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H & H Sand and Gravel, Inc. v. Suntide Sandpit, Inc.

Court of Appeals of Texas, Thirteenth District, Corpus Christi-Edinburg

May 30, 2019


          On appeal from the 148th District Court of Nueces County, Texas.

          Before Chief Justice Contreras and Justices Longoria and Perkes



         Appellant H & H Sand and Gravel, Inc. (H & H) was awarded contractual damages against appellees Suntide Sandpit, Inc.[1] (Suntide) and Erma Stillwell (Stillwell), but not against Mike Hurst (Mike) and Phil Hurst (Phil).[2] By three issues, H & H argues that the trial court erred in failing to: (1) instruct the jury on the Texas Construction Trust Fund Act (the Act), spoliation of evidence, and piercing the corporate veil; (2) enforce its discovery order and grant death penalty sanctions; and (3) enter a final judgment awarding H & H contingent appellate attorney's fees. We affirm.

         I. Background

         On February 2, 1999, Suntide placed a bid with the City of Corpus Christi (the City) to provide a "Commodity: Material for Sector Liner Construction." The bid sheet included the following description:

Supply agreement for material for sector liner construction in accordance with Specifications No. 837. The term of this supply agreement will be for twelve months with options for two additional twelve-month periods subject to approval of the contractor and the City Manager, or his designee. The supply agreement is to commence approximately May 1, 1999.

Under the line item for "sand," Suntide placed a bid for 35, 000 tons at $6.95 a unit, for a total bid of $243, 250. On the same day, H & H placed a bid for 35, 000 tons of sand at $7.05 a unit, for a total bid of $246, 750. On June 29, 1999, the City granted Suntide the purchase order agreement.[3] At the time of the agreement, Stillwell was the president, sole shareholder, and sole director of Suntide; Mike was the general manager; and Phil was a salesman, who was also responsible for on-site environmental operations on various projects.[4]

         Suntide contracted with H & H to provide the sand needed to fulfill Suntide's agreement with the City. From August to November 1999, H & H provided Suntide with $142, 684.49 worth of sand. Suntide fell behind on its payments to H & H. On October 28, 1999, the two companies executed an agreement, which read in its entirety: "Suntide Materials & Trucking will agree to have joint checks made payable to Suntide and H & H Sand at P.O. Box 329, Odem TX 78370 until the old balance of $47, 213.73 is paid on our account for the sand haul on the City of Corpus Christi job at the Landfill." The agreement was typed on Suntide stationery and signed by Mike. A copy of the letter was also provided to the City.

         The City, not a party to Suntide and H & H's agreement, continued to pay Suntide directly for the sand. The City made two payments to Suntide following the written agreement between Suntide and H & H: (1) on November 15 for $82, 861.73; and (2) on December 21 for $68, 652.17.[5] Suntide then paid $45, 000 to H & H in November and $40, 000 in December. By January 31, 2000, Suntide had failed to bring its account current, owing H & H a balance of $57, 162.27. Throughout 1999 and 2000, it was undisputed that Suntide was insolvent and unable to pay its debts. In 2000, Suntide ceased doing business and filed its final return with the Internal Revenue Service.[6]

          On July 11, 2002, H & H sued the City, Suntide, Mike, Phil, and Stillwell, seeking monetary damages for breach of constructive trust, negligence, negligence per se, fraud, and breach of constructive trust. On October 16, 2002, as part of its ongoing discovery, H & H requested production of tax documents, namely, "Copies of any federal or state income tax returns filed by Defendants, including any accompanying worksheets, schedules or K-1 forms for the five tax years preceding the date of this Request for Production of Documents."

         On November 15, 2002, the defendants filed an objection to written discovery and motion for a protective order. The record is silent about whether the motion for protective order was heard or ruled on. Stillwell died on May 17, 2008, following two interlocutory appeal proceedings [7]

         On June 10, 2009, the defendants filed an amended objection to written discovery and motion for protective order. Five days later, H & H filed a motion to compel full responses and request for sanctions. On June 30, the trial court judge signed a protective order, excusing Mike, Phil, and Stillwell from H & H's tax documentation discovery requests. H & H filed a petition for writ of mandamus, requesting that this Court direct the trial court to vacate the protective order. In re H & H Sand & Gravel, Inc., No. 13-09-00551-CV, 2009 WL 3757019, at *1 (Tex. App.-Corpus Christi Nov. 6, 2009, orig. proceeding) (per curiam) (mem. op.). On November 6, 2009, this Court denied H & H's petition for writ of mandamus. Id.

          Following the successful appeal of the trial court's summary judgment order in favor of the defendants, [8] H & H filed another motion to compel and request for sanctions in 2013. H & H sought the documents subject to the court's 2009 protection order. On September 27, 2013, the trial court denied H & H's motion to compel and request for sanctions. Also in September, individual defendants Phil and Mike, along with their brother Joe Hurst (Joe), participated in depositions.[9]

         At a pretrial conference on February 20, 2015, five years after the protective order was signed, the trial court signed an order to compel the individual defendants to produce their tax returns. At the hearing, defense counsel stated Mike's Form 1040 from 1999 was in counsel's possession, as was a summary of Phil's. Counsel expressed doubts as to the defendants' ability to retrieve personal tax documentation for Stillwell when no probate administrator existed with standing to request the documentation from the Internal Revenue Service. On August 7, H & H informed the court that it still had not received the defendants' tax returns and filed another motion to compel and request for sanctions. The court signed its second order to compel the production of tax documents, and ordered a monetary sanction in the amount of $2, 125.69. On August 27, the individual defendants filed a motion to reconsider sanctions and paid $2, 125.69, held in the registry of the court pending the resolution of their request for reconsideration.

          The trial court held a hearing on the defendants' motion for reconsideration of sanctions eight months later on April 21, 2016, and took the matter under advisement. Absent a ruling, H & H filed another motion for sanctions on September 16, this time requesting a death penalty sanction, $160, 000 in attorney's fees, $100, 000 in sanction fees, and the defendants' $2, 125.69 in the court's registry. The defendants filed a response on September 28, and the court held a hearing on September 30. On October 12, the court issued an order sustaining sanctions in the amount of $2, 125.69. The requested tax documents were never produced. H & H did not bring forth any other motions for sanctions regarding the nonproduction.

         At trial, the judge denied H & H's specific instructions for the jury charge.[10]Instead, the question posed to jurors tracked the Texas Pattern Jury Charge and read, as to each individual defendant, as follows:

Is [individual defendant] responsible for the conduct of [Suntide]?
[Individual defendant] is "responsible" for the conduct of [Suntide] if [Suntide] was organized and operated as a mere tool or business conduit of [individual defendant] and there was such unity between [Suntide] and [individual defendant] that the separateness of [Suntide] had ceased and holding only [Suntide], responsible would result in injustice; and [individual defendant] caused [Suntide] to be used for the purpose of perpetrating and did perpetrate an actual fraud on [H & H] primarily for the personal benefit for [individual defendant].
In deciding whether there was such unity between [Suntide] and [individual defendant] that the separateness of [Suntide] had ceased, you are to consider the total dealings of [Suntide], and [individual defendant], including:
1.the degree to which [Suntide]'s property had been kept separate from that of [individual defendant];
2. the amount of financial interest, ownership, and control [individual defendant] ...

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