The dispute arose from a construction contract on South Padre Island, where property owner William Carrell hired All Valley Innovations Group and its owner Enrique Castellanos to perform improvements and repairs. Carrell alleged the work was defectively constructed and concealed defects that caused property damage. After firing the contractors and demanding payment, Carrell sued in September 2022 for breach of contract, negligence, fraud and misrepresentation, seeking actual damages, lost profits and punitive damages.
Justice Fonseca found that the contractor's absence from the August 2024 bench trial satisfied the first element of the Craddock test for setting aside default judgments. "The record reveals a concerning turn of events beginning with the trial court's granting of Ramos's motion to withdraw," Fonseca wrote. The court emphasized that "Texas law greatly disfavors default judgments due to the strong policy preference for adjudicating cases on their merits."
The court delivered particularly sharp criticism of the procedural failures that led to the default judgment. "The trial court's decision to allow Ramos to withdraw less than a week prior to trial heavily contributed to appellants' failure to appear at trial," Justice Fonseca wrote, noting that Texas law requires courts to "give the party time to secure new counsel and time for the new counsel to investigate the case and prepare for trial."
The case took a dramatic turn on July 31, 2024, when the contractors' attorney Juan Ramos moved to withdraw just three weeks before the August 26 trial date, citing non-payment of fees and inability to communicate with his clients. At the August 15 hearing, Carrell's counsel agreed not to oppose the withdrawal only if the trial date wasn't moved. New attorney John Rigney filed his notice of appearance on August 23—just three days before trial—and immediately sought a continuance citing conflicting hearings, but the trial court didn't rule on the motion.
The appeals court rejected Carrell's arguments that the contractors had adequate notice of the trial date. Justice Fonseca found that former counsel Ramos "could not be sure that his communication reached Castellanos" and that Ramos "did not have any real communication with appellants." The court noted that contractor Castellanos testified he never received notice of his attorney's withdrawal or the trial setting, and that key employees who previously handled communications had left the company months earlier.
The court distinguished this case from situations involving conscious indifference, explaining that "negligent conduct does not rise to the level of conscious indifference, and all that is required for the setting aside of a default judgment is a slight excuse for the party's failure to act." Justice Fonseca emphasized that "any doubts regarding the default judgment 'must be resolved against the party who secured the default,'" citing recent Texas Supreme Court precedent.
The reversal sends the case back to the 197th District Court in Cameron County for a new trial on the merits. The original judgment had awarded Carrell $228,500 in actual damages, over $18 million in past and future lost profits, and $5 million in punitive damages. Justice Fonseca noted that the court's ruling was based on procedural due process grounds and did not address the contractors' challenges to the sufficiency of evidence supporting the damages award.