Telephone Equip. Network v. Ta/Westchase

• Decision Date: 21 March 2002
• Docket Number: No. 01-01-00650-CV.,01-01-00650-CV.
• Citation: 80 S.W.3d 601
• Parties: TELEPHONE EQUIPMENT NETWORK, INC., Appellant, v. TA/WESTCHASE PLACE, LTD., Appellee.
• Court: Texas Court of Appeals

Page 601

80 S.W.3d 601

TELEPHONE EQUIPMENT NETWORK, INC., Appellant, v. TA/WESTCHASE PLACE, LTD., Appellee.

No. 01-01-00650-CV.

Court of Appeals of Texas, Houston (First District).

March 21, 2002.

Rehearing Overruled August 8, 2002.

COPYRIGHT MATERIAL OMITTED

Kent M. Hanszen, Houston, for Appellant.

Virginia Beth Edler, Wilson, Cribbs, Goren & Flaum, P.C., Houston, for Appellee.

Panel consists of Justices MIRABAL, HEDGES, and JENNINGS.

OPINION

MARGARET GARNER MIRABALJustice.

In this accelerated, interlocutory appeal, Telephone Equipment Network, Inc. ("TEN") appeals the trial court's order granting a temporary injunction enjoining it from foreclosing on and disposing of property owned by Telephone Liquidation, Inc. f/k/a Charles Tharp, Inc. d/b/a Southwest Communications, Inc., in which TEN claims a security interest.¹ The trial court granted the temporary injunction in favor of TA/West Chase Place, Ltd. (Westchase) based on Westchase's claims that TEN had participated in violating the Texas Uniform Fraudulent Transfer Act.² We affirm.

FACTUAL BACKGROUND

The relevant, underlying facts of the case are undisputed and derived from the evidence presented at the hearing on the temporary injunction.

In 1996, Charles Tharp, Inc. d/b/a Southwest Communications, Inc. (Southwest) obtained a line of credit with Sterling Bank secured by all of Southwest's assets. Sterling had perfected its security interest in Southwest's assets by filing a UCC-1 financing statement. In 1998, Southwest transferred the revolving debt under the line of credit into non-revolving debt by signing a promissory note with Sterling Bank for $25,000. In 2000, Southwest signed two more promissory notes with Sterling Bank for $20,000 and $30,000. The three promissory notes were also secured by all of Southwest's assets as stated in the previously filed financing statement. Charles Tharp, vice-president and president, as well as 100 percent shareholder, of Southwest signed the promissory notes on behalf of Southwest and personally guaranteed the notes.

On December 22, 1999, Southwest entered into a commercial lease agreement with Westchase to rent space in Westchase's office building. Tharp signed the lease as corporate representative; Tharp did not sign the lease individually as guarantor. The lease provided the commencement date was the earlier of the completion date of the leasehold improvements or April 1, 2000. Under the terms of the lease, default occurred if Southwest failed to pay rent or occupy the premises.

On January 20, 2000, Charles Tharp sent Westchase a letter stating Southwest was terminating its business relationship with Westchase and would not move into the leased office space. The reason for the termination, as stated in the letter, was a dispute between Southwest and Westchase relating to the office's floor plans.

Westchase sent Southwest a letter on January 27, 2000, stating that Southwest's conduct was an anticipatory breach of the lease agreement and requested that Southwest cure the default. Westchase also informed Southwest that it intended to enforce Southwest's obligations under the terms of the lease by filing suit. Southwest never paid Westchase any rent or occupied the office space. On July 11, 2000, Westchase filed suit against Southwest for breach of contract.

Tharp was also vice president, president, and 100 per cent shareholder of TEN. TEN was located at the same business address as Southwest.

Tharp sent a letter to Sterling Bank on October 24, 2000, notifying the bank that he, as president of TEN, would like to purchase the three promissory notes that Southwest had signed in favor of Sterling Bank for the combined outstanding balance on the notes. Sterling Bank accepted the offer and sold TEN the notes for the outstanding balance of $59,409.57. TEN obtained the $59,409.57 to purchase the notes from Tharp.³

At the temporary injunction hearing, Tharp admitted that the only purpose of TEN is to "hold some loans" made to Southwest. When Tharp gave the funds to TEN to purchase the notes, he knew Westchase had sued Southwest for breach of contract. Tharp also admitted he could have given the $59,409.57 directly to Southwest to pay off the balance of the loans owed to Sterling Bank, but instead chose to give the money to TEN to purchase the notes.

On May 10, 2001, Southwest changed its corporate name from "Charles Tharp, Inc. d/b/a Southwest Communications, Inc." to "Telephone Liquidation, Inc." Tharp changed the corporate name because a possibility existed that Southwest would file bankruptcy and he did not want his name associated with bankruptcy. None of Southwest's creditors were notified of the corporate name change.

TEN filed an amended financing statement on May 23, 2001, giving notice that Sterling Bank's security interest in Southwest's assets had been assigned to TEN. Before TEN purchased the promissory notes, Southwest had always made the loan payments to Sterling Bank on time. But, after TEN purchased the notes, Southwest never made another payment. On May 25, 2001, Westchase received notice that TEN, as a secured creditor, intended to foreclose and sell all of Southwest's property, including inventory, equipment, and accounts receivable at a public sale on May 31, 2001. The notice indicated that Southwest's assets had a "book value" of $247,622. The sale was to be conducted at the law offices of Stewart A. Feldman, who represents both TEN and Southwest. Tharp testified that TEN intended to foreclose on the promissory notes and to bid on Southwest's assets at the public sale.

Tharp testified that he also believed, as a guarantor, he still had personal liability under the promissory notes even after they were purchased by TEN. He admitted it was unlikely that he would sue himself to collect on the amounts due under the promissory notes.

PROCEDURAL HISTORY

Westchase filed suit against TEN On May 30, 2001, seeking injunctive relief to prevent the sale of Southwest's property.⁴ Citing to the corporate affiliations between the companies and the circumstances surrounding the assignment of the security interest to TEN, Westchase alleged that TEN and Southwest were attempting to perpetuate a fraud against Westchase in violation of the Uniform Fraudulent Transfer Act ("UFTA"). Westchase alleged that if TEN was allowed to sell all of Southwest's property, Southwest would have insufficient assets to satisfy any judgment that Westchase obtained in its earlier filed breach of contract action.

The trial court conducted the evidentiary hearing on Westchase's request for a temporary injunction on July 6, 2001. At the conclusion of the hearing, the trial court signed an order granting the temporary injunction. The order provides, in part, as follows:

[T]he Court finds that [Westchase] will probably prevail on the trial of this cause; that [TEN] intends to foreclose upon and dispose of the corporate assets of [Southwest], in violation of the Uniform Fraudulent Transfer Act, before the Court can render judgment in this cause. The Court finds that if [TEN] carries out that intention, [TEN] will alter the status quo and tend to make ineffectual a judgment in favor of [Westchase], because [TEN] will have previously foreclosed upon and disposed of the corporate assets currently in [TEN's] possession or in the possession of [Southwest]. The Court further finds that unless [TEN] is deterred from carrying out the foreclosure sale, [Westchase] will be without adequate remedy at law in that all of the corporate assets of [Southwest], currently in [TEN's] possession, will be sold, most likely to [TEN] and most likely for much less than their value and for very little consideration, leaving the potential debtor, [Southwest], as an empty shell. The Court also finds that [Westchase] will likely prevail in [the earlier filed breach of contract action.]

IT IS, THEREFORE, ORDERED that [TEN] is commanded to desist and refrain from foreclosing upon, selling, disposing of, or transferring any assets which [TEN] claims an interest to by virtue of an alleged security interest in the inventory, equipment, accounts, instruments, documents, chattel paper and other rights to payment, assets, collateral and/or general intangibles of [Southwest].

Although the trial court did not file formal findings of fact and conclusions of law, it stated its findings supporting the order granting the temporary injunction at the conclusion of the temporary injunction hearing. Specifically, the trial court stated:

• Westchase is likely to prevail on its breach of contract claim against Southwest.

• TEN seeks to remove all of Southwest's assets which would make it unable to respond to any damages awarded to Westchase.

• The loans made by Sterling Bank were not in default when TEN purchased the promissory notes.

• Charles Tharp, who is the sole owner of Southwest, deliberately put Southwest in default when TEN purchased the notes.

• Buying the promissory notes from Sterling Bank was not the only option available to TEN.

• TEN could have reduced the monthly payments that Southwest had to make on the notes, or Tharp could have loaned the money to Southwest rather than TEN.

• Tharp was "colluding with himself to get all of Southwest's assets out of Southwest free and clear to put the assets in some other company that Mr. Tharp owned and leaving all suppliers, providers and other creditors holding debts from an empty shell in Southwest."

• On final trial, "more than likely it will be found that the security interest is fraudulent itself and by `fraudulent,' I don't mean Mr. Tharp is a bad person, but I think that the business procedure that he used in this case will likely [be] ... found to be fraudulent ..., and, therefore, be set aside."

On appeal, TEN complains the trial court misapplied the law to the undisputed facts. In two points of error, TEN contends that the trial court erred in granting the temporary injunction because (1)...