Texas-Ohio Gas v. Mecom

• Decision Date: 23 August 2000
• Docket Number: TEXAS-OHIO,No. 06-99-00104-CV,06-99-00104-CV
• Citation: 28 S.W.3d 129
• Parties: (Tex.App.-Texarkana 2000) GAS, INC., Appellant V. JOHN MECOM, III AND ROBERT GILES, Appellees
• Court: Texas Court of Appeals

Page 129

28 S.W.3d 129 (Tex.App.-Texarkana 2000)

TEXAS-OHIO GAS, INC., Appellant

V.

JOHN MECOM, III AND ROBERT GILES, Appellees

No. 06-99-00104-CV

In The Court of Appeals Sixth Appellate District of Texas at Texarkana

Submitted July 11, 2000

Decided August 23, 2000

On Appeal from the 157th Judicial District Court Harris County, Texas Trial Court No. 97-55610-A

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Before Cornelius, C.J., Grant and Ross, JJ.

O P I N I O N

Opinion by Justice Grant

This appeal arises out of a contractual agreement between Texas-Ohio Gas, Inc. and Olympic Gas Marketing for the sale of natural gas. Texas-Ohio brought suit against John W. Mecom, III, Robert N. Giles, and six other individuals, all of whom were employees and/or shareholders of Olympic Gas Marketing and its related entities (the Olympic entities). Texas-Ohio alleged that Mecom, Giles, and the other defendants were involved in a conspiracy that fraudulently induced Texas-Ohio to sell over $700,000 worth of natural gas to Olympic Gas Marketing, an insolvent entity. The trial court dismissed with prejudice all claims against Mecom and Giles without specifying the grounds for the dismissal. On appeal, Texas-Ohio challenges the trial court's orders of dismissal and makes the following contentions:

(1) the trial court erred in dismissing Texas-Ohio's claims as a Rule 13 sanction because the trial court failed to recite in the dismissal orders the particulars for good cause justifying a Rule 13 sanction;

(2) the trial court erred in dismissing Texas-Ohio's claims as a Rule 13 sanction because there was insufficient evidence that the petition was groundless and filed in bad faith or for the purpose of harassment;

(3) the trial court erred in dismissing Texas-Ohio's claims on the pleadings for failure to state a cause of action; and

(4) The trial court's dismissal orders cannot properly be construed as orders for summary judgment.

In cross-points, Mecom and Giles make the following contentions:

(1) Texas-Ohio's deemed admissions resolve the justiciable case and controversy between the parties, and thereby deprive the courts of subject matter jurisdiction;

(2) Texas-Ohio's claims are subject to the automatic stay provisions of the Bankruptcy Code, and;

(3) sanctions should be imposed on Texas-Ohio for making misleading statements in its brief before this Court.

I. FACTUAL BACKGROUND

From March 1996 through October 1996, Texas-Ohio sold natural gas to GM Hydrocarbons pursuant to a contractual agreement and was duly paid. At that time, John Mecom, III was the president of GM Hydrocarbons, Robert Giles was the vice-president, and David Geick was a manager. In October 1996, the parent company of the Olympic entities, Olympic Energy Corporation (OEC), acquired GM Hydrocarbons and assumed its contractual obligations. Pursuant to the acquisition, Mecom and Giles became shareholders of OEC, and Mecom, Giles, and Geick all became employees of the Olympic entities.

According to Texas-Ohio, on or about November 1996, Geick falsely represented to Texas-Ohio that GM Hydrocarbons had been merged into Olympic Gas Marketing (OGM). Based on this representation, Texas-Ohio was allegedly led to believe that, in doing business with OGM, it would be doing business with a new and larger corporation. In fact, there was no merger. GM Hydrocarbons became wholly owned by OEC, but it continued operating as a separate entity and allegedly continued trading natural gas in its own name. OGM was wholly owned by Olympic Natural Gas (ONG), which in turn was wholly owned by OEC.¹ Thus, GM Hydrocarbons and OGM were separate entities that were both ultimately wholly owned by OEC. There was no merger, and OGM never owned the assets of GM Hydrocarbons. Indeed, Texas-Ohio contends that OGM was nothing more than an insolvent shell.²

According to Texas-Ohio, once Geick had misrepresented that a merger had taken place, OGM and its related entities were allowed to take advantage of the credit relationship GM Hydrocarbons had established with Texas-Ohio. Over a short period of time, the Olympic entities purchased large quantities of natural gas from Texas-Ohio on credit. From November 1996 through February 1997, OGM and its related entities purchased $1,101,618 worth of natural gas from Texas-Ohio. As representatives of OGM, Mecom and Giles signed written confirmations for some of these purchases. The Olympic entities failed to pay for the natural gas in breach of their contractual obligations.³ And, on June 7, 1997, the Olympic entities entered Chapter 7 bankruptcy proceedings.⁴

In November 1997, Texas-Ohio filed this lawsuit against Mecom, Giles, and six other employees and/or shareholders of the Olympic entities alleging fraud, fraudulent inducement, negligent misrepresentation, and tortious interference with a contract. Texas-Ohio's claims were generally based on its allegation that the defendants participated individually and as co-conspirators in a fraudulent scheme that induced Texas-Ohio to sell natural gas to the Olympic entities, which the defendants knew to be insolvent. Within two months after this lawsuit was filed, Mecom and Giles filed identical motions to dismiss. The record does not reflect whether a hearing was held on the motions to dismiss,⁵ but no reporter's record of any such hearing has been filed in this appeal. On July 7, 1998, the trial court dismissed with prejudice all claims against Mecom and Giles without specifying the grounds for dismissal. Texas-Ohio filed a motion to reconsider, and a hearing was held on the matter on September 18, 1998. On April 6, 1999, the trial court ordered a severance of all claims against Mecom and Giles and entered final judgment pursuant to the earlier dismissal orders.

On appeal before this Court, Texas-Ohio contends that the trial court committed reversible error in ordering the dismissal of its claims; Mecom and Giles contend that the trial court could have properly dismissed the claims as a Rule 13 sanction on the basis of defective pleadings, or as a summary judgment. Because the trial court failed to specify the grounds for dismissal, we must determine whether dismissal was proper on any of the grounds asserted by Mecom and Giles.

II. RULE 13 SANCTIONS

We begin our analysis by considering whether it would have been proper for the trial court to have dismissed Texas-Ohio's claims as a sanction under Rule 13 of the Texas Rules of Civil Procedure. Texas-Ohio contends that dismissal as a Rule 13 sanction would have been improper (a) because the dismissal orders did not recite the particulars for good cause justifying a Rule 13 sanction, and also (b) because Mecom and Giles failed to prove that the claims were groundless and filed either in bad faith or for the purpose of harassment.

The imposition of Rule 13 sanctions is within the discretion of the trial court; thus, we set aside its decision only on a showing of a clear abuse of discretion. See GTE Communications Sys. Corp. v. Tanner, 856 S.W.2d 725, 730 (Tex. 1993); Stewart v. Transit Mix Concrete & Materials Co., 988 S.W.2d 252, 257-58 (Tex. App.-Texarkana 1998, pet. denied). A trial court abuses its discretion when it acts in an unreasonable and arbitrary manner or when it acts without reference to any guiding rules or principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985); Stewart, 988 S.W.2d at 257-58.

A. Particularized Findings under Rule 13

Rule 13 of the Texas Rules of Civil Procedure clearly states, "No sanctions under this rule may be imposed except for good cause, the particulars of which must be stated in the sanction order." Tex. R. Civ. P. 13. Trial courts are not at liberty to ignore the clear and unambiguous language of this rule. When imposing Rule 13 sanctions, the trial court is required to make particularized findings of good cause justifying the sanctions. Failure to comply with this clear directive is an abuse of discretion. Tarrant County v. Chancey, 942 S.W.2d 151, 155-56 (Tex. App.-Fort Worth 1997, no writ); Friedman and Assocs., P.C. v. Beltline Road, Ltd., 861 S.W.2d 1, 3 (Tex. App.-Dallas 1993, writ dism'd by agr.); Zarsky v. Zurich Management, Inc., 829 S.W.2d 398 (Tex. App.-Houston [14th Dist.] 1992, no writ); GTE Communications Sys. Corp. v. Curry, 819 S.W.2d 652, 653-54 (Tex. App.-San Antonio 1991, no writ); Kahn v. Garcia, 816 S.W.2d 131 (Tex. App.-Houston [1st Dist.] 1991, no writ). Therefore, in the present case, it would have been an abuse of discretion for the trial court to enter Rule 13 sanction orders dismissing Texas-Ohio's claims without setting out the findings of good cause justifying the sanctions.

However, Texas-Ohio waived this error by failing to timely object to the form of the orders. Generally, to preserve error for appeal, a party must timely present its objection to the trial court with sufficient specificity. See Tex. R. App. P. 33. Texas-Ohio made no objection to the trial court concerning the lack of particularized findings in the sanctions orders.⁶

Texas-Ohio has cited several cases for the proposition that the trial court's noncompliance with the particularity requirement of Rule 13 will render a sanction order unenforceable. Yet, none of the cases cited by Texas-Ohio hold that this type of error by the trial court cannot be waived. See Murphy v. Friendswood Dev. Co., 965 S.W.2d 708 (Tex. App.-Houston [1st Dist.] 1998, no pet.); Zarsky, 829 S.W.2d at 398-400; Kahn, 816 S.W.2d at 131-34; Watkins v. Pearson, 795 S.W.2d 257 (Tex. App.-Houston [14th Dist.] 1990, writ denied). In fact, the appellate courts that have specifically addressed the issue of waiver have consistently held that a complaining party may waive the particularity requirement of Rule 13 by failing to make a timely complaint. Alexander v. Alexander, 956 S.W.2d 712 (Tex. App.-Houston [14th Dist.] 1997, pet. denied); Land v. AT & S Transp.,...