Camp Mystic, Inc. and Richard G. Eastland, Natural Fountains Properties, Inc. v. S. Stacy Eastland, Nancy Eastland Leaton

Citations: 399 S.W.3d 266; 2012 Tex. App. LEXIS 8664; 2012 WL 4903019Docket: 04-12-00102-CV

Court: Court of Appeals of Texas; October 17, 2012; Texas; State Appellate Court

Original Court Document: View Document

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The case involves an appeal by Camp Mystic, Inc. (CMI) and Natural Fountains Properties, Inc. (NFP) against S. Stacy Eastland and Nancy Leaton. The trial court had issued an order that included granting a temporary injunction, appointing an agent for one of the appellants, and denying the appellants' motion to compel arbitration. The appellate court reversed these decisions, dissolved the temporary injunction, and remanded the case for further proceedings.

Camp Mystic is a summer camp that underwent restructuring in 1998, leading to the formation of CMI and the renaming of Old CM to NFP. NFP retained ownership of the camp's real estate and leased it to CMI. Richard Eastland and his wife Willetta are the sole owners of CMI. NFP's shareholders include Richard (52%), Stacy Eastland (22%), and Nancy Leaton (22%). A dispute arose over the rent CMI paid to NFP, resulting in a declaratory judgment action initiated by Dick and CMI against NFP and its shareholders. Appellees counterclaimed, alleging breach of fiduciary duty and shareholder oppression against Dick, claiming that his control benefited CMI at NFP's expense.

A jury initially ruled in favor of Dick and CMI, but the trial court later vacated part of the verdict and ordered a new trial on the claims of breach of fiduciary duty and shareholder oppression. The trial court entered a final judgment on other claims in favor of the appellants and transferred the remaining claims to McCulloch County. Appellees then re-alleged their claims against the appellants, coinciding with the expiration of an amended lease and the negotiation of a new two-year lease to ensure the camp's operation.

On August 18, 2011, appellees requested a temporary restraining order (TRO) to halt the execution of the Third Amendment, set for a board vote on August 28, 2011. The trial court denied the TRO, and the NFP board subsequently approved the amendment. Following this approval, appellees expanded their petition, alleging shareholder oppression by Dick, who they claimed improperly influenced the board's decision. They asserted that the Third Amendment (1) established rent below market value, (2) granted CMI control over excess land, hindering profitable opportunities for NFP, and (3) unreasonably restricted minority shareholders' recreational usage of their property.

Appellees sought a special advisor or receiver to ensure fair rent and maximize NFP's returns, claiming Dick violated his fiduciary duty, resulting in lost rent from September 1, 2010, until trial. They requested a temporary injunction to rescind the Third Amendment and appoint a receiver to negotiate a fair short-term lease with CMI while preserving recreational rights. A dispute arose regarding recreational access restrictions in the Third Amendment's Recreational Use Addendum, leading appellees to file a motion for the court to assess the reasonableness of the addendum’s conditions and authorize rules for hunting access.

In response, appellants moved to stay litigation and compel arbitration per the addendum. After hearings on the supplemental application and the motion to compel arbitration, the court enjoined the final eleven months of the Third Amendment while also enjoining the arbitration provision for the first year. The court established modified rules for recreational access and appointed an "Agent" to act in NFP’s best interest, restricting the board from undermining the Agent's efforts. Following this order, appellants appealed, arguing the trial court abused its discretion in issuing the temporary injunction, claiming a lack of evidence for a probable right to relief or imminent harm. They noted that while a temporary injunction is meant to preserve the status quo pending trial, it requires the applicant to demonstrate a valid cause of action, a probable right to relief, and imminent irreparable injury if not granted.

To obtain a temporary injunction, a movant must demonstrate both a probable right to recover in the underlying trial and probable interim injury if the injunction is not granted. Conflicting evidence does not negate the request; rather, the evidence must reasonably support the movant's claims. A probable right requires a viable cause of action, but the critical element lacking in the current case is proof of imminent and irreparable harm. Probable injury requires evidence of imminent harm, irreparable injury, and an inadequate legal remedy. Irreparable injury is defined as one that cannot be compensated or measured in monetary terms.

The trial court identified three ways the Third Amendment could cause imminent and irreparable harm: (1) the rent under the lease is significantly lower than the market rate, (2) the amendment restricts minority shareholders' recreational access during the off-season, and (3) it may limit the court's ability to provide permanent equitable relief later. Appellants argue that lost-rent revenue does not equate to irreparable harm since appellees can seek damages, and that restricted access does not constitute imminent harm. They also contend the injunction is unnecessary for preserving the court's equitable powers.

The trial court found the potential lost rent to be irreparable since the minority shareholders would need to sue the majority directors for damages, making it preferable to negotiate rent through an independent agent. Appellants counter that appellees can still pursue a money judgment for damages. While acknowledging that equity can address disputes to prevent multiple lawsuits, the court found no evidence of such threats in this case. The claim for lost rent can be resolved within the pending suit, indicating that any monetary loss does not meet the threshold for irreparable injury, as an adequate legal remedy exists. Thus, lost-rent damages do not constitute irreparable injury.

The trial court found that the provisions in the Recreational Use Addendum posed imminent and irreparable harm due to the inability to replace access to the property. This conclusion was supported by testimony from Stacy Eastland, a minority shareholder with cancer, who expressed concern over losing precious time with his grandchildren on the property. The court ruled that depriving Eastland and Nancy of reasonable recreational access for two years would cause irreparable harm.

In contrast, appellants contended that the appellees did not provide sufficient evidence of irreparable harm and that minority shareholders lack a legal right to access the land. During the temporary injunction hearing, several minority shareholders testified about their experiences. George Stacy claimed he had previously requested access but was denied without explanation, though he did not detail those incidents. He criticized the Recreational Use Addendum's access provision to the Guadalupe River, deeming it inadequate. Nancy Leaton indicated she faced no outright denial of access but was prevented from staying overnight in facilities due to their use by others. Eastland mentioned being denied access initially due to an incorrect gate code but was granted access shortly after.

Philip Stacy shared that restrictive hunting rules proposed by Dick deterred him from using the property. The court noted that temporary injunctive relief is typically not granted for mere inconvenience. Despite some limitations, the appellants still had access to the property, leading the court to conclude that it did not abuse its discretion in denying the temporary injunction. The court acknowledged appellees' claims of potential future restrictions but affirmed that Texas law grants tenants exclusive possession of the premises for the duration of their lease, irrespective of the landlord's involvement.

During the lease term, the property owners had no right of entry, granting exclusive possession to the tenant. The court's order on the Recreational Use Addendum did not deny future access to minority shareholders but highlighted that depriving them of reasonable recreational access for two years would cause irreparable harm. However, fears of potential harm do not meet the standard for injunctive relief, which requires evidence of intent to harm. Prior to the Recreational Use Addendum, no lease detailed recreational access for minority shareholders. Richard Capps, the NFP board president since 2009, testified that minority shareholders had not been denied access during his tenure, and the Third Amendment established written recreational privileges for the first time. The Recreational Use Addendum outlined access parameters for minority shareholders for both camping and non-camping seasons, despite the requirement for permission or hunting restrictions being viewed as burdensome. The trial court's determination of imminent irreparable harm lacked specificity regarding how the Third Amendment would hinder its ability to grant permanent relief. Texas Rule of Civil Procedure 683 mandates that injunction orders specify reasons for issuance to prevent interim injury, but the trial court’s concerns pertained only to itself, not the appellees. The trial on the merits is pending, leaving room for a potential favorable outcome for Dick and CMI. The trial court’s intent to resolve issues does not legally justify equitable relief. Consequently, the appellees did not demonstrate probable injury from the Third Amendment, leading to the conclusion that the temporary injunction was granted in error and should be dissolved. Additionally, the court appointed Charles H. Jackson as an agent for NFP, clarifying that he is not a receiver and will not take possession of NFP's property but will have access to its records.

The NFP board retains decision-making authority over matters not assigned to the Agent but is prohibited from actions that would undermine the Agent's negotiations for reasonable rent and lease agreements. The trial court designated Mr. Jackson as the Agent to negotiate leases between NFP and potential tenants, including Camp Mystic, and to engage in transactions concerning NFP's property. The court justified this appointment due to concerns about the NFP board's independence, given close relationships with Dick and Camp Mystic, which could compromise the board's ability to act solely in NFP's interests. Appellants argue the trial court erred by relying on evidence from a previous trial not presented in the current hearing, asserting a lack of evidence for the board's inability to act independently and for any imminent threat to the property. They also claim the trial court improperly used its own recollection of past testimonies instead of authenticated records. The court's statement that Mr. Jackson "is not a receiver" is contested by appellants, who argue that he should be classified as such, thus requiring a higher standard of proof for his appointment. However, it is noted that no Texas authority supports the appointment of an "agent" under the circumstances, as there is no evidence that NFP, as the principal, consented to Mr. Jackson's role.

The order appointing Mr. Jackson indicates that NFP did not exert control over him; instead, he managed NFP's sole asset, the land, with court approval. It is unnecessary to classify Mr. Jackson as either an "agent" or a "receiver," but the evidence from the hearing on his appointment must be reviewed to assess any potential abuse of discretion by the trial court. The trial court's decision to appoint Mr. Jackson appears to be equitable, aimed at protecting minority shareholders, particularly due to concerns regarding Dick's alleged oppression and breach of fiduciary duty.

The trial court's reliance on prior testimonies rather than specific statutes was seen as erroneous. The hearing record must be scrutinized to determine if there was sufficient evidence suggesting that board members Capps and Frazer were unable to act independently of Dick or that Dick's influence constituted oppression. Capps, one of the two board members who testified, did not claim he was influenced by Dick and mentioned that an independent appraiser suggested a fair market rent of $485,000 annually, while the board approved a lower rent of $480,000, which included immediate payment to alleviate cash flow issues. Capps confirmed that NFP was not insolvent but faced negative cash flow.

George Stacy, the other board member who testified, noted his long association with NFP's board, highlighting instability in board membership due to Dick's actions. He did not assert that Capps or Frazer were controlled by Dick and shared concerns regarding the approval of the Third Amendment without prior knowledge. George expressed frustration over the rushed vote and subsequent signing of the amendment by Dick. He also indicated that he was authorized to seek alternative renters for NFP but lacked sufficient time. On recreational access, George stated that prior to Capps' board membership, he faced repeated denials of access, and Dick rejected proposals to limit his control over the minority shareholders' use of the property during camping season, opting instead for more restrictive terms.

Cynthia Allen served on the NFP board from August 2007 to October 2009. During her testimony, she discussed the board’s consensus to authorize John Genung to negotiate rent under the First Amendment to the 2008 lease, targeting a monthly rent between $40,000 and $60,000, which resulted in a final agreement of $38,750. The trial court noted that the board was dissolved due to its independent actions against majority owner Dick's wishes regarding a lease approval. Despite a significant difference in opinions among NFP directors and minority shareholders about the rent amount, no evidence suggested this affected NFP's business operations or that Dick's influence constituted oppression of the minority shareholders. The trial court had removed two sets of board members after unsuccessful negotiations with Dick, but no evidence explained these firings. Consequently, the court found insufficient grounds to appoint Mr. Jackson as NFP's representative. 

Additionally, the Recreational Use Addendum to the Third Amendment mandated that disputes be resolved through good faith negotiation, mediation, and binding arbitration. The trial court set aside this arbitration provision, believing it was not the product of arm’s-length negotiations and imposed unfair rules on minority shareholders. However, it was concluded that there was no evidence supporting the claim that Capps and Frazer could not operate independently of Dick, leading to a reversal of the trial court's order denying the motion to compel arbitration. The intertwined nature of the trial court's injunction against the arbitration clause necessitated a remand for further proceedings rather than a direct order to compel arbitration. The issue of whether the arbitration agreement binds non-signatory minority shareholders remains unresolved, as the trial court did not make a determination on this matter.