in Re Brian Kenefick ( 2008 )

Petition for Writ of Mandamus Conditionally Granted, in Part, and Denied, in Part, and Majority and Concurring Memorandum Opinions filed August 19, 2008

Petition for Writ of Mandamus Conditionally Granted, in Part, and Denied, in Part, and Majority and Concurring Memorandum Opinions filed August 19, 2008.

In The

Fourteenth Court of Appeals

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NO. 14-08-00203-CV

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IN RE BRIAN KENEFICK, Relator

ORIGINAL PROCEEDING

WRIT OF MANDAMUS

M A J O R I T Y   M E M O R A N D U M   O P I N I O N

In this original proceeding, relator, Brian Kenefick, seeks a writ of mandamus ordering the respondent, the Honorable Georgia Dempster, to vacate her February 14, 2008 orders granting a motion to clarify and a motion to compel filed by real party in interest, Maureen Irwin.  We conditionally grant the petition, in part, and deny it, in part.

                                                                   Background

On October 23, 2000, Judge Dempster signed a nunc pro tunc final decree of divorce.  In the decree, Kenefick and Irwin were each awarded 50 percent of the stock of KCO Enterprises, Inc., a check cashing company.  In the decree, it was ordered that Aeach party will receive a monthly dividend equal to fifty percent (50%) of the month net cash income, not to exceed $3,000 per month.@  Irwin gave up her voting rights as a shareholder to a voting trust agreement.  Kenefick is the president and CEO of KCO. 

On March 9, 2007, and January 22, 2008, Kenefick filed a petition and an amended petition to modify the parent-child relationship, seeking modification of the nunc pro tunc final decree of divorce.  Kenefick claims that KCO was never a party to the divorce proceeding.  Therefore, Kenefick argued that the trial court never had jurisdiction over KCO, and requested a declaratory judgment that the portion of the decree pertaining to payment of the monthly dividend to the parties be declared null and void. 

On November 8, 2007, Irwin filed a motion to enforce the nunc pro tunc final decree of divorce.  In the motion, Irwin stated that following entry of the divorce decree in October 2000, until October 2006, Kenefick caused the corporation to remit a $3,000 monthly dividend pursuant to the divorce decree. However, in November 2006, Kenefick stopped remitting the monthly dividend. Irwin requested that the trial court enter an order directing Kenefick to cause KCO to pay her the contemplated $3,000 dividend in arrears and prospectively. In his response, among other arguments, Kenefick asserted that the trial court could not order KCO, a non-party corporation, to pay dividends and could not order Kenefick, who was sued only in his individual capacity, to pay the corporate dividend. 

On December 13, 2007, the Honorable Bruce Wettman held a hearing on Irwin=s motion to enforce.  Judge Wettman was Ahung up and ha[d] a question about the vagueness or ambiguity of the order.@  On December 20, 2007, Judge Wettman denied the motion to enforce.

On December 19, 2007, Irwin filed a counter-petition to modify the parent-child relationship, in which she alleged that Kenefick had abused his authority in conducting the operations of KCO by (1) paying his personal expenses with corporate funds, (2) paying corporate funds to his Agirlfriend(s),@ and (3) diverting corporate opportunities for his personal gain.  Kenefick also refused to allow Irwin to examine KCO=s books and records.  Irwin asserted claims against Kenefick for breach of fiduciary duty and breach of contract.  In his answer, Kenefick reasserted that KCO had never been a party to the divorce proceedings, and Irwin=s motives for seeing KCO=s books and records were improper.

On January 8, 2008, Irwin filed a motion to clarify the nunc pro tunc final decree of divorce to make clear that Kenefick is obligated to cause KCO to pay at least a $3,000 monthly dividend out of KCO=s net profits to Irwin, and an annual dividend of 50% of any surplus of the net profit of KCO.  In his response, Kenefick argued that (1) the court never had jurisdiction over KCO because the corporation was not a party to the mediated settlement agreement, and (2) the requested clarification would be an impermissible change in the property division.

On January 8, 2008, Irwin also filed a motion to compel production of KCO=s records, among other items, she had requested from Kenefick on August 16, 2007.  Kenefick objected that the requests are outside the scope of permissible discovery because Irwin seeks information that is not relevant, or the requested information will not lead to discovery of admissible evidence, and the requests are unduly burdensome, harassing, and overly broad.

On February 14, 2008, Judge Dempster held a hearing, and granted Irwin=s motion to clarify and motion to compel.  The clarified decree ordered that Kenefick Ashall cause KCO Enterprises, Inc. to pay a monthly dividend $3,000 of the net cash income@ to both Irwin and him.  Kenefick was also ordered to pay Irwin the monthly $3,000 dividend from November 2006, to date, totaling $48,000. 

                                                            Standard of Review

To obtain mandamus relief, the relator must show that the trial court clearly abused its discretion, and the relator has no adequate remedy by appeal.  In re Sw. Bell Tele. Co., L.P., 226 S.W.3d 400, 403 (Tex. 2007) (orig. proceeding).  The trial court abuses its discretion if it reaches a decision so arbitrary and unreasonable as to constitute a clear and prejudicial error of law.  Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding).  Mandamus is appropriate if a trial court issues an order beyond its jurisdiction.  In re Brookshire Grocery, Inc., 250 S.W.3d 66, 68 (Tex. 2008) (orig. proceeding). 

                                                            Clarification Order

Kenefick contends the trial court abused its discretion by rendering a clarification order directing him to cause KCO to pay monthly dividends.  Kenefick contends the trial court does not have jurisdiction over the corporation to order it to pay a dividend because KCO was not a party to the divorce proceeding.  There is no dispute that KCO was not served with process in the divorce proceeding. Irwin, however, contends that KCO twice made an appearance and subjected itself to the court=s jurisdiction by making appearances when the two mediation agreements were filed.  Both agreements provide:

Each signatory represents that he or she has full authority to bind the party or parties for whom such person and that no claims, suits, rights or interest which are included within the settlement have been assigned, transferred or sold.

Irwin argues that both owners of KCO, i.e., she and Kenefick, signed the agreements without limiting the nature or type of their appearance; therefore, KCO entered an appearance through its officers sufficient to bind the corporation. However, there is nothing to indicate that either Kenefick or Irwin signed the settlement agreements on behalf of KCO.  Consequently, KCO did not make an appearance by Irwin=s and Kenefick=s signing the settlement agreements.

Irwin contends, alternatively, that it was not necessary for the trial court to treat KCO as an independent third party when the parties have disregarded KCO=s separate corporate structure.  A corporation is a separate legal entity from its shareholders, officers, and directors.  Walker v. Anderson, 232 S.W.3d 899, 918 (Tex. App.CDallas 2007, no pet.).  However, under certain circumstances the law will disregard the separateness of the corporate enterprise  to protect individual and corporate creditors.  See Tex. Bus. Corp. Act art. 2.21 (Vernon 2003); Castleberry v. Branscum, 721 S.W.2d 270, 272 (Tex. 1986). 

We note that Irwin did not plead that KCO is Kenefick=s alter ego.  Alter ego must be specifically pleaded or it is waived, unless tried by consent.  Town Hall Estates Whitney, Inc. v. Winters, 220 S.W.3d 71, 86 (Tex. App.CWaco 2007, no pet.).  At the hearing before Judge Wettman, Kenefick specifically denied that he was the alter ego of KCO.  At the hearing before Judge Dempster, Kenefick specifically argued that the corporate veil could not be pierced merely because KCO is a closely held corporation.  Moreover, there is nothing in the record to show that alter ego was an issue in the original divorce proceeding, particularly since the divorce was resolved by agreed judgment. 

At the hearing, Irwin argued, and Judge Dempster agreed, that the corporate structure can be disregarded because KCO is a closely held corporation.  An alter ego relationship may be shown from the total dealings of the corporation and the individual.  Mancorp, Inc. v. Culpepper, 802 S.W.2d 226, 228 (Tex. 1990).  This showing may include evidence of Athe degree to which corporate formalities have been followed and corporate and individual property have been kept separately, the amount of financial interest, ownership and control the individual maintains over the corporation, and whether the corporation has been used for personal purposes.@  Castleberry, 721 S.W.2d at 272.  However, mere domination of corporate affairs by a sole shareholder or financial unity between a shareholder and corporation will not justify disregarding the corporate entity.  Lifshutz v. Lifshutz, 61 S.W.3d 511, 516 (Tex. App.CSan Antonio 2001, pet. denied); see also Sparks v. Booth, 232 S.W.3d 853, 869 (Tex. App.CDallas 2007, no pet) (A[A]n individual=s standing as an officer, director, or majority shareholder of an entity alone is insufficient to support a finding of alter ego.@); Leon Ltd. v. Albuquerque Commons P=ship, 862 S.W.2d 693, 707 (Tex. App.CEl Paso 1993, no writ) (evidence that defendant was shareholder, sole officer, and employee of corporation was insufficient to support finding of alter ego). 

Merely showing that Kenefick is one of two shareholders, and the president and CEO of KCO, is not sufficient to establish alter ego.  Irwin was required to produce evidence reflecting the degree to which corporate and individual property have been kept separate; the amount of financial interest, ownership, and control the individual has maintained over the corporation; and whether the corporation has been used for personal purposes.  Irwin failed to produce any evidence tending to establish that Kenefick is the alter ego of KCO.

Finally, Irwin asserts that Kenefick is estopped from challenging the provisions of the divorce decree regarding KCO because he has accepted and exercised the authority to operate KCO and to pay the dividend.  Irwin further claims that Kenefick induced her to enter into the mediated settlement agreement and the voting trust agreement by agreeing to pay her the $3,000 monthly dividend. Estoppel is an affirmative defense and must be pleaded.  Tex. R. Civ. P. 94. Irwin did not plead estoppel in the trial court and, therefore, may not rely on it here.  See City of Univ. Park v. Van Doren, 65 S.W.3d 240, 251 (Tex. App.CDallas 2001, pet. denied) (holding city could not rely on estoppel on appeal because it had not pleaded the defense); Trevino v. Houston Orthopedic Ctr., 831 S.W.2d 341, 344B45 (Tex. App.CHouston [14th Dist.] 1992, writ denied) (stating appellant must affirmatively plead estoppel to rely on it on appeal); CKB & Assocs., Inc. v. Moore McCormack Petroleum, Inc., 809 S.W.2d 577, 584 (Tex. App.CDallas 1991, writ denied) (stating estoppel Ais lost if not specifically pleaded@).

Moreover, directing Kenefick to cause KCO to pay a dividend is also unavailing.  Kenefick was a party to the divorce only in his individual capacity, not in his capacity as an officer of KCO.  See Werner v. Colwell, 909 S.W.2d 866, 879 (Tex. 1995) (holding that to bind benefit planCa separate entityCplaintiff was required to serve defendant in her capacity as trustee).  We conclude that KCO was not a party to underlying divorce proceeding, and the trial court had no authority to order it to pay a dividend.  See Glasscock v. Citizens Nat=l Bank, 553 S.W.2d 411, 413 (Tex. Civ. App.CTyler 1977, writ ref=d n.r.e.) (holding husband=s creditors could not be bound by divorce decree because court, in divorce action, had no power to disturb rights of creditors). 

Kenefick also claims that the clarification order alters the substantive division of property and, therefore, is void.  Following a finding by the trial court that the original form of the division of the property is not sufficiently specific to be enforceable by contempt, the trial court may render a clarifying order setting forth specific terms to enforce compliance with the original division of property.  Tex. Fam. Code Ann. ' 9.008(b) (Vernon 2006).  In the absence of an ambiguity, the trial court is without authority to modify the judgment.  Pearcy v. Pearcy, 884 S.W.2d 512, 514 (Tex. App.CSan Antonio 1994, no writ); see also Zeolla v. Zeolla, 15 S.W.3d 239, 242 (Tex. App.CHouston [14th Dist.] 2000, pet. denied) (trial court was authorized to enter clarifying order because agreement contained a latent ambiguity).

The trial court=s clarification order must not vary from the terms of the original decree.  Young v. Young, 810 S.W.2d 850, 851 (Tex. App.CDallas 1991, writ denied).  A clarification order is consistent if it merely enforces, with appropriate language the divorce decree.  Id.  However, A[a]n order under this section that amends, modifies, alters, or changes the actual, substantive division of property made or approved in a final decree of divorce or annulment is beyond the power of the divorce court and is unenforceable.@  Tex. Fam. Code Ann. ' 9.007(b) (Vernon 2006).

Irwin responds that the trial court merely added terms necessary to effectuate and implement the intent of the parties.  Terms necessary to effectuate and implement the parties= agreement do not affect the agreed substantive division of property and may be left to future articulation by the parties or consideration by the court.  Haynes v. Haynes, 180 S.W.3d 927, 930 (Tex. App.CDallas 2006, no pet.); see also Able v. Able, 725 S.W.2d 778, 779 (Tex. App.CHouston [14th Dist.] 1987, writ ref=d n.r.e.) (finding trial court merely interpreted certain language of divorce decree awarding appellee reimbursement for liability assigned to appellant under language of decree when it clarified language).  We do not agree with Irwin=s interpretation of the clarification order.

The clarification order provides, in relevant part:

Each party has been awarded fifty percent (50%) of the stock of KCO Enterprises, Inc. and IT IS ORDERED AND DECREED that BRIAN KENEFICK shall cause KCO Enterprises, Inc. to pay a monthly dividend $3,000 [sic] of the net cash income of KCO Enterprises, Inc. to each party, BRIAN KENEFICK and MAUREEN IRWIN. . . .

IT IS THEREFORE ORDERED that Petitioner Brian Kenefick pay to Respondent the monthly dividend payments from KCO Enterprises, Inc. from November, 2006, to date, totaling $48,000, and that Petitioner continue to pay said dividend payments to Respondent until otherwise directed by this Court.

The nunc pro tunc divorce decree awards to each party:

Each party has been awarded fifty percent (50%) of the stock of KCO Enterprises, Inc., and IT IS ORDERED AND DECREED that each party will receive a monthly dividend equal to fifty percent (50%) of the monthly net cash income, not to exceed $3,000 per month per party. . . .

The nunc pro tunc final decree of divorce unambiguously provides that each party will receive a monthly dividend equal to Afifty percent (50%) of the monthly net cash income, not to exceed $3,000 per month.@^[1]  The dividend is a contingent expectancy based on the amount of monthly net cash income.  The clarification order directs KCO to pay Aa monthly dividend $3,000 [sic]of the net cash income@ to each party.^[2] In the clarification order, the dividend is a defined amount to be paid.  We hold the nunc pro tunc divorce decree is unambiguous with regard to the award of a KCO dividend.  The trial court exceeded its authority by entering a clarification order that altered the property division.  Consequently, that order is void.  See Pearcy, 884 S.W.2d at 514.  Kenefick has established that he is entitled to mandamus relief with respect to the clarification order.  See Brookshire Grocery, Inc., 250 S.W.3d at 68. 

                                                   Order Compelling Discovery

Kenefick complains that the trial court abused its discretion by granting Irwin=s motion to compel discovery.  Irwin served a request for production of documents on Kenefick, seeking, among other things, an accounting and full disclosure of KCO=s corporate records.  Kenefick objected to the requests, asserting that the information sought is not relevant and will not lead to the discovery of admissible evidence; and the requests are unduly burdensome, harassing, and overly broad. 

Kenefick contends that Irwin waived the requested discovery because she did not request a hearing after he objected to the discovery.  See Roberts v. Whitfill, 191 S.W.3d 348, 361 n.3 (Tex. App.CWaco 2006, no pet.) (AIf neither party asks for a hearing [on the objections], the party who sent the request for discovery waives the requested discovery.@).  At the February 14, 2008 hearing, the trial court granted the motion to compel without hearing argument.  Counsel for both parties then argued about the necessity for the discovery based on Irwin=s breach of fiduciary duty claims. At the very least, the trial court implicitly overruled Kenefick=s objections to discovery.  We conclude that Irwin did not waive her discovery requests by failing to request a hearing on Kenefick=s objections.

Finally, Kenefick complains that the order to compel is vague.  Irwin requested 23 categories of items for Kenefick to produce.  The order states that the court AGRANTS [Irwin=s] Motion to Compel,@ without specifying what items must be produced.  However, Kenefick has not shown that he presented this complaint to trial court, and that the trial court refused a request for correction.  AA party=s right to mandamus relief generally requires a predicate request for some action and a refusal of that request.@  In re Perritt, 992 S.W.2d 444, 446 (Tex. 1999) (orig. proceeding) (per curiam) (citing Axelson, Inc. v. McIlhany, 798 S.W.2d 550, 556 (Tex.1990) (orig. proceeding)). Therefore, Kenefick has not established that he is entitled to the extraordinary remedy of mandamus with regard to this complaint about the order granting Irwin=s motion to compel discovery. 

                                                                    Conclusion

We conditionally grant the petition for a writ of mandamus with respect to the clarification order and direct the trial court to vacate its February 14, 2008 clarification order.  We deny the petition for writ of mandamus, without prejudice, with respect to the order granting the motion to compel.  The writ will issue only if the trial court fails to act in accordance with this opinion.

/s/        Charles Seymore

Justice

Petition Conditionally Granted, in Part, and Denied, in Part, and Majority and Concurring Memorandum Opinions filed August 19, 2008.

Panel consists of Justices Fowler, Frost, and Seymore.  (Frost, J., concurring).

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^[1]  Emphasis added.

^[2]  Emphasis added.