Court Opinion

ID: 2980221
Source: CourtListenerOpinion
Date Created: 2015-09-22 19:06:45.995208+00
Date Added: 2024-06-11T13:17:39.679936
License: Public Domain

Reversed and Rendered and Opinion and Concurring Opinion filed April 2,
2015.

                                       In The

                     Fourteenth Court of Appeals

                               NO. 14-13-01069-CV

           TERRENCE MANN AND EVELYN MANN, Appellants

                                         V.

  KENDALL HOME BUILDERS CONSTRUCTION PARTNERS I, LTD.,
                        Appellee

                    On Appeal from the 113th District Court
                            Harris County, Texas
                      Trial Court Cause No. 2010-47169

                                  OPINION

      In this appeal of a sanctions order, the appellants argue in the alternative that
the trial court signed the order after its plenary power expired; that the order is
unenforceable due to lack of specificity; that a party cannot be sanctioned for a
pleading that was amended before sanctions were sought; and that the trial court
abused its discretion in impliedly finding that the challenged statements in their
original petition violated Rule 13 of the Texas Rules of Civil Procedure. Because
we agree only with the last contention, we reverse and render judgment denying
the request for sanctions.

                                    I. BACKGROUND

       Appellants Terrence and Evelyn Mann bought their home from appellee
Kendall Home Builders Construction Partners I, Ltd. (“Kendall”).                  After the
closing, the Manns sued Kendall, alleging that Kendall failed to apply all of the
incentives promised in the sales contract. The Manns asserted claims for fraud,
civil conspiracy, and violations of the Real Estate Settlement Procedures Act, the
Texas Insurance Code, and the Deceptive Trade Practices–Consumer Protection
Act (“DTPA”). After the Manns amended their petition, the trial court rendered a
partial summary judgment in Kendall’s favor on some claims and set the remaining
claims for trial.    When the Manns failed to appear, the trial court rendered
judgment dismissing their claims for want of prosecution.

       One week later, Kendall filed a motion seeking sanctions pursuant to Texas
Rule of Civil Procedure 13 against the Manns and their attorney, who signed the
Manns’ pleadings on their behalf. Kendall argued that the Manns’ original petition
was groundless and that the suit was brought in bad faith and for the purpose of
harassment. Kendall asked the trial court to order the Manns and their attorney to
pay Kendall more than $24,000 for all of the attorney’s fees Kendall had paid
throughout the litigation. After an evidentiary hearing, the trial court issued an
order in which it found that the Manns’ claims “were without any factual
foundation, were frivolous, and brought in bad faith for the purpose of wrongfully
gaining money or services from [Kendall].”1 The trial court ordered that Kendall

       1
       There is a split of authority on the question of whether the denial of a motion for
summary judgment on the pleaded claims should have any effect on the later assertion that the
                                             2
shall “have and recover judgment against [the Manns] sanctions in the amount of
$6,500.00,” and ordered the Manns to pay additional amounts if Kendall prevailed
on appeal. The trial court signed the order thirty-five days after rendering final
judgment.

                                   II. ISSUES PRESENTED

       In its motion for sanctions, Kendall argued that the Manns’ original petition
was signed in violation of Texas Rule of Civil Procedure 13. Under Rule 13, the
signatures of attorneys or parties on a pleading, motion, or other paper “constitute a
certificate by them that they have read the [instrument, and] that to the best of their
knowledge, information, and belief formed after reasonable inquiry the instrument
is not groundless and brought in bad faith or groundless and brought for the
purpose of harassment.” TEX. R. CIV. P. 13. “If a pleading, motion or other paper
is signed in violation of this rule, the court, upon motion or upon its own initiative,
after notice and hearing, shall impose an appropriate sanction . . . upon the person
who signed it, a represented party, or both.” Id.

       On appeal, the Manns challenge the sanctions order on jurisdictional,
procedural, and substantive grounds. We address each in turn.

                        III. THE SANCTIONS ORDER IS NOT VOID.

       In the Manns’ first issue, they argue that the sanctions order is void because
the trial court signed it after its plenary power expired. For thirty days after

pleading is groundless. Compare Trimble v. Itz, 898 S.W.2d 370, 374 (Tex. App.—San Antonio
1995) (reversing sanctions order under Rule 13 because “[i]t is impossible to see how the court’s
ruling that there were genuine issues of material fact present can be squared with a ruling that
[the plaintiff’s] pleadings were groundless, brought in bad faith or for purposes of harassment”),
writ denied, 906 S.W.2d 481 (Tex. 1995) (per curiam) with Metzger v. Sebek, 892 S.W.2d 20, 53
n.31 (Tex. App.—Houston [1st Dist.] 1994, writ denied) (“[T]hat a client’s pleadings ‘survive[]
motions for summary judgment’ does not mean that they cannot be the basis of rule 13
sanctions.”). We note, however, that in this case, the rulings were made by different judges.

                                                3
signing the judgment, a trial court has plenary power to vacate it, to make non-
substantive changes to it, or to grant a new trial. See TEX. R. CIV. P. 329b. If
within that time a party files a motion for a new trial or a motion to vacate, modify,
correct, or reform the judgment, then the trial court’s plenary power is extended for
thirty days after the last such motion is expressly or implicitly overruled. Id. The
Manns contend that the sanctions order is void because the trial court signed it
more than thirty days after it signed the final judgment even though no one filed a
motion that extended the trial court’s plenary power. They acknowledge, however,
that the Texas Supreme Court has held that any timely filed motion for a
substantive change in the existing judgment is a motion to modify that extends the
trial court’s plenary jurisdiction. See Lane Bank Equip. Co. v. Smith S. Equip.,
Inc., 10 S.W.3d 308, 314 (Tex. 2000) (holding that a postjudgment motion to
incorporate a sanction as part of the final judgment is a motion to modify the
judgment and extends the trial court’s jurisdiction).

      The Manns attempt to distinguish Lane on the ground that the postjudgment
motion for sanctions in that case included an explicit request for the trial court to
render a new final judgment, whereas Kendall’s postjudgment motion for sanctions
did not include such an express request. The identical argument was presented to
the Third Court of Appeals in Cocke v. Elliott, No. 03-12-00667-CV, 2013 WL
4821123, at *7 (Tex. App.—Austin Aug. 27, 2013, pet. denied) (mem. op.). The
appellant in that case argued that the motion for sanctions could not be considered
a motion to modify the judgment because the sanctions motion did not even
mention the final judgment. Id. The appellate court rejected this argument, stating
that a request for modification of the judgment “was plainly the legal effect and
gravamen of appellees’ motion, whether or not appellees said so, and we reject [the
appellant’s] attempt to elevate form over substance.” Id.; see also Thota v. Young,

                                          4
366 S.W.3d 678, 690 (Tex. 2012) (“[W]e have long favored a common sense
application of our procedural rules that serves the purpose of the rules, rather than
a technical application that rigidly promotes form over substance.”).

      The procedural history of this case falls between Lane and Cocke; we do not
have an explicit request for modification of the judgment such as that in Lane, but
unlike in Cocke, we have more than an inference that the movant wanted the
sanctions incorporated in the judgment. Here, we also have Kendall’s proposed
sanctions order, which included language that it “have and recover judgment
jointly and severally” against the Manns and their attorney (emphasis added). We
previously have characterized a proposed order as part of a litigant’s request for
relief. See In re A.G.C., 279 S.W.3d 441, 450 (Tex. App.—Houston [14th Dist.]
2009, no pet.) (characterizing a parent’s proposed order terminating his parental
rights as a request that his parental rights be terminated). The record also shows
that the trial court was aware of the content of the proposed order. At the sanctions
hearing, Kendall’s attorney pointed out to the trial court that a proposed order was
attached to the motion for sanctions, and the trial court responded, “Okay. I can
look at that, but I -- these kind of things, I generally write my own.” The trial court
wrote its own order, and included language in the sanctions order that Kendall
“have and recover judgment” against the Manns.

      Under the circumstances, we conclude that Kendall’s motion for sanctions
was a postjudgment motion for modification of the judgment that extended the trial
court’s plenary power. We overrule the Manns’ first issue.

IV. THE MANNS WAIVED THE COMPLAINT THAT THE ORDER IS UNENFORCEABLE
                        FOR LACK OF SPECIFICITY.
      Although they do not present it as a discrete issue, the Manns additionally
argue that the sanctions order is unenforceable because the trial court did not state

                                          5
with particularity the sanctionable conduct. The Manns are correct in pointing out
that Rule 13 provides that sanctions may not be imposed “except for good cause,
the particulars of which must be stated in the sanction order.” TEX. R. CIV. P. 13.
But, as we repeatedly have held, such a complaint is waived if not raised in the
trial court. See, e.g., Parker v. Walton, 233 S.W.3d 535, 541 n.7 (Tex. App.—
Houston [14th Dist.] 2007, no pet.); Appleton v. Appleton, 76 S.W.3d 78, 87 (Tex.
App.—Houston [14th Dist.] 2002, no pet.); Jimenez v. Transwestern Prop. Co.,
999 S.W.2d 125, 130 (Tex. App.—Houston [14th Dist.] 1999, no pet.); Alexander
v. Alexander, 956 S.W.2d 712, 714 (Tex. App.—Houston [14th Dist.] 1997, pet.
denied).2 Because the Manns did not raise their complaint in the trial court, we do
not consider it on appeal.

           V. RULE 13 SANCTIONS CAN BE AWARDED BASED ON A PLEADING
                           THAT HAS BEEN AMENDED.
       In their second appellate issue, the Manns contend that the trial court erred
in granting the sanctions motion directed at their original petition, because that
pleading had been superseded by an amended petition for more than a year before
Kendall moved for sanctions. In support of the argument that Rule 13 sanctions
cannot be based on a signed pleading that has since been amended, the Manns cite
Texas Rule of Civil Procedure 65 and cases interpreting it. See TEX. R. CIV. P. 65
(“Unless the substituted instrument shall be set aside on exceptions, the instrument

       2
          In their appellate brief on this issue, the Manns cite only this court’s cases in which,
without discussing the need to preserve this complaint in the trial court, we simply held that a
sanctions order was unenforceable because the trial court failed to describe the sanctioned
conduct in its order or in findings of fact and conclusions of law. See, e.g., Mattly v. Spiegel,
Inc., 19 S.W.3d 890, 894–96 & n.2 (Tex. App.—Houston [14th Dist.] 2000, no pet.); Zarsky v.
Zurich Mgmt., Inc., 829 S.W.2d 398, 399–400 (Tex. App.—Houston [14th Dist.] 1992, no writ).
One cannot infer from such cases that it is unnecessary to raise the issue in the trial court. If the
record shows that the complaint was preserved in the trial court and the parties do not contend
otherwise, we are not required to identify the way in which error was preserved. Here, as
Kendall points out, the record shows that this complaint was not preserved.

                                                 6
for which it is substituted shall no longer be regarded as a part of the pleading in
the record of the cause . . . .”).

       At one time, a party could avoid sanctions under Rule 13 by amending the
pleading or motion to eliminate the groundless statements; however, the rule was
amended in 1990 in a way that eliminated that opportunity for cure. See TEX. R.
CIV. P. 13 cmt. (noting that the 1990 amendment of the rule eliminated the 90-day
“grace” period to withdraw or amend the offending pleading). Under the present
version of Rule 13, sanctions “are based on the signing and filing of pleadings in
violation of the duties imposed by [the Rule],” not on the continued effectiveness
of the sanctionable pleading. See State v. PR Invs. & Specialty Retailers, Inc., 180
S.W.3d 654, 671 (Tex. App.—Houston [14th Dist.] 2005, pet. granted) (op. on
reh’g en banc) (explaining that to impose sanctions under Rule 13 based on the
signing of pleadings, the trial court had to find that either the original or the
amended petition was signed in violation of the Rule), aff’d, 251 S.W.3d 472 (Tex.
2008). Although courts may consider the extent to which any harm was caused by
the movant’s delay in seeking sanctions, delay alone does not necessarily bar a
sanctions award. See Nath v. Tex. Children’s Hosp., 446 S.W.3d 355, 368, 372
(Tex. 2014) (upholding the trial court’s decision to sanction the plaintiff, but
remanding for the trial court to consider the extent to which the defendants caused
their own attorney’s fees by delaying moving for summary judgment and
sanctions). We accordingly overrule this issue.

  VI. KENDALL FAILED TO MEET ITS BURDEN TO ESTABLISH THAT THE MANNS’
                        CONDUCT WAS SANCTIONABLE.
       In their third and final issue, the Manns argue that the sanctions must be
reversed because the challenged statements in their original petition were not
sanctionable. We review a sanctions order for abuse of discretion. Id. at 361. We
will reverse “only if the trial court acted without reference to any guiding rules and
                                          7
principles, such that its ruling was arbitrary or unreasonable.” Low v. Henry, 221
S.W.3d 609, 614 (Tex. 2007). Although sanctions may be imposed for a variety of
reasons—to enforce compliance with the relevant rules, to punish violators, to
compensate the aggrieved party forced to incur costs to respond to baseless
pleadings, or to deter other litigants from similar misconduct3—Rule 13 sanctions
are not warranted simply because one side disagrees with the opposing parties’
factual and legal assertions. See Mattox v. Grimes Cnty. Comm’rs Court, 305
S.W.3d 375, 386 (Tex. App.—Houston [14th Dist.] 2010, pet. denied) (op. on
reh’g).

      A party who moves for sanctions bears the burden to establish a right to
relief by proving its assertions. GTE Commc’ns Sys. Corp. v. Tanner, 856 S.W.2d
725, 729 (Tex. 1993) (orig. proceeding). Because that burden must be met with
evidence, legal sufficiency of the evidence is relevant in determining whether the
trial court abused its discretion by imposing sanctions.          Yuen v. Gerson, 342
S.W.3d 824, 827 (Tex. App.—Houston [14th Dist.] 2011, pet. denied).

      The party seeking sanctions first must establish that the signed document is
groundless. See TEX. R. CIV. P. 13. As used in Rule 13, “groundless” means
having “[n]o basis in law or fact and not warranted by good faith argument for the
extension, modification, or reversal of existing law.” Id.; Falk & Mayfield L.L.P. v.
Molzan, 974 S.W.2d 821, 824 (Tex. App.—Houston [14th Dist.] 1998, pet. denied)
(emphasizing that “groundless” means that “there is no arguable basis for the
cause of action”). A pleading is groundless if the represented party or counsel
failed to make an objectively reasonable inquiry into the legal and factual basis of
the claims at the time the pleading was filed. See Harrison v. Harrison, 363
      3
         See Nath, 446 S.W.3d at 363 (addressing enforcement, punishment, and deterrence);
Scott & White Mem’l Hosp. v. Schexnider, 940 S.W.2d 594, 596–97 (Tex. 1996) (per curiam)
(addressing deterrence and compensation).

                                            8
S.W.3d 859, 863 (Tex. App.—Houston [14th Dist.] 2012, no pet.). “Reasonable
inquiry” means the amount of examination that is reasonable under the
circumstances of the case.    Robson v. Gilbreath, 267 S.W.3d 401, 406 (Tex.
App.—Austin 2008, pet. denied). To determine the reasonableness of the inquiry,
a court must examine the facts available to the litigant or counsel and the
circumstances that existed when the document was signed and filed. See Harrison,
363 S.W.3d at 863–64; Robson, 267 S.W.3d at 405. Because courts begin with the
presumption that signed papers are filed in good faith, the party seeking sanctions
must rebut the presumption by producing competent evidence that a reasonable
inquiry made at that time would have revealed the groundless nature of the
challenged matter. See Unifund CCR Partners v. Villa, 299 S.W.3d 92, 97 (Tex.
2009) (per curiam).

      In addition to proving groundlessness, a party seeking sanctions also must
prove that the challenged document was signed in bad faith or for the purpose of
harassment. See TEX. R. CIV. P. 13; Unifund, 299 S.W.3d at 97. To meet this
burden, the party seeking sanctions must overcome the presumption that the
challenged document was filed in good faith. See Nath, 446 S.W.3d at 361. In
deciding whether a pleading was filed in bad faith or for the purpose of
harassment, the trial court must consider the acts or omissions of the represented
party or counsel, not merely the legal merit of a pleading or motion. See Parker,
233 S.W.3d at 539; see also Tanner, 856 S.W.2d at 731 (“Rule 13 does not permit
sanctions for every pleading or motion that requests relief which is denied.”). To
establish bad faith, the movant must show more than mere negligence or bad
judgment. Parker, 233 S.W.3d at 540. We have described the movant’s obligation
to establish bad faith as “a heavy burden” because bad faith consists of “the
conscious doing of a wrong for dishonest, discriminatory, or malicious purposes.”

                                         9
Loya v. Loya, No. 14-12-00385-CV, 2013 WL 830940, at *3 (Tex. App.—Houston
[14th Dist.] Mar. 5, 2013, no pet.) (mem. op.). Bad faith cannot be established by
surmise or speculation. See Unifund, 299 S.W.3d at 97. A party acts in bad faith if
it has been put on notice that its understanding of the facts may be incorrect and
the party does not make reasonable inquiry before pursuing the claim further.
Robson, 267 S.W.3d at 407.

       Finally, parties and counsel do not violate Rule 13 by requesting a particular
amount of damages. TEX. R. CIV. P. 13.

A.     The scope of review

       Because the trial court identified Rule 13 as the basis for sanctions, we limit
our review to determining whether the trial court abused its discretion in
sanctioning the Manns under Rule 13. See Aldine Indep. Sch. Dist. v. Baty, 946
S.W.2d 851, 852 (Tex. App.—Houston [14th Dist.] 1997, no writ) (citing Metzger
v. Sebek, 892 S.W.2d 20, 51 (Tex. App.—Houston [1st Dist.] 1994, writ denied)).
Upon notice and a hearing, a trial court may impose sanctions pursuant to Rule 13
on its own initiative or pursuant to a motion, and the record shows that the trial
court sanctioned the Manns pursuant to Kendall’s motion rather than on its own
initiative.4   Under such circumstances, a trial court may not award Rule 13
sanctions on a basis not asserted in the motion. See Polansky v. Berenji, 393
S.W.3d 362, 369 (Tex. App.—Austin 2012, no pet.); Greene v. Young, 174 S.W.3d
291, 298–301 (Tex. App.—Houston [1st Dist.] 2005, pet. denied) (reversing
sanctions because parties did not have notice of legal basis or conduct under
consideration). We may uphold the ruling, however, if any of the grounds raised in

       4
         The trial court stated in the sanctions order that an evidentiary hearing was held on
Kendall’s motion for Rule 13 sanctions, and nowhere in the record did the trial court identify any
other basis for sanctions.

                                               10
the motion is supported by the record. See Chevron Phillips Chem. Co. L.P. v.
Kingwood Crossroads, L.P., 346 S.W.3d 37, 74 (Tex. App.—Houston [14th Dist.]
2011, pet. denied) (explaining that where the party seeking sanctions asserted that
the opposing party violated a discovery order in ten ways, sanctions would be
upheld if the record supported any of the alleged violations (citing Am. Flood
Research, Inc. v. Jones, 192 S.W.3d 581, 583 (Tex. 2006) (per curiam))).

       Rule 13 authorizes sanctions “[i]f a pleading, motion or other paper is signed
in violation of this rule,” and Kendall’s motion identifies only the Manns’ original
petition as such a document. Because an original petition is a pleading, it must be
construed liberally in favor of the pleader.5 And, although Kendall opened its
motion by asserting that “[t]his frivolous lawsuit revolves around [seven] key
claims,” Kendall did not contend that all of them were groundless and brought in
bad faith or groundless and brought for the purpose of harassment.6 In its motion,

       5
         See Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 897 (Tex. 2000) (“When a
party fails to specially except, courts should construe the pleadings liberally in favor of the
pleader.”). Kendall did not specially except to the Manns’ original petition, and in any event, the
determination that a pleading is groundless must be based on the facts available to the litigant
and the circumstances that existed when the pleading was filed. See Harrison, 363 S.W.3d at
863. Although pleadings are to be liberally construed, we are aware of no authority requiring a
motion for sanctions to be liberally construed. Cf. Jobe v. Lapidus, 874 S.W.2d 764, 766 (Tex.
App.—Dallas 1994, writ denied) (rejecting the suggestion that a motion for Rule 13 sanctions
should be treated as a pleading); Crain v. San Jacinto Sav. Ass’n, 781 S.W.2d 638, 639 (Tex.
App.—Houston [14th Dist.] 1989, writ dism’d) (explaining that motions are not pleadings).
       6
          The Manns actually asserted six “causes of action” in their original petition. Of those,
only two—civil conspiracy and fraud—are listed among the “claims” identified by Kendall. The
rest are Kendall’s characterizations of some of the Manns’ specific factual allegations. Kendall
did not specifically assert that even the two “claims” it mentioned were groundless and brought
in bad faith or groundless and brought for the purpose of harassment, and they were mentioned at
the sanctions hearing only in the following exchange:
       Q (To Kendall’s corporate representative): Civil conspiracy and fraud. Did you
       civilly conspire with anyone or defraud in any way the Manns?
       A:      No, sir.
        This is not evidence that the Manns violated Rule 13 by including civil conspiracy and
fraud in their original petition.
                                                11
Kendall focused only on fragments of two sentences in the “Facts” section of the
Manns’ original petition. To place these assertions in context, let us first review
the facts that are not in dispute.

B.    The uncontroverted facts

      The following facts are uncontroverted:

      1.     On June 26, 2009, Terrence Mann contracted to buy a house from
Kendall.

      2.     In doing so, he and his wife dealt with Kendall’s authorized sales
representative Doug Birdsell.

      3.     The sales contract contains the following language immediately above
the signature lines:

      Additional Provisions: See ADDENDUM and or ADDENDUM A
      and or ADDENDUM B subject to the conditions set out the foregoing
      is hereby accepted and agreed to this Day: June 26, 2009.
      4.     Birdsell contemporaneously prepared two versions of Addendum A.
Both forms state, “Seller to pay Closing Cost $5,000.” Below this, both forms
additionally state, “Buyer to have $5,000 incentive.” In both versions, there is a
column of figures after the description of the payments in which the amount to be
paid for closing costs is added to the amount of the incentive. The difference
between the two forms is that in one, the numbers in the column match the
description of the payments, so that $5,000 and $5,000 are added to equal $10,000.
In the other, the column of figures does not match the description of the payments,
because the number following the description of the $5,000 incentive is just
$3,000; thus, the total on that page is only $8,000. The version of Addendum A in
which the column of figures does not match the description of the promised
payments is signed; the version in which the column of figures matches the

                                        12
description is not signed.7 Neither version of Addendum A is marked as rejected.

       5.      In addition, there is a separate addendum that provides that if the
Manns used Kendall’s preferred lender, then Kendall would pay the loan-
origination fee.8

       6.      The Manns used Kendall’s preferred lender.

       7.      The loan-origination fee was $1,273.

       8.      Thus, leaving aside any question of the legal interpretation of the
contract, it nonetheless is factually accurate that the sales contract contains
language stating that it incorporates addenda, and the existing addenda include the
following: (a) an addendum in which Kendall promised to pay $5,000 in closing
costs plus a $5,000 incentive for a total of $10,000; and (b) an additional

       7
          The contract does not contain language specifying that addenda must be separately
signed or making their incorporation into the sales contract contingent on any other event. See In
re 24R, Inc., 324 S.W.3d 564, 567 (Tex. 2010) (per curiam) (orig. proceeding) (“Documents
incorporated into a contract by reference become part of that contract.”); In re Prudential Ins.
Co. of Am., 148 S.W.3d 124, 135 & n.41 (Tex. 2004) (orig. proceeding) (“[A]n unsigned paper
may be incorporated by reference in the paper signed by the person sought to be charged. The
language used is not important provided the document signed . . . plainly refers to another
writing.” (quoting Owen v. Hendricks, 433 S.W.2d 164, 167 (Tex. 1968))).
       8
           Although the parties disputed whether an additional document contemporaneously
prepared by Birdsell and cited by the Manns was the true version of this additional addendum,
both sides agree that that there is such an addendum, and that it required Kendall to pay the loan-
origination fee if the Manns used Kendall’s preferred lender. Kendall’s corporate representative
testified as follows at the sanctions hearing:
       Q:      The contract actually provided for an incentive if the Manns used your
       preferred lender. Isn’t that right?
       A:      Yes.
                                                ....
       Q:     What happened here was that there was actually an addendum that said
       “Manns, if you use our preferred lender, we’ll pay 1 percent of the origination fee
       on the HUD”?
       A:      It says that we’ll pay the origination fees.

                                                 13
addendum providing that if the Manns used Kendall’s preferred lender, then
Kendall would pay the loan-origination fee, which was $1,273.

      9.     At the closing on July 31, 2009, Kendall paid a total of $5,000 in
closing costs, which included the loan-origination fee.

      10.    Over a month after the closing, Terrence Mann sent Kendall’s
corporate representative an email with the subject, “Incentive Settlement Details.”
In the email, Terrence stated that he and his wife agreed that Kendall was
proposing “a fair compromise” concerning “the $5000 incentive in our house
purchase.” Terrence stated that they accepted Kendall’s offer to pay the Manns a
total of $5,000 in the form of gift cards and payments on purchases that the Manns
already had made.

      11.    The parties did not sign releases of any claims.

      12.    Six weeks after the closing, Kendall paid a total of $5,000 to the
Manns in the form of gift cards and payments on the Manns’ existing consumer
accounts.

      13.    Ten months later, the Manns sued Kendall and the title company,
Startex.

      14.    In their original petition, the Manns alleged that one of Startex’s
duties regarding the closing was to carefully examine the lender’s instructions to
ensure that those fees and costs were accurately stated on the HUD-1 form. They
alleged that Startex failed in that duty because

      [t]he builder never paid the mortgage origination fee as promised.
      While Line 801 [of the HUD-1] reflects an origination fee charged to
      the builder, the markings on the form made by the closing agent at
      Startex show that amount to be added into the $5000.00 closing cost
      incentive which the builder, also, and separately from the origination
      fee, agreed to pay.
                                          14
      15.    The Manns further alleged that another of Startex’s duties regarding
the closing was to prepare the HUD-1 form showing the receipt and disbursement
of all monies in the transaction. They alleged that Startex failed in that duty
because the closing documents do not address the $5,000 incentive. As the Manns
phrased it, Startex failed in this duty because

      [t]here is no record of the $5000.00 incentive either having been
      credited to the Manns previously or reflected on the HUD-1; yet
      Startex made no inquiry to the builder about this. The Manns
      inquired, to be sure, and then were subsequently told by Mr. Birdsell
      that they would get a check from Kendall Homes after the closing.
      Against this backdrop, we turn now to the grounds for sanctions raised in
Kendall’s motion.

C.    The alleged violations of Rule 13

      First, Kendall asserted that the Manns alleged that Kendall “never paid the
mortgage origination fee as promised,” and that the Manns “knew these allegations
were false” because “[t]he HUD-1 clearly shows that the $1,273 loan origination
fee was ‘Paid from Seller’s Funds at Settlement.’” Because Kendall argues that
this is evidence that the Manns violated Rule 13, Kendall appears to imply that the
Manns failed to make a reasonable inquiry into the factual basis of their claims,
because if they had read the HUD-1 form, then they would have seen that Kendall
paid the loan-origination fee.

      But, as we have seen, the Manns did allege that the HUD-1 form shows that
Kendall paid the loan-origination fee.      There is no evidence that the Manns,
directly or through counsel, failed to make a reasonable inquiry into the basis of
this allegation; to the contrary, the original petition includes both a citation to the
specific line number of the HUD-1 form where this information appears and
references to the markings made on the form. Just as the Manns alleged, the HUD-

                                          15
1 form shows that the $5,000 in closing costs paid by Kendall included the loan-
origination fee. The Manns simply interpreted the contract to require Kendall to
pay the loan-origination fee in addition to the $5,000 in closing costs and the
$5,000 incentive, while the HUD-1 form shows that Kendall paid the loan-
origination fee as part of the $5,000 in closing costs. Regardless of whether the
contract ultimately would have been construed as the Manns suggest, the Manns
did not engage in sanctionable conduct by advocating such an interpretation. See
Mattox, 305 S.W.3d at 386.

      Second, Kendall attacked the part of a sentence in which the Manns stated
that Startex failed to perform its duties at the closing, because “there [was] no
record of the $5000 incentive either having been credited to the Manns previously
or reflected on the HUD-1.” But this, too, is a factual allegation, and Kendall does
not contend that it has no factual basis. Kendall does not argue that a reasonable
inquiry would have revealed that there is a record of the $5,000 incentive having
been credited to the Manns before the closing, or that the HUD-1 form reflects that
this additional incentive was paid or credited at the closing. To the contrary,
Kendall’s only evidence on the subject shows that the $5,000 incentive is not
shown on the HUD-1 form, and that Kendall did not pay it until six weeks after the
closing.

      Kendall’s complaint is not that this specific factual statement is inaccurate,
but that the Manns “filed suit against Kendall Homes in an effort to get the $5,000
twice.” But this argument fails for at least two reasons.

      First, by its terms, the amount requested for damages does not constitute a
violation of Rule 13. TEX. R. CIV. P. 13. Thus, if it is Kendall’s position that the
Manns are seeking damages in an amount to which they are not entitled, then as a
matter of law, the Manns cannot be sanctioned under Rule 13 for making such a

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request.

      Second, even assuming, without deciding, that Kendall’s position could be
characterized as an argument that the Manns are seeking to litigate claims that
already have been settled, the record still would not support sanctions. Kendall
appears to assume that even if its failure to pay the incentive at the closing caused
the Manns economic damages at that time, any claims were extinguished when the
Manns later agreed to accept payment of the incentive in the form Kendall offered.
But, this is not so. The Manns sought exemplary damages, alleging that Kendall
and Startex knowingly violated the DTPA, and if the Manns had prevailed in that
claim, then the factfinder would have been permitted to award up to three times the
amount of the Manns’ economic damages. See TEX. BUS. & COM. CODE ANN.
§ 17.50(b)(1) (West 2011). For the purposes of determining that amount, a DTPA
claimant’s economic damages may include amounts for which a settlement has
been reached, even though the claimant cannot recover the same amount again
from the settling defendant. See Roberts v. Williamson, 111 S.W.3d 113, 122–23
(Tex. 2003) (explaining that under the proportionate-responsibility statute, a
settlement can reduce the “amount of damages to be recovered by the claimant”
but does not affect the “damages found by the trier of fact” (quoting TEX. CIV.
PRAC. & REM. CODE ANN. §§ 33.012, 33.013 (West 2015))); see also id. § 33.002
(providing that the proportionate-responsibility statute applies to any action
brought under the DTPA, but does not apply to “a claim for exemplary damages
included in an action to which this chapter otherwise applies”); Mobil Oil Corp. v.
Ellender, 968 S.W.2d 917, 927 (Tex. 1998) (“A defendant cannot receive credit for
settlement amounts representing punitive damages.” (citing TEX. CIV. PRAC. &
REM. CODE ANN. § 33.002(c)(2))). Thus, regardless of whether Kendall sought
sanctions based on the amount of damages the Manns requested or based on their

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assertion of claims in connection with the incentive allegedly promised, the trial
court’s imposition of sanctions was an abuse of discretion.

       We sustain this issue.

                                     VII. CONCLUSION

       Although the parties disagreed about the legal effect of certain facts, there is
no evidence that the Manns violated Rule 13. We accordingly reverse and render
judgment denying Kendall’s motion for sanctions.9

                                            /s/    Tracy Christopher
                                                   Justice

Panel consists of Chief Justice Frost and Justices Christopher and Busby (Frost,
C.J., concurring).

       9
        Because the trial court’s dismissal of the Manns’ claims for want of prosecution has not
been challenged, we incorporate that ruling unaltered into our rendition of judgment.

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