VACATED and RENDERED; and Opinion Filed August 26, 2014.




                                       S    In The
                               Court of Appeals
                        Fifth District of Texas at Dallas
                                    No. 05-12-01559-CV

                CHERRY PETERSEN LANDRY ALBERT LLP, Appellant
                                   V.
                         ERWIN CRUZ, M.D., Appellee

                     On Appeal from the 101st Judicial District Court
                                  Dallas County, Texas
                            Trial Court Cause No. 10-16274

                                        OPINION
                        Before Justices Francis, Lang-Miers, and Lewis
                                Opinion by Justice Lang-Miers
       The law firm Cherry Petersen Landry Albert LLP (CPLA) appeals the trial judge’s order

imposing sanctions against it in the underlying litigation between its clients Mehrdad Ghani,

Ghani Medical Investments, Inc. (GMI), MCG Group, Inc., North Dallas Medical Imaging, L.P.

(NDMI), and Plano AMI, LP (collectively, the Ghani defendants) and appellee Dr. Erwin Cruz.

The sanctions order stated that CPLA engaged in discovery abuse and filed counterclaims

against Cruz that were groundless and filed in bad faith for an improper purpose. For the

following reasons, we conclude that the trial judge abused his discretion by imposing sanctions

against CPLA, and we vacate the trial judge’s November 1, 2012 sanctions order.
                                           BACKGROUND

         The nature of the dispute. The litigation underlying this appeal arose from a business

dispute between Cruz, Ghani, and others concerning the operation and management of two

medical imaging facilities, NDMI and Plano AMI. A limited partner of NDMI sued Cruz and

Ghani for mismanaging the facility; Cruz and Ghani filed cross-claims against each other. After

some of the claims settled, the cross-claims were severed, Cruz was positioned as plaintiff, other

parties were joined, and Ghani’s cross-claims against Cruz became counterclaims.

         The Ghani defendants filed a second amended counterclaim against Cruz alleging (1) that

Cruz breached and conspired to breach fiduciary duties owed to Ghani, MCG, NDMI, Plano

AMI, and GMI causing them damages and benefitting himself in the form of fees to his practice;

(2) business disparagement; and (3) defamation. Cruz filed no-evidence and traditional motions

for partial summary judgment seeking dismissal of many of the counterclaims; the trial judge

granted the motions in part. The Ghani defendants nonsuited several of the counterclaims before

trial.

         Discovery. During the course of litigation, Ghani testified in several depositions either in

his individual capacity or as a corporate representative of NDMI and Plano AMI. When he

reviewed the transcripts of those depositions, he made changes to several answers and submitted

deposition errata sheets containing those changes.         He made six changes to a 181-page

deposition, and nineteen changes to a 260-page deposition. In total, he made over forty changes

to all his depositions. The sanctions order is based in part on CPLA’s involvement in preparing

Ghani’s deposition errata sheets.

         Pretrial proceedings regarding deposition errata. At a pretrial hearing on the Friday

before trial was set to begin on Monday, Cruz raised the issue of CPLA’s allegedly improper

involvement in preparing Ghani’s deposition errata sheets. Cruz’s counsel told the trial judge

                                                 –2–
that he had reviewed CPLA’s attorney fee billings produced during discovery and saw where

CPLA “was counseling with a witness to change sworn testimony under oath.” He said CPLA’s

billings showed that the firm was “sending [Ghani] the errata changes,” and Cruz wanted to call

CPLA’s lawyers, Craig Albert and Sarah Shadonix, as witnesses during trial to question them

about their involvement in preparing the deposition errata sheets. Cruz admitted that it was

unusual to call opposing counsel as witnesses, but in this case he believed the lawyers’ testimony

was “material on errata changes.”

       The judge said his “rule on errata is very simple. The errata comes in. And if there is

inconsistency, the original testimony comes in. And if it has been as extensive and substantive

as you are representing to me, you should be having a field day.” Cruz’s counsel asked for

permission to show the judge the errata sheets and CPLA’s billings, and the judge said he could.

       On Monday before voir dire Cruz provided the judge with a notebook comparing Ghani’s

original deposition answers with his changes from the errata sheets. Cruz also provided the

judge copies of CPLA’s billings referring to deposition errata. The judge held an unrecorded

conference in chambers. Back on the record, the judge stated he had reviewed the billings

produced by CPLA to Cruz on April 18, 2012. He ordered CPLA to provide “any e-mail

exchanged between counsel and the defendants pertaining to deposition testimony changes or

errata . . . for in camera review” by the next morning, and CPLA did.

       Trial proceedings. After voir dire was completed and the jury had been sent home, the

judge stated he “was not comforted by the e-mails” provided by CPLA but was “not to the point

yet of saying that the attorney-client privilege as to those communications has been waived or

forfeited under the crime fraud exception, but I’m troubled.” He said he had “more work to do”

to determine “to what extent the actual errata square up with what’s in those e-mails.” He said

that although he normally took “the position that any inconsistency between the original

                                               –3–
testimony and the errata tends to punish itself,” he would “certainly entertain” Cruz’s argument

“for the exclusion of the errata[.]” Cruz did not move to exclude the errata.

       A week into the trial, Cruz asked the judge about the e-mails CPLA had provided to the

judge for in camera review. The judge said the e-mails “may reflect some level of discovery

abuse, which I believe will be addressed by my eventual ruling on whether the . . . errata will be

permitted to come into evidence . . . .” Cruz’s counsel told the judge that “there are other

sanctions other than not using the errata,” but the judge started talking before counsel concluded

his argument.

       The next day the subject of the deposition errata arose again when Cruz told the judge

that he wanted to offer Ghani’s deposition errata sheets as exhibits and use them in his cross-

examination of Ghani. Ghani objected to the admission of the errata sheets as exhibits. The

judge said “how many changes were made and whether they were the witness’s words or were

they the lawyer’s words . . . goes to the credibility of the witnesses” to some degree and that he

was “seriously considering just excluding all of the errata.” Cruz did not move to exclude the

errata, but asked to be allowed to tell the jury the total number of changes to Ghani’s deposition

answers plus “go into” about “five or six or seven of them” on cross-examination of Ghani. He

said it was more effective and “shortens the testimony” than using the errata as impeachment.

The judge said he would allow it as long as he did not get into collateral matters.

       On cross-examination of Ghani, a dispute arose over the proper use of the deposition

errata sheets, and the judge recessed the jury and held a hearing. In arguing for a departure from

the usual procedure for offering impeachment evidence, Cruz said “this is a case where lawyers’

involvement in changing witnesses’ testimony has been profuse . . . 48 errata changes and the

lawyer’s billing showing they got with him and sent him e-mails which appear to be telling him




                                                –4–
what to say – I mean, in this instance I would ask the Court for the indulgence based upon the

conduct of counsel and the witness previously.”

        When the trial continued, the following exchange between Cruz’s lawyer and Ghani

occurred:

        Q.     Is it true that with the assistance of your attorneys directing changes to
        your depositions, you had 48 corrections to your sworn testimony in this case?

        A.      I’m not sure about how many, but I know we had some changes, yes.

        Q.      Okay. And was the wording in those changes your wording or that of
        your attorneys?

        A.      Mine.

        At the end of the day’s testimony, the judge told counsel that he was having “a real

problem” with Ghani’s testimony that the changes to his deposition answers were his own. The

judge said he would review it more but that it may “be sufficient justification for me to hand over

a couple of those e-mails to plaintiff’s counsel for use in further cross-examination of this

witness.”

        The next day before trial proceedings began, the judge stated that he compared Ghani’s

deposition errata sheets to an e-mail from CPLA and “found the congruence between the

language in the e-mail and the changes to the deposition to be virtually total.” He said he was

“forced to conclude that Mr. Ghani has attempted to perpetrate a fraud on this Court and this jury

and that the attorney-client privilege cannot be used to shield that conduct.” Over CPLA’s

objection, the trial judge gave Cruz the e-mail between CPLA and Ghani “for such use, if any, as

[Cruz] see[s] fit to make of it.”

        Cruz asked to admit the deposition errata sheets, CPLA’s billings, and the e-mail between

CPLA and Ghani as exhibits. The judge admitted the errata sheets and the e-mail. He said he

was “deeply offended by some of what’s gone on here, [but] it’s not what this case is about. I’m


                                               –5–
giving you the e-mail. I’m going to let you impeach the answer that he gave yesterday and let

the jury see these two errata sheets. I think that’s probably enough to make the point.”

       In front of the jury, Cruz read Ghani’s trial testimony about the wording in the deposition

errata being “mine” and asked him to “look at the jury and tell them if that’s a true answer.”

Ghani said the exact words were not his words, but “that’s what I express to my attorney. And

once they put it in, I looked at it and I accepted it, and I –.” Cruz showed the jury Ghani’s

deposition errata sheets alongside the e-mail from CPLA containing suggested revisions to

Ghani’s deposition answers. Several of Ghani’s changed answers on the deposition errata sheets

contained language identical to the suggested revisions in the e-mail. This questioning and

comparison continued for eleven pages of the trial transcript.

       In closing argument, Cruz’s counsel argued:

       Errors of the heart, you are going to have from time to time when you get excited.
       . . . Misrepresentations to a jury cannot be done with a pure heart. When someone
       knowingly tells you something that’s not true, . . . that’s not done with a pure
       heart. Changing a sworn deposition 47 [sic] times is not done with a pure heart.
       Having Mr. Ghani stand there and look you in the eye and say, oh, yeah, yeah, I
       changed that deposition, and I changed my sworn testimony. Yeah, I did it a lot
       of times, but it is my words. I saw the need to change it. I did it personally. And
       then finding out that Mr. Albert’s firm had directed him to make those changes –
       and you can see the e-mails, and you can see the language word for word for word
       – that’s not done with a pure heart. . . . Lawyers can make mistakes, but you don’t
       make mistakes involving integrity. . . . “Subject to the penalties of perjury” means
       absolutely zero to the man, as best I can tell. . . . I can’t imagine sleeping, much
       less getting up in the morning and looking at myself in the mirror, if I had
       changed sworn testimony of mine once or twice – much less 47 [sic] times at the
       direction of the lawyer. That’s the kind of integrity we are talking about.

       The verdict. The jury returned a verdict in favor of Cruz and against Ghani for about $3

million. Then the judge began the second phase of trial on punitive damages. Cruz called Ghani

as a witness and questioned him about his net worth and other matters. He again questioned

Ghani’s integrity, his “respect of the rule of law,” and emphasized Ghani’s testimony that the

changes to his deposition were his words but the e-mail from his lawyers told him “exactly how


                                               –6–
to change it.” In closing argument in this phase of trial, Cruz told the jury it “can consider the

nature of the wrong. Now, this wrong goes every place from . . . changing your sworn testimony

46 [sic] times, to looking you all in the eye and saying, Oh, those are my words. The next

exhibit shows they were directly from the mouths of his attorneys.”

        The jury awarded punitive damages against Ghani in the approximate amount of $7

million on all of Cruz’s claims. After applying damages caps, the trial court rendered judgment

against Ghani and in favor of Cruz for over $4 million plus prejudgment and postjudgment

interest.

        Posttrial motion for sanctions. After the trial concluded, Cruz moved for sanctions

against CPLA for discovery abuse and filing groundless counterclaims. In the motion, Cruz

argued that Ghani and CPLA should be sanctioned under rule 215 of the Texas Rules of Civil

Procedure or the judge’s inherent authority for discovery abuse in connection with Ghani’s

deposition errata sheets. Cruz argued that the language used in the deposition errata sheets

“originated with [Ghani]’s counsel and was copied verbatim into the errata sheets,” and that

Ghani and CPLA “were attempting to improperly substitute the words of counsel in lieu of the

sworn, verbal testimony Ghani had already provided.” He argued that the “changes were meant

to provide self-serving testimony which Ghani did not supply in his original sworn testimony.”

Additionally, Cruz argued that the deposition changes did not comply with civil procedure rule

203 because they were submitted untimely and did not contain reasons for the changes.

        Cruz also moved for sanctions on the ground that CPLA knew or should have known

there was no legal or factual bases for the counterclaims it filed against him on behalf of the

Ghani defendants. He argued that the counterclaims “were almost entirely baseless,” were a

“‘kitchen-sink’ style of pleading,” and the “Defendants paid little attention, if any, to whether

they could construct entire causes of actions [sic] which would include support for each of the

                                               –7–
various elements: duty – breach – causation – damages.” The motion gave one example from the

many counterclaims filed and argued that the Ghani defendants “never attempted to explain what

duty this allegedly breached, how it caused damages, or what those damages supposedly were.”

Cruz stated that he sent traditional discovery requests, conferred with counsel for the Ghani

defendants, and filed motions to compel disclosures and special exceptions, but the Ghani

defendants never “put any meat on the counterclaims’ bones.”

       CPLA’s response to the motion for sanctions. CPLA responded arguing that Cruz’s

motion for sanctions for pretrial discovery abuse was untimely because it was not filed pretrial.

It also argued that the conduct was not sanctionable, Cruz did not seek to strike the changes, and

Ghani’s trial testimony as a whole showed he consulted with his lawyers before making the

changes and, consequently, did not mislead the jury about the origin of the changes. CPLA also

argued that allowing Cruz to cross-examine Ghani about the deposition changes using CPLA’s

privileged e-mail to its client was “the kind of non-excessive remedy that relates directly to the

conduct sought to be sanctioned . . . .”

       With regard to the counterclaims, CPLA responded that it had a good faith basis for filing

the counterclaims against Cruz and made a reasonable inquiry into the factual bases for the

counterclaims. CPLA attached Albert’s affidavit to support these contentions and argued that

Cruz did not overcome the presumption that the counterclaims were filed in good faith.

       The hearing on the motion for sanctions. At the hearing on the motion for sanctions,

Cruz argued that he had not waived his right to move for sanctions regarding discovery abuse

and reminded the judge about Ghani’s in-trial testimony, compared to his deposition testimony,

compared to the deposition errata sheets.       He presented several exhibits to support the

comparisons. He argued for sanctions against Ghani and his lawyers.




                                               –8–
        Cruz also argued he was entitled to sanctions based on the allegedly groundless

counterclaims.    He grouped the counterclaims into three general categories: (1) barred by

limitations, (2) no cognizable duty, and (3) no connection to any damages the Ghani defendants

may have suffered. He generally argued that CPLA did not make a reasonable inquiry into the

legal and factual bases for the counterclaims. And although he presented several exhibits, he did

not refer to those exhibits during the hearing or argue their relevance. He referred to a chart that

he prepared showing the “legal and factual hurdles that [CPLA] should have overcome before

filing suit[.]”

        CPLA presented the affidavit of its lawyer, Albert. Albert also testified in person at the

hearing.    Either by affidavit or live testimony, Albert testified that before he filed the

counterclaims he interviewed Ghani and Ghani’s wife; requested, obtained, and reviewed the

Ghani defendants’ governance documents “to determine preliminarily that the factual allegations

were consistent with key provisions in those governing documents”; and “took the following

actions to determine that there was a valid basis in law and in fact” for the claims. The actions

he stated he took before filing the counterclaims included interviews with various people,

document subpoenas, research, depositions, and review of corporate and partnership minutes.

Albert also testified about specific claims and why he thought they were not groundless or

brought in bad faith. He testified that CPLA “endeavored to weed out claims not because of lack

of evidence or no legal duty, but because in our evaluation they would cloud the presentation and

just lengthen the trial” and, consequently, nonsuited several claims for that reason. Cruz did not

ask any questions of Albert.

        The sanctions order. The trial judge concluded that sanctions against CPLA were

warranted. He imposed sanctions under rule 215 and his inherent authority against CPLA for

discovery abuse in connection with the deposition errata sheets in the amount of $45,000 plus

                                                –9–
$17,500 for appellate attorney fees. The judge did not sanction Ghani or hold him in contempt

for the deposition errata sheets.

       Although the judge did not make separate findings of fact and conclusions of law, in his

order he stated that CPLA “wrongfully resisted proper discovery and/or abused the discovery

process and/or offended the dignity of the Court through the use of Ghani’s errata changes,

compared to his trial testimony, and compared to the September 9, 2011 email admitted into

evidence at trial”; the deposition errata sheets did not comply with rule 203 because the changes

were not made timely and Ghani did not give reasons for the changes; CPLA “was instrumental

in formulating the language to be used in the ‘revised,’ unexplained, sworn answers that Ghani

submitted in his untimely errata sheets”; and Ghani’s testimony “was part of a collective effort to

mislead the jury concerning the true character of those errata changes.”

       The trial judge also imposed sanctions against CPLA with regard to the counterclaims it

filed against Cruz on behalf of the Ghani defendants. He stated in the sanctions order that CPLA

filed “its Second Amended Counterclaim” in November 2011 over “a year after its original

counterclaim was filed” and “repeated . . . a range of claims that were either legally or factually

unsupportable.” The order states:

       By November 2011, [CPLA] had been made repeatedly aware of problems
       regarding the legal and factual basis for these claims through Plaintiff’s special
       exceptions, discovery requests, and related pre-trial proceedings. Nevertheless,
       [CPLA] repeated these allegations without forming a belief in the validity of the
       allegations following any reasonable inquiry into their legal and factual merit.

The order gave as examples

       counterclaims that were barred, on their face, by the applicable statutes of
       limitations without conducting a reasonable inquiry into whether the facts of the
       case could justify tolling those limitations periods . . . [allegations that] Cruz
       should pay damages for breaching his fiduciary duties for conduct that [CPLA]
       did not have a reasonable basis for alleging . . . .

       With respect to their claims for damages [CPLA] asserted counterclaims on
       behalf of the various counterclaimants even though, at most, only one

                                              –10–
           counterclaimant could have plausibly suffered the damages asserted. So, for
           instance, [CPLA] asserted a claim that Ghani was improperly denied a salary
           from NDMI. Even assuming that this would have given rise to some claim by
           Ghani, there is no reasonable basis to allege that this conduct would have given
           rise to a claim by either NDMI or MCG. Yet, [CPLA] still asserted counterclaims
           on behalf of NDMI and MCG seeking to recover Ghani’s “unpaid” salary.

           The lack of legal and factual support for these counterclaims is further reflected in
           this Court’s Orders granting summary judgment against those claims which are
           incorporated herein by reference.

           The judge found that CPLA asserted these counterclaims for purposes of delay and to

increase the cost of litigation and imposed sanctions in the amount of $40,000 plus $17,500 in

appellate attorney fees against CPLA. He stated that he thought “these counterclaims should

have been taken off the table much sooner.” He also stated that the reason he denied Cruz’s

special exceptions was because he “expected the counterclaimant or counterclaimants to supply

the deficiency in their pleadings through discovery responses. And that never really happened

either.”

           CPLA appeals the sanctions order.

                                         STANDARD OF REVIEW

           We review a trial judge’s imposition of sanctions for an abuse of discretion. Unifund

CCR Partners v. Villa, 299 S.W.3d 92, 97 (Tex. 2009) (citing Low v. Henry, 221 S.W.3d 609,

614 (Tex. 2007)). We will reverse the imposition of sanctions if the trial judge acted without

reference to guiding rules and principles, making his ruling arbitrary or unreasonable. Id. We

review the entire record to determine whether the imposition of sanctions was an abuse of

discretion. Shops at Legacy (Inland) Ltd. P’ship v. Fine Autographs & Memorabilia Retail

Stores, Inc., 418 S.W.3d 229, 232 (Tex. App.—Dallas 2013, no pet.) (citing Am. Flood

Research, Inc. v. Jones, 192 S.W.3d 581, 583 (Tex. 2006) (per curiam) and Tex. Integrated

Conveyor Sys., Inc. v. Innovative Conveyor Concepts, Inc., 300 S.W.3d 348, 384 (Tex. App.—

Dallas 2009, pet. denied)).

                                                  –11–
                                       DEPOSITION ERRATA

         In issues one, two, and three, CPLA argues that the trial judge erred by sanctioning it in

connection with Ghani’s deposition errata sheets and testimony on cross-examination. CPLA

initially contends that Cruz waived his complaint about pretrial discovery conduct by not moving

for sanctions under rule 215 and getting a ruling before trial. It also argues that the sanctions

order may not be upheld under the judge’s inherent authority. Cruz argues that he was not aware

of CPLA’s “dominant role instigating the errata abuse” until the judge produced CPLA’s e-mail

to him during trial and, consequently, did not waive his right to seek sanctions posttrial. He

contends that “[a]t most, [he] knew from cryptic time entries that [CPLA] had consulted

somehow with Ghani about the errata.” We agree with CPLA.

                                    Sanctions under Rule 215

         A party who is aware of possible discovery abuse is required to move for sanctions and

obtain a ruling prior to trial. Remington Arms Co., Inc. v. Caldwell, 850 S.W.2d 167, 170 (Tex.

1993).    “[T]he failure to obtain a pretrial ruling on discovery disputes that exist before

commencement of trial constitutes a waiver of any claim for sanctions based on that conduct.”

Id. The supreme court has stated that Remington Arms “bars a trial court from awarding posttrial

sanctions based on pretrial conduct of which a party ‘was aware’ before trial; lack of ‘conclusive

evidence’ is not an excuse.” Meyer v. Cathey, 167 S.W.3d 327, 333 (Tex. 2005).

         The record shows that Cruz “was aware” of CPLA’s involvement in the deposition errata

before trial because he argued in a pretrial hearing that CPLA “was counseling with a witness to

change sworn testimony under oath.” But instead of moving to exclude the errata or for other

sanctions, Cruz asked to be permitted to call CPLA’s lawyers as witnesses in trial because their

testimony was “material on errata changes.” Cruz argues on appeal that he did not have “full




                                               –12–
knowledge” of CPLA’s “abuse” until he received the e-mail. But the supreme court has said that

a party only needs to be “aware.” Meyer, 167 S.W.3d at 333.

       Additionally, Cruz argued for the admission of the deposition errata sheets as exhibits at

trial, stating CPLA’s “lawyers’ involvement in changing witnesses’ testimony has been profuse

. . . 48 errata changes and the lawyer’s billing showing they got with him and sent him e-mails

which appear to be telling him what to say[.]” This argument was made before the court gave

Cruz the e-mail from CPLA to Ghani and corroborates that Cruz “was aware” of the allegedly

sanctionable conduct before trial.

       Cruz argues that he “appropriately raised pre-trial complaints about the errata (or what he

knew of the errata),” and “[t]he trial court’s “unilateral decision to defer a determination of

sanctions until after trial” does not constitute Cruz’s waiver of the complaint. He contends that

Remington Arms does not apply to circumstances like this, citing several cases to support his

argument. But those cases are distinguishable.

       In Gaspard v. Beadle, 36 S.W.3d 229, 240 (Tex. App.—Houston [1st Dist.] 2001, pet.

denied), the trial court’s sanctions were based on rule 13, not rule 215. See TEX. R. CIV. P. 13

(regarding filing groundless pleadings and motions in bad faith or for purpose of harassment);

accord Finley v. Olive, 77 S.W.3d 520, 525–26 (Tex. App.—Houston [1st Dist.] 2002, no pet.)

(noting that in Gaspard a motion for sanctions was filed pretrial under rule 13 alleging that the

plaintiff’s petition was groundless and in bad faith). In Brantley v. Etter, 677 S.W.2d 503, 504

(Tex. 1984) (per curiam), the court did not address whether a motion for sanctions was filed

pretrial. And in Chevron Phillips Chemical Co. LP v. Kingwood Crossroads, L.P., 346 S.W.3d

37, 74–75 (Tex. App.—Houston [14th Dist.] 2011, pet. denied), the party complaining about

discovery abuse filed a pretrial motion for sanctions, and the conduct also violated a trial court’s

order regarding discovery.

                                               –13–
       Additionally, when Cruz raised pretrial the matter of CPLA’s involvement with Ghani’s

deposition errata, he did so only in the context of wanting to call CPLA’s lawyers as witnesses at

trial. And when the trial judge said he would consider excluding all the errata, Cruz chose not to

move to exclude the errata. Instead, Cruz waited until trial and asked to offer the deposition

errata as exhibits. We view Cruz’s approach as trial strategy. See Cathey v. Meyer, 115 S.W.3d

644, 672–73 (Tex. App.—Waco 2003), rev’d in part on other grounds, 167 S.W.3d 327 (Tex.

2005) (per curiam). By choosing this strategy, Cruz waived his objection under rule 215. See id.

       Based on this record, we conclude that Cruz had a reasonable evidentiary basis upon

which to file a pretrial motion for sanctions. See Meyer, 167 S.W.3d at 333; see also Cathey,

115 S.W.3d at 671–72 (party had evidence pretrial that opponent lied on resume based on

deposition testimony of other individuals contradicting opponent). Because Cruz waived his

right to seek pretrial discovery sanctions under rule 215, the trial judge abused his discretion by

imposing sanctions under rule 215.

                       Sanctions under the Judge’s Inherent Authority

       CPLA also argues that the sanctions order cannot be upheld under the trial judge’s

inherent authority. We agree.

       A trial judge has certain inherent power derived “from the very fact that the court has

been created and charged by the constitution with certain duties and responsibilities.” Dallas

Cnty. Constable Precinct 5 v. KingVision Pay-Per-View, Ltd., 219 S.W.3d 602, 610 (Tex.

App.—Dallas 2007, no pet.) (quoting Travelers Indem. Co. of Conn. v. Mayfield, 923 S.W.2d

590, 594 (Tex. 1996) (orig. proceeding)). A judge may call upon his inherent powers “to aid in

the exercise of [the court’s] jurisdiction, in the administration of justice, and in the preservation

of [the court’s] independence and integrity.” Id. (quoting Travelers Indem., 923 S.W.2d at 594).

The trial judge also has inherent power to sanction to the extent necessary to deter, alleviate, and

                                               –14–
counteract bad faith abuse of the judicial process, such as any significant interference with the

court’s administration of its core functions, including hearing evidence, deciding issues of fact

raised by the pleadings, deciding questions of law, rendering final judgment, and enforcing its

judgments. Id.; Union Carbide Corp. v. Martin, 349 S.W.3d 137, 147 (Tex. App.—Dallas 2011,

no pet.); Kennedy v. Kennedy, 125 S.W.3d 14, 19 (Tex. App.—Austin 2002, pet. denied) (“A

court cannot invoke its inherent power to sanction without some evidence and factual findings

that the conduct complained of significantly interfered with the court’s legitimate exercise of one

of its traditional core functions.”). However, when a statute or rule addresses particular conduct,

generally a trial judge may not exercise his inherent authority to make what the Texas Supreme

Court has described as “‘a judicial end-run’” around the statutory scheme. See KingVision, 219

S.W.3d at 610 (quoting Travelers Indem., 923 S.W.2d at 594).

       We previously concluded that Cruz was aware of the alleged pretrial discovery abuse

before trial and could have moved for sanctions pretrial under rule 215. By not doing so, Cruz

waived his right to seek posttrial sanctions under rule 215. And the imposition of sanctions

under the judge’s inherent authority for alleged pretrial discovery abuse that was known pretrial

constitutes this type of a “judicial end-run” around rule 215. See id. Consequently, we conclude

that the trial judge abused his discretion by imposing sanctions under his inherent authority

against CPLA for pretrial discovery abuse.

       To the extent the trial judge sanctioned CPLA under his inherent authority for Ghani’s

testimony about the deposition errata, as opposed to the alleged pretrial discovery abuse, we

conclude that the sanctions were not directly related to CPLA’s conduct and were excessive.

       Sanctions serve the purposes of assuring compliance with the discovery rules, deterring

those who might be tempted to abuse the rules, and punishing those who violate the rules. Cire

v. Cummings, 134 S.W.3d 835, 839 (Tex. 2004); Union Carbide, 349 S.W.3d at 144. Sanctions

                                              –15–
must be just. Cire, 134 S.W.3d at 839. We look at two components to measure whether the

imposition of sanctions was just: (1) a direct relationship must exist between the offensive

conduct and the sanction imposed, and (2) the sanction must not be excessive. Id. A direct

relationship “means that a just sanction must be directed against the abuse and toward remedying

the prejudice caused the innocent party.” Id. (quoting TransAm. Natural Gas Corp. v. Powell,

811 S.W.2d 913, 917 (Tex. 1991)). A trial judge also must not impose any more severe sanction

than required to satisfy the legitimate purposes of discovery. Union Carbide, 349 S.W.3d at 145.

“This means a court must consider relatively less stringent sanctions first to determine whether

lesser sanctions will fully promote compliance, deterrence, and discourage further abuse.” Id.

       During Cruz’s cross-examination of Ghani about his deposition answers and the errata

sheets, Ghani testified that the wording in the deposition errata was “mine.” Up until this

testimony, the trial judge had said he was going to consider the discovery conduct in his “game

time decision” about whether to admit or exclude the errata. After this testimony, however, the

trial judge questioned Ghani’s veracity and concluded that Ghani had attempted to perpetrate a

fraud on the court and mislead the jury about the source of the errata. The judge gave Cruz an

attorney-client e-mail from CPLA to Ghani for Cruz’s use in cross-examining Ghani and refused

to entertain CPLA’s objection to the production of privileged attorney-client communications.

       Cruz used the e-mail to show the jury how CPLA’s suggested revisions were identical in

several instances to Ghani’s deposition errata sheets and imputed Ghani’s alleged lack of

integrity to CPLA based on its involvement in changing Ghani’s deposition answers. The judge

imposed sanctions against CPLA, not Ghani, for its “collective effort to mislead the jury

concerning the true character of those errata changes.” However, the record shows that during

CPLA’s examination of Ghani at trial, CPLA did not mention or allude to any of the changes

Ghani made to his depositions. It was Cruz who brought up the subject of the deposition errata,

                                              –16–
and it was Ghani who the judge said had tried to mislead the jury with his testimony in response

to Cruz’s questions. And in considering whether Ghani’s testimony rose “to the level of either

perjury or criminal contempt,” the trial judge stated that “on this record and keeping in mind that

the burden of proof is beyond a reasonable doubt, I’m unwilling to say that I am satisfied that I

would be acting properly to so confine Mr. Ghani. So the motion for contempt is denied.”

          We conclude that the sanctions imposed against CPLA were not directly related to the

conduct of CPLA but, instead, were directly related to Ghani’s allegedly misleading testimony.

We further conclude that the purposes of discovery sanctions were accomplished when the judge

gave Cruz the attorney-client e-mail and allowed him to show the jury the deposition errata

sheets alongside the e-mail. As the judge stated after giving Cruz the e-mail and allowing him to

introduce the deposition errata sheets as exhibits, “I think that’s probably enough to make the

point.” Consequently, the additional imposition of monetary sanctions posttrial was excessive. 1

See Remington Arms, 850 S.W.2d at 171. We resolve issues one, two, and three in CPLA’s

favor.

                                                          COUNTERCLAIMS

          In issues four and five, CPLA argues that the trial judge abused his discretion by

sanctioning CPLA for filing counterclaims on behalf of its clients. The judge stated that it was

imposing sanctions against CPLA under chapter 10 of the civil practice and remedies code and

rule 13.

                                                           Applicable Law

          Under chapter 10 of the civil practice and remedies code, an attorney signing a pleading

or motion certifies that “to the signatory’s best knowledge, information, and belief, formed after

reasonable inquiry . . . the pleading or motion is not being presented for any improper

   1
       We do not decide whether CPLA’s conduct in connection with the deposition errata was subject to sanctions in the first place.



                                                                    –17–
purpose . . . and each allegation or other factual contention in the pleading or motion has

evidentiary support or . . . is likely to have evidentiary support after a reasonable opportunity for

further investigation or discovery[.]” TEX. CIV. PRAC. & REM. CODE ANN. § 10.001 (West 2002).

Under rule 13, an attorney signing a pleading or motion certifies that “to the best of their

knowledge, information, and belief formed after reasonable inquiry the instrument is not

groundless and brought in bad faith or groundless and brought for the purpose of harassment.”

TEX. R. CIV. P. 13. “Groundless” means “no basis in law or fact and not warranted by good faith

argument for the extension, modification, or reversal of existing law.” Id. “Bad faith” means

“the conscious doing of a wrong for dishonest, discriminatory, or malicious purposes.” Campos

v. Ysleta Gen. Hosp., Inc., 879 S.W.2d 67, 71 (Tex. App.—El Paso 1994, writ denied).

       We presume that pleadings are filed in good faith. TEX. R. CIV. P. 13; Villa, 229 S.W.3d

at 98 (citing Low, 221 S.W.3d at 617); Arnold v. Life Partners, Inc., 416 S.W.3d 577, 581 (Tex.

App.—Dallas 2013, pet. filed). The party seeking sanctions bears the burden to overcome this

general presumption. Villa, 229 S.W.3d at 98 (citing Low, 221 S.W.3d at 617).

       Before imposing sanctions under either chapter 10 or rule 13, a trial judge “must examine

the circumstances existing when the litigant filed the pleadings[.]” Monroe v. Grider, 884

S.W.2d 811, 817 (Tex. App.—Dallas 1994, writ denied); accord Aquarium Env’ts, Inc. v.

Elgohary, No. 01-12-01169-CV, 2014 WL 1778266, at *8 (Tex. App.—Houston [1st Dist.] May

1, 2014, no pet. h.) (mem. op.). A judge may not impose sanctions based on the legal merit of a

pleading or motion.     Dike v. Peltier Chevrolet, Inc., 343 S.W.3d 179, 193 (Tex. App.—

Texarkana 2011, no pet.); Monroe, 884 S.W.2d at 817. Instead, the focus is on the conduct of

the party or lawyer at the time the pleading was filed. Dike, 343 S.W.3d at 193; Monroe, 884

S.W.2d at 817. The question is whether, using an objective standard, the party and its counsel




                                               –18–
made a reasonable inquiry into the legal and factual basis of the claim before filing it. Harrison

v. Harrison, 363 S.W.3d 859, 863 (Tex. App.—Houston [14th Dist.] 2012, no pet.).

                                            Analysis

       The trial judge sanctioned CPLA for filing a second amended counterclaim because he

concluded that CPLA “repeated . . . a range of claims” that were legally and factually

insupportable and filed for the purposes of causing unnecessary delay and increased costs of

litigation. As the movant, Cruz bore the burden to show CPLA did not have a reasonable basis

for filing the second amended counterclaim. See TEX. CIV. PRAC. & REM. CODE ANN. § 10.001;

TEX. R. CIV. P. 13. To satisfy this burden, Cruz had to prove the counterclaims were groundless

when filed and that CPLA had an improper motive for filing them. Karagounis v. Prop. Co. of

Am., 970 S.W.2d 761, 765 (Tex. App.—Amarillo 1998, pet. denied); accord Alejandro v.

Robstown Indep. Sch. Dist., 131 S.W.3d 663, 670 (Tex. App.—Corpus Christi 2004, no pet.).

       At the hearing, Cruz introduced into evidence CPLA’s clients’ discovery responses and

disclosures; letters Cruz sent to CPLA complaining that certain responses and disclosures were

inadequate and deficient; motions to compel and special exceptions that Cruz filed seeking

intervention from the judge; excerpts from Ghani’s deposition testimony in which Cruz claims

he asked specific questions about the factual support for the counterclaims; and a “summary” of

the counterclaims purporting to show the lack of evidence on each element of each counterclaim.

       Cruz argued that the counterclaims fell into three general categories of “flaws”: those

that were barred by statutes of limitation on their face, those that did not assert the breach of a

cognizable duty, and those that did not have any connection to any damages suffered by the

counterclaimants. He argued that “for the vast majority of these [counter]claims, [the Ghani

defendants] could at best meet one of those elements [of duty, breach, and damages]. He argued

that it required over 100 hours of attorney time to investigate the factual bases of the

                                              –19–
counterclaims, review the partnership documents and other files, and analyze the various

defenses he might have. But he never connected any of the specific exhibits he introduced to any

of these arguments, and his arguments were focused on the fact that most of the counterclaims

were ultimately dismissed either through nonsuit, motion for summary judgment, or directed

verdict. See Dike, 343 S.W.3d at 192–93 (focus is not on ultimate merits of claim); Monroe, 884

S.W.2d at 817. The only witness Cruz presented at the sanctions hearing was his attorney who

testified about the amount of time his lawyers spent working on the counterclaims and deposition

errata.

          With regard to CPLA’s motives in filing the counterclaims, Cruz argued that “[t]he fact

that [CPLA] let these things last so long before giving in like they should have given in a long

time ago, is evidence of bad faith which would support a Rule 13 sanction in addition to

whatever the Court might elect to do under Chapter 10 . . . .” But a plaintiff has a right to take a

nonsuit and may do so without regard to the merits of the litigation. Dike, 343 S.W.3d at 192.

And Cruz did not present any evidence of CPLA’s motive or the circumstances that existed at the

time CPLA filed the counterclaims to support his “bad faith” argument. See Fast Invs., LLC v.

Prosper Bank, No. 02-13-00026-CV, 2014 WL 888438, at *2 (Tex. App.—Fort Worth Mar. 6,

2014, no pet.) (mem. op.) (even assuming claims were groundless, movant presented no evidence

of motive or credibility in filing groundless claims or of circumstances that existed at the time

claims filed), implied overruling in part on other grounds recognized by In re J.R., 123 S.W.3d

669, 671 n.6 (Tex. App.—Houston [14th Dist.] 2003, no pet.).

          The only evidence in the record of CPLA’s state of mind or the circumstances that

existed at the time they filed the second amended counterclaim were Albert’s own affidavit and

testimony supporting his contention that he made a reasonable inquiry into the legal and factual

bases of each counterclaim before he filed them. Albert testified about the reasonable inquiry he

                                               –20–
made before filing the counterclaims; the duties he alleged Cruz owed to the Ghani defendants

including the duties of loyalty, candor, good care, and scrupulous honesty; and the damages

suffered by the Ghani defendants. And he addressed Cruz’s arguments about limitations and

lack of a cognizable duty or damages and explained why those claims were not filed in bad faith.

After he concluded his testimony, he welcomed questions on each of the counterclaims, but Cruz

did not ask him any questions.

       The trial judge concluded that the counterclaims were groundless and filed with an

improper motive. The sanctions order contained many conclusions about CPLA’s conduct in

filing the counterclaims, but did not include facts to justify those conclusions. See Mattly v.

Spiegel, Inc., 19 S.W.3d 890, 895–96 (Tex. App.—Houston [14th Dist.] 2000, no pet.) (order

required to be specific to show trial court properly weighed sanctions request and imposed

sanctions in appropriate manner when justified by circumstances). Despite the lack of evidence

controverting Albert’s testimony about his reasonable inquiry before filing the counterclaims, the

sanctions order stated that CPLA did not form a belief “in the validity of the allegations

following any reasonable inquiry into their legal and factual merit.” And although there was no

evidence about the statutes of limitation that applied to each counterclaim, the sanctions order

stated that CPLA “asserted counterclaims that were barred, on their face, by the applicable

statutes of limitations without conducting a reasonable inquiry into whether the facts of the case

could justify tolling those limitations periods.” The order states that “[t]he lack of legal and

factual support for these counterclaims is further reflected in this Court’s Orders granting

summary judgment against those claims which are incorporated herein by reference.” But a

claim does not lack merit merely because it was dismissed on summary judgment or nonsuit.

See Dike, 343 S.W.3d at 192.




                                              –21–
       We conclude that Cruz did not satisfy his burden to show that CPLA filed groundless

counterclaims in bad faith or for an improper purpose. Consequently, we further conclude that

the trial judge abused his discretion by imposing sanctions against CPLA in connection with

filing those counterclaims. We resolve issues four and five in CPLA’s favor.

                                         CONCLUSION

       We resolve issues one, two, three, four, and five in CPLA’s favor and, as a result, do not

reach issue six. We vacate the trial judge’s November 1, 2012 sanctions order and render

judgment that Cruz take nothing by his motion for sanctions.




                                                  /Elizabeth Lang-Miers/
                                                  ELIZABETH LANG-MIERS
                                                  JUSTICE


121559F.P05




                                             –22–
                                         S
                               Court of Appeals
                        Fifth District of Texas at Dallas
                                       JUDGMENT

CHERRY PETERSEN LANDRY                               On Appeal from the 101st Judicial District
ALBERT LLP, Appellant                                Court, Dallas County, Texas
                                                     Trial Court Cause No. 10-16274.
No. 05-12-01559-CV         V.                        Opinion delivered by Justice Lang-Miers,
                                                     Justices Francis and Lewis participating.
ERWIN CRUZ, M.D., Appellee

       In accordance with this Court’s opinion of this date, the trial court’s November 1, 2012
sanctions order is VACATED and judgment is RENDERED that Erwin Cruz, M.D. take
nothing by his motion for sanctions.

        It is ORDERED that appellant Cherry Petersen Landry Albert LLP recover its costs of
this appeal from appellee Erwin Cruz, M.D. The obligations of Travelers Insurance as surety on
appellant’s supersedeas bond are DISCHARGED.


Judgment entered this 26th day of August, 2014.




                                              –23–
