Court Opinion

ID: 2903869
Source: CourtListenerOpinion
Date Created: 2015-09-09 21:32:18.824909+00
Date Added: 2024-06-11T11:37:13.101718
License: Public Domain

COURT OF APPEALS
                               EIGHTH DISTRICT OF TEXAS
                                    EL PASO, TEXAS

 TEXAS CUSTOM POOLS, INC.,                     §
 FORMERLY KNOWN AS                                             No. 08-07-00197-CV
 RIVERBEND POOLS, INC.,                        §
                                                                 Appeal from the
                  Appellant,                   §
                                                               393rd District Court
 v.                                            §
                                                             of Denton County, Texas
                                               §
 ALLAN CLAYTON and                                            (TC# 2000-60215-393)
 MIRIAM CLAYTON,                               §

                  Appellees.                   §

                                   OPINION ON MOTION

       Pending before the court is a motion filed by Appellant, Texas Custom Pools, Inc., formerly

known as Riverbend Pools, Inc.(TCP), to review the trial court’s order setting aside TCP’s

certificate of cash in lieu of supersedeas bond and granting post-judgment injunctive relief. See

TEX .R.APP .P. 24.4. We grant the motion.

                       FACTUAL AND PROCEDURAL SUMMARY

       Allan and Miriam Clayton filed suit against TCP in 2000. Following a jury trial, the trial

court entered judgment against TCP for $1,269,829. TCP filed notice of appeal to the Fifth Court
of Appeals.1 It deposited $125 with the Denton County District Clerk and filed a Certificate of Cash

in Lieu of Supersedeas Bond, supported by the Affidavit of Alfred E. Mondoux, Chief Financial

Officer of TCP. According to Mondoux’s affidavit, TCP had a negative net worth of $165,182. The

Claytons filed a motion contesting TCP’s net worth and seeking injunctive relief. The trial court

conducted a two-day hearing on the Claytons’ contest and considered a substantial amount of

evidence, both testimonial and documentary.

         The trial court resolved the issues presented with the following order:

         (1) The Court finds that Defendant Texas Custom Pools, Inc. is not insolvent;

         (2) The Court finds that the net worth of Defendant Texas Custom Pools, Inc. on
         June 27, 2007 was Eight Million, Six Hundred Eighty-One Thousand, Six Hundred
         Fifty-Nine Dollars and 87/100 ($8,681,659.87) as the following deductions from net
         worth claimed by Texas Custom Pools, Inc. are improper and must be added back
         into the net worth of negative ($165,182.00) as claimed in the June 27, 2007
         Affidavit of Alfred E. Mondoux:

                  (a) $234,668.92 deducted out in Note 6 in the Balance Sheet attached
                  as Exhibit ‘B’ to the Affidavit of Alfred E. Mondoux;

                  (b) $43,526.01 deducted out in Note 6 to the Balance Sheet attached
                  as Exhibit ‘B’ to the Affidavit of Alfred E. Mondoux;

                  (c) The following deductions totaling $8,846,841.87 paid to the
                  owners of Texas Custom Pools, Inc. from 1999 through 2007;

                           1.   1999:   $1,980,320.00
                           2.   2000:   $2,376,384.00
                           3.   2001:   $382,500.00
                           4.   2002:   $789,100.00
                           5.   2003:   $780,000.00
                           6.   2004:   $0.00
                           7.   2005:   $522,578.00
                           8.   2006:   $715,959.87

         1
             The Texas Supreme Court entered a docket equalization order transferring the appeal from the Fifth Court
of Appeals to the Eighth Court of Appeals. See T EX .G O V ’T C O D E A N N . § 73.001 (Vernon 2005). W e are unaware of
any conflict between precedent of the Fifth Court of Appeals and that of this Court on any relevant issue. See
T EX .R.A PP .P. 41.3.
                       9. 2007: $1,300,000.00

       (3) The Court finds that the net worth of Defendant Texas Custom Pools, Inc. is now
       Eight Million, Six Hundred Eighty-One Thousand, Six Hundred Fifty-Nine Dollars
       and 87/100 ($8,681,659.87);

       (4) The Court finds that the Affidavit of Defendant Texas Custom Pools, Inc.’s Chief
       Financial Officer Alfred E. Mondoux is false; and

       (5) The Court finds that one-half of the net worth of Defendant Texas Custom Pools,
       Inc. is Four Million, Three Hundred Forty Thousand, Eight Hundred Twenty-Nine
       Dollars and 94/100 ($4,340,829.94).

       It is further ORDERED, ADJUDGED AND DECREED that the Certificate of Cash
       in Lieu of Supersedeas Bond previously filed by Defendant Texas Custom Pools, Inc.
       is hereby set aside.

       It is further ORDERED, ADJUDGED and DECREED that Defendant Texas Custom
       Pools, Inc. is hereby enjoined from dissipating or transferring assets to avoid
       satisfaction of the Judgment held by Plaintiffs, including the payment of any bonus
       or repayments of any debts to or on behalf of Charles Barnes, Travis Bain or any
       other shareholder or owner of Texas Custom Pools, Inc.

TCP filed a petition for writ of mandamus seeking review of the trial court’s order, but alternatively

requesting that we consider the petition as a motion filed pursuant to TEX .R.APP .P. 24.4. We have

elected to treat it as a Rule 24.4 motion.

                               NET WORTH DETERMINATION

       In its motion, TCP contends that the trial court abused its discretion in finding that TCP’s net

worth was $8,681,659.87 when the evidence conclusively established that it had a negative net

worth. The Claytons respond that TCP’s motion should be denied and the stay order lifted because

the trial court’s net worth determination is supported by legally and factually sufficient evidence.

Alternatively, the Claytons maintain that TCP’s net worth is either $6,701,339.87 or $2,104,902.44.

                                             Applicable Law

       Under Rule 24.1 of the Rules of Appellate Procedure, a judgment debtor may supersede a
judgment by (1) filing with the trial court clerk a written agreement with the judgment creditor for

suspending enforcement of the judgment; (2) filing with the trial court clerk a good and sufficient

bond; (3) by making a deposit with the trial court clerk in lieu of a bond; or (4) providing alternate

security ordered by the trial court. When the judgment is for money, the amount of the bond,

deposit, or security must equal the sum of compensatory damages awarded in the judgment, interest

for the estimated duration of the appeal, and costs awarded in the judgment. TEX .R.APP .P.

24.2(a)(1); TEX .CIV .PRAC.&REM .CODE ANN . § 52.006(a)(Vernon 2008). However, the amount

must not exceed the lesser of 50 percent of the judgment debtor’s current net worth or 25 million

dollars. TEX .R.APP .P. 24.2(a)(1); TEX .CIV .PRAC.&REM .CODE ANN . § 52.006(b).

        Rule 24.2(c) sets forth the procedure for determining net worth. A judgment debtor who

provides a bond, deposit, or security under Rule 24.2(a)(1)(A) in an amount based on the debtor’s

net worth must simultaneously file an affidavit that states the debtor’s net worth and states complete,

detailed information concerning the debtor’s asset and liabilities from which net worth can be

ascertained. TEX .R.APP .P. 24.2(c)(1). The affidavit is prima facie evidence of the debtor’s net

worth. Id. A judgment creditor may file a contest to the debtor’s affidavit of net worth.

TEX .R.APP .P. 24.2(c)(2). Net worth is calculated as the difference between total assets and total

liabilities as determined by generally accepted accounting principles (GAAP). G.M. Houser, Inc.

v. Rodgers, 204 S.W.3d 836, 840 (Tex.App.--Dallas 2006, no pet.); Ramco Oil & Gas, Ltd. v. Anglo

Dutch (Tenge) L.L.C., 171 S.W.3d 905, 915 (Tex.App.--Houston [14th Dist.] 2005, no pet.). At the

hearing on the judgment creditor’s contest, the judgment debtor has the burden of proving net worth.

TEX .R.APP .P. 24.2(c)(3). The trial court is required to issue an order that states the debtor’s net

worth and states with particularity the factual basis for that determination. Id. The trial court is also

authorized to enjoin the judgment debtor from dissipating or transferring assets to avoid satisfaction
of the judgment. TEX .R.APP .P. 24.2(d). On the motion of a party, an appellate court may review

the sufficiency or excessiveness of the amount of security. TEX .R.APP .P. 24.4(a); TEX .CIV .PRAC.

&REM .CODE ANN . § 52.006(d); G.M. Houser, 204 S.W.3d at 840.

                                        Standard of Review

       We review the trial court’s determination of the amount of security for an abuse of discretion.

G.M. Houser, 204 S.W.3d at 840. If we conclude the trial court abused its discretion, we may order

the amount of the security increased or decreased in an amount not to exceed the lesser of 50 percent

of the judgment debtor’s net worth or $25 million. TEX .R.APP .P. 24.4(a); TEX .CIV .PRAC.&

REM .CODE ANN . § 52.006(d).

       In conducting this review, we engage in a two-pronged analysis: (1) Did the trial court have

sufficient information upon which to exercise its discretion; and (2) Did the trial court err in its

application of discretion? Leibman v. Grand, 981 S.W.2d 426, 429 (Tex.App.--El Paso 1998, no

pet.). The traditional standards utilized to review sufficiency of the evidence come into play when

considering the first question. Id. at 429-30. We then proceed to determine whether, based on the

elicited evidence, the trial court made a reasonable decision, or whether it is arbitrary and

unreasonable. Id. at 430. The question is not whether, in the opinion of the reviewing court, the

facts present an appropriate case for the trial court’s action, but whether the court acted without

reference to any guiding rules and principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d
238, 242 (Tex. 1985). The mere fact that a trial judge may decide a matter within her discretionary

authority in a different manner than an appellate judge in a similar circumstance does not

demonstrate that an abuse of discretion has occurred. Leibman, 981 S.W.2d at 430.

       TCP challenges the legal and factual sufficiency of the evidence supporting the trial court’s

determination that its net worth is $8,681,659.87. Because TCP had the burden to prove net worth,
it must show the evidence conclusively establishes, as a matter of law, all vital facts in support of

their position. Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex. 1989); G.M. Houser, 204
S.W.3d at 840-41. In reviewing a “matter of law” challenge, the reviewing court must first examine

the record for evidence that supports the finding, while ignoring all evidence to the contrary.

Sterner, 767 S.W.2d at 690. If there is no evidence to support the finding, the reviewing court will

then examine the entire record to determine if the contrary proposition is established as a matter of

law. Sterner, 767 S.W.2d at 690. In conducting our review, we must consider the evidence in the

light most favorable to the challenged finding and indulge every reasonable inference that would

support it. G.M. Houser, 204 S.W.3d at 841, citing City of Keller v. Wilson, 168 S.W.3d 802, 822

(Tex. 2005). We must credit favorable evidence if a reasonable fact finder could and disregard

contrary evidence unless a reasonable fact finder could not. Id., citing City of Keller, 168 S.W.3d

at 827; Ramco, 171 S.W.3d at 910. Finally, we must determine whether the evidence before the trial

court would enable reasonable and fair-minded people to find the facts at issue. Id. We also bear

in mind that the fact finder is the sole judge of the credibility of the witnesses and the weight to give

their testimony. Id.

        In reviewing the factual sufficiency of the evidence, we consider all of the evidence in the

record. Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996). If a party is attacking the factual

sufficiency of an issue upon which it had the burden of proof, it must demonstrate that the adverse

finding is against the great weight and preponderance of the evidence. Croucher v. Croucher, 660
S.W.2d 55, 58 (Tex. 1983); Marrs and Smith Partnership v. D.K. Boyd Oil and Gas Co., Inc., 223
S.W.3d 1, 14 (Tex.App.--El Paso 2005, pet. denied). In reviewing a factual sufficiency issue, we

must first examine the record to determine if there is some evidence to support the finding; if so,

then we must determine whether the failure to find is so contrary to the overwhelming weight and
preponderance of the evidence as to be clearly wrong and manifestly unjust. Cain v. Bain, 709
S.W.2d 175, 176 (Tex. 1986).

                                           The Evidence

       In 1999, Riverbend Pools, owned by Charles Barnes, merged with Sandler Pools, owned by

Travis Bain, to form Texas Custom Pools. Barnes and Bain are the sole shareholders of Texas

Custom Pools. Barnes owns a 60 percent interest and Bain owns a 40 percent interest. While the

two men agreed to a 60/40 stock ownership split, they did not want income distributed according to

this ratio because, at the time of the merger, Riverbend Pools contributed 66.53 percent of the

combined income and Sandler Pools contributed 33.47 percent. To preserve this ratio, Bain and

Barnes entered into a letter agreement addressing the compensation to be paid to the two

shareholders after the merger. Under the agreement, Barnes and Bain each received an annual salary.

Additionally, if the company’s net income before bonus exceeded $2,376,384, Barnes would be paid

a bonus which equaled 66.53 percent of net income before bonus and Bain would be paid a bonus

which equaled 33.47 percent of net income before bonus. The $2,376,384 figure represents the

combined income of the two companies at the time of the merger, and the percentage figures were

based on each company’s contribution to combined income: Riverbend Pools’ contribution to the

total amount was 66.53 percent and Sandler Pools’ contribution was 33.47 percent. The merger

would not have occurred without the compensation agreement.

       Mondoux explained that near the end of each fiscal year, he would estimate the shareholders’

individual taxes and the company would pay them a partial bonus in December to cover those taxes.

Consequently, most of the bonus was deposited with the IRS through payroll for the shareholders’

taxes. The remainder of the bonus was paid after the books had been balanced for the fiscal year.

This usually occurred in the latter part of the following year.
       The compensation due under the Letter Agreement was paid to the shareholders for 1999

through 2003, but beginning in 2004 and continuing through 2007, TCP was not able to pay them

the entire amount due under the Letter Agreement due to cash flow issues. Initially, TCP did not

accrue2 the unpaid amounts to the shareholders, but in 2006, TCP’s tax accountant advised the

company that its reporting of “Shareholder/Officer Notes” did not conform to GAAP. The tax

accountant advised the company to show the unpaid amounts on its books as liabilities payable to

the shareholders because the money owed under the agreement is a legal liability. TCP and

Mondoux followed this advice. At the end of 2006, TCP owed the shareholders $2,298,771.73 In

addition to the unpaid amounts under the Letter Agreement, this figure includes balances on note

agreements from 1999 and prior to the merger that were transferred to TCP.

       TCP offered evidence of its net worth prior to filing the certificate of cash in lieu of

supersedeas bond. Mondoux calculated the company’s net worth from Schedule L of the federal tax

years for 2002 through 2006 as follows:

       2
           Mondoux testified that an accrual is a recognition of a liability in advance of paying it.
       2002: negative ($52,737)

       2003: negative ($157,640)

       2004: $94,516

       2005: $974,236

       2006: negative ($216,096)

Because TCP had not accrued the liability for unpaid amounts to the shareholders in 2004, 2005, and

2006, he recalculated net worth for those years as follows:

       2004: $11,500

       2005: $94,516

       2006: negative ($231.188).

       On June 25, 2007, two days before it filed the certificate of cash in lieu of supersedeas bond,

TCP took out a $1.3 million loan from Compass Bank to pay off and consolidate its debt to the

shareholders. The loan is guaranteed by the shareholders and is secured by the shareholders’

certificates of deposit. James Daniel LaFontaine, a relationship manager at Compass Bank, testified

that the bank would not have approved the loan without the shareholders’ guarantee.

       TCP filed Mondoux’s affidavit on June 27, 2007. A balance sheet, dated June 27, 2007, is

attached to the affidavit. The balance sheet shows that TCP had total assets in the amount of

$8,399,471.03 and total liabilities in the amount of $8,564,653.02 which results in a negative net

worth of ($165, 181.99). Mondoux testified that he prepared the balance sheet in accordance with

GAAP. In his opinion, the $1.3 million loan did not have any impact on TCP’s net worth because

the amounts owed to the shareholders was already reflected as a liability on the balance sheet.

Counsel for the Claytons cross-examined Mondoux about financial reports submitted by TCP to

Compass Bank as part of its compliance reporting. In particular, counsel asked Mondoux about a
compliance report dated March 31, 2007 which showed that TCP’s tangible net worth3 was

$2, 264,086. Mondoux explained that this was not TCP’s net worth because, at the request of the

bank, shareholders’ notes were excluded in the calculation. James LaFontaine confirmed that

Compass Bank excluded shareholders’ notes from the calculation of tangible net worth because it

treated any loans payable to shareholders as equity as those notes would be subordinated.

       Jack Van Wunnik, a CPA with Thomas O’Bailey & Associates, testified on behalf of TCP.

In his opinion, the balance sheet dated June 27, 2007 was prepared in accordance with GAAP. He

reviewed the 1999 Letter Agreement and concluded that it could create a liability and it would be

appropriate for the chief financial officer to track the amounts paid and the amounts owed to the

shareholders. Like Mondoux, Van Wunnik concluded that the $1.3 million loan would have no

impact on the company’s net worth because the liability existed prior to that transaction. Because

the amount of liability was the same, the net worth remained the same.

       Jack Sprawls, a CPA, testified on behalf of the Claytons. Although Sprawls initially stated

that the 1999 Letter Agreement is a valid agreement, he criticized it because it is based on future

profits and the compensation provided for in the agreement is not allocated based upon the efforts

of the employee. He also believed the contract could be questioned by the IRS because its purpose

is to avoid distributing income in proportion to stock ownership. In Sprawls’ opinion, TCP would

not have a negative net worth if the 1999 Letter Agreement were not in place, but he did not offer

a calculation of net worth to support his opinion. Sprawls also viewed the 1999 Letter Agreement

as improperly putting the shareholders in front of other creditors, such as the Claytons.

                                     Trial Court’s Net Worth Calculation

       We proceed to address the propriety of the trial court’s determination that certain

       3
           Tangible net worth is total assets minus intangibles minus total liabilities.
“deductions” on the liability side of the balance sheet had to be added back into the net worth

determination. At the hearing on their contest, the Claytons maintained that the 1999 Letter

Agreement is invalid and it urged the trial court to add all of the sums paid to Bain and Barnes

between 1999 and 2007 back into net worth. Although the trial court did not specify the basis for

its ruling, the court found that the sums paid to Bain and Barnes from 1999 to 2006 were improper

and had to be added back into the net worth calculation. Additionally, the court added back into the

net worth calculation certain liabilities on the 2007 balance sheet. If the 1999 Letter Agreement is

valid, the trial court abused its discretion by adding back into net worth the amounts paid to the

shareholders from 1999 to 2006 and by adding back the liabilities shown on the 2007 balance sheet

for amounts owed to the shareholders under the Letter Agreement.

                              Validity of the 1999 Letter Agreement

       The Claytons maintain that the trial court properly added these sums back into the net worth

calculation because the 1999 Letter Agreement lacks consideration. They argue, as they did in the

trial court, that the Agreement is invalid because the disbursements to Barnes and Bain were not

based on any efforts by them and they had already been paid salaries for their compensation. The

Claytons contend that if an employee has a pre-existing duty to perform his job, a gratuitous promise

of additional compensation for doing that job does not create a valid and enforceable contract.

       Consideration is an essential element for a valid, enforceable contract. J.M. Davidson, Inc.

v. Webster, 128 S.W.3d 223, 235 (Tex. 2003). Consideration is a “bargained-for” exchange of

promises. Roark v. Stallworth Oil & Gas, Inc., 813 S.W.2d 492, 496 (Tex. 1991). It can be either

a benefit to the promisor or a detriment to the promisee. Fort Worth Independent School District

v. City of Fort Worth, 22 S.W.3d 831, 841 (Tex. 2000). If mutual, reciprocal promises are binding

on both parties, they may constitute consideration for a contract. J .M. Davidson, 128 S.W.3d at 235.
But, if the terms of a promise make performance optional, the promise is illusory and cannot

constitute valid consideration. J.M. Davidson, 128 S.W.3d at 235.

       James S. Ryan III, a partner at Jackson Walker L.L.P., worked on the merger of Riverbend

Pools and Sandler Pools. Ryan’s area of practice is corporate and securities, mergers, and

acquisitions. He drafted the documents pertaining to the merger, including the Articles of

Incorporation, the Assumed Name Certificate, the merger agreement, an executive agreement

whereby Barnes and Bain agreed to continue to work for the company, and the 1999 Letter

Agreement. In Ryan’s opinion, there were two bases of consideration for the Letter Agreement: (1)

Bain’s and Barnes’ agreement to merge the two companies; and (2) their executive agreement to

continue to work for the surviving company. The Claytons do not address Ryan’s testimony or the

two bases for consideration testified about by him. We conclude that the 1999 Letter Agreement is

supported by valid consideration and is not illusory.

       The Claytons also seek to invalidate the Letter Agreement by asserting TCP did not intend

to be bound by the agreement. The Claytons did not raise this argument in the trial court. In order

to have a valid agreement, the parties must have expressed an intent to be bound, and in construing

a written contract, the primary concern of an appellate court is to ascertain and to give effect to the

intentions of the parties as expressed in the instrument. R & P Enterprises v. LaGuarta, Gavrel &

Kirk, Inc., 596 S.W.2d 517, 518 (Tex. 1980). The agreement reflects the parties intended to be

bound by the agreement. The Claytons point to evidence that the shareholders were not always paid

according to the terms of the agreement, but there is no evidence the shareholders ever took the

position TCP did not owe them under the Agreement. Further, TCP acknowledged that it owed the

shareholders by the accrual of the contractual shareholder liability. There is no evidence to support

a finding that the parties did not intend to be bound by the 1999 Letter Agreement. We conclude that
the 1999 Letter Agreement is valid. The trial court erred by impliedly invalidating the 1999 Letter

Agreement and abused its discretion by adding back into the net worth calculation the distributions

paid to Bain and Barnes pursuant to that Agreement. Likewise, the court abused its discretion by

adding back into net worth the sum of $234,668.92 which is shown as accrued liabilities on the 2007

balance sheet for an amount owed to the shareholders pursuant to the Agreement.

                                           1999 - 2006 Distributions

         Even if we found that the 1999 Letter Agreement is invalid, the trial court abused its

discretion by adding back in to the net worth calculation the sums paid to the shareholders from 1999

to 2006.4 The distributions paid to Bain and Barnes between 1999 and 2006 are obviously not

reflected in the June 27, 2007 balance sheet.5 These sums could only be added back in as

shareholder equity. By adding these amounts back into the net worth calculation, the trial court

necessarily assumed that the profits would not have been distributed to the shareholders as dividends

in a 60/40 ratio according to their stock ownership even though the shareholders would have been

taxed on each year’s profits with or without a distribution. There is no evidence that the profits

would not have been distributed to the shareholders. Given that the profits were effectively

distributed to the shareholders during these years under the terms of the Letter Agreement, the only

reasonable inference is that the profits would have been distributed to the shareholders even absent

the agreement albeit in a different ratio. The trial court abused its discretion by adding these sums

back into the balance sheet and the net worth calculation.

         4
          These sums are as follows: $1,980,320.00 (1999); $2,376,384.00 (2000); $382,500.00 (2001); $789,100.00
(2002); $780,000.00 (2003); $522,578.00 (2005); and $715,959.87 (2006).

         5
           Evidence admitted at the contest hearing showed that Bain and Barnes were due to receive a total of $252,156
for 2004 but received nothing. For 2005, the total amount payable under the Letter Agreement was $1,402,298 but they
were paid a total of $522,578, leaving a balance owed of $879,720. For 2006, the total amount payable was
$969,240.66, but they were paid a total of $715,959.89, leaving a balance owed of $253,280.77. The total amounts owed
for 2005 and 2006 was $1,133,000.77.
                                        2007 Other Accrued Liabilities

         There is one additional liability which must be addressed. The trial court added back into

TCP’s net worth one item which is included in “Accrued Liabilities” on the June 27, 2007 balance

sheet. Note 6 to the balance sheet addresses Accrued Liabilities. It reflects that the company accrues

salaries, payroll taxes, sales taxes, property taxes, equivalents to income taxes, and contractual

shareholder obligations based on generally accepted accounting principles. On June 27, 2007, the

Accrued Liabilities consisted of Accrued Salaries and Wages ($526,357.02), Accrued Payroll Taxes

Payable ($90,618.35), Sales and Property Taxes Payable ($195,397.48), Distribution Payable in Lieu

of Income Taxes ($234,668.92), Unclaimed Gift Cards ($48,033.26), Contractually Required

Shareholder Payment ($435,813.70), Employee Garnishments Payable ($13,214.19), and Other

Accrued Liabilities ($43,526.01). The court added back into net worth the sum of $43,526.01, which

is other accrued liabilities. There is no basis for the trial court’s disallowance of other accrued

liabilities as no testimony was admitted at the hearing about this liability.6 The trial court abused its

discretion by adding the sum of $43,526.01 back into TCP’s net worth.

                                            The Compass Bank Loan

         The trial court also added the entire $1.3 million loan proceeds back into the net worth

calculation. The court did not specify the basis for its ruling, but the loan proceeds could be added

back into net worth only if the court found that the payment of the loan proceeds to the shareholders

was a fraudulent conveyance under the Uniform Fraudulent Transfer Act found in Chapter 24 of the

Texas Business and Commerce Code.

         6
           W e assume the trial court intended to disallow the liability for contractually required shareholder payment
in the sum of $435,813.70 but mistakenly disallowed other accrued liabilities. Because we have found the 1999 Letter
Agreement to be valid, the trial court would have also abused its discretion by adding back into net worth the sum of
$435,813.70.
        Sections 24.005 and 24.006 contains several provisions under which a transfer can be found

fraudulent as to present and future creditors. The judgment creditor has the burden to prove the

fraudulent transfer by a preponderance of the evidence. G.M. Houser, 204 S.W.3d at 842. We will

examine each of these provisions to determine whether the evidence is legally sufficient to support

an affirmative finding that TCP made a fraudulent transfer when it transferred the loan proceeds to

the shareholders. In conducting this analysis, we apply the traditional legal sufficiency or “no

evidence” standard. When the party without the burden of proof suffers an unfavorable finding, the

challenge on appeal is one of “no evidence to support the finding.” Serrano v. Union Planters Bank,

N.A., 162 S.W.3d 576, 579 (Tex.App.--El Paso 2004, pet. denied). A legal sufficiency or “no

evidence” challenge will be sustained on appeal if the record shows: (1) the complete absence of a

vital fact, (2) the court is barred by rules of law or evidence from giving weight to the only evidence

offered to prove a vital fact, (3) the evidence offered to prove a vital fact is no more than a scintilla,

or (4) the evidence establishes conclusively the opposite of the vital fact. Carrasco v. Stewart, 224
S.W.3d 363, 367 (Tex.App.--El Paso 2006, no pet.), citing City of Keller, 168 S.W.3d at 810. In

reviewing a legal sufficiency challenge, we view the evidence in the light most favorable to the

judgment, crediting favorable evidence if a reasonable juror could, and disregarding contrary

evidence if a reasonable juror could not. City of Keller, 168 S .W.3d at 807. We are to consider the

evidence in the light most favorable to the verdict, and indulge every reasonable inference that would

support it. Id. at 822. However, if the evidence allows of only one inference, the trier of fact may

not disregard it. Id. When a no evidence point of error rests on the competency of the evidence, we

may not disregard contrary evidence showing it to be incompetent. Id. at 812.

        Section 24.006 addresses transfers which are fraudulent as to present creditors. TEX .BUS.&

COM .CODE ANN . § 24.006 (Vernon 2002). Both of its subsections require proof that the debtor was
insolvent at the time the debtor made the transfer or incurred the obligation. Id. The trial court

expressly found in its order that TCP was not insolvent and the Claytons have not challenged that

finding on appeal. Thus, Section 24.006 could not have been the basis of the trial court’s ruling.

       Section 24.005 provides:

       (a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor,
       whether the creditor’s claim arose before or within a reasonable time after the
       transfer was made or the obligation was incurred, if the debtor made the transfer or
       incurred the obligation:

       (1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or

       (2) without receiving a reasonably equivalent value in exchange for the transfer or
       obligation, and the debtor:

               (A) was engaged or was about to engage in a business or a transaction
               for which the remaining assets of the debtor were unreasonably small
               in relation to the business or transaction; or

               (B) intended to incur, or believed or reasonably should have believed
               that the debtor would incur, debts beyond the debtor’s ability to pay
               as they became due.

TEX .BUS.&COM .CODE ANN . § 24.005(a).

       The Claytons argue that TCP transferred the loan proceeds to the shareholders without

receiving a reasonably equivalent value in exchange for the transfer but they do not address the

elements found in (A) and (B). The record does not contain any evidence that TCP was engaged or

was about to engage in a business or transaction for which the remaining assets of TCP were

unreasonably small as required for finding a transfer fraudulent under Section 24.005(a)(2)(A).

Likewise, there is no evidence that TCP intended to incur, or believed or reasonably should have

believed that it would incur debts beyond its ability to pay as they became due as required for finding

a transfer fraudulent under Section 24.005(a)(2)(B). We therefore find the evidence legally

insufficient to support a finding of fraudulent transfer under Section 24.005(a)(2).
       The only remaining basis for finding the transfer fraudulent is under Section 24.005(a)(1).

Under this section, the creditor must prove that the debtor made the transfer or incurred the

obligation with actual intent to hinder, delay, or defraud any creditor of the debtor. Direct proof of

fraudulent intent is often unavailable. G.M. Houser, 204 S.W.3d at 842. Therefore, circumstantial

evidence may be used to prove fraudulent intent. Id. Section 24.005(b) sets out a non-exhaustive

list of “badges” of fraud to be considered in determining whether a transfer was made with actual

intent to defraud. TEX .BUS.&COM .CODE ANN . § 24.005(b)(1)-(11). The “badges” include the

following:

       (1) the transfer or obligation was to an insider;

       (2) the debtor retained possession or control of the property transferred after the
       transfer;

       (3) the transfer or obligation was concealed;

       (4) before the transfer was made or obligation was incurred, the debtor had been sued
       or threatened with suit;

       (5) the transfer was of substantially all the debtor’s assets;

       (6) the debtor absconded;

       (7) the debtor removed or concealed assets;

       (8) the value of the consideration received by the debtor was reasonably equivalent
       to the value of the asset transferred or the amount of the obligation incurred;

       (9) the debtor was insolvent or became insolvent shortly after the transfer was made
       or the obligation was incurred;

       (10) the transfer occurred shortly before or shortly after a substantial debt was
       incurred; and

       (11) the debtor transferred the essential assets of the business to a lienor who
       transferred the assets to an insider of the debtor.

TEX .BUS.&COM .CODE ANN . § 24.005(b)(1)-(11). An individual badge of fraud is not conclusive,
but “a concurrence of many [badges] in the same case will always make out a strong case of fraud.”

G.M. Houser, 204 S.W.3d at 843, quoting Adams v. Wilhite, 636 S.W.2d 851, 856 (Tex.App.--

Tyler), rev’d on other grounds, 640 S.W.2d 875 (Tex. 1982). We will examine the badges in

numerical order.

       1. The first badge of fraud is found where the transfer is made to an insider. It is undisputed

that TCP’s shareholders are insiders. See TEX .BUS.&COM .CODE ANN . § 24.002(7)(B)(defining

insider of a corporation to include an officer of the debtor and a person in control of the debtor).

While evidence of a transfer to an insider is one factor to consider in determining actual intent to

defraud, that fact alone does not support a conclusion the transfer constitutes a fraudulent transfer.

G.M. Houser, 204 S.W.3d at 843; TEX .BUS.&COM .CODE ANN . § 24.005(b)(1)(Vernon 2002)(in

determining actual intent to defraud, consideration may be given, among other factors, to whether

transfer to insider); Adams, 636 S.W.2d at 856 (evidence of individual badge of fraud not

conclusive).

       2. There is no evidence that TCP retained possession or control of the funds paid to Bain and

Barnes.

       3. There is no evidence that the transfer was concealed.

       4. A judgment had been entered in favor of the Claytons in March of 2007 and they had been

taking steps to enforce the judgment before TCP took out the loan and paid the proceeds to the

shareholders.

       5. The evidence does not support a finding that the transfer was of substantially all of TCP’s

assets. To the contrary, the balance sheet reflects total assets in the amount of $8,399,471.03.

       6. TCP did not abscond.

       7. TCP did not remove or conceal assets.
         8. TCP borrowed $1.3 million to pay the shareholders the sums owed them under certain

notes and amounts due under the 1999 Letter Agreement.7 The eighth badge examines whether the

value of the consideration received by TCP was reasonably equivalent to the value of the asset

transferred. Section 24.004(a) provides that value is received when an antecedent debt is satisfied.

There is no evidence that would support a finding in favor of the Claytons under this badge.

         9. The trial court expressly found that TCP is not insolvent.

         10. The transfer occurred three months after the judgment was entered in favor of the

Claytons. TCP disputes that the judgment is substantial. According to the June 27, 2007 balance

sheet, TCP’s total current liabilities were $5,387,575.81 and its long-term debt, which includes the

$1.3 million loan, was $3,177,077.21. We believe a fact-finder could reasonably find that a

judgment in the amount of $1,269,829 is substantial.

         11. Finally, there is no evidence that TCP transferred the essential assets of the business to

a lienor who transferred the assets to the shareholders.

         The only badges which the trial court could have found in favor of fraud are the first, fourth,

and tenth badges. These are only three out of a non-exclusive list of eleven badges and they are not

particularly strong even when considered together. We conclude that the evidence is legally

insufficient to prove that TCP paid the shareholders the money they were owed with actual intent

to hinder, delay, or defraud the Claytons. Therefore, the trial court abused its discretion by adding

the $1.3 million dollar loan proceeds back into TCP’s net worth. Based on the foregoing, we

conclude that the trial court abused its discretion by determining that TCP’s net worth is

         7
           The evidence admitted at the contest hearing established that the purpose of the loan was to consolidate the
corporation’s debt to the shareholders. According to Mondoux, Bain and Barnes had loaned TCP $1.9 million in 1999
and the company still owed them between $300,000 and $400,000 in 2007. This debt is unrelated to the 1999 Letter
Agreement.
$8,681,659.87.

                                        TCP’s Proof of Net Worth

        TCP offered evidence of its net worth through its CFO. At the hearing on the contest, TCP

offered evidence that its balance sheet was in accordance with GAAP. Even the Claytons’ expert,

Jack Sprawls, agreed that the balance sheet appeared to be proper. His complaints were not with the

balance sheet but with the 1999 Letter Agreement. We conclude that TCP met its burden under

Section 52.006(c) of the Civil Practice and Remedies Code and under Rule 24.2(c)(3) to establish

as a matter of law that its net worth as of June 27, 2007 was a negative ($165,182).

                                             The Injunction

        Finally, we consider the propriety of the injunction. The trial court enjoined TCP from

dissipating or transferring assets to avoid satisfaction of the judgment held by the Claytons, including

the payment of any bonus or repayments of any debts to or on behalf of Charles Barnes, Travis Bain

or any other shareholder or owner of Texas Custom Pools. Rule 24.2(d) authorizes the trial court

to “enjoin the judgment debtor from dissipating or transferring assets to avoid satisfaction of the

judgment” pending an appeal in civil cases. TEX .R.APP .P. 24.2(d). We review a trial court’s order

enjoining a judgment debtor from dissipating or transferring assets to avoid satisfaction of the

judgment under an abuse of discretion standard. Emeritus Corporation v. Ofczarzak, 198 S.W.3d
222, 225 (Tex.App.--San Antonio 2006, no pet.). The trial court is required to determine whether

the judgment debtor is likely to dissipate or transfer its assets to avoid satisfaction of the judgment.

Id. at 227. The trial court abuses its discretion in ordering a post-judgment injunction if the only

reasonable decision that could be drawn from the evidence is that the judgment debtor would not

dissipate or transfer its assets. Id.

        We have found the evidence legally insufficient to support a finding that TCP’s payment of
the loan proceeds to the shareholders was a fraudulent conveyance. Further, the evidence admitted

at the hearing reflects that TCP is an ongoing enterprise with substantial assets. Given the absence

of evidence that TCP has dissipated or transferred its assets to avoid satisfaction of the judgment,

there was no evidence presented to the trial court that it would do so in the future. We therefore

conclude that the trial court abused its discretion by entering the post-judgment injunction.

       For all of these reasons, we grant TCP’s motion and reverse the trial court’s order in its

entirety. Further, we order that TCP’s net worth is a negative ($165,182) as reflected in Mondoux’s

affidavit and the June 27, 2007 balance sheet.

March 12, 2009
                                                      ANN CRAWFORD McCLURE, Justice
Before Chew, C.J., McClure, and Rivera, JJ.