Paradise Living Inc and Mary Arthur v. Blackburne & Brown Mortgage Fund I

Opinion issued June 11, 2019

In The

Court of Appeals

For The

First District of Texas

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NO. 01-18-00194-CV

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PARADISE LIVING, INC. AND MARY ARTHUR, Appellants

V.

BLACKBURNE & BROWN MORTGAGE FUND I, Appellee

On Appeal from the 11th District Court

Harris County, Texas

Trial Court Case No. 2017-56890

MEMORANDUM OPINION

The trial court entered a take-nothing summary judgment against Paradise

Living, Inc. and Mary Arthur, holding that their claims against Blackburne &

Brown Mortgage Fund I were barred by res judicata. The trial court also imposed

sanctions against their attorneys, Ike Okorafor and Larry Boje.

In five issues, Paradise Living, Inc. and Mary Arthur contend the trial court

erred in granting summary judgment against them, erred in sanctioning their

attorneys, and did not have plenary power to enter an amended order for summary

judgment and sanctions more than 75 days after its original order for summary

judgment and sanctions.

We affirm.

Background

Paradise Living operated an assisted living facility in Houston in a multi-unit

complex originally purchased by Mary Arthur and James Arthur. The Arthurs

wished to renovate their property and, in 2006, one of their limited partnerships

borrowed $774,000 from Blackburne & Brown Mortgage Fund I. The Arthurs

guaranteed the note and deed of trust. By 2016, Blackburn began taking action

against the Arthurs and their related entities, claiming the loan payments were

delinquent. Blackburne sought to foreclose on the property.

While facing pre-foreclosure demands for payment, Paradise Living and

Arthur Holdings, L.P.—an entity related to the Arthurs in a way the record does

not make clear—sued Blackburne for conversion of mortgage payments, tortious

interference with business relationship, an accounting, injury to business

reputation, breach of the duty of good faith and fair dealing, and breach of contract.

Their suit was filed in Harris County District Court and assigned Cause Number

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2016-12403. They sought damages, declaratory relief, and an injunction. Their

second amended petition removed Paradise Living from the list of plaintiffs and

added James P. Arthur.

Blackburne answered the lawsuit with a general denial. In the same

pleading, Blackburne asserted a counterclaim for breach of contract against Arthur

J. Holdings, Inc., Legonite, Inc., James Arthur, Mary Arthur, “and any other owner

or partner of Arthur LP or Legonite.”

A settlement agreement was reached in May 2016 that established new

payment deadlines for mortgage payments. The settlement agreement lists all

parties to the agreement. The parties to the agreement are, on the one side, “Arthur

Holdings, LP; Arthur P. Holdings, LP; Legonite, Inc.; Arthur J. Holdings, Inc.;

Paradise Living, Inc. d/b/a The Cottage Health Services; James Arthur; and Mary

Arthur; including the principals, partners, directors, officers, assignees, or agents of

the aforementioned,” and, on the other side, “Blackburne & Brown Mortgage Fund

I; including its principals, partners, directors, officers, assignees, or agents.”

The settlement agreement states that it “disposes of all Parties and all claims.

Such disposal includes but is not limited to claims or defenses that were filed in

this lawsuit or could or should have been filed in this lawsuit, as well as claims or

defenses associated” with various Property Code provisions. The agreement is

signed as “approved as to form and substance” by James O. Okorafor, who is listed

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as “counsel for Arthur Holdings, LP; Arthur P, Holdings, LP; James Arthur; Mary

Arthur; Arthur J. Holdings, Inc.; Legonite, Inc; and Paradise Living Inc. d/b/a The

Cottage Health Services.”

Along with the settlement agreement, the parties entered into an agreed final

judgment. The agreed final judgment lists the same parties and recounts the same

terms as the settlement agreement. It also states that the agreed final judgment

“finally disposes of all Parties and all claims. Such disposal includes but is not

limited to claims or defenses that were filed in this lawsuit or could or should have

been filed in this lawsuit.” Like the settlement agreement, the agreed final

judgment is signed as “approved as to form and substance” by James O. Okorafor,

who is listed as “counsel for Arthur Holdings, LP; Arthur P, Holdings, LP; James

Arthur; Mary Arthur; Arthur J. Holdings, Inc.; Legonite, Inc; and Paradise Living

Inc. d/b/a The Cottage Health Services.” The agreed final judgment was entered

August 24, 2017.

The same day the judgment was entered, three of the parties to the

settlement agreement and to the agreed final judgment filed suit against

Blackburne in another Harris County District Court, which was assigned Cause

Number 2017-56890. Paradise Living, Inc., Legonite, Inc., and Mary Arthur

asserted claims against Blackburne for wrongful foreclosure, conversion, breach of

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contract, unjust enrichment, and other causes of action. The plaintiffs sought

damages, declaratory relief, an injunction, and attorney’s fees.

Blackburne answered; sought transfer to the district court that entered the

agreed final judgment; asserted defenses, including res judicata; and asserted a

counterclaim for breach of contract, specifically the settlement agreement.

After the motion to transfer was granted, Blackburne moved for summary

judgment on all plaintiff claims, arguing that they are barred by res judicata

because the plaintiffs were parties to the earlier agreed final judgment. Blackburne

also sought sanctions for filing a groundless pleading in bad faith.

The plaintiffs amended their petition to drop Legonite, Inc. from the list of

plaintiffs, leaving only Paradise Living, Inc. and Mary Arthur. The amended

petition asserted only two causes of action: (1) tortious interference with an

existing contract with “government agencies” related to the placement and funding

of individuals in the assisted living facility and (2) business disparagement. The

plaintiffs sought actual and exemplary damages, plus attorney’s fees.

Blackburne filed an amended motion for summary judgment and sanctions.

The trial court granted Blackburne’s summary-judgment motion; rendered

judgment for Blackburne; sanctioned Mary Arthur, Paradise Living, Inc., and

Legonite, Inc., $3,000; and ordered their attorneys, Ike Okorafor and Larry Boje, to

attend 2.5 hours of continuing legal education ethics courses.

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Paradise Living, Inc. and Mary Arthur (hereafter referred to collectively as

PL/MA) filed a motion to reconsider. Blackburne filed a responsive pleading in

which it requested that the trial court deny the motion for reconsideration and grant

Blackburne attorney’s fees “as sanctions for Plaintiffs’ continued violations of

Texas Rule of Civil Procedure 13 and §§ 9.011 and 10.001 of the Texas Civil

Practice & Remedies Code.” The record does not contain an order ruling on

PL/MA’s motion for reconsideration or Blackburne’s request for attorney’s fees as

sanction.

On March 9, 2018, Blackburne filed a motion for damages and additional

fees, arguing that the amount of sanctions imposed earlier was considerably less

than the expense to respond to ongoing frivolous filings and would not sufficiently

deter such filings in the future.

James Arthur and “entities in his name” filed a “nonparty response” to

Blackburne’s motion, arguing, first, that the court already lost plenary power

before Blackburne filed its motion for damages and additional fees, and second, in

the alternative, that the trial court should sanction Blackburne.

On March 28, 2018, the trial court entered an amended summary-judgment

and sanctions order. Among other rulings, the order grants Blackburne’s amended

summary-judgment motion; renders judgment for Blackburne on PL/MA’s claims;

grants Blackburne summary judgment on its breach-of-contract claim and awards

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attorney’s fees on that claim; finds that PL/MA and their attorneys, Larry Boje and

Ike Okorafor failed to comply with Chapter 10 of the Texas Civil Practice and

Remedies Code and Texas Rule of Civil Procedure 13; and orders Boje and

Okorafor to attend 2.5 hours of continuing legal education on ethics as a sanction.

PL/MA appeal.

Trial Court’s Plenary Power

In their third issue, PL/MA argue that the “trial court erred in granting

defendant’s motion for new trial more than 75 days after judgment,” citing Civil

Procedure Rule 329b. We understand their argument to be that plenary power

expired following the trial court’s entry of its first summary judgment order,

making its subsequent amended summary-judgment and sanction order void.

The trial court initially granted Blackburne summary judgment on December

20, 2017. That order states that it is a final judgment. The trial court retained

jurisdiction for 30 days after signing the final judgment. TEX. R. CIV. P. 329b(d).

PL/MA extended plenary power by timely filing a motion for reconsideration. TEX.

R. CIV. P. 329b(e), (g); In re T.G., 68 S.W.3d 171, 176–77 (Tex. App.—Houston

[1st Dist.] 2002, pet. denied) (orig. proceeding). Their filing extended the trial

court’s plenary power until 30 days after their motion was overruled. TEX. R. CIV.

P. 329b(e); In re T.G., 68 S.W.3d at 176–77. Because the trial court did not

expressly rule on their 329b motion, their motion was overruled as a matter of law

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75 days after the judgment was signed. TEX. R. CIV. P. 329b(c); see In re T.G., 68

S.W.3d at 176–77.

Under these facts, the trial court’s plenary power extended 105 days after the

December 20, 2017 final judgment was signed; thus, plenary power extended to

early April 2018. The trial court signed the judgment granting Blackburne’s

amended summary-judgment motion and ordering sanctions on March 28 while it

retained plenary power.

We overrule issue three.

Take-Nothing Judgment on PL/MA’s Two Causes of Action

In their first and fifth issues, PL/MA contend the trial court erred in granting

summary judgment to Blackburne on their two causes of action and entering a

take-nothing judgment against them. PL/MA argue they were two of several

plaintiffs asserting a variety of claims against Blackburne in the 2016 suit, they had

a right to nonsuit their claims at any time, they nonsuited their claims before the

remaining parties attended mediation and settled, they were not parties to the

settlement, their claims are not the same as those that did settle, and, as a result, res

judicata does not apply to bar their second suit against Blackburne. PL/MA’s

argument fails for several reasons.

First, it is immaterial that PL/MA nonsuited their affirmative claims for

relief before the settlement. Because the nonsuit was without prejudice, PL/MA

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had the ability to reassert their claims at any time so long as the limitations period

had not expired. See Aetna Cas. & Sur. Co. v. Specia, 849 S.W.2d 805, 806 (Tex.

1993) (“Subject to certain conditions, a plaintiff who takes a nonsuit is not

precluded from filing a subsequent suit seeking the same relief.”). A person or

entity with a legal claim does not have to have a lawsuit pending to settle its

claims. See Banda v. Garcia, 955 S.W.2d 270 (Tex. 1997) (affirming judgment

enforcing presuit settlement).

Second, PL/MA’s claims against Blackburne were not the only claims for

affirmative relief between those three parties. Blackburne filed its original answer

and, in it, asserted a counterclaim against PL/MA for breach of contract based on

assertions that they had failed to tender payments due under the terms of the

settlement agreement. Blackburne asserted its counterclaim before PL/MA

nonsuited their claims. While PL/MA had the right to nonsuit their claims when

they did so, their nonsuit did not also extinguish Blackburne’s pending claim for

affirmative relief. See Villafani v. Trejo, 251 S.W.3d 466, 469 (Tex. 2008). PL/MA

were still parties to the litigation even after they nonsuited their claims: they were

counter-defendants.

Third, PL/MA were named as parties to the settlement agreement and the

agreed final judgment. Their attorney approved both pleadings “as to form and

substance” on their behalf. The agreed final judgment specifically lists PL/MA as

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parties and states that it “finally disposes of all Parties and all claims. Such

disposal includes but is not limited to claims or defenses that were filed in this

lawsuit or could or should have been filed in this lawsuit.”

Thus, at the time of settlement and rendition of judgment, PL/MA had

unlitigated claims against Blackburne, Blackburne had pending claims against

them, and all parties had agreed to dispose of their “claims or defenses that were

filed . . . or could or should have been filed” and to rendition of an agreed final

judgment. PL/MA’s assertion that they were no longer litigants and therefore could

not have been parties to the settlement is unavailing.

The parties settled their claims and agreed to entry of a final judgment. Any

future efforts to reassert the same adjudicated claims or related matters that should

have been litigated in the prior suit would be barred by res judicata. See Barr v.

Resolution Tr. Corp., 837 S.W.2d 627, 628 (Tex. 1992) (“Res judicata, or claims

preclusion, prevents the relitigation of a claim or cause of action that has been

finally adjudicated, as well as related matters that, with the use of diligence, should

have been litigated in the prior suit.”).

The elements of res judicata are (1) a final prior judgment on the merits by a

court of competent jurisdiction, (2) identity of the parties or those in privity with

them, and (3) a subsequent action based on the same claims raised or those that

could have been raised in the first action. Amstadt v. United States Brass Co., 919

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S.W.2d 644, 652 (Tex. 1996). Here, Blackburne established there was a prior

judgment, PL/MA were parties to the agreed final judgment, and the claims

asserted in their 2017 suit could have been (and were, earlier on) raised in the first

action. PL/MA’s claims are barred by res judicata. The trial court did not err in

granting Blackburne’s summary-judgment motion and entering a take-nothing

judgment against PL/MA on their two causes of action.

We overrule issues one and five.

Sanctions

In their final two issues, PL/MA argue the trial court erred by imposing

sanctions on their attorneys for filing their second lawsuit. They contend it was not

groundless or in bad faith to refile their suit because they had a right to nonsuit

their claims in the first suit.

A. Standard of review and applicable law

We review the imposition of sanctions for an abuse of discretion. Low v.

Henry, 221 S.W.3d 609, 614 (Tex. 2007). We may reverse the trial court’s ruling

only if it acted without reference to any guiding rules and principles, such that its

ruling was arbitrary or unreasonable. Id. To determine if the sanctions were

appropriate or just, we must ensure there is a direct nexus between the improper

conduct and the sanction imposed. Id. We generally presume that pleadings and

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other papers are filed in good faith, and the party seeking sanctions bears the

burden of overcoming this presumption of good faith. Id.

There are several sources of authority for a trial court to impose sanctions on

a party or a party’s attorney. See, e.g., TEX. R. CIV. P. 13; TEX. CIV. PRAC. & REM.

CODE ch. 9, 10. Chapter 10 provides that the signing of a pleading or motion

constitutes a certificate by the signatory that, to the signatory’s best knowledge,

information, and belief—formed after reasonable inquiry—the pleading or motion

is not being presented for any improper purpose, including to harass or to cause

unnecessary delay or needless increase in the cost of litigation, and, among other

things, each claim, defense, or other legal contention is warranted by existing law

or by a nonfrivolous argument for the extension, modification, or reversal of

existing law or the establishment of a new law. TEX. CIV. PRAC. & REM. CODE

§ 10.001. A court that determines a signatory violated Section 10.001 may impose

sanctions on the signatory, a party represented by the signatory, or both. Id.

§ 10.004(a). The sanction may include a directive to perform or refrain from an act,

an order to pay a penalty into the court, and an order to pay the opposing litigant

the amount of reasonable expenses incurred because of the filing, including

reasonable attorney’s fees. Id. § 10.004(c).

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B. Trial court did not abuse discretion in ordering sanctions

The trial court found that PL/MA filed their second suit while aware of the

proceedings and pleadings in the first suit and did so for purposes of harassment

and to delay enforcement of the agreed final judgment. The trial court found that

PL/MA’s attorneys, Larry Boje and Ike Okorafor, failed to comply with Chapter

10 of the Civil Practice and Remedies Code and with Rule 13 of the Rules of Civil

Procedure. The trial court found that good cause existed to assess sanctions against

them and ordered Boje and Okorafor to attend 2.5 hours of continuing legal

education on ethics. The trial court did not impose any monetary sanctions on

PL/MA or their attorneys, and it did not sanction PL/MA at all.

As discussed above, PL/MA had unlitigated claims against Blackburne that

they settled. And Blackburne had a pending claim against PL/MA that it settled.

All parties agreed to rendition of an agreed final judgment disposing of their

claims. On the same day that judgment was entered, PL/MA filed a second suit

asserting the same claims they settled. This required Blackburne to incur additional

attorney’s fees and expenses to enforce its rights under the settlement agreement

and the terms of the agreed final judgment.

Blackburne established the amount of attorney’s fees incurred in litigating

already settled claims and moving for and obtaining judgment on res judicata

grounds. Blackburne provided summary judgment evidence of $57,286 in

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attorney’s fees and $1,437.21 in expenses through entry of judgment in the second

suit. Blackburne’s counsel, John Michael Raborn, averred that the time spent and

fees charged were reasonable and necessary.

Section 10.004(a) permits a trial court to impose sanction against a signatory

whom the trial court determines has, after reasonable inquiry, signed a pleading for

any improper purpose (including to harass or to cause unnecessary delay) or to

raise a claim or defense that is not warranted by existing law or a nonfrivolous

argument for change in existing law or the establishment of a new law. TEX. CIV.

PRAC. & REM. CODE §§ 10.001, 10.004(a).

The underlying suit involved a foreclosure for nonpayment of mortgage

payments. The settlement agreement established new deadlines for the mortgage

payments. When those payments were not made and Blackburne took steps to

foreclose on the property as permitted under the terms of the agreed final

judgment, PL/MA filed a second lawsuit asserting the same claims they just

settled. At the sanctions hearing, counsel argued that it was seeking to have the

court in the second lawsuit review the merits of the first lawsuit. There is no basis

in law to do so.1 Counsel also stated, at the sanctions hearing, “I have yet to see

any counterclaim the defendant is referring to.” But the original answer contained

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Further, Blackburne pointed to counsel’s affidavit that is not in the record but is

described by Blackburne’s counsel as stating a desire to pursue additional

litigation to delay foreclosure. Whether this affidavit is in the trial court’s file, we

do not know. We do not find it in the appellate record.

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Blackburne’s counterclaim. Blackburne argued there was no other purpose for the

second suit than harassment and delay of foreclosure.

We conclude the trial court did not err in concluding that Boje and Okorafor

violated Section 10.001. The trial court reasonably could have concluded that a

reasonable inquiry by counsel would have revealed the plaintiffs’ claims were

barred by res judicata because they were parties to the agreed final judgment. The

trial court reasonably could have concluded further that, without any nonfrivolous

basis for relitigating settled claims, those claims were pursued for an improper

purpose, such as to harass or delay. The trial court was within its discretion to infer

that the second suit was filed to harass and delay. See Ketterman v. Texas Dep’t of

Family & Protective Servs., No. 01-12-00883-CV, 2014 WL 7473881, at *13 (Tex.

App.—Houston [1st Dist.] Dec. 30, 2014, no pet.) (mem. op.) (stating that “trial

court could reasonably infer from this testimony and evidence that [the attorney]

filed the second amended petition in bad faith or with the intent to harass”). The

trial court did not abuse its discretion in imposing sanctions under Section

10.004(a).

Pl/MA do not challenge the type of sanction imposed, only the propriety of a

sanction order. Because we have held that the trial court did not abuse its discretion

in issuing a sanction order under Chapter 10, we do not reach the other bases for

sanctions listed in the trial court’s order. See Zeifman v. Nowlin, 322 S.W.3d 804,

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809 (Tex. App.—Austin 2010, no pet.) (stating trial court’s imposition of sanctions

can be affirmed on any legal basis relied upon by court).

We overrule issues two and four.

Conclusion

We affirm.

Sarah Beth Landau

Justice

Panel consists of Justices Lloyd, Landau, and Countiss.

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