Clayton Mountain Development, LLC and Michael Ruff in His Capacity as Trustee of the MAR Living Trust v. Suzann Ruff ( 2021 )

Opinion filed August 5, 2021
In The
Eleventh Court of Appeals
__________
No. 11-20-00101-CV
__________
CLAYTON MOUNTAIN DEVELOPMENT, LLC AND
MICHAEL RUFF IN HIS CAPACITY AS TRUSTEE OF THE
MAR LIVING TRUST, Appellants
V.
SUZANN RUFF, Appellee
On Appeal from the 29th District Court
Palo Pinto County, Texas
Trial Court Cause No. C46164-2
MEMORANDUM OPINION
After an arbitration panel awarded Appellee Suzann Ruff $49,000,000 in
actual damages on her tort claims against her son, Michael Ruff, 1 Suzann asserted
claims in this suit against Appellant Clayton Mountain Development, LLC
(CMD), among other defendants, based on CMD’s alleged participation in
1
Because several individuals involved in this litigation have the same surname, we will refer to
those individuals by first name for purposes of clarity.
Michael’s conduct. Subsequently, in her sixth amended petition, Suzann sought
(1) to recover actual damages of over $15,000,000 on her claims for “knowing
participation and breach of fiduciary duty and conspiracy;” (2) punitive damages on
her claims for conspiracy, fraud, breach of fiduciary duties, and intentionally
wrongful conduct; and (3) enforcement of the constructive trust imposed in an
arbitration award on Michael’s interest in certain entities and property. Suzann also
requested that any defendant that had marketed and sold tracts of land from her
property be required to account for its participation in the marketing and sale of the
property and the disposition of funds received from the sales.
Based on CMD’s failure to comply with discovery orders, the trial court struck
CMD’s answer and rendered default judgment against CMD. The trial court ordered
that Suzann was the sole owner of CMD and that (1) a deed between CMD and
Appellant MAR Living Trust (MAR); (2) a deed between MAR and Clayton
Mountain Partners, LLC (CMP), which is not involved in this ligation; and (3) a
Memorandum of Assignment of Developer’s Rights between MAR and CMP were
void. The trial court then severed Suzann’s claims against CMD into a separate
lawsuit. After we abated this appeal, the trial court signed an amended judgment in
the severed cause of action in which it clarified that the judgment against CMD was
final.
In six issues, CMD contends (1) that the assigned judge did not have authority
to sign the amended final judgment; (2) that the amended final judgment is
interlocutory; and (3) that the trial court erred when it granted the motion to sever,
struck CMD’s answer, granted relief that “amounts to unliquidated damages”
without hearing evidence, and granted judgment against MAR. We hold that the
assigned judge had authority to sign the amended judgment and that the amended
judgment is final. After considering the merits of CMD’s remaining issues, we
(1) affirm the trial court’s sanctions order in which it struck CMD’s answer,
2
(2) reverse the amended judgment and the trial court’s order in which it severed
Suzann’s claims against CMD, and (3) remand this case to the trial court for further
proceedings.
Background
In 2011, Suzann sued Michael in probate court in Dallas County. On February
19, 2014, the probate court granted Michael’s motion to compel arbitration and
stayed the litigation in the probate court. While the arbitration was pending, Suzann
filed this case in Palo Pinto County on October 21, 2014, against CMD; Destination
Development Partners, Inc. (DDP); Destination Development Community III, Ltd.,
f/k/a Icarus Investments IV, Ltd. (DDC); CM Resort LLC; and CM Resort
Management LLC (collectively the Original Defendants). Suzann alleged that,
based on her contribution of real property located in Palo Pinto County to a
development project, she was a limited partner, joint venturer, or investor in the
project and did not received any distribution of assets when the project was
liquidated. Suzann asserted claims for breach of fiduciary duty, conspiracy, and
conversion. Suzann also requested an accounting and the imposition of a
constructive trust (1) on all proceeds, funds, or property in the possession of the
Original Defendants that was obtained as a result of DDP’s and DDC’s breaches of
fiduciary duty or as a result of a conspiracy between DDP, CMD, CM Resort, and
CM Resort Management to breach DDP’s fiduciary duties to Suzann; (2) on all
future proceeds obtained or received from the sale or transfer of any of the real
property in Palo Pinto County; and (3) on all land that was part of the real property
that Suzann contributed to the project that had not been purchased for value by bona
fide purchasers.
On December 7, 2017, the arbitration panel issued a decision in which it found
that Michael committed numerous torts against Suzann and awarded Suzann
actual damages of $49,000,000 plus interest, attorney’s fees, and expenses. In
3
Suzann’s favor, the arbitration panel also imposed a constructive trust (1) on any real
property belonging to or originating from property belonging to Suzann and held or
owned, in whole or in part, by Michael, in any capacity, “relating in any way to the
so-called Palo Pinto County, Texas, properties” and (2) on Michael’s interests, of
whatever nature, in any entity that he formed or in which he invested using funds or
property misappropriated from, and originating with, Suzann. The arbitration panel
listed specific entities and properties in which Michael’s interest was subject to the
constructive trust, including “4,683 acre real property asset located in Palo Pinto
County, Texas.” CMD was not one of the listed entities. The probate court
subsequently confirmed the arbitration award (the Probate Judgment), and Michael
unsuccessfully appealed the Probate Judgment to the Dallas Court of Appeals. See
Ruff v. Ruff, No. 05-18-00326-CV, 2020 WL 4592794, at *15 (Tex. App.—Dallas
Aug. 11, 2020, pet. denied) (mem. op.).
On December 27, 2017, Suzann filed a first amended petition in this litigation
in which she named additional defendants, including Michael, and amended her
claims against the Original Defendants. Suzann’s amended claims were based on
the constructive trust imposed by the arbitration award, Michael’s alleged
misappropriation and hiding of her assets, and the other defendants’ alleged
participation in Michael’s conduct. Suzann served the Original Defendants with her
first requests for production of documents on December 27, 2017. On December 28,
2017, Suzann served the Original Defendants with her second requests for
production of documents, noticed the depositions of Michael and of the corporate
representative of DDP, and filed a motion for expedited discovery. Suzann filed an
amended motion for expedited discovery on January 4, 2018.
In the amended motion, Suzann expressed concern that Michael would hide
or divest assets before the Dallas County probate court confirmed the arbitration
award. Suzann argued that Michael had “consistently” refused to provide an
4
accounting to Suzann or to produce documents or answer questions about the
location of her assets. Suzann requested that the trial court order Michael to produce
documents within four days after the trial court considered the motion and that she
be allowed to depose Michael, a corporate representative of DDP, and Joel Taylor
no later than January 18, 2018.
On January 11, 2018, the trial court granted the motion, in part, and ordered
the Original Defendants to produce to Suzann “any and all materials responsive” to
the two requests for production no later than 5:00 p.m. on January 15, 2018 (the
January 11 discovery order). The trial court also ordered Michael to appear for
deposition on January 18, 2018, and the corporate representative of DDP to appear
for deposition on January 19, 2018.
On January 22, 2018, Suzann filed an amended motion to compel and a
motion to prohibit the movement of assets. Suzann complained that, rather than
complying with the January 11 discovery order, the Original Defendants produced
records that were not in compliance with the order, filed a motion to reconsider, and
asserted “various objections.” Suzann also complained that Michael failed to answer
a number of questions during the depositions.
Suzann requested that the trial court (1) hold Michael in contempt for failing
to produce documents in compliance with the January 11 discovery order and for his
behavior during the depositions, (2) order Michael and his counsel to pay all costs
and attorneys’ fees associated with those depositions, (3) order Michael to reappear
for deposition both as an individual and as the corporate representative of DDP,
(4) direct the Palo Pinto County Sheriff’s Department to seize all records and
computers from the 7-R Ranch offices and obtain the passwords to those computers
so that Suzann could examine them, (5) overrule the objections to Suzann’s requests
for production, (6) order the Original Defendants to produce all documents
responsive to the requests for production, and (7) prohibit “any of the Defendants in
5
this case” from moving assets absent further order of the trial court. Suzann attached
to the amended motion to compel a sanctions order issued against Michael in the
arbitration; excerpts from three preliminary hearings in the arbitration; an order from
the Dallas County probate court that prohibited Michael from moving assets; the
arbitration award; and the transcripts of Michael’s depositions, individually and as
the corporate representative of DDP.
On January 30, 2018, the trial court granted, in part, Suzann’s amended
motion to compel (the January 30 discovery order). The trial court found that
Michael and DDP failed to comply with the January 11 discovery order and ordered
Michael to reappear for deposition, both individually and as the corporate
representative of DDP, no later than February 9, 2018, and to pay the court reporter’s
charges for the first depositions. The trial court also overruled the Original
Defendants’ objections to Suzann’s first and second requests for production and
ordered the Original Defendants to produce to Suzann “no later than February 5,
2018, all documents responsive to [Suzann’s] First and Second Requests for
Production, including, bank account statements, complete federal tax returns and
schedules, company agreements, partnership agreements, company books and
records reflecting capitalization, dividends and distributions and/or compensation to
owners, officers, directors and/or managers.” Finally, the trial court prohibited “all
Defendants”2 “from moving or transferring any assets in Palo Pinto County under
their control absent advance Order of this Court.”
On March 1, 2018, Suzann filed a motion to compel, motion for sanctions,
and motion to admonish against Michael and the Original Defendants. Suzann
argued that Michael made the decisions for all the Original Defendants and that,
2
In addition to the Original Defendants, the named defendants on January 30, 2018, were 7R
Owners Associations, Inc.; Specfac Group LLC; Sundance Lodge LLC; Sundance Partners LLC; Sundance
Residence Club LLC; Sundance Residents LLC; and Michael.
6
while the Original Defendants had produced a “few documents,” they had not
produced “what they were ordered to produce.” Suzann also contended that Michael
had refused to answer questions at the second set of depositions.
Suzann asserted that the Original Defendants did not produce any documents
on February 5, 2018; rather, they produced documents that were “partially
responsive to only one of the requests” on February 7, 2018, and a “few more
incomplete records” on February 8, 2018. Suzann complained that the purpose of
the February 5 deadline for production of documents was to provide counsel with an
opportunity to review the documents prior to Michael’s depositions on February 8.
Suzann argued that the Original Defendants thwarted this purpose when they
produced documents at 7:00 p.m. on the night before the depositions and produced
additional documents while the depositions were taking place.
Suzann argued that Michael and the Original Defendants had ignored two
court orders and had produced documents in bad faith and that further orders
compelling discovery would not be sufficient. Suzann requested that Michael’s and
the Original Defendants’ affirmative defenses be struck and that it be “deemed
established” (1) that the Original Defendants, the Original Defendants’ assets, and
the Original Defendants’ assets that had been transferred “to other entities in any
way connected to Michael” were subject to the constructive trust imposed by the
arbitration award and confirmed in the Probate Judgment and (2) that the Original
Defendants “were formed for the purpose of, and are continuing to participate in”
Michael’s breaches of fiduciary duty as judicially established in the arbitration
award. Suzann also requested that the Original Defendants be ordered to comply
“within minutes” with the trial court’s previous discovery orders, be required to
complete authorizations that would allow Suzann to obtain tax returns and
transcripts from the Internal Revenue Service (the IRS) as well as bank records, and
be required to sign directives to attorneys and accountants that authorized the release
7
of their files to Suzann. Suzann attached to the motion a list of “Things Mike
Doesn’t Know or Remember”; the errata sheets from the January 19, 2018
depositions; and Michael’s February 8, 2019 depositions, individually and as DDP’s
corporate representative.
The Original Defendants, along with other defendants, filed (1) an answer to
Suzann’s first amended petition in which they asserted a number of affirmative
defenses and (2) counterclaims against Suzann. As relevant here, the Original
Defendants alleged in their counterclaims (1) that, because Michael did not own any
interest in the defendants, the constructive trust in the arbitration award did not apply
to them and (2) that the Probate Judgment lacked sufficient specificity to identify
any particular tract of land and failed as a matter of law. Any of the Original
Defendants “which own real property located in Palo Pinto County” that was subject
to a lis pendens filed by Suzann also sought to quiet title against Suzann’s adverse
claims.
The trial court heard Suzann’s motion to compel on June 14, 2018. Suzann
did not offer any evidence at the hearing. After hearing argument, the trial court
indicated that it was going to grant the motion to compel, but that the question was
“what relief [was] granted” because it had to be “as specific and narrow as possible.”
Suzann’s counsel indicated that he would prepare a proposed order that allowed the
trial court to “check yes or no to various things.”
At a hearing on August 14, 2018, 3 the trial court indicated that it would sign
the proposed order on Suzann’s motion to compel with one modification. Before
the trial court signed the order, CM Resort filed a notice of bankruptcy, and the case
was removed to bankruptcy court. Subsequently, nine more defendants filed for
3
A transcript of this hearing is not in the appellate record.
8
bankruptcy. The bankruptcy court severed Suzann’s claims against the non-debtor
defendants and remanded those claims to the trial court.
On April 17, 2019, the trial court granted Suzann’s motion to compel (the
April 17 discovery order). The trial court ordered the Original Defendants to
produce within ten days all responsive documents in their possession, custody, or
control, including documents in the control of banks, accountants, and lawyers who
had provided services for Michael or the Original Defendants. The trial court also
ordered the Original Defendants to, within five days, (1) sign authorizations for
Suzann to obtain bank records, (2) prepare a letter to Kim Roberts and to any other
attorney who might have responsive records authorizing the release to Suzann of all
documents in their possession related to the Original Defendants, (3) prepare a letter
to Peter Cantrell and to any other accountant used by the Original Defendants
authorizing the release to Suzann of the Original Defendants’ tax returns and related
documents, and (4) sign authorizations for Suzann to obtain all available tax
information from the IRS.
As to sanctions, the trial court noted that, although it did not base the sanctions
on conduct in other proceedings, it could, and should, consider such conduct when
it determined the severity of the sanctions. The trial court specifically referenced
Michael’s conduct in the arbitration proceedings and in the Dallas County probate
court. The trial court also found that the Original Defendants had failed to make
reasonable inquiry as to whether responsive documents were in their possession,
custody, or control; had attempted to deceive the court and other parties as to what
documents were produced and were within their possession, custody, and control;
and had engaged in conduct “marked by delay, avoidance and obstruction of
process.”
The trial court determined (1) that the discovery abuse committed by Michael
and the Original Defendants went “directly to the heart of [Suzann’s] allegations and
9
directly to the defenses, both affirmative and factual, being asserted by” Michael and
the Original Defendants and (2) that, because the requested discovery was directed
toward the relationship between Michael and the Original Defendants, Michael’s
control over the Original Defendants, and the location of Suzann’s assets and the
proceeds of the sale of those assets, “case determinative sanctions . . . would be
directly directed toward the discovery abuse” and would remedy the prejudice to
Suzann. The trial court struck Michael’s and CMD’s affirmative defenses and found
that lesser sanctions would not be effective because (1) Michael had been previously
sanctioned, (2) two motions to compel had been granted against the Original
Defendants, (3) preventing or limiting discovery by Michael and the Original
Defendants would not be a deterrent and would not remedy the prejudice to Suzann,
and (4) awarding attorneys’ fees would not remedy the prejudice or address the
actual abuse.
On July 18, 2019, Suzann filed a motion for judgment against CMD followed
by an amended motion for judgment on August 5, 2019. In the amended motion,
Suzann asserted that neither Michael nor CMD had complied with the trial court’s
discovery orders. Suzann specifically complained that CMD had not produced any
documents within ten days of the April 17 discovery order, had not signed the
authorizations required by the order, and had failed to produce responsive documents
in its possession that related to the transfer of real property. Suzann attached to the
amended motion for judgment (1) an October 9, 2017 Special Warranty Deed
pursuant to which CMD transferred certain real property in Palo Pinto County to
MAR, (2) a February 12, 2018 Special Warranty Deed pursuant to which MAR
transferred the same property to CMP, and (3) a Memorandum of Assignment of
Developer’s Rights from MAR to CMP on February 12, 2018. All three documents
were filed in the Palo Pinto County deed records on May 16, 2019.
10
Suzann requested that the trial court render judgment in her favor against
CMD; order that she was the sole member of CMD; order that all property, real and
personal, in the name of CMD belonged to her; and order that the two deeds and the
memorandum of assignment were null and void. CMD responded that the trial court
did not have discretion to award the relief requested by Suzann, that it was not one
of the entities that was listed in the arbitration award as being subject to the
constructive trust, that Suzann’s requested relief did not comply with the Probate
Judgment and failed as a discovery sanction, and that it was entitled to a jury trial on
the requested relief. CMD and MAR also objected to the entry of judgment on
grounds (1) that the trial court had not heard any evidence at the hearing on Suzann’s
motion for judgment, (2) that the trial court had failed to properly apply the test to
determine whether death penalty sanctions were appropriate, and (3) that CMD was
entitled to a jury trial on Suzann’s requested relief.
The trial court granted Suzann’s amended motion for judgment against CMD
on September 29, 2019 (the September 29 discovery order). The trial court noted
that, although it had ordered in the April 17 discovery order that any further
violations of the discovery orders or any further discovery abuse by CMD could
result in further sanctions, CMD had continued to engage in discovery abuse and
had failed to comply with the April 17 discovery order. The trial court specifically
found that, after the April 17 discovery order, CMD did not produce additional
documents, did not provide any authorizations, and did not send the required letters.
The trial court also found that, in her first request for production, Suzann requested
documents that were related to all transactions involving CMD, that CMD had
produced publicly available deed records, and that CMD had affirmatively
represented that all transaction documents had been produced. The trial court
specifically found that the October 17 and February 2018 deeds and the
memorandum of assignment were responsive to the requests for production, that
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CMD had been ordered to produce those documents three times, and that CMD had
not produced responsive documents even after its affirmative defenses were struck.
The trial court found that CMD’s refusal to produce the documents that it was
ordered to produce, to sign the required authorizations, or to send the required letters
satisfied Suzann’s burden of proof ipso facto and that, based on the allegations in
the case and the past discovery abuses discussed in the April 17 discovery order, “it
[was] clear that the Defendants have or should have much (if not all) of the
documents relevant to” Suzann’s burden. The trial court determined that, based on
CMD’s repeated refusal to produce the documents and repeated violation of court
orders, “the presumption arises that [CMD’s] positions in this case are without
merit.”
The trial court struck CMD’s answer and rendered judgment against CMD.
In its judgment, the trial court ordered (1) that Suzann was the sole member of CMD
and was immediately entitled to all rights and assets as the sole member, (2) that the
warranty deed between CMD and MAR and the warranty deed between MAR and
CMP were null and void, and (3) that the memorandum of assignment between MAR
and CMP was null and void.
In her sixth amended petition, which was the live petition at the time of the
judgment against CMD, Suzann asserted claims against twenty-four business
entities, including CMD; the trustees of two trusts; and two individuals, Michael and
his brother, Mark Ruff. Suzann did not assert any specific factual allegations as to
the conduct of CMD or any of the other entity defendants. Rather, as to CMD and
the other entity defendants, Suzann collectively requested the enforcement of the
constructive trust imposed by the arbitration award and an accounting and asserted
claims for breach of fiduciary duty, knowing participation and breach of fiduciary
duty, conspiracy, and fraud. Suzann sought actual damages of over $15,000,000 on
her claims for knowing participation and breach of fiduciary duty and conspiracy as
12
well as punitive damages based on the “Defendants’ conspiracy, fraud, breach of
fiduciary duties, and intentionally wrongful conduct.” The September 29 judgment
did not resolve Suzann’s tort claims against CMD, did not award Suzann any
damages, and did not contain a Mother Hubbard clause or any other language that
indicated that the trial court intended to resolve all of Suzann’s claims against CMD.
Suzann filed a seventh amended petition on October 17, 2019. CMD was
named as a defendant in the seventh amended petition. Suzann nonsuited her fraud
claim, but continued to assert causes of action for constructive trust, breach of
fiduciary duty, knowing participation and breach of fiduciary duty, and conspiracy
against CMD and the other entity defendants collectively. Although Suzann did not
add any additional factual allegations about any conduct by CMD or any other entity
defendant that allegedly injured her, she clarified that the claim for breach of
fiduciary duty was premised on a determination that a defendant was Michael’s alter
ego while the conspiracy claim was premised on there not being a determination that
a defendant was Michael’s alter ego. Suzann also requested that, if any entity
defendant was determined to be Michael’s alter ego, it be required to account for its
participation in the marketing and sale of Suzann’s property and the disposition of
any funds from those sales.
On November 11, 2019, Suzann filed a motion to sever the judgment against
CMD. Pursuant to the Texas Citizen’s Participation Act, CMD, along with other
defendants, filed a motion to dismiss the claims in the seventh amended petition on
December 16, 2019. On January 7, 2020, the trial court severed all of Suzann’s
claims against CMD into cause number C46164-2. Both CMD and MAR appealed
the September 29 judgment in cause number C46164-2.
On April 30, 2020, we issued an order in which we held that the September 29
judgment, in conjunction with the severance order, was not a final, appealable order.
We abated this appeal to allow the trial court to clarify its intent with regard to
13
finality and to allow the parties to obtain orders that disposed of the claims between
the parties. On May 5, 2020, the trial court signed an amended judgment in cause
number C46164-2 that clarified that all of Suzann’s claims against CMD that were
not granted were denied, that Suzann’s claims against all other defendants remained
pending in cause number C46164, that the amended judgment disposed of all claims
in the severed action, and that the amended judgment was final and appealable.4
Jurisdiction
In their first and third issues, Appellants contend that this court does not have
jurisdiction over this appeal because (1) the September 29 judgment was
interlocutory and the assigned judge did not have authority under the order of
assignment to sign the May 5 amended judgment and (2) the amended judgment fails
to dispose of all claims between all parties. These complaints are questions of law
that we review de novo. See Shetewy v. Mediation Inst. of N. Tex., LLC, 624 S.W.3d
285, 287 (Tex. App.—Fort Worth 2021, no pet.) (holding that whether a judgment
is final is a legal question subject to de novo review); Icon Benefit Adm’rs II, L.P. v.
Mullin, 405 S.W.3d 257, 264 (Tex. App.—Dallas 2013, orig. proceeding [mand.
denied]) (holding that an appellate court construes an order that can be given a
certain or definite legal meaning as a matter of law).
The presiding judge of an administrative region is authorized to assign judges
in the region to “try cases and dispose of accumulated business.” TEX. GOV’T CODE
ANN. § 74.056(a) (West 2013). Visiting judges generally are assigned either to a
4
In cause number C46164, the trial court heard CMD’s motion to dismiss by submission and, on
June 4, 2020, signed an order in which it denied the motion. Because the trial court continued to consider
and rule on CMD’s motion to dismiss in cause number C46164 after it had severed Suzann’s claims against
CMD into cause number C46164-2, this court is confronted with the unusual situation in which CMD has
appealed the denial of its motion to dismiss in both the original and the severed causes while simultaneously
appealing from the judgment against it in the severed cause. For the sake of judicial efficiency, we have
addressed the trial court’s denial of CMD’s motion to dismiss in conjunction with the denial of other
defendants’ motions to dismiss in our opinion issued today in Cause No. 11-20-00114-CV; Clayton
Mountain Development, LLC v. Ruff.
14
particular case or for a specific period of time. Hull v. S. Coast Catamarans, L.P.,
365 S.W.3d 35, 41 (Tex. App.—Houston [1st Dist.] 2011, pet. denied). The scope
of the visiting judge’s authority and when that authority terminates is controlled by
the assignment order. Ex parte Eastland, 811 S.W.2d 571, 572 (Tex. 1991) (orig.
proceeding) (per curiam); Hull, 365 S.W.3d at 41. Because an assigned judge’s
authority is based on the terms of the assignment, any act that exceeds the scope of
the assignment is void. Eastland, 811 S.W.2d at 572; In re Richardson, 252 S.W.3d
822, 826 (Tex. App.—Texarkana 2008, orig. proceeding).
The Honorable Michael Moore, presiding judge of the 29th District Court,
recused himself from the case in January 2019. On January 22, 2019, the Honorable
David Evans, presiding judge of the Eighth Administrative Judicial Region, assigned
the Honorable Judge Robert Brotherton, Senior District Judge of the 30th District
Court:
[T]o preside in Cause Number C46164, styled Suzann Ruff v.
Destination Development Partners, Inc., et al. from this date until the
undersigned Presiding Judge has terminated this assignment in writing.
In addition, whenever the assigned judge is present in the county of
assignment for a hearing in this cause, the judge is also assigned and
empowered to hear at that time any other matters that are presented for
hearing in other cases.
Appellants argue that, because Judge Brotherton was assigned to hear only the
original cause and was not in Palo Pinto County on May 5, 2020, for a hearing in
cause number C46164, he did not have authority to act in cause number C46164-2
and the amended judgment is void.
We must read the assignment order “as a whole in the context in which it was
issued and not permit form to prevail over substance.” In re C.H.C., 396 S.W.3d 33,
42 (Tex. App.—Dallas 2013, no pet.). Judge Brotherton was assigned to hear all of
Suzann’s claims in cause number C46164 and rendered judgment against CMD in
cause number C46164. The subsequent severance of the judgment against CMD into
15
cause number C46164-2 did not deprive Judge Brotherton of the authority to clarify
the original judgment. 5 See Lehmann v. Har-Con Corp., 39 S.W.3d 191, 206 (Tex.
2001) (“If the appellate court is uncertain about the intent of the order, it can abate
the appeal to permit clarification by the trial court.” (citing TEX. R. APP. P. 27.2)).
Appellants also assert that the amended judgment is not final because it does
not dispose of all claims and issues as to MAR and CMD. Unless a statute expressly
authorizes an interlocutory appeal, we generally have jurisdiction only over final
judgments. CMH Homes v. Perez, 340 S.W.3d 444, 447 (Tex. 2011). When there
has not been a conventional trial on the merits, a judgment is not final for purposes
of appeal unless it either (1) “actually disposes of every pending claim and party” or
(2) “clearly and unequivocally states that it finally disposes of all claims and all
parties.” Lehmann, 39 S.W.3d at 205. To be a final order, there must be some “clear
indication that the trial court intended the order to completely dispose of the entire
case.” Id. at 205.
In the amended judgment, the trial court expressly ordered that all of Suzann’s
claims against CMD that were not specifically granted were denied and that the
amended judgment “disposes of all claims in this severed action and is final and
appealable.” Therefore, the amended judgment “clearly and unequivocally” states
that it is intended as a final judgment as to CMD. See Bella Palma, LLC v. Young,
601 S.W.3d 799, 801 (Tex. 2020) (per curiam) (“Although no ‘magic language’ is
required, a trial court may express its intent to render a final judgment by describing
its action as (1) final, (2) a disposition of all claims and parties, and (3) appealable.”).
5
Appellants rely on Starnes v. Chapman, 793 S.W.2d 104, 107 (Tex. App.—Dallas 1990, orig.
proceeding), for the proposition that, because a severed cause of action is an independent action capable of
being tried and reduced to final judgment, a new order of assignment was necessary before Judge Brotherton
could preside over C46164-2. However, in this case, Suzann’s claims against CMD had been reduced to
judgment in the original action, and in the amended judgment Judge Brotherton simply clarified his intent
that the judgment against CMD is final. We express no opinion on whether Judge Brotherton would have
authority to preside over a severed cause of action in which Suzann’s claims against a defendant had not
been reduced to judgment in the original action.
16
As to MAR, it is not a party in the severed action, and Suzann’s claims against
MAR and MAR’s counterclaims against Suzann remain pending in the original
action. Although, as discussed below, the trial court granted Suzann more relief in
the severed action than she was entitled to receive, that error did not affect the
finality of the amended judgment. See Lehmann, 39 S.W.3d at 200 (“A judgment
that grants more relief than a party is entitled to is subject to reversal, but it is not,
for that reason alone, interlocutory.”).
We hold that the assigned judge had authority to sign the amended judgment
and that the amended judgment is final. Therefore, we have jurisdiction over this
appeal. We overrule Appellants’ first and third issues.
Analysis
In their second and fourth through sixth issues, Appellants assert that the trial
court erred when it (1) granted Suzann’s motion to sever, (2) struck CMD’s answer,
(3) granted judgment without hearing evidence on “what amounts to unliquidated
damages,” and (4) granted judgment against MAR.
We review these complaints under an abuse of discretion standard. Longview
Energy Co. v. Huff Energy Fund LP, 533 S.W.3d 866, 874 (Tex. 2017) (applying
abuse-of-discretion standard to trial court’s imposition of a constructive trust);
F.F.P. Operating Partners, L.P. v. Duenez, 237 S.W.3d 680, 693 (Tex. 2007)
(applying abuse-of-discretion standard to trial court’s severance of a claim); Cire v.
Cummings, 134 S.W.3d 835, 838 (Tex. 2004) (applying abuse-of-discretion standard
to trial court’s ruling on a motion for sanctions). A trial court abuses its discretion
when its decision is arbitrary or unreasonable, or when it acts without reference to
any guiding rules or principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d
238, 241–42 (Tex. 1985).
17
A. Severance
In their second issue, Appellants argue that the trial court erred when it granted
Suzann’s motion to sever because the severed claims against CMD are interwoven
with the claims in cause number C46164 so as to involve the same facts and issues
and the severance was granted only so that the parties could start the appellate
process.
Rule 41 of the Texas Rules of Civil Procedure allows for any claim against a
party to be “severed and proceeded with separately.” TEX. R. CIV. P. 41; see also
Duenez, 237 S.W.3d at 693. The controlling reasons to grant a severance are to
avoid prejudice, do justice, and increase convenience. Duenez, 237 S.W.3d at 693.
A claim is properly severed when (1) the controversy involves more than one cause
of action, (2) the severed claim would be the proper subject of an independent
lawsuit, and (3) the severed claim is not so interwoven with the remaining claims
that they involve the same facts and issues. State v. Morello, 547 S.W.3d 881, 889
(Tex. 2018); see also State Dep’t of Highways & Pub. Transp. v. Cotner, 845 S.W.2d
818, 819 (Tex. 1993) (per curiam) (holding that the trial court erred in severing claim
where third criterion was not met).
In both the sixth amended petition, which was the live pleading at the time of
the September 29 judgment against CMD, and the seventh amended petition, which
was the live pleading when the trial court granted Suzann’s motion to sever, Suzann
did not make specific factual allegations as to any conduct by CMD, or any of the
other entity defendants, that she alleged caused her harm. Rather, Suzann asserted
the same causes of action against these defendants collectively and, based on the
same facts, alleged that these defendants collectively participated in a scheme or
conspiracy with Michael to hide Suzann’s assets.
Suzann argues in her brief that the claims against each of the entity defendants
are not inextricably interwoven because the claims differ “based on what property
18
that entity defendant holds for [Michael], and what role that defendant played in
[Michael’s] scheme.” However, Suzann made no such factual distinctions in her
pleadings. Further, because the facts and issues were so interwoven between all the
entity defendants, the trial court (1) adjudicated in the default judgment against
CMD some of Suzann’s claims against MAR, a defendant in the original action,
without adjudicating MAR’s counterclaims and without considering MAR’s
affirmative defenses; (2) granted default judgment against CMD on Suzann’s claims
while leaving CMD’s counterclaims pending in the original action; and
(3) considered and denied CMD’s motion to dismiss in the original action after
severing Suzann’s claims against CMD.
Because, as pleaded, Suzann’s claims against all the entity defendants are so
interwoven as to involve the same facts and issues, the trial court abused its
discretion when it granted the motion to sever. See Cotner, 845 S.W.2d at 819
(holding that the trial court improperly severed the claims of one plaintiff against a
defendant when the facts and issues related to liability were the same for both
plaintiffs and, to some extent, the extent of the plaintiffs’ alleged damages were
related); In re Glast, Phillips & Murray, P.C., No. 05-20-00557-CV, 2020 WL
6696371, at *4 (Tex. App.—Dallas Nov. 12, 2020, orig. proceeding) (mem. op.)
(holding that trial court improperly severed a fraudulent transfer claim against one
defendant where the plaintiff alleged that “all defendants were involved in the same
scheme to fraudulently transfer assets to avoid paying for the legal services at
issue”). We sustain Appellants’ second issue.
B. Sanctions
In their fourth issue, Appellants assert that the trial court abused its discretion
when it imposed death penalty sanctions against CMD. When we review a trial
court’s imposition of sanctions, we are not bound by the trial court’s findings of fact
or conclusions of law. Am. Flood Research, Inc. v. Jones, 192 S.W.3d 581, 583
19
(Tex. 2006) (per curiam). Rather, we review the entire record independently to
determine whether the trial court abused its discretion. Id.Rule 215 of the Texas Rules of Civil Procedure authorizes the trial court to
impose appropriate sanctions upon persons who abuse the discovery process.6
TEX. R. CIV. P. 215.1(d), 215.2(b). If a party fails to comply with proper discovery
requests, fails to obey discovery orders, or otherwise abuses the discovery process,
the trial court may strike the party’s pleading or render a judgment by default after
notice and hearing. TEX. R. CIV. P. 215.2(b)(5), 215.3; Cire, 134 S.W.3d at 839.
However, the trial court may not impose sanctions that are more severe than
necessary to satisfy legitimate purposes, which include assuring compliance with
discovery, deterring other litigants who might be tempted to abuse discovery, and
punishing parties who have violated the discovery rules. Cire, 134 S.W.3d at 839;
Bodnow Corp. v. City of Hondo, 721 S.W.2d 839, 840 (Tex. 1986) (per curiam).
A death penalty or case-determinative sanction is any sanction that causes a
claim or defense to be adjudicated based on the manner in which a party or its
attorney conducted discovery rather than on the merits. Braden v. Downey, 811
S.W.2d 922, 929 (Tex. 1991) (orig. proceeding); see also Altesse Healthcare Sols.,
Inc. v. Wilson, 540 S.W.3d 570, 572 (Tex. 2018) (per curiam) (A death penalty
sanction is one “under which the offending party essentially loses the case because
of the sanction[.]”). Death penalty sanctions should be the exception rather than the
rule, and a “trial by sanctions” should be avoided whenever possible.
TransAmerican Nat. Gas Corp. v. Powell, 811 S.W.2d 913, 918–19 (Tex. 1991)
6
We recognize that, because neither the trial court’s order nor Suzann’s amended motion for
judgment referred to a specific rule or tracked the language of a particular rule, our analysis is not governed
by Rule 215 alone. See Am. Flood Res., 192 S.W.3d at 583. However, under the circumstances presented
in this case, the legal standards applicable to a review of sanctions imposed pursuant to a specific discovery
rule are also applicable to sanctions imposed under the trial court’s inherent authority. Altesse Healthcare
Sols., 540 S.W.3d at 574–75; see also Brewer v. Lennox Hearth Prods., LLC, 601 S.W.3d 704, 718 (Tex.
2020).
20
(original proceeding); see also Altesse Healthcare Sols., 540 S.W.3d at 575.
Specifically, “[s]anctions which are so severe as to preclude presentation of the
merits of the case should not be assessed absent a party’s flagrant bad faith or
counsel’s callous disregard” for the discovery rules. TransAmerican, 811 S.W.2d at
918.
Discovery sanctions, including death penalty sanctions, must be just. TEX. R.
CIV. P. 215.2(b); TransAmerican, 811 S.W.2d at 917. For the imposition of
sanctions to be just, (1) there must be a direct relationship between the offensive
conduct, the offender, and the sanction imposed and (2) the sanctions must not be
excessive. TransAmerican, 811 S.W.2d at 917. In TransAmerican, which, like the
present case, involved the imposition of a case-determinative sanction, the supreme
court noted:
Discovery sanctions cannot be used to adjudicate the merits of a party’s
claims or defenses unless a party’s hindrance of the discovery process
justifies a presumption that its claims or defenses lack merit. However,
if a party refuses to produce material evidence despite the imposition
of lesser sanctions, the court may presume that an asserted claim or
defense lacks merit and dispose of it.
Id. at 918 (citations omitted).
Appellants argue that that the trial court did not adhere to the first prong of
the TransAmerican test because there was no evidence that the failure to comply
with the April 17 discovery order was “the fault of the lawyers only, CMD only, or
both.” See TransAmerican, 811 S.W.2d at 917 (holding that a trial court “must at
least attempt to determine whether the offensive conduct was attributable to counsel
only, to the party only, or to both”). “A just sanction must be directed against the
abuse and toward remedying the prejudice caused to the innocent party, and the
sanction should be visited upon the offender.” Spohn Hosp. v. Mayer, 104 S.W.3d
878, 882 (Tex. 2003) (per curiam). Although a party should not be punished for its
21
counsel’s conduct in which the party is not implicated, it also “must bear some
responsibility for its counsel’s discovery abuses when it is or should be aware of
counsel’s conduct and the violation of the discovery rules.” TransAmerican, 811
S.W.2d at 917.
In the April 17 discovery order, the trial court required CMD to produce
documents and to sign documents that would allow Suzann to obtain documents
directly from the IRS, CMD’s banks, and CMD’s attorneys and accountants. The
trial court found in the September 29 discovery order that, after the April 17
discovery order, CMD did not produce documents, did not sign the ordered
authorizations, and did not send letters to its attorneys and accountants; that CMD
had affirmatively represented that all “transaction documents had been produced”;
that the two deeds and the memorandum of assignment were responsive to Suzann’s
requests for production; and that CMD failed to produce responsive documents even
after its affirmative defenses were struck. We hold that there was sufficient evidence
to establish that CMD engaged in the discovery abuse found by the trial court or
should have been aware of its counsel’s failure to comply with the trial court’s
discovery orders.
Further, there was a direct relationship between the sanction imposed and the
offensive conduct. Suzann produced evidence in support of the January 22, 2018
amended motion to compel that CMD owned property in Palo Pinto County, sold
lots in Palo Pinto County, had a bank account, and received the proceeds from the
sale of the lots. The trial court found in the September 29 discovery order that the
bank records produced by CMD, “on their face, show that other responsive
documents exist that were not produced.” The trial court also found in the April 17
discovery order, which was incorporated into the September 29 discovery order, that
CMD attempted to deceive the trial court as to what documents had been produced
and what documents were in CMD’s possession, custody, and control.
22
The trial court determined that discovery relating to Michael’s relationship
with the Original Defendants, Michael’s control over the Original Defendants, and
the location of the assets taken from Suzann and of the proceeds of the sale of those
assets, went “directly to the heart” of Suzann’s allegation and directly to the Original
Defendants’ defenses. Therefore, the trial court’s striking of CMD’s answer based
on its refusal to produce information crucial to Suzann’s claims was directed against
CMD’s offensive conduct and toward remedying the prejudice caused to Suzann by
CMD’s failure to comply with its discovery obligations.
Appellants also contend that the sanctions do not comply with the second
prong of the TransAmerican test because lesser sanctions would have resulted in full
compliance with CMD’s discovery obligations. Generally, before death penalty
sanctions are justified, the trial court must test lesser sanctions to determine their
efficacy. Id.; see also Cire, 134 S.W.3d at 840. In all but the most exceptional cases,
the trial court must actually impose the lesser sanctions before it strikes a party’s
pleadings. Cire, 134 S.W.3d at 840. In all cases, the record must reflect that the
trial court considered the availability of appropriate lesser sanctions and must
contain an explanation of the appropriateness of the sanction imposed. Id.
In its September 29 discovery order, the trial court noted that, when it struck
CMD’s affirmative defenses on April 17, 2019, it specifically ordered that any
further discovery abuse by CMD could result in further sanctions. The trial court
found that, despite this warning, CMD continued to engage in discovery abuse and
failed to comply with the April 17 discovery order. The trial court determined that
lesser sanctions had not worked; that CMD failed to produce responsive documents
even after its affirmative defenses had been struck; and that, based on CMD’s
conduct, “the presumption arises that [CMD’s] positions in this case are without
merit.” See TransAmerican, 811 S.W.2d at 918 (“[I]f a party refuses to produce
material evidence, despite the imposition of lesser sanctions, the court may presume
23
that an asserted claim or defense lacks merit and dispose of it.”). Therefore, the
striking of CMD’s answer was not more severe than necessary to satisfy the
legitimate purposes of the sanction.
On this record, the trial court did not abuse its discretion when it struck
CMD’s answer. We overrule Appellants’ fourth issue.
C. Judgment
In their fifth and sixth issues, Appellants assert that the trial court erred when
it granted judgment because Suzann (1) failed to give fair notice to CMD of any
claims against it; (2) was required to present evidence that established that she was
entitled to the requested relief; and (3) could have obtained judgment against MAR,
who was not subject to the sanctions order, only by summary judgment or by trial.
Suzann responds that she was not required to submit evidence that established that
she was entitled to the relief granted because, based on the default judgment, CMD
factually admitted that it was subject to the constructive trust imposed in the Probate
Judgment, that it was formed with funds misappropriated from Suzann, and that any
transfer by CMD was fraudulent.
Although the trial court did not specifically state on which cause of action it
granted judgment for Suzann, the relief granted by the trial court in the amended
judgment could only be based on Suzann’s pleaded cause of action for the
enforcement of the constructive trust imposed in the arbitration award. The trial
court specifically denied judgment on all of Suzann’s remaining claims. Therefore,
the trial court did not grant judgment against CMD on Suzann’s causes of action for
breach of fiduciary duty, knowing participation and breach of fiduciary duty,
conspiracy, and fraud or on Suzann’s request for an accounting. Therefore, we need
not address CMD’s arguments that, in the sixth amended petition, Suzann failed to
give fair notice of her claims against CMD. See TEX. R. APP. P. 47.1.
24
“A constructive trust is an equitable, court-created remedy designed to prevent
unjust enrichment.” KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70, 87 (Tex. 2015).
A constructive trust serves “the very broad function of redressing wrong or unjust
enrichment in keeping with basic principles of equity and justice.” Meadows v.
Bierschwale, 516 S.W.2d 125, 131 (Tex. 1974). Generally, the imposition of a
constructive trust requires that a party establish: (1) a breach of a special trust or
fiduciary relationship or fraud; (2) unjust enrichment of the wrongdoer; and (3) an
identifiable res that can be traced back to the original property. KCM Fin., 457
S.W.3d at 87. A constructive trust may be imposed on the wrongfully-taken property
or the proceeds or revenues generated from the property. Id. at 88; CDM
Constructors, Inc. v. City of Weslaco, No. 13-19-00447-CV, 2021 WL 1133615, at
*9 (Tex. App.—Corpus Christi–Edinburg Mar. 25, 2021, pet. denied) (mem. op.).
A default judgment, like all judgments, must conform to the pleadings.
TEX. R. CIV. P. 301; Mullen v. Roberts, 423 S.W.2d 576, 579 (Tex. 1968). In the
no-answer default judgment context, the failure to file an answer operates as an
admission of the material facts alleged in the petition except as to unliquidated
damages. Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 83 (Tex. 1992); see
also Paradigm Oil, Inc. v. Retamco Operating, Inc., 372 S.W.3d 177, 186 (Tex.
2012) (noting that striking a defendant’s answer as discovery sanctions establishes
the existence of pleaded liability facts). If the facts set out in the petition allege a
cause of action, a default judgment establishes the defendant’s liability. Morgan v.
Compugraphic Corp., 675 S.W.2d 729, 731–32 (Tex. 1984). However, if a
defendant is not liable as a matter of law based on the facts alleged in the petition,
then liability cannot be created by the failure to file an answer. Calderoni v.
Vasquez, No. 03-11-00537-CV, 2012 WL 2509802, at *2 (Tex. App.—Austin
June 26, 2012, no pet.) (mem. op.); Morales v. Dalworth Oil Co., 698 S.W.2d 772,
775 (Tex. App.—Fort Worth 1985, writ ref’d n.r.e.). An appellate court may
25
examine the plaintiff’s petition to determine whether she sufficiently pleaded a cause
of action that supports the judgment. Quality Hardwoods, Inc. v. Midwest
Hardwood Corp., No. 2-05-311-CV, 2007 WL 1879797, at *3 (Tex. App.—Fort
Worth June 28, 2007, no pet.) (mem. op.); see also Stoner v. Thompson, 578 S.W.2d
679, 684–85 (Tex. 1979).
This case is in an unusual posture because, rather than seeking a constructive
trust based on CMD’s liability on the tort claims asserted in the sixth amended
petition, Suzann sought to enforce the constructive trust that was imposed in the
arbitration award. Pursuant to the arbitration award, a constructive trust was
imposed in Suzann’s favor (1) on any real property belonging to, or originating from
property belonging to, Suzann and held or owned, in whole or in part, by Michael,
in any capacity, “relating in any way to the so-called Palo Pinto County, Texas,
properties” and (2) on Michael’s interests, of whatever nature, in any entity that he
formed or in which he invested using funds or property misappropriated from, and
originating with, Suzann. The issue, therefore, is whether Suzann pleaded sufficient
material facts in the sixth amended petition that established that either the entire
ownership interest in CMD or the real property transferred by CMD to MAR and
then by MAR to CMP is an “identifiable res” that is subject to that constructive trust.
See KCM Fin., 457 S.W.3d at 87; see also Jurgens v. Martin, No. 11-18-00316-CV,
2021 WL 1033306, at *21 (Tex. App.—Eastland Mar. 18, 2021, [mand. denied])
(holding that, based on a default judgment entered after death penalty sanctions were
imposed, the appellant was deemed to have admitted all factual allegations in the
appellee’s pleading that established liability in support of the appellee’s request for
the imposition of a constructive trust).
In the constructive trust cause of action in the sixth amended petition, Suzann
pleaded that pursuant to the arbitration award, a constructive trust in her favor was
imposed “on all of the interests that [Michael] has, or had and purportedly and/or
26
fraudulently transferred, in any of the” entity defendants and on Michael’s interest,
in any capacity, in any entity related to the development and marketing of Suzann’s
“Palo Pinto Ranch property” that was acquired, or in which an investment was made,
with funds obtained in whole or in part from Suzann. Suzann requested that the trial
court (1) order Michael to sign over his interest in the entity defendants and in any
other entity that was shown to be subject to the constructive trust, (2) order that the
fraudulent transfer of “any interest” was void, and (3) alternatively, order the entities
to amend their formation documents “to reflect [Suzann’s] ownership of any interest
that [Michael] may have in the entity.” In her prayer for relief, Suzann requested
that the trial court enforce the constructive trust imposed in the arbitration award as
to all of the entity defendants and as to other entities “as described above” and as to
“the real property in Palo Pinto County.”
Suzann made no factual allegations in the sixth amended petition that Michael
owned, or had ever owned and fraudulently transferred, any legal interest in CMD.
Further, the arbitration award did not list CMD as one of the entities in which
Michael held an interest that was subject to the constructive trust. Therefore, the
default judgment against CMD did not establish the material facts that Michael held,
or had ever held, any legal interest in CMD that would be subject to the constructive
trust imposed by the arbitration award.
In the sixth amended petition, Suzann made extensive factual allegations
about Michael’s conduct that she alleged caused her injury and asserted that the
entity defendants were Michael’s alter egos. She specifically alleged that each of
the entity defendants was a sham entity; that Michael made all the decisions as to
the management of the entities; and that the entities were being used as a “mere tool”
by Michael to perpetuate fraud, evade fiduciary duties to Suzann, and hide or launder
the assets that he misappropriated from her. Suzann alleged that the entities shared
the same offices with Michael; shared the same employees, to the extent that there
27
were any employees; were created at Michael’s request; were represented by the
same attorneys who represented Michael in probate court; and used the same
accountant (who was also Michael’s accountant and the registered agent for some of
the entities). Suzann asserted that “[t]hese facts show that [Michael] has acted as
the real owner or beneficial owner of the entity defendants; but by virtue of the
constructive trust, [Suzann] is or should be deemed the equitable owner of such
entities.”
Alter ego is not an independent cause of action. Dodd v. Savino, 426 S.W.3d
275, 291 (Tex. App.—Houston [14th Dist.] 2014, no pet.). Rather, it is a means of
imposing liability for an underlying cause of action. Id. Based on the default
judgment, CMD admitted the factual allegations in Suzann’s sixth amended petition
that it shared offices with Michael, shared employees with the other entities, was
created at Michael’s request, was represented by the same attorneys as Michael, and
used the same accountant as Michael. However, whether those facts support an
imposition of alter ego liability on CMD for purposes of the enforcement of the
constructive trust imposed in the arbitration award was a question of law for the trial
court. See Phillips v. Carlton Energy Grp., LLC, 475 S.W.3d 265, 286 (Tex. 2015).
In the amended judgment, the trial court did not impose alter ego liability on CMD
and denied all relief that was not specifically granted. Therefore, the enforcement
of the constructive trust on the entire ownership interest of CMD cannot be
supported on the basis that CMD is Michael’s alter ego.
It is critical to our appellate review that the relief granted to Suzann by the
trial court conform with the pleadings. It does not. In the constructive trust cause
of action in the sixth amended petition, Suzann requested only that the trial court
enforce the constructive trust imposed in the arbitration award on Michael’s interest
in certain entities and on certain real property in which Michael held an interest.
However, the trial court imposed the constructive trust on one hundred percent of
28
the ownership of CMD, even though Suzann did not plead any material allegations
of fact that support a determination that Michael is, or has been, the sole owner of
CMD such that the entire ownership interest in CMD was subject to the constructive
trust. See Capitol Brick, Inc. v. Fleming Manu. Co., 722 S.W.2d 399, 401 (Tex.
1986) (holding that it was “impermissible in a default judgment to render judgment
for damages in excess of the damages specifically pleaded”). We hold that the trial
court abused its discretion when it ordered that Suzann was the sole member of
CMD.
The trial court also ordered that the deed between CMD and MAR, the deed
between MAR and CMP, and the memorandum of assignment between MAR and
CMP were void. This relief could have been granted based only on Suzann’s request
in her constructive trust cause of action that the trial court order that the fraudulent
transfer of “any interest” was void or based on Suzann’s allegation in her fraud cause
of action that Michael, in conspiracy with the other defendants fraudulently
conveyed property in Palo Pinto County in an attempt to hid, conceal, and tortiously
interfere with Suzann’s rights and interests.
In the sixth amended petition, Suzann alleged that, at the time of her husband’s
death, she owned, among other assets, “the approximately 4,000 acres in Palo Pinto
County at issue herein,” and that Michael obtained her signature on a deed to the
property. Suzann did not allege that she conveyed the property to Michael.
The arbitration award imposed a constructive trust on “any real property
belonging to or originating from property belonging to [Suzann], in all her
capacities, and held or owned, in whole or in part, by [Michael], in any capacity,
relating in any way to the so-called Palo Pinto County, Texas, properties.”
Specifically, listed in the arbitration award is “4,683 acres real property asset located
in Palo Pinto County, Texas” as well as three smaller parcels of land in Palo Pinto
29
County.7 Suzann did not allege in the sixth amended petition, nor is there any
independent proof admitted by the trial court, that Michael held or owned, in whole
or in part, in any capacity, any interest in the “so-called Palo Pinto County, Texas,
properties” or in the property that was transferred by CMD to MAR and by MAR to
CMP. Therefore, Suzann did not allege any material facts, nor is there evidence in
the record, that based on the default judgment against CMD, would support the
enforcement of the constructive trust imposed in the arbitration award on the
property transferred from CMD to MAR and from MAR to CMP.
Suzann also requested in her cause of action for the enforcement of the
constructive trust imposed by the arbitration award that the trial court order that “any
interest” that was fraudulently conveyed was void. In her fraud cause of action,
Suzann alleged that Michael, “in conspiracy with and through other Defendants,
fraudulently purported to convey (1) the property in Palo Pinto County” and (2) his
interests in the entity defendants and that these conveyances were “sham transactions
by and to sham entities that were [Michael’s] alter egos.” However, as discussed
above, the trial court did not determine in the amended judgment that alter ego
liability should be imposed on CMD based on the material facts alleged in the sixth
amended petition. Further, it has not been determined in the arbitration award, the
Probate Judgment, nor in this litigation that alter ego liability should be imposed on
MAR or that MAR is a sham entity. Therefore, as pleaded by Suzann, CMD did not
admit, based on the default judgment, the material fact that its transfer of property
to MAR was a fraudulent transfer.
Based on the record before us, we hold that the trial court abused its discretion
when it ordered, based on the default judgment rendered against CMD, that the
October 9, 2017 deed between CMD and MAR, the February 12, 2018 deed between
7
The arbitration award does not contain a legal or physical description of any of the properties
included in the “so-called Palo Pinto County, Texas, properties.”
30
MAR and CMP, and the Memorandum of Assignment between MAR and CMP were
void. See Chase Home Fin, LLC v. SFTF Holdings, LLC, No. 02-10-00423-CV,
2011 WL 2756175, at *1 (Tex. App.—Fort Worth July 14, 2011, no pet.) (per
curiam) (mem. op.) (holding that the trial court erred when it granted default
judgment adjudicating title to real property when pleadings did not contain all
essential facts to support the adjudication).8
We sustain Appellants’ fifth and sixth issues.
This Court’s Ruling
We affirm the trial court’s September 29, 2020 order in which it struck CMD’s
answer. We reverse (1) the trial court’s January 7, 2020 order in which it severed
Suzann’s claims against CMD from her claims against the other defendants and
(2) the trial court’s May 5, 2020 amended judgment. We remand this case to the
trial court for further proceedings consistent with this opinion.
W. BRUCE WILLIAMS
JUSTICE
August 5, 2021
Panel consists of: Bailey, C.J.,
Trotter, J., and Williams, J.
8
Suzann argues that the trial court’s order that the two deeds and the memorandum of assignment
are void should be affirmed because she filed a lis pendens on the property conveyed by CMD to MAR and
that MAR was aware that she had asserted a claim to the property. However, because Suzann was not
entitled to a default judgment that the deeds and the memorandum of assignment were void, we need not
address whether the lis pendens provided sufficient notice to MAR to support the relief granted. See TEX.
R. APP. P. 47.1.
31