Court Opinion

ID: 3008262
Source: CourtListenerOpinion
Date Created: 2015-10-07 18:13:49.816126+00
Date Added: 2024-06-11T18:03:22.204311
License: Public Domain

IN THE SUPREME COURT OF TEXAS
                                          444444444444
                                            NO . 11-0647
                                          444444444444

                    MILESTONE OPERATING, INC. AND DSTJ, L.L.P.,
                                  PETITIONERS,

                                                  v.

                                EXXONMOBIL CORPORATION,
                                      RESPONDENT

           4444444444444444444444444444444444444444444444444444
                            ON PETITION FOR REVIEW FROM THE
                  COURT OF APPEALS FOR THE FOURTEENTH DISTRICT OF TEXAS
           4444444444444444444444444444444444444444444444444444

                                           PER CURIAM

       JUSTICE LEHRMANN did not participate in the decision.

       In this case, we consider whether the defendants satisfied the first element of the Craddock

test for setting aside a no-answer default judgment. See Craddock v. Sunshine Bus Lines, Inc., 133
S.W.2d 124, 126 (Tex. 1939) (requiring a new trial if the defendant shows (1) that the default was

neither intentional nor the result of conscious indifference, (2) a meritorious defense, and (3) that a

new trial would cause neither delay nor undue prejudice). Because the evidence in this case

established that the defendants’ failure to answer was not intentional or the result of conscious

indifference, the defendants’ motion for new trial could not be denied on the ground that the
defendants failed to satisfy the first Craddock element. Accordingly, we reverse the court of

appeals’ judgment and remand the case to that court.

       This appeal arises from a suit by ExxonMobil Corporation against DSTJ, L.L.P. and

Milestone Operating, Inc. (collectively Milestone), alleging that Milestone breached the parties’

Farmout Agreement by failing to notify ExxonMobil that “payout” had occurred on a well that was

subject to that agreement. Under the Farmout Agreement, “payout” triggered ExxonMobil’s election

to either escalate its overriding royalty interest or convert to a working interest. After Milestone

failed to answer, ExxonMobil filed a motion for default judgment. ExxonMobil alleged that its

private process server, Thomas Barber, properly served Donald Harlan—DSTJ’s partner and

Milestone Operating, Inc.’s director and registered agent—with citation and a copy of ExxonMobil’s

petition. ExxonMobil obtained a default judgment that awarded it almost $1.8 million, which

included unliquidated damages, prejudgment interest, attorney’s fees, and costs.

       Milestone filed a timely motion for new trial, arguing that service on Harlan was defective,

and that Milestone established the necessary Craddock elements to set aside the default judgment.

The trial court denied the motion for new trial. The court of appeals affirmed the trial court’s denial

of Milestone’s motion for new trial, holding that Milestone failed to meet its burden to satisfy

Craddock’s first element. 346 S.W.3d 101, 109. But the court of appeals reversed the portion of the

judgment awarding unliquidated damages. Id. at 112.

       Milestone asserts two grounds for reversal. First, Milestone contends that the evidence

established that the failure to answer was not intentional or due to conscious indifference. Second,

Milestone argues that service of process was defective because Harlan was not personally informed

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of the nature of the process. When a default judgment is attacked by a motion for new trial, the

critical question is: “Why did the defendant not appear?” Sutherland v. Spencer, ___ S.W.3d ___,

___ (Tex. 2012) (quoting Fid. & Guar. Ins. Co. v. Drewery Constr. Co., 186 S.W.3d 571, 574 (Tex.

2006) (per curiam)) (internal quotation marks omitted). Milestone does not challenge whether the

suit papers were actually received—only that service was defective. Therefore, our analysis focuses

on whether Milestone offered sufficient evidence to meet its burden under the first element of the

Craddock test.1 See id. at ___ (“[I]f the defendant received the suit papers and has some other reason

for not appearing, then the default judgment must be set aside if the defendant proves the three

elements of the Craddock test.”).

        Under Craddock, a trial court must set aside a default judgment if (1) “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”; (2) “the motion for a new trial sets up a

meritorious defense”; and (3) granting the motion “will occasion no delay or otherwise work an

injury to the plaintiff.” 133 S.W.2d at 126. We must look to the knowledge and acts of the

defendant to determine whether the defendant satisfied its burden as to the first Craddock element.

Dir., State Emp. Workers’ Comp. Div. v. Evans, 889 S.W.2d 266, 269 (Tex. 1994). The absence of

an intentional failure to answer rather than a real excuse for not answering is the controlling fact.

Craddock, 133 S.W.2d at 125. A defendant satisfies its burden under this element when its factual

assertions, if true, negate intentional or consciously indifferent conduct by the defendant and the

        1
          Because the court of appeals addressed only Craddock’s first element, we limit our review to that
determination. See 346 S.W .3d at 109; Sutherland, ___ S.W .3d at ___.

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factual assertions are not controverted by the plaintiff. Sutherland, ___ S.W.3d at ___. Consciously

indifferent conduct occurs when “the defendant knew it was sued but did not care.” Fidelity, 186
S.W.3d at 576.

        “An excuse need not be a good one to suffice.” Id. As in Sutherland, Milestone offered an

excuse that was not controverted and, if true, negated intentional or consciously indifferent conduct

on its part. See Sutherland, ___ S.W.3d at ___. Specifically, Milestone alleged that Harlan did not

recall being served with ExxonMobil’s petition on March 19, 2009, even after reviewing his office

notes and speaking to the people with whom he works about that day’s events. Harlan testified that

Milestone had been sued at least four times prior to ExxonMobil’s suit, he was served with process

in each of those suits, and it was his routine to turn over the suit papers to Milestone’s legal counsel.

Yet Harlan testified that he did not remember being served or turning over any suit papers to

Milestone’s legal counsel in this case. Although ExxonMobil offered the testimony of Lynn Tatar,

Barber’s fiancée, who maintained that she saw Barber hand Harlan the suit papers, ExxonMobil did

not controvert Harlan’s testimony that he does not recall being served.2 Nor did ExxonMobil

controvert Milestone’s evidence that detailed Harlan’s familiarity with being served with process and

his procedure for responding to such service.

        We conclude that the evidence here shows that Milestone’s failure to answer was neither

intentional nor the result of consciously indifferent conduct. See Fidelity, 186 S.W.3d at 576.

Milestone therefore provided a sufficient excuse to satisfy Craddock’s first element. See Sutherland,

        2
         Barber passed away prior to the hearing on Milestone’s motion for new trial. Tatar testified that she
accompanied Barber to Harlan’s office on the date that Barber served Harlan.

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___ S.W.3d at ___. The trial court’s denial of Milestone’s motion for new trial thus cannot be

affirmed on the ground that its excuse for not answering was insufficient. The court of appeals erred

when it held otherwise. This holding comports with the policy that “an adjudication on the merits

is preferred in Texas.” Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 86 (Tex. 1992).

Accordingly, we grant the petition for review, and without hearing oral argument, we reverse the

court of appeals’ judgment and remand the case to that court for consideration of the second and

third Craddock elements. See TEX . R. APP . P. 59.1.

OPINION DELIVERED: October 26, 2012

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