Opinion 2023 Texas Receiver Opinion2023MexicoFoodsReceiverChargingOrder
SEE TX R RAP RULE 47.2 FOR DESIGNATION AND SIGNING OF OPINIONS.
Court of Appeals of Texas, Dallas.
MEXICO FOODS HOLDINGS, LLC, Appellant
v.
MARIA ALICIA NAFAL, MARWAN NAFAL, AND KHALED NAFAL, Appellees
No. 05-23-00108-CV
Opinion Filed September 27, 2023
On Appeal from the 470th Judicial District Court
Collin County, Texas
Trial Court Cause No. 470-56809-2021
Before Justices Molberg, Pedersen, III, and Nowell
Opinion by Justice Molberg
KEN MOLBERG JUSTICE
PAGE_1 Affirmed and Opinion Filed September 27, 2023
This accelerated interlocutory appeal involves alleged error in an order appointing a receiver under the Uniform Fraudulent Transfer Act (UFTA) in a complex divorce proceeding.1
fn1
See TEX. BUS. & COM. CODE § 24.008(a)(3)(B) (UFTA provision allowing for appointment of receiver); TEX. CIV. PRAC. & REM. CODE § 51.014(a)(1) ("A person may appeal from an interlocutory order of a district court ... that: (1) appoints a receiver or trustee.").
Salah Nafal (Husband) sued appellee Maria Alicia Nafal (Wife) for divorce. Wife answered and counterclaimed for divorce. Others intervened, including appellant Mexico Foods Holdings, L.L.C. (MFH), an entity in which Husband held an equity interest, and appellees Marwan Nafal and Khaled Nafal, Husband's brothers (Brothers), who also held an equity interest in MFH. During the divorce proceeding, and after entry of a temporary order, Husband's equity interest in MFH was transferred from Husband to other members of MFH through a "Membership Interest Purchase Option" initiated by MFH for the price of $33,388,299.00. Ten percent of this amount was paid in cash, and a promissory note was issued for the remainder. This transfer prompted Wife to add third-party UFTA claims against MFH and Brothers and to seek, as part of her requested relief, "appointment of a receiver to take charge of the equity interest transferred away from [Husband] as identified in the Membership Interest Purchase Option." Brothers and MFH jointly opposed Wife's application for a receiver. The trial court heard and granted Wife's request, signed a January 30, 2023 order appointing receiver, and later issued findings of fact and conclusions of law.
Only MFH appeals the trial court's order appointing receiver.2 MFH argues the trial court abused its discretion in appointing the receiver because it claims less-harsh alternatives were available, and the order appointing receiver contravenes Texas law governing LLCs. Because we conclude the trial court did not abuse its discretion in appointing a receiver, we affirm the trial court's order in this memorandum opinion. See TEX. R. APP. P. 47.4.
fn2
In the trial court, MFH and Brothers were represented by the same counsel, and, as indicated, jointly opposed Wife's application for a receiver. In its docketing statement in our Court, MFH identified Brothers as appellees, but Brothers have not entered any appearance, filed any briefs, or made any arguments in connection with this appeal. Because no party raises any issues on appeal regarding claims brought by or against Brothers, we do not address any such claims in this appeal. See Ontiveros v. Flores, 218 S.W.3d 70, 71 (Tex. 2007) (court did not address a claim the parties did not address on appeal).
Among other things, the trial court's order authorized the receiver, "subject to the control of [the trial court], to obtain, reacquire, hold, manage, and, if appropriate in his reasonable discretion, liquidate" the "Subject Interests," a phrase defined as "the member units previously owned by [Husband], comprising a portion of the community estate, and equaling a 31.26% ownership interest [in MFH]." The order stated such interests "are the subject of a fraudulent transfer." The trial court issued findings of fact and conclusions of law which stated, in part:
PAGE_2
1. On May 16, 2022, Judge Emily Miskel ... entered Temporary Orders. Those Temporary Orders enjoined the parties from '[s]elling, transferring, assigning, mortgaging, encumbering, or in any other manner alienating any interest in [MFH] or any other entity owned by either party.'
....
5. On September 8, 2022, [MFH] executed the Membership Interest Purchase Option ... [which] claimed [Husband] was a 'disqualified member' as a result of Judge Miskel's ... Temporary Orders and was no longer a 'Qualified Investor.' [MFH] stated that it elected to purchase [Husband's] 31.26% membership interest for the price of $33,388,299.00. Ten percent (10%) of that purchase price would be paid in cash.
6. On September 8, 2022, [MFH] issued a promissory note for $30,049,469.00 payable to [Husband]. The terms of the note were for payments of $2 million per year on the anniversary of the note for four years, with a balloon payment on the fifth anniversary.
7. [MFH] executed these documents with knowledge that these member units owned by [Husband] were the subject of a divorce proceeding and were part of the community estate.
8. On September 9, 2022, [MFH] filed an Original Petition in Interpleader in Dallas County against [Husband and Wife]. As part of the interpleader, [MFH] interpleaded the cash payment from the Membership Interest Purchase Option, less taxes, into the court's registry.
9. On December 13, 2022, [Wife] filed her application for appointment of a receiver over [Husband's] transferred 31.26% of the member units in [MFH].
....
13. [MFH] conducted the transfer of [H]usband's member units.
14. Upon the execution of the Membership Interest Purchase Option, [Husband's] member units were transferred to the other members of [MFH], pro rata.
15. The persons at [MFH] responsible for deciding to conduct the transfer were [Husband's Brothers].
....
32. The Promissory Note has not yet been paid or been performed.
....
35. The Court found the testimony of Marwan Nafal was not credible particularly as related to the Members Agreement and Membership Purchase Interest Option and transfer of [MFH] member units.
1. During the divorce, [Husband's] 31.26% of the member units in [MFH] comprised the most significant portion of the community estate and were the subject of claims of both [Husband] and [Wife].
2. [Wife] has a 'claim' under [UFTA].
3. [Wife] is a 'creditor' under [UFTA].
4. [Wife] has a probabl[e] interest in or right to the transferred property, 31.26% ownership in [MFH].
5. [Husband] is a 'debtor' under [UFTA].
6. [Husband's] 31.26% of the member units in [MFH] is an 'asset' under [UFTA].
7. The Court concludes that the transferred 31.26% membership interest in [MFH] is in danger of being lost from the community estate.
....
11. Pursuant to Section 24.005(a) of the Texas Business and Commerce Code, the September 8, 2022 transfer was fraudulent as to [Wife] and was made with actual intent to hinder, delay or defraud her. Actual intent may be inferred from the fact that this transfer was made to an insider; that the transfer was concealed from [Wife] until after it had occurred; that [Husband] had been sued before the transfer was made; that the transfer was of substantially all of [Husband's] assets; and that the transfer was not for reasonably equivalent value.
PAGE_3 One week after the trial court issued its order appointing receiver, MFH timely filed its notice of accelerated interlocutory appeal. Later, MFH also filed objections to the trial court's order and filed an original and amended motion to reconsider, all to no avail.
On May 3, 2023, the trial court signed an order denying MFH's "Amended Motion to Reconsider Order Appointing Receiver."
This appeal raises three issues: two raised by MFH, and a preliminary issue regarding the scope of our review. We begin with the latter.
In its notice of accelerated interlocutory appeal, MFH states it appeals from the trial court's January 30, 2023 order appointing receiver. But in its appellate briefing, MFH describes its appeal as being "from the [o]rder [a]ppointing [r]eceiver entered on January 30, 2023, by the 416th Judicial District Court, and affirmed by the 429th Judicial District Court on May 3, 2023[.]" In response, Wife argues the May 3, 2023 order did not "affirm" the earlier order and argues that our review is limited to the January 30, 2023 order appointing receiver. We agree with Wife on both points.3
fn3
Despite MFH's characterization, the May 3, 2023 order denied MFH's amended motion to reconsider.
A person may appeal from an interlocutory order of a district court that "appoints a receiver or trustee." TEX. CIV. PRAC. & REM. CODE § 51.014(a)(1); Spiritas v. Davidoff, 459 S.W.3d 224, 234 (Tex. App.—Dallas 2015, no pet.). Statutes authorizing appeals from interlocutory orders are strictly construed. Spiritas, 459 S.W.3d at 234; see Art Inst. of Chi. v. Integral Hedging, L.P., 129 S.W.3d 564, 570 (Tex. App.—Dallas 2003, no pet.); Brand FX, LLC v. Rhine, 458 S.W.3d 195, 201 (Tex. App.—Fort Worth 2015, no pet.).
"An interlocutory order that is explicitly appealable under section 51.014 may not be used as a vehicle for carrying other nonappealable interlocutory orders to the appellate court." Spiritas, 459 S.W.3d at 234 (quoting Astoria Indus. of Iowa, Inc. v. SNF, Inc., 223 S.W.3d 616, 627 n.24 (Tex. App.—Fort Worth 2007, pet. denied)). "When an appellate court is called upon to revise the ruling of a trial court, it must do so upon the record before that court when such ruling was made." Stephens Cnty. v. J.N. McCammon, Inc., 52 S.W.2d 53, 55 (Tex. 1932); Spiritas, 459 S.W.3d at 231 (quoting same). Thus, in this appeal, we review only the January 30, 2023 order appointing receiver and the record as it existed at that time of that ruling.
MFH argues the trial court abused its discretion in two ways4 in appointing a receiver and asks that we reverse or revise the trial court's January 30, 2023 order. Specifically, MFH argues the trial court abused its discretion in appointing a receiver in the January 30, 2023 order because (1) less-harsh alternatives were available, and (2) according to MFH, the order appointing receiver transgresses Texas law governing LLCs.
fn4
Initially, MFH also raised a third issue, claiming we should reverse the January 30, 2023 order for lack of a sufficient bond. However, because MFH withdrew that argument in its reply brief, we do not reach any such issue here.
A receiver is an "officer of the court, the medium through which the court acts," a "disinterested party, the representative and protector of the interests of all persons, including creditors, shareholders, and others, in the property in receivership." Sec. Trust Co. of Austin v. Lipscomb Cnty., 180 S.W.2d 151, 158 (Tex. 1944). "Receivership is an extraordinarily harsh remedy and one that courts are particularly loathe to utilize." Spiritas, 459 S.W.3d at 232 (quoting Hillwood Inv. Props. III, Ltd. v. Radical Mavericks Mgt., LLC, No. 05-11-01470-CV, 2014 WL 4294968, at *3 (Tex. App.—Dallas Aug. 21, 2014, no pet.) (mem. op.)); see Indep. Am. Savings Assoc. v. Preston 117 Joint Venture, 753 S.W.2d 749, 750 (Tex. App.—Dallas 1988, no writ) (also noting harshness of remedy). The burden to show the existence of circumstances justifying the appointment of a receiver rests on the party seeking the appointment. Spiritas, 459 S.W.3d at 232.
PAGE_4 Subject to certain limitations that are not at issue here,5 in an action for relief against a transfer or obligation under UFTA, a creditor may obtain, among other things, "appointment of a receiver to take charge of the asset transferred or of other property of the transferee." See TEX. BUS. & COM. CODE § 24.008(a)(3)(B).
fn5
See TEX. BUS. & COM. CODE § 24.009.
We review a trial court's order appointing a receiver for an abuse of discretion. Id.6 "It is an abuse of discretion for a trial court to rule arbitrarily, unreasonably, or without regard to guiding legal principles, or to rule without supporting evidence." Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex. 1998); Pickens v. Pickens, 62 S.W.3d 212, 214 (Tex. App.—Dallas 2001, pet. denied).
fn6
See Davis v. Hudgins, 225 S.W. 73, 77 (Tex. Civ. App.—Dallas 1920, no pet.) ("[W]e are not unmindful of the prevailing rule that the appointment of a receiver rests largely in the discretion of the court, and that the appellate courts will not ordinarily interfere therein unless an abuse of discretion appears."); Genssler v. Harris Cnty., 584 S.W.3d 1, 7 (Tex. App.—Houston [1st Dist.] 2010, no pet.) (reviewing court "should affirm the trial court's interlocutory order appointing a receiver unless the trial court clearly abused its discretion").
To establish an abuse of discretion, the complaining party must show that the trial court's action was arbitrary and unreasonable in light of all the circumstances of the particular case. Cross v. Cross, 738 S.W.2d 86, 88 (Tex. App.—Corpus Christi–Edinburg 1987, writ dism'd w.o.j.).
A trial court may, but is not required to, file findings of fact and conclusions of law in conjunction with an order appointing a receiver. WC 1st & Trinity, LP v. Roy F. & JoAnn Cole Mitte Found., No. 03-19-00799-CV, 2021 WL 4465995, at *9 n.9 (Tex. App.—Austin Sept. 30, 2021, pet. denied) (mem. op.). Such findings and conclusions are not binding on a reviewing court but may be helpful in determining if the trial court exercised its discretion in a reasonable and principled fashion. Id.7
fn7
See Pickens, 62 S.W.3d at 214 ("Under the abuse of discretion standard, legal and factual sufficiency of the evidence are not independent grounds for asserting error; however, they are relevant factors in assessing whether the trial court abused its discretion.").
In its first issue, MFH argues the trial court abused its discretion by appointing a receiver notwithstanding the availability of two less-burdensome alternatives MFH claims were sufficient to protect the community's interests, namely: (1) the issuance of an order in MFH's interpleader action in Dallas County which stated certain funds would be held in that court's registry pending the rulings in the Collin County divorce proceedings, and (2) the availability of an injunction under UFTA to enjoin MFH from transferring or otherwise disposing of the funds without authorization pending resolution of the divorce proceedings.
Before we address those arguments, we first note that the parties agree that UFTA does not expressly require a showing that other remedies are inadequate before a court may appoint a receiver, and we do not interpret MFH's arguments as arguing otherwise. Instead, we interpret MFH as arguing, in essence, that because receivership is a harsh remedy that courts are "loathe" to provide, the trial court abused its discretion in appointing a receiver here because, it argues, two other adequate remedies were available to protect the marital community's interest in the transferred asset.
PAGE_5 We first consider MFH's argument regarding the availability of injunctive relief under UFTA. See TEX. BUS. & COM. CODE § 24.008(a)(3)(A) (allowing for an injunction "against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property"). We reject MFH's implication that the mere availability of an injunctive remedy means the trial court abused its discretion in appointing a receiver, as nothing within the statute makes an appointment of a receiver contingent upon the unavailability of injunctive relief, and both remedies are listed as alternatives. See id. §§ 24.008(a)(3)(A)–(C) (UFTA provisions listing three alternatives as possible creditor's remedies, subject to applicable principles of equity and in accordance with applicable rules of civil procedure: "(A) an injunction ... ; (B) appointment of a receiver ... ; or (C) any other relief the circumstances may require.") (emphasis added).8
fn8
See TEX. GOV'T CODE § 311.011(a) (Under Code Construction Act, "[w]ords and phrases shall be read in context and construed according to the rules of grammar and common usage."); Merriam-Webster Online Dictionary, https://www.merriam-webster.com/dictionary/or (last visited Sept. 25, 2023) (defining "or" as a conjunction "used as a function word to indicate an alternative").
Next, we consider MFH's argument regarding the issuance of an order in MFH's interpleader action in Dallas County stating that certain funds would be held in that court's registry pending the rulings in the Collin County divorce proceedings. MFH maintains that in light of that order, the order appointing receiver in this case was unnecessary to protect the value of the marital community's interest in the transferred asset. Wife disputes that argument by noting that the order only protects certain funds deposited into the Dallas County court's registry, funds that are a mere fraction of the roughly $30 million in value associated with the transfer of Husband's membership interest, an interest that Wife values at roughly double that amount.
While MFH correctly notes that receivership "is an extraordinarily harsh remedy and one that courts are particularly loathe to utilize," Spiritas, 459 S.W.3d at 232, MFH has failed to persuade us that the trial court abused its discretion in appointing a receiver despite its arguments concerning the Dallas County trial court's order in MFH's interpleader action.
As the trial court found in this case, following the entry of temporary orders in the divorce proceedings which enjoined the parties from '[s]elling, transferring, assigning, mortgaging, encumbering, or in any other manner alienating any interest in [MFH] or any other entity owned by either party,' MFH nevertheless "executed the Membership Interest Purchase Option ... [which] claimed [Husband] was a 'disqualified member' ... [and] stated that it elected to purchase [Husband's] 31.26% membership interest for the price of $33,388,299.00," ten percent of which would be paid in cash. The trial court also found that MFH issued a promissory note for $30,049,469.00 payable to Husband and that MFH executed these documents with knowledge that these member units owned by [Husband] were the subject of a divorce proceeding and were part of the community estate. Additionally, the trial court found that the promissory note had not been paid or performed and that, as part of MFH's interpleader action in Dallas County, MFH interpleaded only the cash payment from the Membership Interest Purchase Option, less taxes, into the court's registry.
Quoting a phrase in Benefield v. State,9 which cites, in part, our opinion in Parness v. Parness,10 neither of which involve receivership orders under UFTA, MFH argues that we should reverse the trial court's order appointing receiver because Wife "has presented no evidence that MFH will be unable to perform on the note" or "that that the consideration deposited with the Dallas Court registry is insufficient to protect her from 'a threat of serious injury.' " MFH also argues that, even assuming Wife's $60 million valuation of Husband's membership interest in MFH is correct, Wife's share of the interest could be fully satisfied if the trial court awarded to Wife the value of the promissory note and the full amount deposited in the Dallas County registry. When questioned about this position at oral argument, MFH doubled down, again insisting, as it did in the trial court, that Wife's interest was already fully protected by the promissory note and the deposit into the Dallas County court's registry. This flawed argument incorrectly assumes a full $30 million has been protected by the Dallas County court and assumes the community estate will be divided equally, on a 50/50 basis, which may or may not ultimately prove true.11
fn9
See Benefield v. State, 266 S.W.3d 25, 31 (Tex. App.—Houston [1st Dist.] 2008, no pet.) ("[R]eceivership is warranted only if the evidence shows a threat of serious injury to the applicant.").
fn10
Parness v. Parness, 560 S.W.2d 181, 182 (Tex. App.—Dallas 1977, no writ) (stating, "Only where the evidence shows some serious injury will result to the applicant, or is threatened, will the drastic remedy of receivership be applied" and "a receiver should be appointed only in those situations where the property involved is in present danger of being lost, removed or materially injured and should never be ordered if another remedy, less harsh, is available which will afford the needed protection.").
fn11
We make no comment upon how the community estate should be divided. We do note, however, that generally, "the court shall order a division of the estate of the parties in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage," TEX. FAM. CODE § 7.001, and the court shall take other steps if the trier of fact determines that a spouse has committed actual or constructive fraud on the community. See TEX. FAM. CODE § 7.009.
PAGE_6 In granting Wife's application for a receiver, the trial court rejected similar arguments and provided multiple findings of fact and conclusions of law explaining the basis for its decision. These findings and conclusions included, but are not limited to, those we include in the "Additional Background" section above. Among other things, the trial court concluded "the transferred 31.26% membership interest in [MFH] is in danger of being lost from the community estate." Also, the trial court also concluded, under UFTA § 24.005(a), the "transfer was fraudulent as to [Wife] and was made with actual intent to hinder, delay or defraud her."
Under the abuse of discretion standard, legal and factual sufficiency of the evidence—which, in any event, MFH does not challenge—are not independent grounds for asserting error but are relevant factors in assessing whether the trial court abused its discretion. Pickens, 62 S.W.3d at 214. Put another way, while the trial court's findings and conclusions are not binding on us as a reviewing court, they are helpful in determining whether the trial court exercised its discretion in a reasonable and principled fashion. See WC 1st & Trinity, LP, 2021 WL 4465995, at *9 n.9.
The record before us reflects the trial court exercised its discretion in a reasonable and principled fashion in this case, see id., and MFH has failed to show that the trial court's action was arbitrary and unreasonable in light of all the circumstances. See Cross, 738 S.W.2d at 88.
Thus, based on this record, we conclude the trial court did not abuse its discretion in appointing a receiver, notwithstanding what MFH claims were two less-harsh alternatives. We overrule MFH's first issue.
In its second issue, MFH argues the trial court abused its discretion in appointing a receiver because the order appointing receiver conflicts with Texas law governing LLCs. According to MFH, "[t]he LLC provisions of the Texas Business Organizations Code [TBOC] set out the limited rights and duties of an individual who divorces a member of a Texas LLC," and, "by extension, such provisions necessarily define the scope of authority of a receiver appointed to ensure the proper exercise of such rights and duties for the benefit of the community." In other words, in MFH's view, the trial court abused its discretion in appointing the receiver because it granted him powers "far beyond" the rights Wife has under TBOC §§ 101.10812 and 101.111513 as the divorcing spouse of an LLC member. MFH asks us to reverse the order and, in essence, require the trial court to revise it, as MFH asks that we "remand [the case] to the trial court to fashion an order that complies with Texas law governing LLCs."
fn12
See TEX. BUS. ORGS. CODE§ 101.108, which states:
(a) A membership interest in a limited liability company may be wholly or partly assigned.
(b) An assignment of a membership interest in a limited liability company:
(1) is not an event requiring the winding up of the company; and
(2) does not entitle the assignee to:
(A) participate in the management and affairs of the company;
(B) become a member of the company; or
(C) exercise any rights of a member of the company.
fn13
See TEX. BUS. ORGS. CODE § 101.1115(a)(1) ("For purposes of this code ... on the divorce of a member, the member's spouse, to the extent of the spouse's membership interest, if any, is an assignee of the membership interest").
Wife makes two main counterarguments. First, Wife argues MFH's second issue is outside the scope of our review, when MFH did not raise these arguments below until filing its April 28, 2023 "Amended Motion to Reconsider Order Appointing Receiver" approximately three months after the trial court signed its order appointing receiver.14 Second, Wife argues that, in any event, MFH's arguments lack merit because the TBOC provisions MFH cites do not apply.
fn14
According to the record before us, MFH first raised its TBOC-related arguments after the trial court signed its January 30, 2023 order.
PAGE_7 MFH responds to Wife's arguments regarding the scope of our review by noting that the trial court signed the order appointing receiver on the same day as the hearing and arguing that MFH "could not have presented arguments regarding the contents of an order it had not yet reviewed." However, the argument is not supported by the record, as the January 30, 2023 hearing transcript reflects that in the hearing, the parties reviewed and discussed the proposed order with the trial court, including proposed changes to it, before the court signed the order. Moreover, even if the record did not show MFH had an opportunity to object to the order's contents before it was signed, MFH fails to explain why it waited almost three months after the trial court signed its order before it first raised its TBOC-related arguments.
Based on the record before us, we conclude MFH's second issue was not preserved for appellate review and is outside the scope of our interlocutory review. See TEX. R. APP. P. 33.1(a); TEX. CIV. PRAC. & REM. CODE § 51.014(a)(1) (permitting interlocutory appeal of order appointing receiver); Spiritas, 459 S.W.3d at 234 (statutes authorizing appeals from interlocutory orders are strictly construed); In re Marriage of Davis, 418 S.W.3d 684, 689 (Tex. App.—Texarkana 2012, no pet.) (concluding appellant failed to preserve his appellate argument regarding receiver's failure to take an oath prior to performing duties when his complaint was untimely, as appellant first made the argument well after the lower court's order appointing receiver); see also Estate of Vines, No. 01-21-00003-CV, 2022 WL 1085624, at *7 (Tex. App.—Houston [1st Dist.] Apr. 12, 2022, no pet.) (refusing to reach two of appellant's sub-issues, concluding they were outside of the appellate court's interlocutory jurisdiction to address the order appointing a receiver).
We overrule MFH's second issue.
Based on the record before us, we conclude the trial court did not abuse its discretion in appointing a receiver and affirm the trial court's January 30, 2023 order.