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AME & FE Investments, Ltd. v. NEC Networks, LLC

Court of Appeals of Texas, Fourth District, San Antonio

November 20, 2017

AME & FE INVESTMENTS, LTD., Appellant
v.
NEC NETWORKS, LLC, d/b/a CaptureRX, Appellee

         From the 73rd Judicial District Court, Bexar County, Texas Trial Court No. 2012-CI-11952 Honorable David A. Canales, Judge Presiding

          Sitting: Sandee Bryan Marion, Chief Justice Karen Angelini, Justice Irene Rios, Justice

          OPINION

          IRENE RIOS, JUSTICE.

         AME & FE Investments, Ltd. ("AME") filed a motion in this appeal challenging the trial court's Amended Order Setting Security in which the trial court declines to permit AME to supersede the underlying judgment if appellee, NEC Networks, LLC, d/b/a CaptureRX ("NEC"), posts a bond in the amount of $1.5 million to secure AME against any loss or damage it will be caused in the event AME prevails on appeal. After reviewing AME's motion, NEC's response, and the replies filed by the parties, we grant AME's motion and remand the Amended Order Setting Security to the trial court for the entry of an order consistent with this opinion.

         Background

         In 2009, AME and NEC signed a Note Purchase Agreement ("NPA") pursuant to which AME loaned NEC $1.5 million secured by liens on and security interests in NEC's assets and property. Under the NPA, NEC granted AME an option to convert the entire principal amount of the loan into 30% of NEC's Class A Units of membership interest at any time prior to the loan's maturity date.

         In July 2012, NEC filed suit against AME asserting in pertinent part: (1) a breach of contract claim against AME for refusing to accept a payoff tendered on November 19, 2012, and for refusing to release its liens and security interests; and (2) a claim seeking a declaration that AME's option to convert the loan into Class A Units ended on October 1, 2011. AME filed counterclaims against NEC for breach of contract, fraud, and fraudulent transfer, claiming, in pertinent part, that AME was still entitled to convert the loan into 30% of NEC's Class A Units.

         On April 8, 2016, the trial court granted partial summary judgment for NEC on NEC's declaratory relief and breach of contract claims, concluding that: (1) AME breached the NPA by failing to accept the tendered payoff from NEC and refusing to release its liens and security interests; and (2) AME failed to provide written notice of an election to convert the loan into Class A Units before the loan's maturity date. As a result, the partial summary judgment determined that AME was not entitled to convert the loan into Class A Units. On May 23, 2016, the trial court also granted NEC's traditional and no-evidence motions for summary judgment against AME on some of AME's breach of contract counterclaims.

         A jury trial was subsequently held on the parties' remaining claims. Based on the jury's verdict, [1] the trial court signed a final judgment on March 10, 2017, which incorporated the trial court's previous summary judgment rulings. In the final judgment, the trial court ordered AME to pay NEC $6, 000 and further ordered that AME take nothing on its counterclaims against NEC.[2]The final judgment also vacated AME's liens and security interests. AME timely filed a notice of appeal.

         On May 1, 2017, AME made a cash deposit in lieu of supersedeas bond in the amount of $8, 498.65. On May 5, 2017, NEC filed a document entitled Alternative Motions to Set Security or Determine Bond, requesting the trial court to either: (1) increase the amount of AME's supersedeas bond to adequately protect NEC against any loss or damage the appeal might cause; or (2) allow NEC to enforce the judgment by requiring NEC to post security in accordance with Texas Rule of Appellate Procedure 24.2(a)(3).

         On May 10, 2017, the trial court held an evidentiary hearing on NEC's alternative motions. During the hearing, NEC presented evidence of the harm NEC would suffer if the judgment was superseded during the pendency of the appeal. NEC argued the trial court should either increase the amount of AME's supersedeas bond to $43, 998, 000.00 to adequately protect NEC against the loss or damage it would suffer during the pendency of the appeal, or, in the alternative, allow NEC to enforce the judgment by posting security in the amount of $1.5 million, representing the loan balance secured by AME's liens and security interests. AME argued the trial court should increase its supersedeas bond to $3 to $5 million at the most or, in the alternative, require NEC to post security in an amount equal to the value of 30% of NEC's Class A Units. On May 26, 2017, the trial court signed an Amended Order Setting Security declining to permit AME to supersede the judgment and requiring NEC to post security in the amount of $1.5 million, thereby allowing NEC to enforce the judgment.

         On June 7, 2017, AME filed a motion challenging the trial court's order and an emergency motion to stay the trial court's order pending our resolution of its challenge. On June 8, 2017, this court granted AME's emergency motion to stay. On November 7, 2017, NEC filed a motion to vacate our stay of the trial court's order.

         Scope and Standard of Review

         "Rule 24.4 authorizes appellate courts to engage in a limited supersedeas review, specifically to review (1) the sufficiency or excessiveness of the amount of security, (2) the sureties on a bond, (3) the type of security, (4) the determination whether to permit suspension of enforcement, and (5) the trial court's exercise of discretion in ordering the amount and type of security." El Caballero Ranch, Inc. v. Grace River Ranch, L.L.C., No. 04-16-00298-CV, 2016 WL 4444400, at *3 (Tex. App.-San Antonio Aug. 24, 2016, order). "After completing this limited review, we may require that the amount of a bond be increased or decreased and that another bond be provided and approved by the ...


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