TransAmerican Natural Gas Corp. v. Finkelstein, 04-95-00365-CV

• Decision Date: 16 August 1995
• Docket Number: No. 04-95-00365-CV,04-95-00365-CV
• Citation: 905 S.W.2d 412
• Parties: TRANSAMERICAN NATURAL GAS CORPORATION and TransTexas Gas Corporation, Appellants, v. Hubert S. FINKELSTEIN, Appellee.
• Court: Texas Court of Appeals

Page 412

905 S.W.2d 412

TRANSAMERICAN NATURAL GAS CORPORATION and TransTexas Gas

Corporation, Appellants, v. Hubert S. FINKELSTEIN, Appellee.

No. 04-95-00365-CV.

Court of Appeals of Texas,

San Antonio.

Aug. 16, 1995.

W. James Kronzer, David M. Gunn, Law Offices of W. James Kronzer, Houston, C.M. Zaffirini, Zaffirini, Castillo & Pellegrin, Laredo Elizabeth N. Miller, Steve Selby, Scott, Douglass, Luton & McConnico, L.L.P., Austin, Frank Douglass, Scott, Douglass, Luton & McConnico, L.L.P., Dallas, Morgan L. Copeland, Timothy E. Gehl, Scott, Douglass, Luton & McConnico, L.L.P., Houston, Arturo A. Figueroa, Jr., Law Offices of Arturo A. Figueroa, Zapata, Robert J. Hearon, Jr., Graves, Dougherty, Hearon & Moody, Austin, for appellee.

Jeff Wentworth, San Antonio, Fred Wahrlich, TransTexas Gas Corporation, Houston, for appellant.

Before RICKHOFF, GREEN and DUNCAN, JJ.

OPINION

DUNCAN, Justice.

Hubert S. Finkelstein, appellee, seeks review of the trial court's ruling that the sureties on the supersedeas bond filed by appellants, TransAmerican Natural Gas Corporation ("TransAmerican") and TransTexas Gas Corporation ("TransTexas"), are sufficient. Finkelstein contends that the sureties are insufficient because they do not provide adequate security in addition to the appellants' assets. We agree.

FACTS

The material facts are undisputed. The trial court rendered judgment against TransAmerican and TransTexas for approximately $18 million. TransAmerican and TransTexas subsequently filed a single supersedeas bond for roughly the amount of the judgment, interest, and costs. The sureties on appellants' bond were John R. and Eileen Stanley and Southern States Exploration, Inc. ("Exploration").

John R. Stanley is the chairman and chief executive officer of TransAmerican and Exploration. Eileen Stanley is the wife of John R. Stanley and, as such, the owner of a one-half interest in the Stanleys' community property. Among the Stanleys' community property is 100% of the capital stock of TransAmerican. TransAmerican, in turn, owns 100% of the stock of TransAmerican Pipeline Corp., which owns 100% of the stock of Southern States, Inc., which owns 100% of the stock of Exploration. TransTexas is another of TransAmerican's subsidiaries. The Stanleys own, directly or indirectly, approximately 87% of TransTexas' stock. The sureties on appellants' supersedeas bond were, therefore, (1) the Stanleys, who directly or indirectly own all of the stock of TransAmerican; and (2) Exploration, which is TransAmerican's third-tier wholly-owned subsidiary.

In the trial court, Finkelstein objected to appellants' supersedeas bond in two respects. See TEX.R.APP.P. 47(k). First, Finkelstein argued that the sureties on appellants' bond were insufficient because they did not own assets other than TransAmerican stock or assets, directly or indirectly, sufficient to satisfy the judgment against TransAmerican and TransTexas. Second, Finkelstein argued that the amount of the bond was insufficient because it did not include all of the prejudgment interest and attorney's fees awarded in the judgment. In response, appellants filed an amended bond purporting to cure these omissions; however, the amended bond is backed by the same sureties as the original bond.

The trial court held an evidentiary hearing, and the parties presented evidence regarding the relationships between appellants and their sureties, as well as their net worth. While the net worth evidence was conflicting, the evidence regarding the relationships between appellants and their sureties was essentially uncontroverted. At the conclusion of the hearing, the trial judge overruled Finkelstein's objections, effectively ruling that the relationships between appellants and their sureties did not render the sureties insufficient. ¹ In this court, Finkelstein seeks review of the trial court's order only with respect to the sufficiency of appellants' sureties. See TEX.R.APP.P. 49.

STANDARD OF REVIEW

We agree with the parties that the standard for reviewing a trial court's ruling on the sufficiency of a supersedeas bond is abuse of discretion. See TEX.R.APP.P. 47(k); cf. Universal Transport & Distributing Co. v. Cantu 75 S.W.2d 697, 698 (Tex.Civ.App.--San Antonio 1934, orig. proceeding). An abuse of discretion is shown "[w]ith respect to resolution of factual issues or matters committed to the trial court's discretion" when the movant "establish[es] that the trial court could reasonably have reached only one decision." Walker v. Packer, 827 S.W.2d 833, 839-40 (Tex.1992). However, "a trial court has no 'discretion' in determining what the law is or applying the law to the facts. Thus, a clear failure by the trial court to analyze or apply the law correctly will constitute an abuse of discretion...." Id. at 840.

The trial judge's oral ruling in this case indicates that the basis for his ruling was that the relationships between the appellants and their sureties were irrelevant as a matter of law, because, although the evidence was conflicting, it appeared to him that the sureties were solvent and able to pay the judgment. See supra n. 1. Accordingly, we review the trial court's order only under the second prong of Walker, i.e., to determine whether the trial court correctly applied the law to the facts.

DISCUSSION

A judgment debtor may suspend the execution of the judgment pending appeal by filing a "good and sufficient bond." TEX.R.APP.P. 47(a). A "good and sufficient bond" properly identifies the judgment or order on appeal and properly conditions payment of the proper amount by the judgment debtor and one or more good and sufficient sureties to either the judgment creditor or the clerk. See TEX.R.APP.P. 47(a). In this proceeding, Finkelstein challenges only the sufficiency of appellants' sureties.

Requirements for a Sufficient Surety

"A surety is a party who promises to answer for the debt of another." Crimmins v. Lowry, 691 S.W.2d 582, 585 (Tex.1985) (emphasis added). Accordingly, a judgment debtor cannot be a surety for himself. Universal Auto. Ins. Co. v. Culberson, 51 S.W.2d 1071, 1073 (Tex.Civ.App.--Waco 1932, mot.) (per curiam). This is necessarily true because the surety must provide "security, in addition to the personal liability of the appellant, for the payment of the judgment." Cooper v. Bowser, 583 S.W.2d 805, 807 (Tex.Civ.App.--San Antonio 1979, mot.) (per curiam) (emphasis added); see also Ruiz v. Watkins, 701 S.W.2d 688, 691 (Tex.App.--Amarillo 1985, orig. proceeding); Elliott v. Lester, 126 S.W.2d 756, 758 (Tex.Civ.App.--Dallas 1939, no writ); Culberson, 51 S.W.2d at 1072. At the very least, therefore, a "sufficient surety" must be an entity or individual that is a legal entity, separate from the judgment debtor and not a party to the suit, whose solvency and ability to pay the judgment are established. Brown & Root, Inc. v. DeSautell, 554 S.W.2d 764, 771 (Tex.Civ.App.--Houston [1st Dist.] 1977, writ ref'd n.r.e.). The party tendering the bond bears the burden of establishing that its surety, whether corporate or individual, is a "sufficient surety." Cantu, 75 S.W.2d at 698. See generally Elaine A. Carlson, Stays and Enforcements of Civil Judgments in Texas, in STATE BAR OF TEXAS PROF. DEV. PROGRAM, ADVANCED CIVIL APPELLATE PRACTICE COURSE W, W-10 (1994).

Sufficiency of the Stanleys as Sureties

In this case, the uncontroverted evidence establishes that the Stanleys do not have assets other than their stock in TransAmerican sufficient to satisfy the judgment. The pertinent inquiry, therefore, is whether the Stanleys' TransAmerican stock may be considered in determining their ability to pay the judgment. We hold that it cannot for the simple reason that the stock merely represents, ultimately, TransAmerican's assets. Cf. Morrison v. St. Anthony Hotel, 274 S.W.2d 556, 567 (Tex.Civ.App.--Austin 1955, writ ref'd n.r.e.) ("incidents of stock ownership in a corporation are the rights, pro tanto, to share in its management, profits and upon dissolution, its assets"). Since TransAmerican's assets are already at risk to pay the judgment, TransAmerican's stock offers Finkelstein no security in addition to that which he already has by virtue of TransAmerican's status as a judgment debtor. See Cooper, 583 S.W.2d at 807 (surety must provide "security, in addition to the personal liability of the appellant, for the payment of the judgment").

When the Stanleys' TransAmerican stock is excluded, the Stanleys indisputably do not own assets sufficient to satisfy the judgment. They are not, therefore, a "good and sufficient surety" under Texas law.

Sufficiency of Exploration as a Surety

The reverse situation is presented with respect to TransAmerican's second surety, Exploration. TransAmerican owns 100% of Exploration's stock. This stock is representative of Exploration's assets and, ultimately, a portion of those of its 100% shareholder, TransAmerican. Cf. Morrison, 274 S.W.2d at 567. Accordingly, since Exploration's assets are already at risk by virtue of TransAmerican's status as a judgment debtor and its ownership of Exploration's stock, Exploration's assets do not constitute security in addition to that which Finkelstein already has. See Cooper, 583 S.W.2d at 807. Exploration is not therefore a "good and sufficient" surety under Texas law.

Brown & Root, Inc. v. DeSautell

Appellants contend that, because their...