TransAmerican Natural Gas Corp. v. Powell

811 S.W.2d 913, 34 Tex. Sup. Ct. J. 701, 1991 Tex. LEXIS 86, 1991 WL 105531

• Court: Texas Supreme Court
• Decided: June 19, 1991
• Docket: C-9294
• Status: Published

Opinions

OPINION

HECHT, Justice.

In this original mandamus proceeding, TransAmerican Natural Gas Corporation seeks to compel the Hon. William R. Powell, Judge of the 80th District Court, to set aside his orders imposing sanctions for discovery abuse. The district court struck TransAmerican’s pleadings, dismissed its action against Toma Steel Supply, Inc., and granted Toma an interlocutory default judgment on its counterclaim against TransAmerican, reserving for trial only the amount of damages due Toma. We conditionally grant the writ of mandamus.

I

The underlying case is a complex, multiparty action arising out of Toma’s sale of allegedly defective pipe casing to Trans-American. TransAmerican withheld payment for the casing, apparently some $2.3 million, and sued Toma in April 1987 for damages allegedly caused by its use. Toma counterclaimed for $52 million damages resulting from TransAmerican’s refusal to pay for the casing. Numerous other parties also joined in the litigation.

On July 3, 1988, the district court issued a docket control order pursuant to Rule 166 of the Texas Rules of Civil Procedure, which set a discovery cutoff date of April 3, 1989. The order allowed discovery to be conducted beyond that date only upon agreement of the parties.

On March 7, 1989, Toma noticed the deposition of TransAmerican’s president, K. Craig Shephard, to take place March 16. Two days later TransAmerican’s counsel, who at that time was one of the attorneys in its legal department, telephoned Toma’s counsel to inform him that Shephard could not be available on March 16 because of a previously scheduled deposition in another case. When counsel could not agree on another date for Shephard’s deposition, TransAmerican filed a motion for protection to quash the deposition notice and postpone the deposition. The motion stated that it would be submitted to the trial court for ruling on March 17.¹ However, the trial court did not rule on the motion on that date.

Beginning April 3, the deadline set by the district court for completion of discovery, the parties’ smoldering discovery problem started to flare. On that date, counsel for TransAmerican and Toma agreed that Shephard would be deposed after April 10 on a date to be agreed upon. Despite this understanding, counsel again failed to agree upon a date, and on April 19 Toma noticed Shephard’s deposition for May 2 without TransAmerican’s consent. On April 20, upon receipt of this second deposition notice, TransAmerican’s counsel wrote a letter to Toma’s counsel informing him that Shephard would not be available May 2 because, as before, he already had a deposition in another matter scheduled for that day. Toma’s counsel replied by letter that he would not agree to reschedule the deposition. On April 27, TransAmerican reset the date for submission of its motion for protection to the trial court for ruling to May 12. By this time, of course, the motion was moot, and it is not apparent why TransAmerican continued to seek a ruling. TransAmerican did not move the trial court to postpone the May 2 deposition.

Also on April 27, Shephard’s other deposition scheduled for May 2 was cancelled, leaving him available to be deposed by Toma. However, TransAmerican’s counsel did not advise Toma’s counsel that She-phard’s schedule had changed so that he could be deposed on May 2 after all, nor did Shephard appear on May 2 as noticed. TransAmerican ascribes its failure to produce Shephard for deposition to miscommu-nication concerning his schedule changes between attorneys in its legal department. Toma alleges that Shephard’s failure to appear was purposeful and part of Trans-American’s intentional obstruction of the discovery process.

On May 8, Toma filed a response to TransAmerican’s March 14 motion for protective order, even though it acknowledged that that motion was moot. Toma included in its response, however, a motion for sanctions against TransAmerican based on She-phard’s failure to appear at the May 2 deposition. In return, TransAmerican filed its own sanctions motion on May 11, urging that Toma’s motion for sanctions was itself an abuse of the discovery process. Toma’s and TransAmerican’s motions for sanctions both stated that they would be submitted to the court for ruling on May 12, the date set for submission of TransAmerican’s original motion for protection.

On May 12, without hearing oral argument,² the district court signed an order granting Toma’s motion for sanctions and striking TransAmerican’s pleadings in their entirety. TransAmerican moved for reconsideration, which the district court denied after hearing argument of counsel but refusing to hear any evidence. Based upon his May 12 order striking TransAmerican’s pleadings, the district court issued an order on October 6 dismissing TransAmerican’s action with prejudice, rendering an interlocutory default judgment against Trans-American and in favor of Toma on its counterclaim, and setting the case for trial solely on the issue of the damages to be awarded Toma.

TransAmerican sought mandamus relief from the court of appeals to compel the district court to set aside his May 12 and October 6 orders. A divided court of appeals denied TransAmerican leave to file its petition for writ of mandamus in an unpublished per curiam opinion.³ TransAmerican then moved for leave to file its petition in this Court. We granted the motion in order to review the propriety of the discovery sanctions imposed by the district court.

II

The sanctions imposed by the district court are among those authorized for various discovery abuses under Rule 215 of the Texas Rules of Civil Procedure. The district court did not specify what provision of Rule 215 it relied upon. The portions of the rule applicable to the circumstances here are paragraphs 2(b)(5) and 3. Paragraph 2(b)(5) provides in part:

If a party or an officer ... of a party ... fails to comply with proper discovery requests or to obey an order to provide or permit discovery, ... the court in which the action is pending may, after notice and hearing, make such orders in regard to the failure as are just, and among others the following:

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(5) An order striking out pleadings or parts thereof, ... or dismissing with or without prejudice the action or proceedings or any part thereof, or rendering a judgment by default against the disobedient party....

At the time of the district court’s rulings, paragraph 3 of Rule 215 stated in part:

If the court finds a party is abusing the discovery process in seeking, making or resisting discovery ..., then the court in which the action is pending may impose any sanction authorized by paragraphs (1). (2), (3), (4), (5), and (8) of paragraph 2b of this rule. Such order of sanction shall be subject to review on appeal from the final judgment.⁴

Both paragraphs leave the choice of sanctions to the sound discretion of the trial court. Bodnow Corp. v. City of Hondo, 721 S.W.2d 839, 840 (Tex.1986). However, paragraph 2(b) explicitly requires that any sanctions imposed be “just”. By referring to paragraph 2(b), paragraph 3 incorporates the same requirement. Thus, whether the district court imposed sanctions under paragraph 2(b) or paragraph 3, we consider whether those sanctions were just.⁵ See Bodnow, 721 S.W.2d at 840.

In our view, whether an imposition of sanctions is just is measured by two standards. First, a direct relationship must exist between the offensive conduct and the sanction imposed. This means that a just sanction must be directed against the abuse and toward remedying the prejudice caused the innocent party. It also means that the sanction should be visited upon the offender. The trial court must at least attempt to determine whether the offensive conduct is attributable to counsel only, or to the party only, or to both. This we recognize will not be an easy matter in many instances. On the one hand, a lawyer cannot shield his client from sanctions; a party must bear some responsibility for its counsel’s discovery abuses when it is or should be aware of counsel’s conduct and the violation of discovery rules. On the other hand, a party should not be punished for counsel’s conduct in which it is not implicated apart from having entrusted to counsel its legal representation. The point is, the sanctions the trial court imposes must relate directly to the abuse found.

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. It follows that courts must consider the availability of less stringent sanctions and whether such lesser sanctions would fully promote compliance.

These standards set the bounds of permissible sanctions under Rule 215 within which the trial court is to exercise sound discretion.⁶ The imposition of very severe sanctions is limited, not only by these standards, but by constitutional due process. The sanctions the district court imposed against TransAmerican are the most devastating a trial court can assess against a party. When a trial court strikes a party’s pleadings and dismisses its action or renders a default judgment against it for abuse of the discovery process, the court adjudicates the party’s claims without regard to their merits but based instead upon the parties’ conduct of discovery. “[Tjhere are constitutional limitations upon the power of courts, even in aid of their own valid processes, to dismiss an action without affording a party the opportunity for a hearing on the merits of his cause.” Societe Internationale v. Rogers, 357 U.S. 197, 209-10, 78 S.Ct. 1087, 1094, 2 L.Ed.2d 1255 (1958), citing Hammond Packing Co. v. Arkansas, 212 U.S. 322, 350-51, 29 S.Ct. 370, 379-80, 53 L.Ed. 530 (1909), and Hovey v. Elliott, 167 U.S. 409, 17 S.Ct. 841, 42 L.Ed. 215 (1897); accord Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 705-06, 102 S.Ct. 2099, 2105-06, 72 L.Ed.2d 492 (1982). Discovery sanctions cannot be used to adjudicate the merits of a party’s claims or defenses unless a party’s hindrance of the discovery process justifies a presumption that its claims or defenses lack merit. Insurance Corp. of Ireland, 456 U.S. 694, 705-06, 102 S.Ct. 2099, 2105-06; Rogers, 357 U.S. at 209-10, 78 S.Ct. at 1094; Hammond Packing, 212 U.S. at 350-51, 29 S.Ct. at 379-80. However, if a party refuses to produce material evidence, despite the imposition of lesser sanctions, the court may presume that an asserted claim or defense lacks merit and dispose of it. Insurance Corp. of Ireland, 456 U.S. at 705-06, 102 S.Ct. at 2105-06. Although punishment and deterrence are legitimate purposes for sanctions, National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 96 S.Ct. 2778, 49 L.Ed.2d 747 (1976) (per curiam); Bodnow Corp. v. City of Hondo, 721 S.W.2d at 840 they do not justify trial by sanctions, Hammond Packing, 212 U.S. at 350-51, 29 S.Ct. at 379-80; Hovey, 167 U.S. at 413-14, 17 S.Ct. at 843. 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. See National Hockey League, 427 U.S. at 642-643, 96 S.Ct. at 2780-81.⁷

In the present case, it is not clear whether TransAmerican or its counsel or both should be faulted for Shephard’s failure to attend his deposition. Moreover, there is nothing in the record to indicate that the district court considered imposition of lesser sanctions or that such sanctions would not have been effective. If anything, the record strongly suggests that lesser sanctions should have been utilized and perhaps would have been effective. The district court could have ordered She-phard’s deposition for a specific date and punished any failure to comply with that order by contempt or another sanction. He also could have taxed the costs of the deposition against TransAmerican and awarded Toma attorney fees. The range of sanctions available to the district court under Rule 215 is quite broad. The district court dismissed TransAmerican’s claims against Toma and rendered default judgment for Toma on its counterclaim solely because, as the record before us establishes, Trans-American’s president failed to present himself for his deposition.⁸ Nothing in the record before us even approaches justification for so severe a sanction.⁹

We recognize that we affirmed a similar sanction in Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex.1985), cert. denied, 476 U.S. 1159, 106 S.Ct. 2279, 90 L.Ed.2d 721 (1986). In that case the trial court struck defendant’s answer and rendered a default judgment against it based upon the failure of defendant and his employees to appear for their depositions on three separate occasions without explanation. Even assuming that Downer was correctly decided, the instant case does not show the same pattern of abuse present in Downer. Furthermore, Downer’s approval of the sanction of default judgment was specifically based upon the facts of that case, and the holding in that case is limited to those facts. Rendition of default judgment as a discovery sanction ought to be the exception rather than the rule.

There are cases, of course, when striking pleadings, dismissal, rendition of default and other such extreme sanctions are not only just but necessary. See National Hockey League, 427 U.S. at 642, 96 S.Ct. at 2780. In this case, however, the record before us establishes that the severe sanctions the district court imposed against TransAmerican were manifestly unjust in violation of Rule 215.

Ill

We next consider whether TransAmerican has an adequate remedy by appeal. If it does, then the writ of mandamus must be denied. State v. Walker, 679 S.W.2d 484, 485 (Tex.1984). Rule 215, paragraph 3 states that orders imposing discovery sanctions “shall be subject to review on appeal from the final judgment.” Today we have held in Braden v. Downey, 811 S.W.2d 922 (1991), that sanctions should not be imposed in such a way that effective appellate review is thwarted. Whenever a trial court imposes sanctions which have the effect of adjudicating a dispute, whether by striking pleadings, dismissing an action or rendering a default judgment, but which do not result in rendition of an appealable judgment, then the eventual remedy by appeal is inadequate. Specifically, in this case TransAmerican does not have an adequate remedy by appeal because it must suffer a trial limited to the damages claimed by Toma. The entire conduct of the litigation is skewed by the removal of the merits of Trans-American’s position from consideration and the risk that the trial court’s sanctions will not be set aside on appeal. Resolution of matters in dispute between the parties will be influenced, if not dictated, by the trial court’s determination of the conduct of the parties during discovery. Some award of damages on Toma’s counterclaim is likely, leaving TransAmerican with an appeal, not on whether it should have been liable for those damages, but on whether it should have been sanctioned for discovery abuse. This is not an effective appeal.

We therefore hold that when a trial court imposes discovery sanctions which have the effect of precluding a decision on the merits of a party’s claims — such as by striking pleadings, dismissing an action, or rendering default judgment — a party’s remedy by eventual appeal is inadequate, unless the sanctions are imposed simultaneously with the rendition of a final, appealable judgment. If such an order of sanctions is not immediately appealable, the party may seek review of the order by petition for writ of mandamus. Although not every such case will warrant issuance of the extraordinary writ, this case does. Trans-American’s remedy by appeal from a final judgment eventually to be rendered in Toma’s favor is inadequate.

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Accordingly, we hold that TransAmeri-can is entitled to the mandamus relief it seeks. We are confident that Judge Powell will vacate his orders of May 12 and October 6, after which he may conduct further proceedings consistent with this opinion. Our writ of mandamus will issue only in the event he fails promptly to comply.

Concurring opinions by GONZALEZ and MAUZY, JJ.

1 . The local rules governing civil cases in Harris County provide: "Motions shall state a date of submission which shall be at least 10 days from filing, except on leave of court. The motion will be submitted to the court for ruling on that date or later." Rule 3.3.2, Local Rules of the Civil Trial Division of the Harris County District Courts (1987). The March 17 submission date stated in TransAmerican’s motion was only three days from the date of filing of the motion and the day after the deposition was scheduled.

2 . Rule 3.3.4 of the Local Rules of the Civil Trial Division of the Harris County District Courts (1987) allows any party to request oral argument on a motion if the party "views it as necessary.” Neither TransAmerican nor Toma appears to have requested oral argument on any of their motions before May 12.

3 . Because of its brevity, we reproduce the court of appeals’ opinion below rather than order it published as we would ordinarily do when granting relief:

OPINION

Relator asks us to order respondent to withdraw his order imposing sanctions. This is a breach of contract case involving the failure of defective casing on gas wells. Relator filed suit against Toma Steel Supply, Inc. Toma filed a counterclaim against relator. Toma ■ filed numerous third party claims against suppliers. Those suppliers have filed cross actions against Toma.

On May 12, 1989, respondent granted Toma’s motion for sanctions against relator, striking relator’s pleadings for the failure of its president, K. Craig Shephard, to appear for a May 2, 1989, deposition. Relator argues respondent’s action constitutes an abuse of discretion.

A writ of mandamus is not properly granted in an ordinary case as relief from sanctions. Street v. Second Court of Appeals, 715 S.W.2d 638, 639-640 (Tex.1986).

The motion for leave is overruled.

PER CURIAM

Motion for leave to file petition for writ of mandamus overruled June 16, 1989, and Opinion filed June 29, 1989.

Panel consists of Chief Justice J. Curtiss Brown and Justices Junell and Draughn.

Do Not Publish. TexR.App.P. 90.

Justice Draughn would grant.

4 . Rule 215, paragraph 3 was amended, effective September 1, 1990, to require that sanctions be imposed only after notice and hearing and only as "appropriate". (Similar amendments were made at the same time in Rule 13, Tex.R.Civ.P.) However, the requirement that sanctions be appropriate was implicit in the rule before the amendment. Koslow's v. Mackie, 796 S.W.2d 700, 703 n. 1 (Tex. 1990). In the context of Rule 215, "appropriate" and “just” are equivalent standards.

5 . TransAmerican contends that Toma’s notice to take Shephard’s deposition on May 2 was not a "proper” discovery request under Rule 215, paragraph 2(b) because it issued after the discovery cutoff date set by Judge Powell. Toma responds that its request was proper because TransAmerican agreed that Shephard could be deposed after the cutoff, as permitted by the district court’s scheduling order. TransAmeri-can answers even if there were a binding agreement to depose Shephard after the cutoff, no date was ever agreed to.

TransAmerican also contends that the hearing required by Rule 215, paragraph 2(b) is an oral hearing, not merely a submission of the issue on written motion and response, and that it was denied such a hearing before the imposition of sanctions. Further, TransAmerican argues that the notice required by Rule 215, paragraph 2(b) is at least ten days' notice, and that Toma’s motion for sanctions was filed only four days before the district court ruled on it. Toma responds that TransAmerican did not request an oral hearing, that an oral hearing was not necessary and is not required by the rule, and that in any event, TransAmerican received an oral hearing on its motion to reconsider, thus satisfying any requirement of the rule. Toma also argues that Rule 215, paragraph 2(b), requires only reasonable notice, and that four days’ notice to TransAmerican in this case was reasonable because TransAmerican was able to respond fully to the motion before the district court ruled.

Our resolution of the matter before us does not require that we address these arguments, and we express no view on any of them.

6 . Justice Gonzalez’ concurring opinion sets out guidelines for assessing sanctions which have been identified in the context of applying Rule 11, Fed.R.Civ.P. Post, at 920-922. Our analysis of this case does not require us to consider whether those factors or others are appropriate considerations in imposing sanctions. However, we do subscribe to the principle, inherent in the effort to state guidelines, that the trial court’s discretion in assessing sanctions must be guided by a reasoned analysis of the purposes sanctions serve and the means of accomplishing those purposes.

7 . National Hockey League cites Rogers but not Hammond Packing, and does not refer to the rule of the latter that discovery sanctions cannot be used to dispose of the merits of a claim or defense unless the offending party’s withholding of evidence warrants a presumption that its claim or defense is without merit. Nevertheless, the conduct sanctioned in National Hockey League was so egregious that it clearly would have justified the same ultimate sanctions under Hammond Packing. The Hammond Packing rule is not in doubt. That it has not been abandoned is further demonstrated in Insurance Corp. of Ireland, which came after National Hockey League and reasserted the rule of Hammond Packing.

8 . Toma's motion for sanctions was based solely upon Shephard’s failure to attend his deposition. As Toma itself stated in its response to TransAmerican’s motion to refile its pleadings after they were struck: ”[0]n May 12, 1989, the Court granted [Toma’s] Motion for Sanctions against [TransAmerican] for TransAmerican’s refusal to agree to a date certain for Mr. Craig Shephard’s deposition and for the failure of its President, Mr. Craig Shephard, to appear for a properly noticed deposition on May 2, 1989, and struck TransAmerican’s pleadings in their entirety.” Notwithstanding this rather clear statement in the trial court, during this mandamus proceeding Toma has suggested that the district court properly sanctioned TransAmerican because it had abused the discovery process on other occasions. TransAmerican disputes Toma’s assertions. While the district court would have been entitled to consider a pattern of discovery abuse in imposing sanctions, the record does not reveal the existence of any such pattern, Toma did not complain of one, and the district court does not appear to have found one.

9 . The district court made no findings to support the sanctions imposed. Rule 215 does not require a trial court to make findings before imposing discovery sanctions, and we do not add such a requirement here. We note only that we do not have the benefit of any explanation by the district court for the severity of its ruling. It would obviously be helpful for appellate review of sanctions, especially when severe, to have the benefit of the trial court’s findings concerning the conduct which it considered to merit sanctions, and we commend this practice to our trial courts. See Thomas v. Capital Security Services, Inc., 836 F.2d 866, 882-883 (5th Cir.1988). Precisely to what extent findings should be required before sanctions can be imposed, however, we leave for further deliberation in the process of amending the rules of procedure.