TRIAL COURT ABUSED ITS DISCRETION IN IMPOSING SANCTIONS ON LAW FIRM IN CONNECTION WITH PREPARING CLIENT’S DEPOSITION ERRATA SHEET

Cherry Petersen Landry Albert LLP v. Cruz
Dallas Court of Appeals, No. 05-12-01559 (August 26, 2014)
Justices Francis, Lang-Miers (Opinion), and Lewis
The Dallas Court of Appeals vacated sanctions imposed by a trial court against a law firm for alleged over-involvement in drafting its client’s deposition errata sheets and for filing allegedly meritless counterclaims.

The law firm Cherry Petersen Landry Albert LLP (CPLA) represented Mehrdad Ghani and others in a business dispute with Dr. Erwin Cruz. During the litigation, Ghani gave deposition testimony both individually and as a corporate representative of some of the corporate defendants. In reviewing the various transcripts, Ghani made changes and submitted errata sheets—in total, he made over forty changes to all his depositions. Cruz’s lawyers cried foul when, in reviewing CPLA’s attorneys’ fees statements, they discovered CPLA had recorded time for assisting Ghani in preparing the errata sheets. After reviewing the errata sheets and the billing entries, the trial ordered CPLA to provide “any e-mail exchanged between counsel and the defendants pertaining to deposition testimony changes or errata . . . for in camera review.”

After examining the emails, the trial court stated that, although he normally took “the position that any inconsistency between the original testimony and the errata tends to punish itself,” he believed the emails in this case “may reflect some level of discovery abuse,” and he suggested he would be open to a request by Cruz to exclude the errata. Cruz did not move to exclude the errata, but instead used them to impeach Ghani’s credibility. During a hearing over the extent to which the errata sheets could be used in cross-examination, Cruz’s attorney asked Ghani about the errata:
Q: Okay. And was the wording in those changes your wording or that of your attorneys?
 A: Mine.
The trial judge stated he had “a real problem” with Ghani’s testimony in light of the emails he had reviewed, in which the lawyers seemed to be providing the language for the errata sheets. He said he was “forced to conclude that Mr. Ghani has attempted to perpetrate a fraud on this Court and this jury,” and he provided the CPLA emails to Cruz, who in turn introduced them as evidence in front of the jury and used them to further attack Ghani’s credibility and integrity in closing argument. The jury returned a verdict against Ghani for approximately $3 million in actual damages and $7 million in punitive damages.

After trial, Cruz moved for sanctions against CPLA for discovery abuse and filing groundless counterclaims. After a hearing, the trial court ordered CPLA to pay sanctions of $45,000 plus attorneys’ fees for discovery abuse in connection with the deposition errata sheets and $40,000 plus attorneys’ fees for filing meritless counterclaims “for purposes of delay and to increase the cost of litigation.” The Dallas Court of Appeals vacated the sanctions award, finding the trial judge abused his discretion.

Regarding the deposition errata sheets, the Court held that Cruz waived his claim for sanctions under Rule 215 by failing to request and obtain a ruling on such sanctions before trial. The Court held that a Texas Supreme Court decision, Remington Arms Co., Inc. v. Caldwell, bars a trial court “from awarding post trial sanctions [under Rule 215] based on pretrial conduct of which a party ‘was aware’ before trial.” The trial court also could not justify the sanctions under its inherent authority. Although it has significant authority to sanction parties and counsel “to the extent necessary to deter, alleviate, and counteract bad faith abuse of the judicial process,” a trial court cannot make a “judicial end-run” around an existing rule by taking actions contrary to the rule under the guise of inherent authority. Moreover, even if the trial court had authority to impose sanctions, the award here still constituted an abuse of discretion because the sanctions “were not directly related to CPLA’s conduct and were excessive.” The appellate court declined to decide whether CPLA’s conduct should have been sanctioned at all, but noted that, even if sanctions were appropriate, allowing Cruz to use the errata sheet and the attorney-client emails in front of the jury was “probably enough to make the point.”

The Court also vacated sanctions based on CPLA’s filing of allegedly meritless counterclaims. It observed that, in order to justify such sanctions, “Cruz had to prove the counterclaims were groundless when filed and that CPLA had an improper motive for filing them,” and Cruz had offered no such proof.

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