Sanctions for violating a Receivership Order (can come hard and fast).
by Andrew R. Korn, Esq.
March 20, 2020
When a judgment debtor disobeys a Receivership Order, the Receiver can ask the Judge to hold the judgment debtor in contempt. See Ex parte Dolenz, 893 S.W.2d 677, 682 (Tex. App.—Dallas 1995, orig. proceeding) (“[A] trial court may treat the failure to obey an order as a contempt of court.”); In re O’Keeffe, 2018 Tex. App. LEXIS 3595, at *2 (Tex. App.—Dallas May 21, 2018, orig. proceeding) (Citing Tex. Gov’t Code Ann. § 21.002) (“A court may punish for contempt.”).
But a Receiver does not have to obtain a contempt finding before a judgment debtor can be punished. And the punishment can come hard and fast.
Power to punish.
The Judge has the power to punish whoever commits an abuse of the judicial process. Failing to turn over property to the Receiver is a violation of a Receivership Order and is considered an abuse of the judicial process. See Mohri v. Aloette Cosmetics, 1994 Tex. App. LEXIS 3933 *18-19 (Tex. App.-Dallas Sept. 19, 1994, no writ).
Sanctions as a form of punishment.
Punishment for abuse of the judicial process can come in the form of sanctions. See Clarendon Nat’l Ins. Co. v. Foley & Bezek, LLP, 2001 U.S. Dist. LEXIS 18443, at *12-13 (C.D. Cal. July 26, 2001) (Quoting Black’s Law Dictionary (7th ed.)):
“Sanction” is defined in Black’s Law Dictionary as a “penalty or coercive measure that results from failure to comply with a law, rule or order…”
Purpose of Sanctions.
The legitimate purposes of sanctions are threefold: 1) to secure compliance; 2) to deter other litigants from similar misconduct; and 3) to punish violators. See Chrysler Corp. v. Blackmon, 841 S.W.2d 844, 850 (Tex. 1992); Cire v. Cummings, 134 S.W.3d 835 (Tex. 2004) (Sanctions are used to punish those who violate the rules); Johnson v. Chesnutt, 225 S.W.3d 737, 742 (Tex. App.—Dallas 2007, pet. denied) (“Sanctions serve a variety of purposes, including the compensation of a party for past prejudice or punishment and deterrence of bad faith conduct.”); Patino v. Complete Tire, Inc., 158 S.W.3d 655, 662 (Tex. App.—Dallas 2005, pet. denied) (One of the purposes of sanctions is to deter those who “might be tempted” to do the same thing “in the absence of a deterrent”).
Judge gets to choose punishment.
The Judge has broad discretion to sanction a disobedient debtor. The Judge can do whatever is necessary to deter, alleviate, and counteract bad faith abuse of the judicial process. Sanctions can include punishments that the judgment debtor – and even some judges – find demeaning. See Reule v. M & T Mortg., 483 S.W.3d 600, 630-631 (Tex. App.—Houston [14th Dist.] 2015, pet. den.) (Frost, J. dissenting) (Finding sanction requiring a handwritten statement in party’s own handwriting that states 100 times that, “I will not waste the time of the court, opposing counsel, jurors, or court personnel,” demeaning, and having “no place in Texas courts”).
Limits on punishment.
There are limits on the punishment a Judge can impose. The sanction may not be “excessive” and there must be direct relationship between the offensive conduct and the sanction imposed. TransAmerican Nat. Gas Corp. v. Powell, 811 S.W.2d 913, 917 (Tex. 1991); Malone v. Abraham, Watkins, Nichols & Friend, 2004 Tex. App. LEXIS 4619, at 19-20 (Tex. App.—Houston [1st Dist.] 2004, no pet.) (“the trial court’s discretion is limited only by the requirement that its order be just and that the sanctions imposed be directly related to the harm done by the sanctioned conduct.”).
Types of punishments.
“The judiciary is not impotent to devise and deal with the infinite devious ways of miscreant litigants and unethical lawyers…” See Chou Mei Chen v. J Mart Grp., Inc., 2017 NY Slip Op 32698(U) (Sup. Ct.) (Identifying nine forms of sanctions).
Loss of Homestead or Motor Vehicle.
A disobedient judgment debtor may find that the Court disregards their property exemptions, resulting in the loss of the judgment debtor’s homestead or motor vehicle. cf. In re Hecker, 264 F. App’x 786 (11th Cir. 2008); In re White, 455 B.R. 241 (Bankr. M.D. Fla. 2010); In re Hogan, 214 B.R. 882,886 (Bankr. E.D. Ark. 1997) (As sanction for dishonesty or bad faith, Court can deny exemptions to debtor).
The Judge can sentence a disobedient debtor to community service. Hill & Griffith Co. v. Bryant, 139 S.W.3d 688, 697-698 (Tex. App.—Tyler 2004, pet. denied).
Payment of Money.
The Judge can order a disobedient judgment debtor to pay money (for attorney’s fees or penalty) in addition to the amount the judgment debtor owes on the Judgment. See e.g. Mayfield, L.L.P. v. Molzan, 974 S.W.2d 821, 828 (Tex. App.—Houston [14th Dist.] 1998, pet. denied) (affirming monetary sanctions in an amount that was 3x the amount of attorney’s fees); Estate of Pharris, 2019 Tex. App. LEXIS 5623 (Tex. App.—Waco July 3, 2019, no pet.) (Affirming award of $6,800 in attorney’s fees and $2,500 “slap on the wrist” sanction).
A motion for sanctions does not require any special protections or safeguards.
1. Hearings can happen fast.
A hearing on a motion for sanctions can be set with as little as three-days’ notice. See In re K.A.R., 171 S.W.3d 705, 713 (Tex. App.—Houston [14th Dist.] 2005, no pet.).
2.Easiest burden of proof.
The burden of proof is preponderance of the evidence – not beyond a reasonable doubt. See Texas Dep’t of Mental Health & Mental Retardation v. Petty, 778 S.W.2d 156, 160 (Tex. App.—Austin 1989, writ dism’d w.o.j.) (Preponderance of the evidence “is the minimum ‘standard’ by which any fact can be determined”); Ramirez v. T&H Lemont, Inc., 845 F.3d 772, 776-778 (7th Cir. 2016); Commonwealth v. Terry, 2016 Va. Cir. LEXIS 218, at *11 (Cir. Ct. Oct. 31, 2016):
The “preponderance of the evidence” standard, unlike a “beyond a reasonable doubt” standard, means that one only has to show that his claim or position on an issue is more likely than not to be true. The preponderance of the evidence standard is the easiest standard of proof to meet.
Comas v. Comas, 608 A.2d 1005, 1009 (N.J. Super. Ct. 1992) (The preponderance of the evidence burden of proof is the “lightest available civil burden”).
3. Hard case to appeal.
Appealing sanctions is difficult, because of the high level of deference the appellate court gives the trial judge. See Randolph v. Walker, 29 S.W.3d 271, 276 (Tex. App.—Houston [14th Dist.] 2000, pet. denied) (Citations omitted):
Turning to the merits of appellants’ four points of error challenging the trial court’s ruling on the motion for sanctions, we will review the asserted error using the most deferential standard of review. A trial court’s decision to impose sanctions under Texas Rule of Civil Procedure 13 will not be overruled on appeal unless an abuse of discretion is shown. The test for abuse of discretion is “whether the court acted without reference to any guiding rules and principles,” or “whether the act was arbitrary or unreasonable.” A trial court abuses its discretion in imposing sanctions only if it based its order on an erroneous view of the law or a clearly erroneous assessment of the evidence.
Judgment debtors are expected to obey court orders. See generally, In re Rael, 753 F. App’x 649,655 (10th Cir. 2018); United States v. Baltazar-Sebastian, 2019 U.S. Dist. LEXIS 219202, at *12 (S.D. Miss. Dec. 19, 2019). Therefore, whenever a judgment debtor fails to comply with a receivership order, that judgment debtor can expect the Receiver to move for sanctions. Judgment debtors may find that their punishment for violating a Receivership Order comes much faster and harder than expected.