In=20 The
For=20 The
IN RE =
SATISH GUPTA,=20
SB INTERNATIONAL, INC., TRINITY RECYCLING, INC., AND MANISH GUPTA, =
Relators
Original =
Proceeding=20
on Petition for Writ of Mandamus
I =
concur in=20
the majority's decision to deny the petition for writ of mandamus =
filed in=20
this Court by relators, Satish Gupta, SB International, Inc. =
("SB"),=20
Trinity Recycling, Inc. ("Trinity"), and Manish Gupta, challenging =
the=20
trial court's order striking all of their pleadings in the =
underlying=20
lawsuit brought against them by real party in interest, U.S. Denro =
Steels,=20
Inc. doing business as Jindal United Steel Corporation ("Jindal"). =
However, I=20
disagree with the majority that this significant decision does not =
merit a=20
written explanation from this Court. This is an important and=20
extraordinary case, which requires an opinion with precedential =
value.=20
When denying mandamus relief, although a court is "not required =
to" hand=20
down an opinion, it certainly may do so when appropriate. Tex. R. =
App. P.=20
52.8(d). Just because we are not required to do something, does =
not mean=20
that we should not act when action is appropriate. Relators,=20
in four issues, contend that they have no adequate remedy by=20
appeal and that=20
the trial court clearly abused its discretion in entering death =
penalty=20
sanctions against=20
them not only on Jindal's claims, but also relators'=20
counterclaims. As noted below, the factual allegations =
underlying the=20
parties' claims are complex, the subject matter of the discovery =
disputes=20
is significant, and Jindal's allegations about relators' flagrant =
bad=20
faith in their abuse of the discovery process are gravely serious. =
Above=20
all, the trial court's award of death penalty sanctions in this =
case is=20
considerable, implicating the Due Process Clause of the United =
States=20
Constitution and the Due Course of Law provision of the Texas=20
Constitution. Moreover,=20
Texas Rule of Appellate Procedure 47 "is applicable to an order or =
opinion=20
by a court of appeals" concerning its action on a petition for =
writ of=20
mandamus. Tex. R. App. P. 52.8(d). Here, our decision to deny =
relators'=20
petition in regard to Jindal's claims and relators' =
counterclaims=20
applies existing rules to a novel fact situation likely to =
recur in=20
future cases. See Tex. R. App. P. 47.4(a). Also, our =
decision=20
involves issues of constitutional law and other legal issues =
important to=20
the jurisprudence of Texas. See Tex. R. App. P. 47.4(b).=20
Accordingly, an explanation of this Court's decision in this case =
is=20
necessary. Jindal=20
makes steel plate at its steel rolling mill, and steel scrap is a=20
by-product of its rolling process. SB and Trinity are in the =
business of=20
buying and reselling steel, including steel scrap. SB and Trinity =
are=20
wholly owned by SBI Trading, Inc., which is owned by Satish Gupta, =
his=20
wife, and their children. Satish is Trinity's president and serves =
on SB's=20
board of directors. In the=20
underlying lawsuit, Jindal asserts claims against relators for =
fraudulent=20
inducement, conversion, violation of the Texas Theft Liability =
Act, Jindal=20
alleges that, in 1997, SB and Trinity began buying steel scrap =
generated=20
at Jindal's mill for a fixed price per ton. In 1998, Jindal =
entered a=20
contract with SB and Trinity governing the "removal of steel scrap =
by=20
truck" (the "Steel Scrap Agreement"). From 1998 to 2001, Manish =
Gupta,=20
Satish's cousin, oversaw SB's operations at the mill from an =
office in=20
Jindal's administrative building. Manish established a process in =
which=20
trucks were used to remove scrap from the mill. These trucks were =
weighed=20
empty as they entered the mill, and they were weighed again, after =
they=20
were loaded with scrap, as they left the mill. Four copies of the =
weight=20
ticket were generated: the truck driver kept two copies, and the =
guard at=20
Jindal's gate kept the other two other copies, one of which was to =
be=20
forwarded to Jindal's accounting office so that Jindal could =
prepare and=20
send an invoice to SB. In=20
mid-1998, Manish requested that Jindal allow SB and Trinity to =
ship "a=20
small amount of scrap out of the plant by railcar." Manish =
represented=20
that such shipments would be "rare" because of higher =
transportation=20
costs. Manish also represented that weight tickets would be =
generated by=20
the railroad company. Jindal agreed to the arrangement, but =
required that=20
Manish deliver the railroad company's weight tickets to Jindal and =
notify=20
Jindal prior to loading a railcar. In late=20
2000, Jindal discovered that Manish had been "intercepting the =
truck=20
weight tickets" that should have been delivered to Jindal and,=20
consequently, SB and Trinity were not invoiced for all the scrap =
metal=20
they removed from Jindal's mill. Specifically, Jindal alleges that =
from=20
April 1999 through April of 2002, Satish and his companies removed =
approximately 200 railcars of scrap from Jindal's facility, but =
only 30 of=20
those railcars were reported to Jindal, resulting in the theft of =
over=20
14,000 tons of scrap valued at approximately $1,362,090.20. =
In their=20
Second Amended Counterclaims against Jindal, SB and Trinity =
acknowledge=20
that they had a contract to purchase steel scrap from Jindal's =
mill for=20
resale. However, SB and Trinity allege that, under a separate =
agreement,=20
they had an exclusive contract for the purchase and resale of =
stainless=20
steel plate generated by the mill. Under this "Stainless Steel =
Plate=20
Agreement," Jindal billed SB and Trinity for stainless steel plate =
produced at the mill, for which SB and Trinity paid in advance. =
After a=20
sale to a third party, Jindal was required to credit SB and =
Trinity the=20
price difference. Moreover, Jindal was required to pay SB and =
Trinity a=20
commission and reimburse them for expenses, including freight =
costs.=20
Jindal failed to issue proper credits and pay commissions and =
expenses in=20
an amount over $400,000. SB and Trinity also claim that Jindal =
owes them=20
$250,000 for repayment of cash advances. SB and Trinity further =
allege=20
that in the summer of 2001, Jindal formed a joint venture with =
Southern=20
Texas Steel ("STS"). Under the joint venture agreement, Jindal's =
mill "was=20
to be used exclusively for filling steel plate orders placed by =
STS," and=20
STS would own all the resulting scrap metal and steel plates. STS =
then=20
entered into an exclusive scrap metal recovery agreement with a =
third=20
party. After STS=20
and Jindal, on November 16, 2001, demanded payment of outstanding =
accounts=20
from SB and Trinity and told them to vacate the mill, SB and =
Trinity again=20
negotiated an agreement to resolve the ongoing dispute, and on =
February=20
15, 2002, SB entered into an agreement with STS for a "one year =
exclusive=20
right to purchase prime carbon steel plate produced at the Mill =
for=20
resale" (the "Carbon Steel Plate Agreement"). The trial=20
court granted relators' motion for partial summary judgment, =
rendering a=20
take-nothing judgment as to Jindal's tort claims because it =
concluded that=20
the claims were "all, in substance, breach of contract claims =
clothed in=20
tort language." The trial court also granted Jindal's motion for =
partial=20
summary judgment, rendering a take-nothing judgment on SB and =
Trinity's=20
breach of contract and fraudulent inducement claims related to the =
2001=20
Agreement where SB and Trinity paid $100,000 for the exclusive =
right to=20
scrap metal for 3 years. Jindal=20
subsequently served interrogatories to relators, and, after =
reviewing the=20
contents of the two additional boxes and relators' answers, filed =
a motion=20
to compel responses to interrogatories and production of =
documents. Jindal=20
asserted that despite relators' representations that no documents =
were=20
being withheld, relators failed to provide responsive documents =
for=20
numerous requests. Satish responded to this motion with an =
affidavit, in=20
which he testified that relators did not generate or keep =
documents=20
showing the amount of steel scrap removed from Jindal's facility, =
other=20
than those already produced. After a hearing, the trial court =
ordered=20
relators "to make available for copying, downloading, or =
replicating by=20
electronic format all computerized accounting records for [SB] and =
[Trinity] from 1998 to 2001 including but not limited to its =
QuickBooks=20
accounting data . . . no later than August 28, 2003." In response=20
to this order, relators, on October 28, 2003, produced five =
diskettes=20
containing accounting information. Jeff Compton, Jindal's =
Certified Public=20
Accountant and certified fraud examiner, concluded that the =
diskettes did=20
not contain a complete copy of relators' pertinent accounting =
information.=20
On March 5,=20
2004, Jindal filed a motion to compel and for sanctions, in which =
it=20
asserted that the diskettes did not contain the actual accounting =
records=20
of SB and Trinity. Jindal attached to its motion Compton's =
affidavit, in=20
which he testified, [T]he=20
entries were maintained elsewhere and transferred to QuickBooks =
after the=20
fact with an artificial rather than an actual date or recordation. =
This=20
evidence suggests that the accounting records produced by =
[relators] are=20
not the actual accounting records of the company, but represent a=20
selective modification of such records. . =
. .=20
. I =
am=20
reasonably certain we received neither all the accounts maintained =
in=20
QuickBooks nor all the computerized accounting records for [SB] =
and=20
[Trinity]. Jindal=20
requested that the trial court order relators to produce "all =
computerized=20
accounting records, including the original, unaltered, and =
complete=20
accounting data in QuickBooks as used by the company for its =
business=20
purposes from 1998 to 2001." At a March 2004 hearing, the trial =
court=20
again ordered relators to produce the requested information, and=20
incorporated its ruling in a May 2004 order. Relators=20
subsequently produced four additional computer files containing =
purchase=20
and sales information. Again not satisfied that relators had =
produced a=20
complete set of accounting information, Jindal requested the =
deposition of=20
SB's controller, Moiz Ali Bhai. In response=20
to this motion, relators agreed to a July 2004 order, which =
provided,=20
On July 16,=20
2004, [SB] and [Trinity] will make available to Jindal's =
representatives=20
the computer hardware on which [SB] and [Trinity] maintain their=20
computerized accounting records and allow Jindal's representatives =
to=20
copy, download or replicate by electronic format all of their =
computerized=20
accounting records from 1998 to 2001. . =
. .=20
. The Court=20
will impose sanctions as it determines appropriate in its =
discretion for=20
non-compliance with this order. In the=20
order, the trial court also (1) ordered the depositions upon =
written=20
questions of relators' accounting firm and railroad customers; (2) =
required relators to instruct their accountants to cooperate; (3)=20
compelled relators to produce Bhai for deposition; (4) ordered =
relators to=20
amend their interrogatory answers; and (5) overruled relators' =
objections=20
to specific requests and ordered relators to amend their answers =
to state=20
that all responsive documents had been produced. Bhai later=20
testified that he had never used this computer, and he explained =
that all=20
of the QuickBooks data maintained by SB and Trinity had been =
deleted in=20
May or June 2002 after Bhai gave a backup disk to Satish. =
Furthermore,=20
Satish's teenage son, Arish, testified that the hard drive on "THE =
computer" had been replaced only days before it was produced and =
that he=20
had subsequently loaded the software onto the new hard drive. =
Although=20
Arish did not load any data onto the computer, he saw Manish =
working on=20
the computer before its production. In October=20
2004, Jindal filed a "Supplemental Motion for Sanctions," =
emphasizing that=20
SB and Trinity had "blatantly disregard[ed]" three court orders. =
At the=20
December 2004 hearing, Jindal accused relators of "phonying up" =
the=20
produced computer and accused Satish of losing "or destroying" the =
backup=20
disks given to him by Bhai. Satish testified, in contradiction to =
Bhai,=20
that Bhai told him that the computer was "THE computer" used by =
SB's=20
accounting department. Relators further represented that the data =
was=20
"lost" and that the documents that they had already produced =
included the=20
evidence that Jindal sought. At the=20
conclusion of the hearing, the trial court stated, I =
am=20
extremely troubled by this record and the struggle that we have =
had over=20
getting the information. I don't know how many hours you folks =
have been=20
before this Court. . =
. .=20
. This=20
discovery dispute has been going on for a long period of time. . . =
. I=20
wanted the computer that was used for this period of time so we =
could look=20
at those records because computer experts can also look at those =
records=20
and see what things have been deleted. There is a lot you could =
have done=20
with computers. We wouldn't be having this trouble. That, I think =
is=20
sanctionable. Based on=20
the "substantial" delay and "opportunities to come clean," and in =
light of=20
the amount in controversy, Jindal requested sanctions of $10,000 =
in order=20
to "send a message." =
In April=20
2005, Manish appeared for deposition, where he refused to answer =
any=20
substantive questions, asserting his Fifth Amendment Jindal=20
noticed the depositions of SB and Trinity in August 2005, and both =
SB and=20
Trinity designated Manish as their corporate representative. When =
Manish=20
appeared for deposition, he again invoked his Fifth Amendment =
privilege,=20
refusing to answer substantive questions, such as: "Is it true =
that you=20
intentionally phonied up the computer that was produced to Jindal =
in this=20
case on July 16, 2004?" On August=20
30, 2005, the trial court considered Jindal's "Second Motion for=20
Sanctions," in which Jindal sought death penalty sanctions. Jindal =
noted=20
that "SB's and Trinity's accounting records are objective data =
that will=20
prove how much steel scrap SB took from Jindal's plant" and that =
the "only=20
source" for the accounting data was the diskettes Bhai gave to =
Satish.=20
Jindal asserted that as of July 2004, "SB and Trinity had in their =
possession a complete copy of the accounting data that Jindal is =
seeking,=20
and they only produced a phonied-up computer with incomplete, =
misleading,=20
and useless accounting data." Jindal also complained about =
Manish's=20
refusal to answer questions, even when designated as SB's and =
Trinity's=20
corporate representative. Based on Bhai's testimony, Jindal argued =
that=20
relators intentionally deleted accounting information from their =
server=20
after the lawsuit was filed. In=20
response, relators presented their expert, Greg Schuelke, a =
Certified=20
Public Accountant, who said that he is usually hired to do damage =
analysis=20
for various types of companies and industries. Schuelke testified =
that=20
Manish had given him a list of 638 railcar scrap shipments (the =
"Manish=20
list"). Schuelke stated that after certain trucks had been loaded =
and=20
weighed, the drivers received weight tickets and then, rather than =
leave=20
the mill, made U-turns back into the mill, where the scrap metal =
was=20
transferred to railcars and shipped. He asserted that the absence =
of bills=20
of lading for these shipments supported his theory that these =
shipments=20
left the mill via railcar, because truck shipments had bills of =
lading.=20
Moreover, according to Schuelke, an Excel version of the Manish =
list was=20
kept by Manish in the regular course of business as far back as =
1999.=20
Relators=20
asserted that their discovery problems resulted from a series of =
mishaps=20
and miscommunications about SB's and Trinity's ordinary business=20
practices. The trial court disagreed, stating, It's hard=20
for this Court to accept . . . that this is just the normal, =
bungling=20
problems with the computer. I am very familiar with computers. I =
am very=20
familiar with what I've heard here today.
To a=20
certain extent, I understand everything that has been testified =
to. And I=20
think the reason I haven't granted death penalty sanctions is =
there is a=20
skunk in this courtroom, but I am not going to burn down the barn =
to get=20
rid of it. That will not happen, but I am granting additional =
sanctions of=20
$50,000 . . . . Relators=20
paid the sanction. Jindal then=20
sought production of the computer that Manish used to make the =
Manish=20
list. However, in an affidavit dated May 11, 2006, Manish denied =
having in=20
his possession "a computer that was used by [him] to conduct SB's =
business=20
with [Jindal]." He stated that he used a desktop computer, which =
he=20
referred to as the "Mill Computer." He further stated, "The Mill =
Computer=20
did not contain any accounting software or other software which =
could be=20
used or was used to track information related to the purchase or =
sale of=20
steel scrap from Jindal United. Moreover, I never entered any such =
information into the Mill Computer." Manish claimed that he had =
sent=20
handwritten worksheets showing steel scrap purchases to SB's =
Dallas=20
offices. Finally, he stated that he donated the Mill Computer to =
charity=20
in December 2001 and he did not keep an electronic copy of any =
information=20
stored on it. When Jindal=20
confronted relators with Schuelke's and Manish's differing =
accounts=20
regarding the creation of the Excel version of the Manish list, =
relators=20
informed Jindal that Schuelke's testimony was incorrect and that =
the=20
Manish list was not kept contemporaneously with actual shipments. =
Rather,=20
the Manish list was created based on "informal, handwritten" notes =
maintained by Manish. Jindal=20
noted that it had received the handwritten Manish list only in =
late May=20
2006 and that relators should have produced it years earlier. =
Relators=20
asserted that they had previously produced identical information =
to Jindal=20
in other forms. At the hearing, Manish testified that "I was =
maintaining=20
this [list] when the trucks on the rail in '99--when we started =
shipping=20
trucks, loaded them, put them on the scale, weighed them and put =
them=20
behind. So I had to keep track of that. So that is when I started=20
preparing this list." He explained the U-turn procedure and that =
the=20
entries on his list corresponded to railcar shipments, as opposed =
to truck=20
shipments as those would have been accompanied by bills of lading. =
Manish=20
also stated that the list was produced to Jindal on May 2006, =
because he=20
had transcribed his list into an Excel spreadsheet, which he gave =
to=20
relators' attorney, and no one had previously asked him for the=20
handwritten list. Compton,=20
Jindal's accountant and fraud examiner, testified that he had =
reviewed=20
bills of lading from North Star Steel, one of relators' customers, =
who=20
received scrap metal from relators only by truck. Compton =
discovered that=20
552 of the 638 entries on Manish's list corresponded to truck =
shipments to=20
North Star Steel, not railcar shipments, as represented by Manish. =
He then=20
concluded that Manish had fabricated the list, which constituted =
fraud.=20
Over the=20
four days of the hearing, the trial court heard testimony from =
Satish,=20
Manish, Arish, Compton, Schuelke, Dwight Lowe (the owner of the =
trucking=20
company used by relators), Mark Stromberg (relators' previous =
trial=20
counsel), Lamp, Bhai, and Odom. The evidence covered scrap-metal=20
collection, shipping practices, recordkeeping, forensic analysis, =
computer=20
file storage, copies of computer information, accounting data, =
accounting=20
practices, and the course of litigation and discovery. In short, =
the trial=20
court gave the issues a full and thorough hearing.=20
I =
have=20
granted orders compelling discovery and, even on a few occasions,=20
administered sanctions when needed. This case, however, is a case =
of first=20
impression for this Court. From the initiation of discovery in =
this case,=20
it has been clear that the focus of the case was accounting for =
scrap=20
steel at the plant in question. That has never been misunderstood. =
I feel=20
that [the relators' attorney], a very capable attorney, understood =
this=20
and so did his clients and the plaintiffs. We have struggled =
through=20
assertions of the 5th amendment, a long search for the original =
computer=20
with the original records and the production by the defendants of =
a=20
computer that was clearly not responsive to the Court's rulings. I =
do not=20
believe that anyone in this case misunderstood what was needed. I =
have=20
previously granted the largest sanctions ever assessed by this =
Court in=20
this case against these defendants. These sanctions were paid. I =
can find=20
no reason to set aside or withdraw the previous orders of the =
Court on=20
prior sanctions and the defendants' motion for reconsideration is=20
denied. Regarding=20
the Manish handwritten list and the Excel spread sheet, a reading =
of the=20
testimony at the previous hearings on this matter clearly =
indicates that=20
the defendants expected the plaintiff to rely upon this evidence =
as an=20
explanation that payment had been made for the allegedly missing =
scrap=20
steel. There was no confusion in the testimony of Manish Gupta =
that these=20
trucks never left the plant, made the "U" turn and the steel =
contained=20
therein subsequently loaded on rail cars. This appears to be =
untrue.=20
Additionally, Manish Gupta's testimony was that there were no =
bills of=20
lading for the trucks in question. Subsequent testimony by and =
through lay=20
witnesses and experts indicate that the great majority of these =
trucks=20
were sent to North Star with bills of lading not to the rail cars =
in=20
question. I do not find the explanation in defendant's e-mail to =
be=20
sufficient to explain away the obvious use of the list and spread =
sheet to=20
misrepresent the facts or to deceive. Additionally, I find the =
testimony=20
of Dwight Lowe to be less than forthright or credible on these=20
issues. Jindal=20
subsequently moved for default judgment. Relators then petitioned =
this=20
Court for a writ of mandamus, and we ordered a temporary stay in =
the=20
underlying case. Standard =
of=20
Review Mandamus is an extraordinary =
remedy,=20
which is available only when (1) a trial court clearly abuses its=20
discretion and (2) there is no adequate remedy by appeal. In =
re=20
Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex. =
2004) (orig.=20
proceeding); In re Unitec Elevator Servs. Co., 178 S.W.3d =
53, 57=20
(Tex. App.--Houston [1st Dist.] 2005, orig. proceeding). A trial =
court=20
clearly abuses its discretion if it reaches a decision so =
arbitrary and=20
unreasonable as to amount to a clear and prejudicial error of law. =
Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig.=20
proceeding). With respect to a trial court's determination of =
legal=20
principles, "a trial court has no 'discretion' in determining what =
the law=20
is or applying the law to facts." In re Prudential, 148 =
S.W.3d at=20
135 (quoting Walker, 827 S.W.2d at 840). Moreover, the =
requirement that=20
persons seeking mandamus relief establish the lack of an adequate =
remedy=20
by appeal is a "fundamental tenet" of mandamus practice. =
Walker, 827 S.W.2d at =
840. The=20
writ will issue "only in situations involving manifest and urgent=20
necessity and not for grievances that may be addressed by other =
remedies."=20
Id. In their=20
fourth issue, relators argue that they do not have an adequate =
remedy by=20
appeal because when the trial court struck relators' pleadings, it =
did not=20
issue a final, appealable judgment. The Texas=20
Supreme Court has held that "[w]hen a trial court imposes =
discovery=20
sanctions which have the effect of precluding a decision on the =
merits of=20
a party's claims--such as by striking pleadings, dismissing an =
action, or=20
rendering default judgment--a party's remedy by eventual appeal is =
inadequate, unless the sanctions are imposed simultaneously with =
the=20
rendition of a final, appealable judgment." Transamerican =
Natural Gas=20
Corp. v. Powell, 811 S.W.2d 913, 920 (Tex. 1991) (orig. =
proceeding).=20
If such a sanctions order =
is not=20
immediately appealable, it will be reviewable by petition for writ =
of=20
mandamus. Id. In this=20
case, the trial court granted the death penalty sanctions without=20
simultaneously rendering a final, appealable judgment. Thus, =
relators'=20
remedy by appeal from a final judgment is inadequate. See=20
id. Accordingly, I would =
sustain=20
relators' fourth issue. Sanctions=20
are to be used "to assure compliance with discovery and deter =
those who=20
might be tempted to abuse discovery in the absence of a =
deterrent."=20
Cire v. Cummings, 134 S.W.3d 835, 839 (Tex. 2004). =
Sanctions may=20
also be used to punish abusers. Chrysler Corp. v. =
Blackmon, 841=20
S.W.2d 844, 849 (Tex. 1992). Trial courts have broad authority to =
impose=20
sanctions for abuse of the discovery process: If the=20
court finds a party is abusing the discovery process in seeking, =
making,=20
or resisting discovery or if the court finds that any =
interrogatory or=20
request for inspection or production is unreasonably frivolous,=20
oppressive, or harassing, or that a response or answer is =
unreasonably=20
frivolous or made for purposes of delay, then the court in which =
the=20
action is pending may, after notice and hearing, impose any =
appropriate=20
sanction authorized by paragraphs (1), (2), (3), (4), (5), and (8) =
of Rule=20
215.2(b). Such order of sanction shall be subject to review on =
appeal from=20
the final judgment. Tex. R.=20
Civ. P. 215.3. If a party fails to comply with proper =
discovery=20
requests or to obey an order to provide or permit discovery, a =
trial court=20
may, after notice and a hearing, make such orders "in regard to =
the=20
failure as are just," including: an order=20
striking out pleadings or parts thereof, or staying further =
proceedings=20
until the order is obeyed, or dismissing with or without prejudice =
the=20
action or proceedings or any part thereof, or rendering a judgment =
by=20
default against the disobedient party. Tex. R.=20
Civ. P. 215.2(b)(5). There are=20
two components to measuring whether an imposed sanction is "just." =
Transamerican Natural Gas Corp., 811 S.W.2d at 917. =
First, a=20
direct relationship must exist between the offensive conduct and =
the=20
sanction imposed. "This means that a just sanction must be =
directed=20
against the abuse and toward remedying the prejudice caused the =
innocent=20
party. It also means that the sanction should be visited upon the=20
offender. Second, just sanctions must not be excessive." =
Id. They=20
should be only as severe as is necessary to satisfy legitimate =
purposes.=20
Id. Thus, "[t]he punishment should fit the crime" and =
"courts=20
must consider the availability of less stringent sanctions and =
whether=20
such lesser sanctions would fully promote compliance." =
Id. The=20
Texas Supreme Court has explained that the imposition of very =
severe=20
sanctions is not only limited by these standards, but also by=20
constitutional due process Discovery=20
sanctions cannot be used to adjudicate the merits of a party's =
claims or=20
defenses unless a party's hindrance of the discovery process =
justifies=20
a presumption that its claims or defenses lack merit. =
However, if a=20
party refuses to produce material evidence, despite the imposition =
of=20
lesser sanctions, the court may presume that an asserted claim or =
defense=20
lacks merit and dispose of it. Although punishment and deterrence =
are=20
legitimate purposes for sanctions, they do not justify trial by =
sanctions.=20
Sanctions which are so severe as to preclude presentation of the =
merits of=20
the case should not be assessed absent a party's flagrant bad =
faith=20
or counsel's callous disregard for the responsibilities of =
discovery=20
under the rules. In their=20
first issue, relators argue that the trial court clearly abused =
its=20
discretion in administering death penalty sanctions against them =
because=20
"the conduct found by the court did not justify any presumption =
that=20
relators' defenses and counterclaims were meritless." They assert =
that the=20
trial court, in granting death penalty sanctions, expressly found =
"only=20
three things": (1) that Manish's testimony that the trucks never =
left the=20
plant "appears to be untrue"; (2) that Manish's testimony that =
"there were=20
no bills of lading" was contradicted by lay witnesses and experts; =
and (3)=20
that Dwight Lowe's testimony was "less than forthright and =
credible."=20
Relators conclude that these limited findings do not justify death =
penalty=20
sanctions. However, in=20
conducting a review of the sanctions orders in this mandamus =
proceeding,=20
this Court is "not bound by [the] trial court's findings of fact =
and=20
conclusions of law; rather, appellate courts must independently =
review the=20
entire record to determine whether the trial court abused its =
discretion."=20
Am. Flood Research, Inc. v. Jones, 192 S.W.3d 581, 583 =
(Tex.=20
2006); see also Chrysler Corp., 841 S.W.2d at 852. This =
includes=20
"the evidence, arguments of counsel, the written discovery on =
file, and=20
the circumstances surrounding the party's alleged discovery =
abuse."=20
Daniel v. Kelly Oil Corp., 981 S.W.2d 230, 234 (Tex.=20
App.--Houston [1st Dist.] 1998, pet. denied). Moreover, the trial =
court,=20
in its sanctions order, specifically stated that its ruling was =
"based=20
upon all the evidence presented from hearings on the very first =
Motion to=20
Compel to our most recent hearing, concluded on July 3, 2006, and =
from the=20
totality of the circumstances and evidence before the Court." =
Accordingly,=20
an examination of the entire record is appropriate to determine =
whether=20
the trial court abused its discretion in granting death penalty =
sanctions.=20
See id. As noted by=20
Jindal, from the outset of its lawsuit, it was clear that the "two =
key=20
questions" were (1) how much steel scrap relators removed from =
Jindal's=20
mill by railcar or otherwise, and (2) whether relators paid for =
all the=20
scrap removed. The record demonstrates that although Jindal sought =
this=20
information within two months of filing suit, it was unable to get =
responsive documents and answers from relators for almost four=20
years. After=20
Jindal filed its first motion to compel, relators represented that =
"there=20
are presently no documents . . . being withheld from production." =
As the=20
detailed history above illustrates, this representation was false. =
In=20
August 2003, in its first of many discovery orders, the trial =
court=20
ordered relators to produce "all computerized accounting records =
for [SB]=20
and [Trinity] from 1998 to 2001." When relators produced five =
computer=20
diskettes after the court-ordered deadline, Jindal's accountant =
and fraud=20
examiner determined that they did not contain the pertinent =
accounting=20
information. Unable to=20
obtain the requested discovery, Jindal filed yet another motion to =
compel=20
production of "all computerized accounting records, including the=20
original, unaltered, and complete accounting data in QuickBooks as =
used by=20
the company for its business purposes from 1998 to 2001." After =
relators=20
failed to comply with another order, Jindal filed another motion, =
and=20
relators agreed to an order requiring them to produce their =
computer=20
hardware and computerized accounting records from 1998 to 2001. =
Even when=20
the trial court threatened relators with sanctions, relators still =
failed=20
to comply. During a=20
subsequent hearing on Jindal's second sanctions motion, Schuelke,=20
relators' accounting expert, disclosed, for the very first time in =
this=20
case, the existence of the "Manish list" as well as the "U-turn" =
defense.=20
Moreover, Schuelke represented that Manish kept an Excel version =
of the=20
Manish list in the regular course of business as far back as 1999. =
At the=20
conclusion of the hearing, the court rejected relators' =
"miscommunication"=20
defense, and imposed an additional sanction of $50,000. When =
Jindal=20
requested the computer used to prepare the Manish list, Manish =
denied=20
using a computer to track purchases and sales of steel scrap, =
denied=20
entering this information into a computer, and claimed Schuelke's=20
testimony was incorrect. Contrary to their own expert's testimony, =
relators asserted that the Manish list was not created in the =
regular=20
course of business, but instead was based on "informal, =
handwritten"=20
notes, which indisputably had not been previously produced. =
In regard=20
to the substance of the Manish list, Jindal's fraud examiner =
testified=20
that many of the entries on the list did not correspond to railcar =
shipments, and instead corresponded to truck shipments. He =
concluded that=20
the list had been fabricated. It was only=20
after the hearing on Jindal's third motion for sanctions, which =
spanned=20
four days and included testimony from all relevant parties, and =
after the=20
court's two, previous monetary sanctions, that the trial court =
finally=20
imposed death penalty sanctions, emphasizing that the discovery =
issues=20
were clearly understood from the commencement of the case. The =
trial court=20
obviously rejected relators' assertion that the perceived =
discovery abuses=20
were grounded in an inaccurate representation made by relators' =
previous=20
trial counsel or in any misunderstanding. The court noted its =
struggle=20
through relators' assertions of the Fifth Amendment, the lengthy =
search=20
for the original computer and records, and the production of a =
computer=20
"that was clearly not responsive." The court further noted that =
the=20
testimony supporting the U-turn defense appeared to be untrue, and =
flatly=20
stated that relators could not "explain away the obvious use of =
the list=20
and spreadsheet to misrepresent the facts and deceive." =
Our supreme=20
court has recently considered the imposition of death penalty =
sanctions.=20
In Cire, Cummings filed a legal malpractice suit against =
Cire,=20
and, during discovery, testified that she had tape-recorded =
several=20
conversations with Cire. 134 S.W.3d at 837. The trial court =
entered=20
several orders compelling production of the audiotapes, but =
Cummings=20
failed to comply. Id. Cire filed a motion to strike =
Cummings's=20
pleadings, and at the sanctions hearing, although Cummings denied=20
destroying the audiotapes, Cire presented evidence that Cummings =
had=20
burned them. Id. The supreme court explained that, "[o]n =
this=20
record, it was within the trial court's discretion to determine =
that=20
Cummings deliberately destroyed dispositive evidence; thus, death =
penalty=20
sanctions are warranted in this exceptional case." Id. at =
841. Similarly,=20
here, the record reveals that relators did more than repeatedly =
fail to=20
comply with the trial court's orders to furnish responsive =
information.=20
Although, as relators note, the trial court did not expressly =
state "that=20
Manish committed perjury or intentionally fabricated" evidence, =
the trial=20
court was not required to make these express findings before =
issuing death=20
penalty sanctions. Contrary to relators' arguments, there is =
evidence in=20
the record that supports an implied finding by the trial court =
that Satish=20
and Manish perjured themselves and tampered with evidence critical =
to=20
Jindal's claims and relators' defenses and counterclaims. =
See=20
Tex. Pen. Code Ann. =A7=A7 37.03, 37.09(a)(1) (Vernon 2003). =
From all of=20
the above evidence, the trial court could have reasonably =
concluded that=20
relators purposefully hindered the discovery process for almost =
four years=20
to evade answering the simple question of how much steel scrap =
they=20
removed from Jindal's=20
facility. It was within the trial court's discretion to conclude =
that=20
relators had intentionally made misrepresentations to the court =
about the=20
existence and condition of this evidence. It was also within the =
trial=20
court's discretion to conclude that relators had even gone so far =
as to=20
fabricate evidence to mislead Jindal and the court. Ample evidence =
in this=20
record supports an implied finding that relators acted in flagrant =
bad=20
faith during the discovery process and in their failure to comply =
with the=20
court's orders. I would hold that the evidence of relators' =
hindrance of=20
the discovery process in this exceptional case justifies a =
presumption=20
that their claims and defenses lack merit. See =
Cire, 134=20
S.W.3d at 842-43; Transamerican Natural Gas Corp., 811 =
S.W.2d at=20
918. In their=20
second issue, relators argue that the trial court abused its =
discretion in=20
imposing death penalty sanctions because there is no direct =
relationship=20
between the offensive conduct and the sanctions imposed. They =
assert that=20
sanctions "for the supposedly offensive conduct of Manish would be =
improperly visited" on Satish, SB, and Trinity. They also assert =
that the=20
death penalty sanctions improperly strike their =
counterclaims. Here, the=20
trial court was not concerned solely with the offensive conduct of =
Manish.=20
In its sanctions order, the trial court specifically stated that =
its=20
ruling was "based upon all the evidence presented from hearings on =
the=20
very first Motion to Compel to our most recent hearing, concluded =
on July=20
3, 2006, and from the totality of the circumstances and evidence =
before=20
the Court." As illustrated above, there was ample evidence of the =
flagrant=20
bad faith of each of the relators in their four-year effort to =
hinder=20
discovery. Moreover, both SB and Trinity designated Manish as =
their=20
corporate representative. In regard=20
to their counterclaims, relators further argue that the trial =
court's=20
sanction is overbroad because their counterclaims are "legally and =
factually distinct" from Jindal's claims and are not implicated by =
any of=20
the alleged misconduct. They assert that their counterclaims, =
filed on May=20
8, 2006, "have no bearing on any issues presented in Plaintiff's =
motion=20
for death penalty sanctions." However, even relators acknowledge =
in their=20
petition that "the counterclaims against [Jindal], at a minimum, =
express=20
claims that are a set-off or recoupment against the claims =
asserted by=20
[Jindal]." Relators further concede, in regard to their =
counterclaims=20
arising out of the Carbon Steel Plate Agreement, that the parties=20
negotiated the agreement in 2001, after their relationship turned =
sour, in=20
an attempt to resolve "the dispute over the scrap contract and the =
outstanding accounts receivable balance." This supports Jindal's =
assertion=20
that its claims and relators' counterclaims, even if factually =
distinct,=20
arise out of the same set of circumstances. As Jindal notes in its =
response, when the trial court raised the possibility of severing=20
relators' counterclaims, relators maintained that their =
counterclaims were=20
"largely intertwined." Thus, to the extent relators' newly =
asserted=20
counterclaims constitute a set-off, recoupment, or a settlement of =
the=20
parties' original scrap metal dispute or arise out of the same set =
of=20
circumstances as Jindal's and relators' original claims, the trial =
court=20
could have reasonably concluded that relators' conduct in =
hindering=20
Jindal's discovery was relevant to these counterclaims. More=20
importantly, the discovery that Jindal unsuccessfully pursued on =
its=20
claims against relators, including accurate accounting records =
from=20
relators, is directly related to relators' counterclaims. Even =
assuming=20
that Jindal's claims and relators' counterclaims might be =
supported or=20
defended by evidence specific to each claim, the key, discoverable =
information for both the claims and counterclaims necessarily =
comes from=20
the same source--relators' accounting records. But, as established =
by the=20
record and as noted by the trial court in its orders, the trial =
court=20
imposed the monetary and death penalty sanctions against relators =
for=20
their fabrication of accounting evidence and their failure to =
produce,=20
over a four-year period, accurate accounting records. Reliable =
accounting=20
records from relators would have been critical to substantiating =
or=20
defending against relators' counterclaims. Rather than permit =
relators to=20
prosecute their counterclaims, based on suspect accounting =
information,=20
the trial court could have reasonably concluded, based on =
relators'=20
conduct, that no reliable accounting information was available.=20
In their=20
third issue, relators argue that the trial court abused its =
discretion in=20
entering death penalty sanctions against them because the =
sanctions were=20
excessive and because it did not properly consider lesser =
sanctions. They=20
assert that although the trial court had previously entered =
sanctions=20
against them on two occasions, "[t]he Court clearly did not make =
any=20
finding that the previous entry of sanctions formed any basis for =
death=20
penalty sanctions." This is=20
simply untrue. As quoted above, the trial court, in its death =
penalty=20
sanctions order, specifically stated that its ruling was "based =
upon all=20
the evidence presented from hearings on the very first Motion to =
Compel to=20
our most recent hearing, concluded on July 3, 2006, and from the =
totality=20
of the circumstances and evidence before the Court." The trial =
court twice=20
imposed lesser sanctions. Although relators complied with the =
court's=20
sanctions orders, which the trial court emphasized were =
the=20
largest sanctions it had ever assessed, relators failed to comply =
with the=20
court's discovery orders. The record=20
clearly demonstrates that the trial court not only considered, but =
also=20
imposed lesser sanctions against relators to induce their =
compliance with=20
its orders, exceeding what is required by our jurisprudence, to no =
effect.=20
As emphasized by the supreme court, [T]he trial=20
court need not test the effectiveness of each available lesser =
sanction by=20
actually imposing the lesser sanction on the party before issuing =
the=20
death penalty; rather, the trial court must analyze the available=20
sanctions and offer a reasoned explanation as to the =
appropriateness of=20
the sanction imposed. I =
would=20
overrule relators' third issue. I =
object to=20
the majority's failure to explain its reasoning in reaching its=20
significant decision in this extraordinary case. However, for the=20
foregoing reasons, I agree that we should deny relators' petition =
for writ=20
of mandamus. Accordingly, I concur only in this Court's decision =
denying=20
relators' petition.
Panel=20
consists of Justices Nuchia, Jennings, and Higley. Justice Jennings, concurring.=20
1. =A7=20
2. =A7=A7 -=20
3. -=20
5. =A7=20
6. ' =