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Berry v. Berry

Court of Appeals of Texas, Thirteenth District, Corpus Christi-Edinburg

December 5, 2019


          On appeal from the County Court at Law No. 3 of Nueces County, Texas.

          Before Justices Benavides, Hinojosa, and Perkes



         This interlocutory appeal concerns the trial court's temporary injunction order in favor of appellees, Kenneth L. Berry (Kenneth), individually and in a derivative capacity for Skyeagle, Inc. (Skyeagle), enjoining appellants, Dennis W. Berry (Dennis); Marvin G. Berry (Marty); Bay, Inc. (Bay); Berry GP, Inc., d/b/a Berry Contracting; and Berry Contracting, d/b/a Bay Ltd. from dissolving Skyeagle, obligating Skyeagle to pay debts of or transfer funds to any Defendant-owned entities, and indemnifying Skyeagle in an unrelated suit out of the 214th District Court. By two issues, appellants contend that the trial court abused its discretion by granting the temporary injunction because appellees failed to establish a right of relief under Texas Civil Practice and Remedies Code § 65.011 and alternatively, under Texas Business Organizations Code § 2.104. Tex. Civ. Prac. & Rem. Code § 65.011; Tex. Bus. Orgs. Code § 2.104. We reverse.

         I. Background

         In 1979, Kenneth and his brothers, Dennis and Marty (Defendant Directors), formed Skyeagle. The three brothers are the sole shareholders, each owning one-third of the company's shares. Kenneth previously held the position as Skyeagle's president, [1]while Dennis and Marty served as vice-president and secretary, respectively. Defendant Directors also own controlling interests in other companies, including Berry Contracting and Bay; although Kenneth never owned any interest in either company, Kenneth was the former vice-president for Bay.

         In March 1994, Skyeagle purchased a railway easement (the Easement) in Nueces County, Texas from the United States for $175, 000. This Easement is Skyeagle's sole asset. In May 1995, Bay and the Texas Mexican Railway Company (TM) entered into a transportation contract in which TM agreed to transport aggregate products for Bay. Three months later, Bay and TM entered into an extension of the transportation contract, during which Bay agreed to a "transfer or conveyance of the [Easement]" to TM, upon the satisfaction of certain conditions laid out in the contract. The contract was signed by Kenneth in his capacity as Bay's vice-president. Skyeagle was not a party to the contract. Kenneth's relationship with Defendant Directors deteriorated over time, and in October 2015, TM filed suit in the 214th District Court against Bay and Skyeagle, alleging breach of contract.[2]

         On February 12, 2018, Kenneth received a "Notice of Special Meeting of the Shareholders of Skyeagle, Inc." (Shareholder's notice). The Shareholder's notice included items that "shall be discussed" by the shareholders and upon which "the shareholders of the Company may vote." These items consisted of:

1. The existence and repayment of indebtedness owed by [Skyeagle] to Berry Contracting, Inc., [Bay], Lone Star Equipment, Inc., Basic Equipment Company, and/or any related or affiliated company.
2. Payment of interest on any of the debts determined under 1 above to exist.
3. The existence and substance of existing litigation involving [TM, Bay, and Skyeagle].
4. The possibility of resolution of the litigation referenced in 3 above and the granting of authority to accomplish same.
5. The source of funds for the company to pay attorney's fees or to repay Bay, Inc. or related entities for the payment of attorney's fees on behalf of [Skyeagle] with regards to the litigation.
6. Confirmation of the existence and terms of defense and indemnity obligations of [Skyeagle] towards its directors and officers.
7. The appointment of officers.
8. The possibility of dissolution of [Skyeagle].

         Kenneth claims that he first learned of the TM lawsuit against Bay and Skyeagle upon receiving the Shareholder's notice. On February 20, the day the shareholder meeting was scheduled to take place, Kenneth filed an application for a temporary restraining order (TRO) and temporary injunction against the Defendant Directors, alleging[3] that the Defendant Directors breached their fiduciary duty to Skyeagle and to Kenneth as a shareholder. On February 22, the TRO was granted.

         A. Temporary Injunction Hearing

         On March 5, the morning of the temporary injunction hearing, Defendant Directors filed a "Plea in Abatement and Objection to the Court's Jurisdiction." In part, Defendant Directors argued that the 214th District Court retains "dominant jurisdiction over the easement issue and the transferring thereof;" therefore, Kenneth is barred from any attempt at enjoining Defendant Directors from the use of the Easement and any mandated enjoinment must not include the Easement.

         The trial court thereafter held a joint hearing on the temporary injunction and plea in abatement. The hearing was recessed, and the court resumed on April 3. At the start of the April 3rd hearing, the court orally granted Defendant Director's plea in abatement[4] before accepting additional testimony regarding the temporary injunction.

         1. Kenneth's Testimony

         Kenneth maintained that the Shareholder's Notice was evidence that Defendant Directors intended to (1) dissolve Skyeagle and (2) make Skyeagle liable as a guarantor of the debts and obligations of Bay and Berry Contracting. See Tex. Bus. Orgs. Code Ann. § 2.104(b)(2) (providing that a domestic entity may make a guaranty of the indebtedness of another if the guaranty may reasonably be expected to benefit the entity); id. § 2.104(c)(2) (providing that a shareholder may request to enjoin a proposed guaranty on the ground that the guaranty cannot reasonably be expected to benefit the entity).

         According to Kenneth, Skyeagle purchased an easement directly linked to what is now the Kansas City Southern Railroad, and Bay should "have to come to Skyeagle and make a deal for that asset" if Defendant Directors wished to use Skyeagle's Easement to fulfill its obligation to TM. Kenneth argued Defendant Directors "want to give Skyeagle's assets to [TM]" for the sole benefit of Bay, a company Kenneth has no ownership in, and to the detriment of Skyeagle, which would lose its only asset.

         Kenneth also took issue with Skyeagle potentially paying Bay's attorney's fees in its suit against TM because both companies are represented by the same firm although their interests are averse. Kenneth argues, in relevant part:

[Bay] is a party to a contract with [TM] that Skyeagle is not. Skyeagle got sued because of a contract that it's not a party to. Therefore, they're adverse. The contract between [Bay] and [TM] allegedly talks about assets that are owned by Skyeagle, and Skyeagle should have it's [sic] own separate independent lawyer to defend its position against allegation[s] from either [Bay] or [TM] in this case.

         Kenneth complained that losing the Easement or dissolving the company would result in "worthless" shares and "no company to conduct business." Kenneth conceded that although Skyeagle is not bonded and lacks a prime contract, Skyeagle could become insured for business: "[Skyeagle] has a perfect safety record today. So there's nobody in the planet that has a better safety record than Skyeagle." Kenneth suggested Skyeagle could perform subcontracting services for Bay:

There's dozens of ways Skyeagle can go to work. But certainly given the ten-year and time that my two brothers have had running it as officers and directors, it should have insurance, it should have bonding capacity, it should have the work, it should have profits. But there's absolutely no reason that Skyeagle can't do work.

         2. Defendant Directors Testimony

         Defendant Directors countered that Kenneth was President of Skyeagle for a substantial duration of the company's existence, and apart from incurring a $176, 000 debt in the form of the Easement, Kenneth is the reason the company did not prosper.

[Counsel:] How many notices of meetings in the 35 years that Kenneth Berry was president of Skyeagle did you ...

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