Opinion
01-21-00003-CV
04-12-2022
IN THE ESTATE OF LYNNE VINES, A/K/A DORIS LYNNE VINES, DECEASED
On Appeal from the Probate Court No. 2 Harris County, Texas, Trial Court Case No. 486320
Panel consists of Chief Justice Radack and Justices Countiss and Farris.
MEMORANDUM OPINION
SHERRY RADACK CHIEF JUSTICE.
Appellant, Kenneth McFarland, complains of the probate court's order appointing a receiver in an underlying will contest. In four issues on appeal, Kenneth argues that the probate court abused its discretion by (1) appointing a receiver for companies that transferred outside of the estate; (2) ignoring the standards articulated in the Texas Estates Code and the Texas Business Organizations Code; (3) appointing appellee, temporary administrator Melbourne T. Berlinger, as receiver; and (4) appointing appellee, Jeff Compton, as receiver.
We affirm.
Background
Lynne Vines's husband, Larry, started Dial Electrical Controls of Houston, Inc. ("Dial Electrical") and its sister company, LV Controls, Inc. ("LV Controls") (collectively referred to as the "companies") decades ago. Lynn's husband died in 2005. In early February 2020, Lynn was struck by a car while walking in a parking lot. After getting treated at a hospital, she eventually was transferred to a rehabilitation center and released.
During the proceedings below, the parties have assumed that after Larry died, Lynne became the sole shareholder of the companies.
After the accident, Lynn purportedly signed the following documents that have been contested below: (1) a power of attorney to her nephew, Kenneth, dated March 10, 2020; (2) a will dated March 27, 2020, appointing Kenneth as the executor and giving him all of her estate, and if he did not survive her, all of her estate to Kenneth's wife, Twila; and (3) special-meeting minutes dated April 13, 2020, in which Lynne appointed Kenneth as Vice President, CEO, and Director of the companies and awarded him all shares of the companies upon her death.
The April 13 minutes also indicate that the companies held a meeting on March 27, 2020 and appointed Kenneth as Financial Officer of the companies.
On July 7, 2020, Lynn died at the age of 83. At the time of her death, Lynn was unmarried and her two children, Donna Pacetti and Steven Hawkins, had predeceased her. Lynne's daughter, Donna, had two children, Jason and Melissa Pacetti. On July 10, 2020, Kenneth moved to probate Lynne's March 27, 2020 will. Shortly thereafter, Lynne's grandchildren, the Pacettis, filed a motion for temporary restraining order against Kenneth and opposed the application for probate of Lynne's purported will. The Pacettis requested the appointment of a temporary administrator and alleged that Lynne's March 27, 2020 will had multiple defects, including improper execution, fraud, forgery, lack of testamentary capacity, and undue influence. The Pacettis further alleged that Lynne's estate had been sold, liquidated, damaged, and harmed by Kenneth and others working in concert with him.
On November 17, 2020, Twila McFarland sought to probate Lynne's May 16, 2020 handwritten will.
See Tex. Estates Code § 452.051 (providing that court may appoint temporary administrator in contest related to probating will).
After a hearing, the probate court signed a September 29, 2020 order, appointing Berlinger as temporary administrator, pending the will contest. As part of the probate court's order, Berlinger was authorized to oversee and make necessary decisions regarding operation of the companies, among other powers.
On October 26, 2020, Berlinger sought to enforce the probate court's order appointing him temporary administrator, alleging that Kenneth had failed to provide access to Dial Electrical and that he committed acts of self-dealing, including "transferring monies out of Dial Electrical . . . that ultimately ended up in an account in his and his wife, Twila McFarland's name." Berlinger attached bank records, which showed incoming transfers into Kenneth's bank account from Lynne in the amounts of $56,500.07, $110,000, and $80,000 occurring in June 2020 and another transfer of $100,000 occurring in July 2020.
On November 2, 2020, Kenneth responded to Berlinger's motion to enforce, stating that on April 13, 2020, a special meeting of the companies' shareholders occurred, and Lynne appointed Kenneth as Vice President, CEO, and Director. Kenneth explained that after the probate court appointed Berlinger as temporary administrator, Kenneth's counsel "identified written non-testamentary transfer language signed by [Lynne] which gifted all of [Lynne's] shares in Dial Electrical and LV Controls to [Kenneth] immediately upon her death." Kenneth contended that the special-meeting minutes conformed with section 111.052 of the Texas Estates Code and removed any authority of Lynne's probate estate to control Dial Electrical or LV Controls. Kenneth asserted that the probate court's temporary administrator order did not obligate him to do anything and that it could not be enforced against him. Kenneth also explained that "[a]ll transfers of dividend payments were completed at the request of Lynne Vines by the bookkeeper for Dial Electrical and LV Controls" and requested the probate court to enter a revised order to remove any unclear and vague language that implied a right for Berlinger to control either Dial Electrical or LV Controls.
See Tex. Estates Code § 111.052 ("Validity of Certain Nontestamentary Instruments and Provisions").
Kenneth included a declaration with his response, explaining that Lynne granted him power of attorney, he had Lynne's blessing to transfer approximately $346,500 to his account, these funds were "exclusively used . . . to pay Lynne's bills and the bills of her deceased son, Steven Hawkins," and that the funds transferred "were used solely for the benefit of Ms. Vines and her property."
On November 3, 2020, the probate court held a hearing on Berlinger's motion to enforce and motion to retain counsel. Berlinger requested counsel because Kenneth was asserting that the probate court's order appointing Berlinger as temporary administrator did not apply to Dial Electrical. Berlinger also opined that the special-meeting minutes did not create a non-testamentary transfer and therefore Dial Electrical was an asset of the estate. Berlinger repeatedly told the probate court that it would need to determine whether the special-meeting minutes constituted a non-testamentary transfer.
Kenneth argued that "Berlinger is incorrect that you have the authority at this given time to make a decision on that [referring to section 111.052]," the written transfer is an automatic transfer under section 111.052(a), and the "only way to invalidate that transfer would be through a declaratory judgment which would take a trial on the merits." Kenneth continued, "So I'm not saying that at some point you couldn't invalidate that if the petition was brought; absolutely, if the evidence was shown and they met their burden, you could. However, that's not before the Court today. That is an automatic transfer, just as much as a beneficiary designation on an account or anything else. Those are nonprobate assets that the probate estate does not have any authority to control."
After stating that it would not make a ruling during the hearing, the probate court then turned to Berlinger's motion to enforce the temporary administrator order. Berlinger informed the probate court that he was only receiving partial access to Dial Electrical and explained how funds were moving from Dial Electrical to an account with Lynne and Kenneth as a power of attorney. Berlinger explained, "it goes from Dial Electric[al] in Lynne's name to a power-of-attorney account that [Kenneth] is the agent under. And that's when he acted as an agent and transferred it to his wife and his account as the agent."
The probate court responded that his order speaks for itself, giving Berlinger authority to oversee Dial Electrical. Kenneth was then given an opportunity to respond, and he proceeded to question Berlinger about items he requested in a subpoena duces tecum sent to Berlinger and filed with the court. After Berlinger testified that he did not have any documents, Kenneth began questioning Berlinger on matters outside the subpoena. The probate court eventually stopped Kenneth's attorney and stated that he wanted briefs on the motion to retain counsel and the positions of the parties relative to the companies.
On November 3, 2020, Berlinger filed a brief in support of his motion to enforce, stating that the positions taken by Kenneth and the Pacettis have made it necessary to seek the probate court's assistance in enforcing, clarifying, and perhaps expanding its temporary administrator order. Berlinger further stated that he had not been provided full and complete access to the companies' books and records, he was unaware of whether the company maintained organizational or operational documents such as bylaws, shareholders agreements or similar controlling documents, and "there has been no production of either company's historical records as they pertain to other annual and/or special meetings of the directors and the shareholders, if any."
Berlinger listed various documents he wanted to review to determine the status of the companies and stated, for the first time, that the probate court could accomplish the same purpose as it originally intended by expanding his appointment as temporary administrator to that of a receiver.
In his "Bench Brief Regarding Non-Testamentary Transfer of Company Shares," Kenneth pointed out that no party had contested the validity of the non- probate transfer of shares. Kenneth thus argued that the special-meeting minutes that Lynne signed, transferring the shares of the companies to him, constituted a written instrument and a non-testamentary transfer of property pursuant to section 111.052(a)(1)(A), which removed the companies from Lynne's estate.
On December 9, 2020, the probate court granted Berlinger's motion to enforce, expanding its previous September 29, 2020 order. The expanded order, as relevant here,
• required Kenneth to produce all books and records for the companies with an expanded definition of books and records;
• provided that Berlinger had authority to initiate a declaratory judgment to address the validity of the purported durable power of attorney and purported special meeting company minutes from March 27, 2020 and April 13, 2020;
• provided that Berlinger had authority to act as the temporary administrator over the companies notwithstanding Kenneth's current non-testamentary transfer theory;
• appointed Berlinger to serve as a receiver with respect to the companies; and
• denied all other relief requested by Kenneth.
On December 14, 2020, Berlinger filed a motion for appointment of a receiver with respect to Dial Electrical, acknowledging that the probate court had appointed him as the receiver but indicating his belief that appointing Jeff Compton as receiver pursuant to section 64.001(a)(6) would be in the best interest of the estate. Berlinger explained that Kenneth made himself an employee of Dial Electrical on April 9, 2020 and paid himself a salary of $1,500 a week. Then, on May 1, 2020, Kenneth increased his salary to $1,600. After Lynne died, he again increased his salary to $3,846.15. Once Berlinger was appointed temporary administrator, Kenneth decreased his salary to $1,500 a week. Berlinger further alleged that Kenneth "possibly unwittingly committed acts of self-dealing some of which included transferring monies out of [Dial Electrical] that ultimately ended up in an account in his and his wife, Twila McFarland's name."
See Tex. Civ. Prac. & Rem. Code § 64.001(a)(6) (providing that court may appoint receiver under rules of equity).
The Pacettis also filed a statement in support of a receiver.
On December 31, 2020, Kenneth filed an interlocutory appeal of the probate court's December 9, 2020 order appointing Berlinger as receiver over Dial Electrical and LV Controls.
See Tex. Civ. Prac. & Rem. Code § 51.014(a)(1). Kenneth also filed a petition for writ of mandamus in this Court, seeking to vacate the probate court's December 9, 2020 order giving Berlinger authority to control the companies. We denied the mandamus petition without opinion. See In re McFarland, No. 01-21-00033-CV, 2021 WL 499051, at *1 (Tex. App.-Houston [1st Dist.] Feb. 11, 2021, orig. proceeding).
On January 5, 2021, the probate court held a hearing on Berlinger's December 14 motion to appoint a receiver. Berlinger stated that he requested the receiver because of equity, that it was in the best interest of the estate to appoint a receiver, and that he thought it would be better to have a CPA serve as the receiver.
Twila McFarland, who is not a party to this appeal, argued that the company was a non-probate asset that was transferred by non-testamentary transfer and no live pleading attacked the non-testamentary nature of the transfer. Twila further argued that appointing a receiver required an evidentiary proceeding and that no evidence of imminent harm or imminent threat as required by caselaw had been presented. She concluded by stating that a receiver should only be appointed until after the court of appeals had an opportunity to rule on whether "there should be some management by the temporary administrator or receiver on what is today a non-testamentary asset."
After the parties discussed whether the special-meeting minutes constituted a non-testamentary transfer, the probate court stated that he did not know, and he had not heard any evidence so he could not address it. Berlinger responded that he could file a "[declaratory judgment] action and seek a decision as to whether it's a non-testamentary transfer." Kenneth then argued that, at this point in time, the transfer of the companies to him remained a non-probate transfer and that he was unaware of any authority that would permit the probate court to appoint someone to take the non-probate asset.
On January 6, 2021, the Pacettis filed their second amended opposition to probate the will and codicil, contending that the purported will and codicil had improper formalities, lacked testamentary intent, lack of capacity, and undue influence. The Pacettis alleged breach of fiduciary duty, conversion, sought declaratory relief that the special-meeting minutes did not constitute a non-testamentary transfer, and explained why the minutes were not a non-testamentary transfer.
On January 11, 2021, the probate court signed an order appointing Jeff Compton as receiver of Dial Electrical pursuant to Chapter 64 of the Texas Civil Practice and Remedies Code and for other good cause. Kenneth timely filed a second notice of interlocutory appeal of the order appointing Jeff Compton as receiver.
Receivership
In four issues, Kenneth argues that Lynne made a non-testamentary transfer and that the probate court abused its discretion by appointing a receiver.
A. Standard of Review and Applicable Law
A party may bring an interlocutory appeal from an order appointing a receiver. Tex. Civ. Prac. & Rem. Code § 51.014(a)(1); see Estate of Hoskins, 501 S.W.3d 295, 301 (Tex. App.-Corpus Christi 2016, no pet.). We review an order appointing a receiver for an abuse of discretion. Perry v. Perry, 512 S.W.3d 523, 526 (Tex. App.-Houston [1st Dist.] 2016, no pet.); Benefield v. State, 266 S.W.3d 25, 31 (Tex. App.-Houston [1st Dist.] 2008, no pet.). "A trial court abuses its discretion when it rules arbitrarily, unreasonably, without regard to guiding legal principles, or without supporting evidence." Bennett v. Baker Broocks & Lange, LLP, No. 01-13-00674-CV, 2014 WL 3107661, at *1 (Tex. App.-Houston [1st Dist.] July 8, 2014, no pet.) (mem. op.) (citing Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex. 1998)). Under the abuse-of-discretion standard, legal and factual sufficiency of the evidence are not independent grounds of error: they are relevant factors in assessing whether the trial court abused its discretion. See Fannin v. Fereday, No. 01-13-00951-CV, 2015 WL 4463694, at *3 (Tex. App.-Houston [1st Dist.] July 21, 2015, no pet.).
The party seeking the appointment of a receiver has the burden of proof to demonstrate that the circumstances justify the appointment of a receiver. Benefield, 266 S.W.3d at 31. Texas Civil Practice and Remedies Code section 64.001 provides that a "court of competent jurisdiction" may appoint a receiver in six specific circumstances, including, as relevant here, "in an action between partners or others jointly owning or interested in any property or fund" or "in any other case in which a receiver may be appointed under the rules of equity." Tex. Civ. Prac. & Rem. Code § 64.001(a).
B. Non-Testamentary Transfer
In his first issue, Kenneth argues that the April 13, 2020 special-meeting minutes constituted a non-testamentary transfer of all shares of the companies to Kenneth upon Lynne's death. According to Kenneth, this transfer caused the companies to pass as non-probate assets outside Lynne's estate, thereby precluding the probate court from giving control of the non-probate assets to a receiver or temporary administrator.
To preserve a complaint for appellate review, Kenneth was required to present his complaint to the probate court and obtain a ruling. See Tex. R. App. P. 33.1(a). As mentioned many times during the proceedings below and as conceded in his appellate brief, the probate court has not yet ruled on Kenneth's non-testamentary transfer theory based on the special-meeting minutes. The issue is currently pending before the probate court in the Pacettis' Second Amended Opposition to Probate of Will and Codicil, in which they sought declaratory judgment on whether Lynne made a non-testamentary transfer of the shares of the companies. Likewise, Berlinger has also sought declaratory judgment on the same issue. Because the probate court has yet to rule on this issue, the issue has not been preserved, and we decline to address the validity of Kenneth's non-testamentary transfer theory. See Tex. R. App. P. 33.1(a)(2); see also City of Dallas v. Dixon, 365 S.W.2d 919, 923 (Tex. 1963) (noting that courts of appeals are primarily courts of review), rev'd on other grounds sub nom., Donovan v. City of Dallas, 377 U.S. 408 (1964).
Kenneth's brief states, "Regardless of the substance, it has not been judicially determined that the transfers were invalid."
Within his first issue, Kenneth argues that the "Probate Court has no jurisdiction over the Companies." Because Kenneth does not provide appropriate authority and substantive analysis, we conclude the issue has been waived. See Tex. R. App. P. 38.1(i) (stating that brief "must contain a clear and concise argument for the contentions made, with appropriate citation to authorities"); Guimaraes v. Brann, 562 S.W.3d 521, 537-38 (Tex. App.-Houston [1st Dist] 2018, pet. denied).
We overrule Kenneth's first issue.
In his second issue, Kenneth argues that the probate court abused its discretion by ignoring the standards found in section 64.001. Specifically, Kenneth argues that the probate court could not appoint Compton as receiver pursuant to section 64.001(a)(3) because the section did not apply.
Although the probate court initially appointed Berlinger as a receiver in its December 9, 2020 order, Berlinger never qualified to serve and sought to appoint Jeff Compton as receiver. Subsequent to the filing of Kenneth's first notice of appeal, the probate court appointed Jeff Compton as receiver on January 11, 2021 and discharged Berlinger as receiver. Where the complained-of defects of an initial order are remedied in the issuance of a subsequent order, the initial complaints become moot. Flamingo Permian Oil & Gas, L.L.C. v. Star Expl, L.L.C., 569 S.W.3d 329, 331 (Tex. App.-El Paso 2019, no pet.) (dismissing as moot three issues rectified by the issuance of subsequent order executed while appeal was pending); see also Smith v. Smith, 681 S.W.2d 793, 797 (Tex. App.- Houston [14th Dist.] 1984, no writ). Because the subsequent order appointed Jeff Compton and discharged Berlinger as receiver, we confine our analysis to the January 11, 2021 order.
Section 64.001(a) provides that a court may appoint a receiver,
(1) in an action by a vendor to vacate a fraudulent purchase of property;
(2) in an action by a creditor to subject any property or fund to his claim;
(3) in an action between partners or others jointly owning or interested in any property or fund;
(4) in an action by a mortgagee for the foreclosure of the mortgage and sale of the mortgaged property;
(5) for a corporation that is insolvent, is in imminent danger of insolvency, has been dissolved, or has forfeited its corporate rights; or
(6) in any other case in which a receiver may be appointed under the rules of equity.Tex. Civ. Prac. & Rem. Code § 64.001(a)(1)(6).
Berlinger sought the appointment of a receiver based on section 64.001(a)(6). The probate court's January 11, 2021 order appointing a receiver stated it was appointing a receiver pursuant to Chapter 64 of the Texas Civil Practice and Remedies Code, but it did not specify which subsection it was relying on in granting the appointment of a receiver. Thus, on appeal, it was incumbent on Kenneth to attack all possible grounds. See Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex. 1993) ("We have held repeatedly that the courts of appeals may not reverse the judgment of a trial court for a reason not raised in a point of error."); Britton v. Tex. Dep't of Criminal Justice, 95 S.W.3d 676, 681 (Tex. App.- Houston [1st Dist.] 2002, no pet.) (stating that if independent ground fully supports judgment, but appellant assigns no error to that independent ground, then court of appeals must accept validity of unchallenged independent ground).
Here, Kenneth does not attack all independent grounds that support the probate court's order. Specifically, Kenneth assigns no error to subsection (a)(6), which generally allows a probate court to appoint a receiver under the rules of equity. See Tex. Civ. Prac. & Rem. Code § 64.001(a)(6). By failing to attack this independent ground, Kenneth has waived error, if any. Britton, 95 S.W.3d at 681.
By failing to attack this independent ground, it is unnecessary to address any additional arguments that Kenneth raises concerning section 64.001(b) because the limitations under (b) only apply if the probate court appointed a receiver pursuant to subsections (a)(1), (2), or (3). See Tex. Civ. Prac. & Rem. Code § 64.001(b); Tex.R.App.P. 47.1.
In addition, Kenneth's appellate arguments in this issue were not raised with the probate court. At the hearing on the motion to appoint a receiver on January 5, 2021, Kenneth did not assert any argument specific to section 64.001(a)(3). Thus, the issue was not preserved. See Tex. R. App. P. 33.1.
We overrule Kenneth's second issue.
D. Section 11.404
In his third issue, Kenneth argues that the probate court abused its discretion by ignoring the standards articulated in section 11.404 of the Texas Business Organizations Code. Kenneth also argues within this issue that the probate court did not hear evidence to support a receiver under section 11.404(a) and (b). Specifically, Kenneth argues that "the probate court abused its discretion by failing to hear any evidence establishing the need for a receiver to conserve the property and business of the Companies and to avoid damage to interested parties" and "there is a lack of evidence that a single alternative was considered by the Probate Court."
Tex. Bus. Org. Code § 11.404 ("Appointment of Receiver to Rehabilitate Domestic Entity").
Similar to his second issue, because Kenneth did not attack the independent ground in section 64.001(a)(6) in support of the probate court's order, his additional complaints within this issue are waived. Britton, 95 S.W.3d at 681.
Moreover, the record does not show that Kenneth raised any complaint about section 11.404 with the probate court, he has not identified anywhere within the record where he raised these appellate issues with the probate court, and he cites no authority in support of his argument that the probate court abused its discretion. See Tex. R. App. P. 33.1; 38.1(i). Accordingly, Kenneth's appellate complaints within this issue are waived. See Tex. R. App. P. 33.1, 38.1(i). We overrule Kenneth's third issue.
E. Appointing Temporary Administrator Berlinger As Receiver
In his fourth issue, Kenneth complains that before the probate court could appoint a receiver, the probate court "failed to make the requisite finding of necessity," including a finding of probable interest in the company and a finding that the company was in danger of being lost, removed, or materially injured. These same complaints were raised in Kenneth's second and third issues. For the same reasons we stated in issues two and three, we overrule this portion of Kenneth's fourth issue.
In three sub-issues, Kenneth argues that (1) at the time the probate court entered its December 9, 2020 order, no party had raised an adverse claim against the purported non-testamentary transfer; and, by authorizing Berlinger to control the companies, the court "unilaterally shifted the burden to [Kenneth] to prove the transfers were valid instead of on another party to prove they were invalid. This is improper;" (2) the probate court appointed Berlinger without additional bond coverage as receiver; and (3) Berlinger's actions involved assets outside of the estate that were not covered by his bond.
As stated earlier, the probate court issued a subsequent order appointing Compton as receiver and discharging Berlinger. Thus, Kenneth's issues concerning the December 9, 2020 order appointing Berlinger are moot. See Flamingo, 569 S.W.3d at 331. Moreover, his second and third sub-issues listed above were not presented to the probate court and are outside of our interlocutory jurisdiction to address the January 11, 2021 order appointing a receiver. See Tex. R. App. P. 33.1(a); Tex. Civ. Prac. & Rem. Code § 51.014(a)(1) (permitting interlocutory appeal of order appointing receiver); Walker Sand, Inc. v. Baytown Asphalt Materials, Ltd., 95 S.W.3d 511, 514 (Tex. App.-Houston [1st Dist.] 2002, no pet.) (stating that Texas courts strictly construe statutes authorizing interlocutory appeals).
We overrule Kenneth's fourth issue.
F. Appointment of Jeff Compton as Receiver of Dial Electrical
In his fifth issue, Kenneth argues that the probate court improperly appointed Compton as receiver of Dial Electrical. In a single paragraph, Kenneth repeats his earlier arguments from his second, third, and fourth issues that the probate court did not make findings of "necessity to prevent danger of being lost, removed or materially injured" or "to conserve the Company and avoid damage to interested parties is required." For the same reasons we stated in issues two, three, and four, we overrule this portion of his fifth issue.
In another sub-issue, Kenneth also complains that no evidence was presented as to Compton's qualifications before he assumed the role of receiver. Kenneth's sub-issue was also not presented to the probate court, and he cites no authority in support of his argument. See Tex. R. App. P. 33.1, 38.1(i). Accordingly, the issue is waived.
We overrule Kenneth's fifth issue.
Conclusion
Because Kenneth has failed to challenge an independent ground supporting the probate court's receivership order, we conclude that Kenneth has not shown that the probate court abused its discretion in appointing a receiver. We overrule all pending motions as moot.