Wednesday, August 5, 2009

Funds wrongfully ordered deposited into court's registry

Fourteenth Court of Appeals grants petition for mandamus relief to vacate trial court's order requiring deposit of funds into the court's registry pending suit. Reviewing court holds that trial court judge abused his discretion in requiring the funds be transferred to the control of the court where the evidence did not establish that the funds were in actual peril of being lost or depleted.

In Re North Cypress Medical Center Operating Co., Ltd. (Tex.App.- Houston [14th Dist.] Aug. 4, 2009) (partnership dispute, temporary injunction reversed in interlocutory appeal, mandamus granted to vacate order requiring money be deposited in the court's registry)


Deposits into Court's Registry

After granting the temporary injunction, the trial court, citing its inherent authority, also ordered North Cypress to deposit into the court's registry any future distributions attributable to St. Laurent. In response, North Cypress asked us to issue a writ of mandamus vacating the trial court's order because the record does not indicate that disputed funds are likely to be “lost or depleted," a requisite for the court's order.

We agree, and conditionally grant mandamus relief.

A. Mandamus Standard of Review

Mandamus relief may be available if the relator establishes a clear abuse of discretion for which there is no adequate appellate remedy. See In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 135-36 (Tex. 2004) (orig. proceeding). Although we will not disturb the trial court's resolution of disputed fact matters, a trial court has no discretion in determining what the law is or in applying the law to the facts. See Walker v. Packer, 827 S.W.2d 833, 839B40 (Tex. 1992) (orig. proceeding).

B. Evidence of “Loss or Depleting" Funds

If there is evidence that disputed funds are in danger of being "lost or depleted," a trial court, through its inherent authority, may order a party to pay those funds into the court's registry. See Castilleja v. Camero, 414 S.W.2d 431, 433 (Tex. 1967). Here, however, the record contains no such evidence. Instead, the undisputed evidence suggests only that the partnership may use the same bank account to fund several activities, including the reinvestment of funds into the hospital's physical plant. By itself, that evidence is insufficient to warrant the trial court's order in this case.

During the temporary-injunction hearing, St. Laurent testified that the hospital has recently undergone capital improvements, including an expansion of the existing structure and the construction of a separate professional building and parking garage. It appears that these capital improvements might be funded, at least in part, from the partnership's “Available Cash," the same source used to pay partner distributions. After reviewing these facts alone, the trial court concluded that the hospital's capital improvements are likely to deplete the funds available to pay future distributions. However, that legal conclusion is not supported by the evidence, for two reasons.

First, the funds in question have not been shown to be in danger of being “lost or depleted." Instead, the evidence suggests that those funds are being reinvested in the hospital's physical plant, a partnership asset. Thus, in the event St. Laurent prevails in the dispute over his partnership distributions, his efforts to collect on that judgment would not be limited solely to the hospital's “Available Cash" account. See generally Tex. Civ. Prac. & Rem. Code Ann. '' 31.001-.010 (Vernon 2008). As St. Laurent conceded during oral argument, the record contains no suggestion that North Cypress is insolvent or otherwise unable to pay a potential judgment in this case.

Second, even were we to hold that reinvested funds qualify as “lost or depleted" within the meaning of Castilleja, the record is still insufficient to show that Available Cash is dwindling or being depleted. For example, the record is devoid of evidence about (1) the balance of Available Cash, (2) the amount or source of the hospital's revenue and net income used to fund that account, (3) the monthly or annual cash flow in the Available Cash account (4) the cost of the ongoing capital improvements, or (5) the extent, if any, to which Available Cash may be dwindling because of the capital improvements.

Instead, the record, particularly the Agreement, hints only that North Cypress uses the Available Cash account for several purposes:

“Available Cash" shall mean, at the time of determination, all Partnership cash receipts derived from the conduct of the Partnership's business reduced by (i) such amount as is necessary to pay the current operating expenses and debt service of the Partnership, and (ii) such reserves for the reasonable needs of the Partnership's business as the General Partner shall determine, in its sole discretion, including reserves for replacements, capital improvements and additions.

Because the undisputed evidence does not indicate that funds are actually in danger of being lost or depleted, the trial court abused its discretion by ordering the payment of such funds into its registry. See Castilleja, 414 S.W.2d at 433; In re Deponte Invs., Inc., No. 05-04-01781-CV, 2005 WL 248664, at *2 (Tex. App.- Dallas Feb. 3, 2005, orig. proceeding) (mem. op.).

Further, we determine that, in this case, the benefits to mandamus review outweigh the detriments. See Prudential Ins. Co., 148 S.W.3d at 136. Here, North Cypress has been deprived of the use of its money without a showing either of liability or an intent to hide assets from a possible judgment, as in Castilleja.[7] Therefore, we hold that North Cypress does not have an adequate remedy by appeal. See Deponte Invs., 2005 WL 248664, at *2. Accordingly, we conditionally grant mandamus relief.



St. Laurent has not shown that, in the absence of a temporary injunction, he would suffer irreparable injury. Therefore, we reverse the trial court's ruling, dissolve the temporary injunction, and remand for further proceedings not inconsistent with this opinion.

In addition, we conditionally grant the petition for a writ of mandamus, and direct the trial court to vacate its order compelling North Cypress to deposit funds into the court's registry. We are confident the trial court will comply; therefore, the writ will issue only in the unlikely event that it fails to do so.

/s/ Kent C. Sullivan


In Re North Cypress Medical Center Operating Co., Ltd. (Tex.App.- Houston [1st Dist.] Aug. 4, 2009)(Sullivan)


OPINION AUTHOR: Justice K. Sullivan

PANEL MEMBERS: Justices Seymore, Brown and Sullivan


FULL CASE STYLE: In Re North Cypress Medical Center Operating Company, Ltd. and North Cypress Medical Center Operating Company GP, LLC

TRIAL COURT: Appeal from 333rd District Court of Harris County (Judge Halbach)

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