Summary
In Ring & Ring, PlazAmericas Mall Texas, LLC and its predecessor entity sought an injunction to prohibit Ring & Ring from operating carnivals on PlazAmericas's premises.
Summary of this case from In re City Info Experts, LLCOpinion
NO. 01-16-00341-CV
07-25-2017
RING & RING D/B/A WRIGHT'S AMUSEMENTS, Appellant v. SHARPSTOWN MALL TEXAS, LLC AND PLAZAMERICAS MALL TEXAS, LLC, Appellees
On Appeal from the 215th District Court Harris County, Texas
Trial Court Case No. 2010-71771A
MEMORANDUM OPINION
Ring & Ring is a traveling carnival company. It has occasionally operated its carnival in the parking lot of a Houston shopping center formerly known as Sharpstown Mall and currently known as PlazAmericas Mall. Ring & Ring's contracts to operate its carnival at this location have been with a bank that owns the outer-most portion of the mall parking lot, EWB-I, LLC (EWBank).
In another suit, EWBank sought a declaration that restrictive covenants limiting the mall parking lots' use to only parking—thereby prohibiting carnival operations and other businesses on the lots—were no longer enforceable. Within that suit, two defendants—(1) PlazAmericas Mall Texas, LLC (PlazAmericas), which owns the main mall structure and the parking areas closest to it, and (2) Sharpstown Mall Texas, LLC (Sharpstown), its predecessor—sought an injunction to prohibit Ring & Ring from operating carnivals at the mall. Ring & Ring counterclaimed for declaratory relief permitting its carnival operations. The claims between PlazAmericas, Sharpstown, and Ring & Ring were severed into this separate litigation. EWBank eventually lost on its claims against PlazAmericas, Sharpstown, and the other defendant mall owners.
The trial court granted summary-judgment against EWBank on all its claims, and EWBank appealed. We recently held that the trial court erred by entering judgment against EWBank because fact issues exist with regard to whether EWBank has a defense to enforcement of restrictive covenants against it. See EWB-I LLC v. Sharpstown Mall Texas LLC, No. 01-15-00527-CV, 2017 WL 2438648 (Tex. App.—Houston [1st Dist.] June 6, 2017, no pet. h.). We refer the reader to that opinion for additional background facts on the restrictive covenants, the decline of the mall, and the parties' arguments for enforcement or non-enforcement of the restrictive covenants.
On the day that trial was to begin on PlazAmericas and Sharpstown's suit for injunctive relief in the severed suit, the trial court granted their motion for sanctions, struck Ring & Ring's answer as it related to their request for injunctive relief, and entered a permanent injunction against Ring & Ring. The trial court also ordered Ring & Ring to pay attorney's fees. Trial proceeded on all remaining claims, including PlazAmericas and Sharpstown's declaratory-judgment and contract-interference claims, in which they sought to enjoin Ring & Ring from operating carnivals at the mall in the future and to recover damages and attorney's fees for past ROA violations, as well as on Ring & Ring's declaratory-judgment counterclaim, in which it sought a declaration that its contracts with EWBank permitted operation of its carnival at the mall and did not violate the ROA restrictions.
Following trial, the trial court issued findings of fact and conclusions of law that were inconsistent, in part, with its earlier grant of a permanent injunction. For example, the trial court's post-injunction and post-trial findings included a finding that neither PlazAmericas nor Sharpstown had standing to obtain an injunction. The trial court then issued a final judgment, which included injunctive relief in PlazAmericas's favor.
Ring & Ring appeals, challenging both the sanction order and the judgment against it. In its first and second issues, Ring & Ring argues that the trial court erred by granting declaratory and injunctive relief against it for several reasons, including that EWBank was a necessary party in the severed case and that the judgment is irreconcilable with earlier findings and conclusions. In a third issue, Ring & Ring contends that the trial court erred by imposing death-penalty sanctions because the trial court did not first impose lesser sanctions and because the sanctions were excessive.
Because the death-penalty sanctions were an abuse of discretion and EWBank was a necessary party in the severed suit, we reverse.
Background
Ring & Ring is a traveling carnival company based in Colorado. It enters into "amusement contracts" with property owners to operate short-term carnivals on their properties. Over the past several years, Ring & Ring has intermittently operated a carnival at the Houston retail center once known as Sharpstown Mall.
Sharpstown Mall
Sharpstown Mall opened in the 1960s as a premiere regional shopping center. The mall had three national anchor stores (Foley's, Montgomery Wards, and J.C. Penney's), a main mall structure that housed smaller retailers and common areas, an adjacent office building, and surrounding parking lots. Each structure of the mall had a separate owner, with the owner of the main mall structure also owning all of the parking areas.
These owners executed a Restated Operating Agreement (ROA) in 1979 that contained several restrictive covenants. One of the restrictive covenants limited the use of the parking areas to parking only. Another required a parking ratio of five parking spaces for every 1,000 square feet of mall floor space. The ROA specified a termination date of 2035 and stated that its covenants would run with the land and apply to all parties to the agreement as well as those parties' successors and assigns.
The mall experienced a period of decline in the 1990s and 2000s. All three of the national anchor tenants left the mall, and those locations were sold to new owners. Sharpstown, which owned the main mall structure, sold its interest to PlazAmericas. Through a separate sale and subsequent foreclosure, EWBank became the owner of the outer-most, overflow parking areas in 2009. With this transaction, EWBank became the only mall complex owner that did not own any of the mall's retail or commercial space; it only owned the outer-most parking lots.
EWBank considered its options to generate income from the parking lots. It considered developing them for commercial use, but those with ownership interests in the mall structures claimed that the ROA restrictive covenants prohibited use of the parking areas for anything other than parking. EWBank occasionally entered into contracts with various traveling carnival companies, including Ring & Ring, to operate short-term carnivals on the overflow lots, but some mall owners objected, again citing the ROA restriction.
There is some evidence that multiple traveling carnival companies operated carnivals on these lots both before and after EWBank owned the lots. Ring & Ring was not the only traveling carnival company to contract with EWBank to operate carnivals at the mall.
Suits over enforcement of ROA restrictions and carnival operations
In 2010, EWBank sued PlazAmericas, Sharpstown, and the other entities holding ownership interests in portions of PlazAmericas Mall, seeking to invalidate ROA restrictive covenants that purported to prohibit development of the overflow lots. In that suit, Sharpstown and PlazAmericas filed a third-party petition against Ring & Ring, seeking to enjoin Ring & Ring from operating carnivals at PlazAmericas Mall. Ring & Ring answered and asserted multiple defenses, including a defect of parties. EWBank lost its suit when the trial court dismissed its injunction claims, rejected EWBank's arguments against enforcement of the ROA restrictions, and granted summary judgment against EWBank on its declaratory-judgment claim.
PlazAmericas and Sharpstown also sought damages under a contract-interference claim, but the trial court denied that claim. PlazAmericas and Sharpstown have not appealed that part of the judgment.
As stated previously, we have reversed the trial court's judgment against EWBank and remanded for additional proceedings. See EWB-I LLC, 2017 WL 2438648, at *19.
After the trial court ruled against EWBank on its claims, it severed the third-party action against Ring & Ring and assigned it a new cause number. In this severed suit, PlazAmericas and Sharpstown filed an amended petition in which they argued that the doctrine of res judicata applied and bound Ring & Ring to the trial court's ruling in the suit by EWBank that rejected EWBank's defenses to enforcement of the ROA.
Death-penalty sanctions imposed against Ring & Ring on day of trial
PlazAmericas and Sharpstown's suit against Ring & Ring was scheduled for a bench trial in early September 2015. One month before trial, PlazAmericas and Sharpstown noticed the deposition of Ring & Ring's corporate representative and sought the production of documents. One week before trial, PlazAmericas and Sharpstown filed a motion for death-penalty sanctions against Ring & Ring. The trial court heard the motion on the morning of trial.
PlazAmericas and Sharpstown argued that death-penalty sanctions were appropriate because Ring & Ring's corporate representative, Barbara Ring, had included false statements in an affidavit filed to defeat a summary-judgment motion and, in violation of the trial court's order, failed to appear for her corporate-representative deposition, and Ring & Ring had failed to produce the full amount of documents requested and then, in violation of a second oral court order, still failed to produce the requested documents.
Ring & Ring, which is a family-owned business operated by Barbara Ring and her husband, offered several arguments against the sanctions. First, it argued that PlazAmericas and Sharpstown had waited several years to send discovery requests to Ring & Ring and, because Barbara was traveling with the carnival and was far from Ring & Ring's home base in Colorado when the discovery was received, she had difficulty retrieving the requested documents. Second, Barbara missed her deposition only because she inadvertently overslept after a lengthy all-night drive from Midland to Houston. Third, by the time the sanction motion was heard, Barbara had been deposed and Ring & Ring had produced documents responsive to the discovery requests. Fourth, the inaccuracies in Barbara's affidavit were attributable to her minimal education, unfamiliarity with the legal process, and failure to understand the necessity that she read the affidavit and verify its correctness before signing it. Ring & Ring contended that PlazAmericas and Sharpstown had all evidence necessary to proceed with their claims at trial, making sanctions unnecessary and unwarranted.
The trial court orally granted the motion for sanctions and struck the portion of Ring & Ring's answer that responded to the request for a permanent injunction. Trial proceeded on the remaining claims against Ring & Ring, which were for injunctive relief prohibiting interference with PlazAmericas's easement rights, violations of restrictive covenants, and interference with contracts, as well as damages for those actions and additional attorney's fees. The bench trial lasted three days and included testimony by PlazAmericas's property manager and Barbara Ring.
Post-trial sanctions order
After the bench trial, on September 16, 2015, the trial court issued its written sanction order, which stated the trial court's findings, struck Ring & Ring's answer to the injunction claim, granted an injunction by default, and ordered that Ring & Ring pay attorney's fees.
The trial court's sanction order recounted what had transpired. It stated that the trial court had ordered Ring & Ring to produce documents and present its corporate representative by August 28, 2015, and Ring & Ring had failed to do so.
The September 16 sanction order recounted a second order to produce documents and present a corporate representative by September 3, 2015. The trial court noted that its second order did not include an award of sanctions, stating, "The Court declined to award sanctions at that time or proceed with a hearing on sanctions. In an effort to provide a less harsh remedy than striking pleadings, the Court ordered Ring & Ring to produce the documents . . . and for its corporate representative to sit for her deposition . . . ." The sanction order states that, in response to the trial court's second order, Ring & Ring failed to produce a majority of the requested documents, and its corporate representative appeared for her deposition but was unprepared to answer questions regarding Ring & Ring's claims and defenses.
The sanction order also described an inaccurate statement in Barbara Ring's affidavit, in which she erroneously averred that Ring & Ring had not performed any carnivals at the mall after 2011. The sanction order noted that Barbara later filed a second affidavit, in which she explained that the error was the result of her failing to read her first affidavit before signing it, and she subsequently testified—after death-penalty sanctions had been imposed—that she did not read her second affidavit either.
The sanction order stated that Ring & Ring's actions during discovery equated to a "pattern of discovery abuse, pleading abuse, bad faith filings, and contumacious conduct" that "warrant a conclusion that Ring & Ring's defense to the claim for injunctive relief lacks merit." It characterized the second order to compel as a "lesser penalty" made in lieu of sanctions. It also noted that the trial court had "consider[ed] other alternatives" but had found "that nothing less than entering the permanent injunction will serve the purposes contemplated by the Rules of Civil Procedure."
The sanction order awarded PlazAmericas a permanent injunction, which permanently enjoins Ring & Ring from engaging in any activity in the mall parking areas that would violate the ROA restrictive covenants. It also requires Ring & Ring to pay reasonable attorney's fees.
According to the sanction order, the parties had reached an agreement that the amount of reasonable and necessary attorney's fees and costs associated with the request for injunctive relief was $120,750. Thus, the trial court ordered Ring & Ring to pay those fees under Texas Property Code section 5.006, which permits recovery of attorney's fees in actions for breach of restrictive covenants. TEX. PROP. CODE § 5.006.
Post-trial findings of fact and conclusions of law and the final judgment
Two months later, the trial court issued findings of fact and conclusions of law, followed by amended findings of fact and conclusions of law. See TEX. R. CIV. P. 296-98 (concerning issuance of findings of fact and conclusions of law by trial court following bench trial). Some of the factual findings dealt with the mall's ROA restrictive covenants. For example, the trial court found that the ROA
• prohibits the operation of a business in the parking areas;
• grants all parties an easement to use the parking areas for parking; and
• contains covenants that run with the land and are "intended to be binding on successors and assigns of the original parties to the agreement."
The trial court made additional findings concerning the enforceability of those restrictions. The trial court found that
• the parking lots are encumbered by the ROA;
• EWBank (which was not a party to the severed case) is bound by the restrictions contained in the ROA; and
• "Ring & Ring is a lessee and/or assignee of [EWBank], and is also bound by the deed restrictions."
The trial court then found that Ring & Ring violated the ROA restrictions, having concluded that "Ring & Ring's operation of carnivals on the common areas of the Mall interferes with [PlazAmericas and Sharpstown's] enjoyment of its easement on the Lots." The trial court also made various conclusions of law about Ring & Ring's ROA violations. The trial court concluded that
• the ROA's restrictions on use of parking areas for only parking are enforceable against Ring & Ring; and
• Ring & Ring's operation of carnivals on the mall's outer-most parking areas substantially violated the ROA.
But the trial court made other conclusions of law that are inconsistent with those above and with its earlier sanction order. In the same amended findings of fact and conclusions of law, the trial court concluded that
• neither Sharpstown nor PlazAmericas has standing to sue to enforce the ROA restrictions;
• neither Sharpstown nor PlazAmericas is entitled to injunctive relief;
• no party is entitled to recover attorney's fees or costs and such recover is denied, except "the monies awarded to PlazAmericas as sanctions"; and, finally,
• the doctrine of res judicata is not applicable as to Ring & Ring and none of the issues in the suit by EWBank against Sharpstown, PlazAmericas, and others are issues in the severed lawsuit.
This last conclusion would indicate that the trial court did not rely on its judgment in the EWBank suit to substantiate its holdings in this suit against Ring & Ring.
One month later, the trial court entered a final judgment. The final judgment contains additional findings; some are repetitive of findings contained in earlier orders, but others are new. The judgment specifically refers to the trial court's earlier sanction order that struck Ring & Ring's pleading, entered a permanent injunction against Ring & Ring, and awarded PlazAmericas recovery of attorney's fees "associated with the request for injunctive relief." But the judgment contains a declaration that is inconsistent with the earlier-issued amended findings. It declares that PlazAmericas does have standing to enforce the restrictive covenants against Ring & Ring.
The judgment does not address whether Sharpstown has standing.
The judgment also declares that "the contract between Defendant Ring & Ring and [EWBank] does not legally authorize Ring & Ring to use the Mall Parking Areas or any part thereof for the operation of carnivals," "the operation of carnivals by Ring & Ring on the Mall's common areas violates the ROA and the restrictive covenants contained therein," and the ROA restrictions are enforceable against Ring & Ring. The judgment then enjoins Ring & Ring from engaging in any activity in the parking areas owned by EWBank that would violate the ROA's restrictions on parking-area use.
These were contested issues in the suit by EWBank that the trial court resolved against EWBank. Because a fact issue prevented summary judgment against EWBank, this court has reversed that judgment. See EWB-I, LLC, 2017 WL 2438648, at *19.
Finally, the judgment orders that PlazAmericas and Sharpstown recover $120,750 in attorney's fees. The judgment references several sources of legal authority for the recovery of attorney's fees. In addition to Section 5.006 of the Property Code, which the trial court referred to in its earlier, September 16, 2015 sanction order, the judgment cites to Section 37.009 of the Civil Practice and Remedies Code and Rule 215 of the Rules of Civil Procedure. See TEX. PROP. CODE § 5.006 (permitting attorney's fee award on action based on breach of restrictive covenants); TEX. CIV. PRAC. & REM. CODE § 37.009 (permitting award of just and equitable attorney's fees in declaratory judgment actions); TEX. R. CIV. P. 215.1 (allowing reasonable sanctions in relation to amount of work reasonably expended to obtain order compelling compliance with discovery order).
Noting inconsistencies in the trial court's orders and its judgment, Ring & Ring moved to reform the judgment. The trial court denied its request. Ring & Ring appealed, arguing that the trial court erred by granting declaratory and injunctive relief against Ring & Ring and by imposing death-penalty sanctions.
Judgment for PlazAmericas through Death-Penalty Sanctions
Despite Inconsistent Findings and Conclusions
The trial court granted a permanent injunction against Ring & Ring as a result of its sanction order. It then issued findings of fact and conclusions of law that PlazAmericas did not have standing to seek an injunction. Subsequently, the trial court entered judgment granting PlazAmericas an injunction that prevented Ring & Ring from operating carnivals at the mall. These rulings are inconsistent. We must determine if Ring & Ring is correct that they are also erroneous. We begin by reviewing the applicable law.
A. Applicable law
1. Standing
A party has standing to seek a declaratory judgment "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." Rawlings v. Gonzalez, 407 S.W.3d 420, 426 (Tex. App.—Dallas 2013, no pet.) (quoting OHBA Corp. v. City of Carrollton, 203 S.W.3d 1, 5 (Tex. App.—Dallas 2006, pet. denied). A conclusion that a party lacks standing is a legal conclusion that directly affects the trial court's jurisdiction because, if a party lacks standing, a trial court lacks subject-matter jurisdiction to decide the case. See DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 304-05 (Tex. 2008).
2. Joinder
Rule 39 of the Texas Rules of Civil Procedure provides the framework for determining when joinder of a non-party is mandatory. It states, in part, that a potential party "who is subject to service of process shall be joined as a party" if "in his absence complete relief cannot be accorded among those already parties." TEX. R. CIV. P. 39(a). Rule 39(a) provides for joinder of indispensable parties in mandatory terms, but no precise formula exists for determining whether a party falls within its provisions. Conrad Constr. Co., Ltd v. Freedmen's Town Pres. Coal., 491 S.W.3d 12, 16 (Tex. App.—Houston [14th Dist.] 2016, no pet.). If a district court determines that a non-party falls within the rule's provisions, it must effect that party's joinder. Id.; See TEX. R. CIV. P. 39(a).
Generally, a joinder problem involving necessary or indispensable parties is referred to as a "defect of parties." In re Hall, 433 S.W.3d 203, 211 (Tex. App.—Houston [14th Dist.] 2014, no pet.); see TEX. R. CIV. P. 93(4) (requiring complaint of "defect of parties" to be raised by verified objection).
3. Inconsistent findings
When a trial court makes factual findings that are inconsistent with earlier factual findings, the general rule is that the later-in-time findings control. See Loy v. Harter, 128 S.W.3d 397, 409 (Tex. App.—Texarkana 2004, pet. denied). But the later-in-time rule does not apply when the subsequent, inconsistent factual findings appear in a judgment because Rule 299a mandates that findings of fact not be recited in a judgment. TEX. R. CIV. P. 299a. Thus, when findings are included in a judgment and they conflict with earlier findings, the earlier findings will control for appellate purposes. Id.; see Guridi v. Waller, 98 S.W.3d 315, 317 (Tex. App.—Houston [1st Dist.] 2003, no pet.). And the findings included in the judgment will not be binding on appeal. See Whaley v. Central Church of Christ of Pearland, No. 01-02-01354-CV, 2004 WL 1405701, at *2-3 & n.1 (Tex. App.—Houston [1st Dist.] June 24, 2004, no pet.) (citing Guridi). Thus, to the extent the trial court's findings of fact are inconsistent, we accept the later-in-time findings so long as they were not made within the trial court's judgment.
These rules on inconsistent findings do not apply to conclusions of law because all conclusions of law are reviewed de novo as legal questions. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex. 2002).
4. Death-penalty sanctions
The Rules of Civil Procedure allow for "just" sanctions for discovery abuses. See TEX. R. CIV. P. 215, 215.2(b). The Texas Supreme Court has established a two-part test for evaluating the justness of a sanction order. Imposition of sanctions is just if (1) there is a direct relationship between the improper conduct and the sanctions imposed, meaning the sanctions must be directed against the abuse and abuser and be tailored to remedy any prejudice the abuse caused, and (2) the sanctions are not excessive, meaning the punishment must fit the crime. Paradigm Oil, Inc. v. Retamco Operating, Inc., 372 S.W.3d 177, 184 (Tex. 2012); TransAmerican Natural Gas Corp. v. Powell, 811 S.W.2d 913, 917 (Tex. 1991).
Sanctions must not be more severe than necessary to satisfy their legitimate purposes. TransAmerican, 811 S.W.2d at 917. These include "1) to secure compliance with discovery rules; 2) to deter other litigants from similar misconduct; and 3) to punish violators." Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 849 (Tex. 1992).
A death-penalty sanction is a severe form of sanction that prevents a party from contesting liability and allows for the determination of liability based on the party's discovery conduct rather than the dispute's merits. TransAmerican, 811 S.W.2d at 917-18. When a trial court strikes a defendant's answer and places the defendant in default, the result is that the defaulting defendant admits all pleaded facts establishing liability. Paradigm Oil, 372 S.W.3d at 186. The imposition of death-penalty sanctions that permit adjudication based on discovery conduct is limited by constitutional due process. TransAmerican, 811 S.W.2d at 917. "Discovery sanctions cannot be used to adjudicate the merits of a party's claim or defenses unless a party's hindrance of the discovery process justifies a presumption that its claims or defenses lack merit." Id. at 918.
Before imposing death-penalty sanctions, "courts must consider the availability of less stringent sanctions and whether such lesser sanction would fully promote compliance." Id. at 917. The general rule is that lesser sanctions "must first be tested to determine whether they are adequate," Chrysler Corp., 841 S.W.2d at 849, and "case determinative sanctions may be imposed in the first instance only in exceptional cases." Spohn Hosp. v. Mayer, 104 S.W.3d 878, 882 (Tex. 2003).
B. Trial court erred by imposing death-penalty sanctions
In determining that the trial court abused its discretion by imposing death-penalty sanctions, we first review the events that led to the sanction order.
1. Discovery conduct that led to death-penalty sanctions
The discovery conduct that led to death-penalty sanctions occurred relatively late in the pre-trial process. PlazAmericas and Sharpstown had asserted third-party claims against Ring & Ring four years before the September 2015 trial date. After severance, the agreed docket control order specified a discovery end-date of August 14, 2015. Less than two weeks before that end date, on August 4, PlazAmericas sought to depose Ring & Ring's corporate representative, Barbara Ring. Ring & Ring moved to quash the deposition.
On August 11—three days before discovery ended—PlazAmericas sought to compel Barbara's deposition and the production of documents. Ring & Ring filed a response two days later, citing its earlier-asserted objections to written discovery requests and the late date of the deposition notice. On August 17, after the discovery period had ended, the trial court granted the motion to compel and issued a written order requiring Ring & Ring to present its corporate representative for deposition by August 28 and to produce documents.
On August 31—eight days before trial—PlazAmericas and Sharpstown filed an "emergency motion for contempt, show cause, and motion for sanctions" that requested death-penalty sanctions against Ring & Ring. In the motion, they argued for sanctions based on three discovery misconducts: Ring & Ring had recently produced documents that revealed inaccuracies in an earlier-filed affidavit by Barbara Ring that Ring & Ring had used to oppose summary judgment; Ring & Ring failed to produce some requested documents that had been proven to exist; and Ring & Ring's corporate representative, Barbara Ring, failed to appear for her deposition.
That same day, the parties were before the trial court, but the motion for sanctions could not be formally heard because Ring & Ring had not received adequate notice. Nonetheless, the issues raised in the motion were discussed. Ring & Ring informed the trial court that it would present Barbara Ring for deposition and produce additional documents. The trial court orally ordered that both occur later that week. The trial court then stated that the motion for sanctions and other matters would be taken up on the day of trial.
Barbara Ring was deposed in her capacity as Ring & Ring's corporate representative on September 3. PlazAmericas filed a supplemental motion for sanctions the next day, arguing that she had been "wholly unprepared to testify as to almost all of the noticed topics" listed in the deposition notice pursuant to Rule 199.2(b)(1) and that the document production was insufficient. See TEX. R. CIV. P. 199.2(b)(1) (concerning depositions of corporate representatives).
The trial court held a hearing on the sanction issue on September 8, the morning of trial. PlazAmericas again argued that Ring & Ring's production was incomplete and that the limited number of documents that had been produced indicated that Barbara's earlier affidavit was inaccurate. Specifically, PlazAmericas pointed to Barbara's averment that Ring & Ring had not operated a carnival at PlazAmericas Mall since 2011 and statements in later-produced documents indicating that Ring & Ring had operated several carnivals at the mall after 2011.
Ring & Ring responded that all responsive documents related to the claims against it had been produced, the documents that had not been produced related to an unrecoverable theory of damages, Barbara testified to the extent of her knowledge, and any deficiencies in Ring & Ring's discovery compliance were the result of PlazAmericas waiting until the month before trial to seek discovery.
The trial court granted the motion, struck Ring & Ring's answer on the permanent injunction claim, entered a permanent injunction against Ring & Ring, and awarded attorney's fees. The trial court then began the bench trial on the remaining issues.
2. Death-penalty sanctions abused the trial court's discretion
The death-penalty sanctions in this context were an abuse of discretion. First, due-process requirements dictate that death-penalty sanctions be used only when the sanctioned party's conduct justifies a presumption that its claims or defenses lack merit. TransAmerican, 811 S.W.2d at 917-18. Thus, through its sanction order, the trial court must have held that Ring & Ring's discovery conduct supported a presumption that it did not have a defense to PlazAmericas's petition for injunctive relief. But the record, including the trial court's amended findings of fact and conclusions of law, rebuts rather than supports such a presumption. See Remington Arms Co., Inc. v. Caldwell, 850 S.W.2d 167, 171 (Tex. 1993) (holding that record rebutted presumption that sanctioned party's claims or defenses lacked merit). After imposing death-penalty sanctions, the trial court expressly concluded that no plaintiff had standing to seek an injunction. Without standing, there could be no basis for presuming a lack of a defense or for granting relief. And entering a judgment in favor of a party held not to have standing, as a means to punish the opposing party for discovery abuses unrelated to the issue of standing, is an abuse of discretion.
Second, the record does not reflect that the trial court attempted other less severe sanctions before imposing death-penalty sanctions. The sanction order recites that "the Court attempted to issue a lesser penalty," but there is no indication in the record of any "lesser penalty" being imposed. While the trial court's August 31 order compelled Barbara's deposition, it did not award any fees or issue any sanctions. The first sanction ordered was the striking of Ring & Ring's pleading, which occurred on the morning of trial.
Third, the death-penalty sanction was not "just" because it was more severe than necessary to satisfy the legitimate purposes of such a sanction. There were four acts that the trial court could have concluded warranted sanctions: (1) Barbara's false affidavit, (2) Barbara's failure to appear for her deposition, (3) Barbara's failure to adequately prepare for her deposition to address the noticed subjects, and (4) Ring & Ring's failure to produce documents in advance of Barbara's deposition. While the first one may have justified a presumption that Ring & Ring lacked any defense to the claims, the other three did not. See TransAmerican, 811 S.W.2d at 917-18 (death penalty sanctions only warranted when conduct justifies presumption that claims or defenses lack merit).
During trial, there were revelations that a second affidavit by Barbara also contained inaccuracies. But those revelations came after the death-penalty sanctions had been imposed and, therefore, could not have informed the trial court's pretrial decision to impose death-penalty sanctions.
There was no evidence of a direct relationship between Barbara's failure to appear for her deposition and the death-penalty sanctions, particularly because she was deposed within days of missing her deposition and before the sanctions hearing. The additional costs PlazAmericas expended as a result of Barbara's failure to appear for her court-ordered deposition could have been calculated and included as a monetary sanction.
There was no evidence of a direct relationship between Barbara's failure to prepare as a corporate representative of Ring & Ring and the sanction. There was no showing that her lack of preparation prejudiced PlazAmericas in attempting to show its own standing, that the ROA was binding on Ring & Ring, or that operating a carnival on the parking lots violated the ROA both before and after 2011. Whether Barbara sufficiently understood the provisions of the ROA—a contract to which Ring & Ring was not a party—had no impact on whether PlazAmericas could establish that the ROA was enforceable against EWBank, which was the entity that contracted with Ring & Ring to operate a short-term carnival.
There also was no evidence of a direct relationship between Ring & Ring's failure to produce the court-ordered documents—documents addressing Ring & Ring's profits from carnival operations—and the death-penalty sanction. There was no showing that the absence of these records prejudiced PlazAmericas's arguments for injunctive relief.
Even with regard to the false affidavit, there is an absence of a direct relationship between the discovery abuse and the death-penalty sanction imposed. The additional costs expended by PlazAmericas to demonstrate that Barbara's affidavit contained false statements about whether the carnival had operated at the mall after 2011 could have been calculated and included in an appropriate order.
In addition to concluding that the imposition of death-penalty sanctions in this context was an abuse of discretion, we note that the sanction order removed a key defensive matter from the proceedings that the trial court was required to evaluate: joinder. See In re Hall, 433 S.W.3d at 211; see TEX. R. CIV. P. 39. We consider the joinder issue next.
Our conclusion that the trial court abused its discretion by granting death-penalty sanctions in no way minimizes the seriousness of filing false affidavits. But, on this record, given this timeframe, imposing death-penalty sanctions as a first response was error.
C. Whether trial court erred by failing to join EWBank as a party
In this severed suit, PlazAmericas was attempting to obtain a declaration that the ROA prevented Ring & Ring from engaging in carnival operations on the mall parking lots owned by EWBank. To do so, PlazAmericas had to establish that the ROA was enforceable against Ring & Ring, which required, as an interim step, that the agreement was enforceable against EWBank.
Initially, in its pleadings, PlazAmericas attempted to establish the ROA's enforceability by arguing that the trial court's ruling in EWBank's suit, from which this suit was severed, was binding under the doctrine of res judicata. Through its amended findings of fact and conclusions of law, the trial court rejected that argument, holding that the res judicata doctrine did not apply. But the court did take judicial notice of the other suit.
We have since reversed the trial court judgment in EWBank's suit, having concluded that fact issues prevented summary judgment against it, and remanded. See EWB-I, LLC, 2017 WL 2438648, at *19.
At trial, PlazAmericas attempted to establish that the ROA was enforceable against Ring & Ring by offering findings from a bankruptcy proceeding that did not involve Ring & Ring. According to PlazAmericas, the bankruptcy court's findings established that the ROA was enforceable against EWBank and, by extension, it also would be enforceable against Ring & Ring. Ring & Ring objected to admission of the document, arguing that the federal-court findings were not res judicata as to Ring & Ring because Ring & Ring was not a party to that bankruptcy proceeding. The trial court sustained Ring & Ring's objection and did not admit the document to establish the ROA's enforceability.
Finally, PlazAmericas attempted to establish the ROA's enforceability through testimony by PlazAmericas Mall's property manager, Karen Kardwell. Kardwell summarily testified that EWBank is bound by the ROA. PlazAmericas then argued that Ring & Ring must be bound by anything that EWBank is bound by because the parties are in privity and that, in effect, Ring & Ring is EWBank.
The ROA restrictions were enforceable against Ring & Ring, if at all, only through the non-party EWBank. The trial court did not have the benefit of the factual and legal arguments against enforcement against EWBank because EWBank was not a party. Instead, it received only PlazAmericas's conclusory evidence on the issue. The enforceability of the ROA against EWBank had been a contested issue in EWBank's suit against PlazAmericas and the other mall property owners. In that suit, EWBank had argued that the ROA was not enforceable against it under two theories: changed conditions and waiver. Without EWBank in the severed suit to make these arguments, potentially applicable defenses to Kardwell's assertions were omitted.
The trial court's final judgment declares that EWBank's parking lots are burdened by the ROA, that EWBank's contract with Ring & Ring did not legally authorize the operation of a carnival on EWBank's premises, and that the ROA restrictive covenants are enforceable against Ring & Ring. The trial court entered this judgment even though EWBank had alerted it, pre-severance, that EWBank had defenses to enforcement of the ROA and Ring & Ring had pleaded in its answer in the severed suit—a pleading that we have concluded was erroneously struck—that a defect in parties existed and had argued during the bench trial that EWBank was a proper defendant in the severed suit.
Ring & Ring made the trial court aware of the joinder issue through various arguments during the bench trial. Ring & Ring argued as follows:
[PlazAmericas] started off in that case asking for an injunction against [EWBank] to enjoin them from entering into other carnivals; and that's appropriate. [EWBank] owns that property. But at some point, [PlazAmericas] abandoned their application to this court to grant an injunction relief against [EWBank]. Now [PlazAmericas] are chasing [Ring & Ring]. . . . All they have to do in the other case is ask for an injunction against [EWBank]; and based on what I read in the Court's other ruling, the Court probably would have granted that. . . . [F]rom our position, we never should have been sued. The correct party that should have been sued is [EWBank], who owns the property.
PlazAmericas responded as follows:
Now, Ring & Ring is claiming that we have—should have sued [EWBank]. One thing they're right about is that we can. We can sue [EWBank] for that. . . . The fact that Ring & Ring is violating the restrictions but they are claiming that, "Well, the party that we're renting the property from, you should be suing them," doesn't relie[ve] Ring & Ring of its obligations . . . .
Thus, even without the struck pleading, the trial court was made aware of the joinder issue.
Rule 39 of the Rules of Civil Procedure states that a party subject to service of process "shall be joined as a party" if "in his absence complete relief cannot be accorded among those already parties." TEX. R. CIV. P. 39(a).
Kardwell testified that other traveling carnival companies would set up on EWBank's lots during the same timeframe that Ring & Ring operated carnivals there. Barbara Ring testified that she was aware that there were other carnival companies running carnivals at PlazAmericas Mall. She questioned why PlazAmericas and Sharpstown were targeting only Ring & Ring with their injunction suit and not the other carnival companies. Given that EWBank contracted with more carnival companies than just Ring & Ring, an injunction that only prevented Ring & Ring from running a carnival at the mall would not provide PlazAmericas the full relief it sought. Even with this injunction in place, nothing would prevent EWBank from contracting with one of the other carnival companies to come in Ring & Ring's place.
This factual situation is similar to what occurred in a recent case in which the Fourteenth Court of Appeals reversed for non-joinder of a necessary party. See Conrad Construction, 491 S.W.3d at 12. There, a town preservation coalition brought an injunction action against the City of Houston and a construction company hired by the City to renovate an area that had brick roads with historical significance that the coalition wanted to preserve. Id. at 14-15. The City sought dismissal on immunity grounds and, when its plea was denied, sought to halt the injunction hearing from going forward to allow it to appeal the denial of its plea. Id. at 15. The coalition nonsuited its claims against the City, moved forward with the injunction hearing, and was granted a temporary injunction. Id. The construction company, Conrad, appealed. One of its arguments on appeal was that the City was an indispensable party under the joinder rule, Rule 39.
The appellate court concluded that the trial court abused its discretion by failing to either join the City under Rule 39(a) or determine that the City could not be joined under Rule 39(b). Id. at 17. The appellate court held that the City had an interest at stake in the injunction suit because it had contracted with Conrad to have Conrad perform the work halted by the injunction. Id. And, as it relates to Rule 39(a), even with the injunction against Conrad in place, the City could hire another contractor to proceed with the project. Id. Thus, an injunction against Conrad renovating the area did not afford the coalition "complete relief." Id. The City was a necessary party to the injunction suit for the coalition to receive the relief it sought: prevention of further restorations that would impact the historical brick roads. Id. Without the City as a party to its injunction suit, the coalition could obtain its relief—prohibition of restoration efforts—only through piecemeal litigation against each contractor hired by the City, which would waste judicial resources.
The facts of this case align significantly with those in Conrad Construction, and we resolve this claim similarly. Ring & Ring adequately raised the issue of EWBank's past efforts to and future ability to contract with other carnival companies to the trial court's attention. An injunction against only Ring & Ring would not have afforded PlazAmericas complete relief in its suit to prevent carnival operations in violation of the ROA. EWBank would have remained able to contract with another carnival company even if Ring & Ring were enjoined. Thus, the injunction against Ring & Ring would have left PlazAmericas without full relief and potentially led to more injunction suits against other, individual carnival vendors.
We conclude that the trial court abused its discretion by failing to order the joinder of EWBank (or, alternatively, to determine, if appropriate, that EWBank could not be joined) because EWBank's absence prevented complete relief among the parties. See id.
Conclusion
We reverse the sanction order and judgment and remand for further proceedings.
Harvey Brown
Justice Panel consists of Chief Justice Radack and Justices Brown and Lloyd.