in Re Reveille Resources (Texas), Inc., Relator ( 2011 )

OPINION
No. 04-10-00742-CV
IN RE REVEILLE RESOURCES (TEXAS), INC., Relator
Original Mandamus Proceeding 1
Opinion by: Sandee Bryan Marion, Justice
Sitting: Sandee Bryan Marion, Justice
Rebecca Simmons, Justice
Steven C. Hilbig, Justice
Delivered and Filed: January 19, 2011
MANDAMUS CONDITIONALLY GRANTED
The underlying dispute is between two oil and gas companies. Relator, Reveille
Resources (Texas), Inc., owns and operates several leaseholds in which the real party in interest,
Greehey & Company, Ltd., has working interests that entitle it to receive revenues generated
from the production of the wells on the leases. In 2008, Reveille elected to drill a well on one of
the leases, and pursuant to a joint operating agreement, submitted an Authority for Expenditure
to its non-operating working interest owners, one of which is Greehey, for the cost associated
with drilling the well. Greehey’s share of the costs was $632,750, of which it initially paid
$231,750. Greehey later asserted it withdrew its consent to the authorization and refused to pay
1
This proceeding arises out of Cause No. 2009-CI-16393, styled Greehey & Company, Ltd. v. Reveille
Resources, Inc., pending in the 37th Judicial District Court, Bexar County, Texas, the Honorable David A.
Berchelmann presiding. However, the Honorable Janet P. Littlejohn, presiding judge of the 150th Judicial District
Court, Bexar County, Texas, signed the three orders at issue in this proceeding.
04-10-00742-CV
the balance owed. Because the drilling on the well was completed at under cost, Greehey’s
unpaid balance, according to Reveille, amounted to $219,000. As a result of Greehey
withholding the balance, Reveille applied revenue otherwise due to Greehey from all the wells
governed by the joint operating agreement to offset the amount Greehey owed. Greehey filed
suit against Reveille, alleging Reveille wrongfully withheld revenue in the amount of
$455,377.91. Reveille counterclaimed that Greehey failed to pay its share of the expenses
associated with drilling the well.
Greehey filed a prejudgment Application for Writ of Attachment alleging evidence
existed to support the elements necessary to obtain a writ pursuant to Texas Civil Practice and
Remedies Code sections 61.001 and 61.002, and asking the court to order that the sum of
$455,377.91 be placed into the registry of the court. One of the necessary elements is proof that
“the defendant is justly indebted to a plaintiff.” TEX. CIV. PRAC. & REM. CODE ANN. § 61.001(1)
(West 2008).
On September 1, 2010, the trial court signed an order directing, among other things, that
Reveille deposit $455,377.91 into the court’s registry. The order also stated that if Reveille
failed to place the money into the registry, the clerk shall issue a writ of attachment commanding
a sheriff or constable to attach and hold Reveille’s property up to the maximum value of
$455,377.91. Finally, the trial court struck through a paragraph in the order that stated Reveille
was justly indebted to Greehey. Reveille did not deposit the money into the registry, and instead,
filed a motion to dissolve the September 1 order and Greehey filed a motion to enforce the order.
After a hearing, the trial court denied Reveille’s motion, granted Greehey’s motion, and again
ordered Reveille to deposit the money into the court’s registry. Reveille again failed to deposit
the money, resulting in Greehey filing a motion for sanctions. The court sanctioned Reveille
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$1,000 per day until the deposit into the registry was made or until the first day of trial,
whichever date was earlier and awarded Greehey attorneys’ fees. Reveille then filed its petition
for writ of mandamus and Greehey has filed a response.
DISCUSSION
Mandamus will issue only to correct a clear abuse of discretion for which the relator has
no adequate remedy at law. In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135 (Tex. 2004)
(orig. proceeding); Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex. 1992) (orig. proceeding).
“A trial court has no ‘discretion’ in determining what the law is or applying the law to the facts,”
and “a clear failure by the trial court to analyze or apply the law correctly will constitute an
abuse of discretion” Walker, 827 S.W.2d at 840. In this case, Reveille asserts the trial court
erred in two respects.
First, Reveille argues the order directing the deposit into the registry is improper to the
extent the court signed the order pursuant to Texas Civil Practice and Remedies Code section
61.001 because the trial court struck through a finding necessary for entitlement to a writ of
attachment. We agree that the trial court’s failure to find that Reveille was “justly indebted to”
Greehey was fatal to Greehey’s entitlement to a writ of attachment.
Second, Reveille asserts the order directing the deposit into the registry is improper to the
extent the trial court signed the order pursuant to its inherent authority to do so. A trial court,
through its inherent authority, may order a party to pay disputed funds into the court’s registry if
there is evidence the funds are in danger of being “lost or depleted.” Castilleja v. Camero, 414
S.W.2d 431, 433 (Tex. 1967). Here, no evidence was introduced regarding this element; instead,
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the court heard only arguments of counsel. 2 During the hearing on Greehey’s application for the
writ of attachment, Greehey’s counsel asserted Reveille was in financial trouble, was selling its
interest in some of the wells to pay for operating capital, it “may” hide property from its
creditors, and it is disposing of property and converting the property to cash. Reveille’s counsel
admitted the company was trying to find additional financing because all of its money was “tied
up in the wells.” As to the request to place money into the court’s registry, Reveille’s counsel
stated as follows:
[If] this Court should enter a writ of attachment and require [relator] to pay
$455,000 into the registry of the Court, I’m sure - - and it is not overturned on a
motion to dissolve, I’m sure we will be over in Bankruptcy Court. Because you -
- you just can’t pull half a million dollars out of a company that has six or eight
wells and expect them to be able to continue to do business.
During the hearing on Greehey’s motion to enforce, the trial court stated as follows:
When your client comes in and tells me that he’s in - - he’s in questionable
financial condition because he may have to file bankruptcy over putting these
monies in the Registry of the Court, that sends up red flags all over the place for
me as to whether or not he’s entitled to the money, whether or not Greehey is
entitled to the money. I want to see that the money is protected until a court
makes a decision about who is entitled to it. That is my only reason.
Reveille’s counsel attempted to explain the earlier remark about bankruptcy by stating that “[a]t
any given time, a company’s funds are going up and down. That’s the way these companies
operate.”
Based on the trial court’s statement, it appears the court ordered the money placed into
the court’s registry based on the attorney’s remark about the potential effect such an order would
2
In support of its application for writ of attachment, Greehey submitted the affidavit of Sidney Greehey. However,
the affidavit was not offered into evidence. To the extent the trial court considered the affidavit, Mr. Greehey’s
contentions regarding Reveille’s financial condition — which were similar to the contentions made by Greehey’s
attorney at the hearing — were based on “conversations between the parties,” “knowledge” that Reveille has not
paid some of its bills, “knowledge” that some of the parties financially backing Reveille “are about to reassert
control over funds previously lent to” Reveille, and the “fact that [Reveille] has recently had to sell some of its
interest in various wells to have operating capital.” The affidavit does not indicate the factual basis of Mr.
Greehey’s “knowledge,” and consists almost entirely of speculation and subjective beliefs about the state of
Reveille’s finances.
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have on the company’s operations. But other than conclusory remarks by the attorneys, no
factual evidence was offered to support the contention that the funds are in danger of being lost
or depleted. The record is devoid of evidence about (1) the balance of available cash, (2) the
amount or source of Reveille’s revenue and net income used to fund monthly operating
expenses, (3) the cost of any ongoing drilling, (4) the extent, if any, to which available cash may
be dwindling because of Reveille’s operation of the wells, (5) the sale of assets, and (6) the
disposition of proceeds from any sale of assets. See N. Cypress Med. Ctr. Operating Co. v. St.
Laurent, 296 S.W.3d 171, 179 (Tex. App.—Houston [1st Dist.] 2009, no pet.) (holding that
when record is devoid of evidence “that funds are actually in danger of being lost or depleted,”
trial court abuses its discretion by ordering funds into court’s registry). Based on this record, we
must agree with Reveille that the trial court erred in ordering any funds to be deposited into the
court’s registry.
Therefore, the writ is CONDITIONALLY GRANTED. TEX. R. APP. P. 52.8(c). The
Honorable Janet Littlejohn is ORDERED to withdraw her (1) September 1, 2010 Order Directing
Defendant to Place Funds Into the Registry of the Court And, If Necessary, Granting Writ of
Attachment; (2) September 17, 2010 Order Granting Plaintiff’s Motion to Enforce, to Strike
Defendant’s Motion, For Sanctions, and to Hold Defendant in Contempt; and (3) October 1,
2010 Order Granting Plaintiff’s Motion for Sanctions and to Hold Defendant in Contempt. If the
trial court does not do so within fourteen days of this order, we will issue the writ.
Sandee Bryan Marion, Justice
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