Susana C. Nichols and Four Nichols Inc. v. Kenneth L. Nichols, Kyle Nichols, Fossil Creek Realty, Inc. and QC Carwash, Inc.

• Court: Court of Appeals of Texas
• Decided: December 30, 2010
• Docket: 02-09-00319-CV
• Status: Published

Opinion

COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH

NO. 02-09-00319-CV

SUSANA C. NICHOLS AND APPELLANTS FOUR NICHOLS, INC.

V.

KENNETH L. NICHOLS, KYLE APPELLEES NICHOLS, FOSSIL CREEK REALTY, INC., AND QC CARWASH, INC.

------------

FROM THE 231ST DISTRICT COURT OF TARRANT COUNTY

OPINION ------------

Introduction

Appellants Susana C. Nichols and Four Nichols, Inc. appeal the trial

court’s order dismissing their suit against appellees, which had been originally

filed in a divorce suit, but which was later severed. In one issue, appellants

argue that the trial court erred by dismissing the severed lawsuit. We reverse

and remand. Background Facts

This case began as a divorce between Kyle Nichols and Susana Nichols.

On August 9, 2004, Susana filed a Second Amended Original Counter-Petition

for Divorce which joined Kenneth L. Nichols (―Kenneth‖), Kyle’s father, and First

State Bank of Keene, Texas (―the bank‖) as third party defendants. Susana

claimed Kenneth and the bank had engaged in conspiracy, fraud, and breach of

fiduciary duty relating to a car wash business operated by Susana and Kyle.

Both Kenneth and the bank filed answers. On August 23, 2004, Kenneth filed a

motion to dismiss and motion for sanctions.

On August 31, 2004, the divorce court1 sua sponte ordered that the third

party claims relating to Kenneth and the bank be ―severed into a separate cause

of action.‖ The divorce court did not render a written order granting the

severance at that time nor enter a final judgment in the divorce.

On December 15, 2004, the divorce court signed a final divorce decree.

Only Kyle, Susana, and James A. Stephenson, P.C.—which had intervened over

unpaid attorney’s fees—are named as parties in the decree.2 Kenneth and the

bank are not listed as parties, nor does the divorce decree dispose of the claims

1 Another judge was assigned to hear the divorce because of the sitting judge’s recusal. Because there are two courts involved in this case, we will refer to the court that heard the divorce proceedings as the ―divorce court‖ and the court that heard the third party claims as the ―trial court.‖ 2 James A. Stephenson, P.C. had previously represented Susana in the divorce proceedings.

2 against them or Kenneth’s motion to dismiss and for sanctions. In the ―Division

of Marital Estate‖ section of the divorce decree, the divorce court awarded

Susana the following relevant items:

11. All interest in and to the stock in the corporation known as Four Nichols, Inc., as well as any claims or causes of action relating thereto.

12. Any claims or causes of action that were previously filed in this case and which were severed from this cause.

13. Any cause of action with regard to the parties’ certificate of deposit in the approximate sum of $100,000.00 which were taken in connection with the First State Bank of Keene foreclosure.

On January 13, 2005, Susana filed a Motion to Reopen Case and for Nunc

Pro Tunc, or in the Alternative, to Modify, Correct or Reform Judgment in the

divorce court. In her motion, Susana argued that the decree ―omitted reference

to the prior ruling of [the divorce court] which severed certain claims and causes

of action relating to the foreclosure by the First State Bank of Keene, Texas.‖

On January 24, 2005, the divorce court signed an order to sever the third

party claims based upon its August 31, 2004 oral severance. In the severance

order, the divorce court assigned a new cause number and style for the third

party claims. The order states that the third party claims ―are hereby severed

from this cause of action into a separate cause of action.‖

Susana and Four Nichols, Inc. filed a first amended petition in the severed

suit against Kenneth, the bank, Kyle, Fossil Creek Realty, Inc., and QC Carwash,

Inc. All five filed answers to the amended petition and Kenneth, QC Carwash,

3 and Fossil Creek moved to dismiss the claims against them. The trial court

signed an agreed order of partial dismissal with prejudice as to Susana and Four

Nichols, Inc.’s claims against the bank, based upon a settlement.

The trial court then dismissed the remaining parties because the divorce

court did not sign the order of severance until after the divorce had been

submitted. The trial court stated that even though the divorce court made an oral

pronouncement that the case should be severed, the trial court was ―of the

opinion that the granting of a severance of the claims in this matter requires a

written order and is effective only when such an order is signed.‖ 3 This appeal

followed.

Discussion

In one issue, appellants contend that the trial court erred by dismissing the

severed lawsuit because the trial court had subject matter jurisdiction to hear the

severed cause of action. Conversely, appellees argue that the trial court did not

have jurisdiction over appellants’ claims and, alternatively, that there was no

cause of action that survived the divorce decree and that Susana waived her

claims by not having the divorce court rule on them.

We review a trial court’s order of dismissal for an abuse of discretion.

Johnson-Snodgrass v. KTAO, Inc., 75 S.W.3d 84, 87 (Tex. App.––Fort Worth

3 We note, however, that the divorce decree specifically acknowledges that the related third party claims had been previously severed and were awarded to Susana in the divorce decree.

4 2002, pet. dism’d); see also MacGregor v. Rich, 941 S.W.2d 74, 75 (Tex. 1997).

A trial court abuses its discretion when it acts arbitrarily, unreasonably, or without

reference to guiding rules and principles. Johnson-Snodgrass, 75 S.W.3d at 87;

see also Morrow v. H.E.B., Inc., 714 S.W.2d 297, 298 (Tex. 1986) (op. on reh’g).

However, whether a trial court had subject matter jurisdiction is a question of law

that we review de novo. City of Fort Worth v. Crockett, 142 S.W.3d 550, 552

(Tex. App.––Fort Worth 2004, pet. denied); see also Tex. Natural Res.

Conservation Comm’n v. IT-Davy, 74 S.W.3d 849, 855 (Tex. 2002); Mogayzel v.

Tex. Dep’t of Transp., 66 S.W.3d 459, 463 (Tex. App.––Fort Worth 2001, pet.

denied).

Here, the ―Final Decree of Divorce‖ was interlocutory because it did not

dispose of all parties and issues. See Lehmann v. Har-Con Corp., 39 S.W.3d

191, 192–93 (Tex. 2001); Rotella v. Nelson Architectural Eng’rs, Inc., 251 S.W.3d

216, 218 (Tex. App.––Dallas 2008, no pet.); Allmond v. Loe, Warren, Rosenfield,

Kaitcer, Hibbs & Windsor, P.C., No. 02-07-00282-CV, 2008 WL 4601910, at *1

(Tex. App.––Fort Worth Oct. 16, 2008, no pet.) (mem. op.). Because the divorce

decree did not dispose of Susana’s claims against Kenneth and the bank—or

Kenneth’s motion to dismiss and for sanctions—and the divorce court had not yet

signed a written severance order, the divorce decree was not a final order, but

rather an interlocutory order. See Lehmann, 39 S.W.3d at 192. Thus, the

divorce court still had plenary power when it signed the written order to sever the

remaining causes of action. See In re Lancer Ins. Co., No. 04-07-00473-CV,

5 2007 WL 2780321, at *2 (Tex. App.––San Antonio Sept. 26, 2007, no pet.)

(holding trial court still had plenary power when severance order did not operate

as final order).

Moreover, even if the divorce decree was not interlocutory, we have found

no Texas court that requires that a written order of severance be signed before a

case is submitted to the trier of fact. In fact, many Texas courts have recognized

that severance of an interlocutory judgment into a separate action makes the

interlocutory judgment final as long as all parties and issues are disposed of.

See Diversified Fin. Sys., Inc. v. Hill, Heard, O’Neal, Gilstrap & Goetz, P.C., 63

S.W.3d 795, 795 (Tex. 2001) (holding severance of interlocutory judgment into a

separate cause of action makes interlocutory judgment final); Farmer v. Ben E.

Keith Co., 907 S.W.2d 495, 496 (Tex. 1995) (holding that ―[w]hen a judgment is

interlocutory because unadjudicated parties or claims remain before the court,

and when one moves to have such unadjudicated claims or parties removed by

severance, dismissal, or nonsuit, the appellate timetable runs from the signing of

a judgment or order disposing of those claims or parties.‖); Inliner Americas, Inc.

v. MaComb Funding Grp., L.L.C., 244 S.W.3d 427, 431 (Tex. App.––Houston

[14th Dist.] 2007, pet. dism’d) (holding that appeal following severance would be

an appeal of a final order); Thompson v. Beyer, 91 S.W.3d 902, 904 (Tex. App.—

Dallas 2002, no pet.) (stating that, as a general rule, severance of an

interlocutory judgment into a separate action makes it final if all claims in the

severed action have been disposed of).

6 In the order of dismissal, the trial court cites Rule 41 and emphasizes that

a severance must be by ―order of the court.‖ Tex. R. Civ. P. 41 (emphasis

added). The trial court’s order also states, in relevant part,

The court is of the opinion that the granting of a severance of the claims in this matter requires a written order and is effective only when such order is signed. Although the intent to sever the issues in this litigation from the divorce is clear, the oral pronouncement of the court, with or without a docket entry, was insufficient to affect the desired severance.

The order further cites In re Lovito-Nelson, 278 S.W.3d 773 (Tex. 2009), to

support its ruling. In re Lovito-Nelson involves Rule 329b(c) of the Texas Rules

of Civil Procedure. See 278 S.W.3d at 774. In that case, after the trial court

signed a ―Final Order in Suit Affecting the Parent-Child Relationship,‖ the mother

and father/stepfather filed a timely motion for new trial. Id. The trial court then

held a hearing on the motion for new trial and on the docket sheet wrote, ―New

trial granted. DHL.‖ Id. The trial court and all parties signed a ―Pre-trial

Scheduling Order.‖ Id. However, the trial court never signed a written order

granting the new trial. Id. Lovito-Nelson then sent the trial court a letter stating

that the judgment was final and that the Pre-Trial Scheduling Order was moot

because the court never signed a written order and more than 105 days had

passed since the Final Order had been signed. Id. The trial court subsequently

signed an order stating that the pretrial scheduling order ―remain[ed] in full

effect,‖ and the court of appeals denied Lovito-Nelson’s petition for writ of

7 mandamus. Id. at 775. Lovito-Nelson then filed a petition for mandamus relief in

the Texas Supreme Court. Id.

The Texas Supreme Court, in reversing the trial court and the court of

appeals, stated that an order granting a motion for new trial must be in writing

and signed by the trial court. Id. The Court noted that Rule 329b requires a

written order before a motion for new trial is actually granted. Id. The Court

stated that an oral pronouncement and docket entry could not substitute for the

written order. Id. The Court held that this is a ―bright-line rule‖; there must be a

―signed, written order explicitly granting the motion.‖ Id. at 775–76.

We do not agree with the trial judge’s reliance on In re Lovito-Nelson to

justify the order of dismissal. In re Lovito-Nelson dealt with a motion for new trial,

whereas here, the issue is an order of severance. In contrast to Rule 329b, Rule

41 has no such requirement that a severance be determined ―by written order.‖

Tex. R. Civ. P. 41, 329b (emphasis added). Furthermore, unlike Rule 329b,

which requires a motion for new trial to be granted in writing before the relevant

time period expires, nothing in Rule 41 requires a severance order to be in

writing and signed before the remaining case is submitted to the trier of fact.

The trial court clearly believed that because the divorce had been tried,

Rule 41’s requirement to order a severance ―before the time of submission‖ to

the trier of fact applied. Tex. R. Civ. P. 41. However, courts have held that

submission of the remaining cause to the trier of fact does not prevent a

severance because a properly severable cause of action, if not tried, may still be

8 tried separately. See Tex. R. Civ. P. 174; Christopher Columbus St. Mkt. LLC v.

Zoning Bd. of Adjustments of City of Galveston, 302 S.W.3d 408, 414–15 (Tex.

App.—Houston [14th Dist.] 2009, no pet.); see generally In re Union Carbide

Corp., 273 S.W.3d 152, 155 (Tex. 2008). There is no justification for treating a

properly severable cause of action differently. Compare Christopher Columbus

St. Mkt. LLC, 302 S.W.3d at 414–15, with Collins v. Tex Mall, L.P., 297 S.W.3d

409, 419 (Tex. App.—Fort Worth 2009, no pet.). Moreover, the controlling

reason for severance is to do justice, avoid prejudice, and promote convenience,

not to prevent the trial of potentially viable claims. See Tex. R. Civ. P. 41.

Here, the divorce court made an oral ruling and docket notation on the

severance before the divorce was tried. Additionally, the divorce court did not

hear any of the severed claims against Kenneth and the bank during the divorce

proceeding, and neither Kenneth, the bank, nor their attorneys appeared before

the divorce court after the oral severance. Further, the divorce decree did not list

Kenneth or the bank as parties and did not dispose of Susana’s issues against

them. Thus, unlike the situation in a motion for new trial after a disposition of all

claims, Susana’s severed claims have not been previously addressed by a court.

Thus, because Susana’s claims against Kenneth, Kyle, Fossil Creek, and

QC Carwash were properly severed before the trial court lost plenary power, we

hold that the trial court erred by dismissing Susana and Four Nichols’s causes of

action. We sustain appellants’ sole issue.

9 Conclusion

Having sustained appellants’ sole issue, we reverse the trial court’s

judgment and remand the case for further proceedings.

TERRIE LIVINGSTON CHIEF JUSTICE

PANEL: LIVINGSTON, C.J.; GARDNER and MEIER, JJ.

GARDNER, J. filed a concurring opinion.

DELIVERED: December 30, 2010

10 COURT OF APPEALS SECOND DISTRICT OF TEXAS FORT WORTH

SUSANA C. NICHOLS AND FOUR APPELLANTS NICHOLS INC.

KENNETH L. NICHOLS, KYLE NICHOLS, APPELLEES FOSSIL CREEK REALTY, INC., AND QC CARWASH, INC.

CONCURRING OPINION ----------

I differ with the majority=s characterization of the final decree of divorce as

an interlocutory judgment. I believe it was a judgment rendered after a

conventional trial on the merits and was thus subject to the presumption that it

disposed of all claims and parties and is final. As stated in Lehmann v. Harcon

Corp., When a judgment, not intrinsically interlocutory in character, is rendered and entered in a case regularly set for a conventional trial on the merits, no order for a separate trial of issues having been entered, . . . it will be presumed for appeal purposes that the court intended to and did dispose of all parties legally before it and all issues made by the pleadings between such parties.

39 S.W.3d 191, 198 (Tex. 2001) (quoting N.E. Indep. Sch. Dist. v. Aldridge, 400

S.W.2d 893, 897B98 (Tex. 1966) (enunciating the test for determining when, in

most instances, judgments in which parties and issues made by the pleadings

are not disposed of in express language but are nevertheless final for appeal

purposes)).1

As the trial court here noted in its order, a severance order is not effective

until signed. McRoberts v. Ryals, 863 S.W.2d 450, 452B54 (Tex. 1993). But I

agree with the majority that nothing in Rule 41 requires a written severance order

to be signed before the remaining case is submitted to the trier of fact. Absent a

written order before the final divorce judgment was signed, however, and had the

judgment here not been challenged by a timely motion to reopen or to modify, I

1 Although the issue of whether the previous judgment disposed of the claims against Kenneth and the bank, and should therefore be dismissed, appears to be one of res judicata effect rather than finality for purposes of appeal, the principles for determining finality are the same. See Mower v. Boyer, 811 S.W.2d 560, 562B63 (Tex. 1991) (holding an interlocutory judgment was not final and was non-appealable and therefore was not entitled to res judicata effect); Restatement (Second) of Judgments ' 13 (1982).

2 believe the presumption of finality would apply and the trial court=s dismissal

would have been correct. See Aldridge, 400 S.W.2d at 896B97.2

Appellants timely filed their motion to reopen and to modify the final

divorce decree, and the record established that the parties and the court had

intended to sever the third party claims before judgment.3 Because the divorce

court was acting within its extended plenary power, it was not precluded from

signing a written order of severance within that period after the final judgment

was signed. And because the divorce court did so, I agree with the majority that

the trial court erred in dismissing the severed claims. Therefore, I concur in the

result.

ANNE GARDNER JUSTICE

2 A judgment rendered after a conventional trial on the merits need not dispose of every party and issue in order for the Aldridge presumption of finality to apply. Vaughn v. Drennon, 324 S.W.3d 560, 560 (Tex. 2010). 3 The presumption of finality is subject to the qualification, as stated in Lehmann, that any doubt Aas to the judgment=s finality . . . >must be resolved by a determination of the intention of the court as gathered from the language of the decree and the record as a whole, aided on occasion by the conduct of the parties.=@ Vaughn, 324 S.W.3d at 560 (quoting Lehmann, 39 S.W.3d at 203). Here, the record, including the conduct of the parties, establishes not that the judgment was intended to be interlocutory but that the court and the parties intended to sever the claims against Kenneth and the bank.