Court Opinion

ID: 2980090
Source: CourtListenerOpinion
Date Created: 2015-09-22 19:04:26.250377+00
Date Added: 2024-06-11T11:44:20.208842
License: Public Domain

Reversed and Remanded and Memorandum Opinion filed April 14, 2015.

                                     In The

                    Fourteenth Court of Appeals

                              NO. 14-14-00125-CV

                        ROBERT DUNLAP, Appellant
                                        V.

                        SUNTHENOIL, LLC, Appellee

                   On Appeal from the 215th District Court
                           Harris County, Texas
                     Trial Court Cause No. 2013-41128

                 MEMORANDUM                     OPINION

      Appellant Robert Dunlap asks us to reverse the no-answer default judgment
against him on the grounds that (1) service was defective, (2) he was never served,
(3) the judgment does not conform to the pleadings, and (4) the plaintiff neither
alleged nor proved that the condition precedent to its recovery of liquidated
damages had occurred. Because we conclude that Dunlap satisfied the elements of
the Craddock test for setting aside a no-answer default judgment, we reverse the
judgment and remand the case for new trial.

                                 I. BACKGROUND

      Sunthenoil, LLC sued Dunlap for breach of contract, seeking actual damages
and liquidated damages as provided in the parties’ agreement. In the contract, the
parties stated that Sunthenoil had provided Dunlap with presentations and business
plans to be used in raising funds for investment from foreign sources, and that
Sunthenoil additionally would loan Dunlap $640,900 for ninety days so that
Dunlap could purchase a Swiss shell company into which the foreign funds could
be deposited. Dunlap was to use the foreign funds for two transactions that the
parties referred to as “Future Investments.” Specifically, Dunlap was to purchase
an interest in Sunthenoil for $9 million and invest a further $7.5 million in another
company. Dunlap was to complete these transactions not later than August 20,
2012. The parties agreed that if Dunlap obtained the foreign funds required for the
Future Investments but did not complete the transactions, then he would pay
Sunthenoil $10 million as liquidated damages.

      Sunthenoil alleged in its pleading that it had fully performed its contractual
obligations, and sought damages of $640,900 for Dunlap’s failure to repay the
loan, and a further $10 million as provided under the contract’s liquidated-damages
provision. Finally, Sunthenoil alleged in its pleading that all conditions precedent
had been performed or had occurred. The process server repeatedly attempted to
personally serve Dunlap at his home or business, but was unsuccessful. Sunthenoil
therefore obtained a court order authorizing it to serve Dunlap by alternative
means.

      After the process server filed a return of service showing compliance with
the order’s terms, Sunthenoil moved for a no-answer default judgment. The trial
court granted the motion, awarding Sunthenoil the full amount of damages
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requested.

      Dunlap moved for a new trial on the ground that he was never served, and
thus, his failure to answer was neither intentional nor the result of conscious
indifference, but instead was due to accident or mistake. The trial court denied the
motion, and Dunlap filed this appeal.

                             II. THE CRADDOCK TEST

      Although Dunlap presents four issues for our review, it is unnecessary for us
to address them all. Because we conclude that he satisfied all of the elements of
the Craddock test, we do not address his remaining issues. See Craddock v.
Sunshine Bus Lines, Inc., 134 Tex. 388, 393, 133 S.W.2d 124, 126 (1939).

      Under Craddock, a trial court must set aside a default judgment if (a) “the
failure of the defendant to answer before judgment was not intentional, or the
result of conscious indifference on his part, but was due to a mistake or an
accident”; (b) “the motion for a new trial sets up a meritorious defense”; and
(c) granting the motion for a new trial “will occasion no delay or otherwise work
an injury to the plaintiff.” Id. We review the denial of a motion for new trial for
abuse of discretion. Dolgencorp of Tex., Inc. v. Lerma, 288 S.W.3d 922, 926 (Tex.
2009) (per curiam) (citing Cliff v. Huggins, 724 S.W.2d 778, 778 (Tex. 1987)).
The trial court abuses its discretion in denying a defaulting party’s motion for new
trial if the elements of the Craddock test have been met. Id. (citing Old Republic
Ins. Co. v. Scott, 873 S.W.2d 381, 382 (Tex. 1994) (per curiam)).

A.    Dunlap established that his failure to answer was neither intentional nor
      due to conscious indifference.
      The first Craddock element is satisfied when (1) the defendant’s factual
assertions, if true, negate intentional or consciously indifferent conduct by the
defendant; and (2) the plaintiff does not controvert those factual assertions. See

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Sutherland v. Spencer, 376 S.W.3d 752, 755 (Tex. 2012) (citing In re R.R., 209
S.W.3d 112, 115 (Tex. 2006) (per curiam)); Dir., State Emps. Workers’ Comp.
Div. v. Evans, 889 S.W.2d 266, 268 (Tex. 1994) (citing Strackbein v. Prewitt, 671
S.W.2d 37, 38–39 (Tex. 1984)). Dunlap satisfied this requirement with his factual
assertion concerning his lack of knowledge that he was served.

        Here, the trial court’s order for substituted service required Dunlap to be
served in multiple ways. Among other methods, the process server was required to
leave a copy of the citation and petition (1) with anyone over sixteen years of age
at Dunlap’s home or business, or (2) securely attached to the front door of
Dunlap’s home. The return shows that the process server attached the citation and
petition to Dunlap’s front door, but in support of his motion for new trial, Dunlap
stated, “To my knowledge, the petition was never left at my home . . . or at my
office . . . .”1

        If true, this statement negates intentional or consciously indifferent conduct,
because it would mean that Dunlap did not know that he had been served as
ordered by the trial court. See Evans, 889 S.W.2d at 269 (stating that when
determining whether the first Craddock factor has been satisfied, courts must look
to the defendant’s knowledge and actions).              Thus, Dunlap’s denial of any
knowledge that the petition was left at his home or business is the same as a
statement that he did not know—or does not recall—being served as ordered. See
Vespa v. Nat’l Health Ins. Co., 98 S.W.3d 749, 752 (Tex. App.—Fort Worth 2003,
no pet.) (explaining that if the trial court orders substituted service, then service
must be accomplished without deviation from the trial court’s order). And if
        1
         Although evidence in support of a motion for new trial commonly is presented in the
form of an affidavit, an unsworn declaration made in compliance with Texas Civil Practice and
Remedies Code section 132.001 may be used in lieu of an affidavit. See TEX. CIV. PRAC. & REM.
CODE ANN. § 132.001 (West Supp. 2014). Dunlap’s motion for new trial was supported by such
a declaration.

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Dunlap did not know or did not recall that he had been served, then he did not
know that he was required to answer the suit. See Wilson v. Dunn, 800 S.W.2d
833, 837 (Tex. 1990) (“Absent service, waiver, or citation, mere knowledge of a
pending suit does not place any duty on a defendant to act.”).

       On these facts, we conclude that Dunlap’s uncontroverted statement denying
knowledge that the substituted service had been performed is sufficient to establish
that his failure to answer was neither intentional nor the result of conscious
indifference. See Milestone Operating, Inc. v. ExxonMobil Corp., 388 S.W.3d
307, 310 (Tex. 2012) (per curiam) (holding that a defendant satisfied the first
Craddock element where its registered agent testified that he did not recall being
served and the plaintiff did not controvert the testimony). Thus, the first Craddock
element is satisfied.

B.     Dunlap set up a meritorious defense.

       To determine if a defendant has set up a meritorious defense, we look to the
facts alleged in its motion and affidavit, regardless of whether they are
controverted. See Evans, 889 S.W.2d at 270.

       As previously discussed, Dunlap’s contract with Sunthenoil provided that if
Dunlap obtained foreign funds sufficient to complete the Future Investments but
failed to do so, then he would pay Sunthenoil $10 million as liquidated damages.
Dunlap asserted that the liquidated-damages provision of the contract was never
triggered, because he did not obtain the foreign funds. This fact, if true, constitutes
a failure of a condition precedent to Sunthenoil’s right to liquidated damages.
Because this constitutes a meritorious defense, Craddock’s second element is
satisfied.

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C.    Granting the motion for new trial would not delay or injure Sunthenoil.

      Regarding the third element of the Craddock test, Dunlap asserted in his
motion that a new trial would not delay or prejudice the parties in any manner, and
that he was “willing and able to proceed with this cause as required” by the trial
court. In addition, he offered to reimburse Sunthenoil its reasonable and necessary
attorney’s fees incurred “in attending the default hearing if found to be fair and
equitable” by the trial court.

      Once Dunlap alleged that granting a new trial would not delay or prejudice
Sunthenoil, the burden shifted to Sunthenoil to prove injury. See Dolgencorp, 288
S.W.3d at 929. Because Sunthenoil did not dispute the absence of any injury, the
third element of the Craddock test is satisfied.

                                  III. CONCLUSION

      Because each of the Craddock elements has been satisfied, the trial court
abused its discretion in denying Dunlap’s motion for new trial. We accordingly
reverse the judgment and remand the case for further proceedings consistent with
this opinion.

                                        /s/       Tracy Christopher
                                                  Justice

Panel consists of Justices Christopher, Donovan, and Wise.

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