Court Opinion

ID: 5080720
Source: CourtListenerOpinion
Date Created: 2021-10-01 12:19:57.611628+00
Date Added: 2024-06-11T14:21:29.542860
License: Public Domain

Suppose the existence of two business entities, A B, that by agreement pooled resources to seek a profit together in a specific venture. A B further contracted between themselves to share the responsibilities and expenses of their enterprise in particular proportions. Assume further that the joint undertaking was receiving a constant income stream provided by a third company, C, which purchased the product of the venture by paying A B separately and not into a common fund.
A B then found themselves in disagreement over what the contract meant, specifically with regard to what expenses were to be borne by each party. Each sued the other in a Texas district court claiming, *Page 709 
in essence, that each was getting less than the benefit due from the bargain. Finally, as the joint expenses of the venture are being paid, albeit under protest, no bill collectors are knocking on the door, and the income stream from C continues unabated.
Given this set of assumptions, is it a proper utilization of the harsh remedy1 of receivership under Texas law to use a receivership to apportion expenses between A B when the constancy of the income stream remains secure despite the dispute? The majority says that it is, and from that conclusion and the reasons supporting it, I respectfully dissent.
Under the assumptions as outlined, and the facts of this case, a receivership would be proper upon a showing by a movant, whether A or B, that the underlying dispute between the parties was of such a magnitude that the common right of both parties to receive income was in danger of being lost, removed, or materially injured either by their own action or from third parties. See TEX.CIV.PRAC. REM.CODE ANN. § 64.001(b) (Vernon 1986). There is no such showing in this case.
For two basic reasons, no evidence and no notice, I respectfully but fundamentally disagree with the majority's countenance of this unique receivership. By permitting this receivership to stand, the majority, in my view, belies the very nature of such an "extraordinary remedy" as understood in Texas jurisprudence.
First, no evidence exists in the record that supports a finding that the jointly owned property or fund of the parties, however defined, was "in danger of being lost, removed, or materially injured" as required by the statute.
Second, and compounding the injustice, appellant was provided with no actual notice whatsoever that appellee sought a statutory receivership, or for that matter, a receivership of any kind, before the hearing was conducted that ultimately became the only evidentiary basis used by the trial judge to justify the receivership's imposition.
Given the accelerated aspects of this appeal, I will only address points of error two and three, relative to notice and the sufficiency of the evidence. My not addressing the remaining points of error is not to be understood as agreeing or disagreeing with the majority's holding.
INTRODUCTION:
On August 23, 1991, appellant appeared by counsel before the 122nd District Court of Galveston County to answer a motion by appellee styled "Plaintiff's Motion for Interim Relief and for Preferential Trial Setting." It is without dispute that the word "receivership" appears nowhere in the motion.2
After rather lengthy opening statements by both sides, the court began to receive evidence. No pleading, or any other document filed previous to the hearing, had mentioned or prayed for imposition of a receivership. Further, there was no oral request for a receivership voiced before, or during, the hearing. Indeed, appellee, in a colloquy with the judge, explicitly disavowed its application.
After the opening statements and discussion of possible remedies, appellee (plaintiff below) placed some five documents3 in evidence without objection and called Harold James Buck by video deposition as its only witness.
 *Page 710 
At the conclusion of appellee's evidence, appellant proceeded to call Tina Williams as its only witness. After direct and cross-examination of Williams, appellant stated, "that's all the testimony that we have to present." Appellee then stated, "we have no further evidence." Both sides having opened and closed the evidence on the motion presented, the court invited arguments. It was during this phase of the proceeding that the discussion returned to the concept of receivership. Only after both sides rested from their presentation of the evidence, and after prompting by the judge, did appellee, in final argument, make the first tentative remarks to the judge that a receivership might be what they wanted after all.
Subsequent to the hearing, on the same day, appellee filed a document styled, "Supplemental Memorandum in Support of Motion for Interim Relief and for Preferential Trial Setting (Request for Limited Receivership)." This document was the first writing that requested a receiver.4 The Supplemental Memorandum makes the following statement relative to the evidence necessary to satisfy the statutory burden:
 Evidence has also been introduced that the property is in danger of being, lost, removed, or materially injured, because plaintiff (appellee here) has been placed in a position of having to pay a disproportionate share of the costs incurred in operating the leases, while the defendant has been receiving all of the revenues attributable to its interest without paying its share of costs. These specific allegations are supported by the testimony of Harold J. Buck, as well as the affidavits of Howard Smith and Monroe Cutler, attached to Plaintiff's Motion for Partial Summary Judgment.
On August 28, 1991, appellant filed a response opposing the appointment of a temporary receiver and suggested appellee had failed to meet its burden of proof under section 64.001. On August 29, 1991, the trial court noted on its docket sheet that the relief requested was granted, "per order to be filed." After August 29, 1991, appellee filed a proposed order, appellant filed objections to the order, and the trial court set a hearing for entry of the order on October 3, 1991.
On October 8, 1991, the trial court signed an order styled, "Order Appointing Temporary, Limited Receiver," which reads in part as follows:
 On the 23rd day of August, 1991, this matter came on for hearing before the Court on the application of Smith Energy 1986-A Partnership, Plaintiff, for the appointment of a receiver for the oil and gas proceeds derived from the operation of. . . . Both parties appeared through their respective counsel. The Court, having read the pleadings, examined the evidence presented and heard the argument of counsel, is of the opinion that a temporary limited receiver should be appointed, as requested by the Plaintiff.
The supplemental memorandum filed by appellee also mentioned the agreements between the parties which, unlike the summary judgment affidavits, were in evidence at the hearing.
POINT OF ERROR THREE: NO EVIDENCE
In response to appellant's point of error three, the majority offers the following, directed to the evidence considered by the trial judge:
 Evidence introduced at the August 23, 1991, hearing indicated O G (appellant) did not have the right to withhold payments when it was invoiced by Smith, (appellee), yet it did often withhold payments in violation of the operating agreement. As a result, Smith would often pay part of the expenses O 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 *Page 711
 been billed for, but also many of the expenses O 
G had been billed for.
 (Emphasis added.)
The majority finds evidence that appellant's conduct caused a loss to "Smith's interest in the revenue," and decides that finding is equivalent to a finding of loss to a common fund. I respectfully suggest an individual interest and a common interest are not the same. Lien rights and ownership rights are different concepts. Only the common interest of the parties is put within the reach of receivership within this particular statute.
I do not believe the evidence outlined by the majority is relevant to the statutory findings necessary for the imposition of a receivership under section 64.001(a)(3) (b). First, the right to receive income from the company buying the production from the well is jointly owned. It is undisputed by the parties, and unchallenged by the majority, that the gross proceeds from the production are paid directly to the two parties as separate entities, and not into some common fund. As the money is paid directly to each party in a gross amount attributable to their respective share, there is no joint ownership of the money after it is divided.
The majority emphasizes the pertinent provisions of the original contract in justifying its holding. In fact, the parties had agreed to a procedure to pool revenues and pay expenses in a process "conceptually similar" to the receivership ultimately imposed. However, the majority recognizes in its own opinion that, "Apparently this provision was never implemented." The receivership brings into being a course of dealing between the parties that has not existed ever in their relationship. The receivership does not return the parties to any preexisting condition.
Second, the majority makes no reference to appellee's evidentiary burden of proving probable interest to the property or fund as required by the statute. If one assumes appellee has some joint ownership of appellant's gross proceeds, or vice versa, as opposed to the lien rights pled and sued upon, what evidence is there in the record that demonstrates appellee's probable right to any of appellant's funds? The primary law suit will not be decided on the basis of whether appellant has the right to withhold payment under the contract, but the legitimacy of the billed charges themselves. A probable right to the funds can only be answered by reference to the basic differences between the parties. Of what value will a receivership have been in this case, if a jury ultimately determines that appellant is correct in its assertion that appellee has been overcharging on the expenses? There is no evidence in the record before us about which party might prevail on the merits. Under the circumstances of this case, and without evidence as to this basic question, the receivership is not proper.
Finally, and most important, there is no evidence in the record that the joint property of the parties, however defined, is in danger of being lost, removed, or materially injured. Appellee argued that both sides were making money, and will continue to have income in excess of expenditures into the future. One remedy appellee seeks at trial, as outlined in the pleadings, is the imposition of a lien on the future income stream due to appellant. There was no evidence from anyone of a wolf at the door today, or any discernible tomorrow, ready to huff and puff and blow the rig down. The statutory burden of appellee was not met.
I would grant appellant's point of error three as there is no evidence in the record that the joint property of the parties is in actual present "danger of being lost, removed, or materially injured" as required by law. Kneisley v.Intertex, Inc., 797 S.W.2d 343, 346 (Tex.App. — Houston [14th Dist.] 1990, no writ); Hughes v. MarshallNat'l Bank, 538 S.W.2d 820, 824 (Tex.Civ.App. — Tyler 1976, writ dism'd w.o.j.).
The majority cites Consolidated Petroleum Co. v.Austin, 283 S.W. 879 (Tex.Civ.App. — Eastland 1926, no writ), as a case with "similar facts." In that case, certain tax liens had been filed against the property, and the alleged wrongdoer was not paying taxes or expenses, and was removing oil from the leasehold to outside the state. *Page 712 
The movants for the receivership in Consolidated
represented about 30 percent of the interest, and the alleged wrongdoers 70 percent, virtually opposite of the record before us. In the case before us, the appellant is not paying some expenses to the operating interest.
In deciding Consolidated, the Honorable Chief Justice Pannill made the following statement:
 The only thing that tenants in common owned was the oil and the right to take that from under the ground. When the oil was exhausted, the value of the leasehold would cease. If appellant was permitted indefinitely to withdraw its part of the oil without paying its pro rata of the operation cost and paying its part of the taxes, which from the record was assessed against the parties jointly, and against all their interest, there was a great probability that the value of the property would reach the point where all of appellees' part of the property could be taken by the state and the other creditors for the taxes due and the cost of operation due by appellant.
283 S.W. at 880.
In the case before us, there is no evidence when the income stream would be exhausted, and no evidence that any third party is owed money or is asserting a lien, much less having recorded one, against the common property. In fact, appellee argued before the judge that both parties expected to make money into the future. The Consolidated Petroleum Co. opinion offers no reason why the appellant therein is not paying, whereas in the instant case, the partial nonpayment is being made under color of right. The underlying suit inConsolidated asked for an appointment of a receiver from the beginning while in this case, appellee voted himself into his present situation, and operated for two years under the burden appellee only now attempts to discharge through the receivership.
POINT OF ERROR TWO: NO NOTICE
Relative to the issue of notice, the following facts are undisputed from the record:
(1) The trial judge heard a motion on August 23, 1991, predicated upon a number of legal theories contained in appellee's pleadings;
(2) The same theories were outlined to the trial judge by appellee's counsel in opening statement;
(3) A receivership was not pled prior to the August 23, hearing;
(4) The evidence was opened and closed by both parties on the pleadings as they existed;
(5) Appellant objected both before and after the hearing to the lack of verified pleadings; and
(6) A document was filed (on August 23, 1991) after the evidence closed that for the first time suggested relief be granted in the form of a receivership, a means specifically disavowed by its proponent before, and for a time, even after the hearing.
The record reveals the following exchanges took place during the opening statement for appellee:
 MR. WARE (FOR APPELLEE): We're here on behalf of Smith Energy 1986 A Partnership filing a Motion which we have styled for Interim Relief. It asks the Court to consider and grant our Motion to appoint an escrow agent for the pendency of this case, which would be responsible for receiving revenues from. . . .
 The Motion we have filed has as its basis the Texas Rules of Civil Procedure 171, Master in Chancery, and Rule 172 on Audit, also, Section 21.001 of the Government Code, the inherent powers and duties of the courts and Article 5, Section A of the Texas Constitution.
 THE COURT: Let me ask you something. You're calling (the person you want) an escrow agent. Isn't that really what you'd call a receiver?
 MR. WARE (FOR APPELLEE): No, your Honor. The case law in Texas contemplates both masters, auditors, and receivers. What we are proposing is that the parties be left in their current positions as having ownership and control of the oil lease, and that they are in *Page 713
 a position where they continue to receive net income. And there always has been net income.
 . . . .
 MS. NORTMAN: (FOR APPELLANT): Let me just run through briefly what our general position is regarding this interim relief that's being sought by the Plaintiff. First it's our position that this interim relief, or what they're calling interim relief, really is — constitutes a temporary injunction. . . . So our first objection is to the procedure, the method of going about seeking this relief in the first place.
 . . . .
 I've never seen any case in which a master in chancery was appointed for the purposes of receiving income and making disbursements to parties. As the Court aptly pointed out at the beginning of this hearing, that's much more like the concept of having a receiver. And I don't think either party really wants a receiver in this case.
 THE COURT: Okay. Mr. Ware, go ahead.
 (Emphasis added.)
The principle articulated by the majority seems to rest on the premise that so long as appellant was warned of the ends (the relief requested) sought by appellee, that the means to reach that end are, in the words of the majority, "not of substantial significance." The majority takes comfort in the proposition that the ultimate relief sought by appellee was the same under a theory of "escrow agent" or "receiver." Appellant got fair notice of the relief sought, so the title of the agent used to engineer that relief is meaningless.
The majority further buttresses this argument by suggesting the outcome of the proceeding "was conceptually similar to the procedure O G (appellee) had originally agreed to as provided in . . . the contract." In its consideration of this point, the majority ignores an uncontroverted fact that it acknowledged early in the opinion; that for a variety of reasons, the parties had never operated in accordance with the stated provision throughout the life of the contract.
The point of error relative to inadequate notice should be granted because of the simple proposition that the specific statutory remedy ultimately awarded to appellee has an equally specific evidentiary burden distinct from the hodgepodge collection of remedies alleged in appellee's pleadings. When counsel for appellant walked into the Galveston courtroom on August 23, 1991, counsel did not know, and could not have known, that appellee was going to try to prove that the situation between the parties had deteriorated to the extent that their joint property was in "danger of being lost, removed, or materially injured." Appellant's choice of witnesses, conduct of the hearing, and complete strategy could have been, and in my opinion, would have been, affected by advance notice of the statutory remedy ultimately imposed. The most the pleadings warned appellant of was a generalized notion that the equities of the situation demanded some type of relief. The statement of facts shows appellant timely objected to the lack of pleadings to justify the type of relief sought by appellee both before and after the presentation of evidence at the hearing.
Finally, I would suggest the majority makes a fundamental error in confusing ends and means. Whether the arrangement between the parties fashioned by the trial judge mirrors the contract between the parties or not, it is not the purpose of receivership to attempt to put Humpty Dumpty together again as before the great fall. Receiverships are responses to immediate dangers. We should leave the curing of any breach to damages, if any, as found by the wisdom of a jury.
I find error in the proceedings in the trial court and would dissolve the receivership.
1 See, e.g., Jones v. Strayhorn, 159 Tex. 421, 321 S.W.2d 290, 294 (1959). In this case, solely because of judicial intervention into the basic dispute between the litigants, the income "pie" available to the parties is now smaller. There is less total money for the parties to share because of the expenses of the receivership mandated by the district court, and affirmed by the majority. Because of the added expense, the case becomes correspondingly more difficult to settle.
2 It is also unchallenged that the word "receivership" does not appear in plaintiff's (appellee's) second amended original petition filed August 12, 1991, or in any other pleading or document of any nature filed before August 23, 1991, and contained in the record before us.
3 These documents were the basic agreements between the parties, plus an example of a monthly billing statement. They were not the summary judgment affidavits referenced by appellee in its memorandum.
4 Appellee asked the court to appoint a receiver under a specific statute. TEX.CIV.PRAC. REM.CODE ANN. §64.001(a)(3) (b) (Vernon 1986). Although appellee argued the equities of appointing a receiver, there was no request for a receiver under the general equitable principles of TEX.CIV.PRAC. REM.CODE ANN. § 64.001(a)(6) (Vernon 1986). *Page 714