Title Companies Should be Careful in Responding to Subpoenas for Documents.
Title companies should seek legislation to provide for the recovery of legal fees when they respond to third party subpoenas. Rule 205.3(f) of the Texas Rules of Civil Procedure (TRCP) permits the reimbursement of a non-party’s reasonable cost of production but the rule does not provide for the recovery of legal fees. In BASF Fina Petrochemicals Ltd. P'ship v. H.B. Zachry Co., 168 S.W.3d 867, 875 (Tex. App.—Houston [1st Dist.] 2004, pet. denied) the court held that if the Texas Supreme Court intended for nonparties to recover their attorneys' fees incurred in complying with a subpoena it have expressly provided for the recovery of such fees.
Take a look at these scenarios and see if you see a common theme developing and whether these incidents are tied to title companies trying to handle subpoena requests pro se rather than incurring the cost of an attorney to assist in response.
Scenario 1: An attorney for a litigant sent an email to a title company attaching a “Subpoena to Appear and Produce Documents” for the records. The subpoena included a trial date and requested that the title company produce a custodian of records at a date and time to give testimony and to permit the inspection and copying of the records or to sign a business records affidavit with the records. To accommodate the request, title company responded to the email and delivered the records to the attorney who sent the email and did not sign the business records affidavit.
Is there something wrong here?
In Goughnour v. Patterson, Tr. of Deborah Patterson Howard Tr., 12-17-00234-CV, 2019 WL 1031575, at *21 (Tex. App.—Tyler Mar. 5, 2019, pet. denied), when the opposing counsel learned of the email subpoena, he moved for sanctions against the opposing counsel for non-compliance with the Texas Rules of Civil Procedure. The subpoena was improper because ten days-notice of the subpoena was not given to the opposing party as required by TRCP 205.2. The ten-day period prior to the issuance of the subpoena provides notice to opposing parties so they can assert objections. The title company responded to the subpoena and provided numerous personal documents of one of the parties that was not relevant to the litigation. Had notice been given then an objection would have been filed and the title company could have produced only relevant documents. But the damage had already been done because neither the title company nor the attorney issuing the subpoena were familiar with the ten-day notice requirement.
There were other issues with the subpoena.
The most obvious was that the subpoena was not actually served on the title company and there was no witness fee included. The subpoena included a false date for a trial -- there was no trial date and the attorney serving the subpoena knew there was no trial date. He put the date in the subpoena to give the subpoena a sense of urgency. The attorney admitted he was not familiar with the rules for production to third parties.
The trial court sanctioned the attorneys $14,000 in legal fees after three hearings where the title company representative had to explain why it responded to the email. The title company unwittingly stepped in the middle of a serious and dangerous litigation case.
Scenario 2: A litigant defending an injunction trial over a foreclosure of real estate served a trial subpoena on the title company to appear at the injunction hearing with a closing file that involved a prior attempted closing that did not go forward. The attorney defending the case (but who had not filed an answer in the suit) was curious about the prior closing and why the transaction did not close. A title company representative appeared in court prior to the injunction hearing and delivered the closing file to the attorney who subpoenaed it. The attorney examined the file and gave it back to the title company representative prior to the hearing. The opposing counsel were not aware that this went on prior to the hearing. The injunction hearing was continued and no testimony was taken that day. After the hearing a return showing the subpoena served on the title company was electronically filed with the court and provided the first notice to the opposing counsel of the subpoena. When the opposing counsel learned of the subpoena, they filed a motion to quash but the documents were already delivered. In an attempt to make things right, at the subsequent injunction hearing, the title company appeared voluntarily, without a subpoena, and the same counsel who subpoenaed the records authenticated the file to try to make it available to the other litigants. The defendant (purchaser) objected to the file being offered based on numerous objections. The file was not admitted by the court.
Anything wrong with this scenario?
The attorney who issued the subpoena was not familiar with the ten-day rule and used a subpoena to conduct non-relevant discovery. The title company gave up confidential files to a party not realizing there was a required notice period and then tried to rectify the mistake by looking for a way to produce the file legitimately. The title company needed to move for a protective order, motion to quash the subpoena and appear at the hearing and object on the record. Once raised at the hearing the court would have protected all of the litigants.
Scenario 3: A party served a subpoena without providing ten days-notice. After the return on the subpoena is filed the opposing party learns of the subpoena and files a motion to quash. The opposing party served a request for production on the title company who responds by producing all documents related to the transaction including its closing file, the title documents relating to the chain of title and emails with the claims attorney handling the claim after a claim had been made on the title policy. The title company authenticated all of these records by a business record affidavit.
Any issue here? The same as in scenario 1 and 2: the attorney was not familiar with the ten-day rule and found a way to cure the ten-day notice issue by serving a request for production of documents. The title company produced its filed by a business records affidavit that included internal emails years after the closing. The affidavit provided a sweeping authentication to everything in the title company’s possession. The title insurance carrier could have tried to have filed a protective order to protect its emails related to the handling of the title insurance claim.
What is the common theme? Because compliance with subpoena requests can be time consuming and expensive, title companies are trying to do right by complying with the subpoena themselves, but in the process they are providing too much information that may tip the balance in favor of one party to the litigation. What they needed in each of the above scenarios were an attorney to: (1) move to quash a subpoena that is (a) not served after ten-days-notice, (b) not hand delivered and (c) not served with the required witness fee; (2) analyze the requests and produce only those documents responsive to the requests; (3) object to requests that could be burdensome; (4) seek reimbursement for reasonable costs of production; (5) alert others whose records are being requested so they may take appropriate action to move to quash confidential and personal records; and (6) authenticate only their business records pursuant to the affidavit. All non-business records can be produced pursuant to the properly served subpoena.
Financial institutions solved this issue.
Financial institutions secured a special statutory process under section 59.006 of the Texas Finance Code after years of fending off numerous document requests that burdened them with costly responses and unrecoverable expenses. Section 59.006 puts the burden on the requestor of information to comply with proper notice to a depository customer and to pay the financial institution's reasonable costs of complying with the record request, including costs of reproduction, postage, research, delivery, and attorney's fees, or posts a cost bond in an amount estimated by the financial institution to cover those costs.
The author believes that if title companies had the same protection as in section 59.006 of the Texas Finance Code then none of the above disputes would have occurred. There would be more narrowed requests for documentation, less disputes over documentation requests, more accurate compliance with subpoenas and reasonable compensation for the retention of legal counsel to assist in the response to the subpoena.
Perry Cockerell is an attorney in Dallas, Texas who practices title insurance defense. He can be reached at email@example.com