Envision Realty Group, LLC and Jackson Potter, and Their Attorney David J. Potter v. Chuan C. Chen

• Court: Court of Appeals of Texas
• Decided: March 5, 2020
• Docket: 05-18-00613-CV
• Status: Published

Opinion

Affirmed as Modified and Opinion Filed March 5, 2020

In The Court of Appeals Fifth District of Texas at Dallas No. 05-18-00613-CV ENVISION REALTY GROUP, LLC AND JACKSON POTTER, AND THEIR ATTORNEY DAVID J. POTTER, Appellants V. CHUAN C. CHEN, Appellee

On Appeal from the 134th Judicial District Court Dallas County, Texas Trial Court Cause No. DC-17-16534-G

MEMORANDUM OPINION Before Justices Myers, Osborne, and Nowell Opinion by Justice Nowell Appellants Envision Realty Group, LLC, Jackson Potter, and their attorney,

David J. Potter, appeal an order dismissing their claims against Chuan C. Chen under

Rule 91a and awarding attorney’s fees and costs jointly and severally against all

Appellants, including their attorney. See TEX. R. CIV. P. 91a. In four issues,

Appellants contend the trial court erred by granting the motion because it was filed

less than 21 days before the hearing, their petition alleged a valid declaratory judgment claim, and Rule 91a does not authorize awarding fees and costs against

their attorney. They also contend the court erred by denying their motion to set aside

the order of dismissal based on newly discovered evidence. We conclude the trial

court erred by awarding costs and fees against the attorney for Appellants and

modify the order to delete that award. In all other respects, we affirm the trial court’s

order.

BACKGROUND This background is taken from the allegations in Appellants’ original petition.

See TEX. R. CIV. P. 91a.6. The petition states it is filed for a declaratory judgment

and “for purposes of collection of a judgment against [Chen].” Appellants alleged:

 Appellants are the holders of a judgment against Albert Lutterodt, Chen’s former husband. The judgment was appealed and affirmed by this Court and Lutterodt’s petition for review was denied by the Texas Supreme Court on October 20, 2017. The judgment is valid and enforceable.  Chen was married to Lutterodt at all times relevant to this case until an agreed divorce decree was rendered on November 18, 2016. The divorce decree was rendered “near the conclusion of the appeal process” and while Appellants were “prohibited by a supersedeas order” from enforcing the judgment.  “Said judgment debt was a community debt under the law of Texas. The judgment arose out of actions taken on behalf of [Chen] and himself by [Lutterodt] as the owners of real property consisting of 3 condominium units located in Emily Lane Condominiums.” In addition, Chen and Lutterodt were community property owners of a condominium located in the Bent Tree Forest Drive Condos and 33.3 acres located in Red River County, Texas.  Lutterodt appeared pro se in the divorce action, but two months after the divorce decree, Lutterodt filed bankruptcy represented by the same

–2– attorney who represented Chen in the divorce. After a year of bankruptcy proceedings and on the motion of the bankruptcy trustee, the bankruptcy court dismissed the bankruptcy case for bad faith filing by Lutterodt and imposed a sanction prohibiting him from filing bankruptcy for a period of eighteen months.  “The bad faith filing of the bankruptcy case by Lutterodt was based in part by the division of the property utilizing the same lawyer, M. Tayari Garrett, to make an insider transfer of virtually all non-exempt property that would have been available for civil execution for the collection of Plaintiffs’ judgment to the Defendant Chuan C. Chen, and all exempt property to Albert Lutterodt in preparation for the filing of a no asset bankruptcy action.”  All properties listed above and perhaps others were acquired during the marriage of Chen and Lutterodt as he acknowledged at a bankruptcy hearing on November 27, 2017. “As community property, the judgment debt owed to the plaintiffs should be subject to execution and sale for the satisfaction of the judgment debts owed to the Plaintiffs.”  Plaintiffs are entitled to a declaratory judgment that the judgment is a “community debt jointly and severally owed by Albert Lutterodt and Defendant Chuan Chen, and that all properties acquired during their marriage is subject to execution to satisfy the said judgment. That a judgment on the original judgment should be entered jointly and severally against Albert Lutterodt and Defendant Chuan C. Chen, for which execution and all other remedies at law should apply to the collection of said judgment.”  Plaintiffs prayed for “a declaratory judgment finding that the judgment . . . is a community debt of [Chen] and [Lutterodt], and that a judgment on the judgment be entered and subject to execution and all other remedies at law for the collection of judgment,” costs, and pre- and post-judgment interest. No exhibits were attached to the petition.

Chen filed a motion to dismiss under Rule 91a on January 16, 2018. Notice of

a hearing set for February 5, 2018 was filed the same day. Chen alleged Appellants’

cause of action had no basis in law or fact because Family Code section 3.201

–3– precludes her liability for the actions of her ex-husband and the Declaratory

Judgment Act precludes Appellants’ attempt to rewrite the judgment against

Lutterodt. Appellants filed a response in support of the allegations in the original

petition with a copy of a transcript of Lutterodt’s testimony at a bankruptcy hearing.

Appellants did not amend their petition as allowed by Rule 91a.5(b). TEX. R. CIV. P.

91a.5(b).

The trial court heard and granted the motion on February 5, 2018. After Chen

submitted an affidavit for her reasonable and necessary costs and attorney’s fees, the

trial court signed a written order on February 7, 2018 dismissing Appellants’ cause

of action with prejudice and awarding Chen attorney’s fees and costs in the amount

of $12,664.50 jointly and severally against Appellants and their attorney, David

Potter.

On March 7, 2018, Appellants filed a motion to set aside the order of dismissal

based on newly discovered evidence. They also filed an amended petition raising

additional causes of action. Appellants argued their original petition alleged

sufficient facts to show they had a right to a declaratory judgment. In addition, they

developed new evidence after the February 5 hearing that would enable them to file

additional causes of action against Chen, her husband, and her attorney. Appellants

attached affidavits and documentary evidence to the motion to set aside. They argued

for the first time that the motion to dismiss was not filed twenty-one days before the

–4– hearing and, in the alternative, sought to modify the order to remove their attorney’s

joint and several liability for the costs and attorney’s fees. The trial court denied the

motion to set aside the order of dismissal on March 26, 2018.1

STANDARD OF REVIEW Under Texas Rule of Civil Procedure 91a, “a party may move to dismiss a

cause of action on the grounds that it has no basis in law or fact.” See TEX. R. CIV.

P. 91a.1. Dismissal is appropriate under Rule 91a if the allegations made in the

petition, taken as true, together with inferences reasonably drawn from them, do not

entitle the claimant to the relief sought or no reasonable person could believe the

facts pleaded. See id. When considering a motion to dismiss, the court “must decide

the motion based solely on the pleading of the cause of action, together with any

pleading exhibits permitted by Rule 59” of the rules of civil procedure. TEX. R. CIV.

P. 91a.6. We review the merits of a motion to dismiss pursuant to Rule 91a de novo

because the availability of a remedy under the facts alleged is a question of law. City

of Dallas v. Sanchez, 494 S.W.3d 722, 724 (Tex. 2016) (per curiam). We apply the

fair-notice pleading standard in determining whether the allegations in the petition

are sufficient to allege a cause of action. Thomas v. 462 Thomas Family Properties,

1 Chen filed a motion for additional attorney’s fees incurred in responding to the motion to set aside on April 5, 2018. The trial court signed an order granting Chen’s motion in part on May 3, 2018. In a separate order, this Court determined the May 3, 2018 order was signed outside of the trial court’s plenary power, vacated that order, and dismissed the appeal and cross-appeal with respect to that order.

–5– LP, 559 S.W.3d 634, 639–40 (Tex. App.—Dallas 2018, pet. denied).

DISCUSSION A. 21 Day Filing Requirement In their first issue, Appellants complain that Chen’s motion to dismiss was not

filed twenty-one days before the hearing as required by Rule 91a.3(b). According to

the docket sheet, Chen’s motion to dismiss and amended motion to dismiss were

filed on January 16, 2018. The motion to dismiss was heard on February 5, 2018,

only twenty days later. Chen argues that Appellants failed to preserve any complaint

about the filing because they did not notify the trial court and request a continuance

before the hearing. We agree.

While a Rule 91a motion to dismiss must be filed twenty-one days before the

hearing, the nonmovant is entitled to only fourteen days’ notice of the hearing. TEX.

R. CIV. P. 91a.3(b), 91a.6. Appellants received more than fourteen days’ notice of

the hearing and did not complain about the late filing until their motion to set aside

filed after the hearing. To preserve a complaint about lack of notice, a party must

bring the lack of adequate notice to the trial court’s attention at the hearing and object

to the hearing going forward or move for a continuance. TEX. R. APP. P. 33.1(a);

Odam v. Texans Credit Union, No. 05-16-00077-CV, 2017 WL 3634274, at *4 (Tex.

App.—Dallas Aug. 24, 2017, no pet.) (mem. op.).

Appellants argue they preserved their complaint by raising it in their motion

–6– to set aside the order of dismissal. However, when a party receives notice of a

hearing sufficient to enable to the party to attend, the party must file a motion for

continuance or raise the complaint about late notice before or during the hearing. See

Odam, 2017 WL 3634274, at *4; Nguyen v. Short, How, Frels & Heitz, P.C., 108

S.W.3d 558, 560–61 (Tex. App.—Dallas 2003, pet. denied). A party may preserve

error in a post-trial motion only when the party was not given notice of the hearing

or was deprived of its right to seek leave to file a late response. Nguyen, 108 S.W.3d

at 560–61. Here, Appellants received timely notice of the hearing and filed a timely

response to the motion. Accordingly, their motion to set aside the order of dismissal

was insufficient to preserve the complaint for appeal. We overrule Appellants’ first

issue.

B. Motion to Dismiss Appellants argue in their second issue that the trial court erred by granting the

motion to dismiss. Their fourth issue contends the trial court erred by denying their

motion to set aside based on newly discovered evidence.

Because appellants did not amend their petition at least three days before the

hearing, we consider only the allegations in the original petition. TEX. R. CIV. P.

91a.5(b). In making their arguments on appeal, Appellants rely on facts and evidence

that were never alleged in their original petition. When considering and ruling on a

motion to dismiss, the trial court “may not consider evidence” and “must decide the

–7– motion based solely on the pleading of the cause of action.” TEX. R. CIV. P. 91a.6.

Thus, we do not consider the evidence offered by Appellants and decide the motion

based solely on the pleading of the cause of action.

As stated in the original petition, Appellants seek a declaratory judgment that

the judgment against Lutterodt is a community debt jointly and severally owed by

Lutterodt and Chen and that all community property is subject to execution to satisfy

the judgment. Specifically, they requested that a “judgment on the original judgment

should be entered jointly and severally against” Lutterodt and Chen.

A declaratory judgment is proper only if a justiciable controversy exists as to

the rights and status of the parties and the controversy will be resolved by the

declaration sought. Bonham State Bank v. Beadle, 907 S.W.2d 465, 467 (Tex. 1995);

Texas Dep’t of Pub. Safety v. Moore, 985 S.W.2d 149, 153 (Tex. App.—Austin

1998, no pet.). “To constitute a justiciable controversy, there must exist a real and

substantial controversy involving genuine conflict of tangible interests and not

merely a theoretical dispute.” Beadle, 907 S.W.2d at 467 (quoting Bexar–Medina–

Atascosa Ctys. Water Control & Improvement Dist. No. 1 v. Medina Lake Protection

Ass’n, 640 S.W.2d 778, 779–80 (Tex. App.—San Antonio 1982, writ ref’d n.r.e.)).

The declaratory judgment act does not enlarge the trial court’s jurisdiction; it is

“merely a procedural device for deciding cases already within a court’s jurisdiction.”

Tex. Dep’t of Transp. v. Sefzik, 355 S.W.3d 618, 621–22 (Tex. 2011) (per curiam).

–8– Appellants’ contend the judgment against Lutterodt is a “community debt” for

which Lutterodt and Chen are jointly and severally liable. The term “community

debt” is a concept often misused to impose liability on a spouse who did not incur

the debt. Tedder v. Gardner Aldrich, LLP, 421 S.W.3d 651, 654 (Tex. 2013). Rather,

a person’s liability for debts incurred by their spouse is determined by statute. Id. at

655. By statute, a person is only liable for the acts of their spouse if the spouse acts

as their agent or the spouse incurs a debt for necessaries.2 TEX. FAM. CODE ANN. §

3.201(a). Except as otherwise provided, “community property is not subject to a

liability that arises from an act of a spouse.” Id. § 3.201(b). Furthermore, a “spouse

does not act as an agent for the other spouse solely because of the marriage

relationship.” Id. § 3.201(c).

Appellants contend they alleged that Lutterodt acted as Chen’s agent when

they stated the judgment arose out of actions “taken on behalf of [Chen] and

[Lutterodt]” by Lutterodt as owners of real property. However, Chen and Lutterodt

were joint owners because the property was community property. There are no facts

alleged that Lutterodt was expressly or impliedly authorized to act for Chen in

dealing with Appellants. See Crooks v. M1 Real Estate Partners, Ltd., 238 S.W.3d

474, 483 (Tex. App.—Dallas 2007, pet. denied) (discussing agency principles).

Rather, Appellants’ agency argument is based on nothing more than the fact that

2 Appellants do not argue the judgment debt was for necessaries as defined by the Family Code.

–9– Chen was married to Lutterodt. But marriage alone is insufficient to establish

agency. TEX. FAM. CODE ANN. § 3.201(c). In other words, “[m]arriage itself does not

create joint and several liability.” Tedder, 421 S.W.3d at 655 (quoting Tom

Featherston & Allison Dickson, Marital Property Liabilities: Dispelling the Myth of

Community Debt, 73 Tex. Bar J. 16, 19 (2010)).

A more fundamental problem exists with Appellants’ declaratory judgment

claim. As argued in the motion to dismiss, Appellants attempt to use the declaratory

judgment claim to modify the prior judgment against Lutterodt to impose joint and

several liability on Chen. However, a declaratory judgment action may not be used

to collaterally attack, modify, or interpret a prior judgment. Dallas Cty. Tax

Collector v. Andolina, 303 S.W.3d 926, 930 (Tex. App.—Dallas 2010, no pet.);

Martin v. Dosohs I, Ltd., 2 S.W.3d 350, 353–54 (Tex. App.—San Antonio 1999, pet.

denied) (“[T]he use of a declaratory judgment suit to interpret a judgment of the

same or another court is an impermissible collateral attack on the previous

judgment.”); Cohen v. Cohen, 632 S.W.2d 172, 173 (Tex. App.—Waco 1982, no

writ); see also Depumpo v. Thrasher, No. 05-14-00967-CV, 2016 WL 147294, at *5

(Tex. App.—Dallas Jan. 13, 2016, no. pet.) (mem. op.). Appellants’ attempt to

impose joint and several liability on Chen through a declaratory judgment has no

basis in law under the facts alleged.

Appellants next rely on the allegation that Lutterodt’s bankruptcy case was

–10– dismissed “for bad faith filing” based in part on the division of the property to make

an “insider transfer” of non-exempt property to Chen and exempt property to

Lutterodt. Appellants argue this allegation entitles them to several remedies under

the Declaratory Judgment Act. Appellants cited no authority in the trial court and

cite none on appeal that a bad faith filing in bankruptcy gives rise to a cause of action

against the debtor’s former spouse and we have found none.

Appellants also claim the bad-faith allegation supports the inference of a

potential cause of action for civil conspiracy to violate the Uniform Fraudulent

Transfer Act (UFTA). See TEX. BUS. & COM. CODE ANN. §§ 24.001–.013. However,

in the petition, Appellants never cited to the UFTA, never alleged the property

division was made with the actual intent to hinder, delay, or defraud creditors, and

never sought a declaration that the property division should be set aside as a

fraudulent transfer. See id. § 24.005(a) (transfer is fraudulent as to creditor if debtor

made the transfer “with actual intent to hinder, delay, or defraud any creditor” or

without receiving equivalent value in exchange for the transfer). Nor did they seek

any of the remedies provided by the UFTA. See TEX. BUS. & COM. CODE ANN. §

24.008. While evidence of a transfer to an insider is one factor to consider in

determining actual intent to defraud, that fact alone does not support a conclusion

the transfer constitutes a fraudulent transfer. G.M. Houser, Inc. v. Rodgers, 204

S.W.3d 836, 843 (Tex. App.—Dallas 2006, no pet.). In short, the original petition

–11– did not give fair notice that Appellants actually sought relief under the UFTA.

Appellants contend on appeal that under Section 3.202(d) all community

property is subject to tortious liability of either spouse incurred during the marriage.

See TEX. FAM. CODE ANN. § 3.202(d). They then assert that the judgment against

Lutterodt was for defamation, a tort, and for attorney’s fees under the condominium

act. However, these contentions were never stated in the petition. The judgment was

not attached to the petition and there is no allegation that the judgment was for a tort

or attorney’s fees. Appellants also contend they should be entitled to develop

evidence of whether the property was subject to Lutterodt’s sole or joint

management, control, and disposition because such property would be subject to

Lutterodt’s liabilities under Section 3.202(c). TEX. FAM. CODE ANN. § 3.202(c). But,

again, this legal theory was never alleged in the original petition.

Many of Appellants’ arguments on appeal are premised on the assertion they

hold a judgment lien pursuant to an abstract of judgment filed in Dallas County.

However, the petition never mentions an abstract of judgment. Nor does it seek to

enforce a judgment lien against any property. The mere rendition of a judgment does

not create a lien or other property right. See Citicorp Real Estate, Inc., v. Banque

Arabe Internationale D’Investissement, 747 S.W.2d 926, 929 (Tex. App.—Dallas

1988, writ denied). To establish a lien on real property, a judgment creditor must

comply with the statutory requirements for abstracting and recording the judgment

–12– in any county where the debtor has real property. See TEX. PROP. CODE ANN. §

52.001; Hoffman, McBryde & Co., P.C. v. Heyland, 74 S.W.3d 906, 908–09 (Tex.

App.—Dallas 2002, pet. denied). Appellants’ mere allegation of the existence of a

judgment did not give fair notice that they held a valid abstract of judgment lien and

were seeking to enforce that lien.

Considering the allegations in the original petition, taken as true, together with

inferences reasonably drawn from them, we conclude the allegations do not entitle

Appellants to the relief sought and the cause of action has no basis in law or fact.

We overrule Appellants’ second issue.

Regarding the motion to set aside, Appellants presented what they

characterized as newly discovered evidence to support their arguments for setting

aside the order. However, Rule 91a prohibits a court from considering evidence

when ruling on a motion to dismiss. TEX. R. CIV. P. 91a.6. If we were to allow

Appellants to avoid dismissal under Rule 91a based on evidence presented in a

motion to set aside an order, we would circumvent the express language of the Rule

prohibiting the consideration of evidence. Accordingly, we overrule Appellants’

fourth issue.

C. Attorney’s fees In their third issue, Appellants’ argue the trial court erred by awarding

attorney’s fees and costs against their attorney. Because the action was commenced

–13– before September 1, 2019, the prior version of Rule 91a.7 applies.3 Under that

version, once the trial court has ruled on the motion, it must award costs and

reasonable and necessary attorney’s fees to “the prevailing party on the motion.” See

TEX. R. CIV. P. 91a.7 (“the court must award the prevailing party on the motion all

costs and reasonable and necessary attorney fees incurred with respect to the

challenged cause of action in the trial court”). The trial court must consider evidence

regarding costs and fees when determining this award. Id. Chen prevailed on the

motion to dismiss and submitted evidence of her reasonable and necessary attorney’s

fees and costs. In the order of dismissal, the trial court awarded attorney’s fees and

costs to Chen jointly and severally against Appellants and their attorney.

Under the American Rule, attorney’s fees are not awarded unless a statute or

contract authorizes them. In re Nat’l Lloyds Ins. Co., 532 S.W.3d 794, 809 (Tex.

2017) (orig. proceeding). “Any award of fees is limited by the wording of the statute

or contract that creates an exception to the American Rule.” JCB, Inc. v. Horsburgh

& Scott Co., No. 18-1099, 2019 WL 2406971, at *8 (Tex. June 7, 2019).

Rule 91a.7 does not expressly state that fees may be awarded against a party’s

attorney. In general, an attorney is not liable to an opposing party “for actions taken

in connection with representing a client in litigation.” Cantey Hanger, LLP v. Byrd,

3 The rule was amended effective September 1, 2019 to make the award of costs and fees discretionary. TEX. R. CIV. P. 91a cmt. 2019.

–14– 467 S.W.3d 477, 481 (Tex. 2015) (quoting Alpert v. Crain, Caton & James, P.C.,

178 S.W.3d 398, 405 (Tex. App.—Houston [1st Dist.] 2005, pet. denied)). Rule

91a.7 requires only the award of reasonable and necessary attorney’s fees and costs

to the prevailing party. TEX. R. CIV. P. 91a.7. The Rule does not state that the award

is a sanction or that it may be awarded against the attorney representing the non-

prevailing party. In contrast, other rules permit sanctions, including attorney’s fees,

to be awarded against the attorney for a party, the party, or both for misconduct in

litigation. See TEX. R. CIV. P. 13, 215; Cantey Hanger, 467 S.W.3d at 482 (“other

mechanisms are in place to discourage and remedy such [wrongful] conduct, such

as sanctions, contempt, and attorney disciplinary proceeding”); see also TEX. CIV.

PRAC. & REM. CODE ANN. § 10.004 (court may impose sanction on the person, a

party represented by the person, or both for violating section 10.001).

If the intent of Rule 91a.7 was to allow an award of costs and fees against an

attorney representing a party, the Rule would expressly state such as do Rules 13

and 215. Because Rule 91a.7 does not allow the award of costs and fees against the

attorney representing a party, the trial court erred in awarding costs and fees in this

case jointly and severally against Appellants and their attorney. We sustain

Appellants’ third issue and modify the order granting the motion to dismiss to delete

the award of fees and costs against David Potter.

–15– CONCLUSION We conclude the allegations in the original petition do not entitle Appellants

to the relief sought and the cause of action has no basis in law or fact. We also

conclude the trial court erred by awarding costs and fees against the attorney for

Appellants and modify the order to delete that award. In all other respects, we affirm

the trial court’s order.

/Erin A. Nowell/ ERIN A. NOWELL JUSTICE

180613F.P05

–16– Court of Appeals Fifth District of Texas at Dallas JUDGMENT

ENVISION REALTY GROUP, LLC On Appeal from the 134th Judicial AND JACKSON POTTER, AND District Court, Dallas County, Texas THEIR ATTORNEY DAVID J. Trial Court Cause No. DC-17-16534- POTTER, Appellants G. Opinion delivered by Justice Nowell. No. 05-18-00613-CV V. Justices Myers and Osborne participating. CHUAN C. CHEN, Appellee

In accordance with this Court’s opinion of this date, the trial court’s February 7, 2018 order is MODIFIED to delete the award of attorney’s fees and costs against David J. Potter. In all other respects, the trial court’s order is AFFIRMED.

It is ORDERED that appellee Chuan C. Chen recover her costs of this appeal from appellants Envision Realty Group, LLC and Jackson Potter.

Judgment entered this 5th day of March, 2020.

–17–