COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-10-00294-CV
KEITH FISCHER; HELEN APPELLANTS
LORRAINE FISCHER; AND KHBD,
INC. D/B/A PRECISION BUILDERS
AND D/B/A PRECISION
CONCRETE
V.
MARK RIDER APPELLEE
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FROM THE 367TH DISTRICT COURT OF DENTON COUNTY
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MEMORANDUM OPINION1
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I. INTRODUCTION
This is an accelerated interlocutory appeal from a temporary injunction.
See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(4) (Vernon 2008). In three
issues, Appellants Keith Fischer, Helen Lorraine Fischer, and KHBD, Inc. d/b/a
1
See Tex. R. App. P. 47.4.
Precision Builders and d/b/a Precision Concrete argue that the trial court’s
temporary injunction is void because it failed to include a date for the trial on the
merits and that the trial court abused its discretion by finding evidence existed
that Appellee Mark Rider would suffer irreparable injury in the absence of a
temporary injunction and by finding evidence existed that such injury to Rider
was imminent. We will affirm.
II. AMENDED TEMPORARY INJUNCTION SETS TRIAL DATE
After Appellants perfected this appeal, the trial court signed an amended
temporary injunction. The amended temporary injunction is essentially the same
as the original injunction except that it sets a trial date. Appellants concede in
their reply brief on appeal that their first issue, claiming that the temporary
injunction is void for failure to set a trial date, has been mooted by the trial court’s
amended temporary injunction that sets a trial date. Accordingly, we overrule
Appellants’ first issue.2
2
The trial court’s amended temporary injunction sets the case for trial on
January 31, 2010. Despite the clerical error in the year the case is set for trial,
the amended order meets the requirements of rule 683. Tex. R. Civ. P. 683; see
Miller v. K & M P’ship, 770 S.W.2d 84, 88 (Tex. App.––Houston [1st Dist.] 1989,
no writ) (declining to find that typographical error in trial date––which was prior to
date of order––in temporary injunction order rendered order void).
We note that the record was prepared, briefing was completed, and this
case was submitted to this court on December 1, 2010.
2
III. TRIAL COURT DID NOT ABUSE ITS DISCRETION
BY GRANTING A TEMPORARY INJUNCTION
A. Standard of Review
A temporary injunction’s purpose is to preserve the status quo of the
litigation’s subject matter pending a trial on the merits. Butnaru v. Ford Motor
Co., 84 S.W.3d 198, 204 (Tex. 2002) (citing Walling v. Metcalfe, 863 S.W.2d 56,
57 (Tex. 1993)). A temporary injunction is an extraordinary remedy and does not
issue as a matter of right. Id.
To be entitled to a temporary injunction, the applicant must plead a cause
of action and further show both a probable right to recover on that cause of
action and a probable, imminent, and irreparable injury in the interim. Butnaru,
84 S.W.3d at 204; Frequent Flyer Depot, Inc. v. Am. Airlines, Inc., 281 S.W.3d
215, 220 (Tex. App.––Fort Worth 2009, pet. denied), cert. denied, 120 S. Ct.
2061 (2010). A probable right of recovery is shown by alleging a cause of action
and presenting evidence tending to sustain it. Frequent Flyer Depot, 281 S.W.3d
at 220. An injury is irreparable if damages would not adequately compensate the
injured party or if they cannot be measured by any certain pecuniary standard.
Butnaru, 84 S.W.3d at 204; Frequent Flyer Depot, 281 S.W.3d at 220.
In an appeal from an order granting or denying a temporary injunction, the
scope of review is restricted to the validity of the order granting or denying relief.
Walling, 863 S.W.2d at 58; Frequent Flyer Depot, 281 S.W.3d at 220. Whether
to grant or deny a request for a temporary injunction is within the trial court’s
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discretion, and we will not reverse its decision absent an abuse of discretion.
Butnaru, 84 S.W.3d at 204; Frequent Flyer Depot, 281 S.W.3d at 220.
Accordingly, when reviewing such a decision, we must view the evidence in the
light most favorable to the trial court’s order, indulging every reasonable
inference in its favor, and determine whether the order was so arbitrary that it
exceeds the bounds of reasonable discretion. Frequent Flyer Depot, 281 S.W.3d
at 220. A trial court does not abuse its discretion if it bases its decision on
conflicting evidence and at least some evidence in the record reasonably
supports the trial court’s decision. Davis v. Huey, 571 S.W.2d 859, 862 (Tex.
1978); Frequent Flyer Depot, 281 S.W.3d at 220. When findings of fact are not
requested or separately filed we must uphold the trial court’s order on any legal
theory supported by the record. Frequent Flyer Depot, 281 S.W.3d at 220.
B. The Temporary Injunction Hearings
KHBD is a close corporation that builds million-dollar homes. Michael
Cannaday is the builder and construction manager for KHBD, and Keith Fischer
and Rider own all of the KHBD stock. Keith owns 75% of the stock; Rider owns
25% of the stock. Keith serves as the president, vice president, secretary,
treasurer, and the only director of KHBD.
Rider filed suit alleging that Keith and Cannaday had fraudulently induced
him (Rider) to finance ―millions of dollars of residential construction for KHBD . . .
through the fraudulent sale of stock and other devices‖ and then ―refused to
make payments to [him] in accordance [with] the terms of the transactions . . . .‖
4
Rider alleged causes of action for statutory fraud, common law fraud, fraud by
nondisclosure, securities fraud, fraudulent inducement, breach of fiduciary duty,
constructive fraud, aiding and abetting, violation of the Texas Close Corporation
Act, breach of contract, theft, money had and received, negligent
misrepresentation, and conspiracy. Rider also requested the imposition of a
constructive trust/equitable lien; an order for equitable accounting; exemplary
damages; the appointment of a receiver, provisional director, and/or custodian;
and a temporary restraining order and injunctive relief.
Rider’s temporary injunction hearing was heard at three different hearings.
Keith, Rider, Cannaday, and Lanny Wilkinson testified concerning the temporary
injunction.3 The trial court did not make findings of fact or conclusions of law.
After the hearings, the trial court entered a temporary injunction finding that there
was evidence ―that harm is imminent to plaintiff, and if the court does not issue a
temporary injunction plaintiff will be irreparably injured.‖ The trial court also found
that ―KHBD has made balloon loans in 2009, with no interim interest payments
required until maturity, to Keith Fischer in the approximate amount of $83,939.02
and Michael Cannaday in the approximate amount of $93,253.47‖ and that ―[t]he
court has significant concerns at this juncture about the propriety of loans already
made by KHBD to Keith Fischer and Michael Cannaday and future loans.‖
3
The trial court also heard testimony from proposed receiver David
Morraine, but that testimony is not pertinent to the arguments Appellants raise
regarding the temporary injunction.
5
Viewing the evidence as we must in the light most favorable to the trial
court’s ruling, the record reflects that Keith and Rider had an oral agreement that
Cannaday would be paid $10,000 per month and that Rider would be paid sixty-
six percent of what Cannaday was paid. For several years, KHBD paid
Cannaday his monthly salary plus other expenses, but Rider was told by Keith
that KHBD did not have money to pay him.
Yet, KHBD had loaned Keith approximately $70,000 in 2009 in lieu of
paying him for negotiating contracts and deals with banks, for looking over bills,
and for making sure that products were properly delivered. Keith said that KHBD
paid for his vehicle in 2006 and that he had received checks for rent because
KHBD offices out of his home. According to Keith, KHBD still owes him
$620,103.84 of the monies he initially invested in KHBD.4
Keith said that Cannaday has been paid $483,707 since 2006, plus
$13,818 for out-of-pocket expenses. Keith said that he told Rider about the loan
that KHBD was making to Cannaday so that he could finish his home. Keith said
that he never told anyone that Cannaday had taken kickbacks.
4
Keith was questioned regarding the bankruptcy petition that he had filed,
and he admitted that it did not list KHBD or that he had a wife and that he had
reported his sole source of income as unemployment benefits, despite that he
was paid $267,863 (according to another exhibit). Keith also admitted that the
KHBD tax returns did not reflect the $13,000 that he was paid.
6
Keith testified that Rider was supposed to receive approximately sixty-six
percent of what Cannaday was paid, ―assuming the profits were there.‖ 5
However, Keith said that Rider has not been paid sixty-six percent of Cannaday’s
compensation since 2005 because the corporation’s profits ―aren’t there.‖ Keith
testified that KHBD performed $77,881.02 worth of work on Rider’s home
because that is how Rider wanted to be compensated for his stock. Additionally,
KHBD had paid $78,165.48 of credit charges for Rider and had made additional
payments to him in the amount of $85,455.99. Keith testified that Rider has been
paid $263,566.93 plus $3,100 for his stock and that Rider still has his stock.
Currently, Rider owns 2,500 shares of KHBD, and Keith owns 7,500
shares of KHBD. Keith testified that when shares of KHBD were transferred
among him, his wife, and Cannaday, they were transferred at one cent per share;
he admitted that Rider had paid $300 per share for his KHBD stock. Keith said
that no dividends were ever issued because there were ―none to pay.‖
Two days after a December 4, 2009 shareholders’ meeting, Keith received
a fax from Rider requesting KHBD’s tax returns, and KHBD’s bookkeeper sent a
letter to Rider stating that they would produce the documents in thirty days.
However, as of the date of the hearing, no date had been set for Rider to inspect
the books.
5
Keith noted that Plaintiff’s Exhibit 4 showed that KHBD expected to make
$1.4 million in 2000, but he said that they did not realize that amount.
7
Rider testified that he had paid $750,000 for stock in KHBD and had
received approximately $280,000 back. He was last paid in 2007. He said that
he has been requesting financial information from KHBD since 2005 but had not
received information from KHBD until the information was subpoenaed.
Rider discussed several exhibits showing loans made by KHBD to
Cannaday and to Keith. One exhibit showed that in 2009, KHBD had made
loans to Cannaday totaling $93,253.47 and to Keith totaling almost $84,000. All
of the loans were unsecured and had no timetable for repayment. Rider testified
that he does not believe that Cannaday can repay his loans to KHBD because he
owes the IRS over $400,000.
With the loans and monthly salary (which totaled $139,500), 6 KHBD paid
Cannaday $232,753.47 in 2009. From 2006 to 2009, Cannaday’s pay plus the
cost of his vehicles totaled $531,000. Rider testified that he should receive two-
thirds of that or $354,319 plus $138,818.68 for his two-thirds of Cannaday’s pay
prior to 2006.
Rider was concerned that KHBD was ―cooking the books‖ because
Cannaday’s salary was underreported by approximately $500,000, Moreover,
Rider stated, ―They’ve made loans to themselves, substantially draining the
company of all assets, without my permission or my knowledge, which is a
violation of [the] shareholders agreement.‖ Rider also testified that Keith and
6
Rider’s understanding was that Cannaday’s salary was a fixed expense of
$10,000 per month.
8
Cannaday had transferred stock back and forth without Rider’s permission and
had done so for one cent per share. Moreover, Rider testified that Keith had
admitted on December 4, 2009 that Cannaday had taken kickbacks totaling
approximately $400,000 and that he was no longer an owner of KHBD.
Rider summarized the misrepresentations that were made to him: (1) Keith
misrepresented Cannaday’s salary for 2003, 2004, and 2005 on the reports that
Rider received twice a year; (2) Keith misrepresented that a shareholders’
agreement was in place and then later denied that there was one in place;7 (3)
Keith misrepresented that he owned the company and misrepresented that
Cannaday had ever owned the company; (4) Keith misrepresented in 2000 that
KHBD was doing honest work with integrity with its homeowners and
subcontractors; (5) Keith misrepresented that the stock was worth $300 per
share and then traded it for one cent per share; (6) Keith misrepresented that if
Rider bought a lot in Corinth that KHBD would make the interest payments until
the lot sold, but then Keith told Rider that he would not make the payments; (7)
Keith misrepresented that he would not pass stock to dodge federal bankruptcy
rules; (8) Keith misrepresented that KHBD would have an ―S election,‖ but Keith
failed to follow through with making that election; (9) both Keith and Cannaday
misrepresented ―a certain situation involving a crossing of boundaries and the
7
Rider believes that there may be more than one shareholders’ agreement.
9
building of . . . a personal home that was to have happened in Corinth‖; and (10)
Keith and Cannaday made loans to themselves without Rider’s permission.
Michael Cannaday, the builder8 and construction manager for KHBD,
testified that KHBD pays him $10,000 per month and that KHBD furnishes him
with a cell phone and a truck that can pull heavy equipment. He testified that he
has not accepted any kickbacks and that he has not transferred stock to avoid
tax liabilities. He said that he does not currently own any KHBD stock and is not
an officer or director.
He said that his relationship with Rider deteriorated when he filed for
divorce from Rider’s stepdaughter. Cannaday testified that Rider knew that
KHBD was paying for the cost overruns on Cannaday’s home and that he intends
to pay back the $87,000 loan for those cost overruns. Cannaday also testified
that he has IRS liens totaling $400,000.
Lanny Wilkinson, who owns multiple companies, testified that Rider
contacted him in late November about a problem he was having with his KHBD
shares. Wilkinson told Rider that he had a right to know what was going on with
KHBD, and Rider invited him to come to the December 4, 2009 shareholders’
meeting. When they showed up for the shareholders’ meeting, Wilkinson used a
proxy executed by Rider and asked Keith for KHBD’s tax returns, financials, and
construction documents. Wilkinson said that Keith would not produce any
8
Cannaday admitted that he was denied a builder’s license in 2004 due to
―prior criminal activity.‖
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documents at the meeting, but Keith told him that he knew Cannaday had taken
kickbacks and that was why Cannaday no longer had access to the KHBD
checkbook. Keith also told Wilkinson that he would ―never testify to that in court.‖
C. Evidence Supports Findings of Irreparable Injury
and Imminent Harm
In their second and third issues respectively, Appellants argue that the trial
court abused its discretion by finding that in the absence of a temporary
injunction Rider would suffer irreparable injury and that such harm to Rider was
imminent.
A probable, imminent, and irreparable injury is the third element necessary
to obtain a temporary injunction. Butnaru, 84 S.W.3d at 204; Blackthorne v.
Bellush, 61 S.W.3d 439, 444 (Tex. App.––San Antonio 2001, no pet.). A party
proves irreparable injury for injunction purposes by proving that damages would
not adequately compensate the party or cannot be measured by any certain
pecuniary standard. Butnaru, 84 S.W.3d at 204; Frequent Flyer Depot, 281
S.W.3d at 227. An injury is also irreparable if the plaintiff does not have an
adequate remedy at law, and a plaintiff does not have an adequate remedy at
law if the defendant is insolvent. Blackthorne, 61 S.W.3d at 444.
The evidence presented at the temporary injunction hearings
demonstrated that KHBD was making unsecured loans to Keith and Cannaday
while refusing to pay Rider because there were allegedly no profits to pay him.
There was some evidence that KHBD’s tax documents did not reflect payments
11
to Keith and that payments to Keith were not reflected on his bankruptcy petition.
There was also some evidence that Cannaday may have accepted kickbacks.
Moreover, Keith, Helen, and Cannaday were trading shares among one another
for one cent, while Rider paid $300 per share for his shares. All of this evidence
regarding KHBD’s financial situation demonstrated that Rider was at risk of not
ever being repaid for his shares and that he could suffer irreparable injury, as
well as imminent harm, due to the inability to police Keith, who is the majority
shareholder, sole director, president, vice president, secretary, and treasurer of
KHBD. The record clearly supports the trial court’s ―significant concerns‖ over
the propriety of KHBD’s unsecured loans to Keith and Cannaday, as well as the
trial court’s concern that such financial practices would continue in the future
without a temporary injunction in place.
Because there is at least some evidence in the record reasonably
supporting the trial court’s decision, we hold that the trial court’s decision to grant
a temporary injunction is not arbitrary and did not exceed the bounds of its
reasonable discretion because that was the only way to deny Keith the ability to
continue to withdraw funds from KHBD to Rider’s detriment while the litigation is
pending. See Butnaru, 84 S.W.3d at 211–12; Davis, 571 S.W.2d at 862;
Frequent Flyer Depot, 281 S.W.3d at 228–29 (holding that airline presented
evidence of irreparable injury where it was difficult to police appellants’ actions
and that airline proved damages were not adequate to fully compensate it for its
injuries); Blackthorne, 61 S.W.3d at 445 (holding that trial court did not abuse its
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discretion by concluding as a matter of law that the injunction was necessary to
maintain the status quo pending a final determination on the merits of the
fraudulent transfer claims because the Blackthornes would become judgment
proof if they were permitted to transfer stock); see also ETEN, Inc. v. College of
the Mainland, No. 01-10-00349-CV, 2010 WL 4056859, at *5–6 (Tex. App.––
Houston [1st Dist.] Oct. 14, 2010, no pet.) (mem. op.) (holding that trial court did
not abuse its discretion by determining that there was some evidence that
College of the Mainland established it would suffer a probable injury––the
continued diversion and misuse of income and the unauthorized exploitation of
its intellectual property by defendants—without the entry of a temporary
injunction); Twyman v. Twyman, No. 01-08-00904-CV, 2009 WL 2050979, at *5–
6 (Tex. App.––Houston [1st Dist.] July 16, 2009, no pet.) (mem. op.) (holding that
trial court did not abuse its discretion by granting temporary injunction when the
only way to preserve the status quo and prevent further harm to the trust was to
deny trustee the ability to withdraw any additional funds from the trust while
litigation was pending). We overrule Appellants’ second and third issues.
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IV. CONCLUSION
Having overruled all three of Appellants’ issues, we affirm the trial court’s
amended temporary injunction order.
SUE WALKER
JUSTICE
PANEL: DAUPHINOT, GARDNER, and WALKER, JJ.
DELIVERED: January 13, 2011
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