R.M. Sprague v. D.L. Sprague ( 2012 )

Motion to Dismiss Denied; Affirmed in Part and Reversed in Part; Remanded; and
Majority and Concurring Opinions filed February 14, 2012.
In The
Fourteenth Court of Appeals
___________________
NO. 14-08-00700-CV
___________________
R.M. SPRAGUE, Appellant
V.
D.L. SPRAGUE, Appellee
On Appeal from the 257th District Court
Harris County, Texas
Trial Court Cause No. 2005-48988
MAJORITY OPINION
In this divorce appeal, appellant Robert (―Bob‖) Sprague challenges the jury‘s
findings and the trial court‘s property division and post-judgment sanctions, while appellee
Deborah Sprague moves that we dismiss the appeal, arguing that Bob accepted the benefits
of the divorce judgment and is estopped from appealing it.
Finding no estoppel, we deny Deborah‘s motion.
In his appeal of the property-division portion of the divorce decree, Bob contends
that the trial court misapplied the law, submitted an erroneous jury charge, improperly
disregarded jury findings, and abused its discretion in excluding evidence. He argues that
as a result of these alleged errors, the trial court divested him of his separate property. We
conclude that the characterization of a lump-sum distribution received during the marriage
under two defined-benefit plans is governed by former section 3.007(a) of the Texas
Family Code; we accordingly hold that the trial court did not err in instructing the jury in
accordance with the statute or in failing to characterize a larger portion of the lump-sum
distribution as Bob‘s separate property.
On the other hand, we agree that the trial court abused its discretion in excluding all
evidence that any portion of the amounts payable to Bob under his employer‘s ―Cash
Deferral Program‖ was Bob‘s separate property.
Bob also appeals a post-judgment sanctions order and temporary orders pending
appeal. We agree that the trial court abused its discretion in sanctioning Bob for a claimed
delay in transferring certain funds to Deborah and in awarding Deborah attorneys‘ fees.
We accordingly reverse the property-division portion of the divorce decree, as well
as the post-judgment sanctions order and the associated temporary order pending the
appeal of the sanctions order, and we remand the case for (a) a determination of the
community- and separate-property interests in the amounts that have been or will be paid to
Bob as a result of his participation in his former employer‘s Cash Deferral Program, and
(b) a just and right division of all of the community property.
I. FACTUAL AND PROCEDURAL BACKGROUND
Bob began working for Shell Oil in July 1967. On January 1, 1984, he was
promoted to a position on the ―Senior Staff‖ of the company, and in 1985, Shell merged
with Royal Dutch Shell Group. After working for Shell for eighteen years, Bob married
Deborah on July 6, 1985; eighteen years later, he retired on June 30, 2003. 1 He receives
retirement benefits from Shell through three different plans: the basic pension plan, the
1
Deborah retired from Shell before the marriage.
2
Benefit Restoration Plan, and the Senior Staff Plan. Under the basic pension plan, Bob
receives monthly payments of $8,755.2 Bob‘s benefits under the Benefit Restoration Plan
and the Senior Staff Plan were paid in one lump sum of $7,230,035 in the form of a credit
to Bob‘s account in the Senior Staff Savings Fund.
Upon reaching the age of 65 in 2010, Bob also received the first of ten equal annual
payments through Shell‘s Cash Deferral Program. The payments are equal to certain
bonuses Bob was awarded in 1985, 1986, and 1987, together with compound interest of
17% on the deferred bonus payments.
A. Course of Proceedings through Trial
Bob filed for divorce on July 29, 2005, and on September 13, 2007, the trial court
issued an agreed docket-control order scheduling the case for trial on January 22, 2008 and
setting a number of discovery deadlines. In accordance with the docket-control order,
Bob amended his petition to allege that he owned separate property. He produced the
initial and first supplemental report of his forensic-accounting expert, Patrice Ferguson, in
accordance with the order, but produced her second supplemental report after the deadlines
governing expert reports had passed. He served supplemental discovery responses on
December 21, 2007, which was the deadline specified in the docket-control order.
At the January trial setting, the trial court granted Deborah‘s motion to exclude the
second supplemental expert report and continued the trial until March 2008. On the
second day of the jury trial in March 2008, Deborah successfully moved to exclude all
evidence that any portion of the amounts payable to Bob under Shell‘s Cash Deferral
Program is his separate property.
The jury found that the value of Bob‘s separate-property interest in the lump-sum
distribution of benefits due under Shell‘s Benefit Restoration Plan and Senior Staff Plan
2
The characterization of this benefit is not challenged on appeal.
3
was $1,807,509, an amount that is equal to 25% of the lump-sum distribution. Other
findings of the jury are not challenged on appeal. Because the trial court excluded all
evidence that any portion of the payments he would receive through the Cash Deferral
Program is his separate property, the jury was not asked to determine the value of any such
separate-property interest.
B. Rendition and Sanctions
After receiving the jury‘s verdict, the trial court issued a letter of rendition on March
31, 2008. Among other things, the trial court ordered that the Shell Senior Staff Savings
fund ―shall be sufficiently liquidated‖ to net Deborah $4,561,575 as ―expeditiously as
possible.‖ On May 2, 2008, Bob‘s attorney told the court that they had not yet started the
liquidation process because they were afraid that the liquidation could be a violation of the
temporary injunction in effect. The trial court signed an order authorizing Bob to
liquidate an unspecified portion of the funds in the account sufficient to net the amount due
to Deborah. The same day that the trial court signed the order, Bob instructed Shell to
liquidate $8.2 million from the account. This produced net proceeds of $5,379,200, but
due to mail delays, Bob did not receive a check for the funds for nearly a month. The day
he received the check, however, he ordered the funds deposited and Deborah‘s share
wire-transferred to her. As a sanction for Bob‘s alleged delay in complying with the trial
court‘s letter of rendition, Deborah asked the trial court to award her an amount equal to the
interest she might otherwise have earned on the funds if they had been transferred to her on
the date of rendition. The trial court accordingly ordered Bob to pay Deborah interest of
$34,323.70 and to pay her attorney $15,100.00 for the attorneys‘ fees she incurred in the
trial court in obtaining the order. In an associated temporary order pending appeal, the
trial court ordered Bob to pay an additional $15,000.00 for attorneys‘ fees in the event that
he unsuccessfully appealed the sanctions order.
4
C. Post-Judgment Events
The trial court signed the final decree of divorce on June 16, 2008 and evenly
divided the community property, which it found included all of the marital estate with the
exception of the property that the parties had stipulated was separate property, and the
$1,807,509 portion of the lump-sum retirement benefits that the jury found was Bob‘s
separate property.
Both parties moved for temporary orders pending appeal. Although Bob did not
appeal the portion of the property division as it pertained to certain stock and stock options,
the trial court ordered Bob to post a $2,675,236 bond or cash equivalent as security for the
stock options and stock appreciation rights awarded to Deborah. In addition, the trial
court conditionally awarded Deborah $150,000 in attorneys‘ fees in the event that Bob‘s
appeal of the property division was unsuccessful. While the appeal was pending, Deborah
served Bob with discovery to gather evidence in support of a motion to dismiss the appeal.
The trial court ordered Bob to comply.
II. MOTION TO DISMISS
We first address Deborah‘s motion to dismiss this appeal on the ground that Bob has
accepted the benefits awarded to him in the divorce decree. See Carle v. Carle, 149 Tex.
469, 472, 234 S.W.2d 1002, 1004 (1950) (explaining that a party who accepts the benefits
of a judgment is estopped from appealing it); Waite v. Waite, 150 S.W.3d 797, 803 (Tex.
App.—Houston [14th Dist.] 2004, pet. denied) (same). Under the acceptance-of-benefits
doctrine, ―[a] litigant cannot treat a judgment as both right and wrong, and if he has
voluntarily accepted the benefits of a judgment, he cannot afterward prosecute an appeal
therefrom.‖ Carle, 149 Tex. at 472, 234 S.W.2d at 1004. The burden is on the appellee
to establish that the appellant has accepted the benefits of a judgment. Waite, 150 S.W.3d
at 803. If the appellee meets this burden, then the burden shifts to the appellant to show
that one of the exceptions to the doctrine applies. Id. at 803–04. The doctrine does not
apply when the appellant accepted the benefit of the judgment due to economic necessity,
5
id. at 803, or when the appeal affects only the appellant‘s right to further recovery. Carle,
149 Tex. at 472, 234 S.W.2d at 1004. The doctrine also does not apply if the ―benefit
accepted‖ was cash, the use of which would not prejudice the appellee. Demler v.
Demler, 836 S.W.2d 696, 698 (Tex. App.—Dallas 1992, no writ), disapproved on other
grounds, Dallas Mkt. Ctr. Dev. Co. v. Liedeker, 958 S.W.2d 382, 386 (Tex. 1997).
Deborah contends that Bob accepted the benefits of the judgment by liquidating an
excessive portion of his Senior Staff Savings Fund and retaining the net proceeds.
According to Deborah, this conduct began after the trial court issued its rendition letter on
March 31, 2008 requiring Bob to liquidate a portion of the fund sufficient to net $4,561,575
to be transferred to Deborah. Of the approximately $24.5 million in the account at the
time of the divorce, Bob ordered $8.2 million liquidated, which resulted in an additional
$817,625 being transferred to him. Between that time and the date of Deborah‘s motion
to dismiss in this court, Bob liquidated an additional $8.2 million from the account, placing
the net proceeds of $5,330,000 into his checking account.
Deborah also argues that Bob has accepted the benefits of the judgment by retaining
one-half of the automatic annual payments that he began receiving at age 65 under the Cash
Deferral Program. These payments had been characterized as community property, half
of which was awarded to Bob and half of which was to be paid to Deborah. Bob did not
transfer half of the funds to Deborah, but paid that portion into the registry of the trial court.
He retained the remaining half of this payment.
We conclude, however, that given the facts and procedural posture of this case, the
acceptance-of-benefits doctrine does not require us to dismiss the appeal. First, Bob
superseded the judgment. Raymond v Raymond, 190 S.W.3d 77, 80 (Tex. App.—Houston
[1st Dist.] 2005, no pet.) (when an appealing party posts a supersedeas bond 3 to suspend
judgment, there is no ―acceptance of benefits‖). Second, the temporary orders pending
3
Deborah argues that the bond is insufficient but she has not asked the trial court or this court to
increase it.
6
appeal in this case allow the parties to pay attorneys‘ fees, to use money in their possession
for reasonable and necessary living expenses, to manage and invest the financial assets to
preserve capital, and to transfer financial assets from one financial account to another.
When such temporary orders are in place, the acceptance of benefits doctrine does not
apply. McAlister v. McAlister, 75 S.W.3d 481, 483–84 (Tex. App.—San Antonio 2002,
pet. denied); Waite, 150 S.W.3d at 807, n.13. We accordingly deny Deborah‘s motion to
dismiss.
III. DIVISION OF PROPERTY
In a divorce decree, the trial court must divide the community property ―in a manner
that the court deems just and right, having due regard for the rights of each party and any
children of the marriage.‖ TEX. FAM. CODE ANN. § 7.001 (West 2006). Among these
rights is the right to separate property. Under both the Texas Constitution and the Texas
Family Code, a person has a separate-property interest in all property that the person
―owned or claimed‖ before the marriage or acquired during the marriage by gift, devise, or
descent. TEX. CONST. art. XVI, § 15; TEX. FAM. CODE ANN. § 3.001. Community
property, on the other hand, consists of all of the property, other than separate property,
acquired by either spouse during marriage, and all property possessed by either spouse
during the marriage or at its dissolution is presumed to be community property. TEX.
FAM. CODE ANN. §§ 3.002, 3.003(a). A litigant can overcome this presumption by
tracing property and presenting clear and convincing evidence that it is one spouse‘s
separate property. Pearson v. Fillingim, 332 S.W.3d 361, 636 (Tex. 2011). ―‗Clear and
convincing evidence‘ means the measure or degree of proof that will produce in the mind
of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be
established.‖ TEX. FAM. CODE ANN. § 101.007 (West 2008); In re J.F.C., 96 S.W.3d 256,
264 (Tex. 2002).
We will not disturb the property division on appeal unless the appellant
demonstrates that the trial court clearly abused its discretion by a division or an order that is
7
manifestly unjust and unfair. See Stavinoha v. Stavinoha, 126 S.W.3d 604, 607 (Tex.
App.—Houston [14th Dist.] 2004, no pet.). Under this standard, neither legal nor factual
insufficiency of the evidence is an independent ground of error, but each instead is a
relevant factor in assessing whether the trial court abused its discretion. Id. at 608.
When we review the legal sufficiency of a separate-property finding, we consider all of the
evidence in the light most favorable to the finding and determine whether a reasonable jury
could have formed a firm belief or conviction that its finding was true. Id. We resolve all
conflicts in the evidence in favor of the finding if a reasonable juror could do so, and
disregard all contrary evidence unless a reasonable juror could not. Id. When we review
the factual sufficiency of a separate-property finding, we will uphold the finding unless, ―in
light of the entire record, the disputed evidence that a reasonable fact finder could not have
credited in favor of the finding is so significant that a fact finder could not reasonably have
formed [the] firm belief or conviction‖ reflected in the finding. Id.
A. Characterization of Lump-Sum Distribution
The jury found that the value of Bob‘s separate-property interest in the lump-sum
distribution of benefits due under the Benefit Restoration Pension and the Senior Staff
Pension Plan was $1,807,509, an amount that is equal to 25% of the lump-sum distribution
of $7,230,035. Bob presents three issues challenging the jury‘s finding. First, he asserts
that half of the lump-sum distribution (i.e., $3,615,018) is his separate property because, as
a matter of law, the community-property interest in this benefit must be determined by
applying the time-allocation rule established in Taggart v. Taggart, 552 S.W.2d 422 (Tex.
1977). Second, he contends that the trial court erred in instructing the jury using language
based on the language of former provisions of Texas Family Code section 3.007 rather than
language drawn from Taggart. And third, he argues that the repealed subsections of
section 3.007 were applied in a manner that unconstitutionally divested him of his separate
property. We address these issues together.
8
1. Taggart v. Taggart
Under Taggart, courts calculated the community-property interest in retirement
benefits by dividing the number of months during which marriage and employment
coincided by the number of months of employment. Id. at 424. Bob and Deborah were
married during half of the time that Bob worked for Shell; thus, if the division of his
retirement benefits is governed by Taggart, then half of the lump-sum distribution is
community property and half is Bob‘s separate property.
2. Berry v. Berry
This approach changed when the Texas Supreme Court decided Berry v. Berry, 647
S.W.2d 945 (Tex. 1983). There, the court stated that Taggart addressed the extent of the
community interest in retirement benefits, but not the value of the community-property
interest. Id. at 946. The court explained that when determining the community-property
interest, the value of retirement benefits is calculated as of the date of divorce. Id. (citing
Herring v. Blakely, 385 S.W.2d 843, 845 (Tex. 1965)).
The Berry court dealt with a concern not addressed in Taggart, namely, the effect of
pay increases in the later years of employment on defined-benefits that are calculated based
not only on length of service, but also on compensation. Retirement benefits calculated
this way do not accrue equally across the span of employment if compensation changes; in
Berry, for example, the value of the payments available under such a defined-benefit plan
more than quadrupled in the last third of the employed spouse‘s career. Id. In
recognition of this effect, and in an effort to better safeguard the working spouse‘s
separate-property interests, the Berry court limited the community‘s interest to the benefits
that accrued during the marriage. To do so, the court calculated the payments that
hypothetically would have been due if, on the date that the employed spouse‘s marital
status changed, the benefits were vested and matured and he retired. Id. In other words,
the Berry court ―avoided the difficulties of computing a present value by employing a
fiction to retire the employee spouse under the plan provisions on the date of divorce.‖
9
Steven R. Brown, Comment, An Interdisciplinary Analysis of the Division of Pension
Benefits in Divorce and Post-Judgment Partition Actions: Cures for the Inequities in Berry
v. Berry, 37 BAYLOR L. REV. 107, 136 (1985) (footnote and italics omitted).
3. Texas Family Code Section 3.007
In 2005, the Texas legislature passed House Bill 410, codified as sections 3.007 and
3.008 in the Texas Family Code. See Act of May 24, 2005, 79th Leg., R.S., ch. 490, § 1,
2005 Tex. Gen. Laws 1353, 1353. Subsections (a) of section 3.007 provided as follows:
(a) A spouse who is a participant in a defined benefit retirement plan has
a separate property interest in the monthly accrued benefit the spouse
had a right to receive on normal retirement age, as defined by the plan,
as of the date of marriage, regardless of whether the benefit had
vested.
Id. Although this subsection was repealed in 2009,4 it applies to suits for divorce that
were pending at any time between September 1, 2005 and August 31, 2009.5
Because Bob petitioned for divorce in 2005 and the case was pending before these
provisions were repealed, the characterization of benefits under the two defined-benefit
plans at issue is governed by section 3.007(a).
Bob‘s arguments to avoid the statute‘s application can be disposed of quickly. He
correctly notes that section 3.007(a) defines the separate-property interest of a
―participant‖ in a defined-benefit plan. Reasoning that this subsection is inapplicable if he
was not a ―participant‖ in the plan at the time of his divorce, Bob selectively quotes
language from various Shell benefit plans in an attempt to show that Shell used the word
―participant‖ to refer only to current employees, and not to retirees. According to Bob,
4
See Act of May 29, 2009, 81st Leg., R.S., ch. 768, § 11(1), 2009 Tex. Gen. Laws 1950, 1953.
5
Id. § 13(a), 2009 Tex. Gen. Laws 1950, 1953. In the current version of section 3.007 of the
Texas Family Code, there are no subsections (a) and (b). Inasmuch as there is no chance of confusion, we
will refer to the repealed provisions simply as section 3.007(a) and section 3.007(b).
10
only those who are ―eligible‖ can participate in these retirement plans, and only
―employees‖ are eligible. He then reasons that one who is no longer an employee is not
eligible to participate and therefore cannot be a ―participant.‖ Not only would this be an
absurd construction of section 3.007(a), but Bob‘s premises are factually incorrect. Both
the Benefit Restoration Plan and the Senior Staff Plan refer to ―any participant, including
one who is retired.‖ Moreover, his own expert stated that Bob is a ―participant.‖ Bob
also asserts that, as applied to him, 3.007(a) violates the state constitution and common-law
precedent because it divests him of a portion of his separate property. This argument begs
the question of whether a portion of the lump-sum distribution characterized as community
property actually is his separate property. He additionally states that the way in which
3.007(a) was applied in this case conflicts with the express terms of the defined-benefit
plans, but he refers us to no language from either plan that purports to mandate the way in
which the lump-sum distribution of a defined benefit is characterized years after it was
paid. Bob also argues that the statute as applied would be preempted by ERISA because it
would cause a plan administrator to pay other than in accordance with plan documents, but
cites no evidence that this is the case.
In an alternate argument, Bob contends that if section 3.007(a) applies, then we
should it construe it as a codification of Taggart, but the statute will not bear such an
interpretation. Under section 3.007(a), the working spouse has a separate-property
interest in the ―monthly accrued benefit,‖ which requires a determination of the monetary
value of the benefit that had accrued on a particular date. Value is stated in dollars and
cents. See Berry, 647 S.W.2d at 945–46. In section 3.007(a), as in Berry, value is
determined as of the date that the employed spouse‘s marital status changed. Compare
TEX. FAM. CODE 3.007(a) (value is determined ―as of the date of marriage‖) with Berry,
647 S.W.2d at 946–47 (value is determined as of the date of divorce). In contrast, value is
not addressed in Taggart at all. See Taggart, 552 S.W.2d at 424 (reforming the judgment
―to adjudge the correct fractional interest‖ to the non-working spouse). Instead, the
Taggart formula is used to determine the extent of the community-property interest, which
11
is expressed as a fraction. Id. The value of retirement benefits on the date that the
working spouse‘s marital status changed is the central feature of section 3.007(a), but
forms no part of the Taggart formula. See id.
Although section 3.007(a) cannot be read as a codification of Taggart, it can be read
as the legislature‘s attempt to extend Berry to cases in which employment predates
marriage. Like Berry, section 3.007(a) requires the court to determine the value of the
benefits that had accrued on the date that the working spouse‘s marital status changed,
without regard to vesting. Both Berry and section 3.007(a) are consistent with the
recognition that larger benefit increases are more likely to occur later in the working
spouse‘s career. The difference between the two is that in Berry, marriage preceded
employment, whereas section 3.007(a) deals with situations in which employment
preceded marriage. See House Comm. on Juvenile Justice & Family Issues, Bill Analysis,
Tex. H.B. 410, 79th Leg., R.S. (2005) (stating that section 3.007(a) ―sets forth a
mechanism for Texas courts to apply the Berry case in the various situations that may
arise‖).
Thus, as we understand it, the legislature‘s intent in enacting this provision was to
require that in those cases in which employment precedes marriage, courts must use the
same accrued-benefit method to calculate the value of the separate-property interest that
they would use to calculate the community-property interest in cases in which marriage
precedes employment. In both, the value of an interest is the amount of the benefits that
hypothetically would have been payable if the employed spouse retired on the date of the
marital-status change and there had been no further requirements for the benefits to vest or
mature. See Brown, 37 BAYLOR L. REV. at 122 (―‗Accrual of benefits‘ refers to the
specific dollar amount credited or allocated to the individual plan participant at a given
point in time.‖).
12
We therefore conclude that the trial court did not abuse its discretion by instructing
the jury in accordance with the statute or by charging the jury to state the amount of Bob‘s
separate-property interest in dollars and cents rather than as a percentage. We overrule
Bob‘s second issue.
4. Application to the Lump-Sum Distribution
To evaluate Bob‘s argument that his separate-property interest in the lump-sum
distribution is larger than the $1,807,509 found by the jury, we consider the benefits that
had accrued under the two plans involved as of the date of his marriage. See TEX. FAM.
CODE. ANN. § 3.007(a). The lump-sum distribution consisted of payments under the
Shell Senior Staff Plan and the Benefit Restoration Plan, both of which are defined-benefit
plans; thus, section 3.007(a) applies.
It is undisputed that the Benefit Restoration Plan was created after Bob and Deborah
married. Consequently, all of the benefits that this plan provides can be presumed to be
community property. See TEX. FAM. CODE ANN. § 3.002 (all property acquired during the
marriage is presumed to be community property). To overcome this presumption, Bob
asserts that the Benefit Restoration Plan simply restored benefits that were lost as a result
of the 1986 Tax Reform Act. This is so, he argues, because payments under Shell‘s
defined-benefit plans are based in part on the employee‘s compensation, but the Act
imposed a cap on the compensation that could be considered in determining the amount of
the defined benefit. After the passage of the 1986 Tax Reform Act, Shell established the
Benefit Restoration Plan to return the total amounts payable under its pension plans to the
amount that would have been payable without the statutory cap. Shell further made this
plan retroactive to 1984. Bob contends that the theories of inception-of-title,
replacement-for-loss, mutation, and tracing all support his position that the benefits he
became entitled to receive under this plan after his marriage nevertheless are his separate
property.
13
The problem with these arguments is that before his marriage, Bob‘s salary was
already below the cap imposed by the 1986 Tax Reform Act. Because the Act did not
reduce the benefits that Bob was entitled to receive on the date of his marriage, it cannot be
said that the Benefit Restoration Plan ―restored‖ anything to him.
As for the Senior Staff Plan, Bob presented no evidence that that this plan existed
before Bob‘s marriage in 1985. Shell‘s representative dated the plan‘s inception to the
1990‘s, and the plan administrator identified 1991 as the year when Bob first began to
participate in it. Thus, the benefits it provides also can be presumed to be community
property.
In sum, we conclude that section 3.007(a) applies to the characterization of the
payments under Bob‘s defined-benefit plans; that the trial court correctly instructed the
jury accordingly; and that the trial court did not abuse its discretion by rejecting Bob‘s
arguments that half of the benefits ultimately paid under these plans are his separate
property. Because Bob failed to establish that the value of his separate-property interest is
larger than the $1,807,509 found by the jury, we overrule Bob‘s first and third issues.
B. Exclusion of Evidence of Separate-Property Interest in the Cash Deferral
Program
In his fourth issue, Bob challenges the trial court‘s imposition of discovery
sanctions excluding all evidence that a portion of the payments due to him under Shell‘s
Cash Deferral Program are his separate property. As a result of his participation in this
program, Bob will receive an annual payment of $2,424,154 for ten years, for a total of
$24,241,540. Bob argues that the trial court abused its discretion in excluding all
evidence of his separate-property interest in these payments, including certain Shell
documents, supplemental expert reports, and Bob‘s testimony on this point.
Under Texas Rule of Civil Procedure 193.6, if a party fails to timely make, amend,
or supplement a discovery response, the undisclosed evidence or information is subject to
14
exclusion unless that party proves to the trial court that there was good cause for the failure
or that the failure would not unfairly surprise or unfairly prejudice the other parties. TEX.
R. CIV. P. 193.6(a), (b). We review the trial court‘s ruling under this rule for abuse of
discretion. See Fort Brown Villas III Condo. Ass’n v. Gillenwater, 285 S.W.3d 879, 881
(Tex. 2009) (per curiam) (addressing exclusion of testimony of expert who was first
designated three days before the end of discovery and more than five months after the
expert-designation deadline).
1. Deadlines for Supplementing Expert Reports and Discovery Responses
The trial court entered an agreed docket-control order in September 2007, setting
the case for trial on January 22, 2008. Under the terms of the order, expert reports were
due on October 22, 2007 and rebuttal reports were due on November 12, 2007. All
discovery was to be supplemented by December 21, 2007. On December 4 and 5, 2007,
the parties were deposed, and Bob testified that he did not participate in the Cash Deferral
Program until after he was married. On December 6, 2007, Bob‘s expert witness Patrice
Ferguson was deposed. She stated that although she had not yet expressed it in an expert
report, she had a preliminary opinion that some of the future payments under the Cash
Deferral Program might be Bob‘s separate property. Counsel for Deborah did not ask for
a dollar amount at the deposition because Ferguson characterized her opinion as
preliminary.
On December 14, 2007, Ferguson produced a second supplemental expert report
identifying for the first time the amount of the future payments under the Cash Deferral
Program that Bob claimed as his separate property. Ferguson opined that $1,578,030 of
each annual payment is Bob‘s separate property. On December 21, 2007, Bob
incorporated this report by reference in his supplemental responses to discovery
concerning the legal theories and factual bases of his claims, and he supplemented his
interrogatory answers.
15
After Bob served the second supplemental expert report and supplemental
discovery responses, Deborah‘s forensic-accounting expert James Penn produced a
supplemental rebuttal report on December 28, 2007. Penn disagreed with Ferguson‘s
calculations, acknowledged that part of the payment could be characterized as separate, but
concluded that Bob had failed to establish by clear and convincing evidence what portion
could be separate. At the January pretrial conference, the court granted Deborah‘s motion
for continuance, setting the case for trial on March 10, 2008. The trial court also struck
Ferguson‘s late-filed expert report, and prevented her from testifying on that issue. 6 Bob
argued that resetting the trial date meant that the report was now timely. The court
disagreed and noted on the docket sheet, ―No deadlines changed at this time.‖ The trial
court also stated that although its order would preclude Bob‘s expert from testifying that
Bob had a separate-property interest in the Cash Deferral Program‘s annual payments, the
order did not apply to Bob‘s own testimony. This ruling changed on the second day of the
trial in March 2008, when the trial court sustained objections to Bob‘s testimony on this
issue. Bob made an offer of proof of Ferguson‘s testimony, his own testimony, and the
excluded documents and reports.
2. Exclusion of Ferguson’s Supplemental Report and Testimony
Bob contends that the trial court abused its discretion in excluding Ferguson‘s
second supplemental expert report and her testimony concerning the additional opinions
expressed in that report because (a) the sanction was not warranted by any discovery
violation on his part, (b) his failure to supplement certain discovery before the discovery
deadline was excusable for good cause, and (c) any late production of evidence did not
unfairly surprise or prejudice Deborah. We disagree.
6
The trial court signed a written order excluding the report and expert testimony on February 18,
2008.
16
Bob first argues that because the trial had been reset when the motion was heard, the
evidence at issue was no longer subject to automatic exclusion under Rule 193.6. When
the date of trial determines the date on which discovery must be supplemented, this would
be true. See H.B Zachry Co. v. Gonzalez, 847 S.W.2d 246, 246–47 (Tex. 1993) (per
curiam) (orig. proceeding) (discussing predecessor to Rule 193.6 and holding that party‘s
failure to identify witnesses more than thirty days before trial as required by rule was not a
basis for excluding their testimony where the trial was reset to another date more than thirty
days later). See also TEX. R. CIV. P. 190.3(b)(1)(A) (all discovery must be conducted
during the discovery period which continues until 30 days before the date set for trial in
cases under the Family Code). However, Rule 190.3 does not apply if there is a written
scheduling order under 190.4. See TEX. R. CIV. P. 190.3 (specifying that this rule applies
only if Rule 190.2 and Rule 190.4 do not). Under Rule 190.4, the trial court may order
that discovery be conducted in accordance with a discovery control plan tailored to the
circumstances of the specific suit and may change any limitation on the time for or amount
of discovery otherwise set forth in the Texas Rules of Civil Procedure. TEX. R. CIV. P.
190.4(a), (b).
Even though the trial court continued the case, the court made clear that the
deadlines in the docket-control order remained in place. Under these facts, we conclude
that the continuance did not reset the dates in the court order. In re Carpenter, No.
05-08-00083-CV, 2008 WL 384569, at *2 (Tex. App.—Dallas Feb. 18, 2008, orig.
proceeding [mand. denied]) (mem. op.) (continuance does not nullify scheduling order set
by court order).
Bob‘s failure to supplement the expert report in a timely manner also is not
excusable for good cause. The stated reason for the delay was that his trial counsel did not
appreciate the significance of two letters Deborah produced in 2005 until after Bob was
deposed in December 2007. By that time, the deadline to supplement his expert‘s report
17
had passed. Inadvertence of counsel is not good cause for failure to adhere to discovery
deadlines. Alarado v. Farah Mfg. Co., 830 S.W.2d 911, 915 (Tex. 1992).
Finally, Bob failed to show that his expert‘s new opinion did not unfairly surprise or
prejudice Deborah. Ferguson did not identify the funds that Bob claimed as his separate
property until after she and Bob had been deposed; until that time, it had been unnecessary
for Deborah to prepare legal arguments or expert testimony regarding the character of the
bonuses or the interest paid on them—amounts that together totaled more than $24 million
dollars.
We conclude that the trial court did not abuse its discretion in excluding Ferguson‘s
second supplemental expert report and her testimony regarding the opinions expressed in
that report. We therefore overrule Bob‘s fourth issue as it pertains to this report and to
Ferguson‘s testimony.
3. Exclusion of Bob’s Testimony and Documentary Evidence Regarding
the Cash Deferral Program
On the second day of trial, Deborah moved to exclude any evidence of Bob‘s
separate-property interest in the Cash Deferral Program on the ground that he failed to
timely supplement his discovery responses. In 2006, Deborah sent Bob an interrogatory
asking him to identify the percentage of any property in the entire estate that he claimed as
his separate property. Bob answered the interrogatory and supplemented several times.
He always indicated that there might be a separate component to the Cash Deferral
Program but never identified a percentage.
At trial, Deborah argued that Bob failed to timely supplement discovery because he
did not identify the percentage of the payments under the Cash Deferral Program that he
claimed as his separate property until the December 21, 2007 deadline to supplement
discovery. The trial court sustained Deborah‘s objections to Bob‘s offered testimony on
18
the subject and to the two letters from Shell 7 on which Bob relied as support for his
testimony. The trial court further explained that the ruling applied not only to Shell‘s
letters, but also to ―any testimony that would suggest or support a position that any asset in
that plan is anything other than community property.‖
With regard to the exclusion of Bob‘s testimony and documentary evidence, we
agree with Bob that Deborah waived her complaint by failing to obtain a pretrial ruling on
the discovery dispute. See Remington Arms. Co. v. Caldwell, 850 S.W.2d 167, 170 (Tex.
1993) (―the failure to obtain a pretrial ruling on discovery disputes that exist before
commencement of trial constitutes a waiver of any claim for sanctions based on that
conduct‖); Mandell v. Mandell, 214 S.W.3d 682, 691–92 (Tex. App.—Houston [14th
Dist.] 2007, no pet.) (holding that appellant who failed to move for the exclusion of
evidence until the last business day before a summary-judgment hearing waived his
complaint that the summary-judgment motion was based on evidence not produced in
response to discovery).
Although Deborah contends that she did obtain a pretrial ruling, this is not
supported by the record. At the hearing on the motion in limine, Bob‘s attorney expressed
concern that part of the motion applied to Bob‘s own testimony. The next day, the trial
court announced its ruling excluding Ferguson‘s second supplemental report and her
testimony as to the characterization of the payments under the Cash Deferral Program and
as to the value of Bob‘s separate-property interest in them. In announcing its ruling, the
trial court stated that it was ―granting the Motion in Limine with regard to experts‖ and that
its ruling ―should not be interpreted to mean that Mr. Sprague could not testify as
appropriate, if discovery is in order, and if there are no other valid objections to his
testimony.‖ Thus, the record affirmatively shows that Deborah was aware of the dispute
concerning Bob‘s non-expert evidence, but did not obtain a pretrial ruling.
7
It was Deborah who originally produced these letters to Bob in 2005.
19
We must reverse the property division if the erroneous exclusion of this evidence
probably caused the trial court to render an improper judgment. See TEX. R. APP. P.
44.1(a)(1). Even in the absence of expert testimony, a reasonable jury could have found
that the excluded evidence clearly and convincingly established that at least some of the
funds payable through the Cash Deferral Program were Bob‘s separate property. We
therefore agree that the error was harmful.
Bob asserts that a large part of the payments due under the Cash Deferral Program is
attributable to a bonus declared approximately six weeks after his marriage. The evidence
supporting Bob‘s claim included a letter from Shell dated February 21, 1985 offering Bob
the option to defer payment of additional compensation if any should be awarded that year
in connection with Shell‘s planned merger. Such compensation would then accrue
interest at a rate of 17%, compounded annually, with payments to be made in ten
installments beginning when he reached the age of 65. In his offer of proof, Bob testified
that he made such an election. The excluded evidence also included a letter from Shell‘s
CEO dated August 20, 1985, notifying Bob that he and the other Senior Staff members had
been awarded bonus compensation. Shell‘s CEO stated, ―This bonus will express our
thanks to you in a tangible way for your contribution to the Company especially during the
uncertainties of the past 18 months. Also I hope it will further encourage you to devote
your maximum efforts towards ensuring the Company‘s continued success . . . .‖ Half of
the bonus was payable immediately, and to encourage Bob‘s continued employment,
one-quarter was payable in January 1986 and one-quarter payable in January 1987,
contingent only upon his continued employment on those dates. Although the amount of
the bonus is not stated in the letter, Bob testified that he was awarded $165,000. This is
supported by another document from Shell tracking the principal and interest payable on
deferred compensation. This document, which was not excluded from evidence, shows
20
that a deferred award of $82,500 was allocated to Bob on August 21, 1985, and payments
of $41,250 were allocated to him in January 1986 and January 1987.8
Shell stated that the bonus with which Bob was credited in August 1985 was
intended to compensate him for work done in the preceding eighteen months, but 16.5 of
those months predated Bob‘s marriage. Thus, a reasonable jury could find that the value
of Bob‘s separate-property interest in that payment is 16.5/18 x $82,500, or $75,625.
According to the same letter from Shell, the payment of $41,250 credited to Bob in January
1986 was paid for his work in the same eighteen-month period and for his continued
employment until this portion of the bonus was paid in January 1986. This portion of the
bonus was credited on January 6, 1985; thus, it covered a period of 22.5 months, and Bob
was single for 16.5 of those months. Based on this evidence, jurors could find that Bob‘s
separate-property interest in that payment is 16.5/22.5 x $41,250, or $30,250. The last
payment of $41,250 was credited on January 5, 1987, and was paid to compensate Bob for
work performed in the eighteen-month period through August 20, 1985 and for his
continued employment through January 5, 1987. Because Bob was single for 16.5 of
those months, a jury could find that his separate-property interest in the January 1987
payment is 16.5/34.5 x $41,250, or $19,728.26. Thus, if allowed to consider the excluded
evidence, a reasonable jury could have found that the evidence clearly and convincingly
established that $125,603.26 of the initial $165,000 bonus is Bob‘s separate property.
This bonus was deferred for payment until Bob reached age 65 and was guaranteed a 17%
rate of return.
While Bob argues that he has established his separate property interest as a matter of
law, the characterization of payments under the Cash Deferral Program involves questions
of fact to be decided by the jury. 9 Because we cannot know how the jury would have
8
There is no dispute regarding the amount of the Cash Deferral Program payments that are
associated with each bonus; both forensic-accounting experts used the same numbers.
9
The bonus we have discussed was not the only bonus that Bob elected to defer. It was simply the
most well-documented, and thus, the one that most readily demonstrates how the erroneous exclusion of
21
weighed the evidence or the credibility of the various witnesses, we cannot determine the
extent to which the original awards ultimately will be determined to be Bob‘s separate
property, and thus, we do not reach the question of the proper characterization of the
interest on any such payments. We therefore sustain Bob‘s fourth and fifth issues as they
pertain to the non-expert evidence of his separate-property interest in payments under the
Cash Deferral Program, and remand for a new trial on that issue.
IV. POST-JUDGMENT SANCTIONS
Bob contends that if we reverse the property division, then we also must reverse the
trial court‘s order imposing sanctions for Bob‘s alleged delay in transferring funds to
Deborah after the court issued its rendition letter. Because this is not necessarily so, we
address the substance of his challenge to that order. He argues that the trial court‘s failure
to file findings of fact and conclusions of law is presumed harmful and requires reversal or
abatement so that findings can be made. In the alternative, Bob contends the sanction is
not supported by legally or factually sufficient evidence or findings.
We begin our review by identifying the legal basis for the trial court‘s order.
Sanctions are available under Chapter 9 of the Civil Practice and Remedies Code in certain
suits for damages, but this statute does not apply to actions in which no party asserts a tort
claim or a claim for damages based upon personal injury, property damage, or death.10
Chapter 10 of the Civil Practice and Remedies Code authorizes sanctions against one who
signs a frivolous pleading or motion,11 and Texas Rule of Civil Procedure 13 permits
sanctions against one who signs a groundless pleading or motion, but neither was the basis
on which sanctions were sought. Discovery abuses also can result in sanctions, 12 as can
Bob‘s separate-property evidence was harmful.
10
See TEX. CIV. PRAC. & REM. CODE ANN. § 9.002 (West Supp. 2011).
11
Id. § 10.001 (West 2002).
12
See TEX. R. CIV. P. 215.1–.5.
22
the failure to deliver copies of pleadings and motions to other parties to an action, 13 but
neither were alleged in the motion that was granted here. We conclude that in sanctioning
Bob for the delays in transferring funds to Deborah, the trial court must have relied on its
inherent power.
Trial courts have inherent power to sanction ―to the extent necessary to deter,
alleviate, and counteract bad faith abuse of the judicial process, such as any significant
interference with the traditional core functions of Texas courts.‖ McWhorter v. Sheller,
993 S.W.2d 781, 789 (Tex. App.—Houston [14th Dist.] 1999, pet. denied) (citing Kutch v.
Del Mar Coll., 831 S.W.2d 506, 509–10 (Tex. App.—Corpus Christi 1992, no writ)).
These core functions include ―hearing evidence, deciding issues of fact raised by the
pleadings, deciding questions of law, entering final judgment and enforcing that
judgment.‖ Kutch, 831 S.W.2d at 510. For the trial court to exercise its inherent power
to sanction, there must be evidence and factual findings of significant interference with
such functions. McWhorter, 993 S.W.2d at 789 (citing Kutch, 831 S.W.2d at 510). We
review the trial court‘s imposition of sanctions for abuse of discretion. Id. at 788.
Although Bob timely filed a request for findings of fact14 and a reminder that the
sanctions findings were past due,15 the trial court issued none—nor would the evidence
support a finding that Bob engaged in bad-faith abuse of the judicial process. The record
instead reveals the following chronology:
In its March 31, 2008 rendition letter, the trial court advised counsel for the parties
of its judgment in the case and scheduled a hearing to be held on April 18, 2008 regarding
the entry of judgment. In the letter, the trial court ordered that ―[t]he Shell Senior Staff
Savings Fund shall be sufficiently liquidated to net [Deborah] $4,561,575 . . . as
13
See TEX. R. CIV. P. 21b.
14
See TEX. R. CIV. P. 296 (requests for findings of fact must be filed within twenty days after the
judgment is signed).
15
See TEX. R. CIV. P. 297 (notice of past due findings of fact and conclusions of law must be filed
within thirty days after filing the original request).
23
expeditiously as possible, and the court invites counsel to have Shell make a determination
of timing on such liquidation so that specific orders may be included in the Decree of
Divorce.‖ On April 3, 2008, Bob‘s attorney Brenda Keen sent an email to Shell‘s counsel
(with a courtesy copy to Deborah‘s counsel) requesting information about the timing and
steps necessary for such liquidation. Shell‘s attorney advised Keen on April 15, 2008 that
in response to his inquiries, he had been directed to the plan administrator‘s website.
On April 17, 2008, the hearing on the entry of judgment was postponed until May 2,
2008. At the hearing, Deborah‘s attorney stated that the funds had not yet been received,
and Keen explained that, in accordance with the trial court‘s letter of March 31, 2008, she
had asked for information from Shell about the timing of the liquidation. Keen also stated
that she had advised Bob not to transfer any funds yet because a temporary injunction was
still in effect. The following discussion then occurred:
The Court: Okay, why don‘t we do this. Why don‘t we say I am
instructing him to do, and I don‘t want to handwrite an order, I
want to leave the language exactly like it is, and I can add
notwithstanding any temporary injunctions or whatever you
need it to say. If, so that‘s clear, that his effectuating this
transaction is not a violation of the temporary injunction of this
court. Does that work?
Ms. Keen: I think we can sit and handwrite that order and submit it to him,
and then we will know that he can start that process.
The Court: I will sign that today, and that will take care of that . . . .
The trial court signed a handwritten ―Order for Liquidation of Senior Staff Savings‖
stating that Bob ―is authorized to initiate liquidation of a sufficient portion of the Shell
Senior Staff Savings Fund to net [Deborah] $4,501,572.00 16 notwithstanding any
16
Although there is a discrepancy of $60,003 between the amount referred to in the trial court‘s
order of May 2, 2008 and its rendition letter of March 31, 2008, Bob actually transferred to Deborah the
larger amount identified in the rendition letter.
24
temporary orders or injunctions previously entered in this case.‖ The same day that the
order was signed, Keen notified Bob of the authorization, and Bob telephoned Fidelity, the
plan administrator, and requested liquidation of $8,200,000. This amount was removed
from the Senior Staff Savings Fund on May 2, 2008. According to Bob, a Fidelity
representative initially told him that the funds would be transferred to his account on May
30, 2008, but on May 5, 2008, a Fidelity representative advised him that it was sending a
check to his address of record, and it was expected to arrive the week of May 12, 2008.
On May 7, 2008, Bob completed forms to be used by his brokerage to deposit the check
and wire transfer funds to Deborah.
On May 27, 2008, Deborah‘s attorney advised Keen that the funds still had not been
received. Keen responded that Bob had not received the check, although Fidelity reported
that it mailed the check to him in London on May 7, 2008. On May 28, 2008, Bob
received the check for $5,379,200.00, dated May 2, 2008. The envelope indicated the
reason for the delay between the time the check was mailed and when it was received:
although Fidelity sent the check from an address in Ohio to Bob‘s home in London, it paid
only $0.41 for postage.17 The same day that Bob received the check he sent it to his
brokerage in Houston via overnight delivery with instructions to deposit it and wire
transfer $4,561,575 to Deborah‘s account. The brokerage confirmed on May 29, 2008
that it had received the documents, deposited the check, and, after allowing time for the
funds to clear, would wire transfer the requested funds to Deborah on June 4, 2008. The
money was removed from Bob‘s account on June 4 and deposited in Deborah‘s account on
June 5, 2008.
17
We take judicial notice that on May 7, 2008, the postage for a one-ounce domestic first-class
letter was $0.41 but the postage for a one-ounce letter sent to Great Britain via first-class mail international
was $0.90. Compare New Standards for Domestic Mailing Services, 72 Fed. Reg. 15,365, 15,369 (Mar.
30, 2007) (postal rate for first-class domestic mail) with International Product and Price Changes, 72 Fed.
Reg. 16,603, 16,607, 16,614 (Apr. 4, 2007) (postal rate for first-class mail international).
25
Based on our review of the record, we conclude that Bob was not required to begin
liquidating funds from the Shell Senior Staff Fund before May 2, 2008, and the delay in
transferring funds to Deborah after that date was not attributable to him. As the Texas
Supreme Court has observed, ―great delay in the delivery of a letter is the probable result of
the omission to prepay the postage.‖ Blake v. Hamburg-Bremen Fire Ins. Co., 67 Tex.
160, 164, 2 S.W. 368, 370 (1886). We accordingly reverse the trial court‘s order of June
20, 2008 imposing sanctions. Our disposition of this issue renders moot the trial court‘s
order of August 27, 2008, conditionally awarding Deborah attorneys‘ fees in the event of
an unsuccessful appeal of the sanctions order.
V. CONCLUSION
We find no error in the jury charge or in the trial court‘s failure to characterize as
Bob‘s separate property a larger portion of the lump-sum distribution from two
defined-benefit plans. Although the trial court did not abuse its discretion in excluding
evidence of the untimely-disclosed opinions of Bob‘s forensic-accounting expert, we
conclude that the trial court reversibly erred in excluding non-expert evidence that would
have supported Bob‘s separate-property claim to some of the amounts payable to him
under Shell‘s Cash Deferral Program, and in sanctioning Bob for a post-rendition delay in
transferring funds to Deborah. We accordingly reverse both the property-division portion
of the divorce decree and the post-judgment sanctions order. Because we conclude that
the trial court did not err in characterizing $1,807,509 of the lump-sum distribution as
Bob‘s separate property, we reverse and remand the case to the trial court for (a) a new trial
as to the proper characterization of the amounts payable under the Cash Deferral Program,
and (b) a just and right division of the community estate, in light of the new finding to be
made concerning the characterization of the payments under the Cash Deferral Program,
26
and in light of the jury‘s findings on the remaining issues. Given our disposition of these
issues, we do not address Bob‘s remaining issues.18
/s/ Tracy Christopher
Justice
Panel consists of Chief Justice Hedges and Justices Frost and Christopher. (Frost, J.,
Concurring).
18
In Bob‘s sixth issue, he argues that the trial court erred in making findings of fact contrary to
those made by the jury. Specifically, the jury found that Bob was not guilty of cruel treatment toward
Deborah of a nature that rendered further living together insupportable, and found that the tax liability that
would be incurred in liquidating certain items would be the same regardless of whether those items were
awarded to Bob or Deborah. Neither Bob nor Deborah challenged either of these findings in the trial court
or on appeal. Even if the trial court erroneously included contrary statements among the findings of fact
and conclusions of law it issued in connection with the judgment previously rendered in this case, any such
error is now moot, because that judgment has been reversed. We clarify, however, that the issues resolved
by these particular findings by the jury do not need to be tried on remand. If the trial court again makes
findings contrary to the jury verdict, that point of error can be raised again, if necessary.
27