Hamilton Metals v. Global Metal Services, Ltd. ( 2018 )

Reversed and Remanded and Opinion filed November 27, 2018.
In The
Fourteenth Court of Appeals
NO. 14-17-00670-CV
HAMILTON METALS, INC., Appellant
V.
GLOBAL METAL SERVICES, LTD., Appellee
On Appeal from the 11th District Court
Harris County, Texas
Trial Court Cause No. 2016-32078
OPINION
A judgment debtor appeals the trial court’s order appointing a receiver under
section 31.002(b) of the Civil Practice and Remedies Code. When the trial court
signed the order, there was no evidence before the trial court showing that the
judgment debtor owned property that could not readily be attached or levied on by
ordinary legal process. Concluding that the trial court abused its discretion in
issuing the order, we reverse and remand.
I. FACTUAL AND PROCEDURAL BACKGROUND
The trial court rendered a final money judgment on October 2, 2016, in favor
of appellee/plaintiff Global Metal Services, Ltd. and against appellant/defendant
Hamilton Metals, Inc. (“Judgment”). Global initiated a garnishment proceeding
against PNC Bank, N.A., a financial institution holding three accounts in
Hamilton’s name.
Global filed an “Amended Ex Parte Application for Turnover After
Judgment and for Appointment of Receiver,” asserting that it was the owner and
holder of the Judgment. According to Global, before seeking turnover relief
Global made several attempts to contact Hamilton, and Global recorded various
abstracts of judgment in the real property records of various Texas counties.
Global also noted that it had initiated the garnishment proceeding against PNC
Bank. Global asserted that none of these actions resulted in the successful
collection of any money to be credited against the Judgment. Global noted that it
had come to Global’s attention that some of Hamilton’s assets were pledged in
connection with a Revolving Credit and Security Agreement with PNC Bank.
Global stated that this line of credit “was subsequently foreclosed upon [by PNC
Bank] under UCC Article 9 and [Hamilton’s] tangible and intangible assets . . .
were made available to third parties for purchase via private sale and were
subsequently sold.” Global asserted that at the time of the application, these assets
were “not believed to be within the scope of this Application,” but Global stated
that it reserved the right to ask the trial court for additional relief as to these assets.
The record does not reflect that Global ever sought such relief.
In its application, Global alleged that, upon information and belief, Hamilton
continues to exist. Global asserted that Global had made a good faith effort to
collect the Judgment but that Global had been unsuccessful in doing so. Global
2
claimed that Hamilton’s failure to make any attempt to resolve the matter had
made it necessary for Global to seek appointment of a receiver to facilitate the
collection of the Judgment. Global alleged that it in good faith had reason to
believe that Hamilton, either directly or indirectly through its Chief Executive
Officer, owned property that could not be attached or levied on by ordinary legal
process and that was not exempt from attachment, execution, or seizure for the
satisfaction of liabilities. Global requested the appointment of a receiver under the
Texas turnover statute. See Tex. Civ. Prac. & Rem. Code Ann. § 31.002 (West
2015).
The trial court signed an order appointing a receiver. In the order the trial
court gave the receiver the power to take possession of “any non-exempt property .
. . of [Hamilton] necessary to pay judgments outstanding against [Hamilton].” The
trial court also ordered Hamilton to turn over to the receiver within five days of
receiving a copy of the order “all checks, cash, securities (stocks and bonds),
interest in any business and/or partnerships, promissory notes, documents of title
and contracts owned by or in the name of [Hamilton].” In its order the trial court
did not make any express finding that Hamilton owned any property that could not
readily be attached or levied on by ordinary legal process.
II. ISSUE AND ANALYSIS
On appeal from the trial court’s order, Hamilton asserts various appellate
arguments in support of the proposition that the trial court abused its discretion in
issuing the receivership order. In the first appellate issue, Hamilton asserts that
Global did not submit any evidence to the trial court that Hamilton owned any
assets that could not readily be attached or levied on by ordinary legal process.
The turnover statute provides in pertinent part as follows:
3
(a) A judgment creditor is entitled to aid from a court of appropriate
jurisdiction through injunction or other means in order to reach
property to obtain satisfaction on the judgment if the judgment debtor
owns property, including present or future rights to property, that:
(1) cannot readily be attached or levied on by ordinary legal process;
and
(2) is not exempt from attachment, execution, or seizure for the
satisfaction of liabilities.
(b) The court may:
(1) order the judgment debtor to turn over nonexempt property that
is in the debtor’s possession or is subject to the debtor’s control,
together with all documents or records related to the property, to a
designated sheriff or constable for execution;
(2) otherwise apply the property to the satisfaction of the judgment;
or
(3) appoint a receiver with the authority to take possession of the
nonexempt property, sell it, and pay the proceeds to the judgment
creditor to the extent required to satisfy the judgment.
Tex. Civ. Prac. & Rem. Code Ann. § 31.002 (West 2015).
We review a trial court’s order requiring turnover and appointing a receiver
for an abuse of discretion. Tidwell v. Roberson, No. 14-16-00170-CV, 2017 WL
3612043, at *3 (Tex. App.—Houston [14th Dist.] Aug. 22, 2017, pet. denied). The
trial court abuses its discretion if it acts in an unreasonable or arbitrary manner or if
the trial court acts “without reference to any guiding rules and principles.” See
Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 226 (Tex. 1991) (internal
citations omitted). A trial court’s issuance of a turnover order, even if predicated
on an erroneous conclusion of law, will not be reversed for abuse of discretion if
the judgment is sustainable for any reason. Tidwell, 2017 WL 3612043, at *3.
A judgment creditor may pursue turnover relief against a judgment debtor if
the debtor owns property that (1) cannot readily be attached or levied on by
4
ordinary legal process; and (2) is not exempt from attachment, execution, or
seizure for the satisfaction of liabilities. Tex. Civ. Prac. & Rem. Code Ann. §
31.002(a); Tidwell, 2017 WL 3612043, at *6. To obtain turnover relief, the
judgment creditor must carry the burden of proving that (1) the judgment debtor
owns property (2) the property cannot readily be attached or levied on by ordinary
legal process; and (3) the property is not exempt from attachment, execution, or
seizure for the satisfaction of liabilities. See Stephenson v. LeBoeuf, No. 14-02-
00130-CV, 2003 WL 22097781, at *2 (Tex. App.—Houston [14th Dist.] Sept. 11,
2003, no pet.) (mem. op.). Simply filing an application or motion for turnover
relief does not suffice; rather, the judgment creditor must submit evidence
establishing these elements. See Shultz v. Fifth Judicial Circuit Court of Appeals
at Dallas, 810 S.W.2d 738, 740 (Tex. 1991), abrogated on other grounds by, In re
Sheshtawy, 154 S.W.3d 114, 124–25 (Tex. 2004); Stephenson, 2003 WL
22097781, at *2; Black v. Shor, 443 S.W.3d 170, 181 (Tex. App.—Corpus Christi
2013, no pet.).
Though the statute requires some evidence that the judgment debtor owns
non-exempt property that cannot readily be attached or levied on by ordinary legal
process, section 31.002 does not specify, or restrict, the manner in which evidence
may be received in order for a trial court to determine whether the conditions
of section 31.002(a) exist. Tidwell, 2017 WL 3612043, at *6. Nor does the statute
require that such evidence be in any particular form, that it be at any particular
level of specificity, or that it reach any particular quantum before the court may
grant aid under section 31.002. Id. A lack of evidence to support turnover relief
does not automatically invalidate the trial court’s order, but serves as a “relevant
consideration in determining if the trial court abused its discretionary authority in
issuing the order.” Buller, 806 S.W.2d at 226; Tidwell, 2017 WL 3612043, at *6.
5
A. Does the record contain evidence that the judgment debtor owned
property?
We first address whether the evidence before the trial court showed that
Hamilton owned any property when Global sought appointment of a receiver.
Hamilton submitted an affidavit from its Chief Executive Officer, James S.
Millman, who testified as follows:
 Hamilton was a Houston-based wholesaler of non-corrosive steel pipe used
in oil and gas exploration and production operations.
 Hamilton financed its operations in part by a revolving line of credit issued
by PNB Bank, N.A. that was secured by a duly-perfected, first-priority lien
on all of Hamilton’s assets.
 After encountering financial difficulties, Hamilton defaulted under the terms
of its credit agreement with PNC Bank.
 As a result of the default, PNC Bank exercised its remedies under the credit
agreement and disposed of its collateral at a private foreclosure sale
conducted on October 6, 2016.
 The buyer at the foreclosure sale was BioUrja Trading, LLC. Neither
Hamilton, nor any of its current or former officers and directors, have any
interest in BioUrja Trading, LLC or Hamilton Metals, LLC, the entity
formed by BioUrja to take ownership of Hamilton’s former assets.
 The sale price at the foreclosure sale did not satisfy the total amount of PNC
Bank’s secured indebtedness, and PNC Bank currently holds a deficiency
claim against Hamilton in excess of $6 million. PNC Bank’s deficiency
claim remains secured by a first-priority lien on any remaining assets,
although Millman is not aware of any such assets.
 After foreclosure and liquidation of Hamilton’s assets, Hamilton ceased
operations.
 Hamilton “is a dormant legal entity with no valuable assets or equity.”
Global did not dispute that the private foreclosure sale of Hamilton’s assets
6
had occurred on October 6, 2016 (before the trial court rendered the Judgment). In
Global’s application for a receiver, Global stated that Hamilton’s line of credit
“was subsequently foreclosed upon [by PNC Bank] under UCC Article 9 and
[Hamilton’s] tangible and intangible assets . . . were made available to third parties
for purchase via private sale and were subsequently sold.” Global asserted that at
the time of the application, these assets were “not believed to be within the scope
of this Application,” but Global stated that it reserved the right to ask the trial court
for additional relief as to these assets. The record does not reflect that Global ever
sought such relief. Consistent with this part of the application, in the trial court’s
receivership order, the trial court excluded from the scope of the order the assets
and property formerly owned by Hamilton that were acquired by BioUrja Trading,
LLC and Hamilton Metals, LLC from PNC Bank through the foreclosure sale and
related transactions. The trial court stated that this exclusion was without prejudice
to Global’s or the receiver’s ability to petition the court for additional relief with
respect to such assets and property. The record does not reflect that Global or the
receiver has petitioned for any such additional relief.
On appeal, Global cites a letter it submitted from an attorney for BioUrja
Trading, LLC and Hamilton Metals, LLC, in which the attorney stated that some,
but not all of Hamilton’s assets were sold on October 6, 2016. The attorney also
stated that, as to the three accounts at PNC Bank in Hamilton’s name, Hamilton
Metals, LLC has taken control of one account, and as to the other two, “it is our
understanding that these accounts still belong to, and are controlled by, [Hamilton]
and that there may only be a nominal, if any, amount of money in them, but this
would need to be discussed with [PNC Bank].” The attorney did not state which
assets of Hamilton were not sold on October 6, 2016. Though the attorney
conveys his understanding that two bank accounts still belong to and are controlled
7
by Hamilton, his statements indicate that he does not have any personal knowledge
as to whether PNC Bank owes Hamilton any amount as to either of these two
accounts.
Global also submitted an answer PNC Bank filed in a garnishment
proceeding Global initiated. This answer indicates that PNC Bank still holds three
accounts in Hamilton’s name. After asserting various objections in its answer,
PNC Bank stated that it was unable to definitively determine whether it was
indebted to Hamilton at the time of the answer because it was unable to
definitively determine the ownership of monies held in three Hamilton accounts.
On appeal, Global asserts that the two accounts at PNC Bank that counsel for
BioUrja Trading, LLC and Hamilton Metals, LLC understood were still owned and
controlled by Hamilton are “accounts subject to collections.” Yet, no evidence
before the trial court showed that PNC Bank was indebted to Hamilton under any
of the three accounts. We presume, without deciding, that the PNC Bank accounts
would constitute property owned by Hamilton.
Global also cites a “Schedule 5” that lists assets not included in the private
sale by PNC Bank. Global asserts that this schedule shows assets owned by
Hamilton that were not sold on October 6, 2016. We presume, without deciding,
that any evidence of assets owned by Hamilton in October 2016 and not sold by
PNC Bank would be evidence of assets Hamilton owned when the trial court
signed the receivership order.
According to Schedule 5, the private sale was not to include the following
items:
(1) any lease, license, contract, or agreement to which Hamilton is a
party to the extent that a security interest therein is prohibited by or in
violation of any applicable law or a term or condition of any such
lease, license, contract, or agreement;
8
(2) any equipment owned by Hamilton that is subject to a purchase-
money lien or a capital-lease obligation if the grant of a security
interest therein would constitute a violation of a valid and enforceable
restriction in favor of a third party, unless any required consents have
been obtained;
(3) any monies, checks, securities or other items on deposit or
otherwise held in deposit accounts or trust accounts specifically and
exclusively used for payroll, payroll taxes, deferred compensation and
other employee wage and benefit payments to or for the direct benefit
of Hamilton’s employees.
Schedule 5 does not contain any statement that Hamilton owns or possesses
any of the above-described assets; rather, Schedule 5 and the notice document of
which it is a part provide that if Hamilton owns any such assets, the assets would
not be part of the private sale. No evidence before the trial court showed that
Hamilton owned any such assets.
The list of excluded assets in Schedule 5 also includes certain tubular goods
delivered to Hamilton as consignee and stored on Hamilton’s property as
consignee, for which ownership of the goods had not been transferred to Hamilton
or its customers under an agreement between Hamilton and another company.
Hamilton would not own any of these goods.
The list of excluded assets in Schedule 5 also includes the following assets:
(1) all inventory of Corrosive Resistant Alloy Tubular Products, 13
Chrome Tubular products and other products consigned to Hamilton
by Sumitomo Corporation of America;
(2) six copiers, identified by serial number, securing Hamilton’s
obligations to Konica Minolta Business Solutions USA, Inc.
(3) three Caterpillar assets, identified by serial number, securing
Hamilton’s obligations to De Lage Landen Financial Services, Inc.;
(4) one Chevy Traverse SUV, identified by VIN number.
(collectively the “Excluded Assets”). We presume, without deciding, that the
9
evidence before the trial court showed that Hamilton owned each of the Excluded
Assets when Global requested appointment of a receiver and when the trial court
signed the receivership order. Thus, the evidence before the trial court shows only
that Hamilton owned the Excluded Assets and the three accounts at PNC Bank.
B. Does the record contain evidence that any property owned by the
judgment debtor could not readily be attached or levied on by ordinary
legal process?
We now review the evidence before the trial court to determine if there was
evidence that property owned by Hamilton could not readily be attached or levied
on by ordinary legal process. Even presuming that the three PNC Bank accounts
are property owned by Hamilton, no evidence shows that any of these accounts
could not readily be attached or levied on by ordinary legal process. Instead, the
evidence shows that these accounts were the subject of a garnishment proceeding.
Though Global asserted in its application that the garnishment proceeding had not
resulted in the collection of any amount of money, no evidence before the trial
court addressed the status of the garnishment proceeding or whether the proceeding
likely would lead to the recovery of funds by Global. The evidence does not show
that any amounts owed to Hamilton by PNC Bank under these accounts could not
readily be attached or levied on by ordinary legal process. See Stephenson, 2003
WL 22097781, at *3 (noting that no evidence in the record showed that money in
an escrow fund was not subject to garnishment).
As to the Excluded Assets, no evidence in the record addresses whether any
of these assets could not readily be attached or levied on by ordinary legal process.
The record reflects that Global did not conduct any post-judgment discovery.
Global did not submit an affidavit or testimony from a representative of Global.
The record contains no testimony from any person as to whether any of the
Excluded Assets could not readily be attached or levied on by ordinary legal
10
process. There is no evidence or allegation of any of the following:
(1) that Global has requested issuance of any writ of execution,
(2) that any writ of execution has issued,
(3) that Global has sought to enforce any writ of execution against any
of the Excluded assets, or
(4) that any writ of execution has been returned nulla bona.1
Cf. Tidwell, 2017 WL 3612043, at *7 (finding sufficient evidence that property
owned by judgment debtor could not readily be attached or levied on by ordinary
legal process in case in which, among other things, evidence showed writ of
execution was returned nulla bona).
Global had the burden of proving that at the time of the application for relief
under the turnover statute Hamilton owned property that could not readily be
attached or levied on by ordinary legal process. See Tex. Civ. Prac. & Rem. Code
Ann. § 31.002(a); Stephenson, 2003 WL 22097781, at *2. Global needed to
present evidence rather than rely on its receivership application. See Shultz, 810
S.W.2d at 740; Stephenson, 2003 WL 22097781, at *2; Black, 443 S.W.3d at 181.
Arguments of counsel do not constitute evidence. See Black, 443 S.W.3d at 180.
The evidence before the trial court did not show that that any of the Excluded
Assets, or any other property owned by Hamilton, could not readily be attached or
levied on by ordinary legal process. Under the applicable standard of review, we
conclude that the trial court abused its discretion in signing the receivership order.
See Shultz, 810 S.W.2d at 740; Stephenson, 2003 WL 22097781, at *2; Black, 443
S.W.3d at 181. Therefore, we sustain Hamilton’s first issue.
1
The Latin term “nulla bona” means “no goods.” Black’s Law Dictionary 1098 (8th ed. 2004).
In the law it is a form of return by a sheriff or constable upon an execution when the judgment
debtor has no seizable property within the jurisdiction. Id.
11
III. CONCLUSION
The evidence before the trial court did not show that that Hamilton owned
property that could not readily be attached or levied on by ordinary legal process.
Because the trial court abused its discretion in granting Global’s application for the
appointment of a receiver and in signing the receivership order, we reverse the trial
court’s order and remand for further proceedings.
/s/ Kem Thompson Frost
Chief Justice
Panel consists of Chief Justice Frost and Justices Busby and Wise.
12