Michael Barkhausen v. Craycom, Inc., D/B/A Craycons to Computers, Anthony Matera, and Sharon Matera

Citation: Not availableDocket: 01-04-00486-CV

Court: Court of Appeals of Texas; September 22, 2005; Texas; State Appellate Court

Original Court Document: View Document

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On September 22, 2005, the Court of Appeals for the First District of Texas issued an opinion regarding the appeal by Michael Barkhausen against Craycom, Inc. and its officers, Sharon and Anthony Matera. Barkhausen's suit stemmed from a dispute over an investment related to an oral agreement made by his ex-wife, Pamela Barkhausen, to purchase shares of Craycom stock. Although Craycom classified her $27,000 investment as a loan and initially issued no stock or dividends, following their divorce, Michael demanded payment for the investment and subsequently filed a lawsuit alleging various claims against Craycom for failing to issue the shares.

After an initial bench trial and the granting of a new trial, the trial court ultimately ruled in favor of Craycom and awarded $30,000 in attorney’s fees as a sanction against Barkhausen. On appeal, the court examined whether the trial court had abused its discretion in denying Barkhausen a jury trial during the second trial and in awarding attorney’s fees as a sanction. The court determined that while the denial of a jury trial was not an abuse of discretion, the award of attorney’s fees as a sanction was inappropriate. Consequently, the court affirmed the trial court's judgment on the merits but reversed the sanctions award. 

The procedural history included a summary judgment motion by Craycom that was never ruled upon, followed by a bench trial where both sides presented evidence. The trial court initially ruled in favor of Craycom but later modified the judgment to award attorney’s fees based on findings that Barkhausen's lawsuit had been filed in bad faith to intimidate the defendants.

In November 2003, Barkhausen filed a second motion for a new trial or to amend the judgment, seeking the removal of attorney’s fees from the judgment. A December 2003 hearing clarified that Craycom was given the choice of a new trial or appealing the initial judgment; Craycom opted for a new trial. Barkhausen’s counsel requested a delay of thirty days for the new trial to secure a jury, but Craycom’s counsel urged for a prompt trial within thirty days, threatening to stand on the original judgment otherwise. Barkhausen subsequently filed a jury trial request and paid the fee. In January 2004, Craycom sought sanctions against Barkhausen. The trial court denied Barkhausen’s jury trial request and proceeded with a second bench trial.

During the trial, Michael Barkhausen testified that he learned about a Craycom investment opportunity through a flier from his son’s day care and that the Barkhausens borrowed money to invest, but the stock purchase agreement was never signed. Although Michael signed loan documents, the transaction was negotiated orally by his wife, with Anthony Matera admitting that the agreement was purely oral. Barkhausen expected dividends to offset the loans starting in January 2001, but Craycom did not issue stock certificates until October 2002, the day the lawsuit was filed, nor did they provide any financial returns or information during 2001 or 2002. Barkhausen noted that the stock purchase was recorded as a loan by Craycom, which caused him tax issues during his marriage. After contacting Matera in July 2002 about his investment, he was told that his investment would not be returned nor would the stock be issued without a court order. Barkhausen subsequently sent a demand letter in August under the DTPA, and upon receiving no response, he filed suit, claiming Craycom improperly accepted his $27,000 without recognizing him and his wife as shareholders or issuing stock.

Sharon Matera testified that Pamela Barkhausen was never a stockholder and that discussions with an accountant indicated it was normal to hold funds until stock issuance. Matera dealt exclusively with Pamela Barkhausen, an employee of Craycom. Anthony Barkhausen stated that Pamela instructed Craycom to issue stock in Michael Barkhausen's name per a divorce decree. Pamela indicated that neither she nor Craycom wanted to address stock matters until the divorce was finalized and expressed satisfaction with Craycom’s disclosures, denying any specific instructions regarding stock issuance. Craycom’s former counsel, Mark Knop, testified about his legal services, while new counsel Scott Rothenberg attempted to testify but was objected to by Barkhausen for lack of designation as an expert witness. Craycom’s counsel clarified that they were not seeking legal fees as damages but as sanctions for potentially groundless claims. The trial court sustained the objection, leading to no evidence on sanctions being heard. After the trial, the court issued a second amended judgment favoring Craycom, awarding $30,000 in attorney's fees as sanctions without further hearings. Barkhausen's motion for reconsideration or a new trial was denied, prompting an appeal. Barkhausen argued the trial court erred by denying his jury trial request, which Craycom contested on the basis of untimely filing and fee payment. The appeal reviews the trial court's decision under an abuse of discretion standard, noting that the right to a jury trial is a fundamental right in legal history.

A jury trial request must be filed at least thirty days before the scheduled trial date, as per Tex. R. Civ. P. 216(a). Texas case law indicates that even if a jury fee is not paid on time, a trial court may still allow a jury trial if it does not disrupt court proceedings, delay the trial, or harm the opposing party. In this instance, Barkhausen's jury demand was denied because he did not request a jury in his first trial and made the request only after an unfavorable ruling. Unlike the appellant in Gayle, Barkhausen did not seek a continuance to allow for a timely jury demand. The trial court provided reasons for its decision, citing concerns about increased costs and trial duration. Barkhausen did not demonstrate that his untimely jury request would not prejudice the opposing party or address the trial judge's concerns. Additionally, while Barkhausen referenced Bell Helicopter Textron, Inc. v. Abbott, he did not claim improper notice regarding the second trial setting, which distinguished his case from Bell. Consequently, the trial court did not abuse its discretion in denying the jury trial.

Regarding sanctions, Barkhausen argued that the trial court erred in awarding $30,000 to Craycom without holding a sanctions hearing, failing to specify the conduct warranting sanctions, lacking evidence of wrongdoing, and imposing an excessive award. The sanctions were based on multiple legal grounds, including Chapters 9 and 10 of the Civil Practice and Remedies Code, Texas Rule of Civil Procedure 13, and the court's inherent authority.

Chapter 10 of the Civil Practice and Remedies Code outlines the standards and procedures for imposing sanctions for improper conduct in litigation. A trial court's decision to impose these sanctions is reviewed for an abuse of discretion. Signing a pleading or motion certifies that it is not for improper purposes, such as harassment or unnecessary delay, and that all claims are warranted by existing law or a legitimate legal argument. Courts may award reasonable expenses and attorney's fees incurred in response to motions under Chapter 10, and if due diligence is lacking, they may award all costs to the prevailing party for any harassment or inconvenience caused.

Before imposing sanctions, the court must provide notice and a reasonable opportunity for the affected party to respond. The order must specifically detail the conduct that violated Section 10.001, as the use of “shall” indicates that this requirement is mandatory. In the current case, the trial court's sanctions were incorporated into the final judgment without detailing Barkhausen's specific conduct that warranted sanctions, failing to meet the statutory requirements. Some courts may rely on findings of fact to provide the necessary particulars absent from the sanctions order, but in this case, the findings merely recited legal standards without detailing Barkhausen's specific actions. The findings indicated that Barkhausen’s lawsuit lacked a good faith basis, was intended to harass Craycom, and that he had no valid claims. However, there was no separate sanctions hearing, and Craycom did not present affirmative evidence of sanctionable conduct during the trials. Thus, the trial court's lack of specificity in detailing the sanctionable conduct may have affected Barkhausen's rights and ability to appeal.

The trial court's findings regarding Barkhausen's lawsuit against Craycom, which were perceived as harassment or intimidation, lack sufficient factual support. The court did not provide specific evidence that the lawsuit was part of a harassment pattern, nor did it address Barkhausen's good faith in filing the suit. Craycom's claim that shares were issued to Barkhausen on the lawsuit's filing date did not inherently prove the suit was frivolous. Additionally, while Craycom presented arguments on appeal about the lawsuit's frivolity, these were not raised in the trial court as grounds for sanctions. The trial court had the opportunity to hold a hearing on sanctions but failed to articulate the necessary details justifying the sanctions under Texas Rule of Civil Procedure 13. This rule mandates that pleadings are presumed to be filed in good faith, and the party seeking sanctions must provide substantial evidence to counter this presumption. The court's sanctions order lacked the required particulars, which could constitute an abuse of discretion unless the trial court’s findings sufficiently detail the good cause for sanctions.

The trial court's findings regarding Rule 13 sanctions against Barkhausen were insufficient, lacking specific particulars about the conduct that justified such sanctions. Although the court concluded that Barkhausen acted in bad faith and for harassment, there was insufficient evidence in the record to support these conclusions. Craycom presented evidence that Barkhausen's claims were non-meritorious, but failed to demonstrate that these claims were frivolous. The ongoing dispute was characterized as a legitimate disagreement over an investment and its returns. Consequently, the trial court was determined to have abused its discretion in awarding attorney’s fees under Rule 13.

Under Section 17.50(c) of the DTPA, a court may award reasonable attorney’s fees if it finds a claim groundless, brought in bad faith, or for harassment. Groundlessness is interpreted similarly under both the DTPA and Rule 13, defined as a claim having no legal or factual basis. The determination of groundlessness or bad faith is a legal question for the trial court, which is reviewed for abuse of discretion. Barkhausen argued that he was not given notice or an opportunity to respond to the allegations leading to sanctions, which is a requirement under due process. Craycom's amended pleadings included a counterclaim for attorney’s fees for sanctions prior to the second trial, implying notice was given.

Amended pleadings related to Barkhausen's case did not specify the grounds for awarding attorney's fees, only citing the statutory language. Although Barkhausen was aware of Craycom's counterclaim under section 17.50(c) of the DTPA, the pleadings lacked clarity on the trial court's basis for imposing sanctions. Barkhausen argued that the sanctions order did not detail the specific conduct warranting sanctions. While section 17.50(c) does not mandate such specificity, the absence of detailed findings complicated the determination of the sanctions' basis. Craycom argued on appeal that Barkhausen was not a consumer regarding the investment, suggesting the DTPA suit was frivolous; however, the trial court's judgment did not address Barkhausen's consumer status. This issue was not raised by Craycom in its motion for summary judgment or during the trial. The record indicated that Barkhausen had an arguable case against Craycom, which failed to present evidence that the lawsuit was filed in bad faith or lacked merit. Additionally, the trial court did not provide specific evidence to support its finding of frivolousness under the DTPA. Craycom’s defense was broad, asserting compliance with all agreements, but did not demonstrate that Barkhausen’s claims were frivolous. Consequently, the record did not support the sanctions awarded under the DTPA. The court concluded that the trial court did not abuse its discretion in denying Barkhausen a jury trial but did abuse its discretion in awarding $30,000 in sanctions due to lack of justification and supporting evidence. The judgment was modified to eliminate the sanctions award while affirming the rest of the trial court's judgment.