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Ring v. Sharpstown Mall Texas, LLC

Court of Appeals of Texas, First District

July 25, 2017

RING & RING D/B/A WRIGHT'S AMUSEMENTS, Appellant
v.
SHARPSTOWN MALL TEXAS, LLC AND PLAZAMERICAS MALL TEXAS, LLC, Appellees

         On Appeal from the 215th District Court Harris County, Texas Trial Court Case No. 2010-71771A

          Panel consists of Chief Justice Radack and Justices Brown and Lloyd.

          MEMORANDUM OPINION

          Harvey Brown Justice

         Ring & Ring is a traveling carnival company. It has occasionally operated its carnival in the parking lot of a Houston shopping center formerly known as Sharpstown Mall and currently known as PlazAmericas Mall. Ring & Ring's contracts to operate its carnival at this location have been with a bank that owns the outer-most portion of the mall parking lot, EWB-I, LLC (EW Bank).

         In another suit, EWBank sought a declaration that restrictive covenants limiting the mall parking lots' use to only parking-thereby prohibiting carnival operations and other businesses on the lots-were no longer enforceable. Within that suit, two defendants-(1) PlazAmericas Mall Texas, LLC (PlazAmericas), which owns the main mall structure and the parking areas closest to it, and (2) Sharpstown Mall Texas, LLC (Sharpstown), its predecessor-sought an injunction to prohibit Ring & Ring from operating carnivals at the mall. Ring & Ring counterclaimed for declaratory relief permitting its carnival operations. The claims between PlazAmericas, Sharpstown, and Ring & Ring were severed into this separate litigation. EWBank eventually lost on its claims against PlazAmericas, Sharpstown, and the other defendant mall owners.[1]

         On the day that trial was to begin on PlazAmericas and Sharpstown's suit for injunctive relief in the severed suit, the trial court granted their motion for sanctions, struck Ring & Ring's answer as it related to their request for injunctive relief, and entered a permanent injunction against Ring & Ring. The trial court also ordered Ring & Ring to pay attorney's fees. Trial proceeded on all remaining claims, including PlazAmericas and Sharpstown's declaratory-judgment and contract-interference claims, in which they sought to enjoin Ring & Ring from operating carnivals at the mall in the future and to recover damages and attorney's fees for past ROA violations, as well as on Ring & Ring's declaratory-judgment counterclaim, in which it sought a declaration that its contracts with EWBank permitted operation of its carnival at the mall and did not violate the ROA restrictions.

         Following trial, the trial court issued findings of fact and conclusions of law that were inconsistent, in part, with its earlier grant of a permanent injunction. For example, the trial court's post-injunction and post-trial findings included a finding that neither PlazAmericas nor Sharpstown had standing to obtain an injunction. The trial court then issued a final judgment, which included injunctive relief in PlazAmericas's favor.

         Ring & Ring appeals, challenging both the sanction order and the judgment against it. In its first and second issues, Ring & Ring argues that the trial court erred by granting declaratory and injunctive relief against it for several reasons, including that EWBank was a necessary party in the severed case and that the judgment is irreconcilable with earlier findings and conclusions. In a third issue, Ring & Ring contends that the trial court erred by imposing death-penalty sanctions because the trial court did not first impose lesser sanctions and because the sanctions were excessive.

         Because the death-penalty sanctions were an abuse of discretion and EWBank was a necessary party in the severed suit, we reverse.

         Background

         Ring & Ring is a traveling carnival company based in Colorado. It enters into "amusement contracts" with property owners to operate short-term carnivals on their properties. Over the past several years, Ring & Ring has intermittently operated a carnival at the Houston retail center once known as Sharpstown Mall.

         Sharpstown Mall

         Sharpstown Mall opened in the 1960s as a premiere regional shopping center. The mall had three national anchor stores (Foley's, Montgomery Wards, and J.C. Penney's), a main mall structure that housed smaller retailers and common areas, an adjacent office building, and surrounding parking lots. Each structure of the mall had a separate owner, with the owner of the main mall structure also owning all of the parking areas.

         These owners executed a Restated Operating Agreement (ROA) in 1979 that contained several restrictive covenants. One of the restrictive covenants limited the use of the parking areas to parking only. Another required a parking ratio of five parking spaces for every 1, 000 square feet of mall floor space. The ROA specified a termination date of 2035 and stated that its covenants would run with the land and apply to all parties to the agreement as well as those parties' successors and assigns.

         The mall experienced a period of decline in the 1990s and 2000s. All three of the national anchor tenants left the mall, and those locations were sold to new owners. Sharpstown, which owned the main mall structure, sold its interest to PlazAmericas. Through a separate sale and subsequent foreclosure, EWBank became the owner of the outer-most, overflow parking areas in 2009. With this transaction, EWBank became the only mall complex owner that did not own any of the mall's retail or commercial space; it only owned the outer-most parking lots.

         EWBank considered its options to generate income from the parking lots. It considered developing them for commercial use, but those with ownership interests in the mall structures claimed that the ROA restrictive covenants prohibited use of the parking areas for anything other than parking. EWBank occasionally entered into contracts with various traveling carnival companies, including Ring & Ring, to operate short-term carnivals on the overflow lots, but some mall owners objected, again citing the ROA restriction.[2]

         Suits over enforcement of ROA restrictions and carnival operations

         In 2010, EWBank sued PlazAmericas, Sharpstown, and the other entities holding ownership interests in portions of PlazAmericas Mall, seeking to invalidate ROA restrictive covenants that purported to prohibit development of the overflow lots. In that suit, Sharpstown and PlazAmericas filed a third-party petition against Ring & Ring, seeking to enjoin Ring & Ring from operating carnivals at PlazAmericas Mall.[3] Ring & Ring answered and asserted multiple defenses, including a defect of parties. EWBank lost its suit when the trial court dismissed its injunction claims, rejected EWBank's arguments against enforcement of the ROA restrictions, and granted summary judgment against EWBank on its declaratory-judgment claim.[4]

         After the trial court ruled against EWBank on its claims, it severed the third-party action against Ring & Ring and assigned it a new cause number. In this severed suit, PlazAmericas and Sharpstown filed an amended petition in which they argued that the doctrine of res judicata applied and bound Ring & Ring to the trial court's ruling in the suit by EWBank that rejected EWBank's defenses to enforcement of the ROA.

         Death-penalty sanctions imposed against Ring & Ring on day of trial

         PlazAmericas and Sharpstown's suit against Ring & Ring was scheduled for a bench trial in early September 2015. One month before trial, PlazAmericas and Sharpstown noticed the deposition of Ring & Ring's corporate representative and sought the production of documents. One week before trial, PlazAmericas and Sharpstown filed a motion for death-penalty sanctions against Ring & Ring. The trial court heard the motion on the morning of trial.

         PlazAmericas and Sharpstown argued that death-penalty sanctions were appropriate because Ring & Ring's corporate representative, Barbara Ring, had included false statements in an affidavit filed to defeat a summary-judgment motion and, in violation of the trial court's order, failed to appear for her corporate-representative deposition, and Ring & Ring had failed to produce the full amount of documents requested and then, in violation of a second oral court order, still failed to produce the requested documents.

         Ring & Ring, which is a family-owned business operated by Barbara Ring and her husband, offered several arguments against the sanctions. First, it argued that PlazAmericas and Sharpstown had waited several years to send discovery requests to Ring & Ring and, because Barbara was traveling with the carnival and was far from Ring & Ring's home base in Colorado when the discovery was received, she had difficulty retrieving the requested documents. Second, Barbara missed her deposition only because she inadvertently overslept after a lengthy all-night drive from Midland to Houston. Third, by the time the sanction motion was heard, Barbara had been deposed and Ring & Ring had produced documents responsive to the discovery requests. Fourth, the inaccuracies in Barbara's affidavit were attributable to her minimal education, unfamiliarity with the legal process, and failure to understand the necessity that she read the affidavit and verify its correctness before signing it. Ring & Ring contended that PlazAmericas and Sharpstown had all evidence necessary to proceed with their claims at trial, making sanctions unnecessary and unwarranted.

         The trial court orally granted the motion for sanctions and struck the portion of Ring & Ring's answer that responded to the request for a permanent injunction. Trial proceeded on the remaining claims against Ring & Ring, which were for injunctive relief prohibiting interference with PlazAmericas's easement rights, violations of restrictive covenants, and interference with contracts, as well as damages for those actions and additional attorney's fees. The bench trial lasted three days and included testimony by PlazAmericas's property manager and Barbara Ring.

         Post-trial sanctions order

         After the bench trial, on September 16, 2015, the trial court issued its written sanction order, which stated the trial court's findings, struck Ring & Ring's answer to the injunction claim, granted an injunction by default, and ordered that Ring & Ring pay attorney's fees.

         The trial court's sanction order recounted what had transpired. It stated that the trial court had ordered Ring & Ring to produce documents and present its corporate representative by August 28, 2015, and Ring & Ring had failed to do so.

         The September 16 sanction order recounted a second order to produce documents and present a corporate representative by September 3, 2015. The trial court noted that its second order did not include an award of sanctions, stating, "The Court declined to award sanctions at that time or proceed with a hearing on sanctions. In an effort to provide a less harsh remedy than striking pleadings, the Court ordered Ring & Ring to produce the documents . . . and for its corporate representative to sit for her deposition . . . ." The sanction order states that, in response to the trial court's second order, Ring & Ring failed to produce a majority of the requested documents, and its corporate representative appeared for her deposition but was unprepared to answer questions regarding Ring & Ring's claims and defenses.

         The sanction order also described an inaccurate statement in Barbara Ring's affidavit, in which she erroneously averred that Ring & Ring had not performed any carnivals at the mall after 2011. The sanction order noted that Barbara later filed a second affidavit, in which she explained that the error was the result of her failing to read her first affidavit before signing it, and she subsequently testified- after death-penalty sanctions had been imposed-that she did not read her second affidavit either.

         The sanction order stated that Ring & Ring's actions during discovery equated to a "pattern of discovery abuse, pleading abuse, bad faith filings, and contumacious conduct" that "warrant a conclusion that Ring & Ring's defense to the claim for injunctive relief lacks merit." It characterized the second order to compel as a "lesser penalty" made in lieu of sanctions. It also noted that the trial court had "consider[ed] other alternatives" but had found "that nothing less than entering the permanent injunction will serve the purposes contemplated by the Rules of Civil Procedure."

         The sanction order awarded PlazAmericas a permanent injunction, which permanently enjoins Ring & Ring from engaging in any activity in the mall parking areas that would violate the ROA restrictive covenants. It also requires Ring & Ring to pay reasonable attorney's fees.

         According to the sanction order, the parties had reached an agreement that the amount of reasonable and necessary attorney's fees and costs associated with the request for injunctive relief was $120, 750. Thus, the trial court ordered Ring & Ring to pay those fees under Texas Property Code section 5.006, which permits recovery of attorney's fees in actions for breach of restrictive covenants. Tex. Prop. Code § 5.006.

         Post-trial findings of fact and conclusions of law and the final judgment

         Two months later, the trial court issued findings of fact and conclusions of law, followed by amended findings of fact and conclusions of law. See Tex. R. Civ. P. 296-98 (concerning issuance of findings of fact and conclusions of law by trial court following bench trial). Some of the factual findings dealt with the mall's ROA restrictive covenants. For example, the trial court found that the ROA

• prohibits the operation of a business in the parking areas;
• grants all parties an easement to use the parking areas ...

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