Scott Bader, Inc. v. Sandstone Products, Inc. No. 01-05-00940-CV (Tex.App.- Houston [1st Dist.] Feb. 28, 2008)(Higley) (products liability, imposition of sanctions by trial court)
AFFIRM TC JUDGMENT IN PART, REVERSE TC JUDGMENT IN PART, AND REMAND CASE TO TC FOR FURTHER PROCEEDINGS: Opinion by Justice Higley
Panel members: Justices Sam Nuchia, Evelyn Keyes and Lara Carter Higley
Case style: Scott Bader, Inc., Amy C. Wright, Kern & Wooley, L.L.P., and National Pigments & Chemicals, Inc. vs. Sandstone Products, Inc.
Trial court: 127th District Court of Harris County (Judge Sharolyn Wood)
Dissenting Opinion by Justice Keyes in Scott Bader, Inc. v. Sandstone Products, Inc. (sanctions)
[GIST OF] OPINION BY JUSTICE HIGLEY
These two appeals arise from a product liability suit brought by appellee, Sandstone Products, Inc. (“Sandstone”), against appellants, Scott Bader, Inc. (“Scott Bader”) and National Pigments & Chemicals, Inc. In appellate cause number 01–05–00940–CV, Scott Bader and its trial counsel, Amy C. Wright, and Wright’s law firm, Kern & Wooley, L.L.P., appeal sanctions assessed against them. The trial court awarded sanctions against Scott Bader for abusing the discovery process and against Wright and her firm for violating an in limine order during trial. Scott Bader contends that it did not abuse the discovery process and that the sanctions were not otherwise “just.” Wright and her firm challenge the sanctions award against them by asserting that the sanctions were excessive.
In appellate cause number 01–06–00593–CV, Scott Bader and National Pigments challenge the trial court’s judgment rendered against them in favor of Sandstone. Presenting four issues and numerous sub-issues, Scott Bader contends that (1) the testimony of Sandstone’s causation expert was unreliable and constituted no evidence of causation, (2) the evidence was legally insufficient to support the damages awarded by the jury, (3) the trial court erred when it included a “binding instruction” in the jury charge that Scott Bader had breached its contract and breached its warranty with Sandstone, and (4) alternatively, the trial court’s judgment should be modified because it awarded prejudgment interest on future damages.
In appellate cause number 01–05–00940–CV, we affirm, in part, and reverse and remand, in part. In appellate cause number 01–06–00593–CV, we reverse the judgment and remand.
DISSENT BY JUSTICE KEYES:
I respectfully dissent. I would hold that the sanctions assessed against Scott Bader were well within the discretion of the trial court and that there is no requirement that the trial court explain its rejection of lesser sanctions when, as here, the trial court’s order detailed the offending party’s abuses and directly tailored sanctions specifically authorized by Rule 215 of the Texas Rules of Civil Procedure to cure the prejudice to the innocent party caused by the abuse. I would affirm the judgment of the trial court.
The Test for Just Sanctions
The Texas Supreme Court has set out a two-part test for determining whether sanctions are just and therefore within the discretion of the trial court. TransAmerican Natural Gas Corp. v. Powell, 811 S.W.2d 913, 917 (Tex. 1991). That test requires that there be “a direct relationship . . . between the offensive conduct and the sanction imposed,” i.e., that the sanction be “directed against the abuse and toward remedying the prejudice caused by the innocent party” and that the sanctions not be “excessive.” Id. at 917. In regard to the second prong, the court is required to consider the availability of less stringent sanctions and whether such lesser sanctions would fully provide compliance. Id. These standards set the bounds within which the trial court is to exercise its discretion to assess sanctions under Texas Rule of Civil Procedure 215 governing discovery abuse. Id. That test has been subsequently reaffirmed in Spohn Hospital v. Mayer, 104 S.W.3d 878, 882 (Tex. 2003) (citing TransAmerican, 811 S.W.2d at 917) and Cire v. Cummings, 134 S.W.3d 835, 839 (Tex. 2004).
The Trial Court’s Sanctions Order
The trial court’s carefully articulated sanctions order in this case is set out in the majority opinion. That court made explicit findings that Scott Bader had “knowingly and in flagrant bad faith engaged in discovery abuse,” including (1) “withholding critical responsive documents until the production of more than 8,000 pages of documents on March 1, 2005, after the depositions in the lawsuit had already taken place”; (2) “producing documents in a manner calculated to conceal information (through removing the key first page of a document and marking out information in other documents), with conflicting and inadequate explanations for the same that lack credibility ”; (3) “presenting deposition witnesses with such critical documents and information concealed or not produced”; (4) “failing to name Terry Strickland as a witness with knowledge of relevant facts, or to produce responsive documents, related to Strickland’s role as director of Defendant SCOTT BADER, his role as the “main lead” in Defendant SCOTT BADER’s transition from using Co-Defendant Goodrich[’s] services to those of Co-Defendant Para-Chem, his direct supervision over specific issues regarding the formulation and testing of Defendant’s product, and his direct involvement in specific issues related to customer reports of problems”; (5) “failing to produce as a corporate representative a witness with knowledge as requested”; and (6) “filing two no-evidence motions for summary judgment on December 10, 2004 and February 23, 2005, respectively, when Defendant SCOTT BADER and its counsel knew that the production of documents and witnesses was deficient.”
The trial court found that Scott Bader’s “actions were calculated to conceal evidence that would indicate . . . that [its] product did not meet its stated specifications; and . . . that the stated specifications were modified.” It further found that Scott Bader’s actions “indicate a pattern or history of bad faith discovery abuse, demonstrate callous disregard for the responsibilities of discovery under the rules, and significantly interfere with the integrity and core judicial functions of this Court and its rulings.” For all of these reasons, the trial court found Scott Bader had prejudiced Sandstone’s ability to present its case, and it concluded that a sanctions order “directly related to the offensive conduct . . . is appropriate and necessary because a lesser sanction will not promote compliance.”
The trial court sanctioned this behavior by requiring that the jury be instructed
“You are to presume (1) that the product that was shipped between mid-1999 and 2001 did not meet the specifications Scott Bader provided to Sandstone, and (2) that the specifications that Scott Bader provided to Sandstone for the product during mid-1999 and 2001 were modified.”
The trial court ordered that Scott Bader and its indemnitee, NPCI, were not permitted to rebut the factual presumptions set forth above, and it struck affirmative defenses addressed to the issue. The court also ruled that Scott Bader could not use Terry Strickland as a witness at trial and that Scott Bader “may not use the deposition testimony of any witness from a deposition unless SCOTT BADER first demonstrates to the Court that such deposition was taken after full production of documents.” The trial court then identified eight witnesses who were deposed before Scott Bader’s “production of critical documents on March 1, 2005.” Finally, the trial court ordered that Scott Bader pay $68,000 in sanctions for attorney’s fees and expenses incurred by Sandstone attributable to Scott Bader’s discovery abuse. The case then proceeded to a full trial in which Scott Bader was allowed to defend itself, with the foregoing limitations, and Sandstone was required to prove its case, including proving that its damages resulted from Scott Bader’s actions.
Additional misconduct by Sandstone’s counsel during trial resulted in the declaration of a mistrial and the necessity of beginning again. The sanctions order at issue in this appeal was issued during the second trial, after a hearing outside the presence of the jury, to clarify what was to be taken as established due to Scott Bader’s misconduct and what Sandstone was required to prove. Scott Bader was permitted to “bring forward evidence that does not rely on any stricken deposition to establish causation for failures other than an affirmative defense of Plaintiff’s conduct.” The trial court made clear, however, that Scott Bader’s affirmative defenses and its general denial were stricken to the extent of precluding litigation of issues rebutting the established issues and that Scott Bader was “not entitled to raise quality control issues about Sandstone to negate evidence that the product was out of specification before reaching Sandstone.”
When the case was presented to the jury in the retrial, the jury was instructed that (1) “the specifications that Scott Bader provided to Sandstone for the product during mid-1999 and 2001 were modified”; (2) “[t]he product that was shipped between mid-1999 and 2001 did not meet the specifications Scott Bader provided to Sandstone”; (3) “[s]uch modification of the specifications is a breach of the sales contract between Scott Bader and Sandstone”; and (4) “[s]uch modification is a breach of the warranty from Scott Bader to Sandstone.” The first jury question following the binding instructions asked the jury, “What sum of money, if any, if paid now in cash, would fairly and reasonably compensate Sandstone Products, Inc. for its damages, if any, that resulted from modification of specifications and failure to meet specifications as instructed?” The jury was instructed to consider as elements of damages solely “[t]he reasonable and necessary cost of the repair or replacement of the failed roof coatings”; Sandstone’s past lost profits; litigation costs associated with Sandstone’s liability to its customers; application fees seeking Dade County, Florida approval for coating material; and costs of property and material testing for roof coating.
Sanctions Available Under Rule 215
Among the sanctions expressly made available to the trial court under Rule 215 of the Texas Rules of Civil Procedure, governing discovery abuse, are
(1) an order disallowing any further discovery of any kind or of a particular kind by the disobedient party;
(2) an order charging all or any portion of the expenses of discovery or taxable court costs or both against the disobedient party or the attorney advising him;
(3) an order that the matters regarding which the order was made or any other designated facts shall be taken to be established for the purposes of the action in accordance with the claim of the party obtaining the order;
(4) an order refusing to allow the disobedient party to support or oppose designated claims or defense, or prohibiting him from introducing designated matters in evidence;
(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;
Tex. R. Civ. P. 215.2(b). The rule further provides:
(8) In lieu of any of the foregoing orders or in addition thereto, the court shall require the party failing to obey the order or the attorney advising him, or both, to pay, at such time as ordered by the court, the reasonable expenses, including attorney fees, caused by the failure, unless the court finds that the failure was substantially justified or that other circumstances make an award of expenses unjust. Id.
Application of the Test of Abuse of Discretion in Assessing Sanctions
Here, the trial court carefully articulated in its oral and written sanctions orders—issued after notice and hearing—the justification of each of its narrowly tailored sanctions. Each sanction was chosen from one expressly permitted by Rule 215.2 to address exactly the behavior the trial court found to have been committed by Scott Bader. There is no evidence in the record that Scott Bader did not do exactly what the trial court found it did do, and the majority acknowledges as much. There is no question that Scott Bader’s actions constituted severe discovery abuse designed to keep Sandstone from presenting its case. The trial court first entered sanctions directed specifically at prohibiting Scott Bader from profiting from its concealment of documents and of a key witness in the first trial. Nevertheless, Scott Bader continued its misconduct during trial, and a mistrial was declared, so that everyone had to start over. During the second trial, after a hearing outside the presence of the jury, the court issued the written sanctions order at issue on appeal, clarifying its specifically targeted sanctions against Scott Bader, and it instructed the jury accordingly. At no point did the trial court enter “death penalty” sanctions that would have prevented Scott Bader from presenting any defense at all. Sandstone was still obliged to prove its case and its damages.
I would hold that the trial court fully satisfied the first prong of the test for the just impositions of sanctions articulated by the supreme court in TransAmerican, namely, the requirement that there be “a direct nexus among the conduct, the offender, and the sanction imposed.” See Spohn Hosp., 104 S.W.3d at 882.
The majority, however, does not even discuss the trial court’s satisfaction of the first prong of the TransAmerican test. Instead, it turns directly to the second prong, which “mandates that the trial court consider less stringent measures before settling on severe sanctions.” Id. at 883. Ignoring the trial court’s targeting of sanctions to address ongoing misconduct and its explanation in the sanctions order for each of the sanctions imposed, the majority finds “conclusory” the trial court’s conclusion that it had “considered the possibility of all lesser available options” but “[u]nder these circumstances, . . . no lesser sanctions are available to address and deter Defendant SCOTT BADER’s conduct while preserving SANDSTONE’s rights.” Bader, Wright, Kern & Wooley, L.LP. and National Pigments & Chemicals, Inc. v. Sandstone Products, Inc., No. 01-05-00940-CV, slip op. at 22 (Tex. App.—Houston [1st Dist.] Feb. 28, 2008, no pet. h.). The majority holds that the trial court abused its discretion because this conclusion was “unsupported,” and, in a footnote, it offers its own suggestions for sanctions the trial court might have considered. Bader, slip op. at 22.
In my view, the majority misconstrues the controlling language it quotes from Cire, 134 S.W.3d at 842, and it directly contravenes the holding in Cire, which is controlling authority. I would find Cire to be on all fours with this case with the sole exception that the trial court in Cire levied death penalty sanctions for flagrant discovery abuse, while the trial court in this case did not.
In Cire, the plaintiff refused to produce audiotapes critical to the proof of her case against the defendant and then deliberately destroyed them after being thrice ordered to produce them. See id. at 841. The supreme court observed,
Because the audiotapes sought by Cire would have either proved or disproved Cummings’s claims, her destruction of them justifies a presumption they would have done the latter. On this record, it was within the trial court’s discretion to determine that Cummings deliberately destroyed dispositive evidence; thus, death penalty sanctions are warranted in this exceptional case. As we explained in TransAmerican, discovery sanctions can be used to adjudicate the merits of a party’s claims when a party’s hindrance of the discovery process justifies a presumption that its claims lack merit. Id. at 841 (citing TransAmerican, 811 S.W.2d at 918). In sum, the supreme court in Cire approved death penalty sanctions for behavior virtually identical to that of Scott Bader in this case. Yet in this case, unlike Cire, no death penalty sanctions were imposed.
The appellate court’s error in reversing the trial court’s sanctions order in Cire, as described by the supreme court, was exactly the same as the error made by the majority in this case. The supreme court observed in Cire that the court of appeals had held that “the trial court abused its discretion when it failed to consider alternative, lesser sanctions and when it did not explain why lesser sanctions would not suffice.” Id. The supreme court continued, “The court of appeals also said that the trial court could have and should have considered other, lesser sanctions before it imposed death penalty sanctions,” but “[the court of appeals] suggested a less stringent sanction: a spoliation instruction to the jury directing it to assume the missing audiotapes would have been unfavorable to Cummings” and it concluded that the trial court erred by refusing to consider lesser sanctions. Id. The supreme court granted the petition for review in Cire specifically “to consider the issue of death penalty sanctions and to examine whether a trial court’s sanctions order must recite why every conceivable sanction would be ineffective in securing compliance and curing prejudice before striking pleadings.” Id. at 838.
In reversing the court of appeals, the supreme court held that, in an exceptional case, like that in Cire, even death penalty sanctions may be issued without imposing lesser sanctions so long as the trial court “considers” lesser sanctions. Id. The court explained:
Under this standard, the trial court need not test the effectiveness of each available lesser sanction by actually imposing the lesser sanction on the party before issuing the death penalty; rather, the trial court must analyze the available sanctions and offer a reasoned explanation as to the appropriateness of the sanction imposed. Id. at 840.
The trial court in this case did exactly what Cire and TransAmerican require. It tailored sanctions directly to the abuses perpetuated by Scott Bader and it explained why these sanctions were necessary to cure the specific prejudice to Sandstone caused by each of Scott Bader’s abuse. Nevertheless, like the court of appeals in Cire, the majority in this case would require the trial court’s sanctions order to “recite why every conceivable sanction would be ineffective in securing compliance and curing prejudice” before it would allow the court to the issue targeted sanctions that would impede Scott Bader’s presentation of its case on the issues on which it abused discovery. See id. at 838. Because I believe the majority opinion directly contravenes controlling authority, interferes with the jurisdiction of the trial court, and has the effect of rewarding severe discovery abuse with a retrial without the hindrance of sanctions that were fully within the discretion of the trial court to impose, I must dissent.
I would affirm the judgment of the trial court.
Evelyn V. Keyes
Justice
Panel consists of Justices Nuchia, Keyes, and Higley.
Justice Keyes, dissenting.
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