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Hitt v. Zarauskas

Court of Appeals of Texas, Third District, Austin

March 29, 2017

Bruce Hitt, Appellant
Frank Zarauskas d/b/a Boondocks Bar & Grill, Appellee


          Before Justices Puryear, Pemberton, and Field.


          Bob Pemberton, Justice.

         This is an appeal from an order denying a motion for new trial following a post-answer default judgment. Because the defendant presented uncontroverted proof entitling him to relief, we must reverse.


         Appellant Bruce Hitt is a real-estate broker and investor who, at relevant times, owned a San Angelo restaurant then known as the "Stillwater Bar & Grill."[1] In 2013, Hitt entered into a transaction with appellee Frank Zarauskas that the parties seem to agree entailed a lease of the premises to Zarauskas for $2, 500 per month. Zarauskas would later allege, however, that Hitt had also agreed-orally-to sell the restaurant to him, to execute a lease-purchase-option to that end in exchange for a $15, 000 payment, and to share certain income and expenses from the restaurant's operations. In reliance on these alleged promises and representations, Zarauskas would claim, he paid Hitt (in addition to the monthly rent) $15, 000 for the purchase option, expended substantial additional funds in making improvements to the premises, and began operating the restaurant under new management (and with a new name, "Boondocks Bar & Grill"), incurring additional expenses in that enterprise. But according to Zarauskas, Hitt "lied and stole the funds, " refusing to sign the lease-purchase option or to honor the parties' agreed-upon division of restaurant income and expenses. Based on these allegations, Zarauskas, through counsel, sued Hitt in the county court at law seeking actual and exemplary damages under theories of common-law fraud, constructive fraud, and negligent misrepresentation, or alternatively recovery in quantum meruit or promissory estoppel.

         Hitt obtained counsel and answered with a general denial, further pleading the statute of frauds as an affirmative defense. Hitt also alleged that Zarauskas had ceased to pay his monthly rent after about six months (a fact that Zarauskas admitted in his court filings, explaining that he was attempting to recoup some of the amounts he perceived Hitt owed him). Hitt asserted a counterclaim seeking recovery of the rent in question, plus attorney's fees.

         Hitt also brought a forcible-detainer action in justice court seeking possession of the premises and unpaid rent. This action proceeded to trial, [2] and Hitt obtained a judgment of possession, plus an award of $10, 000 (the jurisdictional maximum[3]) in back rent. From this judgment, Zarauskas perfected an appeal de novo to the county court at law (which happened to be the same trial court in which the parties had previously filed their competing claims for monetary relief). By order signed on June 3, 2014, the county court at law ruled in Hitt's favor on the issue of possession. Further, per an agreement of the parties, the court ordered the remaining issue of back rent consolidated into the parties' preexisting litigation. A few weeks later, on June 24, 2014, the trial court signed an "Administrative Closing Order" closing the surviving cause "for administrative purposes without prejudice until further action is initiated by the parties." "This closing, " the order further specified, "does not constitute a dismissal or a decision on the merits."

         During the ensuing six months, the sole case activity reflected in the clerk's record is two certificates of written discovery filed by Zarauskas's counsel, the first indicating that counsel had served Hitt's counsel with requests for disclosure and production in July 2014, and the second indicating that Zarauskas's counsel had served Hitt's counsel with responses to requests for discovery in September 2014. However, in November 2014, Zarauskas's counsel wrote the court administrator advising that "[o]ur client wants us to move this case" and inquiring about setting a docket-control conference or scheduling order.

         The record reflects no further activity in the case until the following February, when Hitt's counsel filed a motion to withdraw, citing a "lack of communication between client and counsel." The motion did not set forth that a copy had been delivered to Hitt, that Hitt had been notified in writing of his right to object to the motion, whether Hitt objected to the motion, Hitt's last known address, or any pending settings and deadlines.[4] The motion did include a certificate of service to Hitt via certified mail, return receipt requested, via an address on Coventry Lane in San Angelo (the "Coventry address").

         In early March, the court administrator issued a notice of hearing on the motion to withdraw for March 12, 2015. The notice was directed to both counsel and to Hitt personally, with the latter mailed to an address differing from the Coventry address to which the motion itself had purportedly been mailed. That second address, on Muirfield Lane in San Angelo (the "Muirfield address"), had been the location at which Hitt had been personally served with process at the inception of the case. The hearing notice mailed to Hitt was returned by the postal service.

         The trial court did not receive any objection or other response from Hitt, and it granted his counsel's withdrawal by order of March 12, 2015. Thereafter, Zarauskas, through counsel that continued to represent him, prosecuted the suit to a successful conclusion. In July, Zarauskas filed requests for admission directed to Hitt, with the accompanying certificate of service reflecting transmission, by both regular mail and certified mail, return receipt requested, to the same Muirfield address to which the earlier hearing notice had been mailed and returned. The case was thereafter set for hearing on the merits for November 10, with notice of the setting issued by the court administrator in mid-October. Similar to the previous hearing notice, the notice intended for Hitt was mailed to the Muirfield address and eventually returned as undeliverable by the postal service.

         On November 10, the hearing on the merits went forward as scheduled. Only Zarauskas and his counsel appeared. The trial court took judicial notice of the papers and pleadings on file, held that the requests for admission had been deemed admitted, and heard evidence presented through Zarauskas's testimony. At the conclusion of the hearing, the court signed a final judgment awarding Zarauskas $150, 000 in damages and ordering that Hitt take nothing on his claims.

         Thereafter, Hitt, through new counsel, filed a timely motion to set aside the judgment and for new trial, asserting three alternative grounds: (1) he had not received notice of the trial setting; (2) he had not been given at least 45 days notice of the trial setting as required by Texas Rule of Civil Procedure 245[5]; and (3) he was entitled to a new trial on equitable grounds based on evidence that establishes each of the three Craddock elements. In support of his motion, Hitt presented evidence that consisted of his own affidavit and attached excerpts from the record. In his affidavit, Hitt averred that he had never received notice and had been unaware of the trial setting until after the adverse judgment was signed, when "several friends told me that a judgment had been entered against me."

         Hitt explained that although he had previously owned and resided at the Muirfield address to which service of notice by mail had been attempted, he had moved from San Angelo to San Antonio in late June or early July 2014, following the administrative closure order, and had sold the Muirfield property and ceased to have any residence there in late January 2015-several months before service was attempted. Moreover, Hitt averred, he had "never set up a mail box at that [Muirfield] address, and . . . did not use that property as my mailing address, " relying instead on a post-office box. This was his practice, Hitt elaborated, due to the nature of his business, which entailed purchasing, improving, and selling real estate for investment purposes, during which he would typically live at a given physical location for a period between approximately 12 and 36 months. In the case of the Muirfield address, Hitt testified that he had purchased the property as an investment in 2012, and lived there while it was being remodeled, before eventually selling it in January 2015.

         In sum, Hitt emphasized, he had neither resided at nor received mail at the Muirfield address at the time service by mail of the hearing notice was attempted there, an assertion also consistent with the postal service's return of the notice as undeliverable. For the same reasons, Hitt further explained, he had never received and had been unaware of the requests for admission Zarauskas had purported to serve him by mail at the Muirfield address in July 2015. Nor, Hitt continued, had he received the notice of hearing on his counsel's motion to withdraw mailed to the Muirfield address in March 2015 (and, as with the notice of trial setting, subsequently returned by the postal service).

         More broadly, Hitt also denied any prior knowledge that the litigation with Zarauskas had been reopened, adding that after the lawsuit had been administratively closed, he "believed that Zarauskas intended to abandon his claims." Hitt similarly averred that his counsel had filed his motion to withdraw "[u]nbeknownst to me and without my consent, " although Hitt acknowledged that the Coventry address at which counsel had purported to mail him the withdrawal motion was the residential address of Hitt's mother, that "on occasion" he had received mail there, and that this address still appeared on his driver's license. Hitt also "d[id] not recall or have a record of having received any telephone calls from [counsel]" regarding his withdrawal.

         Zarauskas did not file a response or controverting evidence, and neither party presented evidence during an ensuing oral hearing on Hitt's motion. In his argument during the hearing, Zarauskas urged chiefly that Hitt was to blame for any nonreceipt of hearing notices because he had failed to provide the court clerk with a current and correct address, as required by Section 30.015 of the Civil Practice and Remedies Code.[6]

         Upon the hearing's conclusion, the trial court signed an order denying Hitt's motion without specifying the grounds on which it had relied. This appeal followed.


         On appeal, the parties reurge essentially the same arguments they advanced below. We review a trial court's order denying a motion for new trial under an overarching abuse-of-discretion standard, [7] which inquires whether the trial court acted "arbitrarily or without reference to guiding legal principles" in some matter committed to its discretion.[8] However, a trial court is said to have no "discretion" to analyze or apply the law incorrectly, so we review such decisions de novo.[9] Our disposition of this appeal turns on questions of law, chiefly the application of the familiar Craddock standards to Hitt's uncontroverted proof. The Craddock standards generally require that a defendant seeking to set aside a default judgment (whether no-answer or post-answer[10]) and obtain a new trial must establish: (1) that the nonappearance was not intentional or the result of conscious ...

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