Case Name: O & G CARRIERS, INC., Appellant, v. SMITH ENERGY 1986-A PARTNERSHIP, Appellee
Court: Texas Courts of Appeals
Jurisdiction: Texas
Decision Date: 1992-02-27
Citations: 826 S.W.2d 703
Docket Number: No. 01-91-01078-CV
Parties: O & G CARRIERS, INC., Appellant, v. SMITH ENERGY 1986-A PARTNERSHIP, Appellee.
Judges: Before DUGGAN, MIRABAL and WILSON, JJ.
Reporter: South Western Reporter Second Series
Volume: 826
Pages: 703–713

Head Matter:
O & G CARRIERS, INC., Appellant, v. SMITH ENERGY 1986-A PARTNERSHIP, Appellee.
No. 01-91-01078-CV.
Court of Appeals of Texas, Houston (1st Dist.).
Feb. 27, 1992.
Henri-Ann Nortman, John Eckel, Richard Crowther, Houston, for appellant.
James L. Ware, Galveston, for appellee.
Before DUGGAN, MIRABAL and WILSON, JJ.

Opinion:
OPINION
MIRABAL, Justice.
This is an appeal from an interlocutory order granting the application of appellee, Smith Energy 1986-A Partnership (Smith), for the appointment of a limited receiver of the proceeds of oil and gas leases in Galveston County, Texas. We affirm.
Smith and appellant, 0 & G Carriers, Inc. (0 & G), are co-owners of the working interest in certain oil and gas properties. Smith owns a 68% working interest in the lease and 0 & G owns a 32% working interest.
On May 12, 1986, as "non-operators," Smith and 0 & G entered into an operating agreement (sometimes referred to as "the agreement") with a third party, Luck Petroleum Corporation (Luck), the "operator." Under article VII A of the agreement, each party was to be liable for its proportionate share of the costs of development of the lease. Article VII C provided that the operator would pay expenses in the operation of the lease and charge the parties with their respective proportionate shares on the expense basis provided in the accounting procedure attached to the agreement as exhibit C. Exhibit C, entitled "Accounting Procedure Joint Operations," provided in paragraph 3 that each non-operator should pay its proportion of all bills within 15 days after the billing was issued by the operator. Under paragraph 4 of exhibit C, non-operators could take written exception to the operator's bills and make a claim on the operator for adjustment.
Attached to the agreement as article XV was an addendum, under which a New York accounting firm was designated to act as the collecting and disbursing agent for the parties to receive all income from production, remit to the operator the amounts due it under the agreement, and reimburse the remaining cash receipts to the working interest owners. Apparently, this provision was never implemented. Instead, Smith and 0 & G, as non-operators, received the revenue from the sale of the oil and gas directly from their purchasers and were then billed by the operator for expenses.
Smith succeeded Luck as operator under the terms of the agreement, but this did not affect the relation of Smith and 0 & G as non-operators in their respective percentages under the agreement.
0 & G and Smith have been involved in ongoing disputes regarding Smith's actions in the operation of the leases, the propriety of certain of Smith's charges and adjustments to the joint accounts, and 0 & G's refusal to pay what it believes are unauthorized and improper expenses charged by Smith. Smith filed the Galveston County suit to recover alleged unpaid amounts owed by 0 & G for the operation of the lease. 0 & G has denied that it owes any expenses and has counterclaimed against Smith for breach of contract, breach of fiduciary duty, fraud in the sale of real estate, violations of the Deceptive Trade Practices Act, and common law fraud.
Smith filed an unsworn "Motion for Interim Relief," requesting that the trial court appoint an "escrow agent" to receive all revenues and pay expenses as submitted by the operator, subject to an audit to be conducted by an auditor agreed to by both parties. The motion proposed that if the parties could not agree on the auditor, (1) each party retain its own auditor and the two auditors attempt to reconcile the differences; and (2) failing to do so, a special master be appointed to resolve any dispute between the two auditors. The motion then requested that a mediator be appointed to use the auditor(s)' report as a basis for resolving the dispute, and that if the mediator was unsuccessful, the case be preferentially set for trial.
The trial court held an evidentiary hearing on the motion on August 23,1991. The trial court recognized that Smith's proposed "escrow agent" resembled a "receiver," as did 0 & G's attorney. Smith's attorney initially resisted the label "receiver." The court heard testimony from Smith's expert witness, Harold Buck, a joint interest auditor who reviewed the operating agreement in question and testified that, under the agreement, if a non-operator received a billing he believed to be in error, he would be in default if he withheld payment of the invoice.
0 & G called Tina Williams, a CPA, who testified that she had reviewed the joint interest billings from 1989 through 1990, as well as a few for 1991. Based on that review, she found administrative costs that Smith, the operator, was passing through to 0 & G which, according to the operating agreement, were supposed to be included in the overhead flat rate Smith was also charging. She testified there are times when a non-operator will withhold payment on disputed charges.
On cross-examination, Williams acknowledged that under article VII C of the agreement, the non-operator did not have the right to withhold payment.
During the hearing, Smith first expressly disavowed any interest in the appointment of a receiver, but indicated it might consider a "limited receiver." 0 & G continued to object to any type of extraordinary relief because there were no pleadings or evidence to justify it. At the close of the hearing, the court announced that it would consider appointing a receiver.
After the August 23 hearing, on that same day, Smith filed a pleading, "Supplemental Memorandum In Support of Motion For Interim Relief And For Preferential Trial Setting (Request for a Limited Receivership)," requesting a limited receiver with the power to receive production proceeds, pay operation expenses, and distribute the balance to the working interest owners. The pleading invoked Tex.Civ. PRAC. & Rem.Code Ann. § 64.001(a)(3) (Vernon 1986), and alleged a "probable interest" in the leases and revenue in question as well as a danger of loss, removal or injury to that property. Smith's pleading was not sworn or supported by attached affidavits. However, as supporting evidence, the pleading referred to (1) the agreement, (2) the testimony of Harold Buck, and (3) the affidavits of Howard Smith and Monroe Cutler. These affidavits, which are not in the appellate record, were attached to an unsuccessful motion for summary judgment Smith filed before it filed the motion for interim relief. In addition to requesting the limited receivership, Smith's supplemental motion prayed the court to order the procedure requested in Smith's original motion for interim relief, e.g., audit, master, mediator, preferential trial setting.
On August 28, 1991, 0 & G filed a response opposing Smith's request for a limited receiver. The response asserted, among other things, that Smith had not met the requirements of section 64.001 because it had not shown that it had a probable right to recovery of the interest or fund in question, or that the fund or interest was in danger of being lost, removed, or materially injured. O & G did not assert another hearing was necessary on Smith's request for a limited receiver, nor did O & G complain that Smith was not entitled to the appointment of a limited receiver because its pleadings did not request a receiver before the August 23 hearing.
On August 29,1991, the trial court noted on its docket sheet, "Motion for Interim Relief granted per order to be filed."
On September 13, 1991, O & G filed "Objections to Plaintiff's Proposed Order Appointing Receiver." The objections dealt with such items as O & G's concerns over the terms of the order as they related to the gas revenues, the timing of the payment of the revenues to the receiver, retention of its contract right to consent or dissent to the conduct of a workover, the handling of funds relative to invoice items to which O & G excepted, and liability of the parties for the receiver's expenses. O & G did not object that Smith's pleadings were unsworn, or complain of the lack of a hearing on Smith's request for a receiver, or the order's failure to require an applicant's bond.
The court's docket sheet shows an entry on 9-30-91, "Hearing on Order to enter set for Oct. 3, 1991 at 2:00 PM. HGD/ami."
Smith asserts in its brief that "A second hearing on the receivership proposal was held on October 3, 1991," but a record of that hearing is not before this Court. In its original brief, O & G makes no reference to this second hearing. In its reply brief, O & G says of the second hearing, "It is disingenuous for the Appellee [Smith] to claim that the court held a 'second' hearing on the receivership issue on October 3, 1991, when the court had already informed the parties on August 29, 1991, that the Motion for Interim Relief had been grant ed. In fact, the court's docket entry reflects that the October 3 hearing was to be a 'hearing on Order to enter.' "
On October 8, 1991, the Court signed the "Order Appointing Temporary, Limited Receiver." The order provides that the receiver receive the revenues from the oil and gas purchasers, and pay all bills he deems payable under the operating agreement based on the monthly operating statements submitted by Smith. It provides that within 10 days of the date of the monthly statement, 0 & G shall present to the receiver any objections it has to Smith's submitted expenses. The receiver is to determine if 0 & G's objections are justified under the terms of the operating agreement; if so, he is not to pay the expense. If he is uncertain, he is to deposit 0 & G's share of the expense in an interest bearing savings account; if he feels the objections are unjustified under the operating agreement, he is to pay the expenses as submitted. The receiver is then to pay the non-operators their respective percentages of the balance of revenue after expenses. The order provides that the receiver's decisions and interpretations will not be binding on the court or a jury, and further provides for an audit procedure similar to the one requested in Smith's motion for interim relief. If the case is not settled before then, the order preferentially sets the case for trial on March 3, 1992. The order contains no requirement that Smith, the applicant, post a bond as required by Tex.R.Civ.P. 695a.
On October 28, 1991, 0 & G unsuccessfully applied to the trial court for a super-sedeas bond to suspend execution of the order appointing the temporary limited receiver. On the same day, 0 & G perfected its appeal of the trial court's order to this Court by filing its appeal bond.
On December 12, 1991, this Court granted 0 & G's motion for temporary orders, staying the trial court's order pending our review of the order on the merits. On December 17, 1991, Smith filed with the trial court a rule 695a bond, binding Smith and its surety to pay 0 & G $24,000 for all damages and costs in the suit, if it should be decided that the temporary limited receiver was wrongfully appointed.
On December 18, 1991, Smith filed its motion to set aside our temporary order on the grounds that O & G had failed to object at the trial court level to the trial court's failure to require the filing of an applicant's bond and on the ground that an applicant's bond was subsequently filed. We denied Smith's motion and set the appeal for submission and oral argument on January 9, 1992. On January 16, 1992, we withdrew our stay order.
In its first point of error, O & G asserts the trial court abused its discretion in appointing a receiver because Smith filed no verified pleadings seeking the relief.
The appointment of a receiver, either as authorized by statute or usages of equity, will not be disturbed on appeal unless the record reveals a clear abuse of discretion. B & W Cattle Co. v. First Nat'l Bank, 692 S.W.2d 946, 951 (Tex.App. — Amarillo 1985, no writ); Greater Fort Worth v. Mims, 574 S.W.2d 870, 872 (Tex.Civ.App. — Fort Worth 1978, writ dism'd). The question is determined not by the substitution of the appellate court's judgment for that of the trial court, but by whether the trial court's decision was either arbitrary or unreasonable. B & W Cattle Co., 692 S.W.2d at 951.
Section 64.001 of the Texas Civil Practice and Remedies Code (Vernon 1986) sets forth the circumstances under which the remedy of a statutory receivership will be available. The section under which Smith sought the receivership was 64.-001(a)(3) and (b):
(a) A court of competent jurisdiction may appoint a receiver: .
(3)in an action between partners or others jointly owning or interested in any property or fund....
(b) The party (applying for a receiver) must have a probable interest in or right to the property or fund, and the property or fund must be in danger of being lost, removed, or materially injured.
The predecessor statute to section 64.001 was Tex.Rev.Civ.Stat.Ann. art. 2293 (Vernon 1971). The Amarillo Court of Appeals in B & W Cattle Co., held that the statute requires a sworn written application only for an ex parte appointment of a receiver. 692 S.W.2d 946 at 951 (Tex.App. — Amarillo 1985, no writ), citing Hunt v. State, 48 S.W.2d 466, 469 (Tex.Civ.App. — Austin 1932, no writ). In our case, the application was not for an ex parte appointment. The court had heard sworn testimony from both Smith and 0 & G relative to Smith's motion for the appointment of an escrow agent. After the court made known it intended to grant Smith's request for a temporary, limited receiver, it scheduled a hearing on the entry of the order. If 0 & G had an objection to the lack of sworn pleadings or evidence to support the appointment of a receiver, it could have had it heard at this hearing. Because there was no ex parte application for a receiver, we hold under the authority of B & W Cattle Co. and Hunt that the trial court did not abuse its discretion in appointing the receiver, even though Smith did not file verified pleadings. See also Sampson v. Scott, 318 S.W.2d 22, 25 (Tex.Civ.App. — Fort Worth 1958, writ ref'd n.r.e.) (in dicta, the court agreed the trial court, in ruling on an unsworn application for a receivership, could consider evidence previously heard in the trial on the merits). We overrule appellant's first point of error.
In its second point of error, 0 & G asserts the trial court abused its discretion in appointing a receiver without notice or hearing on Smith's request for a receivership.
As noted in our discussion under point of error one, the August 23 hearing, of which the parties had notice, and at which they both appeared and presented evidence, dealt with the issue of a court-appointed, outside, third party to receive income from the lease and pay expenses. The fact that the name "escrow agent" instead of "receiver" was used to refer to the person proposed to act in that capacity is not of substantial significance. Although the supplemental pleading requested a "temporary limited receiver" instead of an "escrow agent," the record shows that the relief requested in the supplemental pleading was the same as that requested in the original motion for interim relief. Further, the relief requested by Smith in both its original and supplemental pleadings, and the relief ultimately granted by the court, was conceptually similar to the procedure 0 & G had originally agreed to, as provided for in section F. of article XV, the addendum to the operating agreement. It provided for an outside, third party to collect the revenues, pay the expenses of the operation of the lease to the operator, and disburse the remaining cash receipts to the working interest owners.
Smith filed its supplemental pleading requesting a limited receiver on August 23, 1991, and 0 & G filed its opposition on August 28, 1991. 0 & G additionally filed an objection to Smith's proposed order appointing a receiver on September 13, 1991. In neither of these two responsive pleadings did 0 & G advise the trial court of its complaint, raised on appeal, that Smith's pleadings did not provide timely notice that Smith was seeking a limited receivership, or that once Smith amended its pleadings to seek a limited receivership, another evi-dentiary hearing was required before relief could properly be granted. 0 & G had ample opportunity to bring these complaints to the attention of the trial court, yet it failed to do so. We hold 0 & G has waived the right to complain about these matters. See Kralik v. Martin, 659 S.W.2d 136, 138 (Tex.App. — Corpus Christi 1983, writ ref'd n.r.e.).
We overrule 0 & G's second point of error.
In its third point of error, 0 & G asserts the trial court abused its discretion in ap pointing a receiver because there was no evidence, or in the alternative, insufficient evidence to establish that sufficient legal or equitable grounds existed for the appointment of a receiver, in that there was no evidence or insufficient evidence that the property or fund in question was in danger of being lost, removed, or materially injured.
Evidence introduced at the August 23, 1991, hearing indicated 0 & G did not have the right to withhold payments when it was invoiced by Smith, yet it did often withhold payments in violation of the operating agreement. As a result, Smith would often pay part of the expenses 0 & G had been invoiced for. Thus, the evidence showed Smith's interest in the revenue from the leases was in danger of being lost or materially injured by Smith having to pay not only the expenses Smith had been billed for, but also many of the expenses 0 & G had been billed for. In Consolidated Petroleum Co. v. Austin, a case with similar facts, the order appointing a statutory receiver was affirmed. 283 S.W. 879, 880 (Tex.Civ.App. — Eastland 1926, no writ).
Based on the record before us, we cannot say the trial court abused its discretion. We overrule point of error three.
In its fourth point of error, 0 & G asserts the trial court abused its discretion in appointing a receiver because the evidence showed that Smith had unclean hands, and was therefore not entitled to equitable relief. 0 & G points to evidence introduced at the August 23 hearing to the effect that Smith charged 0 & G for items not authorized under the agreements.
The trial court, as the trier of fact, could believe or disbelieve 0 & G's witness. McGalliard v. Kuhlmann, 722 S.W.2d 694, 697 (Tex.1986). We overrule point of error four.
In its fifth point of error, 0 & G asserts the trial court abused its discretion in appointing a receiver without requiring the applicant to post a bond, in violation of Tex.R.Civ.P. 695a.
A line of cases holds that the failure of an applicant to file a bond requires reversal of an order granting receivership. See Rubin v. Gilmore, 561 S.W.2d 231, 234 (Tex.Civ.App. — Houston [1st Dist.] 1977, no writ); Continental Homes v. Hilltown Property Owners, 529 S.W.2d 293, 295 (Tex.Civ.App. — Fort Worth 1975, no writ); O'Connor v. O'Connor, 320 S.W.2d 384 (Tex.Civ.App. — Dallas 1959, writ ref'd n.r.e.). The present case is distinguishable from those cases because after 0 & G's appeal of the receivership order, Smith did file an applicant's bond. Accordingly, 0 & G's fifth point of error is now moot, and is overruled.
We affirm the trial court's order appointing the temporary, limited receiver.
WILSON, J., dissenting.
. Brought under Tex.Civ.Prac. & Rem.Code Ann. § 51.014(1) (Vernon 1992).
. Additionally, we note that one court has held that a written application for appointment of a receiver is not always necessary to validate the appointment. B & W Cattle Co., 692 S.W.2d at 951. Under B & W Cattle Co., Smith's oral statements at the end of the August 23 hearing could be construed as a sufficient application to support the appointment of the statutory, limited receiver.
. We note that we do not have before us all the information the trial court had before it when it signed the order. In its supplemental pleading for the temporary limited receiver, Smith referenced two affidavits attached to a previously filed motion for summary judgment. Additionally, on October 3, 1991, before signing the order appointing the receiver, the trial court held a hearing pertaining to the entry of that order. Neither the affidavits nor a record of the proceedings at the October 3 hearing are before this Court. We do not decide whether the absence of these record items on appeal requires us to presume they contained evidence to support the trial court's order. Rather, we find the evidence introduced at the August 23, 1991 hearing supports the order.