Raymond Showery and Empresario Investments, L.L.C. v. Jaime Hervella--Appeal from 205th District Court of El Paso County

COURT OF APPEALS

EIGHTH DISTRICT OF TEXAS

EL PASO, TEXAS

RAYMOND SHOWERY and EMPRESARIO )

INVESTMENTS, L.L.C., ) No. 08-02-00390-CV

)

Appellants, ) Appeal from the

)

v. ) 205th District Court

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JAIME HERVELLA, ) of El Paso County, Texas

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Appellee. ) (TC# 2002-2523)

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MEMORANDUM OPINION

Appellants Raymond Showery and Empresario Investment, L.L.C. (AAppellants@) appeal a judgment entered in favor of Appellee Jaime Hervella in his codefendant cross-claim suit to enforce a settlement and release agreement entered by Appellants and Mr. Hervella. In three issues, Appellants challenge the trial court=s judgment arguing that: (1) they were denied due process because they did not receive timely notice of the trial setting; (2) the trial court erred in concluding they breached the settlement and release agreement; and (3) the trial court erred in its findings of fact and conclusions of law when it erroneously interpreted unambiguous language in the parties= mediated settlement agreement. We reverse and remand for a new trial.

On July 23, 1998, Mr. Hervella, Appellants, and Family Hospital of El Paso, Inc. (AFamily Hospital@) entered into a settlement and release agreement (AAgreement@) to settle all claims and disputes between the parties. As stated in the Agreement, since 1992, Mr. Hervella, a financial consultant and planner, had provided real estate management services and accounting services to Appellant Mr. Showery and Family Hospital. In March 1996, Family Hospital and Mr. Hervella entered into an agreement whereby Family Hospital transferred essentially all of its assets into a newly formed Texas limited liability company, Appellant Empresario Investments, L.L.C. in which Mr. Hervella would own a 20 percent ownership interest in consideration for past uncompensated services rendered. Pursuant to the Agreement, Mr. Hervella transferred to Appellant Empresario his ownership rights in Empresario and relinquished and waived all management rights and powers held in Empresario as a manager. With respect to one asset held by Empresario, a promissory note referred to as the AHernandez Note,@ the parties agreed that legal title and ownership of the Hernandez Note was to remain in Empresario, but Mr. Hervella was to control and manage the Hernandez Note Ato attempt to affect a settlement with HERNANDEZ and or to liquidate, sell or foreclose the HERNANDEZ NOTE.@ The Hernandez Note was a promissory note in default executed by Luis and Victoria Hernandez in October 1994 in the original principal amount of $43,532.70, which was secured by a first lien against their residence, the Paraguay property. Mr. Hervella was obligated to pay all costs and expenses incurred in connection with the sale or liquidation of the Hernandez Note. By the terms of the Agreement, Mr. Hervella was to receive the first $25,000 of the proceeds, plus reimbursement of expenses incurred for the collection and then fifty percent of the remaining proceeds from the Hernandez Note.

After attempting unsuccessfully to collect on the note through direct negotiations with Mr. and Mrs. Hernandez, Mr. Hervella hired attorney Robert Kennedy in December 1998 to assist in pursuing collection. Mr. Kennedy foreclosed on the Paraguay property securing the note, which resulted in Mr. and Mrs. Hernandez filing suit inter alia for wrongful foreclosure against Appellants and Mr. Hervella. In their suit, the Hernandezes sought to enjoin and restrain a foreclosure sale on their residence posted under an allegedly unlawful declaration of default and acceleration of maturity of the promissory note. Mr. Hervella later hired attorney Gregory Pine to replace Mr. Kennedy in collecting on the note and defending the wrongful foreclosure claims. On October 16, 2001, the Hernandezes, Appellants, and Mr. Hervella entered into a Mediation Settlement Agreement (AMSA@). Pursuant to the MSA, Empresario agreed to convey the Paraguay property to the Hernandezes by general warranty deed and the Hernandezes agreed to execute a promissory note in the original principal sum of $49,500, payable to Empresario and secured by a first lien deed of trust bearing an annual interest rate of 9.5 percent for a term of fifteen years. Mr. Hervella and Mr. Showery respectively agreed to pay one-half of the delinquent property taxes on the residence, which amounted to $12,003. Importantly, MSA provided that A[d]isputes between Showery, Hervella, and Empresario are not resolved by this agreement.@

On November 27, 2001, Mr. Hervella filed codefendant cross-claims against Appellants in the Hernandezes= lawsuit, in which he alleged Appellants breached the July 1998 Agreement by refusing to pay him the amounts due to him under that Agreement from the payments received under the new promissory note. Mr. Hervella also sought a declaration that the Agreement was binding and enforceable and he was entitled to an interest in the proceeds of the Hernandez Note and/or the new promissory note in the amount outlined in the Agreement. On February 5, 2002, the trial court entered an order for referral of Appellants and Mr. Hervella to mediation. On the same date, the trial court set the matter for a non-jury bench trial scheduled for March 7, 2002. Mediation proceedings were conducted on February 27, 2002, but the parties did not reach a settlement. On March 4, 2002, Appellants filed a motion for continuance of the March 7, 2002 trial setting because they had not been able to retain counsel and Athe status of this whole matter is uncertain in that the original case is still pending . . . .@ The trial court set a hearing on the motion for continuance for March 7, 2002. The motion was subsequently denied. After a bench trial, the trial court entered a judgment in favor of Mr. Hervella. Specifically, the trial court found that Appellants breached the Agreement and that Mr. Hervella was entitled to proceeds from the new promissory note, which replaced the prior Hernandez Note, under the terms of the July 1998 Agreement. Appellants now appeal the trial court=s judgment.

In Issue One, Appellants argue they were denied due process because they did not receive timely notice of the trial setting pursuant to Texas Rule of Civil Procedure 245. Specifically, Appellants assert that the order setting the bench trial on the cross-claim suit is dated February 5, 2002, setting the trial for March 7, 2002, giving them only thirty-days notice. Appellants fail to mention in their appellate brief that on March 4, 2002, Appellants filed a motion for continuance of the March 7, 2002 trial setting, and the trial court set a hearing on that motion for March 7, 2002 prior to trial.

At trial, the following exchange occurred between Appellant Mr. Showery and the trial court:

Showery: Your, Honor, I hate to interrupt but because I don=t know the legal procedure but I understand that there has to be a 30-day notice given for a trial and I haven=t received that and so I need to--in other words, I was notified on the 11th of February and this is the 7th.

The Court: Well, I guess, Mr. Showery, the one thing that surprises me is that that wasn=t included on any of your motions. You are going ahead-

Showery: Yes, it is; not in the motions but in my presentations to you I mentioned those dates.

The Court: Well, you have mentioned the dates but you didn=t indicate anything other than those were the dates that you were given the notice. I am going to go ahead and continue with the bench trial.

We will go ahead and proceed. Mr. Showery your objection will be noted for the record.

It is apparent from the record that the trial court, in part, was considering and ruling upon Appellants= pending motion for continuance. We review a denial of a motion for continuance under an abuse of discretion standard. Gen. Motors Corp. v. Gayle, 951 S.W.2d 469, 476 (Tex. 1997); Walton v. Canon, Short & Gaston, 23 S.W.3d 143, 150 (Tex.App.--El Paso 2000, no pet.). We will not reverse unless the record shows a clear abuse of discretion, that is, the trial court acted without reference to any guiding rules and principles. Walton, 23 S.W.3d at 150.

Rule 245 of the Texas Rules of Civil Procedure provides in pertinent part:

The Court may set contested cases on written request of any party, or on the court=s own motion, with reasonable notice of not less than forty-five days to the parties of a first setting for trial, or by agreement of the parties . . . .

Tex.R.Civ.P. 245.

In their motion for a continuance, Appellants did not object to the trial setting on grounds that they received insufficient notice under Rule 245. Rather, they sought a continuance because they had not been able to retain counsel and Athe status of this whole matter is uncertain in that the original case is still pending . . . .@ Therefore, the trial court did not abuse its discretion in denying the written motion for continuance because Appellants failed to assert their specific objection to insufficient notice. However, on the day of trial, Appellants did raise an objection asserting inadequate notice under the procedural rules for trial setting and the trial court noted his objection for the record before proceeding with the trial. From the date of the order first setting a trial on the cross-claim suit and the date of that trial setting, the record affirmatively demonstrates that Appellants received less than the forty-five days mandated by Rule 245. See Blanco v. Bolanos, 20 S.W.3d 809, 811 (Tex.App.--El Paso 2000, no pet.)(if record affirmatively demonstrates less than 45-days= notice, presumption of proper notice is no longer taken as true). Thus, the trial court erred in failing to comply with Rule 245 based on Appellants= objection at trial. On appeal, Appellants urge that this trial error requires reversal and remand for a new trial. We agree.

Several Texas courts, including this Court, have considered proper notice under Rule 245 to be a mandatory requirement and have found that a trial court=s failure to comply with the rules of notice in a contested case deprives a party of the constitutional right to be present at the hearing, to voice his objections in an appropriate manner, and results in a violation of fundamental due process. See Blanco, 20 S.W.3d at 811; Platt v. Platt, 991 S.W.2d 481, 483 (Tex.App.--Tyler 1999, no pet.); Delgado v. Hernandez, 951 S.W.2d 97, 99 (Tex.App.--Corpus Christi 1997, no writ); Hardin v. Hardin, 932 S.W.2d 566, 567 (Tex.App.--Tyler 1995, no writ); Trevino v. Gonzalez, 749 S.W.2d 221, 223 (Tex.App.--San Antonio 1988, writ denied)(failure to give required notice constitutes lack of due process and is grounds for reversal); But see In re Marriage of Parker, 20 S.W.3d 812, 818 (Tex.App.--Texarkana 2000, no pet.)(Rule 245 provides a notice requirement that goes beyond due process requirements); In re J.B., 93 S.W.3d 609, 614-15 (Tex.App.--Waco 2002, pet. denied)(conducting harm analysis before reversing for Rule 245 violation). A party is entitled to fair notice of his trial setting, and the failure to give adequate notice constitutes a lack of due process. Hardin, 932 S.W.2d at 567. Because Appellants received less than the forty-five days mandated by Rule 245, we sustain Issue One. Given our disposition of Appellants= first issue, it is not necessary to address their remaining issues.

We reverse the judgment and remand the case to the trial court for a new trial.

December 18, 2003

DAVID WELLINGTON CHEW, Justice

Before Panel No. 3

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