Court Opinion

ID: 2833756
Source: CourtListenerOpinion
Date Created: 2015-09-02 17:06:45.594719+00
Date Added: 2024-06-11T12:18:34.354988
License: Public Domain

IN THE SUPREME COURT OF TEXAS

IN THE SUPREME COURT OF TEXAS
 
════════════
No. 05-1082
════════════
 
Richard M. Ross, Petitioner,
 
v.
 
National Center for the
Employment of the Disabled, 
as successor in interest to Access
Healthsource, Inc., 
assignee of O.R. Brooker, et
al., Respondent
 
════════════════════════════════════════════════════
On Petition for Review from the
Court of Appeals for the Eighth District of
Texas
════════════════════════════════════════════════════
 
 
PER CURIAM
 
 
            In one
of several suits between these parties, a trial court entered a $10 million
default judgment against a party who was never served. When the trial court
denied a bill of review to set aside that default, the court of appeals
affirmed, pointing to evidence that the unserved party failed to file a motion
for a new trial in the original default, and resisted postjudgment enforcement
of it. 176 S.W.3d 642, 646-49. But the trial court had no jurisdiction either
to enter judgment or to enforce it against a party who had neither been
properly served nor appeared. Accordingly, we reverse.
In
1998, Tamarack Capital, LLC and Tamarack Insurance, LLC (“Tamarack”) sued Access
Healthsource, Inc. in Arizona state court for breach of a stock merger
agreement. Access removed the case to federal court, and added a counterclaim
against Tamarack and misrepresentation crossclaims against Richard Ross (the
owner of the Tamarack entities) and others. After a bench trial, the federal
court in Arizona entered judgment against Access for about $1 million, and the
9th Circuit affirmed. See 91 F.App’x. 551 (9th Cir. 2004).
Meanwhile,
ten Access shareholders sued Ross and two others on fraud claims in El Paso
County Court No. 7. It is undisputed that service was defective in many
respects and that Ross never received citation. See 176 S.W.3d at 645.
Nevertheless, the El Paso court granted a default judgment against him for $5
million actual and $5 million exemplary damages. 
The
shareholders assigned this default judgment to Access, which thereafter
assigned it to an entity named National Center for the Employment of the
Disabled. The latter attempted to domesticate the default judgment in Arizona. Ross
successfully persuaded the Arizona court to set it aside for lack of service. 
Ross
also filed a bill of review in El Paso to set aside the default. The trial
court dismissed his bill of review by summary judgment, but the Eighth Court of
Appeals reversed, finding a fact issue whether Ross had pursued his legal
remedies with diligence. See 2003 WL 22870629 at *4. At a bench trial on
remand, the trial court found against Ross and again denied his bill of review.
This time the court of appeals affirmed, on two grounds.
The
court of appeals held Ross had not shown diligence in pursuing his legal
remedies. Traditionally, a bill of review requires proof of three elements: (1)
a meritorious defense, (2) that was not asserted due to fraud, accident, or
wrongful act of an opponent or official mistake, (3) unmixed with any fault or
negligence by the movant. See Baker v. Goldsmith, 582 S.W.2d 404, 407
(Tex. 1979); Sedgwick v. Kirby Lumber Co., 107 S.W.2d 358, 359 (Tex.
1937). But in Caldwell v. Barnes, we held that a defendant who is not
served with process is entitled to a bill of review without a further showing,
because the Constitution discharges the first element, and lack of service
establishes the second and third. See 154 S.W.3d 93, 96-97 (Tex. 2004).
The
court of appeals found Ross at fault because, though he learned of the February
29, 2000 default judgment by regular mail on April 12, 2000, he did not file an
out-of-time motion for new trial in that case. See Tex. R. Civ. P. 306a. In the first
place, if a postjudgment postcard giving notice of default triggers a duty to
enter an appearance, service of process would become obsolete. A defendant who
responded to such a postcard would make a general appearance, rendering service
unnecessary; a defendant who ignored it would be barred from attacking it later
and simply have to pay the default judgment. Proper service is not a
technicality so easily discarded. 
More
important, “[a] party who becomes aware of the proceedings without proper
service of process has no duty to participate in them.” Caldwell, 154
S.W.3d at 97 n.1; accord, Wilson v. Dunn, 800 S.W.2d 833, 837 (Tex.
1990) (“[M]ere knowledge of a pending suit does not place any duty on a
defendant to act.”); Harrell v. Mexico Cattle Co., 11 S.W. 863, 865
(Tex. 1889) (“A defendant . . . is not bound to take action until he has been
duly served with process.”). While diligence is required from properly served
parties or those who have appeared, see Gold v. Gold, 145 S.W.3d 212,
214 (Tex. 2004), those not properly served have no duty to act, diligently or
otherwise. See Caldwell, 154 S.W.3d at 97 (“An individual who is not
served with process cannot be at fault or negligent in allowing a default
judgment to be rendered.”). Ross filed his bill of review well within the
applicable four‑year limitations period, see Caldwell v. Barnes,
975 S.W.2d 535, 538‑39 (Tex. 1998), and proved that he had never been
properly served. We hold the court of appeals erred in requiring Ross to act
diligently in a case in which he was never served.
The
court of appeals also affirmed on the basis that Ross did not have clean hands.
The court first cited Ross’s failure to appear at the trial of his bill of
review after receiving a subpoena. 176 S.W.3d at 649. But there is nothing in
the record indicating the district court considered or tried lesser sanctions
before denying his bill of review. While the range of sanctions available for
nonappearance is quite broad, it generally does not include dismissing a party’s
case as an initial step. See TransAm. Natural Gas Corp. v. Powell, 811
S.W.2d 913, 919 (Tex. 1991).
The
court of appeals also faulted Ross for failing to cooperate with postjudgment
efforts to collect the earlier default judgment C
in the case in which he was never properly served. As already noted, a party
has no duty to participate in proceedings absent proper service of process. See
Caldwell, 154 S.W.3d at 97; Wilson, 800 S.W.2d at 836-37. Moreover, “death
penalty” sanctions are inappropriate unless a party’s conduct “justifies a
presumption that its claims or defenses lack merit,” Cire v. Cummings,
134 S.W.3d 835, 840 (Tex. 2004); refusing to appear in court without proper
citation does not justify such a presumption. Finally, a bill of review is a
separate proceeding from the underlying suit, see Caldwell, 154 S.W.3d
at 98 (ordering separate jury trial for bill of review issues); the court of
appeals did not explain why the trial court could sanction Ross in this
proceeding for misconduct in another. We hold the court of appeals erred in
finding that a party never served can challenge a default judgment only if he
first complies with it.
Accordingly,
without hearing oral argument, we reverse the court of appeals, render judgment
for Ross setting aside the default judgment, and remand for trial on the merits
of the underlying allegations. See Tex.
R. App. P. 59.1.
 
Opinion
delivered: June 16, 2006