Wohlfahrt, Douglas, M.D., et al v. John Holloway--Appeal from 129th District Court of Harris County

Opinion issued February 1, 2001

In The

Court of Appeals

For The

First District of Texas

 

NO. 01-99-00205-CV

 

DOUGLAS WOHLFAHRT, M.D. AND LYNN WOHLFAHRT, Appellants

 

V.

 

JOHN HOLLOWAY, Appellee

 

On Appeal from the 129th District Court

Harris County, Texas

Trial Court Cause No. 9210256

 

O P I N I O N This is an appeal from a jury verdict in favor of appellee, John Holloway, on a suit to collect attorney's fees owed by appellees, Douglas Wohlfahrt, M.D. and Lynn Wohlfahrt. The Wohlfahrts appeal, contending the trial court erred by: (1) dismissing their counterclaims as untimely filed; (2) refusing to submit their fraud and offset questions to the jury; (3) admitting prejudicial evidence that the Wohlfahrts had been prosecuted for income tax evasion; (4) refusing to allow the Wohlfahrts to rebut the "tax evasion evidence" with evidence that they had been acquitted; and (5) permitting Holloway to recover damages for claims that were barred by limitations. We reverse and remand.

BACKGROUND

Holloway is an attorney, and his practice is mostly in the area of medical malpractice claims against health care providers. Wohlfahrt is an obstetrician/gynecologist (OB/GYN), and Lynn is his wife. In 1984, Holloway attempted to sell his home, and the Wohlfahrts visited as potential buyers. During this initial visit, Lynn explained to Holloway that the Wohlfahrts had some recent legal trouble, and that a default judgment had been taken against them. From this initial conversation, a professional and personal relationship developed between Holloway and the Wohlfahrts.

Thereafter, Holloway represented the Wohlfahrts in numerous legal matters. However, he never sent the Wohlfahrts a bill for his services. Wohlfahrt claimed that he and Holloway had entered a bartering arrangement, whereby he would consult with Holloway on his medical malpractice cases in return for Holloway's legal assistance. Holloway denied such an arrangement, but claimed he never sent them a bill because it would have been a useless act.

The relationship deteriorated, and, in March 1992, Holloway for the first time demanded payment for the work he had performed for the Wohlfahrts. On March 6, 1992, Holloway sued the Wohlfahrts seeking to recover his fees. On March 9, 1992, Holloway filed two additional suits seeking repayment of loans he claimed to have made the Wohlfahrts. The Wohlfahrts answered all three suits, which were later consolidated.

On December 5, 1993, the Wohlfahrts filed a counterclaim for breach of contract, wherein they sought reimbursement for the value of the consulting services Wohlfahrt had provided Holloway. On May 29, 1995, the Wohlfahrts amended their counterclaim to include causes of action for fraud, slander, defamation, breach of fiduciary duty, quantum meruit, deceptive trade practices, and abuse of process.

On the day of trial, Holloway filed a "Motion to Strike Compulsory Counterclaim and Causes of Action Barred by Limitations." This was not a motion for summary judgment, in that the Wohlfahrts were not given the notice required under Tex. R. Civ. P. 166a(c), and no evidence was introduced by either party.

Nevertheless, the trial court granted Holloway's motion, struck the Wohlfahrts' counterclaims, and proceeded to trial. The jury returned a verdict in favor of Holloway, and the trial court entered a judgment awarding Holloway $274,118.28 in damages, plus costs and attorneys fees.

DISMISSAL OF COMPULSORY COUNTERCLAIMS

A. Does Section 16.069 Bar the Wohlfahrts' Counterclaim?

In their first issue, the Wohlfahrts contend the trial court erred by dismissing their counterclaim before trial. (1) In his motion to dismiss, and on appeal, Holloway argues that the Wohlfahrts' counterclaim was time-barred because it was not filed within 30 days of the original petition, as required by section 16.069 of the Texas Civil Practices and Remedies Code, which provides:

If a counterclaim or cross claim arises out of the same transaction or occurrence that is the basis of an action, a party to the action may file the counterclaim or cross claim even though as a separate action it would be barred by limitations on the date the party's answer is required. The counterclaim or cross claim must be filed not later than the 30th day after the date on which the party's answer is required.

Tex. Civ. Prac. & Rem. Code Ann. 16.069 (Vernon 1997) (emphasis added).

 

Holloway contends that, because the Wohlfahrts' compulsory counterclaim (2)

was not filed within 30 days of the date he filed his petitions, the counterclaim is time-barred. We disagree with Holloway's interpretation of section 16.069. The statute is a savings clause. "[It] was intended to prevent a plaintiff from waiting until an adversary's valid claim arising from the same transaction was barred by limitation before asserting his own claim." Hobbs Trailers v. J.T. Arnett Grain Co., Inc., 560 S.W.2d 85, 88 (Tex. 1977) (interpreting substantially similar predecessor statute to section 16.069). Thus, section 16.069 revives a stale compulsory counterclaim for a limited 30-day period after the plaintiff's petition is filed. See Matthiessen v. Schaefer, 900 S.W.2d 792, 796 (Tex. App.--San Antonio 1995, writ denied) (holding that compulsory counterclaim not revived by savings statute because not filed within 30 days of petition).

However, section 16.069 does not shorten the limitations period of an otherwise timely-filed compulsory counterclaim. That is, if limitations has not run on the compulsory counterclaim, section 16.069 is not applicable. If the compulsory counterclaim is timely, no "saving statute" is needed.

In L.C.L. Theatres, Inc. v. Columbia Pictures Industries, Inc., the plaintiff argued that the defendant's compulsory counterclaim was time-barred because it was not filed within 30 days of the plaintiff's petition, even though the applicable limitations period on the counterclaim had not yet expired at the time it was filed. 566 F.2d 494, 498-99 (5th Cir. 1978) (applying Texas law) The Fifth Circuit, applying the predecessor statute to section 16.069, held that the savings statute had no application because the counterclaim was timely at the time it was filed. Id. at 499 Because the counterclaim was not "otherwise barred" at the time it was filed, the statute did not apply. See id.

Similarly, we conclude that section 16.069 does not bar the Wohlfahrts' counterclaim, if it was otherwise timely filed.

B. Was the counterclaim timely filed?

In their original counterclaim, filed December 5, 1993, the Wohlfahrts sought only to recover the value of the services that Dr. Wohlfahrt had rendered to Holloway. However, in their first amended counterclaim, filed May 29, 1995, the Wohlfahrts added the following claims: (1) fraud; (2) egregious overbilling (breach of contract); (3) slander; (4) defamation; (5) breach of fiduciary duty; (6) quantum meruit for services rendered; (7) breach of the alleged "bartering agreement" (breach of contract); (8) deceptive trade practices; and (9) abuse of process. We will examine each of these claims to determine whether Holloway proved that they were untimely filed.

a. Four-year limitations (fraud, breach of contract, quantum meruit, breach of fiduciary duty).

 

The Wohlfahrts' claims for fraud, breach of contract, quantum meruit, and breach of fiduciary duty are governed by the four-year limitations period. See Tex. Civ. Prac. & Rem. Code Ann. 16.004 (3), (4), (5) (Vernon Supp. 2001 ). The Wohlfahrts argue that they did not discover their injuries until 1992, when Holloway first billed, then sued them. In their first amended counterclaim they alleged, "During the discovery related to this suit [after 1992], the Wohlfahrts have become aware of an enormous number of instances of fraud, legal malpractice, and deceptive trace practices committed by Holloway during the course of his representation of their legal matters." If, as they allege, the Wohlfahrts became aware of their injury when Holloway billed and sued them in 1992, they had until 1996 to file their counterclaim, and their 1995 counterclaim was timely.

A defendant moving for summary judgment on the affirmative defense of limitations has the burden to conclusively establish that defense, and when the plaintiff pleads the discovery rule, the defendant must negate that exception. Velsicol Chemical Corp. v. Winograd, 956 S.W.2d 529, 530 (Tex. 1997). Because the Wohlfahrts pleaded the discovery rule on these claims, it was Holloway's burden to prove when the Wohlfahrts knew or should have discovered their claims. He did not do so. In fact, Holloway presented no evidence in support of his motion to dismiss. Because Holloway failed to rebut the application of the discovery rule, and the Wohlfahrts' claims were filed within four years of the time they allegedly discovered their injuries, the trial court erred in finding that the fraud, breach of contract, quantum meruit, and breach of fiduciary claims were barred by limitations.

Furthermore, as a compulsory counterclaim, i.e., arising out of the same transaction or occurrence as Holloway's claim, the Wohlfahrts amended counterclaim, which was filed on May 6, 1992, would relate back to their original counterclaim, which was filed on December 5, 1993. See Tex. Civ. Prac. & Rem. Code Ann. 16.068 (Vernon 1997) (providing that amendments to pleadings relate back to original filing unless wholly based on a new, distinct, or different transaction or occurrence.). The 1993 counterclaim is also well within four years of the date the Wohlfahrts claim to have discovered their injuries.

Accordingly, the trial court erred by dismissing the Wohlfahrts' fraud, breach of contract, quantum meruit, and breach of fiduciary duty claims.

b. Two-year limitations (deceptive trade practices, abuse of process)

 

1. DTPA Claims

The Wohlfahrt's DTPA claims are governed by a two-year limitations period. See Tex. Bus. & Com. Code Ann. 17.565 (Vernon 1987). In their pleading, the Wohlfahrts alleged that they discovered Holloway's deceptive trade practices "during the discovery related to this suit." Having pleaded the discovery rule, the burden shifted to Holloway to show that the Wohlfahrts knew or should have known of the facts giving rise to their claim more than two years before they filed their counterclaim in 1995. Velsicol Chemical Corp., 956 S.W.2d at 530. Again, Holloway introduced no evidence to show when the Wohlfahrts discovered their cause of action.

Furthermore, under section 16.068 of the Texas Civil Practices and Remedies Code, a cause of action that would otherwise be time-barred, "relates back" to an earlier timely-filed pleading "unless the amendment or supplement is wholly based on a new, distinct, or different transaction or occurrence." Tex. Civ. Prac. & Rem. Code Ann. 16.068 (Vernon 1997). Again, both parties in this case concede that the counterclaims are compulsory, i.e., they arise out of the same transaction or occurrence. Therefore, even if the DTPA claims were barred by limitations at the time they were filed in 1995, they would "relate back" to the first counterclaim, which the Wohlfahrts filed on December 5, 1993, well within two years of the time the Wohlfahrts pleaded that they discovered their cause of action in 1992. See Barraza v. Koliba, 933 S.W.2d 164, 167-68 (Tex. App.--San Antonio 1996, writ denied) (holding that counterclaim amended to include DTPA claim related back to timely-filed original counterclaim because it arose from same transaction). Accordingly, the trial court erred by dismissing the Wohlfahrts' DTPA counterclaim.

2. Abuse of Process

The Wohlfahrts' abuse of process claim is governed by a two-year period of limitations. Tex. Civ. Prac. & Rem. Code Ann. 16.003(a) (Vernon Supp. 2001 ). Once again, like the DTPA claim discussed above, the Wohlfahrts' abuse of process claim, as a compulsory counterclaim, relates back to the date the original counterclaim was filed in December 1993. Thus, the issue is whether limitations had run on the Wohlfahrts' abuse of process claim at the time they filed their first counterclaim on December 5, 1993.

In their pleading, the Wohlfahrts alleged that on March 11, 1992, Holloway surreptitiously recorded a lien on the Wohlfahrts' vehicle, which the Wohlfahrts sold to Jarnigan Pontiac. When Jarnigan Pontiac sold the vehicle on March 26, 1992, Holloway's lien was discovered, and on July 27, 1992, Holloway released the lien in return for a payment of $10,000 from Jarnigan Pontiac. The Wohlfahrts alleged that a result of Holloway's conduct, "LYNN WOHLFAHRT was forced to submit to the filing of criminal charges and suffered the indignity, great financial expense, and mental anguish relating to those charges." The Wohlfahrts also alleged that Holloway's conduct in "knowingly orchestrating a chain of events which led to the filing of criminal charges against LYNN WOHLFAHRT, constitutes an abuse of process, for which conduct the Wohlfahrts seek actual and consequential damages, as well as punitive damages."

The Wohlfahrts did not plead the discovery rule in connection with their abuse of process claim. If we use the dates alleged in their counterclaim, the Wohlfahrts knew of the filing of the lien by Holloway, at the very latest, on July 27, 1992. The Wohlfahrts' first counterclaim was filed December 5, 1993. Because the abuse of process claim relates back to the December 5, 1993 filing, it was timely filed within two years of the actions complained of. Accordingly, the trial court erred by dismissing the abuse of process claim on limitations grounds.

c. One-year limitations period (slander, defamation)

The Wohlfahrts' claims for slander and defamation are subject to a one-year limitation period. See Tex. Civ. Prac. & Rem. Code Ann. 16.002(a) (Vernon Supp. 2001).

In their amended counterclaim, the Wohlfahrts alleged that "[Holloway] has engaged in all manner of slander against them, some of which continues through the present day, for which the Wohlfahrts also sue." The pleading also alleged, "This slander has occurred as recently as the last year, and involves allegations of unlawful conduct, constituting slander per se, giving rise to punitive damages, for which the Wohlfahrts hereby sue." Thus, the Wohlfahrts pleaded that the slander was ongoing as of the date the counterclaim was filed. Holloway did not introduce any controverting evidence. Therefore, the trial court erred by dismissing the Wohlfahrts' slander claims based on limitations grounds.

C. What is the Wohlfahrts's remedy?

Having decided that the trial court erred by dismissing all of the Wohlfahrts' compulsory counterclaims, we must now decide the proper remedy. We have uniformly held that a trial court abuses its discretion by severing a compulsory counterclaim. Goins v. League Bank and Trust Co., 857 S.W.2d 628, 630 (Tex. App.--Houston [1st Dist.] 1993, no pet.); Ryland Group, Inc. v. White, 723 S.W.2d 160, 161 (Tex. App.-Houston [1st Dist.] 1986, orig. proceeding). Furthermore, compulsory counterclaims are barred by res judicata if not brought at the time of the plaintiff's suit. See Tex. R. Civ. P. 97 (requiring that compulsory counterclaims be raised during initial trial involving same transaction or occurrence); Barr v. Resolution Trust Corp., 837 S.W.2d 627, 630-31 (Tex. 1992) (requiring all claims in transaction or series of transactions be brought at one time to one final judgment or suffer potential of having claim extinguished under policy of res judicata).

We believe that this situation, i.e., the improper dismissal of a compulsory counterclaim, is analogous. By improperly dismissing the Wohlfahrts' counterclaims, the trial court has, in effect, severed them from the main cause. If we were to reverse and remand only the counterclaims for trial, we would deprive the Wohlfahrts of the right to have their compulsory counterclaims tried by the same jury considering Holloway's claims and subject them to potential res judicata claims by Holloway. Accordingly, we reverse the entire judgment of the trial court and remand for further proceedings.

In light of our disposition on the Wohlfahrts' first issue, we need not address their remaining issues, and decline to do so.

Because we have found merit in the Wohlfahrts' appeal and reversed and remanded the case for further proceedings, we DENY Holloway's motion to impose sanctions for a frivolous appeal. We overrule all other pending motions.

 

Michael H. Schneider

Chief Justice

 

Panel consists of Chief Justice Schneider and Justices Wilson and Duggan. (3)

 

Do not publish. Tex. R. App. P. 47

1. Holloway also argues that the Wohlfahrts' counterclaim was dismissed, not based on his motion to dismiss on limitations grounds, but because the Wohlfahrts voluntarily nonsuited their counterclaim. We do not believe this claim is supported by the record. Before trial the following exchange took place:

 

[Holloway's counsel]: And except for the deceptive trade practice which [Wohlfahrts' counsel] will provide the Court with a case authority which would - hits his position that it would be extended for four years. Of course, it's the plaintiff's position it would only be two. So, the only claims that exist right now are the deceptive trade practice claim and the breach of contract claim on their counterclaim. All other claims have been dismissed and nonsuited; is that correct?

 

[Wohlfahrts' counsel]: That's correct.

 

Although, in response to a leading question by Holloway's counsel, the Wohlfahrts' attorney stated that some of their claims had been "dismissed and nonsuited," an examination of the entire record shows that no nonsuit was intended. Just five pages earlier in the record, the Wohlfahrts' attorney stated, "We are going to proceed with the counterclaim. My client has not told me to dismiss it or let it go at this point." There is no order of nonsuit in the record, or a notation of a nonsuit on the docket sheet. See Tex. R. Civ. P. 162. There is, however, an order granting Holloway's motion to strike compulsory counterclaim based on limitations. Had the claim already been voluntarily nonsuited, no such order would have been necessary.

2. Both parties agreed, before the trial court and in their briefs before this Court, that the Wohlfahrts' counterclaims were compulsory counterclaims, i.e., that they arose out of the same transaction or occurrence as Holloway's claims. See Tex. R. Civ. P. 97(a). Therefore, we need not address this issue, and decline to do so.

3. The Honorable Lee Duggan, Jr., retired Justice, Court of Appeals, First

District of Texas at Houston, participating by assignment.