Miller v. K and M Partnership

• Decision Date: 27 April 1989
• Docket Number: No. 01-88-00974-CV,01-88-00974-CV
• Citation: 770 S.W.2d 84
• Parties: G. Raymond MILLER, Appellant, v. K AND M PARTNERSHIP and Clarence F. Kendall, II, Appellees. (1st Dist.)
• Court: Texas Court of Appeals

Page 84

770 S.W.2d 84

G. Raymond MILLER, Appellant, v. K AND M PARTNERSHIP and Clarence F. Kendall, II, Appellees.

No. 01-88-00974-CV.

Court of Appeals of Texas Houston (1st Dist.).

April 27, 1989.

Ben L. Krage, Martin J. Sweeney, F. Glenn Smith, III, Kasmir & Krage, Dallas, for appellant.

Stanley B. Binion, J. Robin Lindley, Baker, Brown, Sharman & Parker, Houston, for appellees.

Before DUNN, HUGHES and WARREN, JJ.

OPINION

WARREN, Judge.

This is an appeal from an order granting a temporary injunction enjoining appellant from transferring or encumbering 800,000 shares of disputed stock, and setting the temporary injunction bond at $50,000.

The order granting a temporary injunction is affirmed.

In 1983, G. Raymond Miller, appellant, and Clarence Kendall, appellee, started a security telephone business, where a computer operated telephone would provide security and other functions inside a residence. This start-up corporation was named Automatic Radius Management, Inc. ("ARM"). Appellant and appellee each owned 25% of the stock, while the development engineers, sales people, and others owned the remaining 50%.

ARM's business needed a computer to monitor telephone signals. In 1984, Kendall and Miller formed a partnership, K & M Partnership (K & M), to purchase the computer and lease it to ARM, so that they could take certain tax benefits and avoid additional capital contributions to ARM. However, ARM was unsuccessful and never made a payment to K & M on the computer lease. Both men lost millions of dollars on this venture. Miller left ARM to begin a new business venture in 1984. This new enterprise, United Payphones Inc. (UPI), was incorporated on March 18, 1985.

The ARM computer was moved to the UPI offices. It was decided that UPI would lease the computer and that common stock in UPI would be issued to Kendall and Miller as consideration for the lease. UPI corporate documents show that 74,375 shares of UPI common stock were issued to K & M, solely as consideration for the computer lease, with Miller receiving 62,125 shares and Kendall receiving 12,250. UPI eventually merged with a publicly held corporation and changed its name to International Telecharge, Inc. (ITI). At the time of the merger, the UPI stock of Miller and Kendall was exchanged for stock of ITI on a 1 to 40 ratio; Kendall received 495,000 shares of ITI, and Miller received 2,465,556 shares.

Kendall filed this law suit to recover one-half the shares that Miller received in excess of those shares received by Kendall for the computer lease rights. Following the name change and 40 to 1 stock split, these disputed shares of UPI stock became 997,500 shares of ITI stock.

Both Kendall and Miller testified at the hearing on the application for temporary injunction, and each had a slightly varied version of the events leading to the issuance of stock made the subject of this lawsuit. Kendall testified that Miller consulted with him extensively about the concept of UPI, prior to its incorporation. Further, Kendall testified that it was Miller who determined that UPI needed a computer for its business, and suggested that the computer purchased by K & M be moved to the offices of UPI when ARM's creditors began foreclosing on ARM property. He believed that the stock was issued solely as consideration for the lease of the K & M computer, and he assumed the stock would be issued equally to the two partners, in conformity with the K & M partnership agreement. Further, he claims it was Miller who subsequently caused a disproportionate distribution of the UPI stock to be issued in consideration for the computer lease, and that Kendall first learned of the disproportionate distribution when he saw the June 1987 ITI prospectus. The ITI prospectus states that the stock was issued as consideration to K & M for the computer lease, and for no other reasons.

Miller testified that he issued the stock to Kendall because he felt bad about Kendall's losses after ARM's failure. He testified that Kendall had no capital to contribute to UPI and that the computer lease to UPI was only a legal device to show consideration for the issuance of stock to Kendall. He stated that UPI did not need the computer and did not use it the first few months it was at the UPI offices. He testified that, although Kendall was appointed a director of UPI, he had nothing whatsoever to do with UPI or its start-up. Although UPI made no payments to K & M on the lease agreement, it eventually bought the computer.

The UPI "Unanimous Consent of Directors in Lieu of Organizational Meeting" (unanimous consent) and subsequent June 1987 ITI prospectus, reflect that 74,375 shares of UPI common stock were issued to K & M solely as consideration for the computer lease and were disproportionately divided between the two men.

Miller's tax attorney testified that there was a mistake in the drafting of these documents and the unanimous consent did not accurately reflect the proper consideration for Miller's shares. According to the attorney, these extra shares were issued to Miller as consideration for his capital and effort contributions to the new business. He further testified that the computer lease was simply a method to legally justify on the books of UPI, the issuance of stock to Kendall.

ITI stock is currently traded on the American Stock Exchange. Each share was being bid at $9 5/8 per share at the time of the temporary injunction hearing, while the price per share had ranged from $4 1/8 to $14 over the previous year. Also at the time of the hearing, Miller was attempting to raise $150 million of additional financing for ITI. As presently planned, this capital acquisition would trigger a conversion of "sale" of Miller's ITI stock and would result in enormous tax consequences. To avoid this problem, Miller planned to transfer two-thirds of his almost 2.5 million ITI shares, into a charitable remainder trust. This trust would pay Miller 10% of the fair market value of the trusts assets per year.

Appellant brings three point of error complaining that: (1) the trial court erred in granting a temporary injunction because the appellees failed to show lack of an adequate remedy at law; (2) the temporary injunction order is void because it fails to clearly set out the reasons for its issuance and does not properly set a date for a trial on the merits; and (3) the temporary injunction bond is insufficient and does not adequately protect appellant against a wrongfully issued temporary injunction.

In a hearing on an application for a temporary injunction, the applicant must plead a cause of action and show a probable right to the relief he seeks, and probable injury in the interim. Sun Oil Co. v. Whitaker, 424 S.W.2d 216 (Tex.1968); David v. Bache Halsey Stuart Shields, Inc., 630 S.W.2d 754, 756 (Tex.App.--Houston [1st Dist.] 1982, no writ). The applicant must further show that no adequate legal remedy exists. In order for a legal remedy to be adequate, it must give the applicant complete, final, and equal relief. David v. Bache Halsey Stuart Shields, Inc., 630 S.W.2d at 756.

A trial court has great discretion in granting or denying a temporary injunction, and its action will not be reversed unless the appellate courts are convinced that it represents a clear abuse of discretion....