Richard Ross v. Access Healthsource, Inc., et al., Kathryn Horn & Joel Hendryx--Appeal from County Court at Law No 7 of El Paso County

COURT OF APPEALS

EIGHTH DISTRICT OF TEXAS

EL PASO, TEXAS

RICHARD ROSS, )

)

Appellant, )

) No. 08-03-00096-CV

v. )

) Appeal from the

ACCESS HEALTHSOURCE, INC., As )

Assignee of O. R. BROOKER, W. A. ) County Court at Law #7

PITCHFORD, NATALIE T. BORNSTEIN, )

MARIA G. CARDENAS, VERNOY ) of El Paso County, Texas

WALKER, RANDOLPH WALDMAN, )

WALKER JACKSON, and MARY WARD, ) (TC# 2003-080)

and KATHRYN HORN and JOEL HENDRYX, )

)

Appellees. )

MEMORANDUM OPINION

Appellant Richard M. Ross appeals a turnover order to enforce a default judgment against him in cause number 99-1459 and the trial court=s granting of summary judgment denying the bill of review in favor of Appellees, Access Healthsource, Inc., as assignee of O. R. Brooker, W. A. Pitchford, Natalie T. Bornstein, Maria G. Cardenas, Vernoy Walker, Randolph Waldman, Walker Jackson, and Mary Ward; and Kathryn Horn and Joe Hendryx (collectively AAppellees@) and denial of his summary judgment motion in cause number 2003-080. The two related appeals have been consolidated for briefing and oral argument purposes only, therefore separate opinions will be issued for each cause. Mr. Ross raises eight issues for review, five challenge the trial court=s turnover order and the remaining three contend the trial court erred in granting summary judgment in favor of Appellees and in denying Mr. Ross= summary judgment motion. In this opinion, we consider the three issues challenging the trial court=s judgment on the motions of summary judgment.[1] We reverse the trial court=s judgment in cause number 2003-080 and remand that cause to the trial court for further proceedings.

PROCEDURAL AND FACTUAL BACKGROUND

On April 26, 1999, Plaintiffs O. R. Brooker, W. A. Pitchford, Natalie T. Bornstein, Maria G. Cardenas, Vernoy Walker, Joel Hendryx, Randolph Waldman, Walker Jackson, Kathryn Horn, and Mary Ward brought suit against Defendants Mr. Ross, Dr. Richard Standridge, and James Farrelly in County Court of Law Number Seven, El Paso County, Texas. In their original petition, Plaintiffs, all shareholders in a physician practice management organization, alleged that the defendants fraudulently induced them to execute a stock merger agreement in which they transferred all their existing capital stock into stock of Access Healthsource, Inc. Specifically, Plaintiffs alleged that the Defendants falsely represented how and why the stock merger into Access Healthsource would be beneficial to them and as a result of the Defendants= misrepresentations the value of their stock went from five million dollars to zero dollars. Defendants Dr. Standridge and Mr. Farrelly were served by process and filed an answer in the lawsuit.

On October 19, 1999, the trial court granted Appellees= motion for substitute service of process on Appellant Mr. Ross at an address in Scottsdale, Arizona. The Arizona process server=s affidavit on November 1, 1999, states that he attempted to personally serve Mr. Ross at the given address, but had to post and mail the documents served. The description of documents served does not list the citation and the record does not contain a return receipt for certified mail, though the affidavit states the documents were mailed by certified mail. On January 21, 2000, Appellees obtained a default judgment against Mr. Ross in which they were awarded five million dollars in actual damages and five million dollars in exemplary damages plus interest and attorney=s fees. The default judgment recites that Mr. Ross was duly served with process in cause number 99-1459. On February 29, 2000, the trial court severed Appellees= cause of action against Defendants Dr. Standridge and Mr. Farrelly from its default judgment against Mr. Ross.[2]

In March 2000, Appellees sought enforcement of the Texas default judgment in an Arizona state court. On April 17, 2000, Mr. Ross filed a motion under Ariz.R.Civ.P. 60(c) to vacate the foreign judgment Appellees had filed in Arizona based on insufficient service of process. In their response to Mr. Ross= motion, Appellees asserted he was properly served in the Texas lawsuit. On August 8, 2000, the Arizona state court found insufficient service of process on Mr. Ross and ordered the foreign judgment filed by Appellees Avoid and hereby vacated.@

On January 7, 2003, Mr. Ross filed a petition for bill of review, challenging the default judgment obtained against him by Appellees in January 2000. In his petition, he alleged inter alia that Appellees wrongfully obtained a default judgment against him, that he has a meritorious defense to the underlying lawsuit, that the trial court give full credit to the Arizona judgment finding improper service on him in the default judgment, and that his inability to prevent the entry of the default was not the result of any fault or negligence on his part. In their answer, Appellees asserted that a bill of review was not available to Mr. Ross because he failed to exhaust other legal remedies available to him to challenge the default judgment in Texas and was at fault or negligent in having the default judgment rendered against him. The parties then filed cross-motions for summary judgment on the bill of review. On January 31, 2003, the trial court granted summary judgment in favor of Appellees, denied Mr. Ross= motion for summary judgment, and ruled that Mr. Ross= bill of review petition to set aside the January 2000 default judgment was denied. Mr. Ross now timely appeals the trial court=s judgment in cause number 2003-080.

Bill of Review

In Issues Six through Eight, Mr. Ross contends the trial court erred in granting Appellees= motion for summary judgment denying the bill of review and the denial of his motion for summary judgment.

Standard of Review

Summary judgment is proper when the movant establishes there is no genuine issue of material fact and that he is entitled to judgment as a matter of law. See Tex.R.Civ.P. 166a(c); Nixon v. Mr. Property Management Co., Inc., 690 S.W.2d 546, 548-49 (Tex. 1985). The question on appeal is not whether the summary judgment proof raises fact issues as to the elements of the movant=s cause or claim, but rather whether the summary judgment proof establishes, as a matter of law, that there is no genuine issue of material fact as to one or more elements of the movant=s cause or claim. Wyatt v. Longoria, 33 S.W.3d 26, 31 (Tex.App.--El Paso 2000, no pet.). In determining whether the movant has carried this burden, all evidence favorable to the non-movant must be taken as true and all reasonable inferences must be indulged in favor of the non-movant, and any doubts must be resolved in the non-movant=s favor. Nixon, 690 S.W.2d at 548-49; Wyatt, 33 S.W.3d at 31. When both sides file motions for summary judgment and one is granted and the other is denied, we review all questions presented. FM Properties Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000); Jones v. Strauss, 745 S.W.2d 898, 900 (Tex. 1988)(per curiam)(orig. proceeding). When a summary judgment order does not specify on what grounds it was granted, we will affirm the judgment if any of the theories advanced in the motion is meritorious. Carr v. Brasher, 776 S.W.2d 567, 569 (Tex. 1989).

Grounds for Bill of Review

A bill of review is an equitable proceeding brought by a party seeking to set aside a prior judgment that is no longer subject to challenge by a motion for new trial or appeal. Caldwell v. Barnes, 975 S.W.2d 535, 537 (Tex. 1998); see Tex.R.Civ.P. 329b(f). Although it is an equitable proceeding, the fact that an injustice has occurred is not sufficient to justify relief by review. Wembley Inv. Co. v. Herrera, 11 S.W.3d 924, 927 (Tex. 1999); see also Williamson v. Williamson, 986 S.W.2d 379, 380-81 (Tex.App.--El Paso 1999, no pet.). Ordinarily, a petitioner for bill of review must prove: (1) a meritorious claim or defense to the cause of action alleged to support the judgment; (2) which fraud, accident, or the opposing party=s wrongful act prevented him from making; and (3) without any fault or negligence of his own. Wembley Inv. Co., 11 S.W.3d at 927; Baker v. Goldsmith, 582 S.W.2d 404, 408 (Tex. 1979). Further, bill of review relief is available only if a party has exercised due diligence in pursuing all adequate legal remedies against a former judgment. Wembley Inv. Co., 11 S.W.3d at 927. If legal remedies were available but ignored, relief by equitable bill of review is unavailable. Id.; Williamson, 986 S.W.2d at 381.

Where the petitioner was not served with process, he need not prove he had a meritorious defense, is not required to show he was prevented from presenting such a defense by fraud, accident, or wrongful act of his opponent, and his own want of fault or negligence is established. See Peralta v. Heights Med. Ctr., Inc., 485 U.S. 80, 86, 108 S. Ct. 896, 900, 99 L. Ed. 2d 75 (1988) (constitutional due process relieves petitioner from proving meritorious defense where no service); Texas Indus., Inc. v. Sanchez, 525 S.W.2d 870, 871 (Tex. 1975)(proof of not having been served with citation obviates proving that petitioner was prevented from making defense by fraud, accident, or wrongful act of the opposite party); Caldwell, 975 S.W.2d at 537 (if no service, want of fault or negligence is established).

In his motion for summary judgment, Mr. Ross argued he was entitled to summary judgment granting the bill of review because the underlying default judgment is void due to the lack of service of process on him. A default judgment will not withstand direct attack if strict compliance with the rules relating to the issuance of citation, the manner and mode of service, and the return of process does not affirmatively appear in the record. See Primate Const., Inc. v. Silver, 884 S.W.2d 151, 152 (Tex. 1994); Uvalde Country Club v. Martin Linen Supply Co., Inc., 690 S.W.2d 884, 885 (Tex. 1985); World Distributors, Inc. v. Knox, 968 S.W.2d 474, 477 (Tex.App.--El Paso 1998, no pet.). There are no presumptions favoring valid issuance, service, and return of citation. World Distributors, Inc., 968 S.W.2d at 477.

Mr. Ross presented summary judgment evidence to show numerous deficiencies in the service of process on him. In the underlying default judgment, Appellees attempted to serve Mr. Ross at 7670 Sierra Vista Dr., Scottsdale, Arizona without success. The trial court granted Appellees= motion for substituted service, ordering citation to be served upon Mr. Ross at that address, together with a copy of the original petition, copies of the motion and substituted service order, Aby leaving a true copy of the citation, with a copy of Plaintiff=s Original Petition attached, to anyone over sixteen (16) years of age at 7670 Sierra Vista Dr. Scottsdale, Arizona 85252; and by affixing it to the door of the building at the above specified location.@ In his affidavit, Richard Acree, an Arizona process server, listed the suit documents he posted at and mailed by certified return receipt to the address. Mr. Acree=s description does not include the citation as one of the documents served.[3] It also does not state that he personally served any person over sixteen years old at the address. Mr. Ross also notes that no citation is attached to Mr. Acree=s affidavit and no citation appears in the trial court=s record for the default judgment.[4] Further, in his motion Mr. Ross asserted there is no court order in the record authorizing Mr. Acree to serve process on him pursuant to Texas Rule of Civil Procedure 103.[5]

Mr. Ross also argued that Appellees failed to comply strictly with the trial court=s substituted service order pursuant to Texas Rule of Civil Procedure 107 because the order specifically required personal service to any person over sixteen years old and posting, not posting and certified mailing.[6] Even if service by certified mail was in compliance with the court=s order, Mr. Ross notes Mr. Acree=s affidavit of service does not include return receipt and no such receipt is contained in the trial court=s record in the underlying cause.[7]

Appellees in their motion for summary judgment and on appeal argue that as a matter of law, Mr. Ross= complete failure to pursue any of the legal remedies available to him under Texas law after he had notice of the default judgment shows he failed to exercise due diligence, precludes him from seeking a bill of review to vacate that judgment. See Caldwell, 975 S.W.2d at 537. In support of their motion, Appellees presented summary judgment evidence to show Mr. Ross knew of the Texas default judgment by April 17, 2000, which was the date he submitted the Motion to Vacate Foreign Judgment to the Arizona state court to challenge the domesticated default judgment.[8] Based on this date, Appellees argue Mr. Ross had sufficient time to file a motion for new trial, an appeal, or a restricted appeal, but failed to do so.

Generally, a party must exhaust all available legal remedies before pursuing a bill of review. Rundle v. Commission for Lawyer Discipline, 1 S.W.3d 209, 216 (Tex.App.--Amarillo 1999, no pet.), citing, French v. Brown, 424 S.W.2d 893, 895 (Tex. 1967). If a party permits a judgment to become final by neglecting to file a motion for new trial, appeal, or appeal by writ of error, then the party is precluded from proceeding on a petition for bill of review unless the complaint shows a good excuse for failure to exhaust adequate legal remedies. Rundle, 1 S.W.3d at 216. In order to prevail on their motion for summary judgment denying the bill of review, Appellees were required to prove, as a matter of law, Mr. Ross= lack of due diligence in pursuing all available legal remedies.

Here, summary judgment evidence shows Appellees obtained a default judgment against Mr. Ross on January 21, 2000. That judgment became final on February 29, 2000, the date the trial court severed the default judgment from Appellees= suit against Defendants Dr. Standridge and Mr. Farrelly. On March 31, 2000, Appellees sought enforcement of the Texas default judgment in an Arizona state court. On April 17, 2000, Mr. Ross filed his motion to vacate the domesticated Texas default judgment in Arizona. The parties do not dispute that Mr. Ross knew of the Texas default judgment by April 17, 2000. Therefore, Mr. Ross was aware of the default judgment at least forty-five days after it became final. Under the rules of civil procedure, Mr. Ross could have filed a motion for new trial, an appeal, or a restricted appeal to set aside the default judgment in Texas. See Tex.R.Civ.P. 306a(4), 329b; Tex.R.App.P. 30, 26.1(c).

In response, Mr. Ross contends he exercised reasonable care when he learned of the default judgment by promptly obtaining a judgment in Arizona, where Appellees were attempting to enforce it, vacating the default judgment. Soon after, Appellees re-filed identical claims against him by adding him as a defendant in the severed suit against his codefendants. Mr. Ross filed an answer to that suit, which is still pending. In his motion, Mr. Ross asserted that he then believed the default judgment had been resolved. Appellees then made no effort to enforce the default judgment for two years. Based on these circumstances, Mr. Ross asserts any reasonable person in his position would have believed it unnecessary to pursue any further remedies in Texas.

Before the petitioner may bring a claim for bill of review, he must allege and prove that he has exercised all due diligence to pursue all adequate legal remedies to the judgment in controversy or show good cause for failing to exhaust the same. See Caldwell, 975 S.W.2d at 537; Hesser v. Hesser, 842 S.W.2d 759, 765 (Tex.App.--Houston [1st Dist.] 1992, writ denied)(petitioner must show a good excuse for failure to exhaust adequate legal remedies to be entitled to a bill of review citing Griffith v. Conard opinion); Griffith v. Conard, 536 S.W.2d 658, 661 (Tex.Civ.App.--Corpus Christi 1976, no writ)(lack of due diligence not shown as a matter of law where representations made before and after default judgment was entered); see also Miller v. Miller, No. 05-02-01903-CV, 2003 WL 22363363 (Tex.App.--Dallas October 15, 2003, no pet. h.)(not designated for publication). We cannot conclude that Appellees established, as a matter of law, Mr. Ross= lack of due diligence in light of circumstances which create a fact issue as to whether Mr. Ross has shown good cause for failing to exhaust his legal remedies. Since the summary judgment evidence establishes a genuine issue of fact with respect to Mr. Ross= failure to exercise due diligence, Appellees are not entitled to summary judgment as a matter of law, and therefore, the trial court erred in granting summary judgment denying the bill of review. See Tex.R.Civ.P. 166a(c). Accordingly, Issue Six is sustained and we need not address Issues Seven and Eight regarding the summary judgment order.[9]

Accordingly, we reverse the trial court=s granting of summary judgment denying the bill of review in cause number 2003-080 and remand that cause to the trial court for further proceedings.

December 4, 2003

DAVID WELLINGTON CHEW, Justice

Before Panel No. 2

Barajas, C.J., McClure, and Chew, JJ.

[1] In Issues One through Five of his appellate brief, Mr. Ross complains of the trial court=s granting of turnover relief in trial cause number 99-1459, consolidated with this appeal for briefing and oral argument purposes only. Disposition of these issues are addressed in this Court=s opinion in Ross v. Access Healthsource, Inc., et al., No. 08-03-00079-CV.

[2] On October 27, 2000, Appellees amended their original petition in their severed action against Dr. Standridge and Mr. Farrelly, now cause number 2000-764 , to include Mr. Ross as a Defendant and alleged claims virtually identical to those alleged in the default judgment against Mr. Ross. Mr. Ross filed an answer to that suit on November 17, 2000.

[3] Texas Rule of Civil Procedure 99(a) requires a defendant in a suit be served with a citation and a copy of the petition. Tex.R.Civ.P. 99(a). Tex.R.Civ.P. 107 provides: ANo default judgment shall be granted in any cause until the citation . . . shall have been on file with the clerk of the court ten days, exclusive of the day of filing and the day of judgment.@ Tex.R.Civ.P. 107.

[4] Texas Rule of Civil Procedure 107 requires that return of service be endorsed on or attached to the citation and state when the citation was served and the manner of service and be signed by the officer officially or by the authorized person. See Tex.R.Civ.P. 107.

[5] Texas Rule of Civil Procedure 103 designates who may serve process. Citation and other notices may be served by any sheriff or constable or other person authorized by law or by written order of the court who is not less than eighteen years of age. See Tex.R.Civ.P. 103.

[6] Texas Rule of Civil Procedure 107 states A[w]here citation is executed by an alternative method as authorized by Rule 106, proof of service shall be made in the manner ordered by the court.@ Tex.R.Civ.P. 107.

[7] Texas Rule of Civil Procedure 107 requires that A[w]hen the citation was served by registered or certified mail as authorized by Rule 106, the return by the officer or authorized person must also contain the return receipt with the addressee=s signature.@ Tex.R.Civ.P. 107.

[8] On February 1, 2000, the district clerk [El Paso County] sent notice of the default judgment to Mr. Ross at 7670 Sierra Vista Drive in Scottsdale, Arizona.

[9]See this Court=s opinion in Ross v. Access Healthsource, Inc., et al, No. 08-03-00079-CV, regarding disposition of Issues One through Five addressing Mr. Ross= complaints on appeal of the trial court=s turnover order in trial cause number 99-1459, which was consolidated with this appeal for briefing and oral argument purposes only.