Opinion
No. 02-20-00157-CV
07-23-2020
IN RE CAR FINANCIAL SERVICES, INC., AND CARS ACQUISITION LLC, Relators
Original Proceeding
Trial Court No. 017-305759-19 Before Gabriel, Kerr, and Womack, JJ.
Justice Womack would deny relief.
MEMORANDUM OPINION
Relators CAR Financial Services, Inc. and CARS Acquisition, LLC filed this original proceeding seeking mandamus relief from the trial court's order compelling them to respond to discovery. In a single issue with two subparts, relators primarily complain that real party in interest's thirty-eight alter-ego-related discovery requests are unnecessary and irrelevant because CARS Acquisition, CAR Financial's parent company, has admitted and attempted to stipulate that it would be jointly and severally liable for any judgment against CAR Financial. Alternatively, relators contend that the alter-ego discovery requests are overly broad and that the trial court erred by refusing to consider their overbreadth objections. Although we conclude that the trial court did not abuse its discretion by determining that relators could not avoid the requested discovery by offering to stipulate to the ultimate legal question of alter-ego liability, we nevertheless grant mandamus relief and order the trial court to consider relators' overbreadth objections to each of the complained-of alter-ego discovery requests.
I. FACTUAL AND PROCEDURAL BACKGROUND
The underlying litigation arose from a series of competing financing transactions for a car dealership: M.C.B. Group, LLC, doing business as Woody's. Both CAR Financial and real party in interest, First National Bank Baird (FNB), provided financing to Woody's, which eventually defaulted on its obligations to each party. FNB and CAR Financial claim security interests in Woody's assets, including its consumer loans, and have sued each other and Woody's for damages and the superior right to collect on Woody's consumer loans. Because the facts are disputed, we will provide common background from the parties' pleadings.
FNB began providing financing to Woody's in the 1990s and continued to do so until 2018. Woody's used the loans to buy inventory and finance consumer loans, giving FNB a security interest in its assets, including "car titles, notes receivable[,] and chattel paper." In 2013 and 2016, CAR Financial contracted with FNB to serve as custodian of the documents evidencing Woody's consumer loans that secured FNB's financing to Woody's. Also in 2013, allegedly unbeknownst to FNB, CAR Financial took its own security interest in Woody's assets when it began providing financing to Woody's for both inventory and consumer loans. In 2018, CAR Financial and Woody's entered into a Master Purchase Agreement and Account Service Agreement, both of which purportedly gave CAR Financial the exclusive right to service specifically identified consumer loans made by Woody's with CAR Financial's loaned funds.
Woody's defaulted on its loans to both CAR Financial and FNB. CAR Financial sued FNB first, claiming a superior security interest in certain of Woody's consumer loans for which it had provided financing. CAR Financial also alleged that FNB had interfered with the Account Service Agreement and Master Purchase Agreement by hiring an individual to engage in collection activities on the loans subject to those agreements and to direct that payments be made to FNB or Woody's. CAR Financial also alleged that this person disparaged CAR Financial during his collection attempts.
CAR Financial's claims against FNB include tortious interference with contract, violation of the Texas Theft Liability Act, conversion, money had and received, trespass to personalty, and conspiracy. CAR Financial also asked for a declaratory judgment and permanent injunctive relief.
FNB filed a counterclaim against CAR Financial, alleging that CAR Financial had "secretly tak[en] actions that directly contravened its custodial obligations [to FNB] and undermined [FNB's] security interests," resulting in FNB's loans to Woody's being inadequately securitized. FNB alleged that CAR Financial forced Woody's to enter into the Master Purchase Agreement and Account Service Agreement to prevent FNB from being able to exercise its first priority lien rights and collect on its collateral. FNB also named CAR Financial's parent company—CARS Acquisition, LLC—as a third-party defendant after learning during discovery that CAR Financial "lacks sufficient available funds to pay a final judgment" to FNB. Thus, FNB alleged that CARS Acquisition should be held financially responsible for any judgment against CAR Financial as its alter ego.
FNB's claims against CAR Financial are for breach of the 2013 and 2016 custodial agreements, fraud, negligent misrepresentation, tortious interference with existing contracts, breach of fiduciary duty, violation of the Texas Theft Liability Act, conversion, trespass to personal property, fraudulent transfer, conspiracy, and aiding and abetting. FNB also sought declaratory judgments that its liens are superior.
According to FNB, it also learned during discovery that CAR Financial had "transferred many of its assets (including proceeds collected on [FNB's] collateral) to related entities."
The parties have engaged in significant discovery. The discovery dispute at issue in this original proceeding involves thirty-eight requests for production related to FNB's alter-ego-liability theory: specifically, requests 1 through 16 and 19 through 25 in FNB's Second Request for Production to CAR Financial and requests 1 through 9, 12 through 15, 17, and 24 in FNB's Request for Production to CARS Acquisition. Relators objected to all of these requests as overly broad. In its Third Motion to Compel, complaining in part about relators' failure to respond to these particular requests, FNB alleged that relators had waived their objections by raising only general, boilerplate objections. FNB urged the trial court to overrule relators' objections to the discovery at issue and to compel production of documents within fourteen days of any hearing.
Although CARS Acquisition did not use the phrase "overly broad" or overbroad in objecting to Request 13, it did object that the request seeking documents related to any "subsidiary or affiliate" was "not properly limited to the claims or defenses asserted in this case" and therefore was outside the proper bounds of discovery.
In response to the motion to compel, relators argued that FNB had no need for the alter-ego-related discovery because CARS Acquisition had stipulated that it would be jointly and severally liable for any judgment against CAR Financial even though FNB had refused CARS Acquisition's "offer[] to enter into a stipulation agreement." Relators contended that, in light of their stipulation, FNB was seeking discovery on an uncontested issue. Relators also raised the requests' overbreadth as an alternative argument in resisting the discovery:
Even if discovery relating to CARS [Acquisition's] alter-ego liability were necessary in this case, many of [FNB's] requests are still overbroad. [FNB] cannot, for example, justify its requests for five years of CARS [Acquisition's] income tax returns or twenty years of CARS [Acquisition's] governance documents, meeting minutes, and stock records.
FNB's reply cited law holding that stipulations on questions of law are improper. FNB also asserted that it had asked relators to stipulate instead to facts that would support CARS Acquisition's alter-ego liability but that they had refused to do so.
After a hearing at which the trial judge expressed her concern that FNB had not agreed to any stipulation on alter-ego liability—and that she could not render a consent judgment on the alter-ego issue, as relators had requested—the judge overruled relators' objections to the complained-of requests without hearing argument on relators' alternative overbreadth objections. The trial court ordered relators to produce responsive documents within thirty days of the order. After relators filed a motion to reconsider in which they again raised their overbreadth objections, the trial court refused to reconsider its order.
The parties had come to a Rule 11 agreement on several other discovery requests, and relators had agreed to withdraw their objections to those requests.
Relators filed this original proceeding seeking mandamus relief and a temporary stay of the trial court's order compelling discovery responses. We granted the stay and specifically asked FNB to address relators' argument that the trial court abused its discretion by overruling the overbreadth objections.
II. STANDARD OF REVIEW
This court may grant mandamus relief from a discovery order only when (1) the trial court's decision is so arbitrary and unreasonable that it amounts to "a clear and prejudicial error of law" and (2) the relator has no adequate remedy by appeal. In re State Farm Lloyds, 520 S.W.3d 595, 604 (Tex. 2017) (orig. proceeding) (quoting Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding)).
In determining whether the trial court abused its discretion, we may not substitute our judgment for the trial court's determination of factual or other discretionary matters. Id. But because a trial court has no discretion in determining what the law is or in applying the law to even unsettled facts, we review its decisions on questions of law and application-of-law-to-facts questions much less deferentially. Id. A trial court abuses its discretion by clearly failing to correctly analyze or apply the law. In re M-I L.L.C., 505 S.W.3d 569, 574 (Tex. 2016) (orig. proceeding).
The scope of discovery is generally within the trial court's discretion so long as a discovery order does not exceed what the rules of civil procedure permit. See Tex. R. Civ. P. 192.4; State Farm Lloyds, 520 S.W.3d at 604; In re CSX Corp., 124 S.W.3d 149, 152 (Tex. 2003) (orig. proceeding). To be discoverable, evidence must be relevant and nonprivileged, but it need not be admissible if it is reasonably calculated to lead to the discovery of admissible evidence. See Tex. R. Civ. P. 192.3(a); In re Nat'l Lloyds Ins., 532 S.W.3d 794, 808 (Tex. 2017) (orig. proceeding). Thus, although the permitted scope of discovery is generally broad, a discovery request "must show a reasonable expectation of obtaining information that will aid the dispute's resolution." Nat'l Lloyds, 532 S.W.3d at 808 (quoting CSX, 124 S.W.3d at 152).
Even when a trial court abuses its discretion in making a discovery ruling, we will not intervene if the relator has an adequate remedy by appeal. In re Prudential Ins. of Am., 148 S.W.3d 124, 136 (Tex. 2004) (orig. proceeding). Appeal is inadequate when a discovery order compels production "beyond the rules of [civil] procedure." In re Nat'l Lloyds Ins., 507 S.W.3d 219, 223 (Tex. 2016) (orig. proceeding) (quoting In re Nat'l Lloyds Ins., 449 S.W.3d 486, 488 (Tex. 2014) (orig. proceeding)).
III. RELATORS CANNOT AVOID ALTER-EGO-RELATED
DISCOVERY VIA ATTEMPTED STIPULATION
Relators contend in their petition that because CARS Acquisition has "admitted and stipulated to joint liability" with CAR Financial and offered to consent to a partial summary judgment on that issue, "the individual facts needed to prove [FNB's] theories of joint liability are no longer of consequence in determining the action" and therefore are outside the scope of discovery. See Tex. R. Civ. P. 192.4; Tex. R. Evid. 401. In other words, relators contend that by stipulating to the ultimate issue of liability, they have rendered the requested discovery irrelevant.
Evidence is relevant if "it has any tendency to make a fact [of consequence to the action] more or less probable than it would be without the evidence." In re N. Cypress Med. Ctr. Operating Co., 559 S.W.3d 128, 131 (Tex. 2018) (orig. proceeding) (quoting Tex. R. Evid. 401). Relevant evidence can be provided by stipulation: when parties agree to stipulate to facts, those stipulations bind the trial court and reviewing courts, "enjoy[ing] equal dignity with judicial admissions" and eliminating the adversary's need to prove and establish the admitted elements as a matter of law. Banowsky v. Schultz, No. 05-14-01624-CV, 2016 WL 531573, at *8 (Tex. App.—Dallas Feb. 10, 2016, no pet.) (mem. op.) (quoting Perry v. Brooks, 808 S.W.2d 227, 229 (Tex. App.—Houston [14th Dist.] 1991, no writ)); Rosenboom Mach. & Tool, Inc. v. Machala, 995 S.W.2d 817, 821-22 (Tex. App.—Houston [1st Dist.] 1999, pet. denied) ("A stipulation constitutes a binding contract between the parties and the court."). But questions of law are not subject to stipulation. See, e.g., Caress v. Fortier, 576 S.W.3d 778, 780 (Tex. App.—Houston [1st Dist.] 2019, pet. denied); Skidmore Energy, Inc. v. Maxus (U.S.) Expl. Co., 345 S.W.3d 672, 688 (Tex. App.—Dallas 2011, pet. denied); see also Subsea 7 Port Isabel, LLC v. Port Isabel Logistical Offshore Terminal, Inc., 593 S.W.3d 859, 879-80 (Tex. App.—Corpus Christi-Edinburg 2019, pet. denied) (op. on reh'g) (noting that questions of law are not subject to judicial admissions).
FNB refused to stipulate that CARS Acquisition would be jointly and severally liable for any judgment as CAR Financial's alter ego. But even if it had agreed to such a stipulation, it would not have been binding on the trial court or the parties because the ultimate imposition of alter-ego liability is a question of law. See Phillips v. Carlton Energy Grp., LLC, 475 S.W.3d 265, 286 (Tex. 2015) (holding that after jury has resolved factual disputes related to the bases for alter ego liability, or when the facts upon which such liability are not disputed, "whether an imposition of alter[-]ego liability is justified is a question of law for the court"). In general, the thirty-eight complained-of requests seek information reasonably calculated to lead to the discovery of facts that would be admissible on FNB's alter-ego-liability claim. See SSP Partners v. Gladstrong Invs. (USA) Corp., 275 S.W.3d 444, 455 (Tex. 2008) (holding that disregarding the corporate structure involves the relationship between two entities as well as whether the entities' use of limited liability was illegitimate). Thus, the trial court did not abuse its discretion by determining that it could order relators to respond to the thirty-eight requests despite their attempted stipulation, and we overrule this part of relators' sole issue.
IV. TRIAL COURT MUST CONSIDER OVERBREADTH OBJECTIONS
Relators contend that even if we determine that the requested discovery is permissible despite their attempted stipulation, we should nevertheless grant mandamus relief because "the particular requests at issue are overbroad and the trial court abused its discretion in refusing to consider [their] overbreadth objections." We agree in part.
A. RELATORS PRESERVED OBJECTIONS
In response to relators' petition, FNB claims that relators waived all of their objections to the complained-of requests because (a) they did not assert sufficiently specific objections in their discovery responses and (b) they did not present evidence necessary to support the objections they did raise. FNB cites this court's memorandum opinion in Collins v. Kappa Sigma Fraternity, No. 02-14-00294-CV, 2017 WL 218286, at *19 (Tex. App.—Fort Worth Jan. 19, 2017, pet. denied) (mem. op.), as controlling authority. But Collins turned on the specific facts of that case and, thus, is inapposite. See id. at *19-20. Moreover, this court did not hold in Collins that an objection that a particular discovery request is overbroad is not specific enough to preserve that objection; instead, we held that the party resisting discovery in that case had not produced supporting evidence for its dual overbreadth and relevance objections, as well as its newly-asserted claim of privilege. Id. at *20.
The Texas Supreme Court has held that a timely asserted and continued objection that a discovery request is overbroad is sufficient to preserve error. See Nat'l Lloyds, 507 S.W.3d at 223; In re Allstate Cty. Mut. Ins., 227 S.W.3d 667, 670 (Tex. 2007) (orig. proceeding) ("Overbroad requests for irrelevant information are improper whether they are burdensome or not, so the defendants were not required to detail what they might encompass."); see also In re Wal-Mart Stores, Inc., 545 S.W.3d 626, 633 (Tex. App.—El Paso 2016, orig. proceeding [mand. denied]). And although a party objecting to discovery must present evidence supporting its objections when "necessary," see Tex. R. Civ. P. 193.4, 199.6, the rules do not require a party to present supporting evidence if the discovery requests are overbroad as a matter of law. In re Union Pac. Res. Co., 22 S.W.3d 338, 341 (Tex. 1999) (orig. proceeding) ("[I]t is not clear what evidence could have been produced on the issue. The question was simply whether the settlement dollar amounts are pertinent to the issues in the current litigation."); Wal-Mart Stores, 545 S.W.3d at 634-35 ("Wal-Mart's overbreadth and irrelevance objections can be resolved by examining the language of the discovery requests. We conclude that Wal-Mart was not required to present evidence in support of its overbreadth and relevance objections to these three discovery requests."); see In re Deere & Co., 299 S.W.3d 819, 821 (Tex. 2009) (orig. proceeding) (holding that trial court abused its discretion by failing to set reasonable time limit on objected-to discovery despite relator's failure to support objections with evidence); CSX Corp., 124 S.W.3d at 153 ("As written, interrogatories 16, 17, and 18 are overbroad." (emphasis added)).
Here, relators objected to each alter-ego-related request as overbroad. Although FNB complained to the trial court about what it called the "boilerplate" nature of these objections, it did not argue that relators' objections were untimely or that they were "obscured by numerous unfounded objections." See Tex. R. Civ. P. 193.2(e). And even though relators did not specifically argue their overbreadth objections to each request in the motion-to-compel hearing, nothing in the hearing evidenced an intent by counsel or relators to abandon those objections altogether. But cf. Wal-Mart Stores, 545 S.W.3d at 635-36 (concluding that relator abandoned its discovery objections by failing to articulate them at the motion-to-compel hearing and agreeing to produce the requested discovery). When the trial court in this case ruled on the requests one-by-one on the record, she asked only whether the parties had come to an agreement on whether relators would answer these thirty-eight requests as she ruled on each one. Here, relators timely objected to the requests as to overbreadth and relevance and obtained rulings overruling their objections; they did not represent to the trial court that they intended to waive the overbreadth objections or that they had agreed to otherwise respond to the objected-to requests. See Jernigan v. Langley, 111 S.W.3d 153, 156 (Tex. 2003) ("Waiver is largely a matter of intent, and for implied waiver to be found through a party's actions, intent must be clearly demonstrated by the surrounding facts and circumstances."). Thus, we conclude that relators preserved their overbreadth objections. See Allstate, 227 S.W.3d at 670.
When relators' counsel suggested rescheduling a hearing to "isolate the alter-ego-issues," FNB objected, and the hearing continued. After discussing the disposition of the agreed-on requests, relators' counsel told the trial judge, "[T]he rest are alter ego." The judge then stated that she was willing to "take a stab" at the remaining requests.
Finally, FNB claims that relators waived their objections by inadequate briefing. See Tex. R. App. 52.3(h) (holding that petition must contain "clear and concise argument for the contentions made"); Fredonia State Bank v. Gen. Am. Life Ins., 881 S.W.2d 279, 284 (Tex. 1994) (describing briefing-waiver rule as "long[]standing"). But in their mandamus petition, relators identified the specific requests about which they complain, requested relief as to those requests, and argued generally that all of those requests are overbroad. Texas Supreme Court authority guides us in determining that relators did not waive their alternative complaint through inadequate briefing. See, e.g., First United Pentecostal Church of Beaumont v. Parker, 514 S.W.3d 214, 221-22 (Tex. 2017) (noting that supreme court generally hesitates to turn away claims for briefing waiver and that we must construe briefing "reasonably, yet liberally, so that the right to appellate review is not lost by waiver" (quoting Perry v. Cohen, 272 S.W.3d 585, 587 (Tex. 2008)). Accordingly, we hold that relators did not waive their alternative argument through inadequate briefing.
B. TRIAL COURT MUST CONSIDER INDIVIDUAL OVERBREADTH OBJECTIONS
As FNB points out in its response, relators did not argue in their petition why each complained-of request is overly broad, but they did make specific arguments regarding some of the requests as well as the more general argument that all of the requests should have been more narrowly tailored to obtain information relevant to the pertinent claims.
A discovery request is not overly broad if it is reasonably tailored to include only relevant matters. Nat'l Lloyds, 507 S.W.3d at 223-24. "Discovery orders requiring document production from an unreasonably long time period or from distant and unrelated locales are impermissibly overbroad." CSX Corp., 124 S.W.3d at 152.
At least one of the requests here exemplifies this type of overbreadth. Although FNB complains of CAR Financial's actions beginning in 2013, its first request in its Request for Production to CARS Acquisition sought
[c]opies of CARS Acquisition's formation and governance documents, including its certificate of formation, articles of organization, membership agreements, bylaws, annual meeting minutes, and copies of any stock certificates or other documents. Documents responsive to this request would include, but are not limited to, any documents identifying the respective members, managers, officers, directors, and employees of CARS Acquisition. In the event there have been any amendments to the above-described documents since 2000, those documents should be produced.
FNB told the trial court at the motion-to-compel hearing that the last sentence of this request means that only amended documents since 2000 would be required in response, but that is not clear from the sentence's wording, which is ambiguous. This sentence could also mean that amended documents must be produced in addition to original documents. In seeking not just formation documents and their amendments, but also annual meeting minutes, stock certificates, and unspecified "other documents," beginning seven years before the events giving rise to this suit—without limitation to their relevance to the alter-ego issue—this request as written is overbroad. See In re Am. Optical, 988 S.W.2d 711, 713 (Tex. 1998) (orig. proceeding); In re Sears, Roebuck & Co., 146 S.W.3d 328, 334 (Tex. App.—Beaumont 2004, orig. proceeding).
Likewise, it is unclear that the blanket statement at the beginning of the requests—that "[u]nless stated otherwise, the time period applicable to any request shall be January 1, 2013, to the present"—applies to this particular request because of the insertion of the last sentence, which seeks responsive documents from 2000 forward rather than from 2013 forward.
As did the relator in American Optical, relators here contend that the trial court abused its discretion by overruling all thirty-eight of their overbreadth objections, but neither party has presented argument—here or in the trial court—specific to each request. 988 S.W.2d at 713-14. Nor does the record show that the trial court considered each overbreadth objection individually; rather, she ruled on each one immediately after asking only if the parties had come to an agreement about it. In the context of the entire hearing, it appears that the trial court considered only relators' stipulation-related objections, not their alternative overbreadth objections. Therefore, rather than attempting to address relators' overbreadth objections as to each individual request in this original proceeding, we believe it is more appropriate for the trial court to consider each of those objections first. See id.; In re Gen. Motors Corp., No. 12-07- 00387-CV, 2008 WL 541679, at *4 (Tex. App.—Tyler Feb. 29, 2008, orig. proceeding) (mem. op.). We sustain this part of relators' sole issue.
V. CONCLUSION
Accordingly, we conditionally grant relators' requested relief. See Deere, 299 S.W.3d at 820 ("An order that compels overly broad discovery is an abuse of discretion for which mandamus is the proper remedy."). We order the trial court to vacate the part of its May 21, 2020 order overruling relators' objections and compelling relators to produce documents in response to requests 1 through 16 and 19 through 25 in FNB's Second Request for Production to CAR Financial and requests 1 through 9, 12 through 15, 17, and 24 in FNB's Request for Production to CARS Acquisition. We order the trial court to reconsider FNB's motion to compel and relators' overbreadth objections as to those requests in light of this opinion. Our June 15, 2020 order staying the trial court's order will be automatically lifted when the trial court vacates the pertinent parts of its May 21, 2020 order.
/s/ Lee Gabriel
Lee Gabriel
Justice Delivered: July 23, 2020