Opinion
No. 05-14-01507-CV
04-27-2016
HOLLY HENDERSON, FORMERLY KNOWN AS, HOLLY CITELLI, Appellant v. STEPHEN E. CHRISMAN AND TRACI L. CHRISMAN, Appellees
On Appeal from the 416th Judicial District Court Collin County, Texas
Trial Court Cause No. 416-01374-2009
MEMORANDUM OPINION
Before Justices Bridges, Lang-Miers, and Schenck
Opinion by Justice Bridges
This is an appeal from an order in a post-judgment turnover proceeding. Holly Henderson, formerly known as Holly Citelli, contends the trial court abused its discretion in awarding turnover and injunctive relief to the Chrismans by (1) ordering turnover and injunctive relief because the evidence is legally insufficient to support the necessary elements of turnover relief; (2) ordering turnover and injunctive relief because a charging order is the exclusive mechanism by which to recover any alleged interests; and (3) awarding appellate attorney's fees regardless of success on appeal. As modified, we affirm the trial court's judgment.
Background
The underlying lawsuit involved a breach of contract for the construction of a new home. The Chrismans settled the suit with Henderson and Henderson, along with her husband Jackie Citelli, agreed to a $266,866 pay-out over time. The case was administratively closed on May 15, 2012.
Henderson and Citelli later divorced. As part of their divorce, Citelli agreed to be solely responsible for payment of the settlement; however, he later defaulted on the pay-out schedule.
On October 24, 2014, the Chrismans filed an application for post-judgment ex parte temporary restraining order or injunction in aid of enforcement of judgment against Henderson. The Chrismans alleged Henderson owned a 16.6666666% interest in Henderson Properties, LLC (the LLC) and had received distributions totaling $155,000, which the Chrismans argued they were entitled to receive pursuant to the agreed judgment. The trial court signed an order granting the application for temporary injunction the same day.
The Chrismans subsequently filed a motion, with supporting exhibits, for post-judgment turnover order, and, alternatively for charging order and a supplement to the motion with additional supporting exhibits. Henderson responded that the motion failed to specifically identify the property sought to be turned over, and the property identified was not subject to a turnover order or charging order.
The trial court held a hearing in which both sides presented arguments. During the hearing, the Chrismans' counsel repeatedly referred to Henderson's deposition testimony, her K-1 tax statements, and her interrogatory answers although the trial court did not admit the documents into evidence. Henderson objected to the Chrismans' use of her deposition because it was not certified, and the trial court did not rule on the objection. Henderson did not object to the trial court's failure to rule on the objection.
Evidence also showed Henderson loaned her boyfriend $9500 in November 2013, but she later signed an affidavit stating he had fully repaid the loan and no longer owed her any more money. There was also evidence that she had over $100,000 in income in 2013, but her checking account balance was $861.
The trial court granted the Chrismans' turnover order and request for injunctive relief on November 6, 2014. The order stated the court "considered the Motion, the Application, the response, the pleadings and evidence on file, and any evidence from the hearing" and granted the application. It further ordered pursuant to Texas Civil Practice and Remedies Code section 31.002(b)(2) that Henderson turn over "all monies, distributions, or assets" she receives from the LLC and enjoined her from "assigning, selling, giving away, pledging or encumbering her Henderson Properties Interest in any manner until the Agreed Judgment is paid in full." This appeal followed.
Is a Charging Order the Exclusive Method to Recover Any Interest in Henderson
Properties, LLC?
In her second issue, Henderson argues the trial court abused its discretion by ordering turnover because a charging order is the exclusive method by which the Chrismans could recover any property distribution from the LLC. Henderson encourages this Court to revisit its holding in Stanley v. Reef Securities, Inc., 314 S.W.3d 659 (Tex. App.—Dallas 2010, no pet.), which she contends was "wrongly decided to the extent it holds that turnover relief is also available to collect a judgment by turning over distributions out of a membership interest in a liability company as opposed to a partnership interest." We decline Henderson's invitation to overrule Stanley and conclude based on the record before us that a charging order was not the exclusive remedy available in this case.
In Stanley, we analyzed section 153.256(d) of the Texas Business Organizations Code, which applies to partnership interests, and concluded a charging order was not the exclusive remedy for reaching partnership distributions. See TEX. BUS. ORG. CODE ANN. § 153.256(d) (West 2012) ("entry of a charging order is the exclusive remedy by which a judgment creditor of a partner or of any other owner of a partnership interest may satisfy a judgment out of a judgment debtor's partnership interest"); Stanley, 314 S.W.3d at 664. In reaching our conclusion, we determined nothing in the plain language of section 153.256 precluded a judgment creditor from seeking the turnover of proceeds from a partnership distribution after a distribution has been made and is in the debtor's possession. Id. at 665.
Section 101.112 of the Texas Business Organizations Code, which applies to an LLC, states, "The entry of a charging order is the exclusive remedy by which a judgment creditor of a member or of any other owner of a membership interest may satisfy a judgment out of the judgment debtor's membership interest." TEX. BUS. ORG. CODE ANN. § 101.112 (West 2012). This language mirrors the language of section 153.256, and Henderson has not cited any authority to support her position that Stanley was wrongly decided or why we should conclude section 101.112 requires a different analysis and conclusion than section 153.256.
We note that counsel for Henderson agreed during the turnover hearing that Henderson was not a member of the LLC and stipulated she inherited her 16.6666666% interest. Counsel also agreed during the hearing a charging order would not apply to the present facts, despite her argument to the contrary on appeal. Thus, Henderson became an assignee of her father's interest with a right to distributions. See id. § 101.1115(a)(2) (upon the death of a member, the successor becomes an assignee of the membership interest). Applying the same reasoning as Stanley, there is nothing in the plain language of section 101.112 that precludes a judgment creditor from seeking the turnover of proceeds from a membership distribution if and when such a distribution is made and in the judgment debtor's possession. See Stanley, 314 S.W.3d at 665. Thus, we conclude a charging order was not the exclusive remedy in this case. We overrule Henderson's second issue.
Sufficiency of the Evidence to Support the Turnover Order
Having concluded a turnover order was a proper mechanism for reaching a distribution, we now consider Henderson's first issue, in which she argues the evidence was legally insufficient to support the required elements to justify the turnover order. The Chrismans respond their evidence, attached to the motion for turnover and argued at the hearing, provided proof of the necessary facts to support each element required under section 31.002 for turnover.
The purpose of the turnover statute is to aid diligent judgment creditors in reaching certain types of property of a judgment debtor. Main Place Custom Homes, Inc. v. Honaker, 192 S.W.3d 604, 628 (Tex. App.—Fort Worth 2006, pet. denied). The turnover statute is purely procedural; its purpose is to ascertain whether an asset is either in the judgment debtor's possession or subject to her control. Id.
We review a trial court's post-judgment turnover order for an abuse of discretion. Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 226 (Tex. 1991); Stanley, 314 S.W.3d at 664. We may reverse the trial court's ruling only if it acted in an unreasonable and arbitrary manner or acted without reference to any guiding rules or principles. HSM Dev., Inc. v. Barclay Props., Ltd., 392 S.W.3d 749, 751 (Tex. App.—Dallas 2012, no pet.).
A turnover order is proper if the conditions of section 31.002 of the Texas Civil Practice and Remedies Code are met. HSM Dev., Inc., 392 S.W.3d at 751. Among the requirements of section 31.002 is that the creditor must show the debtor owns the property, including present or future rights to property, that cannot be readily attached or levied on by ordinary legal process. TEX. CIV. PRAC. & REM. CODE ANN. § 31.002(a) (West 2015). The property must also not be exempt from attachment, execution, or seizure for the satisfaction of liabilities. Id.
The statute does not require notice and a hearing. TEX. CIV. PRAC. & REM. CODE ANN. § 31.002(a). However, section 31.002 authorizes a turnover order only upon proof of the necessary facts; therefore, the trial court "must have some evidence before it that establishes that the necessary conditions for the application of 31.002 exist." Id.; Tanner v. McCarthy, 274 S.W.3d 311, 322 (Tex. App.—Houston [1st Dist.] 2008, no pet.). Importantly, section 31.002 does not specify or restrict the manner in which evidence may be received in order for a trial court to determine whether the conditions of 31.002(a) exist, nor does it require that such evidence be in any particular form, that it be at any particular level of specificity, or that it reach any particular quantum before the court may grant relief under section 31.002. Tanner, 274 S.W.3d at 322.
The Chrismans attached an affidavit to their motion for post-judgment turnover stating, in part, that the agreed judgment obtained on September 20, 2013 between the parties was "in all things final, valid, subsisting, unpaid, and is unsatisfied" in the amount of $245,686. They attached the agreed judgment as an exhibit to the affidavit. Thus, the trial court had some evidence before it satisfying this necessary condition.
Henderson argues the trial court had no evidence establishing what interest, if any, that she owned in the LLC, but her counsel stipulated to her interest at the hearing and the documents attached to the Chrismans' motion show otherwise. Henderson testified in her deposition that when her father passed away, she inherited an interest in the LLC. She likewise admitted in an interrogatory she owned a sixteen percent interest in the LLC. The Chrismans also provided a 2012 Schedule K-1 that listed Henderson with a 16.6666666% interest in the LLC. As such, the Chrismans provided some evidence satisfying the ownership element required under section 31.002.
Once the Chrismans proved Henderson owned the property, the burden shifted to Henderson to prove that the property was exempt from turnover. Stanley, 314 S.W.3d at 667. She failed to produce any such evidence. Rather, she argues the turnover is overbroad because it requires her to turn over "all monies, distributions, assets [she] receives from Henderson Properties," which encompasses potential future property that may be exempt. We are not persuaded by her argument. In Stanley, we concluded a trial court's order requiring the judgment debtor to turn over "moneys . . . other assets; all financial accounts (bank accounts), certificates of deposit, money-market accounts, accounts held by Robert Stanley" or "all financial accounts (bank accounts), certificates of deposit, money-market accounts, or accounts held by or in the name of any third party for Robert Stanley" was an abuse of discretion because the judgment creditor did not provide any evidence that Stanley owned any of the generally described property besides the $20,000 in monthly payments he would receive from investment properties that were part of one specific company. Here, the trial court's order is more narrowly tailored and requires the turnover of only property distributions from her interest in the LLC and not generally owned property. Further, section 31.002 allows a judgement creditor to recover property "including present and future rights to property." TEX. CIV. PRAC. & REM. CODE ANN. § 31.002(a). Accordingly, the turnover order was not overbroad.
Having concluded Henderson owned property that was not exempt, we now turn to whether the property could not be readily attached by ordinary legal process. Courts may look to a judgment debtor's noncompliance and lack of cooperation in determining whether or not property is readily attached. See Sunbelt Sav., FSB v. Beadle, No. 05-93-00869-CV, 1994 WL 679370, at *3 (Tex. App.—Dallas Dec. 5, 1994, no writ) (Rosenberg, J., concurring) (citing Hennigan v. Hennigan, 666 S.W.2d 322, 324 (Tex. App.—Houston [14th Dist.], writ ref'd n.r.e. 1984)). For example, we have concluded property could not be readily attached when evidence established that the debtor had resources to pay the judgment, he had chosen not to pay, and he had admitted the judgment was the only debt he was not paying. Stanley, 314 S.W.3d at 669.
Henderson admitted in her deposition that she loaned her boyfriend $9500 in November 2013 to help him pay off a high-interest credit card. Although she did not specifically state she was unwilling to pay the judgment, the fact that she had the financial resources to pay something toward the judgment, but had not, indicated an unwillingness and lack of cooperation, which provided some evidence to support the trial court's conclusion that payments from the LLC to Henderson cannot be readily attached or levied on by ordinary legal process. Accordingly, Henderson's interest entitling her to future distributions from the LLC is a nontangible property interest that cannot be readily attached and levied on by ordinary legal process. See, e.g., Suttles v. Vestin Realty Mort. I, Inc., 317 S.W.3d 412, 417 (Tex. App.—Houston [1st Dist.] 2010, no pet.) (explaining turnover statute was enacted to reach non-exempt property where the judgment debtor owns interest in intangible property, such as future rights to payments and where the debtor owns interests in property that could be easily hidden from a levying officer).
Although Henderson argues there is "nothing extraordinary about the property in question" establishing it cannot be readily attached by ordinary legal process, we cannot conclude the trial court abused its discretion by ordering turnover when it had before it "some evidence . . . establish[ing] that the necessary conditions for the application of 31.002 exist." Tanner, 274 S.W.3d at 322.
In reaching this conclusion, we are not persuaded by Henderson's contention that the trial court relied on incompetent evidence to support the turnover order. Henderson asks this Court to ignore the exhibits attached to the Chrismans' motion for turnover and supplement to the motion, which included answers to interrogatories, excerpts from her deposition, and K-1 statements because these documents were never admitted by the trial court at the hearing. She argues it was irrelevant whether the trial court could have ruled on the motion without a hearing because the Chrismans chose to have a hearing. Therefore, Henderson asserts the Chrismans may not be allowed to "abandon the procedures and burdens associated with the chosen procedure."
First, we are not persuaded by Henderson's argument that the hearing somehow eliminated the value of the evidence attached to the Chrismans' motion and supplement to the motion. A hearing is not required under section 31.002, and we find no support for the conclusion that a motion, with attached evidence, becomes worthless if a party decides to have a hearing. See TEX. CIV. PRAC. & REM. CODE ANN. § 31.002(a).
Furthermore, the Chrismans presented evidence to the trial court during the hearing and although Henderson objected, the trial court never ruled on her objection. Rather, both parties continued with the hearing and repeatedly referred to the evidence. And Henderson's counsel stipulated to her interest in the LLC. But again, even if we concluded the trial court could not consider the evidence presented at the hearing because it was never admitted, section 31.002 does not require a trial court to hold a hearing before it grants turnover. The trial court had before it sufficient evidence to grant turnover without holding a hearing and the fact that it held a hearing did not eliminate the value of that evidence. See Tanner, 274 S.W.3d at 322 (explaining that section 31.002 does not specify or restrict the manner in which evidence may be received in order for a trial court to determine whether the conditions of 31.002(a) exist, nor does it require that such evidence be in any particular form, that it be at any particular level of specificity, or that it reach any particular quantum before the court may grant relief). Accordingly, the trial court did not abuse its discretion by granting Chrismans' motion for turnover.
In a related issue, Henderson argues there was no evidence to support injunctive relief, and the turnover statute does not authorize the trial court to enjoin Henderson from "pledging, giving away, encumbering, or selling" her interests. Section 31.002(a) specifically states a judgment creditor is entitled to aid from the court through injunction in order to reach property to obtain satisfaction of the judgment. TEX. CIV. PRAC. & REM. CODE ANN. § 31.002(a). In Childre v. Great Southwest Life Insurance Co, 700 S.W.2d 284, 288 (Tex. App.—Dallas 1985, no writ), we concluded the traditional evidentiary requirements for granting an injunction are not applicable when a trial court grants an injunction under section 31.002(a) because "[t]he relief granted sought only to maintain the status quo." See also Roosth v. Roosth, 889 S.W.2d 445, 460 (Tex. App.—Houston [14th Dist.] 1994, writ denied) (explaining typical requirements for an injunction are not applicable to an injunction granted pursuant to section 31.002). Therefore, Henderson's argument that there was no evidence to support injunctive relief is without merit because evidence supported the underlying turnover order. Enjoining Henderson from encumbering, pledging, assigning, selling, or giving away her interest in the LLC, which was the only non-exempt property the Chrismans were trying to collect, supported their attempts to satisfy the judgment thereby carrying out the purpose of the turnover statute. See In re Karlseng, No. 05-14-00049-CV, 2014 WL 1018321, at *3 (Tex. App.—Dallas Feb. 12, 2014, orig. proceeding) (mem. op.) ("The legislature's purpose in enacting the turnover statute was to facilitate the collection of assets from judgment debtors."). Thus, the trial court granted the injunctive relief to maintain the status quo. We overrule Henderson's first issue.
Award of Appellate Fees
In her final issue, Henderson argues the trial court abused its discretion by awarding the Chrismans' attorney's fees regardless of success on appeal. The Chrismans respond any error in failing to condition an award of fees based on success of appeal is harmless.
It is well-settled that where attorney's fees are recoverable, the award may include appellate attorney's fees. Cessna Aircraft Co. v. Aircraft Network, LLC, 345 S.W.3d 139, 149 (Tex. App.—Dallas 2011, no pet.). But an unconditional award of appellate attorney's fees is improper; therefore, the trial court must condition fees to appellee on appellant's unsuccessful appeal. Id.
The trial court ordered Henderson to pay $8,230 pursuant to Texas Civil Practice and Remedies Code Annotated section 31.002(e) and $15,000 in attorney's fees "in the event of an appeal to the Court of Appeals; plus $5,000 in responding to a petition for review to the Texas Supreme Court; [and] $7,500 if the petition for review to the Texas Supreme is granted" without regard to Henderson's success on appeal. Because Henderson has not succeeded on appeal to this Court, the trial court's failure to condition such fees is harmless. However, we agree with Henderson that the trial court's order of prospective appellate fees is erroneous to the extent it is not conditioned on her successful petition to the Texas Supreme Court. We sustain Henderson's third issue in part. Accordingly, we modify the judgment to reflect that the Chrismans' appellate fees are only recoverable in the event of an unsuccessful petition for review to the Texas Supreme Court by Henderson.
Conclusion
As modified, we affirm the trial court's judgment.
/David L. Bridges/
DAVID L. BRIDGES
JUSTICE 141507F.P05
JUDGMENT
On Appeal from the 416th Judicial District Court, Collin County, Texas
Trial Court Cause No. 416-01374-2009.
Opinion delivered by Justice Bridges. Justices Lang-Miers and Schenck participating.
In accordance with this Court's opinion of this date, the judgment of the trial court is MODIFIED as follows:
In the event of an unsuccessful appeal by Defendant to the Texas Supreme Court, it is ordered that Plaintiffs be awarded $5,000 in responding to a petition for review to the Texas Supreme Court; $7,500 if a petition to the Texas Supreme by Defendant is denied.As modified, the judgment of the trial court is AFFIRMED.
It is ORDERED that appellees STEPHEN E. CHRISMAN AND TRACI L. CHRISMAN recover their costs of this appeal from appellant HOLLY HENDERSON, FORMERLY KNOWN AS, HOLLY CITELLI. Judgment entered April 27, 2016.