Martha Avila v. Texas Property and Casualty Insurance Guaranty Association and Richard Dennis, Special Deputy Receiver, under contract to J. Robert Hunter, Receiver for Indemnity Underwriter Lloyds, in Receivership--Appeal from 331st District Court of Travis County

Avila5 TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-95-00001-CV
Martha Avila, Appellant
v.
Texas Property and Casualty Insurance Guaranty Association and Richard Dennis,
Special Deputy Receiver, under contract to J. Robert Hunter, Receiver for
Indemnity Underwriter Lloyds, in Receivership, Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 331ST JUDICIAL DISTRICT
NO. 93-07987, HONORABLE MARGARET A. COOPER, JUDGE PRESIDING

Appellant, Martha Avila, appeals from the district court's dismissal with prejudice of her case against appellees (hereinafter "Receiver"). The district court struck appellant's pleadings and dismissed her case (imposed "death penalty sanctions") after Avila abused discovery by withholding the names of four persons with information relevant to the case. Avila contends that these sanctions are unjust, and asks that we reverse the trial court's order. Because we believe that the trial court abused its discretion in ordering death penalty sanctions, we reverse its decision.

 
Background

In 1989, Avila was involved in an automobile accident with a truck. Avila brought suit in Bexar County against the truck driver, the company for which the driver worked (the insured), and the owner of the company. At trial in 1992, the jury awarded Avila $380,000. Apparently Avila did not know that the company's insurer, Indemnity Underwriters Lloyds, had been placed in receivership prior to trial, because she failed to join the Receiver as a party. When she learned of the receivership and filed a proof of claim, the Receiver formally rejected her claim. Because the Receiver was not a party to the earlier suit, Avila sued the Receiver in this trial de novo in July 1993.

In the course of discovery for this second suit, the Receiver served appellant with requests seeking prior statements and the identity of persons with knowledge of relevant facts about the underlying automobile accident. Because Avila did not respond timely and did not request or receive any extension for filing her answers, the Receiver filed a motion for summary judgment based on deemed admissions. After a hearing, the district court granted Avila leave to file responses without objections, and the Receiver withdrew its motion for summary judgment. Avila supplemented her answers to interrogatories three times, once in response to the Receiver's motion to compel.

Approximately two weeks before the case was to be tried, the Receiver learned that Avila had failed to disclose the names of four people who had been present at the scene of the accident. The Receiver accidentally discovered these names when it subpoenaed the defendant-truck driver's statement from Avila's insurer, State Farm Insurance Company. State Farm allowed the Receiver to review the entire contents of its file relating to the accident. The file contained a recorded statement which appellant had given to State Farm approximately one month after the accident in 1989. In this statement, Avila provided the names of four people who had witnessed or heard the impact of the accident. Avila had not given these names to the defendant in the Bexar County trial, did not provide them to the Receiver in response to interrogatories, and failed to produce the recorded statement in response to a request for production.

At a hearing on its motion for sanctions several days before trial, the Receiver argued that Avila's failure to disclose the witnesses' names deprived the Receiver of the opportunity to adequately prepare a defense and that nothing short of striking appellant's pleadings and dismissing her case would remedy the resulting prejudice and properly punish Avila. The trial court granted the Receiver's motion for death penalty sanctions. In her single point of error, appellant claims that the trial court erred by granting unjust sanctions.

 
Discussion and Holding

The standard of review for a trial court's imposition of discovery sanctions is abuse of its discretion. Bodnow Corp. v. City of Hondo, 721 S.W.2d 839, 840 (Tex. 1986). The test for abuse of discretion is whether the court acted without reference to any guiding rules and principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241-42 (Tex. 1985), cert. denied, 476 U.S. 1159 (1986). In other words, the reviewing court must determine whether the trial court's action was arbitrary or unreasonable. See id. at 242. The scope of review in determining whether the trial court abused its discretion extends to all the circumstances of record in the case. See Smithson v. Cessna Aircraft Co., 665 S.W.2d 439, 443 (Tex. 1994). The trial court is given the broadest discretion in choosing and imposing appropriate discovery sanctions. See Downer, 701 S.W.2d at 241.

For this court to affirm the trial court's imposition of the death penalty sanction, we must find that the appellate record reveals sufficient facts to show that the trial court could have acted rationally in an exercise of its discretion. See Landon v. Jean-Paul Budinger, Inc., 724 S.W.2d 931, 935 (Tex.App.--Austin 1987, no writ). Two standards mark the bounds of the trial court's discretion in imposing severe sanctions: first, a direct relationship must exist between the offensive conduct and the sanction imposed; and second, the sanction imposed must not be excessive. TransAmerican Natural Gas Corp. v. Powell, 811 S.W.2d 913, 917 (Tex. 1991).

In contemplating a sanction that precludes presentation of a case on its merits, a court is also limited by due process considerations. 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. Id. Furthermore, very severe sanctions should not be assessed absent a party's flagrant bad faith or counsel's callous disregard for the responsibilities of discovery. Id.

The first prong of TransAmerican requires that a just sanction be directed against the abuse and toward remedying the prejudice inflicted on the innocent party. Such a sanction should be visited only upon the offender--counsel, the party, or both. Id. We defer to the trial court's judgment that Avila herself was responsible for the discovery abuse in this case and that the sanction was therefore properly imposed against her. The relevant information was withheld by Avila, as her attorney was apparently unaware of the four witnesses or the statement Avila had given to State Farm. However, we do not understand how the trial court could reasonably find that the sanction was directed toward remedying the prejudice caused the Receiver; under the circumstances of this trial de novo, the Receiver has demonstrated little actual harm to its case as a result of Avila's conduct.

If true prejudice has resulted to a party by another party's failure to cooperate during discovery, that factor should be given substantial weight in the evaluation of ultimate sanctions. Hamill v. Level, 900 S.W.2d 457, 463 (Tex. App.--Fort Worth 1995, no writ h.); Pelt v. Johnson, 818 S.W.2d 212, 217 (Tex. App.--Waco 1991, orig. proceeding). A party's prejudice can result from such conditions as the destruction of evidence, irretrievable loss of evidence, the inevitable dimming of witnesses' memories, and the accrual of excessive burdens and costs. Id.

The Receiver argues that Avila's concealment of four witnesses prejudiced its case by inhibiting the Receiver's ability to prepare an adequate defense. The crux of the Receiver's position is that because the testimony of the witnesses was material to the issue of fault in this case, and the delay had rendered the witnesses' testimony stale and unreliable, the only way for the court to address this prejudice was to dismiss Avila's cause of action with prejudice. We disagree.

No evidence other than the State Farm file containing Avila's statement was introduced at the hearing on the motion for sanctions; the court heard only argument of counsel. The record therefore does not reveal any factual information concerning what the substance of the witnesses' testimony would have been had Avila complied with discovery and disclosed their identities at the appropriate time. Discovery in the Receiver's case began in 1993, four years after the accident occurred, and we may only consider Avila's conduct in the present case. There is little reason to believe that the witnesses would have been much easier to locate or their memories less stale or unreliable if Avila had revealed their names eleven months earlier when discovery was initially propounded. (1) Based on the record, neither we nor the trial court knows what these witnesses saw, heard, or remember about this accident, nor do we know what other evidence exists in this case. Moreover, the record does not indicate to what extent the factual circumstances surrounding the accident were in dispute. With so much uncertainty in the record, at the very least the trial court should have postponed a decision on death penalty sanctions until it could ascertain the pertinence of the witnesses' testimony to whatever facts were in dispute. Without this information, the trial court abused its discretion in striking Avila's pleadings with prejudice.

The second prong of the TransAmerican test requires that a discovery sanction not be excessive in relation to the abusive conduct. The sanction should be no more severe than necessary to satisfy its legitimate purposes, and the trial court should consider the availability of less stringent sanctions to promote compliance. The purposes of discovery sanctions are to (1) secure the parties' compliance with the rules of discovery, (2) deter other litigants from violation of the discovery rules, and (3) punish parties that violate the discovery rules. Bodnow Corp., 721 S.W.2d at 840.

We note that the trial court in this case did consider lesser sanctions before dismissing the case, but was apparently convinced by the Receiver's argument that lesser sanctions would not be effective in curing the spoilation of evidence. But the lengthy passage of time since the accident in 1989 cannot be charged against Avila's discovery abuse in this case, which has delayed discovery by a matter of months not years. As Avila argued at the hearing on her motion for new trial, the court could have required her to bear the cost of finding the witnesses and taking their depositions. On motion for new trial, Avila informed the court that she had located three of the four witnesses and was still looking for the fourth. This fourth witness, the driver of a vehicle in the lane adjacent to Avila at the time of the accident, was difficult to locate because his company had gone out of business and its records had been lost; there is no evidence in the record of how long ago these records were lost. The most valuable witness regarding liability, the driver of the truck that collided with Avila, was unavailable not because of any discovery abuse but because he had been deported after the accident.

Since the supreme court's decision in TransAmerican, this court has never upheld death penalty sanctions when the guilty party was not afforded at least one opportunity either to comply with a court order or to respond to a lesser sanction. In our most recent opinion on the subject, we upheld a death penalty sanction only after the sanctioned party refused to comply with numerous opportunities to correct discovery abuses and after several lesser sanctions had proven unsuccessful. Thacker v. State, 852 S.W.2d 77, 81 (Tex. App.--Austin 1993, writ denied). Avila was afforded no second chance and no lesser sanction.

The final question posed by the supreme court in TransAmerican implicates the due process considerations that arise when a party is denied the opportunity to have a case heard on its merits. 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. TransAmerican, 811 S.W.2d at 918.

The Receiver argues that by failing to mention the witnesses who came to her assistance and might comment on liability, Avila let evidence "die or disappear," and thus the trial court properly presumed her claim lacked merit. Avila argues that without any evidence of the prejudice that her discovery abuse in this case actually caused the Receiver, and without testing lesser sanctions to remedy that prejudice, the trial court could not properly presume that this evidence would be so adverse that her claim lacked all merit. We agree. We hold under the facts of this case as they are now developed, that the trial court was not justified in presuming that Avila's claims lack all merit, sufficient to deprive her of her day in court.

Although the unusual circumstances of this case presented the trial court with fewer effective remedies to promote compliance and cure prejudice, outcome determinative sanctions may be imposed in the first instance only when it is fully apparent that no lesser sanction would promote compliance. GTE Communication v. Tanner, 856 S.W.2d 725, 729 (Tex. 1993). Any doubts must be resolved in favor of reaching a decision on the merits. Hanley v. Hanley, 813 S.W.2d 511,518 (Tex. App.--Dallas 1991, no writ).

Because the trial court did not have sufficient facts on which to assess the harm caused by Avila's conduct in the present case and did not impose any lesser sanctions as a way to remedy the prejudice or promote compliance, we hold that the trial court abused its discretion by striking Avila's pleadings. We reverse the decision of the trial court and remand for further proceedings.

 

Bea Ann Smith, Justice

 

Before Chief Justice Carroll, Justices Jones and B. A. Smith

Reversed and Remanded

Filed: November 22, 1995

Do Not Publish

1. The Receiver suggests that we ought to consider the time that has elapsed since the 1989 Bexar County trial in determining the extent to which the evidence has been spoiled and the Receiver's case prejudiced. We do not agree. The time period with which we are here concerned is the eleven months between September 1993, when Avila was required to serve written answers and responses to interrogatories and August 1994, when the Receiver discovered Avila's statement to State Farm.

quired her to bear the cost of finding the witnesses and taking their depositions. On motion for new trial, Avila informed the court that she had located three of the four witnesses and was still looking for the fourth. This fourth witness, the driver of a vehicle in the lane adjacent to Avila at the time of the accident, was difficult to locate because his company had gone out of business and its records had been lost; there is no evidence in the record of how long ago these records were lost. The most valuable witness regarding liability, the driver of the truck that collided with Avila, was unavailable not because of any discovery abuse but because he had been deported after the accident.

Since the supreme court's decision in TransAmerican, this court has never upheld death penalty sanctions when the guilty party was not afforded at least one opportunity either to comply with a court order or to respond to a lesser sanction. In our most recent opinion on the subject, we upheld a death penalty sanction only after the sanctioned party refused to comply with numerous opportunities to correct discovery abuses and after several lesser sanctions had proven unsuccessful. Thacker v. State, 852 S.W.2d 77, 81 (Tex. App.--Austin 1993, writ denied). Avila was afforded no second chance and no lesser sanction.

The final question posed by the supreme court in TransAmerican implicates the due process considerations that arise when a party is denied the opportunity to have a case heard on its merits. Discovery sanctions cannot be used to adjudicate