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Judson Post no. 2059 v. Philadelphia Indemnity Insurance Co.

United States District Court, W.D. Texas, San Antonio Division

September 9, 2019




         Before the Court in the above-styled cause of action are Plaintiff's Opposed Motion for Sanctions and Motion to Disqualify Defendant's Attorney, William R. Pilat [#38] and Plaintiff's Opposed Motion to Compel Appraisal and to Abate Case Pending Appraisal Outcome [#40]. The motions were referred to the undersigned for disposition on July 23, 2019 and August 27, 2019, respectively. The Court held a hearing on the motions on September 3, 2019, at which counsel for both parties appeared before the Court. In resolving the motions, the Court has considered the parties' written filings [#41, #44, #46, #49, #51] and their arguments at the hearing. For the reasons set forth below, the Court will deny Plaintiff's motion for sanctions and grant Plaintiff's motion to compel appraisal.

         I. Background

         This first-party insurance dispute arises out of storm damage to property owned by Plaintiff Judson Post No. 2059, Veterans of Foreign Wars located at 3202 Ackerman Road, Kirby, Texas 78219. Defendant Philadelphia Indemnity Insurance Company issued an insurance policy to Plaintiff covering the subject property. Plaintiff submitted a claim to Defendant against the policy for damage, and the claim was denied. Defendant disputes whether the damage underlying the claim was preexisting or caused by the storm. Plaintiff sued Defendant in state court for breach of contract, violation of Sections 541 and 542 of the Texas Insurance Code, violation of the Deceptive Trade Practices Act (“DTPA”), and for breach of the duty of good faith and fair dealing. (Orig. Pet. [#1-3] at 4-21.) Plaintiff originally also sued two Texas-based Defendants (Elizabeth Ortiz and Paul R. White & Company, Inc.), but the state court dismissed Plaintiff's claims against these two parties with prejudice. (Dismissal Order [#1-3] at 80.) Defendant thereafter removed Plaintiff's Petition to federal court on June 20, 2018. (Notice of Removal [#1].) The Court has diversity jurisdiction over this action pursuant to 28 U.S.C. § 1332(a). A scheduling order is in place to govern the course of this case, and the parties have been proceeding with discovery. Trial is set for June 15, 2020. (Am. Sched. Order [#36] at 4.)

         Plaintiff has now moved for sanctions against Defendant's attorney William R. Pilat and has asked the Court to compel appraisal and abate this case pending the appraisal outcome pursuant to the appraisal provision in the insurance policy at issue. The Court addresses each motion in turn.

         II. Analysis

         A. Sanctions Motion

         Plaintiff's motion for sanctions arises out of actions taken by Defense counsel William R. Pilat after he took depositions of Plaintiff's corporate representatives on May 21, 2019. The depositions took place at the property that is the subject of this lawsuit. Mr. Pilat admits that after the deposition concluded he took 14 photos with his iPhone of the interior of one of the rooms of Plaintiff's property. Defendant produced the photographs in discovery.

         Plaintiff now asks the Court to sanction Mr. Pilat for failing to consult with Plaintiff's counsel before taking the photographs and failing to comply with the proper procedure set forth in the Federal Rules for entering and photographing property. See Fed. R. Civ. P. 34(a)(2) (allowing a party to serve a request within the scope of Rule 26(b) “to permit entry onto designated land or other property possessed or controlled by the responding party, so that the requesting party may inspect, measure, survey, photograph, test, or sample the property or any designated object or operation on it”). Plaintiff seeks attorney's fees for the costs associated with this motion and asks the Court to disqualify Mr. Pilat as counsel for Defendant, arguing that he is now a necessary witness in this case and therefore in violation of the Texas Disciplinary Rules of Professional Conduct. The Court orally denied the motion at the hearing and now memorializes its oral ruling with this written Order.

         Federal courts have inherent power to sanction bad-faith conduct. Goodyear Tire & Rubber Co. v. Haeger, 137 S.Ct. 1178, 1186 (2017); Chambers v. NASCO, Inc., 501 U.S. 32, 46 (1991). “In order to impose sanctions against an attorney under its inherent power, a court must make a specific finding that the attorney acted in ‘bad faith.'” Chaves v. M/V Medina Star, 47 F.3d 153, 156 (5th Cir. 1995) (internal quotation and citations omitted). Plaintiff has failed to demonstrate that Mr. Pilat acted in bad faith such that the imposition of sanctions in any form is warranted.

         Moreover, there is no merit to Plaintiff's argument that Mr. Pilat should be subjected to the “severe remedy” of disqualification for his actions. See In re Sanders, 153 S.W.3d 54, 57 (Tex. 2004). A disqualification motion filed in federal court is governed by at least four separate ethical canons-the local rules of the district court in which the motion is brought (here the Western District of Texas), the American Bar Association (“ABA”) Model Rules of Professional Conduct, the ABA Model Code of Professional Responsibility, and the rules of professional conduct employed by the bar of the state in which the court sits. Crossroads Sys. (Tex.), Inc. v. Dot Hill Sys. Corp., No. A-03-CA-754-SS, 2006 WL 1544621, at *9 (W.D. Tex. May 31, 2006). All of the governing rules contain some version of Texas Disciplinary Rule 3.08, which prohibits an attorney from continuing employment as an advocate if the lawyer “knows or believes that the lawyer is or may be a witness necessary to establish an essential fact on behalf of the lawyer's client.” Tex. Disciplinary R. of Prof'l Conduct R. 3.08(a). See also ABA Model R. of Prof'l Conduct R. 3.7(a); ABA Model Code of Prof'l Responsibility DR 5-101(b). These rules exempt from disqualification testimony by an attorney-witness that relates to an “uncontested issue” or testimony that relates solely “to a matter of formality and there is no reason to believe that substantial evidence will be offered in opposition to the testimony.” Tex. Disciplinary R. of Prof'l Conduct R. 3.08(a).

         The acts of Mr. Pilat in taking these photographs do not make him a witness necessary to establish an essential contested fact in this case. He is therefore not subject to disqualification under any governing canon of professional responsibility. As stated on the record at the hearing, the parties are ordered to confer on the photographs and to either (1) agree that Mr. Pilat may stipulate to the authenticity of the photographs; or (2) if they cannot agree to such stipulation, to agree that the photographs are inadmissible in this case and the parties will follow the procedure set forth in Rule 34(a)(2) for obtaining replacement photographs as needed.

         B. Appraisal Motion

         Plaintiff asks the Court to compel appraisal and abate this case during the appraisal ...

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