NUMBER 13-14-00462-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
ALAMO HOME FINANCE, INC. AND GONZALEZ FINANCIAL HOLDINGS, INC., Appellants,
v.
MARIO DURAN AND MARIA DURAN, Appellees.
On appeal from the 92nd District Court of Cameron County, Texas.
MEMORANDUM OPINION
Before Justices Rodriguez, Garza and Longoria Memorandum Opinion by Justice Longoria
Appellants Alamo Home Finance, Inc. (Alamo) and Gonzalez Financial Holdings,
Inc. (Gonzalez) appeal the denial of their motions for new trial to vacate the no-answer and post-answer default judgments entered against them, respectively, in favor of
appellees Mario and Maria Duran. The Durans filed a motion for appellate sanctions
against Alamo, who then filed its own counter-motion for sanctions against the Durans.
We reverse the trial court’s denial of appellants’ motions for new trials, deny both motions
for sanctions, and remand to the trial court for proceedings consistent with this opinion.
I. BACKGROUND
The Durans allege that on or around August 18, 2007, they entered into a contract
with Gonzalez whereby Gonzalez would advance funds to the Durans to pay taxes they
owed on several tracts of land they owned (the land); the loan was secured by the deed
of trust on each property. There is a dispute as to the exact terms of the contract, but the
Durans claim that under the agreement, Gonzalez was to provide insurance on the land.
Around July 23, 2008, the land sustained heavy windstorm and water damage when
Hurricane Dolly devastated the area. At this point, the Durans claim that they attempted
to file an insurance claim under the policy they believed that Gonzalez had purchased for
the land, pursuant to their agreement. However, the Durans testified that their claim was
denied because apparently Gonzalez had not purchased an insurance policy on the land.
The Durans filed their first petition on January 30, 2009 against a single defendant:
Gonzalez. The petition contained allegations of breach of contract, negligence, and
violations of the Texas Deceptive Trade Practices Act (DTPA). Gonzalez answered the
petition and claimed that the deeds of trust the Durans executed specifically required the
Durans to purchase insurance on the land.
On March 26, 2010, the Durans filed their First Amended Petition, alleging the
same causes of action against Gonzalez and adding two new defendants: Texas
2 Windstorm Insurance Association and Vela’s Insurance Agency.1 On November 9, 2010,
the Durans filed their Second Amended Petition adding “Alamo Home Finance” as a
defendant, claiming negligence and DTPA violations against it. The affidavit of service
sets out that “Alamo Home Finance” was served with a citation and Plaintiff’s Original
Petition (the petition that only named Gonzalez as a defendant). Service was effected by
Marilyn Stroud, a civil process server. The return-of-service green card from the U.S.
Postal Service states that Veronica Cordell accepted service. However, Alamo contends
on appeal that Cordell’s signature is completely illegible and that there is no indication on
the return receipt as to how Cordell is associated with Alamo. Both the “addressee” and
“agent” boxes on the return receipt were left unchecked, and neither the return receipt
nor the citation indicated that Corporation Service Company, Alamo’s registered agent
for service, was the one receiving the service. Alamo never filed an answer.
Gonzalez claims that, up until this point, it had been receiving pleadings and
communications from the Durans’ counsel. However, it asserts that in February 2013,
the Durans’ attorneys withdrew from the case and, in May 2013, Gonzalez retained new
counsel. Gonzalez contends that after February 2013, its new attorney did not receive
any communications concerning trial hearings from the Durans’ new counsel or from the
trial court. On October 10, 2003, the trial court held a docket control conference.
Gonzalez and Alamo failed to appear and the trial was set for May 12, 2014.
At the hearing on May 12, 2014, the Durans orally moved for default judgment
based on the original petition; the trial court entered a default judgment against Alamo
and Gonzalez on May 16, 2014. On June 11, 2014, Gonzalez filed a motion for new trial
1 Neither Texas Windstorm Association nor Vela’s Insurance Agency is a party to this appeal.
3 alleging that its counsel was completely unaware of the trial date. Gonzalez argued that
the address and contact information for its new attorney were incorrect in the court
records, thereby preventing Gonzalez’s counsel from receiving notice of trial settings.
Furthermore, Gonzalez claimed that its counsel never received the docket control order
or notice of any hearings; notice was therefore improper and a new trial should have been
granted based on the Craddock test. See Craddock v. Sunshine Bus Lines, Inc., 133
S.W.2d 124, 126 (Tex. 1939). After a hearing on the motion, the trial court denied
Gonzalez’s motion for new trial by written order.
On June 16, 2014, Alamo filed a motion for new trial asserting that a new trial was
necessary based on Craddock. Alamo attached an affidavit from its President, Mr.
Augustus Arellano, in which he averred that he had never heard of the lawsuit until he
received notice of the default judgment entered against the company. Alamo asserts that
even if its agent did receive notice, Arellano did not remember receiving notification of the
suit. On August 11, 2014, Alamo filed an amended motion for new trial, further pointing
out what Alamo believed to be jurisdictional defects concerning the issuance and service
of citation. Alamo argued that default judgments require strict compliance with the Texas
Rules of Civil Procedure. Alamo’s amended motion for new trial was overruled by
operation of law.
II. STANDARD OF REVIEW AND APPLICABLE LAW
We review a trial court's denial of a motion for new trial for an abuse of discretion.
Dolgencorp of Tex., Inc. v. Lerma, 288 S.W.3d 922, 926 (Tex. 2009) (per curiam). We
also review a trial court’s granting of a default judgment for an abuse of discretion.
4 Cottonwood Valley Home Owners Ass'n v. Hudson, 75 S.W.3d 601, 603 (Tex. App.—
Eastland 2002, no pet.).
a. Strict Compliance with Rules of Service and Notice
Default judgments should be vacated on direct attack (e.g., motion for new trial, an
appeal, or a bill of review) when the prevailing party fails to strictly comply with statutory
notice provisions. See PNS Stores, Inc. v. Rivera, 379 S.W.3d 267, 274 (Tex. 2012). It
is irrelevant whether or not the issue of improper service was raised in a motion for new
trial because “a defendant may raise a defective-service complaint for the first time on
appeal.” Lee Hoffpauir, Inc. v. Kretz, 431 S.W.3d 776, 780 (Tex. App.—Austin 2014, no
pet.) (citing Wilson v. Dunn, 800 S.W.2d 833, 837 (Tex. 1990)). A judgment is void “if the
defects in service are so substantial that the defendant was not afforded due process.”
PNS, 379 S.W.3d at 275. There are no assumptions of valid issuance of service on direct
appeal of a default judgment. Primate Const., Inc. v. Silver, 884 S.W.2d 151, 153 (Tex.
1994). “For well over a century, [the Supreme Court] has required that strict compliance
with the rules for service of citation affirmatively appear on the record in order for a default
judgment to withstand direct attack.” Id. (emphasis added).
Likewise, a defendant is entitled to notice of trial settings, such as hearings; failure
to receive such notice “deprives a party of his constitutional right to be present at the
hearing . . . and results in a violation of fundamental due process.” Delgado v. Hernandez,
951 S.W.2d 97, 99 (Tex. App.—Corpus Christi 1997, no writ). Even though there is no
presumption of valid service on appeal, there is a presumption that all properly served
parties received proper notice of trial settings and hearings. Id. The moving party must
present evidence to rebut the presumption that notice was received. Id. “The
5 presumption of receipt is not evidence and vanishes when opposing evidence is
introduced showing that the notice was not received.” Id.
b. Craddock Factors
Even assuming service is proper, default judgments can still be overturned on
other equitable grounds. “Texas courts view an appeal from a default judgment
somewhat differently than an appeal from a trial on the merits. In part, this is because an
adjudication on the merits is preferred in Texas.” Holt Atherton Indus., Inc. v. Heine, 835
S.W.2d 80, 86 (Tex. 1992). Specifically in the context of a motion for new trial to set aside
a default judgment, the Supreme Court of Texas has identified three factors that must be
analyzed on appeal, also known as the Craddock test:
A trial court must set aside a default judgment if (1) 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 a mistake or an accident; (2) the motion for a new trial sets up a meritorious defense; and (3) granting the motion will occasion no delay or otherwise work an injury to the plaintiff.
Milestone Operating, Inc. v. ExxonMobil Corp., 388 S.W.3d 307, 309 (Tex. 2012) (quoting
Craddock, 133 S.W.2d at 126) (internal quotations omitted). Even though Craddock
addressed a no-answer default judgment scenario, the same prerequisites have been
applied to set aside a post-answer default judgment. Dir., State Employees Workers'
Comp. Div. v. Evans, 889 S.W.2d 266, 268 (Tex. 1994). In essence, when any default
judgment is attacked directly, the critical question is: “Why did the defendant not appear?”
See Milestone, 388 S.W.3d at 309. If the defendant did not appear because he never
received citation or notice of trial settings, then the default judgment should be set aside.
Id. If the defendant received notice but has some other reason for not answering or
appearing, then the defendant must prove all three elements of the Craddock standard to
6 set aside the default judgment. Sutherland v. Spencer, 376 S.W.3d 752, 755 (Tex. 2012).
“When a defaulting party moving for new trial meets all three elements of the Craddock
test, then a trial court abuses its discretion if it fails to grant a new trial.” Dolgencorp of
Tex., 288 S.W.3d at 926.
A defendant satisfies the first prong of the Craddock test when “its factual
assertions, if true, negate intentional or consciously indifferent conduct by the defendant
and the factual assertions are not controverted by the plaintiff.” Milestone, 388 S.W.3d
at 310. This is not a “negligence” standard: “the Craddock standard is one of intentional
or conscious indifference—that the defendant knew it was sued but did not care.” Levine
v. Shackelford, Melton & McKinley, L.L.P., 248 S.W.3d 166, 168 (Tex. 2008) (quoting Fid.
& Guar. Ins. Co. v. Drewery Constr. Co., 186 S.W.3d 571, 575–76 (Tex. 2006) (per
curiam)).
The second Craddock element requires the defendant to “set up a meritorious
defense by alleging facts, supported by an affidavit or other evidence, which in law would
constitute a defense to the cause of action pled by the plaintiff.” In re A.P.P., 74 S.W.3d
570, 574 (Tex. App.—Corpus Christi 2002, no pet.). This does not require the defendant
to actually prove the defense. Id. A court should not deny a motion for new trial under
Craddock on the basis of any contradictory evidence offered by the opposing party. Id.
The meritorious defense need not necessarily negate every cause of action; a defense is
meritorious if it would simply produce a different result upon retrial. Jaco v. Rivera, 278
S.W.3d 867, 873 (Tex. App.—Houston [14th Dist.] 2009, no pet.).
Under the third element of the Craddock test, the defendant must establish that
granting the motion for new trial would not occasion an unjust delay or injury to the
7 plaintiff. 133 S.W.2d at 126. In evaluating the third Craddock element, the court can look
to several factors to indicate a lack of injury and harm, such as a defendant’s offer to
reimburse the plaintiff for the cost of obtaining the default judgment and the defendant’s
willingness to proceed to trial almost immediately. Angelo v. Champion Rest. Equip. Co.,
713 S.W.2d 96, 98 (Tex. 1986). However, these two factors are not exclusive or
dispositive; even though these may be “important factors” in determining whether a new
trial should be granted, “the court should deal with the facts on a case-by-case basis in
order to do equity. Failure to offer reimbursement should not in every instance preclude
the granting of a new trial.” Id.
III. DISCUSSION
In one combined issue on appeal, Gonzalez and Alamo assert that it was an abuse
of discretion to deny their motions for new trial. Under the applicable tests, we conclude
that the trial court abused its discretion in denying the motion for new trial as to Alamo
and as to Gonzalez. Specifically, we conclude that Alamo was not served in strict
compliance with the Texas Rules of Civil Procedure and Gonzalez did not receive
appropriate notice of trial settings. See TEX. R. CIV. P. 107; Delgado, 951 S.W.2d at 99.
Furthermore, both Alamo and Gonzalez met all three elements of the Craddock test. See
Craddock, 133 S.W.2d at 126.
We begin with Alamo’s claims. Alamo argues that it is entitled to a new trial
because it was not served in strict compliance with the Texas Rules of Civil Procedure. 2
2 As we noted above, such an argument can be raised for the first time on appeal. See Lee Hoffpauir, Inc. v. Kretz, 431 S.W.3d 776, 780 (Tex. App.—Austin 2014, no pet.). Thus, the Durans’ argument that the issue was not properly preserved holds no merit.
8 We agree with Alamo that the record does not affirmatively reflect strict compliance
with the rules of service. Several deviations from the rules of service occurred in the
issuance of citation. The citation was addressed “TO: ALAMO HOME FINANCE
CORPORATION SERVICE COMPANY d/b/a CSA-LAWYERS INCORPORATION
SERVICE COMPANY” instead of reading “ALAMO HOME FINANCE, INC. by serving its
registered agent CORPORATION SERVICE COMPANY d/b/a CSA-LAWYERS
INCORPORATIN SERVICE COMPANY.” (italics added). This citation is defective on its
face by failing to indicate that service is being effected through Alamo’s registered agent.
See Hercules Concrete Pumping Serv., Inc. v. Bencon Mgmt. & Gen. Contracting Corp.,
62 S.W.3d 308, 310 (Tex. App.—Houston [1st Dist.] 2001, pet. denied) (finding that
serving “Hercules Concrete Pumping” did not correctly serve “Hercules Concrete
Pumping Service, Inc.” and further holding that serving “George Block . . . of Hercules
Concrete Pumping” does not establish that the person served was in fact a registered
agent for service of process); see also Barker CATV Const., Inc. v. Ampro, Inc., 989
S.W.2d 789, 793 (Tex. App.—Houston [1st Dist.] 1999, no pet.) (finding a return of service
insufficient where it did not state that it was delivered to the corporation “through its
registered agent” James M. Barker).3
Even more defects appear on the face of the affidavit of service. In her affidavit of
service, Stroud swears that she served “Alamo Home Finance—Corporation Service
Company d/b/a CSA-Lawyers Incorporation Service Company” (which also incorrectly
3 The citation in this case also left out “Inc.” in naming Alamo. By itself, that is a relatively minor
omission but it reflects a lack of strict compliance with the rules of service when viewed in conjunction with the other more severe defects. See Hercules Concrete Pumping Serv., Inc. v. Bencon Mgmt. & Gen. Contracting Corp., 62 S.W.3d 308, 310 (Tex. App.—Houston [1st Dist.] 2001, pet. denied).
9 identifies the parties) with a true copy of: 1) the citation, and 2) Plaintiff’s Original Petition.
Stroud did not avow that she served Alamo with Plaintiff’s Second Amended Petition,
which is the petition that added Alamo as a party. Instead, Alamo was served with a
petition that did not name Alamo as a party to the lawsuit. The Durans did not attempt to
correct or amend the return of service at any time.
The Texas Supreme Court in Primate addressed a very similar fact pattern and
found the service to be wholly defective:
If the facts as recited in the sheriff's return, pre-printed or otherwise, are incorrect and do not show proper service, the one requesting service must amend the return prior to judgment. Under the current state of the record, the only proof that Primate Construction was served with anything at all is a return which recites service of a pleading in which it had not been sued.
884 S.W.2d at 153. It is the plaintiff’s duty to see that service is properly accomplished.
Id. If the plaintiff did nothing to fix the defective service, then there is error on the face of
the record and the default judgment must be set aside. See id. Here, the only proof that
Alamo was served with anything at all is a return of service reciting service of a pleading
that does not mention Alamo as a defendant.
Even the return of service itself does not reflect compliance with the rules of service
of process; it shows service upon Alamo Home Finance but does not indicate that Alamo
was served through its registered agent. In addition, the return of receipt is signed,
illegibly, by a Veronica Cordell. Both the “agent” and “addressee” boxes are left
unchecked. Nowhere in the record is there any indication as to what connection Cordell
has to Alamo. The record, on its face, shows that the return was not signed by the
addressee or agent. See TEX. R. CIV. P. 107; Primate, 884 S.W.2d at 153; All Commercial
Floors, Inc. v. Barton & Rasor, 97 S.W.3d 723, 726 (Tex. App.—Fort Worth 2003, no pet.)
10 (finding that when citation is served by authorized person, the return must contain the
addressee’s or agent’s signature). We conclude that the errors of service are so
numerous that Alamo was not afforded due process. See PNS, 379 S.W.3d at 275. The
default judgment entered against Alamo cannot withstand direct attack.
We turn now to Gonzalez. Gonzalez claims that it did not appear for docket calls
and trial hearings because it was not notified of trial settings. “Notice of a trial setting
ordinarily does not appear in the transcript and need not affirmatively appear in the
record.” Delgado, 951 S.W.2d at 99. The law presumes that both parties had adequate
notice of any trial settings. Id. Therefore, the burden is on the moving party to
affirmatively show a lack of notice by affidavit or other competent evidence. Id. The
indication in the record that Gonzalez was faxed documents by the court creates a
rebuttable presumption that it was received. See id. However, the affidavit by Gonzalez’s
counsel swearing that no documents were received (because the fax number the court
claimed to have sent the documents to was a different number than the fax number
Gonzalez used) rebutted the presumption of notification. See id. The record on its face
shows that notice was sent to a fax number that is not the fax number on file with the trial
court for Gonzalez. The Durans did not offer any other evidence to indicate that Gonzalez
actually had notice of trial settings. Since the presumption of receipt vanished, there was
no evidence remaining to establish that Gonzalez had notice of the trial settings. This
resulted in a violation of fundamental due process; as such, it was an abuse of discretion
to deny Gonzalez’s motion for new trial. See id at 97.
11 However, even assuming that notice was proper on Alamo and Gonzalez, the
equitable factors of Craddock lean in favor of granting motions for new trial. To set aside
a default judgment under Craddock, a party must show that: 1) receiving the default
judgment was not intentional or due to conscious indifference; 2) the party possesses a
meritorious defense; and 3) granting the motion for new trial would not cause unjust harm
or delay to the plaintiff. Drewery, 186 S.W.3d at 575.
Both Alamo and Gonzalez make factual assertions that, if taken as true, would
tend to show that their absence from the trial settings were not intentional. Alamo, as
discussed above, claims it never knew it was even a defendant until default judgment was
entered against it. Alamo’s President filed an affidavit testifying to that effect. Gonzalez’s
counsel filed an affidavit stating the trial court’s contact information for him was incorrect.
The last contact that Gonzalez’s new counsel received from the court was a fax confirming
that the new counsel had been substituted for the old counsel. After that point, Gonzalez
received nothing further and so did not learn of the default judgment until counsel for
Alamo informed Gonzalez of it.
The Durans assert that a defendant cannot “sit back and do nothing, and . . . expect
a new trial to be granted.” While true in the abstract, this has no application to the current
case because it presumes that appellants knew about the suit and defiantly ignored it.
The record simply does not reflect the sort of wanton indifference that the Durans accuse
Alamo and Gonzalez of possessing. The affidavits, taken as true, do not show a “pattern
of conduct” reflective of conscious indifference. See Levine, 248 S.W.3d at 168 (holding
that defendant was consciously indifferent when it was in regular contact with the court,
promised to make certain filings and appear, but then did not fulfill those commitments);
12 see also Sutherland, 376 S.W.3d at 756 (finding no conscious indifference even when a
defendant received proper service but forgot about the case because “the citation was
left in a stack of papers on a desk and forgotten about because of limited time spent at
the office due to weather conditions over a nearly three-week period during the Christmas
holiday season.”).
Secondly, the moving party must show that it possesses a meritorious defense.
The Durans claim that Gonzalez and Alamo fail on this test, specifically because
Gonzalez did not attach any affidavits to its motion for new trial and Alamo only set forth
“conclusions” instead of facts. However, the Durans are attempting to impose too great
a burden on Alamo and Gonzalez. Defendants seeking a new trial are not required to
actually prove their defense; they must merely allege, by affidavit or other competent
evidence, facts that if taken as true would be a defense to at least one of the plaintiff’s
causes of action. See In re A.P.P., 74 S.W.3d at 574. Alamo’s President filed an affidavit
swearing that the Durans told Alamo at the time the loan was procured that they did not
want insurance because they already had it. This is more than a mere legal conclusion.
If this factual allegation is true, this would negate Alamo’s obligation to purchase
insurance for the Durans and would likely produce a different outcome upon a retrial. See
Jaco, 278 S.W.3d at 873. Likewise, Gonzalez provides competent evidence to defend
against the Durans’ claims. Even though Gonzalez did not submit an affidavit, as the
Durans point out, Gonzalez submitted other competent evidence in the form of the deed
of trust. The trust states that the property owners (the Durans) will be responsible for
maintaining insurance. This fact would be a meritorious defense, if true. Both Alamo and
Gonzalez have provided sufficient evidence to show a meritorious defense.
13 The last prong of the Craddock test requires the moving parties to show no unjust
harm or delay to the plaintiff. See 133 S.W.2d at 126. The Durans claim both Alamo and
Gonzalez fail this prong of the test since they have not offered to pay the Durans’ costs.
However, lack of offer to reimburse for costs is not dispositive. See Angelo, 713 S.W.2d
at 98. The court can, and should, also consider the moving parties’ willingness to go to
trial promptly as well as other factors indicating a willingness to go to trial. Id. Neither
Alamo nor Gonzalez have offered to reimburse the Durans for the cost of obtaining the
default judgment. However, both Alamo and Gonzalez generally appear willing to
proceed to trial promptly as evidenced by statements and assertions in their briefs. If
anything, the Durans have exhibited less willingness to go to trial than appellants; this
case was almost dismissed for want of prosecution. Alamo and Gonzalez, learning of the
default judgment, were active in the case and stayed in constant contact with the court;
they both filed motions for new trials and participated in a hearing on the motions. Both
Alamo and Gonzalez have satisfied the third factor of the Craddock test.
We conclude that Alamo was not served in accordance with the rules of service
and Gonzalez was not properly notified of trial settings. Furthermore, even assuming that
service and notice was proper, both parties have met the equitable standards of the
Craddock test. Therefore, it was an abuse of discretion to deny appellants’ motions for
new trial. We sustain Gonzalez and Alamo’s issue on appeal.
IV. SANCTIONS
The Durans filed a motion for appellate sanctions against Alamo for filing a motion
for submission that was allegedly not supported by any legal basis. Alamo filed a counter-
motion for sanctions against the Durans for allegedly making misstatements,
14 misrepresentations, and groundless arguments throughout the case. There are
numerous grounds upon which appellate courts are authorized to grant sanctions. See
TEX. R. APP. P. 45, 52.11, 62. However, neither party cited any of these statutes or
referenced any authority for its respective position. None of the above referenced
statutes seem to apply to the type of conduct alleged of in this case. Without specific
reference to a statute or a basis for granting the motion, we cannot fully determine
whether any of the questioned actions are worthy of sanctions. We deny both motions
for sanctions.
V. CONCLUSION
We reverse the trial court’s order denying the motions for new trial, deny both
motions for sanctions, and remand to the trial court for further proceedings in accordance
with this opinion.
NORA L. LONGORIA Justice
Delivered and filed the 16th day of July, 2015.