In Re Smith
192 S.W.3d 564, 49 Tex. Sup. Ct. J. 609, 2006 Tex. LEXIS 437 (2006)
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Rule of Law:
Under Texas Rule of Appellate Procedure 24.2(c)(3), when a trial court determines a judgment debtor's net worth for the purpose of setting a supersedeas bond, it must state with particularity the factual basis for its determination for each debtor. A court may consider an alter ego theory to calculate the debtor's assets, but this finding cannot be used to enforce the judgment against the non-party alter ego.
Facts:
- Richard and Ginger Honaker obtained a money judgment for over $800,000 against Ron Smith and his company, Main Place Custom Homes, Inc.
- To suspend enforcement of the judgment pending appeal, Smith and Main Place each filed cash deposits of $10.
- Both parties also filed affidavits of net worth to justify the small deposit amount.
- Smith's affidavit stated his personal net worth was negative $167,206.
- Main Place's affidavit stated its corporate net worth was $0.00.
- The Honakers contested these affidavits, arguing that another of Smith's companies, R.A. Smith & Company, Inc. (a non-party to the lawsuit), was Smith's alter ego.
- The Honakers argued the assets of R.A. Smith & Company, Inc. should be included when calculating Smith's personal net worth for bonding purposes.
Procedural Posture:
- Richard and Ginger Honaker obtained a judgment against Ron Smith and Main Place Custom Homes, Inc. in a Texas trial court.
- Smith and Main Place (appellants) filed notices of appeal with the Second Court of Appeals.
- Smith and Main Place filed affidavits of net worth and cash deposits in the trial court to suspend enforcement of the judgment.
- The Honakers (appellees) filed a contest to the affidavits in the trial court.
- The trial court held a hearing and issued an order sustaining the contest, finding Smith’s net worth to be $1,142,951 without providing a factual basis, and failing to determine Main Place's net worth.
- Smith and Main Place filed a motion in the court of appeals seeking review of the trial court's order.
- The court of appeals denied the motion for review.
- Smith and Main Place then filed motions in the Supreme Court of Texas, which the court treated as petitions for writ of mandamus.
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Issue:
Does a trial court abuse its discretion under Texas Rule of Appellate Procedure 24.2(c)(3) when, after a challenge to a judgment debtor's affidavit of net worth, it issues an order that fails to state with particularity the factual basis for its net worth determination and fails to determine the net worth of all judgment debtors?
Opinions:
Majority - Per Curiam
Yes. A trial court abuses its discretion by issuing an order that does not state with particularity the factual basis for its determination of one judgment debtor’s net worth and fails to state the other debtor's net worth at all, as required by Rule 24.2(c)(3). The rule explicitly mandates that the trial court's order must 'state the debtor’s net worth and state[] with particularity the factual basis for that determination.' Here, the trial court made no findings that would permit a reviewing court to ascertain how it calculated Smith's net worth, and it completely failed to determine the net worth of Main Place. While the trial court did not abuse its discretion by considering the alter ego theory to determine Smith's assets for bonding purposes, this finding cannot be used to enforce the judgment against the non-party alter ego itself. The failure to provide a factual basis for its calculations prevents the court of appeals from conducting a meaningful legal and factual sufficiency review, necessitating a remand for proper findings.
Analysis:
This decision reinforces the mandatory nature of the procedural requirements in Texas Rule of Appellate Procedure 24.2(c)(3), ensuring that trial court determinations of net worth are not arbitrary and are subject to meaningful appellate review. The court clarifies that trial judges must 'show their work' by providing a detailed factual basis for their calculations. Critically, the opinion establishes a clear distinction for the use of the alter ego doctrine in post-judgment proceedings: it can be a tool for calculation (to assess a debtor's true worth for a bond) but not a tool for collection (to impose liability on a non-party who has not had their day in court).
