in Re Coastal Nejapa, LTD

Petition for Writ of Mandamus Conditionally Granted and Memorandum Opinion filed August 13, 2009. In The Fourteenth Court of Appeals ____________ NO. 14-09-00239-CV ____________ IN RE COASTAL NEJAPA, LTD., Relator ORIGINAL PROCEEDING WRIT OF MANDAMUS M E M O R A N D U M   O P I N I O N In this original proceeding, relator, Coastal Nejapa, Ltd., seeks a writ of mandamus ordering the respondent, the Honorable Ben Hardin, presiding judge of the 23rd District Court of Brazoria County, to set aside his February 10, 2009 amended order appointing an auditor. We conditionally grant the writ. I. Factual and Procedural Background Coastal Nejapa, Ltd. (ACoastal Nejapa@) owns 99.5% of the Nejapa Power Company, LLC, which, in turn, owns the Nejapa Power Plant in El Salvador. Coastal Nejapa has two shareholders. Inkia Salvadorian Power, Ltd. (AInkia@) is Coastal Nejapa=s majority shareholder, while Crystal Power is its minority shareholder. On October 15, 2002, Crystal Power filed suit in Brazoria County against Coastal Nejapa for breach of contract and declaratory judgment with regard to shareholder distribution rights and distributions on Coastal Nejapa shares from profits of the Nejapa Power Plant. Crystal Power=s claims involve rights of Coastal Nejapa=s shareholdersCCrystal Power and InkiaCand the division of distributions between them. Crystal Power alleges that Coastal Nejapa was to issue additional shares to Crystal Power on July 8, 2008, but failed to do so.[1] Crystal Power then amended its pleadings to add claims regarding the distributions on those additional shares. At a hearing on November, 7, 2008, the trial court sua sponte suggested the appointment of an auditor to examine the accounts of Coastal Nejapa. Coastal Nejapa objected that the appointment was unnecessary because (1) Crystal Power had already received up-to-date monthly financial statements and audited financial statements, (2) Crystal Power had conducted no discovery with respect to issues related to its most recent petition, and (3) the appointment of an auditor would be a financial burden on Coastal Nejapa. On January 28, 2009, the trial court signed an order (the Afirst auditor order@) appointing Ronald Welsh both master in chancery and auditor under Rules 171 and 172 of the Texas Rules of Civil Procedure, respectively. See Tex. R. Civ. P. 171 (providing for appointment of master in chancery); Tex. R. Civ. P. 172 (providing for appointment of auditor). Coastal Nejapa objected to the first auditor order on the grounds that (1) the trial court appointed a master in chancery, not an auditor; (2) this is not an exceptional case warranting the appointment of a special master; (3) the appointment of an auditor is not necessary for the purpose of justice between the parties; (4) the appointment of an auditor relieves Crystal Power of its burden to prove its entitlement to the relief it seeks; (5) the auditor was improperly granted the authority to investigate nonparties; and (6) the appointment of the auditor creates a financial burden on Coastal Nejapa. Crystal Power, on the other hand, filed a motion requesting that, in light of Coastal Nejapa=s alleged breach of fiduciary duties, the trial court either expand the auditor=s authority to address those issues, or based on the auditor=s report, reconsider the appointment of a receiver for Coastal Nejapa. On February 5, 2009, the trial court held a hearing on Coastal Nejapa=s objections to the appointment and Crystal Power=s motion to expand the auditor=s authority. On February 10, 2009, the trial court signed an amended order (the Aamended auditor order@) appointing an auditor and deleting any reference to a master in chancery or Rule 171, which provides for the appointment of a master.[2] Coastal Nejapa filed a petition for writ of mandamus in this court requesting that we compel the trial court to vacate the amended auditor order. Coastal Nejapa, asserting the same arguments it raised in the trial court, contends that the trial court abused its discretion by entering the amended auditor order.[3] II. Standard of Review To be entitled to the extraordinary relief of a writ of mandamus, a relator must show that the trial court clearly abused its discretion and it has no adequate remedy by appeal. In re Team Rocket, L.P., 256 S.W.3d 257, 259 (Tex. 2008) (orig. proceeding). A trial court clearly abuses its discretion if it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law, or if it clearly fails to correctly analyze or apply the law. In re Cerberus Capital Mgmt., L.P., 164 S.W.3d 379, 382 (Tex. 2005) (orig. proceeding) (per curiam); Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992) (orig. proceeding). To determine if a party has an adequate remedy by appeal, we ask whether Aany benefits to mandamus review are outweighed by the detriments.@ In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 136 (Tex. 2004) (orig. proceeding). An appeal is not an adequate remedy when a party stands to lose a substantial right. Walker, 827 S.W.2d at 842. An order appointing a master in chancery or an auditor may be reviewed in a mandamus proceeding. Simpson v. Canales, 806 S.W.2d 802, 812 (Tex. 1991) (orig. proceeding). The appointment of a master in chancery or an auditor will not be disturbed absent an abuse of discretion. Id. at 811; Villiers v. Republic Fin. Servs., Inc., 602 S.W.2d 566, 571 (Tex. Civ. App.CTexarkana 1980, writ ref=d n.r.e.). III. Amended Order Appointing Auditor The amended auditor order provides as follows: This case involves, among other issues, disputes among the parties with respect to ownership in, and rights to distributions from, the Nejapa Power Plant in El Salvador (the APlant@) through various entities, including, without limitation, Nejapa Holdings, Ltd. (formerly known as Coastal Nejapa, Ltd.). On November 21, 2008[,] this Court entered a temporary injunction concerning part of those distributions. The evidence presented so far in this case shows that there may be serious discrepancies concerning the amount of and entitlement to distributions with respect to the Plant. The Court has announced to the parties that it intends to appoint an auditor to investigate and report on the various accounts between and among the parties with respect to ownership in and distributions from the Plant, Nejapa Holdings, Ltd.[,] and related entities. It appears to the Court that the appointment of an auditor is necessary for the purpose of justice between the parties to the suit. It further appears that because of the nature of the investigation that the auditor will need to conduct, the auditor should be an attorney at law with authority (subject to the notice and hearing requirement below) to retain accountants and other personnel necessary to assist in the investigation. An example of the exceptional nature of the case is that it involves mostly foreign entities, including the non-party entity which is exercising control over Nejapa Holdings, Ltd., the Plant and all distributions therefrom. Further, that entity, through its counsel, has given widely varying accounts of the amount of funds available for distribution to the owners. It is, therefore, ORDERED that Ronald Welsh is appointed Auditor under Rule 172, Texas Rules of Civil Procedure, to investigate and report on the accounts between and among the parties hereto with respect to ownership in and rights to distributions from the Plant, Nejapa Holdings, Ltd. and other related entities which are parties to this litigation during the period beginning September 1, 2006. Because Crystal Power Company has a substantial ownership interest in Nejapa Holdings, Ltd., which is holding funds undisputably belonging to Crystal Power Company, it is further ORDERED that Nejapa Holdings, Ltd. shall initially pay the fees and expenses of the Auditor from time to time as approved by the Court, with final allocation of such fees and expenses to be assessed as court costs when the case is completed. Provided, however, that no fees and expenses will be approved without prior reasonable notice to the parties and the opportunity for a hearing. IV. Analysis Coastal Nejapa argues that although the trial court stated in the amended auditor order that it was appointing an auditor, the trial court actually appointed a master in chancery with authority broader than that of an auditor.[4] Crystal Power, on the other hand, contends that the amended auditor order clearly appoints an auditor pursuant to Rule 172. However, we need not decide whether the trial court appointed a master in chancery or an auditor because, as discussed below, the trial court=s appointment of either in this case would be an abuse of discretion. Rule 171 permits the appointment of a master in chancery only Ain exceptional cases, for good cause.@[5] Simpson, 806 S.W.2d at 811. Unless authorized by statute or consented to by the parties, every referral to a master in chancery must comply with rule 171. Id. at 810. This requirement is not satisfied merely by showing a case is complicated or time-consuming, or that the court is busy. Id. at 811. Rule 172 further permits an Ainvestigation of accounts or examination of vouchers for the purpose of justice between the parties . . .@[6] Tex. R. Civ. P. 172. AThe purpose of the appointment is to have an account so made up that the undisputed items upon either side may be eliminated from the contest, and the issues thereby narrowed to the points actually in dispute.@ Dwyer v. Kaltayer, 68 Tex. 554, 5 S.W. 75, 77 (1887). Coastal Nejapa contends that this is not an exceptional case in which there is good cause to appoint a master in chancery, and the appointment of an auditor is unnecessary to Ajustice between the parties.@ In contrast, Crystal Power argues that the evidence considered by the trial court establishes that Coastal Nejapa has refused to account for shareholder distributions or explain the source of distributions it claims were payable to Crystal Power. In support of this argument, Crystal Power relies on the November 5, 2008 affidavit of Roberto Vilanova, president of Crystal Power, in which he states: I was advised that Nejapa was to payout to Crystal Power $6.2 million relating to Crystal=s shares on July 30, 2008, by the Nejapa Holding Company, Ltd. attorney. . . . I was advised that $4,167,400 relating to Crystals [sic] shares was due to be paid [on] July 31, 2008 by Nejapa=s attorney by e-mail dated July 31, 2008. . . . Coastal Nejapa has refused to account for the distributions payable to Crystal or explain the source of distributions it now claims are payable to Cyrstal. It now has reduced the multi[-]million dollar distribution in Exhibit[s] 2 and 3 to $800,000. Attached to Vilanova=s affidavit are documents identified as three e-mails from Coastal Nejapa=s counsel regarding the funds available for distribution to Crystal Power. In the first email, dated July 24, 2008, counsel stated, APlease note that there is an additional $6.2 million in the pipelines to be paid. My client is looking into how that is to be divided between your clients based on what we agreed.@ In the second email, dated July 30, 2008, counsel further explained, AAs I previously mentioned to you, Nejapa is due to pay out $6.2 million related to Crystal=s shares. Based on the terms of the settlement agreement, this means payment to the Banks in the amount of $5,459,605 and payment to Crystal in the amount of $785,575.@ In the third email, dated July 31, 2008, counsel stated, AAdditionally, please be advised that my client will be distributing today another $4,167,400 related to Crystal Power=s shareholder interest.@ At a hearing on November 6, 2008, Vilanova further testified that Coastal Nejapa did not explain to him the source of the $6.2 million, and he had not received any financial documents that would explain the source of the $6.2 million. The $6.2 million distribution figure was eventually reduced to a total of $803,908 to be divided between Crystal Power and its creditor banks.[7] Crystal Power further contends that the ordinary discovery process has not yielded the most basic information to enable it or the trial court to determine the source of funds available for distribution from Coastal Nejapa. Specifically, Crystal Power asserts that Coastal Nejapa and Inkia have refused to provide responsive documents in discovery. Coastal Nejapa, however, points out that at the time the trial court issued the first auditor order on January 28, 2009, the parties had not engaged in any discovery on the issues subject to the order. And although Crystal Power added claims to its petition in September 2008 related to distributions from Coastal Nejapa shares, Crystal Power did not serve its discovery requests on those issues until January 23, 2009Cfive days before the trial court issued its first auditor order. In that order, the trial courts states that it Aha[d] announced to the parties@ that it intended to appoint an auditor. Therefore, the trial court intended to and did appoint an auditor before relevant discovery responses were due. See Owens-Corning Fiberglas Corp. v. Caldwell, 830 S.W.2d 622, 626 (Tex. App.CHouston [1st Dist.] 1991, orig. proceeding) (concluding that an order giving blanket authority to a master to require a party to produce evidence regardless of whether an opposing party had requested such evidence allowed the master to become an advocate in proceeding, and not merely a referee). Coastal Nejapa objected to Crystal Power=s requests for production on several grounds, and there is nothing in the record to show that Crystal Power sought to compel further responses. Thus, Crystal Power has not shown that it cannot obtain the information it seeks through discovery. See Simpson, 806 S.W.2d at 812 (explaining that absent a showing that the future conduct of discovery will justify supervision by a master rather than the court, Athe parties have simply been ordered to pay by the hour for resolution of the same kinds of issues by a master that litigants in other cases can obtain from the court without such expense@). Moreover, the parties agree that the facts of this case are not inordinately complex. Here, Crystal Power has asserted against Coastal Nejapa only claims for declaratory judgment, breach of contract, and fraud, and of the six defendants, only Coastal Nejapa is directly subject to the amended auditor order. Cf. id. at 811 (holding that a toxic-tort case involving one plaintiff, eighteen defendants, and allegations that chemicals in the defendants= products caused lung cancer was not an exceptional case warranting appointment of a master). Furthermore, the mere presence of Aforeign entities@ and a Anon-party@ parent company that exercises control over a related entity is not so unusual as to necessitate the appointment of a master in chancery or an auditor.[8] V. Conclusion In light of the availability of discovery and the relatively straightforward nature of the claims, we hold that this is not an Aexceptional case@ in which the appointment of a master in chancery is appropriate or the appointment of an auditor is Anecessary for the purpose of justice between the parties.@ We therefore conclude that the trial court abused its discretion by appointing a master in chancery or an auditor and that Coastal Nejapa does not have an adequate remedy by appeal. See id. at 812 (holding that to require parties to reserve for appeal their complaint regarding the erroneous appointment of a master in chancery would be to deny any effective relief from the trial court=s order). Thus, we conditionally grant the petition for a writ of mandamus and direct the trial court to vacate its February 10, 2009 amended order appointing an auditor. The writ will issue only if the trial court fails to act in accordance with this opinion. /s/ Eva M. Guzman Justice Panel consists of Justices Anderson, Seymore, and Guzman. [1] Certain Coastal Nejapa shares owned by Crystal Power are encumbered by collateral agreements with Banco Agricola, Banco Salvadoreno, and Banco G&T Continental El Salvador S.A. (the AEl Salvador Banks@). Those collateral agreements require Coastal Nejapa to pay Crystal Power=s portion of the Coastal Nejapa distributions to the El Salvador Banks. The additional shares were not encumbered by the collateral agreements. [2] Tex. R. Civ. P. 171. [3] Coastal Nejapa also asserts that the trial court abused its discretion by appointing an auditor because it requires an investigation of distribution matters that are the subject of an interpleader action in New York. However, the New York interpleader action has settled. Therefore, this contention is moot and we need not address it. [4] See Furrh v. Furrh, 251 S.W.2d 927, 932 (Tex. Civ. App.CTexarkana 1952, writ ref=d n.r.e.) (A[The] above quoted directive of his authority did not authorize [the auditor] to assume the powers of a master in chancery as enumerated in Rule 171, T.R.C.P.@). [5] Rule 171 provides, in relevant part: The court may, in exceptional cases, for good cause appoint a master in chancery, . . . who shall perform all of the duties required of him by the court, and shall be under orders of the court, and have such power as the master in chancery has in a court of equity. Tex. R. Civ. P. 171. [6] Rule 172 provides, in relevant part, that A[w]hen an investigation of accounts or examination of vouchers appears necessary for the purpose of justice between the parties to any suit, the court shall appoint an auditor or auditors to state the accounts between the parties and to make report thereof to the court as soon as possible.@ Tex. R. Civ. P. 172. [7] In a November 10, 2008 letter to the trial judge presiding over a New York action involving the division of distributions on Coastal Nejapa shares between Crystal Power and its creditor banks, the trial court stated that Athe large discrepancy [between these two figures] troubles me.@ [8] Because we conclude that the circumstances of this case do not warrant the appointment of a master in chancery or an auditor, we need not address Coastal Nejapa=s contentions that the appointment of the auditor relieves Crystal Power of its burden to prove its entitlement to the relief it seeks, the auditor was improperly granted the authority to investigate nonparties, or the appointment of the auditor imposes a financial hardship on Coastal Nejapa.