Jerry Bayne Truett and Dava Beth Truett v. IBAT Bond Trust--Appeal from 87th District Court of Limestone County

IN THE

TENTH COURT OF APPEALS

No. 10-99-004-CV

JERRY BAYNE TRUETT

Appellant

v.

IBAT BOND TRUST,

Appellee

From the 87th District Court

Limestone County, Texas

Trial Court # 25,335-B

O P I N I O N

IBAT Bond Trust (IBAT) sued Jerry Bayne Truett and his wife Dava Beth Truett on theories of conversion, theft and breach of contract. Upon the defendants failure to answer, IBAT obtained a default judgment against the Truetts for $734,564.36 plus attorney s fees. Jerry Bayne Truett (hereinafter Truett ) filed a timely motion for new trial which the trial court subsequently overruled. Truett then brought this appeal. We will affirm.

FACTUAL AND PROCEDURAL HISTORY

IBAT, a fidelity bond insurer, issued a bond to the First State Bank of Kosse, Texas insuring the Bank against certain losses caused by the conduct of its employees. On August 18, 1998, the Bank submitted a sworn proof of loss to IBAT seeking recovery for losses allegedly resulting from the conduct of the Truetts. IBAT paid the claim, and the Bank assigned to IBAT its right to all causes of action then owned against the Truetts.

IBAT subsequently sued the Truetts for $734,564.36 plus attorney s fees, representing the amount IBAT paid to the Bank under the bond agreement. The original petition was filed on September 4, 1998 and the return of service was dated September 9. On October 20, there being no answer on file, the District Court rendered default judgment against the Truetts for $734,564.36 plus $6,804.27 in attorney s fees.

On November 20, Truett filed a timely motion for new trial asserting that he satisfied the elements necessary to set aside a default judgment enunciated by the Supreme Court in Craddock v. Sunshine Bus Lines, Inc., 134 Tex. 388, 133 S.W.2d 124 (1939). Truett attached an affidavit to his motion, which recited the following operative facts:

I was served with a citation and Plaintiff s original Petition in cause number 25,335-B on the docket of the District Court of Limestone County, Texas, which is styled IBAT Bond Trust v. Dava Beth Truett and Jerry Bayne Truett. I was served with these papers while I was confined in jail in McLennan County, Texas. I did not think that I had to do anything to defend this civil suit since I was confined in jail. I did not think that any deadlines would run until I was released from jail . . . . I am not knowledgeable about the law. I have never been involved in a court proceeding of this nature before: I simply made a mistake and did not hire an attorney to defend this case. It was not my intention to ignore this lawsuit, but it was due to an accident or mistake on my part.

I have never worked for a bank. I have never embezzled money from any bank or any other business.

My defense to the lawsuit would be that I have never taken any money from the bank in question, nor had [sic] I ever participated in any way in taking money from that bank.

On December 21, the District Court held a hearing on Truett s motion for new trial. In an attempt to controvert the facts asserted in Truett s affidavit, IBAT introduced certified copies of United States District Court records consisting of two arrest warrants, two orders setting conditions for release, and two appearance bonds. The records indicate that Truett was initially arrested on September 8, released from jail on September 9 (the day he was served with citation), and not reconfined until October 13, eight days after his answer was due. At the conclusion of the hearing, the trial court denied Truett s motion for new trial. By four points of error, Truett contends the trial court erred in so doing. //

STANDARD OF REVIEW

A default judgment should be set aside in any case in which: (1) the failure of the defendant to answer before judgment was not intentional or the result of conscious indifference on his part, but was due to a mistake or accident; (2) provided that the motion for a new trial sets up a meritorious defense and (3) is filed at a time when the granting thereof will occasion no delay or otherwise work an injury to the plaintiff. Director, State Employees Worker s Compensation Div. v. Evans, 889 S.W.2d 266, 268 (Tex. 1994); Strackbein v. Pruett, 671 S.W.2d 37, 38 (Tex. 1984); Craddock, 133 S.W.2d at 126. The grant or denial of a motion for new trial rests with the sound discretion of the trial court and the court s ruling will not be disturbed on appeal absent an abuse of that discretion. Cliff v. Huggins, 724 S.W.2d 778, 778-79 (Tex. 1987). The proper inquiry is whether the trial court acted without reference to any guiding rules or principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985), cert. denied, 476 U.S. 1159, 106 S. Ct. 2279, 90 L. Ed. 2d 721 (1986), citing Craddock, 133 S.W.2d at 126. However, when all elements of the Craddock test are met, a trial court abuses its discretion in denying the motion for new trial. Director, 889 S.W.2d at 268.

ADMISSIBILITY OF THE DISTRICT COURT RECORDS

In his first issue, Truett contends the trial court erred in considering the United States District Court records offered by IBAT to contradict the factual assertions contained in Truett s affidavit. At the hearing on Truett s motion for new trial, Truett objected to the admission of the court records on relevance grounds. IBAT responded that the documents were offered to controvert the statements in Truett s affidavit that he was confined for the entire period during which he could have filed an answer, rendering them relevant to the issue of whether the failure to answer was intentional or the result of conscious indifference. The court overruled Truett s objection and admitted the records. On appeal, Truett argues that the records could not have been relevant to controvert such a statement because such a statement does not appear in the affidavit.

Evidence is relevant if it has any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence. Tex. R. Evid. 401. The decision to admit or exclude evidence is addressed to the sound discretion of the trial court. Gee v. Liberty Mut. Fire Ins. Co. 765 S.W.2d 394, 396 (Tex.1989). In Strackbein v. Prewitt, the Supreme Court provided guidelines for considering motions for new trial based on the Craddock factors. Strackbein v. Prewitt, 671 S.W.2d 37, 38-39 (Tex. 1984). The court held: [w]here factual allegations in a movant s affidavits are not controverted, a conscious indifference question must be determined in the same manner as a claim of meritorious defense. It is sufficient that the movant s motion and affidavits set forth facts which, if true, would negate intentional or consciously indifferent conduct. Id. The court further opined that the trial judge, in considering the motion for new trial, could look only to the record before him at that time. Id. at 38. Because there was no record of the hearing on the motion for new trial in Strackbein, the only evidence from which the court of appeals could determine error was the motion itself and the supporting affidavits. Id. The Supreme Court has since clarified the scope of review contemplated by Strackbein:

If the factual assertions in the defendant s affidavit are not controverted by the plaintiff, the defendant satisfies his burden if his affidavit sets forth facts that, if true, negate intentional or consciously indifferent conduct by the defendant. In determining if the defendant s factual assertions are controverted, the court looks to all the evidence in the record.

Director, State Employees Worker s Compensation Div. v. Evans, 889 S.W.2d 266, 268-69 (Tex. 1994) (emphasis added). Such evidence may include the motion for new trial and supporting affidavit, any response and its controverting affidavit, and evidence introduced at the hearing, including oral testimony and documentary exhibits. Id. at 269.

In this case, Truett s affidavit recites that he was served while confined in jail, did not think action was required during his confinement, and did not believe any deadlines would run until his release. IBAT s evidence regarding the dates of Truett s confinement is germane to the issue of whether his failure to answer was merely negligent or resulted from intentional or consciously indifferent conduct. The trial court did not abuse its discretion in admitting or considering such evidence. Truett s first issue is overruled.

THE CRADDOCK TEST

In issues two through four respectively, Truett contends that the trial court erred in denying his motion for new trial because he met each element of the Craddock test. Specifically, Truett asserts that his affidavit sufficiently established (1) that his failure to file an answer was not intentional or the result of conscious indifference but was due to a mistake, (2) that he has a meritorious defense, and (3) that the grant of a new trial will occasion no delay or otherwise work an injury to the plaintiff. See Craddock, 133 S.W.2d at 126.

To satisfy the first prong of the Craddock test, a movant must negate the existence of conscious indifference. Director, 889 S.W.2d at 268-69. Conscious indifference has been defined as a failure to take some action which would seem indicated to a person of reasonable sensibilities under the same circumstances. Bank One, Texas, N.A. v. Moody, 830 S.W.2d 81, 86 (Tex. 1992) (citing Johnson v. Edmonds, 712 S.W.2d 651, 652-53 (Tex. App. Fort Worth 1986, no writ). The inquiry must focus on the knowledge and acts of the defendant in each case. Strackbein, 671 S.W.2d at 39.

Truett s affidavit states that it was not his intention to ignore the suit, but that his failure to answer arose from his mistaken belief that the period for filing an answer would not run until he was released from jail. He characterizes this error as a mistake of law, therefore sufficient to negate conscious indifference under the Supreme Court s holding in Bank One, Texas, N.A. v. Moody, 830 S.W.2d 81, 84 (Tex. 1992).

The plaintiff in Moody served a writ of garnishment on the defendant bank after obtaining a judgment against one of the bank s depositors. Id. at 82. In response to the writ, the bank froze the depositor s accounts but failed to file an answer to the writ. Id. The bank then deposited the funds from the frozen accounts with the district court clerk. Id. The plaintiff took a default judgment against the bank, which then filed a motion for new trial. Id. At the hearing, the bank s president testified that his failure to answer the writ was due entirely to his belief that his actions were sufficient to comply with the writ. Id. The trial court denied the bank s motion for new trial, and the court of appeals affirmed. Id. The Supreme Court determined that the president s erroneous belief that his actions sufficiently answered the writ constituted a mistake of law. Id. at 84. The court held that [a] mistake of law is one of the excuses that are sufficient to meet the requirements of Craddock. Id. However, the court clarified its position by stating [t]his is not to say that every act of a defendant that could be characterized as a mistake of law is a sufficient excuse. Id. (citing Carey Crutcher, Inc. v. Mid-Coast Diesel Services, Inc., 725 S.W.2d 500, 502 (Tex. App. Corpus Christi 1987, no writ) (attorney did not understand effect of bankruptcy stay); First National Bank of Bryan v. Peterson, 709 S.W.2d 276, 279 (Tex. App. Houston [14th Dist.] 1986, writ ref d n.r.e.) (defendant bank froze accounts but did not submit funds therein to the court); Butler v. Dal Tex Mach. & Tool Co., 627 S.W.2d 258, 260 (Tex. App. Fort Worth 1982, no writ) (defendant read citation but did not understand its implications and did nothing)). The court concluded that the president thought what he did was the answer that the writ required and thus satisfie[d] the first element of the Craddock test. Id. at 85.

Unlike the defendant in Moody, Truett does not contend that he believed his actions (or lack thereof) constituted a sufficient answer to the lawsuit. Although Truett s belief that his confinement tolled the answer period could be characterized as a mistake of law, it is not the type of mistake that negates conscious indifference. Truett does not dispute the fact that he took no action whatsoever in response to the citation, nor did he ever inquire as to whether any action was necessary. Based on the record before it, the trial court could have appropriately concluded that Truett s conscious decision to ignore this lawsuit, even if based on a mistake of law, went beyond mere negligence. The trial court therefore did not abuse its discretion in denying Truett s motion for new trial. Because the trial court could have properly based its decision on Truett s failure to negate conscious indifference, we need not address whether Truett established a meritorious defense or established that the granting of a new trial would occasion no delay or injury to the plaintiff.

The judgment of the trial court is affirmed.

REX D. DAVIS

Chief Justice

Before Chief Justice Davis

Justice Vance, and

Justice Gray

Affirmed

Opinion delivered and filed June 21, 2000

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