Bernard Morello v. State

ACCEPTED

03-15-000428-cv

7271364

THIRD COURT OF APPEALS

AUSTIN, TEXAS

10/7/2015 2:08:43 PM

JEFFREY D. KYLE

NO. 03-15-00428-CV CLERK

________________________________________________________________________

IN THE COURT OF APPEALS FILED IN

FOR THE THIRD DISTRICT OF TEXAS 3rd AUSTIN,

COURT OF APPEALS

TEXAS

AT AUSTIN 10/7/2015 2:08:43 PM

________________________________________________________________________

JEFFREY D. KYLE

Clerk

BERNARD MORELLO,

Appellant,

v.

THE STATE OF TEXAS,

Appellee.

_______________________________________________________________________

On Appeal from Cause No. D-1-GV-06-000627

353RD Judicial District Court, Austin, Texas

The Honorable Rhonda Hurley

________________________________________________________________________

APPELLANT’S BRIEF

________________________________________________________________________

Juranek Law Firm, PLLC

James Juranek

SBN 24026888

111 N. Ennis

Houston, Texas 77003

Telephone: (713.229.0699

Facsimile: (888) 626.6596

james@jjfirm.com

LAPEZE & JOHNS, PLLC

Keith W. Lapeze

Texas Bar No. 24010176

601 Sawyer Street, Suite 650

Houston, Texas 77007

Tel. (713) 739-1010

Fax. (713) 739-1015

keith@lapezejohns.com ORAL ARGUMENT REQUESTED

i

IDENTITIES OF PARTIES AND COUNSEL

Defendant/Appellant:

Bernard Morello

Plaintiff/Appellee:

The State of Texas

Trial/Appellate Counsel for Defendants/Appellants:

LAPEZE & JOHNS, PLLC (trial/appeal)

Keith W. Lapeze

Texas Bar No. 24010176

Taylor L. Shipman

Texas Bar No. 24079323

601 Sawyer Street, Suite 650

Houston, Texas 77007

Tel. (713) 739-1010

Fax. (713) 739-1015

keith@lapezejohns.com

taylor@lapezejohns.com

Juranek Law Firm, PLLC (appeal only)

James Juranek

Texas Bar No. 24026888

111 N. Ennis

Houston, Texas 77003

Telephone: (713.229.0699

Facsimile: (888) 626.6596

james@jjfirm.com

Trial/Appellate Counsel for Plaintiff/Appellee:

Greg Abbott (Attorney General of Texas)

Barry R. McBee (First Assistant Attorney General)

Edward D. Burbach (Deputy Attorney General for Litigation)

Karen Kornwell (Assistant Attorney General)

David Priester

Texas Bar No. 16245800

Ryan P. Fite

Texas Bar No. 24045873

Craig J. Pritzlaff

Texas Bar No. 24046658

ii

Environmental Protection Division

P.O. Box 12548, MC-066

Austin, TX 78711-2548

Telephone: (512) 475-4138

Facsimile: (512) 320-0911

iii

TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL ..................................................................... ii

TABLE OF CONTENTS .................................................................................................. iv

TABLE OF AUTHORITIES ............................................................................................ viii

STATEMENT OF THE CASE ......................................................................................... xii

STATEMENT REGARDING ORAL ARGUMENT ...................................................... xiii

ISSUES PRESENTED ..................................................................................................... xiii

ISSUE ONE ...................................................................................................................... xiii

Whether the trial court’s grant of summary judgment against Morello was

error requiring reversal of such judgment and remand of the case for a new

trial?

ISSUE TWO ..................................................................................................................... xiii

Whether the trial court abused its discretion and committed harmful,

reversible error by denying Morello’s Motion for New Trial based on the

erroneous severance of the State’s claims against White Lion Holdings,

LLC from its identical claims against Morello?

ISSUE THREE ................................................................................................................. xiii

Whether the trial court abused its discretion and committed harmful,

reversible error by denying Morello’s Motion for New Trial based on

newly discovered evidence?

STATEMENT OF FACTS ................................................................................................. 1

I. BACKGROUND .................................................................................................... 1

A. The History of the Property Involved in this Case ....................................... 1

B. Morello Subsequently Obtains the Purchase Rights for the Property

and Transfers Same to White Lion; White Lion Purchases the

Property in April 2004................................................................................... 1

iv

C. White Lion Takes Transfer of the Compliance Plan and its

Obligations from Vision ................................................................................ 2

D. After White Lion’s Purchase of the Property, Much of the

Infrastructure Related to CP-50129 Was Removed or Destroyed by

Third Parties ................................................................................................. 2

E. Given the Scope and Cost of Repairs, White Lion Was Unable to

Comply With the Remedial Elements of CP-50129 or Post Proof of

Financial Assurance .................................................................................... 3

F. The State Files Suit Against White Lion and Subsequently Adds

Morello in His Individual Capacity ............................................................. 4

G. Morello Files His Motion for New Trial Which the Trial Court

Denies ............................................................................................................ 5

SUMMARY OF THE ARGUMENT .................................................................................. 6

ARGUMENT ..................................................................................................................... 8

ISSUE ONE . ....................................................................................................................... 8

I. THE TRIAL COURT’S SUMMARY JUDGMENT WAS ERROR ..................... 8

A. Summary Judgment Standard of Review .................................................... 8

B. The Trial Court’s Grant of Summary Judgment Was Error Because

the State Failed to Prove Its Cause of Action as a Matter of Law ................ 8

1. Under this Court’s Decision in Shook v. Walden, Morello’s

Liability Could only Be Established through Veil

Piercing/Fraud as Opposed to the State’s Theory of Direct

Liability ............................................................................................ 10

2. Assuming Shook’s Holding Requiring Veil Piercing/Fraud

Doesn’t Control in this Case, Establishing Liability Under the

Miller v. Keyser Line of Authority As the State Argued

Requires Proof of Tortious Conduct by the Corporate Agent........ 13

a. Karl and Kelly Company v. McLerran: Corporate

Officers/Agents Only Liable Under Alter Ego Theory ........ 14

v

b. Light v. Wilson: Impliedly Overruling McLerran by

Holding that Corporate Agents May Also Be Liable

for Their Own Tortious Misconduct ..................................... 15

c. Leyendecker & Associates v. Wechter: Affirming

Light and Upholding Corporate Agent Liability for

Agent’s Tortious Acts ........................................................... 16

d. Wetzel v. Barnes: Reaffirming that Courts May

Impose Personal Liability on Corporate Agents Where

Agent Engages in Affirmative Tortious Conduct ................. 17

e. Miller v. Keyser: Reaffirming Light and Weitzel and

Holding that a Corporate Agent Is Personally Liable

Only for His Own Fraudulent or Tortious Acts ................. 18

f. Because the State Never Pleaded, Proved, or Argued

Tortious Conduct by Morello, the Court’s Grant of

Summary Judgment Imposing Personal Liability

Against Morello Was Error .................................................. 19

3. The State v. Malone Decision Is Inapposite as It Affirmed

Individual Liability Against Corporate Officers Based Upon

Their Commission of “Environmental Torts” ................................. 21

4. The Health Enrichment Decision Is Inapposite as It Affirmed

Individual Liability Against a Corporate Officer Based Upon

a Statutory Exception ...................................................................... 26

ISSUE TWO ..................................................................................................................... 28

II. THE TRIAL COURT’S DENIAL OF MORELLO’S MOTION FOR NEW

TRIAL FOR IMPROPER SEVERANCE OF PARTIES WAS ERROR .............. 28

A. Standard of Review .................................................................................... 28

B. The Severance Proceedings in the Trial Court ............................................ 29

C. A Trial Court Abuses Its Discretion By Severing Actions which Are

Interwoven with the Remaining Claims Involving the Same Facts

and Issues ................................................................................................... 30

D. The State’s Claims Against White Lion and Morello Involved the

Identical Facts and Issues Making Severance Error .................................. 31

vi

E. Additionally, the Trial Court’s Severance Order Was Also an Abuse

of Discretion as It Was Entered Post-Submission ..................................... 32

F. The Trial Court’s Severance Error Was Harmful as It Resulted in an

Impermissible Double Recovery for the State as Well as an

Excessive Fine in Violation of the Texas and United States

Constitutions ............................................................................................... 33

G. The Trial Court’s Severance Error Was Harmful as It Violates The

Equal Protection, And Due Course Of Law Provisions Of The Texas

Constitution, And The Due Process And Equal Protection Provisions

Of The U.S. Constitution ......................................................................... 35

ISSUE THREE .................................................................................................................. 36

III. THE COURT'S DENIAL OF MORELLO'S MOTION FOR NEW TRIAL

BASED ON NEWLY-DISCOVERED EVIDENCE WAS ERROR ................... 36

A. The Grant of a New Trial Based on Newly-Discovered Evidence Is

Subject to the Discretion of the Trial Court ................................................ 36

B. Morello’s Newly-Discovered Evidence Established that CP-50129

and Its Remediation Obligations Were Based on Appellee’s

Erroneous Determination of the Affected Aquifer ..................................... 36

C. Morello’s Failure to Discover the New Evidence Was Not Due to

Lack of Diligence on His Part .................................................................... 39

D. Morello Established that the Newly-Discovered Evidence Was Not

Cumulative ................................................................................................. 40

E. Morello’s Newly-Discovered Evidence Would Have Eliminated the

Need for the Trial Below ........................................................................... 41

PRAYER ........................................................................................................................... 42

CERTIFICATE OF COMPLIANCE ................................................................................ 43

CERTIFICATE OF SERVICE .......................................................................................... 44

APPENDIX ....................................................................................................................... 45

vii

TABLE OF AUTHORITIES

Cases

Allseas USA, Inc. v. PS Fabricators, L.L.C.,

2012 WL 7849219 (Tex. App.—Corpus Christi 2012, no pet.)............................. 39

Benz Group v. Barreto,

404 S.W.3d 92 (Tex. App.–Houston [1st Dist.] 2013, no pet.) .............................. 39

Brownlee v. Brownlee,

665 S.W.2d 111 (Tex. 1984) .................................................................................... 8

Dalisa, Inc. v. Bradford,

81 S.W.3d 876 (Tex. App.—Austin 2002, no pet.)................................................ 33

Edwards v. Edwards,

418 S.W.3d 757 (Tex. App.—El Paso 2013, no pet.) ............................................ 39

Goode v. Shoukfeh,

943 S.W.2d 441 (Tex. 1997) .................................................................................. 28

Guar. Fed. Sav. Bank v. Horseshoe Operating Co.,

793 S.W.2d 652 (Tex. 1990) ............................................................................. 30-31

Health Enrichment and Longevity Institute, Inc. v. Tex.,

No. 03-03-00578-CV, 2004 WL 1572935 (Tex. App.–Austin 2004, no writ) (not

reported for publication) .................................................................................... 26-27

Indus. Clearinghouse, Inc. v. Jackson Walker, L.L.P.,

162 S.W.3d 384 Tex. App.—Dallas 2005, pet denied.) ....................................... 38

In re Paso Del Norte Surgery Ctr.,

281 S.W.3d 521 (Tex. App.—El Paso 2008, orig. proceeding) ............................ 28

Jackson v. Van Winkle,

660 S.W.2d 807 (Tex. 1983) .................................................................................. 36

Jones v. Ray,

886 S.W.2d 817 (Tex. App.—Houston [1st Dist.] 1994, orig. proceeding) .......... 31

Karl and Kelly Co. Inc. v. McLerran,

646 S.W.2d 174 (Tex. 1983) (per curiam) ............................................................. 14

viii

Leyendecker v. Wechter,

683 S.W.2d 369 (Tex. 1984) ............................................................................ 16, 24

Light v. Wilson,

663 S.W.2d 813 (Tex. 1984) .................................................................................. 15

Marin Real Estate Partners, L.P. v. Vogt,

373 S.W.3d 57 (Tex. App.—San Antonio 2011, pet. filed) ................................... 33

Maxey v. Citizens Nat’l Bank of Lubbock,

507 S.W.2d 722 (Tex. 1974) .................................................................................. 24

Miller v. Keyser,

90 S.W.3d 712 (Tex. 2002) ............................................................................... 18-19

MMP, Ltd. v. Jones,

710 S.W.2d 59 (Tex. 1986) ...................................................................................... 8

Nixon v. Mr. Property Mgmt. Co.,

690 S.W.2d 546 (Tex. 1985) .................................................................................... 8

Parkway Co. v. Woodruff,

901 S.W.2d 434 (Tex. 1995) .................................................................................. 33

Pennington v. Singleton,

606 S.W.2d 682 (Tex. 1980) .................................................................................. 34

Physio GP, Inc. v. Naifeh,

306 S.W.3d 886 (Tex. App.—Houston [14th Dist.] 2010, no pet.) ....................... 21

R. Comm. Inc. v. Sharp,

875 S.W.2d 314 (Tex. 1994) .................................................................................. 35

Santos v. Holzman,

No. 13-02-662-CV, 2005 WL 167309, at *4 (Tex. App.—Corpus Christi

Jan. 27, 2005, pet. denied) (mem. op.) ................................................................... 31

Shook v. Walden,

368 S.W.3d 604 (Tex. App.—Austin 2012, pet. denied) .................................. 10-12

Sims v. Brackett,

885 S.W.2d 450 (Tex. App.—Corpus Christi, 1994, no writ) .............................. 41

ix

S. Union Co. v. City of Edinburg,

129 S.W.3d 74 (Tex. 2003) .................................................................................... 35

State Dept. of Highways and Public Transp. v. Cotner,

845 S.W.2d 818 (Tex. 1993) (per curiam) ....................................................... 30, 32

State v. Laredo Ice Co.,

96 Tex. 461, 73 S.W. 951 (1903) ........................................................................... 34

State v. Malone,

853 S.W.2d 82 (Tex. App.—Houston [14th Dist.] 1993, writ denied) ....... 21-23, 25

Strackbein v. Prewitt,

671 S.W.2d 37 (Tex. 1984) .................................................................................... 28

Strickland v. Lake,

163 Tex. 445, 357 S.W.2d 383 (1962) ................................................................... 39

Terry v. Zachary,

272 S.W.2d 157 (Tex. Civ. App.—San Antonio 1954, writ ref’d n.r.e.) ............... 24

Waffle House, Inc. v. Williams,

313 S.W.3d 796 (Tex. 2010) ................................................................ 36, 39, 40, 41

Walker v. Packer,

827 S.W.2d 833 (Tex. 1992) (orig. proceeding) .................................. 20, 28, 31. 41

Wetzel v. Barnes,

691 S.W.2d 598 (Tex. 1985) .................................................................................. 17

Rules/Statutes

Act of May 25, 1991, 72d Leg., R.S., ch. 901, § 42, art. 4.03, 1991 Tex. Gen.

Laws 3203 (amended 2003) (current version at TEX. BUS. ORG. CODE ANN.

§101.114 (West Pamph. 2011) .......................................................................................... 11

Act of June 16, 1987, 70th Leg., 1 C.S., Ch. 2, 1987 Tex. Gen. Laws 42-43

(amended 1995) ................................................................................................................. 25

Act of May 18, 1995, 74th Leg., R.S., Ch. 136, 1995 Tex. Gen. Laws 974

(repealed 2001) .................................................................................................................. 25

x

TEX. CONST. ART. I, § 13 ............................................................................................ 34, 35

TEX. CIV. PRAC. & REM. CODE ANN. §82.005 (Vernon 2014) ......................................... 25

TEX. R. APP. P. 44.1 .......................................................................................................... 33

TEX. R. CIV. P. 41 .............................................................................................................. 30

TEX. R. CIV. P. 166a(c)........................................................................................................ 8

TEX. WATER CODE §7.101 (Vernon 2014).......................................................................... 8

xi

STATEMENT OF THE CASE

Nature of the Case: Appellee originally filed this statutory

enforcement action against White Lion

Holdings, LLC, and its sole member,

Appellant Bernard Morello. (CR at 33.) In

the action, Appellee sought both monetary

damages and injunctive relief against White

Lion and Appellant for their alleged failure

to comply with a previously-ordered

compliance plan relating to groundwater

monitoring. (Id.)

Course of Proceedings: On August 23, 2013, Appellee filed its

motion for final summary judgment as to

White Lion only on each of these claims,

and set same for hearing on September 19,

2013. (CR at 44.) On January 21, 2014,

Appellee filed its motion for final summary

judgment as to all claims against Appellant.

(CR at 569.) Both White Lion and

Appellant timely filed their summary

judgment responses on September 11, 2013

(CR at 307) and February 13, 2015,

respectively (CR at 901.)

Trial Court’s Disposition of Case: The trial court granted Appellee’s motion

for summary judgment against White Lion

on September 19, 2013 (CR at 568) and

severed its claims against White Lion from

its claims against Appellant. On April 14,

2015, the trial court granted Appellee’s

motion for summary judgment and entered

final judgment in the case. (CR at 1458.)

Post-Judgment Filings/Court’s Disposition: Appellant timely-filed a motion for new trial

on May 15, 2015. (CR at 1463.) The trial

court denied same by written order on June

2, 2015 (CR at 1769.) Appellant timely

filed its notice of appeal on July 10, 2015

(CR at 1772.)

xii

STATEMENT REGARDING ORAL ARGUMENT

Appellant requests oral argument in this case. Oral argument would assist this

Court in in consideration of the issues contained herein as well as the procedural posture

of the case involving such issues. As such, oral argument will be of assistance to the

Court in its decision-making process.

ISSUES FOR REVIEW

ISSUE ONE

Whether the trial court’s grant of summary judgment against Morello was

error requiring reversal of such judgment and remand of the case for a new

trial?

ISSUE TWO

Whether the trial court abused its discretion and committed harmful,

reversible error by denying Morello’s Motion for New Trial based on the

erroneous severance of the State’s claims against White Lion Holdings,

LLC from its identical claims against Morello?

ISSUE THREE

Whether the trial court abused its discretion and committed harmful,

reversible error by denying Morello’s Motion for New Trial based on

newly discovered evidence?

xiii

STATEMENT OF FACTS

I. BACKGROUND

A. The History of the Property Involved in this Case

The case below involves a statutory enforcement action against Appellant Bernard

Morello (hereinafter “Morello”) for his limited liability company’s alleged violations of

Texas Water Code section 7.101. (CR at 4.) Morello’s limited liability company is

White Lion Holdings, LLC (“White Lion”), which is the owner of the real property and

improvements located at 2010 Spur 529 in Rosenberg, Texas (the “Property”). (CR at

1670.) The Property was originally owned by Vision Metals, Inc. (“Vision”). (Id.)

While the Property was owned by Vision, it became contaminated and, on January 12,

1988, Vision received a permit from the Texas Commission on Environmental Quality

(“TCEQ”) for an Industrial Waste Management Site (Permit No. HW-50129-001). (CR

at 727.) A compliance plan (CP-50129) was issued on the same day to address the

monitoring and cleanup of the contaminated groundwater at the Property. (CR at 758.)

Vision subsequently entered into modifications of the plan (on March 15, 1995

and November 16, 1999) before filing for bankruptcy in 2000. (CR at 1613.) For the

three years prior to the bankruptcy, Vision was wholly noncompliant with its permit and

the compliance plan. (CR at 1604.)

B. Morello Subsequently Obtains the Purchase Rights for the Property

and Transfers Same to White Lion; White Lion Purchases the

Property in April 2004

On February 27, 2004, after successfully bidding on the Property at a bankruptcy

1

auction, Morello entered into a contract to purchase the Property (“Purchase

Agreement”). (CR at 1645.) On April 5, 2004, Morello assigned any and all of his rights

in the Purchase Agreement to White Lion. (CR at 1669.) Closing on the sale of the

Property occurred on April 6, 2004 between Vision and White Lion, with Vision

conveying the property directly to White Lion via Special Warranty Deed recorded under

Harris County Clerk document number 2004042731. (CR at 1670.) Therefore, Morello

was never the owner of the Property, and White Lion was the only owner of the

Property after Vision.

C. White Lion Takes Transfer of the Compliance Plan and its Obligations

from Vision

As mentioned supra, the Property was subject to the provisions of CP-50129

dating back to 1988 for contamination caused by Vision. (CR at 758.) Effective June 23,

2004, the rights and obligations of CP-50129 were transferred from Vision to White

Lion. (CR at 1531.) Moreover, and as part of the Purchase Agreement, the financial

assurance provided to the TCEQ by Vision under CP-50129 was included in the purchase

and assigned to White Lion. (CR at 1534.) Thus, it cannot be disputed that White Lion

was at all times the owner and operator of the Property as well as the permittee with

respect to CP-50129.

D. After White Lion’s Purchase of the Property, Much of the

Infrastructure Related to CP-50129 Was Removed or Destroyed by

Third Parties

The Purchase Agreement specifically excluded personal property, which included

pipe manufacturing machinery and other items. (CR at 1520-21; 1647, 1656, 1669.)

2

This personal property was sold separately from the real estate that White Lion purchased

at the bankruptcy auction. (Id.)

As part of the bankruptcy sale, there were thirty-eight additional buyers of the

personal property on site, none of whom were related to White Lion or Morello. (CR at

1550.) Many of these buyers and their contractors caused major damage to the Property,

particularly to the electrical, water, air, and gas systems. (Id. at 1606.) Although Morello

closely monitored the removal process and attempted to protect the Property as much as

possible, (CR at 1555-56), extensive damage was done to the utilities and infrastructure:

The Corrective Action System, the system itself, the functioning -- these

are just fixtures here. This is just a pipe that runs into the ground. All the

internet work that runs it is all gone. It was damaged at the time that the

buyers were there. The equipment was gone. The pipes were cut.

Electricity was cut. I've already went over all that. It was destroyed.

(Id. at 1606.) Following the conclusion of the removal process, and in the words of

Morello, the Property resembled a “war zone.” (Id. at 651.)

E. Given the Scope and Cost of Repairs, White Lion Was Unable to

Comply With the Remedial Elements of CP-50129 or Post Proof of

Financial Assurance

With repair estimates at over $1 million (id. at 1552), White Lion did not have the

financial ability to replace the utilities and remediation system that were destroyed by the

personal property buyers, much less the additional funds to substantially comply with

CP-50129. (Id. at 1524-25, 1547-48, 1550-51, 1554, 1564-1566, 1569, 1578-80, 1592-

93, 1598-1600, 1602, and 1606-07.) Moreover, White Lion was unable to afford the

premium for financial assurance required under the Texas Administrate Code. (Id. at

3

1539.) Given that the damage to the remediation infrastructure was beyond White Lion’s

control and could not have been prevented by its due diligence, substantial compliance

with CP-50129 and its financial assurance requirement was impossible. (Id. at 1539-40.)

F. The State Files Suit Against White Lion and Subsequently Adds

Morello in His Individual Capacity

Appellee filed suit against White Lion on April 14, 2006, seeking injunctive relief

and statutory penalties related to White Lion’s failure to fully comply with CP-50129 and

the related financial assurance requirements. (CR at 4.) The essence of this suit is as

follows: (1) Vision originally received a Class 1 permit from the State to operate the

Property as an Industrial Waste Management Site (CR at 197, 36); (2) in connection with

this permit, Vision was required to adhere to CP-50129 which mandated monitoring and

cleanup of the contaminated groundwater at the Property and maintenance of $574,000 in

financial assurance for operation of the cleanup (CR at 36, 762, 777); (3) when the State

approved the transfer of Vision’s permit to White Lion, While Lion became the permittee

and thus responsible for compliance with CP-50129 (CR at 37, 816); (4) White Lion

subsequently failed to substantially comply with CP-50129 resulting in the State filing

suit for violation of Texas Waster Code section 7.101 et seq., and seeking injunctive

relief and fines against White Lion, and later, Morello (CR at 33.)

On August 23, 2013, the State obtained an interlocutory summary judgment

against White Lion, which simultaneously became final based on the severance clause in

the judgment. (CR at 568.) Two months later, Appellee moved for summary judgment

against Morello in his individual capacity, with the Court granting said motion and

4

entering a second final summary judgment on April 14, 2015. (CR at 1458.)

G. Morello Files His Motion for New Trial Which the Trial Court Denies

On May 14, 2015, Morello filed his motion for new trial. (CR at 1463.) In his

Motion for New Trial, Morello re-urged his prior corporate shield defense asserted in the

summary judgment proceeding, and argued that judgment against him in his individual

capacity was improper. (CR at 906-13, 1467-75.) In his Motion for New Trial, Morello

also argued that new trial was required based on improper severance and newly-

discovered evidence. For the reasons discussed below, the trial court’s grant of summary

judgment was reversible error as was its subsequent order denying a new trial.

5

SUMMARY OF THE ARGUMENT

In Shook v. Walden, this Court analyzed the legislative history of the statutory-

liability shield for members of Texas limited liability companies. Based upon its

analysis, this Court reluctantly assumed that the statutory-liability shield then in effect

was not absolute but subject to a single veil-piercing exception: proof that the member

used the LLC to perpetrate actual fraud for his direct personal benefit. In this case the

State did not seek to pierce the veil or even allege that Morello committed a tort of any

kind. Rather, the State argued that Morello’s liability was direct and resulted from the

mere fact that Morello was a “person” in violation of Texas Water Code section 7.101

and thus caused the trial court to erroneously grant summary judgment.

Moreover, and assuming that Shook is incorrect or inapposite such that no veil-

piercing was required to find Morello individually liable, the State nevertheless failed to

prove the elements of its claim and thus an entitlement to summary judgment. As

authority for its claim that Morello was subject to individual liability under Water Code

section 7.101, the State relied upon three primary cases. While these decisions recognize

individual liability against corporate agents, such liability is either predicated upon proof

that the agent committed a tort or the existence of direct statutory language authorizing

individual liability against the agent of an entity—none of which is applicable in this

case. Either way, the trial court’s order of summary judgment was error.

The trial court also committed an abuse of discretion by severing the State’s

claims against White Lion from the identical claims against Morello. As the record in

this case demonstrates, the State first took summary judgment for damages and injunctive

6

relief against White Lion for violations of CP-50129. After the trial court severed this

judgment, the State then obtained a second judgment for damages and injunctive relief

against Morello based on the identical allegations and facts. Under Texas Rule of Civil

Procedure 41, however, a trial court abuses its discretion by either (1) severing claims

after they have been submitted to the trier of fact or (2) severing claims which are so

interwoven with other claims in the case that they involve the same facts. By severing

the State’s claims against White Lion in a second suit, the trial court’s order was error for

either reason. And this error was harmful as it resulted in an impermissible double

recovery for the State as well as an excessive fine against Morello in violation of the

Texas and United States Constitutions.

Finally, the trial court’s denial of Morello’s Motion for New Trial based on newly-

discovered evidence was another abuse of discretion. Under Texas law, a party seeking a

new trial on grounds of newly-discovered evidence must demonstrate to the trial court

that (1) the evidence has come to its knowledge since the trial, (2) its failure to discover

the evidence sooner was not due to lack of diligence, (3) the evidence is not cumulative,

and (4) the evidence is so material it would probably produce a different result if a new

trial were granted. Morello’s Motion for New Trial established each of these elements

yet the trial court denied same. For any or all of these reasons, then, the trial court’s

summary judgment requires reversal.

7

ARGUMENT

ISSUE ONE

I. THE TRIAL COURT’S SUMMARY JUDGMENT WAS ERROR

A. Summary Judgment Standard of Review

The party moving for summary judgment has the burden of showing that no

genuine issue of material fact exists and that it is entitled to judgment as a matter of law.

TEX. R. CIV. P. 166a(c); Nixon v. Mr. Property Mgmt. Co., 690 S.W.2d 546, 548 (Tex.

1985). If a plaintiff moving for summary judgment establishes each element of its cause

of action as a matter of law, see MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex. 1986), the

defendant must then come forward with summary judgment evidence sufficient to raise a

fact issue on each element of its affirmative defense to avoid summary judgment.

Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984).

B. The Trial Court’s Grant of Summary Judgment Was Error Because

the State Failed to Prove Its Cause of Action as a Matter of Law

The State’s summary judgment motion was clumsy, providing little legal authority

but focusing primarily on facts. The motion began with the premise that, under Texas

Water Code section 7.101, “a person” incurs civil liability where he “cause[s], suffer[s],

allow[s], or permit[s] a violation of a statute within the commission’s jurisdiction or a

rule adopted or an order or permit issued under such a statute.”1 (CR at 587.)

Anticipating that Morello would prove up his statutory shield defense and defeat

summary judgment, the State then correctly conceded that under Texas law, “the

1

Texas Water Code section 7.101 provides as follows: “A person may not cause, suffer, allow, or permit a violation

of a statute within the commission's jurisdiction or a rule adopted or an order or permit issued under such a statute.”

(Vernon 2014)

8

structure of a limited liability company shields its members from liabilities and

obligations of the company.” (CR at 587-88.) In fact, the State proved up this defense in

its own motion, providing evidence and argument showing that Morello is the sole

manager and owner of White Lion, LLC. (CR at 575, 584, 589.)

Realizing this problem, the State cited various appellate decisions for the

proposition that this statutory defense does not shield LLC members and their agents

from liability where they “personally commit fraudulent or wrongful acts.”2 (CR at 588.)

Focusing on the “wrongful” language, the State then proceeded to argue as follows: (1)

White Lion’s failure to comply with CP-50129 gave rise to liability under Texas Water

Code section 7.101 (CR at 587); (2) Morello was the sole member of White Lion and

thus responsible for its operation and non-compliance with CP-50129; and (3) by not

allowing White Lion to comply with CP-50129, Morello necessarily subjected himself to

personal liability under section 7.101. (CR at 588-89.)

In essence, then, the State argued that any breach of duty or statutory violation by

the member of an LLC (i.e., “wrongful acts”) automatically subjects the actor to liability.

As discussed below, this completely eviscerates the statutory shield available to members

of an LLC and flies in the face of Texas law. Accordingly, the State failed to establish

Morello’s liability under Water Code section 7.101 so that summary judgment was error.

2

The State did not argue that Morello committed any fraudulent act. Instead, it argued that White Lion’s/Morello’s

failure to comply with CP-50129 was in violation of the Water Code, and thus a wrongful act which subjected him

to direct liability.

9

1. Under This Court’s Decision in Shook v. Walden, Morello’s

Liability Could only Be Established through Veil Piercing/Fraud

as Opposed to the State’s Theory of Direct Liability Under the

Texas Water Code

This Court’s decision in Shook v. Walden, which discusses the evolution of

member/manager liability in cases involving Texas limited liability companies, is

dispositive of this appeal. See 368 S.W.3d 604, 613–14 (Tex. App.—Austin 2012, pet.

denied). In Shook, the Waldens entered into a pair of contracts with S&J Endeavors,

LLC—a two-member LLC doing business a builder/developer. Id. at 607. S&J’s

members were Stanley Shook and Patrick Jaehne. Id. The first contract called for S&J

to convey the Waldens a tract of land in Bastrop, Texas for $62,000. Id. Under the

second contract, S&J agreed to build the Waldens a home on the tract for a price less than

$429,000. Id. at 608.

In September 2006, the Waldens transmitted a check for $62,000 to S&J as

payment for the lot at which point S&J began building on same. Id. Meanwhile, various

title issues arose which left S&J unable to convey clear title on the lot to the Waldens. Id.

at 608. According to the Waldens, S&J’s failure to convey the lot was the result of

Jaehne holding the conveyance as leverage to secure payment of disputed amounts owed

under the construction contract. Id.

After completion of the house, the Waldens’ sued S&J, Jayne, and Shook on

numerous common law and statutory claims related to conveyance of the deed and

alleged misrepresentations and fiduciary breaches related to the construction. Id.

Following a jury trial, the court entered judgment against S&J on all claims and against

Jaehne and Shook jointly and severally based upon veil-piercing theories. Id. at 610. On

10

appeal, Shook argued that joint and several liability against him was error given his status

as a member of S&J. Id. Specifically, Shook argued that under the law in effect at that

time, the statutory shield afforded members of LLC could only be pierced based on a

showing that he used S&J to perpetrate an actual fraud on the Waldens which was for his

direct, personal benefit. Id. at 611.

In addressing this issue, this Court underwent an exhaustive examination of the

standard for piercing the corporate veil of an LLC that was incorporated prior to

September 1, 2011. See id. at 368 S.W.3d at 613–14. This Court began by noting that the

Texas Legislature first authorized the creation of LLCs through its 1991 enactment of the

Texas Limited Liability Company Act (“LLC Act”). Id. at 613. This Court then recited

the following provisions from article 4.03 of the LLC Act relating to liability:

Art. 4.03. A. Except as and to the extent the regulations specifically provide

otherwise, a member or manager is not liable for the debts, obligations or

liabilities of a limited liability company including under a judgment decree,

or order of a court.

....

C. Parties to actions. A member of a limited liability company is not a

proper party to proceedings by or against a limited liability company,

except where the object is to enforce a member’s right against or liability to

the limited liability company.

Id. at 613 (citing Act of May 25, 1991, 72d Leg., R.S., ch. 901, § 42, art. 4.03, 1991 Tex.

Gen. Laws 3203 (amended 2003) (current version at TEX. BUS. ORG. CODE ANN.

§101.114 (West Pamph. 2011)) (copy found at Tab “C”).

In an attempt to ascertain the Legislature’s intent as to whether these provisions

constituted an absolute shield to all liability for an LLCs members/managers, this Court

11

then noted that: (1) Article 4.03 and its successors “made no mention of veil-piercing

principles as an exception to limited liability or whether or how such remedies might be

applied against LLCs”; but that (2) in 2011, the Legislature finally added a section to the

current version of the LLC Act which adopted for LLCs the veil-piercing restrictions

applicable to corporations. Id. at 614. For good reason, then, this Court found plausible

that the statutory liability-shield provided to LLCs under article 4.03 was absolute in

nature and not susceptible to even common-law veil piercing. After noting that Shook

did not urge this absolute shield but instead conceded that “the veil of an LLC, like that

of a corporation, may be pierced in some circumstances,” this Court reluctantly assumed

the liability shield provided by article 4.03 was not absolute but was subject to a single

veil-piercing exception: proof that the individual used the LLC form to perpetrate actual

fraud for the individual’s direct personal benefit. See id. at 614.

In summary, the Shook Court has held that, for LLCs formed before 2011 and

subject to article 4.03, member/manager liability for LLC obligations can only arise

through veil piercing demonstrating fraud perpetrated for the member/manager’s direct

personal benefit. White Lion was formed in 2004, with Morello as its sole manager. (CR

at 636, 569, 575, 584) Thus, and like S&J, White Lion’s “actions at issue here are

governed by [the LLC Act] rather than the [Texas Business Organizations Code]. See id.

at 413 & n.12. Applying the analysis in Shook, then, Morello could only have been

liable for White Lion’s liability under Water Code section 7.101 based on a showing that

he used the LLC to perpetrate actual fraud for his direct personal benefit. See id. at 614.

The State, however, never pleaded, argued, or proved any type of veil-piercing

12

theory or that Morello used the LLC to perpetrate a fraud for his personal benefit. (CR at

905, 911.) At the summary judgment hearing, the State’s attorney specifically disclaimed

reliance on such a theory when he stated the following “[t]o be clear the [S]tate’s not

seeking to pierce the corporate veil.”3 (Tab 6 at 14.)4 Instead, the State argued that

Morello’s liability was direct and flowed from the mere fact that he was a “person” in

violation of Texas Water Code section 7.101. As noted in Shook, however, Morello’s

individual liability required the State to plead and prove alter ego liability based on fraud.

The State did not even attempt to meet this burden of pleading and proof. Accordingly,

the State failed to prove the elements of its cause of action against Morello so that

Court’s grant of summary judgment was error.

2. Assuming Shook’s Holding Requiring Veil Piercing/Fraud

Doesn't Control in this Case, Establishing Liability Under the

Miller v. Keyser Line of Authority as the State Argued Requires

Proof of Tortious Conduct by the Corporate Agent

Even assuming that Shook does not restrict Morello’s personal liability as

discussed supra, the State’s basis for summary judgment was not a legally sufficient one

entitling it to judgment. In its motion, and contrary to this Court’s holding in Shook, the

State started with the position that “[t]he corporate veil is not required to be pierced in an

action brought against an individual corporate agent for his fraudulent or wrongful acts.”

(CR at 588.) From this premise, the State argued that “when a statute provides for

individual liability, as does [section 7.101 of] the Water Code, an individual corporate

3

The State’s failure to plead alter ego liability was not an oversight or negligence, but a deliberate scheme to

wrongfully obtain a double recovery and violate Morello’s rights against excessive fines or penalties set forth in

Article I, section 13 of the Texas Constitution (discussed more fully in Issue Two).

4

Morello has requested supplementation of the reporter’s record with the transcript of proceedings from the

summary judgment hearing.

13

officer may be held liable for his own violations.” (Id.) In support of this proposition,

the State cited to several appellate decisions, the most prominent being the Texas

Supreme Court’s decision in Miller v. Keyser. Morello will individually discuss and

distinguish each of these authorities below. Before doing so, however, Morello will first

turn to a full discussion of Texas Supreme Court case law leading up to the Miller v.

Keyser decision.

a. Karl and Kelly Company v. McLerran: Corporate

Officers/Agents Only Liable Under Alter Ego Theory

In Karl and Kelly Company Inc. v. McLerran, the Texas Supreme Court addressed

the issue of personal liability of corporate officers. See 646 S.W.2d 174 (Tex. 1983) (per

curiam). In that case, the plaintiffs purchased a new home from Karl and Kelly

Company, Inc., and subsequently sued both the company and its officers (Karl Simon and

James Kelly) under the DTPA for construction defects. Id. at 174. When defendants

failed to appear for trial, the court entered a post-answer default judgment in favor of

plaintiffs. Id.

Following affirmance by the Dallas Court of Appeals, the Supreme Court granted

writ of error. In their briefing, the individual defendants argued that summary judgment

against them was improper because the plaintiffs had failed to plead or prove alter ego

liability. Id. at 175. In reversing and remanding, the Supreme Court agreed, holding that

liability as to corporate agents such Karl and Kelly was only proper upon pleading and

proof that such agents were the alter ego of the corporation. Id. at 175.

14

b. Light v. Wilson: Impliedly Overruling McLerran by

Holding that Corporate Agents May Also Be Liable for

Their Own Tortious Misconduct

In Light v. Wilson the plaintiff contracted with G-W-L Builders, Inc., for

construction of a new home and deposited a substantial deposit with G-W-L for same.

See 663 S.W.2d 813 (Tex. 1984). When G-W-L failed to take any action to begin

construction, plaintiff sent a demand to G-W-L and its sole owner—Glen Light—for

return of their money. Id. Light responded with a letter refusing to return the deposit.

Id. Light’s bases for refusing to return the deposit were that: (1) the delays in

construction were due to the plaintiffs’ inability to obtain financing and (2) G-W-L had

spent too much money on the project to allow a refund. Id. at 814.

Plaintiffs subsequently filed suit against G-W-L and Light alleging fraud,

conversion, and DTPA violations and obtained a verdict on the DTPA claim. Id.

Following affirmance by the intermediate court of appeals, the Supreme Court granted

writ of error and reversed as to liability against Light. Id. at 815. In so doing, the Court

noted that: (1) there was no finding of fact that Light, individually, had violated the

DTPA; (2) Light’s personal liability was predicated on an alter ego theory; and (3) there

were no pleadings to support a theory of recovery on alter ego or corporate veil piercing.

Id. at 814. The Court then held that “[t]herefore, there being no finding of fact that Light

violated the Deceptive Trade Practices Act, he cannot be personally liable.” Id. Thus,

the Light court impliedly overruled McLerran by holding that corporate agents could be

found individually liable for their own tortious misconduct as well as under an alter ego

finding.

15

c. Leyendecker & Associates v. Wechter: Affirming Light and

Upholding Corporate Agent Liability for His Tortious

Acts

In Leyendecker & Associates, Inc. v. Wechter, plaintiffs contracted for the

construction of a townhome in Houston. See 683 S.W.2d 369, 371 (Tex. 1984). During

negotiations for the home, a Leyendecker agent advised that the plaintiffs could buy a

corner lot, which was slightly larger (2,475 square feet) than the standard lot in the

development. Id. at 372. Plaintiffs’ subsequently paid Leyendecker additional money in

exchange for such lot. Id. Following closing, however, plaintiffs discovered that the

actual size of their lot did not include the 2,475 additional square foot. Id. Plaintiffs

subsequently complained to the Greater Houston Builders Association regarding the lot

size discrepancy as well as certain building defects. Id. Leyendecker employee Chris

Hilliard later responded on behalf of Leyendecker by falsely accusing the plaintiffs of

urging Leyendecker to make fraudulent insurance claims. Id.

Plaintiffs subsequently sued Leyendecker for misrepresentation of the lot size and

construction defects, and Leyendecker and Hillard for libel in connection with the false

statement regarding insurance claims. Id. As to the libel claim, plaintiffs obtained a

judgment, which the court of appeals affirmed. On writ of error, the Supreme Court

considered Leyendecker’s contention that “an employee who commits a tort while acting

within the scope of his employment is not liable to the party injured.” Id. at 375.

Disagreeing, the Court cited to Light for the proposition that “[a] corporation’s employee

is personally liable for tortious acts which he directs or participates in during his

employment.” Id. (emphasis added). After noting Hilliard’s affirmative and tortious act

16

of “penn[ing] the libelous letter,” the Court affirmed. Consistent with its decision in

Light, the Court thus affirmed the individual liability of a corporate agent based on his

active, tortious conduct.

d. Wetzel v. Barnes: Reaffirming that Courts May Impose

Personal Liability on Corporate Agents Where Agent

Engages in Affirmative Tortious Conduct

In Wetzel v. Barnes, the Supreme Court again visited the issue of personal liability

for corporate agents. See 691 S.W.2d 598 (Tex. 1985). In that case, the plaintiffs entered

into a contract with Barnes/Seagraves Development Company for the purchase of a

remodeled home. See id. at 599. In connection with the contract, Michael Barnes and

Patrick Seagraves made affirmative representations that the home’s plumbing and air

conditioning complied with local building code specifications. Id. After plaintiffs

purchased the home they discovered that these systems did not function properly and

brought suit against the corporation and Barnes/Seagraves individually for making false

and misleading representations in violation of the DTPA. Id. at 599-600.

Following a bench trial, the court found for plaintiffs with the court of appeals

reversing and rendering judgment for defendants. Id. at 599. On writ of error, however,

the Supreme Court reversed the court of appeals judgment and affirmed the judgment of

the trial court. With respect to the individual liability of Barnes and Seagraves, the

Supreme Court noted that the record “contain[ed] evidence as to statements of both men

upon which the trial judge could have relied in concluding that they each made oral

misrepresentations.” Id. at 601. Citing to Light, the Court then held that “there can be

individual liability on the part of a corporate representative for misrepresentations made

17

by him.” Id. Thus, and consistent with its precedent in Light, the Court again affirmed

the individual liability of a corporate agent based on commission of tortious conduct. Id.

e. Miller v. Keyser: Reaffirming Light and Weitzel and

Holding that a Corporate Agent Is Personally Liable Only

for His Own Fraudulent or Tortious Acts

Miller v. Keyser involved another case under the DTPA brought by plaintiffs

against a homebuilder—in this case D.B. Interests, Inc. (“DBI”). See 90 S.W.3d 712, 717

(Tex. 2002). In that case, the plaintiffs purchased a home from DBI. Id. at 715. The

DBI sales agent handling all negotiations for the sale was Barry Keyser. Id. During

negotiations, Keyser correctly represented to plaintiffs that the back 20 feet of the lot on

which their home was to be built was encumbered by an easement. Id. However, Keyser

concurrently misrepresented that this portion of the lot could be fenced in as part of the

yard. Id. After plaintiffs purchased the lot and constructed a home on same, they fenced

in the entire tract including the easement. Id. Subsequently, the Brazoria County

Drainage District enforced its easement rights and required plaintiffs to remove the

infringing portions of the fence at their own cost. Id.

Plaintiffs subsequently brought suit against DBI and Keyser for fraud and

misrepresentations in violation of the DTPA. Id. The trial court later dismissed

plaintiffs’ claims against DBI as untimely so that plaintiffs’ proceeded to trial against

Keyser only. Id. After the jury found Keyser liable for misrepresentations, the

intermediate court of appeals relied upon the Court’s previous decision in McLerran and

held that a corporate agent acting within the scope of his employment could not be

personally liable under the DTPA. Id.

18

On petition for review, the Supreme Court began by reviewing the McLerran,

Light, and Barnes decisions and noting that each involved the commission of a tortious

act by the individual. Id at 717. After considering the facts of each, the Court agreed that

its decision in Light overruled McLerrran and then held that “[o]ur holdings in Light and

Weitzel comport with Texas’ longstanding rule that a corporate agent is personally liable

for his own fraudulent or tortious acts.” Id. (emphasis added). While the Court then

noted that “the plain language of the DTPA is in harmony with this rule” because it

“grants the homeowners a cause of action against ‘any person’ who violates the act,” it

ultimately justified its holding as follows:

Agents are personally liable for their own torts. There is no basis for

concluding differently based on the claims brought under the DTPA.

Accordingly, we hold that an agent may be held personally liable for his

own violations of the DTPA.

Id. at 718 (emphasis added). Based on this holding, the Court noted that Keyser had

personally violated the DTPA through various false, misleading, and deceptive acts and

remanded the case back to the court of appeals. Id. at 720.

f. Because the State Never Pleaded, Proved, or Argued

Tortious Conduct by Morello, the Court’s Grant of

Summary Judgment Imposing Personal Liability Against

Morello Was Error

Applying these principles to the present case leads to the conclusion that summary

judgment against Morello for White Lion’s violations was error. The State neither

alleged in its petition nor argued in its summary judgment motion that Morello

committed any type of fraud or tort in this matter. Indeed, the State expressly ruled out

the possibility that its summary judgment basis could be construed as alleging the

19

commission of a tort by Morello:

Morello asserts that compliance with the Compliance Plan has been caused

by or otherwise rendered impractical by third parties. This matter is not a

tort action. This is a statutory enforcement action brought against Morello

as operator and sole decision maker of White Lion . . . .

(CR at 597, emphasis added.)

Thus, and in an effort to prevent Morello from establishing an affirmative defense

to the State’s case (i.e., that White Lion’s failure to comply with CP-50129 was due in

part to the acts of responsible third parties—CR at 914-915), the State took the position

that such defense wasn’t available because the case didn’t involve a tort. So even

assuming that this Court’s decision in Shook is wrong and that Keyser could support

individual liability for actions by members taken on behalf of an LLC,5 this common-law

doctrine has no application in this case because it did not involve the commission of a tort

by Morello. Accordingly the trial court’s entry of summary judgment was error as the

State failed to prove the liability element of its claim under Water Code section 7.101.

Moreover, the trial court’s denial of Morello’s motion for new trial, in which Morello

raised this same issue, constitutes a failure to analyze or apply the law correctly, which in

turn constitutes an abuse of discretion requiring a new trial. See Walker v. Packer, 827

S.W.2d 833, 840 (Tex. 1992) (orig. proceeding)).

5

Morello also argues that the Keyser line of authority is distinguishable and inapplicable for the following reason.

First, the Light, Leyendecker, and Wetzel cases were decided by the Texas Supreme Court prior to the Texas

Legislature’s 1991 enactment of the LLC Act and thus only governed liability for the tortious conduct of corporate

agents. While Keyser was handed down in 1992 and thus after enactment of the LLC Act, it too is inapposite. Like

Light, Leyendecker, and Wetzel, Keyser did not involve liability of a member of an LLC but of the agent of a

corporation. As this Court intimated in Shook, the legislative history of the LLC Act clearly implies that, unlike the

statutory provisions governing liability of corporate agents, the LLC Act provided an absolute shield to liability for

members of an LLC. Thus, and to the extent that the Keyser line of cases allowed for individual tort liability against

corporate agents, such holding cannot be extended to individual liability against members of an LLC such as

Morello.

20

Finally, and in an attempt to avoid the requirement that Morello have committed

fraud or a tort, the State argues that “the actions [of the member of an LLC] are viewed,

not in the context of a tort, but in the context of whether such actions amount to causing,

suffering, allowing, or permitting a violation of law” as set forth in Texas Water Code

section 7.102. (Pl’s MSJ Reply at 5.) But under the Keyser line of cases, actual tortious

conduct is required to impose personal liability on a corporate agent. Indeed, Keyser is

clear that, notwithstanding the DTPA’s language regarding the liability of “a person,’

liability was premised on the agent’s commission of a tort.

As noted by Texas courts, this is not an arbitrary requirement but one based on the

policy of preventing tortious acts: “[t]he purpose of individual liability in the corporate

setting is to prevent an individual from using the corporate structure or agency law as a

blanket to insulate himself from liability from his otherwise tortious conduct.” See

Physio GP, Inc. v. Naifeh, 306 S.W.3d 886, 889 (Tex. App.—Houston [14th Dist.] 2010,

no pet.). In summary, the trial court’s judgment holding Morello individually liable for

White Lion’s administrative code violations is both unsupported by Texas common law

and runs counter to this policy because such liability is not of a tortious character.

Accordingly, reversal of the summary judgment is required.

3. The State v. Malone Decision Is Inapposite as It Affirmed

Individual Liability Against Corporate Officers Based Upon

Their Commission of “Environmental Torts”

Another appellate decision on which the State relied to establish personal liability

against Morello is State v. Malone, 853 S.W.2d 82 (Tex. App.—Houston [14th Dist.]

1993, writ denied). (CR at 589.) In fact, the State relied on Malone even more than

21

Kaiser, referring to the former as “the seminal case on individual liability in a statutory

environmental enforcement action.” (CR at 1754.) As discussed below, however,

Malone offers no support for imposition of individual liability against Morello, but like

Keyser requires reversal of the trial court’s judgment.

Malone involved an environmental action brought against a hazardous waste

disposal plant (Malone Service Company “MSC”) as well as its president and plant

manager. See id. at 83. In that case, the Texas Water Quality Board had previously

issued MSC a permit authorizing deep well injection of waste materials into an earthen

pit. Id. at 83-84. On August 17, 1977, the TWQB’s successor agency issued an order

amending the permit and requiring MSC to construct, within nine months, a concrete

separator for pretreatment of waste which was to replace the earthen pit. Id. at 84. Upon

completion of the separator and following an 18-month period, MSC was too discontinue

use of the pit. Id. The Board twice extended the deadline for cessation of the pits use,

but on September 19, 1979, finally ordered that MSC cease receiving any waste materials

and close the pit within nine months. Id.

When MSC failed to comply with the order, the Texas Water Commission brought

suit against MSC and its president and plant manager seeking penalties. Id. at 83.

During trial, the jury heard evidence that in violation of the TWC’s order, MSC

employees: covertly continued to pump sludge into the pit; used code phrases in their

logbooks to disguise the illegal pumping in an attempt to conceal their activity from

outsiders; cut tears into a TWC-mandated tarp covering for the pit to allow illegal

pumping to continue; and routinely dumped hazardous waste into the pit. Id. at 84.

22

Following trial, the jury assessed more than $3 million in penalties against MSC and its

plant manager and president.

On appeal, MSC contended that “there can be no individual liability for its

president or plant manager because they did not own the [deep well injection’] permit.”

Id. at 84. In analyzing this contention, the court first referenced the language of Texas

Water Code section 27.101(a) which stated that “[a] person who violates any provision of

a permit issued under this chapter” was subject to liability, and noted that Texas law

defined a “person” to include natural persons. Id. at 84. The court juxtaposed this

authority against article 5.069-1.06 of the Texas Revised Civil Statutes which provided

that “any person who contracts for, charges or receives interest which is greater than the

amount authorized [by statute]” was subject to civil liability, but noted an appellate

decision (Wartman v. Empire Loan Company) limiting such liability to a principal only.

Id.

After setting forth these authorities, the court then set forth the parties’ position

and its decision affirming individual liability as follows:

Accordingly, [MSC] conclude[s] that Section 27.101 does not impose

liability for a “person” who does not own the permit, although he or she

acts as agent, aider or abettor in violating the act. The State distinguishes

Wartman by noting that its controlling issue was whether the collection

agents’ receipt of usurious interest was tortious. 101 S.W. at 500. While

usury “has a contractual flavor,” an environmental tort is more analogous to

a situation in which a corporate officer who participates in or directs the

commission of a tort may be held personally liable. See, e.g., Leyendecker

& Assoc., Inc. v. Wechter, 683 S.W.2d 369, 375 (Tex. 1984). Liability is

based on the agent's own actions, not his status as agent. Id.

Id. at 85. In summary, then, the Malone court affirmed the trial court judgment imposing

individual liability against MSC’s corporate agents for violation of former Water Code

23

Section 27.101. According to the State, the Malone court’s holding stands for the simple

proposition that “when an individual corporate officer takes personal action to violate or

direct the violation of state environmental laws or permits, such individual can be held

personally and individually liable for his actions.” (CR at 589.)

Such a facile reading of Malone, however, ignores the obvious reasoning

underlying the decision as well as the authorities cited therein. In rejecting MSC’s

argument that its agents were not shielded from liability under the statute, the court drew

a distinction between individual liability based on contract as opposed to tort. The court

even cited to Leyendecker at jump page 375 wherein the Texas Supreme Court held that

“[a] corporation’s employee is personally liable for tortious acts which he directs or

participates in during his employment.” See Leyendecker, 683 S.W.2d 369, 375

(emphasis added). Thus, the basis for the Malone court’s decision was not that MSC’s

corporate agents merely engaged in a violation of the statute at issue as the State argued.

Rather, the Malone court analogized that the individual defendants’ liability was closer to

an “environmental tort” (for which corporate agents may be personally liable under

Leyendecker) than a contractual breach (for which corporate agents have long been

shielded under Texas law6), and upheld liability on that basis.

Thus, and to the extent that Malone has any precedential authority, it stands for the

proposition that corporate agents who engage in “environmental torts” can be

individually liable for their actions. But unlike the individual defendants in Malone,

6

See Maxey v. Citizens Nat’l Bank of Lubbock, 507 S.W.2d 722, 726 (Tex. 1974) (citing Terry v. Zachary, 272

S.W.2d 157 (Tex. Civ. App.—San Antonio 1954, writ ref’d n.r.e.) for the proposition that “[i]t has been held that an

officer or director may not be held liable in damages for inducing the corporation to violate a contractual obligation,

provided that the officer or director acts in good faith and believes that what he does is for the best interest of the

corporation.”).

24

Morello committed no tort—environmental or otherwise. In Malone, the individual

defendants were involved in routine dumping of hazardous wastes in MSC’s earthen pit

and actively concealing same. See Malone, 853 S.W.2d 82, 83-84. Such action was

clearly consistent with the definition of “environmental tort” as that term has been

defined under Texas Law.

Specifically, the current Texas Civil Practice and Remedies Code provides that

“[t]his section does not apply to a cause of action based on a toxic or environmental tort

as defined by sections 33.013(c)(2) and (3).” TEX. CIV. PRAC. & REM. CODE ANN.

§82.005(d)(1) (Vernon 2014) (emphasis added). The referenced section of section

33.013(c)(2), effective September 2, 1987 and continuing through the time of decision in

Malone, defined an environmental tort as “personal injury, property damage, or death . . .

caused by the depositing, discharge, or release into the environment of any hazardous or

harmful substance as described in Subdivision (3).” See Act of June 16, 1987, 70th Leg.,

1 C.S., Ch. 2, 1987 Tex. Gen. Laws 42-43 (amended 1995) (attached at Tab 4). Although

Chapter 33 was amended in 1995, section 33.013(c)(2) retained the same definition of

environmental tort until the section was repealed in 2001. See Act of May 18, 1995,

74th Leg., R.S., Ch. 136, 1995 Tex. Gen. Laws 974 (repealed 2001) (attached at Tab 5).

Given this longstanding definition of “environmental tort,” the Malone defendants

clearly engaged in acts meeting this definition so that the Malone court properly imposed

individual liability against them. Conversely, it is undisputed that Morello did not

“deposit, discharge, or release” any hazardous substances into the Property or

environment at large. Rather, Vision was the party responsible for committing the

25

environmental torts for which CP-50129 was imposed. (CR at 1463.) By contrast,

Morello’s “crime” was largely one of inaction/omission in connection with CP-50129

which mandated monitoring and cleanup of the contaminated groundwater at the Property

and maintenance of $574,000 in financial assurance for operation of the cleanup (CR at

36, 762, 777). Morello’s only alleged action relating to noncompliance with CP-50129

were that he: (1) removed the facility's domestic wastewater treatment plant from the

Property; (2) removed the Acid Neutralization and Treatment System (“ANTS”) from the

Property; and (3) threw away, or directed to be thrown away, monitoring well protective

housing caps. (CR at 585-86.)

Even assuming the truth of these allegations, they do not constitute commission of

an environmental tort as Morello did not “deposit, discharge, or release into the

environment” any substance, much less and “hazardous or harmful substance.” Thus,

and to the extent that it has any precedential value in light of Shook, Malone is clearly

distinguishable and does not support imposition of summary judgment in this case.

Accordingly the trial court’s entry of summary judgment was error as the State failed to

prove the liability element of its claim under Water Code section 7.101.

4. The Health Enrichment Decision Is Inapposite as It Affirmed

Individual Liability Against a Corporate Officer Based Upon a

Statutory Exception

In its summary judgment motion, the State also cited to an unreported decision of

this Court styled Health Enrichment and Longevity Institute, Inc. v. Texas for the

proposition that Morello could be held personally liable for White Lion’s Texas Water

Code violations. See 2004 WL 1572935 (Tex. App.–Austin 2004, no writ) (not reported

26

for publication); (CR at 589.) The case involved an administrative action brought by the

State against Health Enrichment and Longevity Institute, Inc. (“Brazos Oaks”), an

assisted living facility, and its president and sole owner—Ms. Linda Milam. See id. at

*1. The basis for the administrative action was that the Brazos Oaks had been doing

business without a license as required under the Assisted Living Facility Licensing Act

(“ALFLA”) codified at Texas Health & Safety Code Chapter 247. See id. at *1, *8.

Following a bench trial, the trial court entered judgment against Brazos Oaks and Milam

assessing monetary penalties and an order permanently enjoining defendants from

operating the facility without a license. See id. at *2, *6.

On appeal, Milam challenged the judgment to the extent that it rendered her

individually liable for her actions taken on behalf of Brazos Oaks. See id. at 8. Without

significant discussion, this Court rejected the contention, noting that section 247.045(a)-

(c) of the ALFLA authorized imposition of monetary penalties within the range allowed.

See id. The Court also noted that Milam was the sole owner of the facility, and that this

fact gave rise to her individual liability under the ALFLA. See id. Milam’s individual

liability under the ALFLA was due to section 247.045(h) which specifically authorized

imposition of joint and several liability for penalties against “any owner, other

controlling person, or the affiliate of the person found liable.” See TEX. HEALTH &

SAFETY CODE ANN. §247.045(h) (Vernon 2014) (emphasis added).

Thus, Milam’s individual liability under the ALFLA for Brazos Oaks’ violations

resulted from a statutory exception to the statutory liability shield otherwise afforded to

officers of corporations and members of LLC’s. Of course, this exception only applies to

27

liability incurred under the ALFLA, while the Water Code does not contain an analogous

provision. Accordingly, the Health Enrichment decision is easily distinguishable and

does not support the trial court’s entry of judgment against Morello individually for

violation of Texas Water Code section 7.101. For all of these reasons, the trial court’s

entry of summary judgment was error that requires reversal.

ISSUE TWO

II. The Trial Court’s Denial of Morello’s Motion for New Trial For Improper

Severance of Parties Was Error

A. Standard of Review

An appellate court reviews the denial of a motion for new trial under an abuse-of-

discretion standard. Strackbein v. Prewitt, 671 S.W.2d 37, 38 (Tex. 1984). An abuse of

discretion occurs if the trial court acts without reference to any guiding rules or

principles. Goode v. Shoukfeh, 943 S.W.2d 441, 446 (Tex. 1997). As to legal issues,

however, the trial court has no discretion in determining what the law is or in applying

the law to the facts. In re Paso Del Norte Surgery Center, 281 S.W.3d 521, 524 (Tex.

App.—El Paso 2008, orig. proceeding) (citing Walker v. Packer, 827 S.W.2d 833, 840

(Tex. 1992) (orig. proceeding)). A failure by the trial court to analyze or apply the law

correctly constitutes an abuse of discretion. Id. Thus, while a trial court generally has

discretion in determining whether to grant a new trial, no such discretion exists when, as

in the present case, the movant’s basis for a new trial is that the court rendered judgment

based on an improper application or interpretation of law.

28

B. The Severance Proceedings in the Trial Court

In April 2006, the State filed this statutory enforcement action against White Lion

pursuant to Texas Water Code section 7.101 et seq. (CR at 4.) In the action, the State

sought both monetary damages and injunctive relief against White Lion for its failure to

comply with CP-50129 based on Water Code section 7.101, et seq. (Id.) On January 22,

2007, the State amended its petition asserting the same claims and adding Morello

individually. (CR at 19.)

On August 23, 2013, the State filed its motion for summary judgment as to White

Lion only on each of these claims along with a conditional motion for severance, and set

same for hearing on September 19, 2013. (CR at 44.) The trial court granted

Appellant’s motion for summary judgment against White Lion on September 19, 2013

(CR at 563). In that judgment, the trial court ordered that White Lion pay $325,600 in

penalties, fees of $129,464.15, and attorney’s fees of $40,800. (CR at 563.) In addition,

the trial court’s judgment simultaneously severed the State’s identical claims against

White Lion from those which remained pending against Morello. (CR at 568.) The

result was a final judgment against White Lion bearing cause number D-1-GV-13001068

in the amount of $495,864.15.

Thirty-two days after the trial court’s plenary power had expired in cause number

D-1-GV-13001068, the State filed its motion for final summary judgment as to the exact

claims against Morello and set same for hearing on December 16, 2014. (CR at 569,

599.) On February 19, 2015, the trial court conducted a hearing on the motion and on

March 9, 2015 issued a letter ruling granting same. (CR at 1400.) On April 14, 2015, the

29

trial court entered a Final Summary Judgment against Morello, ordering him to pay

penalties of $367,250 and attorney’s fees in the amount of $26,844. Thus, the final

result was a second judgment against Morello bearing cause number D-1-GV-06000627

in the amount of $394,094. (CR at 1458.)

On May 15, 2015, Morello filed his Motion for New Trial raising several grounds

for relief. (CR at 1463.) In one of these grounds, Morello argued that the trial court’s

severance of the State’s claims against White Lion and Morello created two separately-

enforceable judgments resulting in an unconstitutional double recovery for the State. On

June 2, 2015, the trial court rejected this claim for relief by denying Morello’s Motion for

New Trial. (CR at 1769.)

C. A Trial Court Abuses Its Discretion By Severing Actions which Are

Interwoven with the Remaining Claims Involving the Same Facts and

Issues

Parties and actions may be severed “at any stage of the action, before the time of

submission to the jury or to the court if trial is without a jury, on such terms as are just.”

State Dept. of Highways and Public Transp. v. Cotner, 845 S.W.2d 818, 819 (Tex. 1993)

(per curiam) (citing TEX. R. CIV. P. 41). “Rule 41 does not ‘permit a trial court to sever a

case after it has been submitted to the trier of fact.’” Cotner, 845 S.W.2d at 819. Where

a court servers following submission to a fact finder, the result is an abuse of discretion.

See id.

Pre-submission severance of claims under the Texas Rules of Civil Procedure rests

within the sound discretion of the trial court. Guar. Fed. Sav. Bank v. Horseshoe

Operating Co., 793 S.W.2d 652, 658 (Tex. 1990). A trial court properly exercises its

30

discretion in severing claims when: (1) the controversy involves more than one cause of

action; (2) the severed claim is one that could be asserted independently in a separate

lawsuit; and (3) the severed actions are not so interwoven with the other claims that they

involve the same facts and issues. Id. at 658. Where a court severs a claim and any of

the three elements are not satisfied, the result is an abuse of discretion. See Jones v. Ray,

886 S.W.2d 817, 822 (Tex. App.—Houston [1st Dist.] 1994, orig. proceeding).

D. The State’s Claims Against White Lion and Morello Involved the

Identical Facts and Issues Making Severance Error

As noted by the Supreme Court in Guaranty Federal, the third severance factor

requires a showing that the severed claims are not so interwoven with the other claims

that they involve the same facts. See 793 S.W.2d at 658. Among other reasons, the

claims in a case are considered interwoven when their severance would result in two or

more separate judgments that, taken in the abstract, would either: (1) undercompensate

the plaintiff (because the respective juries could each find the other defendant fully liable

and thus each award plaintiff nothing), or (2) over compensate the plaintiff (because the

respective juries could each find their respective defendant fully liable and enter two

verdicts imposing a double recovery). Santos v. Holzman, No. 13-02-662-CV, 2005 WL

167309, at *4 (Tex. App.—Corpus Christi Jan. 27, 2005, pet. denied) (mem. op.). In

situations presenting the prospect of double recovery for the plaintiff or double jeopardy

for the defendant (such as the present case), severance is improper because the third

Guaranty Federal factor cannot be met. See Jones, 886 S.W.2d at 821-22.

In the present case, the State’s suit consisted of two claims. (CR at 38.) The first

was that White Lion failed to comply with the remedial provisions of CP-50129. (Id.)

31

The State’s second claim was that White Lion failed to comply with CP-50129 by not

acquiring financial assurance in the amount of $574,000. (Id.) As alleged by the State,

both violations rendered it in violation of Texas Water Code sections 7.101 and 7.102.

(Id.) The State asserted the exact claims against Morello in his individual status and

sought the damages from both Morello and White Lion. (Id.) The Court—in two

separately-enforceable judgments (cause numbers D-1-GV-06000627 and D-1-FV-13-

001068)—awarded the State the same damages against White Lion and Morello. Thus,

and for the same reasons noted by the Santos court, severance of the State’s claims

against White Lion and Morello involved a misapplication of the law and was therefore

an abuse of discretion. See Walker v. Packer, 827 S.W.2d at 840.

E. Additionally, the Trial Court’s Severance Order Was Also an Abuse of

Discretion as It Was Entered Post-Submission

In addition the above, the trial court’s severance order was also error because the

severance occurred after it had granted summary judgment against White Lion. Rule 41

is clear in that parties and actions may be severed “before the time of submission to the

jury or to the court if trial is without a jury, on such terms as are just.” Cotner, 845

S.W.2d at 819 (emphasis added). Where a court servers following submission to a fact

finder, the result is an abuse of discretion. Id.

In the present case, the trial court rendered interlocutory summary judgment

against White Lion on September 19, 2013 (CR at 563). In that judgment, the trial court

ordered that White Lion pay $325,600 in penalties, fees of $129,464.15, and attorney’s

fees of $40,800. (CR at 563.) The trial court simultaneously converted the judgement

into a final one by severing the State’s identical claims against White Lion from those

32

which remained pending against Morello. (CR at 568.) As a result, the severance

occurred after the time of submission to the court of the summary judgment motion

against White Lion. Accordingly, the trial court’s severance order was an abuse of

discretion for this additional reason.

F. The Trial Court’s Severance Error Was Harmful as It Resulted in an

Impermissible Double Recovery for the State as Well as an Excessive

Fine in Violation of the Texas and United States Constitutions

Under Texas Rule of Appellate Procedure 44.1, trial court error only requires

reversal if it probably caused the rendition of an improper judgment or probably

prevented the appellant from properly presenting his case to the court of appeals. See

TEX. R. APP. P. 44.1. Based on this Court’s opinion in Dalisa, Inc. v. Bradford, it

appears that when a trial court abuses its discretion by improperly severing claims in a

case, the error is presumed harmful. See 81 S.W.3d 876, 882 (Tex. App.—Austin 2002,

no pet.) (“[T]he invalid severance is prejudicial because it converted into a final judgment

a judgment that is interlocutory.”). Accordingly, it appears that the trial court’s erroneous

severance is presumed harmful.

In an abundance of caution, however, Morello would show that the severance error

was harmful for multiple reasons. The first is that the erroneous order resulted in the

rendition of an improper judgment granting the State a double recovery. “Texas law does

not permit double recovery.” Parkway Co. v. Woodruff, 901 S.W.2d 434, 441 (Tex.

1995). “A double recovery exists when a plaintiff is awarded more than one recovery for

the same injury.” Marin Real Estate Partners, L.P. v. Vogt, 373 S.W.3d 57, 76 (Tex.

App.—San Antonio 2011, pet. filed). In the present case, the severance created two final,

33

enforceable judgments in favor of the State for damages based on the identical theories of

liability, facts, and injury. (CR at 563, 1458.) Accordingly, the trial court’s erroneous

severance order was harmful as it caused rendition of an improper judgment.

Additionally, the erroneous severance order was harmful because it resulted in an

unconstitutionally excessive fine against Morello. Article I, section 13 of the Texas

Constitution provides that “[e]xcessive bail shall not be required, nor excessive fines

imposed, nor cruel or unusual punishment inflicted.” TEX. CONST. ART. I, § 13. The

term “fines” has been defined as including civil penalties. See Pennington v. Singleton,

606 S.W.2d 682, 690 (Tex. 1980). Generally, prescribing fines is a matter within the

discretion of the legislature. A fine is not unconstitutionally excessive, and courts may

not override the legislature’s discretion, “except in extraordinary cases, where it becomes

so manifestly violative of the constitutional inhibition as to shock the sense of mankind.”

Id. (quoting State v. Laredo Ice Co., 96 Tex. 461, 73 S.W. 951, 953 (1903)).

Here, the State used the trial court’s severance of its claim against Morello’s

company, White Lion Holding’s LLC, as a mechanism to impose double liability for the

same conduct on both Morello and White Lion. After the trial court granted summary

judgment against White Lion, it erroneously severed White Lion from the case. The

State then sought a second summary judgment against Morello in his individual capacity

for the identical conduct, thus accomplishing a double recovery for a single act resulting

in a single injury through improper severance. The State even conceded in oral argument

before the Court that Morello “is White Lion.” (Tab 6 at 24.)

Assuming without conceding that any penalty is justified in this case, the State

34

should have been limited to one penalty against the responsible party, whether it was

White Lion or Morello. By severing White Lion, the State avoided a finding on a critical

issue central to both motions: who is the responsible party? Even if the State could have

pierced the veil of White Lion (which it did not even attempt), at most it would have been

entitled to joint and several liability against Morello and White Lion and not a double

recovery. S. Union Co. v. City of Edinburg, 129 S.W.3d 74, 87 (Tex. 2003) (“We need

not decide today whether a theory of ‘single business enterprise’ is a necessary addition

to the theory of alter ego for disregarding corporate structure . . . for imposing joint and

several liability.”) (emphasis added.) Accordingly, the erroneous severance order

resulted in both double recovery for the State and an unconstitutionally excessive fine

against Morello and thus rendition of an improper judgment.

G. The Trial Court’s Severance Error Was Harmful as It Violates The

Equal Protection, And Due Course Of Law Provisions Of The Texas

Constitution, And The Due Process And Equal Protection Provisions

Of The U.S. Constitution

Independent of the above, the erroneous severance order was also harmful because

it resulted in violation of Morello’s state and federal constitutional right to equal

protection and due course of law. In its two judgments, the Court has now awarded over

$889,958 in fines against Morello and White Lion. (CR at 568, 1458.) Yet Morello and

White Lion have both consistently maintained an inability to pay the fine and to conduct

the remediation the state is demanding. (CR at 1481.) Furthermore, by denying the

continuance requested by Morello and White Lion, the Court awarded a penalty that new

evidence (discussed supra) proves to be unjustified.

Where the amount of a penalty imposed by a State agency is so high that it

35

effectively deprives a citizen of the ability to litigate his defense to such penalty, it is

unconstitutional. See R. Comm. Inc. v. Sharp, 875 S.W.2d 314, (Tex. 1994) (holding that

conditioning a taxpayer’s right to initiate judicial review on the payment of taxes or the

posting of a bond equal to twice the alleged tax obligation violates the open courts

mandate of the Texas Bill of Rights. TEX. CONST. art. I, § 13.). While this case does

not present an open courts question, it does present an unconstitutional denial of due

process and equal protection under state and federal law. For this additional reason, the

erroneous severance order resulted in imposition of a fine that effectively prevented

Morello from litigating a defense to same and thus rendition of an improper judgment.

ISSUE THREE

III. The Court's Denial of Morello's Motion for New Trial Based on Newly-

Discovered Evidence Was Error

A. The Grant of a New Trial Based on Newly-Discovered Evidence Is

Subject to the Discretion of the Trial Court

A party seeking a new trial on grounds of newly-discovered evidence must

demonstrate to the trial court that (1) the evidence has come to its knowledge since the

trial, (2) its failure to discover the evidence sooner was not due to lack of diligence, (3)

the evidence is not cumulative, and (4) the evidence is so material it would probably

produce a different result if a new trial were granted. Waffle House, Inc. v. Williams, 313

S.W.3d 796, 813 (Tex. 2010). Denial of a motion for new trial based on newly-

discovered evidence is reviewed for abuse of discretion. Jackson v. Van Winkle, 660

S.W.2d 807, 809–10 (Tex. 1983).

B. Morello’s Newly-Discovered Evidence Established that CP-50129 and

Its Remediation Obligations Were Based on Appellee’s Erroneous

36

Determination of the Affected Aquifer

Prior to White Lion’s ownership of the Property, Vision utilized the premises as a

steel-tube manufacturing facility. (CR at 1482.) This usage ultimately caused

groundwater contamination at the premises due to elevated levels of heavy metals and

other compounds. (Id.) Vision subsequently discovered the contamination and reported

same to the State which then instituted CP-50129 to remediate same. (Id.) CP-50129

called for Vision to implement an extensive cleanup and monitoring system consisting of:

(1) placing additives in the Property’s wastewater impoundments; (2) capping such

impoundments with four feet of clay and vegetative covering; (3) implementation and

maintenance of a groundwater monitoring program and system to test the effectiveness of

CP-50129, (4) installation of a network of wells (21 total) to monitor groundwater flow

and contaminants; (5) installation of a network of recovery wells for extraction of

contaminated groundwater; (6) submission of semi-annual and annual compliance reports

to the State, and other requirements. (Id.)

In short, CP-50129 created massive financial and regulatory obligations for Vision

and subsequently, White Lion. These onerous remediation and monitoring requirements

of CP-50129 were all premised on the State’s error that the contaminated ground water

plume beneath the Property potentially fed into the Upper Chicot aquifer—which is used

for agricultural or human use. (CR at 1483.)

In December 2014, White Lion retained David Heslep and his firm of WDIA

Environmental Solutions, LLC, to assess the Property and prepare a proposal for

modification of and compliance with CP-50129. (Id.) Heslep is a licensed professional

37

geologist for the State of Texas with significant project management experience and

technical expertise in environmental matters. (Id.) In particular, Heslep has been

involved with numerous groundwater remediation projects at sites in at least 8 states.

(Id.) In his efforts to bring the Property into compliance with CP-50129, Heslep

discovered that the aquifer beneath the Property is actually the Brazos River Alluvial

Aquifer—a fact which greatly reduces any risk from the plume beneath White Lion’s

property. (Id.)

As noted by Heslep, had TCEQ’s experts properly identified the aquifer at the

time CP-50129 was renewed in 1999, “the current pump and treat system required by the

Compliance Plan would not have been necessary and that a natural attenuation system

would have been appropriate for remediating the contamination at the [Property].” (Id.)

In short, the entire basis of the Compliance Plan, and the corresponding obligations, were

“not necessary to protect the public health and environment.” Id. Indeed, Mr. Heslep

made clear that “[h]ad this error not been perpetuated by the State, a less stringent, less

expensive plume monitoring system would have been appropriate.” (Id.)

This evidence came to light after trial. (CR at 1748.) Where a trial occurs by

summary judgment, courts hold that the evidence must not have been discovered prior to

the ruling on summary judgment. See Indus. Clearinghouse, Inc. v. Jackson Walker,

L.L.P., 162 S.W.3d 384, 389 (Tex. App.—Dallas 2005, pet denied.). The Court issued its

letter ruling on April 6, 2015. (CR at 1457.) As noted supra, Morello discovered the

evidence on April 11, 2015. (CR at 1748.) Accordingly, Morello established the first

requirement for a new trial based on newly-discovered evidence.

38

C. Morello’s Failure to Discover the New Evidence Was Not Due to Lack

of Diligence on His Part

The second element that must be satisfied for a new trial based on newly

discovered evidence is that the party’s failure to discover the evidence sooner was not

due to lack of diligence. Waffle House, 313 S.W.3d at 813. Evidence of a party’s due

diligence in procuring new evidence is properly adduced by affidavit or testimony. See

Edwards v. Edwards, 418 S.W.3d 757, 761 (Tex. App.—El Paso 2013, no pet.) (“The

trial court is not privy to a plaintiff’s efforts at due diligence, and as such, it must be

apprised of such by sworn affidavit or testimony . . . .”). Finally, whether a party acts

with sufficient diligence in discovering the evidence in question is a matter left to the

discretion of the court. See Benz Group v. Barreto, 404 S.W.3d 92, 97 (Tex. App.–

Houston [1st Dist.] 2013, no pet.); Allseas USA, Inc. v. PS Fabricators, L.L.C., 2012 WL

7849219. *9 (Tex. App.—Corpus Christi 2012, no pet.) (“Whether Allseas acted with

sufficient diligence was a factual matter best left to the trial court's discretion.”). Finally,

and as noted by the Texas Supreme Court, diligence is defined as “such diligence that an

ordinarily prudent and diligent person would exercise under similar circumstances.”

Strickland v. Lake, 163 Tex. 445, 357 S.W.2d 383, 384 (1962).

Applying this definition of diligence, Morello easily satisfied the second prong of

the inquiry. The evidence in question involves the underground aquifer potentially

affected by the plume under White Lion’s Property, which was misidentified by at least

two sets of experts in this case. Specifically, the State’s and Vision’s environmental

experts mistakenly identified the aquifer in 1988, and again in 1998-99, as the Upper

Chicot. (CR at 1678-80.) In his affidavit, Heslep mentions that he only discovered the

39

correct aquifer at issue after long inquiry into hydrological surveys, which provided the

key. (Id.)

Given that trained geologists misidentified the aquifer at issue, this evidence was

not discoverable by a layperson such as Morello. As established by his sworn deposition

testimony, Morello repeatedly testified that he: (1) does not hold himself out as an

environmental law expert (CR at 1485, 1515); (2) knows nothing about wastewater,

groundwater, or groundwater recovery systems (CR at 1567, 1569); (3) considers

groundwater related issues to be “way over [his] head” (CR at 1569); and (4) considers

issues related to CP 50129 as “not my area of expertise” (CR at 1581-82). In his

affidavit, Morello goes further, stating that “I have no education or practical experience

with environmental compliance issues, and I had no reason to question any of the

underlying geological or hydrological bases for the compliance plan.” (CR at 1747.)

Taken together, and considering the Strickland court’s definition of diligence, Morello

cannot be found to have lacked reasonable diligence in procuring the newly-discovered

evidence. In fact, it would be unreasonable to find or expect Morello to have discovered

the evidence sooner than he did. Accordingly, Morello satisfied the second requirement

for a new trial based on newly-discovered evidence.

D. Morello Established that the Newly-Discovered Evidence Was Not

Cumulative

The third element that must be satisfied for a new trial based on newly discovered

evidence is that such evidence is not cumulative of any other evidence in the case. Waffle

House, 313 S.W.3d at 813. The test for determining whether evidence is cumulative asks

“not merely whether the evidence to be adduced from the two witnesses is similar, but

40

also whether the excluded testimony would have added substantial weight to the offering

parties’ case.” Sims v. Brackett, 885 S.W.2d 450, 454 (Tex. App.—Corpus Christi, 1994,

no writ). In the present case, there can be no argument that both (1) the newly-discovered

evidence was not cumulative as it was contrary to the State’s evidence/theory relating to

the affected aquifer and (2) such evidence adds substantial weight to Morello’s case (as

discussed more in the next factor). Indeed, the issue of the plume potentially affecting

the Brazos River Alluvium Aquifer appears nowhere in the record in this case.

Accordingly, Morello satisfied the third requirement for a new trial based on newly-

discovered evidence.

E. Morello’s Newly-Discovered Evidence Would Have Eliminated the

Need for the Trial Below

The final element for a new trial based on newly discovered evidence is that the

evidence is so material it would probably produce a different result if a new trial were

granted. Waffle House, 313 S.W.3d at 813. Based on testimony from the Heslep

affidavit, this test is met. On this point, Heslep states as follows:

In essence, the Upper Chicot was erroneously identified as far back

as 1988 as a potentially affected aquifer despite the fact that the Upper

Chicot generally flows south/southeast, while the flow of the aquifer under

the Vision Metals/White Lion facility is to the north. This error was carried

forward thereafter in all reports and proposed plans and adopted by the

TCEQ and its predecessor. The State failed to detect the error, and

required the more stringent pump and treat system based on the error.

Had this error been detected by the State, a less stringent, less expensive

monitored natural attenuation plan would have been appropriate. A

monitored natural attenuation plan would have been much cheaper to

install, maintain, and operate than the existing system.

It is my opinion that a monitored natural attenuation plan would

have been found appropriate for the site from the start of White Lion's

ownership of the site, had the correct aquifer been identified by the State.

41

(CR at 1486, 1680, emphasis added.)

In summary, and had the State correctly determined that the aquifer below the

Property was the Brazos River Alluvium Aquifer, CP-50129 would have had vastly

different and less expensive remedial and monitoring provisions. In his affidavit,

Morello stated that White Lion’s failure to comply with CP-50129’s remediation and

monitoring requirements was due to financial inability. (CR at 1487, 1747). Morello

also states that Heslep had previously estimated the costs of a monitored natural

attenuation plan (as would have been proper had Appellee identified the proper aquifer at

issue), and that White Lion could have financially borne such a burden. (Id.) In short,

there would have been a completely different result in this case and likely no case at all.

Accordingly, Morello satisfied each of the elements required for a new trial based

on newly-discovered evidence. When trial court denied Morello’s motion, it clearly

failed to analyze or apply the law correctly. Under Texas Supreme Court precedent, this

failure constitutes an abuse of discretion. Walker v. Packer, 827 S.W.2d at 840 (“[A]

clear failure by the trial court to analyze or apply the law correctly will constitute an

abuse of discretion”). Accordingly, Morello is entitled to a reversal of the trial court’s

judgment and remand for a new trial.

PRAYER

Based on the above, Morello asks this Court to reverse the trial court’s final

summary judgment order in this case and either render a take-nothing judgment against

the State or, alternatively, remand the case for a new trial. Morello also asks this Court

for any additional relief to which he may be entitled.

42

Respectfully submitted,

JURANEK LAW FIRM, PLLC

______________________

By: JAMES JURANEK

State Bar No. 24026888

111 N. Ennis

Houston, Texas 77003

(713) 229-0699

(888) 626-6596 (fax)

james@jjfirm.com

LAPEZE & JOHNS, P.L.L.C.

By:___________________________

Keith W. Lapeze

Texas Bar No. 24010176

Taylor L. Shipman

Texas Bar No. 24079323

601 Sawyer Street, Suite 650

Houston, Texas 77007

Tel. (713) 739-1010

Fax. (713) 739-1015

keith@lapezejohns.com

taylor@lapezejohns.com

CERTIFICATE OF COMPLIANCE

I hereby certify that the foregoing Brief of Appellant, filed on October 7, 2015,

was prepared with Microsoft Word for Windows and that, according to that program’s

word-count function, the sections covered by Texas Rule of Appellate Procedure 9.4(i)(1)

contain 11,738 words.

_____________________________

James Juranek

43

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing instrument was

forwarded to Appellant’s Counsel by the electronic filing manager, pursuant to the Texas

Rule of Appellate Procedure 9.5(b)(1), on this 7th day of October 2015.

VIA Facsimile

David Priester

Ryan P. Fite

Craig Pritzlaff

Assistant Attorney General

P.O. Box 12548, MC-066,

Austin, TX 78711

_____________________________

James Juranek

44

Appendix

Tab 1: Final Judgment and Severance Order in Cause No. D-1-GV-06-000627

Tab 2: Final Judgment and Severance Order in Cause No. D-1-GV-06-000627

Tab 3: Act of May 25, 1991, 72d Leg., R.S., ch. 901, § 42, art. 4.03, 1991 Tex.

Gen. Laws 3203 (amended 2003) (current version at TEX. BUS. ORG. CODE

ANN. §101.114 (West Pamph. 2011)

Tab 4: Act of June 16, 1987, 70th Leg., 1 C.S., Ch. 2, 1987 Tex. Gen. Laws 42-43

(amended 1995)

Tab 5: Act of May 18, 1995, 74th Leg., R.S., Ch. 136, 1995 Tex. Gen. Laws 974

(repealed 2001)

Tab 6: Transcript of Summary Judgment Hearing

45

TAB 1

46

DC BK13262 PG1430

Filed in The District Court

of Travis County, Texas

LM SEP 19 2013

No. D-1-GV-06-0006 7 At I().' 0[)\ M

Amalia Rodriguez·Mendoza, Clerk

STATE OF TEXAS, § I THE DISTRICT COURT OF

Plaintiff, §

§

§

v. § VIS COUNTY, TEXAS

§

WHITE LION HOLDINGS, L.L.C., §

and BERNARD MORELLO §

Defendants. § 3 3rd JUDICIAL DISTRICT

FINAL SUMMARY JUDGMENT PERMAN NT INJUNCTION AND

ORDER OF SEVERA CE

The Court having considered the State's Motion f< r Summary Judgment and Motion for

Severance, the Defendant's reply thereto, the argument o counsel, the evidence on file, and the

pleadings, the Court GRANTS the Motion.

The Court hereby RENDERS FINAL JUDGMENT for the State of Texas. Therefore, the

Court ORDERS:

I. PAYMENT OF CIVIL ENALTIES

The State of Texas shall recover civil penalties fro White Lion Holdings, L.L.C. in the

amount of $325,600.00

II. PAYMENT OF UNPAID HAZARDOU WASTE FACILITY FEES

The State of Texas shall recover from White Lion oldings, L.L.C. outstanding hazardous

waste facility fees outstanding to the Texas Commission o Environmental Quality in the amount

of $129,464.15, together with an award of pre-judgment i erest.

III. PAYMENT OF ATTORNEY'S FEES AND COSTS

The State of Texas shall recover attorney's fees fr1m White Lion Holdings, L.L.C. in the

amount of $40,800.00. I

The State of Texas shall recover its costs of court om White Lion Holdings, L.L.C.

563

DC BK13262 PG1431

IV. POST-JUDGMENT I TEREST

The State of Texas shall recover pre-judgment int rest on all amounts awarded in this

judgment at the annual rate of 5.00%.

V. PERMANENT INJU CTION

The State of Texas' request for permanent injunctiv relief is granted. Defendant, White

Lion Holdings, L.L.C., and its officers, directors, rna agers, principals, partners, owners,

employees, agents, servants, and all persons in active cone rt or participation with them, on their

behalf, or under their control, whether directly or indirect! who receive notice of this Injunction

are permanently enjoined as follows:

A. Words and Terms for this Injunction

As used in this injunction, the words and terms set orth below shall have the following

meanmgs:

1. "White Lion" shall mean White Lion Holdi gs, L.L.C.

2. "Effective Date" shall mean the date the Co rt grants summary judgment.

3. "Property" shall mean the (1) land, buildin s and substation located at Spur 529

and Scott Road and consisting of 38.5 +/- ac es which includes 1.522 +/-acres that

comprises the substation; (2) farmland co sisting of 133.69 +/- acres; and (3)

vacant property consisting of25.32 +/-acre , also described as located at or about

2010 Spur 529 at Scott Road in Rosenberg Fort Bend County, Texas; owned by

White Lion.

4. "TCEQ" shall mean the Texas Commission on Environmental Quality.

5. "Compliance Plan" shall mean Compliance Plan No. 50129, transferred to White

Lion on July 23, 2004.

6. "Groundwater Protection Standard" shall e the concentration specified in Table

I, Column B of the Compliance Plan (cadmi m, 0.10 mg/L; cobalt, 2.2 mg/L; lead,

0.05 mg/L; barium, 2.0 mg/L; chromium, .1 0 mg/L; nickel, 0. 73 mg/L; silver,

0.18 mg/L; zinc, 11.0 mg/L).

7. "Corrective Action System" shall have the meaning set forth in Section II of the

Compliance Plan.

FINAL SUMMARY JUDGMENT AND ORDER OF SEVERANC PAGE2

564

DC BK13262 PG1432

B. Ordering Provisions of this Injunction

1. Subject to the provisions of this Injunction, 'mmediately after the Effective Date,

White Lion shall comply with each limitati n, requirement, and condition of the

Compliance Plan.

ay ec 1ve ate, White Lion must provide financial

assurance for the Property in accordance wi Section XI. of the Compliance P

in a form acceptable to the TCEQ and in a amount not less than $574,0 , and

must submit to TCEQ an originally signe version of the financial ssurance

echanism obtained.

3. W1 in 15 days after the Effective Date, Whi e Lion must insp t and evaluate each

mom ring well, point of compliance well, c rrective actio ystem recovery wells,

and co ective action observation wells th t are part the Corrective Action

Program nd Ground Water Monitoring Pro am set rth in the Compliance Plan,

including, ut not limited to, the followin identified in Table II of the

Compliance

a. Monitori Wells (MW): MW-1· W-2; MW-3; MW-4; MW-5; MW-6;

MW-7· M -8· MW-9· MW- · W-11· MW-12· MW-13· MW-14·

' ' ' ' ' ' ' '

MW-15; M -16; MW-17; W-1 A; MW-18B; MW-18C; MW-19A;

MW-19B; M -19C; -20A; MW-20B; MW-20C; MW-21A;

MW-21B; MW-2 C.

b. Recovery Wells (

c.

White Lion must n ify the TCEQ i :writin immediately upon completion of the

requirements stat a in this paragraph.

4. Within 20 d s after the Effective Date, f the conditions of any of the wells

identified i Paragraph B.3. of this lnjuncti "no longer enable the well to yield

samples presentative of groundwater qua ity ' (see Compliance Plan at Section

III.D.3 , White Lion must submit to the TC Q a oposal for replacement of such

well . Any new well must be designe and co structed in accordance with

Att hment B, Well Design and Construct on Speci ations, of the Compliance

P n. Any well that is to be abandoned or plugged, hall be abandoned and

lugged in accordance with Paragraph 14 o Attachment B fthe Compliance Plan.

. Within 60 days after the Effective Date, White Lion mus repair, redevelop,

replace, or take other necessary action to lly restore to full op ating condition

each ofthe wells identified in Paragraph B.. of this Injunction. 'te Lion must

· the TCE in writin · ents

stated in this paragraph.

FINAL SUMMARY JUDGMENT AND ORDER OF SEVERANC

565

DC BK13262 PG1433

1 m days after the Effective Date, s set forth in Section VI.C of the

Compliance Plan, White Lion must obtain a oundwater sample from each of e

wells identified in Paragraph B.3. of this Inj nction and shall have each co ected

groundwater sample individually analyzed or the constituents listed i

olumns A and C of the Compliance Pl (including cadmium, alt, lead,

ba ·urn, chromium, nickel, silver, zinc, pH conductivity, total d' solved solids,

iron, and sulfate). White Lion shall hav each of the coll ed groundwater

sampl analyzed in accordance with the cu ent edition of . . EPA Publication

SW-84 , Test Methods for Evaluatin So id Waste an ~erican Society for

Testing d Materials (ASTM) Standard est Metho or any other methods

accepted b the TCEQ, and the groundw ter analY, s shall be conducted at a

facility capa le of measuring the cone ntratio of each constituent at a

concentration ual to or less than the c rres nding Groundwater Protection

Standard. See pliance Plan Section VI.B. In each background well, point of

compliance well, a corrective action syste well, White Lion shall also measure

and record water leve easurements relaf to mean sea level measured to within

0.01 feet, the total dep of each well, nd descriptions of the appearance of the

groundwater collected (cl 'ty, color, or). See Compliance Plan Section VI.C.4.

White Lion must notify the CEQ· writin immediately upon completion of the

requirements stated in this p gr h.

7. Within 90 days after the Effe 1 e Date, W ite Lion shall submit to the TCEQ a

proposal for activation of th}~Rec Yery Wel s and Corrective Action System at the C ,q \~

Property. In accordance o/ith Secti III.B. ofthe Compliance Plan, such proposal \

must include a proposed,tiTiethod for anag ment of groundwater recovered from

each Recovery Well (i~luding any pur w ter from any other well).

/

8. Within 90 days oft}x~ Effective Date, White ion shall submit to the TCEQ a report

in accordance wi¢ Section VII.B of the Co iance Plan, including the following

information: /

I

a. ative summary of the evaluat ons rna following restoration of the

we s as set forth in Paragrap B.3. o this Injunction and the

s mplinglanalysis conducted as s t forth in aragraph B.6. of this

~unction;

Water table maps prepared from t e ground-water a collected as per

Paragraph B.6. of this Injunctio , and shall inclu

ground-water flow and estimation o the rate and direction

contamination migration;

An updated table and map of all m nitoring and corrective actio system

wells, including all records, well lo s, borings, and related docume s for

each monitoring well, point of co liance well, corrective action sys

rec d co · · ·

Corrective Action Program and Gro d Water Monitoring Program;

FINAL SUMMARY JUDGMENT AND ORDER OF SEVERANC PAGE4

566

DC BK13262 PG1434

1ca ana ys1s, su 1tted in a tabular format accepta e o

the TCEQ, which clearly indicat s each parameter that exceeds t

Groundwater Protection Standard, including copies of the o nal

laboratory report for chemical an lyses showing detection li · s and

quality control and quality assurance data; /

e. abulation of all water level elevati s, depth to water me urements, and

to al depth of well measurements col ected;

f. Pot tiometric surface maps showin the elevation the water table at the

time f sampling conducted as pe Paragraph .6. of this Injunction,

de linea ·on of the radius of influence of the Co ective Action System, and

the direc · n of groundwater flow gr dients tside any radius of influence;

g. Tabulation all data evaluations c nd ted pursuant to Section VI.D. of

the Complian Plan and the status f ach well with regard to compliance

with the Corr ctive Action ob · ctives and compliance with the

Groundwater Prot tion Standard ,

h. Maps of the contam· ated ar a de icting concentrations of constituents

exceeding the Ground ater rotecfon Standards as isopleth contours or

discrete concentrations i · opleth co tours cannot be inferred;

i. An updated schedule s of all activities required by the Compliance

Plan as required by S tion . of the Compliance Plan;

j. Summary of any c ges made t th monitoring/corrective action program

~

and a summary o activities conduc as set forth in Paragraphs B.l. to B.6.

of this Injunct' n, including all doc ents obtained from performance of

those activiti s;

k. Tabulatio of well casing elevation

the Com iance Plan; and

I. ctive measures implementati n report as t forth in Section VIII.F.

Compliance Plan, if determin d to be neces ry.

9. White L'on shall address each report, propo al, or notice requ· ed to be submitted

by the ~unction to:

With copies to:

der Compliance Team Craig J. Pritzlaff

exas Commission on Environmental

Case, AG#052198322

Quality Office of the Attorney Gener

MC-224

Environmental Protection

P.O. Box 13087

P.O. Box 12548

Austin, Texas 78711-2548

FINAL SUMMARY JUDGMENT AND ORDER OF SEVERANC PAGES

567

DC BK13262 PG1435

The Clerk will file a copy of this Final Summary Ju gment and Permanent Injunction and

Order of Severance under a separate docket number, to wit,!_...,o_-1_-_G_V_-_1_3_0_0_1_06_8_-:~

THE COURT FURTHER ORDERS that the Cler of this Court shall issue a writ of

permanent injunction against White Lion as set forth in Se tion V. of this ORDER AND FINAL

JUDGMENT.

THE COURT FURTHER ORDERS that execution o issue for this FINAL JUDGMENT.

THE COURT FURTHER ORDERS that the St te shall be allowed such writs and

processes as may be necessary to enforce this FINAL JUD MENT.

This FINAL JUDGMENT finally disposes of all p rties and all claims, and is appealable.

All relief not expressly granted is denied.

SIGNED this / ~ day of _ _s--=~~·----'--...::!.--'-~~~=.l..."""'--- 2013.

FINAL SUMMARY JUDGMENT AND ORDER OF SEVERAN PAGE6

568

TAB 2

47

DC BK1511 0 PG248

Filed in The District Court

of Travis County, Texas

APR 14 2015

No. D-1-GV-06-000627 At ~ ~N\ M.

Velva L. PriCJ District Clerk

STATE OF TEXAS, § IN THE DISTRICT COURT OF

Plaintiff, §

§

v. § TRAVIS COUNTY, TEXAS

§

BERNARD MORELLO, §

Defendant. § 353rd JUDICIAL DISTRICT

FINAL SUMMARY JUDGMENT

The Court having considered the State's Motion for Summary Judgment, the Defendant's

response thereto, the State's reply, the argument of counsel, the evidence on file, and the pleadings,

the Court GRANTS the Motion.

The Court RENDERED FINAL JUDGMENT for the State of Texas in a letter dated March

9, 2015, and after reconsidering, confirmed its judgment in a separate letter dated April 6, 2015.

This written judgment memorializes that rendition.

Accordingly, the Court ORDERS:

I. PAYMENT OF CIVIL PENALTIES

The State of Texas shall have judgment against and shall recover civil penalties from

Bernard Morello in the amount of$367,250.00.

II. PAYMENT OF ATTORNEY'S FEES AND COSTS

The State of Texas shall have judgment against and shall recover attorney's fees from

Bernard Morello in the amount of$26,844.00.

The State of Texas shall have judgment against and shall recover its costs of court from

Bernard Morello.

Case# D-1-GV-06-09~?.??_. __ ···-· ·-· . ··-· ·--·

IIll\\\ IIIII IIIII IIIII IIIII IIIII IIIII IIIII IIIII Ill\ Ill\

003980381

1458

DC BK1511 0 PG249

III. POST-JUDGMENT INTEREST

The State of Texas shall have judgment against and shall recover post-judgment interest

from Bernard Morello on all amounts awarded in this judgment at the rate of 5.00% compounded

annually, from the date this judgment is entered until all amounts are paid in full.

After reconsidering the State's objections to summary-judgment evidence, the Court also

orders that the State's objections to the admission of the Affidavits ofDavid H. Heslep and Wayne

Crouch, included with Bernard Morello's Response to the State's Motion for Summary Judgment

at Exhibit H and Exhibit I, are OVERRULED.

THE COURT FURTHER ORDERS that execution to issue for this FINAL JUDGMENT.

THE COURT FURTHER ORDERS that the State ofTexas shall be allowed such writs and

processes as may be necessary to enforce this FINAL JUDGMENT.

This FINAL JUDGMENT finally disposes of all parties and all claims, and is appealable.

All relief not expressly granted is denied.

SIGNED on ~ /"

FINAL SUMMARY JUDGMENT

D-1-GV-06-000627 PAGE2

1459

DC BK1511 0 PG250

APPROVED AS TO FORM:

KEN PAXTON

Attorney General ofTexas

CHARLES E. ROY

First Assistant Attorney General

JAMES E. DAVIS

Deputy Attorney General for Civil Litigation

JON NIERMANN

Chief, Environmental Protection Division

Craig . ritzl

Assistant Attorn y General

Environmental Protection Division

P.O. Box 12548, MC 066

Austin, Texas 78711-2548

Craig.Pritzlaff@texasattorneygeneral. gov

Attorneys for Plaintiff State of Texas

FINAL SUMMARY JUDGMENT

D-1-GV-06-000627 PAGE3

1460

DC BK1511 0 PG251

APPROVED AS TO FORM:

Stephen A Doggett

Attorney at Law

201 South 11th Street

Richmond, Texas 77469

office@doggett-law.com

Attorney for Defendant Bernard MoreUo

FINAL SUMMARY JUDGMENT

D-1-GV-06-000627 PAGE4

1461

DC BK1511 0 PG252

Keith

Taylo I!. ipman

Lapeze & Johns, PU..C

601 Sawyer Street, Suite 650

Houston, Texas 77077

Keith@lapezejohns.com

Attorneys for Defendant Bernard Morello

FINAL SUMMARY JUDGMENT

D-l·GV-00-000627 PAGES

1462

TAB 3

48

Art. 1528n. Texas Limited Liability Company Act, Vernon’s Ann.Texas Civ.St. Art. 1528n

Vernon’s Ann.Texas Civ.St. Art. 1528n

VERNON’S TEXAS STATUTES AND CODES ANNOTATED

CIVIL STATUTES

TITLE 32—CORPORATIONS

CHAPTER EIGHTEEN—MISCELLANEOUS

Art. 1528n. Texas Limited Liability Company Act

PART ONE

Short title, captions, parts, articles, sections, subsections, and paragraphs

Art. 1.01. A. This act shall be known and may be cited as the “Texas Limited Liability Company Act.”

B. The divisions of this act into Parts, Articles, Sections, Subsections and Paragraphs and the use of captions in connection

therewith are solely for the convenience and shall have no legal effect in construing the provisions of this Act.

C. This act has been organized and subdivided in the following manner:

(1) The act is divided into Parts, containing groups of related Articles. Parts are numbered consecutively with cardinal

numbers.

(2) The act is also divided into Articles, numbered consecutively with Arabic numerals.

(3) Articles are divided into Sections. The Sections within each Article are numbered consecutively with capital letters.

(4) Sections are divided into subsections. The subsections within each Section are numbered consecutively with Arabic

numerals enclosed in parentheses.

(5) Subsections are divided into paragraphs. The paragraphs within each subsection are numbered consecutively with lower

case letters enclosed in parentheses.

Definitions

Art. 1.02. A. As used in this Act, unless the context otherwise requires, the term:

(1) “Bankrupt” means bankrupt under the federal Bankruptcy Act or insolvent under any state insolvency act.

(2) “Court” includes every court and judge having jurisdiction in the action.

(3) “Limited Liability Company” or “Company” means a limited liability company organized and existing under this chapter.

(4) “Person” includes an individual, partnership, limited partnership, limited liability company, foreign limited liability

company, trust, estate, corporation, custodian, trustee, executor, administrator, nominee or entity in a representative capacity.

(5) “Real Property” means land and any interest or estate in land.

(6) “Business” means every trade and occupation or profession.

(7) “Conveyance” means every assignment, lease, mortgage, or incumbrance.

(8) “TBCA” means the Texas Business Corporation Act as amended and as it may hereafter be amended.

(9) “Foreign Limited Liability Company” means an entity formed under the laws of a jurisdiction other than this state (a) that

is characterized as a limited liability company by such laws or (b) although not so characterized by such laws, that elects to

procure a certificate of authority pursuant to Article 7.01 of this act, that is formed under laws which provides that some or all

of the persons entitled to receive a distribution of the assets thereof upon the entity’s dissolution or otherwise or to exercise

voting rights with respect to an interest in the entity shall not be liable for the debts, obligations or liabilities of the entity and

which is not authorized to qualify to do business in this state under any other statute.

PART TWO

Purposes

Art. 2.01. A. A limited liability company formed under this Act may engage in any lawful business unless a more limited

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 1

Art. 1528n. Texas Limited Liability Company Act, Vernon’s Ann.Texas Civ.St. Art. 1528n

purpose is stated in its articles of organization or regulations.

B. A limited liability company engaging in a business that is subject to regulation by another Texas statute may be formed

under this Act only if it is not prohibited by the other statute. The limited liability company is subject to all limitations of the

other statute.

Powers

Art. 2.02. A. Each limited liability company shall have the power provided for a corporation under the TBCA and a limited

partnership under the Texas Revised Limited Partnership Act.

B. Nothing in this Article grants any authority to managers or members of a limited liability company for the exercise of the

powers of a limited liability company, inconsistent with limitations on any of the same which may be expressly set forth in

this Act or any articles of organization or regulations or in any laws of this State. Authority of managers and members to act

beyond the scope of the purpose or purposes of a limited liability company is not granted by any provision of this Act.

C. Nothing contained in this Act shall be deemed to authorize any action in violation of the Anti-Trust laws of this State, as

now existing or hereafter amended.

Limited liability company names; use of assumed names

Art. 2.03. A. The limited liability company name shall conform to the following requirements:

(1) It shall either contain the word “Limited” or the abbreviation “Ltd.” or “L.C.” and shall contain such additional words as

may be required by law.

(2) It shall not contain any word or phrase which indicates or implies that it is organized for any purpose other than one or

more of the purposes contained in its articles of organization.

(3) It shall not be the same as, or deceptively similar to, the name of any domestic limited liability company, corporation or

limited partnership existing under the laws of this state, or the name of any foreign limited liability company, corporation or

limited partnership authorized to transact business in this state, or a name the exclusive right to which is, at the time, reserved

in the manner provided in this Act or any other statute providing for reservation of names by a corporation or limited

partnership, or the name of a limited liability company, corporation or limited partnership which has in effect a registration of

its company name as provided in this act or any other applicable law provided that a name may be similar if written consent

is obtained from the existing limited liability company, corporation or limited partnership having the name deemed to be

similar or the person for whom the name deemed to be similar is reserved in the office of the Secretary of State.

B. Any domestic or foreign limited liability company having authority to transact business in this State, may do so under an

assumed name, by filing an assumed name certificate in the manner prescribed by law.

C. The filing of articles of organization under Part Three of this Act or an application to reserve a specified company name

under Article 2.04 of this Act, does not authorize the use of limited liability company name in this State in violation of the

rights of another under the Federal Trademark Act of 1946 (15 U.S.C., Section 1051 et seq.), the Texas trademark law

(Chapter 16, Business & Commerce Code), the Assumed Business or Professional Name Act (Chapter 36, Business &

Commerce Code), or the common law.

Reserved name

Art. 2.04. A. The exclusive right to the use of a limited liability company name may be reserved by any person.

B. The reservation shall be made by filing with the Secretary of State an application to reserve a specified company name,

executed by the applicant or the attorney or agent thereof. If the Secretary of State finds that the name is available for limited

liability company use, the Secretary of State shall reserve the same for the exclusive use of the applicant for a period of one

hundred and twenty (120) days.

C. The right to the exclusive use of a specified company name so reserved may be transferred to any other person or limited

liability company by filing in the office of the Secretary of State a notice of such transfer, executed by the applicant for whom

the name was reserved, and specifying the name and address of the transferee.

Registered office and registered agent

Art. 2.05. A. Each limited liability company or foreign limited liability company subject to this Act shall have and

continuously maintain in this State:

(1) A registered office which may be, but need not be, the same as its place of business.

(2) A registered agent, which agent may be either an individual resident in this State whose business office is identical with

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 2

Art. 1528n. Texas Limited Liability Company Act, Vernon’s Ann.Texas Civ.St. Art. 1528n

such registered office, or a person organized under or authorized to transact business in this State which has a business office

identical with such registered office.

Change of registered office or registered agent

Art. 2.06. A. A limited liability company or foreign limited liability company subject to this Act may change its registered

office or change its registered agent, or both, upon filing in the office of the Secretary of State a statement setting forth:

(1) The name of the limited liability company.

(2) The post office address of its then registered office.

(3) If the post office address of its registered office is to be changed, the post office address to which the registered office is

to be changed.

(4) The name of its then registered agent.

(5) If its registered agent is to be changed, the name of its successor registered agent.

(6) That the post office address of its registered office and the post office address of the business office of its registered agent,

as changed, will be identical.

(7) That such change was authorized by its members or managers.

B. The statement required by this article shall be executed on behalf of the limited liability company or foreign limited

liability company by an authorized member or manager. The original and a copy of the statement shall be delivered to the

Secretary of State. If the Secretary of State finds that such statement conforms to the provisions of this Act, the Secretary of

State shall, when the appropriate filing fee is paid as prescribed by law:

(1) Endorse on the original and the copy the word “filed,” and the month, day, and year of the filing thereof.

(2) File the original in the office of the Secretary of State.

(3) Return the copy to the limited liability company or its representative.

C. Upon such filing, the change of address of the registered office, or the appointment of a new registered agent, or both, as

the case may be, shall become effective.

D. Any registered agent of a limited liability company or foreign limited liability company may resign:

(1) by giving written notice to the limited liability company at its last known address; and

(2) by giving written notice, in duplicate (the original and one copy of the notice), to the Secretary of State within ten days

after mailing or delivery of said notice to the limited liability company. Such notice shall include the last known address of

the limited liability company and shall include the statement that written notice of resignation has been given to the limited

liability company and the date thereof. Upon compliance with the requirements as to written notice, the appointment of such

agent shall terminate upon the expiration of thirty (30) days after receipt of such notice by the Secretary of State.

If the Secretary of State finds that such written notice conforms to the provisions of this Act, the Secretary of State shall:

(1) Endorse on the original and the copy of the word “filed” and the month, day, and year of the filing thereof.

(2) File the original in the office of the Secretary of State.

(3) Return the copy to such resigning registered agent.

(4) Notify the limited liability company of the resignation of the registered agent.

No fee shall be required to be paid for the filing of a resignation under this section.

Change of address of registered agent

Art. 2.07. A. The location of the registered office in Texas for a limited liability company or foreign limited liability company

subject to this Act may be changed from one address to another upon filing in the office of the Secretary of State a statement

setting forth:

(1) The name of the limited liability company or foreign limited liability company represented by such registered agent.

(2) The address at which such registered agent has maintained the registered office for the limited liability company or

foreign limited liability company.

(3) The new address at which such registered agent will thereafter maintain the registered office for the limited liability

company or foreign limited liability company.

(4) A statement that notice of the change has been given to said limited liability company or foreign limited liability company

in writing at least ten (10) days prior to such filing.

B. The statement required by this article shall be signed by the registered agent, or, an authorized officer, manager or member

on its behalf. If the registered agent is simultaneously filing statements as to more than one limited liability company, each

such statement may contain facsimile signatures in the execution. The original and one copy of the statement shall be

delivered to the Secretary of State. If the Secretary of State finds that such statement conforms to the provisions of this Act,

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 3

Art. 1528n. Texas Limited Liability Company Act, Vernon’s Ann.Texas Civ.St. Art. 1528n

the Secretary of State shall:

(1) Endorse on the original and the copy the word “filed,” and the month, day, and year of the filing thereof.

(2) File the original in the office of the Secretary of State.

(3) Return the copy to such registered agent.

C. The registered office of the limited liability company or foreign limited liability company named in such statement shall

be changed to the new address of the registered agent upon the filing of such statement by the Secretary of State.

Service of process on a limited liability company

Art. 2.08. A. The managers and the registered agent shall be agents of a limited liability company or foreign limited liability

company upon whom any process, notice, or demand required or permitted by law to be served upon the limited liability

company or foreign limited liability company may be served.

B. Whenever a limited liability company or foreign limited liability company shall fail to appoint or maintain a registered

agent in this State, or whenever its registered agent cannot with reasonable diligence be found at the registered office, then

the Secretary of State shall be an agent of such limited liability company or foreign limited liability company upon whom any

such process, notice, or demand may be served. Service on the Secretary of State of any process, notice, or demand shall be

made by delivering to and leaving with the Secretary of State, or with the Assistant Secretary of State, or with any clerk

having charge of the limited liability company department of the Secretary of State’s office, duplicate copies of such process,

notice, or demand. In the event any such process, notice, or demand is served on the Secretary of State, the Secretary of State

shall immediately cause one of the copies thereof to be forwarded by registered mail, addressed to the limited liability

company or foreign limited liability company at its registered office. Any service so had on the Secretary of State shall be

returnable in not less than thirty (30) days.

C. The Secretary of State shall keep a record of all processes, notices and demands served under this Article, and shall record

therein the time of such service and the action with reference thereto.

D. Nothing herein contained shall limit or affect the right to serve any process, notice, or demand required or permitted by

law to be served upon a limited liability company or foreign limited liability company in any manner now or hereafter

permitted by law.

Regulations of limited liability company

Art. 2.09. A. The power to adopt, alter, amend, or repeal the regulations of a limited liability company shall be vested in the

members of the company unless vested in whole or part in the manager or managers of the company by the articles of

organization or regulations. Regulations adopted by the members or by the managers may be repealed or altered; new

regulations may be adopted by the members; and regulations may provide that they may not, in whole or specified part, be

altered, amended, or repealed by the managers. The regulations may contain any provisions for the regulation and

management of the affairs of the limited liability company not inconsistent with law or the articles of organization. The initial

regulations of the limited liability company shall be adopted by the manager or managers named in the articles of

organization.

Contracting debts and obligations

Art. 2.10. A. Except as otherwise provided in this Article or the articles of organization or regulations of the limited liability

company, debts, liabilities and other obligations may be contracted for or incurred on behalf of a limited liability company,

by:

(1) One or more of its managers, if management of the limited liability company has been vested in a manager or managers;

or

(2) Any member or members, if management of the limited liability company is retained by the members.

(3) Any officer or other agent vested with actual or apparent authority.

Limited liability company property

Art. 2.11. A. Real or personal property owned or purchased by a limited liability company shall be held and owned, and

conveyance shall be made, in the name of the limited liability company. Instruments and documents providing for the

acquisition, mortgage, or disposition of the property of the limited liability company shall be valid and binding upon the

company, if they are executed by one or more persons as provided in the preceding Article.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 4

Art. 1528n. Texas Limited Liability Company Act, Vernon’s Ann.Texas Civ.St. Art. 1528n

Managers

Art. 2.12. A. Except and to the extent the regulations shall reserve the same to the members in whole or in part, the powers of

a limited liability company shall be exercised by or under the authority of, and the business and affairs of a limited liability

company shall be managed under the direction of, the managers of the limited liability company. Managers need not be

residents of this State or members of the limited liability company unless the regulations so require. The regulations may

prescribe other qualifications for managers.

Number and election of managers

Art. 2.13. A. The managers of a limited liability company shall consist of one or more persons. The number of managers shall

be fixed by, or in the manner provided in, the regulations, except as to the number constituting the initial managers, which

number shall be fixed by the articles of organization. The number of managers may be increased or decreased from time to

time by amendment to, or in the manner provided in, the regulations, but no decrease shall have the effect of shortening the

term of any incumbent manager. In the absence of a regulation fixing the number of managers or providing for the manner in

which the number of managers shall be fixed, the number of managers shall be the same as the number constituting the initial

managers. The names and addresses of the initial managers shall be stated in the articles of organization. Unless removed in

accordance with the provisions of the regulations, such persons shall hold office until the first annual meeting of members,

and until their successors shall have been elected and qualified. At the first annual meeting of members and at each annual

meeting thereafter, the holders of membership interests entitled to vote in the election of managers shall elect managers to

hold office until the next succeeding annual meeting, except in case of the classification of managers as permitted by this Act.

The regulations may provide that the holders of any class or series of membership interests shall be entitled to elect one or

more managers, who shall hold office for such terms as shall be stated in the regulations. Unless removed in accordance with

provisions of the regulations, each manager shall hold office for the term for which elected and until a successor shall have

been duly elected and qualified. The regulations may provide that at any meeting of members called expressly for that

purpose any managers may be removed, with or without cause, as provided therein. Whenever the holders of any class or

series of shares are entitled to elect one or more managers by the provisions of the regulations, only the holders of

membership interests of that class or series shall be entitled to vote for or against the removal of any managers elected by the

holders of that class or series.

Classification of managers

Art. 2.14. A. The regulations may provide that the managers shall be divided into either two or three classes, each class to be

as nearly equal in number as possible, the terms of office of managers of the first class to expire at the first annual meeting of

members after their election, that of the second class to expire at the second annual meeting after their election, and that of

the third class, if any, to expire at the third annual meeting after their election. If the regulations provide for the classification

of managers, (1) the whole number of managers of the company need not be elected annually, and (2) at each annual meeting

after such classification, the number of managers equal to the number of the class whose term expires at the time of such

meeting shall be elected to hold office until the second succeeding annual meeting, if there be two classes, or until the third

succeeding annual meeting, if there be three classes.

Vacancies

Art. 2.15. A. Any vacancy occurring in the managers may be filled in accordance with Section B of this Article or may be

filled by the affirmative vote of a majority of the remaining managers though less than a quorum of the managers. A manager

elected to fill a vacancy shall be elected for the unexpired term of the predecessor in office.

B. Any vacancy occurring in the managers to be filled by reason of an increase in the number of managers may be filled by

election at an annual or special meeting of members called for that purpose.

C. Notwithstanding Sections A and B of this Article, whenever the holders of any class or series of membership interests are

entitled to elect one or more managers by the provisions of the regulations, any vacancies, and any newly created managers

of such class or series to be filled by reason of an increase in the number of such managers may be filled by the affirmative

vote of a majority of the managers, elected by such class or series then in office or by a sole remaining manager so elected, or

by the vote of the holders of the outstanding membership interests of such class or series, and such vacancy shall not in any

case be filled by the vote of the remaining managers or the holders of the outstanding membership interests as a whole unless

otherwise provided in the regulations.

© 2015 Thomson Reuters. No claim to original U.S. Government Works. 5

Art. 1528n. Texas Limited Liability Company Act, Vernon’s Ann.Texas Civ.St. Art. 1528n

Quorum of and action by managers

Art. 2.16. A. A majority of the number of managers fixed by, or in the manner provided in, the regulations shall constitute a

quorum for the transaction of business unless a greater number is required by law or the regulations. The act of the majority

of the managers present at a meeting at which a quorum is present shall be the act of the managers, unless the act of a greater

number is required by law or the regulations.

Interested managers

Art. 2.17. A. No contract or transaction between a limited liability company and one or more of its managers or officers, or

between a limited liability company and any other limited liability company, corporation, partnership, association, or other

organization in which one or more of its managers or officers are managers, directors or officers or have a financial interest,

shall be void or voidable solely for this reason, solely because the manager or officer is present at or participates in the

meeting of managers or of a committee of managers which authorizes the contract or transaction, or solely because such

manager’s or managers’ votes are counted for such purpose, if:

(1) The material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to the

managers or the committee, and the managers or committee in good faith authorizes the contract or transaction by the

affirmative vote of a majority of the disinterested managers, even though the disinterested managers be less than a quorum; or

(2) The material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to the

members entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the

members; or

(3) The contract or transaction is fair as to the limited liability company as of the time it is authorized, approved, or ratified

by the managers, a committee thereof, or the members.

B. Common or interested managers may be counted in determining the presence of a quorum at a meeting of the managers or

of a committee which authorizes the contract or transaction.

Committees of the m

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