William H. Scurlock v. John M. Hubbard ( 2015 )

ACCEPTED
06-15-00014-CV
SIXTH COURT OF APPEALS
TEXARKANA, TEXAS
4/23/2015 3:13:11 PM
DEBBIE AUTREY
CLERK
FILED IN
6th COURT OF APPEALS
TEXARKANA, TEXAS
4/23/2015 3:13:11 PM
DEBBIE AUTREY
Clerk
IDENTITY OF PARTIES AND COUNSEL
Pursuant to Rule 38.1 (a) of the Texas Rules of Appellate Procedure,
Appellee lists below the names all parties to the trial court's final judgment
or order appealed from together with the names and addresses of all trial and
appellate counsel.
Parties:
• William H. Scurlock/Defendant/ Appellant
• John M. Hubbard, Plaintiff/Appellee
Trial and Appellate Counsel:
Cory J. Floyd Brent M. Langdon
Norton & Wood, LLP Langdon*Davis, LLP
315 Main Street 5902 Summerfield, Ste. A
Texarkana, Texas 75505-1808 Texarkana, TX 75503
Trial and Appellant Counsel Trial and Appellee Counsel for
for William H Scurlock John M. Hubbard
Cammy R. Kennedy Kyle B. Davis
Norton & Wood, LLP Langdon*Davis, LLP
315 Main Street 5902 Summerfield, Ste. A
Texarkana, Texas 75505-1808 Texarkana, TX 75503
Appellant Counsel for Trial and Appellee Counsel for
William H. Scurlock John M. Hubbard
11
TABLE OF CONTENTS
IDENTITY OF PARTIES ............................................................................... ii
TABLE OF CONTENTS ............................................................................... iii
INDEX OF AUTHORITIES ........................................................................... v
STATEMENT OF THE CASE ....................................................................... 1
STATEMENT OF FACTS .............................................................................. 2
SUMMARY OF THE ARGUMENT ............................................................ 10
I. Hubbard Re-urges His Motion to Dismiss and Motion
To Abate ................................................................................... 10
II. Scurlock's Complaints About The Appointment Of A
Receiver Have No Merit .......................................................... 10
III. Scurlock's Complaints About The Granting Of A
Temporary Injunction Have No Merit ..................................... 11
ARGUMENT ................................................................................................ 13
I. This Court Should Dismiss Or Abate Scurlock' s Appeal. ....... 13
II. Scurlock Has Waived His Complaints About The
Receivership ............................................................................ . 14
III. The Trial Court Properly Exercised Its Discretion
In Appointing A Receiver Because Evidence
Supports Appointment Of A Receiver .............. ....................... 17
A. Appointment of a receiver must be affirmed on
appeal unless the record reveals a clear abuse of
discretion .......................................................................... 17
1ll
B. The Texas Business and Organizations Code authorizes
the Trial Court to appoint a receiver ............................... 18
C. Because the evidence supports a receivership, the Trial
Court properly appointed a receiver ................................ 20
D. There is evidence that the managers were deadlocked .... 24
E. The parties are not required to "attempt lessor
remedies" before a receiver can be appointed ................ 25
IV. The Trial Court Properly Exercised Its Discretion In
Granting A Temporary Injunction Because Evidence
Supports A Temporary Injunction ............................................ 27
A. A temporary injunction must be affirmed on appeal
unless the record reveals a clear abuse of discretion ...... 27
B. The Evidence Supports Probable Injury ......................... 28
C. The Evidence Supports Probable Right Of Recovery ... 29
V. The Trial Court's Order Properly Requires The Payment of
Bonds For The Injunction and Receivership ............................ 31
PRAYER .............................................................................................. ......... 32
CERTIFICATE OF COMPLIANCE ............................................................ 33
CERTIFICATE OF SERVICE ..................................................................... 34
APPENDIX .................................................................................................. 35
IV
INDEX OF AUTHORITIES
Cases
Abella v. Knight Oil Tools, 945 S.W.2d 847, 849
(Tex. App.-Houston [1st Dist.] 1997, no writ) .......................................... . 17
Bay Fin. Sav. Bank, FSB v. Brown, 142 S.W.3d 586, 590
(Tex. App.-Texarkana 2004, no pet.) ......................................................... 23
Childre v. Great Sw. Life Ins. Co., 700 S.W.2d 284, 288-89
(Tex. App.-Dallas 1985, no writ) ............................................................... 32
Dayton Reavis Corp. v. Rampart Capital Corp. , 968 S.W.2d 529, 531
(Tex. App.-Waco 1998, pet. dism'd w.o.j.) ................................................ 17
In reMarriage ofDavis, 418 S.W.3d 684,689
(Tex. App. -Texarkana 2012, no pet.) .................................................. 14, 15
In re Talco-Bogata Consol. Indep. Sch. Dist. Bond Election,
994 S.W.2d 343, 345 (Tex. App.-Texarkana 1999, no pet.) .......... 27, 29,30
Johnson v. Barnwell Prod. Co., 391 S.W.2d 776, 785
(Tex.Civ.App.-Texarkana 1965, writ refd n.r.e.) ....................................... 15
Ritchie v. Rupe, 443 S.W.3d 856,871 (Tex. 2014) ...................................... 20
Rogers v. Rogers, 2002 WL 433052 at *1-2
(Tex. App.-Houston [14th Dist.] 2002, no pet.) ................................... l5, 16
Statutes
Tex. Bus. Orgs. Code § 11.404 ..................... ! 0, 14, 17, 18, 19, 20, 22, 24, 25
Rules
Tex.R.App. P. 33 .1(a)(l) ....................................................................... .. l5 , 16
Tex. R. Civ. Proc. 684 ............................................................................ 31, 32
v
Tex. R. Civ. Proc. 695a ................................................................................ 32
VI
STATEMENT OF THE CASE
While Hubbard generally agrees with Scurlock's Statement of the
Case, Hubbard must point out to the Court that because he has not paid the
bonds required by the Trial Court's February 3, 2015 Order, the order which
Scurlock complains about in his appeal, there is no binding temporary
injunction or receivership currently in effect, and therefore, Scurlock's
appeal is premature, and the Court lacks jurisdiction to consider his appeal.
1
STATEMENT OF FACTS
Hubbard generally concedes Scurlock's characterization of the
background facts regarding their business relationship and their co-
ownership of two companies, Pecan Point Brewing Co., a Texas
Corporation, and Hubbard & Scurlock, LLC, a Texas limited liability
company. (See Appellant's Brief at 4.) However, Hubbard disagrees that
Scurlock properly removed Hubbard as a director of Pecan Point. (See
Appellant's Brief at 5.) Hubbard also disagrees that Scurlock properly
terminated Hubbard's employment. (!d.)
Hubbard brought suit against Scurlock because of the disagreements
between them and sought a temporary injunction and receivership for Pecan
Point. (CR 4-14.) The Trial Court held a hearing on Hubbard ' s Motion for
Temporary Order on January 26, 2015 and received evidence at such
hearing. The following evidence is pertinent for this appeal:
Hubbard was "Director 1" and Scurlock was "Director 2" when Pecan
Point Brewing Company ("Pecan Point") was incorporated. (CR 41.)
Hubbard is the one with knowledge about the brewery side of the
business, and his management of the brewery side was part of the business
plan for Pecan Point. (RR 2:24-26.) The parties wanted the brewery to
represent Texarkana, so Hubbard designed the brewery equipment, rather
2
than purchasing pre-fabricated equipment. (RR 2:24.) Hubbard wanted the
beer for the business to be unique, so he and his father grew their own hops.
(RR 2:25-26.) Hubbard's brewing techniques and recipes have been
developed over time. (RR 2:59-60.) His recipes are "in his head." (RR 2:59-
60.)
Brewing beer is an essential part of the business. (RR 2:71.) The
micro brewery side of the restaurant makes Pecan Point unique. (RR 2:25-26;
2:130-133.) Hubbard's beer has made Pecan Point successful in the first
months of operation. (RR 2: 130-133.) Making new beer with new recipes is
important to keep customers returning to the restaurant. (RR 2:69.)
Jason Williams, the restaurant general manager, testified that Pecan
Point's microbrewery sets Pecan Point apart from all the other restaurants in
town, and that Pecan Point requires beer, which up to this point was brewed
by Hubbard. (RR 2:130-133.) The only micro-brewed beer the restaurant has
on hand to serve its customers is beer brewed by Hubbard. (RR 2:130-133 .)
Pecan Point has not brewed any beer since Hubbard left. (RR 2: 136.)
Scurlock has limited knowledge about beer brewing from using kits
purchased from home brew companies. (RR 2:25.) He has asked Hubbard to
teach him how to brew beer and write a detailed explanation of how to brew
beer, a process that took Hubbard years to develop. (RR 2:68-69.) When
3
Scurlock terminated Hubbard as a director in Pecan Point, Scurlock offered
to keep Hubbard employed as a brew master. (RR 2: 190.)
Scurlock' s role in the business was to finish remodeling the building
for restaurant. (RR 2:26.) However, the remodeling has yet to be finished.
(RR 2:26.) Scurlock arrived late, a couple of hours after opening, on the
restaurant' s opening day on October 27, 2014. (RR 2:31.) Scurlock also
arrived late on October 30, 2014, when the restaurant first opened to the
public. (RR 2:31.) Scurlock did not perform much work at the restaurant.
(RR 2:36.) Hubbard saw him occasionally speak to customers at their tables
and grab a few empty pint glasses. (RR 2:36.) Scurlock was not hands-on.
(RR 2:36.) Scurlock was at the restaurant only for a few hours, perhaps 6:00
pm to 8:00 or 8:30pm. (RR 2:36-37.)
Hubbard was always at the restaurant when it opened at 4:00 pm to
help out in any way he could. (RR 2:35-36.) Sometimes Hubbard helped in
the kitchen, peeling potatoes or washing dishes, filling in when kitchen staff
was absent or late. (RR 2:36.) One time he churned the ice cream by hand so
the restaurant could serve ice cream desserts. (RR 2:36.) Hubbard and his
fiancee cleaned the beer equipment every day or every couple of days. (RR
2:34.)
4
Hubbard has not been paid in full for his work, and he does not know
if Scurlock has been paid because Scurlock has excluded Hubbard from the
books. (RR 2:30-31.)
Jason Williams plays no role in the brewery side of the business. (RR
2:35.) He has a wife and two children; one them is an infant. (RR 2: 117.)
Pecan Point also employs his wife as an admin and kitchen manager. (RR
2:117-118.)
Scurlock has a bad temper. When he and Hubbard had disagreements,
Scurlock threatened, in an angry voice, to buy Hubbard out. (RR 2:38.)
Scurlock "threw fits" when they had disagreements. (RR 2:38.) Two days
before opening day, in front of the building, Scurlock picked up a 2x4 board
and kicked it and screamed. (RR 2:38-39; RR 2:1 02.) The board nearly hit
Hubbard's dad's truck. (RR 2:102.) Scurlock yelled a lot. (RR 2:38-39.) His
temper caused Jason Williams to leave a meeting one time. (RR 2:39.)
Scurlock also screamed at Hubbard on another occasion and stormed off.
(RR 2:103.) Scurlock also yelled at Hubbard and an electrician on another
occasion. (RR 2: 103-104.) When he screamed, Scurlock would get within a
couple of feet in front of Hubbard's face. (RR 2:104.)
5
Scurlock asked Hubbard to leave the business on December 4, 2014.
(RR 2:49.) Pecan Point has brewed no beer since Scurlock terminated
Hubbard's employment. (RR2:130-133.)
Scurlock offered to buy Hubbard out of Pecan Point but employ
Hubbard as the brewer, but Hubbard was not interested in that arrangement.
(RR 2:40-41.)
Scurlock offered to buy Hubbard's interest in the LLC. (RR 2:44.)
The LLC agreement allows one member to offer to buy the interest of the
other, and the second member has a choice to either accept the first
member's offer or buy the first member's interest at the price the first
member offered. (RR 2:43-44.)
Hubbard matched Scurlock' s offer and offered to buy Scurlock's
interest in the LLC for the price that Scurlock offered to Hubbard. (RR 2:47-
48 .) Scurlock acknowledges that Hubbard rejected Scurlock's offer to
purchase Hubbard's interest in the LLC and that Hubbard elected to
purchase Scurlock' s interest for the price Scurlock offered. (RR 2:192.)
However, Scurlock has refused to sell. (RR 2:47-48.)
After Scurlock made his offer, Hubbard decided to stay away from the
restaurant for fear that Scurlock would get angry in front of the employees,
6
which is not beneficial to the business. (RR 2:47.) Hubbard decided that the
issue needed to be addressed legally. (RR 2:47.)
Hubbard did not have access to the books and records of the business.
(RR 2:51.) Hubbard has no employment other than Pecan Point. (RR 2:51.)
The Trial Court wanted to hear evidence about how the parties dealt
with one another in order to make its determination about appointing a
receiver and/or granting temporary injunction. (RR 2:55-56.) Based on
Scurlock's acts thus far, Hubbard believes that irreparable injury has or will
occur unless a temporary injunction is granted and a receiver is appointed.
(RR 2:58.) Hubbard does not think anyone else can make beer for the
business, and he is concerned about the quality of beer made by anyone
other than him; all the recipes are in his memory. (RR 2:58-59.)
Hubbard has not paid in full for his work. (RR 2:66.) He does not
know if Scurlock has because Hubbard does not have access to the books.
(RR 2:66.) Hubbard wants to be paid back wages if Scurlock received back
wages. (RR 2:66.) A receiver would be needed to make back wages. (RR
2:66.)
If Jason Williams continues managmg the restaurant, Hubbard
continues making the beer, and a receiver maintains the books and handles
7
the business' finances, there would be no role for Scurlock to play. (RR
2:71-72.)
The work environment would not be productive if both Hubbard and
Scurlock are present at the restaurant, as evidenced by the last few days they
worked together. (RR 2:76-77.)
Hubbard was not present at any meeting where the shareholders
supposedly voted remove him as a director; it would have been an
unannounced meeting. (RR 2:77-78.)
Scurlock's wife Linda was Pecan Point's bookkeeper. (RR 2:60.)
Even though Hubbard requested to inspect Pecan Point's books and records,
Scurlock did not produce them to Hubbard until January 26, 2015, the date
of the temporary injunction hearing, and Scurlock produced only the
November 2014 books. (RR 2:60.) Scurlock failed to produce the December
2014 books. (RR 2:60.) Linda Scurlock testified that it typically takes her 45
days or longer from the end of a month to prepare reports for that month and
admitted that taking 45 days to prepare reports to determine how a business
is doing financially is not an acceptable business practice. (RR 2:156 and
2: 170.)
Hubbard does not trust Scurlock with Pecan Point's books and wants
a receiver to maintain the books until the litigation is resolved. (RR 2:107-
8
I 08.) Hubbard also wants a receiver to recreate Pecan Point's books from
the start of the business to ensure the records are correct. (RR 2:107-108.)
9
SUMMARY OF THE ARGUMENT
Scurlock appeals the Trial Court's February 3, 2015 Order for
Issuance of Temporary Injunction and Appointment of Receiver (CR 67-73.)
I. Hubbard Re-urges His Motion to Dismiss and Motion To Abate
Because Hubbard has not paid the bonds required by the Trial Court's
February 3, 2015 Order, there is no binding temporary injunction or
receivership currently in effect, and therefore, Scurlock's appeal of that
Order is premature. Thus, the Court lacks jurisdiction to consider his appeal
and should either dismiss or abate this appeal.
II. Scurlock's Complaints About The Appointment Of A Receiver
Have No Merit
Scurlock makes four complaints about the Trial Court's appointment
of a receiver: (1) Hubbard failed to show he is entitled to a receivership
under Texas Business and Organizations Code section 11.404 because he did
not show that a deadlock existed, and he did not prove oppression; (2) lesser
remedies had not been attempted; (3) the Trial Court did not condition the
receiver's authority on the posting of appropriate bonds or receiver's
qualification; and (4) the Trial Court's Order does not require the receiver to
take an oath.
10
However, because Scurlock never raised these complaints with the
Trial Court after it executed the Order, Scurlock has deprived the Trial Court
of an opportunity to consider his complaints and revise or amend the Order,
or take other action, if the Trial Court determined it appropriate to do so.
Because Scurlock did not timely complain to the Trial Court, he has waived
his issues for appeal.
Additionally, because the Trial Court has discretion in determining
appointment of a receiver for Pecan Point, and there is evidence in the
record to support appointment of a receiver, this Court should affirm the
Trial Court's appointment of a receiver.
III. Scurlock's Complaints About The Granting Of A Temporary
Injunction Have No Merit
Scurlock makes two complaints about the Trial Court's granting of a
temporary injunction: (1) Hubbard failed to show he is entitled to a
temporary injunction; and (2) the Trial Court did not condition the injunction
on the posting of appropriate bonds.
However, because the Trial Court has discretion in granting a
temporary injunction, and there is evidence in the record to support the need
for a temporary injunction, this Court should affirm the temporary injunction
order.
11
Also, because the Order provides: (1) "Hubbard shall post a corporate
bond in his individual capacity in the amount of $100,000 which will fully
protect Defendant's rights during pendency of this action"; (2) "Hubbard
shall post a corporate bond in his capacity as a shareholder in Pecan Point
Brewing Company in the amount of $50,000 which will fully protect
Defendant's rights during pendency of this action"; and (3) "Before the
issuance of the injunction, Plaintiffs [Hubbard] must post bond as ordered
payable to Defendants, conditioned and approved as required by law" (CR
72-73), the Trial Court did condition the injunction on the posting of
appropriate bonds, and thus, this Court should affirm the temporary
injunction order.
12
ARGUMENT
I. This Court Should Dismiss Or Abate Scurlock's Appeal
Because Hubbard has not paid the bonds required by the Trial Court's
February 3, 2015 Order, there is no binding temporary injunction or
receivership currently in effect, and therefore, Scurlock's appeal of that
Order is premature, and the Court lacks jurisdiction to consider his appeal.
Under the Trial Court's February 3, 2015 Order, no binding temporary
injunction or receivership is effective unless and until Hubbard pays the
requisite bonds. Hubbard has not paid the bonds, and he has made no
attempt to enforce the February 3, 2015 Order. (See Appendix 3, Affidavit
of Hubbard.) Because Hubbard wants a temporary injunction and
receivership in place and because he cannot pay the bonds required by the
Trial Court, Hubbard has asked the Trial Court to consider reducing the
bond requirements and amending its Order accordingly. (See CR 76-79.)
The Trial Court is scheduled to consider Hubbard's Motion to Amend Order
Setting Bond on April27, 2015. (See Appendix 3, Affidavit of Hubbard.)
If the Trial Court amends its Order, and Hubbard is able to pay the
bonds, then the issues in Scurlock's appeal could change or Scurlock's
appeal may become moot in its entirety. Because Hubbard has properly and
timely raised his complaints about the Order with the Trial Court, this Court
13
should dismiss or abate this appeal to give the Trial Court an opportunity to
consider Hubbard's complaints and amend its own order. For these reasons,
Hubbard re-urges his Motion to Dismiss and Motion to Abate.
II. Scurlock Has Waived His Complaints About The Receivership
Scurlock makes four complaints about the Trial Court's appointment
of a receiver: ( 1) Hubbard failed to show he is entitled to a receivership
under Texas Business and Organizations Code section 11.404 because he did
not show that a deadlock existed, and he did not prove oppression; (2) lesser
remedies had not been attempted; (3) the Trial Court did not condition the
receiver' s authority on the posting of appropriate bonds; and (4) the Trial
Court' s Order does not require the receiver to take an oath. However,
Scurlock cannot raise any of these complaints in this appeal.
Because Scurlock did not raise these complaints with the Trial Court,
depriving the Trial Court of an opportunity to address his complaints,
Scurlock has failed to preserve his complaints for appeal. As this Court has
recently held in the context of interlocutory appeals of receivership
appointments, "[a]s a prerequisite to presenting a complaint for appellate
review, the record must show that: (1) the complaint was made to the trial
court by a timely request, objection, or motion .... " In re Marriage of Davis,
418 S.W.3d 684, 689 {Tex. App.-Texarkana 2012, no pet.) (quoting
14
Tex.R.App. P. 33.1(a)(l )). If a party does not make a timely complaint about
the appointment of a receiver to the trial court, that party fai ls to preserve his
issue for appellate review. See In re Marriage of Davis, 418 S.W.3d at 689
(determining that party waives for appellate review any challenge to a trial
court's appointment of receiver without first requiring receiver to take oath
and any issue as to whether receiver was proven to be qualified under
receivership statute, if he does not timely complain to the trial court).
Other com1s agree with this Court' s position in regards to the payment
of bonds to commence a receivership. If a party complains that an order
appointing a receiver is defective because it fails to require the payment of a
bond, that party must timely complain or object to the absence of a bond in
the trial court or he waives such complaint on appeal. Rogers v. Rogers,
2002 WL 433052 at *1-2 (Tex. App. -Houston [14th Dist.] 2002, no pet.).
The appointment of a receiver without a bond does not render the
appointment void, merely voidable. !d. (citing among others, Johnson v.
Barnwell Prod. Co., 391 S.W.2d 776, 785 (Tex.Civ.App.- Texarkana 1965,
writ refd n.r.e.)). Therefore, a party's failure to voice a timely objection
waives the complaint. Rogers, 2002 WL 433052 at *2.
To preserve his complaint for appellate review, it is incumbent upon
the complaining party to present the trial court with a timely request,
15
objection, or motion, stating the specific grounds for the ruling if the
grounds were not apparent from the context, and to obtain a ruling on the
request, objection, or motion. !d. (citing Tex.R.App. P. 33.1). If the
complaining party fails to bring the matter to the attention of the trial court,
he may not raise the complaint for the first time on appeal. !d. (citations
omitted).
Because Scurlock failed to complain to the Trial Court about the
February 3, 2015 Order, this Court should overrule all points raised by
Scurlock in this interlocutory appeal. Even though Scurlock acknowledged
the necessity to file a motion to vacate or motion for reconsideration several
times (see R.R. 3:58, 3:64, and 3:78), he did not file either before asserting
this interlocutory appeal. While Hubbard filed a Motion to Amend Order
Setting Bond to complain about the Trial Court's February 3, 2015 Order
(see CR 76-79), Scurlock filed no complaints with the Trial Court about its
Order. Rather, Scurlock went straight to this interlocutory appeal, depriving
the Trial Court of knowing his specific complaints and the reasons for those
complaints, and an opportunity to address those complaints.
Regardless of Scurlock's waiver, this Court should affirm the Trial
Court's appointment of receiver for Pecan Point because Hubbard has shown
16
he is entitled to a receivership under Texas Business and Organizations Code
section 11.404.
III. The Trial Court Properly Exercised Its Discretion In Appointing
A Receiver Because Evidence Supports Appointment Of A
Receiver
A. Appointment of a receiver must be affirmed on appeal
unless the record reveals a clear abuse of discretion
The appointment of a receiver, either as authorized by statute or
equity, will not be disturbed on appeal unless the record reveals a clear
abuse of discretion. Abella v. Knight Oil Tools, 945 S.W.2d 847, 849 (Tex.
App.-Houston [1st Dist.] 1997, no writ). The appellate court will not
substitute its judgment for that of the trial court, but will determine whether
the trial court's decision was either arbitrary or unreasonable. !d. Stated
somewhat differently, abuse of discretion occurs when a court acts "without
reference to any guiding rules and principles." Dayton Reavis Corp. v.
Rampart Capital Corp., 968 S.W.2d 529, 531 (Tex. App. -Waco 1998, pet.
dism'd w.o.j.). A corollary principle is that a court of appeals may not
reverse for abuse of discretion merely because it disagrees with the court's
decision, if that decision was within the court's discretionary authority. !d.
17
B. The Texas Business and Organizations Code authorizes the
Trial Court to appoint a receiver
Here, Texas Business and Organizations Code section 11.404 is the
rule that guides appointment of a receiver for Pecan Point. Section 11.404
provides, in relevant part:
§ 11.404. Appointment of Receiver to Rehabilitate Domestic Entity
(a) Subject to Subsection (b), a court that has jurisdiction over the
property and business of a domestic entity under Section
11.402(b) may appoint a receiver for the entity's property and
business if:
( 1) in an action by an owner or member of the domestic
entity, it is established that:
(A) the entity is insolvent or in imminent danger of
insolvency;
(B) the governing persons of the entity are deadlocked
in the management of the entity's affairs, the
owners or members of the entity are unable to
break the deadlock, and irreparable injury to the
entity is being suffered or is threatened because of
the deadlock;
(C) the actions of the governing persons of the entity
are illegal, oppressive, or fraudulent;
(D) the property of the entity is being misapplied or
wasted; or
(E) with respect to a for-profit corporation, the
shareholders of the entity are deadlocked in voting
power and have failed, for a period of at least two
years, to elect successors to the governing persons
18
of the entity whose terms have expired or would
have expired on the election and qualification of
their successors;
Tex. Bus. Orgs. Code § 11.404 (emphasis added).
The statute permits the Trial Court to appoint a receiver to manage
Pecan Point if any one of the five requirements is satisfied. Here, the Trial
Court concluded that (B), (C), and (D) are satisfied. Specifically, the Trial
Court made these conclusions:
• there is evidence to support the appointment of a receiver
because the governing persons of Pecan Point are deadlocked in
the management of Pecan Point's affairs, they are unable to
break the deadlock, and irreparable injury to Pecan Point is
threatened because of the deadlock;
• there is evidence that the actions of the govemmg person,
Scurlock as the majority shareholder, is oppressive; and
• appointment of receiver is necessary to conserve Pecan Point's
property and business and to avoid damage to interested parties,
such as other shareholders who have invested in Pecan Point,
that without a receiver, the success, momentum, and good will
that Pecan Point has acquired will devalue the interests of
Pecan Point's shareholders.
19
See Trial Court's February 3, 2015 Order. (CR 67-72.)
Additionally, the Trial Court determined that all other requirements of
the law are complied with and that other available legal and equitable
remedies are inadequate.ld.
C. Because the evidence supports a receivership, the Trial
Court properly appointed a receiver
The Trial Court had discretion to evaluate the evidence and determine
whether Scurlock's action were oppressive under section 11.404. A
corporation' s directors or managers engage in "oppressive" actions under
section 11.404 when they abuse their authority over the corporation with the
intent to harm the interests of one or more of the shareholders, in a manner
that does not comport with the honest exercise of their business judgment,
and by doing so create a serious risk of harm to the corporation. Ritchie v.
Rupe, 443 S.W.3d 856, 871 (Tex. 2014).
Here, the Trial Court's had discretion to weigh the evidence to
determine if Scurlock, as the managing shareholder, abused his authority
over Pecan Point with the intent to harm Hubbard' s interests as a
shareholder, in a manner that is not consistent with the exercise of business
judgment, and by doing so creates serious risk of harm to Pecan Point. The
Trial Court heard the following evidence:
20
• Hubbard is the one with knowledge about the brewery side of
the business, and his management of the brewery side was part
of the business plan for Pecan Point. (RR 2:24-26.) Hubbard's
brewing techniques and recipes have been developed over time.
(RR 2:59-60.) His recipes are "in his head." (RR 2:59-60.)
• The microbrewery side of the restaurant makes Pecan Point
unique. (RR 2:25-26; 2: 130-133.) Brewing beer is an essential
part of the business. (RR 2:71.) Making new beer with new
recipes is important to keep customers returning to the
restaurant. (RR 2:69.)
• Hubbard's beer has made Pecan Point successful in the first
months of operation. (RR 2:130-133.) Hubbard's beer is so
good that Scurlock has asked Hubbard to teach him how to
brew beer and write a detailed explanation of how to brew beer,
which is a process that took Hubbard years to develop, and
offered keep Hubbard employed as a brew master. (RR 2:68-69;
2: 190.)
• Scurlock has limited knowledge about brewing from using kits
purchased from home brew companies. (RR 2:25.)
21
• Scurlock has a bad temper. Scurlock screamed at Hubbard and
kicked things whenever the two had disagreements over
business matters. (RR 2: 38-39; 2:102-1 04.) Two days before
opening day, in front of the building, Scurlock picked up a 2x4
board and kicked it and screamed. (RR 2:38-39; RR 2:1 02.)
Scurlock's temper caused Jason Williams, the restaurant
general manager, to leave a meeting one time. (RR 2:39.)
Based on this evidence, the Trial Court was well within its discretion
to conclude that Scurlock abused his management position to the detriment
of Hubbard, the other shareholders, and Pecan Point, as well as conclude that
irreparable harm would come to Hubbard and Pecan Point (that is, Pecan
Point will lose customers and its foothold in the restaurant industry in
Texarkana) if a receiver is not appointed to manage the business and books,
to warrant the appointment of a receiver under section 11.404.
It was within the Trial Court's discretion to determine if Hubbard's
service as Pecan Point's brew master benefited Pecan Point. Scurlock claims
that Hubbard was not a good brew master, but Scurlock contradicts himself
because he asked Hubbard to teach him how to make beer, asked for
Hubbard' s recipes, and offered to keep employing Hubbard as Pecan Point's
22
brew master. (RR 2:68-69; 2: 190.) Consideration of Scurlock's self-
contradictions is the Trial Court' s province.
The amount of weight given to Jason Williams' testimony is also
within the discretion of the Trial Court. In his brief, Scurlock puts a good
deal of weight on the testimony of Mr. Williams, Pecan Point' s general
restaurant manager and employee. However, the Trial Court, as the finder of
fact at the hearing, could have discounted Mr. Williams' testimony and
opinions because Scurlock was present in the courtroom during his
testimony, and it is difficult for an employee to testify negatively about his
boss, who gives him and his wife (Pecan Point also employs Jason
Williams' wife, RR 2:117-118) paychecks to support their family. The Trial
Court could have also determined that Mr. Williams' testimony about beer
quality and delay in beer production due to Hubbard's shortcomings was
speculative, since Mr. Williams did not play a role in beer production. (RR
2:35.)
Unchallenged findings of fact in an accelerated appeal are binding on
the court of appeals "unless the contrary is established as a matter of law, or
if there is no evidence to support the finding." Bay Fin. Sav. Bank, FSB v.
Brown, 142 S.W.3d 586, 590 (Tex. App.-Texarkana 2004, no pet.)
(addressing an accelerated appeal from a temporary injunction). Because
23
there is some evidence to support a receivership appointment in this present
case, the Trial Court' s injunction order must be affirmed.
Because section 11.404 permits the Trial Court to appoint a receiver
to manage Pecan Point if any one of the five requirements is satisfied, the
inquiry into the propriety of the receiver appointment can end here. Thus,
Scurlock' s claim that no deadlock exists at Pecan Point is inconsequential to
the analysis, even if it is correct (which it is not).
Additionally, the Trial Court could have concluded that Linda
Scurlock was not an adequate bookkeeper for Pecan Point and that a receiver
is better to manage the books, based on her admission that it takes her 45
days to prepare reports for any given month, which makes it difficult to
timely evaluate Pecan Point's financial well-being. Ms. Scurlock admitted
that taking 45 days to prepare reports for Pecan Point is not an acceptable
business practice. (RR 2:156 and 2:170.)
D. There is evidence that the managers were deadlocked
There is no dispute that Scurlock and Hubbard were deadlocked in the
management of Pecan Point; Scurlock wanted Hubbard to leave the
restaurant, while Hubbard wanted to continue brewing the beer that had
made the restaurant successful. There is no dispute that the two could not
work together peacefully.
24
Scurlock claims there was no deadlock among the managers because
he obtained the votes to remove Hubbard as a director of Pecan Point,
putting Scurlock in charge, giving Scurlock unfettered power. However,
Scurlock did not notify Hubbard of the vote, depriving Hubbard of an
opportunity to defend himself. The Trial Court could have determined that
Scurlock's secret removal of Hubbard as a director was part of Scurlock's
underhanded oppression of Hubbard as a minority shareholder and found a
deadlock existed.
E. The parties are not required to "attempt lessor remedies"
before a receiver can be appointed
Scurlock's contention that the Trial Court erred in appointing a
receiver because "lessor remedies not attempted" (see Appellant's Brief at
31) is not a correct statement of the law because Texas Business and
Organizations Code section 11.404(b)(3) does not require the parties to have
actually attempted lessor remedies before a trial court can appoint a receiver.
Section 11.404(b)(3) provides:
§ 11.404. Appointment of Receiver to Rehabilitate Domestic Entity
(b) A court may appoint a receiver under Subsection (a) only if:
(3) the court determines that all other available legal and
equitable remedies, including the appointment of a
receiver for specific property of the domestic entity under
Section 11.402(a), are inadequate.
25
Tex. Bus. Orgs. Code § 11.404.
The statute does not require the parties to actually attempt lessor
remedies before a receiver can be appointed; the trial court's consideration
of lessor remedies is sufficient. Scurlock argues that the Trial Court did not
consider any alternate remedies before appointing a receiver; however, he
cannot point to anything in the record to demonstrate his theory.
The Trial Court could have determined, after considering the evidence
and arguments of counsel, that there was no chance of reconciliation or
settlement between the parties. The evidence shows that Scurlock screams
and yells at Hubbard. The evidence shows that Scurlock terminated
Hubbard's employment and obtained votes to remove Hubbard as a director
of Pecan Point behind Hubbard's back, without any notice whatsoever to
Hubbard.
The Trial Court could have concluded from Scurlock's actions and
disrespectful attitude towards Hubbard that no lessor remedies would be
sufficient. The parties, in fact, cannot settle their differences, as evidenced
by the failure of a mediation occurring on March 24, 2015. (See Appendix 3,
Affidavit of Hubbard.) It seems that the only way this case will be resolved
is through a trial on the merits and possibly exhaustion of appeals. Thus, the
26
Trial Court was well within its power to appoint a receiver during the
pendency of this suit.
IV. The Trial Court Properly Exercised Its Discretion In Granting A
Temporary Injunction Because Evidence Supports A Temporary
Injunction
A. A temporary injunction must be affirmed on appeal unless
the record reveals a clear abuse of discretion
Appellate review of an order granting a temporary injunction IS
strictly limited to whether the trial court has clearly abused its discretion. In
re Talco-Bogata Consol. lndep. Sch. Dist. Bond Election, 994 S.W.2d 343,
345 (Tex. App.-Texarkana 1999, no pet.) (citations omitted). An abuse of
discretion occurs when the trial court acts without reference to any guiding
rules and principles. ld. The appellate court will not substitute its judgment
for that of the trial court, but must only determine whether the action was so
arbitrary as to exceed the bounds of reasonable discretion. !d. The appellate
court will draw all legitimate inferences from the evidence in a manner most
favorable to the trial court's judgment. ld. A trial court does not abuse its
discretion when it bases its decision on conflicting evidence. ld.
To obtain a temporary injunction, the applicant need demonstrate only
a probable injury and a probable right of recovery. ld. One establishes a
probable right to recovery by alleging a cause of action and presenting
27
evidence that tends to sustain it. !d. However, he is not required to establish
that he will ultimately prevail at trial. !d.
B. The Evidence Supports Probable Injury
Here, the Trial Court made the following findings of fact:
• Plaintiffs [Hubbard, individually and as .. ] have a cause of action
for declaratory judgment, breach of fiduciary duty, breach of
contract, demand for books and records, applications for temporary
restraining order and temporary injunction and appointment of
receiver against the Defendant [Scurlock].
• Plaintiffs have a probable right of recovery against the Defendant
upon a trial on the merits of this case.
• The Court finds that Plaintiffs have demonstrated a probable and
imminent harm or loss to Plaintiffs to an extent that unless this
restraint as outlined below is not ordered immediately Plaintiffs
will suffer irreparable injury for which there is neither other legal
remedy nor adequate measure of damages by any certain pecuniary
standard. (CR 67 - 68).
On page 43 of Appellant's Brief, Scurlock's only argument that there
IS no evidence of probable harm to Pecan Point is because Hubbard' s
28
concern about lack of beer does not demonstrate probable injury because it
is only a fear.
However, Jason Williams confirmed Hubbard's fear that no beer has
been brewed since Hubbard's employment was terminated. (RR 2: 130-13 3.)
The fact that no beer is being brewed at Pecan Point, and the fact that Pecan
Point's microbrewery is what sets Pecan Point apart from the numerous
other restaurants in Texarkana and gives it the success it has enjoyed,
supports the Trial Court's conclusion that there is probable harm to both
Hubbard and Pecan Point if Scurlock continues to manage Pecan Point and
exclude Hubbard from brewing beer.
The Trial Court's conclusion of probable injury and irreparable harm
is further supported by Hubbard's testimony about Scurlock's temper and
behavior of yelling, screaming, and kicking things, the impasse between he
and Scurlock, and the fact they cannot work together anymore.
C. The Evidence Supports Probable Right Of Recovery
As stated above, Hubbard establishes a probable right to recovery by
alleging a cause of action and presenting evidence that tends to sustain it. In
re Talco-Bogata Consol. Indep. Sch. Dist. Bond Election, 994 S.W.2d at
345. He is not required to establish that he will ultimately prevail at trial. !d.
29
In his brief, Scurlock' s argues that "Plaintiff failed to plead and prove
a probable right of recovery" (page 47, emphasis added) and claims that "no
breach of fiduciary duty was proven" (page 48, emphasis added). However,
Hubbard does is not required to prove any of his causes of action in order to
obtain a temporary injunction; he needs to only present some evidence
tending to support them. In re Talco-Bogata Consol. Indep. Sch. Dist. Bond
Election, 994 S.W.2d at 345
Scurlock acknowledges on page 48 of his brief that he owes a
fiduciary duty to Pecan Point. However, he claims there is no evidence he
breached that duty by terminating Hubbard because there is no evidence that
Hubbard is good at brewing beer. However, Pecan Point opened for business
serving Hubbard's beer and has been successful with Hubbard' s beer. In
fact, the beer Hubbard brewed is so good that Scurlock wants Hubbard's
recipes, wants Hubbard to teach him how to brew beer, and offered to
continue employing Hubbard as Pecan Point's brew master after removing
him as a director. (RR 2:68-69; 2:190.) Scurlock cannot brew beer as well as
Hubbard can, even if Scurlock had Hubbard's recipes. (RR 2:84.) This
evidence tends to support Hubbard's claim that Scurlock breached his
fiduciary duty to Pecan Point by terminating Pecan Point' s founder who had
the idea in the first place and whose beer launched Pecan Point' s success.
30
Scurlock claims there is no evidence Hubbard had an employment
contract because Hubbard testified he did not have one. However, after
hearing evidence about Hubbard's hard work on the brewery and at the
restaurant (which he has not even been fully compensated for), his
partnership with Scurlock, and the way Scurlock has treated him, the Trial
Court could have concluded that there is some evidence that Hubbard is
entitled to work at Pecan Point.
Additionally, on a related note, the Trial Court could have determined
that Hubbard has a probable right of recovery under the impasse-take-or-pay
provision in the LLC agreement, which gives Hubbard an interest in the real
property occupied by Pecan Point's restaurant, for which Pecan Point pays
no rent.
V. The Trial Court's Order Properly Requires The Payment of
Bonds For The Injunction and Receivership
The Trial Court complied with Texas Rule of Civil Procedure 684 to
grant a temporary injunction for Hubbard because it required Hubbard to
post "a corporate bond in his individual capacity in the amount of $100,000
which will fully protect Defendant's rights during pendency of this action"
as well as "a corporate bond in his capacity as a shareholder in Pecan Point
31
Brewing Company in the amount of $50,000 which will fully protect
Defendant' s rights during pendency of this action." (CR 72.)
The payment of a single bond can satisfy both Texas Rule of Civil
Procedure 695a to appoint a receiver and Texas Rule of Civil Procedure 684
to grant a temporary injunction. See Childre v. Great Sw. Life Ins. Co., 700
S.W.2d 284, 288-89 (Tex. App.-Dallas 1985, no writ) (affirming trial court
order appointing receivership and granting temporary injunction when order
provided that the payment of a single bond was intended to satisfy Rules 684
and 695a).
The Trial Court Order also specifically conditioned the injunction on
Hubbard 's payment of the bonds, by providing that "before the issuance of
the injunction, Plaintiffs must post bond as ordered payable to Defendants,
conditioned and approved as required by law." (CR 73.)
Accordingly, the Trial Court's February 3, 2015 Order complies with
all the requirements for a temporary injunction order and must be affirmed.
PRAYER
Hubbard prays that this Court affirms the Trial Court' s February 3,
20 15 Order appointing a receiver and granting a temporary injunction.
32
RESPECTFULLY SUBMITTED,
LANGDON*DAVIS, L.L.P.
5902 Summerfield, Ste. A
Texarkana, Texas 75505-5547
Tel: (903) 223-3246
Fax: (903)223-5227
By: Is/Brent M. Langdon
Brent M. Langdon
State Bar No. 11902250
Email: blangdon@ldatty.com
Kyle B. Davis
State Bar No. 24031995
Email: kdavis@ldatty.com
Attorneys for Appellee John M. Hubbard
CERTIFICATE OF COMPLIANCE
I certify that I drafted Appellee's Brief using Microsoft Word using
Times New Roman 14-point font and that the Brief contains 6573 words.
Is/ Brent M. Langdon
Brent M. Langdon
33
CERTIFICATE OF SERVICE
I hereby certify that on this 23rd day of April, 2015, a true and correct
copy of the above and foregoing brief has been forwarded via the court's
electronic filing system to all counsel/parties of record listed below and to
the Trial Judge via First Class U.S. Mail:
Via E-Service
Cory J. Floyd
Cammy R. Kennedy
Norton & Wood, LLP
315 Main Street
P.O. Box 1808
Texarkana, Texas 75505-1808
Attorneys for Appellant William H. Scurlock
Via First-Class Mail
Honorable Bobby Lockhart
Bowie County District Court
102nd Judicial District
Bi-State Justice Building
100 North State Line, Box 10
Texarkana, Texas 75501
/s/ Brent M. Langdon
Brent M. Langdon
34
IN THE SIXTH COURT OF APPEALS
TEXARKANA, TEXAS
WILLIAM H. SCURLOCK,
APPELLANT
v.
JOHN M . HUBBARD,
APPELLEE
ON APPEAL FROM CAUSE NO. 14C1653-102
IN THE 102ND DISTRICT COURT
BOWIE COUNTY, TEXAS
APPELLEE'S INDEX
ITEM 1 Texas Business Organizations Code§ 11.404
ITEM2 Texas Rules of Appeal, P. 33.1 (a)(l)
ITEM3 Affidavit of John M. Hubbard
ITEM4 Rogers v. Rogers, 2002 WL 433052
(Tex. App.-Houston [14th Dist.] 2002, no pet.)
ITEMS Texas Rules of Civil Procedure, Rule 684
ITEM6 Texas Rules of Civil Procedure, Rule 695a
35