Fourth Court of Appeals San Antonio, Texas MEMORANDUM OPINION No. 04-17-00045-CV IN RE ATW INVESTMENTS, INC., Brian Payton, Ying Payton, and American Dream Renovations and Construction, LLC Original Mandamus Proceeding 1 Opinion by: Sitting: Karen Angelini, Justice Karen Angelini, Justice Patricia O. Alvarez, Justice Irene Rios, Justice Delivered and Filed: March 22, 2017 PETITION FOR WRIT OF MANDAMUS CONDITIONALLY GRANTED Relators ATW Investments, Inc., Brian Payton, Ying Payton, and American Dream Renovations and Construction, LLC, seek a writ of mandamus directing the trial court to dissolve an order granting a prejudgment writ of garnishment. We conditionally grant mandamus relief. BACKGROUND Relators are the defendants in five separate lawsuits filed in 2016. Each of these lawsuits seeks damages for various claims arising from certain real estate investments and related transactions. In January 2017, the plaintiffs in the five lawsuits, who are the real parties in interest in this original proceeding, filed a new lawsuit an application for a prejudgment writ of 1 This proceeding arises out of Cause No. 2017-CI-00545, styled Karen Fellingham, Garry Fellingham, Peter Lynn, Andrea Garcia, Orlando Dehoyos, Nancy Gonzalez, Albertine Gonzalez, and Dr. Khym Zarzuela v. ATW Investments, Inc., Brian Payton, Ying Payton, and American Dream Renovations and Construction, LLC, pending in the 131st Judicial District Court, Bexar County, Texas, the Honorable Norma Gonzales presiding.
garnishment for the damages alleged in the five lawsuits filed in 2016. The trial court held an ex parte hearing on the application and issued an order granting a writ of garnishment in the maximum amount of $4,390,800.00. Upon learning of the garnishment order, relators moved to dissolve it. In their motion to dissolve, relators argued, among other things, that the garnishment order was improper because the real parties claims were for uncertain and unliquidated damages. The trial court held a contested hearing on the motion to dissolve. Relators urged the trial court to dissolve its order granting the writ of garnishment because it was not for a liquidated debt. Relators also pointed out that three of the five plaintiffs had failed to support the garnishment application with an affidavit as required under the garnishment statute. The real parties countered that the garnishment order was proper because each of their lawsuits contained a breach of contract claim and a prejudgment writ of garnishment is permitted for such a claim. The real parties further argued the garnishment order was proper, at least as to the investment amounts claimed by the two plaintiffs who had filed affidavits supporting the garnishment application. At the end of the hearing, the trial court modified its previous order, reducing the maximum garnishment amount from $4,390,800.00 to $367,000.00, which represented the sum of the investment amounts claimed by the two plaintiffs who had filed affidavits. Relators filed this petition for a writ of mandamus, challenging the denial of their motion to dissolve. At our request, the real parties in interest filed a response. MANDAMUS STANDARD OF REVIEW To be entitled to mandamus relief, relators must meet two requirements. First, they must show the trial court clearly abused its discretion. See In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135 (Tex. 2004). Second, they must show they have exhausted all legal remedies and have no adequate remedy by appeal. See id. at 135-36; In re Tex. Am. Express, Inc., 190 S.W.3d 720, 727 (Tex. App. Dallas 2005, orig. proceeding). - 2 -
Under the abuse of discretion standard, a trial court has no discretion in determining what the law is or in applying the law to the facts. Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992). A trial court s clear failure to analyze or apply the law correctly will constitute an abuse of discretion, which may result in reversal of the trial court s order by writ of mandamus. Id. PREJUDGMENT WRIT OF GARNISHMENT A plaintiff may file an application for a writ of garnishment while his lawsuit is pending. TEX. R. CIV. P. 658. A writ of garnishment shall not issue before a final judgment, except on written order of the court after a hearing, which may be ex parte. Id. A writ of garnishment is available if a plaintiff sues for a debt and makes an affidavit stating (1) the debt is just, due, and unpaid; (2) within the plaintiff s knowledge, the defendant does not possess property in Texas subject to execution sufficient to satisfy the debt; and (3) the garnishment is not sought to injure the defendant or the garnishee. TEX. CIV. PRAC. & REM. CODE ANN. 63.001 (West 2008). A defendant whose property or account has been garnished may seek to dissolve the writ of garnishment. TEX. R. CIV. P. 664a. Because it may impound the money or property of an alleged debtor even before a judgment is obtained against him, the remedy of garnishment is summary and harsh. Beggs v. Fite, 106 S.W.2d 1039, 1042 (Tex. 1937). Therefore, a garnishment order must strictly conform with statutory requirements. Id. A writ of garnishment may issue when the plaintiff s suit arises out of a contract and the demand is liquidated, that is, the claim is not contingent, is capable of being definitely ascertained by the usual means of evidence, and does not rest in the discretion of the jury. Cleveland v. San Antonio Bldg. & Loan Ass n, 223 S.W.2d 226, 228 (Tex. 1949). However, a writ of garnishment cannot issue when the plaintiff s suit is for damages in tort, which by their very nature are contingent and unliquidated. Id.; Fogel v. White, 745 S.W.2d 444, 446 (Tex. App. Houston [14th Dist.] 1988, orig. proceeding). - 3 -
ABUSE OF DISCRETION Relators contend the trial court abused its discretion by not dissolving its garnishment order because the real parties claims are contingent and unliquidated and the law does not allow prejudgment garnishment for contingent and unliquidated claims. The general rule is that claims for unliquidated damages are not subject to garnishment. Clapper v. Petrucci, 497 S.W.2d 120, 122 (Tex. App. Austin 1973, writ ref d n.r.e.). This rule applies not only to claims for damages in tort, but also to claims for uncertain and unliquidated damages for breach of contract which can be determined only by the aid of the finder of fact. Id. To determine if the plaintiffs claims are contingent and unliquidated, we examine the petitions of the two plaintiffs who submitted affidavits in support of the garnishment application. Both petitions alleged the plaintiffs attended one of relators real estate seminars, where relators made representations about real estate investment strategies. According to the petitions, relators represented that if the plaintiffs invested in relators real estate strategy, they would receive between a 17% and 40% return on their investment properties over the course of one to five years. Under relators strategy, one of relators acted as trustee and property manager for the investment properties for a monthly fee. The petitions further alleged that the plaintiffs purchased real property pursuant to the relators investment scheme and that relators mismanaged the plaintiffs properties and failed to disclose certain information to them. Specifically, the first plaintiff s petition alleged she purchased two investment properties for approximately $120,000.00. These properties failed to deliver on the returns represented by relators, and relators failed to exercise ordinary care in the management of the properties. The first plaintiff learned that relators failed to pay the property taxes on the property and the county was ready to foreclose on the property. Additionally, one of the relators, in his capacity as trustee and property manager, sold the property to another investor without the plaintiff s consent. The second - 4 -
plaintiff s petition alleged he purchased two investment properties, but does not allege the approximate amount of either investment. According to the second plaintiff s petition, relators mismanaged the properties by failing to pay property taxes and maintain insurance. Furthermore, one of the properties was destroyed in a fire, and the related insurance claim was denied because relators had failed to maintain insurance on the property. Both petitions characterize the plaintiffs claims as claims for deceptive trade practices, fraud, negligence, negligent misrepresentation, breach of fiduciary duty, and breach of contract, and both requested actual and exemplary damages. However, the petitions never identify the specific contracts in question, the parties to these contracts, or a specific liquidated damage amount arising from these contracts. 2 Additionally, both petitions characterize the plaintiffs actual damages as out-of-pocket expenses, including but not limited to all monies paid to relators, undisclosed fees, and unearned management fees as well as lost profits, lost income, lost rent, and costs of repairs. Real parties argue the trial court properly denied the motion to dissolve because the underlying lawsuits each involved a breach of contract claim based on their investment of funds with relators. Real parties cite Cleveland v. San Antonio Bldg. & Loan Ass n, 223 S.W.2d 226 (Tex. 1949) to support their argument, but the case is readily distinguishable. In Cleveland, the plaintiff had purchased a business from the defendant for $2000.00. Id. at 228. The plaintiff brought claims against the defendant for breach of contract and torts, including fraud. Id. The remedy the plaintiff sought was rescission of the contract and recovery of the $2000.00 she had paid for the business. Id. The Texas Supreme Court concluded that the plaintiff s tort claims were 2 Furthermore, even the affidavits submitted in support of the garnishment application fail to state a definite sum owed to the plaintiffs. Instead, the affidavits refer to the garnishment application, which states that one of the plaintiffs invested approximately $145,000.00 with relators and the other plaintiff invested approximately $222,000.00 with relators. - 5 -
incidental or alternative in nature; her primary claim arose from the contract and sought the recovery of a definite sum. Id. at 229. Because the plaintiff had alleged a liquidated claim which the court defined as a claim that was not contingent, was capable of being definitely ascertained by the usual means of evidence, and did not rest in the discretion of the jury a prejudgment writ of garnishment was authorized. Id. at 228-29. However, unlike the plaintiff in Cleveland, the plaintiffs petitions in this case do not allege a liquidated claim. As demonstrated by the allegations in their petitions, the real parties claims are primarily tort claims for uncertain damages. Whether relators committed fraud or made misrepresentations or breached fiduciary duties are contingent claims that must be determined by a factfinder. A prejudgment writ of garnishment cannot issue if the demand rests in the discretion of a factfinder. Am. Express, 190 S.W.3d at 726; Fogel, 745 S.W.2d at 446-47. To the extent the real parties assert breach of contract claims, the damages they seek to recover are uncertain and must be determined by a factfinder. See Cleveland, 223 S.W.2d at 228. After reviewing the claims presented, we conclude that the trial court failed to apply the law correctly. Because real parties claims are contingent and unliquidated, the law did not authorize a prejudgment writ of garnishment. Therefore, the trial court abused its discretion by denying relators motion to dissolve. 3 ADEQUATE REMEDY BY APPEAL Texas courts have held that a relator has no adequate remedy by appeal and mandamus relief is appropriate when a trial court abuses its discretion by denying a motion to dissolve a prejudgment writ of garnishment. Am. Express, 190 S.W.3d at 727-28; Fogel, 745 S.W.2d at 447. 3 Having concluded the trial court should have dissolved the garnishment because the real parties claims are contingent and unliquidated, we need not address relators arguments concerning the sufficiency of the bond, the lack of proof, and proper service. - 6 -
This is the case because when a trial court improperly grants a prejudgment writ of garnishment, the relator has no adequate remedy at law to reobtain possession of its property. Am. Express, 190 S.W.3d at 727 (citing S.R.S. World Wheels, Inc. v. Enlow, 946 S.W.2d 574, 574-75 (Tex. App. Fort Worth 1997, orig. proceeding)). Real parties argue that mandamus may not issue in this case because relators have failed to exhaust all of their legal remedies. Specifically, real parties argue relators were required to file a counterclaim for wrongful garnishment or request a substitution of property pursuant to Rule 664 of the Texas Rules of Civil Procedure. Neither argument precludes the issuance of mandamus relief. A counterclaim for wrongful garnishment is not an adequate legal remedy because it does not provide relators with a means of reobtaining the property held subject to the writ of garnishment; it only provides a means for obtaining damages resulting from the garnishment. Am. Express, 190 S.W.3d at 728 (rejecting arguments that a counterclaim for wrongful garnishment and a request for substitution of property provided an adequate legal remedy when the trial court abused its discretion in denying a motion to dissolve a prejudgment garnishment order). Similarly, a substitution of property is not an adequate remedy because it deprives relators of their property. See Cleveland, 223 S.W.2d at 230 (rejecting the argument that a defendant is required to comply with Rule 664 before being allowed to attack a garnishment proceeding because his property has been impounded by the writ and he should be permitted to show the invalidity of the proceeding). We conclude relators have exhausted all legal remedies and have no adequate remedy by appeal. CONCLUSION Relators have established that the trial court clearly abused its discretion and that they have no adequate remedy by appeal. We, therefore, conditionally grant mandamus relief. The trial court is ordered to vacate its January 18, 2017 order granting in part and denying in part relators motion - 7 -
to dissolve and modifying its prior garnishment order, and enter an order granting relators motion to dissolve and dissolving its January 11, 2017 garnishment order. The writ will issue only if the trial court fails to comply within fourteen days. Karen Angelini, Justice - 8 -