Douglas Grimes v. Merit Distributing Inc. D/B/A Alamo Fuel Co.

• Court: Court of Appeals of Texas
• Decided: March 31, 1999
• Docket: 04-97-01008-CV
• Status: Published

Opinion

No. 04-97-01008-CV

Douglas GRIMES, et al., and The Law Offices of David McQuade Leibowitz, P.C.,

Appellants

v.

MERIT DISTRIBUTING INC. d/b/a Alamo Fuel Co.

,

Appellee

From the 285th Judicial District Court, Bexar County, Texas

Trial Court No. 97-CI-13329

Honorable Michael Peden, Judge Presiding

Opinion by: Sarah B. Duncan, Justice

Sitting: Alma L. López, Justice

Catherine Stone, Justice

Sarah B. Duncan, Justice

Delivered and Filed: March 31, 1999

REVERSED AND REMANDED

The principal issue presented in this appeal is whether the trial court properly denied the motion for continuance filed by the plaintiffs in their class action against Merit Distributing, Inc. d/b/a Alamo Fuel Co. for the negligent handling, storage, and disposal of toxic wastes at the J.C. Pennco Waste Oil Service dump site. Because it is undisputed discovery was abated four days after the plaintiffs added Merit as a defendant and, as a result, the summary judgment record is not fully developed, we hold the trial court erred in denying the requested continuance. We further hold the trial court erred in assessing sanctions against the plaintiffs' attorneys under chapter 10 of the Texas Civil Practice and Remedies Code and its inherent power and thus reverse the trial court's judgment in its entirety and remand the cause for further proceedings consistent with this opinion.

Factual and Procedural Background

The plaintiffs own property or reside near the J.C. Pennco Waste Oil Service site, which was used as a dump site for various hazardous wastes and products from 1984 until Pennco abandoned it in 1992. Because the Pennco site contained leaking and overflowing tanks and drums and extensive areas of soil and groundwater contamination, it was referred to the Texas Natural Resource Conservation Commission (TNRCC) for possible Superfund status. As part of its initial investigation, the TNRCC searched for and produced a list of potentially responsible parties (PRPs). These PRPs, as well as the dump site owners and operators, were sued by the plaintiffs in a class action filed May 1, 1996, by their attorneys, The Law Offices of David McQuade Leibowitz, P.C.

By August 19, 1996, the TNRCC's PRP list included "Alamo Fuel Company." Therefore, the plaintiffs amended their petition to add Merit Distributing Inc. d/b/a Alamo Fuel Company as a defendant and simultaneously requested discovery. However, on August 23, 1996, the trial court abated discovery against the PRP defendants until further order. While the abatement order expressly permitted any party to voluntarily answer any discovery request, Merit did not answer the plaintiffs' request. Nonetheless, Merit asserted its business was the distribution of dog food, charcoal briquettes, and water softener salt, and its president, John Chism, was unaware of any connection with the Pennco dump site. In line with this assertion, Merit asked Leibowitz to nonsuit the plaintiffs' claims against Merit. Leibowitz responded with a request for a corporate officer's affidavit detailing Merit's involvement in the dump site. The affidavit was quickly produced but it was inconsistent with a November 19, 1991 Pennco invoice, which was signed by "T. Garza" and suggested "Alamo Fuel Company" had removed 1,040 gallons of water from a pit at Fort Sam Houston in San Antonio and deposited the water at the Pennco dump site, and another document indicating Chism, a San Antonio resident, owned Alamo Fuel Company until May 1, 1993. However, at a subsequent meeting, the plaintiffs' attorney withheld these documents on grounds of privilege and suggested Merit would have to do its own research at the TNRCC--a suggestion subsequently pursued by Merit's attorney.

At the TNRCC, Merit's attorney saw the November 19 invoice. However, Merit's attorney also found an invoice from a company named "Alamo Petroleum Exchange," which was signed by "T. Garza" and suggested Alamo Petroleum Exchange had dumped 1040 gallons of water from Fort Sam Houston at the Pennco dump site on November 19, 1991. Other Pennco invoices indicated Alamo Petroleum Exchange routinely dumped Fort Sam Houston water at the Pennco site. Based on these documents, Merit's attorney concluded Pennco had used "Alamo Fuel Co." when it meant "Alamo Petroleum Exchange." Merit's attorney thus asked the TNRCC to remove "Alamo Fuel Company" from its PRP list. The TNRCC did so on April 15, 1997. However, the TNRCC also indicated it was possible Merit would again find itself on the PRP list if new evidence indicated its involvement in the Pennco dump site or if the federal Environmental Protection Agency reached a conclusion different from that reached by the TNRCC.

Two days after receiving this letter, Merit's attorney threatened the plaintiffs' attorneys with a motion for summary judgment and a motion for sanctions if the plaintiffs did not dismiss their claims against Merit. When the requested dismissal was not forthcoming, on May 7, 1997, Merit moved for summary judgment under Rule 166a(c), Tex. R. Civ. P., and for sanctions against the plaintiffs' attorneys under chapter 10 of the Texas Civil Practice and Remedies Code and the court's inherent power. Merit supported its motions with Chism's affidavit denying any involvement by Merit in the Pennco dump site and TNRCC's letter notifying Merit's attorney it had been deleted from the PRP list. The plaintiffs responded on the merits, arguing the November 19 invoice presented a material issue of fact as to Merit's involvement. The plaintiffs also filed a verified motion for continuance requesting an opportunity to conduct discovery on their claims against Merit. The trial court denied the requested continuance and instead rendered a summary judgment against the plaintiffs and sanctions against their attorneys.

Continuance

In their first point of error, the plaintiffs argue the trial court erred in denying their motion for a continuance. We agree.

"When a party contends that it has not had an adequate opportunity for discovery before a summary judgment hearing, it must file either an affidavit explaining the need for further discovery or a verified motion for continuance." Tenneco Inc. v. Enterprise Prods. Co., 925 S.W.2d 640, 647 (Tex. 1996). On appeal, we review the trial court's ruling under the abuse of discretion standard. Id. In applying this standard, we may consider such factors as "(1) the length of time the case has been on file; (2) the materiality of the discovery sought; and (3) whether due diligence was exercised in obtaining the discovery." Levinthal v. Kelsey-Seybold Clinic, P.A., 902 S.W.2d 508, 510 (Tex. App.--Houston [1st Dist.] 1994, no writ) (citations omitted); see also Patrick v. Howard, 904 S.W.2d 941, 946 (Tex. App.--Austin 1995, no writ).

Here, as in Levinthal, the plaintiffs exercised due diligence by filing discovery requests with their petition and later requesting a continuance in response to Merit's motion for summary judgment. Levinthal, 902 S.W.2d at 511-12. However, through no fault of the plaintiffs, involuntary discovery was abated by the trial court's order only four days after the plaintiffs added Merit as a defendant and voluntary discovery was precluded by Merit's refusal to answer their discovery requests. Therefore, although the plaintiffs' claims against Merit had been on file almost one year by the time Merit moved for summary judgment, they had virtually no discovery period. Additionally, the plaintiffs' verified motion identified the discovery they required to determine whether Merit d/b/a Alamo Fuel Company was involved in the Pennco dump site (and thus oppose Merit's motion for summary judgment) as the discovery requests it served on Merit when they filed the claims.

However, Merit argues the plaintiffs cannot be seeking the discovery of material information because all material information was before the trial court in support of its motion for summary judgment. See, e.g., Tenneco, 925 S.W.2d at 647; National Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 521 (Tex. 1995). We disagree. Merit's summary judgment evidence consisted only of Chism's affidavit denying any involvement by Merit in the Pennco site and TNRCC's letter notifying Merit it had been deleted from the PRP list. While this is some evidence Merit may not have been involved in the Pennco site, it certainly does not preclude the possibility other evidence gathered during discovery will establish the contrary. This case is thus quite unlike Tenneco, in which the summary judgment record was fully developed. Tenneco, 925 S.W.2d at 647. Nor is this case similar to National Union, in which the dispositive issue was a question of law and thus not subject to proof. National Union, 907 S.W.2d at 521.

Because the plaintiffs' verified motion establishes they exercised due diligence in attempting to obtain discovery material to Merit's motion for summary judgment, we hold the trial court abused its discretion in failing to grant a continuance. Consequently, we do not reach the merits of the summary judgment.

Sanctions

The Leibowitz firm argues there is no legal or factual basis for the trial court's assessment of sanctions against the firm under section 10.001 of the Texas Civil Practice and Remedies Code and the trial court's inherent power. We agree.

Standard of Review

We review a trial court's sanctions order under the abuse of discretion standard. Koslow's v. Mackie, 796 S.W.2d 700, 704 (Tex. 1990).

Chapter 10 Sanctions

A trial court may impose sanctions against a person who signs a pleading or motion in violation of section 10.001 of the Texas Civil Practice and Remedies Code. Tex. Civ. Prac. & Rem. Code § 10.004 (Vernon Supp. 1998). Section 10.001 provides:

The signing of a pleading or motion as required by the Texas Rules of Civil Procedure constitutes a certificate by the signatory that to the signatory's best knowledge, information, and belief, formed after reasonable inquiry:

(1) the pleading or motion is not being presented for any improper purpose, including to harass or to cause unnecessary delay or needless increase in the cost of litigation;

(2) each claim, defense, or other legal contention in the pleading or motion is warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;

(3) each allegation or other factual contention in the pleading or motion has evidentiary support or, for a specifically identified allegation or factual contention, is likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and

(4) each denial in the pleading or motion of a factual contention is warranted on the evidence or, for a specifically identified denial, is reasonably based on a lack of information or belief.

Id. § 10.001.

In accordance with section 10.001, the trial court found Leibowitz failed to make a reasonable inquiry before signing the plaintiffs' amended petition adding Merit as a defendant and continued to fail to make a reasonable inquiry during litigation and the summary judgment process. Neither is supported by the evidence. Rather, the evidence establishes that, at the time the plaintiffs' attorney signed the amended petition adding Merit as a defendant, he was aware of the November 19, 1991 invoice implicating "Alamo Fuel Co." in the Pennco dump site, the inclusion of "Alamo Fuel Co." on TNRCC's PRP list, and during the relevant period of time, Merit did business as "Alamo Fuel Company." See Monroe v. Grider, 884 S.W.2d 811, 817 (Tex. App.--Dallas 1994, writ denied) (particular circumstances of the case at the time the pleading was signed are the proper basis for determining whether a person conducted a reasonable inquiry before signing a pleading). By the time the plaintiffs' attorney signed the plaintiffs' response to Merit's motion for summary judgment, he was aware of little else since he had been permitted no discovery. Indeed, the only additional facts known were the denials contained in Chism's affidavit and Merit's removal from TNRCC's PRP list. But none of these facts conclusively established Merit was not involved in the Pennco dump site. We therefore hold the trial court abused its discretion in assessing sanctions under chapter 10 of the Texas Civil Practice and Remedies Code.

Inherent Power

"Inherent power to sanction exists where necessary to deter, alleviate, and counteract bad faith abuse of the judicial process." Greiner v. Jameson, 865 S.W.2d 493, 499 (Tex. App.--Dallas 1993, writ denied). But to utilize this power, the trial court must make and the evidence must support a finding of bad faith. See id.; Phillips & Akers, P.C. v. Cornwell, 927 S.W.2d 276, 280 (Tex. App.--Houston [1st Dist.] 1996, no writ). The record before us contains neither. Nor may bad faith be presumed in light of the trial court's order abating discovery. See Monroe, 884 S.W.2d at 819. We thus hold the trial court abused its discretion in assessing sanctions under its inherent power.

Conclusion

Because the trial court abused its discretion in denying the plaintiffs' motion for a continuance and in sanctioning the plaintiffs' attorneys, we reverse the trial court's judgment and remand this cause for further proceedings consistent with this opinion.

Sarah B. Duncan, Justice

DO NOT PUBLISH

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