Opinion
07-23-00047-CV
08-08-2022
JAY RHOADS, DONALD RHOADS, MARK RHOADS, AND MICHAEL RHOADS, APPELLANTS v. JAMES MCBEE, APPELLEE
On Appeal from the 237th District Court Lubbock County, Texas Trial Court No. 2021-543, 496, Honorable Les Hatch, Presiding
Before PARKER and DOSS, and YARBROUGH, JJ.
MEMORANDUM OPINION
ALEX YARBROUGH JUSTICE
This interlocutory appeal was filed by Appellants, Jay Rhoads, Donald Rhoads, Mark Rhoads, and Michael Rhoads, each individually and on behalf of Laguna Rica Cattle Feeders, LLC, and doing business as Rhoads Farms Partnership (collectively, the "Rhoads Parties"). The Rhoads Parties claim the trial court erred in granting a temporary injunction in favor of Appellees, James McBee, individually and on behalf of Laguna Rica Cattle Feeders, LLC. The Rhoads Parties raise the following issues on appeal: (1) standing of McBee to file the application for injunction; (2) whether the enjoined acts are subject to arbitration; (3) the sufficiency of the evidence supporting the temporary injunction; (4) whether the injunction complied with Texas Rule of Civil Procedure 683; and (5) the adequacy of the bond for the injunction. We affirm.
Background
This appeal arises out of a business dispute concerning Laguna Rica Cattle Feeders, LLC ("Laguna Rica"), a Texas limited liability company. Laguna Rica operates a "grow yard" involving the feeding and stabling of cattle. The Rhoads Parties loaned $1.42 million to Laguna Rica through a promissory note (the "Note") secured with a deed of trust encumbering the property upon which the business operated (the "Deed of Trust"). The Rhoads Parties contend Laguna Rica defaulted on the Promissory Note on December 1, 2019, but did not exercise their alleged right to foreclose on the property at that time.
Laguna Rica's governing document is entitled "Operating Agreement." Although the legal term for the governing document for limited liability companies is now referred to as a "company agreement" under the Texas Business Organizations Code, to avoid confusion, we have used the parties' terminology of "operating agreement" in this opinion. TEX. BUS. ORGS. CODE ANN. § 101.001(1).
The "Terms of Payment" of the Note states: "The Note shall be struct[ur]ed as an advancing line of credit, due and payable on or before the 1st of December, 2019." This indicates the Note is actually a line of credit, and there is a fact issue regarding an obligation on the part of the Rhoads Parties to renew and extend the Note under the Laguna Rica operating agreement. McBee argues the Rhoads Parties failed in their obligation to do so triggering certain buyout provisions under the operating agreement.
In late 2020, the Rhoads Parties allege Laguna Rica was no longer able to pay its obligations due to McBee's refusal to pay the feed bills for his cattle, which constituted the majority of cattle kept on the business's property. After some initial attempts to rehabilitate the business and settle their dispute failed, the Rhoads Parties filed the present suit and received a preliminary injunction.
McBee asserts in fact he paid all of the operating costs associated with the business, and the amounts alleged to be owed by his companies is not correct.
Following the issuance of the preliminary injunction, McBee moved to compel arbitration, which was granted. During the arbitration, the Rhoads Parties began nonjudicial foreclosure procedures based upon the Deed of Trust and Note, including filing notices of sale in the property records. McBee then filed an application for and received a temporary injunction, enjoining the Rhoads Parties from foreclosing on the Deed of Trust pending the outcome of the arbitration. This appeal followed.
Standard of Review
The purpose of a temporary injunction is to preserve the status quo of the litigation's subject matter pending a trial on the merits. Gl Logistics Co., LLC v. Flores, No. 04-21-00125-CV, 2021 Tex.App. LEXIS 7219, at *7 (Tex. App.-San Antonio Aug. 31, 2021, no pet.) (citing Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002); Blackthorne v. Bellush, 61 S.W.3d 439, 442-43 (Tex. App.-San Antonio 2001, no pet.)). The status quo is defined as "the last, actual, peaceable, non-contested status [that] preceded the pending controversy." Flores, 2021 Tex.App. LEXIS 7219, at *7 (citing In re Newton, 146 S.W.3d 648, 651 (Tex. 2004) (orig. proceeding)).
"We examine each aspect of the trial court's injunction for an abuse of discretion. A trial court has no discretion to misapply the law, however, and thus we review its legal determinations de novo, based on current law. To obtain a temporary injunction, an applicant must 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." Tex. Educ. Agency v. Hous. Indep. Sch. Dist., 660 S.W.3d 108, 116 (Tex. 2023) (citations and internal quotations omitted). If any one of these required showings is lacking, a trial court abuses its discretion in granting the injunction. Abbott v. Harris County, No. 22-0124, 66 Tex. Sup. Ct. J. 1420, 2023 Tex. LEXIS 630, at *10 (June 30, 2023). In resolving evidentiary matters, a trial court does not abuse its discretion if some evidence reasonably supports the court's ruling. Abbott v. Anti-Defamation League Austin, Sw., &Texoma Regions, 610 S.W.3d 911, 916 (Tex. 2020) (citation omitted). But the court has no discretion to incorrectly analyze or apply the law. Id.
We review de novo a trial court's interpretation of an unambiguous contract. Kothmann v. Rothwell, 280 S.W.3d 877, 879 (Tex. App.-Amarillo 2009, no pet.). Our primary objective is to ascertain the parties' true intentions as expressed in the language of the contract, and we construe a contract in a manner that gives effect to the parties' intent expressed in the text, taking into account the facts and circumstances surrounding the contract's execution. Rieder v. Woods, 603 S.W.3d 86, 94 (Tex. 2020).
Analysis
Standing of McBee to Request Temporary Injunction
As a preliminary matter, the Rhoads Parties challenge McBee's standing to file an application for a temporary injunction regarding the Note and the Deed of Trust. They contend because McBee is not a party to the Note or Deed of Trust in his individual capacity, he is not aggrieved by the foreclosure proceeding. This argument is ancillary to their arguments regarding McBee's proof of his probable right to relief.
Lack of constitutional standing deprives the trial court of subject matter jurisdiction. Pike v. Tex. EMC Mgmt., LLC, 610 S.W.3d 763, 773 (Tex. 2020). A party does not lack standing simply because he cannot prevail on the merits of his claim; he lacks standing when his claim of injury is too slight for a court to afford redress. Id. at 774. A party has standing when he is personally aggrieved, regardless of whether he is acting with legal authority; a party has capacity when he has the legal authority to act, regardless of whether he has a justiciable interest in the controversy. Id. at 775. While standing as an issue cannot be waived, capacity can be. Coastal Liquids Transp., L.P. v. Harris Cnty. Appraisal Dist., 46 S.W.3d 880, 884 (Tex. 2001). A party lacks capacity when he is not entitled to recover in the capacity in which he sues. Id. at 775. A party has standing if his claims allege an injury fairly traceable to the opposing party's unlawful conduct which will likely be redressed by the requested relief. In re Abbott, 601 S.W.3d 802, 807 (Tex. 2020). In the context of a temporary injunction, the plaintiffs must demonstrate both standing to bring their claims and that the claims will probably succeed on the merits in order to establish a probable right to relief. Anti-Defamation League Austin, 610 S.W.3d at 917. The failure of either showing means a probable right to relief is lacking and a temporary injunction is unavailable. Id.
The Rhoads Parties do not challenge McBee's standing to bring the claims in his suit. Rather, they narrowly assert he has no standing to request an injunction specifically related to the Note and the Deed of Trust. The thrust of their argument is the Note and Deed of Trust are not specifically sued upon by McBee or Laguna Rica. We find McBee and Laguna Rica asserted claims sufficiently invoking the Note and Deed of Trust, giving them standing to receive relief from the trial court.
The application for temporary restraining order was filed by "James McBee, Individually, and on behalf of Laguna Rica Cattle Feeders, LLC." There is no question Laguna Rica is a party to the Note and the Deed of Trust. The Rhoads Parties argue "McBee does not advance any derivative claims on behalf of Laguna Rica arising from the Note or Deed of Trust other than an unsubstantiated request that the court determine the amount owed under the Note." They also assert "McBee's attempt to assert his own individual rights through a derivative claim only highlight that Laguna Rica has not alleged any breach of an agreement between itself and the Rhoads." This argument misconstrues the nature of a derivative suit: the shareholder is bringing forth the claims of the business organization in a representative capacity. See Pike, 610 S.W.3d at 776. Thus, McBee, by filing a derivative suit, has brought the claims belonging to Laguna Rica into the present suit, and those claims are in fact (contrary to the Rhoads Parties' statement) based on a breach of an agreement between Laguna Rica and the Rhoads Parties. In their counter-petition/third-party petition, McBee and Laguna Rica allege:
The [Rhoads Parties] have breached the contracts by repudiating the performance of their contractual obligations under the Contract, the Call Right, and their breach of the Operating Agreement, and by failing to renew the Note with [Rhoads Farms Partnership], or to timely advise McBee that the Note was not being renewed if that in fact occurred.
In addition, McBee and Laguna Rica requested the following declaratory judgment:
McBee and Laguna seek a declaration . . . of the rights of the parties under the [Operating] Agreement, Note, and Deed of Trust, and that any such [f]oreclosure of the same should be addressed in [a]rbitration. McBee and Laguna further seek judicial determination of the correct and legally entitled payoff amount due to the parties for the Note secured by the parties prior to any [f]oreclosures of the subject collateral property.
The claims are related to the Note and the Deed of Trust, and Laguna Rica, as a party to the Note and Deed of Trust, has standing and capacity to request a temporary injunction concerning the same. Even without a derivative suit, McBee nonetheless also has standing to assert the claims of Laguna Rica in the Note and Deed of Trust. Id. at 778 ("[A] partner or other stakeholder in a business organization has constitutional standing to sue for an alleged loss in the value of its interest in the organization."). Because both McBee and Laguna Rica had standing with respect to the Note and the Deed of Trust, the trial court had subject matter jurisdiction to issue the temporary injunction. The Rhoads Parties' first issue is overruled.
Note and Deed of Trust Are Part of a Unified Agreement
The Rhoads Parties complain the trial court erred in enjoining their foreclosure pending the resolution of the arbitration. Although they do not contest the validity of the arbitration provision in the Laguna Rica operating agreement, they argue "[b]ecause these agreements were not a single, unified transaction, the district court erred in tying the dispute under the Note and Deed of Trust to the arbitration." They urge because the Note and the Deed of Trust make no reference to the operating agreement or the arbitration provision, they are necessarily outside the scope of arbitration.
The Rhoads Parties also argue: (1) "McBee wholly failed to show that a valid arbitration agreement exists"; and (2) "the district court made no determination that the Note and Deed of Trust were subject to arbitration." With regard to the existence of a valid arbitration agreement, the trial court already made those determinations in order to grant McBee's application to compel arbitration. Also, the Rhoads Parties are not permitted to file an interlocutory appeal of the trial court's order compelling arbitration, and we lack jurisdiction to consider this issue at this time. Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001; 171.098.
In determining whether multiple agreements are part and parcel of a unified instrument, a court may consider whether each written agreement and instrument was a necessary part of the same transaction. Rieder, 603 S.W.3d at 94 (citation and internal quotations omitted). Instruments pertaining to the same transaction may be read together to ascertain the parties' intent, even if the parties executed the instruments at different times, and courts may construe all the documents as if they were part of a single, unified instrument. TotalEnergies E&P USA, Inc. v. MP Gulf of Mex., LLC, 667 S.W.3d 694, 724 (Tex. 2023) (J. Bland, concurring) (citations and internal quotations omitted). With respect to an arbitration agreement, it does not matter which document contains the agreement to arbitrate if the dispute is encompassed by the arbitration provision. Id.
The Laguna Rica operating agreement directly references the Note in paragraph 7.3, entitled "McBee Call Right":
James McBee shall have the continuing right to purchase all, but not less than all, of the Membership Interest in the LLC owned by all other Members ("Call Right") at a purchase price equal to 100% of the Fair Market Value of the other Members' interests as of the date of the exercise of the Call Right upon any of the following occurrences:
a. Loan Renewal. If Rhoads Farms Partnership fails to annually renew and extend the remaining unpaid balance of the $1,420,000.00 loan to the LLC ("Laguna Rica Loan") for any reason other than a default by the LLC at that time (the repayment terms of the Laguna Rica Loan mirror the repayment terms of a $1,400,000.00 [sic] annually renewable loan from City Bank to Rhoads Farms Partnership); or
b. Loan Default. If Rhoads Farms Partnership defaults on its $1,420,000.00 loan from City Bank, and City bank seeks to enforce its rights under the Collateral Assignment of the Laguna Rica Loan securing same; . . .(Emphasis original).
The amount of the Laguna Rica Loan referenced in the operating agreement is in the exact amount of the loan made under the Note. The Rhoads Parties admit in their pleadings and their briefing that they, collectively in their respective individual capacities, are "doing business as" Rhoads Farms Partnership, which is the lender under the Note. The Note also states "Lender may renew or extend (repeatedly and for any length of time) this loan . . ." allowing the Rhoads Parties to meet the renewal obligations under the operating agreement. The parties agree the Deed of Trust secures the Note using the real property upon which Laguna Rica operates its business. It appears the Note and Deed of Trust were made in furtherance of Laguna Rica's business and pursuant to the operating agreement. Under these circumstances, these documents are part of a "unified document" and the arbitration provision contained in the operating agreement applies to conflicts regarding the Note and Deed of Trust.
Further, the arbitrability of claims regarding the Note and Deed of Trust were delegated by the parties to the arbitrator. While courts are generally tasked with determining the arbitrability of claims, parties may delegate the determination of arbitrability to the arbitrator. TotalEnergies E&P USA, Inc., 667 S.W.3d at 701-02. If the arbitrator has been given the authority to determine arbitrability by the parties, the court has no authority to determine a question of arbitrability. Id. at 720.
The Rhoads Parties also argue the specific claims regarding the Note and Deed of Trust were not properly referred to arbitration, and therefore they were free to exercise their nonjudicial foreclosure rights. Without addressing the merits of this argument, the order referring the matter to arbitration states: "It is therefore ordered that this case be stayed pending the parties having arbitration on all matters before, or related to, this pending case ...." (Emphasis added). The Note and Deed of Trust are related to the pending case because they involve a loan to Laguna Rica and the real property belonging to Laguna Rica. The trial court's order referring the parties to arbitration included the disputes over the Note and Deed of Trust.
The scope of arbitration and the arbitrator's authority is determined by the parties' agreement. Americo Life, Inc. v. Myer, 440 S.W.3d 18, 21 (Tex. 2014). The operating agreement has the following arbitration provision:
Any dispute, claim or controversy arising out of this operating agreement will be settled by arbitration in Lubbock, Texas. Such arbitration shall be conducted in accordance with the rules of the American Arbitration Association ["AAA"]. The party requesting arbitration shall serve upon the other party a notice demanding arbitration and a description of the issue or issues to be arbitrated. Any award issued as a result of the arbitration may be entered as a final judgment or order in any court of competent jurisdiction and enforced accordingly. Notwithstanding this provision, the aggrieved party shall be entitled to injunctive and/or equitable relief in a court of competent jurisdiction. All costs and expenses of the arbitration, including reasonable attorney's fees, shall be allocated among the parties as determined by the arbitrator.(Emphasis added).
Because the Rhoads Parties may not challenge by interlocutory appeal the order compelling arbitration, for purposes of our analysis, we presume the validity of the arbitration agreement. See TEX. CIV. PRAC. &REM. CODE ANN. § 171.098.
The Texas Supreme Court recently announced parties agreeing to require the application of the rules of the AAA to their arbitration, as they do here, expressly delegate all questions of arbitrability to the arbitrator. TotalEnergies, 667 S.W.3d at 708. In TotalEnergies, the parties entered into multiple contracts, one of which contained an arbitration provision requiring arbitration under the AAA rules. Id. at 699-700. The contract containing the arbitration provision was not the contract sued upon by the plaintiff, Total E&P. Id. The contract containing the arbitration provision was not the subject of Total E&P's suit. Id. The defendant, MP Gulf, moved to compel arbitration. Id. Total E&P argued the contract at issue, which contained no arbitration provision, was outside the scope of the AAA arbitration provision and the suit should not be referred to arbitration. Id. Nevertheless, the Texas Supreme Court determined the parties, by requiring the AAA arbitration to be conducted under the AAA rules, expressly delegated the issue of arbitrability of Total E&P's claims to the arbitrator. Id. at 709-12. In reaching this conclusion, the Texas Supreme Court noted the AAA rules state the arbitrator "shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim." Id. at 709 (citing Am. Arb. Ass'n. R-7(a) (2013)). Even the presence of a "carve-out" clause exempting certain actions from arbitration did not limit the delegation of arbitrability under the AAA arbitration provision. Id. at 713-19.
"[A]n agreement to arbitrate in accordance with the AAA or similar rules constitutes a clear and unmistakable agreement that the arbitrator must decide whether the parties' disputes must be resolved through arbitration." TotalEnergies, 667 S.W.3d at 708.
Just as in TotalEnergies, the parties in this matter have required their arbitration to be conducted under the rules of the AAA. By invoking the rules of the AAA, the parties necessarily delegated the issue of arbitrability, normally reserved to the trial court, to the arbitrator. Therefore, the question of arbitrability of claims related to the Note and Deed of Trust is reserved exclusively to the arbitrator, regardless of whether those claims or issues are within the scope of arbitration. Once McBee moved to compel arbitration, the trial court had no authority to make any determination of arbitrability. The Rhoads Parties, by their own agreement, are required to submit the issues related to the Note and Deed of Trust to the arbitrator before proceeding with collections or foreclosure. The Rhoads Parties' second issue is overruled.
"We thus conclude that the fact that the parties' arbitration agreement may cover only some disputes while carving out others does not affect the fact that the delegation agreement clearly and unmistakably requires the arbitrator to decide whether the present disputes must be resolved through arbitration." Id. at 719.
Sufficiency of Evidence to Support Temporary Injunction
The Rhoads Parties complain McBee failed to present sufficient evidence demonstrating the "probable right to the relief sought" and "irreparable injury" requirements for issuance of a temporary injunction. In particular, the Rhoads Parties argue McBee's pleadings and evidence do not show a specific breach of the Note or the Deed of Trust, and therefore there cannot be a showing of probable right to relief or irreparable injury.
Addressing the Rhoads Parties complaint McBee did not sufficiently demonstrate a probable right to relief, the applicant need not establish that it will win at trial. Webster v. Arthur J. Gallagher &Co., No. 07-20-00328-CV, 2021 Tex.App. LEXIS 5393, at *3 (Tex. App.-Amarillo July 7, 2021, no pet.) (mem. op.) (citations omitted). It is enough to allege a cause of action and present evidence that tends to support it. Id. The merits of the claim are not under review. Id. McBee's claims touch and concern the Rhoads Parties' alleged breaches of the operating agreement, including their alleged failures with respect to the Note. Although McBee does not specify a breach of the Note itself, the Note is central to his claims against the Rhoads Parties. McBee has also asserted claims based upon the same theory derivatively on behalf of Laguna Rica, which is a party to the Note and Deed of Trust. As we concluded above, we find the Note, Deed of Trust, and operating agreement form a "unified document," and McBee was not required to allege a breach specifically of the Note and Deed of Trust in order to demonstrate a "probable right to the relief sought." In this case, McBee is requesting relief, in the form of a declaration, he may exercise his buyout rights and payoff the Note; if he is right, the Rhoads Parties' foreclosure of the Deed of Trust securing the Note would be wrongful. McBee has made the requisite showing of a "probable right to the relief sought."
The Rhoads Parties also cite no authority for their proposition an applicant for injunctive relief must plead and prove a cause of action specific to the enjoined acts.
The Rhoads Parties do not directly attack the evidence presented by Rhoads, only the sufficiency of his pleadings, and therefore we do not review or address the evidence, which is in the sound discretion of the trial court to determine.
Turning to the Rhoads Parties' complaint McBee did not demonstrate an irreparable injury, 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. Every piece of real estate is unique, and foreclosure can be an irreparable injury for which there is no adequate remedy at law. See id. at 209. A trial court may grant equitable relief when a dispute involves real property. Id. at 211.
The Note and Deed of Trust involve the real property upon which Laguna Rica currently conducts its operations. The sudden loss of that real property would severely damage Laguna Rica, the value of its business, and the value of McBee's right to buy Laguna Rica, in immeasurable ways from which Laguna Rica may not recover. Because the enjoined act involves real property belonging to Laguna Rica, McBee demonstrated an irreparable injury if the injunction was not granted. The Rhoads Parties' third issue is overruled.
The trial court also had discretion to enter the temporary injunction after compelling arbitration to preserve the issues for arbitration and prevent delay and interference with the arbitration. Tex. Civ. Prac. & Rem. Code Ann. § 171.086; Senter Invs., L.L.C. v. Amirali & Asmita Veerjee & Al-Waahid, Inc., 358 S.W.3d 841, 845 (Tex. App.-Dallas 2012, no pet.); see also In re Gulf Expl., LLC, 289 S.W.3d 836, 841 (Tex. 2009).
Compliance with Rule 683
The Rhoads Parties argue the temporary injunction is void on its face because it does not strictly comply with Rule 683 of the Texas Rules of Civil Procedure. TEX. R. CIV. P. 683. PARTICULARLY, THEY COMPLAIN THE TEMPORARY INJUNCTION DOES NOT STATE THE SPECIFIC WAYS IN WHICH MCBEE WILL SUFFER IRREPARABLE INJURY IF THE INJUNCTION IS NOT ISSUED.
This Court, along with the Austin Court of Appeals, holds the minority view that issues regarding compliance with Rule 683 must be preserved for appeal. Tex. Tech Univ. Health Scis. Ctr. v. Rao, 105 S.W.3d 763, 767-68 (Tex. App.-Amarillo 2003, pet. dism'd). To preserve error for appellate review, the record must show the appellant made a timely request, objection, or motion and that the trial court ruled on the request, objection, or motion either expressly or implicitly. Fischer v. Clifford Fischer &Co., No. 05-20-00196-CV, 2022 Tex.App. LEXIS 5942, at *18 (Tex. App.-Dallas Aug. 16, 2022, no pet.) (mem. op.) (citing TEX. R. APP. P. 33.1(A)). WITH NO OBJECTION REGARDING RULE 683 ON THE RECORD, THIS ISSUE WAS NOT PRESERVED FOR APPEAL. THE RHOADS PARTIES' FOURTH ISSUE IS OVERRULED.
Adequacy of Bond
Finally, the Rhoads Parties complain the temporary injunction does not provide for adequate bond and is therefore void. They complain the bond of $1,000 set by the trial court does not account for the interest accruing on the Note during the pendency of the matter.
The determination of the adequacy of the bond set by the trial court is reviewed on a case-by-case basis based upon the record before the reviewing court. Maples v. Muscletech, Inc., 74 S.W.3d 429, 431 (Tex. App.-Amarillo 2002, no pet.). The amount of bond required on the issuance of a temporary injunction rests within the sound discretion of the trial court and will not be disturbed on appeal in the absence of an abuse of discretion. Maples, 74 S.W.3d at 431. However, complaints regarding the sufficiency of the bond set in an injunction cannot be raised for the first time on appeal. TEX. R. APP. P. 33.1; Danbill Partners, L.P. v. Sandoval, 621 S.W.3d 738, 748 (Tex. App.-El Paso 2020, no pet.) (citations omitted).
While the Rhoads Parties gave a recommendation to the trial court on considerations to set adequate bond, there is no objection to the bond after the issuance of the trial court's injunction order, and there is no objection in the record to the setting of bond. With no objection to the ruling on the record, this issue was not preserved for appeal. Fischer, No. 05-20-00196-CV, 2022 Tex.App. LEXIS 5942, at *18. The Rhoads Parties' fifth is overruled. We conclude the trial court did not abuse its discretion in issuing the temporary injunction.
Conclusion
The trial court's judgment is affirmed.
Doss, J., concurring in the result.