Opinion issued June 12, 2003
In The
Court of Appeals
For The
First District of Texas
NO. 01-02-00735-CV
WILLIAMS INDUSTRIES, INC., Appellant
V.
FRY’S ELECTRONICS, INC., Appellee
On Appeal from the 133rd District Court
Harris County, Texas
Trial Court Cause No. 02-27082
MEMORANDUM OPINION
Appellant, Williams Industries, Inc., brings this accelerated, interlocutory appeal to challenge a temporary injunction entered in response to the application of appellee, Fry’s Electronics, Inc. Fry’s relied on section 24.008(a)(3)(A) of the Texas version of the Uniform Fraudulent Transfer Act (UFTA) in seeking injunctive relief and premised the merits of its claims against Williams on allegations that Williams committed transfers prohibited as fraudulent under UFTA. See Tex. Bus. & Com. Code Ann. 24.008(a)(3)(A) (Vernon 2002) (authorizing injunctive relief); id. § 24.005(a)(1)-(2) (Vernon 2002) (defining transfers fraudulent as to present and future creditors).
The temporary injunction required Williams to deposit all of its assets, including its accounts receivable and tangible and intangible real and personal property, into an escrow account. In addition, the injunction prohibited Williams from releasing any escrowed assets except to pay debts incurred in the ordinary course of its business, including payments to subcontractors, and required Williams to apply for payments in writing to an appointed escrow agent and to provide a copy of all applications for payment to Fry’s. The injunction also set a trial date of April 14, 2003, but “in no event before the issuance of an award” in an arbitration proceeding that had already begun between Fry’s and Williams. Williams contends that the trial court should have compelled Fry’s to arbitrate its fraudulent transfer claim in the arbitration proceeding and also contends that Fry’s did not sustain its burden of proof in seeking the temporary injunction. We affirm.
Did the Trial Court Refuse to Compel Arbitration?
In its first issue, Williams contends that the trial court erred by implicitly refusing to refer Fry’s fraudulent transfer claim to the ongoing arbitration proceeding. Fry’s responds that Williams did not preserve error. See Tex. R. App. P. 33.1(a) (requiring the following to preserve error: request, objection, or motion that complies with governing rules and sufficiently specifies grounds for desired ruling; and express or implicit ruling by trial court or refusal to rule and objection to refusal to rule). We agree with Fry’s.
A right to appeal arises only from a final order or an interlocutory order made appealable by statute. Bally Total Fitness Corp. v. Jackson, 53 S.W.3d 352-53 (Tex. 2001); In re MHI Partnership, Ltd., 7 S.W.3d 918, 920 (Tex. App.—Houston [1st Dist.] 1999, orig. proceeding). The order challenged here grants injunctive relief, specifies that trial on the merits will follow, and is, therefore, interlocutory. The Texas version of the Uniform Arbitration Act (TAA) permits an interlocutory, accelerated appeal of a decree that (1) was entered under the TAA and (2) either denies an application to compel arbitration or grants an application to stay arbitration. Tex. Civ. Prac. & Rem. Code Ann. § 171.098(a)(1), (2) (Vernon Supp. 2002); see Tex. R. App. P. 28.1 (“An appeal from an interlocutory order, when allowed, will be accelerated.”).
Statutes that grant appellate courts jurisdiction to review interlocutory orders are strictly construed because they create a narrow exception to the general rule that only final judgments are appealable. Ahmed v. Shimi Ventures, L.P., 99 S.W.3d 682, 688 (Tex. App.—Houston [1st Dist.] 2003, no pet.); see also Bally Total Fitness Corp., 53 S.W.3d at 352-53 (“A party may not appeal an interlocutory order unless authorized by statute.”). Accordingly, an order that grants, rather than denies, a motion to compel arbitration is not appealable under chapter 171 of the Remedies Code. Mohamed v. Auto Nation USA Corp., 89 S.W.3d 830, 833-34 & n.7 (Tex. App.—Houston [1st Dist.] 2002, no pet.). Similarly, an order that merely defers ruling on a motion to compel arbitration is not appealable under chapter 171 because it is not an order that denies a motion to compel. In re MHI Partnership, Ltd., 7 S.W.3d at 920-21.
The order Williams challenges here is not appealable under section 171.098(a)(1)-(2) of the Remedies Code because it is neither a “judgment or decree entered under [chapter 171]” nor “an order . . . denying an application to compel arbitration . . . [or] granting an application to stay arbitration . . . .” Tex. Civ. Prac.& Rem. Code Ann. § 171.098(a)(1)-(2). As Williams stated in its notice of appeal, the purpose of its appeal is to challenge the “appealable order granting temporary inunction signed . . . on June 26, 2002.” That order specifies that it is a temporary injunction pursuant to chapter 24 of the Business and Commerce Code. Although the order acknowledges the ongoing arbitration between Williams and Fry’s, the order refers to the arbitration only minimally. Paragraph 8 of the order sets a trial date “in no event before the issuance of an award in the arbitration between Fry’s and Williams,” and paragraph 10 prohibits disclosing the contents of the court’s June 26, 2002 order in the arbitration.
William’s answer included a motion to compel arbitration, and Williams reiterated its motion during the trial court proceedings. The focus of the five hearings the trial court conducted, however, was on whether the injunction should issue under UFTA. The last of these hearings reflects extensive discussions among the trial court and counsel for both Williams and Fry’s concerning the terms of at least six specific provisions of the injunction challenged here. These discussions show the trial court’s concerted efforts to obtain input from both parties concerning the content of the order to be entered, as well as the parties’ agreement to provide that input, and the trial court’s order reflects that effort. Indeed, the trial court’s order specifies that Williams does not agree with the court’s extensive fact findings recited in the order. Despite these ample opportunities for Williams to memorialize a ruling on its motion to compel arbitration, neither the order Williams challenges nor the remainder of the record of this interlocutory appeal discloses a decree or a ruling that denies Williams’s motion to compel or an objection by Williams to a refusal by the trial court to rule on the motion to compel. See Tex. R. App. P. 33.1(a)(1)-(2).
Because Williams’s appeal does not involve a failure to compel arbitration, we lack jurisdiction to consider Williams’s first issue.
Temporary Injunction under UFTA
In its second issue, Williams contends that Fry’s did not meet the requisite evidentiary showing to be entitled to injunctive relief under section 24.008(a)(3)(A) of UFTA. Our jurisdiction to address this issue is pursuant to section 51.014(4) of the Civil Practice and Remedies Code. Tex. Civ. Prac. & Rem. Code Ann. § 51.014(4) (Vernon Supp. 2002).
A. Uniform Fraudulent Transfer Act
The purpose of UFTA is to prevent fraudulent transfers of property by a debtor who intends to defraud creditors by placing assets beyond their reach. Tel. Equip. Network, Inc. v. TA/Westchase Place, Ltd., 80 S.W.3d 601, 607 (Tex. App.—Houston [1st Dist.] 2002, no pet.). UFTA creates a cause of action by which a creditor may seek recourse for a fraudulent transfer of assets or property. Id.; Blackthorne v. Bellush, 61 S.W.3d 439, 443 (Tex. App.—San Antonio 2001, no pet.). A transfer of an asset is fraudulent as to a creditor under UFTA if the debtor made the transfer with actual intent to hinder, delay, or defraud any of the debtor’s creditors or without receiving reasonably equivalent value in exchange for the transfer. Tex. Bus. & Com. Code Ann. § 24.005(a)(1)-(2) (Vernon Supp.2002).
The remedies available to a creditor under UFTA include the relief the trial court ordered here, an injunction against further disposition of the asset transferred. See Tex. Bus. & Com. Code Ann. § 24.008(a)(3)(A) (Vernon 2002). The injunction remedy is subject to applicable principles of equity and the rules of civil procedure. Id.
B. Equitable Standards for Temporary Injunction
The only issue before a trial court in a temporary injunction hearing is whether the applicant is entitled to preserve the status quo pending trial on the merits. Davis v. Huey, 571 S.W.2d 859, 862 (Tex.1978); Tel. Equip. Network, Inc., 80 S.W.3d at 607. To be entitled to a temporary injunction, an applicant must plead a cause of action, show a probable right to recover on that cause of action, and show a probable injury in the interim. Sun Oil Co. v. Whitaker, 424 S.W.2d 216, 218 (Tex. 1968); Tel. Equip. Network, Inc., 80 S.W.3d at 607. An applicant shows a probable right of success on the merits by presenting evidence that tends to sustain the alleged cause of action. Id. Probable injury includes elements of imminent harm, irreparable injury, and lack of an adequate remedy at law for damages. Id.
Because an appeal of an order granting or denying a temporary injunction is an appeal from an interlocutory order, the merits of the applicant’s case are not presented for appellate review. Id. The decision to grant or deny a temporary injunction lies within the sound discretion of the trial court, and we will not reverse the trial court’s determination that the applicant established its right to injunctive relief unless the trial court abused its discretion in reaching that determination. See Walling v. Metcalfe, 863 S.W.2d 56, 58 (Tex. 1993); Tel. Equip. Network, Inc., 80 S.W.3d at 607. We may not substitute our judgment for that of the trial court and may determine only whether the court’s action was so arbitrary as to exceed the bounds of reasonable discretion. Tel. Equip. Network, Inc., 80 S.W.3d at 607.
Because a trial court has no discretion in deciding what law governs or how to apply it, we review the trial court’s legal determinations de novo. See Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992). Erroneous application of the law to undisputed facts will thus constitute an abuse of discretion. Id.; Tel. Equip. Network, Inc., 80 S.W.3d at 607. We defer to the trial court, however, when, as here, its discretionary rulings depend on resolution of disputed facts. See Walker, 827 S.W.2d at 839-40; see also In re Doe 2, 19 S.W.3d 278, 289 (Tex. 2000) (“An appellate court may not attempt to reconcile disputed factual matters under an abuse of discretion standard.”). Accordingly, we review conflicting evidence in the light most favorable to the trial court’s order and draw all legitimate inferences from that evidence in support of the order. Tel. Equip. Network, Inc., 80 S.W.3d at 607.
C. The Trial Court’s Reasoning in Granting Fry’s Injunctive Relief
The order granting injunctive relief recites the trial court’s conclusions that Fry’s (1) has a probable right of recovery and is likely to succeed on the merits of its fraudulent-transfer claim, (2) will suffer probable injury, irreparable injury, and imminent harm unless injunctive relief is granted, and (3) has no adequate remedy at law. Following these conclusions, the order recites that it is premised on section 24.005(a)(1) of UFTA, which renders fraudulent transfers made with actual intent to hinder, delay or defraud creditors, here creditors of Williams. See Tex. Bus. & Com. Code Ann. § 24.005(a)(1); Tel. Equip. Network, Inc., 80 S.W.3d at 607-08. The trial court’s order substantiates Fry’s entitlement to injunctive relief with extensive findings, which follow:
1. . . . . Among other credible evidence in the record supporting claims for injunctive relief, the credible evidence shows that at least $815,000 of Williams[’s] assets have been transferred to State Construction with the actual intent to hinder, delay or defraud creditors of Williams. The credible evidence also shows that Fry’s is one of Williams[’s] several creditors, that Fry’s claim arose before or within a reasonable time after Williams[’s] asset transfer occurred, and that Williams had notice of its creditors’ claims, including Fry’s claims, both prior to and reasonably soon after Williams[’s] transfer of assets to State Construction. The credible evidence also suggests that State Construction is an “insider” with respect to Williams, because, among other things, Williams and State Construction use the same employees; they are in the same line of work, they use the same office space; they have the same CFO, Mr. Don Stephens; they have overlapping ownership; they have worked on the same jobs and have overlapping customers; they have used similar marketing efforts; substantially all of the assets used in the creation of State Construction were Williams[’s] assets; Williams[’s] CFO created State Construction while still the CFO of Williams; they have an extremely close and overlapping financial and, business relationship; and, the asset transfer transaction between Williams and State Construction was not at arm’s length.
2. The credible evidence also shows that Williams retained some control over the assets transferred to State Construction because of the companies’ overlapping ownership and CFO. The credible evidence also shows that Williams[’s] assets transfer was concealed, that Williams removed the assets from the company, and that Williams had been threatened with claims and litigation prior to its asset transfer. The credible evidence also shows that the assets transferred constituted substantially all of Williams[’s] hard assets and that Williams was insolvent or became insolvent shortly after the transfer was made. The credible evidence also shows that the transfer occurred shortly after Williams incurred substantial debts, that Williams is currently insolvent and incapable of paying Fry’s claim, and that Williams[’s] fraudulent transfers will probably continue unless injunctive relief is granted. The credible evidence also shows that Williams intends to make further asset transfers. The credible evidence also shows that Williams expects to receive and/or obtain $3,000,000 to $3,600,000 in assets within the next several months.
3. The credible evidence also shows that unless Williams is immediately enjoined from dissipating or diverting the assets involved in this lawsuit, Williams will dissipate or divert such assets and will alter the status quo and hinder the Court in the granting of appropriate relief. Unless Williams is immediately enjoined from dissipating or diverting the assets involved in this lawsuit, Fry’s will be without an adequate remedy at law, will suffer probable and irreparable injury, and will suffer imminent harm in that, among other things, Williams will be judgment-proof and insolvent, will likely become an “empty shell” company, and the assets that may be awarded to Fry’s will become difficult, if not impossible, to account for and recover.
Following these findings, the trial court recites its conclusions that Fry’s has statutory right to injunctive relief under UFTA and that “Texas law supports injunctive relief in [UFTA] actions.”
D. Williams’s Challenge to Fry’s Right to Injunctive Relief.
Williams’s challenges misstate Fry’s burden of proof. Williams disputes the propriety of injunctive relief by contending that Fry’s (1) did not “establish that Fry’s is a creditor of Williams; (2) did not “establish an actual intent to defraud a creditor” by Williams; (3) did not “establish [that] the transfer was made without receiving a reasonably equivalent value in exchange”; and (4) did not “ establish [that Williams] was rendered insolvent as a result of the transfer.” (Emphasis added.)
Fry’s proper burden in seeking temporary injunctive relief, however, was to present evidence tending to establish Fry’s its fraudulent-transfer claim. See Davis, 571 S.W.2d at 861; Tel. Equip. Network, Inc., 80 S.W.3d at 607. Consistent with Fry’s burden, the trial court’s order refers consistently and repeatedly to “credible evidence” that tended to show a probable right to recovery on the fraudulent-transfer claim, a likelihood of success on the merits of that claim, and probable injury, irreparable injury, and imminent harm unless injunctive relief was granted, as well as the lack of an adequate remedy at law.
In addition to misstating Fry’s burden and delving into the merits of its claims, Williams focuses on its own version of facts, which the parties disputed at the hearings on the temporary injunction, and ignores the standards that we must follow in reviewing the trial court’s resolution of controverted facts. See Walker, 827 S.W.2d at 839-40; In re Doe 2, 19 S.W.3d at 289. Williams directs us, for example, to testimony and evidence supporting the theory that Fry’s owed Williams money and “not the other way around”; that Fry’s claims of fraudulent transfer merely seek to offset funds that Fry’s owes Williams; that creditors received value in the form of ownership interests in the newly formed corporation; that Williams intends to buy back those interests in three to five years; and finally, that Williams’s intent was not to defraud its creditors, but to pay them. Yet, the trial court’s extensive findings reflect that it rejected Williams’s version of the facts in favor of Fry’s.
After affording the required deference to the trial court’s resolution of Fry’s and Williams’s evidence, we cannot say, and Williams has not demonstrated, based on the record before us, that the trial court’s resolution was so arbitrary as to exceed the bounds of reasonable discretion. See Tel. Equip. Network, Inc., 80 S.W.3d
at 607. Accordingly, we overrule Williams’s second issue.
Conclusion
We decline to address, for lack of jurisdiction, Williams’s complaint that the
trial court erred by denying Williams’s motion to compel arbitration. We affirm the
judgment of the trial court.
Elsa Alcala
Justice
Panel consists of Justices Hedges, Jennings, and Alcala.