in Re: Patrick Daugherty

• Court: Court of Appeals of Texas
• Decided: June 19, 2018
• Docket: 05-18-00290-CV
• Status: Published

Opinion

CONDITIALLY GRANT; and Opinion Filed June 19, 2018.

In The Court of Appeals Fifth District of Texas at Dallas No. 05-18-00290-CV

IN RE PATRICK DAUGHERTY, Relator

AND

PATRICK DAUGHERTY, Appellant V. HIGHLAND CAPITAL MANAGEMENT, L.P. AND CORNERSTONE HEALTHCARE GROUP HOLDINGS, INC., Appellees

Original Proceeding and Appeal from the 68th Judicial District Court Dallas County, Texas Trial Court Cause No. 12-04005

MEMORANDUM OPINION Before Justices Lang-Miers, Fillmore, and Stoddart Opinion by Justice Fillmore Following litigation between Patrick Daugherty and his former employer, Highland Capital

Management, L.P. (Highland), the trial court signed a permanent injunction prohibiting Daugherty

from disclosing Highland’s confidential information. Three years later, Highland requested the

trial court hold Daugherty in contempt for violating the permanent injunction on three different

occasions. The trial court held Daugherty in contempt for three violations of the permanent

injunction, sentenced Daugherty to a total of thirty-eight days in jail, and assessed a fine of $500

per violation. Highland subsequently filed a motion for sanctions, requesting that the trial court

award Highland the attorneys’ fees it incurred due to Daugherty’s three violations of the permanent injunction. The trial court granted the motion for sanctions and ordered Daugherty to pay

Highland’s attorneys’ fees in the amount of $221,348.85.

In this consolidated original proceeding and appeal, we must decide whether the trial court

abused its discretion by granting Highland’s motion for sanctions.1 We conclude the attorneys’

fees awarded to Highland constitute punishment for criminal contempt that is not authorized by

section 21.002 of the government code. See TEX. GOV’T CODE ANN. § 21.002(b) (West 2004).

Accordingly, we conditionally grant Daugherty’s petition for writ of mandamus and direct the trial

court to vacate its order granting Highland’s motion for sanctions. We dismiss Daugherty’s appeal

as moot.

Background

While employed by Highland, Daugherty signed at least three agreements that prohibited

him from disclosing certain information belonging to Highland and its affiliates. After the

employment relationship ended, Highland sued Daugherty, alleging Daugherty used or disclosed

information covered by the agreements. A jury found in favor of Highland and, on July 14, 2014,

the trial court signed a judgment ordering Daugherty to cease and desist from:

[R]etaining, using, disclosing, publishing or disseminating Highland’s (or its affiliates’) confidential, proprietary, and/or privileged information, including but not limited to information concerning Highland’s customers, clients, marketing, business and operational methods, contracts, financial data, technical data, e-mail, pricing, management methods, finances, strategies, systems, research, plans, reports, recommendations and conclusions, tear sheets, industry comparative analysis, Collateralized Loan Obligation (CLO) and other structured products, and names, arrangements with, or other information relating to Highland’s (or its affiliates’) customers, clients, suppliers, financiers, owners, and business prospects. Notwithstanding the foregoing, Daugherty may use or disclose the information described in this paragraph only as (i) required by law; or (ii) directed and authorized in writing by Highland.

1 The appeal was initially filed as cause 05-18-00329-CV, Patrick Daugherty v. Highland Capital Management, Inc. L.P. and Cornerstone Healthcare Group Holdings, Inc., but was consolidated into cause number 05-18-00290-CV, In re Patrick Daugherty by order dated June 13, 2018.

–2– Since the entry of the permanent injunction, there has been ongoing litigation between Highland

and Daugherty based on Highland’s claims that Daugherty repeatedly violated the injunction.

As relevant to this appeal, on June 22, 2016, Daugherty left a handwritten letter at the home

of Joshua Terry, whose employment with Highland had recently been terminated. In the letter,

Daugherty offered to be a “potential witness – willing to tell the truth about how things really

operated at Highland under the leadership of Dondero and Okada.” Daugherty subsequently had

conversations with Terry in July 2016, December 2016, and February or March 2017, in which

Daugherty mentioned Highland.

On June 29, 2017, Highland deposed Terry in an arbitration proceeding between Terry and

a Highland-affiliated fund, Acis Capital Management, L.P., and questioned him about his

conversations with Daugherty. On July 20, 2017, Highland filed a supplemental motion to show

cause,2 alleging Daugherty violated the permanent injunction as a result of his communications

with Terry. Highland requested the trial court (1) hold Daugherty in violation of the permanent

injunction, (2) enter an order requiring Daugherty to appear before the trial court and show cause

why he should not be held in contempt, and to provide “any and all emails, documents, and text

messages exchanged by and between Daugherty and Mr. Terry, either directly or indirectly

(including through counsel), and any telephone records, since June 22, 2016,” (3) award Highland

its reasonable and necessary attorneys’ fees incurred in connection with the motion, and (4) enter

any further sanctions against Daugherty that the trial court deemed appropriate.

The trial court heard Highland’s supplemental motion to show cause on August 28, 2017.

Highland argued the trial court could enforce its orders through criminal and civil contempt as well

as through sanctions. At the close of evidence, Highland indicated it would put on evidence of the

2 Highland filed a show cause motion on August 23, 2016, based on Daugherty allegedly disclosing Highland’s confidential and proprietary business information to a reporter.

–3– “attorney[s’] fees we’ve incurred in dealing with this” at a later time. The trial court questioned

whether attorneys’ fees were “recoverable in a show cause” and stated it would delay any

consideration of Highland’s request for attorneys’ fees. The trial court found Daugherty in

contempt for violating the permanent injunction as a result of his three conversations with Terry.

On September 18, 2017, the trial court held a hearing to determine the appropriate

punishment for Daugherty’s contempt. The trial court indicated it would not consider the

attorneys’ fees issue without a further motion from Highland. On September 25, 2017, the trial

court signed a Judgment of Contempt and Order of Commitment, finding Daugherty violated the

injunction as a result of his three conversations with Terry and assessing punishment of three days’

confinement for the July 2016 violation, fourteen days’ confinement for the December 2016

violation, twenty-one days’ confinement for the February or March 2017 violation, and a $500

fine for each violation.

Highland filed a motion for sanctions on October 24, 2017. Highland requested that

“sanctions be imposed to penalize Daugherty for his abuse of the judicial process and failure to

comply” with the trial court’s orders and that it “be awarded its reasonable attorneys’ fee and costs

incurred in connection with Daugherty’s most recent violations” of the permanent injunction.

Highland noted that, in its supplemental motion to show cause, it requested the trial court impose

sanctions and award attorneys’ fees and enter any further sanctions against Daugherty that it

deemed appropriate.

At the hearing on its motion for sanctions, Highland stated it was “only asking for the fees

related to the most recent conduct of Mr. Daugherty with respect to his communications with Mr.

Terry and the numerous hearings and other proceedings” conducted by the trial court and that

“[t]his is specifically related to the Terry issues and issues that [the trial court] heard specific

testimony about in this courtroom.” Although Highland requested an award of $226,343.85

–4– “[r]elated to the Terry matter,” Daugherty argued that there was at least $5,000 of time entries on

the billing statements of Highland’s attorneys not related to his contacts with Terry.

On January 3, 2018, the trial court signed an order granting Highland’s motion for

sanctions. The trial court found Daugherty had “on multiple occasions violated, circumvented,

and disregarded the [injunction], as well as other orders” of the trial court and Daugherty’s

“conduct rises to the level of bad faith abuse of the judicial process by significantly interfering

with [the trial court’s] legitimate exercise of its core function.” As to the appropriate sanction, the

trial court found Highland had “been forced to expend hundreds of thousands of dollars as a result

of Daugherty’s misconduct and his efforts to conceal his misconduct, including $221,348.85 in

attorney[s’] fees and costs incurred in connection with the conduct outlined” in the supplemental

motion to show cause. Pursuant to its inherent authority, the trial court ordered Daugherty to pay

Highland $221,348.85.

Daugherty filed this original proceeding seeking a writ of mandamus directing the trial

court to vacate its sanctions order as well as an appeal from the sanctions order. Per our request,

Highland filed a response to the petition. We consolidated Daugherty’s appeal into this original

proceeding.

Mandamus Standard

To be entitled to mandamus relief, Daugherty must establish the trial court clearly abused

its discretion and he lacks an adequate remedy by appeal. In re Prudential Ins. Co. of Am., 148

S.W.3d 124, 135–36 (Tex. 2004) (orig. proceeding). A trial court clearly abuses its discretion if it

reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of

law, or if it clearly fails to correctly analyze or apply the law. In re Cerberus Capital Mgmt., L.P.,

164 S.W.3d 379, 382 (Tex. 2005) (orig. proceeding) (per curiam). To determine if a party has an

–5– adequate remedy by appeal, the appellate court asks whether “any benefits to mandamus review

are outweighed by the detriments.” In re Prudential Ins. Co. of Am., 148 S.W.3d at 136.

Discussion

We must first consider whether Daugherty has an adequate remedy by appeal that would

preclude mandamus relief. “Contempt orders are generally not appealable and, as a result, no

adequate remedy by appeal exists.” Barnes v. Barnes, No. 05-16-00241-CV, 2018 WL 1026205,

at *2 (Tex. App.—Dallas Feb. 23, 2018, no pet.) (mem. op.). Therefore, a party may seek relief

from a contempt order that does not involve confinement through a petition for writ of mandamus.

In re Reece, 341 S.W.3d 360, 370 (Tex. 2011) (orig. proceeding); In re Long, 984 S.W.2d 623,

625 (Tex. 1999) (orig. proceeding) (per curiam) (“Contempt orders that do not involve

confinement cannot be reviewed by writ of habeas corpus, and the only possible relief is a writ of

mandamus.”).

However, when a trial court imposes monetary sanctions, the party generally has an

adequate remedy by appeal after final judgment. Street v. Second Court of Appeals, 715 S.W.2d

638, 639–40 (Tex. 1986) (orig. proceeding) (per curiam); In re United Med. Ctrs., P.A., No. 04-

18-00257-CV, 2018 WL 2418447, at *1 (Tex. App.—San Antonio May 30, 2018, orig.

proceeding) (per curiam); see also Inner City Mgmt., Inc. v. City of Dallas, No. 05-05-01618-CV,

2006 WL 242350, at *1 (Tex. App.—Dallas Feb. 2, 2006, no pet.) (per curiam) (mem. op.) (“A

contempt order does not become appealable merely because it contains an award of attorney’s fees

as a sanction.”).3 Post-judgment monetary sanctions are final and appealable “when the sanctions

are reduced to judgment and execution is authorized thereon.” Arndt v. Farris, 633 S.W.2d 497,

3 However, “[i]f the imposition of monetary sanctions threatens a party’s continuation of the litigation, appeal affords an adequate remedy only if payment of the sanctions is deferred until final judgment is rendered and the party has the opportunity to supersede the judgment and perfect his appeal.” Braden v. Downey, 811 S.W.2d 922, 929 (Tex. 1991) (orig. proceeding); see also In re United Med. Ctrs., P.A., 2018 WL 2418447, at * 1.

–6– 500 n.5 (Tex. 1982) (orig. proceeding); see also In re Corey, No. 14-17-01001-CV, 2018 WL

315440, at *1 (Tex. App.—Houston [14th Dist.] Jan. 5, 2018, orig. proceeding) (per curiam).4

In this case, Highland’s supplemental motion to show cause requested that the trial court

find Daugherty violated the injunction as a result of his three conversations with Terry, hold

Daugherty in contempt, award Highland the attorneys’ fees it incurred in connection with the

supplemental motion, and assess any further sanctions against Daugherty that the trial court

deemed appropriate. During the hearing on the supplemental motion to show cause, Highland

requested Daugherty be sentenced to confinement in jail for the violations of the permanent

injunction. The trial court held Daugherty in contempt for violating the permanent injunction as a

result of his three conversations with Terry, sentenced Daugherty to a period of confinement for

each violation, and assessed a statutory fine for each violation.

Highland then filed a motion for sanctions requesting it be awarded the attorneys’ fees it

incurred in preparing, filing, and arguing the supplemental motion to show cause, the same relief

it had previously sought in the supplemental motion. The trial court granted the motion for

sanctions, specifically finding the sanctions were based on Daugherty’s violation of the permanent

injunction and awarding Highland the attorneys’ fees it incurred “in connection with the conduct

outlined in [the supplemental motion to show cause] and set forth in the [m]otion.”

The record reflects the trial court held Daugherty in contempt for violating the permanent

injunction as a result of his three conversations with Terry and punished Daugherty by sentencing

him to confinement and ordering him to pay a fine. The sanctions order also punished Daugherty

for the allegedly contemptuous conduct by ordering him to pay Highland’s attorneys’ fees. See In

re Martinez, 377 S.W.3d 724, 726 n.4 (Tex. App.—San Antonio 2011, orig. proceeding)

4 See also Liptak v. Richard E. Colgin I, Ltd., No. 05-99-00583-CV, 2002 WL 1263981, at *3 (Tex. App.—Dallas June 7, 2002, pet. denied) (not designated for publication) (“[A] postjudgment monetary sanction is final and appealable ‘when the sanctions are reduced to a judgment and execution is authorized thereon.’” (quoting Arndt, 633 S.W.2d at 500 n.5)).

–7– (concluding attorneys’ fees were awarded for contempt because motion for contempt and

arguments in trial court made it clear that attorneys’ fees were sought “based on the preparation of

and hearing on the motion for contempt” and not as sanctions). Accordingly, Daugherty may seek

relief from the sanctions order through mandamus. See In re Rivas-Luna, 528 S.W.3d 167, 169

(Tex. App.—El Paso 2017, orig. proceeding) (concluding mandamus was only remedy for

contempt order requiring relator to pay attorneys’ fees); Ex parte Sealy, 870 S.W.2d 663, 667 (Tex.

App.—Houston [1st Dist.] 1994, orig. proceeding) (concluding that, when contempt is sanctioned

by award of attorneys’ fees, “mandamus is the only means to review such a sanction”); see also In

re Hereweareagain, Inc., 383 S.W.3d 703, 711 (Tex. App.—Houston [14th Dist.] 2012, orig.

proceeding) (concluding relator was entitled to relief through mandamus from sanctions order

rendered by trial court years after final judgment based on post-judgment violations of permanent

injunction in final judgment).

We next turn to whether the trial court clearly abused its discretion by ordering Daugherty

to pay Highland’s attorneys’ fees. Contempt is a “broad and inherent power of a court” and can

be either civil or criminal in nature. In re Reece, 341 S.W.3d at 364, 365. “[C]riminal contempt

is punitive in nature—‘the contemnor is being punished for some completed act which affronted

the dignity and authority of the court.’” Id. (quoting Ex parte Werblud, 536 S.W.2d 542, 545 (Tex.

1976) (orig. proceeding)). Criminal contempt may be punished by a fine of not more than $500

or confinement in the county jail for not more than six months, or both such a fine and confinement

in jail. TEX. GOV’T CODE ANN. § 21.002(b).

Absent a contractual or statutory basis, a trial court lacks authority to award attorneys’ fees

based on a finding of contempt. Dallas Cty. Constable Precinct 5 v. KingVision Pay-Per-View,

Ltd., 219 S.W.3d 602, 610 (Tex. App.—Dallas 2007, no pet.); In re Martinez, 377 S.W.3d at 726.

Here, section 21.002 did not authorize the trial court to order Daugherty to pay Highland’s

–8– attorneys’ fees as punishment for criminal contempt. See TEX. GOV’T CODE ANN. § 21.002(b).

Further, Highland did not rely on any contract that required Daugherty to pay its attorneys’ fees.

Therefore, the trial court was without authority to order Daugherty to pay Highland’s attorneys’

fees based on its finding Daugherty was in contempt. See In re Martinez, 377 S.W.3d at 726.

For these reasons, we conclude the trial court abused its discretion by granting Highland’s

October 24, 2017 motion for sanctions and Daugherty has no adequate remedy on appeal.

Accordingly, we conditionally grant the writ of mandamus. We direct the trial court to vacate its

January 3, 2018 order granting Highland’s motion for sanctions. If the trial court fails to do so,

the writ will issue. We dismiss Daugherty’s appeal of the trial court’s January 3, 2018 order

granting Highland’s motion for sanctions as moot.

/Robert M. Fillmore/ ROBERT M. FILLMORE JUSTICE

180290F.P05

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

No. 05-18-00290-CV On Appeal from the 68th Judicial District Court, Dallas County, Texas, IN RE PATRICK DAUGHERTY, Relator Trial Court Cause No. 12-04005. Opinion delivered by Justice Fillmore, AND Justices Lang-Miers and Stoddart participating. PATRICK DAUGHERTY, Appellant

V.

HIGHLAND CAPITAL MANAGEMENT, L.P. AND CORNERSTONE HEALTHCARE GROUPS HOLDINGS, INC., Appellees

In accordance with this Court’s opinion of this date, the appeal portion of this consolidated original proceeding and appeal is DISMISSED as moot.

It is ORDERED that appellees bear the costs of this appeal.

Judgment entered this 19th day of June, 2018.

–10–