Opinion
14-23-00160-CV
10-22-2024
MKM ENGINEERS, INC. AND PIKA INTERNATIONAL, INC., Appellants v. JAL B. GUZDER, Appellee
On Appeal from the 434th Judicial District Court Fort Bend County, Texas Trial Court Cause No. 07-DCV-155803A
Panel Consists of Christopher Chief Justice and Wise and Poissant, Justices.
MEMORANDUM OPINION ON MOTION
PER CURIAM
Pursuant to Texas Rule of Appellate Procedure 24.4(a), appellants request that this court permit appellants to supersede the underlying judgment with alternate security in the amount previously set by this court. See Tex. R. App. P. 24.4(a). Specifically, appellants seek review of the trial court's denials of appellants' motions seeking to supersede the underlying judgment with alternate security and/or a cash deposit in lieu of a bond. Further, appellants request that we vacate the trial court's July 19, 2024 order compelling discovery. Because we hold the trial court erred in denying appellants' proposal to supersede the judgment with alternate security and a cash deposit, we grant appellants' motion in part. We decline to vacate the July 19, 2024 order compelling post-judgment discovery, but hold that post-judgment discovery should cease for 20 days after the issuance of this order and remain suspended only if appellants file the security as ordered by this court.
Background
The background of this appeal can be found in this court's 2015 opinion. See MKM Eng'rs, Inc. v. Guzder, 476 S.W.3d 770 (Tex. App.-Houston [14th Dist.] 2015, no pet.). More recently, on October 12, 2023, we issued a memorandum opinion on appellants' motion to review the amount of supersedeas set by the trial court in which we decreased the amount of required bond from approximately $3 million to $1.7 million. It is now one year later, and appellants have yet to fully supersede the judgment. Appellants represent to this court and the court below that their companies, MKM Engineering, Inc. (MKM) and Pika International Inc. (Pika), are nearly illiquid and unable to post a sufficient cash bond or access lines of credit to post the bond. According to appellants, MKM is no longer a functioning business and operates only to hold a parcel of land valued at $1,335,000. Appellee contests this valuation of MKM's sole asset. Pika is still in operation, but unable to offer more than a $233,250 cash deposit without bankrupting its current organization.
Appellants initially deposited cash in lieu of bond in the amount of $139,787.60, which remains in the registry of the court.
After we issued our opinion decreasing the amount of required security, appellants proposed securing the judgment by way of a cashier's check for $233,250 and a deed of trust for MKM's property, which, together with the sums already deposited by appellants, would equal the $1.7 million bond amount set by this court. Appellee rejected this proposal. Appellants filed an emergency motion in the trial court for approval of the proposal. On November 27, 2023, the trial court held a hearing on the motion. During the hearing, appellee contested the valuation of MKM's property and urged the court to grant appellee's motion for contempt regarding outstanding discovery requests. Appellants argued that they had not yet complied with discovery because they were attempting to satisfy the bond, which would end post judgment discovery. The trial court declined to rule on appellants' motion for alternate security ". . .until the discovery is turned over and [appellee] gets a fair shot at what is there and what is not there." The trial court signed an order compelling discovery.
Because appellants did not fully supersede the judgment within 20 days of this court's ruling on the previous Rule 24.4 motion, appellee obtained a judgment lien on MKM's property. After the trial court declined to rule on their proposal to post a deed of trust as alternate security, the parties attempted to negotiate a contract wherein appellee would release the judgment lien on the property for the limited purpose of allowing MKM's owner to buy the property for $1,335,000 and, in turn, MKM would apply those funds to supersede the judgment in addition to cash supplied by Pika. The parties could not come to mutually agreeable terms and the negotiations fell through. Appellants subsequently moved in the trial court to have the judgment lien released to facilitate the sale.
In late June 2024, the trial court held a hearing on (1) appellants' motion to release the judgment lien in order to supersede with cash and (2) appellee's motion to compel discovery. At the close of that hearing, the court ordered the parties to mediation and declined to rule on the pending motions. In declining to rule, the trial court stated:
"I think the issue, when we talked about discovery in the past, was to determine if the cash was there to put up to begin with. And that's what we decided last year. And that's why I was so adamant about trying to get the discovery over to the plaintiff."
The parties adjourned for an unsuccessful mediation. After the parties informed the court that the mediation had been unsuccessful, the trial court signed an order compelling discovery by August 1, 2024. The trial court also signed orders denying appellants' (1) motion to post alternate security and (2) motion to lift the judgment lien in order to supersede with cash. On August 1, 2024, the trial court held a show cause hearing in which the court ordered further compliance by appellants with post judgment discovery.
On September 30, 2024, appellants filed a motion to stay turnover proceedings, including a November 7, 2024 hearing, pending this court's opinion on appellants' motion to Rule 24.4 motion. We granted that motion.
Standard of Review and Law
"A judgment debtor is entitled to supersede the judgment while pursuing an appeal." Miga v. Jensen, 299 S.W.3d 98, 100 (Tex. 2009). Enforcement of a judgment must be suspended if the judgment is superseded. Tex.R.App.P. 24.1(f). Enforcement begun before the judgment is superseded must cease when the judgment is superseded. Id. Rule 621a of the Texas Rules of Civil Procedure allows for discovery only "for the purpose of obtaining information to aid in the enforcement" of a judgment that has not been superseded, and "for the purpose of obtaining information relevant to" Rule 24 motions. In re Longview Energy Co., 464 S.W.3d 353, 359 (Tex. 2015) (quoting Tex.R.Civ.P. 621a).
The 2023 version of Texas Rule of Appellate Procedure 24.1, applicable to this appeal, provides four methods for the judgment debtor to supersede the judgment:
(1) Filing with the trial court clerk a written agreement with the judgment creditor for superseding the judgment;
(2) Filing with the trial court clerk a good and sufficient bond;
(3) Making a deposit with the trial court clerk in lieu of a bond; or
(4) Providing alternate security ordered by the courtTex. R. App. P. 24.1(a), 87 Tex. B.J. 143 (Tex. 2023, amended 2023).
The 2024 version of this rule amends Texas Rule of Appellate Procedure 24.1(a)(4) to state "providing alternate security under Rule 24.2(e) or ordered by this court." Tex.R.App.P. 24.1(a)(4).
When superseding a judgment that is for something other than money or an interest in property, the trial court must set the amount and type of security that the judgment debtor must post. Tex.R.App.P. 24.2(a)(3). The security must adequately protect the judgment creditor against loss or damage the appeal might cause. Id.
On motion of a party, an appellate court may engage in a limited review of a trial court's supersedeas ruling. See Tex. R. App. P. 24.4. Specifically, the Rules of Appellate Procedure provide that an appellate court may review: (1) the sufficiency or excessiveness of the amount of security; (2) the sureties on a bond; (3) the type of security; (4) the decision whether to permit suspension of enforcement; and (5) the trial court's exercise of discretion in ordering the amount and type of security. Tex.R.App.P. 24.4(a). The appellate court may require that the amount of the "bond, deposit, or other security be increased or decreased" and that "another bond, deposit, or security be provided and approved by the trial court clerk." Tex.R.App.P. 24.4(d).
We generally review the trial court's supersedeas rulings for an abuse of discretion. EnviroPower, L.L.C. v. Bear, Stearns & Co., Inc., 265 S.W.3d 1, 2 (Tex. App.-Houston [1st Dist.] 2008, pet. denied). The test for abuse of discretion is whether the trial court acted arbitrarily or unreasonably considering all the circumstances of the case. Id. The trial court is the sole judge of credibility of witnesses and the weight to be given to their testimony. G.M. Houser, Inc. v. Rodgers, 204 S.W.3d 836, 840 (Tex. App.-Dallas 2006, no pet.).
Analysis
We have already reviewed and decreased the amount of bond pending appeal. Appellants now request we review the type of security. Appellants have two proposals for securing the judgment, both of which the trial court denied. First, appellants request we order appellee's judgment lien stayed in order for appellant MKM to sell its sole asset to its owner to allow for appellants to post the cash proceeds as bond in addition to a cashier's check supplied by appellant Pika to cover the balance. Alternatively, appellants request to deposit a deed of trust for the property into the registry of the court in addition to a cashiers' check supplied by Pika. Appellants argue that they have no other options by which to supersede the judgment. The trial court denied both of these options and compelled post judgment discovery pursuant to Texas Rule of Civil Procedure 621a. See Tex. R. Civ. P. 621a.
Appellee responds that (1) appellants' request to lift the lien on the property improperly seeks "judicial imprimatur of an interested sale to MKM's owner, with heavily biased and unnecessary terms that included limitations of liability which would have left [appellee] without recourse if MKM failed to honor the terms of the sale;" and (2) "as to appellants' request to pledge MKM's real property, the trial court reasonably could have concluded from the evidence that appellants' request sought to force [appellee's] counsel into the real estate business on the basis of a contested and speculative appraisal of the value of the property." Moreover, appellee responds that appellants have failed to produce discovery supporting their claims that they are unable to supersede the judgment by other means. Appellants supported their motion for alternate security with the affidavits of the companies' owners stating that they have no other means of superseding the judgment other than with the real property.
Trial Court's Denial of Appellants' Proposal to Lift Judgment Lien
As to appellants proposal to sell MKM's sole asset to its owner, we hold the trial court did not abuse its discretion in prohibiting the insider transaction. In Stephens, the case relied on by appellants to support its proposal to lift the judgment lien and sell MKM's property, a third-party bank provided an irrevocable letter of credit substantiating the value of the property to be sold and proceeds of which were to be used to secure the judgment. Stephens v. Three Finger Black Shale P'ship., No. 11-16-00177-CV, 2017 WL 3495390 at *1 (Tex. App.- Eastland 2017, no pet.). That is not the case here. The sale of the property would be to appellants' owner-not a third-party arm's length transaction with a market-tested valuation. Given appellants' own protestations of financial insecurity, it was reasonable for the trial court to disallow appellants to dissipate their alleged sole remaining non-fungible asset.
Trial Court's Denial of Appellants' Proposal to Deposit a Deed of Trust
The trial court has consistently ordered further post judgment discovery presumably for the purpose of obtaining information relevant to appellants' Rule 24 motions. See Tex. R. Civ. P. 621a. However, there is no net-worth inquiry in determining the amount or type of security when the judgment is for something other than money. See Tex. R. App. P. 24.2(a)(3). Nor does Rule 24.1 provide a hierarchy of methods for superseding the judgment. That rule provides four "methods" of suspension of enforcement. Appellants have a proposal providing an alternate method of security, which the trial court has denied and, instead, continues to order post judgment discovery. While post judgment discovery is permitted for the purpose of "obtaining information" related to Rule 24 motions, it appears the trial court, in continuing to order post judgment discovery, is seeking to first determine whether appellants can post a cash bond as opposed providing alternate security. Because there is no hierarchy in Rule 24.1 elevating a cash deposit as security, nor is there a requirement in Rule 24.2(a)(3) that security be made as a cash deposit, we can ascertain no reasonable basis for disallowing appellants to deposit the deed of trust for the property in addition to a cash deposit to secure the underlying judgement.
Conclusion
We hold the trial court abused its discretion in denying appellants' request to post alternate security. Accordingly, we order the trial court clerk accept appellants' tender of (1) a deed of trust for the property described as "+/- 5.106 Acres of Vacant Land at the NWC of Spacek Road and Biotics Research Drive, Rosenberg, Fort Bend County, Texas" valued in the amount of $1,335,000 and (2) a cashier's check for $233,250, which together with the sums already deposited, shall fully supersede the judgment.
We lift our October 3, 2024 order of stay, but further order that enforcement of the judgment, including post judgment discovery, is suspended 20 days from the date of this order. Appellee's motion for reconsideration of our October 3, 2024 order is denied as moot. If appellants do not comply with this order within that 20-day period, the judgment may be enforced and post judgment discovery may resume. When any additional bond, deposit, or security has been filed, the trial court clerk must notify the appellate court. The posting of additional security will not release the previously posted security. Tex.R.App.P. 24.4(e).