Court Opinion

ID: 2913117
Source: CourtListenerOpinion
Date Created: 2015-09-10 17:15:09.089174+00
Date Added: 2024-06-11T11:38:00.752910
License: Public Domain

11th
Court of Appeals
                                                                  Eastland,
Texas
                                                                        Opinion
 
Gulf States Petroleum
Corporation
and
Randall Clayton May
Appellants
Vs.                   No.  11-03-00027-CV -- Appeal from Dallas County
General
Electric Capital Auto Lease
Appellee
 
This is an appeal from a no-answer default
judgment.  We reverse and remand in part
and modify and affirm in part.
General Electric Capital Auto Lease (GECAL) filed
suit on April 22, 2002, against Gulf States Petroleum Corporation (Gulf States
Petroleum) and Randall Clayton May with respect to two vehicles leased to Gulf
States Petroleum in 2000.[1]  Gulf States Petroleum originally leased the
vehicles from AutoFlex Leasing.  GECAL alleged in its pleadings that it
acquired the leases from AutoFlex Leasing on the date
that the lease agreements were executed.[2]  GECAL asserted that Gulf States Petroleum
breached the lease agreements by failing to pay monthly payments due since
November 2001.  GECAL sought damages of
$135,993.02 from Gulf States Petroleum as result of the alleged breach.  With respect to May, GECAL alleged that he
had retained possession of the two vehicles after Gulf States Petroleum=s breach of the lease agreements.  GECAL asserted a claim for conversion against
May in the amount of $91,032.00 based on its calculation of the fair market
value of the vehicles.

GECAL obtained service of citation upon Gulf
States Petroleum on April 29, 2002, while May was served with citation on June
10, 2002.  Neither Gulf States Petroleum
nor May timely filed an answer to the suit. 
The trial court entered a default judgment against Gulf States Petroleum
and May on July 3, 2002, in the amount of $135,993.02 plus interest, costs, and
attorney=s fees in
the amount of $1,800.00.  Gulf States
Petroleum and May subsequently filed a written answer to the suit on August 2,
2002.  Contemporaneous with the filing of
their answer, Gulf States Petroleum and May also filed a motion entitled AMotion to Vacate and Set Aside Default
Judgment or for New Trial.@  Gulf States Petroleum and May asserted in the
motion that the default judgment should be set aside on the following grounds:
(1) the default judgment was void as a result of Gulf States Petroleum=s pending bankruptcy proceeding; (2) a
variance between the amount of damages pleaded against May and the amount
awarded against May in the default judgment; and (3) May=s
entitlement to a new trial under Craddock v. Sunshine Bus Lines, 133
S.W.2d 124, 126 (Tex.1939).
The record before us does not contain a written
order reflecting the trial court=s
ruling on the  motion to vacate/motion
for new trial.  Furthermore, a reporter=s record has not been filed with
respect to a hearing on the motion. 
Based on the contentions presented in appellants=
brief, it appears that the trial court denied the motion.  Gulf States Petroleum and May raise three issues
on appeal attacking the trial court=s
rulings.  
                             Effect
of Gulf States Petroleum=s
Pending Bankruptcy Proceeding
Gulf States Petroleum and May argue in their first
issue that the trial court erred in failing to set aside the default judgment
against both of them as a result of the pending bankruptcy proceeding
instituted against Gulf States Petroleum. 
The motion to vacate/motion for new trial alleged that an involuntary
bankruptcy proceeding had been filed against Gulf States Petroleum on July 5,
2001, in the United States Bankruptcy Court for the Western District of
Louisiana.  Gulf States Petroleum and May
supported this allegation by attaching copies of bankruptcy pleadings to their
motion.  Gulf States Petroleum and May
further alleged that the bankruptcy proceedings remained pending at the time
the trial court entered the default judgment.

When a suit is brought against a party in
bankruptcy, the suit is subject to an automatic stay which abates any judicial
proceeding against that party.  See
11 U.S.C. ' 362; In
re Southwestern Bell Telephone Company, 35 S.W.3d 602, 604 (Tex.2000).  The purposes of the bankruptcy stay are to
protect the debtor=s assets,
to provide temporary relief from creditors, and to further the equity of
distribution among the creditors by forestalling a race to the courthouse.  Reliant Energy Services, Inc. v. Enron
Canada Corp., 349 F.3d 816, 825 (5th Cir. 2003).  A judgment taken in violation of the
bankruptcy code=s
automatic stay is void.  Continental
Casing Corporation v. Samedan Oil Corporation,
751 S.W.2d 499, 501 (Tex.1988).
GECAL acknowledges in its appellate brief that the
default judgment obtained against Gulf States is void as a result of Gulf
States Petroleum=s
bankruptcy.  GECAL also acknowledged this
problem at the trial court level.  GECAL
attempted to cure the problem by filing a notice of nonsuit
as to Gulf States Petroleum on December 5, 2002.  GECAL argues that Gulf States Petroleum is no
longer a party to this appeal as a result of the nonsuit.  We disagree with GECAL=s
contention.
TEX.R.CIV.P. 162 provides that a voluntary nonsuit may be taken at any time before a plaintiff has
introduced all of his evidence other than rebuttal evidence.  This provision obviously does not permit a
voluntary nonsuit to be taken after the entry of
judgment.  GECAL filed the notice of nonsuit approximately five 
months after the entry of the default judgment and approximately two
months after Gulf States Petroleum filed its notice of appeal.  In light of Gulf States Petroleum=s pending bankruptcy, the default
judgment entered against Gulf States Petroleum is void.     
May contends that Gulf
States Petroleum=s pending
bankruptcy also rendered the default judgment entered against him void.  Ordinarily, the automatic bankruptcy stay
only operates against the debtor and does not operate against non‑debtors
or even co‑debtors, co‑tortfeasers, or
codefendants.   In re Southwestern
Bell Telephone Company, supra at 604; Novosad
v. Cunningham, 38 S.W.3d 767, 770 (Tex.App. -
Houston [14th Dist.] 2001, no pet=n).  An exception to this general rule is
sometimes utilized in situations where the assets of the bankruptcy estate
would be jeopardized in allowing court proceedings to proceed against the
codefendant. Novosad v. Cunningham, supra
at 770.  To be entitled to this
exception, however, the codefendant must demonstrate either (1) that there is
such identity between the debtor and the codefendant that the debtor may be
said to be the real party defendant and that a judgment against the third‑party
defendant will in effect be a judgment or finding against the debtor or (2)
that extending the stay against the codefendant contributes to the debtor=s efforts of rehabilitation.  Novosad
v. Cunningham, supra at 770.  The
Fifth Circuit Court of Appeals has noted that the automatic bankruptcy stay is
rarely a valid basis for staying actions against non‑debtors.  Reliant Energy Services, Inc. v. Enron
Canada Corp., supra at 825.   

May contends that the automatic bankruptcy stay
protects him because GECAL is seeking to recover property that is part of Gulf
States Petroleum=s
bankruptcy estate.  Although GECAL is
seeking the return of the leased vehicles and monetary damages from Gulf States
Petroleum, it has not asserted a theory of joint liability against May.  Instead, GECAL contends that May is
personally liable for the independent tort of conversion based on the
allegation that he retained possession of the vehicles after Gulf States
Petroleum defaulted on the leases.[3]  May has not established that Gulf States
Petroleum=s assets
will be jeopardized by a judgment taken against him individually.  Accordingly, the automatic bankruptcy stay
did not apply to GECAL=s
conversion claim against May.  
Gulf States Petroleum=s
and May=s first
issue is sustained as to Gulf States Petroleum and is overruled as to May.  Having sustained Gulf States Petroleum=s contention that the default judgment
was void as to it, we do not consider the remainder of Gulf States Petroleum=s appellate complaints.
                                                               Motion
for New Trial
May contends in his third issue that the trial
court erred in failing to grant his equitable motion for new trial. An equitable motion for new trial
must be granted in all cases where:
[T]he 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;
provided the motion for a new trial sets up a meritorious defense and is filed
at a time when the granting thereof will occasion no delay or otherwise work an
injury to the plaintiff.
 
Craddock v. Sunshine
Bus Lines, supra at 126; Tanknology/NDE Corporation v. Bowyer, 80
S.W.3d 97, 100 (Tex.App. - Eastland 2002, pet=n den=d).  A trial court abuses its discretion when all
of the elements of the Craddock test are fulfilled and it fails to grant
a new trial.  Bank One, Texas, N.A. v.
Moody, 830 S.W.2d 81, 85 (Tex.1992); Tanknology/NDE
Corporation v. Bowyer, supra at 100.
May contends that the trial court was compelled to
grant his motion for new trial because he satisfied all of the Craddock
elements.   The evidence which May
offered in support of the motion for new trial consisted of his affidavit and
copies of relevant documents.  With
respect to the reason why he did not answer the suit, May stated as follows: 
I, having not individually leased, nor guaranteed,
the above described automobiles, assumed that there was no personal liability,
and that the Bankruptcy Court would deal with the leases, as the automobiles
sued for were and are part of the bankruptcy estate.
 
May contends the above-quoted reason
constitutes a mistake of law which satisfies the first prong of Craddock.

The facts in this appeal are
similar to those in Novosad.  An accountant filed suit against a dentist
individually and the dentist=s
professional corporation to collect for unpaid accounting services which had
been performed by the accountant.  Novosad v. Cunningham, supra at 769.  The dentist failed to file an answer for
either himself or his professional corporation. Novosad
v. Cunningham, supra  at 769.  The professional corporation did file a notice
of bankruptcy, however.  Novosad v. Cunningham, supra at 769.  After nonsuiting
the professional corporation, the accountant obtained a default judgment
against the dentist individually.  Novosad v. Cunningham, supra at 769. 

The dentist attempted to set aside the default
judgment on two of the same grounds alleged by May.  The dentist first argued that the automatic
bankruptcy stay which applied to the professional corporation also applied to
the claim brought against him individually. 
Novosad v. Cunningham, supra at
769-70.  Both the trial court and court
of appeals rejected this contention. Novosad
v. Cunningham, supra at 769-70.  The
dentist in  Novosad
also urged an equitable motion for new trial. 
Novosad v. Cunningham, supra at
770. With respect to the first prong of Craddock, the dentist asserted
that he failed to file an answer because of his mistaken belief that the
automatic bankruptcy stay applied to the claims brought against him
individually.[4]  Novosad
v. Cunningham, supra at 770.  The
court of appeals rejected the dentist=s
contention that this excuse satisfied the first prong of Craddock.  Novosad
v. Cunningham, supra at 771. The court concluded that the dentist=s failure to answer was due to an
erroneous interpretation of the bankruptcy law and was intentional.  Novosad
v. Cunningham, supra at 771. The court ruled that the trial court did not
abuse its discretion in denying the dentist=s
motion for new trial because it could have concluded, based on the evidence
before it, that the dentist=s
failure to answer was intentional or was due to conscious indifference.  Novosad
v. Cunningham, supra at 771-72.
As was the case in Novosad,
May relies on a mistaken belief regarding the effect of an automatic bankruptcy
stay.  May also attempts to justify his
failure to file an answer on his belief that he did not have any contractual
liability for the automobile leases. 
Courts have recognized that a mistake of law can satisfy the requirement
that the failure to answer was not intentional or due to conscious
indifference.  Bank One, Texas, N.A.
v. Moody, supra at 84.  However, not
every act of a defendant that could be characterized as a mistake of law is a
sufficient excuse.  Bank One, Texas,
N.A. v. Moody, supra at 84.   
We conclude that the trial court did not abuse its
discretion in denying May=s
motion for new trial because the record supports a determination that May=s failure to answer was intentional or
due to conscious indifference.   The
supreme court analyzed several cases in Moody which involved instances
wherein courts have accepted a defaulting defendant=s
Amistake of law@
allegation.  Bank One, Texas, N.A. v.
Moody, supra at 83-85.  Those cases
share a common characteristic B
the defendant made some type of a reply to the suit which it believed sufficed
as an adequate response.  The record in
this appeal indicates that May did not make any effort to respond to GECAL=s suit either on his own behalf or on
behalf of Gulf States Petroleum. 
Furthermore, there is no evidence that May relied upon the advice of
counsel in making the assumption that he could simply ignore the suit.  May=s
third issue is overruled.
                                                                 Pleading
Variance

In his second issue, May contends that the default
judgment should be set aside because of a variance between the amount of
damages GECAL sought from May in its pleadings and the amount of damages which
May was ordered to pay in the default judgment. 
GECAL alleged in its  pleadings
that it was entitled to recover damages from May in the amount of
$91,032.00.  The default judgment ordered
May to pay GECAL damages in the amount of $135,993.02.[5]  It is impermissible in a default judgment to
render judgment for damages in excess of the damages specifically pleaded.  Capitol Brick, Inc. v. Fleming
Manufacturing Co., Inc., 722 S.W.2d 399, 401 (Tex.1986).  GECAL attempted to cure this problem by
filing a voluntary notice of remittitur with the
trial court.  The notice of remittitur provided as follows:
[GECAL], Plaintiff in the above-entitled and
numbered cause, waives and releases all portions of the judgment rendered on
July 3, 2002, against [May], except the sum of $91,032.00 plus costs, and
consents to remit the sum of $44,961.02 to [May] on such judgment against [May]
only, and consents that judgment against [May] for the sum of $91,032.00 plus costs
be rendered and that execution issue for the sum of $91,032.00 only.
 
GECAL asserts that its voluntary remittitur sufficiently cured the error with respect to the
amount of damages awarded against May in the default judgment. May asserts that
the only appropriate remedy is to set aside the judgment in its entirety.  
The Fort Worth Court of Appeals recognized that remittitur is an appropriate remedy in this situation in Mahon
v. Caldwell, Haddad, Skaggs, Inc., 783 S.W.2d 769, 770 (Tex.App.
- Fort Worth 1990, no pet=n).  We agree that remittitur
is an appropriate remedy for curing the variance between the pleadings and the
default judgment entered in this case. 
Since the voluntary remittitur filed by GECAL
was sufficient to cure the error present in the default judgment, we accept the
remittitur. May=s
second issue is overruled.  
                                                                 This
Court=s Ruling
The default judgment entered against Gulf States
Petroleum is reversed, and GECAL=s
claims against Gulf States Petroleum are remanded to the trial court.  The portion of the trial court=s judgment awarding damages against May
is modified to reflect the amount of $91,032.00 plus costs and, as modified, is
affirmed.  See TEX.R.APP.P. 46.5.
 
W. G. ARNOT, III
CHIEF JUSTICE
 
March 25, 2004
Panel
consists of:  Arnot,
C.J., and
Wright,
J., and McCall, J.

     [1]May
was the president of Gulf States Petroleum. 
He executed the written lease agreements on behalf of Gulf States
Petroleum.

     [2]Each
of the written lease agreements were prepared on forms bearing the name AGE Capital Auto Financial Services@ at the top of each document.  Each agreement contained a provision which
indicated that the lessor (AutoFlex)
intended to assign ownership of the lease and respective vehicle to AGE Capital@ or one
of its subsidiaries or affiliates.  The
original certificates of title listed AGECAL@ as the owner of each vehicle.

     [3]Conversion
occurs when one person makes an unauthorized and wrongful assumption and
exercise of dominion and control over the personal property of another to the
exclusion of or inconsistent with the owner=s
rights.  Waisath
v. Lack=s Stores, Inc.,
474 S.W.2d 444, 447 (Tex.1971).

     [4]The
dentist provided an affidavit from his attorney in support of this
allegation.  Novosad
v. Cunningham, supra at 770. 

     [5]This
is the amount of damages which GECAL sought from Gulf States Petroleum in its
pleadings.