                                                                           ACCEPTED
                                                                       12-15-00244-CV
                                                          TWELFTH COURT OF APPEALS
                                                                        TYLER, TEXAS
                                                                12/23/2015 11:28:20 PM
                                                                             Pam Estes
                                                                                CLERK

               NO. 12-15-00244-CV

      IN THE TWELFTH COURT OF APPEALS      FILED IN
                TYLER, TEXAS        12th COURT OF APPEALS
                                                 TYLER, TEXAS
                                           12/23/2015 11:28:20 PM
                                                  PAM ESTES
   LARRY LOTT D/B/A LARRY LOTT       INTERIORS, Clerk

                                              Appellant,
                       V.


               CHALEY MCCAIN,

                                              Appellee.

ON APPEAL FROM THE 7TH JUDICIAL DISTRICT COURT
             SMITH COUNTY, TEXAS

        TRIAL COURT CAUSE NO. 15-0053-C


      FIRST AMENDED BRIEF OF APPELLANT


                            Respectfully submitted,



                            s/Amy D. Long
                            Amy D. Long
                            TBN: 24036984
                            100 E. Ferguson, Suite 610
                            Tyler, Texas 75702
                            903-592-1641
                            888-407-7724 fax
                            amy@amydlong.com


         ORAL ARGUMENT REQUESTED
             IDENTITY OF THE PARTIES & COUNSEL

Appellant:    Larry Lott d/b/a Larry Lott Interiors

Counsel:      At trial and on appeal:
              Amy D. Long
              TBN: 24036984
              100 E. Ferguson, Suite 610
              Tyler, Texas 75702
              903-592-1641
              888-407-7724 fax
              amy@amydlong.com


Appellee:     Chaley McCain

Counsel:      At trial and on appeal:
              Vance L. Metcalf
              TBN: 24037102
              Kent, Good & Anderson, PC
              Woodgate I, Suite 200
              1121 ESE Loop 323
              Tyler, Texas 75701
              903-579-7500
              903-581-3701 fax
              vmetcalf@tyler.net




                                 -i-
                                              TABLE OF CONTENTS
                                                                                                                           Page
IDENTITY OF PARTIES AND COUNSEL ................................................................. i

INDEX OF AUTHORITIES .......................................................................................... iii

STATEMENT OF THE CASE ...................................................................................... iv

ISSUES PRESENTED ................................................................................................... iv

Issue 1:            Was the “death penalty sanction” - striking Defendant’s Original
                    Answer--An abuse of discretion where Plaintiff presented no evidence
                    to overcome Defendant’s assertion of Trade Secret Privilege and the
                    trial court failed to conduct the requisite inquiry?............................1

Issue 2:            Did the Court err in denying Defendant’s Motion for New Trial?...4

Issue 3:            Did the Court abuse its discretion in granting a default judgment for
                    “liquidated damages” of $242,050.82 against Defendant when no
                    evidence supported the amount of Judgment, and no hearing was held
                    on the amount of damages?...............................................................6

SUMMARY OF THE ARGUMENT…………………………………………………..v

STATEMENT OF FACTS……………………………………………………………..vi

STATEMENT REGARDING ORAL ARGUMENT…………………………………vii

ARGUMENT AND AUTHORITIES ............................................................................ 1

PRAYER FOR RELIEF ................................................................................................. 6

APPENDIX .................................................................................................................... 9




                                                            - ii -
                          INDEX OF AUTHORITIES

Cases                                                                  Page

Cire v. Cummings, 134 S.W.3d 835 (Tex. 2004).                          1

Craddock v. Sunshine Bus Lines, 133 S.W.2d 124 (Tex. 1939).            4

In re Bass, 113 S.W.3d 735 (Tex. 2003).                                3

In re Bridgestone/Firestone, Inc., 106 S.W.3d 730, 732 (Tex. 2003)     3

In re Continental Gen. Tire, 979 S.W.2d 609 (Tex. 1998)                3

In re Union Pac. R.R., 294 S.W.3d 589, 591, 592 (Tex. 2009)            4

Morgan v. Compugraphic Corp., 675 S.W.2d 729 (Tex.1984)                6

Spohn Hospital v. Mayer, 104 S.W.3d 878 (Tex. 2003)                    1,2,3

TransAmerican Natural Gas Corp. v. Powell, 811 S.W. 2d 913 (Tex. 1991) 1,2

Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 664 (Tex.2005)       5

Statutes/Rules

Tex. R. Civ. P. 215(b)                                                 1
Tex. R. Civ. P. 241                                                    6
Tex. R. Civ. P. 243                                                    6
Tex. R. Evid. 507                                                      4




                                     - iii -
                         STATEMENT OF THE CASE

    This appeal arises as a result of an entry of default judgment against Larry Lott

d/b/a Larry Lott Interiors (“Lott”). Chaley McCain (“McCain”) filed suit against

Lott for alleged breach of an oral contract. CR. 2. On June 26, 2015 the trial court

determined Lott had willfully failed to comply with court-ordered discovery, struck

Defendant’s original answer, and entered default judgment against Lott. The order

entered granted McCain “liquidated damages” of $242, 050.82, interest of

$5,748.71, attorney’s fees in the amount of $2,500, and post-judgment interest at

5.0% per annum. CR. 64. It is from this order Appellant appeals.



                                 ISSUES PRESENTED

Issue 1:    Was the “death penalty sanction” - striking Defendant’s Original
            Answer--An abuse of discretion where Plaintiff presented no evidence
            to overcome Defendant’s assertion of Trade Secret Privilege and the
            trial court failed to conduct the requisite inquiry?


Issue 2:    Did the Court err in denying Defendant’s Motion for New Trial?


Issue 3:    Did the Court abuse its discretion in granting a default judgment for
            “liquidated damages” of $242,050.82 against Defendant when no
            evidence supported the amount of Judgment, and no hearing was held
            on the amount of damages?




                                      - iv -
                       SUMMARY OF THE ARGUMENT

   The trial court abused its discretion when it struck Lott’s pleadings as a

discovery sanction when the Court did not conduct the requisite analysis after

Lott asserted trade secret privilege in response to requested documents. The

sanction imposed by the trial court was not just. There was no nexus between

the conduct and the offender. The death penalty sanction in this case was

issued without a hearing and resulted in denial of a fair trial for Lott without

any evidence of his wrong-doing. This is especially true where Lott asserted a

discovery privilege which was not met with a showing of necessity by McCain.

   The trial court also violated Texas Rules of Civil Procedure and well-

established case law by awarding “liquidated” damages which were not

supported by a written instrument and where no evidence was produced

regarding the amount of damages. The trial court never conducted a hearing on

damages.

   Finally the trial court erred in denying Lott’s motion for new trial when Lott

showed the failure to appear was not intentional or the result of conscious

indifference, that he had a meritorious defense and where no prejudice to

McCain would result in the granting of a new trial.

   For these reasons, this case should be remanded to the trial court for a new

trial on liability and damages.


                                    -v-
                            STATEMENT OF FACTS

      Larry Lott is an individual doing business as Larry Lott Interiors (“Lott”).

McCain is a licensed Texas realtor (“McCain”). McCain alleges that in 2013 she and

Lott entered into an agreement where Lott agreed to pay McCain 10% of the net

amount billed to a client for a furnishing and renovation project. CR. 2. On January

8, 2015, McCain, filed a Plaintiff’s Original Petition in the 241st Judicial District

Court of Smith County, Texas against Lott for breach of an oral contract. CR 1.

Attached as Exhibit “A” to Plaintiff’s Original Petition was “Plaintiff’s Chaley

McCain’s Request for Admissions, Requests for Production and First Set of

Interrogatories to Defendant Larry S. Lott D/B/A/ Larry Lott Interiors”. CR 6-9.

      Citation was returned served on that same day. CR 13. Defendant, Lott, filed

an Original Answer, Special Exceptions and Request for Disclosure on January 30,

2015. CR 16. In addition, Lott requested and paid for a jury trial. Supp.CR. 4.

      On February 26, 2015 Lott served upon McCain Defendant’s Answers to First

Set of Interrogatories (CR 29) and Defendant’s Answers to Request for Production

(CR 32). Defendant Lott also served upon McCain Defendant’s Response to

Request for Admissions which were not filed by Plaintiff. A true and correct copy

of the email transmission from counsel for Lott to counsel for Plaintiff with attached

discovery responses is under Appendix “A”. Plaintiff did not file the documents in

their entirety with the trial court therefore Appellant includes them to aid the Court


                                       - vi -
in Appendix “A”.

      After receipt of Lott’s responses and prior to the transfer, on March 19, 2015,

McCain filed Plaintiff Chaley McCain’s Motion to Compel and Motion for

Sanctions. CR 23-32. Said motion complained of Lott’s Answers to Interrogatories

numbers 2 and 3 and Answers to Request for Production numbers 1, 2 and 3. CR

23-25. Plaintiff filed a First Amended Motion to Compel and for Sanctions on May

12, 2015. CR. 46.

      Without hearing, the Hon. Judge Kerry L. Russell signed an Order Granting

Plaintiff’s First Amended Motion to Compel and Motion for Sanctions on May 12.

2015. CR. 46. On May 27, 2015 McCain filed Plaintiff Chaley McCain’s Motion

for Contempt and for Default Judgment. CR. 57. The Hon. Judge Kerry L. Russell

signed an Order Granting Plaintiff’s Motion for Contempt and Motion for Default

Judgment on June 26 2015. CR. 64.


                     STATEMENT OF ORAL ARGUMENT

   This appeal raises significant issues related to the justness of “death penalty”

discovery sanctions imposed when a court fails to properly analyze or apply the law

where a trade secret privilege was asserted and not properly challenged. See Walker

v. Packer, 827 S.W.2d 833 (Tex. 1992); TransAmerican Natural Gas Corp. v.

Powell, 811 SW.2d 913 (Tex. 1991); Tex. R. Civ. P. 215(b); T. R. Civ. P. 507; In re

Bass, 113 S.W.3d 735 (Tex. 2003). The appeal further presents the Court an
                                      - vii -
opportunity to review whether it is an abuse of discretion for a court to refuse a

hearing on damages where there is no written instrument to support the judgment.

See Tex. R. Civ. P. 241, 243; Morgan v. Compugraphic Corp., 675 S.W.2d 729

(Tex. 1984).




                                    - viii -
                                    ARGUMENT

   I.     Was the “death penalty sanction” - striking Defendant’s Original
          Answer--An abuse of discretion where Plaintiff presented no evidence
          to overcome Defendant’s assertion of Trade Secret Privilege and the
          trial court failed to conduct the requisite inquiry?

   A trial court’s sanctions order under Texas Rule of Civil Procedure 215.2(b) is

reviewed for abuse of discretion. Cire v. Cummings, 134 S.W.3d 835, 838 (Tex.

2004). “The test for an abuse of discretion is not whether, in the opinion of the

reviewing court, the facts present an appropriate case for the trial court’s action,

‘but whether the court acted without reference to any guiding rules or legal

principles’.” Cire, 134 S.W.3d at 838-839 (quoting Downer v. Aquamarine

Operators, Inc., 701 S.W. 2d 238, 241 (Tex. 1985). The trial court’s discretion in

imposing sanctions is limited by due process, the Rules of Civil Procedure, and

TransAmerican Natural Gas Corp. v. Powell, 811 S.W. 2d 913 (Tex. 1991).

   Death penalty sanctions must be reserved for exceptional circumstances where

a party has so abused the rules of procedure, that despite imposition of lesser

sanctions, the party’s argument is presumed to lack merit. TransAmerican, 811

S.W.2d at 918. A trial court may not impose sanctions that are more severe than

necessary to satisfy legitimate purposes. Cire, 134 S.W.3d at 839 citing Hammill v.

Level, 917 S.W. 2d 15, 16 (Tex. 1996). Further, Rule 215.2(b) explicitly requires

that any sanction under this rule be “just.” Tex.R.Civ.P. 215.2(b). The supreme

court, in Spohn Hosp. v. Mayer, 104 S.W.3d 878 (Tex. 2003) explained the

                                                                                       1
required analysis a court must conduct in imposing sanctions.

          TransAmerican set out a two-part test for determining
      whether a particular sanction is just. First, there must be a direct
      nexus among the offensive conduct, the offender, and the
      sanction imposed. See TransAmerican, 811 S.W.2d at 917. A just
      sanction must be directed against the abuse and toward
      remedying the prejudice caused to the innocent party, and the
      sanction should be visited upon the offender. Id. The trial court
      must attempt to determine whether the offensive conduct is
      attributable to counsel only, to the party, or to both. Id. Second,
      just sanctions must not be excessive. Id. In other words, a
      sanction imposed for discovery abuse should be no more severe
      than necessary to satisfy its legitimate purposes, which include
      securing compliance with discovery rules, deterring other
      litigants from similar misconduct, and punishing violators. Id;
      Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 849 (Tex. 1992).

Spohn Hosp. v. Mayer, 104 S.W.3d 878, 882 (Tex. 2003).

   The trial court must consider less stringent sanctions and whether such lesser

sanctions will fully promote compliance, deterrence, and discourage any further

discovery abuse. Spohn Hospital, 104 S.W.3d at 882 citing TransAmerican, 811

S.W.2d at 917. Discovery sanctions that are so severe as to inhibit presentation of

the merits of the case are considered to be exceptional, and reserved only in instances

where the court finds the party’s actions were flagrant, in bad faith, or as a result of

counsel’s callous disregard for the rules of discovery. Spohn Hospital, 104 S.W.3d

at 883 (citing TransAmerican, 811 S.W.2d at .918).

   The trial court’s final order prevented Lott from presenting the merits of the case

by striking his answer at McCain’s request. The record indicates the trial court failed



                                                                                      2
to comply with procedural and substantive requirements to address whether the

imposition of any lesser sanctions would have been effective. In addition, the court

did not identify whether the conduct was attributable to Lott, to Lott’s counsel, or

both. Instead, the court arbitrarily granted McCain’s Motion for Contempt, struck

Lott’s Answer, and entered default judgment. The trial court’s decision does not

indicate that its decision considered any possible lesser sanctions, and whether the

evidence warrants an exceptional circumstance to justify severe sanctions as

required by Spohn.

   Further, by properly asserting trade-secret privilege in his original discovery

responses, Lott presented a meritorious defense to McCain’s claims. The burden

then shifted to McCain to present reasonable necessity of the information withheld.

Texas Rule of Evidence 507 provides that party has a privilege to refuse to disclose

a trade secret to opposing parties, unless nondisclosure will tend to conceal fraud or

otherwise work injustice. The party asserting trade secret privilege must establish

the information withheld qualifies as a trade secret by affidavit or otherwise. Id.

   The party seeking discovery must then show how the information it seeks will

assist in preparation of the case and how the lack of such information will impair the

case’s presentation. In re Bridgestone/Firestone, Inc., 106 S.W.3d 730, 732 (Tex.

2003). After hearing any evidence as to a party’s necessity to such privileged

information, the court must then balance the need for discovery against the need for



                                                                                      3
nondisclosure. In re Cont’l Gen. Tire, 979 S.W.2d 609, 615 (Tex. 1998).

      [W]hen trade secret privilege is asserted as the basis for resisting
      production, the trial court must determine [(1)] whether the requested
      production constitutes a trade secret; [(2)] if so, the court must require
      the party seeking production to show reasonable necessity for the
      requested materials." In re Bass, 113 S.W.3d 735, 738 (Tex.2003). If
      the information is a trade secret and the requesting parties do not
      need it, an order that requires disclosure is a clear abuse of
      discretion. Id. at 745.In re Union Pac. R.R., 294 S.W.3d 589, 591,
      592 (Tex. 2009)(orig. proceeding)(per curium).

If any evidence is deemed admissible, the court must take any protective measure

required by the interests of the privilege holder and the parties and to further

justice. Tex. R. Evid. 507(c). In the trial court, Lott properly asserted trade

privilege in his affidavit, which was attached to his discovery responses. Appendix

A. The only remedy under these circumstances, in furtherance of justice and

fairness, would be for this Court to remand the matter for new trial.

          II. Did the Court err when it denied Lott’s Motion for New Trial?

   A trial court abuses its discretion in denying a motion for new trial if the

movant satisfies the three elements set forth in Craddock v. Sunshine Bus Lines,

133 S.W.2d 124 (Tex. 1939). In Craddock, the movant must demonstrate (1) the

party’s failure to appear was not intentional or the result of conscious indifference;

(2) the motion for new trial sets forth a meritorious defense; and (3) the granting of

a new trial will not operate to cause delay or injury to the opposing party. Id.




                                                                                     4
   In the matter before this Court, it is clear Lott met all three requirements under

Craddock. Lott’s failure to respond or appear was neither intentional nor as a result

of conscious indifference. Lott’s motion provides “[this motion is as a result of] the

undersigned attorney’s calendar and email system and network system, [sic]… [and]

counsel did not receive notice and missed the deadline.” CR 66. Lott presented a

meritorious defense to McCain’s original claim: 1) no evidence had been submitted

to the court by McCain; and 2), the lack of such evidence demonstrates no contract

existed between the parties. The court’s record reflects Lott filed his motion for new

trial when the granting thereof would not otherwise delay or otherwise injure

McCain. The original default judgment was entered on June 26, 2015, and Lott filed

his subsequent motion for new trial on July 24, 2015. Given the time between entry

of judgment and Lott’s motion for new trial was less than a period of 30 days, Lott

respectfully asserts no injury or delay would result to McCain.

III. Did the trial court abuse its discretion by entering an order consisting of
liquidated damages without holding a separate hearing, despite the
requirements of Tex. R. Civ. P. 241 and 243?

   McCain admits in her original petition there was no written instrument to

memorialize their agreement. CR. 2. It is well-settled in the common law as well

as case-law that “[l]iquidated damages" ordinarily refers to an acceptable measure

of damages that parties stipulate in advance will be awarded to the non-breaching

in the event of a breach. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 664



                                                                                     5
(Tex.2005). McCain’s original complaint and basis for her suit is based upon an

oral contract between the parties.

      Rule 243 expressly provides for the trial court’s discretion in awarding such

liquidated damages when evidence demonstrates damages are “proved by an

instrument in writing.” Id. [emphasis added]. Further, Rule 241 of the Texas Rules

of Civil Procedure provide

         When a judgment by default is rendered against the defendant, or all of
         several defendants, if the claim is liquidated and proved by an instrument in
         writing, the damages shall be assessed by the court, or under its direction,
         and final judgment shall be rendered therefor, unless the defendant shall
         demand and be entitled to a trial by jury. (emphasis added)
Id.

      Once a default judgment is taken on an unliquidated claim, all allegations of fact

set forth in the petition are deemed admitted, except the amount of damages. Morgan

v. Compugraphic Corp., 675 S.W.2d 729, 731 (Tex.1984). A court rendering

a default judgment must hear evidence of unliquidated damages. Tex.R. Civ. P. 243.

The trial court, in this case, failed to hold a hearing to determine the amount of

damages. As such, the trial court abused its discretion.

                               PRAYER FOR RELIEF

      WHEREFORE, PREMISES CONSIDERED, Appellant Larry S. Lott, d/b/a,

Larry Lott Interiors, prays this Honorable Court reverse and remand the trial

court’s order with instructions, and that Appellant Lott be granted such other and

further relief, either at law or in equity, to which he shows just entitlement.

                                                                                         6
                    CERTIFICATE OF SERVICE


      I hereby certify that the foregoing instrument was delivered via email and by

certified mail return receipt requested, to the following attorney on this the 23rd

day of December 2015.


Vance L. Metcalf
Kent, Good & Anderson, PC
Woodgate I, Suite 200
1121 ESE Loop 323
Tyler, Texas 75701
903-579-7500
903-581-3701 fax
vmetcalf@tyler.net




                                                     s/Amy D. Long
                                                     Amy D. Long
                                                     TBN: 24036984
                                                     100 E. Ferguson, Suite 610
                                                     Tyler, Texas 75702
                                                     903-592-1641
                                                     888-407-7724 fax
                                                     amy@amydlong.com




                                                                                      7
                      CERTIFICATE OF COMPLIANCE

      Pursuant to TEX. R. APP. P. 9.4, I hereby certify that this First Amended

Brief of Appellant contains 2,686 words. This is a computer-generated document

created in Microsoft Word, using 14-point typeface for all text. In making this

certificate of compliance, I am relying on the word count provided by the software

used to prepare the document.




                                             s/Amy D. Long
                                             TBN: 24036984
                                             100 East Ferguson, Suite 610
                                             Tyler, Texas 75702
                                             903-592-1641
                                             888-407-7724 Fax
                                             amy@amydlong.com




                                                                                  8
                     APPENDIX

TAB

A.    Defendant, Lott’s, Discovery Responses with email and fax
      transmission.




                                                                  9
