Green Diesel, LLC and Fuel Streamers, Inc v. Vicnrg, Llc ( 2013 )

Affirmed and Memorandum Opinion filed July 2, 2013.
In The
Fourteenth Court of Appeals
NO. 14-13-00017-CV
GREEN DIESEL, LLC AND FUEL STREAMERS, INC, Appellants
V.
VICNRG, LLC, Appellee
On Appeal from the 153rd District Court
Tarrant County, Texas
Trial Court Cause No. 153-260110-2
MEMORANDUM OPINION
In this interlocutory appeal, appellants, Green Diesel, LLC and Fuel
Streamers, Inc., appeal the trial court’s orders (1) denying their motion to vacate
the appointment of a receiver; and (2) fixing the bond of appellee, VicNRG, LLC.1
1
See TEX. CIV. PRAC. & REM. CODE ANN. § 51.014(a)(2) (West Supp. 2012) (providing
for interlocutory appeal from order overruling a motion to vacate an order that appointed a
receiver). Appellants concede, as they must, that this is not an appeal from the order appointing
the receiver in the first instance under section 51.014(a)(1). See id. § 51.014(a)(1) (providing for
We affirm.
I. BACKGROUND
VicNRG, an energy trader, filed suit against appellants on July 3, 2012,
alleging that appellants sold it worthless Renewable Identification Numbers
(―RINs‖), for which it paid $3,758,750.2 VicNRG alleged that appellants
represented to it that (1) Green Diesel had manufactured biodiesel in a facility
located in Houston; (2) Green Diesel had 60,000,000 RINs separated from
biodiesel fuel Green Diesel produced at that plant; and (3) the ―RINs were genuine
and valid,‖ ―Green Diesel had good title to them,‖ and ―the RINs were
marketable.‖3 In February 2011, appellants sold approximately 4,225,000 RINs to
VicNRG for $3,758,750. Appellants then resold the RINs to third parties, making
the same warranties about the RINs. However, according to VicNRG’s petition,
the biodiesel plant had never functioned and was incapable of manufacturing
interlocutory appeal from order that appointed a receiver). Such an appeal would be untimely.
See TEX. R. APP. P. 26.1(b) (providing that notice of appeal in an accelerated appeal must be
filed within twenty days after judgment or order is signed).
2
VicNRG also sued several other parties, who are not part of this appeal. VicNRG splits
defendants into two groups. The first group is the ―Seller Defendants,‖ which includes: Phillip J.
Rivkin, Fuelstreamers Group, Greendiesel Trading, S.A., Petroethanol, LLC, Petro Constructors
Pvt., Ltd., Petro Constructors, LLC, and Sterling Energy, LLC. The second group is the ―Broker
Defendants,‖ which includes: FCStone, LLC, and FCStone Trading, LLC.
3
According to VicNRG’s petition, biodiesel is a type of fuel that is generated from
vegetable oil or animal fats and is considered a renewal source of energy, as distinguished from
petroleum-based diesel. VicNRG’s petition further explained:
A RIN is a numeric code that corresponds to a volume of renewable fuel produced
or imported into the U.S. It remains with the fuel as it moves through the fuel
distribution system. Once the renewable fuel is blended with motor vehicle fuel,
among other methods, the RIN can be separated, and it can be used for regulatory
compliance, held for future compliance, or traded. Thus, a marketplace exists in
which parties in the fuel market who are required to incorporate renewable fuel in
gasoline or diesel may purchase separated RINs when they lack the ability to meet
annual ―renewable volume obligations‖ imposed by the federal government. RIN
transactions are reported and managed under the EPA’s online ―Moderated
Transaction System.‖ (EMTS).
2
biodiesel fuel that would permit lawful generation of RINs associated with that
fuel. On April 30, 2012, the EPA issued a notice declaring the RINs invalid. As a
result of the EPA notice, appellants began diverting assets. Therefore, in addition
to its suit for damages, VicNRG also sought appointment of a receiver to preserve
appellants’ assets for any potential judgment.4
The trial court had a hearing on VicNRG’s request for a receiver on July 23,
2012, prior to appellants’ answer date. Appellants did not appear at the hearing,
and the trial court signed its order appointing David A. Fettner receiver that same
day.5 Though the order authorized Fettner to take control of property and ordered
a receiver’s bond of $100,000, it did not order or fix an applicant’s bond.
Four days later, on July 27, 2012, appellants filed a motion to vacate the
appointment of a receiver6 urging, inter alia, that the trial court erred in appointing
a receiver without appellants’ having received notice pursuant to Rule 695 of the
Texas Rules of Civil Procedure.7 VicNRG responded to the motion to vacate,
contending that appellants had been served on July 9, 2012, with VicNRG’s
petition and fiat stating that the hearing was set for July 23, 2012. In their reply,
appellants urged for the first time that the order appointing receiver was defective
4
VicNRG sought the appointment of a receiver to take possession of the assets of Seller
Defendants Phillip J. Rivkin, Fuelstreamers Group, Greendiesel Trading, S.A., Petroethanol,
LLC, Petro Constructors Pvt., Ltd., Petro Constructors, LLC, and Sterling Energy, LLC.
VicNRG did not seek a receiver to take possession of the assets of Broker Defendants FCStone,
LLC or FCStone Trading LLC.
5
The trial court appointed the receiver to take possession of the assets of Seller
Defendants Phillip J. Rivkin, Fuelstreamers Group, Greendiesel Trading, S.A., Petroethanol,
LLC, Petro Constructors Pvt., Ltd., Petro Constructors, LLC, and Sterling Energy, LLC.
6
The record does not contain any indication that the other Seller Defendants filed a
motion to vacate.
7
See TEX. R. CIV. P. 695 (requiring that notice of the hearing on the application for
appointment of a receiver be provided to the ―adverse party by serving notice thereof not less
than three days prior to such hearing‖). Though appellants originally contended they did not
receive notice of that hearing, they do not assign error to that complaint on appeal.
3
for failure to require the applicant, VicNRG, to post a bond.
Meanwhile, on August 29, 2012, Fettner filed a motion to modify the order
appointing a receiver, in which he sought to broaden his authority to include the
power to open appellants’ mail, and a motion for consent to sell property.
According to Fettner’s motions, appellants took no position on his motions, and the
record does not contain any responses to the motions by appellants.
On September 4, 2012, the trial court conducted a hearing on appellants’
motion to vacate. The parties directed their arguments almost exclusively to
whether Texas Rule of Civil Procedure 695a requires an applicant’s bond. As an
alternative, VicNRG urged that the trial court was ―empowered to order one now
and it would be timely.‖ VicNRG offered to adduce testimony from Fettner
―regarding matters that are relevant to amount of that bond.‖ Appellants neither
objected to the entry of a bond order nor offered any testimony or argument about
the amount of that bond. The trial court denied the motion to vacate and
―require[d] the applicant [to] post a bond in the same amount as the receiver, which
[was] $100,000.‖ The trial court signed separate orders denying appellants’
motion to vacate and fixing the applicant’s bond.
II. ANALYSIS
In this interlocutory appeal, appellants challenge in four issues the validity
of the order denying their motion to vacate the appointment of a receiver and the
order fixing the applicant’s bond, which we consolidate into two issues regarding
receivership procedure and the applicant’s bond.8
8
Appellants originally assigned error to the jurisdiction of the Tarrant County district
court to enter the order appointing receiver because appellants’ principal place of business in
Texas is in Harris County. However, it is undisputed that the trial court later granted appellants’
request to transfer venue to Harris County. Appellants confirmed during oral argument that they
have abandoned that issue. Moreover, we conclude that the trial court had jurisdiction over the
4
A. Receiver Procedure
In their first and second issues, appellants contend that (1) the trial court
erred in not granting the motion to vacate because the order appointing the receiver
did not comply with Rule 695a; and (2) the September 4, 2012 order setting an
applicant’s bond did not cure the deficiency of the original July 23, 2012 order.
Defective Order Appointing a Receiver
Texas Rule of Civil Procedure 695a provides the following, in relevant part:
No receiver shall be appointed with authority to take charge of
property until the party applying therefor has filed with the clerk of
the court a good and sufficient bond, to be approved by such clerk,
payable to the defendant in the amount fixed by the court, conditioned
for the payment of all damages and costs in such suit, in case it should
be decided that such receiver was wrongfully appointed to take charge
of such property.
TEX. R. CIV. P. 695a. The trial court’s July 23, 2012 order appointing a receiver
did not comply with Rule 695a. Thus, VicNRG concedes, and we agree, that the
trial court’s July 23, 2012 order was defective. See Ahmad v. Ahmed, 199 S.W.3d
573, 575–76 (Tex. App.—Houston [1st Dist.] 2006, no pet.).
Curing the Defect
Notwithstanding the defect in the trial court’s original order appointing
receiver, VicNRG urges that we affirm because the defect was cured by the court’s
September 4, 2012 order fixing an applicant’s bond under Rule 695a.
Appellants, on the other hand argue that a defective order cannot be cured
subject matter of the suit and, thus, had jurisdiction to appoint a receiver pursuant to Section
64.001 of the Texas Civil Practice and Remedies Code 64.001. See TEX. CIV. PRAC. & REM.
CODE ANN. § 64.001(a) (West 2008) (providing circumstances under which a court of competent
jurisdiction may appoint a receiver); In re Hereweareagain, Inc., 383 S.W.3d 703, 709 & n.9
(Tex. App.—Houston [14th Dist.] 2012, orig. proceeding) (providing that courts have the
inherent power to appoint a receiver).
5
―by a subsequent addendum‖ because the failure to fix an applicant’s bond requires
a reversal. Appellants rely on O’Connor v. O’Connor, 320 S.W.2d 384, 391 (Tex.
Civ. App.—Dallas 1959, writ dism’d). Appellants’ reliance on O’Connor is
misplaced, however, because O’Connor is not a ―cure‖ case. Instead, despite the
admitted ―fruitless‖ nature of the procedure, the O’Connor court reversed for the
absence of applicant’s bond and remanded the case to the trial court for the
purpose of holding a hearing to correct the oversight. Id. Not only did the
O’Connor court never say that the defect could not be cured, it reluctantly
remanded the case for just that purpose.
After O’Connor, courts, including our own, have encountered circumstances
of cure. As outlined below, these cases uniformly hold that the omission of an
applicant’s bond is a defect that may be rendered moot on appeal by the curative
posting of an applicant’s bond. Specifically, in Pfeiffer v. Pfeiffer, we previously
held that, where a trial court erroneously appoints a receiver without an applicant’s
bond but corrects the error, there is substantial compliance with Rule 695a. 394
S.W.2d 679, 681 (Tex. Civ. App.—Houston 1965, writ dism’d). ―Under such
circumstances, reversible error is not shown.‖ Id; see also Sclafani v. Sclafani, 870
S.W.2d 608, 609 n.2 (Tex. App.—Houston [1st Dist.] 1993, writ denied) (―We
note that while this proceeding was pending in this Court, [appellee] filed an
applicant’s bond making [appellant’s] complaint about the lack of bond moot.‖); O
& G Carriers, Inc. v. Smith Energy 1986-A P’ship, 826 S.W.2d 703, 708 (Tex.
App.—Houston [1st Dist.] 1992, no writ) (stating that the line of cases holding the
failure of an applicant to file a bond requires reversal are distinguishable where the
applicant files an applicant’s bond after appeal). Like the trial court in Pfeiffer, the
trial court here ordered a subsequent bond and thereby corrected the error in failing
to originally order an applicant’s bond under Rule 695a.
6
In contrast to their briefing, appellants conceded in oral argument that if the
trial court had merely interlineated an applicant’s bond into the original order
appointing a receiver, the order would be Rule 695a-compliant. Thus, it appears
that appellants, too, accept that the defect in the original order could be cured.
However, the very narrow issue upon which appellants seek to join issue is
whether the trial court’s error in failing to fix a Rule 695a applicant’s bond may be
cured by separate order.
In their reply brief, appellants urge a distinction between the failure to file a
bond and the failure to fix a bond. Appellants do not cite and we have found no
authority for making such a distinction in determining whether the defective order
(failure to fix) or the defective circumstance (failure to file the bond when the court
fixes the sum) may be cured. The purpose of the bond is to ensure that the
defendant can be reimbursed for any damages caused by the appointment of the
receiver in the event the receiver was wrongfully appointed. Cont’l Homes Co. v.
Hilltown Prop. Owners Ass’n, Inc., 529 S.W.2d 293, 295 (Tex. App.—Fort Worth
1975, no writ). We cannot see how that purpose is frustrated by a technical delay
in securing the sum. We further conclude that our reference to ―substantial
compliance‖ in Pfeiffer guides us away from any notion that an order, substantially
but not fully compliant, may not be cured. See Pfeiffer, 394 S.W.2d at 681. Thus,
we hold that the failure of the trial court to fix an applicant’s bond may be cured.
Defect Cured by Separate Order
At the outset, we note that appellants did not object at the September 4, 2012
hearing to the trial court’s signing a separate order. Specifically, appellants did not
complain to the trial court that the separate order fixing bond was ineffective or
insufficient to protect them. Appellants never brought any complaint to the
attention of the trial court that a separate order fixing bond did not address the
7
issue raised by their motion to vacate. In fact, appellants did not raise the absence
of an applicant’s bond in their original motion to vacate. Instead, they first raised
that complaint in their reply to VicNRG’s opposition to that motion.
Appellants’ failure to complain about the form of the applicant’s bond in the
September 4, 2012 hearing waives any issue on appeal regarding the trial court’s
failure to interlineate on the original order instead of signing a new order. See
TEX. R. APP. P. 33.1(a)(1)(A). Errors in receivership procedure may be waived.
See Fite v. Emtel, Inc., No. 01-07-00273-CV, 2008 WL 4427676, at *9 (Tex.
App.—Houston [1st Dist.] Oct. 2, 2008, pet. denied) (mem. op.); Loomis Land &
Cattle Co. v. Diversified Mortg. Investors, 533 S.W.2d 420, 423 (Tex. Civ. App.—
Tyler 1976, writ ref’d n.r.e.) (holding that failure to post applicants bond was an
error waived by appellant’s failure to timely appeal).
Moreover, even if appellants had not waived this complaint, we would reject
this approach as a slightly varied but legally indistinguishable version of
appellants’ ―no cure‖ argument. We find no authority to support appellants’
single-piece-of-paper argument. The plain language of the rule does not require a
single order. Appellants cite no case that holds that Rule 695a required
appointment and bond to be within the four corners of a single order. Rather,
consistent authority from Texas intermediate appellate courts regarding defects in
the receivership procedure compels us to reject appellants’ suggested formalistic
approach. See, e.g., Lauraine v. First Nat’l Bank of Whitney, 204 S.W. 1022, 1025
(Tex. Civ. App.—Galveston 1918. no writ) (―Mere defects in the petition upon
which the receiver was appointed would not render the receivership proceedings
void.‖).
Further, appellants’ belief in the single-piece-of-paper theory is belied by
their failure to respond in opposition to Fettner’s motions to broaden authority or
8
for permission to sell property. If appellants were correct about the ―valid initial
appointment‖ procedure, they should likewise urge that the receiver’s powers may
not be modified by an order ―separate from‖ the bond order. They do not make
this argument, likely because it would be unworkable. We hold that the defective
order appointing receiver in this cause may be cured by separate order. We
overrule appellants’ first and second issues.
B. The Applicant’s Bond
In their third issue, appellants argue that the trial court erred by failing to fix
a separate bond per defendant subject to the receivership order. And, in their
fourth issue, appellants complain that the amount fixed by the trial court for the
applicant’s bond was ―arbitrary‖ and that they were denied the opportunity to
present evidence of potential damages. VicNRG argues that appellants waived
these arguments. We agree.
As to appellants’ complaint that the trial court failed to fix a separate bond
per defendant, appellants did not complain at any time that the order did not fix a
bond payable to Green Diesel, LLC and payable to Fuel Streamers, Inc.
Specifically, appellants articulated no objection during the September 4, 2012
hearing. At the end of the hearing, the trial court directed VicNRG’s counsel to
show appellants’ counsel the proposed order setting bond before the trial court
signed it. Following the hearing, appellants lodged no complaint to the trial court
about the form of the order. Also of note is appellants’ own motion to vacate, in
which appellants complained the order ―did not include a requirement that the
applicant post a bond payable to the defendant as required by Tex. R. Civ. P.
695a.‖
The trial court’s order fixing bond is made payable ―to Defendants.‖
Though the trial court entered an order for applicant’s bond that tracked the
9
language of the rule and specifically met appellants’ complaint in its motion,
appellants now complain that the order did not set ―a bond for each defendant
subject to [the] receivership‖ or ―a bond [that is] specific to the defendants in
receivership.‖ Neither of these complaints has ever been presented to the trial
court.
Appellants’ complaint that the trial court did not give them ―an opportunity
to present evidence of potential damages,‖ also asks this court to consider a
question never presented to the trial court. Appellants contend they have not
waived this issue because the bond amount was not at issue at the September 4,
2012 hearing. Appellants are incorrect. Though appellants may complain that
they did not realize that the amount of bond would be at issue in the hearing they
set on a motion to vacate, they did not articulate that to the trial court or seek a
continuance. Appellants should have realized that the amount of bond might be at
issue in the hearing. In its response to the motion to vacate, VicNRG offered, as an
alternative to vacating the appointment, to post a bond and requested that the trial
court to ―set the amount of such bond.‖
During the September 4, 2012 hearing, appellants knew that the amount of
bond was an issue because VicNRG offered to call Fettner as a witness to assist in
establishing the amount of bond, if the trial court desired. Appellants said nothing.
The trial court apparently determined that it did not need any further evidence,
having heard a substantial amount at the original hearing on the appointment of the
receiver, and ordered bond set at $100,000. Again, appellants sought no
continuance to obtain evidence. Appellants filed no motion to increase the bond
with evidence or a motion for reconsideration with evidence. In short, appellants’
cannot complain of a trial court’s denial of ―an opportunity to present evidence‖
where there was never an offer of evidence.
10
Accordingly, appellants never presented a complaint to the trial court that
the September 4, 2012 order fixing the applicant’s bond was not payable to each
defendant, was not payable to a specific defendant, or was entered without the
opportunity for appellants to present evidence. See TEX. R. APP. P. 33.1. We find
nothing in the context of the hearing or the proceedings that relieves appellants of
their obligation to place the trial court on notice of specific complaints. We hold
that appellants have failed to preserve these complaints for appeal, and overrule
their third and fourth issues.
Having overruled all of appellants’ issues, we affirm the trial court’s
judgment.
/s/ Sharon McCally
Justice
Panel consists of Justices Brown, Christopher, and McCally.
11