ACCEPTED
03-17-00749-CV
21197960
THIRD COURT OF APPEALS
03-17-00863-CV AUSTIN, TEXAS
12/11/2017 10:13 AM
JEFFREY D. KYLE
January 5, 2018 CLERK
No. 03-17-00749-CV
In the FILED IN
3rd COURT OF APPEALS
Third Court of Appeals AUSTIN, TEXAS
12/11/2017 10:13:40 AM
Austin, Texas JEFFREY D. KYLE
________________ Clerk
SBI INVESTMENTS LLC, 2014-1,
AND L2 CAPITAL, LLC,
Appellants,
v.
QUANTUM MATERIALS CORP.,
Appellee.
________________
On Appeal from the 428rd District Court,
Hays County, Texas (No. 17-2033)
The Hon. Gary Steel, Presiding
________________
APPELLANTS’ BRIEF ON THE MERITS
________________
Timothy A. Cleveland
State Bar No. 24055318
Carlos R. Soltero
State Bar No. 00791702
Kevin J. Terrazas
State Bar No. 24060708
CLEVELAND | TERRAZAS PLLC
4611 Bee Cave Rd, # 306B
Austin, Texas 78746
512-689-8698
ATTORNEYS FOR APPELLANTS
IDENTITIES OF PARTIES AND COUNSEL
SBI Investments, LLC, 2014- Appellants
1, and L2 Capital, LLC,
Timothy Cleveland Trial and Appellate Counsel
Carlos Soltero
Kevin Terrazas
CLEVELAND | TERRAZAS PLLC
4611 BEE CAVE RD, # 306B
AUSTIN, TEXAS 78746
512.689.8698
Quantum Materials Corp. Appellees
Michael Minns Trial and Appellate Counsel
Ashley Arnett
MINNS & ARNETT
919 Gessner, Suite 1
Houston, Texas 77074
713.777.0772
713.777.0453 fax
Seth Kretzer
440 Louisiana, Suite 1440
Houston, Texas 77002
713.775.3050
713.929.2019 fax
i
TABLE OF CONTENTS
IDENTITIES OF PARTIES AND COUNSEL .....................................................I
STATEMENT OF THE CASE........................................................................ IV
STATEMENT REGARDING ORAL ARGUMENT ............................................. V
ISSUES PRESENTED ................................................................................. VI
INTRODUCTION .......................................................................................... 1
STATEMENT OF FACTS ............................................................................... 2
A. Appellants and Quantum entered an arms-length business
transaction in March 2017 where Appellants invested in Quantum. ... 2
B. Quantum Irrevocably Instructs Empire to Issue Shares of Common
Stock to the Appellants in the Event of Default. ................................... 3
C. Quantum Defaults on the Agreements with Appellants. ................ 5
D. Quantum files this lawsuit against Empire and obtains an ex parte
TRO to stop Empire’s transfer of Quantum stock to Appellants. ......... 5
E. The district court sets the temporary injunction hearing for
October 26, 2017 and Empire is not given notice of the same. ............. 6
STANDARD OF REVIEW .............................................................................. 7
SUMMARY OF THE ARGUMENT ................................................................... 8
ARGUMENT............................................................................................... 10
I. The District Court Erred in Entering the Injunction Order Because
Empire Was Never Given Notice of the Hearing. ................................ 10
II. The District Court Erred in Entering the Injunction Order
Because Quantum Gave Empire the Stock at Issue in Accordance with
the Contract Such That There Was No Probable Right to Relief for
Conversion. ........................................................................................... 12
III. Because the Damages Here Are Monetary, There Is No
Imminent and Irreparable Harm. ........................................................ 14
CONCLUSION ............................................................................................ 16
CERTIFICATE OF COMPLIANCE................................................................ 18
CERTIFICATE OF SERVICE ....................................................................... 19
ii
TABLE OF AUTHORITIES
CASES ..................................................................................................PAGE
Apple Imports, Inc. v. Koole, 945 S.W.2d 895
(Tex. App.—Austin 1997, writ denied) ................................................ 13
Austin v. Tex. Pub. Emps. Assoc., 528 S.W.2d 637
(Tex. Civ. App.—Austin 1975, no writ) ................................................ 10
Bright Land & Cattle, LLC v. PG-M Int’l, LLC,
No. 07-16-00336-CV, 2017 Tex. App. LEXIS 2083
(Tex. App.—Amarillo Mar. 9, 2017, no pet.) ........................................ 15
Butnaru v. Ford Motor Co., 84 S.W.3d 198 (Tex. 2002) ........................... 8
Frey v. DeCordova Bend Estates Owners Ass’n, 647 S.W.2d 246
(Tex. 1983) ............................................................................................ 16
Hitt v. Mabry, 687 S.W.2d 791
(Tex. App.—San Antonio 1985, no writ) .............................................. 13
In re Turner, 500 S.W.3d 641 (Tex. App.—Austin 2016, no pet.) ............ 8
Indep. Capital Mgmt., LLC v. Collins, 261 S.W.3d 792
(Tex. App.—Dallas 2008, no pet.) .......................................................... 8
J. Luecke Grandchildren’s P’ship, LP v. Barnard Ranches, LLC,
No. 03-11-00027-CV, 2011 Tex. App. LEXIS 8009
(Tex. App.—Austin 2011, no pet.) ........................................................ 10
Peralta v. Heights Medical Center, Inc., 485 U.S. 80 (1987) .................. 10
Reagan Nat’l Adver. v. Vanderhoof Family Trust,
82 S.W.3d 366 (Tex. App.—Austin 2002, no pet.) ........................... 8, 12
Tanglewood Homes Ass’n v. Feldman, 436 S.W.3d 48
(Tex. App.—Houston [14th Dist.] 2014, pet. denied) .......................... 15
STATUTES/TREATISES
TEX. R. CIV. P. 21a ................................................................................... 11
TEX. R. CIV. P. 681 ................................................................................... 10
TEX. R. CIV. P. 683 ................................................................................... 16
iii
STATEMENT OF THE CASE
Nature of the Case: This appeal arises from a Temporary
Injunction against Defendant Empire
Stock Transfer based on a cause of action
of conversion based on the potential that
Empire may follow Appellee’s specific
authorizations to exchange debt
obligations of Appellants for Appellee’s
shares. The injunction was entered
despite there being no evidence Empire
had any notice of the temporary injunction
hearing and without a probable right to
relief.
District Court: The Honorable Gary Steel, 428th District
Court, Hays County, Texas.
District Court Disposition: The district court entered an Order
Granting Temporary Injunction on
October 26, 2017.
Related Proceedings: None.
iv
STATEMENT REGARDING ORAL ARGUMENT
Appellants SBI Investments LLC, 2014-1, and L2 Capital, LLC
believe that oral argument is not necessary to aid the Court in resolving
this appeal. The reversible errors of the Order Granting Temporary
Injunction are evident on the face of the order and in the very short
written record. Additionally, the laws controlling the relevant issues are
straightforward and well established. Therefore, oral argument is
unlikely to aid the Court in deciding this appeal. However, should the
Court determine that oral argument is necessary, Appellants respectfully
request that they be allowed to participate.
v
ISSUES PRESENTED
1. Whether the District Court abused its discretion in entering the
Order Granting Temporary Injunction when the party enjoined, Empire
Stock Transfer, was not provided notice of the temporary injunction
hearing as required by Texas Rule of Civil Procedure 681.
2. Whether the District Court abused its discretion in entering the
Order Granting Temporary Injunction, when a contract specifically
required that Empire acquire and later transfer the shares at issue such
that no probable right to relief existed because Empire could not have
committed conversion.
3. Whether the District Court abused its discretion in entering the
Injunction Order because there was no showing that any imminent or
irreparable harm would befall Quantum.
vi
INTRODUCTION
The Temporary Injunction Order (the “Injunction Order”) at issue
in this case was entered ex parte because the party to whom it was filed
against, Empire Stock Transfer (“Empire”), was never given the required
notice of a hearing. That was by design. In an effort to avoid the business
consequences of an arms-length investment transaction with Appellants
(the investors), Appellee Quantum Materials (“Quantum”) filed a lawsuit
in Hays County, Texas against a Nevada-based transfer agent, Empire,
alleging a claim of conversion. But Empire’s only role with respect to the
business relationship between Quantum and Appellants—like a title
company or escrow agent—is as the transfer agent who holds and has
been instructed in written agreements to distribute shares of Quantum
stock to Appellants if Quantum defaulted on its obligations. Both
Quantum and Appellants gave written and irrevocable authorization to
Empire to exchange shares of Quantum stock to Appellants in the event
of default. The temporary restraining order and later temporary
injunction, therefore, were used by Quantum as a backhanded way to
avoid the contractual consequences of Quantum’s defaults. As expected,
Empire has never appeared in this case and it is questionable as to
whether Empire has ever been served.
Regardless of notice, the Injunction Order failed in several other
respects. For example, because Quantum had authorized Empire to hold
Quantum’s shares in reserve and irrevocably authorized Empire to
1
distribute those shares to Appellants in the event of default, Empire
could not have exercised wrongful or unauthorized dominion over
Quantum’s property. Further, while Quantum had no legal right to
demand the return of the shares held by Empire in reserve, there is no
evidence of such a demand, or that Empire failed to return those shares
after being asked. Moreover, Quantum’s complaints are about money
and there is no showing (nor does the Injunction Order specify) of any
imminent or irreparable harm that would be suffered by Quantum if the
Injunction Order had not been entered.
The Injunction Order is both procedurally and substantively
defective. Accordingly, the district court abused its discretion in entering
the Injunction Order, and Appellants respectfully request that the Court
reverse and remand for further proceedings.
STATEMENT OF FACTS
A. Appellants and Quantum entered an arms-length
business transaction in March 2017 where Appellants
invested in Quantum.
Appellants are investors in small and microcap companies based in
New York and the Kansas City area. Quantum is a public company based
in San Marcos, Texas. This case arises from an arms-length business
deal between Appellants and Quantum. On March 29, 2017, Quantum
consummated an investment transaction in a securities instrument with
each of the Appellants. This investment transaction included both the
2
issuance of short-term debt securities by Appellants totaling $565,000,
and an equity line of credit of up to $5,000,000. 3.RR.IX.1-6. The parties
executed four promissory notes, a registration rights agreement, and an
equity purchase agreement in connection with the investment
transaction. Id. Appellants and Quantum were each represented by
counsel in the negotiation of the securities transaction and the associated
agreements. 2.RR.69; 3.RR.IX.1-6.
As part of the investment with Appellants, Quantum issued
written, irrevocable instructions to Empire—its transfer agent in
Nevada—to reserve shares of Quantum common stock for safekeeping for
the benefit of the Appellants. 3.RR.IX.1-6, 11-14. That stock was
reserved for the Appellants by Empire in accordance with the agreement.
Id. The shares of Quantum stock that were reserved by Empire were not
“issued” – meaning that while the shares were in reserve with Empire
they had no dilutive effect on the Company. 2.RR.106.
B. Quantum Irrevocably Instructs Empire to Issue Shares
of Common Stock to the Appellants in the Event of
Default.
The agreements between Appellants and Quantum also contained
default provisions. 3.RR.IX.1-6. According to the agreements, a default
occurs if there is: (a) failure by Quantum to repay principal or interest
at maturity or on acceleration; (b) failure by Quantum to issue shares
of its common stock upon an Appellants’ exercise of a conversion right;
3
(c) delaying, impairing, or hindering by Quantum of Quantum’s transfer
agent—Empire—in transferring shares of Quantum common stock to
Appellants pursuant to a default; (d) replacing Quantum’s auditor
without the consent of Appellants; (e) restating Quantum’s financial
statements in a manner that adversely affects Appellants’ rights under
their respective promissory notes, and (f) failing to file to register the
Quantum shares from the equity purchase agreement. Id.
In the event that Quantum defaulted on its obligations under any
of the promissory notes, the repayment of the full outstanding balance
of that note would be accelerated, and additional contractually-agreed
amounts would be owed by Quantum to Appellants. 3.RR.IX.1-2,4-5.
Based on these provisions, in the event of a default, Quantum
issued written, irrevocable instructions to Empire to provide the
Quantum shares previously reserved to Appellants. 3.RR.IX.11-14.
Specifically, Quantum “irrevocably authorized and instructed” Empire
to issue shares of Quantum common stock to Appellants “at the request
of (Appellants) . . . without any further action or confirmation by
[Quantum].” Id. (emphasis added). Quantum sent these written,
irrevocable instructions and authorizations to Empire in four transfer
letters on March 29, 2017. Id. Quantum also repeatedly acknowledged
in the agreements that Appellants’ ability to exchange their promissory
notes for shares of Quantum common stock was a “material obligation
of [Quantum]” under the agreements. Id.
4
C. Quantum Defaults on the Agreements with Appellants.
Quantum failed to perform several of its obligations in the
agreements with Appellants, including (1) failing to file its initial
registration statement with the Securities and Exchange Commission,
(2) improperly restating its financials with the SEC, and (3) replacing
its auditor without seeking or obtaining the consent of Appellants.
2.RR.94-95, 108-109. Quantum also failed to pay the amounts owed
under the agreements. 2.RR.102, 108.
Quantum’s defaults triggered Appellants’ rights to recover the
amounts due and payable by Quantum, in whole or in part, through the
common stock in Quantum that was being held in escrow by Empire.
3.RR.IX.1-2, 4-5; 2.RR.94, 103. On October 2, 2017, L2 and SBI
delivered to Quantum a notice invoking these rights. 2.RR.104.
However, Quantum did not issue or deliver the shares to L2 and SBI,
which constituted another default under the relevant agreements.
2.RR.104.
D. Quantum files this lawsuit against Empire and obtains
an ex parte TRO to stop Empire’s transfer of Quantum
stock to Appellants.
Quantum filed the underlying lawsuit against Empire, the
transfer agent—but not Appellants—on September 28, 2017, just days
before its full payment of the initial tranches of the promissory notes
was due (and days before the Quantum shares underlying the
5
promissory notes would be eligible for resale into the market). CR.4-10.
In doing so, Quantum asserted a claim of conversion against Empire.
but did not allege any wrongdoing on Empire’s part. Id. Before Empire
ever received notice of the suit, Quantum obtained an ex parte TRO on
October 2, 2017, which precluded Empire from transferring common
stock of Quantum to Appellants. CR.11. The TRO also set the hearing
for a temporary injunction on October 12, 2017. CR.12. In securing this
ex parte TRO, Quantum did not disclose to the district court that it had
previously agreed to irrevocably authorize and instruct Empire to
transfer its common stock to Appellants—the very thing that it now
claimed was an unlawful conversion by Empire.
E. The district court sets the temporary injunction
hearing for October 26, 2017 and Empire is not given
notice of the same.
On October 12th, Quantum moved (without written motion) the
district court to extend the TRO, without notice to Empire. See CR.16.
Without any reference to or finding of good cause, the district court
extended the TRO and set the temporary injunction hearing to October
26, 2017. CR.16. No return of service was ever filed showing that this
Order Extending TRO was ever received by Empire. See
http://public.co.hays.tx.us/default.aspx.1 At the temporary injunction
1The record sheet with the “unserved” notation can be found at this link
upon entering the underlying case number, 17-2033, at the search page
6
hearing on October 26, 2017, Quantum’s counsel stated that Empire
was “faxed” notice of the temporary injunction hearing, but Quantum
provided no certificate or other evidence of service, or testimony in
support of same. 2.RR.21-22. Empire did not appear at the temporary
injunction hearing and has in fact never appeared in the case.
On October 26, 2017, the district court held a hearing related to
the request for a temporary injunction. At the hearing, Quantum did
not dispute the validity of its agreements with Appellants, or the
transfer letters, which were admitted into the evidentiary record.
3.RR.IX1-6, 11-14; 2.RR.77. However, the district court entered the
Injunction Order—prohibiting Empire from transferring Quantum
common stock to Appellants in accordance with its contract. CR.19-20.
Appellants timely appealed on November 6, 2017. CR.23.
Following the notice of appeal, Quantum moved to correct the date
of the trial setting provided in the temporary injunction, which purported
to set the case for trial on April 16, 2017 (as opposed to April 16, 2018).
Following that motion (and not part of this record), the district court
granted the motion and made the clerical change.2
STANDARD OF REVIEW
In an appeal from an order granting a temporary injunction, the
for civil records. Appellants ask that the Court take judicial notice of this
docket sheet as it is a public record maintained by the district court.
2 To preserve all rights, Appellants are filing a notice of appeal and
motion to consolidate related to this revised order.
7
appellate court’s review is “confined to the validity of that order.” Reagan
Nat’l Adver. v. Vanderhoof Family Trust, 82 S.W.3d 366, 370 (Tex. App.—
Austin 2002, no pet.). “A reviewing court should reverse an order
granting injunctive relief only if the trial court abused [its] discretion.”
Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002). “A trial court
has no discretion to misapply the law . . . .” In re Turner, 500 S.W.3d 641,
642 (Tex. App.—Austin 2016, no pet.). A trial court also abuses its
discretion if it concludes that the applicant has demonstrated a probable
injury or a probable right to recovery and the conclusion is not reasonably
supported by evidence, Reagan Nat’l Adver., 82 S.W.3d at 370, or if the
temporary injunction fails to satisfy the specificity requirements of Rule
683 from the Texas Rules of Civil Procedure. Indep. Capital Mgmt., LLC
v. Collins, 261 S.W.3d 792, 795-96 (Tex. App.—Dallas 2008, no pet.).
SUMMARY OF THE ARGUMENT
The Injunction Order is invalid and should be reversed because the
party enjoined by the order, Empire, did not receive the required notice
of the temporary injunction hearing as required by Texas Rule of Civil
Procedure 681. That rule is mandatory and renders any subsequent
injunction invalid.
In addition, Quantum did not establish a probable right to recovery
on its only claim against Empire—conversion—because the undisputed
evidence establishes that Empire’s possession of Quantum’s shares was
expressly and irrevocably authorized ahead of time, in writing, by
8
Quantum through a valid and binding agreement. Quantum therefore
has no probable right of recovery because Empire could not have
exercised wrongful dominion or control over Quantum’s shares and
Quantum never asked for Empire to return such shares—negating
necessary elements of the sole claim.
Finally, Quantum’s concerns in this case are that it would lose some
of the value of its shares—a monetary concern. Courts have consistently
held that monetary relief does not satisfy the imminent and irreparable
requirement for the issuance of a temporary injunction. Moreover, any
claimed harm is not imminent—Quantum is concerned about what “may”
happen but there is no evidence that any immediate, irreparable harm
will befall it.
Because the party enjoined, Empire, never received notice of the
injunction hearing, a prior agreement between Appellants and Quantum
authorized Empire to retain and transfer the stock at issue such that no
conversion could have occurred, and because monetary relief would fully
compensate Quantum for any injury, the district court abused its
discretion in granting the temporary injunction. Appellants therefore
respectfully request that the Court reverse and remand for further
proceedings.
9
ARGUMENT
I. THE DISTRICT COURT ERRED IN ENTERING THE INJUNCTION
ORDER BECAUSE EMPIRE WAS NEVER GIVEN NOTICE OF THE
HEARING.
Rule 681 of the Texas Rules of Civil Procedure states that a
temporary injunction cannot issue without notice to the adverse party.
TEX. R. CIV. P. 681; J. Luecke Grandchildren’s P’ship, LP v. Barnard
Ranches, LLC, No. 03-11-00027-CV, 2011 Tex. App. LEXIS 8009, *5-6
(Tex. App.—Austin 2011, no pet.) (“a temporary injunction shall not issue
without notice to the adverse party and, unless otherwise agreed, an
opportunity for the adverse party to offer testimony or other evidence to
present its defenses”); Austin v. Tex. Pub. Emps. Assoc., 528 S.W.2d 637,
640 (Tex. Civ. App.—Austin 1975, no writ) (“Tex. R. Civ. P. 681 requires
that no temporary injunction be issued without notice to the adverse
party. The requirement of notice impliedly requires an adequate
opportunity to be heard”).
On this ground alone the Injunction Order should be reversed
because the party enjoined, Empire, was not provided the lawfully
required notice under Rule 681. Notice is not a mere trivial formality but
a matter of constitutional significance. Peralta v. Heights Medical
Center, Inc., 485 U.S. 80, 84-86 (1987). Quantum sued Empire and
obtained a TRO on October 2, 2017. CR.11-12. The TRO was extended
(again without notice to Empire) and the notice of the hearing for the
temporary injunction was executed on October 16, 2017. CR.16-17.
10
There is no return of service or any written certification of service in the
record to show that Empire received notice of the temporary injunction
hearing. In fact, the district court’s online docket sheet states that the
notice of the Temporary Injunction hearing—the October 16th order
extending the TRO and set the hearing for October 27th—was
“unserved.” See http://public.co.hays.tx.us/default.aspx.
Appellants raised this issue at the temporary injunction hearing.
2.RR.8, 19-23. The only attempt by Appellee to satisfy the requirements
of Rule 681 were statements by counsel at the hearing that notice of the
Temporary Injunction hearing had been “faxed” to Empire through the
ProDoc filing system. 2.RR.21-22. But no documentary evidence of that
purported fax was provided by Appellee, nor did anyone testify to that
effect. Moreover, ProDoc is an electronic filing system that does not have
facsimile capabilities. See http://www.efiletexas.gov/Service-
Providers/ProDoc.htm.
Rule 21a of the Texas Rules of Civil Procedure states that a signed,
written certification by the serving party is prima facie evidence of the
fact of service. TEX. R. CIV. P. 21a(e). There is no such certificate in the
record. There was no evidence that Empire was provided notice of the
temporary injunction hearing as required by Rule 681. For this reason,
the Injunction Order should be reversed.
11
II. THE DISTRICT COURT ERRED IN ENTERING THE INJUNCTION
ORDER BECAUSE QUANTUM GAVE EMPIRE THE STOCK AT ISSUE IN
ACCORDANCE WITH THE CONTRACT SUCH THAT THERE WAS NO
PROBABLE RIGHT TO RELIEF FOR CONVERSION.
In addition to the lack of notice, the district court abused its
discretion in entering the Injunction Order because it was not possible
for Empire to have converted the stock at issue—Quantum had already
given that stock to Empire for safekeeping in the event of a default. A
trial court abuses its discretion when it concludes that an applicant for a
temporary injunction has demonstrated a probable injury or a probable
right to recovery and the conclusion is not reasonably supported by
evidence. Reagan Nat’l Adver., 82 S.W.3d at 370. The district court’s
conclusion that Quantum demonstrated a probable right to relief is not
reasonably supported by the evidence.
Quantum’s only pleaded claim against Empire is for conversion.
CR.6. The elements of conversion are “(1) the plaintiff owned or had legal
possession of the property or entitlement to possession; (2) the defendant
unlawfully and without authorization assumed and exercised dominion
and control over the property to the exclusion of, or inconsistent with the
plaintiff’s rights as an owner; (3) the plaintiff demanded return of the
property; and (4) the defendant refused to return the property.” Apple
Imports, Inc. v. Koole, 945 S.W.2d 895, 899 (Tex. App.—Austin 1997, writ
denied).
12
Empire was the transfer agent who held shares of Quantum stock
in reserve based on the written agreements between Quantum and
Appellants. 3.RR.IX.11-14. Empire therefore had direct authorization to
assume and exercise dominion and control over the property. Id. In
addition, Empire was irrevocably authorized and instructed by Quantum
and SBI/L2—in writing—to transfer Quantum shares to SBI and L2
when requested by SBI and L2. 3.RR.IX.11-14. Quantum’s CEO
admitted at the temporary injunction hearing that the transfer letters
documented how Empire was authorized to act. 2.RR.77. The second
element of conversion requires that the defendant unlawfully and
without authorization assume and exercise dominion and control over
the property the exclusion of the plaintiff. Apple Imports, 945 S.W.2d at
899. Here, the undisputed and uncontroverted evidence establishes that
Empire had specific, express, written authorization (from Quantum) to
hold, and then issue, the Quantum shares to Appellants. 3.RR.IX.11-14.
Further, an injunction “must not be so broad as to enjoin a
defendant from activities which are a lawful and proper exercise of his
rights.” Hitt v. Mabry, 687 S.W.2d 791, 795 (Tex. App.—San Antonio
1985, no writ). Because Empire had the authorization to transfer the
shares—in writing and from Quantum—there is no evidence
reasonably supporting Quantum’s probable right of recovery against
Empire on its conversion claim. Moreover, because the Injunction Order
improperly restricts Empire from exercising its express rights and
13
obligations from the agreement between Quantum and Appellees, the
Injunction Order cannot stand.
What’s more, Quantum also failed to provide any evidence that it
had requested the shares back from Empire or that Empire refused to
provide Quantum with those shares. Notably, even in the lawsuit,
Quantum does not seek to have Empire return the stock to Quantum—
that would be in violation of the contract. Without even so much as a
demand for return of the shares by Quantum, there is no basis for a
conversion claim. Apple Imports, 945 S.W.2d at 899. It also follows that
without a request for the return of the shares, Empire could not have
refused to return them. Id.
Quantum failed to provide even a prima facie case of several of the
elements of its claim. As such, the Injunctive Order was not based on a
probably right to relief and the district court abused its discretion in
entering the Injunctive Order.
III. BECAUSE THE DAMAGES HERE ARE MONETARY, THERE IS NO
IMMINENT AND IRREPARABLE HARM.
Finally, the district court abused its discretion in granting the
Injunction Order because there was not a showing of imminent and
irreparable harm—the only damages to Quantum is the loss of value of
the shares transferred. In its petition, Quantum provides that “In the
event of a default, the note holders can convert their debt into equity at
a disproportionately favorable exchange rate in favor of the lenders.”
14
CR.5 (emphasis added). In other words, what Quantum has complained
about is not that they will be losing the shares, but that Appellants could
purchase shares for a lower price—a monetary concern directed at
Appellants, not Empire.
Claims for monetary damages do not rise to the level of irreparable
and imminent harm. Indeed, a claim for monetary damages is the
opposite of what is required for imminent and irreparable harm. “An
injury is irreparable if it cannot be adequately remedied at law through
monetary damages.” Tanglewood Homes Ass’n v. Feldman, 436 S.W.3d
48, 77 (Tex. App.—Houston [14th Dist.] 2014, pet. denied) (emphasis
added). The fact that Quantum does not seek return of the shares from
Empire and its claimed harm is only the difference in value of the shares,
there is no support that an injunction was warranted.
Quantum’s other claimed concern is that “Quantum has other debt
obligations for whom the respective lenders may try to piggyback on SBI
Investment LLC and/or L2 Capital’s unilateral declarations of default.”
CR.6. But not only did Quantum not support this claim with any
evidence at the hearing, something that “may” happen in the future does
not qualify as imminent harm. Indeed, “[i]mminent or immediate injury
is not injury that may arise at some point.” Bright Land & Cattle, LLC
v. PG-M Int’l, LLC, No. 07-16-00336-CV, 2017 Tex. App. LEXIS 2083, *11
(Tex. App.—Amarillo Mar. 9, 2017, no pet.); see also Frey v. DeCordova
Bend Estates Owners Ass’n, 647 S.W.2d 246, 248 (Tex. 1983) (“fear or
15
apprehension of the possibility of injury alone is not a basis for injunctive
relief”). At best, at the hearing, Quantum provided testimony from a
purported expert (not any shareholders or other persons) that “other
debentures . . . have the option” to purchase shares at a decreased price—
not that they would actually do so. 2.RR.53-54. Quantum did not
establish any imminent or irreparable harm as a basis for the Injunction
Order.
The Injunction Order even deviates from Quantum’s claims and
evidence, stating only that “Quantum Materials Corporation’s stock will
be converted with no mechanism for return of the stock to Quantum
Materials Corporation.” CR.19. But there is no imminent and
irreparable harm in stock being transferred from one entity to another.
Moreover, such a statement does not provide the specificity required
under Texas Rule of Civil Procedure 683. TEX. R. CIV. P. 683.
CONCLUSION
For the foregoing reasons, Appellants SBI Investments, LLC, 2014-
1 and L2 Capital, LLC respectfully request that the Court reverse the
district court’s Order Granting Temporary Injunction and remand for
further proceedings. Appellants further respectfully request all other
relief to which they may be entitled, whether in law or equity.
16
Respectfully submitted,
By: /s/ Timothy A. Cleveland
Timothy A. Cleveland
State Bar No. 24055318
Carlos Soltero
State Bar No. 00791702
Kevin J. Terrazas
State Bar No. 24060708
CLEVELAND | TERRAZAS PLLC
4611 Bee Cave Rd, # 306B
Austin, Texas 78746
512-689-8698
tcleveland@clevelandterrazas.com
csoltero@clevelandterrazas.com
kterrazas@clevelandterrazas.com
ATTORNEYS FOR APPELLANTS
17
CERTIFICATE OF COMPLIANCE
I certify that this document was produced on a computer using
Microsoft Word and contains 3,625 words, as determined by the computer
software’s word-count function, excluding the sections of the document
listed in Texas Rule of Appellate Procedure 9.4(i)(1).
/s/ Timothy A. Cleveland
Timothy A. Cleveland
18
CERTIFICATE OF SERVICE
I hereby certify that on this 11th day of December 2017, a true and
correct copy of the foregoing was filed electronically, and notice of this
filing will be sent to all parties by operation of the Court’s electronic filing
system as follows:
Michael Minns
Ashley Arnett
MINNS & ARNETT
919 Gessner, Suite 1
Houston, Texas 77074
713.777.0772
713.777.0453 fax
Seth Kretzer
440 Louisiana, Suite 1440
Houston, Texas 77002
713.775.3050
713.929.2019 fax
ATTORNEYS FOR APPELLEE
/s/ Kevin J. Terrazas
Kevin J. Terrazas
19
No. 03-17-00749-CV
In the
Third Court of Appeals
Austin, Texas
________________
SBI INVESTMENTS LLC, 2014-1, AND L2 CAPITAL,
LLC,
Appellants,
v.
QUANTUM MATERIALS CORP.,
Appellee.
________________
On Appeal from the 428rd District Court,
Hays County, Texas (No. 17-2033)
The Hon. Gary Steel, Presiding
________________
APPENDIX TO APPELLANTS’ BRIEF ON THE MERITS
________________
Timothy A. Cleveland
State Bar No. 24055318
Kevin J. Terrazas
State Bar No. 24060708
Carlos Soltero
State Bar No. 00791702
CLEVELAND | TERRAZAS PLLC
4611 Bee Cave Rd, # 306B
Austin, Texas 78746
512-680-3257
ATTORNEYS FOR APPELLANT
INDEX
Tab Date Description Record Page
A. 10/26/17 Order Granting Temporary CR.19-20
Injunction
Tab A
000019
000020