Alexander Dubose Jefferson & Townsend LLP v. Chevron Phillips Chemical Company LP ( 2019 )

In The
Court of Appeals
Ninth District of Texas at Beaumont
_________________
NO. 09-14-00313-CV
_________________
ALEXANDER DUBOSE JEFFERSON & TOWNSEND LLP, Appellant
V.
CHEVRON PHILLIPS CHEMICAL COMPANY LP, Appellee
________________________________________________________________________
On Appeal from the 410th District Court
Montgomery County, Texas
Trial Cause No. 05-03-02662-CV
________________________________________________________________________
OPINION
This appeal is before us on remand from the Texas Supreme Court. See
Alexander, Dubose, Jefferson & Townsend LLP v. Chevron Phillips Chem. Co., and
Kingwood Crossroads, L.P., 503 S.W.3d 1 (Tex. App.—Beaumont 2016), rev’d and
remanded, 540 S.W.3d 577 (Tex. 2018). Alexander Dubose Jefferson & Townsend,
LLP (“Alexander Dubose”) appeals the trial court’s June 9, 2014, “Order and Final
Judgment on Pending Matters” (the “Release Order”).
1
We set out the lengthy and complex factual and procedural background of this
case in our previous opinion. See Alexander, Dubose, Jefferson & Townsend LLP,
503 S.W.3d at 2–4. Accordingly, we recite only facts pertinent to the resolution of
the issues currently before us. Alexander Dubose presents three issues on appeal.
First, once the sanctions judgment against Exxon became final, did the rights of
contingent-fee counsel Alexander Dubose, as owner of one-half the amount of that
judgment, become fixed, thereby entitling Alexander Dubose to the $494,427.32
plus interest on deposit in the registry of the trial court? Second, does Alexander
Dubose have a contractual security interest that is superior to CP Chem’s judgment-
creditor lien? Finally, does Alexander Dubose have an attorney’s lien that is superior
to CP Chem’s judgment-creditor lien?
To decide this matter, we must first address whether the Release Order entered
in a turnover proceeding was proper. Based on our review of the record, we reverse
the trial court’s judgment as contained in the Release Order and remand for further
proceedings consistent with this opinion.
I. Factual and Procedural Background
Alexander Dubose was one of several law firms representing Kingwood
Crossroads, Inc. (“Kingwood”) in the underlying litigation in addition to Mayer
2
Brown LLP (“Mayer Brown”). 1 The defendants in the underlying litigation included
First American Title Insurance Company, Chevron Phillips Chemical Company,
L.P. (“CP Chem”), Exxon Land Development, Inc. (“Exxon Land”), and Kingwood
Place West Community Association, Inc. The underlying litigation involved a failed
real estate transaction. See id. The jury returned a verdict in favor of Kingwood. In
addition to a monetary award for damages and attorneys’ fees by the jury, the trial
court awarded sanctions to Kingwood assessed against Exxon Land and arising from
an electronic discovery dispute. The sanctions award equaled the amount of
attorneys’ fees incurred by Kingwood during the discovery dispute, which was
$637,612.50, for “violations of the Court’s orders and the Texas Rules of Civil
Procedure.” At trial, Exxon Land stipulated the fees were reasonable but did not
stipulate to the merits of the sanctions award.
Kingwood entered into an Alternate Fee Agreement (AFA) with trial counsel
Mayer Brown in October of 2006. The AFA specifically addressed the sanctions
award from Exxon Land. It provided as follows:
(i) Any award of fees and expenses ordered by the Court against
Exxon as a result of Kingwood CrossRoads’ Motion for Sanctions shall
be paid 50% to Kingwood CrossRoads and 50% to MBR&M which
1
The law firm of Mayer Brown was formerly known as Mayer Brown Rowe
& Maw LLP. It is referred to in the alternate fee agreement as “MBR&M” and in
the supplement to the alternate fee agreement as “MB.”
3
payment to MBR&M shall be credited dollar-for-dollar against the
outstanding balance of the Alternate Fee.
On August 12, 2008, Kingwood, Mayer Brown, and Alexander Dubose executed a
Supplement to Alternate Fee Agreement (“SAFA”) in which Alexander Dubose
agreed to join the representation of Kingwood. The SAFA likewise addressed the
sanctions award against Exxon Land, referencing the specific Exxon sanctions
provision contained in 2(i) of the original AFA, and provided:
4. In the event MB is entitled to recover fees and expenses under
paragraphs 2(i) or 2(g) of the Alternate Fee Agreement, MB agrees that
the first dollars otherwise payable to MB under the Alternate Fee
Agreement shall be paid to ADJT until ADJT has recovered the balance
of its fee under paragraph 2 hereof; with the remainder to be paid to
MB (for the avoidance of doubt, there will be no duplication of payment
of any fee to MB and ADJT).
On May 26, 2011, the Fourteenth Court of Appeals affirmed the sanctions
award against Exxon Land and the award of attorneys’ fees to Kingwood for defense
of CP Chem’s counter-claim for breach of contract, but it reversed the remainder of
the trial court’s judgment. See Chevron Phillips Chem. Co. v. Kingwood Crossroads,
L.P., 346 S.W.3d 37, 78 (Tex. App.—Houston [14th Dist.] 2011, pet. denied). The
issue of attorneys’ fees incurred by Kingwood in defense of CP Chem’s breach of
contract counterclaim was severed and remanded to the trial court to be determined
after segregation. See id. at 70, 78. The Fourteenth Court of Appeals affirmed the
award of attorneys’ fees in the amount of $1,200,000.00 to CP Chem as the
4
prevailing party in the contract action. See id. at 78. The Texas Supreme Court
denied a petition for review of the underlying litigation and sanctions award.
Kingwood Crossroads, L.P. v. Chevron Phillips Chem. Co., Exxon Land Dev., Inc.,
and Kingwood Place West Cmty. Ass’n, Inc., 2013 Tex. LEXIS 109 (Tex. Feb. 15,
2013).
On May 29, 2013, following the Supreme Court’s denial of the petition for
review, Exxon Land paid the sanctions award plus accrued interest, which by then
totaled $988,854.64. The payment was made to “MAYER BROWN AS TRUSTEE
FOR KINGWOOD CROSSROADS LP[.]” Mayer Brown deposited the funds in its
IOLTA account.
Thereafter, on June 13, 2013, CP Chem filed an application for turnover of
the funds held in Mayer Brown’s IOLTA account attempting to reach non-exempt
assets of Kingwood and alleging Kingwood’s sanctions recovery from Exxon Land
was subject to turnover. Alexander Dubose then filed a petition for intervention and
request for declaratory judgment asserting it did so “to protect its interest in funds
paid by [Exxon Land] in satisfaction of the sanctions order issued by this Court and
affirmed by the Fourteenth Court of Appeals[.]” In the trial court, Alexander Dubose
advanced several arguments in support of its superior right to the funds paid by
Exxon Land in satisfaction of the sanctions judgment, which included: (1) after the
5
judgment became final, they owned a portion of the award pursuant to the contingent
fee agreement; and alternatively, (2) Alexander Dubose had a contractual claim to
the funds which had priority over the claims of CP Chem. On November 8, 2013,
the trial court signed an order (the Turnover Order) that, in part, directed Kingwood
to turn over half of the funds directly to CPChem and the other half to be placed in
the court’s registry. The Turnover Order concluded by saying the “Turnover Order
is without prejudice to any right of either CPChem or ADJT to seek the release of
the $494,427.32 to be held initially in the Court’s Registry.” It was silent as to
ADJT’s intervention and request for a declaration, as well as CPChem’s motion to
strike. When Alexander Dubose sought release of the remainder of the funds in the
court’s registry, CP Chem filed a motion to enforce the turnover order to seek
recovery of the balance of the funds in the court’s registry. On June 9, 2014, the trial
court signed the “Order and Final Judgment on Pending Matters” (the Release
Order). In the Release Order, the trial court denied the relief requested by Alexander
Dubose in its petition in intervention, granted CP Chem’s motion to enforce the
turnover order and for release of funds in the court’s registry, and ordered the
remaining funds in the court’s registry released to CP Chem.
6
II. Standard of Review
We review a turnover order for an abuse of discretion. Beaumont Bank, N.A.
v. Buller, 806 S.W.2d 223, 226 (Tex. 1991) (citing Buttles v. Navarro, 766 S.W.2d
893 (Tex. App.—San Antonio 1989, no writ; Sloan v. Douglass, 713 S.W.2d 436
(Tex. App.—Fort Worth 1986, writ ref’d n.r.e.; Barlow v. Lane, 745 S.W.2d 451
(Tex. App.—Waco 1988, writ denied)). In so doing, we determine whether the trial
court acted without reference to any guiding rules and principles or whether it acted
unreasonably or arbitrarily. See id.; Downer v. Aquamarine Operators, Inc., 701
S.W.2d 238, 241–42 (Tex. 1985). “In the context of turnover orders, it has been held
that a trial court’s issuance of a turnover order, even if predicated on an erroneous
conclusion of law, will not be reversed for abuse of discretion if the judgment is
sustainable for any reason.” Buller, 806 S.W.2d at 226 (citing Buttles, 766 S.W.2d
at 894–95).
III. Analysis
In the present case, in the trial court and on appeal, Alexander Dubose argued
CP Chem had no right to a turnover order as to 50% of those funds, “because CP
Chem had asserted no claims against [Alexander Dubose] and [Alexander Dubose]
was not a judgment debtor.” In its brief, Alexander Dubose asserts the trial court was
incorrect on both grounds used as the basis to issue the turnover order. They further
7
contend CP Chem is not a judgment creditor of Alexander Dubose, and thus, CP
Chem is not entitled to obtain turnover of funds which Alexander Dubose owns.
They also point out that the property rights of ADJT as a non-judgment debtor were
at issue. CP Chem argues on appeal “[a]ll the claims in [Alexander Dubose’s]
purported intervention were decided by the turnover order.” Therefore, we must first
determine whether the trial court’s Release Order issued in a turnover proceeding
was proper when it affected the property rights of Alexander Dubose, who was not
a judgment debtor of CP Chem nor a party to the underlying litigation.
The Turnover Order ordered, in part, that one-half of the funds being held by
Mayer Brown in its IOLTA Account, representing the sums paid by Exxon Land
Development, Inc. to Kingwood as discovery sanctions in the underlying lawsuit, be
paid directly to CP Chem. 2 The Turnover Order ordered the other one-half of the
funds being held by Mayer Brown in its IOLTA Account to be deposited into the
registry of the court, pending final adjudication of Alexander Dubose’s substantive
2
The portion of the undisputed funds ordered paid directly to CP Chem under
the initial Turnover Order was “clearly in the nature of a mandatory injunction
because it required the judgment debtor, Kingwood, to deliver the funds directly to
the judgment creditor, CP Chem.” Alexander Dubose Jefferson & Townsend LLP v.
Chevron Phillips Chemical Company, L.P., 540 S.W.3d 577, 587 (Tex. 2018) (citing
Whatley v. King, 249 S.W.2d 57, 58 (Tex. 1952); Kennedy v. Hudnall, 249 S.W.3d
520, 524 (Tex. App.—Texarkana 2008, no pet.); Pilot Eng’g Co. v. Robinson, 470
S.W.2d 311, 312 (Tex. Civ. App.—Waco 1971, no writ)). No party filed an appeal
to this portion of the trial court’s order.
8
claims to the funds. Because this portion of the Turnover Order did not attempt to
adjudicate any substantive claims to the disputed funds, it was not a final, appealable
judgment. Alexander Dubose, 540 S.W.3d at 586. Thus, Alexander Dubose appealed
from the trial court’s Release Order. The trial court ordered the disputed funds held
in the court’s registry to be disbursed to CP Chem in the Release Order, determining
the outcome of competing substantive claims. Id.at 586, 588. The trial court,
however, reached the merits of Alexander Dubose’s claim to the funds within the
context of a turnover proceeding, in violation of the purpose of turnover proceedings
as explained by the Texas Supreme Court in Alexander Dubose. Id. at 584.
A. Turnover Law
A judgment creditor may seek the court’s assistance in reaching property
owned by a judgment debtor. Tex. Civ. Prac. & Rem. Code Ann. § 31.002 (West
Supp. 2018). The turnover statute provides,
[a] judgment creditor is entitled to aid from a court of appropriate
jurisdiction through injunction or other means in order to reach property
to obtain satisfaction on the judgment if the judgment debtor owns
property, including present or future rights to property, that is not
exempt from attachment, execution, or seizure for the satisfaction of
liabilities.
Id. § 31.002(a). The statute specifies a judgment creditor is entitled to the trial court’s
aid “if the judgment debtor owns property[.]” Id. (emphasis added); Alexander
Dubose, 540 S.W.3d at 581. The statute further states, “[t]he court may: (1) order
9
the judgment debtor to turn over nonexempt property that is in the debtor’s
possession or is subject to the debtor’s control. . . .” Tex. Civ. Prac. & Rem. Code
Ann. § 31.002(b).
To obtain relief under the turnover statute, a judgment creditor must
prove: (1) the judgment debtor owns property, including present or
future rights to property; (2) the property is not exempt from
attachment, execution, or seizure; and (3) the property “cannot readily
be attached or levied on or by ordinary legal process.”
Black v. Shor, 443 S.W.3d 170, 175 (Tex. App.—Corpus Christi 2013, pet. denied)
(quoting former version of Tex. Civ. Prac. & Rem. Code Ann. § 31.002(a)); see also
Oxbow Calcining LLC v. Port Arthur Steam Energy, L.P., Nos. 09-18-00359-CV,
09-18-00392-CV, 2018 WL 6542555, at *1 n.1 (Tex. App.—Beaumont Dec. 13,
2018, no pet.) (mem. op.).
The Texas turnover statute operates as a procedural device to assist judgment
creditors in obtaining satisfaction of their judgments. See Tex. Civ. Prac. & Rem.
Code Ann. § 31.002; see also Alexander Dubose, 540 S.W.3d at 581. The turnover
statute is purely procedural in nature. See Buller, 806 S.W.2d at 227 (“The purpose
of the turnover proceeding is merely to ascertain whether or not an asset is in the
possession of the judgment debtor or subject to the debtor’s control.”); Oxbow
Calcining LLC, 2018 WL 6542555, at *1 n.1 (“A ‘turnover’ order is a statutory
procedural device[.]”); In re Old Am. Cty. Mut. Fire Ins. Co., No. 13-14-00231-CV,
10
2014 WL 4795923, *5 (Tex. App.—Corpus Christi Sept. 25, 2014, orig. proceeding)
(mem. op.) (“The turnover statute is ‘purely procedural in nature.’”); Republic Ins.
Co. v. Millard, 825 S.W.2d 780, 782 (Tex. App.—Houston [14th Dist.] 1992, orig.
proceeding) (determining trial court abused its discretion by “expanding the scope
of the turnover statute beyond its purpose as a purely procedural device”); Cravens,
Dargan & Co. v. Peyton L. Travers Co., Inc., 770 S.W.2d 573, 576–77 (Tex. App.—
Houston [1st Dist.] 1989, writ denied) (“[T]he turnover statute is purely a procedural
tool[.]”).
B. Split in Authority: Substantive Claims in Turnover Proceedings
Texas courts have long struggled with the question of whether substantive
claims can be adjudicated in turnover proceedings. See Maiz v. Virani, 311 F.3d 334,
343 (5th Cir. 2002) (recognizing “uncertainty as to how aggressive trial courts can
be in enforcing turnover orders which affect the rights of non-judgment debtors is
reflected in the conflicting decisions of the lower Texas appellate courts”); see also
Alexander Dubose, 540 S.W.3d at 584 n.37 (noting courts are troubled by how to
resolve competing substantive claims to property sought in a turnover proceeding
and the extent to which a turnover order can affect the rights of non-judgment
debtors); Old Am. Cty., 2014 WL 4795923, at *5 n.4 (comparing Buller, 806 S.W.2d
at 226, with Schultz v. Fifth Judicial Dist. Court of Appeals at Dall., 810 S.W.2d
11
738, 740 (Tex. 1991), abrogated on other grounds, In re Shestaway, 154 S.W.3d
114 (Tex. 2004)) (acknowledging courts have had some difficulty in construing the
Texas Supreme Court’s decisions regarding the application of a turnover statute to
third parties). The majority of cases hold turnover proceedings cannot be used to
determine the parties’ substantive rights or be applied to non-judgment debtors as
expressed by the Texas Supreme Court in Beaumont Bank, N.A. v. Buller, which
relied on other appellate court opinions in reaching its conclusion. 806 S.W.2d at
227 (citing Cravens, 770 S.W.2d at 576; Detox Indus., Inc. v. Gullett, 770 S.W.2d
954, 956 (Tex. App.—Houston [1st Dist.] 1989, no writ); United Bank Metro v.
Plains Overseas Group, Inc., 670 S.W.2d 281, 284 (Tex. App.—Houston [1st Dist.]
1983, no writ)); Lozano v. Lozano, 975 S.W.2d 63, 68 (Tex. App.—Houston [14th
Dist.] 1998, pet. denied); see also Old Am. Cty., 2014 WL 4795923, at *5; Parks v.
Parker, 957 S.W.2d 666, 668 (Tex. App.—Austin 1997, no pet.) (recognizing and
declining to follow courts of appeals holding that where a third party retains property
that is shown to be nonexempt, owned by a judgment debtor, and subject to the
debtor’s possession or control, the trial court may issue a turnover order against the
third party) (citations omitted).
The general rule is that a turnover statute cannot provide relief against one
who is not a judgment debtor. See Buller, 806 S.W.2d at 227; Bay City Plastics, Inc.
12
v. McEntire, 106 S.W.3d 321, 324 (Tex. App.—Houston [1st Dist.] 2003, pet.
denied) (citing United Bank, 670 S.W.2d at 283); see also Maiz, 311 F.3d at 336.
One Texas Supreme Court Justice explained
[a] turnover order that issues against a non-party for property not
subject to the control of the judgment debtor completely bypasses our
system of affording due process. Otherwise, a court could simply order
anyone (a bank, an insurance company, or the like) alleged to owe
money to a judgment debtor to hand over cash on threat of
imprisonment.
Ex parte Swate, 922 S.W.2d 122, 125 (Tex. 1996) (Gonzales, J., concurring); see
also Elgohary v. Herrera Partners, L.P., No. 01-13-00193-CV, 2014 WL 2538556,
at *3 (Tex. App.—Houston [1st Dist.] June 5, 2014, no pet.) (mem. op.).
However, a minority of cases allow for substantive determinations and
reaching beyond the judgment debtor but only when the trial court makes particular
findings. See Schultz, 810 S.W.2d at 740 (“Upon proof of the necessary facts, it
authorizes the trial court to order affirmative action by the judgment debtor and
others[.]”) (emphasis added); Burns v. Miller, Hiersche, Martens & Hayward, P.C.,
948 S.W.2d 317, 324 (Tex. App.—Dallas 1997, writ denied) (“A trial court may
order a judgment debtor to turn over nonexempt property that a third party holds if
the trial court makes a factual finding that the property is subject to the possession
or control of the judgment debtor.”) (citations omitted). Most of the cases indicating
a turnover proceeding can be used to reach beyond a judgment debtor require, at a
13
minimum, a finding by the trial court that the true judgment debtors are owners of
the property at issue. See Plaza Court, Ltd. v. West, 879 S.W.2d 271, 276 (Tex.
App.—Houston [14th Dist.] 1994, orig. proceeding) (“Without a factual finding by
the trial court that . . . the true judgment debtors[]are owners[,] . . . we are left with
an order that, on its face, authorizes seizure and execution on assets of non-judgment
debtors.”); Norsul Oil & Mining Ltd. v. Commercial Equip. Leasing Co., 703 S.W.2d
345, 349 (Tex. App.—San Antonio 1985, no writ) (ultimately concluding judgment
debtor owned the property at issue but noting that if a third party retains the property,
if it is shown to be nonexempt, owned by a judgment debtor and subject to the
debtors’ possession or control, the trial court may issue and enforce a turnover
order). The case before us is distinguishable from this minority line of cases, because
the trial court never made a factual finding that the judgment debtor, Kingwood,
owned the funds at issue.
C. Post-Judgment Intervention: Effect on Substantive Claims
CP Chem makes no argument, nor can it, that Alexander Dubose is a judgment
debtor. Rather, it takes the position that the money in the court’s registry belonged
to Kingwood, and therefore, CP Chem is entitled to turnover of the funds. CP Chem
further argues that because Alexander Dubose intervened, injecting itself into the
proceedings, it cannot now complain about the trial court’s substantive
14
determination. We disagree. A non-party to the underlying litigation may intervene
post-judgment to protect its interest in property if it does not seek to modify the
underlying judgment. Breazeale v. Casteel, 4 S.W.3d 434, 437 (Tex. App.—Austin
1999, pet. denied) (holding intervention is not barred after the trial court has rendered
final judgment where the intervenor does not attack the substance of the judgment
but merely seeks to protect a property interest subject to a turnover motion). Here,
Alexander Dubose sought to protect its interest in 50% of the funds and did not seek
to modify the underlying judgment.
CP Chem essentially argues that by attempting to protect its interest in the
funds, Alexander Dubose forfeited its right to complain about the trial court’s
actions. In support of its position, CP Chem cited to Cre8 Int’l, LLC v. Rice. No. 05-
14-00377-CV, 2015 WL 3492629, at *3 (Tex. App.—Dallas June 3, 2015, no pet.)
(mem. op.) (“[T]he trial court did not abuse its discretion by deciding, over
[Appellant’s] objection, whether the debtor ‘owns and/or controls right, title and
interest to’ the assets in question.”). The Texas Supreme Court rejected this
argument noting that no courts “go as far as holding that intervention enables a court
to adjudicate third-party rights in what is otherwise a purely procedural device.” See
Alexander Dubose, 540 S.W.3d at 585. If we were to agree with CP Chem’s
assertion, we would be determining Alexander Dubose’s only options were: (1)
15
forfeit any interest it had in the funds by failing to intervene; or (2) intervene and
attempt to protect their interest but forfeit any right to complain regarding a trial
court’s abuse of discretion. We do not believe protecting one’s interest in property
post-judgment by intervening in a turnover proceeding forfeits one’s right to
complain about a trial court’s rulings on appeal, especially when a trial court
“expand[s] the scope of the turnover statute beyond its purpose as a purely
procedural device to assist judgment creditors in post-judgment collections.” See
Republic Ins. Co., 825 S.W.2d at 782. If we were to conclude otherwise, a non-party
to the underlying litigation holding a property interest that is under threat in a post-
judgment enforcement proceeding would, in effect, be left without a remedy.
D. Separate, Initial Proceedings
We agree with the majority of cases holding a trial court cannot determine
substantive claims in a turnover proceeding, especially the claims of a non-party to
the underlying litigation. 3 See Alexander Dubose, 540 S.W.3d at 583 (recognizing
“precedent that regards turnover proceedings as being limited to their purely
3
Even if we were to agree with the minority line of cases allowing for a trial
court to make substantive determinations in a turnover proceeding and reach the
property of a non-party to the underlying judgment, the trial court here did not make
the requisite factual findings of ownership required by that line of cases. See Plaza
Court, Ltd. v. West, 879 S.W.2d 271, 276–77 (Tex. App.—Houston [14th Dist.]
1994, orig. proceeding).
16
procedural nature and, thus, bars use of the turnover statute to determine parties’ and
non-judgment debtors’ substantive rights”) (citing Buller, 806 S.W.2d at 227;
Woody K. Lesikar Special Tr. v. Moon, No. 14-10-00119-CV, 2011 WL 3447491, at
*6 (Tex. App.—Houston [14th Dist.] Aug. 9, 2011, pet. denied) (mem. op.)); In re
deShetler, No. 09-17-00031-CV, 2017 WL 1173811, at *4 (Tex. App.—Beaumont
Mar. 30, 2017, orig. proceeding) (mem. op.). We look to the language of section
31.002, which comports with this holding. See Tex. Civ. Prac. & Rem. Code Ann. §
31.002; see also Parks, 957 S.W.2d at 668. By statute, a judgment creditor is entitled
to aid if the judgment debtor owns property; then, the trial court may reach property
the judgment debtor possesses or controls. See Tex. Civ. Prac. & Rem. Code Ann. §
31.002(a), (b) (emphasis added); Buller, 806 S.W.2d at 227; Parks, 957 S.W.2d at
670.
We recognize questions of ownership regularly arise in post-judgment
enforcement proceedings as they have here. Accordingly, we conclude a trial court
must hold separate, initial proceedings adjudicating competing claims of ownership
before and apart from the issuance of a turnover order. See, e.g., United Bank, 670
S.W.2d at 284 (concluding creditor with judgment against it was not entitled to
turnover against corporation until creditor pierced corporate veil in separate
proceeding); Steenland v. Tex. Commerce Bank Nat’l Ass’n, 648 S.W.2d 387, 390–
17
91 (Tex. App.—Tyler 1983, writ ref’d n.r.e.) (determining turnover statute does not
authorize appointment of receiver to reach homestead’s non-exempt excess value
until substantive issues are established in separate proceeding brought for that
purpose). We believe this solution affords due process to non-parties who intervene
post-judgment to protect their property interests, while precluding the trial court
from expanding the turnover procedure beyond its purely procedural nature. See
Republic Ins. Co., 825 S.W.2d at 782. By conducting initial, separate proceedings
on claims of competing ownership, a trial court’s resolution will be distinct from the
turnover proceeding. This is consistent with the turnover statute and long-standing
precedent holding the parties’ and non-judgment debtors’ substantive rights cannot
be adjudicated in a turnover proceeding. See Alexander Dubose, 540 S.W.3d at 583
(recognizing precedent holding substantive rights cannot be adjudicated in a
turnover proceeding); Buller, 806 S.W.2d at 227; Cross, Kieschnick & Co. v.
Johnston, 892 S.W.2d 435, 438 (Tex. App.—San Antonio 1994, no writ); Cravens,
770 S.W.2d at 576–77; Detox Indus., Inc., 770 S.W.2d at 957–58; United Bank, 670
S.W.2d at 283; see also Resolution Tr. Corp. v. Smith, 53 F.3d 72, 79–80 (5th Cir.
1995). Indeed,
[a] number of other courts have also concluded that a turnover order is
not a shortcut to bypass proceedings that afford third parties due
process. They have come to the conclusion that the turnover statute is a
purely procedural mechanism to aid in collecting judgment, but does
18
not provide a substitute for other proceedings to adjudicate the
substantive rights of third parties.
Swate, 922 S.W.2d at 125 (citations omitted) (Gonzalez, J., concurring). “[A]
creditor may not seek a turnover order against third parties without other initial
proceedings.” Id.; deShetler, 2017 WL 1173811, at *4.
In the face of competing ownership claims, without holding an initial, separate
proceeding to determine ownership, a judgment creditor seeking turnover cannot
meet the first element the statute requires, which is to show “the judgment debtor
owns [the] property, including present or future rights to property[.]” See Tex. Civ.
Prac. & Rem. Code Ann. § 31.002(a); Old Am. Cty., 2014 WL 4795923, at *5. “A
turnover order is proper if the conditions of the statute are met.” Old Am. Cty., 2014
WL 4795923, at *5. Therefore, it logically follows that a turnover order is not proper
if the conditions of the statute are not met. It is the judgment creditor’s burden to
show that the judgment debtor, owns, possesses, or controls the property. HSM Dev.,
Inc. v. Barclay Props., Ltd., 392 S.W.3d 749, 751 (Tex. App.—Dallas 2012, no pet.).
Requiring the adjudication of those claims first and separately affords non-parties
the due process rights our system demands. See Swate, 922 S.W.2d at 125 (Gonzalez,
J., concurring) (“A turnover order that issues against a non-party for property not
subject to the control of the judgment debtor completely bypasses our system of
affording due process.”). This further helps to ensure that trial courts issue turnover
19
orders only against judgment debtors and property they own. A trial court cannot
summarily deny competing substantive ownership claims following a turnover
hearing.4 See id. Yet, that is exactly what happened. In so doing, the trial court
allowed CP Chem to “bypass[ ] our system of affording due process.” See id.
There remains an outstanding factual dispute regarding ownership of the
funds which was never properly determined by a trial court. As an appellate court,
we are not permitted to make factual determinations. “This Court is not a fact-finder,
and we may not decide factual disputes.” Plaza Court, Ltd., 879 S.W.2d at 276.
In light of the competing ownership claims to the funds, the trial court abused
its discretion in ordering turnover of those funds without first conducting separate,
initial proceedings to resolve those claims and adjudicating the non-judgment
debtor’s claims. Cf. Alexander Dubose, 540 S.W.3d at 583 (“[I]t is worth noting that
there was never a separate, initial proceeding adjudicating [the non-judgment
debtor’s] claims.”). By failing to first determine ownership of the funds in separate
proceedings, the trial court’s Release Order permitted CP Chem to reach property
when it had not met the requirements of the turnover statute, specifically that the
property was owned by the judgment debtor. Accordingly, we do not reach the issues
4
The mere participation of Alexander Dubose’s counsel at the turnover
application hearing does not rise to the level of “separate, initial proceedings.”
20
of ownership as framed by Alexander Dubose, as those claims have never been
properly considered by a trial court.
IV. Conclusion
The trial court abused its discretion when it entered the Release Order
requiring payment of the remaining disputed funds in the court’s registry to CP
Chem without first adjudicating the claims of ownership by the non-judgment debtor
in a separate, initial proceeding. We therefore reverse the trial court’s Order and
Final Judgment on Pending Matters of June 9, 2014, and remand to the trial court
for further proceedings consistent with this opinion.
REVERSED AND REMANDED.
________________________________
CHARLES KREGER
Justice
Submitted on March 27, 2018
Opinion Delivered March 14, 2019
Before Kreger, Horton, and Johnson, JJ.
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