Mohican Oil & Gas, Llc v. Chapco, Inc. and Frost National Bank ( 2011 )

NUMBER 13-10-00694-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI - EDINBURG
MOHICAN OIL & GAS, LLC, Appellant,
v.
CHAPCO, INC. AND FROST NATIONAL BANK, Appellees.
On appeal from the 319th District Court
of Nueces County, Texas.
MEMORANDUM OPINION
Before Chief Justice Valdez and Justices Rodriguez and Garza
Memorandum Opinion by Justice Rodriguez
Appellant Mohican Oil & Gas, LLC challenges the garnishment judgment entered
in favor of appellee Chapco, Inc. By four issues, Mohican complains of the trial court's
entry of judgment without a trial under Texas Rule of Civil Procedure 674, certain
attorney's fees and costs awarded in the garnishment judgment, the evidence supporting
the trial court's ruling on Mohican's motion to modify Chapco's writ, and the prematurity of
the judgment. We affirm, in part, and reverse and render, in part.
I. Background1
In the underlying breach of contract litigation between the parties, Chapco
obtained a judgment against Mohican after a jury trial in June 2009. 2 The judgment
awarded Chapco $60,000 in damages, $6,657.53 in prejudgment interest, and
$72,146.89 in attorney's fees and costs incurred during trial. The judgment for Chapco
totaled $138,804.42.3
In June 2010, Chapco filed an application for writ of garnishment against
Mohican's operating account held by appellee and garnishee Frost National Bank. See
TEX. R. CIV. P. 658. Chapco alleged that Mohican "does not possess property in Texas
subject to execution sufficient to satisfy the judgment" and that Frost "has in its
possession funds belonging to" Mohican. Chapco prayed for a garnishment judgment in
the amount of $138,763.32 plus post-judgment interest.
Mohican responded by filing a motion to modify the writ of garnishment under rule
664a. See TEX. R. CIV. P. 664a (providing that a defendant whose property has been
garnished "may seek to vacate, dissolve or modify the writ"). Mohican attached to its
1
Because this is a memorandum opinion and the parties are familiar with the facts, we will not
recite them here except as necessary to advise the parties of the Court's decision and the basic reasons for
it. See TEX. R. APP. P. 47.4.
2
This Court affirmed the trial court's judgment in favor of Chapco and against Mohican on January
27, 2011. See Mohican Oil & Gas, LLC v. Scorpion Exploration & Prod., Inc., 337 S.W.3d 310, 320-21,
325 (Tex. App.—Corpus Christi 2011, pet. filed). In a cross-appeal arising out of the same trial but
unrelated to Mohican's appellate claims against Chapco, Scorpion Exploration and Production Company
challenged the prevailing party status of Mohican. See id. at 321. We partially sustained and partially
overruled Scorpion's challenge, see id. at 324, and Scorpion has timely filed a petition for review with the
supreme court. Mohican did not file a petition for review with the Texas Supreme Court challenging our
disposition of its appeal against Chapco within the deadline provided by the rules. See TEX. R. APP. P.
53.7(a).
3
The judgment also included contingent appellate legal fees of $15,000 for an appeal to the court
of appeals and $10,000 for an appeal to the supreme court.
2
motion the affidavit of its accountant and a reconciled bank statement, which showed that
the balance in its Frost operating account at the time the writ was filed was $148,307.56.
In its motion, Mohican alleged that all but $15,426.68 of the funds in the account were
funds "held for payment of expenses of [oil and gas] operations" or funds owed to "royalty
or mineral interest owners." Mohican argued that these funds, "held for the account of
third party non-operators" pursuant to a joint operating agreement (JOA), were not
subject to garnishment. After an evidentiary hearing, the trial court denied Mohican's
motion to modify. The trial court entered the following findings of fact regarding that
hearing:
1. On June 6, 2009, after a trial by jury, this Court entered judgment on
behalf of Chapco against [Mohican]. The judgment rendered by this
Court against Mohican was in the amount of $60,000.00, trial
attorneys fees of $72,146.89, appellate attorney fees of $15,000.00
and court costs (the Judgment).
2. Mohican has appealed the Judgment to the Court of Appeals, but
has not attempted to supercede the Judgment in accordance with
TRAP 24.
3. On June 24, 2010, Chapco filed a[n Application for] Writ of
Garnishment against Frost National Bank.
4. On July 6, 2010, Mohican filed its Motion to Modify the Writ of
Garnishment [obtained] by Chapco against Frost National Bank and
intervened in the case.
5. Mohican demanded a hearing and a ruling on its Motion to Modify
pursuant to TRCP 664(a) [sic].
6. The Court conducted an evidentiary hearing on July 13, 2010, on the
Motion to Modify and a made a ruling on the Motion on July 16, 2010,
after hearing witness testimony presented by Mohican.
7. Chapco proved the grounds relied upon for the issuance of the writ of
garnishment by proving that it had a valid, subsisting judgment, and
that within its knowledge, Mohican did not possess property in the
3
state subject to execution sufficient to satisfy the judgment.
8. Mohican contended in the Motion to Modify and argued during the
hearing on the Motion to Modify that all amounts owed by Frost
National Bank under Account No. [ending in 094] save and except
for $15,426.68, was money belonging to parties other than Mohican.
9. Account No. [094] is an account held in the name of Mohican and
pursuant to the account agreement, no other party other than
Mohican appears on the account. Further, the authority to withdraw
money from the account is limited to Marty Thering and John
Newman, principals of Mohican.
10. Account No. [094] is a general account at Frost National Bank. The
amount owed by Frost National Bank arising from the account is
owed to Mohican and not to third parties.
11. The various third party claimants to the account as argued by
Mohican are merely creditors of Mohican, as is Chapco. Being a
creditor of Mohican confers no ownership rights to the account or to
the amount owed to Mohican by Frost National Bank. Furthermore,
Mohican failed to adequately trace the money allegedly owned by
these third parties to establish their alleged ownership.
The trial court also filed the following conclusions of law:
1. Mohican filed its Motion to Modify the Writ of Garnishment pursuant
to TRCP 664(a) [sic]. TRCP 664(a) [sic] requires the Court to
conduct a hearing and rule on the Motion to Modify within ten (10)
days after the Motion is filed.
2. TRCP 664(a) [sic] provides that a defendant whose property or
account has been garnished may, by sworn written motion, seek to
vacate, dissolve or modify the writ of garnishment for any grounds or
cause, extrinsic or intrinsic. TRCP 664(a) [sic].
3. Texas law divides bank deposits into "general deposits" and "special
deposits." Brady [sic] v. First State Bank, Overton, Texas, 835
S.W.2d 609, 618-19 (Tex. 1992); Hudnall v. Tyler Bank and Trust
Company, 458 S.W.2d 183, 186 (Tex. 1970). Ordinarily, a general
deposit of money with a bank creates a creditor-debtor relationship
between the depositor and the bank. Title to the money passes to
the bank, subject to the depositor's demand for payment. Brady
[sic] v. First State Bank, Overton, Texas, supra at 618-19, n.4. The
account held in the name of Mohican created a debtor creditor
4
relationship with Frost, whereby Frost owed money to Mohican, but
not to third parties.
4. Based on the evidence presented and arguments of the parties, the
Court refuses to modify the writ of garnishment filed by Chapco as
the evidence merely indicates a general account. The monies in
such account are those of Mohican and not any third party.
One day after the hearing on Mohican's motion to modify, Frost filed its answer
stating that, as of the date of the answer, it was indebted to Mohican in the amount of
$174,203.88. In its answer, Frost prayed to recover "its reasonable and necessary
attorney's fees in an amount of not less than $750.00." Chapco filed a motion to enter
judgment on Frost's answer. In its motion, Chapco prayed for a judgment in the amount
of $176,250.32, which represented "the amount . . . owed to Chapco based on the
[underlying] judgment and the costs incurred in this proceeding."
Mohican responded to Chapco's motion to enter judgment and filed its answer
under rule 673, traversing and controverting Frost's answer. See TEX. R. CIV. P. 673. In
its answer, Mohican denied that Frost was indebted to Mohican in the amount specified,
arguing again that the "funds in question were funds in which third parties have an
equitable interest and of which they are the beneficial owners which interest is superior to
Mohican's legal title as the account holder." Mohican demanded a trial, under rule 674,
on the issues presented in its answer. See TEX. R. CIV. P. 674.
Without a hearing, the trial court entered judgment, ordering that Chapco recover
the sum of $173,453.88 from Frost in satisfaction of the underlying judgment against
Mohican. The judgment also ordered that Frost recover its attorney's fees by
withholding $750 from Mohican's funds in Frost's possession.
Mohican filed a motion to vacate, modify, correct or reform the judgment, arguing
5
in relevant part that: the amount awarded was wrong in that it exceeded the amount of
the underlying judgment and recoverable fees and costs; the trial court violated rules 673
and 674 by entering judgment without holding a trial on Mohican's answer traversing
Frost's answer, see TEX. R. CIV. P. 673, 674; and the trial court erred under rule 677 in
ordering Mohican to pay Frost's attorney's fees without a trial on Mohican's answer. See
TEX. R. CIV. P. 677. Mohican prayed that the trial court vacate its judgment and set the
case for trial or, in the alternative, reform the judgment.
Chapco responded to Mohican's motion to vacate or reform by arguing that:
Mohican was not entitled to a trial on its answer traversing Frost's answer as it raised no
new grounds that were not already considered and ruled on at the evidentiary hearing on
Mohican's rule 664a motion to modify; and the judgment properly entitled Frost to recover
its attorney's fees from Mohican. In its response, Chapco admitted that the amount of
the trial court's judgment was incorrect in that it included attorney's fees contingent on an
unsuccessful appeal by Mohican to the Texas Supreme Court, a contingency which had
not occurred. Chapco attached as an exhibit the amounts that it proposed for the
modified judgment, which subtracted the supreme court appellate fees and totaled
$167,852.53.4
In response to the foregoing motions by Mohican and Chapco, the trial court
modified its initial judgment and entered judgment in the amount of $167,852.53. The
4
Chapco's proposed modified judgment amount included the following items, totaling
$167,852.53:
Amount of Judgment: $ 138,763.32
Interest accrued in original proceeding to 9-29-10: $ 8,858.04
Costs in original proceeding: $ 4,082.81
Appellate attorneys fees with accrued interest: $ 15,801.36
Costs in garnishment proceeding: $ 347.00
6
modified judgment ordered that Frost recover its attorney's fees from Mohican. On
request by Mohican, the trial court filed findings of fact and conclusions of law. The
findings of fact mirrored the findings from the earlier evidentiary hearing and added the
following relevant findings:
6. On July 14, 2010, Frost National Bank filed its Answer to the Writ of
Garnishment and admitted that . . . when the answer was filed,
$174,203.88 was owed by Frost National Bank to Mohican. Frost's
answer also [sought] $750.00 in attorneys' fees in answering the writ
of garnishment.
7. On August 6, 2010, Chapco filed its Motion to Enter Judgment on the
Writ of Garnishment pursuant to TRCP 668. Chapco's Motion to
Enter Judgment indicated that it did not contest or traverse the
answer of Frost.
8. On August 10, 2010, Mohican filed its answer and attempted to
traverse the answer of Frost by raising the same issues it raised in
the Motion to Modify the Writ of Garnishment. The Court finds that
such issues have been previously ruled up by [the trial court] in the
Rule 664(a) [sic] hearing.
9. This Court . . . entered judgment on the writ of garnishment on
September 13, 2010, in the amount of $173,453.88. Mohican did
not object to Frost National Bank's request for $750.00 in attorneys'
fees.
10. On September 23, 2010, Mohican filed its Motion to Vacate, Modify,
Correct or Reform Judgment . . . . After hearing the arguments of
counsel thereon, the Court modified the September 13, 2010[]
Judgment by entering a Modified Judgment on September 29, 2010.
11. The Court finds that the amount of $167,852.53 is owed to Chapco
by Mohican which amount consists of the following:
Amount of Judgment: $ 138,763.32
Interest accrued in original proceeding to 9-29-10: $ 8,858.04
Costs in original proceeding: $ 4,082.81
Appellate attorneys fees with accrued interest: $ 15,801.36
Costs in garnishment proceeding: $ 347.00
$ 167,852.53
7
12. Based on the verified answer of Frost National Bank, the Court finds
that Frost National Bank is indebted to Mohican in the amount of
$174,203.88.
13. The Court finds that $750.00 is a reasonable fee incurred by Frost
National Bank in answering and responding to the Writ of
Garnishment.
The trial court also entered the following conclusions of law:
1. Chapco is entitled to Judgment against Frost National Bank pursuant
to TRCP 668 as the answer of Frost National Bank establishes that it
is indebted to Mohican in the amount of $174,203.88. TRCP 668
provides that the Court shall render Judgment for the Plaintiff against
the garnishee for the amount so admitted or found to be due to the
defendant from the Garnishee, unless such amount is in excess of
the amount of the Plaintiff's judgment against the defendant with
interest and costs, in which case, judgment shall be rendered
against the garnishee for the full amount of the judgment already
rendered against the defendant, together with interest and costs of
the suit in the original case and also in the garnishment proceedings.
2. For the purposes of the Writ of Garnishment, the Judgment is
considered final pursuant to TRCP 657 even though the Judgment
has been appealed by Mohican, as Mohican failed to supersede the
judgment. Wrigley v. First Nat. Sec. Corp., 104 S.W.3d 259, 264
(Tex. App.-Beaumont 2003, no pet.).
3. The essential issue in a garnishment proceeding is whether the
garnishee is indebted to or has in his possession property belonging
to the judgment debtor. Putman & Putman, Inc. v. Capitol
Warehouse, Inc., 775 S.W.2d 460, 463 (Tex. App.-Austin 1989, writ
denied). The only issue to be tried in a garnishment proceeding is
"who is entitled to the funds involved in the proceeding." Owen
Elec. Supply v. Brite Day Constr. Inc., 821 S.W.2d 283, 286 (Tex.
App.-Houston [1st Dist] 1991, writ denied).
4. Based on the prior ruling on the Motion to Modify . . . , it is proper for
this Court to enter Judgment under TRCP 668 as the indebtedness
owed by Frost National Bank is owed to Mohican and not to third
parties. Ferrell v. First Nat. Bank of Bryan, 576 S.W.2d 677 (Tex.
Civ. App.-Waco 1979, no writ).
5. In a garnishment proceeding, a garnishee who is discharged and is
8
not a litigant, and is no more than a stakeholder in the writ of
garnishment proceeding, is entitled to reasonable compensation in
protecting his interest in the garnishment proceeding. Hofmann
Paint Mfg. Co. v. Paint Cottage, Inc., 473 S.W.2d 954, 957 (Tex. Civ.
App. Austin 1971, no writ). When the answer of the garnishee has
not been controverted and the garnishee is held liable based on the
answer, such cost shall be taxed against the defendant. TRCP 677.
6. Frost National Bank is discharged of all liability to Mohican to the
extent of the sums ordered are paid to Chapco.
Mohican then filed a motion to vacate or reform the modified judgment, arguing
that: the garnishment was improper while the appeal of the underlying judgment was still
pending; the trial court was required to hold a trial on Mohican's answer traversing Frost's
answer and Mohican was not bound by the "interlocutory ruling" on its motion to modify;
the amount of the judgment was erroneous; and the court erred in ordering Mohican to
pay Frost's attorneys' fees. After a response by Chapco, the trial court denied Mohican's
motion to vacate or reform. This appeal followed.
II. Was the Garnishment Premature?
By its fourth issue, Mohican argues that entry of the garnishment judgment was
premature because the appeal is still pending in the underlying breach of contract case.
As posited by Mohican, it is true that a trial court cannot enter a final garnishment
judgment until the judgment in the underlying suit is no longer subject to being set aside,
reversed, or modified on appeal. See Taylor v. Trans-Cont'l Props., Ltd., 670 S.W.2d
417, 419 (Tex. App.—Tyler 1984, orig. proceeding); see also Thomas N. Heap, D.D.S.,
Inc. v. Val-Pak of Greater Houston, No. 01-00-00756-CV, 2001 WL 699944, at *3 (Tex.
App.—Houston [1st Dist.] June 21, 2001, pet. denied) (not designated for publication).
Here, this Court affirmed the underlying judgment on the jury's verdict against Mohican on
9
Chapco's breach of contract claim before Mohican filed its brief in this appeal, see
Mohican Oil & Gas, LLC v. Scorpion Exploration & Prod., Inc., 337 S.W.3d 310, 320-21,
325 (Tex. App.—Corpus Christi 2011, pet. filed), and Mohican did not challenge our
disposition of its appeal by filing a petition for review with the supreme court within the
time period prescribed by the rules. See TEX. R. APP. P. 53.7(a). As such, the
underlying judgment in this case has reached a point where it is no longer subject to being
reversed, and the garnishment judgment was not premature for this reason.5 Moreover,
even were we to assume without deciding that garnishment judgment was premature at
the time it was entered, we conclude that Mohican's complaint about the timing of the
garnishment judgment is moot given that Chapco's underlying judgment against Mohican
is no longer subject to reversal and the controversy between the parties has therefore
ceased to exist. See Allstate Ins. Co. v. Hallman, 159 S.W.3d 640, 642 (Tex. 2005)
(holding that "a case becomes moot if a controversy ceases to exist" between the parties)
(citing Bd. of Adjustment of San Antonio v. Wende, 92 S.W.3d 424, 427 (Tex. 2002)).
Mohican's fourth issue is overruled.
III. Motion to Modify under Rule 664a
In its third issue, Mohican argues that insufficient evidence supported the trial
court's denial of its rule 664a motion to modify. By this issue, Mohican challenges
findings of fact 9, 10, and 11 and conclusions of law 3 and 4 entered by the trial court after
the hearing on the motion to modify. Because we believe the challenged findings of fact
actually involve mixed questions of law and fact, we review the challenged findings for an
5
See infra Part V regarding the mootness of Mohican's challenge to appellate attorney's fees.
10
abuse of discretion. See Int'l Freight Forwarding, Inc. v. Am. Flange, 993 S.W.2d 262,
267 (Tex. App.—San Antonio 1999, no pet.). We defer to the court's factual
determination, if supported by the evidence, and review the legal conclusions de novo.
Id. "[T]he trial court abuses its discretion when it fails to properly apply the law to the
undisputed facts, when it acts arbitrarily or unreasonably, or when its ruling is based on
factual assertions unsupported by the record." Remington Arms Co. v. Luna, 966
S.W.2d 641, 643 (Tex. App.—San Antonio 1998, pet. denied). We review the
conclusions of law de novo. Villagomez v. Rockwood Specialties, Inc., 210 S.W.3d 720,
727 (Tex. App.—Corpus Christi 2006, pet. denied). Conclusions of law will be upheld on
appeal if the judgment can be sustained on any legal theory supported by the evidence.
Mack v. Landry, 22 S.W.3d 524, 528 (Tex. App.—Houston [14th Dist.] 2000, no pet.);
Spiller v. Spiller, 901 S.W.2d 553, 556 (Tex. App.—San Antonio 1995, writ denied).
Having reviewed the record of the rule 664a hearing, it appears undisputed that, at
the time Chapco filed its writ, Mohican had written checks in the amount of approximately
$132,000 from its Frost operating account to vendors, lessors, royalty interest owners,
and working interest partners and that payment on those checks was outstanding.6 In
findings 9, 10, and 11, the trial court determined, in relevant part, that: the account in
question was held in the name of Mohican, alone; only Mohican's principals could
withdraw money from the account; the account is a "general account"; the money Frost
holds in the account is owed to Mohican, not to third parties; the "third-party claimants"
are "merely creditors of Mohican, as is Chapco"; these creditors have no ownership rights
6
The evidence at the hearing showed that $123,000 of the $132,000 was owed to MOG
Producing, L.P., one of Mohican's working interest owners. One of the limited partners in MOG Producing
is John Newman, who is also a Mohican principal.
11
to the account; and Mohican did not adequately trace the money owed to these creditors
to establish ownership of the funds.
Mohican argues that these findings and conclusions were erroneous because the
recipients of the outstanding checks had an equitable and beneficial ownership interest in
those funds, which were therefore not subject to garnishment. See Sw. Bank & Trust
Co. v. Calmark Asset Mgmt., Inc., 694 S.W.2d 199, 200 (Tex. App.—Dallas 1985, writ
ref'd n.r.e.) ("Neither trust funds nor the funds of another deposited by a defendant into an
account in his own name is subject to garnishment by the defendant's creditors."); see
also RepublicBank Dallas v. Nat'l Bank of Daingerfield, 705 S.W.2d 310, 311 (Tex.
App.—Texarkana 1986, no writ) (holding that in garnishment cases, equitable title to the
property the garnishing creditor seeks to reach prevails over bare legal title to the
property). Specifically, Mohican argues that under its JOA with its third party
non-operator working interest owners, Mohican was obligated to hold the funds of the
third-party owners; for this reason, Mohican argues that certain funds in the Frost account
were beneficially owned by the third-party owners and not subject to garnishment.
However, having reviewed the applicable portion of the JOA on which Mohican
relies, we disagree that it applies to summarily block the garnishment, as Mohican posits.
The entire provision, which is contained in the "Rights and Duties of Operator" section of
the JOA and is titled "Custody of Funds," is as follows:
Operator shall hold for the account of Non-Operators any funds of
the Non-Operators advanced or paid to the Operator, either for the conduct
of operations hereunder or as a result of the sale of production from the
Contract Area, and such funds shall remain the funds of the Non-Operators
on whose account they are advanced or paid until used for their intended
purpose or otherwise delivered to the Non-Operators or applied toward the
payment of debts . . . . Nothing in this paragraph shall be construed to
12
establish a fiduciary relationship between Operator and Non-Operator for
any purpose other than to account for Non-Operator funds as herein
specifically provided. Nothing in this paragraph shall require maintenance
by Operator of separate accounts for the funds of Non-Operators unless the
parties specifically agree.
At the most, this provision protects funds "advanced or paid" to Mohican by its partners,
the third-party non-operator working interest owners under the JOA. It is undisputed that
money advanced by Mohican's working interest owners is initially held in Mohican's
escrow account but is then transferred to the operating account to pay drilling and
operational costs. It is also undisputed that revenue from all of Mohican's oil and gas
operations are deposited into the operating account. From the operating account,
Mohican's working interest owners then receive their allotted portion of the revenues
minus their portion of the drilling and other operating costs.
Assuming without deciding that the above provision does create a sort of special
account not subject to garnishment, see Calmark, 694 S.W.2d at 200 (noting that it is a
defense to garnishment if the funds sought to be garnished are funds being held in trust
by the debtor for another party), it does so only for those funds advanced by Mohican's
partners. In this regard, the trial court found that Mohican did not adequately trace
ownership of the funds in the operating account. Because we conclude this finding was
supported by the evidence, we defer to the trial court. See Int'l Freight Forwarding, Inc.,
993 S.W.2d at 267.
At the hearing, John Newman, one of the principals of Mohican, testified that the
revenues from all of the oil and gas leases Mohican operates are commingled into its one
operating account at Frost. Newman also testified that Mohican pays royalties, vendors,
taxes, working interest partners, permits, fees, and surface damages out of this one
13
operating account. Tricia Guerra, Mohican's contract oil and gas accountant, confirmed
that all revenues from the leaseholds operated by Mohican come into the one operating
account. However, based on the bank reconciliation statement admitted at the hearing,
Guerra could not identify which funds were coming in from which leaseholds. Guerra
testified that at the time the writ of garnishment was served, all but $15,426.68 of the
funds in the operating account were owed in outstanding checks to various third parties.
But in her testimony, Guerra could not link the checks to specific leaseholds. Neither
could she identify with certainty the nature of the payees; in other words, she could not
say for certain whether the checks were written to vendors, royalty owners, or working
interest owners. Crucially, there was no evidence presented at the hearing identifying
specific, traced funds in the operating account that originated in funds advanced by
Mohican's working interest owners, which are arguably the only funds protected by the
"Custody of Funds" JOA provision.
Mohican also argues that Chapco failed to carry its burden at the hearing.
Mohican argues that Chapco was required "to prove that Frost was actually indebted to
Mohican in the amount requested" in the writ of garnishment and that Chapco failed to do
so. Mohican misstates the parties' burdens at a rule 664a hearing. To avoid a rule
664a motion to dissolve or modify, the garnishor need only prove the grounds relied upon
for the writ, i.e., whether it has a valid, subsisting judgment and, within its knowledge, the
judgment debtor does not possess property in Texas subject to execution sufficient to
satisfy the judgment. See Exterior Bldg. Supply, Inc. v. Bank of Am., N.A., 270 S.W.3d
769, 771 (Tex. App.—Dallas 2008, no pet.); see also TEX. R. CIV. P. 664a ("The writ shall
be dissolved unless, at such hearing, the [garnishor] shall prove the grounds relied upon
14
for its issuance . . . ."). "Apart from proof of the grounds supporting issuance of the writ,
the party moving to dissolve the writ bears the burden to prove the ground for dissolution."
Walnut Equip. Leasing Co. v. J–V Dirt & Loam, 907 S.W.2d 912, 915 (Tex. App.—Austin
1995, writ denied). Specifically, the garnishor does not have to prove that the garnishee
is indebted to the defendant debtor. Swiderski v. Victoria Bank & Trust Co., 706 S.W.2d
676, 678 (Tex. App.—Corpus Christi 1986, writ ref'd n.r.e.).
Regardless, as previously discussed, Chapco did produce evidence refuting
Mohican's claim that the funds in the operating account were beneficially owned by third
parties. Through its examination of witnesses, Chapco showed that the funds in the
account were not traced to those funds advanced by Mohican's partners. Chapco
showed that the account in question is Mohican's general operating account into which all
revenues are deposited and from which Mohican pays not only working interest owners
and royalty but also vendors and other creditors. From the account statements admitted
at the hearing, Mohican's accountant could not trace which funds were coming in from
which wells. Neither could she pinpoint the nature of the outstanding checks, i.e.,
whether the checks were written to vendors, working interest owners, or royalty owners.
Finally, Chapco admitted into evidence account documents showing that Mohican was
the only party on the operating account and that only Mohican's principals had authority to
withdraw money from the account. See Bank One, Tex., N.A. v. Sunbelt Sav., F.S.B.,
824 S.W.2d 557, 558 (Tex. 1992) ("Funds placed with a bank ordinarily become general
deposits which create a debtor-creditor relationship between the bank and its
depositor."). In sum, there was evidence to support the trial court's findings and
conclusions that the money in the operating account was owed by Frost to Mohican and
15
not to third-parties and was therefore subject to garnishment.
Mohican's third issue is overruled.
IV. Was Mohican Entitled to a Trial Under Rule 674?
By its first issue, Mohican argues that the trial court erred in refusing to hold a trial
after Mohican traversed Frost's answer under rule 673. See TEX. R. CIV. P. 673 ("The
defendant [debtor] may also, [by stating that it has good reason to believe and does
believe that the the garnishee's answer is incorrect], controvert the answer of the
garnishee."). Rule 674 provides: "If a garnishee whose answer is controverted, is a
resident of the county in which the proceeding is pending, an issue shall be formed under
the direction of the court and tried as in other cases." TEX. R. CIV. P. 674. It is
undisputed that the garnishee, Frost, is a resident of the county where Chapco's
application was filed and that Mohican controverted Frost's answer. The question then
becomes whether Mohican was entitled to a trial under rule 674 on the identical issue it
raised in its motion to modify and litigated in an evidentiary hearing on that motion. We
conclude that it was not.
Mohican cites the applicable garnishment rules and one case from this Court,
Swiderski v. Victoria Bank and Trust, 706 S.W.2d at 678. Like that of Mohican, our
research has yielded similarly sparse results. We have found little to no legal authority
on point for the circumstance presented in this case—where a substantive evidentiary
hearing is held on the defendant debtor's rule 664a motion and, at which, the garnishee's
indebtedness to the debtor is litigated by the parties.
As noted by Mohican, this Court stated in Swiderski that "[a] Rule 664a hearing is a
distinct proceeding from the writ of garnishment proceeding between the garnishor and
16
garnishee." Id. We further noted that "[t]he issue to be determined in a Rule 664a
hearing is [whether] the plaintiff [judgment creditor] . . . prove[d] the grounds relied upon
for its (the writ of garnishment's) issuance" and not whether the plaintiff proved that the
garnishee bank is indebted to the defendant debtor; the defendant does not carry the
latter burden at a rule 664a hearing. Id.
Yet, at the rule 664a hearing in this case, whether Chapco had proved the grounds
relied upon for its writ—i.e., whether it had a valid, subsisting judgment and made an
affidavit stating that, within its knowledge, Mohican did not possess property in Texas
subject to execution sufficient to satisfy the judgment—was not at issue. Rather, at the
hearing, the substantive issue of Frost's indebtedness to Mohican was litigated.
Mohican presented evidence at the hearing in support of its theory that all but
approximately $15,000 of the funds in its operating account was beneficially owned by
third parties and, thus, Frost was not indebted to Mohican in the amount prayed for in
Chapco's writ. Chapco presented evidence and argument in rebuttal to support its
theory that Mohican was the owner of the funds in the Frost operating account. In other
words, we believe that what was procedurally conducted as a rule 664a hearing was in
actuality an evidentiary hearing that amounted to the garnishor-garnishee proceeding we
contemplated by our statement in Swiderski. See id. Both parties had the opportunity
to present evidence and argument—in short, a trial was held on Mohican's third-party
ownership issue. That Mohican later raised the identical issue in its rule 673 answer
controverting Frost's answer did not trigger a do-over of the substantive proceeding
already afforded to the parties. We are not persuaded by Mohican's argument that "strict
compliance" with the applicable garnishment rules required the trial court to hold what
17
would have essentially been a second trial in this case. To conclude otherwise would
exalt form over substance in a case where the parties were given the opportunity to
present their evidence and argument to the trial court, as contemplated by the rules. The
trial court did not err in refusing to hold an additional trial for this reason.
Mohican further argues, in relevant part, that it was entitled to a rule 674 trial
because Frost had not yet filed its answer at the time of the rule 664a hearing and
"Mohican could not know how the Bank would answer the lawsuit." Mohican argues that
because the amount referred to in Frost's answer ($174,203.88) was greater than the
amount litigated at the hearing ($148,307.56), "Mohican had to have the opportunity to
traverse the Bank's 'incorrect' answer because Mohican was 'not satisfied' with it" and
form issues that required trial. See TEX. R. CIV. P. 673, 674. In its controverting answer,
however, the only issue formed by Mohican was whether the amount of indebtedness
claimed by Frost in its answer was actually beneficially owned by third parties. In other
words, Mohican was "not satisfied" by Frost's answer for the identical reason proffered in
its motion to modify and fully litigated in the earlier evidentiary hearing. To the extent
Frost's answer involved a greater dollar amount than the amount litigated at the hearing,
we note that Mohican and Chapco engaged in extensive motion practice after the initial
judgment was entered, in which the exact amount of the garnishment judgment was
discussed and eventually modified to reflect the amount of the underlying judgment.
Mohican's rule 673 answer—the answer that would have formed the issues for a rule 674
trial—did not raise any arguments regarding a discrepancy between the underlying
judgment and the amount of indebtedness alleged by Frost in its answer. That issue was
litigated by the parties in their motion practice on Chapco's motion to enter judgment and
18
the responses that followed. Thus, based on the foregoing, we again cannot conclude
the trial court erred in refusing to hold a rule 674 trial on Mohican's rule 673 answer.
In sum, having already determined in our disposition of Mohican's third issue that
the evidence and law supported the trial court's findings and conclusions regarding
Mohican's third-party ownership issue, we conclude that there was no error when the trial
court declined to hold a second trial on the same issue. Mohican's first issue is
overruled.
V. Attorney's Fees and Costs in the Judgment
By its second issue, Mohican complains of certain fees and costs awarded to
Chapco in the garnishment judgment.
First, Mohican argues that the trial court erred in including appellate attorney's fees
in the amount of $15,801.36. That amount represented the attorney's fees awarded in
the underlying judgment contingent on an unsuccessful appeal by Mohican to the court of
appeals. Mohican claims that when the garnishment judgment was entered in
September 2010, the appeal of the underlying judgment was still pending. This is true.
However, as discussed previously, this Court handed down its opinion in the underlying
appeal in January 2011, affirming the verdict in favor of Chapco and overruling Mohican's
appellate issues against Chapco. Thus, when Mohican filed its brief in this garnishment
appeal on April 13, 2011, we had already disposed of the appeal. And as discussed
previously, Mohican did not file a petition for review with the Texas Supreme Court
contesting our disposition of its appeal against Chapco. Because Mohican was
unsuccessful in prosecuting its appeal in this Court, the fees awarded in the judgment are
no longer contingent; Chapco is entitled to the fees enumerated in the underlying
19
judgment. Mohican's argument challenging the award of appellate attorney's fees is
therefore moot, and the garnishment judgment is not erroneous in this regard. See
Allstate Ins. Co., 159 S.W.3d at 642 (citation omitted).
Second, Mohican argues that there was no evidentiary basis to support the award
of $4,082.81 in court costs from the underlying proceeding being included in the
garnishment judgment. As a general rule, the successful party to a suit shall recover of
its adversary all costs incurred in the suit. TEX. R. CIV. P. 131. The allocation of costs is
within the trial court's discretion and, absent an abuse of discretion, cannot be overturned
on appeal. Labor v. Warren, 268 S.W.3d 273, 278 (Tex. App.—Amarillo 2008, no pet.)
(citing Madison v. Williamson, 241 S.W.3d 145, 157 (Tex. App.—Houston [1st Dist.] 2007,
pet. denied)). Section 31.007(a) of the Texas Civil Practice and Remedies Code
prescribes that:
Each party to a suit shall be responsible for accurately recording all costs
and fees incurred during the course of a lawsuit, if the judgment is to provide
for the adjudication of such costs. If the judgment provides that costs are to
be borne by the party by whom such costs were incurred, it shall not be
necessary for any of the parties to present a record of court costs to the
court in connection with the entry of a judgment.
TEX. CIV. PRAC. & REM. CODE ANN. § 31.007(a) (West 2008). "Although somewhat vague
as to procedure," section 31.007(a) "clearly does not require a formal presentation of
evidence of a party's costs during trial." Varner v. Howe, 860 S.W.2d 458, 466 (Tex.
App.—El Paso 1993, no writ). "All that seems to be required is that the successful party
present . . . an itemized list of costs and fees incurred during the lawsuit." Id.; see Labor,
268 S.W.3d at 279.
Here, Chapco asserts in its brief that "the amount of costs was explained to the trial
20
court who had the authority to grant the recovery of costs." We accept this assertion of
fact as true because Mohican does not contradict it. See TEX. R. APP. P. 38.1(g) ("In a
civil case, the court will accept as true facts stated unless another party contradicts
them."). Because the trial court was provided an explanation regarding the amount of
court costs in the underlying case, we cannot say the court abused its discretion in
including those costs in the garnishment judgment. See Labor, 268 S.W.3d at 278-79;
Varner, 860 S.W.2d at 466.
Third, Mohican argues that the trial court erred by including in the garnishment
judgment the $347.00 in costs for the garnishment proceedings. Mohican cites rule 677,
which provides: "where the answer of the garnishee has not been controverted . . . ,
such costs shall be taxed against the defendant; where the answer is contested, the costs
shall abide the issue of such contest." TEX. R. CIV. P. 677. Mohican argues that
because there was no trial of the issues formed, no prevailing party was determined and
no costs could be assessed. For the same reasons enumerated above in our disposition
of Mohican's first issue, we are not persuaded. The trial court was not required to hold
the trial Mohican is referring to in this argument because no issues were formed by
Mohican's controverting answer other than those already litigated in the earlier
evidentiary hearing. And Chapco prevailed in that contest, proving that the funds in the
Frost operating account were owned by Mohican. Moreover, because Mohican did not
controvert Frost's answer on any ground other than the third-party ownership issue which
was already disposed of, Mohican's answer was effectively no controversion under rule
677, which then allowed the costs to be taxed against Mohican, the defendant. See id.
For these reasons, the trial court did not err in assessing costs from the garnishment
21
proceeding against Mohican.
Finally, Mohican argues that it was improperly ordered to pay $750 in attorney's
fees to Frost. Again, Mohican cites rule 677 and part of its argument centers on the trial
court's decision not to hold a rule 674 trial. Because it controverted Frost's answer,
Mohican argues that reasonable compensation to Frost, the garnishee, should have
"abide[d] the issue of such contest." See id. However, again, for the same reasons
provided in the foregoing paragraph, we are not persuaded that Mohican was entitled to a
trial on the issue presented in its controverting answer.
Rather, as Mohican further argues, the trial court erred in awarding Frost's
attorney's fees because there is no evidence in the record supporting the amount of fees
awarded and Mohican did not stipulate to the amount. In its findings, the trial court
stated that "$750.00 is a reasonable fee incurred by Frost National Bank in answering and
responding to the Writ of Garnishment."7 This Court has held that the "reasonableness
of attorney's fees is a question of fact and must be supported by competent evidence. . . .
A court does not have authority to adjudicate the reasonableness of attorney's fees on
judicial knowledge without the benefit of evidence." Bullock v. Foster Cathead Co., 631
S.W.2d 208, 212 (Tex. App.—Corpus Christi 1982, no writ) (citing Great Am. Reserve Ins.
Co. v. Britton, 406 S.W.2d 901, 907 (Tex. 1966); Redisco, Inc. v. Laredo Mopac
Employees Credit Union, 516 S.W.2d 197, 199 (Tex. Civ. App.—San Antonio 1974, no
writ)). We find no evidence in the record regarding the reasonableness of Frost's
7
The trial court also found that "Mohican did not object to Frost National Bank's request for
$750.00 in attorney's fees." This finding is not supported by the record. In its motion to vacate, modify,
correct, or reform the judgment—which preceded the modified judgment that is the subject of this
appeal—Mohican objected to the award of attorneys' fees to Frost. Mohican did not waive the argument,
as suggested by the trial court's finding.
22
attorney's fees. Such evidence was required, and the trial court erred in determining that
$750 was a reasonable amount of fees without such evidence.
We overrule Mohican's second issue to the extent it complains of the appellate
attorney's fees and court costs awarded in the garnishment judgment. We sustain
Mohican's second issue to the extent it challenges the assessment of Frost's attorney's
fees against Mohican as no evidence was presented to the trial court supporting the
reasonableness of that award.
VI. Conclusion
We reverse the portion of the garnishment judgment ordering Mohican to pay
Frost's attorney's fees and render judgment that Frost take nothing by its plea for fees.
We affirm the remainder of the garnishment judgment.
NELDA V. RODRIGUEZ
Justice
Delivered and filed the 1st
day of December, 2011.
23