Opinion

Opinion issued August 14, 2008

Opinion issued

August 14, 2008

In The

Court of Appeals

For The

First District of Texas

NO. 01-07-00970-CV

NANCY BENEFIELD, NANCY S. McNULTY, NAOMI MORALES,

ROBERT SETON, RUTHIE PARKER, SUSAN BERKLEY, GLORIA REEVES, SHIRLEY BUELOW, and

ANGELA BREEDLOVE, Appellants

V.

THE STATE OF TEXAS ON RELATION OF THE ALVIN COMMUNITY

HEALTH ENDEAVOR, INC. and BRAZORIA COUNTY, TEXAS, Appellees

On Appeal from the 239th District Court

Brazoria County , Texas

Trial Court Cause No. 44874

O P I N I O N

After a conflict developed among the

board members of a private, nonprofit community healthcare clinic, Brazoria

County, on behalf of the State of Texas, brought a quo warranto proceeding, in

which it sought a temporary restraining order and a temporary injunction

against the chief executive and certain board members of the nonprofit, and the

appointment of a receiver to run the clinic. The trial court granted the

temporary restraining order and, in a subsequent hearing, ordered a temporary

injunction against the board members from taking further action on behalf of

the nonprofit. In addition, the court appointed a receiver to oversee all of

its assets and business affairs, relying on Article 1396-7.05(A) of the Revised

Civil Statutes. See Tex. Rev.

Civ. Stat. Ann. art. 1396-7.05(A) (Vernon 2003). The board members appeal

the temporary injunction and the order appointing a receiver, contending that

the trial court (1) erred in determining that Brazoria County was authorized to

bring this quo warranto action against a nonprofit, (2) abused its discretion

in ordering a temporary injunction and appointing a receiver, and (3) abused

its discretion in admitting documents that were not properly authenticated. We

conclude that Brazoria County has failed to show irreparable harm, or any

grounds upon which it may impose a receiver to run the nonprofit. We therefore

reverse the trial court’s orders.

Background

The Alvin Community Health

Endeavor (“ACHE”), a nonprofit corporation founded in 1970, provides primary

and supplemental healthcare services to community residents who are medically

indigent or have limited healthcare provider options. Since its inception,

ACHE has operated through various sources of funding, including private donations

and donations from charitable organizations. In September 2005, ACHE began to

receive federal funding as a Federally Qualified Health Center (“FQHC”) to cope

with additional medical care needs in Brazoria County in the wake of hurricanes

Katrina and Rita. Brazoria County owns the property upon which ACHE’s facility

is located and leases the land to ACHE pursuant to an agreement that ACHE

provide free and low-cost healthcare benefits to Brazoria County residents. The

lease agreement recognizes that ACHE had attained FQHC status.

In May 2007, the Health Resources and

Services Administration (“HRSA”) of the United States Department of Health and

Human Services, the federal agency overseeing FQHC funding, conducted an

on-site diagnostic review of ACHE after it received complaints about ACHE’s

then-current chief executive officer, Nancy Benefield. Benefield had served as

the chief executive officer since 1994. Based on its review, HRSA concluded

that ACHE had failed to comply with various requirements for federal funding,

and expressed “significant concerns regarding ACHE’s clinical, fiscal and

administrative operations as well as its governance.” HRSA expressed its

findings in a July 19 letter to Nancy McNulty, an ACHE board member. In the

letter, HRSA recommended follow-up actions, and stated that if ACHE did not

correct the deficiencies HRSA found, as well as comply with various

requirements, it would deny ACHE’s grant application, resulting in the loss of

its federal funding. The letter requested a “Board-approved Corrective Action

Plan, with time-framed objectives responsive to the concerns noted,” by

September 1.

Following the letter, in a series of

events that spanned three days in late July, some members of ACHE’s board of

directors met and voted to terminate Benefield as CEO of ACHE. Then, board

member Jerry Smith and others changed the locks at ACHE’s clinic facility,

issued a criminal trespass citation against Benefield, cancelled ACHE’s

insurance contracts, pulled the internet cabling out of the walls of ACHE’s

office, cancelled ACHE’s housekeeping contract, and terminated employees of

ACHE, all without any formal approval of the board of directors. Finally,

certain other members of the board met again in an emergency meeting and voted

to restore Benefield as CEO of ACHE.

In response to HRSA’s warnings, ACHE

hired a healthcare management company, which proposed a Clinic Management and

Medical Staffing Agreement to ACHE to resolve the issues that concerned HRSA.

Before the September deadline, Benefield sent a corrective action plan to HRSA,

describing ACHE’s accomplishments and continuing efforts to comply with the

federal funding requirements. The healthcare management company also sent a

letter to ACHE’s board of directors that outlined the progress made and planned

future actions that would resolve the problems that HRSA identified in its

summary of findings.

Fearful that ACHE stood to lose its

federal funding, Brazoria County sued. In October 2007, the trial court

granted Brazoria County leave to file “an information in the nature of a quo

warranto.” The county also applied for a temporary restraining order, a

temporary injunction, and the appointment of a receiver over ACHE. In the quo warranto

action against Benefield and eight other directors, the county alleges illegal

corporate conduct, human resource code violations, and breach of ACHE’s lease.

The trial court granted the county’s

request for a temporary restraining order. Thereafter, the trial court heard

the applications for the temporary injunction and appointment of a receiver.

The parties presented testimony from ex-board member Gary Goff, board members

Nancy McNulty and Nancy Benefield, and Lynda Bible, who manages similar

healthcare facilities in neighboring counties. At Brazoria County’s request, the trial court also admitted several pieces of correspondence from HRSA. At

the conclusion of the hearing, the trial court enjoined ACHE’s directors from

taking any action whatsoever on behalf of ACHE, except as directed by the

receiver, and barred access to all funds, accounts, and real, personal, or

mixed property. In addition, it appointed Bible as a receiver for ACHE, and

authorized her to conduct all of ACHE’s affairs. Benefield and the other board

members bring an interlocutory appeal, seeking reversal of the temporary

injunction and the appointment of the receiver. See Tex.

Civ. Prac. & Rem. Code Ann. § 51.014(a)(1), (4) (Vernon 2008).

Recently, the trial court extended the receivership until November 30, 2008.

We granted the board members’ motion to consider that order as part of this

appeal. See Tex. R. App. P. 29.6 (“While an appeal from

an interlocutory order is pending, on a party’s motion or on the appellate

court’s own initiative, the appellate court may

review . . . a further appealable interlocutory order

concerning the same subject matter.”).

Appellate Jurisdiction

As an initial matter, Brazoria County contests our jurisdiction over the board members’ appeal of Brazoria County’s authority to bring a quo warranto proceeding, contending that we lack

jurisdiction to consider this argument in an interlocutory appeal. The board

members argue that quo warranto proceedings are extraordinary in nature, and

are not available to challenge the legality or propriety of board member

conduct. See Newsom v. State , 922 S.W.2d 274, 279 (Tex.

App.—Austin 1996, writ denied).

Appellate courts have jurisdiction to

consider immediate appeals of interlocutory orders only if a statute expressly

provides appellate jurisdiction. Stary v. DeBord , 967 S.W.2d 352 ,

352–53 (Tex. 1998). The Texas Civil Practice and Remedies Code allows for an

appeal from an interlocutory order that appoints a receiver or grants a

temporary injunction. Tex. Civ. Prac.

& Rem. Code Ann. § 51.014(a)(1), (4) (Vernon 2008) (listing

appealable interlocutory orders). An order granting leave to file “an

information in the nature of a quo warranto” is not included in the statute

affording interlocutory appeals. See id. § 51.014; Eichelberger v.

Hayton , 814 S.W.2d 179, 182 (Tex. App.—Houston [1st Dist.] 1991, writ

denied). In addition, the record on appeal contains no trial court proceeding

or order that could be framed as a plea to the jurisdiction. Texas courts

strictly construe statutes authorizing interlocutory appeals. Walker Sand,

Inc. v. Baytown Asphalt Materials, Ltd. , 95 S.W.3d 511, 514 (Tex. App.—Houston [1st Dist.] 2002, no pet.). An order “granting leave to file an information

in the nature of a quo warranto” is neither a final judgment, nor is it an

interlocutory order made appealable by statute. Consequently, we lack

jurisdiction to review Brazoria County’s authority to bring the underlying

proceeding, except insofar as it implicates the appeal of the temporary

injunction and the appointment of a receiver.

Temporary

Injunction

The board members contend

that the trial court abused its discretion in ordering a temporary injunction

because Brazoria County did not plead and prove the elements required for a

temporary injunction.

The purpose of a temporary injunction

is to preserve the status quo pending trial, but it is an extraordinary remedy

and does not issue as a matter of right. Butnaru v. Ford Motor Co. ,

84 S.W.3d 198, 204 (Tex. 2002). Trial courts have broad discretion in deciding

whether to grant or deny a temporary injunction, and an appellate court should

reverse only if it finds a clear abuse of that discretion. Tel. Equip.

Network, Inc. v. TA/Westchase Place, Ltd. , 80 S.W.3d 601, 607 (Tex. App.—Houston [1st Dist.] 2002, no pet.). We should not reverse a trial court’s

temporary injunction unless it is “so arbitrary as to exceed the bounds of

reasonable discretion.” Id. We review the evidence in a light most

favorable to the trial court’s order, but an erroneous application of the law

to undisputed facts constitutes an abuse of discretion. Id.

To obtain a temporary injunction, an

applicant must prove (1) a cause of action against a defendant, (2) a probable

right to the relief sought, and (3) a probable, imminent, and irreparable

injury in the interim. Butnaru , 84 S.W.3d at 204 . An injury is irreparable

if there is no adequate remedy at law; if for example, a prevailing applicant

could not be compensated adequately in damages, or if damages cannot be

measured by any certain pecuniary standard. Id. While the board

members contend that none of these elements exists, the absence of any one

renders an award of temporary injunctive relief inappropriate. See id.

We find the third element dispositive.

Brazoria County asserts that ACHE is an important part of its obligation to provide

healthcare assistance to its low-income residents. It leases county-owned land

to ACHE to carry out that purpose. In support of the trial court’s order, Brazoria County relies on evidence that ACHE might not qualify for the federal grant it had

been receiving since 2005. ACHE, on the other hand, presented evidence that it

was taking steps to comply with federal regulations. While the county’s

evidence suggests the possibility that this nonprofit corporation might lose

its federal funding, it did not suggest that the loss of federal funding would

jeopardize ACHE or its ability to serve low-income residents of Brazoria County. To the contrary, the testimony at the hearing was that ACHE operates

through various sources of funding, and it operated without federal funding for

thirty-five years before it first received federal funds. Brazoria County

implies that ACHE has an obligation to it to seek and receive federal funding,

but no evidence suggests that ACHE, a private, nonprofit corporation, either

requires or depends on federal funding to be able to provide healthcare

services to Brazoria County residents. Nor has Brazoria County offered any

evidence of such an obligation to it, either in the lease agreements or

otherwise. Consequently, Brazoria County fails to show that it would suffer an

imminent, irreparable injury, even if ACHE were to lose its federal funding.

At most, Brazoria County has established a fear of the possibility of a future

injury, and such a contingency “is not sufficient to support issuance of a

temporary injunction.” See Reach Group, L.L.C. v. Angelina Group ,

173 S.W.3d 834, 838 (Tex. App.—Houston [14th Dist.] 2005, no pet.) (citing EMSL

Analytical, Inc. v. Younker , 154 S.W.3d 693, 697 (Tex. App.—Houston [14th Dist.] 2004, no pet.)). Because the evidence does not support the trial

court’s finding that irreparable harm to Brazoria County is probable or

imminent, Brazoria County has not satisfied the third element necessary to

obtain a temporary injunction.

Appointment of Receiver

The board members further

contend that the trial court abused its discretion in appointing a receiver

over all of the assets and business affairs of ACHE because the county did not

plead and prove the elements required for the appointment of a receiver.

Whether authorized by statute or by

equity, we should affirm the interlocutory appointment of a receiver unless the

trial court clearly abused its discretion. Mueller v. Beamalloy, Inc .,

994 S.W.2d 855, 858 (Tex. App.—Houston [1st Dist.] 1999, no pet); Abella v.

Knight Oil Tools , 945 S.W.2d 847, 849 (Tex. App.—Houston [1st Dist.] 1997,

no writ). A trial court abuses its discretion when it acts without reference

to guiding rules and principles. Downer v. Aquamarine Operators, Inc. ,

701 S.W.2d 238 , 241–42 (Tex. 1985). If the decision was within the trial

court’s discretionary authority, we may not reverse simply because we might

have reached a different decision. Beaumont Bank, N.A. v. Buller , 806

S.W.2d 223, 226 (Tex. 1991). The appointment of a receiver, nevertheless, is a

harsh, drastic, and extraordinary remedy, to be used cautiously. Hunt v.

Merch. Mart, Inc. , 391 S.W.2d 141, 145 (Tex. Civ. App.—Dallas 1965, writ

ref’d n.r.e.); see Balias v. Balias, Inc. , 748 S.W.2d 253, 257 (Tex.

App.—Houston [14th Dist.] 1988, writ denied). Even if a specific statutory

provision authorizes a receivership, as in this case, a trial court should not

appoint a receiver if another remedy exists, either legal or equitable. Rowe

v. Rowe , 887 S.W.2d 191, 200 (Tex. App.—Fort Worth 1994, writ denied)

(observing that statute permitting appointment of receiver over corporation

authorizes appointment only if party seeking relief convinces trial court that

all other legal and equitable remedies are inadequate). Rather, receivership

is warranted only if the evidence shows a threat of serious injury to the

applicant. Parness v. Parness , 560 S.W.2d 181, 182 (Tex. Civ.

App.—Dallas 1977, no writ); Hughes v. Marshall Nat’l Bank , 538 S.W.2d

820, 824 (Tex. Civ. App.—Tyler 1976, writ ref’d n.r.e.); Gunther v. Dorff ,

296 S.W.2d 638, 640 (Tex. Civ. App.—Waco 1956, writ dism’d). Our review

focuses on whether the pleadings and evidence are sufficient to justify a

receivership. See Covington Knox, Inc. v. State , 577 S.W.2d 323,

325 (Tex. Civ. App.—Houston [14th Dist.] 1979, no pet.) (noting that when

appeal from order overruling motion to vacate receivership is perfected,

question becomes simply one of sufficiency of petition to support appointment

of receiver).

The Texas Nonprofit Corporation Act

governs the appointment of a receiver to rehabilitate a nonprofit corporation,

and it states in relevant part:

(A) A receiver may be appointed for the assets and

business of a corporation by the district court for the county in which the

registered office of the corporation is located, whenever circumstances exist

deemed by the court to require the appointment of a receiver to conserve the

assets and affairs of the corporation and to avoid damage to parties at

interest, but only if all other requirements of law are complied with and if

all other remedies available either at law or in equity, including the

appointment of a receiver for specific assets of the corporation, are determined

by the court to be inadequate, and only in the following instances:

(1) In an action by a member when it is established:

(a) That the corporation is insolvent or in imminent

danger of insolvency; or

(b) That the directors are deadlocked in the management

of the corporate affairs and the members are unable to break the deadlock, and

that irreparable injury to the corporation is being suffered or is threatened

by reason thereof; or

(c) That the acts of the directors or those in

control of the corporation are illegal, oppressive, or fraudulent; or

(d) That the corporate assets are being misapplied or wasted.

Tex. Rev. Civ.

Stat. Ann. art.

1396-7.05(A). A court may appoint a receiver over an entire corporation only

if all other remedies are deemed inadequate. See Aubin v. Territorial

Mortgage Co. of Am., Inc. , 640 S.W.2d 737 , 741–42 (Tex. App.—Houston [14th Dist.] 1982, no writ). The burden of proof to show the existence of

circumstances justifying the appointment of a receiver rests on the party

seeking the appointment. See Furgerson v. First Nat’l Bank , 218

S.W.2d 1019, 1020 (Tex. Civ. App.—Texarkana 1949, no writ). To determine

whether the appointment of the receiver was authorized, therefore, we first

consider whether Brazoria County has met its burden to plead and prove that

other remedies available either in law or in equity are inadequate. See

Aubin , 640 S.W.2d at 741–42.

Nothing in the record indicates that Brazoria County met this burden or that the trial court considered remedies less drastic

than a receivership. For example, if Brazoria County has a contractual

interest in ensuring that ACHE maintains its FQHC status, as it contends, it

has not shown that other remedies, such as money damages, cannot adequately

protect that contractual interest. Because remedies at law were not even

considered, they could not have been deemed “inadequate” as required by the

Texas Nonprofit Corporation Act.

Furthermore, no evidence suggests

that ACHE is insolvent or in imminent danger of insolvency to justify the

appointment of a receiver to take control of the entire corporation and all of

its assets; the county has merely shown that ACHE might lose one of its sources

of funding. Brazoria County maintains that the public interest, as reflected

in the Texas Health and Safety Code, requires the county to provide healthcare

services to its low income residents, and that to meet this obligation, it leased

county-owned land to ACHE on which ACHE operates a clinic that provides such

services. See Tex. Health & Safety Code Ann.

§ 61.028(a) (Vernon 2001) (listing healthcare services county must provide

for its indigent residents). In 2005, the county extended its lease with ACHE

and noted that ACHE had become a FQHC, but nothing in the lease requires ACHE

to maintain its status as a FQHC. The county also asserts that its own

obligation to provide healthcare to its indigent residents gives the county a

legal and contractual interest in ensuring that ACHE maintain its FQHC status.

The county’s effort to transfer its own statutory obligation onto a private

corporation, however, fails to meet the statutory test for a

receivership—namely that without one, a danger of insolvency or injury to the

county or its residents exists. Brazoria County’s obligation to provide

healthcare services to its residents does not require it to provide

federally-funded healthcare services, nor is ACHE—a private corporation—required

to maintain FQHC status to avoid a complete government takeover of its

operations. Brazoria County fails to show how the county or its residents

would be irreparably injured were ACHE to lose FQHC status, or that the loss of

federal funding would place ACHE in danger of insolvency, or even that the loss

of federal funding is a foregone conclusion. Accordingly, the county did not

justify the appointment of a receiver on this ground.

Nor has Brazoria County demonstrated that the acts of the directors or those in control of the corporation are

illegal, oppressive, or fraudulent. The county has shown only that, while one

of ACHE’s board members was on a brief sick leave, the board of directors had

eight rather than the required nine members. This showing does not support Brazoria County’s contention that the board was therefore illegally constituted in

general. Brazoria County relies heavily on Greater Fort Worth & Tarrant

County Community Action Agency v. Mims to justify the appointment of the

receiver, but Mims is distinguishable. See 574 S.W.2d 870, 871 (Tex. Civ. App.—Fort Worth 1978, writ dism’d w.o.j.). The trial court in Mims

appointed a receiver for the specific and limited purpose of ensuring that the

dysfunctional board was properly constituted to allow a proper vote on a

director’s employment status. Id. at 871–72. The Mims court did

not appoint a receiver to take full control over the entire corporation as the

trial court did in this case. See id. Mims upheld the

appointment of a receiver for the sole purpose of making a dysfunctional board

functional and properly constituted; it did not authorize a receivership over

all of a corporation’s assets and business affairs.

Furthermore, Mims authorized

such a limited receivership to reconstitute a dysfunctional board only when the

board was “so impaired that it was no longer organized or functioning as it was

established or constituted,” and only when the court determines that a board is

“illegally constituted.” See Swain v. Wiley College , 74 S.W.3d

143, 148 (Tex. App.—Texarkana 2002, no pet.). No evidence suggests that ACHE’s

board was so impaired and dysfunctional that it was illegally constituted. On

the contrary, the record indicates that ACHE’s board was functional and that it

was taking steps to correct the deficiencies found by the HRSA.

Because the appointment of a receiver

over the assets and business affairs of a corporation is a “radical remedy,” it

should never be applied “unless some serious injury to the complainant will

result, or is threatened.” See Tex. Consol. Oils v. Hartwell ,

240 S.W.2d 324, 327 (Tex. Civ. App.—Dallas 1951, orig. proceeding). Brazoria County has failed to demonstrate that a serious injury is threatened or will

result to the county or its residents, and thus we hold that the court abused

its discretion in appointing a receiver over all of ACHE’s assets and business

affairs.

Admission

of Evidence

Last, the board members contend that

the trial court abused its discretion in admitting certain exhibits reflecting

correspondence from HRSA to ACHE, because the documents are not properly

authenticated, constitute hearsay, and are irrelevant. The admission and

exclusion of evidence is committed to the trial court’s sound discretion, but a

trial court abuses that discretion when it acts without regard for any guiding

rules or principles. City of Brownsville v. Alvarado , 897 S.W.2d 750 ,

753–54 (Tex. 1995).

Texas Rule of Evidence 803(8)

excludes records from public offices and agencies from the hearsay rule. Tex.

R. Evid. 803(8). However, such records must be properly authenticated

to be admissible. Tex. R. Evid. 901(a). Generally, the

requirement of authentication or identification as a condition precedent to

admissibility is satisfied by evidence sufficient to support a finding that the

matter in question is what the proponent claims, and specifically, public records

or reports may be authenticated by evidence that the purported public record or

report is from the public office where items of this nature are kept. Tex.

R. Evid. 901(a); 901(b)(7). While Brazoria County contends that Rule

803(8) creates a presumption of admissibility, with the burden being placed on

the party opposing the admission of the report to show its untrustworthiness,

that presumption does not exempt the offered document from satisfying other

requirements of the rules. See 1001 McKinney, Ltd. v. Credit Suisse

First Boston Mortgage Capital , 192 S.W.3d 20 , 27–28 (Tex. App.—Houston [14th Dist.] 2005, pet. denied). The rules of evidence do not require extrinsic

evidence of authenticity as a condition precedent to admissibility for certified

copies of public records because they are self-authenticating. Tex.

R. Evid. 902(4). The contested exhibits here, however, were not

authenticated by either certification or any extrinsic evidence. The trial

court therefore erred in admitting these documents over objections to their

authenticity.

Conclusion

We conclude that we do not

have jurisdiction to consider the status of the pending quo warranto proceeding

in this interlocutory appeal, but because Brazoria County does not show the

necessary irreparable harm to support a temporary injunction or the appointment

of a receiver, we reverse the trial court’s orders granting a temporary

injunction and a receivership, and remand the cause to the trial court for

further proceedings. We dismiss all pending motions as moot.

Jane Bland

Justice

Panel consists of Justices Taft, Jennings, and Bland.