Giovanni A. Benavides v. KNAPP Cheverolet, INC

Opinion issued February 12, 2009 In The Court of Appeals For The First District of Texas NO. 01-08-00212-CV ____________ GIOVANNI A. BENAVIDES, Appellant V. KNAPP CHEVROLET, INC., Appellee On Appeal from the County Court at Law No. 4 Harris County, Texas Trial Court Cause No. 828,065 MEMORANDUM OPINION Appellant, Giovanni A. Benavides, challenges the trial court's order imposing $12,000.00 in sanctions against Benavides based on its determination that the claims alleged in his third-party petition against appellee, Knapp Chevrolet, Inc. ("Knapp"), are groundless and were brought in bad faith. Benavides presents four issues for our review. In his first and second issues, Benavides contends that the evidence is legally and factually insufficient to support the trial court's findings that his third-party petition is groundless and was brought in bad faith (1) and that his conduct significantly interfered with the trial court's traditional core functions, justifying the imposition of sanctions under its inherent authority. (2) In his third and fourth issues, Benavides contends that the sanctions are unjust and unconstitutionally excessive. (3) We reverse and render. Background In December 2004, Eric Preston filed his original petition alleging that Benavides negligently caused the car that he was driving to collide into Preston's car in Houston, Texas. Benavides filed his original answer and request for disclosure, in which he denied the allegations in Preston's petition. In December 2006, Benavides filed a third-party petition alleging that the collision with Preston occurred while Benavides "was test-driving a vehicle owned by Knapp" and seeking damages, attorney's fees, and court costs from Knapp based on allegations of breach of contract and violations of the Texas Deceptive Trade Practices Act ("DTPA"). (4) Benavides asserted that Knapp's "failure to defend and indemnify" Benavides against Preston constituted a breach of an insurance policy between Knapp and its insurer. Knapp did not timely file an answer and did not appear at the subsequent jury trial in which the jury apportioned sixty-five percent of the negligence that caused the collision to Benavides, thirty-five percent to Preston, and awarded $6,045.00 to Preston. Benavides, as third-party plaintiff, then filed a motion for final default judgment against Knapp in August 2007, in which Benavides requested indemnification for the amount of the "judgment rendered in the underlying lawsuit" as well as "reasonable and necessary attorneys' fees and expenses . . . incurred in filing and pursuing [Benavides's] Third Party Petition and Motion for Default Judgment . . . [and in] defending [Benavides] in the underlying lawsuit." The trial court granted Benavides's motion for final default judgment and ordered Knapp to indemnify Benavides for the amount of the judgment in the underlying lawsuit and to pay Benavides $2,500.00 for attorneys' fees. On October 26, 2007, Knapp filed a motion for new trial and plea to the jurisdiction, arguing, among other things, that the trial court did not have personal jurisdiction over Knapp because "Benavides never effectuated proper service upon Knapp." The trial court granted Knapp's motion, finding that service upon Knapp was not proper. Knapp then filed its original verified answer, which included both a general denial, a verified denial, and numerous affirmative defenses, and it filed a motion requesting summary judgment and sanctions. On January 8, 2008, the trial court held a hearing to determine whether to grant summary judgment and impose sanctions. Benavides argued that sanctions were not appropriate because "all of our allegations were based on the insurance policy we were not able to read [because Knapp] didn't provide us a full copy of the insurance policy until last Thursday." Benavides never explained a basis upon which Knapp could have breached a contract by not defending and indemnifying Benavides in the underlying lawsuit. Regarding Benavides's second claim, the trial court asked Benavides, "Exactly what subcategory of the Deceptive Trade Practices Act, taken in the best light to you, could [Knapp's alleged conduct] possibly be violative of?" Benavides responded, "Just unconscionable act of not having insurance to cover anybody who was involved in an automobile accident that they're test driving the vehicles." See Tex. Bus. & Com. Code Ann. § 17.46 (Vernon Supp. 2008). The trial court stated that it did not find either of Benavides's arguments persuasive and allowed counsel for Knapp to testify on the amount of attorneys' fees expended by Knapp. Counsel for Knapp testified that Knapp had paid $16,635.01 in attorneys' fees at the time of the hearing. After Benavides cross-examined Knapp's counsel, the trial court asked the parties to submit briefing regarding the amount of attorneys' fees that Knapp was entitled to receive. There was no evidence at the hearing regarding Benavides's purpose for filing the third-party petition. After granting summary judgment in favor of Knapp, the trial court signed an order granting Knapp's motion for sanctions stating, The Court specifically finds, holds, and decrees that the claims of Giovanni A. Benavides against Knapp Chevrolet. Inc. are not warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law. Further, the Third-Party Petition of Giovanni A. Benavides filed against Knapp Chevrolet, Inc. is groundless and brought in bad faith. In particular, the claims of breach of contract are clearly barred in that Benavides is not a party to a contract with Knapp Chevrolet, Inc. and is not an intended beneficiary of any contract between Knapp Chevrolet, Inc. and its insurer. Counsel for Benavides admits this in its pleading dated January 23, 2008. Further, there exists no tenable factual basis for the extension of claims alleging violations of the Texas Deceptive Trade Practices Act to this matter. A reasonable inquiry into the applicable law should have revealed that the claims against Knapp Chevrolet, Inc. were frivolous. The trial court then stated that, "pursuant to Texas Civil Practice and Remedies Code Chapter 10, Texas Rule of Civil Procedure Rule 13, and the [trial court's] inherent power," it found good cause for awarding sanctions against Benavides, counsel for Benavides, and Benavides's insurance carrier. The trial court ruled that all three parties were jointly and severably liable for $12,000.00, "the amount of attorney's fees, costs and reasonable expenses incurred by Knapp Chevrolet, Inc. as a result of this action." Standard of Review We review a trial court's imposition of sanctions for an abuse of discretion. Low v. Henry, 221 S.W.3d 609, 614 (Tex. 2007). A trial court abuses its discretion in imposing sanctions when it acts "without reference to any guiding rules and principles, such that its ruling was arbitrary or unreasonable." Id. We presume that pleadings are filed in good faith, and the party seeking sanctions bears the burden of overcoming this presumption. Id. In reviewing the sanctions order, we review the entire record to determine whether the trial court abused its discretion. Am. Flood Research, Inc. v. Jones, 192 S.W.3d 581, 583 (Tex. 2006) (per curiam). Notice of Appeal As a preliminary matter, Knapp argues that Benavides's attorney and insurance company "are not entitled to relief from the trial court's" order because only Benavides is named in the notice of appeal, the docketing statement, and the identification of parties section of appellant's briefing. Although the trial court imposed sanctions jointly and severally against Benavides, his trial counsel, and his insurance carrier, only Benavides filed a notice of appeal of the sanctions order. "A party who seeks to alter the trial court's judgment or other appealable order must file a notice of appeal." Tex. R. App. P. 25.1(c). If parties have aligned interests, they "may file a joint notice of appeal." Id. Here, the notice of appeal states "Third-Party Plaintiff, Giovanni A. Benavides, desires to appeal from the Order Granting Third-Party Defendant's Motion for Sanctions signed and entered by this Court on February 5, 2008." Neither Benavides's attorney nor his insurance carrier have filed a joint notice of appeal with Benavides in this case. Therefore, we determine only whether "to alter the trial court's . . . order" as it applies to Benavides. See id.; Alaska Flight Servs. v. Dallas Cent. Appraisal Dist., 261 S.W.3d 884, 886 (Tex. App.--Dallas 2008, no pet.); City of Houston v. Boyle, 148 S.W.3d 171, 175 n.5 (Tex. App.--Houston [1st Dist.] 2004, no pet.). We sustain Knapp's cross-point. Chapter 10 & Rule 13 Sanctions In his first issue, Benavides argues that the trial court abused its discretion in imposing sanctions against him because the evidence is legally and factually insufficient to support the trial court's finding that, pursuant to Texas Rule of Civil Procedure 13, his claims against Knapp are "groundless and brought in bad faith" and that, pursuant to Texas Civil Practice and Remedies Code section 10.001(2), his claims against Knapp are not "warranted by existing law or the establishment of new law." The signatures of attorneys or parties "constitute a certificate by them" that they have read their pleadings, motions, or other papers, and, to the best of their knowledge, information, and belief formed after reasonable inquiry, "the instrument is not groundless and brought in bad faith or groundless and brought for the purpose of harassment." Tex. R. Civ. P. 13. If a trial court imposes sanctions under rule 13, it is authorized to "impose an appropriate sanction" under rule 215, "upon the person who signed [the pleading, motion, or other paper], a represented party, or both." Id. Rule 215 allows a trial court to charge a sanctioned party with court costs, litigation expenses, and "reasonable expenses, including attorney fees." Tex. R. Civ. P. 215.2(b). A pleading is "groundless" when it has "no basis in law or fact and [is] not warranted by good faith argument for the extension, modification, or reversal of existing law." Tex. R. Civ. P. 13. A trial court may only impose sanctions under rule 13 for good cause, "the particulars of which must be stated in the sanction order." Id. Chapter 10 of the Texas Civil Practice and Remedies Code provides an alternative basis upon which a court may impose sanctions. It provides: The signing of a pleading or motion as required by the Texas Rules of Civil Procedure constitutes a certificate by the signatory that to the signatory's best knowledge, information, and belief, formed after reasonable inquiry: (1) the pleading or motion is not being presented for any improper purpose, including to harass or to cause unnecessary delay or needlessly increase in the cost of litigation; (2) each claim, defense, or other legal contention in the pleading or motion is warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law; (3) each allegation or other factual contention in the pleading or motion had evidentiary support or, for a specifically identified allegation or factual contention, is likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and (4) each denial in the pleading or motion of a factual contention is warranted on the evidence or, or for a specifically identified denial, is reasonably based on a lack of information or belief. Tex. Civ. Prac. & Rem. Code Ann. § 10.001 (Vernon 2002). Upon violation of section 10.001, a party may file a motion for sanctions, describing the conduct in violation of section 10.001. Id. § 10.002(a) (Vernon 2002). If a trial court grants a party's motion for sanctions it may award "reasonable expenses and attorney's fees incurred in presenting or opposing the motion." Id. § 10.002(c) (Vernon 2002). If no due diligence is shown, "the court may award to the prevailing party all costs for inconvenience, harassment, and out-of-pocket expenses incurred or caused by the subject litigation." Id. The sanction may be imposed against the person who "signed a pleading or motion in violation of Section 10.001 . . . , a party represented by the person, or both." Id. § 10.004(a) (Vernon 2002). In order to impose sanctions under rule 13, there must be evidence that a pleading is either (1) groundless and brought in bad faith or (2) groundless and brought for the purpose of harassment. Tex. R. Civ. P. 13. Here, the trial court found that the claims in Benavides's pleading were groundless and brought in bad faith. Bad faith is more than bad judgment or negligence. Elkins v. Stotts-Brown, 103 S.W.3d 664, 669 (Tex. App.--Dallas 2003, no pet.); Campos v. Ysleta Gen. Hosp. Inc., 879 S.W.2d 67, 71 (Tex. App.--El Paso 1994, writ denied). To show bad faith, the moving party must present evidence of conscious wrongdoing for a dishonest, discriminatory, or malicious purpose. Mattly v. Spiegel, Inc., 19 S.W.3d 890, 896 (Tex. App.--Houston [14th Dist.] 2000, no pet.). Here, there is no evidence in the record that Benavides filed his pleading in bad faith. Without evidence of bad faith, the trial court could have imposed sanctions under rule 13 had Knapp presented evidence that Benavides sued Knapp for the purpose of harassment. Tex. R. Civ. P. 13. "Harass" has been variously used to describe words, gestures, and actions that tend to annoy, alarm, and verbally abuse another person. Elkins, 103 S.W.3d at 669 (citing Black's Law Dictionary 717 (6th ed. 1990)). However, there is no evidence in the record that Benavides filed his lawsuit to annoy, alarm, or verbally abuse Knapp. See id. Accordingly, we hold that the trial court abused its discretion to the extent that it imposed sanctions against Benavides under rule 13. Unlike rule 13, Chapter 10 does not require evidence that a pleading was brought in bad faith or for the purpose of harassment. Tex. Civ. Prac. & Rem. Code Ann. §§ 10.001, 10.004(a). A trial court may impose sanctions against a party if the trial court finds one of the following: the pleading was brought for the purpose of harassment; the claims are not warranted by either existing law or by a nonfrivolous argument for a change in the law; any allegation or other factual contention is unlikely to have evidentiary support after further investigation; or any denial of a factual contention is not warranted by the evidence or, for a specifically identified denial, is not reasonably based on a lack of information or belief. Id. §§ 10.001(1)-(4), 10.002, 10.004(a). Here, the trial court, in its sanction order, found that Benavides's petition against Knapp specifically violates section 10.001(2). Id. § 10.001(2). Tracking the language in section 10.001(2), the sanction order states that the claims in Benavides's petition "are not warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law." Id. § 10.001(2) (requiring that each claim in pleading be "warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law"). The trial court found that Benavides's breach of contract claims "are clearly barred in that Benavides is not a party to a contract with Knapp Chevrolet, Inc. and is not an intended beneficiary of any [such] contract" and that Benavides's DTPA claim is supported by "no tenable factual basis for the extension of claims alleging violations of the [DTPA] to this matter." Nothing in its sanction order indicates that the trial court found that Benavides violated any of the other three subsections of section 10.001. See id. § 10.001(1), (3), (4). Additionally, at the sanctions hearing, Knapp presented no evidence or argument indicating that Benavides violated subsections (1), (3), and (4) of section 10.001. See id. Therefore, based on a review of the entire record, we find that Chapter 10 sanctions could only have been based on section 10.001(2). However, a trial court "may not award monetary sanctions against a represented party for a violation of Section 10.001(2)." Id. § 10.004(d). Accordingly, we hold that the trial court abused its discretion to the extent that it imposed sanctions against Benavides under Chapter 10. We sustain Benavides's first issue. Trial Court's Inherent Power to Sanction In his second issue, Benavides argues that the trial court abused its discretion in imposing sanctions upon him under its inherent authority because the evidence is legally and factually insufficient to support a finding that his conduct significantly interfered with the trial court's legitimate exercise of its core functions. A trial court has the inherent power to sanction a party for an abuse of the judicial process even when the party's conduct is not covered by a specific rule or statute. In re Bennett, 960 S.W.2d 35, 40 (Tex. 1997) (per curiam); Houtex Ready Mix Concrete & Materials v. Eagle Constr. & Envtl., 226 S.W.3d 514, 524 (Tex. App.--Houston [1st Dist.] 2006, no pet.) (citing Island Entm't, Inc. v. Castaneda, 882 S.W.2d 2, 5 (Tex. App.--Houston [1st Dist.] 1994, writ denied)). This inherent power allows trial courts to impose sanctions to the extent necessary to deter, alleviate, and counteract "bad faith abuse" of the judicial process, i.e., when a party significantly interferes with the court's legitimate exercise of its core functions. Houtex, 226 S.W.3d at 524. The core functions of trial courts include hearing evidence, deciding issues of fact raised by the pleadings, deciding questions of law, entering final judgments, and enforcing judgments. Island Entm't, 882 S.W.2d at 5. However, trial courts should rely on rules and statutes when possible because "[t]he amorphous nature of this power, and its potency, demands sparing use." Id. (quoting Kutch v. Del Mar College, 831 S.W.2d 506, 510 (Tex. App.--Corpus Christi 1992, no writ)). When a trial court imposes sanctions under its inherent power, it should make specific findings to support its conclusion that the conduct complained of significantly interfered with its legitimate exercise of its core functions. Houtex, 226 S.W.3d at 524. Here, the trial court made no findings to support its conclusion that Benavides's petition against Knapp significantly interfered with the trial court's legitimate exercise of its core functions. Nevertheless, we must review the entire record to determine whether the trial court abused its discretion. Am. Flood Research, 192 S.W.3d at 583. As discussed above, there is no evidence that Benavides acted in "bad faith" when he filed his petition. Cf. Houtex, 226 S.W.3d at 524 (upholding trial court's decision to impose sanctions based on its inherent authority where there was evidence of "bad faith in failing to notify opposing counsel that [trial counsel] would be absent from" scheduled hearing); Island Entm't, 882 S.W.2d at 5 (overturning imposition of sanctions based on inherent power of trial court when there was no evidence of bad faith); Phillips & Akers, P.C. v. Cornwell, 927 S.W.2d 276, 280 (Tex. App.--Houston [1st Dist.] 1996, no writ) (overturning trial court's imposition of sanctions under its inherent power to sanction absent evidence of bad faith conduct); Onwuteaka v. Gill, 908 S.W.2d 276, 280-81 (Tex. App.--Houston [1st Dist.] 1995, no writ) (overturing trial court's imposition of sanctions under its inherent power to sanction absent evidence of bad faith conduct). Additionally, there is no evidence that Benavides's pleadings interfered with the legitimate exercise of the trial court's core functions. Cf. King's Park Apts. v. Nat'l Union Fire Ins. Co., 101 S.W.3d 525, 541 (Tex. App.--Houston [1st Dist.] 2003, pet. denied) (upholding sanctions against party based on allegation that party "instructed a paralegal to steal documents from the chambers of the special trial judge"); Cornwell, 927 S.W.2d at 280 (overturning trial court's imposition of sanctions under its inherent power to sanction absent evidence that party "acted in a manner such as to interfere with the administration of justice or detract from the trial court's dignity and integrity"); Lawrence v. Kohl, 853 S.W.2d 697, 699-700 (Tex. App.--Houston [1st Dist.] 1993, no writ) (upholding sanctions based on party's failure to correct order that party knew to be erroneous). Accordingly, we hold that the trial court abused its discretion to the extent that it imposed sanctions against Benavides based on its inherent authority. We sustain Benavides's second issue. Conclusion Having held that there is no evidence to support the imposition of sanctions against Benavides under Texas Rule of Civil Procedure 13, Chapter 10 of the Texas Civil Practice and Remedies Code, or the trial court's inherent power, we need not reach Benavides's third and fourth issues, in which he contends that the sanctions are unjust and unconstitutionally excessive. We reverse the portion of the trial court's order imposing sanctions against Benavides and render judgment that Knapp take nothing from Benavides. Terry Jennings Justice Panel consists of Justices Jennings, Keyes, and Higley. 1. See Tex. Civ. Prac. & Rem. Code Ann. §§ 10.001, 10.002, 10.004 (Vernon 2002); Tex. R. Civ. P. 13. 2. See In re Bennett, 960 S.W.2d 35, 40 (Tex. 1997) (per curiam). 3. See Tex. Const. art. I, § 13. 4. See Tex. Bus. & Com. Code Ann. § 17.46 (Vernon Supp. 2008).