 (Tex.Civ.App.--Corpus Christi 1974, writ dism'd) (attorney misplaced file); Continental Airlines, Inc. v. Carter, 499 S.W.2d 673, 674 (Tex.Civ.App.--El Paso 1973, no writ) (secretary misplaced file); Republic Bankers Life Ins. Co. v. Dixon, 469 S.W.2d 646, 647 (Tex.Civ.App.--Tyler 1971, no writ) (attorney forgot to prepare answer when his secretary placed the file with his general files, rather than returning it to his desk for immediate action); Reynolds v. Looney, 389 S.W.2d 100, 101 (Tex.Civ.App.--Eastland 1965, writ ref'd n.r.e.) (citation mislaid in insurance company's office).

Appellees contend that appellant nevertheless failed to meet its burden of proof to establish that it did not act with conscious indifference, citing Grissom v. Watson, 704 S.W.2d 325, 327 (Tex.1986). There, quoting from Harris v. LeBow, 363 S.W.2d 184, 186 (Tex.Civ.App.--Dallas 1962, writ ref'd n.r.e.), the supreme court stated: "A party who has been duly served with citation to appear and defend a cause asserted against him may not relieve himself of the burden of the judgment rendered unless he thoroughly demonstrates that he and his agent were free...