Court of Appeals of Texas, El Paso.

John E. KEITHLY and Gerald G. Smith, Appellants,

v.

P.G.D., INC. d/b/a/ Missile Inn and Norwest Bank of El Paso, N.A., Appellees.

No. 08-99-00278-CV.

|

Nov. 9, 2000.

Before BARAJAS, C.J., McCLURE and CHEW, JJ.

OPINION

BARAJAS.

*1 This appeal arises from an order sanctioning attorneys John Keithly and Gerald Smith. For reasons set forth below, we reverse and render.

I. SUMMARY OF THE EVIDENCE

Margarita Morales sued P.G.D., Inc. and Norwest Bank, of El Paso, N.A. for wrongful death after her husband fell from the roof of a two-story structure owned by P.G.D., Inc. On November 5, 1998, prior to the commencement of the trial, Keithly and Smith, counsel for Morales, and counsel for Appellees informed the court that a settlement had been reached. On December 17, 1998, a hearing was conducted for the purpose of allowing the court to decide issues pertaining to allocations of the settlement proceeds among various statutory beneficiaries. At the conclusion of the hearing, the trial judge approved the settlement amount and the manner of distribution. The parties then attempted to draft the final settlement document. They were unable to reach an agreement, however, on certain language to be used in the settlement pertaining to the effect of the settlement on the veracity of potential future workers’ compensation claims. On April 1, 1999, the trial court conducted another hearing on a motion filed by Appellees to compel the execution of the settlement documents under the terms to which the parties agreed during the December 17 hearing. Following the hearing, the trial court ordered Keithly to execute the settlement documents and to return them to Appellees no later than April 5, 1999. Keithly failed to comply.

On April 8, 1999, Appellees filed a motion for sanctions against Keithly under Tex.R.Civ.P. 215. Appellees argued that sanctions were appropriate because

[T]he plaintiffs’ attorney has acted in complete disregard to the Court’s orders and instructions, has maintained his obstinance toward other counsel in this case, and has caused other counsel to continue to incur attorney’s fees, expenses and costs. Based upon such outrageous conduct, defendants request that plaintiffs be responsible for all fees, costs, and expenses incurred over the past five months to resolve disputes concerning settlement of this case.

In his answer, Keithly asserted, inter alia, that he is entitled to attorneys’ fees as sanctions for the defendant’s alleged uncooperative conduct displayed during the settlement negotiations.

On April 14, 1999, the court conducted a hearing on Appellees’ motion for sanctions. On the same day, Keithly procured the signed settlement papers. After hearing arguments from both sides, the trial court granted the motion. After requesting counsel for Appellees to prepare a sanctions order, the court verbally ordered Keithly to forward $1,500 to Appellees’ counsel “no later than April 21.” [Emphasis added]. The court further ordered: “If there isn’t-if the money is not forthcoming by April 21st, then every day that that money is late then I will go ahead and assess $150 fee additional sanctions per day until it’s paid. All right?”

*2 On April 20, 1999, after paying the $1,500 fee so as to avoid additional penalties, and prior to the entry of a written sanctions order, Keithly filed a motion for a new trial in which he argued that it was erroneous to issue sanctions in this case under Rule 215 because that rule applies only to discovery-related abuses. Keithly also filed a motion to enter order in which he requested the court to follow through with its request that counsel for Appellees prepare a written sanction order. A hearing on these motions was set for May 4, 1999.

On the day of the hearing, Appellees filed (1) an original proposed order for sanctions from the April 14 hearing, and (2) an amended motion for sanctions. In the amended motion for sanctions, Appellees argued that “Plaintiffs’ attorney has still acted in an unreasonable manner by filing a ‘Motion for New Trial’ and challenging the order entered on April 1, 1999, for the first time.” Appellees further requested the court to:

[E]nter such sanctions pursuant to the inherent powers of the Court under the laws of the State of Texas to enforce settlement agreements, to enforce compliance with Court orders, and to order compliance with the administration of justice, and pursuant to Rule 13 of the Texas Rules of Civil Procedure, as the Court deems necessary under the egregious circumstances involved in this matter.

The court determined that it would be inappropriate to rule on Keithly’s motion for new trial because the written order for sanctions had not been entered. The court announced that it would enter the written order, then it would “make a decision on the motion for new trial at a later time at another setting to give you [Keithly] the opportunity to further research the order that is being entered today.”

Also on May 4, 1999 (several weeks after the April 21, 1999 court-imposed deadline for payment of the sanction), the trial court entered the written order for sanctions. The order indicated that Keithly was ordered to pay $1,500 by April 21, 1999 and that such payments had already been made. The court determined that the sanction was appropriate under “the inherent powers of the Court to enforce settlement agreements, to enforce compliance with its orders, and to order compliance for the administration of justice, and pursuant to Rule 13 of the Texas Rules of Civil Procedure.”

On June 3, 1999, Keithly filed an amended motion for partial new trial and/or motion to vacate. In that motion, Keithly complained that whereas the written order imposed sanctions under Rule 13 and/or the inherent power of the court, the only grounds asserted for sanctions at the time of the hearing was Rule 215. Keithly further argued that because he had already paid sanctions under the oral order, and because the only alleged grounds for sanctions that were before the court at the time that order was made was Rule 215, he is entitled to a new trial or to have the sanction order vacated because the complained-of conduct does not fall under the provision of Rule 215. Subsequently, in response to a request by Appellees, Keithly and Smith (Smith represented Keithly throughout these proceedings) were ordered to pay an additional $500 to cover the expense of responding to a frivolous motion for new trial. This appeal follows.

II. DISCUSSION

*3 Appellants raise four issues for review: (1) whether the trial court erred in imposing sanctions under Rule 215; (2) whether the trial court erred in imposing sanctions under Rule 13; (3) whether the trial court erred in imposing sanctions under “the inherent powers of the court;” and (4) whether the court erred in imposing sanctions for filing a motion for a new trial.

A. Preliminary Matter/Scope of Review

Before proceeding, it is helpful to determine which rule was actually used to justify the imposition of sanctions. The confusion arises from the fact that Appellees’ initial motion for sanctions urged the imposition of sanctions specifically under Rule 215. After a hearing on that particular motion, the trial court, without specifying a particular rule, verbally sanctioned Appellant, presumably under Rule 215. However, after Appellant paid the fee, the trial court entered a written order which asserted that sanctions were being imposed under Rule 13 and the inherent powers of the court to enforce orders. Because the written order specifically cites the grounds for the sanction, and because the verbal order did not so specify, we confine our review to determine whether sanctions are appropriate under either of the rules specified in the written order. See Phillips & Akers, P.C. v. Cornwell, 927 S.W.2d 276, 280 (Tex.App.-Houston [1st Dist.] 1996, no writ) (“When a trial court imposes sanctions for a violation of a specific rule, we must determine whether the sanctions are appropriate under that particular rule.”) (citing Metzger v. Sebek, 892 S.W.2d 20, 51 (Tex.App.-Houston [1st Dist.] 1994, writ denied). Having determined that sanctions were issued under Rule 13 and the inherent powers of the court, and not Rule 215, we need not address Appellants’ first issue. We proceed with a discussion of the appropriate standard of review.

B. Standard of Review

“The decision to impose a sanction is left to the discretion of a trial court and will be set aside only upon a showing of a clear abuse of discretion.” Phillips & Akers, P.C., 927 S.W.2d at 279 (citing Koslow’s v. Mackie, 796 S.W.2d 700, 704 (Tex.1990)). The test for abuse of discretion is not whether, in the opinion of this Court, the facts present an appropriate case for the trial court’s actions. Rather, it is a question of whether the court acted without reference to any guiding rules and principles. 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); Hallmark v. Hand, 885 S.W.2d 471, 475 (Tex.App.-El Paso 1994, writ denied). Another way of stating the test is whether the act was arbitrary or unreasonable. Downer, 701 S.W.2d at 242 (citing Smithson v. Cessna Aircraft Co., 665 S .W.2d 439, 443 (Tex.1984)); Hallmark, 885 S.W.2d at 475. The mere fact that a trial court may decide a matter within its discretionary authority in a different manner than an appellate judge in a similar circumstance does not demonstrate that an abuse of discretion has occurred. Downer, 701 S.W.2d at 242 (citing Southwestern Bell Telephone Co. v. Johnson, 389 S.W.2d 645, 648 (Tex.1965)). A mere error of judgment is not an abuse of discretion. Loftin v. Martin, 776 S.W.2d 145, 146 (Tex.1989).

C. Rule 13 Sanctions

*4 In Issue No. Two, Appellants argue that the court abused its discretion to the extent that sanctions were issued under Rule 13. Specifically, Appellants argue that it was an abuse of discretion to award sanctions under Rule 13 because that rule is limited to sanctioning the filing of groundless pleadings, and Appellants did not file such groundless pleadings. We agree.

Rule 13 states:

The signatures of attorneys or parties constitute a certificate by them that they have read the pleading, motion, or other paper; that 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. Attorneys or parties who shall bring a fictitious suit as an experiment to get an opinion of the court, or who shall file any fictitious pleading in a cause for such a purpose, or shall make statements in pleading which they know to be groundless and false, for the purpose of securing a delay of the trial of the cause, shall be held guilty of a contempt. If a pleading, motion or other paper is signed in violation of this rule, the court, upon motion or upon its own initiative, after notice and hearing, shall impose an appropriate sanction available under Rule 215-2b, upon the person who signed it, a represented party, or both.

Courts shall presume that pleadings, motions, and other papers are filed in good faith. No sanctions under this rule may be imposed except for good cause, the particulars of which must be stated in the sanction order. ‘Groundless’ for purposes of this rule means no basis in law or fact and not warranted by good faith argument for the extension, modification, or reversal of existing law. A general denial does not constitute a violation of this rule. The amount requested for damages does not constitute a violation of this rule.

Tex.R.Civ.P. 13.

The trial court’s written order made it clear that the sanctioned conduct was (1) Appellant Keithly’s noncompliance with the court’s April 1, 1999 directive to return the signed settlement documents no later than April 5, 1999; (2) Appellant Keithly’s continued failure to produce the documents after the filing of defendants’ April 8, 1999 motion for sanctions; (3) the fact that “Mr. Keithly provided no legitimate excuse regarding his continued failure to comply with the Court’s orders and to communicate with other litigants regarding the settlement of this case.” Based upon the clear wording of the sanctions order, it is glaringly obvious that none of the sanctioned conduct is properly sanctionable under Rule 13 as that rule clearly applies only to the signing of pleadings, motions, and other papers.

Appellees attempt to defeat this conclusion by arguing that Rule 13 applies in this case because the court intended to sanction Appellants’ groundless request for sanctions which Appellant asserted in its response to Appellees’ initial motion for sanctions. Although such conduct fits within the confines of Rule 13, the order simply does not assert such conduct as serving the basis for the sanctions. Further, we cannot make the assumption that the trial court contemplated the request for sanctions as being the basis for the sanctions. Rule 13 specifically states that “No sanctions under this rule may be imposed except for good cause, the particulars of which must be stated in the sanction order.” [Emphasis added]. Tex.R.Civ.P. 13. Thus, even if the court had in mind Appellants’ request for sanctions when it imposed the $1,500 fee,¹ the sanction would still be erroneous because, while constituting good cause, it was not articulated in the order.

*5 Because the trial court erroneously imposed sanctions under Rule 13, which is wholly inapplicable under the facts of this case, we sustain Appellants’ Issue No. Two.

D. Inherent Powers of the Court

In Issue No. Three, Appellants argue that the trial court erred in imposing sanctions under the court’s inherent authority because the sanctions in this case were imposed to punish Appellants for not finalizing a settlement agreement, and sanctioning such conduct is so arbitrary as to amount to an abuse of discretion. We agree.

Generally, a trial court has “inherent power to sanction bad faith conduct during the course of litigation that interferes with the administration of justice or the preservation of the court’s dignity and integrity.” Phillips & Akers, P.C. v. Cornwell, 927 S.W.2d at 280 (citing Onwuteaka v. Gill, 908 S.W.2d 276, 280 (Tex.App.-Houston [1st Dist.] 1995, no writ); Metzger v. Sebek, 892 S.W.2d 20, 51 (Tex.App.-Houston [1st Dist.] 1994, writ denied). Such powers, however, are limited. “The trial court’s inherent power to sanction exists only to the extent necessary to deter, alleviate, and counteract bad faith abuse of the judicial process, such as significant interference with core judicial functions … of Texas courts.” Id. at 280 (citing Onuteaka, 908 S.W.2d at 280).

Although the order imposing sanctions in this case criticizes Appellants for not contacting the court or opposing counsel to notify them that the settlement papers would not be signed in time to comply with the court imposed deadline, and for being generally disrespectful and uncooperative towards opposing counsel and the court, the order reflects no finding that such conduct was done in bad faith. Furthermore, we have grave concerns about the propriety of labeling the trial court’s mandate of a specific date by which counsel must produce documents evincing a settlement in a law suit as a core judicial function.² We therefore sustain Appellants’ Issue No. Three.

E. Sanctions for Filing a Motion for a New Trial

In Issue No. Four, Appellants argue that the trial court further abused its discretion by sanctioning them $500 for filing a motion for a new trial following the entry of the written sanctions order.

In ordering Appellants to pay additional $500, the trial court specifically found that “Plaintiffs’ Amended Motion for Partial New Trial and/or Motion to Vacate presented no new matters of any significance, was frivolous in nature, and was brought for the purposes of harassment.” Appellants argue that the court abused its discretion because motions for new trial are necessary to preserve appellate deadlines, and that a trial court cannot impose sanctions for filing such a motion because “the fear of sanctions could have a chilling effect on the right of a party to appeal an adverse decision.” We agree.

The trial court appears to have imposed the $500 sanction pursuant to Rule 13. Sanctions are appropriate under Rule 13 if the papers filed with the court are either (1) groundless and brought in bad faith, or (2) groundless and brought for the purpose of harassment. Tex.R.Civ.P. 13. In the motion for new trial, Appellants asserted that the $1,500 sanctions were erroneous because they neither engaged in discovery abuse, nor filed a false pleading. Appellants also argued that the sanctions were erroneous under the inherent powers of the court because the assignment of a date by which settlement documents must be procured is not a core function of the judiciary. After reviewing Appellants’ motion, we find that none of that arguments asserted therein were groundless. Accordingly, Rule 13 sanctions were clearly erroneous. We sustain Appellants’ Issue No. Four.

*6 Because the trial court abused its discretion (1) in imposing the $1,500 sanction for failing to timely finalize the settlement agreement, and (2) by sanctioning Appellants’ for filing the motion for new trial, we reverse the imposition of all of the sanctions and we render judgment in favor of Appellants.

	Footnotes
1		Again, we note that the written sanctions order, while fully describing Appellants’ failure to procure the signed settlement papers, is absolutely devoid of the slightest reference to Appellants’ request for sanctions.
2		In Trevino v. Ortega, 969 S.W.2d 950, 951 (Tex.1998), the court stated: “In Kutch v. Del Mar College, the court of appeals refined this concept by recognizing that the core functions of the judiciary include ‘hearing evidence, deciding issues of fact raised by the pleadings, [and] deciding questions of law ….“ (citing Kutch v. Del Mar College, 831 S.W.2d 506, 510 (Tex.App.-Corpus Christi 1992, no writ)).