## IN THE SUPREME COURT O F TEX AS

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. 10-0997

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### F IN L E Y 

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### R E T A M C O 

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O N P E T I T I O N F O R R E V I E W F R O M T H E C O U R T O F A P P E A L S F O R T H E F O U R T H D I S T R I C T O F T E X A S

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Argued F ebruary 9, 2012

J U S T I C E M E D I N A delivere d the opinion of the Court.
J U S T I C E G R E E N did not participate in the de cision.
Texas Rule of Ci v i l P rocedure 215.2(b)( 5) authorizes a trial court to rende r a defa ult judgme nt a g ainst a defe ndant for disc overy abuse, justice and due proce ss pe rmitting. Commonl y known as the de ath-pe nalty sanction, it is the remedy of last re sort. Discover y abuse in this case cause d the trial court to strike the defe ndants’ answe r and rende r

a defa ult judgme nt. I n addition to striking the defe ndants’ answe r, the discovery sanction also barr ed the defe ndants from contesting the plaintiff’s damag es. Be cause these damag es wer e unliquidated, howeve r, the plaintiff w as re quired to prove them at an unc ontested hea ring

.The defe ndan t s d o n o t deny their discovery abuse, nor do they question the trial court’s

decision to strike their pleading s and rende r judgme nt by defa ult. Rather, they complain that the trial
court abused its discretion by barr ing them from the damag es trial. The defe ndants maintain that this extension of the death- penalty sanction was excessive, unjust, and there fore an abuse of discretion. The court of appea ls did not ag ree , holding that the discovery sanction was neither excessive

nor an abuse of the trial court’s discretion. The court of appea ls, howeve r, rema nded the case twice

on leg al insufficienc y g rounds befor e af fi rm i n g the uncontested damag es awa rd in this, the third
appea l. See Paradigm Oil, Inc. v. Retamc o Op erating, Inc. , 161 S.W .3d 531 (Tex. App.—San Antonio 2004 , pet. denied) ( Paradigm I

), on remand , 242 S.W .3d 67 (Tex. App.—San Antonio 2007, pet. denied) (

Par a d igm II

), on remand , 330 S.W .3d 342 (Tex. App.—San Antonio 2010) ( Paradigm III

). Be cause we conclude that the defa ulted defe ndants should have been permitted to participa te in the hea

ring on unliquidated damag es, we reve rse the court of appea ls’ judgme nt and

rema nd the ca se to the trial cour t for fur ther proc eeding s. I The case arises out of the convey ance of oil and g as proper ties by Retamco Oper ating , I nc. almost thirty y ear s ag o. Following an economic downturn in 1984, Retamco convey ed 572 oil and
g as lease s to PNB Securities Corporation under a debt workout ag ree ment (the 1984 Ag ree ment). The ag ree ment was complex. Under it, Retamco reta ined cer tain rig hts, including overr iding roy alty

2interests and afte r-pa y out working interests in cer tain wells PNB financ ed. The 1984 Ag ree ment 1 2
further allowed Retamco to co n t i n u e opera ting cer tain lease s in production, entitled Retamco to notice of lease terminations, sales, or assig nments, and g rante d Retamco the option to reta in cer tain lease s that might otherwise terminate. Retamco was also to be notified when cer tain wells rea ched
pay out so it could elect to share in the working interest. The ag ree ment obliga ted PNB to pre pare

a document desc ribing Retamco’s r ights a nd rec ord it in all applicable c ounties. PNB wa s further
to notify those acquir ing an interest in any of the lease s of Retamco’s rig hts and interests under the 1984 Ag ree ment.
I n 1999, Retamco sued multipl e parties for damag es under the 1984 Ag ree ment. By the time of the suit, PNB had divested itself of all the lease s cover ed under the ag ree ment, with the last six ty

two lease s having been sold to Paradig m Oil, I nc. in 1993. Be fore this sale, Paradig m opera ted one of the lea ses for PNB for a number of y ear s. Retamco’s suit named both PN B an d Paradig m as defe ndants. Retamco also joined other defe ndant s , i n cluding PNB’s succe ssor, Ba nk of Americ a, and three Paradig m aff iliates, Pacific 3

“ A n o v e r r i d i n g r o y a l t y i s a n i n t e r e s t i n t h e o i l a n d g a s p r o d u c e d a t t h e s u r f a c e , f r e e o f t h e e x p e n s e o f 1 p r o d u c t i o n . ” S t a b l e E n e r g y , L

. P

. v
. N e w b e r r

y , 9 9 9 S

. W

. 2 d 5 3 8 , 5 4 2 ( T e x . A p p . — A u s t i n 1 9 9 9 , p e t

. d e n i e d )

.

“ A w o r k i n g i n t e r e s t i s t h e r i g h t t o s h a r e i n w e l l p r o d u c t i o n , s u b j e c t t o t h e c o s t s o f e x p l o r a t i o n a n d 2 d e v e l o p m e n t

. P a y o u t i s r e a c h e d w h e n t h e c o s t s o f d r i l l i n g a n d e q u i p p i n g t h e w e l l a r e r e c o v e r e d f r o m p r o d u c t i o n . ” I

d

. a t 5 4 3

. R e t a m c o u l t i m a t e l y s e t t l e d w i t h B a n k o f A m e r i c a , P N B ’ s s u c c e s s o r , f o r $ 1

. 2 5 m i l l i o n . A r o u n d t h e s a m e t i m e , 3 R e t a m c o a l s o b e c a m e i n v o l v e d i n l a w s u i t s w i t h o t h e r e n t i t i e s w h i c h h a d a c q u i r e d s o m e o f t h e 5 7 2 l e a s e s i n c l u d e d u n d e r t h e 1 9 8 4 A g r e e m e n t

. T h e s e s u i t s s e t t l e d w i t h R e t a m c o g i v i n g u p i t s r i g h t s i n t h e l e a s e s a c q u i r e d b y A n d a r k o P e t r o l e u m a n d C r i m s o n O i l f

o r a t o t a l o f $ 1

. 3 m i l l i o n .
3Oper ators, I nc., Pacific Oper ators of Texas, I nc., and Finley Oilwell Service , I nc. Alleg ing brea ch 4
of contra ct and fra

ud, Retamco complained that it had not been notified of well proposals as require d under the 1984 Ag ree ment and had there by lost the opportunity to particip at e in sever al wells.
Ret am co also acc used Paradig m of overc harg ing for opera ting expenses and otherwise diverting
proce eds, which alleg edly cause d Retamco to lose roy alty and working -intere st reve nues. Retamco further alleg ed that Paradig m had succe eded to PNB’s obliga tions under the 1984 Ag ree ment by its purcha se of the six ty -two lease s in 1993 and was there fore jointly an d s ev er al ly liable for its damag es. Paradig m denied Retamco’s alleg ations but afte r answe ring the lawsuit g ener ally ref used to participa te in d i s co very . Retamco soug ht sanctions. The trial court conducte d hear ings on the matter, and Paradig m was order ed to pay discovery -re lated expenses and to provide discovery

. When Paradig m failed to meet the trial court’s disc o v er y deadline, Retamco ag ain moved for sanctions. Another hear ing was conducte d afte r which the court g rante d Retamco’s motion, striking Paradig m’s answe r and rende ring a $1.6 milli on defa ult ju d gm ent. I n sanctioning Paradig m for

5 discovery abuse, the trial court’s order not only prec luded Paradig m from contesting its liability but also Retamco’ s damag es, stating : Paradig m Oil, I nc., Pacific Oper ators, I nc. and Pacific Oper ators of Texas, I nc., may not, and are disallowed to, oppose Pla i n t i ff ’s

. . . claims to overr iding roy alty

U n l e s s t h e c o n t e x t r e q u i r e s o t h e r w i s e , P a r a d i g m a n d a f f i l i a t e s P a c i f

i c O p e r a t o r s a n d P a c i f i c O p e r a t o r s o f 4 T e x a s a r e h e r e a f

t e r c o l l e c t i v e l y r e f

e r r e d t o a s P a r a d i g m . P a r a d i g m ’ s o t h e r a f f i l i a t e , F i n l e y , t o o k a d i f f e r e n t t r a c k i n t h e e a r l y y e a r s o f t h e l i t i g a t i o n a n d i s g e n e r a l l y r e f e r r e d t o b y n a m e . T h e $ 1

. 6 m i l l i o n j u d g m e n t i n c l u d e d $ 7 5 0 , 0 0 0 i n e x e m p l a r y d a m a g e s . 5
4interests, damag es, exemplary damage s, pre- judgme nt interest, or attorney ’s fee s, whether by cross examination, objection to evidenc e offe red, or offe r of evidenc e[.] Paradig m moved for a new trial, produce d ever y thing it believed Retamco reque sted, and offe red to reimburse Retamco’s le g al expenses. The tria l court denie d the motion and there afte r seve red the defa ult judgment into a sepa

rate cause , making it a final judg ment. Paradig m appea led. The court of appea ls aff

irmed the discovery sanction in the first appea l but did not aff irm the defa ult judgme nt itself. See Paradigm I , 161 S.W .3d at 534. Concluding that the rec ord contained

no evidenc e to support the $1.6 milli on awa rd, t he court reve rsed the judgme nt and remanded the

case for a new damag es hear ing. Id. at 540. Meanw hile in the trial court, Retamco obtained a simil ar death-pe nalty sanction aga ins t Fi n ley , the P ara digm affiliate that had not been included i n the pre vious default judg ment. After the rema

nd in Paradigm I

, Retamco endea

vored to prove its damag es in two separ ate trials—one ag ainst Paradig m and aff iliates Pacific Oper ators and Pacific Oper ators of Texas and the other ag ainst Finley

. The two trials toge ther resulted in approximately $5.6 mi l l i o n i n actua l damag es and $40 milli on in punitive damag es ($10 m i l l i o n fo r eac h of the four defe ndants). Paradig m and Finley separ ately appea led their respe ctive judgme nts, and the court of appea ls ag ain

reve rsed, holding t he evidence to be lega lly insufficient t o s u p p o rt the damage s awa rded in either trial. See Paradigm II

, 242 S.W .3d at 69; Finley Oilwell Serv., Inc. v. Retamc o Operating, Inc. , 248
S.W .3d 314 (Tex. App.—San Antonio 2007, pet. denied)

. After these reve rsals, the sever ed actions ag ainst Paradig m and Finley wer e consolidated for

a fourth damag es trial. Once ag ain the defe ndants wer e not p er m i t t ed to participa te. At the

5conclusion of this uncontested trial, Retamco was awa rded more than $35 milli on, which included $20 milli on in exemplary damag es. On the third appea l, the court of appea ls reduc ed the judgme nt by $1.25 milli on but otherwise aff irmed the trial court’s judgme nt. See Paradigm III , 330 S.W .3d 6 at 347. As it had done in the pr evious two appe als, Paradig m petitioned this C ourt for r eview.
I I Paradig m’s petit i o n does not contest the trial court’s decision to strike its answe r as a discovery sanction or the defa ult judgme nt rende red ag ainst it on l i ab i l i ty

. Paradig m’s appea l focuse s instead on its exclusion from the trial on damag es. As a g ener al rule, a defa ulted defe ndant has the rig ht t o participa te in such a trial when, as here , the plaintiff’s damag es are unliquidated.
Rainwater v. Haddox , 544 S.W .2d 729, 733 (Tex. Civ. App.—Amar illo 1976, no writ) (citing , inter alia , Maywald Trail er Co. v. Perry , 238 S.W .2d 826, 827–28 ( T e x. Ci v . App.—Galve ston 1951, writ ref ’d n.r.e.) ). Paradig m contends that the trial court there fore abused its discretion by extending the discovery sanction to bar its par

ticipation at this trial.
Retamco responds that Paradig m waived this complaint by not raising the issue in the court of appea ls. I t points out that Paradig m’s most rec ent brief in the court of appea ls complained about

sever al things but n o t ab o u t the discovery sanction itself. Even though the court of appea ls previously upheld the sanction in the first appea l, Retamco maintains that Paradig m neede d to brief and ar g ue the issue in the c ourt of appe als once ag ain to prese rve it for our re view.

T h e r e d u c t i o n r e p r e s e n t e d a s e t t l e m e n t c r e d i t f o r t h e a m o u n t p r e v i o u s l y p a i d b y B a n k o f A m e r i c a t o R e t a m c o 6 i n t h e u n d e r l y i n g l i t i g a t i o n . 6Retamco’s ar g ument, howeve r, ignor es the law-of -the-c ase doctrine. Under this doctrine,

a decision rende red in a former appea l of a case i s g ener ally binding in a later appea l of the same

case . Briscoe v. Goodmark Corp. , 102 S.W .3d 714, 716 (Tex. 2003). Having decide d the issue in Paradigm I

, the court of appea ls was not obliga ted to rec onsider the matter in subsequent appea ls. Id. Neither

was Para digm r equire d to rea rg ue the issue in a c ourt that alre ady decide d the matter. Such a require ment would undermine the doctrine’ s purpose, which is to bring an end to litigation by winnowing the issues in eac h succe ssive appea l. Hudson v. W akefield , 711 S.W .2d 628,
630 (Tex. 1986). By narr owing the issues in succe ssive appea ls, the law-of -the-c ase doctrine further seeks to promote eff

iciency and uniformity in the decision-making proce ss. Id. Requiring a par ty
to rea rg ue issues previously lost in the court of appea ls a s a predic ate to this Court’s revie w would obviously work a t cross-pur

poses to the doctrine

. The court of appea ls deter mined in the first appea l t h at t h e t rial court did not abuse its discretion in deny ing Paradig m the rig ht to participa te in the p o s t -d ef au l t damag es hear ing. See Paradigm I

, 161 S.W .3d at 537–38. That dec ision on P ara digm’ s participation bec ame the law of the ca se for

future pr ocee dings in those c ourts. I t did not, however, be come the la w of the case in this C ourt. Although we declined to revie w the matter in Paradigm I , our decision to deny Paradig m’s petition for revie w in that appea l did not invoke the doctrine. See Loram Maint. of W ay, Inc. v. Ianni , 210 S.W .3d 593, 596 (Tex. 2006) (holding that law-of -the-c ase doctrine is inapplicable when this Court simply denies a petition beca use the denial is not a decision on the merits). I t was
appropr iate then f

or Para digm to ra ise the issue ag ain in this Court, eve n though it did not rea rg ue

7i t i n the court of appea ls. Paradig m’s previous complaint about the death- penalty sanction i n

Paradigm I

prese rved the issue for our revie w, and we turn now to the merits of that c omplaint.
I I I As to the merits, the parties disag ree about the underly ing nature of the defa

ult judgme nt in this case . Paradig m arg ues that the discovery sanction should be trea ted like a no-answer d efault judgme nt. I t submits that, by striking its answe r, the discovery sanction put it in the same position

as though it had never answe red the suit. Be cause a defe ndant who defa ults by failing to a

nswer a lawsuit ordinari l y retains the right to participa te i n any subsequent trial to deter mine unliquidated damag es, P ara digm contends that it should simi larly have tha t rig ht in this case . I t conclude s that the trial cour

t theref ore a bused its discretion in deny ing it the r ight to par ticipate. Retamco, on the other hand, maintains that a defa ult judgme nt from a discovery sanction is differ ent fr o m a n o-answe r defa ult judgme nt. A defe ndant who simply fails to answe r a lawsuit,

acc ording to Retamco, is less culpable than a defe ndant t h at an swers and abuses the discovery
proce ss. Retamco contends that differ ent rules apply beca use of the discovery abuse and that such rules include trial court discretion to bar the defe ndant’s participa tion at the damag es hear ing, as was done her e. The pa rties’ arg uments rec og nize that defa ult judgments ar e not all alike a nd that differ ent rules apply in differ ent circ umstances. Fo r example, a defa ult judgme nt cause d by a defe ndant’s failure to answe r afte r service is trea ted differ ently from a defa ult judgme nt cause d by a defe ndant’s failure to appea

r for trial afte r answe ring a suit. Jatoi v. Decke r, Jones, McMac kin, Hall & Bates , 955 S.W .2d 430, 432 (Tex. App.—For t Worth 1997, pet. denied) ; T E X
. R. C I V
. P. 239. I n the latter

8instance, a post-answe r defa ult “constitutes neither an abandonme nt of the defe ndant’s answe r nor an im plied confe ssion of any issues thus joined by the defendant’s answer .” Stoner v. Thompson , 5 7 8 S

. W

. 2 d 679, 682 (Tex. 1979). Be cause the merits of the plaintiff’s claim rema in at issue , judgme nt cannot be rende red on the pleading s, and the plaintiff must prove its claim. Id. By
contra st, the non-answe ring party in a no-answe r defa ult judgme nt is said to have admitted both the truth of fac ts set out in the petition and the defe ndant’s liability on any ca use of action proper ly alleg ed by those fac ts. Morgan v. Compugraphic Corp. , 675 S.W .2d 7 2 9 , 7 3 1 (Tex

. 1984). The defe ndant’s defa u l t t h u s est ablishes liability , but a trial may still be nece ssary if the plaintiff’s damag es are unliquidated. Holt Atherton Indus., Inc. v. Heine , 835 S.W .2d 80, 83 (Tex. 1992); T E X
. R. C I V
. P. 243. And as a g ener al rule, a defe ndant who has not a nswere d but never

theless appe ars at the post-def

ault hear ing on da

mag es is entitled to participate

. 7 Although defa

ult judgme nts m ay gener ally be cate g orized as pre- or post-answe r, other varia tions exis t. A defa

ult judgme nt as a discovery sanction is one varia tion that does not fit neatly 8
into either g ener al cate g ory . When a trial court strikes a defe ndant’s answe r as a discovery sanction, the resulting defa

ult is technica lly post-answe r, but it is also, as Paradig m contends, simil ar to a noK e r u l i s v
. G r a n b u r

y L a k e P r o

p s
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. , 2 0 0 6 T e x . A p p . L E X I S 5 7 2 0 , a t * 9 , 2 0 0 6 W L 1 7 9 1 6 1 7 , a t * 3 ( T e x . 7 A p p . — F o r t W o r t h 2 0 0 6 ) ( m e m . o p . ) ; K i r k p a t r i c k v
. M e m ’ l H o s

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. W h o l e s a l e L u m b e r , I

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. 2 d 8 2 6 , 8 2 7 ( T e x . C i v . A p p . — W a c o 1 9 5 1 , w r i t r e f ’ d n . r . e . )

. A t h i r d t y p e o f d e f

a u l t j u d g m e n t , t h e j u d g m e n t n i h i l d i c i t , i s s i m i l a r t o , a n d t r e a t e d m u c h t h e s a m e a s , a 8
n o - a n s w e r d e f

a u l t j u d g m e n t

. S t o n e r v
. T h o m p s o n , 5 7 8 S

. W

. 2 d 6 7 9 , 6 8 3 ( T e x . 1 9 7 9 )

. T h i s t y p e o f d e f a u l t i s u s u a l l y

“ l i m i t e d t o s i t u a t i o n s i n w h i c h e i t h e r ( 1 ) t h e d e f e n d a n t h a s m a d e a p l e a , u s u a l l y d i l a t o r y i n n a t u r e , b u t t h e p l e a d i n g h a s n o t p l a c e d t h e m e r i t s o f t h e p l a i n t i f f ’ s c a s e i n i s s u e b e f

o r e i t i s o v e r r u l e d , o r ( 2 ) t h e d e f e n d a n t h a s p l a c e d t h e m e r i t s o f t h e c a s e i n i s s u e b y f

i l i n g a n a n s w e r , b u t h a s w i t h d r a w n t h a t a n s w e r . ” 7 W IL L IA M V

. D O R S A N E O I I I , T E X A S L IT IG A T IO N G U ID E § 1 0 0

. 0 1 [ 3 ] a t 1 0 0

- 1 1 ( 2 0 1 1 ) ( c i t i n g F r y m i r e E n g '

g C o
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. 2 d 6 8 0 , 6 8 1 ( T e x . 1 9 7 5 ) )

. 9answe r defa ult judgme nt. I ndeed, some courts have analog ized the death- penalty discovery sanction
to a no -a n s we r d efa

ult judgme nt, finding “no distinction in the trea tment of case s betwee n those wher e the defe ndant failed to answe r in a lawsuit and wher e the defe ndant’s answe r has been stricken from the rec ord as a

result of the imposition of sanctions.” Fiduciary Mortg. Co. v. Nat’l Bank of Irving , 762 S.W .2d 196, 200 (Tex. App.—Dallas 1988, writ denied) ; see also In the Mat ter of Gober , 100 F.3d 1195, 1205 (5th Cir. 1996) ; Assicurazioni Gene rali, S.p.A. v. Milsap , 760 S.W .2d 314, 317 (Tex. App.—Texarkana 1988, writ denied) ; City of Dallas v. Cox , 793 S.W .2d 701, 728 (Tex. App.—Dallas 1990, no wr it).
Even though a death- penalty discovery s an ct ion may be simil ar to a no-answe r defa ult judgme nt, it is not the same for all purposes. This ty pe of defa ult judgme nt implicates not only the broade r principles that apply to defa ult judgme nts g ener ally but also the rules that apply to discovery abuse, specific ally those principl es t h at control the use of a case -ending discovery sanction. See
TransAm erican Natural Gas Corp. v. Powell , 811 S.W .2d 913 (Tex. 1991) (explaining the limit ations on death- penalty sanctions). Our revie w must thus take into consideration both g ener al defa ult judgment princ iples and our discove ry rules.
Our discovery rules provide a varie ty of sanctions for discovery abuse. See generally T E X
. R

. C I V
. P

. 215. The law require s, howeve r, that any sanction imposed by the trial court mu s t b e “just,” id. 215.2(b), a

nd we ha ve said that two factors mar k the bounds of a “

just” sanction. Fir st,

a direc t rela

tionship betwee n the offe nsive conduct and th e s anction imposed must exis t. TransAmerican , 811 S.W .2d at 917. Second, the sanction imposed must not be excessive. Id. The
most extreme sanctions are also limit ed by due proce ss considerations. Thus, a death- penalty

1 0sanction cannot be used to adjudicate the merits of claims or defe nses unless the offe nding party ’s

conduct during discovery justifies a presumption that its c laims or defe nses lack merit. Id

. at 918.
Her e, the death- penalty sanction not only adjudicate d the merits of Paradig m’s defe nse but also denied it the rig ht to participa te in the trial to deter mine actua l damag es, punitive damag es, and attorney s’ fee s, all of which wer e unliquidated. Be cause the plaintiff’s damag es wer e unliquidated, the cour t of appea ls obse rved that the trial court had to he ar evidenc e. Paradigm I , 161 S.W .3d at
537 (citing T E X
. R. C I V
. P. 243). But the court of appea ls a lso c oncluded that the require d hear ing could be one-sided; it held that the trial court could in its discretion both “re nder a defa ult judgme nt

as sanctions and [] deny the offe nding party the rig ht to oppose the damag es evidenc e.” Paradigm
I , 1 6 1 S

. W.3d at 538 (citing T E X
. R. C I V
. P. 215.2(b)( 4)). The court rea soned that this disc o v er y sanction was not excessive beca use the trial court had tried lesser sanctions to no avail and beca use Paradig m’s repe ated misconduct demonstrated “bad faith in the litigation proce ss a s a whole.” Id

. at 539. The court of appea ls cited one other Texas case that approve d the use of a simil ar discovery sanction. Id

. at 538 (citing In re Dynamic Health, Inc. , 32 S.W .3d 876, 880 (Tex. App.—Texarkana 2000)). Paradig m arg ues that D ynamic Health is either distinguishable on its fac ts (bec ause there was evidenc e that the defe ndant had intentionally destroy ed evidenc e bear ing on the plaintiff’s claim for dam age s , 32 S.W .3d at 884) or is in conflict with the weig ht of Texas authority , exemplified by
Rainwater v. Haddox , 544 S.W .2d 729, 733 (Tex. Civ. App.—Amar illo 1976, no writ). Rainwater 9

S e e a l s o , f

o l l o w i n g R a i n w a t e r , S i m s v
. F i t z p a t r i c k , 2 8 8 S

. W

. 3 d 9 3 , 1 0 3 ( T e x . A p p . — H o u s t o n [ 1 s t D i s t

. ] 2 0 0 9 , 9
n o p e t

. ) ; M a r r v
. M a r r , 9 0 5 S

. W

. 2 d 3 3 1 , 3 3 3 ( T e x . A p p . — W a c o 1 9 9 5 , n o w r i t ) ; M a c k e y v
. B r a d l e

y M o t o r s , I

n c
. , 8 7 1 S

. W

. 2 d 2 4 3 , 2 4 7 ( T e x . A p p . — A m a r i l l o ) , r e v ’ d o n o t h e r g r o u n d s , 8 7 8 S

. W

. 2 d 1 4 0 ( T e x . 1 9 9 4 ) ; K i r k p a t r i c k v
. M e m ’ l 1 1held that at the hear ing to deter mine damag es afte r a defa ult judgme nt, “the defe ndant has the rig ht
to be prese nt, to interpose objections to testimony offe red by plai n t i ff ’s witnesses and to crossex am i ne them in order that by the exclusion of improper evidenc e, a proper judgme nt may b e rende red on competent and sufficie nt evidenc e.” Id. Paradig m complains that the court of appea ls here neither cited nor distinguished Rainwater and its prog eny , nor addre ssed or expressly overr uled its own prior prec edent in this line of case s. See W elex , Div. of Halliburton Co. v. B r o om , 806
S.W .2d 855, 864 (Tex. App.—San Antonio 1991), vacate d on other grounds , 81 6 S.W .2d at 340 (Tex. 1991); Brantley v. Etter , 662 S.W .2d 752, 756 (Tex. App.—San Antonio 1983 ) (c i t i n g Rainwater ). 1 0
We a g ree with Paradig m that the g ener al rule in this state and elsewhe re is tha t a defa ulted party may participa te in the post-defa ult damag es hear ing. See, e.g., Payne v. Dewitt , 995 P.2d 1088,
1095 (Okla. 1999) (stripping the defa ulted defe ndant “of basic due proce ss tr uth-testing device s is
contra ry to t h e order ly proce ss of assessing damag es”) ; Bashforth v. Zampini , 576 A.2d 1197,
1200–01 (R.I

. 1990) (holding that in a hear ing on the ques t ion of damag es, the defe ndant, even

H o s p
. o f G a r l a n d , 8 6 2 S

. W

. 2 d 7 6 2 , 7 7 3 ( T e x . A p p . — D a l l a s 1 9 9 3 , w r i t d e n i e d ) ; B r a n t l e y v
. E t t e r , 6 6 2 S

. W

. 2 d 7 5 2 , 7 5 6 ( T e x . A p p . — S a n A n t o n i o 1 9 8 3 ) , w r i t r e f ’ d n
. r
. e
. , 6 7 7 S

. W

. 2 d 5 0 3 ( T e x . 1 9 8 4 ) ( p e r c u r i a m ) ; H e l f m a n M o t o r s , I

n c
. v
. S t o c k m a n , 6 1 6 S

. W

. 2 d 3 9 4 , 3 9 7 ( T e x . C i v . A p p . — F o r t W o r t h 1 9 8 1 , w r i t r e f ’ d n . r . e . ) ; B a s s v
. D u f f e y , 6 2 0 S

. W

. 2 d 8 4 7 , 8 4 9

– 5 0 ( T e x . A p p . — H o u s t o n [ 1 4 t h D i s t

. ] 1 9 8 1 , n o w r i t ) ; I l l

. E m p ’ r s I n s
. C o
. o f W a u s a u v
. L e w i s , 5 8 2 S

. W

. 2 d 2 4 2 ( T e x . C i v . A p p . — B e a u m o n t ) , w r i t r e f ’ d n
. r
. e
. , 5 9 0 S

. W

. 2 d 1 1 9 ( T e x . 1 9 7 9 ) ( p e r c u r i a m )

.

S i n c e t h e c o u r t o f

a p p e a l s d e c i s i o n i n t h i s c a s e , a n o t h e r c o u r t o f a p p e a l s h a s u p h e l d d e a t h

- p e n a l t y s a n c t i o n s 10 t h a t p r e c l u d e d t h e d e f

a u l t e d d e f

e n d a n t f r o m c o n t e s t i n g b o t h t h e p l a i n t i f f ’ s l i a b i l i t y a n d d a m a g e s c l a i m s . S e e I n r e E s t a t e o f P r e s t o n , 3 4 6 S

. W

. 3 d 1 3 7 ( T e x . A p p . — F o r t W o r t h 2 0 1 1 , n o p e t

. )

. T h e c o u r t ’ s o p i n i o n , h o w e v e r , d o e s n o t d i s c u s s t h e d a m a g e s - p h a s e p r e c l u s i o n a s p e c t o f t h e s a n c t i o n s o r d e r n o r d o e s t h e o p i n i o n a d d r e s s o r o v e r r u l e i t s o w n p r i o r a u t h o r i t y h o l d i n g t h a t a d e f a u l t e d d e f

e n d a n t h a s t h e r i g h t t o c h a l l e n g e t h e p l a i n t i f f ’ s d a m a g e s . S e e H e l

f m a n M o t o r s , i n

f r a n o t e 9 ( c i t i n g R a i n w a t e r )

. 1 2though in defa ult, is entitled to full participa tion); see also Bonilla v. Trebol Motors Corp. , 150 F.3d 77, 82 (1st Cir. 1998) (noting g ener al rule that a defa ulting party “is entitled to contest damag es and
to participa

te in a hear ing on damag es, should one be held”) (citing 10A C H A R L E S A L A N W R I G H T , A R T H U R R. M I L L E R & M A R Y K A Y K A N E , F E D E R A L P R A C T I C E A N D P R O C E D U R E § 2688 (3d. ed. 1998)); B. Finber g , Annotation: Defaulting Defendant’ s Right to Notice and He a r ing as to Determ ination of Amount of Damages , 15 A.L .R.3d 586 (1967) (c ollecting case s).
Retamco points out, howe ver, that much of this authority conce rns no-answe r defa ult judgme nts rathe r than defa ults cause d by discovery abuse. I t emphasizes ag ain that discovery abuse

can include conduct that g oes far bey ond a mere failure to answe r and submits that a trial court must have disc retion in an a

ppropriate case to prohibit the sanctioned par ty ’s furthe r par

ticipation.
We ag ree that a trial court should have discretion to bar a defe ndant’s participa tion, such as
at t he damag es hearing in this cas e, i f such a sanction i s nece ssary to reme dy the abuse. Even so, such an extreme sanction must be car efully tailored to comport with the requir em en ts of
TransAmerican and due proce ss. Sanctions that prec lude the admissi on of evidence intrude upon the fac t-finding proce ss of a trial just as much as a defa ult judgme nt on liability

. I n the latter instance, sanctions that adjudicate the merits of a party ’s claim or defe nse cannot be imposed as mere punishment but rathe r are appropr iate only when the sanctioned p ar t y ’s conduct justifies a presumption that an asser

ted claim or defe nse lacks merit. TransAmerican , 811 S.W .2d at 918. The justification for also barr ing the defa ulted party from the ensuing evidentiar y trial on damag es must
g o bey ond that presumption beca use the da mag es issue is materia lly differ ent.

1 3The exis tence , or not, of fac ts establishing liability lends itself to the first presumption. For

instance: Did the defe ndant’s neg lige nce proxi mately cause the occur renc e? Morgan , 675 S.W .2d
at 732–33. Was the defe ndant indebted to the plaintiff? Paramount Pipe & Supply Co. v. Muhr , 749
S.W .2d 491, 496 (Tex. 1988). Striking the defe ndant’s answe r establish es the answe r to these questions. The either/or char acte r of liability fac ts, howeve r, does not translate to a cl aim for unliquidated damag es, which cannot be deter mi n ed b y answe ring “y es” or “no.” By their very
nature , unliquidated damag es are not susceptible to exact calc ulation and involve a rang e of possible

answe rs. For this rea son, a defa ulting defe nd an t admits fac ts establishing liability but not any claimed amount of unliquidated damag es. See Holt Atherton , 835 S.W .2d at 83; see also Thomson

v. W ooster , 114 U.S. 104, 111 (188 5 ) (alleg ations that are distinct and positive are confe ssed by defa ult; matter s not a lleg ed with c erta inty or, which by their nature require examination of details, require the complainant to prese nt proof)

. So what kind of abuse would justify barr ing a defa ulted defe ndant’s participa tion at the hear ing on unliquidated damag es? Dynamic Health , the case cited by the court of appea ls in this case , sug g ests spoliation as one example. Dynamic Health , 32 S.W .3d
at 884. The destruction of evidenc e that direc tly and signific antly impairs a party ’s ability to prove damag es might rea sonably justify a sanction like the one in this case . But the destruction of this ty pe

o f ev idence is not at issue in this case . The evidenc e neede d to prove Retamco’s damages i s available

. Acc ording t o R etamco, the information on the various wells has been collecte d, but at
g rea t expense. Retamco asser ts that Paradig m’s discovery abuse forc ed it to spend hundreds of

1 4thousands of dollars to assemble the data neede d to deter mine its d am age s —information that
Retamco a sserts Para digm possesse d and owe d it under the 1984 Ag ree ment. Although punishment may be a leg itimate conseque nce of a discovery sanction, it cannot be excessive. See Chrysler Corp. v. Blackm on , 841 S.W .2d 844, 849 (Tex. 1 9 9 2) (listing secur ing compliance , deter

renc e, and punishment as leg itimate purposes of discovery sanctions). Sanctions for discovery abuse should not be dispensed as arbitra ry monetary penalties unrela ted to any harm. Ford Mot o r C o
. v. Tyson , 943 S.W .2d 527, 534–35 (Tex. App.—Dallas 1997, orig

. proce eding ). When discussing e x ce s s i v en ess, we have said that “the punishm ent s hould fit the crime” and that the sanction “should be n o m o re s ev er e than nece ssary to satisfy its leg itimate purposes.”
TransAmerican , 8 1 1 S

. W

. 2 d at 917; see also PR Invs. and Specialty Retailers, Inc. v. State , 251
S.W .3d 472, 480 (Tex. 2008); In re SCI Tex. Funeral Servs., Inc. , 236 S.W .3d 759, 761 (Tex. 2007) (per curia m). Moreove r, discovery sanctions are primarily intended to reme dy discovery abuse and should be tailored to serve their reme dial purpose. I t is not appar ent that barr ing Paradig m’s participa tion in the post-defa ult d am age s p h ase of the case serve d any purpose other than punishment. Compensatory damag es awa rded post-d efault should compensa te the injured party for its loss, not penalize the wrong doer or allow the plaintiff a windfall. See Torringt on Co. v. Stutzman , 4 6 S.W .3d 829, 848-49 (Tex. 2000) (noting that the role of compensa tory damag es is to fa i rl y
compensa te the plaintiff, not punish the defendant)

. And although puni tive damag es ar e intended
to punish the wrongdoe r, t hey never theless m ust bear some rela tio n s h i p t o the l iability -produc ing conduct. See T E X
. C I V
. P R A C
. & R E M
. C O D E § 41.011(a) (re quiring fac tfinder to consider nature of

1 5the wrong , char acte r of conduct involved, deg ree of culpability , and extent to which conduct offe nds

public sense of justice in d eter mining exemplary damag es); see also In the Matter of Gober , 100 F.3d at 1205 (noting that conduct sufficie nt to war rant punitive damag es is not reg arde d as admitted by defa ult). Given this authority and the death- penalty sanction that ended the liability litigation, the additional sanction of prec luding Paradig m from the damag es trial was excessive. Retamco might have been entit l ed t o a l esser sanction, such as the additional costs and expenses cause d by Paradig m’s discovery abuse, but barr ing its participa tion in the damag es trial was “more sever e than

nece ssary to satisfy its legitimate purpose s.” TransAmerican , 811 S.W .2d at 917. * * * The judgme nt of the court of appea ls is reve rsed and the case is r emande d to the trial court for f urther pr ocee dings c onsistent with our opinion.

__________________________ David M. Medina J ustice

Opinion delivere d: J une 22, 2012

1 6