Alfredo A. Galindo and Idalia M. Galindo Elizabeth Bohorquez And Michael Whitmire v. Prosperity Partners, Inc. ( 2014 )


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  • Opinion filed February 21, 2014
    In The
    Eleventh Court of Appeals
    __________
    No. 11-12-00034-CV
    _________
    ALFREDO A. GALINDO AND IDALIA M. GALINDO;
    ELIZABETH BOHORQUEZ; AND MICHAEL WHITMIRE,
    Appellants
    V.
    PROSPERITY PARTNERS, INC. ET AL., Appellees
    On Appeal from the 201st District Court
    Travis County, Texas
    Trial Court Cause No. D-1-GN-05-000574
    OPINION
    Appellants Alfredo A. Galindo and Idalia M. Galindo filed suit in 2005
    against Appellees Prosperity Partners, Inc.; Comet Financial Corporation; Great
    West Life & Annuity Insurance Company; and Bransen Incorporated.           The
    Galindos added Appellees Midland States Life Insurance Company and Randall S.
    Simoes as defendants in amended petitions. Appellants Elizabeth Bohorquez and
    Michael Whitmire are attorneys who represented the Galindos in the proceedings
    below. In 2011, the trial court dismissed the Galindos’ suit based on the failure to
    pay discovery sanctions that the trial court had previously imposed.
    The Galindos, Bohorquez, and Whitmire appeal the trial court’s order of
    dismissal as well as the underlying sanctions order. We reverse and render in part
    and reverse and remand in part.
    Background
    According to the Galindos’ allegations in their petition, Alfredo Galindo
    won $4,000,684 from the Texas lottery in 1995. His winnings were to be paid in
    annual installments of $200,000 for a period of twenty years. Prosperity Partners,
    Inc. (PPI) approached Galindo and offered a service to Galindo that would convert
    all or part of Galindo’s winnings into a tax-free lump sum. After PPI approached
    Galindo on several other occasions, Galindo and PPI entered into an agreement in
    which PPI promised to arrange a loan payable to Galindo in the amount of
    $600,000, secured by payment of the net portion of nine of the twenty annual
    installments. Bransen Incorporated, formed by Randall S. Simoes, was the lender
    in the transaction; the loan was funded by Midland States Life Insurance Company.
    In 2000, PPI again approached Galindo and informed him of possible tax
    consequences from the 1996 loan. PPI offered to repaper the loan. Subsequently,
    Galindo entered into an agreement with PPI in which Galindo was to assign five of
    the previously pledged annual installments to PPI in exchange for a payoff of the
    1996 loan and $101,800 in cash. Under the agreement, PPI would assign the
    annual installments to Comet Financial Corporation, and Comet would assign the
    installments to Great West Life & Annuity Insurance Company.
    2
    Galindo, PPI, Comet, and Great West applied with the trial court for an
    order approving the assignments of the annual installments pursuant to Section
    466.410 of the Texas Government Code. TEX. GOV’T CODE ANN. § 466.410 (West
    2012). The court entered an order approving the assignments on February 20,
    2001.
    The Galindos alleged that, in 2003, they received a 1099 tax form from
    Comet that reported that Galindo had received over $757,000 in income in 2001 as
    a result of the assignment. The Galindos filed suit in 2005 and sought to set aside
    the 2001 court order through a bill of review. Specifically, the Galindos contended
    that they were fraudulently induced to sign the 2001 agreement without the advice
    of independent legal counsel and an independent financial advisor, as required by
    the Texas Lottery Act. The Galindos also filed suit for usury, common-law fraud,
    violations of the Texas Deceptive Trade Practices Act, and negligence.
    Appellees sought the production of documents maintained by Sylvester
    Jaime and Tom Quinones, attorneys who had represented the Galindos in
    connection with the 1996 loan and the 2001 assignment, respectively. Bohorquez
    filed objections and sought a protective order in which she claimed that the
    documents were protected under the attorney-client and work-product privileges.
    Appellees filed a motion to compel the production of the requested documents and
    argued that, under the offensive use doctrine, the Galindos were not permitted to
    assert privileges for information that was outcome-determinative of the affirmative
    relief that they sought. See Ginsberg v. Fifth Court of Appeals, 
    686 S.W.2d 105
    ,
    108 (Tex. 1985) (“A plaintiff cannot use one hand to seek affirmative relief in
    court and with the other lower an iron curtain of silence against otherwise pertinent
    and proper questions which may have a bearing upon his right to maintain his
    action.”). Appellees also moved for the court to order that the privileges could not
    be asserted for the oral depositions of Quinones or Jaime, as long as the questions
    3
    asked were limited to information that pertained to the 1996 and 2001 transactions.
    The trial court ordered the Galindos to produce the documents requested but did
    not rule on whether the privileges could be asserted at the oral depositions.
    The Galindos produced the documents as ordered. Bohorquez, who was the
    attorney representing the Galindos at Jaime’s deposition, asserted the attorney-
    client privilege as to any questions regarding a letter Jaime sent to Galindo in
    August 1996. The letter explained the details of the proposed transaction with PPI
    and was one of the documents that the court ordered the Galindos to produce.
    Appellees’ counsel reminded Bohorquez that the trial court had ordered the
    Galindos to produce the letter and informed Bohorquez that he would go back to
    the trial court to seek an order that compelled Jaime to answer questions regarding
    the letter and that awarded attorney’s fees and costs.
    Whitmire, who was the attorney representing the Galindos at Quinones’s
    deposition, also asserted the attorney-client privilege when Appellees asked
    Quinones questions regarding his representation of Galindo in connection with the
    2001 assignment. Whitmire noted that his understanding was that the trial court
    made a ruling on the production of the documents but did not order Quinones to
    answer any questions and, thus, that Quinones was entitled to assert the privilege.
    He believed that the trial court had provided Appellees with an opportunity to
    submit questions for the court’s approval prior to the deposition and that, because
    Appellees had not sought approval he would not waive the privilege on behalf of
    Galindo. Appellees’ counsel informed Whitmire that he would seek a ruling from
    the court and seek sanctions. Based on the privilege, Quinones did not answer
    questions regarding what was said during the first conversation he had with
    Galindo; whether Galindo complained to him about the loan payoff being more
    than $600,000; whether Galindo provided him with information regarding the
    Midland States lien; whether he knew if Galindo, or anyone on Galindo’s behalf,
    4
    checked to see if the payoff amount calculated by PPI was correct; whether he had
    given Galindo any advice on whether the 1996 transaction was a loan or an
    assignment of lottery payments; and whether he had given Galindo any advice on
    whether the transaction was usurious.
    Appellees also took the deposition of Joseph Peralta, who had prepared
    income tax returns for the Galindos.       Bohorquez represented the Galindos at
    Peralta’s deposition and asserted the accountant-client privilege when Peralta was
    asked what sources of income Galindo reported to him for the preparation of his
    1997 return. Based on the advice of Peralta’s counsel, Peralta would not produce,
    without the Galindos’ consent, the incomplete 1997 tax return that he began
    preparing for Galindo, nor would he answer any questions regarding his
    communications with Galindo.
    Appellees also noticed the deposition of Jose Angel Garcia, a certified
    public accountant who provided tax and accounting advice to the Galindos
    regarding the 2001 assignment. Garcia’s attorney sent Appellees a letter that
    Garcia could not disclose any such advice without the consent of the Galindos.
    During Galindo’s deposition, Bohorquez advised Galindo not to consent to Peralta
    or Garcia disclosing information regarding his tax liability.
    Appellees filed a motion to compel Garcia, Peralta, Quinones, and Jaime to
    answer questions relating to the advice that they gave the Galindos on the 1996
    transaction and 2001 assignment. Appellees also sought an order that required the
    Galindos and/or their counsel to compensate Appellees for all of their attorneys’
    fees and expenses incurred in retaking the depositions of Peralta, Quinones, and
    Jaime. During the hearing on the motion to compel, Bohorquez argued that she
    had made the assertions in good faith and believed that, because Appellees had not
    submitted questions for the court’s prior approval, the Galindos were entitled to
    assert the attorney-client and accountant-client privileges. The court responded
    5
    that, although it might have said Appellees could submit questions, Appellees did
    not have to submit questions prior to the depositions. As to whether the court’s
    previous order waived the privilege with respect to the questions Appellees asked
    during the depositions, the court stated:
    What I did do was sign an order that certainly waived the
    privilege with respect to certain written documents and -- both in
    2000 and in '96, which implied a waiver, logically that there would be
    a waiver necessarily of the attorney/client privilege that would
    logically extend not only to questions about those documents but
    would also extend logically to any questions about the knowledge that
    Mr. Galindo would have obtained whenever his cause of action is
    based on his claim of misrepresentation or failure to advise, all of
    those things.
    So apparently that was not understood as being a requirement
    that those questions be answered in the deposition. I don’t know if it
    goes far enough for a dismissal, but as we know, that is the last resort.
    And I am not going to take that last resort. But I need to enter an
    order that makes it clear that questions along the lines of those I’ve
    just referred to need to be answered without the assertion of the
    privilege. And there needs to be expense borne by plaintiffs in this
    case for re-deposition.
    Following the hearing, the trial court entered a sanctions order against the
    Galindos and their counsel. The trial court did not name any individual attorneys
    in the order. The trial court ordered that the Galindos’ claims of attorney-client,
    tax preparer, and accountant privileges were waived under the offensive-use
    doctrine established in Ginsberg, 
    686 S.W.2d 105
    , and that the Galindos could not
    assert the privileges as to any communications they had with their advisors from
    1995 through February 23, 2005, that related to Galindo’s lottery winnings or any
    transactions at issue in the suit. The trial court’s order required the Galindos and
    their counsel to pay $10,600 to Appellees’ counsel within four days of the order—
    for attorneys’ fees incurred relating to the hearing on the motion to compel. The
    6
    order also required the Galindos to make Galindo, Peralta, Jaime, and Quinones
    available for re-deposition as soon as practical and required the Galindos and/or
    their counsel to pay Appellees’ counsel $12,204.90 for fees and costs associated
    with each of the four depositions that Appellees had to retake. The $12,204.90 was
    to be paid to Appellees’ counsel one week prior to each deposition.
    Whitmire, on behalf of the Galindos, filed a motion for emergency stay and
    motion for reconsideration in which he argued that the sanctions were cost-
    prohibitive and threatened the Galindos’ ability to continue with the litigation.
    The Galindos, Bohorquez, and Whitmire attached affidavits to the motion in which
    they stated that they could not pay the sanctions. Whitmire, on behalf of the
    Galindos and Bohorquez, sought mandamus relief in the Third Court of Appeals.
    The Third Court granted an emergency motion for temporary relief, but
    subsequently denied the petition for writ of mandamus.
    After the mandamus relief was denied, Appellees noticed the depositions of
    Galindo, Peralta, Quinones, and Jaime. Whitmire, on behalf of the Galindos, filed
    a motion to quash and argued that the notices violated the emergency stay. The
    trial court denied the motion to quash. Appellees again noticed the depositions of
    Quinones and Jaime, and Whitmire again filed a motion to quash and urged the
    court to reconsider the sanctions order because of Appellants’ inability to pay the
    sanctions. The trial court denied the motion. Appellees made a final attempt to
    notice the depositions and requested prompt payment of the sanctions as ordered.
    Whitmire responded that the Galindos and their counsel could not pay the
    sanctions. Appellees canceled the depositions and filed a motion to dismiss based
    on Appellants’ failure to pay the sanctions.
    The trial court entered an order in which it granted the motion to dismiss.
    The trial court ordered, among other things, that the Galindos’ claims against
    Appellees be dismissed with prejudice. The Galindos, Bohorquez, and Whitmire
    7
    each filed a notice of appeal in the Third Court of Appeals. The appeal was
    transferred from the Third Court to this court, pursuant to a docket equalization
    order from the Texas Supreme Court.
    Issues on Appeal
    Generally, Appellants argue that the trial court erred when it entered the
    initial sanctions order because the sanctions imposed were unjust. Appellants also
    argue that the trial court erred when it dismissed the Galindos’ case for failure to
    pay discovery sanctions because the sanctions were unjust and precluded the
    Galindos from pursuing their lawsuit. The Galindos and Whitmire each present
    two issues for review, and Bohorquez presents four issues.
    The Galindos identify their issues presented as (1) the trial court abused its
    discretion when it dismissed the case and (2) the trial court abused its discretion
    when it ordered them to pay “front” sanctions that resulted in their inability to
    obtain redress in the court. The format of their brief does not comport with their
    issues presented. In their brief, they present three main issues: (1) the sanctions
    were case-determinative, and no lesser sanction was imposed before their case was
    dismissed; (2) the sanctions were unjust because they did not relate to offensive
    conduct; and (3) the sanctions order did not meet the Texas requirements for a
    case-determinative sanctions order. 1               We will refer to these three issues in
    disposing of their appeal.
    Whitmire argues in his first issue that the sanctions order should not be
    enforced against him because he was not notified of the hearing and because the
    order is vague in that it does not order a specific attorney to pay the sanctions.
    Bohorquez also argues in her first issue that the order is vague and that, because
    Appellees did not request sanctions against her specifically, she did not receive due
    process notice. Whitmire asserts in his second issue that the sanctions were unduly
    1
    We note that these three issues are lettered A., B., and C. in the Galindos’ brief.
    8
    harsh penalties that were not proportionately tailored to address the complained-of
    conduct and that the sanctions improperly eliminated the Galindos’ right to pursue
    their litigation.
    In Bohorquez’s second issue, she contends that the trial court abused its
    discretion when it imposed sanctions because there was no evidence that counsel
    improperly asserted privileges on behalf of the Galindos. She argues in her third
    issue that the trial court also abused its discretion when it imposed the sanctions
    because the sanctions were excessive and unjust, arbitrary and unreasonable, and
    outcome-determinative. In her final issue, she alleges that the trial court abused its
    discretion when it dismissed the case because it failed to consider less stringent
    sanctions.
    Discovery Sanctions That Have a Preclusive Effect
    The trial court may impose sanctions on a party who fails to obey a
    discovery order or who abuses the discovery process. See TEX. R. CIV. P. 215.2,
    215.3. We review a sanctions order for an abuse of discretion. Cire v. Cummings,
    
    134 S.W.3d 835
    , 838 (Tex. 2004). The trial court abuses its discretion if it acts
    arbitrarily and unreasonably without reference to any guiding rules or principles.
    Downer v. Aquamarine Operators, Inc., 
    701 S.W.2d 238
    , 241–42 (Tex. 1985).
    The sanctions imposed must be just. TransAmerican Natural Gas Corp. v. Powell,
    
    811 S.W.2d 913
    , 917 (Tex. 1991). In determining whether a sanction is just, we
    first look to whether a direct relationship exists between the offensive conduct and
    the sanction imposed. 
    Id. We next
    look to whether the sanction is excessive. 
    Id. The sanction
    should be no more severe than necessary to satisfy its legitimate
    purposes. 
    Id. Sanctions that
    are ordered to be paid prior to the entry of a final appealable
    order can have a preclusive effect on the party’s ability to proceed with its case.
    9
    Braden v. Downey, 
    811 S.W.2d 922
    , 929 (Tex. 1991) (orig. proceeding) (citing
    Thomas v. Capital Sec. Servs., Inc., 
    836 F.2d 866
    , 882 (5th Cir. 1988)).
    [I]f a litigant contends that a monetary sanction award precludes
    access to the court, the district judge must either (1) provide that the
    sanction is payable only at a date that coincides with or follows entry
    of a final order terminating the litigation; or (2) make[] express
    written findings, after a prompt hearing, as to why the award does not
    have such a preclusive effect.
    
    Id. (quoting Thomas,
    836 F.2d at 882–83 n.23).
    The trial court ordered “Plaintiffs and Plaintiffs’ counsel” to pay $10,600 to
    Appellees’ counsel for the costs and fees incurred in pursuing the motion to
    compel and ordered “Plaintiffs and/or Plaintiffs’ counsel” to pay $12,204.90 for
    costs and fees associated with each of the four depositions that Appellees had to
    retake.   The $10,600 was to be paid within four days of the order, and the
    $12,204.90 was to be paid one week prior to each deposition. The Galindos filed a
    motion for emergency stay and motion for reconsideration of the sanctions order
    and argued that the sanctions were cost-prohibitive and threatened their ability to
    pursue their lawsuit. The Galindos asserted this same argument through motions to
    quash depositions and their response to Appellees’ motion to dismiss for failure to
    pay the sanctions.
    Under Braden, once the Galindos contended that the sanctions were cost-
    prohibitive and precluded their ability to continue with the litigation, the trial court
    was required to modify the sanctions order to provide that the sanctions were to be
    paid when a final judgment was entered or to make express findings, after a
    hearing, as to why the sanctions did not have a preclusive effect. 
    Id. The trial
    court did not modify the sanctions order, and although the trial court did enter a
    finding in the dismissal order that the Galindos failed to present any admissible
    evidence of their inability to pay the sanctions imposed, the court did not make
    10
    express written findings as to why the award did not have a preclusive effect.
    Thus, the trial court abused its discretion when it did not comply with the
    requirements set out in Braden.
    The purpose behind the requirements in Braden is to ensure that an appeal
    affords a party with an adequate remedy. 
    Id. at 929–30.
    When severe monetary
    sanctions are deferred until an appealable judgment is rendered, a party, in order to
    proceed with its lawsuit, is not forced to pay severe monetary sanctions without
    first having the opportunity to appeal the sanctions order. 
    Id. Although we
    are
    now in a position to review the sanctions order to determine if it is just, the
    Galindos’ case was dismissed for their failure to pay the sanctions before
    Appellants had an opportunity to seek review of the order.           The trial court
    dismissed the Galindos’ case as a “death penalty” sanction because it found that
    the Galindos had refused to comply with the monetary sanctions that the court had
    ordered the Galindos and their counsel to pay. In light of our decision that the trial
    court failed to comply with the requirements of Braden, we also hold that the trial
    court abused its discretion when it dismissed the Galindos’ case for their failure to
    pay the very sanctions that they contended would preclude them from pursuing
    their lawsuit. We sustain the Galindos’ third issue. We also sustain Whitmire’s
    second issue and Bohorquez’s third issue to the extent they argue that the trial
    court failed to comply with the requirements of Braden.
    Direct Relationship with Offensive Conduct
    We now turn to the merits of the initial sanctions order. The Galindos argue
    that the trial court erred when it ordered them to pay sanctions because they were
    not the “offenders.” When we look to whether imposed sanctions are just, we must
    first look to whether the sanctions have a direct relationship to the offensive con-
    duct. TransAmerican Natural Gas 
    Corp., 811 S.W.2d at 917
    . This means that the
    sanction must be directed against the abuse and visited upon the offender. 
    Id. The 11
    trial court should determine whether the conduct is attributable to counsel only, to
    the party only, or to both counsel and the party. 
    Id. A party
    should not be
    punished for counsel’s conduct unless the party is implicated apart from having
    entrusted its legal representation to counsel. 
    Id. The record
    does not support an order for sanctions against the Galindos. It
    does not appear from the record that the Galindos were present at the depositions
    in which Bohorquez and Whitmire asserted the privileges, nor does it appear from
    the record that the Galindos were so involved in the litigation that we can impute
    the actions of the attorneys to them. The trial court noted at the dismissal hearing
    that, after six years of litigation and numerous hearings, it had never seen the
    Galindos. In addition, the record shows that Galindo did not understand English
    and required an interpreter during his deposition. Furthermore, although Galindo
    refused to give consent for Peralta and Garcia to disclose to Appellees advice that
    each had given him, he did so on the advice of his counsel. Moreover, Galindo
    answered all but one of Appellees’ questions despite Bohorquez’s objections as to
    attorney-client privilege throughout his deposition. Although the Galindos did hire
    and release multiple attorneys throughout the case, the record does not show that
    they were involved with the decision to assert the privileges or that they
    understood the legal intricacies of whether they had waived privilege under the
    offensive use doctrine. Therefore, the trial court erred when it ordered sanctions
    against the Galindos for offensive conduct, if any, committed by their counsel.
    See, e.g., Glass v. Glass, 
    826 S.W.2d 683
    , 687–88 (Tex. App.—Texarkana 1992,
    writ denied) (holding trial court erred when it sanctioned client where the evidence
    showed that the attorney filed frivolous pleadings on behalf of the client, but the
    client did nothing more than rely on her attorney’s advice).
    Appellants also contend that the order is vague in that it did not order
    sanctions against individual attorneys.        The trial court ordered “the Plaintiffs
    12
    and/or Plaintiffs’ counsel” to pay the fees associated with the depositions and
    ordered “the Plaintiffs and Plaintiffs’ counsel” to pay the fees associated with the
    motion.    Appellants argue that, because the Galindos were represented by a
    number of different attorneys throughout their lawsuit, the order is vague and does
    not specify which of the attorneys are liable, nor does it specify whether the
    responsible attorneys are jointly and severally liable for all of the sanctions.
    The record shows that at least six different attorneys represented the
    Galindos throughout their litigation. By the time the trial court dismissed the case,
    all of the attorneys had withdrawn from the case or had been discharged by the
    Galindos. When the conduct at issue in the motion to compel occurred, only one
    of those attorneys had withdrawn from the case. However, it appears from the
    record that only Bohorquez and Whitmire asserted the privileges at issue in the
    motion to compel. Because the order is vague as to which attorney or attorneys
    must pay sanctions to Appellees, the sanctions do not directly relate to the
    offenders, if any. The trial court erred when it did not specify which attorneys
    were liable for the sanctions imposed.
    For the reasons discussed above, we reverse the initial sanctions order as to
    the Galindos, Whitmire, and Bohorquez. We sustain the Galindos’ second issue,
    Whitmire’s first and second issues, and Bohorquez’s third issue to the extent
    Appellants argue that the sanctions were unjust because they did not have a direct
    relationship with the offensive conduct, if any.
    Due Process
    In each of their first issues, Whitmire and Bohorquez contend that their due
    process rights were violated because Appellees did not specifically seek sanctions
    against them in their motion to compel. Whitmire also alleges that he did not
    receive service of the motion or notice of the hearing and did not know that
    sanctions were possibly being imposed against him until he received a copy of the
    13
    order. Because we have reversed the sanctions order, it is not necessary for us to
    address whether due process was violated. See TEX. R. APP. P. 47.1.
    Summary
    We have held that the trial court erred when it failed to comply with the
    requirements of Braden and, as a result, erred when it dismissed the Galindos’
    case. We have also held that the trial court erred when it entered the initial
    sanctions order. Based on our holdings, it is not necessary for us to reach the
    Galindos’ first issue or Bohorquez’s second and fourth issues.        See TEX. R.
    APP. P. 47.1.
    This Court’s Ruling
    We reverse the trial court’s order imposing sanctions and its order of
    dismissal, and we render judgment that Appellees take nothing on their sanctions
    claims as to the Galindos. We remand this cause to the trial court for further
    proceedings consistent with this opinion.
    JOHN M. BAILEY
    JUSTICE
    February 21, 2014
    Panel consists of: Wright, C.J.,
    Willson, J., and Bailey, J.
    14