Court Opinion

ID: 9952562
Source: CourtListenerOpinion
Date Created: 2024-03-20 07:17:15.549544+00
Date Added: 2024-06-11T14:40:44.476240
License: Public Domain

CONDITIONALLY GRANTED and Opinion Filed March 18, 2024

                                   S  In The
                             Court of Appeals
                      Fifth District of Texas at Dallas
                                No. 05-23-01085-CV

 IN RE DREAM DALLAS, LLC AND EIFFEL HOLDINGS, LLC, Relators

          Original Proceeding from the 162nd Judicial District Court
                            Dallas County, Texas
                     Trial Court Cause No. DC-22-02275

                         MEMORANDUM OPINION
                Before Justices Partida-Kipness, Carlyle, and Garcia
                        Opinion by Justice Partida-Kipness
      In this original proceeding, Dream Dallas, LLC and Eiffel Holdings, LLC

(Relators) seek a writ of mandamus compelling the trial court to vacate an October

25, 2023 order granting a motion to quash filed by AAA Home Builder, LLC (AAA)

and Hassan Naser (together, Real Parties). The motion to quash concerned discovery

requests Relators served on two nonparty banks. The order compelled Relators to

destroy financial documents produced by the banks in response to the discovery

requests and prohibited Relators from using the documents during the case. We

conditionally grant the writ.
                                 BACKGROUND

      This proceeding arises out of a construction dispute. Relators own several

properties in east Dallas and contracted with Real Parties to build condominiums

thereon. Project delays ensued, and the parties amended their agreement to include

deadlines for certain portions of the construction project. The amended agreement

provided for liquidated damages if those deadlines were not met. Further disputes

arose between the parties, leading Relators to file suit against Real Parties in

February 2022.

      Relators alleged Real Parties failed to pay liquidated damages accrued due to

construction delays. Relators further alleged Real Parties received additional

payments for horizontal construction work not performed, and that Real Parties had

retained a refund from the City of Dallas for horizontal development work that

rightfully belonged to Relators. Relators brought claims for breach of contract, fraud,

and money had and received. Later, Relators began to suspect fraudulent transfers

from AAA after Relators learned AAA had terminated its existence and Naser had

previously incorporated several entities engaged in the same line of business as

AAA. Relators sought leave to add additional parties and theories of recovery.

      During discovery, Relators sought production of AAA’s financial records

directly from Real Parties. Relators contended these documents were relevant to the

issue of how much refund money Real Parties received from the City of Dallas. Real

Parties objected to these requests as overly broad, irrelevant, and seeking

                                         –2–
confidential financial information unrelated to Relators’ claims. Unsatisfied with

Real Parties’ discovery responses, Relators filed a motion to compel in April 2023.

On April 14, 2023, the trial court denied Relators leave to add additional causes of

action but extended the discovery deadline.

      Around April 26, 2023, Relators issued subpoenas to nonparties Bank of

America and First United Bank & Trust—institutions at which AAA purportedly

held accounts—attempting to acquire the financial documents they had been unable

to get directly from Real Parties. Relatedly, Relators noticed depositions on written

questions to the records custodians for the banks and sought production of:

      Any and all banking records and documents reduced to writing, or in
      any other storage medium, including but not limited to, originals and
      non-identical copies of, letters, telegrams, memoranda, reports or
      records, ledgers, journals, invoices, bills, financial and business
      records, receipts, contracts, reports, diary entries, agendas, notes,
      charts, forms, tabulations, analyses, statistical or informational
      accumulations, guidelines, instructions, handbooks, manuals, operating
      procedures, graphs, and all other records in your possession, custody or
      control pertaining to AAA Home Builder, LLC.

Relators used a discovery service for issuing the subpoenas. On May 9, 2023, Real

Parties filed a motion to quash, motion for protective order, and objections related

to the nonparty subpoenas. The motion was served on the nonparty banks.

      On May 10, 2023, an associate judge heard Relators’ motion to compel related

to the discovery previously sought directly from Real Parties. However, the court

did not rule on the discovery regarding the financial information sought directly from

Real Parties. The motion to quash and for protection related to the nonparty

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subpoenas had not been formally set for hearing at that time. Those motions were

scheduled to be heard on August 2, 2023, but due to a trial court scheduling conflict,

the hearing was reset to October 25, 2023.

        In the interim, near the end of July 2023, the nonparty banks sent Relators

copies of the subpoenaed documents. After learning of this, Real Parties

supplemented the motion to quash and for protection, asserting Relators had

circumvented discovery rules by directing its discovery service to serve the

subpoenas on the nonparty banks prior to the court’s hearing on Real Parties’ motion

to quash and for protection.

        At the October 25, 2023 hearing on the motion to quash, the trial court

admonished Relators for pursuing and receiving the bank documents after the

motion to quash was filed. The court stated Relators’ counsel committed an

“egregious” mistake. That same day, the court entered the order granting the motion

to quash. The court ordered Relators’ counsel to destroy—within three days—every

bank record of AAA obtained from the nonparty banks in connection with the

subpoenas and to confirm such destruction with the court. The trial court further

ordered that Relators were prohibited from using or introducing any of the bank

records at any deposition, motion, response, or trial of the case.1 Relators then

petitioned this Court for mandamus relief from the trial court’s order.

    1
        Trial was set for February 20, 2024. On our own motion, we stayed the trial by order dated February
16, 2024.
                                                   –4–
                            STANDARD OF REVIEW

      To obtain relief by writ of mandamus, the relator must establish a clear abuse

of discretion and no adequate remedy by appeal. In re Nationwide Ins. Co. of Am.,

494 S.W.3d 708, 712 (Tex. 2016) (orig. proceeding). An abuse of discretion occurs

when a trial court’s ruling is arbitrary and unreasonable, made without regard for

guiding legal principles or supporting evidence. Id. Similarly, a trial court abuses its

discretion when it fails to analyze or apply the law correctly. Id. And, the party may

demonstrate the court erred in “determining what the law is or applying the law to

the facts, even when the law is unsettled.” In re K & L Auto Crushers, LLC, 627

S.W.3d 239, 247 (Tex. 2021) (orig. proceeding) (citations omitted).

      Trial courts have broad discretion to decide whether to permit or deny

discovery. Id. Generally, they abuse that discretion only if their decision is “so

arbitrary and unreasonable as to amount to a clear and prejudicial error of law.” Id.

A discovery order that denies a party’s requested discovery on improper grounds

and thus prevents that party from developing a claim or defense that goes to the heart

of its case is an abuse of discretion for which mandamus may be appropriate. In re

Liberty Cnty. Mut. Ins. Co., 679 S.W.3d 170, 174 (Tex. 2023) (orig. proceeding). If

a discovery order vitiates or severely compromises a party’s ability to present a

viable claim or defense at trial, an appeal is not an adequate remedy. Id. at 176.

                                          –5–
                                       ANALYSIS

       Relators contend the trial court abused its discretion in ordering the

destruction of documents obtained by subpoena and prohibiting any use of those

documents during the case. Relators contend these actions were tantamount to

sanctions against Relators, who are left without an adequate remedy by appeal. After

reviewing the petition, response, and the mandamus record, we agree.

I.     The Trial Court Abused Its Discretion

       A.     Scope of discovery

       Our procedural rules permit discovery of “any matter that is not privileged

and is relevant to the subject matter of the pending action.” K & L Auto Crushers,

627 S.W.3d at 247–48 (quoting TEX. R. CIV. P. 192.3(a)). This includes information

that “will be inadmissible at trial if the information sought appears reasonably

calculated to lead to the discovery of admissible evidence.” Id. Because the purpose

of discovery is to enable courts to decide disputes based on “what the facts reveal,

not by what facts are concealed,” the rules must be “liberally construed to allow the

litigants to obtain the fullest knowledge of the facts and issues prior to trial.” Id. (first

quoting Crosstex Energy Servs., L.P. v. Pro Plus, Inc., 430 S.W.3d 384, 394 (Tex.

2014); and then quoting Axelson, Inc. v. McIlhany, 798 S.W.2d 550, 553 (Tex. 1990)

(orig. proceeding)).

                                            –6–
      B.       Relators did not abuse discovery by seeking or receiving
               documents from nonparties

      Our rules of procedure permit discovery from nonparties by serving a

subpoena compelling, as here, depositions on written questions and requests for

production of documents and tangible things. TEX. R. CIV. P. 200.1, 205.1. The

nonparty must respond to the subpoena in accordance with Rule 176.6. TEX. R. CIV.

P. 205.3(d).

      Rule 176.6 generally governs responses to discovery subpoenas. The rule

provides:

      (a) Compliance Required. Except as provided in this subdivision, a
      person served with a subpoena must comply with the command stated
      therein unless discharged by the court or by the party summoning such
      witness. A person commanded to appear and give testimony must
      remain at the place of deposition, hearing, or trial from day to day until
      discharged by the court or by the party summoning the witness.

                                         ***

      (d) Objections. A person commanded to produce and permit inspection
      or copying of designated documents and things may serve on the party
      requesting issuance of the subpoena--before the time specified for
      compliance--written objections to producing any or all of the
      designated materials. A person need not comply with the part of a
      subpoena to which objection is made as provided in this paragraph
      unless ordered to do so by the court. The party requesting the subpoena
      may move for such an order at any time after an objection is made.

      (e) Protective Orders. A person commanded to appear at a deposition,
      hearing, or trial, or to produce and permit inspection and copying of
      designated documents and things, and any other person affected by the
      subpoena, may move for a protective order under Rule 192.6(b)--before
      the time specified for compliance--either in the court in which the
      action is pending or in a district court in the county where the subpoena
      was served. The person must serve the motion on all parties in

                                         –7–
      accordance with Rule 21a. A person need not comply with the part of a
      subpoena from which protection is sought under this paragraph unless
      ordered to do so by the court. The party requesting the subpoena may
      seek such an order at any time after the motion for protection is filed.

TEX. R. CIV. P. 176.6(a), (d)–(e) (emphasis ours). In sum, Rule 176.6 requires

compliance with the subpoena but provides the nonparty an opportunity to object to

such and refuse to comply until ordered to do so by the court. The rule also gives the

nonparty and other persons affected by the subpoena the right to move for protective

orders. However, nothing in the rule prohibits a nonparty from complying with the

discovery subpoena if it chooses to do so.

      The trial court’s order does not specify the grounds for ordering the

destruction of the documents and barring their use during the case. At the hearing on

Real Parties’ motion to quash, the court appeared to believe Relators had affirmative

duties to (1) inform the nonparties (or the discovery service) not to send the

documents in light of the pending motion to quash and for protective order, and (2)

return any documents received from the nonparties. The trial court believed the

procedural rules permitting motions for protective order would be thwarted if parties

could obtain documents before the motion could be heard. The court concluded

Relators’ counsel had committed an “egregious” mistake.

      However, neither of the nonparty banks objected to Relators’ subpoenas. And

even though the banks could refuse to comply with the request, they chose to

comply, even after receiving notice of Real Parties’ motion to quash, motion for

protective order, and objections. See TEX. R. CIV. P. 176.6(d), (e), 205.3(d). Real
                                       –8–
Parties have not directed us to any rule or caselaw holding that a litigant abuses the

discovery process by receiving discovery materials from a nonparty that has freely

chosen to comply with a subpoena. Furthermore, the discovery rules are not thwarted

under such circumstances. The rules contemplate motions for protective orders by

the litigants (or others) to protect themselves in the event sensitive or impermissible

documents have been produced by the nonparty. That the hearing on such a motion

might occur after documents have been produced does not rob the trial court of the

ability to fashion appropriate relief, a subject we discuss below. Accordingly, to the

extent the trial court determined Relators abused the discovery process, the trial

court abused its discretion.

      C.       The trial court should have considered other remedies

      We next consider the trial court’s chosen remedy for Relators’ alleged abuse

of discovery: requiring Relators to destroy the financial records and prohibiting any

use thereof.

      Rule 215.3 authorizes a trial court to impose sanctions for discovery abuse.

TEX. R. CIV. P. 215.3. Sanctions which terminate or inhibit the presentation of the

merits of a party’s claims are generally authorized by Rule 215. Braden v. Downey,

811 S.W.2d 922, 929 (Tex. 1991). The effect of such sanctions is to adjudicate

claims or defenses, not on their merits, but on the manner in which a party or his

attorney has conducted discovery. Id. However, such sanctions must be reserved for

circumstances in which a party has so abused the rules of procedure, despite

                                         –9–
imposition of lesser sanctions, that the party’s position can be presumed to lack

merit, and it would be unjust to permit the party to present the substance of that

position before the court. Id.

      A sanction imposed under Rules 215.2 and 215.3 must be “just.”

TransAmerican Nat. Gas Corp. v. Powell, 811 S.W.2d 913, 917 (Tex. 1991) (orig.

proceeding). We measure whether a sanction is just by two standards. First, a direct

relationship must exist between the offensive conduct and the sanctions imposed. Id.

“Second, just sanctions must not be excessive. The punishment should fit the crime.

A sanction imposed for discovery abuse should be no more severe than necessary to

satisfy its legitimate purposes.” Id. Courts must consider the availability of less

stringent sanctions and whether such lesser sanctions would fully promote

compliance. Id. Sanctions which are so severe as to preclude presentation of the

merits of the case should not be assessed absent a party’s flagrant bad faith or

counsel’s callous disregard for the responsibilities of discovery under the rules. Id.

      Sanctions that have the effect of adjudicating a claim or precluding a decision

on the merits of the case are referred to as “death-penalty” sanctions. In re First

Transit Inc., 499 S.W.3d 584, 591 (Tex. App.—Houston [14th Dist.] 2016, orig.

proceeding) (citing GTE Commc’ns Sys. Corp. v. Tanner, 856 S.W.2d 725, 732 (Tex.

1993)). “Death-penalty” sanctions are harsh and may be imposed as an initial

sanction only in the most egregious and exceptional cases. Id. (citing Cire v.

Cummings, 134 S.W.3d 835, 842 (Tex. 2004)). Although death-penalty sanctions

                                        –10–
typically involve striking pleadings or rendering a default judgment, any sanctions

that are case determinative may constitute death-penalty sanctions, including those

that exclude essential evidence. Id. at 592. Whether a discovery order is tantamount

to a death-penalty sanction depends on the circumstances of the case. See Paselk v.

Rabun, 293 S.W.3d 600, 609 (Tex. App.—Texarkana 2009, no pet.).

      Here, Relators argue the trial court sanctioned them by ordering destruction

of the financial documents and prohibiting their use during the case. The transcript

from the hearing on the motion to quash supports that assertion. Near the conclusion

of the hearing, the trial court admonished Relators’ counsel for not knowing he

should not have pursued or received the documents after Real Parties filed the

motion to quash. The court further stated counsel’s conduct in acquiring the

documents was an “egregious” mistake. The court issued its order immediately

thereafter. The order required immediate destruction of the documents and

confirmation of their destruction to the trial court and wholly prohibited Relators

from using the documents during the case. Sanctions under Rule 215 include

“prohibiting [the party] from introducing designated matters in evidence.” TEX. R.

CIV. P. 215.2(b)(4), 215.3. Under this record, the trial court essentially sanctioned

Relators for conduct it believed violated discovery rules.

      Furthermore, we do not believe the sanction imposed by the trial court was

“just,” as required by the rules or case law. See Powell, 811 S.W.2d at 917. First,

there is no relationship between any offensive conduct and the sanctions imposed

                                        –11–
because, as we have explained, we do not believe Relators engaged in misconduct.

Second, even if there were misconduct, the sanction was excessive. Relators argued

the bank documents were relevant to their claims for breach of contract and money

had and received. Relators alleged Real Parties received refund money from the City

of Dallas that belonged to Relators. Relators also alleged they provided money to

Real Parties for which no work was performed. Bank records would tend to show—

or lead to evidence that shows—how much was received, when it was received, and

how the funds were used. Requiring complete destruction of the documents and

wholly barring their use tends to thwart the presentation of the merits of the case or

a decision thereon.

      Real Parties argue the trial court did not impose any sanctions for alleged

discovery abuse. They assert the court was empowered by Rule 192.6 to issue a

protective order prohibiting Relators from seeking the discovery and ordering the

results of discovery be “sealed or otherwise protected.” See TEX. R. CIV. P.

192.6(b)(1), (5). However, destruction of the evidence and a complete bar to its use

during any litigation proceeding go beyond mere protection. Even if the trial court

was correct to conclude Relators had violated discovery rules, its solution went too

far. The record does not indicate the court considered the availability of less stringent

sanctions and whether such lesser sanctions would fully promote compliance.

Powell, 811 S.W.2d at 917.

                                         –12–
      In the trial court, Real Parties initially objected on the grounds the requests

were overly broad, not limited in time, not relevant, and invaded personal and

property rights. The order does not reflect whether the trial court was motivated by

any of these objections, and we do not hold that Relators were entitled to all of the

documents produced by the nonparties. Nonetheless, if the trial court believed the

requests were overly broad or some documents were not likely to lead to relevant

evidence, the trial court could have narrowed the discovery or limited its use. The

court also could have fashioned ways to protect Real Parties and others from

sensitive information or misuse of the documents. However, by ordering destruction

of all the documents and wholly barring Relators from using any of them during any

stage of the litigation, the trial court abused its discretion. See Liberty Cnty. Mut.

Ins., 679 S.W.3d at 175 (quoting TEX. R. CIV. P. 192 cmt. 7) (A court “abuses its

discretion in unreasonably restricting a party’s access to information through

discovery.”).

II.   No Adequate Remedy by Appeal

      We further conclude mandamus relief is appropriate in this case. In addition

to showing the trial court abused its discretion, Relators may obtain mandamus relief

only if they also show they have “no adequate remedy by appeal.” K & L Auto

Crushers, 627 S.W.3d at 256. An appellate remedy may not be adequate where (1)

an appellate court cannot cure the discovery error, such as when confidential

information is erroneously made public, (2) the party’s ability to present a viable

                                        –13–
claim or defense—or reasonable opportunity to develop the merits of the case—is

“severely compromised” so that the trial would be a waste of resources, or (3)

discovery is disallowed and cannot be made part of the appellate record such that a

reviewing court is unable to evaluate the effect of the trial court’s error based on the

record. Id. A party’s ability to present and develop its case may be severely

compromised when the denied discovery goes “to the very heart” of a party’s case

and prevents it from “developing essential elements” of its claim or defense. Id.

        We conclude Relators have no adequate remedy by appeal because they have

effectively been denied a reasonable opportunity to develop claims that go to the

heart of their case. Relators brought claims for breach of contract, fraud, and money

had and received. The parties dispute the amount of money refunded to Real Parties

by a third party, Dallas County, and whether Real Parties were paid for work not

performed as contemplated by the contracts. The circumstances of how much money

Real Parties received from Dallas County, and Relators’ alleged entitlement to it, go

to the heart of a claim for money had and received.2 Furthermore, whether monies

received by Real Parties went to construction as contemplated by the contracts would

implicate breach of contract claims. The order requiring the financial documents’

destruction and complete bar against their use thwarts Relators’ ability to develop

    2
        To prove a claim for money had and received, a plaintiff must show (1) a defendant holds money
(2) which in equity and good conscience belongs to the plaintiff. MGA Ins. Co. v. Charles R. Chesnutt,
P.C., 358 S.W.3d 808, 814 (Tex. App.—Dallas 2012, no pet.). “The question in an action for money had
and received, is to which party does the money, in equity, justice, and law, belong.” Id. at 813 (citations
omitted).
                                                  –14–
and present their case.3 We also conclude Relators have no adequate remedy by

appeal because a reviewing court will be unable to evaluate the effect of the trial

court’s denial of discovery from the nonparty banks. The missing discovery is from

third parties and cannot be made part of the appellate record or challenged on appeal,

and the banks will not be parties to any appeal. See K & L Auto Crushers, 627 S.W.3d

at 257. Furthermore, it would be difficult to determine on appeal whether the lack of

discovery erroneously affected the outcome of the trial. Id. We conclude Relators

have no adequate remedy by appeal.

                                           CONCLUSION

        We hold the trial court abused its discretion to the extent it concluded Relators

abused the discovery process. We further hold the trial court abused its discretion in

ordering the destruction of the financial records and barring Relators from using

them during the litigation. We also conclude Relators have no adequate remedy by

appeal.

        Accordingly, we conditionally grant the writ of mandamus and lift the stay

imposed by our order dated February 16, 2024. We direct the trial court to vacate its

October 25, 2023 order on Real Parties’ motion to quash, motion for protective

    3
         Relators contend the requested discovery is necessary to investigate and support other claims they
seek to add to their petition, for example, fraudulent transfers of AAA’s assets. Real Parties argue Relators
cannot use discovery to fish for evidence of new claims. We do not hold Relators are entitled to the
discovery to fish for additional claims. See In re Am. Optical Corp., 988 S.W.2d 711, 713 (Tex. 1998) (orig.
proceeding). We simply conclude at least some of the information sought is likely relevant to the subject
of the action and “is reasonably calculated to lead to the discovery of admissible evidence” regarding the
claims in Relators’ petition. See TEX. R. CIV. P. 192.3(a).
                                                   –15–
order, and objections to Relators’ deposition on written questions and subpoena

duces tecum within fourteen days of this opinion. We are confident the trial court

will comply with our order. A writ will issue only if the trial court fails to comply.

                                            /Robbie Partida-Kipness/
                                            ROBBIE PARTIDA-KIPNESS
                                            JUSTICE
231085F.P05

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