Opinion
NO. 01-18-00039-CV
07-17-2018
MARK HOTZE, STEVEN HOTZE, RICHARD HOTZE, TROIKA PARTNERS, IN MANAGEMENT, LLC, INTER NOS LTD., INTER NOS BARKER CYPRESS, LTD., INTER NOS ODESSA, LTD., INTER NOS WICHITA, LTD., NEW ORLEANS IN, LTD., INTER NOS SPACE PLUS, LTD., INTER NOS SPRINGVILLE, LTD., INTER NOS WALKER, LTD., INTER NOS PIPELINE, LTD., AND INTER NOS TP INVESTMENTS, LTD., Appellants v. DAVID HOTZE, DONNA HOTZE AS TRUSTEE, AND BRUCE HOTZE, Appellees
On Appeal from the 61st District Court Harris County, Texas
Trial Court Case No. 2016-36300
MEMORANDUM OPINION
This interlocutory appeal arises from a dispute among five brothers regarding the management and dissolution of various business entities in which all five own an equal interest. David and Bruce Hotze, along with David's wife, Donna Hotze, as trustee (collectively, the Plaintiff Brothers), sued brothers Mark, Steven, and Richard Hotze; Troika Partners (an entity owned by Mark, Steven, and Richard) (collectively, the Defendant Brothers), and numerous business entities in which all five brothers own an equal interest (collectively, the Defendant Entities). In their original suit, the Plaintiff Brothers sought to wind up and terminate the jointly owned entities.
While the suit was pending, the Plaintiff Brothers discovered that the Defendant Brothers were receiving "advancement payments" from the Defendant Entities. The Plaintiff Brothers contend that those payments were not authorized under the terms of the entities' organizational documents. The Plaintiff Brothers sued the Defendant Brothers for breach of their fiduciary duties and of the entities' organizational documents, and they sought a temporary injunction to stop the payments and to prohibit the Defendant Entities from making any cash calls to support the advancement payments. After a hearing, the trial court granted the requested relief.
On appeal, the Defendant Brothers argue that the trial court abused its discretion in entering the temporary injunction because (1) the Plaintiff Brothers have an adequate remedy at law; (2) the injunction violates Texas Rule of Appellate Procedure 24.2(d); (3) the injunction is based on the Plaintiff Brothers' cause of action for constructive trust, on which they cannot prevail; and (4) the advancement payments were legal, mandated by the general partner's corporate documents, and favored by Texas law. The Defendant Brothers also argue that the trial court abused its discretion by failing to set an adequate bond.
Because we conclude that the Plaintiff Brothers did not meet their burden to show an inadequate remedy at law, we reverse the trial court's temporary injunction order and remand for further proceedings.
Background
In June 2016, the Plaintiff Brothers sued the Defendant Brothers and Defendant Entities, contending that the Defendant Brothers were resisting winding up the Defendant Entities. In fall 2017, the Plaintiff Brothers learned that, in July 2017, the Defendant Brothers had signed Reimbursement and Advancement of Expenses and Undertaking Agreements. Those agreements authorized the Defendant Entities to distribute advancement payments to the three Defendant Brothers for legal fees associated with the lawsuit. The Plaintiff Brothers amended their petition to add direct and derivative claims of breach of fiduciary duty and breach of the entities' organizational documents. They sought a temporary injunction to halt the advancement payments and prohibit the Defendant Entities from making cash calls to cover advancements.
The original hearing on the temporary injunction was scheduled in December 2017. Because the Defendant Brothers had not produced documents showing where they had deposited the funds, the parties entered into an agreed temporary restraining order. The court reset the hearing.
At the hearing on the temporary injunction, the Plaintiff Brothers offered evidence that each of the Defendant Brothers had received $246,000 in advancement payments—$738,000 in total. The Defendant Brothers were asked about and testified regarding the location of the bank accounts in which they deposited the payments. The Defendant Brothers testified about those accounts and that most of the advancement money had been paid to the Defendant Brothers' lawyers. The Plaintiff Brothers also offered evidence that the Defendant Brothers owed their lawyers at least another $588,949.65 beyond what had already been advanced.
The Plaintiff Brothers also introduced evidence regarding the Defendant Entities and argued that the terms of the entities' organizational documents did not authorize the advancement payments without a vote of 80% of the partnership interests. The Plaintiff Brothers introduced evidence that the payments were authorized by a vote of the three Defendant Brothers without notice to the two Plaintiff Brothers.
We will not focus in this background on the evidence and arguments presented about the merits of the Plaintiff Brothers' claims, which took up the majority of the hearing. The merits are not before us in this appeal, and our basis for resolving this appeal is independent of the merits of the case.
Discussion
The Defendant Brothers argue, in part, that the trial court abused its discretion by granting the temporary injunction because the Plaintiff Brothers did not meet their burden to show probable, imminent, and irreparable injury. We agree.
A. Standard of Review and Applicable Law
A temporary injunction is an extraordinary remedy that does not issue as a matter of right. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002); Camp Mystic, Inc. v. Eastland, 399 S.W.3d 266, 273 (Tex. App.—San Antonio 2012, no pet.). When granted, it preserves the status quo of the litigation's subject matter pending trial on the merits. Butnaru, 84 S.W.3d at 204; Camp Mystic, 399 S.W.3d at 273.
The decision to grant or deny a temporary injunction lies in the discretion of the trial court, and we reverse the court's ruling only for an abuse of discretion. Butnaru, 84 S.W.3d at 204; TMC Worldwide, L.P. v. Gray, 178 S.W.3d 29, 36 (Tex. App.—Houston [1st Dist.] 2005, no pet.). "Our review of the trial court's decision is limited to the validity of its temporary injunction order; we do not consider the merits of the underlying case." Intercontinental Terminals Co. v. Vopak N. Am., Inc., 354 S.W.3d 887, 892 (Tex. App.—Houston [1st Dist.] 2011, no pet.). In reviewing an order granting or denying a temporary injunction, we draw all legitimate inferences from the evidence in a manner most favorable to the trial court's order. Gray, 178 S.W.3d at 36 (citing CRC-Evans Pipeline Int'l, Inc. v. Myers, 927 S.W.2d 259, 262 (Tex. App.—Houston [1st Dist.] 1996, no writ)).
To obtain a temporary injunction, the applicant must plead and prove: (1) a cause of action against the defendant; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim. Butnaru, 84 S.W.3d at 204; Gray, 178 S.W.3d at 36; see also Camp Mystic, 399 S.W.3d at 273 ("Probable injury is established by tendering evidence of imminent harm, irreparable injury, and an inadequate legal remedy."). The requirement that the injury be probable and imminent is not satisfied by evidence suggesting that the harm or injury is merely possible or feared. Instead, to support injunctive relief, the commission of the act must be more than speculative and the injury that flows from the act must be more than conjectural. See Camp Mystic, 399 S.W.3d at 276; Tex. Dep't of Pub. Safety v. Salazar, 304 S.W.3d 896, 908 (Tex. App.—Austin 2009, no pet.); Marketshare Telecom, L.L.C. v. Ericsson, Inc., 198 S.W.3d 908, 925 (Tex. App.—Dallas 2006, no pet.).
An injury is irreparable if the injured party cannot be adequately compensated in damages or if the damages cannot be measured by any certain pecuniary standard. Butnaru, 84 S.W.3d at 204; Reach Group, L.L.C. v. Angelina Grp., 173 S.W.3d 834, 838 (Tex. App.—Houston [14th Dist.] 2005, no pet.); see Cardinal Health Staffing Network, Inc. v. Bowen, 106 S.W.3d 230, 235 (Tex. App.—Houston [1st Dist.] 2003, no pet.). The party requesting the injunction has the burden to establish that there is no adequate remedy at law through damages. Cardinal Health, 106 S.W.3d at 235.
A trial court abuses its discretion in granting a temporary injunction unless "it is clearly established by the facts that one seeking such relief is threatened with an actual irreparable injury if the injunction is not granted." Markel v. World Flight, Inc., 938 S.W.2d 74, 80 (Tex. App.—San Antonio 1996, no writ) (quoting Mother & Unborn Baby Care of N. Tex., Inc. v. Doe, 689 S.W.2d 336, 338 (Tex. App.—Fort Worth 1985, writ dism'd)). Evidence of fear, apprehension, or possibilities is insufficient to establish injury, let alone irreparable injury. See Morris v. Collins, 881 S.W.2d 138, 140 (Tex. App.—Houston [1st Dist.] 1994, writ denied); Markel, 938 S.W.2d at 79-80. To demonstrate irreparable injury or harm, an applicant must show an injury for which there can be no real legal measure of damages or none that can be determined with a sufficient degree of certainty, i.e., a noncompensable injury, or that the defendant will be unable to pay the judgment absent the requested injunction. See Marketshare Telecom, 198 S.W.3d at 925-26; Key Energy Servs., Inc. v. TBS Int'l, Inc., No. 08-01-00367-CV, 2002 WL 1010073, at *4 (Tex. App.—El Paso May 20, 2002, no pet.) (not designated for publication) (citing Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex. 1993) (per curiam)); see also LeFaucheur v. Williams, 807 S.W.2d 20, 23 (Tex. App.—Austin 1991, no writ) (plaintiff's damages had a cash value, so they were compensable by money damages; therefore, plaintiff had an adequate remedy at law); Surko Enters., Inc. v. Borg-Warner Acceptance Corp., 782 S.W.2d 223, 225 (Tex. App.—Houston [1st Dist.] 1989, no writ) (money damages could be inadequate, for instance, when defendants are insolvent and cannot pay a money judgment).
B. Analysis
The central question in this temporary-injunction appeal is whether the evidence at the hearing showed probable, imminent, and irreparable injury. This, in turn, depends on whether the evidence showed that, should the plaintiffs ultimately prevail below, the plaintiffs could not be fully compensated by money damages at that time. It did not. The trial court therefore abused its discretion in granting the temporary injunction.
The Plaintiff Brothers did not offer evidence that any alleged injury from the advancement payments could not be adequately compensated in damages or that the damages could not be measured by any certain pecuniary standard. See Butnaru, 84 S.W.3d at 204; Cardinal Health, 106 S.W.3d at 235; see also Walling, 863 S.W.2d at 58; Marketshare Telecom, L.L.C., 198 S.W.3d at 925-26; Key Energy Servs., Inc. v. TBS Int'l, Inc., No. 08-01-00367-CV, 2002 WL 1010073, at *4; Surko Enters., 782 S.W.2d at 225. To the contrary, the evidence showed that the alleged damages—unequal distributions of cash from the defendant entities—could be ascertained with certainty and compensated for with money damages.
Reviewing all of the evidence presented to the trial court at the temporary injunction hearing, the Plaintiff Brothers raised (at most) a suggestion that the Defendant Brothers could spend the advancement payments deposited in certain accounts and potentially, at some point, lack sufficient funds in those accounts to repay the advancement payments, should the payments be found to have been wrongful. The Defendant Brothers were asked (and offered testimony) about their specific respective bank accounts where they deposited the advancement payments. The Defendant Brothers acknowledged that they commingled the advancement payments with other money in those accounts and that most of the advancement-payment money had been paid to their lawyers.
The Plaintiff Brothers complain that the Defendant Brothers failed to produce documents from the bank accounts where the advancement payments were deposited and that the trial court was therefore authorized to draw adverse inferences regarding the Defendant Brothers' ability to pay a judgment. But records pertaining solely to the location of the advancement payments would not by themselves show an inability to pay damages.
But the requirement that injury be probable and imminent is not satisfied by evidence indicating that harm or injury is possible or feared. The commission of the act must be more than speculative and the injury that flows from the act must be more than conjectural. See Camp Mystic, 399 S.W.3d at 276; Salazar, 304 S.W.3d at 908; Marketshare Telecom, 198 S.W.3d at 925; see also Markel, 938 S.W.2d at 79-80 (evidence of fear, apprehension, and possibilities is insufficient).
The evidence did not demonstrate that the Defendant Brothers would be unable to pay a judgment, in light of their overall assets, other bank accounts, their income, or their expenses. The Defendant Brothers expressed their willingness and ability to comply with their responsibilities under the reimbursement agreements. The Defendant Brothers even signed documents expressly guaranteeing their repayment of the advancement payments if necessary. There was very little evidence on the financial outlook of the Defendant Entities and the amount of money that those entities could anticipate earning in the future. No evidence presented during the temporary-injunction hearing supports a conclusion (as opposed to speculation) that the Defendant Brothers would be unable to pay damages should they be found to have wrongfully received the advancement payments. See, e.g., N. Cypress Med. Ctr. Operating Co. v. St. Laurent, 296 S.W.3d 171, 179-80 (Tex. App.—Houston [14th Dist.] 2009, no pet.) (dissolving temporary injunction when party had not shown that he would suffer an irreparable injury; the evidence did not show that funds were in danger of being lost or depleted such that defendant could not ultimately pay damages); SRS Prods. Co. v. LG Eng'g Co., 994 S.W.2d 380, 386 (Tex. App.—Houston [14th Dist.] 1999, no pet.) (SRS did not show an inadequate remedy at law when "[t]he amount in dispute is the amount that LGE sought to draw under the letter of credit, and is clearly calculable. Furthermore, LGE presented uncontroverted testimony that it is financially secure and capable of repaying the full amount of the letter of credit if it were later required to do so.").
The Plaintiff Brothers argue that affidavits filed by the Defendant Brothers after the temporary injunction was imposed prove that the Defendant Brothers are unable to pay their expenses with the temporary injunction in place and therefore, by extension, prove that they will not be able to pay an eventual money judgment. These affidavits were directed at the issue of the bank accounts being frozen; they do not show that other potential assets or income could not be used to satisfy an eventual judgment if necessary. Nevertheless, "[i]t is axiomatic that an appellate court reviews actions of a trial court based on the materials before the trial court at the time it acted." Lifeguard Benefit Servs., Inc. v. Direct Med. Network Sols., 308 S.W.3d 102, 117 (Tex. App.—Fort Worth 2010, no pet.) (quoting Methodist Hosps. of Dallas v. Tall, 972 S.W.2d 894, 898 (Tex. App.—Corpus Christi 1998, no pet.); see Univ. of Tex. v. Morris, 344 S.W.2d 426, 429 (appellate court's "action must be controlled by the record made in the trial court at the time the injunction was issued")). Because these affidavits were filed after the temporary injunction hearing was held and the injunction issued, they do not factor in our review of the trial court's action.
North Cypress Medical Center Operating Co. v. St. Laurent is instructive. 296 S.W.3d 171 (Tex. App.—Houston [14th Dist.] 2009, no pet.). As our sister court explained, the evidence there suggested that although the partnership may use the bank account at issue (the "Available Cash" account) to fund numerous activities, in the event St. Laurent prevailed in the dispute over his partnership distributions, his efforts to collect on that judgment would not be limited solely to the hospital's "Available Cash" account. The record contained no suggestion that North Cypress was insolvent or otherwise unable to pay a potential judgment, and the record did not show numerous other relevant details, such as the balance of available cash, or the hospital's revenue and income. N. Cypress Med. Ctr. Operating, 296 S.W.3d at 179-80. That reasoning applies readily to the facts of this case.
Even so, the Plaintiff Brothers contend that the trial court did not err in granting the temporary injunction because they were not required to show irreparable harm. Relying on Hsin-Chi-Su v. Vantage Drilling Co., 474 S.W.3d 284 (Tex. App.—Houston [14th Dist.] 2015, pet. denied), and Baucum v. Texam Oil Corp., 423 S.W.2d 434 (Tex. Civ. App.—El Paso 1967, writ ref'd n.r.e.), the Plaintiff Brothers argue that courts may impose temporary injunctions to prevent dissipation of assets. But those cases are distinct because they concerned assets that, once transferred, may have been unrecoverable. See Hsin-Chi-Su, 474 S.W.3d at 302-03 (temporary injunction applicant showed that defendant was attempting to place disputed shares in company out of applicant's reach so that they could not be recovered); Baucum, 423 S.W.2d at 440 (defendant "had set upon a course of conduct to dispose of properties he held and had committed acts respecting the subject of the pending litigation which would render a judgment upon the merits ineffectual"). That reasoning does not control in this case, which involves solely fungible money that is, on this record, both quantifiable and replaceable.
The Plaintiff Brothers also argue that they do not have to show irreparable harm because the Defendant Brothers are fiduciaries. But none of the cases on which the Plaintiff Brothers rely support the argument that we should suspend the requirement that, to obtain a temporary injunction, one must show probable, imminent, and irreparable injury.
The Plaintiff Brothers further argue that the trial court's temporary injunction could have been granted under the authority of section 65.011(2) of the Civil Practice and Remedies Code alone, which, they argue, does not require a showing of irreparable injury. See TEX. CIV. PRAC. & REM. CODE § 65.011(2) ("A writ of injunction may be granted if: . . . a party performs or is about to perform or is procuring or allowing the performance of an act relating to the subject of pending litigation, in violation of the rights of the applicant, and the act would tend to render the judgment in that litigation ineffectual . . . ."). The Plaintiff Brothers concede in their appellate brief that at least one Texas court has expressly rejected this argument. See City of El Paso v. Caples Land Co., 408 S.W.3d 26, 37 (Tex. App.—El Paso, 2013, pet. denied) (holding that, to obtain temporary injunction under section 65.011(2), party was required to establish probable right to recover and irreparable injury) (citing Town of Palm Valley v. Johnson, 87 S.W.3d 110, 111 (Tex. 2001) (per curiam), which rejected a similar argument under Civil Practice and Remedies Code section 65.011(1)).
The Plaintiff Brothers point us to Guillermo Benavides Garza Inv. Co. v. Benavides, No. 04-13-00453-CV, 2014 WL 3339555 (Tex. App.—San Antonio July 9, 2014, no pet.) (mem. op.). The Plaintiff Brothers argue that this case "seems to recognize that a showing under section 65.011(2) would be an alternative which would not require a showing of irreparable harm." But, in that case, the court of appeals relied on City of El Paso and stated that the statute "does not permit temporary injunctive relief without the showing of irreparable harm otherwise required by equity." Id. at *3 (citing City of El Paso, 408 S.W.3d at 37).
Regardless, section 65.011(2) by its terms required the Plaintiff Brothers to show that "the act would tend to render the judgment in that litigation ineffectual." TEX. CIV. PRAC. & REM. CODE § 65.011(2) (emphasis added). Here, as discussed above, the Plaintiff Brothers made no showing that the complained-of acts would "tend to render the judgment in [this] litigation ineffectual." See id.
We note that our holding is limited to the conclusion that the Plaintiff Brothers did not meet their burden in this instance to show probable, imminent, and irreparable injury; we do not address whether the Plaintiff Brothers could have shown such an injury had they offered different or additional evidence. Likewise, our conclusion that the Plaintiff Brothers failed to meet their burden for this purpose has no bearing on the merits of the underlying claims. See Intercontinental Terminals, 354 S.W.3d at 892.
We sustain the Defendant Brothers' first issue. Because this issue is dispositive of the appeal, we need not reach the remaining issues.
Conclusion
We reverse the trial court's temporary-injunction order and remand for further proceedings consistent with this opinion.
Jennifer Caughey
Justice Panel consists of Justices Higley, Brown, and Caughey.