Texas Supreme Court Issues Opinions Regarding The Form Of New Trial Orders, Correction Deeds, Orders Compelling Documents, and Jurisdiction

01.29.10

Winstead News Alert

I. Trial Courts Must Specify A Reason For Granting A New Trial, But Can Those Orders Now Be Reviewed By Mandamus?

Texas courts have historically treated a trial court's inherent power to grant a new trial after a jury's verdict as being absolute: a court can grant a new trial within its plenary period for any reason or no reason and such power is "full, complete, absolute and unqualified." See Atascosa v. County Appraisal Dist. v. Tymrak, 815 S.W.2d 364 (Tex. App.—San Antonio 1991), aff'd, 858 S.W.2d 335 (Tex. 1993); Borg-Warner Acceptance Corp. v. Judnell Enterprises, Inc., 786 S.W.2d 67, 68 (Tex App.—El Paso 1990, no writ). This has been one of a trial judge's greatest powers. There has been a general perception that some trial courts abuse that power and grant new trials for improper reasons.

Recently, the Texas Supreme Court has specified that there are limits as to why a trial court can grant a new trial. In In re Columbia Medical Center, the Court granted mandamus relief to order a trial court to explain why the trial court was granting a new trial. 290 S.W.3d 204 (Tex. 2009). The Court first explained that generally new trial orders are not appealable, but held that they may be reviewable by mandamus under the right circumstances. The Court stated that a trial court can only grant a new trial for "good cause." Though the Court did not define "good cause" in this context, it stated that trial courts should not set aside jury verdicts "for less than specific, significant, and proper reasons." Id. at n. 3. The Court explained that courts of appeals have to detail reasons for affirmance or reversal, and held that a trial court should similarly have to give a reason why it is granting a new trial and overturning a jury verdict. The Court stated:

Parties and the public generally expect that a trial followed by a jury verdict will close the trial process. Those expectations may be overly optimistic, practically speaking, but the parties and public are entitled to an understandable, reasonably specific explanation why their expectations are frustrated by a jury verdict being disregarded or set aside, the trial process nullified, and the case having to be retried.

Id. at 213. Accordingly, a trial court must specify a reason for granting a new trial.

Most recently, the Texas Supreme Court affirmed this ruling. In In re United Scaffolding Inc., after a jury returned a verdict, the plaintiff filed a motion for new trial because allegedly the jury's determination of damages was not supported by the evidence. No. 09-0403, 2010 Tex. LEXIS 30 (Tex. January 15, 2010). The trial court granted the motion for new trial, and in the order stated that it adopted the motion and that it was granting the motion "in the interest of justice and fairness." The Texas Supreme Court granted mandamus relief and held that the trial court abused its discretion by granting the motion without specifying the reason because the trial court could have based the order on a reason outside of the motion for new trial. The relator/defendant requested that the Court order the trial court to deny the motion because the evidence supported the jury's verdict. The Court declined to issue mandamus on that ground: "Because we do not know the reason the trial court granted the new trial, we will not grant relief other than directing the trial court to specify its reasons for granting the new trial." Id.

Narrowly read, these cases only stand for the proposition that a trial court has to state why it is granting a new trial and that they do not require any additional appellate scrutiny of new trial orders. But that is too narrow of a reading. If the merits of the trial court's decision did not matter, why make trial courts specifically state them in their orders? It would be far worse to make a trial court state an incorrect reason and then not be able to correct it than for a trial court to state no reason at all.

One case impliedly supports the position that a party can seek review of the grounds on which a trial court bases its new trial order. In In re E.I. Du Pont De Nemours and Co., the Court issued mandamus relief to order a trial court to explain why it was granting a new trial. 289 S.W.3d 861 (Tex. 2009). The party seeking mandamus relief requested that the Court review the merits of the issues set forth in the underlying motion for new trial, decide that those issues were meritless, and order the trial court to deny the motion for new trial. The Court stated:

We decline to do so. We do not presume the trial court limited its consideration of grounds for granting the motion to only the grounds asserted in the motion; it may have granted the motion on other grounds. Accordingly, we deny, without prejudice, any relief beyond directing the trial court to specify its reasons for granting a new trial.

Id. at 862 (emphasis added). The Court stated that it would not review the merits of the motion for new trial because it did not know on which ground the trial court ruled. But it left open the door to reviewing the grounds actually ruled on by the trial court in the new order in a subsequent proceeding.

For example, in Scott v. Monsanto Co., the Fifth Circuit reasoned that a trial court's discretion in granting a new trial is not "impenetrable" and that "careful scrutiny given to orders granting new trials is intended to assure that the court does not simply substitute [its] judgment for that of the jury, thus depriving the litigants of their right to trial by jury." 868 F.2d 786, 791 (5th Cir. 1989). The Texas Supreme Court adopted this reasoning: "We are of the opinion that such reasoning is applicable to the issue presented." In re Columbia Medical Center, 290 S.W.3d at 212. A trial court's discretion to grant a new trial "should not, and does not, permit a trial judge to substitute his or her own views for that of the jury without a valid basis." Id. Accordingly, due to the right to a jury trial and due process, in exceptional cases, an appellate court may be able to review a new trial order based on the merits of the motion. Additionally, the Texas Supreme Court appointed a committee to review and redraft the Texas Rules of Civil Procedure dealing with new trials and other post-trial motions, and those new rules, when drafted, may also provide guidance as to the contents of a new trial order and appellate options.

II. Parties May Not Use A Correction Deed To Convey Additional Tracts Of Property

In Myrad Properties Inc. v. LaSalle Bank National Association, a lender attempted to foreclose on two properties made the basis of a deed of trust when the borrower defaulted. No. 08-0444, 2009 Tex. LEXIS 1119 (Tex. December 18, 2009). After substitute trustees were appointed, a foreclosure sale occurred, and the lender bid for both properties. However, the substitute trustee's deed erroneously listed only one of the properties. Not wanting to pay for two properties, but only receive one, the lender and the substitute trustee then entered into a correction deed that added the second property. The borrower sued to declare its ownership in the second property that was supposedly conveyed by the correction deed. The trial court ruled for the lender and held that the correction deed was valid. The court of appeals affirmed.

The Texas Supreme Court held that the correction deed was void as a matter of law because to allow correction deeds to convey additional, separate properties not described in the original deed would introduce unwarranted and unnecessary confusion, distrust and expense into the Texas real property records system:

Rather than requiring that erroneous deeds be reformed or rescinded by judicial proceedings, we have long allowed agreeable parties to use correction deeds in limited circumstances. But the proper use of a correction deed is narrow in scope. For instance, a correction deed may be used to correct a defective description of a single property when a deed recites inaccurate metes and bounds. Similarly, a correction deed may be used to correct a defective description of a grantor's capacity. Preserving the narrow circumstances for acceptable use of a correction deed is important because a proper correction deed may relate back to the date of the deed it corrects. To allow correction deeds to convey additional, separate properties not described in the original deed would introduce unwarranted and unnecessary confusion, distrust, and expense into the Texas real property records system. . . . We hold that LaSalle's correction deed purporting to convey both properties was void as a matter of law.

Id. However, the Court rendered in favor of the lender on the alternative ground of rescission due to a mutual mistake. The lender and the substitute trustees filed motions for summary judgment with evidence of their mutual mistake. The borrower, as a third party to the conveyance, had presented no contrary evidence that might raise a fact question on intent or mistake. Because the borrower would have been unjustly enriched if the mistaken deed to the bank was enforced, the Court rendered that equity demanded a rescission of the substitute trustee's deed. The parties were free to conduct another foreclosure in the future whereby the lender could bid on the two properties again.

This case is important for lenders and the real estate industry in general because the Texas Supreme Court clarified the proper use of correction deeds. Parties routinely file correction deeds in Texas when the original deeds did not accurately reflect the parties' agreement. However, there are limits as to what a correction deed can correct. In those circumstances when correction deeds are not appropriate, parties will have to seek alternative means to correct the transaction.

III. Orders Compelling The Production Of Documents Must Contain a Reasonable Time Limit

In In re Deere & Co., the trial court granted a plaintiff's motion to compel the production of other customer complaints concerning a backhoe's sidestep. No. 08-1076, 2009 Tex. LEXIS 1122 (Tex. December 18, 2009). The trial court's order compelling the production of documents did not provide a time limit. The Texas Supreme Court granted mandamus relief and held that the order was too broad because it exceeded the scope of permissible discovery by neglecting to set a reasonable time limit. At the initial discovery hearing, the plaintiff specifically requested production going back only fifteen years twice but neglected to include a time limit in the order itself.

IV. Parties Should Research A Court's Jurisdiction Over Trust Disputes.

Texas's court system can be confusing. There are district courts, county courts, county courts at law, probate courts, small claims courts, justice of the peace courts, and other specialized courts. A party should investigate the court's jurisdiction before proceeding in that court – otherwise, the court's judgment may be void.

In Carroll v. Carroll, beneficiaries of a trust sued the trustee in district court for damages and to remove the trustee. No. 08-0644, 2010 Tex. LEXIS 31 (Tex. January 15, 2010). The district court transferred the case to the county court at law. That court entered a multi-million dollar judgment for the beneficiaries, and the court of appeals affirmed most of the judgment. The trustee filed a petition for review with the Texas Supreme Court and for the first time raised the issue of whether the county court at law had jurisdiction to enter a judgment. The Texas Supreme Court noted that at the time the suit was filed the Texas Property Code vested exclusive jurisdiction over proceedings concerning trusts in district court, and held that the county court at law had no jurisdiction. Therefore, the county court at law's judgment was void, and the Court reversed the judgment and ordered the county court at law to transfer the case back to district court.

The lesson of this case is that parties should investigate the jurisdiction of the court they are in to ensure that the court has the authority to determine all of the claims in the dispute. Otherwise, all of the expense and work done in that court may be wasted after a judgment is determined to be void.

V. The First Step In Determining Personal Jurisdiction Is To Review The Facts Pled In The Petition, And If Those Facts Are Not Sufficient, The Case Should Be Dismissed.

In Kelly v. General Interior Construction Inc., the plaintiff, a construction company, sued the defendant, the general contractor, and its officers for various causes of action including breach of contract and tort arising from the failure to pay for work performed. No. 08-0669, 2010 Tex. LEXIS 32 (Tex. January 15, 2009). Because the defendant was an Arizona company and its officers resided outside of Texas, the officers filed an objection to personal jurisdiction. The trial court found that specific jurisdiction existed to require the officers to defend against all claims in Texas. In an interlocutory appeal, the court of appeals reversed regarding the breach of contract claim finding that the officers signed the contract as corporate officers. The court of appeals affirmed as to the tort claims allowing those to proceed.

The Texas Supreme Court provided guidance as to the proper burden-shifting analysis for objections to personal jurisdiction:

Our special-appearance jurisprudence dictates that the plaintiff and the defendant bear shifting burdens of proof in a challenge to personal jurisdiction. We have consistently held that the plaintiff bears the initial burden to plead sufficient allegations to bring the nonresident defendant within the reach of Texas's long-arm statute. Once the plaintiff has pleaded sufficient jurisdictional allegations, the defendant filing a special appearance bears the burden to negate all bases of personal jurisdiction alleged by the plaintiff. Because the plaintiff defines the scope and nature of the lawsuit, the defendant's corresponding burden to negate jurisdiction is tied to the allegations in the plaintiff's pleading. If the plaintiff fails to plead facts bringing the defendant within reach of the long-arm statute (i.e., for a tort claim, that the defendant committed tortious acts in Texas), the defendant need only prove that it does not live in Texas to negate jurisdiction. When the pleading is wholly devoid of jurisdictional facts, the plaintiff should amend the pleading to include the necessary factual allegations, . . . thereby allowing jurisdiction to be decided based on evidence rather than allegations, as it should be.

The defendant can negate jurisdiction on either a factual or legal basis. Factually, the defendant can present evidence that it has no contacts with Texas, effectively disproving the plaintiff's allegations. The plaintiff can then respond with its own evidence that affirms its allegations, and it risks dismissal of its lawsuit if it cannot present the trial court with evidence establishing personal jurisdiction. Legally, the defendant can show that even if the plaintiff's alleged facts are true, the evidence is legally insufficient to establish jurisdiction; the defendant's contacts with Texas fall short of purposeful availment; for specific jurisdiction, that the claims do not arise from the contacts; or that traditional notions of fair play and substantial justice are offended by the exercise of jurisdiction.

Id.

The Court held that personal jurisdiction did not exist and reversed the lower courts' decisions. The only relevant prong of the Texas long-arm statute in the case extended jurisdiction over a nonresident who commits a tort in whole or in part in this state. The officers proved that they did not live in Texas, and the plaintiff failed to plead that the officers committed torts in Texas. Regarding the fraud claim, the plaintiff alleged several fraudulent acts, but it did not allege that any fraudulent acts occurred in Texas. Regarding a trust-fund claim, the plaintiff did not allege that the officers used or retained the trust funds in Texas. The Court held that although a fact finder may ultimately conclude that the officers committed fraud or violated the Texas Trust Fund Act, the mere existence of a claim does not grant Texas courts jurisdiction over the actor.

This case sets forth that an out-of-state defendant only has to respond to the facts asserted in a plaintiff's petition. Where the plaintiff has not asserted sufficient jurisdictional facts, a trial court should dismiss the suit. Conversely, when suing out-of-state defendants, a plaintiff should take precaution to plead specific facts indicating that Texas has jurisdiction over each defendant. Where a plaintiff cannot set forth specific facts in an initial pleading, a plaintiff should seek limited discovery to establish jurisdictional facts. Once those facts are discovered, a plaintiff can then amend its petition, allege additional facts, and use the discovery products to establish those facts if the defendants continue to assert an objection to personal jurisdiction.

Contact: 
David F. Johnson  |  817.420.8223  |  dfjohnson@winstead.com

 Disclaimer:  Content contained within this news alert provides information on general legal issues and is not intended to provide advice on any specific legal matter or factual situation. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking professional counsel.

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