Stephen Paine, Janna McCarter Paine as Trustee for Stephen B. Paine Family Trust, Stephen Bartlett Paine, Jr., William Edward Paine, Leanne Patricia Paine v. James M. Golden, Automated Cash, Inc. and Automated ATM Service Corporation

Opinion

Opinion issued June 22, 2023

In The

Court of Appeals For The

First District of Texas ———————————— NO. 01-21-00399-CV ——————————— STEPHEN PAINE, JANNA MCCARTER PAINE AS TRUSTEE FOR STEPHEN B. PAINE FAMILY TRUST, STEPHEN BARTLETT PAINE, JR., WILLIAM EDWARD PAINE, AND LEANNE PATRICIA PAINE, Appellants V. JAMES M. GOLDEN, AUTOMATED CASH, INC., AND AUTOMATED ATM SERVICE CORPORATION, Appellees

On Appeal from the 151st District Court Harris County, Texas Trial Court Case No. 2016-87802

MEMORANDUM OPINION ON REHEARING

Appellees James M. Golden, Automated Cash, Inc. (“ACI”), and Automated

ATM Service Corporation (“ASC”) filed a motion for rehearing of our December 20, 2022 opinion. We deny the motion for rehearing, withdraw our opinion and

judgment of December 20, 2022, and issue this memorandum opinion and

judgment in their stead. Our disposition remains the same.

This is an appeal from the trial court’s summary judgment. Appellant

Stephen Paine and appellee James M. Golden created appellees Automated Cash

Inc. (“ACI”) and Automated ATM Service Corporation (“ASC”). Paine transferred

his ownership interests in both companies to Janna McCarter Paine, as trustee of

the Stephen B. Paine Family Trust, to be held for the benefit of his three (now-

adult) children, appellants Stephen Bartlett Paine, Jr., William Edward Paine, and

Leanne Patricia Paine (collectively, “the Trust”).

When a dispute arose about the management and finances of the companies,

Paine, who maintains that he is a director of both ACI and ASC, and the Trust sued

Golden, ACI, and ASC seeking access to books and records, an accounting, and a

declaration that Paine was a director of the companies. The appellants alleged

breach of fiduciary duty, alleging, in part, that under Golden’s leadership more

than $1,000,000 was missing or had been stolen. The appellants also alleged that

Golden took invalid actions on behalf of the companies, including making

distributions to himself in excess of the distributions made to the Trust.

After an audit determined that there was a $1,019,000 accounting error,

which did not represent money missing from the businesses, the trial court granted

2 summary judgment in favor of Golden, ACI, and ASC. The court also determined

that Paine was not a director based on the doctrine of judicial estoppel. The trial

court later awarded attorney’s fees under the Uniform Declaratory Judgments Act.

See generally, TEX. CIV. PRAC. & REM. CODE §§ 37.001–.011. Paine and the Trust

appealed.

On appeal, the appellants raise 15 issues regarding the court’s rulings on:

(1) motions to show authority; (2) directorship; (3) pretrial evidentiary rulings;

(4) summary judgment; and (5) Paine’s application for appointment of a receiver.

Because we conclude that the appellees did not conclusively prove their

entitlement to summary judgment, we reverse the summary judgment and remand

to the trial court for further proceedings.

Background

I. Paine and Golden enter the ATM business and create ACI and ASC.

Paine and Golden formed ACI in 1997 to operate in the ATM business.

Under ACI’s articles of incorporation, the “number of initial Directors is one,” and

the initial director was James M. Golden. According to Paine, two days after ACI

was formed, he and Golden had a meeting at which they organized ACI “according

to forms and documents prepared by our counsel.” At that meeting, 500 of the

1,000 authorized shares of ACI were issued to Paine and 500 shares were issued to

Golden. Paine averred that he and Golden were elected as the only directors of the

3 ACI board of directors. Golden was appointed president of ACI, and Paine was

appointed secretary. Paine said there were no subsequent elections and that he

continued to be an officer and director of ACI. Golden testified in his deposition

that, when ACI was incorporated, Paine was a director of ACI. Immediately after

the ACI stock issuance, Paine transferred ownership of his 500 shares to his wife,

Janna McCarter Paine “to hold in trust for herself and [their] three children,

Stephen Jr., William, and Leanne.”

ASC was incorporated in Texas in 2007. According to the certificate of

formation, Golden was the organizer, and both Golden and Paine were directors.

Golden owns 50% of ASC and the other 50% is held by Janna McCarter Paine in

trust for Paine’s three children. Golden is the president of ASC, and Paine is the

secretary or the vice-president.

ACI owns approximately 126 ATM machines throughout Houston, Dallas,

and San Antonio. ACI self-funds 73 of the ATM machines, and the remainder of

the ATM machines are leased to third parties, who fund them. To fund the

machines, ACI relies on loans, which are personally guaranteed by Golden, from

Chasewood Bank. The cash from the Chasewood Bank loans and the transaction

fees from the 73 ACI-funded ATMs are maintained in a “cash inventory account”

(ending in “944”) at Chasewood Bank.

4 As president of both ACI and ASC, Golden manages the daily operations of

the businesses. When Golden notices the cash inventory of an ATM is running

low, he electronically transfers money from the cash inventory account to the

Federal Reserve Bank, from which Garda Armored Car Services (“Garda”) collects

the cash, transports it to, and places it in the ATM machine.

When a customer withdraws money from an ATM, the value of the

withdrawal and the withdrawal fees are transferred electronically from the

customer’s bank account to ACI’s cash inventory account. ACI periodically

transfers the transaction fees to an operating account at Amegy Bank (ending in

“8640”). ASC generates no revenue and exists solely to service the ATM

machines, when needed.

II. Paine and Golden grow to distrust each other.

While Golden manages the daily operations of the businesses, Paine, who is

an officer and maintains that he is also a director of both companies, reviews the

books from time to time. Since at least 2014, Paine has been concerned about

irregularities in financial statements and tax returns.

From 2014 through the end of 2016, Paine and Golden exchanged numerous

emails. Paine demanded information, sought an accounting, and asked questions

based on his investigations of the company books and procedures. Paine contended

that approximately $1,000,000 was missing or had been stolen from the cash

5 inventory. Paine further claimed that “an additional $300,000 to $500,000 [was]

wrongfully expensed in the corporate financial statements and tax returns.” Paine

accused Golden of self-dealing, breaching his fiduciary duties, and “attempt[ing] to

cover [his] trail” by “demand[ing] the accountants ‘wipe-out’ and deduct $400,000

of equity from the 2015 balance sheet and corporate tax return.”

Golden repeatedly informed Paine that ACI had paid the company’s

accountants to assist with Paine’s requested audit. Golden accused Paine of stalling

in completion of the audit, disputed Paine’s accusations of self-dealing and

wrongful conduct, maintained that no money was missing, and continually resisted

Paine’s attempts to alter business procedures and practices. Golden also accused

Paine of self-dealing, writing: “There is a RAT, EMBEZZLER and THIEF in this

company it’s YOU YOU YOU.”

In short, after years of acrimony, Golden and Paine were deadlocked.

III. Paine and the Trust sue Golden, ACI, and ASC.

A. The appellants plead various causes of action seeking access to company information and alleging breach of fiduciary duty and self-dealing by Golden.

In December 2016, Paine and the Trust filed suit against Golden, ACI, and

ASC. They later amended their petition, and their live pleading at the time of

judgment, the second amended petition, alleged that both ACI and ASC were

“deadlocked at every level.” They also alleged that a cursory review of the

6 financial statements and tax returns from 2010 through 2015 revealed “serious

discrepancies,” including a discrepancy of $1,519,200 reflected on the statements

of cash flows but not on the balance sheets. Paine and the Trust alleged that this

discrepancy meant that the money was “either missing or unaccounted” and that

Golden had not explained the discrepancies. Paine and the Trust also alleged that a

$400,000 adjustment to the cash inventory balance “represent[ed] the

disappearance of $400,000 in twenty-dollar bills, with no explanation.” Finally,

Paine alleged that both he and Golden had “from time to time received informal or

de facto dividends through personal expenses paid by the corporations or informal

payments” from ACI. Paine asserted that “Golden’s de facto dividends have

greatly exceeded the payments made to or for the benefit of Paine and the Trust,

thus denying [Paine and the Trust] their right to a proportional share in the profits

of the corporation.”

Paine and the Trust pleaded the following causes of action:

1. Writ of mandamus: Paine sought a writ of mandamus requiring ACI and ASC to permit him to inspect and copy all their books and records. Paine also sought attorney’s fees.

2. Invalidity of corporate acts: Paine and the Trust sought an order declaring certain corporate actions invalid under section 21.914 of the Business Organizations Code (“Proceeding Regarding Validity of Defective Corporate Acts and Shares”) and chapter 37 of the Texas Civil Practice and Remedies Code (the “Uniform Declaratory Judgments Act”). Paine and the Trust also sought: (i) a complete audit of all of ACI’s and ASC’s financial records from inception, (ii) the imposition of a constructive trust, (iii) an order that the ACI and ASC pay the trust “its fair share of de

7 facto dividends” or that Golden return any disproportionate distributions, (iv) that Golden pay the costs of the accounting to the corporation, and (v) a mandatory injunction requiring that the corporations adopt appropriate safeguards and financial controls, as approved by the Court. Paine and the Trust challenged the following specific corporate actions:

a. the $400,000 inventory write down;

b. the alleged failure to keep accurate accounting records;

c. the alleged refusal to audit the corporation’s accounting records;

d. the alleged payment of disproportionate de facto dividends to Golden; and

e. Golden’s handling of the cash inventory and alleged lack of implementation of safeguards for financial control.

3. “Common law accounting and equitable relief” (breach of fiduciary duty): Paine and the Trust alleged that ACI and ASC committed “a breach of trust against the Trust.” They alleged that Golden’s knowing behavior made him jointly and severally liable for the breach of trust. They sought an accounting from the inception of the companies and equitable relief, including disgorgement of distributions and imposition of a constructive trust.

4. Derivative claims: The Trust alleged that ACI and ASC are closely held corporations and that Golden breached his fiduciary duties to the corporations and shareholders. They pleaded that “justice requires the derivative proceeding to be treated by the Court as a direct action brought by Plaintiffs for their own benefit and that the recovery be paid directly to the Plaintiffs.”

5. Declaratory judgment: Paine sought a declaratory judgment that he is director of ACI and ASC by operation of the Texas Business Organizations Code. This cause of action was added in a second amended petition that was later struck as untimely filed. It was pleaded again in a second amended petition filed in April 2020 pursuant to a court order permitting amendment.

8 The appellees’ live pleading at the time of judgment included the affirmative

defense of judicial estoppel and a claim for attorney’s fees.

B. All parties saw changes in legal representation in the trial court.

Counsel for the appellants withdrew in March 2018, and the appellants were

then pro se until M. Obaid Shariff of the Shariff Law Firm appeared in December

2018. Meanwhile, Golden, ACI, and ASC were represented by Kathleen Cynthia

Pickett and N. Kimberly Hoesl, who also now represent them on appeal. In 2018,

Pickett and Hoesl left the law firm of Hoover Slovacek and joined the Pickett Law

Group. In April 2018, Pickett, Hoesl, and Gregory A. Savage of Hoover Slovacek

filed an opposed motion to substitute counsel to allow the Pickett Law Group to

substitute in for Hoover Slovacek. In the certificate of conference on the opposed

motion to substitute counsel, Hoesl certified that she “emailed and spoke with pro

se plaintiff Stephen Paine regarding the relief sought in this motion. Mr. Paine

indicated that plaintiffs opposed the relief sought herein. About a week later,

Pickett and Hoesl filed a supplemental certificate of conference, in which Hoesl

certified: “[O]n April 27, 2018, I spoke with pro se plaintiff Stephen Paine

regarding the relief sought in this motion. Mr. Paine indicated that plaintiffs do not

oppose the relief sought in Defendants’ April 18, 2018 Motion to Substitute

Counsel.” The motion was granted in December 2018.

9 C. The appellants repeatedly challenged the authority of counsel to represent ACI and ASC and sought declaratory judgment on Paine’s claim that he is a director of ACI and ASC.

Appellants filed several motions challenging the authority of counsel to

represent ACI and ASC, arguing that because Paine and Golden were both

directors, unanimous consent was required for Golden to validly retain counsel for

ACI and ASC.1

Paine also moved for summary judgment on his claim for a declaratory

judgment that he is a director of both ACI and ASC. About a year after the first

motion to show authority, the appellants moved for partial summary judgment on

their newly pleaded claim for a declaratory judgment that Paine was a director of

ACI and ASC. The summary-judgment evidence included Golden’s affidavit and

excerpts from Golden’s deposition, which had been taken almost a year after he

signed his affidavit. In his affidavit, Golden averred that he was the sole director of

both companies, but in his deposition, he conceded that Paine was a director of the

companies. The appellants argued that Golden’s deposition testimony conclusively

proved that Paine was a director of both companies. The court denied the motion

for summary judgment, concluding that Golden’s deposition testimony created a

1 The appellants filed three motions seeking an order striking the pleadings of ACI and ASC and requiring Hoesl and Pickett to withdraw from representation: (1) a motion to show authority filed in February 2019, which was denied on March 11, 2019; (2) a motion to reconsider the motion to show authority filed in March 2019, which was denied in April 2019; and (3) a second sworn motion to show authority filed in September 2020, which was denied the same month. 10 genuine issue of material fact that precluded partial summary judgment on the

question of whether Paine is a director of ACI and ASC, “the very issue upon

which Plaintiff moved.”

D. The trial court appointed an auditor, who filed an initial report and responses to the appellants’ special exceptions.

1. The audit

Meanwhile, in addition to litigating the question of directorship, the parties

were also litigating the other claims. In August 2019, and on the appellants’

motion, the trial court appointed the firm of Carr, Riggs, & Ingram, LLC, CPAs

and Advisors (“CRI”), to perform an audit pursuant to Texas Rule of Civil

Procedure 172. The trial court directed CRI to analyze ACI’s—and if needed

ASC’s—financial accounts to determine the reason for the alleged $400,000

variance between the draft tax return and the tax return that was filed for fiscal year

2015. The audit was performed by Marc Berry and Miles Harper, both of whom

are accountants and partners at CRI. Essentially, the audit consisted of reconciling

ACI’s records with the cash present in the company’s accounts and ATM

machines.

2. The first auditor’s report and response to exceptions

After CRI filed its first report, the appellants filed special exceptions seeking

to clarify that there was a total discrepancy of $1,019,000 in the retained earnings

account. The appellants also objected to a statement that there was no “evidence of

11 theft or fraudulent activity during the years the analysis covers,” arguing that it was

overly broad and conclusory.

The first report, as clarified by the responses to the special exceptions,

reached the following conclusions:

• The reason for the $400,000 variance between the draft tax return and the tax return for the fiscal year 2015 was an overstatement of the ATM cash inventory.

• An additional adjustment to the final 2015 tax return in the amount of $619,000 was warranted, because the total overstatement of ATM cash inventory for that fiscal year was $1,019,000.

• Based on its analysis, “CRI did not find any evidence of theft or fraudulent activity during the years the analysis covers.” This statement is “limited to the procedures performed in the analysis detailed in the report. These procedures, which were approved by both parties prior to us engaging in the work, were limited to the transactions from the Chasewood bank account ending in 944 which is associated with the ATM cash inventory. The ATM cash inventory is a separate balance presented on the 2015 tax return.”

• “CRI did note a significant lack of accounting controls and accounting close procedures to reconcile operating activity each month, quarter and year-end.”

E. February 2021 brings a flurry of motions, mostly related to the audit.

1. The appellants’ motions

In February 2021, the appellants filed (1) a motion to appoint a receiver to

rehabilitate the companies, (2) a motion for an expanded audit to determine the

reason for the large accounting error, and (3) a motion for leave to conduct

12 discovery regarding documents that were produced in January 2021 while

exchanging exhibits in anticipation of trial. These documents included pleadings

from bankruptcy cases involving Paine.

2. The appellees’ motions and pleadings

Also in February 2021, the appellees filed a motion for a pretrial ruling

under Rule 166 of the Rules of Civil Procedure (“Pretrial Conference”) on

appellants’ claims involving “theft or fraud.” The appellees argued that, under Rule

of Civil Procedure 172, the auditor’s report conclusively proved that an

overstatement of cash inventory led to the variance in the 2015 tax returns and that

the appellees did not engage in fraud in connection with the allegedly missing

$1,019,000.

Although this motion did not comply with the requirements for a motion for

summary judgment under Rule of Civil Procedure 166a, the appellees sought a

ruling that “per CRI’s verified report, there is no evidence of theft or fraudulent

activity by Defendants for the period of 2015 through June 2020, particularly

including ACI’s 2015 tax return, ACI’s Cash Inventory Account, and ACI’s

retained earnings account.”

The appellees also amended their answer and counterclaim, pleading the

affirmative defense of judicial estoppel and pleading for attorney’s fees under the

Theft Liability Act and the Declaratory Judgments Act.

13 3. The hearing

At a hearing in February 2021, CRI’s Harper testified that he recommended

ACI amend its prior tax returns because the overstatement of the cash inventory

account by about $1,000,000 resulted in an artificially increased tax burden to the

company. Harper estimated that amending the tax returns could yield

approximately $300,000 in tax benefits. With the agreement of all parties, the trial

court ordered Harper and CRI to amend ACI’s tax returns. Harper also testified

that the audit procedures revealed no evidence of fraudulent activity, and the

overstatement was an accounting error. He could not, however, identify any

specific entry in ACI’s financial records that was incorrect “primarily because they

didn’t have . . . what we consider an accounting system in place.”

4. Trial court rulings

The trial court granted the appellants’ motion for an expanded audit and

ordered the auditor to:

[R]eview [ACI] and [ASC’s] (collectively, the “Defendant Companies”) financial records, including profits and loan records, to determine (i) the total amount of the discrepancy beyond the $1,019,000 already uncovered (collectively, “Disputed Funds”); (ii) whether or not the Disputed Funds existed at one point or another in the corporate accounts of the Defendant Companies; (iii) the specific cause of the discrepancy; and (iv) if the Disputed Funds are the result of accounting error identify the specific errors on which you base such conclusions. The foregoing will be made into a report which is accompanied by an affidavit and submitted to the Court by April 2, 2021.

14 The trial court also entered an order requiring Harper to file amended federal

tax returns for the years 2015 through 2019 to correct the overstated cash inventory

discovered in the audit.

The trial court denied the motion for appointment of a receiver and the

appellants’ motion to reopen discovery to further investigate materials disclosed in

January 2021. The court noted that the discovery motion was “DENIED

WITHOUT PREJUDICE, depending, possibly, on the auditors’ additional

findings.” The trial court also denied the appellees’ motion for a pretrial ruling

regarding the conclusivity of the auditor’s report, stating that the denial was

“without prejudice to refiling at the conclusion of the additional work ordered by

this Court on February 16, 2021.”

F. The second auditor’s report

The second auditor’s report, which was filed on April 2, 2021, concluded

that the disputed funds never existed. Instead, the auditor concluded that the error

arose from an earlier overstatement of debt and cash on hand. While the amount of

debt owed had previously been corrected, no such corrections had been made to

the cash on hand.

The appellees reurged their motion for a pretrial ruling on appellants’ claims

involving “theft or fraud.” They supplemented their motion with the second

auditor’s report. The appellants asserted that the second audit report supported

15 their position and that they had two weeks left to timely file exceptions to the

second audit report.

The trial court issued an order granting the appellees’ requested pretrial

ruling. The order included findings of fact that detailed the auditor’s investigation.

The trial court admitted into evidence the following statements, which were

conclusions reached by the auditor, ruling that these statements were conclusive

“as to the matters they cover”:

1. After examination of all the bank accounts, loans, tax returns and accounting documents available for Defendants ACI and ASC from 2010 through July 2020, the only financial discrepancy identified by the Court-appointed auditors is the $1,019,000 overstatement of income identified in ACI’s 2015 tax return.

2. The Court-appointed auditors found no financial discrepancy with respect to checks written by Defendant Golden to Defendant Golden out of the ACI operating account.

3. The $1,019,000 overstatement does not reflect money that actually existed.

4. There was no evidence of theft or fraudulent activity by Defendants relating to the $1,019,000 overstatement.

The trial court further stated: “This ORDER is not intended to be read to

limit or preclude a trial regarding the alleged $386,737 discrepancy in

disbursement between Plaintiffs and Defendants, however.” This note referred to

the allegation that Golden gave himself disbursements exceeding disbursements

made to Janna in trust for Paine’s adult children.

16 The trial court denied the appellants’ motion to require CRI to file another

verified report stating the amount of overpaid taxes.

G. The trial court grants a partial summary judgment in favor of the appellees.

Also in April 2021, the appellees filed a combined traditional and no-

evidence motion for summary judgment. The summary-judgment motion had two

main contentions. First, the motion contended that all the appellants’ claims,

except for the declaratory judgment claim, arose under the Texas Theft Liability

Act (“TTLA”). The appellees contended that there was no evidence of (1) theft or

fraud regarding the overstatement of $1,019,000, and (2) improper distributions, or

damages. They also contended that the auditor’s report conclusively proved the

absence of fraud. They sought attorney’s fees as the prevailing party under the

TTLA. Second, the motion contended that summary judgment should be granted

on the declaratory judgment claim because they had conclusive evidence of two

affirmative defenses: (1) judicial admission and (2) judicial estoppel. These

defenses were based on statements made by Paine in two separate bankruptcy court

cases.

In response, the appellants argued that they did not bring a cause of action

under the TTLA, and they produced copies of the checks to Golden and email

correspondence between Paine and Golden as evidence of wrongful, unequal

distributions and damages. The appellants also argued that Golden, ACI, and ASC

17 did not establish all three elements of the affirmative defense of judicial estoppel.

They also objected to summary judgment evidence on the grounds that the

bankruptcy court documents were not authenticated.

On May 26, 2021, the trial court granted an interlocutory “traditional and no

evidence” summary judgment. The order stated:

First, the Court hereby OVERRULES Defendants’ objections to Plaintiffs’ summary judgment evidence. The Court likewise overrules Plaintiffs’ authentication objections to Defendants’ PACER summary judgment evidence.

Second, the Court finds that the Plaintiffs have adduced no evidence, whether the cause of action is conversion or the Texas Theft Liability Act, that the checks written by Golden were improper or without any business justification, or otherwise wrongful. Further, the Court finds no evidence adduced by Plaintiffs that they were damaged by these checks.

Third, the Court finds it is not bound by its prior rulings on the directorship issue as Defendants have timely raised a new defense of judicial estoppel. The Court finds as a matter of law that Plaintiffs are estopped from contending that Paine is a director of ACI and ASC.

Fourth, the Court has, in a separate Order, ruled on the conclusivity of the auditors’ findings as it relates to the lack of evidence of theft or fraud in connection with the overstated income in ACI’s 2015 tax returns. That ruling remains undisturbed by this Order.

It is therefore ORDERED that Defendants are awarded interlocutory summary judgment against Plaintiffs on Plaintiffs’ affirmative claims, which are hereby DISMISSED WITH PREJUDICE, and on Defendants’ claims under the Uniform Declaratory Judgment[s] Act (UDJA).

18 As to attorney’s fees, Defendants contend that Plaintiffs have made claims under the Texas Theft Liability Act and that Defendants contend they are the successful party under said Act. The Court finds as a matter of law that Plaintiffs have NOT brought their claims under the Texas Theft Liability Act, but on the basis of common law conversion, and that therefore, there is no legal basis for an award of fees under that statute. However, the issue of attorney’s fees remains to be determined under the Texas UDJA claim on which Defendants were the successful party in this litigation. The Court will consider any award of fees under that Act via submission when said request is promptly made and set for submission by Defendants.

The trial court later denied a motion to reconsider the interlocutory partial

summary judgment, and it rendered final summary judgment incorporating an

award of attorney’s fees.

Paine and the Trust appealed.

Analysis

This is an appeal from a summary judgment. On appeal, Paine raised the

following issues:

1. The trial court erred by refusing evidence at the hearing on the first motion to show authority.

2. The trial court erred by denying the motion for reconsideration of the first motion to show authority and by striking evidence associated with this motion.

3. The trial court erred by denying a motion for partial summary judgment regarding whether Paine was a director.

4. The trial court erred by denying the second sworn motion to show authority.

5. The trial court erred by denying multiple requests for additional discovery relevant to the judicial estoppel affirmative defense. 19 6. The trial court erred by granting summary judgment on judicial estoppel because it was not timely pled.

7. The trial court erred by denying multiple requests for appointment of a receiver under Texas Business Organizations Code § 11.404.

On appeal, the Trust raised the following issues:

1. The trial court erred by granting summary judgment against each of the Paine Parties on the affirmative defense of judicial estoppel.

2. The trial court erred by granting no-evidence summary judgment on all the Paine Parties’ affirmative claims because the no-evidence motion for summary judgment was improper.

3. The trial court erred by granting no-evidence summary judgment on appellants’ affirmative claims. Golden, as fiduciary, had the burden of proof on the fairness of the challenged transactions.

4. The trial court erred by entering a pretrial order establishing that the auditor’s report conclusively disproved that Golden had converted more than $1,000,000. The trial court further erred by rendering final judgment based on this pretrial order.

5. The trial court erred by granting no-evidence summary judgment on the common law or equitable accounting cause of action that sought a complete accounting of ACI and ASC from inception to present day.

6. The trial court erred by denying the appellants’ request for a supplemental auditor’s report after a court order authorized amendment of ACI’s tax returns.

7. The trial court erred by denying the appellants’ motion for reconsideration of the summary judgment after striking the testimony of the appellants’ tax expert.

8. The trial court erred by denying the appellants’ motion for reconsideration of the summary judgment after striking the appellants’ legal arguments.

20 The appellants have raised 15 issues. Although the appellants filed separate

briefs, they all argued on behalf of the “Paine Parties,” which they defined as all

the appellants. We therefore will consider their issues together.

These issues generally fall into three categories: (1) issues that challenge

rulings on appellants’ motions to show authority; (2) issues that directly challenge

the trial court’s summary judgment; and (3) issues that directly challenge some

other interlocutory ruling that might indirectly affect the summary judgment.

Because we conclude that the motions to show authority were correctly decided

and that the motion for summary judgment was not meritorious, we will sustain the

first two issues raised in the “Trust’s” brief, which directly attack the summary

judgment. We will reverse the summary judgment in its entirety, and thus we do

not need to reach the appellants’ other issues.

I. Motion to show authority

The appellants challenged the authority of counsel to represent ACI and

ASC. In this court, the appellants argue that the trial court erred by refusing

evidence at the hearing on the first motion to show authority, by denying a motion

to reconsider the ruling on the first motion to show authority, and by denying the

second motion to show authority.

A party to a lawsuit who believes that the suit is being prosecuted or

defended without authority may file a sworn motion questioning the attorney’s

21 authority to act. TEX. R. CIV. P. 12; see In re Murrin Bros. 1885, Ltd., 603 S.W.3d

53, 61 (Tex. 2019) (addressing Rule 12 dispute). “Rule 12 has long been the

exclusive method for questioning the authority of an attorney to bring a suit.”

Tanner v. Black, 464 S.W.3d 23, 26 (Tex. App.—Houston [1st Dist.] 2015, no pet.)

(quoting Phillips v. Phillips, 244 S.W.3d 433, 435 (Tex. App.—Houston [1st Dist.]

2007, no pet.)); see Angelina Cnty. v. McFarland, 374 S.W.2d 417, 423 (Tex.

1964)). Originally, the primary purpose of Rule 12 was to protect defendants by

enabling them to determine who had authorized the suit. Angelina Cnty., 374

S.W.2d at 423; Tanner, 464 S.W.3d at 26. “A trial court’s ruling on a motion to

show authority is not a decision on the merits or determination of ultimate

questions of fact.” Tanner, 464 S.W.3d at 26 (citing In re Guardianship of

Benavides, 403 S.W.3d 370, 374 (Tex. App.—San Antonio 2013, pet. denied)). “It

is simply a pretrial determination of an attorney’s authority to represent a party.”

Id.

We review a trial court’s ruling on a motion to show authority for an abuse

of discretion. Tanner, 464 S.W.3d at 26; see Urbish v. 127th Judicial Dist. Court,

708 S.W.2d 429, 432 (Tex.1986); see also Worford v. Stamper, 801 S.W.2d 108,

109 (Tex. 1990) (holding that trial court abuses its discretion by acting without

reference to guiding rules and principles). When a party has filed a motion to show

authority, the challenged attorney bears the burden of proof “to show sufficient

22 authority to prosecute or defend the suit on behalf of the other party.” TEX. R. CIV.

P. 12. If the challenged attorney fails to show authority to act, “the court shall

refuse to permit the attorney to appear in the cause, and shall strike the pleadings if

no person who is authorized to prosecute or defend appears.” Id.

Murrin Brothers 1885 was an original proceeding on petition for writ of

mandamus to the Supreme Court of Texas. 603 S.W.3d at 54. In the underlying

case, “warring ownership factions” disputed the right to control a jointly owned

“honky-tonk” called “Billy Bob’s.” Id. One faction unilaterally retained counsel

for Billy Bob’s, and the other faction challenged the law firm’s authority, arguing

that the company documents required unanimity to take such an action. Id. at 56.

The trial court denied the motion to show authority. Id.

The Supreme Court of Texas denied mandamus relief, noting that mandamus

requires both an abuse of discretion and the lack of an adequate legal remedy. Id. at

56–57. The Court assumed that denial of the Rule 12 motion was an abuse of

discretion and concluded that the relator had not proven the lack of an adequate

legal remedy. Id. at 61. In analyzing the issues, the Court explained that the ruling

on the motion to show authority “was not a merits decision on ultimate issues such

as the meaning of the company documents and control of the company moving

forward.” Id. The Court also noted that if the relator succeeded “on the merits,

23 whether at trial or on appeal,” it could “pursue relief for losses suffered due to the

unauthorized hiring” of the law firm. Id. at 62.

In this case, counsel for ACI and ASC presented evidence that Golden, as a

director of ACI and ASC had retained counsel to represent both companies. This

evidence included an affidavit from Golden and corporate resolutions for ACI and

ASC authorizing the hiring of the attorneys. In the trial court, as on appeal,

appellants have conflated the question of authority to represent ACI and ASC with

the merits questions regarding corporate governance. As in Murrin Bros. 1885, the

trial court’s rulings on the motions to show authority did not determine the merits

question of whether Paine is a director of both companies.

In addition, Paine was pro se when counsel for ACI and ASC left the law

firm that had been ACI and ASC’s counsel of record, and they began practicing

under the auspices of another law firm. Although the motion to substitute counsel

filed by ACI and ASC’s attorneys initially indicated that Paine was opposed, a

supplemental certificate of conference indicated that Paine was no longer opposed

to the substitution. Paine did not file an objection to the motion to substitute

counsel. Appellees argue on appeal that Paine has waived his challenge to the

authority of counsel to represent ACI and ASC by his conduct. We agree.

Waiver is “an intentional relinquishment of a known right or intentional

conduct inconsistent with claiming that right.” Crosstex Energy Servs., L.P. v. Pro

24 Plus, Inc., 430 S.W.3d 384, 391 (Tex. 2014) (quoting Sun Expl. & Prod. Co. v.

Benton, 728 S.W.2d 35, 37 (Tex. 1987)). “Though waiver is a question of intent, it

need not be explicit.” LaLonde v. Gosnell, 593 S.W.3d 212, 219 (Tex. 2019). A

party demonstrates his intent to waive a right by behaving in a manner that is

unequivocally inconsistent with asserting that right in light of the surrounding

circumstances. Crosstex, 430 S.W.3d at 393–94. Parties may waive certain rights

by failing to object. See id. at 394.

By failing to object to the motion to substitute counsel after the

supplemental certificate of conference stated that Paine was not opposed, Paine

waived his complaint about the authority of counsel to represent ACI and ASC.

We overrule the issues that challenge the court’s rulings on the motions to show

authority.

II. Summary-judgment standards of review

“Summary judgments must stand or fall on their own merits.” Amedisys, Inc.

v. Kingwood Home Health Care, LLC, 437 S.W.3d 507, 511 (Tex. 2014) (quoting

McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 343 (Tex. 1993));

accord Transcor Astra Grp. S.A. v. Petrobras Am. Inc., 650 S.W.3d 462, 478 (Tex.

2022) (holding that summary judgment motion must stand or fall on grounds

expressly presented in motion). “A court cannot grant summary judgment on

grounds that were not presented.” Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d

25 193, 204 (Tex. 2002). “[I]f the grounds for summary judgment are not expressly

presented in the motion for summary judgment itself, the motion is legally

insufficient as a matter of law.” McConnell, 858 S.W.2d at 342. “In determining

whether grounds are expressly presented, we may not rely on briefs or summary

judgment evidence.” Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 912 (Tex.

1997)

We review a trial court’s summary judgment de novo. Lujan v. Navistar,

Inc., 555 S.W.3d 79, 84 (Tex. 2018). In doing so, “we take as true all evidence

favorable to the nonmovant, and we indulge every reasonable inference and

resolve any doubts in the nonmovant’s favor.” Provident Life & Accident Ins. Co.

v. Knott, 128 S.W.3d 211, 215 (Tex. 2003).

A. No-evidence motion for summary judgment

A no-evidence motion for summary judgment under Rule 166a(i) is

essentially a pretrial motion for directed verdict. Timpte Indus., Inc. v. Gish, 286

S.W.3d 306, 310 (Tex. 2009); see TEX. R. CIV. P. 166a(i). After an adequate time

for discovery, a party without the burden of proof may, without presenting

evidence, seek summary judgment on the ground that there is no evidence to

support one or more essential elements of the nonmovant’s claim or defense. TEX.

R. CIV. P. 166a(i). The motion must specifically state the elements as to which

there is no evidence. Id.; see Timpte Indus., 286 S.W.3d at 310. The trial court is

26 required to grant the motion unless the nonmovant produces summary-judgment

evidence that raises a genuine issue of material fact. TEX. R. CIV. P. 166a(i).

B. Traditional motion for summary judgment

To prevail on a traditional motion for summary judgment, the movant must

show that no genuine issue of material fact exists and that it is entitled to judgment

as a matter of law. TEX. R. CIV. P. 166a(c); Lujan, 555 S.W.3d at 84. “If the

movant carries this burden, the burden shifts to the nonmovant to raise a genuine

issue of material fact precluding summary judgment.” Lujan, 555 S.W.3d at 84;

see Maldonado v. Maldonado, 556 S.W.3d 407, 414 (Tex. App.—Houston [1st

Dist.] 2018, no pet.). The evidence raises a genuine issue of fact if reasonable and

fair-minded jurors could differ in their conclusions in light of all of the summary-

judgment evidence. Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 755

(Tex. 2007). A defendant moving for summary judgment on an affirmative defense

has the burden to conclusively establish every element of that defense. See

Draughon v. Johnson, 631 S.W.3d 81, 88 (Tex. 2021).

III. The appellees filed a summary-judgment motion relying on no-evidence and traditional grounds for different causes of action pleaded by the appellants.

The appellees’ “traditional and no-evidence motion for summary judgment”

did not assert traditional and no-evidence grounds for summary judgment on the

same cause of action. E.g., Binur v. Jacobo, 135 S.W.3d 646, 650–51 (Tex. 2004)

27 (holding that party may combine request for summary judgment under no-evidence

standard with request under traditional summary judgment standard in single

motion). Rather, the motion in this case was a combination of (1) what appeared to

be an omnibus no-evidence challenge to all the appellants’ claims except the

declaratory judgment claim and (2) a traditional summary judgment on two

affirmative defenses relevant only to the declaratory judgment claim.

IV. The trial court erred by granting the no-evidence summary-judgment motion.

The no-evidence motion for summary judgment in this case was expressly

directed to a claim under the TTLA, which authorizes an award of attorney’s fees

to a prevailing party. The motion stated: “Plaintiffs [appellants] alleged several

causes of action that are founded upon the pivotal allegation that Defendants

committed theft or fraud.” The motion also stated: “Plaintiffs also allege that

Defendant Golden wrongfully issued himself improper distributions.” Although the

appellants’ live pleading made no mention of any claim under the TTLA, the

appellees’ summary-judgment motion stated: “The applicability of the Texas Theft

Liability Act is confirmed by Plaintiffs’ allegation that ‘the underlying wrongful

conduct violates provisions of the Texas Penal Code, including theft and

misapplication by a fiduciary.’”

With that backdrop, and without identifying any elements of the claims

pleaded in the appellants’ second amended petition or disclosed in the appellants’

28 disclosures of legal theories2, the appellees moved for summary judgment. This

portion of the motion was entitled, “Traditional and No Evidence Motion for

Summary Judgment on Attorneys’ [sic] Fees Claims.” In this part of their motion,

they asserted that:

(1) they were entitled to recover attorney’s fees as prevailing parties under the TTLA;

(2) the auditor’s report conclusively established that there was no evidence of theft or fraud regarding the $1,019,000 overstatement of income in ACI’s 2015 tax returns;

(3) “Plaintiffs cannot prevail on any claim based on allegations of theft or fraud;”

(4) “Plaintiffs have no evidence of any improper distributions;”

(5) “Plaintiffs . . . identify no actual damages . . . resulting from any alleged distribution;” and

(6) “Plaintiffs cannot prevail on their theft claims, and Defendants are the prevailing parties because there is no theft or fraud. Defendants are

2 In an amended disclosure, the appellants disclosed the legal theories and factual bases of their claims. This clarified that the appellants’ causes of action were:

(1) a writ of mandamus regarding inspection of books and records; (2) a challenge to the validity of corporate acts under the Texas Business Organizations Code, specifically: the $400,000 tax write down, the failure to keep accurate accounting records, the payment of disproportionate de facto dividends to Golden, Golden’s failure to exercise reasonable care in handling cash inventory or implementing controls; and (3) an action seeking a common law accounting and equitable relief, in regard to the allegedly unequal distributions; (4) derivative claims for breach of fiduciary duty in the maintenance of accounting records and for conversion regarding the allegedly unequal distributions; and (5) a declaratory judgment that Paine is a director of both companies. 29 therefore entitled to recover their reasonable and necessary attorney’s fees from Paine and the Trustee under the Theft Liability Act.”

The appellants did not plead a cause of action under the TTLA or mention

this statute in their live pleading.3 The appellants’ live pleading refers to theft only

once, stating: “Because the wrongdoing of Golden was committed maliciously

and/or fraudulently, Plaintiffs also seek an award of exemplary damages. The

statutory cap does not apply because the underlying wrongful conduct violates

provisions of the Texas Penal Code, including theft and misapplication by a

fiduciary.” (Emphasis added.) And the appellees did not expressly challenge the

elements of the claims that the appellants did plead as to which they contend there

was no evidence. The appellees’ summary-judgment motion did not expressly

mention any element of the appellants’ claims for a writ of mandamus, the

challenge to the validity of corporate acts under the Texas Business Organizations

Code, the action for a common law accounting, or the derivative claims for breach

of fiduciary duty and conversion.

It is axiomatic that a no-evidence motion must state the element or elements

for which there is no evidence. TEX. R. CIV. P. 166a(i). The Supreme Court of

Texas has “called for strict enforcement of this requirement.” Cmty. Health Sys.

3 The TTLA requires proof of theft as defined by the Penal Code. See TEX. CIV. PRAC. & REM. CODE § 134.003(a); see also TEX. PENAL CODE §§ 31.03–.04, 31.06–.07, 31.11–.13. In this case, Golden—as a 50% shareholder in both ACI and ASC and a director and the president of both companies—had some legal right to distributions and access to the companies’ funds. 30 Prof’l Servs. Corp. v. Hansen, 525 S.W.3d 671, 695 (Tex. 2017); see Timpte Indus,

286 S.W.3d at 310–11 (holding that no-evidence motion must specifically identify

the challenged elements to satisfy Rule 166a(i)).

It is similarly well-settled that a trial court cannot render summary judgment

motion on grounds not presented in the motion. G & H Towing Co. v. Magee, 347

S.W.3d 293, 297 (Tex. 2011); Timpte Indus., 286 S.W.3d at 310–11; Johnson, 73

S.W.3d at 204; Science Spectrum, 941 S.W.2d at 912. “Granting a summary

judgment on a claim not addressed in the summary judgment motion therefore is,

as a general rule, reversible error.” G & H Towing, 347 S.W.3d at 297 (citing

Chessher v. Sw. Bell Tel. Co., 658 S.W.2d 563, 564 (Tex. 1983) (per curiam)).

The trial court granted summary judgment against appellants on their

“affirmative claims,” and dismissed those claims with prejudice based on a motion

that addressed only a claim that was not pleaded and that failed to address all the

claims that were pleaded. Strict enforcement of the specificity requirement in Rule

166a(i) does not permit this result.

V. The trial court erred by granting the traditional summary-judgment motion.

The appellants argue that the trial court erred by granting traditional

summary judgment on the affirmative defense of judicial estoppel. In the trial

court, the appellees moved for summary judgment on their affirmative defenses of

judicial admission and judicial estoppel. Both defenses were based on

31 representations or omissions made by Paine in unrelated bankruptcy proceedings.

The summary-judgment evidence included a statement of financial affairs from

Paine’s bankruptcy proceeding and an answer that he filed as a defendant in an

adversary proceeding in an unrelated bankruptcy.

In the 2015 statement of financial affairs from Paine’s personal bankruptcy,

Question 18 asked:

If the debtor is an individual, list the names, addresses, taxpayer- identification numbers, nature of the businesses, and beginning and ending dates of all businesses in which the debtor was an officer, director, partner, or managing executive of a corporation . . . within SIX YEARS immediately preceding the commencement of this case. {CR 4437}

Paine responded by listing only “Automated Financial Systems” and listing

“10 years+” instead of beginning and ending dates:

The order of discharge in this bankruptcy case was included in the summary-

judgment evidence.

In 2004, Paine, The Web Zealots, and ACI, were defendants in an adversary

proceeding brought by the bankruptcy trustee for debtor Cash Media Systems, Inc.

An answer filed in that case on behalf of Paine and ACI stated:

Defendants have not knowledge as to whether CMS entered into a contract with The Web Zealots. Defendants deny that Stephen B. Paine was a party to the alleged contract, and further deny that Paine 32 was the managing partner representing The Web Zealots. Defendants admit that Paine was an officer, director, and shareholder in Defendant Automated Cash, Inc. (“ACI”).

Paine and the Trust responded to the summary judgment, arguing that the

appellees had not conclusively proven the elements of judicial estoppel. Appellants

asserted in the trial court that Paine’s statement of financial affairs was not

inconsistent with their position in this case because Paine listed “‘Automated

Financial Systems,’ which are the relevant Defendant Companies.” The appellants

also argued that Paine did disclose his directorship relationship to the bankruptcy

court, and the appellees did not show that he never amended his statement of

financial affairs. Finally, Paine and the Trust argued that Golden, ACI, and ASC

did not demonstrate that Paine acted intentionally and not inadvertently.

The trial court expressly granted summary judgment based on judicial

estoppel.

“The doctrine of judicial estoppel ‘precludes a party from adopting a

position inconsistent with one that it maintained successfully in an earlier

proceeding.’” Pleasant Glade Assembly of God v. Schubert, 264 S.W.3d 1, 6 (Tex.

2008) (quoting 2 ROY W. MCDONALD & ELAINE G. CARLSON, TEXAS CIVIL

PRACTICE § 9.51 at 576 (2d ed. 2003)). “The doctrine is not strictly speaking

estoppel, but rather is a rule of procedure based on justice and sound public

policy.” Pleasant Glade, 264 S.W.3d at 6 (citing Long v. Knox, 155 Tex. 581, 291

33 S.W.2d 292, 295 (1956)). Judicial estoppel is not punitive; it precludes a party

from gaining an unfair advantage by adopting inconsistent positions in litigation

and “playing fast and loose with the judicial system for their own benefit.”

Ferguson v. Bldg. Materials Corp. of Am., 295 S.W.3d 642, 643 (Tex. 2009); see

also Tenneco Chem. v. William T. Burnett & Co., 691 F.2d 658, 665 (4th Cir.

1982) (finding “the determinative factor is whether the appellant intentionally

misled the court to gain unfair advantage”).

Because the issue in this case arises from a bankruptcy context, we look to

federal law to determine whether judicial estoppel applies. Espinosa v. Aaron’s

Rents, Inc., 484 S.W.3d 533, 541 (Tex. App.—Houston [1st Dist.] 2016, no pet.);

Tow v. Pagano, 312 S.W.3d 751, 756 (Tex. App.—Houston [1st Dist.] 2009, no

pet.). To establish judicial estoppel as an affirmative defense, the appellees were

required to conclusively show that: (1) the appellants asserted a legal position in

this state court proceeding that is clearly inconsistent with their prior position in

the bankruptcy court; (2) a court accepted the prior position; and (3) the

nondisclosure in the bankruptcy case was intentional and not inadvertent.

Espinosa, 484 S.W.3d at 541.

Appellants argue that the appellees failed to conclusively prove that Paine

and the Trust asserted a legal position in this case that is clearly inconsistent with

their prior position asserted in bankruptcy court. We agree.

34 The appellees argued that the statement of financial affairs from Paine’s

bankruptcy indicated that his service began and ended more than ten years prior to

the filing of the bankruptcy petition. Question 18 of the statement of financial

affairs asked for beginning and ending dates of service as director, but Paine

responded “10+,” which is ambiguous. While it could suggest that his service

began and ended more than ten years earlier, it could also suggest that his service

began ten years earlier and was continuing. Because this evidence is ambiguous, it

does not conclusively establish that Paine took a different position in the

bankruptcy court about whether he was a director of ACI.4

The statement in the answer in the adversary proceeding is likewise

ambiguous. Paragraph 11 of the answer refers to a contract and a time when parties

entered the contract. The appellees argue that Paine’s statement that he “was” a

director of ACI means that when he filed the answer, he was no longer a director of

ACI. But the answer does not say that he ceased serving as a director of ACI at any

time. The petition to which Paine’s answer was responsive is not in the record.

Without further context, this document is inconclusive about the dates when Paine

served as a director of ACI.

4 The parties do not differentiate between AFS and ACI. The appellees did not argue that the statement of financial affairs is a contrary statement because it lists only AFS and not ACI, and the appellants assert that the companies are the same. Nothing in the voluminous appellate record explains the precise relationship between these companies, though emails between Golden and Paine suggest a pattern of using the terms ACI and AFS interchangeably. 35 Because the summary-judgment evidence the appellees rely on does not

conclusively show that Paine previously took an adverse position in federal court

on the question of whether he is a director of ACI, we conclude that the appellants

failed to prove the first element of judicial estoppel and were not entitled to

summary judgment. We sustain the first issue in the Trust’s brief.

Conclusion

We reverse the trial court’s summary judgment and remand this case to the

trial court for further proceedings.

Peter Kelly Justice

Panel consists of Justices Kelly, Rivas-Molloy, and Guerra.