in Re Tracy Suttles and Wife, Cynthia Suttles

Opinion issued April 22, 2010.

In The

Court of Appeals

For The

First District of Texas

____________

NO. 01-09-01023-CV

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TRACY SUTTLES AND CYNTHIA SUTTLES, APPELLANTS

v.

VESTIN REALTY MORTGAGE I, INC., VESTIN REALTY

MORTGAGE II, INC., AND VESTIN FUND, III, LLC, APPELLEES

On Appeal from the 113th District Court

Harris County, Texas

Trial Court Cause No. 2009-02857

*

* *

____________

NO. 01-10-00071-CV

____________

In re TRACY SUTTLES AND CYNTHIA SUTTLES,

RELATORS

Original Proceedings on Petitions for Writ of

Mandamus

O P I N I O N

In this appeal and petition for writ

of mandamus, [1] appellants

and relators, Tracy and Cynthia Suttles seek relief from the trial court’s

entry of a turnover order appointing a receiver and master in chancery. Appellees and real parties in interest,

Vestin Realty Mortgage I, Inc., Vestin Realty Mortgage II, Inc., and Vestin

Fund III, LLC (collectively “Vestin”), sought to enforce a judgment against the

Suttles and two other judgment debtors. [2] The trial court entered a turnover order appointing

a receiver and master in chancery. In their

appeal, the Suttles contend the trial court erred by entering the turnover

order appointing a receiver because Vestin presented no evidence of the facts required

by the turnover statute [3]

and the turnover order was sought for a purpose not authorized by the statute. The Suttles also challenge the appointment of

the receiver on the grounds that the trial court gave the receiver power not

authorized by statute; created a conflict of interest by appointing the same

person as master and receiver; and ordered compensation for the receiver before

any work had been done. In their petition

for writ of mandamus, the Suttles contend the trial court erred by appointing a

master because the case does not meet the requirements of Texas Rule of Civil

Procedure 171, the master’s powers to redirect and open the Suttles’ mail

violates federal postal law, and the same person is appointed both the master

and receiver. We conclude that the trial

court abused its discretion because the record contains no evidence showing the

requirements for a turnover order or the appointment of a master exist. We reverse the trial court’s turnover order

and remand to the trial court. We

conditionally grant the petition for writ of mandamus concerning the

appointment of the master.

Background

Vestin obtained a $4,907,012.26 judgment against the

Suttles, Shamrock Tower, L.P., and Pirate’s Lake, Ltd., in a suit in

Nevada. Vestin domesticated its judgment

in January 2009 and served written post-judgment discovery on the Suttles in

March 2009. The Suttles failed to

respond to the post-judgment discovery, but Vestin did not file a motion to

compel. In November 2009, Vestin filed

an application for post-judgment turnover order and appointment of a receiver

and master. At the hearing, Vestin

presented evidence, providing a list of businesses listing Tracy as a director,

member or officer; records showing NBC Creative Development, LLC, one of

Tracy’s companies, is the owner of record of the Suttles’ residence; a special

warranty deed from Jetall Companies to NBC Creative Developments, LLC; and

records showing the Suttles own 15 properties in Victoria County, Texas.

On November 16, 2009, the trial court

signed an order appointing Riecke Baumann as receiver and master. Eight days later, the trial court signed an

ex parte amended turnover appointing Baumann receiver and master. On three separate occasions in December 2009

and January 2010, the Suttles appeared before Baumann, without objection, to

provide deposition testimony. The

Suttles petitioned for mandamus relief on February 2, 2010, and seek to vacate

the appointment of a master. The Suttles

also filed an appeal challenging the turnover order and the appointment of a

receiver.

Turnover Order

In their appeal, the Suttles raise four

issues asserting the trial court erred when it appointed Baumann as receiver.

A. Standard of

Review and Applicable Law

We review the entry of a

turnover order for an abuse of discretion.

Tanner v. McCarthy , 274

S.W.3d 311, 320 (Tex. App.—Houston [1 Dist.] 2008, no pet.). A turnover order is proper if the conditions of the turnover

statute, Texas Civil Practice and Remedies Code section 31.002, are met. Tex.

Civ. Prac. & Rem. Code Ann. § 31.002 (Vernon 2008); Tanner , 274 S.W.3d at 322 . The trial court “must have some

evidence before it that establishes that the necessary conditions for the

application of 31.002 exist.” Tanner , 274 S.W.3d at 322 . The conditions that must be met are:

(1) the entity that is to receive aid must be a

judgment creditor;

(2) the court that would grant aid must be one

of appropriate jurisdiction;

(3) the aid to be given must be in order to

reach property to obtain satisfaction on the judgment; and

(4) the judgment debtor must own property (including

present or future rights to property) that:

(a) cannot be readily attached or levied on by

ordinary legal process and

(b) is not exempt from attachment, execution,

or seizure for the satisfaction of liabilities.

Tex. Civ. Prac. & Rem. Code Ann. § 31.002(a); Tanner , 274 S.W.3d at 322 . Under the condition of (4)(a) above, property

that cannot be readily attached or levied on by ordinary legal process includes

property such as shares of stock and accounts receivable. See

Arndt v. Nat’l Supply Co. , 650 S.W.2d

547, 548 (Tex. App.—Houston [14th Dist.] 1983, writ ref’d n.r.e.). Here, the dispute concerns whether Vestin

presented evidence to support a finding under (4)(a) that the Suttles owned

property that cannot be readily attached or levied on by ordinary legal

process.

B. Lack of

Evidence to Support Turnover Order

In their first issue, the Suttles

contend the trial court abused its discretion by issuing the turnover order and

appointing a receiver because there is no evidence that the Suttles own any non-exempt

property that cannot be readily attached or levied on by ordinary legal

process . To support its application for the turnover

order, Vestin introduced evidence that (1) Tracy was a director, member, or

officer of certain businesses, (2) corporations associated with Tracy owned the

Suttles’s residence, and (3) the Suttles own 15 properties in Victoria County,

Texas.

1. Director, Officer, or

Member of Business

In support of

its application for a turnover order, Vestin introduced a list of businesses

from the Texas Secretary of State’s website listing Tracy as a director, member

or officer. The fact that Tracy is listed

as a director, officer, or member, however, is no evidence of his ownership of

those businesses. The Texas Business

Organizations Code states that the right to manage a company is not an

“ownership interest.” Tex. Bus. Orgs. Code Ann. § 1.002(64)

(Vernon 2006); see also T ex. Bus. Orgs. Code Ann. § 1.002(54)

(stating member’s right to participate in management of limited liability

company is not membership interest).

Also, the Code specifically provides that being a shareholder is not a

requirement to serve as a director. Tex. Bus. Orgs. Code Ann. § 21.402

(Vernon 2006) (“Unless the certificate of formation or bylaws of a corporation

provide otherwise, a person is not required to be . . . a shareholder of the

corporation to serve as a director.”). Similarly,

with respect to a limited liability company, a person may be a member without

acquiring a membership interest. Tex. Bus. Orgs. Code Ann. § 101.102(c)

(Vernon 2006) (“If one or more persons own a membership interest in a limited

liability company, the company agreement may provide for a person to be

admitted to the company as a member without acquiring a membership interest in

the company.”).

2. Ownership

of Residence Occupied by Suttles

Vestin also

introduced records from the Harris County Appraisal District showing that one

of Tracy’s companies (NBC Creative Development, LLC) is the owner of record of

the Suttles’ residence. Vestin also

introduced a special warranty deed conveying the residence from Jetall

Companies to NBC Creative Developments, LLC.

The fact that the Harris County Appraisal District lists a company as the

owner of the Suttles’ residence is no evidence that the Suttles own shares of

that company. Similarly, a deed

conveying the property from Jetall Companies to NBC Creative Developments, LLC

is no evidence that the Suttles own shares in either company.

3. The

Properties in Victoria County, Texas

Vestin also introduced Victoria County

Appraisal District real property account information listing numerous

properties in one or both of the Suttles’ names. However, to meet the requirement of the

turnover statute, the property must be a type of property that “ cannot

be readily attached or levied on by ordinary legal process.” Although t he turnover statute does not state the types of

property that “ cannot be readily attached or levied on by ordinary legal

process,” the

legislative history and cases indicates that the statute was created to reach

types of property other than the real property in this case. Committee reports from the Texas House and

Senate state the statute was enacted to provide judgment creditors with a

remedy to reach a judgment debtor’s non-exempt property in cases where

traditional methods had proved to be inadequate, including situations where the

debtor has property outside the state of Texas; where the debtor owns interests

in intangible property, such as contract rights receivable, accounts

receivable, commissions receivable, and future rights to payments; and where

the debtor owns interests in other property that could be easily hidden from a

levying officer, such as negotiable instruments, corporate stocks, and

corporate securities. See Davis v. Raborn , 754 S.W.2d 481, 483 (Tex.

App.—Houston [1st Dist.] 1988), vacated

upon settlement , 795 S.W.2d 716 (Tex. 1990) (citing David Hittner, Texas

Post-Judgment Turnover and Receivership Statutes , 45 Tex. B.J.

417, 417–18 (1982)). Real

property within Texas may be levied on by ordinary legal process. See Tex. R. Civ. P. 621, 629, 630, 637, and 639 (providing for

levy of execution to satisfy money judgments, which includes “any sheriff or

any constable within the State of Texas” levying on real property owned by

judgment debtor). Additionally, real

property in Texas may be attached. See Tex. R. Civ. P. 593 (writ of attachment

“shall be directed to the sheriff or any constable within the State of Texas”

and “shall command him to attach and hold . . . the property of the

defendant . . . as shall be found within his county”); see also Pillitteri v. Brown , 165 S.W.3d 715, 722 (Tex. App.—Dallas

2004, no pet.) (noting real property outside of Texas is subject to turnover

order because “ordinary legal process by which property is attached or levied

upon” is writ and writ directs “a sheriff or constable in the State of Texas .

. . to attach and hold the defendant’s property as shall be found within his

county”). Because the Victoria County

property is real property located within Texas, it may be readily

attached or levied on by ordinary legal process. See

Tex.

R. Civ. P. 593,

639; see also Pillitteri , 165 S.W.3d

at 722 . Thus, the requirements of the

turnover statute are not met. See

Tex. Civ. Prac. & Rem. Code Ann. § 31.002 (a)(1) (providing

turnover order available if judgment debtor owns property that “cannot be attached

or levied on by ordinary legal process”).

With respect to the Victoria County

property, Vestin repeatedly refers to it as “rental property,” presumably in an

effort to characterize the rental income as “accounts receivable”—a type of

property to which the turnover statue applies.

See Davis , 754 S.W.2d at 483 ; Arndt , 650 S.W.2d at 548 .

However, the only evidence introduced is the list stating the Suttles

are the owners; the record contains no evidence that the properties are rental

properties or that the Suttles have a right to rental income from these

properties.

In this case, the trial court was not

presented with any evidence to satisfy the requirements of the turnover statute

that the Suttles own non-exempt property that cannot be readily attached

or levied on by ordinary legal process.

Therefore, we hold that, based on the evidence presented, the trial

court erred by issuing the turnover order.

Tanner , 274 S.W.3d at 321 . We sustain the Suttles first issue. Because we reverse the trial court on this

issue, we do not address the Suttles’ remaining issues presenting alternate ground to reverse

the trial court. See Control Solutions, Inc.

v. Gharda Chems. Ltd. , 245 S.W.3d 550 , 563 n.4 (Tex. App.—Houston [1st

Dist.] 2007, no pet.) (citing Tex. R.

App. P. 47.1).

Appointment of Master

In

their petition for writ of mandamus, the Suttles seek relief from the trial

court’s order appointing Baumann as master.

A. Waiver

As a threshold issue, Vestin contends that the Suttles

have waived any objections to the appointment of a master because they failed

to object to Baumann’s appointment before taking part in proceedings before Baumann . Specifically, Vestin points to the three

occasions the Suttles appeared before him to offer deposition testimony. The Suttles respond that they did not waive

their objections to the appointment of a master because (1) they objected to

the appointment of a master at the November 16, 2009 hearing, well before the

three depositions, and (2) the depositions were conducted by Baumann in his

capacity as receiver rather than as master.

“[A] party objecting to a master’s

appointment must make an objection not within some arbitrary time period, but before

it has taken part in proceedings before the master or before the parties, the

master, and the court have acted in reliance on the master’s appointment.” Owens-Corning

Fiberglas Corp. v. Caldwell , 830 S.W.2d 622, 625 (Tex. App.—Houston [1st

Dist.] 1991, orig. proceeding). Here,

the Suttles objected to the appointment of a master at the November 16, 2009

hearing. Furthermore, because Baumann is

the master and receiver, the Suttles’ cooperation with Baumann in his role as

receiver cannot waive their objection to Baumann’s role as master. Accordingly, the Suttles did not waive their

right to object to Baumann’s appointment.

See i d.

B. Standard of

Review and Texas Rule of Civil Procedure 171

When a trial court

improperly appoints a master in chancery, mandamus is the proper remedy. Id.

at 324. M andamus issues to

correct a “clear abuse of discretion” when there is no adequate remedy by

appeal. Walker v. Packer , 827

S.W.2d 833, 839 (Tex. 1992) (orig. proceeding).

Clear abuse of discretion occurs when a trial court “reaches a decision

so arbitrary and unreasonable as to amount to a clear and prejudicial error of

law.” Id. (citing Johnson v.

Fourth Court of Appeals , 700 S.W.2d 916, 917 (Tex. 1985) (orig.

proceeding)). The reviewing court may

not substitute its judgment for that of the trial court when reviewing factual

issues. Id. at 839–40. Even if the reviewing court would have

decided the issue differently, it cannot disturb the trial court’s decision

unless the decision is shown to be arbitrary and unreasonable. Id. at 840. A trial court does not abuse its

discretion so long as there is some evidence of a substantive and probative

character to support its decision. Tanner , 274 S.W.3d at 321 .

The a ppointment of a master in

chancery, unless authorized by statute or consented to by the parties, must

comply with Texas Rule of Civil Procedure 171.

Simpson v. Canales , 806 S.W.2d

802, 810 (Tex. 1991). Rule 171 provides,

in relevant part: “The court may, in exceptional cases, for good cause appoint

a master in chancery . . . .” Tex. R. Civ. P. 171. “The appointment of a master lies within the

sound discretion of the trial court and should not be reversed except for a

clear abuse of that discretion.” Simpson

v. Canales , 806 S.W.2d 802, 811 (Tex. 1991). “The ‘exceptional cases/good cause’ criterion

of Rule 171 is not susceptible of precise definition.” Id.

Although the trial court may consider the complexity of the case,

the rule’s standards “cannot be met merely by showing that a case is complicated

or time-consuming.” Id.

In deciding the “exceptional case/good

cause” requirement was not met in Simpson ,

the supreme court noted that the underlying case was a toxic tort case

involving one plaintiff and 18 defendants; in the first 10 months that the case

was pending, eight discovery motions were filed; the supreme court noted that

none of the motions were “especially complex”; and the trial court did not hear

the merits of any pending discovery dispute before appointing the master. Simpson ,

806 S.W.2d at 811 . In following Simpson , this Court found a case with

five defendants, in which one set of requests for admissions, one set of

interrogatories to all defendants, and seven sets of requests for production

were served, and two motions to compel were submitted to the master, was not

exceptional and the appointment of a master was an abuse of discretion. Owens-Corning

Fiberglas Corp. , 830 S.W.2d at 626–27.

Here, in the turnover order appointing

the master, the trial court stated this case was exceptional “due to its

complexity and the intensity needed to enforce the judgment.” This recital is similar to the recital found

wanting in Simpson . In that case, the trial court stated good

cause existed to appoint a master “[b]ecause of the complex nature of the case

and the numerous pre-trial issues to be disposed of.” Simpson ,

806 S.W.2d 811 . In addition, the facts

of this case bring it within the application of Simpson . This case involves

four judgment debtors. Vestin served two

requests for production, one each to Mr. Suttles and Mrs. Suttles. The Suttles did not respond. Vestin did not file a motion to compel and,

consequently, the trial court did not hold a hearing on the motion to compel. Finally, unlike Simpson , a toxic tort case involving 18 defendants, this case is

limited to post-judgment enforcement actions involving four defendants, two of

whom are husband and wife. This case

falls far short of the complexity of Simpson

and Owens-Corning , cases that the Texas

supreme court and this Court found were not exceptional, concluding the trial

court in each case abused its discretion in appointing a master.

Vestin asserts this case is

exceptional because the Suttles are “officers, directors or members of at least

twenty-five Texas businesses, own approximately fifteen non-exempt rental

properties in Victoria county and resided in a home for which the owner of

record is NBC Creative Development, LLC (one of [the Suttles’] companies).” As noted above, the fact that the Suttles are

officers, directors, or members of business entities is no evidence that the

Suttles own an interest in those entities.

Also, the fact that the Suttles own property is not evidence that the

property is “rental property.” These

purported complexities of this case find no evidentiary support in the record. See Tanner , 274 S.W.3d at 324 (trial court

abuses its discretion if no evidence supports decision)

Vestin also attempts to distinguish

this case from Simpson and Owens-Corning based on the scope of the

orders involved. In those cases the

master was appointed to hear all discovery disputes. Simpson ,

806 S.W.2d at 811 ; Owens-Corning

Fiberglas Corp. , 830 S.W.2d at 626 .

The supreme court and this Court found this type of “blanket order” inappropriate

because there was no showing that “the future conduct of discovery will justify

supervision by a master rather than the court.”

Simpson , 806 S.W.2d at 811 ; see also Owens-Corning Fiberglas Corp. , 830 S.W.2d at 627 (noting that

blanket order referring discovery to master inappropriate in case less complex

than Simpson ). Here, Vestin asserts the master was not

appointed “to hear all pretrial

discovery matters.” However, the master

was given powers much broader than a master appointed for pre-trial discovery

only. Here, among other things, the

master was granted the following powers:

Ordering the turnover before him of assets,

evidence and documents upon all matters he feels pertain to compliance with

this order . . .;

Scheduling hearings and meetings and

directing parties and witnesses to give testimony at such hearings and meetings

and to rule upon the admissibility of evidence at such hearings; [and]

Placing witnesses under oath and examining

them himself, or through his agents[.]

The

trial court’s order also provides, “An order from the Master, made pursuant to

this order, is a Court Order.” Thus, the

order here is much broader than an order referring all pre-trial discovery

matters to a master. See Simpson , 806 S.W.2d at 811 ; Owens-Corning Fiberglas Corp. , 830

S.W.2d at 626 .

For the foregoing reasons, we conclude

this case does not meet the “exceptional case/good cause” requirement of Rule

171 and the trial court abused its discretion in appointing a master. See

Simpson , 806 S.W.2d at 811 . Furthermore, t he master was appointed as part of the turnover order, in order to

assist the trial court and “conserve the resources of the [trial court] in

routine post judgment matters” in enforcing the judgment against the

Suttles. We have already held the trial

court abused its discretion in issuing the turnover order; this is an

additional reason that portion of the turnover order appointing a master

constitutes an abuse of discretion. We

do not address the other issues in the Suttles’ petition for writ of mandamus

contending the trial court erred by granting the master the power to open the

Suttles’ mail and by appointing the same person as receiver and master.

Conclusion

We reverse the order of the trial

court and remand this cause. We

conditionally grant the Suttles’ petition for writ of mandamus and direct the

trial court to vacate its order appointing a master. We are confident the trial court will promptly

comply, and our writ will issue only if it does not.

Elsa

Alcala

Justice

Panel consists of Chief Justice Radack, and Justices Alcala, and

Higley.

[1]

The appeal is cause number

01-09-01023-CV. The petition for writ of

mandamus is cause number 01-10-0071-CV.

The underlying case is Vestin Realty Mortgage I, Inc., Vestin Realty

Mortgage II, Inc., and Vestin Fund, III, LLC v. Tracy Suttles, Cynthia Suttles,

Shamrock Tower, LP, and Pirates Lake, LTD. , cause number 2009-02857, in the

113th Judicial District Court of Harris County, Texas, the Honorable Patricia

Hancock, presiding.

[2]

Shamrock Tower, LP and Pirates

Lake, LTD were named as defendants in the underlying cause and the trial

court’s order but have not appealed.

[3]

See Tex. Civ. Prac. &

Rem. Code Ann. § 31.002 (Vernon 2008).