Rocklon, LLC v. Beverly Paris and Daniel Paris
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Opinion
In The
Court of Appeals Ninth District of Texas at Beaumont _________________ NO. 09-16-00070-CV _________________
ROCKLON, LLC, Appellant
V.
BEVERLY PARIS AND DANIEL PARIS, Appellee ________________________________________________________________________
On Appeal from the 60th District Court Jefferson County, Texas Trial Cause No. B-196,826 ________________________________________________________________________
MEMORANDUM OPINION
Appellant Rocklon, L.L.C. (“Rocklon”) appeals a temporary injunction
granted in favor of Daniel Paris and Beverly Paris, individually and as the personal
representative of the Estate of Kristin Paris (collectively “Paris”). 1 We affirm the
trial court’s temporary injunction.
1 Beverly Paris is Kristin Paris’s mother, and Daniel Paris is her father. 1 I. Background
Paris filed a wrongful death and survival action against Rocklon, Rockal,
Inc. (“Rockal”), Rockline George Kennedy (“Kennedy”), Winrock Investments,
Inc. (“Winrock”), and Thomas Sherlock (“Sherlock”), alleging that the defendants
were responsible for Kristin’s death.2 According to Paris’s pleadings, on January
26, 2015, Kennedy went to a bar and strip club named Dream Street, which was
owned, operated, licensed, maintained, and staffed by Kennedy and the various
other defendants. Paris alleged that Sherlock served Kennedy alcohol and
continued to serve him alcohol after Kennedy was obviously intoxicated.
Sometime thereafter, according to the pleadings, Kennedy left Dream Street and, at
some point, entered the westbound lanes of the highway traveling eastbound
against traffic when he struck Kristin’s vehicle head on, causing her death.
Evidence in the record reflects that Kennedy pled guilty to intoxicated
manslaughter and was sentenced by a jury to eighteen years in prison.
Paris amended her petition twice, and in so doing, named Ruston Ray
Kennedy (“Ruston”) as a defendant and alleged violations of the Texas Uniform
Fraudulent Transfer Act against all defendants, including Rocklon. Paris alleged
2 Rocklon is the only defendant in the underlying lawsuit that filed a notice of interlocutory appeal of the trial court’s injunction order. Thus, the other defendants are not parties to this appeal. 2 that Rocklon and Rockal are alter egos of Kennedy. Paris further alleged that
Ruston participated in liquidating the assets of Rocklon after the commencement of
this lawsuit and used the proceeds for his personal benefit.
Paris obtained a temporary injunction against Rocklon, which we reversed
on appeal because the trial court’s order failed to comply with Rules 683 and 684
of the Texas Rules of Civil Procedure. See Rocklon, L.L.C. v. Paris, No. 09-15-
00245-CV, 2015 WL 6521227, at *1-2 (Tex. App.—Beaumont Oct. 29, 2015, no
pet.). On remand, Paris filed another application for a temporary restraining order
and temporary injunction. A temporary restraining order was entered, and the trial
court held a hearing on Paris’s request for a temporary injunction. In her request
for a temporary injunction, Paris alleged that the defendants had disposed of assets
belonging to Rocklon with the actual intent to hinder, delay, or defraud plaintiffs
by placing Rocklon’s assets out of Paris’s reach in the event of a judgment against
Rocklon. Specifically, Paris argued that Rocklon sold the bulk of its assets eight
days after Kennedy filed his answer to this lawsuit. The asset Paris specifically
complained about was real property located at 5980 South MLK Parkway in
Beaumont, Texas (the “MLK Property”). At the conclusion of the injunction
hearing, the trial court once again entered a temporary injunction against Rocklon.
The trial court’s order enjoined Rocklon, its officers, agents, servants, employees,
3 attorneys, representatives, or any other person acting in concert or participation
with Rocklon from “accessing, distributing, disbursing or removing any of the one
million dollars . . . in proceeds from the disposition of [Rocklon’s] sale of property
and majority asset, or any remaining proceeds of such sale, and that such proceeds
must remain in the Morgan Stanley banking account in which it currently sits[.]”
Rocklon filed a notice of interlocutory appeal. In two appellate issues,
Rocklon contends the trial court abused its discretion by granting the temporary
injunction because: (1) the temporary injunction improperly freezes Rocklon’s
bank accounts for the sole purpose of ensuring there is money to pay a judgment if
Paris is successful at trial; and (2) the injunction is not supported by competent
evidence.
II. Standard of Review
We review a trial court’s decision to grant a temporary injunction for an
abuse of discretion. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002).
We must not substitute our judgment for the trial court’s judgment unless the trial
court’s judgment was so arbitrary that it exceeded the bounds of reasonable
discretion. Id. We review the evidence in the light most favorable to the trial
court’s judgment and draw all legitimate inferences from the evidence in a manner
most favorable to the trial court’s judgment. Cameron Int’l Corp. v. Guillory, 445
4 S.W.3d 840, 845 (Tex. App.—Houston [1st Dist.] 2014, no pet.). We will not find
an abuse of discretion if the trial court heard conflicting evidence and evidence
appears in the record that reasonably supports the trial court’s decision. Dallas
Anesthesiology Assocs., P.A. v. Tex. Anesthesia Grp., P.A., 190 S.W.3d 891, 896
(Tex. App.—Dallas 2006, no pet.). The trial court abuses its discretion when it
misapplies the law to the “established facts or when the evidence does not
reasonably support the conclusion that the applicant has a probable right of
recovery.” State v. Southwestern Bell Tel. Co., 526 S.W.2d 526, 528 (Tex. 1975).
Our review is limited to the validity of the trial court’s temporary injunction order,
and we will not consider the merits of the underlying case. Cameron, 445 S.W.3d
at 845.
III. Evidence Supporting Temporary Injunction
In its second issue, Rocklon challenges the sufficiency of the evidence to
support the temporary injunction. Rocklon specifically argues that Paris failed to
present evidence of a probable right to relief and of imminent harm. “A temporary
injunction is an extraordinary remedy and does not issue as a matter of right.”
Butnaru, 84 S.W.3d at 204. To be entitled to a temporary injunction, the applicant
must plead and prove a cause of action against the defendant, a probable right to
the relief sought, and a probable, imminent, and irreparable injury in the interim.
5 Id. It is the applicant’s burden to produce some evidence that establishes a
probable right of recovery. Cameron, 445 S.W.3d at 845; see In re Tex. Nat. Res.
Conservation Comm’n, 85 S.W.3d 201, 204 (Tex. 2002) (quoting Camp v.
Shannon, 348 S.W.2d 517, 519 (Tex. 1961)).
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In The
Court of Appeals Ninth District of Texas at Beaumont _________________ NO. 09-16-00070-CV _________________
ROCKLON, LLC, Appellant
V.
BEVERLY PARIS AND DANIEL PARIS, Appellee ________________________________________________________________________
On Appeal from the 60th District Court Jefferson County, Texas Trial Cause No. B-196,826 ________________________________________________________________________
MEMORANDUM OPINION
Appellant Rocklon, L.L.C. (“Rocklon”) appeals a temporary injunction
granted in favor of Daniel Paris and Beverly Paris, individually and as the personal
representative of the Estate of Kristin Paris (collectively “Paris”). 1 We affirm the
trial court’s temporary injunction.
1 Beverly Paris is Kristin Paris’s mother, and Daniel Paris is her father. 1 I. Background
Paris filed a wrongful death and survival action against Rocklon, Rockal,
Inc. (“Rockal”), Rockline George Kennedy (“Kennedy”), Winrock Investments,
Inc. (“Winrock”), and Thomas Sherlock (“Sherlock”), alleging that the defendants
were responsible for Kristin’s death.2 According to Paris’s pleadings, on January
26, 2015, Kennedy went to a bar and strip club named Dream Street, which was
owned, operated, licensed, maintained, and staffed by Kennedy and the various
other defendants. Paris alleged that Sherlock served Kennedy alcohol and
continued to serve him alcohol after Kennedy was obviously intoxicated.
Sometime thereafter, according to the pleadings, Kennedy left Dream Street and, at
some point, entered the westbound lanes of the highway traveling eastbound
against traffic when he struck Kristin’s vehicle head on, causing her death.
Evidence in the record reflects that Kennedy pled guilty to intoxicated
manslaughter and was sentenced by a jury to eighteen years in prison.
Paris amended her petition twice, and in so doing, named Ruston Ray
Kennedy (“Ruston”) as a defendant and alleged violations of the Texas Uniform
Fraudulent Transfer Act against all defendants, including Rocklon. Paris alleged
2 Rocklon is the only defendant in the underlying lawsuit that filed a notice of interlocutory appeal of the trial court’s injunction order. Thus, the other defendants are not parties to this appeal. 2 that Rocklon and Rockal are alter egos of Kennedy. Paris further alleged that
Ruston participated in liquidating the assets of Rocklon after the commencement of
this lawsuit and used the proceeds for his personal benefit.
Paris obtained a temporary injunction against Rocklon, which we reversed
on appeal because the trial court’s order failed to comply with Rules 683 and 684
of the Texas Rules of Civil Procedure. See Rocklon, L.L.C. v. Paris, No. 09-15-
00245-CV, 2015 WL 6521227, at *1-2 (Tex. App.—Beaumont Oct. 29, 2015, no
pet.). On remand, Paris filed another application for a temporary restraining order
and temporary injunction. A temporary restraining order was entered, and the trial
court held a hearing on Paris’s request for a temporary injunction. In her request
for a temporary injunction, Paris alleged that the defendants had disposed of assets
belonging to Rocklon with the actual intent to hinder, delay, or defraud plaintiffs
by placing Rocklon’s assets out of Paris’s reach in the event of a judgment against
Rocklon. Specifically, Paris argued that Rocklon sold the bulk of its assets eight
days after Kennedy filed his answer to this lawsuit. The asset Paris specifically
complained about was real property located at 5980 South MLK Parkway in
Beaumont, Texas (the “MLK Property”). At the conclusion of the injunction
hearing, the trial court once again entered a temporary injunction against Rocklon.
The trial court’s order enjoined Rocklon, its officers, agents, servants, employees,
3 attorneys, representatives, or any other person acting in concert or participation
with Rocklon from “accessing, distributing, disbursing or removing any of the one
million dollars . . . in proceeds from the disposition of [Rocklon’s] sale of property
and majority asset, or any remaining proceeds of such sale, and that such proceeds
must remain in the Morgan Stanley banking account in which it currently sits[.]”
Rocklon filed a notice of interlocutory appeal. In two appellate issues,
Rocklon contends the trial court abused its discretion by granting the temporary
injunction because: (1) the temporary injunction improperly freezes Rocklon’s
bank accounts for the sole purpose of ensuring there is money to pay a judgment if
Paris is successful at trial; and (2) the injunction is not supported by competent
evidence.
II. Standard of Review
We review a trial court’s decision to grant a temporary injunction for an
abuse of discretion. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002).
We must not substitute our judgment for the trial court’s judgment unless the trial
court’s judgment was so arbitrary that it exceeded the bounds of reasonable
discretion. Id. We review the evidence in the light most favorable to the trial
court’s judgment and draw all legitimate inferences from the evidence in a manner
most favorable to the trial court’s judgment. Cameron Int’l Corp. v. Guillory, 445
4 S.W.3d 840, 845 (Tex. App.—Houston [1st Dist.] 2014, no pet.). We will not find
an abuse of discretion if the trial court heard conflicting evidence and evidence
appears in the record that reasonably supports the trial court’s decision. Dallas
Anesthesiology Assocs., P.A. v. Tex. Anesthesia Grp., P.A., 190 S.W.3d 891, 896
(Tex. App.—Dallas 2006, no pet.). The trial court abuses its discretion when it
misapplies the law to the “established facts or when the evidence does not
reasonably support the conclusion that the applicant has a probable right of
recovery.” State v. Southwestern Bell Tel. Co., 526 S.W.2d 526, 528 (Tex. 1975).
Our review is limited to the validity of the trial court’s temporary injunction order,
and we will not consider the merits of the underlying case. Cameron, 445 S.W.3d
at 845.
III. Evidence Supporting Temporary Injunction
In its second issue, Rocklon challenges the sufficiency of the evidence to
support the temporary injunction. Rocklon specifically argues that Paris failed to
present evidence of a probable right to relief and of imminent harm. “A temporary
injunction is an extraordinary remedy and does not issue as a matter of right.”
Butnaru, 84 S.W.3d at 204. To be entitled to a temporary injunction, the applicant
must plead and prove a cause of action against the defendant, a probable right to
the relief sought, and a probable, imminent, and irreparable injury in the interim.
5 Id. It is the applicant’s burden to produce some evidence that establishes a
probable right of recovery. Cameron, 445 S.W.3d at 845; see In re Tex. Nat. Res.
Conservation Comm’n, 85 S.W.3d 201, 204 (Tex. 2002) (quoting Camp v.
Shannon, 348 S.W.2d 517, 519 (Tex. 1961)). However, the applicant is not
required to prove that it will ultimately prevail at trial, only that it is entitled to
preservation of the status quo pending trial on the merits. Cameron, 445 S.W.3d at
845.
A. Probable Right of Recovery
An applicant shows a probable right of recovery by alleging a cause of
action and presenting evidence tending to sustain the cause of action. Fox v.
Tropical Warehouses, Inc., 121 S.W.3d 853, 857 (Tex. App.—Fort Worth 2003,
no pet.). Rocklon contends Paris failed to present sufficient competent evidence
supporting a probable right to recover on her claims. According to Rocklon, there
is no evidence that Rocklon is liable to Paris on the underlying claims because
there is insufficient proof to establish that Rocklon is an alter ego of Kennedy, and
there is no evidence of a fraudulent transfer. We address Rocklon’s contentions in
turn below.
The Texas Uniform Fraudulent Transfer Act (“TUFTA” or the “Act”) is
contained in chapter 24 of the Texas Business and Commerce Code. See Tex. Bus.
6 & Com. Code § 24.001 (West 2015), § 24.002 (West Supp. 2015), §§ 24.003–
24.013 (West 2015). The purpose of TUFTA is to prevent debtors from prejudicing
creditors by improperly moving assets beyond the creditors’ reach. Tel. Equip.
Network, Inc. v. TA/Westchase Place, Ltd., 80 S.W.3d 601, 607 (Tex. App.—
Houston [1st Dist.] 2002, no pet.). TUFTA defines a “creditor” as “a person,
including a spouse, minor, person entitled to receive court or administratively
ordered child support for the benefit of a child, or ward, who has a claim.” Tex.
Bus. & Com. Code Ann. § 24.002(4). A “claim” is “a right to payment or property,
whether or not the right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured.” Id. § 24.002(3). A “debtor” is “a person who is liable on a claim.” Id.
§ 24.002(6). TUFTA creates an independent cause of action by which a creditor
may seek recourse for a fraudulent transfer of assets or property. Blackthorne v.
Bellush, 61 S.W.3d 439, 443 (Tex. App.—San Antonio 2001, no pet.). Subject to
applicable principles of equity and in accordance with the Texas Rules of Civil
Procedure, section 24.008 of TUFTA specifically provides that in an action for
relief under the Act, a creditor may obtain “an injunction against further
disposition by the debtor or a transferee, or both, of the asset transferred or of other
property[.]” Tex. Bus. & Com. Code Ann. § 24.008(a)(3)(A). Here, Paris alleged
7 TUFTA claims against all defendants, including Rocklon. Paris also alleged that
Rocklon is an alter ego of Kennedy and, as such, is a debtor under TUFTA, and
had fraudulently transferred or was “highly likely” to fraudulently transfer its
property and assets with an actual intent to hinder, delay, or defraud Paris.
1. Alter-Ego Relationship
Rocklon argues that Paris has no probable right to recover on her claims
against it because Rocklon is not an alter ego of Kennedy. To address this issue,
we must determine whether there was any evidence submitted to the trial court that
an alter ego relationship existed between Rocklon and Kennedy such that
Rocklon’s assets may be used to satisfy Kennedy’s liabilities. Although the Texas
Supreme Court has not definitively addressed this issue, Texas intermediate courts
of appeal and other jurisdictions have applied to limited liability companies
(“LLCs”) the same state law principles for piercing the corporate veil as they have
applied to corporations. See Shook v. Walden, 368 S.W.3d 604, 614, 621 (Tex.
App.—Austin 2012, pet. denied); Sanchez v. Mulvaney, 274 S.W.3d 708, 712
(Tex. App.—San Antonio 2008, no pet.); McCarthy v. Wani Venture, A.S., 251
S.W.3d 573, 590 (Tex. App.—Houston [1st Dist.] 2007, pet. denied); see also
Spring Street Partners-IV, L.P. v. Lam, 730 F.3d 427, 443 (5th Cir. 2013)
(explaining that Texas law provides that veil-piercing and “alter ego” principles
8 apply equally to corporations and LLCs); Key v. Richards, No. 03-14-00116-CV,
2016 WL 240773, at *3 n.4 (Tex. App.—Austin Jan. 13, 2016, no pet.)
(acknowledging that the legislature has broadly insulated LLC members from
liability for an LLC’s obligations, but refusing to find without clear direction from
the Supreme Court that this insulation nullifies the longstanding common law
establishing that corporate agents are liable for their own tortious conduct and may
even be liable for an entity’s liabilities based on the equitable principles of veil-
piercing). Here, Rocklon does not challenge Paris’s contention that veil-piercing
theories are applicable to LLCs. Rather, Rocklon argues that Paris has failed to
present evidence to support her reverse-piercing theory.
Under a “reverse[-]piercing theory” a creditor seeks to apply the alter ego
doctrine in reverse, i.e.—“to hold a corporation’s assets accountable for the
liability of individuals who treated the corporation as their alter ego.” Zahra
Spiritual Trust v. U.S., 910 F.2d 240, 243-244 (5th Cir. 1990) (applying Texas law
and concluding that Texas would allow a creditor to reach the assets of a
corporation when there is a showing that an alter ego relationship exists between
the individual debtor and the corporation). The ultimate goal in a reverse-piercing
case is not only to hold the shareholders accountable, but to treat the individual and
the corporation as one and the same. Id. “Upon a sufficient showing that the
9 corporation is the alter ego of the debtor, the corporation is treated as the debtor
and its property may be attached . . . .” Id. at 244 (internal citation omitted).
Generally, basic veil-piercing alter ego principles apply to reverse-veil-
piercing situations. Cappuccitti v. Gulf Indus. Prods., Inc., 222 S.W.3d 468, 481-
82 (Tex. App.—Houston [1st Dist.] 2007, no pet.); see Zahra, 910 F.2d at 243-244.
The Texas Supreme Court has explained that the alter ego theory forms a basis for
disregarding the corporate fiction “where a corporation is organized and operated
as a mere tool or business conduit” for another entity. Castleberry v. Branscum,
721 S.W.2d 270, 272 (Tex. 1986) (superseded on other grounds by Tex. Bus. Orgs.
Code Ann. § 21.223 (West 2012)) (internal citation omitted). Disregarding the
corporate fiction is an equitable doctrine in which Texas courts take “a flexible
fact-specific approach focusing on equity.” Id. at 273. Essentially, this doctrine
applies when the unity between a corporation and an individual is such that the
“separateness of the corporation has ceased and holding only the corporation liable
would result in injustice.” Id. at 272.
In making the determination of whether an alter ego relationship exists, a
court looks at the total dealings of a corporation and the individual and considers
the degree to which corporate and individual property have been kept separately,
the amount of financial interest, ownership, and control the individual maintains
10 over the corporation, and whether the individual used the corporation for personal
purposes. Cappuccitti, 222 S.W.3d 481. The court may also consider whether
corporate debts were paid with personal checks or other evidence of the
commingling of funds. Id. at 482. Evidence that an individual made representations
that he would financially back the corporation and evidence that an individual
diverted company profits to himself for personal use is evidence tending to support
a finding of an alter ego relationship. Id. Finally, the court may consider whether
the corporation is inadequately capitalized. Id. The rationale behind the alter ego
theory is that if the shareholder disregarded the separateness of the corporation,
then the law will also disregard it in so far as it is necessary to protect creditors.
Castleberry, 721 S.W.2d at 272.
It is not our function in this interlocutory appeal to determine the merits of
Paris’s alter ego claims. See Cameron, 445 S.W.3d at 845. In circumstances like
this, where the trial court heard conflicting evidence, we will not find an abuse of
discretion if the evidence in the record reasonably supports the trial court’s
decision. See Dallas Anesthesiology Assocs., P.A., 190 S.W.3d at 896.
a. Ownership Interest and Control of Rocklon
In response to the allegation that Rocklon is the alter ego of Kennedy,
Rocklon maintains that it is merely a real estate business that leased property to
11 Rockal, the company that owned Dream Street, and that there is no evidence that it
“owned, ran or managed [Dream Street], or any establishment where alcohol was
served.” Rocklon asserts that it is owned solely by Ruston and not Kennedy.
It is undisputed in this case that Rocklon is organized as a Texas LLC. A
certificate of formation is used to form an LLC, and it controls the overall
organization and operation of the company. See Tex. Bus. Orgs. Code Ann. §§
3.005, 101.051 (West 2012), § 101.052(d) (West Supp. 2016). The company
agreement governs the relations among members, managers, and officers of the
company, assignees of membership interests in the company, and the company
itself. Id. § 101.052(a)(1). The company agreement may contain any provisions for
the regulation and management of the affairs of the LLC so long as those
provisions are not inconsistent with the law or the certificate of formation. Id. §
101.052(d).
Ownership of an LLC is essentially in the membership of the company. See
Id. § 1.002(53)(A), (54), (63)(C) (West Supp. 2016) (defining the terms “member”,
“membership interest”, and “owner”); § 101.052(b) (providing that to the extent
the company agreement of an LLC does not provide otherwise, Title 3 (LLC
provisions of the Code) and the LLC provisions of Title 1 govern the internal
affairs of the LLC); § 101.106(a) (West 2012) (providing that members hold a
12 personal property interest in the LLC); § 101.251(2) (West 2012) (providing that
members have a right to manage the operation of the LLC when the certificate of
formation states that the company will not have managers). A “member” is a
person who is a member or has been admitted as a member in the governing
documents of the company. Id. § 1.002(53)(A). Generally, an LLC must have at
least one member and may have more than one member. Id. § 101.101(a) (West
2012). Section 101.103 of the Business Organizations Code provides that a person
becomes a member of the LLC in connection with its formation on the date the
company is formed if the person is named as an initial member in the certificate of
formation. Id. § 101.103(a) (West 2012).
A membership interest may be wholly or partly assigned, but the assignment
of a membership interest in an LLC in and of itself does not entitle the assignee to
participate in the management and affairs of the company, become a member of
the company, or exercise any rights of a member of the company. Id. § 101.108
(West 2012). An assignee of a membership interest in an LLC is entitled to become
a member of the company on approval of all of the company’s members. Id. §
101.109(b) (West 2012). An assignor of a membership interest in an LLC
continues to be a member of the company until the assignee becomes a member of
the company. Id. § 101.111(a) (West 2012).
13 The trial court heard evidence that until 2006, Dream Street was owned and
operated primarily by Winrock, which was a corporate entity whose stock was
wholly owned by Kennedy. Sometime in 2006, Winrock was sued in a dram-shop
case after a young man was killed. According to the uncontroverted evidence in the
record, sometime after the 2006 lawsuit, Winrock filed bankruptcy and was
eventually dissolved. Two new companies were subsequently created, Rockal and
Rocklon.
Rocklon’s Certificate of Formation, which was executed and filed with the
Texas Secretary of State (“SOS”) on February 1, 2006, indicates that Kennedy is
the registered agent and only member of Rocklon. The certificate further indicates
that at Rocklon’s formation, its registered office was located at Kennedy’s personal
residence at that time—7713 Spring Meadow, Port Arthur, Texas. According to the
SOS, Rocklon updated its records with the State at different times, and Kennedy
remained Rocklon’s registered agent, manager, and director. The SOS records
reflect that Rocklon’s address changed to Winzer Road in Beaumont, Texas, which
also appears to have been the location of Kennedy’s personal residence at that
time. According to Rocklon’s Certificate of Formation, Rocklon was organized as
a member-managed LLC and would not have a non-member manager. As of
14 February 1, 2006, Kennedy was the only member of Rocklon. See Tex. Bus. Orgs.
Code Ann. § 101.103(a).
There are two versions of Rocklon’s Company Agreement in the record.
Both versions were obtained as part of a document request from Rocklon’s bank.
Both versions indicate that Rocklon is a member-managed company and that
“Members shall have the sole and exclusive control of the management, business
and affairs of the Company, and the Members shall make all decisions and take all
actions for the Company[.]” Both versions of the Company Agreement provide
that members may designate an individual with authority to sign or give
instructions with respect to bank and investment accounts. Both also provide that
any notice, request, or consent to Rocklon or its members must be given to the
members through Kennedy at his personal address.
For purposes of this appeal, the key distinction between the two versions is
that one identifies Kennedy as the initial and only member of Rocklon. It is
prepared for Kennedy’s signature as the only member of Rocklon and is dated
February 1, 2006. However, it is not executed. In contrast, the other version of the
Company Agreement, which is advocated by Rocklon as the correct version,
provides that Ruston is the initial and only member of Rocklon. The second
document is executed by Ruston and is also dated February 1, 2006.
15 Also presented to the trial judge is a document titled, “Assignment of
Membership Interest in Rocklon, LLC” (the “Assignment”). The Assignment
purports to transfer all of Kennedy’s ownership interest and membership interest in
Rocklon to Ruston. The Assignment is executed by Kennedy and is dated February
1, 2006. Notably, both versions of the Company Agreement contain identical
provisions regarding transfers of a membership interest. The agreement
specifically defines an assignee as “a person who receives a Transfer of all or a
portion of the Membership Interest of a Member, but who has not been admitted to
the Company as a Member.” Another provision states, “Any attempted Transfer by
a person of an interest or right, or any part thereof, in or in respect of the Company
other than as specifically provided by this Agreement shall be, and is hereby
declared, null and void ab initio.” The Company Agreements also state that until
an assignee becomes a substituted member in Rocklon, the assignee does not have
voting rights and has no right to participate in the operations or management of the
company. Further, an assignee is admitted as a substituted member only when the
member making the transfer grants the assignee the right to be admitted and,
among other things, the instrument assigning the membership interest contains an
agreement by the assignee that he agrees to be bound by all of the terms and
provisions of the company agreement. We note that the Assignment purporting to
16 transfer Kennedy’s interest in Rocklon to Ruston does not contain such an
agreement by Ruston, as the assignee. In fact, the Assignment is only signed by
Kennedy and requires no agreement whatsoever by Ruston. The trial court could
have reasonably determined that the Assignment failed to meet the requirements of
the Company Agreements for a valid assignment and determined that it was void.
Additionally, there is a letter, dated June 5, 2006, which appears in the
appellate record immediately before the Assignment and the second version of the
Company Agreement. The letter is from an attorney, addressed to “Mr. Rocky
Kennedy[,] Rocklon, LLC[,]” and indicates that the attorney is forwarding the
“Company Agreement of Rocklon, LLC” and the “Assignment of Membership
Interest in Rocklon, LLC” to Kennedy and Ruston for review and execution. In the
letter, the attorney instructs Kennedy as follows: “Execute the Assignment of
Membership interest where indicated and have Ruston execute the Company
Agreement. . . . Please give me a call if you should have any questions.” The letter
is dated four months after Kennedy and Ruston purportedly executed the
Assignment and Company Agreement. Ruston was questioned during the
injunction hearing regarding the date the Assignment was allegedly executed.
Ruston testified that he was not sure what date the Assignment was executed and
refused to confirm or deny that it was signed on February 1, 2006. Considering all
17 the evidence and conflicts therein, the trial court could have determined that
neither the Assignment nor the executed version of the Company Agreement were
reliable to show the true membership or ownership of Rocklon.
Rocklon’s Texas Franchise Tax Public Information Reports for various years
are included in the record. In 2010, 2012, and 2013, Kennedy is identified as the
only officer, director, or member of Rocklon. 3 However, Rocklon correctly states
that the Tax Code, which creates this duty to report to the comptroller, does not
expressly require an LLC to list all members on its Public Information Report. See
Tex. Tax Code Ann. § 171.203(a)(3), (4), (5) (West Supp. 2015) (providing that an
LLC shall file a report with the comptroller containing the name, title, and mailing
address of each person who is an officer or director of the LLC on the date the
report is filed; the name and address of the agent of the LLC, and the address of the
LLC’s principal office and principal place of business). Thus, Rocklon contends
that the absence of Ruston’s name on the form is not evidence to prove Kennedy’s
ownership. However, the forms instruct the LLC to list the “[n]ame, title and
mailing address of each officer, director or member.” (emphasis added). The forms 3 Rocklon’s 2014 Texas Franchise Tax Public Information Report is also included in the record. We note that the form is different from the forms used in 2010, 2012, and 2013. Relevant to the issues discussed herein, the form does not ask the LLC to identify its members. However, Kennedy is identified in the 2014 report as the manager of this member-managed LLC. Ruston is not mentioned in the report. 18 also identify Kennedy as the manager of Rocklon, which according to the
provisions of Rocklon’s governing documents, supports that Kennedy was also a
member. The trial court could have reasonably interpreted these documents as
some evidence that Kennedy was at least the managing member of Rocklon at the
time the documents were filed. The court could have also considered the fact that
Ruston was not identified in the forms in determining Ruston’s role, if any, in
The trial court heard additional conflicting evidence regarding the formation
and ownership of Rocklon. Ruston testified that Kennedy’s only participation in
the formation of Rocklon was as a guarantor for the loan Rocklon needed to
purchase the MLK Property. Ruston testified that he had been the owner of
Rocklon “since the very beginning.” This testimony appears to be in direct conflict
with Rocklon’s Certificate of Formation, which identified Kennedy as the only
member of Rocklon upon Rocklon’s formation. Now, on appeal, Rocklon
acknowledges that Kennedy was identified as the initial member of the company
when the certificate of formation was filed with the Texas Secretary of State, but
that Ruston executed the Company Agreement listing him as the sole member and
accepted an assignment of membership interest in 2006. Rocklon argues that Paris
19 “purposefully ignore[s] the fact that [Kennedy] executed an assignment of interest
to Ruston almost immediately after the company was formed.”
Rocklon’s arguments on appeal appear to conflict with Ruston’s testimony
and position in the trial court that he was always the sole member of Rocklon, and
Kennedy had nothing to do with the formation of Rocklon, save acting as a
guarantor of a loan. Ultimately, the trial court could have discredited Ruston’s
testimony that he had owned Rocklon from its inception. Not only does the
Certificate of Formation conflict with Ruston’s testimony, but if as Ruston argues,
he owned Rocklon from its inception, Kennedy would have had no ownership
interest to later assign to Ruston.
Financial records admitted into evidence from Rocklon’s bank tend to
support the contention that Kennedy was the sole member of Rocklon and had full
control of Rocklon’s bank account. Included in the appellate record is an untitled
document, which appears to be the account signature card Kennedy completed to
open a checking account for Rocklon. The document indicates that Rocklon is the
owner of the account, and it lists Kennedy’s personal address as the address for
Rocklon. According to the document, Kennedy opened Rocklon’s checking
account on February 7, 2006. Kennedy’s signature is the only authorized signature
20 on the account, and Kennedy is identified as the president of Rocklon. 4 Absent
from the signature card is any reference to Ruston. Ruston testified at the
injunction hearing that he had the account set up this way because he was young,
had no experience running a business, and trusted Kennedy to handle the account.
Based on the evidence in the record, Ruston did not receive authority to sign
checks for Rocklon until soon after the collision involving Kristin. Before that
time, the record supports that Kennedy signed all deposit slips, wrote all checks,
and essentially handled all matters with the bank for Rocklon. Rocklon’s checks
even identify Kennedy’s personal residence as the address for Rocklon.
On June 19, 2006, Kennedy applied for a real estate loan on behalf of
Rocklon. The “Loan Worksheet” identifies Rocklon as the borrower and Kennedy
as the “maker” of the note, as well as the guarantor of the note. The worksheet is
dated over four months after Kennedy purportedly transferred all of his
membership interest in Rocklon to Ruston, there is no reference to Ruston on the
worksheet, and Kennedy is identified as a “member” of Rocklon. According to the
worksheet, Kennedy pledged not only the MLK Property as collateral to support
the loan, but also a personal life insurance policy.
4 Six months later, Ruston represented in a lease agreement that Ruston was the president of Rocklon. 21 Another loan document included in the record also indicates that Kennedy
was a member of Rocklon and the sole guarantor of Rocklon’s note with the bank.
This document, dated June 7, 2006, also postdates Kennedy’s alleged full
assignment of his membership interest in February by over four months. Kennedy
also executed a Confidential Financial Statement for the bank on February 21,
2006. In the statement, Kennedy indicates he is the owner of Winrock and the sole
officer of Rocklon.
Within the bank records is a document titled, “Resolution[.]” The Resolution
was executed on June 19, 2006, but contrary to Kennedy’s representations in the
other loan documents that he was a member of Rocklon, the Resolution, signed
only by Ruston, represents to the bank that only Ruston was a member of Rocklon.
Ruston certified that Rocklon adopted a resolution authorizing Rocklon to execute
a promissory note to the bank in the amount of $270,000, which was to be
personally guaranteed by Kennedy and secured by a deed of trust covering the
property. The Resolution purports to authorize Ruston, on behalf of Rocklon, to
execute the note, deed of trust, and any other security instruments required by the
bank. Also included in the appellate record is a Special Warranty Deed dated June
19, 2006, and executed by Ruston on behalf of Rocklon as its “Sole Member[.]”
22 Ruston testified that Kennedy was only the land manager of Rocklon.
According to Ruston, the land manager’s job duties included finding tenants for the
MLK Property and executing lease agreements with those tenants. The only lease
agreement in the record was between Rocklon and Rockal. Ruston, not Kennedy,
purportedly executed the lease agreement with Rockal. Ruston testified that it was
always his responsibility to arrange the filing of Rocklon’s income taxes. He
testified that he also gave Kennedy authority to sign the returns as well, though he
was unsure how many times he signed the returns as opposed to Kennedy.
Included in the appellate record is Rocklon’s copy of its U.S. Corporation Income
Tax Return forms for only two years—2007 and 2013. For both years, Ruston
identified himself in the form as the sole “stockholder” of Rocklon.
Finally, the record before the trial court includes various reports from
emergency personnel and other officers regarding their investigation of Kennedy’s
motor vehicle accident. Within those records is a report from a Beaumont police
officer noting that Kennedy told him he was the owner of Dream Street. An
accident report from a DPS officer also stated that Kennedy told him he was the
owner of Dream Street. Officers took statements from some employees at Dream
Street who later completed affidavits. The employees seemed uncertain of
Kennedy’s role in the businesses. One employee stated in his affidavit that he had
23 worked at Dream Street since July 2000. He stated that he believed that Kennedy
had owned Dream Street, but sold it seven or eight years earlier and was currently
paid only as a consultant. The employee stated that he was uncertain who actually
owned the club, but had heard it was either Sherlock or Ruston. He stated, “I’m
90% sure I think the business is in [Sherlock’s] name[.]” However, he stated that
he considered Kennedy his boss. The employee explained that every night he
worked, he would “text [Kennedy] with the numbers, what the door is, what the
register is, and what the jello shots was and what the girls pay – the house fee[.]”
The employee also stated that Kennedy came to the club almost every night.
Another employee also completed an affidavit and stated that she believed
Kennedy was her boss because she had to meet with him before she was hired.
Another investigation report notes that a TABC officer informed a Beaumont
police officer that he understood Kennedy had sold the club in 2006 to Sherlock,
one of the club’s bartenders.
As discussed above, the record before the trial court contained documentary
evidence regarding the ownership, formation, and funding of Rocklon, and other
evidence tending to show that Kennedy had an ownership interest in Rocklon and
had full control over every aspect of the business. There is also evidence to support
that Kennedy not only controlled Rocklon, but also controlled Rockal. For
24 example, after Kennedy was charged with intoxication manslaughter, Ruston did
not try to locate a new land manager for Rocklon; rather, he tried to locate a new
tenant for the MLK Property. The record does not indicate that Rockal was unable
or unwilling to continue with the lease agreement it had maintained with Rocklon
for several years. If Kennedy, Rockal, and Rocklon were separate entities as
Rocklon contends, Kennedy’s incapacity should not have affected Rockal’s lease
agreement with Rocklon. Ruston’s decision to sell the MLK property suggests
Kennedy was much more vital, even central, with regard to the business of both
Rocklon and Rockal. Moreover, the trial court also heard evidence that Kennedy
represented to others that he was the owner of Dream Street, a/k/a Rockal.
The trial court had the discretion to believe or disbelieve any of the
testimony offered and weigh the witnesses’ credibility. See State Bd. of Ins. v.
Prof’l & Bus. Men’s Ins. Co., 359 S.W.2d 312, 321-22 (Tex. Civ. App.—Austin
1962, writ ref’d n.r.e.) (explaining that at a temporary injunction hearing, the trial
court is the judge of the credibility of testimony and weight to be given thereto).
Here, the trial court could have determined Ruston was not credible and
disbelieved Ruston’s testimony regarding his interest in Rocklon and the role in
which Kennedy was involved. See id. Further, the trial court could have found the
corporate documents reflecting Ruston’s purported ownership interest unreliable
25 and to be the result of Kennedy’s subterfuge. We conclude there is some evidence
in the record tending to support that Kennedy, not Ruston, was the sole member
and owner of Rocklon. See Fox, 121 S.W.3d at 857. While there may be other
alternative conclusions that could be drawn from the evidence, we are to make all
legitimate inferences that favor the trial court’s order. See Cameron, 445 S.W.3d at
845. We further conclude that the record contains some evidence tending to show
that Kennedy had full, seemingly unchecked control over every aspect of
Rocklon’s business until shortly after his release from jail on bond following the
motor vehicle accident. See id.
b. Evidence of the Commingling of Funds
There is evidence in the record that Kennedy commingled funds between his
own personal finances and those of Rocklon and Rockal. The trial court heard
testimony and saw documentary evidence that Kennedy transferred assets from
Rocklon to Rockal at various times and used Rocklon’s assets to pay property
taxes for Rockal. The record also includes the lease agreement between Rocklon,
as the landlord, and Rockal, as the tenant. The lease is dated August 2, 2006, and
signed by Ruston, as the president of Rocklon. 5 The lease required Rockal to pay
Rocklon $3,700 a month to lease a portion of the MLK property. Under the terms 5 On February 7, 2006, Kennedy represented to the bank that he was the president of Rocklon. 26 of the lease, Rockal was required to pay all real estate taxes and assessments
against the premises during the time of the lease as well as any personal taxes
levied against the premises attributable to Rockal’s use of the premises, including
sales or use taxes in connection with lease payments. Despite the terms of the
lease, there is undisputed testimony that Kennedy used Rocklon’s assets to pay
towards Rockal’s tax obligations in 2013. There is also evidence in the record that
Rocklon did not hold Rockal to the terms of its lease. Under the lease agreement,
Rockal was obligated to pay Rocklon $133,200 a year to lease the premises.
However, the evidence shows that for at least two years, 2007 and 2013, Rocklon
reported to the IRS that it only received $53,400 and $64,840, respectively, in
gross rents. Therefore, for at least two years, Kennedy allowed Rockal to continue
to occupy the premises even though Rockal paid less than half the agreed upon
rent.
The trial court also received evidence that Kennedy withdrew substantial
amounts of money from Rocklon’s account for his personal benefit, including a
$10,000 check on December 30, 2012 with a memo that it served as a Christmas
bonus, a $22,000 withdrawal on December 1, 2014 with no memo, and a personal
withdrawal of $2,500 from a split deposit with no memo regarding its purpose or
anticipated use. There is also evidence in the record that Kennedy would purchase
27 food products for Rockal, but there is no explanation as to how he paid for the
products or whether he was reimbursed.
Given all the evidence, the trial court could have found that Kennedy was at
the heart of both of these entities and that he commingled funds from Rocklon,
Rockal, and his personal account in disregard of the corporate fictions.
c. Kennedy’s Representations
Finally, Kennedy made express personal representations to the bank that he
was a member of Rocklon and that he personally guaranteed Rocklon’s loan.
Kennedy even took out a life insurance policy on himself to support his
representations to the bank. The trial court could have reasonably considered this
as some evidence of Kennedy’s use of these corporate fictions as his alter ego.
In conclusion, Paris was not required to prove that she would ultimately
prevail at trial on her alter ego theory, but she only had to show she was entitled to
preservation of the status quo pending trial. See Cameron, 445 S.W.3d at 845.
Based on all of the evidence before the trial court concerning the total dealings that
Kennedy had had with Rocklon, and viewing the evidence in a light most favorable
to the trial court’s finding, we conclude there was some evidence that it was
probable that Paris could prevail at trial to show Kennedy had an alter ego
relationship with Rocklon. See Cappuccitti, 222 S.W.3d 481.
28 2. Fraudulent Transfers
Next, Rocklon contends that Paris has no probable right to recover on her
claims against Rocklon because even if Rocklon is Kennedy’s alter ego, there is no
evidence that Kennedy or Rocklon transferred an asset as defined under TUFTA.
Because the trial court determined there was some evidence that Rocklon is
Kennedy’s alter ego, we may consider a transfer made by Rocklon as a transfer
made by Kennedy for the purposes of this analysis. TUFTA defines “transfer” as
“every mode, direct or indirect, absolute or conditional, voluntary or involuntary,
of disposing of or parting with an asset or an interest in an asset, and includes
payment of money, release, lease, and creation of a lien or other encumbrance.”
Tex. Bus. & Com. Code Ann. § 24.002(12). An “asset” generally “means property
of a debtor[.]” Id. § 24.002(2). “Property” is defined in TUFTA as “anything that
may be the subject of ownership.” Id. § 24.002(10).
The evidence shows that Kennedy collided with Kristin on January 26, 2015.
Thereafter, Kennedy was arrested and detained until January 28, 2015, when he
was released on bond. Upon his release, Ruston accompanied Kennedy to a branch
of Rocklon’s bank, where Kennedy transferred control of Rocklon’s bank account
to Ruston, his son. In accepting control of the account, Ruston executed a new
signature card and signed the card as the “owner” of Rocklon. Despite his claim to
29 ownership of Rocklon, the evidence reflects that Ruston had never before had
authority or control over Rocklon’s bank account. Prior to making this change,
Rocklon held a corporate meeting at the bank. The minutes of the meeting are in
the record and indicate that Kennedy was present and designated himself as an
“authorized sign” [sic] and Ruston was present and designated himself as the
“owner” of Rocklon. The minutes provide that it was decided that Ruston would
replace Kennedy as the only authorized signer on Rocklon’s bank account. The
minutes further provide that it was agreed that Ruston would be “authorized to
transact on all accounts for the business and enter into any agreements with the
bank for services provided.” Immediately after Kennedy and Ruston made the
changes identified above, Ruston executed another certified corporate resolution
on a bank form. Ruston appears to have certified to the bank that he alone was
authorized by Rocklon to engage with the bank on loans and related services. This
resolution provided Ruston with the authority to communicate with the bank
regarding the payoff amount for the loan on the MLK property and payoff the
promissory note to the bank, which ultimately allowed him to sell the MLK
property. This resolution also gave Ruston the authority to transfer any proceeds
from Rocklon’s bank account. The actions taken by Kennedy two days after the
motor vehicle accident transferred full control of Rocklon’s bank account to
30 Ruston. In treating Rocklon and Kennedy as the same person, the trial court could
have reasoned that the Rocklon account was actually Kennedy’s property. See Tex.
Bus. & Com. Code Ann. § 24.002(2) (defining “asset”); id. § 24.002(10) (defining
“property”). Thus, the court could have determined that when Kennedy transferred
the account to Ruston and essentially disclaimed all ownership in Rocklon and its
assets, Kennedy made a transfer as defined in TUFTA. See id. § 24.002(12)
(defining “transfer”), § 24.002(2) (defining “asset”).
We must next determine if there is some evidence in the record of a
fraudulent transfer of assets sufficient to support a cause of action under TUFTA.
Section 24.005 provides two circumstances in which a debtor’s transfer of an asset
is fraudulent, whether the creditor’s claim arose before or within a reasonable time
after the transfer was made. Id. § 24.005(a). First, if the debtor made the transfer
with “actual intent to hinder, delay, or defraud any creditor of the debtor[,]” then
the transfer is fraudulent. Id. § 24.005(a)(1). Second, a transfer is fraudulent when
the debtor made the transfer “without receiving a reasonably equivalent value in
exchange for the transfer[.]” Id. § 24.005(a)(2).
Because direct proof of the debtor’s intent is often unavailable, in
determining whether a debtor had the actual intent to hinder, delay, or defraud a
creditor, a court may consider circumstantial evidence, including the non-exclusive
31 list of factors identified in TUFTA and commonly referred to as the “badges of
fraud.” Id. § 24.005(b) (listing factors); Nwokedi v. Unlimited Restoration
Specialists, Inc., 428 S.W.3d 191, 205 (Tex. App.—Houston [1st Dist.] 2014, pet.
denied); Hahn v. Love, 321 S.W.3d 517, 525 (Tex. App.—Houston [1st Dist.]
2009, pet. denied). The “badges of fraud” identified in the statute include
consideration of whether:
(1) the transfer or obligation was to an insider; (2) the debtor retained possession or control of the property transferred after the transfer; (3) the transfer or obligation was concealed; (4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; (5) the transfer was of substantially all the debtor’s assets; (6) the debtor absconded; (7) the debtor removed or concealed assets; (8) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; (9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; (10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
Tex. Bus. & Com. Code Ann. § 24.005(b). An individual “badge of fraud” is not
conclusive, but a concurrence of many badges in the same case will make a strong
case of fraud. Walker v. Anderson, 232 S.W.3d 899, 914 (Tex. App.—Dallas 2007,
32 no pet.). Whether the transfer was made with actual intent to defraud creditors is
ordinarily a fact question. Id.
Here, the trial court found Paris had a probable right to relief for violations
of TUFTA against the defendants for their actions in transferring the ownership,
management, and control of Rocklon with the intent to fraudulently transfer
Rocklon’s assets. Further, the trial court found credible evidence to support that the
defendants made substantial dispositions of Rocklon’s assets in violation of
TUFTA. Rocklon argues that Paris failed to present evidence of any “badge of
fraud” and that Paris’s failure to do so prevents her from showing actual intent.
However, our review of the record shows evidence of several “badges of fraud.”
First, immediately after being bailed out of jail after the accident, Kennedy
purported to transfer control of Rocklon’s bank account to Ruston. There is some
evidence in the record to support that Kennedy’s post-accident actions were an
attempt to disconnect himself from his alleged alter ego, Rocklon, and its assets.
See Tex. Bus. & Com. Code Ann. § 24.002(12) (defining “transfer” as “every
mode, direct or indirect, absolute or conditional, voluntary or involuntary, of
disposing of or parting with an asset or an interest in an asset”); Spencer W. Creed
& Bobbie G. Bayless, Fraudulent Transfers in Texas, 39 Hous. Law. 28, 29
(Sept./Oct. 2001) (explaining that transfer under the act includes “virtually every
33 conceivable method by which a debtor may part with an asset or an interest in an
asset”). The trial court could have determined that when Kennedy transferred
control of the account to Ruston, while simultaneously disclaiming all ownership
interest in Rocklon, Kennedy’s actions amounted to an indirect transfer of his
personal assets (i.e. the Rocklon account) to Ruston, an insider. After the transfer,
Kennedy’s only remaining asset appears to be his home, a small house outside of
Beaumont. Therefore, when Kennedy transferred control of the Rocklon account to
Ruston, he essentially transferred control of substantially all of his assets. Once
Kennedy transferred control of the Rocklon account to Ruston, Ruston then
proceeded to liquidate Rocklon’s main asset, the MLK Property.
The evidence in the record supports that the MLK Property was more than
just another asset to Rocklon. According to bank records, Kennedy formed
Rocklon for the purpose of purchasing the MLK Property to then turn around and
lease to the owner of Dream Street. When Ruston proceeded to sell the MLK
Property, he liquidated Rocklon’s only real asset, and not in the ordinary course of
business for Rocklon.
Ruston did not wait long to begin the process of disposing of Rocklon’s
assets. On January 29, 2015, Ruston requested the payoff information from the
bank for the real estate loan on the MLK Property. Ruston entered into a contract
34 to sell the MLK Property for $1,200,000 on March 6, 2015. When the sale was
final, the proceeds of the sale were placed in Rocklon’s bank account, but Ruston
withdrew the proceeds from Rocklon’s account and transferred them into an
account at Morgan Stanley. While there is little evidence in the record as to whose
name the Morgan Stanley account is in, Ruston testified at the temporary
injunction hearing that it was another of “my” accounts. Since the trial court
concluded that Rocklon is Kennedy’s alter ego, the court could have determined
that Ruston liquidated Kennedy’s only real asset and then began expending the
proceeds from the sale of the property.
Third, the record includes some evidence that Kennedy attempted to conceal
his transfer of Rocklon’s bank account to Ruston. The signature card from the bank
reflects that Kennedy and Ruston went to a branch of the bank located in Kountze,
Texas. Kennedy was arrested and detained in Beaumont at the Jefferson County
Correctional Facility in Beaumont. At the time of the incident, Kennedy resided in
Beaumont, and Ruston appears to have resided in Nederland. Rocklon’s principal
place of business was also located in Beaumont. There is nothing in the record to
explain why Kennedy and Ruston went to an out-of-town branch of the bank,
located in another county, to transfer control of the account. While Ruston testified
that they did not attempt to conceal this transfer, the trial court could have
35 reasonably inferred that going to an out-of-town branch was an attempt to conceal
what they were doing. Based on this evidence, the trial court could have reasonably
concluded Kennedy and Ruston made an effort to conceal their actions.
Fourth, there is no evidence in the record that Ruston exchanged reasonably
equivalent value for the assets he received from Kennedy. In fact, there is no
evidence that Ruston gave any consideration for the benefit he received when
Kennedy transferred the Rocklon account to him.
Fifth, the transfer was made after Kennedy knew he had been charged with
intoxication manslaughter. The trial court could have determined that due to
Kennedy having been involved in a prior dram-shop lawsuit, Kennedy made this
transfer knowing that a civil lawsuit was likely imminent, and he may be subjected
to a substantial judgment arising out of Kristen’s death.
The trial court found that Kennedy, through his alter ego Rocklon, made a
transfer to an insider, concealed the transfer, and made the transfer shortly before
and shortly after a substantial debt was incurred. While alternative inferences could
be drawn from the evidence, we must indulge reasonable inferences that support
the trial court’s findings. See Cameron, 445 S.W.3d at 845. Therefore, we
conclude the evidence in this case, when viewed in the light most favorable to the
trial court’s findings, supports the trial court’s findings concerning the badges of
36 fraud. Because the defendants’ actions bore several indicia of fraud, we conclude
the trial court did not abuse its discretion in determining that Paris had a probable
right to relief on her fraudulent transfer claims. See Walker, 232 S.W.3d at 914.6
B. Imminent and Irreparable Harm
To be entitled to a temporary injunction, Paris must also show that absent
the injunction, she would suffer an irreparable injury. See Butnaru, 84 S.W.3d at
204. If an injured party cannot be adequately compensated in damages or if the
damages cannot be measured by any certain pecuniary standard, then we will
consider the injury irreparable. Id. To prove an inadequate remedy at law, an
applicant is required to show that its damages are incapable of calculation or that
the defendant is incapable of responding in damages. See Tel. Equip., 80 S.W.3d at
610.
Rocklon contends that Paris failed to present sufficient evidence that there is
a risk of imminent and irreparable harm. Rocklon argues there is no evidence that
it is insolvent, that its assets have been dissipated, or that Rocklon has intentionally 6 Because we have concluded that the evidence supports a finding of probable right to relief under section 24.005(a)(1), we need not address whether the transfers were fraudulent under section 24.005(a)(2) or section 24.006. See Tex. Bus. & Com. Code Ann. §§ 24.005(a), 24.006; see also Qui Phuoc Ho v. MacArthur Ranch, LLC, 395 S.W.3d 325, 329 (Tex. App.—Dallas 2013, no pet.) (concluding that the appellate court may find evidence sufficient and affirm a trial court’s judgment on TUFTA claims if the evidence supports a fraudulent transfer under either subsection 24.005(a)(1) or section 24.006). 37 depleted its assets. Paris responds that there is sufficient evidence to support that
immediately after Kristin’s death, defendants, in a calculated and organized effort,
intentionally destroyed evidence, ceased normal business operations, adjusted bank
accounts, sold Rocklon’s only asset, and started expending the proceeds from the
sale of its only asset. According to Paris, all of these facts considered together are
sufficient evidence to support a finding that if Ruston were permitted continued
access to the Morgan Stanley account unimpeded by the injunction, Rocklon may
become judgment-proof, rendering any verdict obtained by Paris meaningless.
It is undisputed that during the criminal investigation of Kennedy, someone
with password-protected access obtained and intentionally destroyed Dream Street
surveillance video from the night of the incident. However, there is no specific
evidence that either Ruston or Kennedy had anything to do with the destruction of
the evidence.
It is also undisputed that soon after Kristin’s death and immediately upon
Kennedy’s release on bond, Kennedy and Ruston went to Rocklon’s bank, and
Kennedy transferred all authority to manage the Rocklon account from Kennedy to
Ruston. Ruston testified that because Kennedy was no longer able to manage the
property, he contacted someone else to lease the property, but that “fell through.”
Ruston testified that after the new lease deal fell through, he received a fair offer
38 for the MLK Property and decided to sell. Thus, not long after Kristin’s death,
Ruston sold Rocklon’s only asset. Very shortly after completing the sale of the
property, Ruston began writing checks to himself and made substantial
withdrawals from the account, expending or otherwise removing large sums from
Rocklon’s account. On January 31, 2015, Ruston withdrew $5,000 from the
Rocklon account. On February 19, 2015, Ruston wrote a check for $545 to himself
from the Rocklon account. On April 2, 2015, Ruston wrote a check to cash for
$2,500 from the Rocklon account. On April 2, 2015, Ruston wrote a second check
to cash for $2,500 from the Rocklon account. On September 2, 2015, Ruston
withdrew $18,000 from Rocklon’s account with a memo indicating it was payable
to “Farah Meredith.” The purpose of these withdrawals is unclear from the record.
At the temporary injunction hearing, Ruston testified that from the proceeds of the
MLK Property, as the owner of Rocklon, he anonymously donated funds to the
Kristin Paris Foundation, paid legal fees, paid taxes, purchased a tractor to do land
work, and transferred the remaining funds into an account held by Morgan Stanley.
Ruston testified that he intended to use the remaining proceeds to invest in another
piece of property.
Regarding the proceeds that remained after these withdrawals, Ruston
testified that he transferred them into a new account because he believed doing so
39 was necessary to secure the proceeds and make sure they “wouldn’t go anywhere.”
However, it is undisputed that Ruston was the only one authorized to sign checks
or make withdrawals from the Rocklon account. It is not known from the evidence
in the record whether Ruston transferred the proceeds from the sale into an account
bearing his name personally or an account in Rocklon’s name.
At the time of the hearing, it was also undisputed that Rocklon had no other
income-producing assets. There is no evidence to show Rocklon’s debts at the time
of the hearing. There is evidence that at the time Rocklon applied for a loan to
purchase the MLK Property, it had substantial outstanding liabilities—including
the loan for the MLK Property. The form concludes that it had liabilities of $300
thousand dollars.
The evidence presented during the temporary injunction demonstrates that
the circumstances surrounding the transfer of control of the bank account, the sale
of the MLK Property, and the rapid expenditure of some of the proceeds for
personal use, raise a question regarding Ruston’s intentions and the future solvency
of Rocklon. There is evidence in the record to support that Rocklon’s sole purpose
was to lease the MLK Property to the company or person operating Dream Street.
After having sold the MLK Property, Rocklon’s continued viability is uncertain.
The trial court obviously rejected Ruston’s version of the facts and his stated
40 intentions for the funds when it found Paris would not have an adequate remedy at
law because the defendants would continue to expend its assets until Rocklon was
insolvent. Considering the evidence in a light most favorable to the trial court’s
finding, we cannot conclude the trial court abused its discretion in finding Paris
had no adequate remedy at law and that the injunction was necessary to maintain
the status quo pending a final determination on the merits of the TUFTA claims.
See Tel. Equip., 80 S.W.3d at 611 (holding that the trial court did not abuse its
discretion when evidence demonstrated that an injunction was necessary to prevent
action that would essentially render debtor insolvent, judgment-proof, or an empty
corporate shell thereby giving creditor no adequate remedy at law); Blackthorne,
61 S.W.3d at 444-45 (holding that the trial court did not abuse its 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 debtor would become judgment-proof if allowed to transfer
assets). Accordingly, we overrule Rocklon’s second issue.
IV. Pre-Suit Attachment of Assets
In its first issue, Rocklon contends that the trial court’s temporary injunction
is improper because a temporary injunction may not be used to freeze assets
unrelated to the subject matter of the suit in order to ensure funds to pay a future
41 potential judgment. Rocklon argues that Paris essentially sought a “pre-suit
attachment of assets to satisfy a potential judgment that they may or may not
obtain in the future.” Relying upon Reyes v. Burrus, 411 S.W.3d 921 (Tex. App.—
El Paso 2013, pet. denied), Rocklon maintains that Paris is not entitled to enjoin
Rocklon’s assets because Rocklon’s assets, including the MLK Property or the
sales proceeds therefrom, are not the subject of Paris’s wrongful death and survival
damages claim. In support of its position that the injunction is improper, Rocklon
also cites Victory Drilling, LLC v. Kaler Energy Corp., No. 04-07-00094-CV, 2007
WL 1828015 (Tex. App.—San Antonio, June 27, 2007, no pet.) (mem. op.), and
Nowak v. Los Patios Inv’rs, Ltd., 898 S.W.2d 9 (Tex. App.—San Antonio 1995, no
writ). However, Rocklon’s reliance on these cases is misplaced because they do
not involve claims brought under TUFTA. See Reyes, 411 S.W.3d at 923
(indicating that defendant sought temporary injunction in connection with
counterclaim for tortious interference with a contract); Victory Drilling, 2007 WL
1828015 at *3 (recognizing that TUFTA may have provided a remedy, but noting
that plaintiff did not invoke TUFTA in its pleadings in the trial court); Nowak, 898
S.W.2d at 9 (indicating plaintiff filed suit for embezzlement, fraud, conversion,
money had and received, civil theft, and breach of contract).
42 As detailed above, at the temporary injunction hearing, Paris presented the
trial court with evidence that Rocklon was the alter ego of Kennedy and that after
the motor vehicle accident, Kennedy transferred control and interest of Rocklon’s
bank account to Ruston who then began the process of selling Rocklon’s sole asset,
the MLK Property. Approximately two months after Kristin’s death, Ruston
successfully liquidated Rocklon’s only asset and had begun expending proceeds
from the sale and transferring them to other locations. The trial court enjoined
Rocklon from further disposition of the proceeds. The proceeds from the sale of
the MLK Property are the type of assets the legislature contemplated could be
subject to injunction under TUFTA. See Tex. Bus. & Com. Code Ann. §
24.008(a)(3)(A); see also Tel. Equip., 80 S.W.3d at 610. Under TUFTA, the trial
court may find substantial likelihood of success on the merits when it is “presented
with evidence of intent to defraud the creditor.” See Tanguy v. Laux, 259 S.W.3d
851, 858 (Tex. App.—Houston [1st Dist.] 2008, no pet.); Tel. Equip. Network, Inc.,
80 S.W.3d at 609. Therefore, we conclude the temporary injunction was not an
improper pre-suit attachment of property. We overrule Rocklon’s first issue and
affirm the order of the trial court granting temporary injunction.
43 AFFIRMED.
______________________________ CHARLES KREGER Justice
Submitted on June 15, 2016 Opinion Delivered October 20, 2016
Before McKeithen, C.J., Kreger and Johnson, JJ.
Related
Cite This Page — Counsel Stack
Rocklon, LLC v. Beverly Paris and Daniel Paris, Counsel Stack Legal Research, https://law.counselstack.com/opinion/rocklon-llc-v-beverly-paris-and-daniel-paris-texapp-2016.