CONDITIONALLY GRANTED and Opinion Filed March 18, 2024
S In The Court of Appeals Fifth District of Texas at Dallas No. 05-23-01085-CV
IN RE DREAM DALLAS, LLC AND EIFFEL HOLDINGS, LLC, Relators
Original Proceeding from the 162nd Judicial District Court Dallas County, Texas Trial Court Cause No. DC-22-02275
MEMORANDUM OPINION Before Justices Partida-Kipness, Carlyle, and Garcia Opinion by Justice Partida-Kipness In this original proceeding, Dream Dallas, LLC and Eiffel Holdings, LLC
(Relators) seek a writ of mandamus compelling the trial court to vacate an October
25, 2023 order granting a motion to quash filed by AAA Home Builder, LLC (AAA)
and Hassan Naser (together, Real Parties). The motion to quash concerned discovery
requests Relators served on two nonparty banks. The order compelled Relators to
destroy financial documents produced by the banks in response to the discovery
requests and prohibited Relators from using the documents during the case. We
conditionally grant the writ. BACKGROUND
This proceeding arises out of a construction dispute. Relators own several
properties in east Dallas and contracted with Real Parties to build condominiums
thereon. Project delays ensued, and the parties amended their agreement to include
deadlines for certain portions of the construction project. The amended agreement
provided for liquidated damages if those deadlines were not met. Further disputes
arose between the parties, leading Relators to file suit against Real Parties in
February 2022.
Relators alleged Real Parties failed to pay liquidated damages accrued due to
construction delays. Relators further alleged Real Parties received additional
payments for horizontal construction work not performed, and that Real Parties had
retained a refund from the City of Dallas for horizontal development work that
rightfully belonged to Relators. Relators brought claims for breach of contract, fraud,
and money had and received. Later, Relators began to suspect fraudulent transfers
from AAA after Relators learned AAA had terminated its existence and Naser had
previously incorporated several entities engaged in the same line of business as
AAA. Relators sought leave to add additional parties and theories of recovery.
During discovery, Relators sought production of AAA’s financial records
directly from Real Parties. Relators contended these documents were relevant to the
issue of how much refund money Real Parties received from the City of Dallas. Real
Parties objected to these requests as overly broad, irrelevant, and seeking
–2– confidential financial information unrelated to Relators’ claims. Unsatisfied with
Real Parties’ discovery responses, Relators filed a motion to compel in April 2023.
On April 14, 2023, the trial court denied Relators leave to add additional causes of
action but extended the discovery deadline.
Around April 26, 2023, Relators issued subpoenas to nonparties Bank of
America and First United Bank & Trust—institutions at which AAA purportedly
held accounts—attempting to acquire the financial documents they had been unable
to get directly from Real Parties. Relatedly, Relators noticed depositions on written
questions to the records custodians for the banks and sought production of:
Any and all banking records and documents reduced to writing, or in any other storage medium, including but not limited to, originals and non-identical copies of, letters, telegrams, memoranda, reports or records, ledgers, journals, invoices, bills, financial and business records, receipts, contracts, reports, diary entries, agendas, notes, charts, forms, tabulations, analyses, statistical or informational accumulations, guidelines, instructions, handbooks, manuals, operating procedures, graphs, and all other records in your possession, custody or control pertaining to AAA Home Builder, LLC.
Relators used a discovery service for issuing the subpoenas. On May 9, 2023, Real
Parties filed a motion to quash, motion for protective order, and objections related
to the nonparty subpoenas. The motion was served on the nonparty banks.
On May 10, 2023, an associate judge heard Relators’ motion to compel related
to the discovery previously sought directly from Real Parties. However, the court
did not rule on the discovery regarding the financial information sought directly from
Real Parties. The motion to quash and for protection related to the nonparty
–3– subpoenas had not been formally set for hearing at that time. Those motions were
scheduled to be heard on August 2, 2023, but due to a trial court scheduling conflict,
the hearing was reset to October 25, 2023.
In the interim, near the end of July 2023, the nonparty banks sent Relators
copies of the subpoenaed documents. After learning of this, Real Parties
supplemented the motion to quash and for protection, asserting Relators had
circumvented discovery rules by directing its discovery service to serve the
subpoenas on the nonparty banks prior to the court’s hearing on Real Parties’ motion
to quash and for protection.
At the October 25, 2023 hearing on the motion to quash, the trial court
admonished Relators for pursuing and receiving the bank documents after the
motion to quash was filed. The court stated Relators’ counsel committed an
“egregious” mistake. That same day, the court entered the order granting the motion
to quash. The court ordered Relators’ counsel to destroy—within three days—every
bank record of AAA obtained from the nonparty banks in connection with the
subpoenas and to confirm such destruction with the court. The trial court further
ordered that Relators were prohibited from using or introducing any of the bank
records at any deposition, motion, response, or trial of the case.1 Relators then
petitioned this Court for mandamus relief from the trial court’s order.
1 Trial was set for February 20, 2024. On our own motion, we stayed the trial by order dated February 16, 2024. –4– STANDARD OF REVIEW
To obtain relief by writ of mandamus, the relator must establish a clear abuse
of discretion and no adequate remedy by appeal. In re Nationwide Ins. Co. of Am.,
494 S.W.3d 708, 712 (Tex. 2016) (orig. proceeding). An abuse of discretion occurs
when a trial court’s ruling is arbitrary and unreasonable, made without regard for
guiding legal principles or supporting evidence. Id. Similarly, a trial court abuses its
discretion when it fails to analyze or apply the law correctly. Id. And, the party may
demonstrate the court erred in “determining what the law is or applying the law to
the facts, even when the law is unsettled.” In re K & L Auto Crushers, LLC, 627
S.W.3d 239, 247 (Tex. 2021) (orig. proceeding) (citations omitted).
Trial courts have broad discretion to decide whether to permit or deny
discovery. Id. Generally, they abuse that discretion only if their decision is “so
arbitrary and unreasonable as to amount to a clear and prejudicial error of law.” Id.
A discovery order that denies a party’s requested discovery on improper grounds
and thus prevents that party from developing a claim or defense that goes to the heart
of its case is an abuse of discretion for which mandamus may be appropriate. In re
Liberty Cnty. Mut. Ins. Co., 679 S.W.3d 170, 174 (Tex. 2023) (orig. proceeding). If
a discovery order vitiates or severely compromises a party’s ability to present a
viable claim or defense at trial, an appeal is not an adequate remedy. Id. at 176.
–5– ANALYSIS
Relators contend the trial court abused its discretion in ordering the
destruction of documents obtained by subpoena and prohibiting any use of those
documents during the case. Relators contend these actions were tantamount to
sanctions against Relators, who are left without an adequate remedy by appeal. After
reviewing the petition, response, and the mandamus record, we agree.
I. The Trial Court Abused Its Discretion
A. Scope of discovery
Our procedural rules permit discovery of “any matter that is not privileged
and is relevant to the subject matter of the pending action.” K & L Auto Crushers,
627 S.W.3d at 247–48 (quoting TEX. R. CIV. P. 192.3(a)). This includes information
that “will be inadmissible at trial if the information sought appears reasonably
calculated to lead to the discovery of admissible evidence.” Id. Because the purpose
of discovery is to enable courts to decide disputes based on “what the facts reveal,
not by what facts are concealed,” the rules must be “liberally construed to allow the
litigants to obtain the fullest knowledge of the facts and issues prior to trial.” Id. (first
quoting Crosstex Energy Servs., L.P. v. Pro Plus, Inc., 430 S.W.3d 384, 394 (Tex.
2014); and then quoting Axelson, Inc. v. McIlhany, 798 S.W.2d 550, 553 (Tex. 1990)
(orig. proceeding)).
–6– B. Relators did not abuse discovery by seeking or receiving documents from nonparties
Our rules of procedure permit discovery from nonparties by serving a
subpoena compelling, as here, depositions on written questions and requests for
production of documents and tangible things. TEX. R. CIV. P. 200.1, 205.1. The
nonparty must respond to the subpoena in accordance with Rule 176.6. TEX. R. CIV.
P. 205.3(d).
Rule 176.6 generally governs responses to discovery subpoenas. The rule
provides:
(a) Compliance Required. Except as provided in this subdivision, a person served with a subpoena must comply with the command stated therein unless discharged by the court or by the party summoning such witness. A person commanded to appear and give testimony must remain at the place of deposition, hearing, or trial from day to day until discharged by the court or by the party summoning the witness.
***
(d) Objections. A person commanded to produce and permit inspection or copying of designated documents and things may serve on the party requesting issuance of the subpoena--before the time specified for compliance--written objections to producing any or all of the designated materials. A person need not comply with the part of a subpoena to which objection is made as provided in this paragraph unless ordered to do so by the court. The party requesting the subpoena may move for such an order at any time after an objection is made.
(e) Protective Orders. A person commanded to appear at a deposition, hearing, or trial, or to produce and permit inspection and copying of designated documents and things, and any other person affected by the subpoena, may move for a protective order under Rule 192.6(b)--before the time specified for compliance--either in the court in which the action is pending or in a district court in the county where the subpoena was served. The person must serve the motion on all parties in
–7– accordance with Rule 21a. A person need not comply with the part of a subpoena from which protection is sought under this paragraph unless ordered to do so by the court. The party requesting the subpoena may seek such an order at any time after the motion for protection is filed.
TEX. R. CIV. P. 176.6(a), (d)–(e) (emphasis ours). In sum, Rule 176.6 requires
compliance with the subpoena but provides the nonparty an opportunity to object to
such and refuse to comply until ordered to do so by the court. The rule also gives the
nonparty and other persons affected by the subpoena the right to move for protective
orders. However, nothing in the rule prohibits a nonparty from complying with the
discovery subpoena if it chooses to do so.
The trial court’s order does not specify the grounds for ordering the
destruction of the documents and barring their use during the case. At the hearing on
Real Parties’ motion to quash, the court appeared to believe Relators had affirmative
duties to (1) inform the nonparties (or the discovery service) not to send the
documents in light of the pending motion to quash and for protective order, and (2)
return any documents received from the nonparties. The trial court believed the
procedural rules permitting motions for protective order would be thwarted if parties
could obtain documents before the motion could be heard. The court concluded
Relators’ counsel had committed an “egregious” mistake.
However, neither of the nonparty banks objected to Relators’ subpoenas. And
even though the banks could refuse to comply with the request, they chose to
comply, even after receiving notice of Real Parties’ motion to quash, motion for
protective order, and objections. See TEX. R. CIV. P. 176.6(d), (e), 205.3(d). Real –8– Parties have not directed us to any rule or caselaw holding that a litigant abuses the
discovery process by receiving discovery materials from a nonparty that has freely
chosen to comply with a subpoena. Furthermore, the discovery rules are not thwarted
under such circumstances. The rules contemplate motions for protective orders by
the litigants (or others) to protect themselves in the event sensitive or impermissible
documents have been produced by the nonparty. That the hearing on such a motion
might occur after documents have been produced does not rob the trial court of the
ability to fashion appropriate relief, a subject we discuss below. Accordingly, to the
extent the trial court determined Relators abused the discovery process, the trial
court abused its discretion.
C. The trial court should have considered other remedies
We next consider the trial court’s chosen remedy for Relators’ alleged abuse
of discovery: requiring Relators to destroy the financial records and prohibiting any
use thereof.
Rule 215.3 authorizes a trial court to impose sanctions for discovery abuse.
TEX. R. CIV. P. 215.3. Sanctions which terminate or inhibit the presentation of the
merits of a party’s claims are generally authorized by Rule 215. Braden v. Downey,
811 S.W.2d 922, 929 (Tex. 1991). The effect of such sanctions is to adjudicate
claims or defenses, not on their merits, but on the manner in which a party or his
attorney has conducted discovery. Id. However, such sanctions must be reserved for
circumstances in which a party has so abused the rules of procedure, despite
–9– imposition of lesser sanctions, that the party’s position can be presumed to lack
merit, and it would be unjust to permit the party to present the substance of that
position before the court. Id.
A sanction imposed under Rules 215.2 and 215.3 must be “just.”
TransAmerican Nat. Gas Corp. v. Powell, 811 S.W.2d 913, 917 (Tex. 1991) (orig.
proceeding). We measure whether a sanction is just by two standards. First, a direct
relationship must exist between the offensive conduct and the sanctions imposed. Id.
“Second, just sanctions must not be excessive. The punishment should fit the crime.
A sanction imposed for discovery abuse should be no more severe than necessary to
satisfy its legitimate purposes.” Id. Courts must consider the availability of less
stringent sanctions and whether such lesser sanctions would fully promote
compliance. Id. Sanctions which are so severe as to preclude presentation of the
merits of the case should not be assessed absent a party’s flagrant bad faith or
counsel’s callous disregard for the responsibilities of discovery under the rules. Id.
Sanctions that have the effect of adjudicating a claim or precluding a decision
on the merits of the case are referred to as “death-penalty” sanctions. In re First
Transit Inc., 499 S.W.3d 584, 591 (Tex. App.—Houston [14th Dist.] 2016, orig.
proceeding) (citing GTE Commc’ns Sys. Corp. v. Tanner, 856 S.W.2d 725, 732 (Tex.
1993)). “Death-penalty” sanctions are harsh and may be imposed as an initial
sanction only in the most egregious and exceptional cases. Id. (citing Cire v.
Cummings, 134 S.W.3d 835, 842 (Tex. 2004)). Although death-penalty sanctions
–10– typically involve striking pleadings or rendering a default judgment, any sanctions
that are case determinative may constitute death-penalty sanctions, including those
that exclude essential evidence. Id. at 592. Whether a discovery order is tantamount
to a death-penalty sanction depends on the circumstances of the case. See Paselk v.
Rabun, 293 S.W.3d 600, 609 (Tex. App.—Texarkana 2009, no pet.).
Here, Relators argue the trial court sanctioned them by ordering destruction
of the financial documents and prohibiting their use during the case. The transcript
from the hearing on the motion to quash supports that assertion. Near the conclusion
of the hearing, the trial court admonished Relators’ counsel for not knowing he
should not have pursued or received the documents after Real Parties filed the
motion to quash. The court further stated counsel’s conduct in acquiring the
documents was an “egregious” mistake. The court issued its order immediately
thereafter. The order required immediate destruction of the documents and
confirmation of their destruction to the trial court and wholly prohibited Relators
from using the documents during the case. Sanctions under Rule 215 include
“prohibiting [the party] from introducing designated matters in evidence.” TEX. R.
CIV. P. 215.2(b)(4), 215.3. Under this record, the trial court essentially sanctioned
Relators for conduct it believed violated discovery rules.
Furthermore, we do not believe the sanction imposed by the trial court was
“just,” as required by the rules or case law. See Powell, 811 S.W.2d at 917. First,
there is no relationship between any offensive conduct and the sanctions imposed
–11– because, as we have explained, we do not believe Relators engaged in misconduct.
Second, even if there were misconduct, the sanction was excessive. Relators argued
the bank documents were relevant to their claims for breach of contract and money
had and received. Relators alleged Real Parties received refund money from the City
of Dallas that belonged to Relators. Relators also alleged they provided money to
Real Parties for which no work was performed. Bank records would tend to show—
or lead to evidence that shows—how much was received, when it was received, and
how the funds were used. Requiring complete destruction of the documents and
wholly barring their use tends to thwart the presentation of the merits of the case or
a decision thereon.
Real Parties argue the trial court did not impose any sanctions for alleged
discovery abuse. They assert the court was empowered by Rule 192.6 to issue a
protective order prohibiting Relators from seeking the discovery and ordering the
results of discovery be “sealed or otherwise protected.” See TEX. R. CIV. P.
192.6(b)(1), (5). However, destruction of the evidence and a complete bar to its use
during any litigation proceeding go beyond mere protection. Even if the trial court
was correct to conclude Relators had violated discovery rules, its solution went too
far. The record does not indicate the court considered the availability of less stringent
sanctions and whether such lesser sanctions would fully promote compliance.
Powell, 811 S.W.2d at 917.
–12– In the trial court, Real Parties initially objected on the grounds the requests
were overly broad, not limited in time, not relevant, and invaded personal and
property rights. The order does not reflect whether the trial court was motivated by
any of these objections, and we do not hold that Relators were entitled to all of the
documents produced by the nonparties. Nonetheless, if the trial court believed the
requests were overly broad or some documents were not likely to lead to relevant
evidence, the trial court could have narrowed the discovery or limited its use. The
court also could have fashioned ways to protect Real Parties and others from
sensitive information or misuse of the documents. However, by ordering destruction
of all the documents and wholly barring Relators from using any of them during any
stage of the litigation, the trial court abused its discretion. See Liberty Cnty. Mut.
Ins., 679 S.W.3d at 175 (quoting TEX. R. CIV. P. 192 cmt. 7) (A court “abuses its
discretion in unreasonably restricting a party’s access to information through
discovery.”).
II. No Adequate Remedy by Appeal
We further conclude mandamus relief is appropriate in this case. In addition
to showing the trial court abused its discretion, Relators may obtain mandamus relief
only if they also show they have “no adequate remedy by appeal.” K & L Auto
Crushers, 627 S.W.3d at 256. An appellate remedy may not be adequate where (1)
an appellate court cannot cure the discovery error, such as when confidential
information is erroneously made public, (2) the party’s ability to present a viable
–13– claim or defense—or reasonable opportunity to develop the merits of the case—is
“severely compromised” so that the trial would be a waste of resources, or (3)
discovery is disallowed and cannot be made part of the appellate record such that a
reviewing court is unable to evaluate the effect of the trial court’s error based on the
record. Id. A party’s ability to present and develop its case may be severely
compromised when the denied discovery goes “to the very heart” of a party’s case
and prevents it from “developing essential elements” of its claim or defense. Id.
We conclude Relators have no adequate remedy by appeal because they have
effectively been denied a reasonable opportunity to develop claims that go to the
heart of their case. Relators brought claims for breach of contract, fraud, and money
had and received. The parties dispute the amount of money refunded to Real Parties
by a third party, Dallas County, and whether Real Parties were paid for work not
performed as contemplated by the contracts. The circumstances of how much money
Real Parties received from Dallas County, and Relators’ alleged entitlement to it, go
to the heart of a claim for money had and received.2 Furthermore, whether monies
received by Real Parties went to construction as contemplated by the contracts would
implicate breach of contract claims. The order requiring the financial documents’
destruction and complete bar against their use thwarts Relators’ ability to develop
2 To prove a claim for money had and received, a plaintiff must show (1) a defendant holds money (2) which in equity and good conscience belongs to the plaintiff. MGA Ins. Co. v. Charles R. Chesnutt, P.C., 358 S.W.3d 808, 814 (Tex. App.—Dallas 2012, no pet.). “The question in an action for money had and received, is to which party does the money, in equity, justice, and law, belong.” Id. at 813 (citations omitted). –14– and present their case.3 We also conclude Relators have no adequate remedy by
appeal because a reviewing court will be unable to evaluate the effect of the trial
court’s denial of discovery from the nonparty banks. The missing discovery is from
third parties and cannot be made part of the appellate record or challenged on appeal,
and the banks will not be parties to any appeal. See K & L Auto Crushers, 627 S.W.3d
at 257. Furthermore, it would be difficult to determine on appeal whether the lack of
discovery erroneously affected the outcome of the trial. Id. We conclude Relators
have no adequate remedy by appeal.
CONCLUSION
We hold the trial court abused its discretion to the extent it concluded Relators
abused the discovery process. We further hold the trial court abused its discretion in
ordering the destruction of the financial records and barring Relators from using
them during the litigation. We also conclude Relators have no adequate remedy by
appeal.
Accordingly, we conditionally grant the writ of mandamus and lift the stay
imposed by our order dated February 16, 2024. We direct the trial court to vacate its
October 25, 2023 order on Real Parties’ motion to quash, motion for protective
3 Relators contend the requested discovery is necessary to investigate and support other claims they seek to add to their petition, for example, fraudulent transfers of AAA’s assets. Real Parties argue Relators cannot use discovery to fish for evidence of new claims. We do not hold Relators are entitled to the discovery to fish for additional claims. See In re Am. Optical Corp., 988 S.W.2d 711, 713 (Tex. 1998) (orig. proceeding). We simply conclude at least some of the information sought is likely relevant to the subject of the action and “is reasonably calculated to lead to the discovery of admissible evidence” regarding the claims in Relators’ petition. See TEX. R. CIV. P. 192.3(a). –15– order, and objections to Relators’ deposition on written questions and subpoena
duces tecum within fourteen days of this opinion. We are confident the trial court
will comply with our order. A writ will issue only if the trial court fails to comply.
/Robbie Partida-Kipness/ ROBBIE PARTIDA-KIPNESS JUSTICE 231085F.P05
–16–