Opinion
14-23-00710-CV
02-08-2024
MARTIN LEE KAY, Appellant v. LAURA ELIZABETH YOSOWITZ, INDIVIDUALLY AND DERIVATIVELY ON BEHALF OF GREENLET, LLC, Appellee
On Appeal from the 334th District Court Harris County, Texas Trial Court Cause No. 2018-37750
Panel Consists of Justices Hassan, Poissant, and Wilson.
ORDER
PER CURIAM
Appellant Martin Lee Kay seeks review of the trial court's order signed October 25, 2023 requiring him to submit $25,000,000.00 in cash or bond to supersede the trial court's judgment, as well as an order signed October 26, 2023 denying his motion to set a hardship bond. Appellee Laura Elizabeth Yosowitz, individually and derivatively on behalf of Greenlet, LLC, opposes appellant's motion.
We deny the motion. Because our order requires appellant to file additional security in the trial court to stay its judgment, enforcement of the judgment is suspended for twenty days from the date of this order. See Tex. R. App. P. 24.4(e).
Background
This appeal is from a final judgment signed June 27, 2023 that awarded appellee more than $54,000,000.00 in actual damages, plus further monetary relief. On September 27, 2023, appellant filed an amended affidavit of net worth pursuant to Texas Rule of Appellate Procedure 24.2(c). That affidavit asserted appellant had a net worth of $754,373 and that two cashier's checks appellant had deposited totaling $377,186.50 represented half of his net worth. The affidavit tacitly contended that the deposited amount was sufficient to supersede the trial court's judgment during appeal as it was ostensibly a sufficient deposit pursuant to Texas Rules of Appellate Procedure 24.1(a)(2) and 24.2(a)(1)(A). But the affidavit also asserted that appellant could not maintain any bond with the trial court at all without suffering substantial economic harm and requested that the trial court lower the amount of security needed to supersede the trial court's judgment to a nominal amount of $1,000 pursuant to Texas Rule of Appellate Procedure 24.2(b).
Appellee contested appellant's net worth affidavit as well as his request to lower the supersedeas bond amount to $1,000, and the trial court held a multi-day hearing on the contest in October 2023. The primary disagreement between the parties during the contest concerned the value of 8,143,870 shares of Entera stock that appellant owned. Appellant asserted that the shares had a value of $46,138,397 based on a 2022 appraisal. However, appellant contended that the shares' value should be fully discounted to zero based on low marketability and lack of liquidity of the stock, and he provided expert testimony to that effect from two accountants, Courtney Blackburn and Michael Easley. Appellant provided additional expert testimony from attorney Darrell Taylor on securities law issues implicated by the Entera shares. Appellee provided valuation testimony from two accountants, Tobin Reiff and Karyl Van Tassel. Their testimony not only valued the Entera shares much higher than appellant, asserting they had a value of $182,829,882, but also asserted there was no need to discount the shares' value for reasons of liquidity or marketability. Similarly, appellee provided expert testimony from attorney Alan Harris as to securities law issues implicated by the Entera shares. During the trial court's hearing, appellant personally offered to tender his stock certificate for all of his Entera shares to the court as an alternative form of security to supersede the judgment, which he represents would prevent him from selling or otherwise transferring his shares. Although appellee does not dispute that tendering the stock certificate would prevent appellant from disposing of his shares, appellee contends the stock certificate is not an acceptable form of security to supersede the judgment.
On October 15, 2023, the trial court signed an order which concluded appellant's net worth was $147,018,277. The difference between appellant's asserted net worth and the net worth the trial court found arises almost entirely from the trial court's finding that the Entera shares were worth $182,829,882, rather than zero as appellant asserted. The trial court relatedly found that the testimony of appellee's experts was credible and supported by credible and consistent evidence and involved sound supporting methodology. By contrast, the trial court found that appellant's expert testimony was neither credible nor consistent with the evidence, and their supporting methodology was not sound. In doing so, the trial court specifically noted that appellant's experts' use of a 100% marketability discount for the Entera shares was itself a "flawed methodology." In addition, the trial court found that appellant "did not meet his burden to provide an affidavit of net worth that states complete, detailed information concerning his assets and liabilities from which net worth can be ascertained." Ultimately, as half of appellant's net worth as found by the trial court was more than $25,000,000, the trial court required "bond or cash deposit" in the amount of $25,000,000 pursuant to Texas Rule of Appellate Procedure 24.1(a)(1)(B) in order to supersede the trial court's judgment. Although the order did not mention appellant's stock certificate, it impliedly rejected the stock certificate as an alternative form of security when it required appellant to post a "bond or cash deposit" to supersede the judgment. And on October 16, 2023, the trial court signed an order denying appellant's request to set a hardship bond.
Analysis
Texas Rule of Appellate Procedure 24.4(a)(1) authorizes courts of appeals with jurisdiction over an underlying appeal to review a trial court's ruling on the sufficiency or excessiveness of the amount of a supersedeas bond. Trial court determinations of the net worth of a judgment debtor for supersedeas purposes are reviewed for abuse of discretion. O.C.T.G., L.L.P. v. Laguna Tubular Prods. Corp., 525 S.W.3d 822, 829 (Tex. App.-Houston [14th Dist.] 2017, op. on motion). Similarly, determinations of whether the bond amount otherwise required by Rule 24.2(a)(1) would cause the judgment debtor substantial economic harm are reviewed for abuse of discretion. Ramco Oil & Gas, Ltd. v. Anglo Dutch (Tenge) L.L.C., 171 S.W.3d 905, 909 (Tex. App.-Houston [14th Dist.] 2005, order on mot.). The abuse-of-discretion standard assesses whether the trial court acted without reference to any guiding rules and principles, acted arbitrarily and unreasonably, or analyzed or applied the law incorrectly. O.C.T.G., 525 S.W.3d at 829. In conducting review of the legal and factual sufficiency of evidence that has been assessed by the trial court, we are mindful that the trial court is the sole judge of the credibility of witnesses and the weight to be given their testimony. City of Keller v. Wilson, 168 S.W.3d 802, 819 (Tex. 2005). This principle is equally applicable to experts; when multiple experts are presented to the trial court on a disputed issue, the trial court is permitted to credit one over the other. Texas Black Iron, Inc. v. N. Am. Interpipe, Inc., No. 14-20-00068-CV, 2020 WL 10231117, at *8 (Tex. App.-Houston [14th Dist.] July 28, 2020, mem. op. on motion) (citing Gunn v. McCoy, 554 S.W.3d 645, 665 (Tex. 2018)).
As mentioned above, the primary disagreement between the parties concerns the valuation of appellant's Entera shares. Appellant contends the value of the shares is zero for net-worth purposes, while appellee contends the shares have vast value in that regard. So the key question is whether the trial court abused its discretion in adhering to appellee's purported value of the shares instead of appellant's purported value. We find no abuse of discretion by the trial court in that regard.
Appellant's argument centers on the fact that the Entera shares were not registered pursuant to the federal Securities Act of 1933, and thus could not normally be sold to the general public. See 15 U.S.C. § 77e(a). From this, appellant argues, because appellant ostensibly cannot actually sell the shares and obtain money for them, the shares are valueless for net worth purposes. But at the hearing, appellee provided evidence, including expert testimony, that several exemptions from this restriction might apply to the Entera shares, such that appellant could sell them under limited circumstances. See, e.g., 15 U.S.C. § 77d(a)(7), (d) (exempting from restrictions on sale of unregistered securities "[c]ertain accredited investor transactions"). Although appellant provided evidence at the hearing that such transactions could not occur, the trial court could properly accept appellee's evidence over the evidence appellant presented. Texas Black Iron, 2020 WL 10231117, at *8. From this, the trial court could properly reject appellant's contention that the Entera shares' value should be fully discounted for purposes of net worth, and that they accordingly had the value appellee represented they had.
We similarly reject appellant's contention that the trial court abused its discretion in declining to accept the stock certificate for his Entera shares in lieu of a deposit or bond. Although judgment debtors have the option under certain circumstances to provide alternative security to a deposit or bond, see Tex.R.App.P. 24.1(a)(4), that option is only available to judgment debtors "with a net worth of less than $10 million." See Tex. R. App. P. 24.2(e)(1). As the trial court concluded appellant's net worth was more than $10,000,000, it did not abuse its discretion in declining to accept the stock certificate as alternative security.
Finally, we reject appellant's contention that the trial court abused its discretion in declining to set a hardship bond for him, or in other words to lower the bond amount below the $25,000,000 minimum that Rule 24.2(a)(1)(B) would otherwise require. Of particular note here is an email exchange presented during the trial court's supersedeas hearing that indicated at least one potential lender entertained the possibility that the Entera shares, which were assumed to be worth $40,000,000, could support a loan of around $12,500,000. Since the trial court found that the shares were actually worth $182,829,882 (or slightly more than 4.5 times the amount the email exchange assumed), the trial court could relatedly find that appellant had the ability to use his Entera shares to obtain at least the $25,000,000 required to supersede the trial court's judgment under Rule 24.2(a)(1)(B). See Ramco Oil & Gas, 171 S.W.3d at 917 (emphasis omitted) (observing that a trial court's "substantial economic harm" inquiry for supersedeas can include considering whether "the judgment debtor ha[s] the ability to borrow funds to post the requisite security" and whether "the judgment debtor ha[s] unencumbered assets to sell or pledge"). Accordingly, we see no abuse of discretion in the trial court rejecting appellant's request for a hardship bond, and thus we conclude that appellant is not entitled to the relief he requests.
As we find no abuse of discretion in any of the trial court's orders associated with setting supersedeas at $25,000,000, we decline to reach appellee's argument that appellant's motion can be rejected on the basis that he did not expressly challenge the trial court's finding his affidavit of net worth provided insufficient information to ascertain his net worth.
Conclusion
For the reasons we discussed above, we conclude the trial court did not abuse its discretion in requiring appellant Martin Lee Kay to submit $25,000,000.00 in cash or bond in order to supersede the trial court's judgment. We accordingly deny appellant's motion and lift the temporary stay this court ordered on December 1, 2023. Appellant must file cash or a bond in the amount of $25,000,000 with the trial court in order to supersede the trial court's judgment. Although the temporary stay ordered by this court on December 1, 2023 is no longer in effect, pursuant to Texas Rule of Appellate Procedure 24.4(e), enforcement of the underlying judgment is suspended for twenty days from the date of this order.