Shortly after FirstVal received the EPI, TTSF filed for protection under the federal Bankruptcy Code. With the approval of the bankruptcy trustee, FirstVal sold the note on Westview Forest Apartments to Westview Drive Investments, LLC (“Westview”) in late September 2008.

Westview's principal and attorney, Jack Yetiv, signed the note on Westview's behalf. As part of the sale, FirstVal assigned the EPI to Westview.

On October 7, 2008, Westview foreclosed on the note and purchased the apartment complex. 

Regarding the coverage that would be afforded to Westview under the Landmark insurance policy, Mr. Yetiv's attorney John Quinlan emailed Mr. Yetiv that he thought the carrier needed to agree to change the named insured. Mr. Yetiv forwarded Mr. Quinlan's email to FirstVal's Dwayne Young and asked if the insurer or agent would commit to provide an EPI naming Westview as an insured. Mr. Young forwarded the email chain to King-Phillips' agent, Greg McGehee, and asked Mr. McGehee to address those concerns.

Mr. McGehee responded to Mr. Young that he did not know the answer, and asked Mr. Young to forward his response “to all parties concerned.” Five days later, Mr. McGehee emailed Mr. Young that he still did not have a final answer.

On November 5, 2008, a fire destroyed the Westview Forest Apartments' leasing office. Mr. Yetiv did not report the fire, but continued to request evidence that Westview had property coverage under the Landmark policy. On November 13, 2008, Mr. McGehee emailed Mr. Yetiv that a transfer of coverage was left to the carrier's discretion and, on December 5, 2008, King-Phillips wrote to Mr. Yetiv that it was unable to transfer TTSF's coverage to Westview.

Six weeks later, Mr. Yetiv reported the fire to King-Phillips and filed a claim on Westview's behalf.

The Insurance Coverage Discussions

Westview sought insurance proceeds to cover the replacement of the building and its contents, and the loss of accounts receivable, valuable papers, business income, Westview's business personal property, and Mr. Yetiv's business personal property that was kept at the apartment complex's leasing office. Landmark informed Westview that the policy afforded Westview only the coverage available to a mortgagee, which was limited to coverage for covered losses to buildings or structures.

Landmark paid Westview about $334,000 for these losses and to reimburse Westview for its emergency expenses to secure the building immediately after the fire.

Westview continued to assert that it was entitled to all of the coverage afforded to the named insured, TTSF, and, in addition, Westview made claims “on behalf of” TTSF.

In response, Landmark pointed out that the policy limited coverage on TTSF's claims to the amount of TTSF's financial interest in the covered property. Landmark asked for evidence that TTSF's financial interest in the property survived the foreclosure, but none was ever produced.

The Insurance Coverage Suit

In August 2012, Westview sued Landmark and King-Phillips. Westview asserted a claim against Landmark for breach of contract and claims against both defendants for promissory estoppel, fraudulent inducement, negligent misrepresentation, violations of Chapter 541 of the Texas Insurance Code, and violations of the Deceptive Trade Practices-Consumer Protection Act (“DTPA”). Westview alleged that Mr. McGehee and King-Phillips had actual and apparent authority to act as Landmark's agents. With the exception of a breach of contract claim, all of Westview's causes of action against Landmark were based on conduct by Mr. McGehee or King-Phillips as Landmark's alleged agents.

The trial court granted Landmark partial summary judgment, holding that, under the policy, Westview was a mortgage holder rather than a named insured, and that the policy did not provide coverage to a mortgage holder for business personal property, business income, accounts receivable, or valuable papers and records.

The trial court also granted Westview partial summary judgment holding that under Texas Insurance Code Section 4001.051, King-Phillips was Landmark's agent for the purpose of claims brought under Chapter 541 of the Texas Insurance Code.

Before the case was submitted to the jury, the trial court granted King-Phillips' motion for directed verdict on Westview's DTPA, Insurance Code, and negligent misrepresentation claims on limitations grounds.

The jury was asked whether Landmark was liable for breach of contract, promissory estoppel, and unfair or deceptive acts or practices; whether King-Phillips had acted with Landmark's apparent authority; and whether either defendant was liable for fraud. The jury answered each question in the negative.

The Sanctions Against Mr. Yetiv

At trial, Mr. Yetiv testified that he had waited for over two months before reporting the fire because Westview's attorney, Edward Rothberg, had agreed with him that it would be better to first obtain evidence of insurance coverage.

Landmark and King-Phillips responded by serving Mr. Rothberg and Mr. Rothberg's former law firm with subpoenas duces tecum to discover Mr. Rothberg's communications with Mr. Yetiv about disclosing the fire.

Westview moved to quash the subpoenas on the ground that the documents were protected by attorney-client privilege.

In response, Landmark and King-Phillips argued that the documents fell within the crime-fraud exception to the privilege.

The trial court partially denied the motion to quash, ruling that Mr. Yetiv's testimony had both waived the attorney-client privilege and established that the crime-fraud exception applied to certain communications. The trial court specifically referred to bankruptcy fraud and insurance fraud.

Mr. Yetiv requested an evidentiary hearing to determine whether the crime-fraud exception applied, and the trial court responded, “It's my practice that I, of course, allow someone who's been implicitly or explicitly accused of something to definitely have their say.”

The next day, the trial court heard Mr. Yetiv's and Mr. Rothberg's testimony outside the jury's presence.

In response to questions from the trial court, Mr. Yetiv testified that he had wanted to obtain an EPI listing Westview as a named insured or an additional insured before reporting the fire. He stood by his earlier testimony, “I thought if we revealed the fire, they would say: No way we're doing that.”

King-Phillips' attorney read Mr. Yetiv's testimony to Mr. Rothberg, including Mr. Yetiv's statement that Mr. Rothberg and Mr. Quinlan had agreed that it would be best to get an EPI in Westview's name before reporting the fire. Mr. Rothberg was asked if he had agreed with Mr. Yetiv that it was best not to reveal the fire, and he testified that he had no recollection of discussions so long ago. Mr. Rothberg also stated that if he had been asked, he would have said that a company, situated as Westview was at the time of the fire, had no duty to report the fire to the bankruptcy trustee. Mr. Rothberg was not asked whether he would have said that such a company had a duty to report the fire to the insurance agency or the insurer.

After the hearing, the trial court again ruled that the crime-fraud exception applied.

The next day – a Friday on which the trial was in recess – Mr. Yetiv wrote an email threatening to contact Landmark's attorney Bruce Wilkin's superiors and file grievances with the State Bar against him and his firm unless, by noon on the following Monday, Mr. Wilkin announced in open court, in language to be agreed upon, that there was no legal or factual basis for Mr. Wilkin's “allegations”; that Mr. Wilkin was sorry for having made them; and that Mr. Wilkin withdrew them entirely.

Mr. Yetiv sent the email to Mr. Wilkin, to Westview's other trial attorney, Michael Yanochik, and to Mr. Quinlan.

Mr. Wilkin did not make the statement that Mr. Yetiv had demanded.

After all parties rested on Monday morning, Mr. Wilkin's co-counsel, Stephen Wedemeyer, brought Mr. Yetiv's email to the trial court's attention. Mr. Wedemeyer argued that the email violated Rule 4.04(b)(1) of the Texas Disciplinary Rules of Professional Conduct.

Mr. Yetiv responded that it was Mr. Wilkin who had violated Rule 4.04; that there was nothing improper about contacting Mr. Wilkin's superiors; and that “it is absolutely my right to file a grievance” against Mr. Wilkin.

While the jury was deliberating the next day, Landmark's and King-Phillips' attorneys briefly argued that Mr. Yetiv's email violated Disciplinary Rule 4.04, and Mr. Yetiv responded that the email spoke for itself.

After accepting the jury's verdict, the trial court ordered Mr. Yetiv to appear before it to show cause why the trial court should not sanction him. In the show cause order, the trial court expressly relied upon its inherent power to sanction and upon Canon 3(D) of the Code of Judicial Conduct.

At the show cause hearing, Mr. Yetiv testified that the email had not violated Rule 4.04 because his motive for threatening to file a grievance against Mr. Wilkin had not been to gain an advantage in the litigation. He stated that his intentions had been to clear his name and “to find out if Mr. Wilkin had made an honest mistake or had done something improper that would trigger an obligation to report it to the State Bar.”

At the conclusion of the hearing, the trial court announced some initial findings, ordered Mr. Yetiv to complete 12 hours of continuing legal education on ethics, and stated that it would refer the matter to the State Bar.

Two weeks later, the trial court issued a written order containing these sanctions and additionally ordering Mr. Yetiv to pay Landmark's and King-Phillips' reasonable attorneys' fees incurred “as a result of the proceedings arising from [Mr. Yetiv's email].”

The trial court invited Mr. Yetiv's opposing counsel to file attorneys' fees affidavits, and stated a deadline for Mr. Yetiv to file a controverting affidavit.

Before the matter of the email finally was resolved, the trial court issued two more orders and held one more hearing. After Mr. Yetiv controverted the amount only of Landmark's attorney's fees, the trial court ordered Mr. Yetiv to pay King-Phillips' attorney's fees and issued supplemental findings of fact in support of that order.

The trial court heard evidence on the amount of Landmark's reasonable and necessary attorney's fees, and then issued an order and supporting findings requiring Mr. Yetiv to pay that amount.

The trial court based the sanctions it imposed on Mr. Yetiv primarily on its findings that:

(1) Mr. Yetiv had threatened to file a grievance against Mr. Wilkin for the sole purpose of gaining an advantage in the case;

(2) Sending the threatening email was an abusive tactic intended to obstruct justice;

(3) Mr. Yetiv had abused the judicial process,

(4) Mr. Yetiv's conduct had delayed the orderly and expeditious proceedings in the case; and

(5) The court's information clearly established that Mr. Yetiv had violated Rule 4.04 of the Texas Disciplinary Rules of Professional Conduct.

As in the show cause order, the trial court expressly stated that it sanctioned Mr. Yetiv pursuant to its inherent power and Judicial Canon 3(D)(2).

The Appeals

Westview appealed from the take-nothing judgment.

In addition, Mr. Yetiv appealed from the three sanctions orders rendered against him for emailing Landmark's attorney during the trial and threatening to file a grievance against him if he did not make certain statements in open court. 

The Texas Disciplinary Rules of Professional Conduct

Rule 4.04(b)(1) of the Texas Disciplinary Rules of Professional Conduct provides that:

A lawyer shall not present, participate in presenting, or threaten to present … criminal or disciplinary charges solely to gain an advantage in a civil matter. 

Judicial Canon 3(D)(2)

Judicial Canon 3(D)(2) provides that:

A judge who receives information clearly establishing that a lawyer has committed a violation of the Texas Disciplinary Rules of Professional Conduct should take appropriate action.

The Appellate Court's Decision

The appellate court affirmed.

In its decision, the appellate court first rejected Westview's appeal, finding that Westview was not entitled to the same “named insured” coverage provided to the apartment complex's prior owner, TTSF. Among other things, the appellate court decided, when Westview foreclosed on the property, it did not automatically acquire the same coverage afforded to TTSF given that Landmark had never consented in writing to the transfer of TTSF's rights under the policy to Westview as required by the policy.

Accordingly, the appellate court ruled, Landmark only was obligated to afford Westview the coverage that the policy provided to a mortgage holder.

The appellate court then addressed Mr. Yetiv's appeal.

First, the appellate court rejected Mr. Yetiv's contention that the trial court had abused its discretion in sanctioning him under its inherent power. The appellate court said its conclusion was supported by the trial court's findings that:

- Mr. Yetiv had threatened to file a grievance against Mr. Wilkin solely to gain an advantage in this case;

- Sending the threatening email was an abusive tactic intended to obstruct justice; and

- Mr. Yetiv had abused the judicial process.

The appellate court noted that, in his email, Mr. Yetiv had threatened to contact opposing counsel's employer and file grievances against opposing counsel and the attorney's law firm unless the attorney not only withdrew his successful arguments on his client's behalf, but also argued in favor of an adversarial party's position, in open court, and in words approved by Mr. Yetiv. Moreover, the appellate court continued, Mr. Yetiv had pointed out that Mr. Quinlan was a client of Winstead P.C., the other attorney's law firm, and said that “[if Mr. Quinlan's] name appears in the record, I suspect he may wish to do the same, which may be especially disconcerting to Winstead given the fact that [Mr. Quinlan] is a Winstead client and has paid Winstead around $100,000 in fees.”

In sum, the appellate court continued, Mr. Yetiv had “attempted to coerce opposing counsel into acting as the mouthpiece for the adverse party.” The appellate court stated that:

A lawyer who attempts to coerce a person into recanting and reversing the person's unfavorable in-court statements undermines the integrity of the judicial system just as surely when the targeted person is an adverse attorney as when the person is an adverse witness.

Next, the appellate court rejected Mr. Yetiv's challenge to the sufficiency of the trial court's findings, noting that he had cited “no authority holding that, when sanctioning a person pursuant to its inherent power, the trial court must describe the evidence on which it relied.” In any event, the appellate court then noted that the trial court had quoted Mr. Yetiv's email in its sanctions order, adding that the email supported the trial court's findings.

The appellate court also found sufficient evidence to support the trial court's finding that Mr. Yetiv had threatened Mr. Wilkin with sanctions solely to gain an advantage in the case, and that he had not been motivated by an attempt to clear his name from the suggestion that he had engaged in a crime or fraud. The appellate court reasoned that the “most telling piece of evidence on this issue” was the email itself. It pointed out that Mr. Yetiv had stated in the email, “I normally would have reserved this communication for after trial but I can't do that because I want the above statement in the record before trial ends,” and said that if Mr. Yetiv had been motivated by an intent to clear his name, then a post-trial statement would have been just as effective as a statement made during trial.

The appellate court also decided that the trial court had reasonably concluded that Mr. Yetiv was trying to accomplish by coercion what he had failed to accomplish by argument or by evidence – namely, changing the trial court's ruling. It said that the only evidence to the contrary was Mr. Yetiv's testimony about his motivation, adding that the trial court had found that Mr. Yetiv was “not a credible witness” and that “[t]he manner in which he conducted himself while giving testimony showed his testimony to be untrustworthy.”

Simply put, the appellate court ruled, the trial court had sanctioned Mr. Yetiv for using an abusive tactic intended to obstruct justice and for abusing the judicial process, and he had not demonstrated that the trial court had abused its discretion in doing so.

Finally, the appellate court rejected Mr. Yetiv's contention that the trial court had erred by sanctioning him under Judicial Canon 3(D)(2) when it ordered Mr. Yetiv to complete additional continuing legal education on the topic of ethics and when it directed the clerk of the court to forward to the State Bar's Chief Disciplinary Counsel a transcript of the show cause hearing and certified copies of the show cause order, the sanctions order, and the exhibits offered at the show cause hearing.

The appellate court decided that the trial court was not limited to referring the matter to disciplinary authorities and that it could use its inherent power to sanction the same conduct. Courts have “the inherent power to discipline attorneys,” the appellate court concluded.

The case is Westview Drive Investments, LLC v. Landmark American Ins. Co., No. 14-15-00574-CV (Tex. Ct.App. Feb. 28, 2017).