Receiver Ships

RECEIVERSHIPS IN FAMILY LAW CASES

JOHN T. ECK LAW OFFICES OF ROBERT T. STITES, P.C.

933 West Weatherford Street Fort Worth, Texas 76102

(817) 336-7577 Facsimile (817) 336-7583

3RD ANNUAL FAMILY LAW ON THE FRONT LINES CONFERENCE March 27-28, 2003

Austin, Texas

JOHN T. ECK LAW OFFICES OF ROBERT T. STITES, P.C.

933 West Weatherford Street Fort Worth, Texas 76102

(817) 336-7577 Facsimile (817) 336-7583

EDUCATION

University of Oklahoma College of Law, Norman, Oklahoma Doctor of Jurisprudence, 1994 Southern Methodist University, Dallas, Texas Bachelor of Science, Economics, 1991 Bachelor of Arts, Political Science with Departmental Distinction, 1991

PROFESSIONAL LICENSES

State of Texas, 1995 Northern District of Texas, 1997 Fifth Circuit Court of Appeals, 1999

MEMBERSHIPS AND APPOINTMENTS

State Bar of Texas Tarrant County Bar Association Tarrant County Family Law Bar Association Fort Worth-Tarrant County Young Lawyers Association College of the State Bar of Texas Advisory Committee for the 233rd District Court Managing Editor, American Indian Law Review

CLE ACTIVITIES AND PUBLICATIONS

Eliminating Indian Stereotypes From American Society: Causes and Legal and Societal Solutions (co-authored with Kim Chandler Johnson), American Indian Law Review, Volume 20:1, p.65 (1995-96). Alternative Enforcement Remedies, Texas Association of Domestic Relations Offices, 15th Annual Conference, October 1999. Unusual Uses of QDRO: Using the QDRO to Collect Child Support and Spousal Maintenance, 25th Annual Marriage Dissolution Institute, May 2002


TABLE OF CONTENTS I. INTRODUCTION AND SCOPE............................................................................................1 II. POWER TO APPOINT A RECEIVER.................................................................................1 A. Texas Family Code.............................................................................................................1 B. Predicate for a Receivership in a Pending Divorce Case ...............................................2 1. Cases Not Requiring a Predicate....................................................................................2 2. Cases Requiring a Predicate...........................................................................................2 3. Alter Ego Problems ........................................................................................................3 C. Texas Civil Practice and Remedies Code.........................................................................3 1. The General Receivership Statute..................................................................................3 2. The Turnover Statute......................................................................................................4 III. DO YOU REALLY NEED A RECEIVERSHIP?.................................................................4 A. Costs and Benefits of Receivership...................................................................................5 B. Selling the “House of Horrors”.........................................................................................5 C. Running the Business.........................................................................................................5 D. I Don’t Like the Receiver ..................................................................................................5 IV. THE MECHANICS OF THE REQUEST .............................................................................6 A. The Application Process--Spouse .....................................................................................6 B. The Application Process--Third Parties ..........................................................................6 C. Sua Sponte Receiverships ..................................................................................................6 D. Notice of Receiverships ......................................................................................................7 1. General Notice Requirements ........................................................................................7 2. Ex Parte Applications ....................................................................................................7 E. Applicant’s Bond................................................................................................................8 F. Qualifications of Receiver .................................................................................................8 G. Helping the receiver Sell the Home ..................................................................................9 V. POWERS AND DUTIES OF THE RECEIVER.................................................................10 A. Receiver’s Oath ................................................................................................................10 B. Receiver’s Bond................................................................................................................10 C. Notice Requirements and Lis Pendens ...........................................................................10 D. Legal Status of Property--Custodia Legis.......................................................................10 E. Inventory...........................................................................................................................11 F. Activities............................................................................................................................11 1. In General.....................................................................................................................11 2. Administration Tips .....................................................................................................12 3. Taking Possession of Property .....................................................................................12 4. Selling Homestead Property.........................................................................................13 5. Final Report and Discharge..........................................................................................14 G. Priority and Application of Funds..................................................................................15 H. Compensating the Receiver.............................................................................................15 1. Priority and Court Costs...............................................................................................15

i


ii

2. No Jury Trial ................................................................................................................16 3. Basis of Calculation .....................................................................................................16 4. Interim Payments .........................................................................................................16 5. Payments for Attorney’s Fees ......................................................................................16 6. Allocating Costs ...........................................................................................................17 VI. CHALLENGING THE APPOINTMENT OF A RECEIVER ..........................................18 A. Immunity and Irregularities of Receiver’s Actions ......................................................18 B. Jury Trial ..........................................................................................................................19 C. Motion to Vacate the Receivership.................................................................................19 D. Appeal of the Appointment or Denial of a Receivership ..............................................20 E. Appeal of the Other Receivership Matters ....................................................................20 F. Mandamus ........................................................................................................................20 VII. CREDITOR’S RELIEF ......................................................................................................21 A. Turnover Relief ................................................................................................................21 B. Use of Turnover Relief in Family Law Cases ................................................................21 C. Cumulative Remedy.........................................................................................................22 D. Application Process..........................................................................................................22 E. Parties Subject to Turnover Order ................................................................................23 F. Burden of Proof ................................................................................................................24 1. Discretion of Court.......................................................................................................24 2. Who Has the Burden of Proof? ....................................................................................25 3. Affirmative Defenses ...................................................................................................25 G. Property Subject to Turnover.........................................................................................25 1. Property Affected by Turnover Relief .........................................................................25 2. Conditions and Exceptions on the Property Affected by Turnover Relief ..................26 H. Judicial Aid .......................................................................................................................29 I. Attorney’s Fees and Costs ...............................................................................................29 J. Enforcement .....................................................................................................................30 K. Appellate Review..............................................................................................................30 VIII. BANKRUPTCY..................................................................................................................31 IX. SUMMARY AND CONCLUSION ......................................................................................32 APPENDIX A (Texas Family Code Section 6.502) ...................................................................33 APPENDIX B (Texas Family Code Section 6.709) ...................................................................34 APPENDIX C (Texas Civil Practice and Remedies Code Section 64.001) .............................35 APPENDIX D (Texas Civil Practice and Remedies Code Section 31.002) .............................36 APPENDIX E (Texas Property Code Section 42.001) ..............................................................37 APPENDIX F (Texas Property Code Section 42.002) ..............................................................38 APPENDIX G (Texas Property Code Section 42.0021) ...........................................................39


RECEIVERSHIPS IN FAMILY LAW CASES I. INTRODUCTION AND SCOPE A receivership is primarily a remedy of commercial law. However, receiverships have uses in family law cases. The family law practitioner who selects a receivership as a remedy should BE CAREFUL. Texas courts generally consider receiverships an exceedingly harsh remedy that should be available only in exceptional circumstances. Jones v. Strayhorn, 159 Tex. 421, 321 S.W.2d 290, 294 (1959) (a receivership is one of the “harshest remedies available to the law”); Rex Refining Co., Inc. v. Morris, 72 S.W.2d 687, 692 (Tex. Civ. App.--Dallas 1934, no writ) (a receivership “discredits, cripples, and, in a majority of instances puts an end to any business or enterprise....”). Consequently, courts generally view receiverships with disfavor and prefer milder remedies when available. Independent Am. Sav. Ass’n v. Preston 117 Joint Venture, 753 S.W.2d 749, 750 (Tex. App.--Dallas 1988, no writ); Mallou v. Payne & Vendig, 750 S.W.2d 251, 255 (Tex. App.--Dallas 1988, writ denied). Further, receivership law is often very technical and confusing. Therefore, the purpose of this article is to give the family law practitioner who needs a receivership an overview of receivership law in Texas, focusing on the common uses, considerations, and problems associated with this remedy in the family law case. The author would like to thank Barbara K. Runge and would recommend her article “Who’s Minding the Store?” Dealing with Receiverships (with G. Scott Williams and Deborah C.S. Folse), from the 2001 Advanced Family Law Course. II. POWER TO APPOINT A RECEIVER

A. Texas Family Code

The Texas Family Code, provides for the use of receiverships “for the preservation and protection of the property of the parties” while the divorce is pending. See TEX. FAM. CODE § 6.502(5). See Appendix A. It also provides the same protection while an appeal of the divorce is pending. See id. § 6.709(a)(3). See Appendix B.

Further, the Texas Family Code authorizes a court to render further orders (including

clarifying orders) to enforce the division of marital property made in a decree or annulment. See id. §§ 9.006-9.009; Young v. Young, 765 S.W.2d 440, 444 (Tex. App.--Dallas 1988, no writ) (use of receiverships authorized). However, “[a]n order to enforce the division is limited to an order to assist in the implementation of or to clarify the prior order and may not alter or change the substantive division of the property.” TEX. FAM. CODE § 9.007(a). See Young, 765 S.W.2d at 444; Sloan v. Sloan, 474 S.W.2d 272, 275 (Tex. Civ. App.--Waco 1971, no writ); Elliott v. Elliott, 422 S.W.2d 757, 758-59 (Tex. Civ. App.--Fort Worth 1968, writ dism’d). An order that “amends, modifies, alters or changes the actual, substantive division of property made or approved in a final divorce decree” is unenforceable and beyond the court’s power. Elliott, 422 S.W.2d at 758-59; McDowell v. McDowell, 705 S.W.2d 345, 347 (Tex. App.--Dallas 1986, no writ) (appointment of a receiver to enforce a property division, when the appointment changed the time at which the property would be sold, is unenforceable as a modification).

1


B. Predicate for a Receivership in a Pending Divorce Case

There is a conflict of authority as to what circumstances justify the appointment of a receiver under the Texas Family Code. The general receivership statute in the Texas Civil Practice and Remedies Code provides that the court may only appoint a receiver if the property is in danger of being lost and if a less drastic remedy is not available. TEX. CIV. PRAC. & REM. CODE § 64.001(a); Appendix C; Texas Consol. Oils v. Hartwell, 240 S.W.2d 324, 327 (Tex. Civ. App.--Dallas 1951, no writ). The Texas Family Code does not contain an equivalent predicate provision.

1. Cases Not Requiring a Predicate

Some Texas courts hold that the Texas Family Code allows the court to exercise

broad discretion to appoint a receiver in a divorce action, regardless of whether the property is in danger of being lost. This authority is derived from section 7.001 of the Texas Family Code. See, e.g., Vannerson v. Vannerson, 857 S.W.2d 659, 673 (Tex. App.--Houston [1st Dist.] 1993, writ denied) (the broad authority of the Texas Family Code includes the power to enlist the aid of a receiver to effectuate the trial court’s orders and judgments); Young, 765 S.W.2d at 444 (the Texas Family Code controls property division in a divorce, thus the Texas Civil Practice and Remedies Code requirements are irrelevant); Sparr v. Sparr, 596 S.W.2d 164, 165 (Tex. Civ. App.--Texarkana 1980, no writ) (no evidence of threat to property); Jones v. Jones, 211 S.W.2d 269, 274 (Tex. Civ. App.--El Paso 1944, no writ) (same). See also Estate of Herring, 983 S.W.2d 61, 65 (Tex. App.--Corpus Christi, 1998, no writ) (citing O & G Carriers, Inc. v. Smith Energy 1986-A Partnership, 826 S.W.2d 703, 706 (Tex. App.--Houston [1st Dist.] 1992, no writ)); Cross v. Cross, 738 S.W.2d 86, 89 (Tex. App.--Corpus Christi 1987, writ dism’d w.o.j.); B & W Cattle Co. v. First Nat’l Bank, 692 S.W.2d 946, 951 (Tex. App.--Amarillo 1985, no writ).

2. Cases Requiring a Predicate

Despite the lack of a predicate requirement in the Texas Family Code, most courts

require some showing that the property of the divorcing spouses is in danger and that a less drastic remedy is unavailable before a receiver is appointed. See, e.g., Readhimer v. Readhimer, 728 S.W.2d 872, 873 (Tex. App.--Houston [1st Dist.] 1987, no writ); Whitehill v. Whitehill, 628 S.W.2d 148, 151 (Tex. App.--Houston [14th Dist.] 1982, no writ); Parness v. Parness, 560 S.W.2d 181, 182 (Tex. Civ. App.--Dallas 1977, no writ). See also Joy v. Joy, 153 S.W.2d 180, 183 (Tex. Civ. App.--Dallas 1941, writ dism’d) (a pre-judgment receivership is never an end within itself, but merely incident to the case, and whether an application for appointment of a receiver is based on statute or equity, appointment is only justified when it is necessary to preserve and protect the subject property while the case is pending).

The Readhimer court specifically disagreed with cases allowing courts to have

broad discretion in choosing whether to appoint a receiver in divorce actions. Readhimer, 728 S.W.2d at 873. The Readhimer court held that there should be some evidence and a

2


record demonstrating the options that the court could or did consider. Failure to make an adequate record has been found to be an abuse of discretion. Id. See also Rusk v. Rusk, 5 S.W.3d 299, 307 (Tex. App--Houston [14th Dist.] 1999, no writ). The Rusk court acknowledged the broad discretion provided in cases like Vannerson and Young. However, the Rusk court noted that the broad discretion in the Texas Family Code, relates to marital property held or claimed by the spouses and does not extend to the constitutionally protected class of separate property, nor to the appointment of receivers over such property. See TEX. FAM. CODE § 7.001. See also TEX. CONST. art. XVI, § 15; Johnson v. Johnson, 804 S.W.2d 296, 299 (Tex. App.--Houston [1st Dist.] 1991, no writ). Therefore, in cases where there is an issue of characterization, the better practice would be for courts to adhere to the provisions of section 64.001 of the Civil Practice and Remedies Code. Rusk, 5 S.W.3d at 307-08. The Texas Supreme Court has held that in making a just and right division, the court should first decide whether the community estate is subject to partition in kind. In re Marriage of Edwards, 79 S.W.3d 88, 96 (Tex. App.--Texarkana 2002, no writ) (citing Hailey v. Hailey, 160 Tex. 372, 331 S.W.2d 299, 303 (1960)). In determining if property is subject to partition in kind, the trial court should consider the nature and type of property involved and the relative conditions, circumstances, capabilities, and experience of the parties. Edwards, 79 S.W.3d at 96 (citing Walston v. Walston, 971 S.W.2d 687, 693 (Tex. App.--Waco 1998, pet. denied). If the property is subject to partition in kind, the court should make an equitable division of the community estate. Edwards, 79 S.W.3d at 96 (citing Walston, 971 S.W.2d at 692). If it is not, the court may appoint a receiver and order so much of the property as is incapable of partition to be sold and the proceeds divided between the parties in what the court views as a just and fair distribution. Edwards, 79 S.W.3d at 96 (citing Walston, 971 S.W.2d at 692). 3. Alter Ego Problems

A court may not appoint a receiver pursuant to the Texas Family Code, over a corporation, unless the corporation is an alter ego of one of the parties. Couch Mortgage Co. v. Hughes, 536 S.W.2d 70, 72 (Tex. Civ. App.--Houston [1st Dist.] 1976, no writ). An application for a receiver over a third party corporation must meet the requirements of section 64.001 of the Civil Practice and Remedies Code. Harmon v. Schoepple, 730 S.W.2d 376, 381 (Tex. App.--Houston [14th Dist.] 1987, no writ).

Despite the lack of a predicate requirement, a careful attorney who wants a receivership will need to be prepared to plead and show that the property at issue is in immediate danger and a less drastic remedy is unavailable.

C. Texas Civil Practice and Remedies Code

1. The General Receivership Statute

When a court enters a receivership order in a divorce proceeding, directing the order at a third party, the Texas Civil Practices and Remedies Code will apply. Harmon,

3


730 S.W.2d at 381. Section 64.001 provides for the appointment of a receiver:

a. in an action by a vendor to vacate a fraudulent purchase of property (TEX. CIV. PRAC. & REM. CODE § 64.001(a)(1));

b. in an action by a creditor to subject any property or fund to its claim (Id. §

64.001(a)(2)); c. in an action between partners or others jointly owning or interested in any

property or fund (Id. § 64.001(a)(3));

d. in an action by a mortgagee for the foreclosure of the mortgage and sale of the mortgaged property (Id. § 64.001(a)(4));

e. for a corporation that is insolvent, is in imminent danger of insolvency, has been

dissolved, or has forfeited its corporate rights (Id. § 64.001(a)(5)); or

f. in any other case in which a receiver may be appointed under the rules of equity (Id. § 64.001(a)(6)).

See Appendix C. Additionally, the statute requires that in sections 64.001(a)-(d), the party must have a probable right or interest in the property and the property must be “in danger of being lost, removed, or materially injured.” Id. § 64.001(b), (c)(1).

2. The Turnover Statute

A judgment creditor is entitled to aid from a court of appropriate jurisdiction

through injunction or other means in order to reach property to obtain satisfaction on the judgment if the judgment debtor owns property, including present or future rights to property, that cannot readily be attached or levied on by ordinary legal process and is not exempt from attachment, execution, or seizure for the satisfaction of liabilities. TEX. CIV. PRAC. & REM. CODE § 31.002(a). The Court may appoint a receiver with the authority to take possession of the nonexempt property, sell it, and pay the proceeds to the judgment creditor to the extent required to satisfy the judgment. Id. § 31.002(b)(3).

Turnover is a common remedy in post-divorce actions. See First City Nat’l Bank

of Beaumont v. Phelan, 718 S.W.2d 402, 405 (Tex. App.--Beaumont 1986, writ ref’d n.r.e.); Perkins v. Perkins, 690 S.W.2d 706, 708-09 (Tex. App.--El Paso 1985, writ ref’d n.r.e.). However, although the judgment creditor may ask for relief under the turnover, the court retains discretion over whether or not to grant the requested relief. Anderson v. Lykes, 761 S.W.2d 831, 834 (Tex. App.--Dallas 1988, no writ); Barlow v. Lane, 745 S.W.2d 451, 454 (Tex. App.--Waco 1988, writ denied). See infra § VIII.

III. DO YOU REALLY NEED A RECEIVERSHIP?

Even if there is a sufficient predicate for a receivership, it does not always make sense to

4


pursue a receivership. In a divorce case, the common subjects of receivership can include the homestead, commercial property and businesses, and personalty. However, a common scenario in a divorce case involves the client who advises the home mortgage has not been paid in months and foreclosure is imminent. The common reaction is to immediately request the appointment of a receiver for the property. However, before a hasty trip to the courthouse with your motion, consider the following:

A. Costs and Benefits of Receivership

In the scenario described above, it is important to know what the home is worth.

Will the costs of receivership exceed the net proceeds from the sale of the home? Common costs involved in the sale of the home can include the receiver’s fees, the realtor’s fees and/or commissions, attorney’s fees. Costs of receivership can also include insurance, taxes, repairs, and maintenance. Add the missed note payments and it is easy to see that if the equity in the home is small, there is little benefit of a receivership.

A calculation of the value of the home is not always easy. A spouse may not

always know the current balance of the note. Even if this is known, spouses may still dispute the selling price. A market analysis is a quick and cheap way to ascertain the home’s value compared to other homes of comparable value in the area. However, a market analysis does not consider the specific condition of the home. If condition is an issue, then an appraisal may be necessary. An appraisal may be more accurate, but it will be more expensive and time consuming. B. Selling the “House of Horrors”

The home’s “history” often results in the home selling for less than a comparable

property with no legal problems. The home may be in disrepair or damaged from the parties’ last fight, party, drug lab, etc. Rooms may be partially or fully emptied of contents as a result of a party moving out. As a result, the home is less attractive to potential buyers. The sale price may have to be lowered to rebate the cost of repairs or poor aesthetics. Further, prospective buyers are often unwilling to endure the delays, clouds on title, court hearings, and court approval of sale, unless the house is sold for drastically less than market value.

C. Running the Business

Can a receiver run the business on a day-to-day basis? Does it make sense to exclude the party running the business? What if the party has special knowledge that cannot be taught to the receiver? In many cases the receiver acts as in a supervisory position, allowing the party to continue to operate the business. The receiver reviews the records of the business for accuracy and irregularities. The receiver may then have to contend with an uncooperative operating party who may attempt to scuttle the business.

D. I Don’t Like the Receiver

A receiver can be the neutral agent the parties need to facilitate the sale of

5


property. However, if an agreement is reached to appoint a receiver, the appointment shall not be set aside if one of the parties becomes unsatisfied with the receivership or the receiver unless there is evidence of accident, fraud, mistake, collusion or a change of conditions. Logan v. Mauk, 126 S.W.2d 513, 515 (Tex. Civ. App.--Amarillo 1939, writ dism’d).

IV. THE MECHANICS OF THE REQUEST

A. The Application Process--Spouses

In a divorce action, file an application with the court requesting the appointment of a

receiver to “preserve and protect the marital property.” At the hearing, first, establish the legal or equitable right to the property in controversy. Pelton v. First Nat’l Bank of Angleton, 400 S.W.2d 398, 401 (Tex. Civ. App.--Houston 1966, no writ). Second, prove the proper predicate. See supra § II.B. The burden of establishing the right to a receivership is by a preponderance of the evidence. H & R Oils v. Pioneer Am. Ins., 541 S.W.2d 665, 668-69 (Tex. Civ. App.--Fort Worth 1976, no writ). Bring a proposed order and include provisions that allow the receiver to request additional orders as may be necessary to effectuate the receivership.

In a non-divorce case or post-divorce petition for enforcement, the application should

first state one or more causes of action within the jurisdiction of the court and then allege facts which would entitle the applicant to relief. Associated Bankers Credit Co. v. Meis, 456 S.W.2d 744, 749 (Tex. Civ. App.--Corpus Christi 1970, no writ). Generally, the application must show the necessity for the appointment, the probability of ultimate recovery by the applicant, and accurately describe the property to be placed in the control of the receiver. Id.

B. The Application Process--Third Parties

Often a third party creditor, paramour, business associate, etc., will want to intervene

in a pending divorce case to protect a property right or get permission from the court to take action on its debt. First S. Prop. Inc. v. Vallone, 533 S.W.2d 339, 341 (Tex. 1976). A third party cannot rely on the Texas Family Code for relief. Instead, a third party must comply with the predicate set forth in section 64.001 of the Texas Civil Practice and Remedies Code. Parr v. First State Bank of San Diego, 507 S.W.2d 579, 583 (Tex. Civ. App.--San Antonio 1974, no writ). The Texas Family Code indicates that the receivership provisions under section 6.502(5) are limited to orders directed to one or both “parties”, which has been interpreted to mean “spouses.” Mussina v. Morton, 657 S.W.2d 871, 874 (Tex. App.--Houston [1st Dist.] 1983, no writ). See also Mallou, 750 S.W.2d at 254; Commonwealth Mortgage Corp. v. Wadkins, 709 S.W.2d 679, 680 (Tex. App.--Houston [14th Dist.] 1985, no writ).

C. Sua Sponte Receivership

A trial court may, on its own motion, appoint a receiver without the application by any party if the facts justify the appointment of a receiver to preserve or protect property or

6


funds in litigation. Cross v. Cross, 738 S.W.2d 86, 87-88 (Tex. App.--Houston [1st Dist.] 1987, writ dism’d). See also B & W Cattle, 692 S.W.2d at 949. O & G Carriers, 826 S.W.2d at 707 n.2 (a written application is not always necessary to validate the appointment of a receiver). See also Sampson v. Scott, 318 S.W.2d 22, 25 (Tex. Civ. App.--Fort Worth 1958, writ ref’d n.r.e.) (the trial court, in ruling on an unsworn application for a receivership, could consider evidence previously heard in the trial on the merits).

D. Notice of Receivership 1. General Notice Requirements

The Texas Rules of Civil Procedure require notice to adverse parties prior to a hearing concerning a receivership of realty:

When an application for appointment of a receiver to take

possession of property of this type [fixed and immovable property] is filed, the judge or court shall set the same down for hearing and notice of such hearing shall be given to the adverse party by serving notice thereof not less than three days prior to such hearing....

TEX. R. CIV. P. 695. Such notice can only be given after the adverse party has been served with citation or made an appearance in the lawsuit. Gray v. PHI Resources, Ltd., 710 S.W.2d 566, 567 (Tex. 1986), on remand, Robbins v. PHI Resources, Ltd., 717 S.W.2d 737 (Tex. App.--Eastland 1986, writ ref d n.r.e.). Courts consider the lienholder on the realty to be an adverse party. Independent Am. Sav., 753 S.W.2d at 750. A failure to give notice makes the receivership voidable. See Hawkins v. Twin Montana, Inc., 810 S.W.2d 441, 446 (Tex. App.--Fort Worth 1991, no writ); Helton v. Kimbell, 621 S.W.2d 675, 678 (Tex. App.--Fort Worth 1981, no writ); Johnson v. Barnwell Prod. Co., 391 S.W.2d 776, 785 (Tex. Civ. App.--Texarkana 1965, writ ref’d n.r.e.).

2. Notice Required by Texas Family Code

The Texas Family Code requires notice only to the parties prior to the issuance of

an order for receivership. See TEX. FAM. CODE §§ 6.502, 6.709. See supra § IV.B. By inference, section 6.502(b) only requires notice after the appointment of the receiver. Therefore, it is unclear whether the lienholder must be given notice under the Texas Family Code. But see North Side Bank v. Wachendorfer, 585 S.W.2d 789, 792 (Tex. Civ. App.--Houston [1st Dist.] 1979, no writ) (order appointing a receiver reversed on the grounds that no notice had been given to the lienholder); Couch Mortgage, 544 S.W.2d at 946 (whether the lienholder received notice was irrelevant).

3. Ex Parte Applications

Trial courts have discretion to appoint receivers ex parte. North Side Bank, 585

S.W.2d at 791; Associated Bankers, 456 S.W.2d at 750; Johnson v. Williams, 109 S.W.2d 213, 214 (Tex. Civ. App.--Dallas 1937, no writ). Such a request should be shown

7


by verified allegations of specific facts, as distinguished from conclusions, that affirmatively and clearly show an emergency situation that warrants immediate appointment. Morris v. North Fort Worth State Bank, 300 S.W.2d 314, 315 (Tex. Civ. App.--Fort Worth 1957, no writ).

E. Applicant’s Bond

The party asking the court to appoint a receiver must post a “good and sufficient”

bond with the court payable to the adverse party, to cover such party’s costs and damages in the event that the receivership is subsequently determined to be wrongfully appointed. TEX. R. CIV. P. 695a. Filing of the applicant’s bond is a condition precedent to the right of the receiver to function as such. King Land & Cattle Corp. v. Fikes, 414 S.W.2d 525, 525 (Tex. Civ. App.--Fort Worth 1967, no writ). Accordingly, the trial court is not authorized to appoint a receiver in the absence of an applicant’s bond filed in compliance with Rule 695a, and non-compliance requires reversal of the order appointing the receiver. Rubin v. Gilmore, 561 S.W.2d 231, 234 (Tex. Civ. App.--Houston [1st Dist.] 1977, no writ).

In a divorce case, the court at its discretion “may dispense with the necessity of a

bond.” TEX. R. CIV. P. 695a. See Gunther v. Gunther, 283 S.W.2d 826, 827 (Tex. Civ. App.--Dallas 1955, writ dism’d); Lotz v. Lotz, 185 S.W.2d 481, 484 (Tex. Civ. App.--Galveston 1945, no writ). However, if the receivership affects third parties, the failure to post a bond may make the receivership reversible. Bell v. Bell, 204 S.W.2d 527, 528 (Tex. Civ. App.--San Antonio 1947, no writ).

F. Qualifications of Receiver

A receiver is a non-party and disinterested in the outcome of the case, appointed by the court to receive and preserve the property or fund in litigation pendente lite. TEX. CIV. PRAC. & REM. CODE § 64.021(b); Wiley v. Sclafani, 943 S.W.2d 107, 110 (Tex. App.--Houston [1st Dist.] 1997, no writ); Chemical Eng’g Serv., Inc. v. Tomlinson, 750 S.W.2d 375 (Tex. App.--Beaumont 1988, no writ); Whitson Co. v. Bluff Creek Oil Co., 256 S.W.2d 1012, 1014 (Tex. Civ. App.--Fort Worth, 1953, writ dism’d). A receiver is an “officer of the court” and all favorable presumptions must be indulged as to the rectitude of his or her official conduct. DeWitt v. Republic Nat’l Bank of Texas, 168 S.W.2d 710, 716 (Tex. Civ. App.-Dallas 1943, writ ref’d w.o.m.). A receiver may not be a party. Harmon, 730 S.W.2d at 381. The receiver is not appointed for the benefit of the applicant but “to receive and preserve the property for the benefit of all parties interested therein.” Sloan, 474 S.W.2d at 275; Abilene Sav. Ass’n v. Roderick, 418 S.W.2d 695, 696 (Tex. Civ. App.--Eastland 1967, no writ). The receiver must be both a Texas resident and qualified voter. TEX. CIV. PRAC. &

REM. CODE § 64.021(a); Pena v. Sell, 760 S.W.2d 811, 812 (Tex. App.--Amarillo 1988, no writ). Residency must be maintained during the pendency of receivership. TEX. CIV. PRAC. &

REM. CODE § 64.021(c). If these qualifications are not met, the receivership is void as to property in Texas. Id.

8


The receiver does not have to be a licensed professional. Such a person is preferred because of the professional’s expertise and potential cost savings. It is also a good idea to inquire as to whether the court has a pre-approved list of receivers. G. Helping the Receiver Sell the Home

1. Notify the receiver in writing of the appointment. It is not the responsibility of the

court to notify the receiver of the appointment. Give the receiver information on the case such as the cause number, style of the case, party names and attorney contact information. Include a copy of the application and a certified copy of the order appointing the receiver. It is also a good idea to provide copies of the relevant live pleadings, temporary orders, final orders, etc.

2. An outline or summary of the facts of the case. It allows you to tell your client’s side

of the case.

3. While the order may identify the property subject to receivership, provide the receiver copies of all deed, loan and mortgage documents. A copy of the inventory and appraisement is also helpful for the receiver to understand what the parties believe the property is worth.

4. Advise the receiver as to who is in possession of the property and whether there

will be problems securing possession of the property. 5. Keep the receiver informed. Treat the receiver like a party. Provide the receiver with

all subsequent pleadings, motion and notices, irrespective of whether they specifically refer to the receivership property.

6. Provide the receiver with the name of the mortgage company, address, phone and

facsimile numbers, loan number, name of the loan officer, and the status of the loan. 7. Advise the receiver if there is an insurance policy and provide a copy of it. 8. Advise the receiver of taxes owed and delinquent obligations. 9. Keep in contact with the receiver. Check on the receiver’s progress and offer help, if

possible.

10. Advise the receiver as to the status and details of attempted sales of the property and any pending foreclosure action. Identify how long the property has been listed, who it is listed with, what the asking price is, whether there have been any price reductions, whether any offers have been made, and what amount must be realized from the sale.

9


V. POWERS AND DUTIES OF THE RECEIVER

A. Receiver’s Oath

“Before a person assumes the duties of a receiver, he must be sworn to perform the duties faithfully.” TEX. CIV. PRAC. & REM. CODE § 64.022. Generally, the oath is prepared and filed with the court. An order approving the oath is optional, but recommended.

B. Receiver’s Bond

The receiver is also required to execute a bond in an amount fixed and approved

by the appointing court, “conditioned on faithful discharge” of their duty. Id. § 64.023. However, the receiver in a divorce case is not in all cases required to post bond. TEX. R. CIV. P. 695a. See Poston v. Poston, 572 S.W.2d 800, 804 (Tex. Civ. App--Houston [14th Dist.] 1978, no writ). When the receivership affects third parties, a failure of the court to set the bond and the receiver’s failure to post the bond may make the receivership reversible. King Land, 414 S.W.2d at 525; O’Connor v. O’Connor, 320 S.W.2d 384, 391 (Tex. Civ. App.--Dallas 1959, writ dism’d); Bell, 204 S.W.2d at 528. C. Notice Requirements and Lis Pendens

Not later than the 30th day after the date a receiver is appointed, the receiver

should give notice of the appointment to each lienholder of any property under the receiver’s control. TEX. FAM. CODE § 6.502(b). Although the notice applies to family law receiverships in a pending divorce action, the receiver should notify all interested third parties of the appointment.

In the case of a receivership over real property, it may also be necessary to file a Notice of Lis Pendens reflecting the appointment. A Notice of Lis Pendens needs to reference the case and insert the full legal description of the property. It also needs to be filed with the County Clerk where the property is located.

A Notice of Lis Pendens is not absolutely necessary, but it may be a good idea to avoid potential miscommunications and added expense to undue a foreclosure. “No one has the authority, even under a prior deed of trust or execution, to sell property held in custodia legis by a duly appointed receiver, unless the sale is authorized by the court in which the receivership is pending.” First S., 533 S.W.2d at 341 (foreclosure sale set aside against bona fide purchaser). The lien is not extinguished, but the enforcement of the lien is suspended until enforcement is approved by the court having custody. American Bank/West Side v. Haven, 728 S.W.2d 102, 104 (Tex. Civ. App.--Fort Worth 1987, no writ).

D. Legal Status of Property--Custodia Legis

Whenever a court of competent jurisdiction has appointed a receiver for a corporation or for an individual or co-partnership, the jurisdiction of that court attaches to the property of such corporation, person, or firm, although the receiver has not qualified, or taken possession of the property. Huffmeyer v. Mann, 49 S.W.3d 554, 559-60 (Tex. App.--Corpus Christi 2001,

10


no pet.), citing Riesner v. Gulf, C & S.F. Ry. Co., 89 Tex. 656, 36 S.W. 53, 54 (Tex.1896) See also Cline v. Cline, 323 S.W.2d 276, 282 (Tex. Civ. App.--Houston [1st Dist.] 1959, writ ref’d n.r.e.). The appointment of the receiver relates back to the presentation of the application to the judge and his recognition of the same by setting it down for hearing. Huffmeyer, 49 S.W.3d at 560, citing Baylor Univ. v. Chester Sav. Bank, 82 S.W.2d 738, 744 (Tex. Civ. App.--Waco 1935, writ ref’d). When a trial judge says he has determined that he will investigate the matter and appoint a receiver at some future date, the property is thereafter considered in the custody of the law, and is not liable to the possession or jurisdiction of any other court. Huffmeyer, 49 S.W.3d at 560, citing La Rue Holding Co. v. Essex, 45 S.W.2d 319, 320 (Tex. App.--Fort Worth 1931, no writ).

Receivers have no greater right to the property than the right of the property’s owner at the time the receiver was appointed. In re Renfro, 115 Tex. 82, 273 S.W. 813, 814 (1925). Consequently, the receiver does not have the power to take possession of property if a stranger to the litigation has possession of the property. Ex parte Britton, 127 Tex. 85, 92 S.W.2d 224, 226 (1936). In that situation, the receiver can either bring suit to gain possession of the property or the receiver can make the third party a party to the proceeding in which the receivership is pending. Id.

Property held by a receiver is in custodia legis (“in the custody of the law”). Moody v.

State, 538 S.W.2d 158, 161 (Tex. Civ. App.--Waco 1976, writ ref’d n.r.e.). Consequently, the receivership property is not subject to foreclosure, attachment, garnishment, sequestration, levy or sale under execution, unless the creditor receives the permission of the court in which the receivership is pending. First Southern, 533 S.W.2d at 341. The receivership suspends the rights of other parties until the court having custody of the property enforces those rights. Id. at 343.

E. Inventory

A receiver is required to file an inventory “as soon as possible after

appointment.” TEX. CIV. PRAC. & REM. CODE § 64.032. Although the Texas Family Code does not require an inventory, it is still a good idea to prepare an inventory of the receivership property.

F. Activities

1. In General

Unless inconsistent with other general law, the rules of equity govern all matters

relating to the appointment, powers, duties, and liabilities of the receiver and to the powers of a court regarding the receiver. TEX. CIV. PRAC. & REM. CODE § 64.004; Huston v. FDIC, 800 S.W.2d 845, 849 (Tex. 1990). Subject to the control of the court, a receiver may: 1) take charge and receive possession of the property; 2) receive rents; 3) collect and compromise demands; 4) make transfers; and 5) perform other acts in regard to the property as authorized by the court. TEX. CIV. PRAC. & REM. CODE § 64.031. See Prince v. Forman, 119 S.W.2d 102, 105 (Tex. Civ. App.--Dallas 1938, writ dism’d).

11


The Texas Civil Practice and Remedies Code gives the court broad power to do as it wishes, subject only to appellate review for abuse of discretion.

However, the order appointing the receiver also has limits. The receiver must act

within the powers conferred by the order, and the order must operate within the confines of the statute. Ex parte Hodges, 625 S.W.2d 304, 306 (Tex. 1981). Further, “a receiver must obey the orders of the court in which the receivership is pending--even an order which is erroneous….” Prince, 119 S.W.2d at 105.

The receiver may need additional instructions. In this event, the receiver should file with the court a written request for the needed instructions, setting it for a hearing. It is generally a good idea for the order appointing the receiver to contain an over-inclusive list of orders to reduce the need for the receiver to return to court for more orders or instructions.

The duties of the receiver and the term of the receivership continue until

court discharges receiver, subject to appellate review. De Barrerra v. Frost, 39 Tex. Civ. App. 544, 88 S.W. 476, 477 (1905, no writ). 2. Administration Tips

In addition to the general requirements of section 64.031 of the Texas Civil

Practice and Remedies Code, the receiver may want to consider the following: a. Inspect the property. Does it need cleaning or maintenance?

b. In the case of real property, are there title problems that need correction?

c. What is the property worth? Obtain a market analysis or an appraisal.

d. Will hiring realtors, accountants, managers, or attorneys be necessary? e. Will payments be made to preserve the property (i.e. debt payments, maintenance,

taxes, insurance)? Has this been authorized by the court? f. Will there need to be litigation to pursue delinquent accounts, tort actions or

insurance proceeds? 3. Taking Possession of Property

If a party in possession fails to comply with the court’s orders or to cooperate with receiver, a Motion to Vacate and for Writ of Possession may be necessary. Contempt and sanctions actions can also be useful. If a Temporary Restraining Order and/or injunction is necessary during a pending divorce case, remember the limitations of the Texas Family Code. See TEX. FAM. CODE §§ 6.501, 6.502. Actions by receivers for temporary relief will require compliance with rules 682 and 683 of the Texas Rules of Civil Procedure.

12


As to third parties holding receivership property, if such third party refuses to immediately turnover the subject property, the receiver may either bring a separate lawsuit for possession of the receivership property or make the third party a party to the action in which the receivership is pending. Renfro, 115 Tex. 82, 273 S.W. at 814. In a divorce case, a receiver may be more successful if the action against the third party can be brought before the court hearing the pending divorce. 4. Selling Homestead Property

Courts may appoint receivers to sell the parties’ homestead and distribute the

proceeds in accordance with either the court’s order or the property settlement agreement. See Poston, 572 S.W.2d at 802; Daurnay v. Gaylord, 402 S.W.2d 948, 949-50 (Tex. Civ. App.--Dallas 1966, writ ref d n.r.e.).

Courts and Texas statutes place many limits on homestead sales. The Texas

Constitution protects the homestead from a forced sale to pay unsecured creditors. Mallou, 750 S.W.2d at 257. Additionally, receiverships under the Texas Family Code may not be used to protect third party creditors but only to protect the parties to the divorce. Id. at 255. See supra § IV.B. The Mallou court explained that before a court may force a homestead sale, it must first ascertain the exempt amount and then segregate the excess, so that only the excess is sold (if the property is capable of partition). Id. at 255-56. The court concluded that “to use the power of the court to sell property which contains a homestead without first determining what part is homestead, or for the purpose of paying claims of third parties, circumvents the Texas Constitution.” Id. at 256.

Nevertheless, the court may order sale of a homestead within constitutional limits.

For example, the court can order a sale to pay purchase money debts, taxes, and improvements related to the homestead. See TEX. CONST. art. 16, § 50. The court may also order a homestead sale to accomplish a just and right property division between the parties to the divorce. Mallou, 750 S.W.2d at 257. See also TEX. FAM. CODE § 7.001.

The court may order a sale of separate property homestead as well as community

property homestead. Such a sale is not a divestiture of property because it merely changes the form of separate property from realty to personal property. Mogford v. Mogford, 616 S.W.2d 936, 945 (Tex. Civ. App.--San Antonio 1981, writ ref’d n.r.e.) (where 50% of the homestead was community property, and 50% was separate property). However, another Texas court did not allow a trial court to order a sale of a spouse’s separate property homestead when there was no community interest in the home. Gerami v. Gerami, 666 S.W.2d 241, 242 (Tex. App.--Houston [14th Dist.] 1984, no writ).

If the appointment order authorizes the receiver to sell property, the receiver

should follow the procedure to finalize the sale set out below:

a. File an application for sale, complete with definite terms, price and parties.

13


b. After sufficient notice has been given to all interested parties, a hearing should be held on the application.

c. After order authorizing sale, determine the market value of the property, advertise

its sale and obtain offers for property. (If the market analysis shows that there is insufficient equity to justify the cost of a receivership, file a motion to dissolve the receivership.)

d. When an earnest money contract is obtained, file a motion requesting authority to sell as per terms of earnest money contract.

e. After notice to all interested parties, obtain hearing at which parties may raise objections to the specific sale. An order of approval or disapproval of the sale by the trial court would follow.

f. Before the distribution of any funds, there should be a confirmation of the

sale, to insure that the sale was in compliance with the original approval of order and to authorize distribution of the proceeds. Claims to proceeds and objections to irregularity of sale may be heard at confirmation hearing.

g. If the receiver had no duties other than sale of property, the receiver should offer

a final accounting and request determination of fees and payment from net proceeds.

h. The trial court order on sale should confirm sale, set receiver’s fee (if the sale

was receiver’s only duty), determine distribution from proceeds, and discharge the receiver upon disbursement of all proceeds. File a Release of Lis Pendens, if necessary.

See Harrington v. Schuble, 608 S.W.2d 253, 256 (Tex. Civ. App.--Houston [14th Dist.] 1980, no writ). Note that while these instructions in Harrington were used for the sale of homestead property, the instructions are useful for non-homestead property. In the case of homestead property, remember no unsecured creditors claims should be paid from the proceeds of the sale of the homestead. Delaney v. Delaney, 562 S.W.2d 494, 495-96 (Tex. Civ. App.--Houston [14th Dist.] 1978, writ dism’d).

5. Final Report and Discharge

The final report may be contained within another pleading, such as the receiver’s

application to confirm sale. The final report is a requirement of case law only. See generally, Bergeron v. Sessions, 561 S.W.2d 551, 553 (Tex. Civ. App.--Dallas 1977, writ ref’d n.r.e.); Harrington, 608 S.W.2d at 256. The report should explain what was done by the receiver, account for all remaining property in the receiver’s possession, account for expenses paid, request the court to direct the payment of expenses (including the receiver’s fees) and the disposition of the proceeds, request the court to confirm all acts of the receiver, to discharge of the receiver and his surety (if any), and to release the

14


receiver of any liability.

G. Priority and Application of Funds

The Texas Civil Practice and Remedies Code provides that a receiver shall apply the earnings of property held in receivership to payment of claims in the following order:

1. Court cost of suit. 2. Wages of employees due by the receiver. 3. Debts owed for materials and supplies purchased by the receiver for the improvement

of the property held as receiver. 4. Debts due for improvements made during the receivership to the property held as

receiver. 5. Claims and accounts against the receiver on contracts made by the receiver, personal

injury claims, and claims for stock against the receiver accruing during the receivership, and judgments rendered against the receiver for personal injuries and for stock killed.

6. Judgments recovered in suits before for the receiver was appointed.

TEX. CIV. PRAC. & REM. CODE § 64.051(a). Further, the claims listed in section 64.051(a) have a preference lien on the earnings of the property held by the receiver. TEX. CIV. PRAC. & REM. CODE § 64.051(b). Finally, the court shall insure that the earnings are paid in the order of preference listed in this section. TEX. CIV. PRAC. & REM. CODE § 64.051(c).

H. Compensating the Receiver

1. Priority of Court Costs

Fees and expenses of a receiver constitute “court costs” which are entitled to top priority. Jones, 321 S.W.2d at 293; State v. B & L Landfill, Inc., 758 S.W.2d 297, 300 (Tex. App.--Houston [1st Dist.], 1988, no writ); Jordan v. Burbach, 330 S.W.2d 249, 252 (Tex. Civ. App.--El Paso 1959, writ ref’d n.r.e.). Further, the attorney’s fees and related expenses incurred by a receiver also constitute “court costs.” Jordan, 330 S.W.2d at 252; Mid-Continent Supply Co. v. Conway, 240 S.W.2d 796, 807 (Tex. Civ. App.--Texarkana 1951, writ ref’d n.r.e.). Thus, to the extent a receivership generates any earnings, the receiver, along with the receiver’s attorney’s fees, are entitled to be preferentially paid from those earnings. Id.; Shell Petroleum Corp. v. Grays, 87 S.W.2d 289, 293 (Tex. Civ. App.--Waco 1935, writ dism’d). That same priority also applies in cases in which the receiver sells the entire corpus of the receivership. See, e.g., Mid-Continent Supply, 240 S.W.2d at 807 (receiver and his counsel were to be paid from the proceeds of the liquidated receivership assets before any unsecured creditors).

15


Further, as long as the order appointing the receiver is not void, the receiver is entitled to be paid even if it is subsequently determined that the receivership is adjudged to be wrongful. See Shell Petroleum, 87 S.W.2d at 293; Payne v. Little Kar Co., 266 S.W. 597, 598 (Tex. Civ. App.--Waco 1924, writ dism’d w.o.j.).

Remember that using homestead proceeds to pay the parties’ general creditors is

impermissible. Delaney, 562 S.W.2d at 495-96.

2. No Jury Trial

A party is not entitled to a jury trial on issues relating to the receiver’s fees. To do so creates an impermissible transfer of the court’s control to the jury. Ferguson v. Ferguson, 210 S.W.2d 268, 269 (Tex. Civ. App.--Austin 1948, no writ). 3. Basis of Calculation

A receiver’s compensation is to be determined by the value of the receiver’s

services. Ascertaining such value includes:

a. The nature, extent and value of the administered estate. b. The complexity and difficulty of the work. c. The time spent working on the receivership. d. The knowledge, experience, labor and skill required of, or devoted by, the

receiver. e. The diligence and thoroughness displayed; and the results accomplished.

Bergeron, 561 S.W.2d at 554-55.

4. Interim Payments

The receiver is paid after his work is done. It is error to allow a full award of fees

to a receiver and his accountant prior to the final accounting and discharge of the receiver. Id. at 553. It is permissible for a receiver to get monthly advances, but these advances should be materially less than the value of the services rendered prior to the final allowance of fees. Id. 5. Payments for Attorney’s Fees

The trial court must approve the retention of all necessary persons or entities to

assist the receiver (such as realtors, attorneys, and accountants) as well as the payment of their reasonable fees and expenses by the receiver. See Bergeron, 561 S.W.2d at 555. However, the right to an attorney’s fee as against the property in receivership does not

16


arise from a mere contract with a receiver, but depends on the allowance of the fee by an order of the court in which the proceeding is pending. International & G.N.R. Co. v. Herndon, 11 Tex. Civ. App. 465, 33 S.W. 377, 378 (1895). The court may subsequently approve contracts made by the receiver for an attorney. Id. Clearly, the safe practice is to get the hiring of an attorney approved as soon as possible.

Receivers are often attorneys. However, compensation as receiver and attorney

must be determined separately, for a receiver is not entitled to compensation at a legal rate for work which does not require legal skills. Hodges v. Peden, 634 S.W.2d 8, 11 (Tex. App.--Houston [14th Dist.] 1982, no writ); Bergeron, 561 S.W.2d at 554. Factors to be considered in setting fees for legal work by a receiver include:

a. The time and labor, novelty and difficulty of questions involved, skill required to

perform services. b. The likelihood that acceptance of the employment will preclude the possibility of

other employment.

c. The fee customarily charged in the locality for similar legal services.

d. The amount involved and the results obtained.

e. The time limitations imposed by circumstances.

f. The experience, reputation, and ability of lawyer performing the services. Bergeron, 561 S.W.2d at 555. See Rule 1.04(b) of the Texas Disciplinary Rules of Professional Conduct.

6. Allocating Costs

Although the receiver can preferentially recover reasonable fees and expenses directly from the receivership estate, the Court has wide discretion to subsequently allocate such “court costs” between the parties to the underlying litigation. Hodges, 634 S.W.2d at 12. The Texas Supreme Court has held that expenses of receivership should come from the party whose wrongful act made the appointment of a receiver necessary in order to preserve the property during the litigation. Archer v. Ross, 262 S.W.2d 213, 217 (Tex. 1953). Although taxation of costs of receivership is a matter within the trial court’s discretion, failure to tax costs against the party whose wrongful conduct brought about the appointment of receiver has been held an abuse of discretion. Theaters of America, Inc. v. Texas, 577 S.W.2d 542, 549 (Tex. Civ. App.--Tyler 1979, no writ); Jones, 159 Tex. 421, 321 S.W.2d at 292-94. Factors the court can consider include:

a. The successful party to a suit shall recover of his adversary all costs incurred

therein, except where otherwise provided under Rule 131 of the Texas Rules of Civil Procedure.

17


b. The court may, for good cause, to be stated on the record, adjudge the costs otherwise than as provided by law or the rules. Tex. R. Civ. P. 141.

c. The appointment of costs should be controlled by equitable principles and the

ultimate success or failure of the party who request the appointment of a receiver is not in itself controlling, but is a prime factor in determining who shall ultimately pay the costs of the receivership.

d. Receiver’s fees are to be considered a part of court costs.

e. A trial judge is authorized to vary the general rule as to taxing costs, if equity

requires it.

f. A trial judge should set forth in the order the reasons which prompted a taxing of costs otherwise than in accordance with Rule 131.

g. A receivership is a harsh remedy and he who invokes it must be prepared to

assume some risk.

h. A trial judge has the discretionary authority to adjudge costs, and on appeal the controlling question is whether the judge abused his discretion.

Hodges, 634 S.W.2d at 12.

VI. CHALLENGING THE APPOINTMENT OF A RECEIVER

A. Immunity and Irregularities of Receiver’s Actions

Absolute immunity extends to all judicial acts unless such acts fall clearly outside the judge's subject-matter jurisdiction. Hawkins v. Walvoord, 25 S.W.3d 882, 890 (Tex. App.--El Paso 2000, no writ); Garza v. Morales, 923 S.W.2d 800, 802 (Tex. App.--Corpus Christi 1996, no writ); Bradt v. West, 892 S.W.2d 56, 66 (Tex. App.--Houston [1st Dist.] 1994, writ denied). When judges delegate their authority or appoint persons to perform services for the court, their judicial immunity may follow that delegation or appointment. Hawkins, 25 S.W.3d at 891; Byrd v. Woodruff, 891 S.W.2d 689, 707 (Tex. App.--Dallas 1994, writ dism'd by agreement).

In Texas, judicial immunity applies to officers of the court who are integral parts of

the judicial process, such as court-appointed receivers. Hawkins, 25 S.W.3d at 891; Byrd, 891 S.W.2d at 707. Court-appointed receivers are entitled to share in the appointing judge’s absolute immunity, provided that the challenged actions were taken in good faith and were within the scope of the authority granted to the receiver. Davis v. Bayless, 70 F.3d 367, 373 (5th Cir. 1995). See also Brewer v. Hill, 453 F. Supp. 67, 69 (N.D. Tex. 1978); Byrd, 891 S.W.2d at 708.

In the case of running a business, a receiver is not required to have infallible

18


judgment in transacting the receivership business, but is required only to exercise the same degree of discretion in discharging the duties of the receivership as the ordinarily prudent person of business would exercise in the management of the receiver’s own affairs. Morrow v. De Vitt, 160 S.W.2d 977, 985 (Tex. Civ. App.--Amarillo 1942, writ ref’d w.o.m.). Thus, a receiver acting within the authority granted is not personally responsible for any loss accruing during the operation of the receivership business unless the receiver acted in bad faith or failed to use ordinary care and discretion in the management of the business. Harrisan v. Coutret, 157 S.W.2d 454, 456 (Tex. Civ. App.--San Antonio 1942, writ ref’d).

However, a receiver’s actions may be set aside if the court finds them sufficiently

irregular. Harrington, 608 S.W.2d at 256 (failure to provide notice to all interested parties and failure to set a hearing and a hearing on application for sale of property).

B. Jury Trial

A party is not entitled to a jury trial on the factual issue of whether or not a receiver

should be appointed nor is a party entitled to have a jury decide virtually any other issue in a receivership proceeding. Such power lies solely within the trial court’s broad discretionary powers. Moody, 538 S.W.2d at 161; Bergeron, 561 S.W.2d at 269.

C. Motion to Vacate the Receivership

The decision whether to remove a receiver is an equitable determination resting in the

sound discretion of the trial court and reviewable only for abuse of that discretion. SEC v. Spence & Green Chemical Co., 612 F.2d 896, 904 (5th Cir. 1980), cert. denied, Spence v. SEC, 449 U.S. 1082 (1981).

A third party creditor may file a motion to vacate a receivership appointment if the

creditor did not receive notice. Buck v. Johnson, 495 S.W.2d 291, 299 (Tex. Civ. App.--Waco 1973, writ ref’d n.r.e.). A motion to vacate a receivership must be brought within 20 days of the order establishing the receivership. See TEX CIV. PRAC. & REM. CODE § 51.014(1); TEX. R. APP. P. 42(a)(3); Sclafani v. Sclafani, 870 S.W.2d 608, 613 (Tex. App.---Houston [1st Dist.] 1993, writ denied). The motion to vacate should show: 1) a fact, previously unknown to the trial court, that affects the propriety of the receivership order; or 2) fundamental error. Buck, 495 S.W.2d at 299-300. If the creditor’s motion is denied, it can bring an interlocutory appeal. Id. at 299; Sclafani, 870 S.W.2d at 613. Otherwise, such motion amounts to nothing more than a motion for rehearing. Whitaker Oil Co. v. Ward, 396 S.W.2d 158, 162 (Tex. Civ. App.--Tyler 1965), motion overruled 398 S.W.2d 155.

The creditor who files a motion to vacate cannot later complain of the order

appointing the receiver. Best Inv. Co. v. Whirley, 536 S.W.2d 578, 583 (Tex. Civ. App.--Dallas 1976, no writ), Whitaker Oil, 396 S.W.2d at 161. Further, a motion to vacate the ex parte appointment of a receiver constitutes a waiver of all alleged irregularities in the original appointment. Best Inv., 536 S.W.2d at 583.

19


D. Appeal of the Appointment or Denial of a Receivership

An order denying an appointment of a receiver is generally not appealable. Holman v. Stephen F. Austin Hotel, 599 S.W.2d 679, 679 (Tex. Civ. App.--Austin 1980, writ dism’d). Further, an interlocutory appeal is not allowed if an application for a receivership is denied. Kitchen v. Printz, 120 S.W.2d 881, 882 (Tex. Civ. App.--Amarillo 1938, no writ). However, if the receiver order was the only issue before the trial court the refusal is a final judgment and subject to the ordinary appeal process. Balias v. Balias, 748 S.W.2d 253, 255 (Tex. App.--Houston [14th Dist.] 1988, writ denied).

An order appointing a receiver is subject to interlocutory appeal. TEX. FAM. CODE §

6.507 (for orders affecting the rights of spouses in a pending divorce action); TEX. CIV. PRAC. & REM. CODE § 51.014 (for orders affecting third parties). Once a receivership order is entered, a party opposed to the order may appeal the order directly, bringing the appeal within 20 days. See TEX. CIV. PRAC. & REM. CODE § 51.014(1); TEX. R. APP. P. 42(a)(3). Alternatively, the party may first move the trial court to vacate its order, and then upon the denial of the motion, appeal the motion’s denial. See TEX. CIV. PRAC. & REM. CODE § 51.014(2); TEX. R. APP. P. 42(a)(3). Sclafani, 870 S.W.2d at 613. See supra VI.B. When a party fails to make an appeal during the pendency of a suit, the receivership proceeding may not be attacked on an appeal from a final judgment. Archer, 262 S.W.2d at 217.

The appointment of a receiver will not be disturbed or appealed, absent a clear abuse

of discretion. Smith v. Smith, 681 S.W.2d 793, 795 (Tex. App.--Houston [14th Dist.] 1984, no writ).

E. Appeal of the Other Receivership Matters

The order approving the receiver’s final report and order to discharge receiver are

also appealable. Theatres of America, Inc. v. State, 577 S.W.2d 542, 547 (Tex. Civ. App.--Tyler 1979, no writ). The order approving the final receiver’s fees is appealable. Pink v. State, 105 S.W.2d 265 (Tex. Civ. App.--Austin 1937), aff’d 133 Tex. 82, 124 S.W.2d 981, 987 (1939).

The interlocutory appeal statute permits an appeal only from an order that “appoints a

receiver.” TEX. CIV. PRAC. & REM. CODE § 51.014(a)(1). An order dissolving a receivership is not subject to interlocutory appeal. Waite, 76 S.W.3d at 223. The disposition of the receivership funds may not be challenged by interlocutory appeal. Waite v. Waite, 76 S.W.3d 222, 223 (Tex. App.--Houston [14th Dist.] 2002, no writ). See generally, Bally Total Fitness Corp. v. Jackson, 53 S.W.3d 352, 355 (Tex. 2001). However, in the past, an interlocutory order approving the receiver’s sale and confirmation was appealable. McBride v. United Irr. Co., 213 S.W. 988, 988 (Tex. Civ. App.--San Antonio 1919, writ ref’d).

F. Mandamus

In some cases, mandamus will lie to challenge receivership orders authorizing the seizure and sale of assets. See, e.g., Plaza Court, Ltd. v. West, 879 S.W.2d 271, 275-76

20


(Tex. App.--Houston [14th Dist.] 1994, no writ) (finding that the parties in receivership had no adequate remedy by appeal because their assets could have been completely disposed of by the receiver prior to the conclusion of an appeal). Mandamus will not issue when there is a clear and adequate remedy by a normal appeal, because mandamus is intended to be an extraordinary remedy available only in limited situations. Id. at 275. The writ will issue only in situations involving manifest and urgent necessity. Id.; Holloway v. Fifth Court of Appeals, 767 S.W.2d 680, 684 (Tex. 1989).

VIII. CREDITOR’S RELIEF

A. Turnover Relief

The term “turnover” comes from the trial judge’s ability to order the debtor to deliver

or “turn over” nonexempt assets to an officer or a receiver when the assets cannot readily be attached or levied on by ordinary legal process. TEX. CIV. PRAC. & REM. CODE § 31.002(a)(1)-(2). See Ex parte Johnson, 654 S.W.2d 415, 417 (Tex. 1983). The Texas Civil Practice and Remedies Code provides that “[a] judgment creditor is entitled to aid from a court of appropriate jurisdiction ... in order to reach property to obtain satisfaction on the judgment if judgment debtor owns [non-exempt] property, including present or future rights to property, that cannot readily be attached or levied by ordinary legal process....” TEX. CIV. PRAC. & REM. CODE § 31.002(a); Beaumont Bank N.A. v. Buller, 806 S.W2d 223, 224 (Tex. 1991); Republic Ins. Co. v. Millard, 825 S.W.2d 780, 783 (Tex. App.--Houston [14th Dist.] 1992, orig. proceeding). See Appendix D. Further, “[t]he court may order the judgment debtor to turnover non-exempt property that is in the debtor’s possession or is subject to the debtor’s control ... to designated sheriff or constable for execution ... [or] appoint a receiver with authority to take possession of the nonexempt property, sell it, and pay the proceeds to the judgment creditor to the extent required to satisfy the judgment....” TEX. CIV. PRAC. &

REM. CODE § 31.002(b). The turnover procedure is not an exclusive remedy, and the creditor will often need to

employ additional remedies, such as a temporary restraining order to prevent further secreting or wasting of assets, a writ garnishment to impound property due the debtor from a third party, or an order setting aside a fraudulent transfer.

The trial court’s power to order the turnover of assets is discretionary and will be

overruled by an appellate court only if there has been an abuse of that discretion. See Beaumont Bank, 806 S.W.2d at 226. A trial court abuses its discretion when it “acts without reference to an guiding rules and principles.” Sivley v. Sivley, 972 S.W.2d 850, 860 (Tex. App.--Tyler 1998, no pet.). If the underlying judgment itself is reversed on appeal, then the turnover order must also be reversed. See Matthiessen v. Schaefer, 915 S.W.2d 479, 480 (Tex. 1995).

B. Use of Turnover Relief in Family Law Cases

An ex-spouse can use the turnover statute to help collect a judgment including money

judgments awarded in the final decree. See Cain v. Cain, 746 S.W.2d 861, 864, (Tex. App.--

21


El Paso 1988, no writ). Perkins v. Perkins, 690 S.W.2d 706, 708-09 (Tex. App.--El Paso 1985, writ ref’d n.r.e.). Further, there is no statute that precludes a former spouse from using turnover relief to attempt collection of a judgment awarding child support. However, at least one court has stated that turnover “does not apply to the enforcement of a child support obligation or a judgment for past due child support.” Ex parte Wessell, 807 S.W.2d 17, 20 (Tex. App.--Houston [14th Dist.] 1991, orig. proceeding) (emphasis in original). The court in Wessell cites section 31.002(f) as authority for that statement of law; however, section 31.002(f), which addresses exemptions under the Texas Property Code, merely states that such subsection does not apply to actions involving the enforcement of a child support obligation or a judgment for past due child support. The subsection is only addressing the subsection itself and not the entire turnover statute.

C. Cumulative Remedy

There is no requirement that a creditor first exhaust other remedies such as

attachment, execution and garnishment before seeking turnover relief. See The Universe Life Ins. Co. v. Giles, 982 S.W.2d 488, 493 (Tex. App.--Texarkana 1998, pet. denied); Hennigan v. Hennigan, 666 S.W.2d 322 (Tex. App.--Houston [14th Dist.] 1984) aff’d 677 S.W.2d 495 (Tex 1984). Turnover is “cumulative” of all collection remedies available. Matrix Inc. v. Provident Am. Ins. Co., 658 S.W.2d 665 667 (Tex. App.--Dallas 1983, no writ). Further, a judgment creditor is free to select methods to be used for collection of judgment. Traditional requirements for the appointment of a receiver are not applicable to post judgment receiverships under section 31.002 of the Texas Civil Practice and remedies Code. Roosth v. Roosth, 889 S.W.2d 445, 458 (Tex. App.--Houston [14th Dist.] 1994, writ denied); Childre v. Great Southwest Life Ins. Co., 700 S.W.2d 284, 288 (Tex. App.--Dallas 1985, no writ).

D. Application Process

When a turnover order is in the nature of an attachment, a judgment creditor need not

delay an application for turnover relief until a writ of execution is issued. See Childre, 700 S.W.2d at 286-87. Further, a judgment creditor has the option to move for the court’s assistance in either the same proceeding in which the judgment is rendered or in an independent proceeding. See TEX. CIV. PRAC. & REM. CODE § 31.002(d). It is recommended that a turnover application be filed in the prior proceeding which will allow the same court that awarded the judgment to process the turnover. A separate suit may be necessary, however, if the creditor wishes to join a third party who holds or claims the property. See, e.g., Beaumont Bank, 806 S.W.2d at 227. Third parties who seek to protect an alleged property interest that is the subject of a turnover motion may intervene in a proceeding for turnover relief, even though the court already has rendered final judgment. See Breazeale v. Casteel, 4 S.W.3d 434, 437 (Tex. App.--Austin 1999, pet. denied).

The turnover statute does not require notice or a hearing to be afforded a judgment

debtor. A final judgment puts the debtor on notice that the creditor will pursue satisfaction of the judgment. See Sivley, 972 S.W.2d at 860; Thomas v. Thomas, 917 S.W.2d 425, 433-34 (Tex. App. Waco 1996, no writ); see also Ross v. 3D Tower Ltd., 824 S.W.2d 270, 272 (Tex. App.--Houston [1st Dist.] 1992, writ denied). However, because of the various proof

22


requirements and because the court is more likely to grant relief requested if notice is given, notice to the judgment is the preferred method. Use the hearing to ascertain if the subject property is exempt without running the chance of a wrongful execution or facing a separate lawsuit to enjoin the execution.

The primary purpose of the turnover proceeding is to ascertain whether an asset is in

the judgment debtor’s possession or subject to his control. See Beaumont Bank, 806 S.W.2d at 227. When applying for turnover relief, the judgment creditor should state the following:

1. A description of the parties;

2. A description of the judgment, including when and where it was rendered, amounts

due, and that it is not dormant and its enforcement is not suspended or otherwise superseded;

3. The extent to which the judgment is unsatisfied;

4. A description of the present or future rights to property believed to be held by the judgment debtor and not exempt from attachment, execution, or seizure for the satisfaction of the judgment, along with a description of any records or documents relating to these rights and necessary to their collection or enforcement;

5. An explanation of why the property rights cannot readily be attached or levied upon by ordinary legal process; and

6. A description of the relief sought by the judgment creditor, including attorney’s fees and costs.

See David Hittner, Texas Post-Judgment Turnover and Receivership Statutes, 45 TEX. B.J. 417, 417-18 (1982). See also TEX. CIV. PRAC. & REM. CODE § 31.002(d).

A judgment debtor’s appeal from the judgment does not, of itself, prevent turnover relief, provided that the debtor has not superseded the judgment’s enforcement by a proper bond or other procedure. Texas Employers’ Ins. Ass’n v. Engelke, 790 S.W.2d 93, 95 (Tex. App.--Houston [1st Dist.] 1990, orig. proceeding).

E. Parties Subject to Turnover Order

The turnover statute does not provide a substitute for other proceedings to adjudicate

the substantive rights of third parties. Texas courts disagree as to whether turnover orders can be issued against third party non-judgment debtors.

Some courts have held that in circumstances where a third party retains property that

is shown to be non-exempt, owned by a judgment debtor, and subject to the debtor’s possession or control, the trial court may issue a turnover order against the third party. See Burns v. Miller, Hiersche, Martens & Hayward P.C., 948 S.W.2d 317, 324 (Tex. App.--

23


Dallas 1997, writ denied); Dale v. Finance Am. Corp., 929 S.W.2d 495, 498 (Tex. App.--Fort Worth 1996, writ denied); International Paper Co. v. Garza, 872 S.W.2d 18, 19 (Tex. App.--Corpus Christi 1994, no writ); Daniels v. Pecan Valley Ranch, Inc., 831 S.W.2d 372, 384 (Tex. App.--San Antonio 1992, writ denied).

Other courts have held that turnover orders may issue only against the judgment

debtor, with one court even noting that any other conclusion may be constitutionally suspect. See Parks v. Parker, 957 S.W.2d 666, 668 n.l (Tex. App.--Austin 1997, no pet.). See also Cross, Kieschnick & Co. v. Johnston, 892 S.W.2d 435, 439 (Tex. App.--San Antonio 1994, no writ) (reversing turnover order against partners when underlying judgment involved corporation, holding that it was improper as a matter of law to issue order against non-debtor); United Bank Metro v. Plains Overseas Group, Inc., 670 S.W.2d 281, 284 (Tex. Civ. App.--Houston [1st Dist.] 1983, no writ) (determining that a creditor who obtained judgment against individual was not entitled to turnover order against corporation until the creditor pierced corporate veil in separate proceeding).

At a minimum, the court should make a finding that the assets are subject to the

possession or control of the judgment debtor, and that such assets are only being retained by the third party. Plaza Court, Ltd., 879 S.W.2d at 277; Norsul Oil & Mining Ltd. v. Commercial Equip. Leasing Co., 703 S.W.2d 345, 349 (Tex. App.--San Antonio 1985, no writ).

F. Burden of Proof

1. Discretion of Court

In a turnover proceeding, a creditor need only show “some evidence” of possession or control of the subject asset by the judgment debtor. Brink v. Ayre, 855 S.W.2d 44, 46 (Tex. App.--Houston [14th Dist.] 1993, no writ). Once the judgment creditor makes this showing, however, the trial court is not automatically required to order a turnover of the asset. See id. Rather, the trial court has discretion to decide whether and in what form turnover relief should be ordered. For example, in exercising its discretion, one factor the court may consider is the judgment debtor’s ability to meet his living expenses if the turnover relief is granted. See id.

The trial court has jurisdiction to determine if property of the judgment debtor is

exempt. See Leibman v. Grand, 981 S.W.2d 426, 433 (Tex. App.--El Paso 1998, no pet.). Section 31.002 “requires a factual showing that the judgment debtor has non-exempt property that is not readily subject to ordinary execution.” Schultz v. Fifth Judicial District Court of Appeals, 810 S.W.2d 738, 740 (Tex. 1991). To satisfy this requirement, the trial court is to have a hearing, determine what specific assets are exempt, and what assets are subject to the court’s order and then to direct the payment as the court determines is proper. If the statute requires a factual showing of non-exempt property, the court has to be acting with regard to certain specific property that it will direct be turned over to satisfy a judgment. It is not to be left to the debtor to determine what property that person has and whether it is exempt. Bergman v. Bergman, 828 S.W.2d 555, 557 (Tex.

24


App.--El Paso 1992, no writ).

2. Who Has the Burden of Proof?

The courts are split on the issue of which party has the burden to prove that property is nonexempt or exempt. Compare, e.g., Roosth, 889 S.W.2d at 459 (party asserting exemption has burden to prove exemption) with Sloan v. Douglass, 713 S.W.2d 436, 441 (Tex. App.--Fort Worth 1986, writ ref’d n.r.e.) (creditor must establish property is nonexempt, and if debtor raises defense of exemption, creditor has burden to overcome defense). Some courts believe the better interpretation is to have the burden of proving an exemption on the debtor. See Burns, 948 S.W.2d at 324. See also, Leibman, 981 S.W.2d at 433 (stating that a party asserting an exemption generally bears the burden of proving the exemption). Further, where the court has jurisdiction to determine whether real property in a turnover was a homestead, the burden of proof is on the one claiming a homestead. Pace v. McEwen, 617 S.W.2d 816, 818 (Tex. Civ. App.--Houston [14th Dist.] 1981, no writ). See also Texas Commerce Bank v. McCreary, 677 S.W.2d 643, 645 (Tex. App.--Dallas 1984, no writ).

3. Affirmative Defenses

The debtor should plead and offer evidence to support any affirmative defense,

such as payment of judgment debt, release, discharge in bankruptcy, or dormancy. See Matrix, 658 S.W.2d at 667. One court has held that it is improper for a judgment debtor to assert a right to set off the underlying judgment debt by an amount allegedly owed the debtor by the judgment creditor, because this would allow the judgment debtor “to choose the manner in which it will satisfy the judgment.” Schliemann v. Garcia, 685 S.W.2d 690, 692-93 (Tex. App.--San Antonio 1984, no writ). Once a creditor shows that a debtor owns or controls property, the debtor has the burden of accounting for or otherwise showing the unavailability of the property.

G. Property Subject to Turnover

A court’s turnover order must be directed at specific property. See Bergman, 828

S.W.2d at 557. “[I]n identifying the property subject to turnover, the trial court’s order must be definite, clear, and concise, leaving the debtor no doubt about his duty and not calling for interpretation, inferences, or conclusions.” Burns, 948 S.W.2d at 324. The trial judge lacks discretion to simply order a judgment debtor to pay a set sum of money without at least “identifying what specific nonexempt property or rights thereto that he possessed or controlled which would enable him to comply with the order.” Ex parte Prado, 911 S.W.2d 849, 850 (Tex. App.--Austin 1995, no writ).

1. Property Affected by Turnover Relief

a. Property outside the State of Texas and the United States, secreted property, and

intangible property rights (e.g., interests in limited partnerships, future rights in property and causes of action). See United States v. Lozano, 975 S.W.2d 63, 68

25


Charles v. Tamez, 878 S.W.2d 201, 205 (Tex. App.--Corpus Christi 1994, writ denied); (Tex. App.--Houston [14th Dist.] 1998, no writ); Renger Mem. Hosp. v. State, 674 S.W.2d 828, 830 (Tex. App.--Austin 1984, no writ); Reeves v. Federal Sav. & Loan Ins. Com., 732 S.W.2d 380, 382 (Tex. App.--Dallas 1987, no writ).

b. Negotiable instruments such as promissory notes or other documents evidencing

property rights, including corporate share certificates. See Arndt v. National Supply Co., 650 S.W.2d 547, 549 (Tex. App.--Houston [14th Dist.] 1983, writ ref’d n.r.e.); Matrix, 658 S.W.2d 665, 668 (Tex. App.--Dallas 1983, no writ); Sloan v. Sloan, 474 S.W.2d 272 (Tex. Civ. App.--Waco 1971, no writ).

c. An independent contractor’s bank accounts and accounts receivable, such as an

attorney’s fee income, can also be subject to turnover through the appointment of a receiver. See Thomas v. Thomas, 917 S.W.2d 425 (Tex. App.-Waco 1996, no writ); Hennigan, 677 S.W.2d at 496; Ross, 824 S.W.2d at 272-73; Arndt, 650 S.W.2d at 549.

d. Other types of property that are properly the subject of turnover relief include

rental income, interest income, and income from spendthrift trusts. See Copher v. First State Bank of Pittsburgh, 852 S.W.2d 738, 739 (Tex. App.--Fort Worth 1993, no writ); Schultz v. Cadle Co., 825 S.W.2d 151, 154 (Tex. App.--Dallas 1992, writ denied); First City Nat’1 Bank, 718 S.W.2d at 403.

e. A cash sum that is in a judgment debtor’s possession or control is also the proper

subject of a turnover order. See Beaumont Bank, 806 S.W.2d at 227. It is almost always impossible, however, for a judgment creditor to specifically identify a particular cash sum due to its fungible nature; accordingly, the burden of proof shifts to the judgment debtor to account for the cash once the creditor traces a specific sum to the debtor. The simple assertion that “I spent it” is unacceptable. See id. at 226-27. The portion of the cash that the judgment debtor can prove was spent must be deducted from the total. See id. at 227.

f. Under section 42.0021 of the Texas Property Code, retirement plan payments are

usually exempt from attachment, execution and seizure, however, such plans are not exempt if they do not qualify under applicable provisions of the Internal Revenue Code. Rucker v. Rucker, 810 S.W..2d 793, 795 (Tex. App.--Houston [14th Dist.] 1991, writ denied).

g. The sureties on a supersedeas bond named in an appellate court mandate are

judgment debtors and are subject to a turnover order. Schliemann v. Garcia, 685 S.W.2d 690, 692 (Tex. App.--San Antonio 1984, no writ)

2. Conditions and Exceptions on the Property Affected by Turnover Relief

a. Property subject to exemptions under sections 42.001, 42.002, and 42.0021 of the

Texas Property Code. See Appendix E, F, G.

26


b. Cash that qualifies as “current wages” as opposed to “income” is exempt from operation of the turnover statute. Tex. Prop. Code § 42.001(b)(1). A creditor can avoid this problem by describing the source of the cash as income from an enterprise or property proceeds from a specific contract or account, or similar designations of the source. See, e.g., Schultz v. Cadle Co., 825 S.W.2d 151, 153-54 (Tex. App.--Dallas 1992), denied per curiam 852 S.W.2d 499 (Tex. 1993); Devore v. Central Bank & Trust, 908 S.W.2d 605, 609 (Tex. App.--Fort Worth 1995, no writ). Sections 31.0025 (a) and (b) of the Texas Civil Practice and Remedies Code prohibit courts from ordering judgment debtors to turnover their wages before they are paid, but subsection (c) permits wage turnover if the debt is a child support obligation. As to “proceeds” of exempt property, section 31.002(f) provides that, except for collection of child support, a court cannot order a turnover of the “proceeds” of property exempt under any statute, including section 42.0021 of the Property Code. “Proceeds” include the cash one receives from cashing a paycheck, retirement check, or another exempt asset. Caulley v. Caulley, 806 S.W.2d 795, 798 (Tex. 1991); Bergman, 888 S.W.2d at 586. See, e.g., Burns, 948 S.W.2d at 322 (proceeds from exempt spendthrift trust cannot be reached by turnover order). Thus, even when property is no longer exempt under any other statute, if it represents proceeds or disbursements of exempt property, it is not subject to a turnover order (except to enforce child support obligations). See TEX. CIV. PRAC. & REM. CODE § 31.002(f); Burns, 948 S.W.2d at 323.

However, a judgment debtor that voluntarily liquidates exempt personal property, then holds the funds for several months before investing them in an annuity, can no longer claim the funds as exempt, especially when the exempt personal property is replaced. See Liebman v. Grand, 981 S.W.2d 426, 435 (Tex. App.--El Paso 1998, no writ) (sale of car).

c. Causes of action held by judgment debtors ordinarily can be turned over to a

receiver to sell or prosecute with the proceeds to be applied to the judgment debt. However, public policy can block the application of section 31.002 to some actions, such as:

1. Actions against the judgment creditor. Based on the Texas Constitution’s

“open courts” policy, a judgment debtor’s cause of action against a judgment creditor cannot be “turned over” when the effect would be to eliminate that cause of action. See Criswell v. Ginsberg & Foreman, 843 S.W.2d 304, 305-07 (Tex. App.--Dallas 1992, no writ); Associated Ready Mix, Inc. v. Douglas, 843 S.W.2d 758, 761-62 (Tex. App.--Waco 1992, no writ).

2. Actions against the judgment creditor’s attorney for malpractice. A judgment

debtor cannot be ordered to “turnover” unasserted, denied causes of action for legal malpractice for failure to settle under the Stowers doctrine. See Charles v. Tamez, 878 S.W.2d 201, 208 (Tex. App.--Corpus Christi 1994, writ denied). Other courts have invalidated even voluntary assignments of asserted malpractice claims. See Vinson & Elkins v. Moran, 946 S.W.2d 381, 389-90.

27


n.3 (Tex. App.--Houston [14th Dist.] 1997, writ dism’d by agreement); Zuniga v. Groce, Locke & Hebdon, 878 S.W.2d 313, 317-18 (Tex. App.--San Antonio 1994, writ ref’d).

3. Unasserted or denied claim against judgment debtor’s liability carrier. The

court can invalidate the turnover of an unasserted, denied cause of action against an insurer for failure to settle a lawsuit. See Charles v. Tamez, 878 S.W.2d 201, 208 (Tex. App.--Corpus Christi 1994, writ denied). The Charles court explicitly did not address whether an asserted or ignored cause of action against an insurer for unreasonable failure to settle may be “turned over.” Id. at 208-09. A turnover order of a judgment debtor’s asserted claim against an insurer for failure to defend was upheld. See Republic Ins. Co. v. Millard, 825 S.W.2d 780, 785 (Tex. App.--Houston [14th Dist.] 1992, no writ).

d. Generally, homesteads are exempt from seizure. TEX. PROP. CODE § 41.001 et

seq.

e. A debtor may designate personal property having an aggregate fair market value of not more than $30,000 (if single) or $60,000 (if married). See TEX. PROP. CODE §§ 42.001(a); 42.002.

f. Alimony, support or separate maintenance received or to be received by the debtor

for the support of the debtor or a dependent of the debtor are exempt. TEX. PROP. CODE § 42.001(b)(3).

g. Worker’s compensation payments are exempt. See TEX. LABOR CODE § 408.201.

h. Insurance Benefits under article 21.22 of the Texas Insurance Code.

i. Qualified Pensions and Retirement Pay. Retirement plan payments that qualify under applicable provisions of the Internal Revenue Code are generally exempt from attachment, execution and seizure. TEX. PROP. CODE § 42.0021. But see Rucker, 810 S.W.2d at 795 (holding that a debtor is not entitled to exemption unless he proved qualification of the plan under IRS Code).

i. Deferred income is not subject to turnover. Sloan v. Douglass, 713 S.W.2d 438,

440 (Tex. App.--Fort Worth 1986, writ ref’d n.r.e.). j. Corporations owned by the judgment debtor may not be named in a turnover

application, relying only on the alter ego theory. A separate suit must be filed to establish the alter ego character of the corporation. United Bank Metro v. Plains Overseas Group, Inc., 670 S.W.2d 281, 283 (Tex. App.--Houston [1st Dist.] 1983, no writ).

28


H. Judicial Aid

When granting turnover relief to a judgment creditor, the court may, by injunction or other means, employ any or all of the following methods:

1. Order the judgment debtor to turn over nonexempt property that is in the debtor’s

possession or is subject to the debtor’s control, together with all documents or records related to the property, to a designated sheriff or constable for execution. A trial court has the power to compel a judgment debtor to execute documents if those documents will help collect a judgment debt. See Burns, 948 S.W.2d at 328;

2. Apply the property to the satisfaction of the judgment. A turnover order cannot be

used to determine a party’s substantive rights or property rights of third parties. See Lozano, 975 S.W.2d at 68; or

3. Appoint a receiver with the authority to take possession of the nonexempt property,

sell it, and pay the proceeds to the judgment creditor to the extent required to satisfy the judgment. A turnover order may not order the turnover of property directly to a judgment creditor. Lozano, 975 S.W.2d at 69. The appointment of a receiver is discretionary. Herring, 983 S.W.2d at 65. Whether a bond is necessary for the appointment of a post judgment receiver is also discretionary with the trial court. Id. at 64. However, a receiver’s rights as to property held by a financial institution in the name of or on behalf of the judgment debtor as customer of the financial institution do not attach until the financial institution receives service of a certified copy of the order of receivership in the manner specified by § 59.008 of the Finance Code. See TEX. CIV. PRAC. & REM. CODE § 31.002(g).

I. Attorney’s Fees and Costs

Under section 31.002(e), a judgment creditor that prevails in a turnover proceeding is

entitled to recover reasonable costs, including attorney’s fees. If a creditor does not prevail, no attorney’s fees need be awarded. See Roosth, 889 S.W.2d at 458; Dallas Power & Light Co. v. Loomis, 672 S.W.2d 309, 312 (Tex. App.--Dallas 1984, writ ref’d n.r.e.). Some courts have held that attorney’s fees are governed by sections 38.001-38.006 of the Texas Civil Practice & Remedies Code. See, e.g., Carlyle Real Estate Ltd. Partnership-X v. Leibman, 782 S.W.2d 230, 233 (Tex. App.--Houston [1st Dist.] 1989, no writ). Under section 38.003, there is a rebutable presumption that the usual and customary attorney’s fees are reasonable. See id. At least one court has held that attorney’s fees are mandatory under chapter 38 if there is proof of reasonableness of the fees. See Cortland Line Co., Inc. v. Israel, 874 S.W.2d 178, 184 (Tex. App.--Houston [14th Dist.] 1994, writ denied).

Section 38.004 allows a court to take judicial notice of the usual and customary

attorney’s fees and of the contents of the case file without receiving further evidence. See id. In determining how much to award, the trial court can consider such factors as the nature and complexity of the case, the amount in controversy, the amount of time and effort required, and the expertise of counsel. See Thomas, 917 S.W.2d at 437. The amount a party recovers is

29


also another factor to consider in awarding attorney’s fees. See Burns, 948 S.W.2d at 327. Like the turnover order itself, the trial court’s decision to award attorney’s fees is reviewed under an abuse of discretion standard. See id. at 436.

J. Enforcement

Under section 31.002(c), a turnover order may be enforced by contempt proceedings.

A court’s contempt powers are generally addressed by Texas Government Code § 21.002. Under that provision, a court may fine the person in contempt up to $500.00, imprison the person for up to six months, or both. See id. The trial court can dispose of a contempt motion unless an appeal of the turnover order has been perfected. Once an appeal is perfected, exclusive jurisdiction to hear the contempt motion for violation of a turnover order lies with the appellate court, regardless of whether a supersedeas bond has been filed. See Schultz, 810 S.W.2d at 740-41.

The use of coercive contempt orders, such as incarceration, to enforce turnover orders

has created opposition due to the Texas Constitution’s provision that no person can be imprisoned “for debt.” TEX. CONST. art. 1, § 18. A contempt order against a judgment debtor who refused to pay attorney’s fees awarded to the judgment creditor in the turnover order was voided based on the prohibition on contempt as a debt collection device. See Ex parte Roan, 887 S.W.2d 462, 463-65 (Tex. App.--Dallas 1994, orig. proceeding). But see In re Wiese, 1 S.W.3d 246, 251 (Tex. App.--Corpus Christi 1999, orig. proceeding) (holding that contempt order was not void as being unconstitutional, because relator was being imprisoned not for “debt,” but as punishment for failing to obey an the court’s turnover order). Contempt for failure to turn over cash to pay the judgment debt has also been held constitutionally prohibited. See Prado, 911 S.W.2d at 850. However, the imprisonment of a debtor is not unconstitutional if that debtor is able to pay. See Ex parte Buller, 834 S.W.2d 622, 627 (Tex. App.-Beaumont 1992, orig. proceeding); see also Santibanez v. Wier McMahon & Co., 105 F.3d 234, 241-42 (5th Cir. 1997).

Enforcing by contempt a judgment for past due child support, including attorney’s

fees incurred, is allowable because neither the amount of child support nor the accompanying attorney’s fees are considered “debts” for which collection by contempt is prohibited by the Texas Constitution. See Wessell, 807 S.W.2d at 20. One court, however, has held that attorney’s fees may not be collected by contempt proceedings. See Wiese, 1 S.W.3d at 251.

K. Appellate Review

When a turnover order resolves property rights and acts as a mandatory injunction, it

is a final and appealable judgment. See, e.g., Schultz, 810 S.W.2d at 740. An order granting turnover relief can be suspended pending the appeal by the use of a supersedeas bond. See id. at 739 n.3.

A turnover order is reviewed under an abuse of discretion standard. See Beaumont

Bank, 806 S.W.2d at 226. Under this standard, a court asks: 1) did the trial court have sufficient information upon which to exercise its discretion; and 2) did the trial court err in its

30


application of discretion? See Lindsey v. Lindsey, 965 S.W.2d 589, 591 (Tex. App.--El Paso 1998, no pet.). Answering the first question requires consideration of the sufficiency of the evidence. Leibman, 981 S.W.2d at 429 (Tex. App.--El Paso 1998, no pet.). The second question requires determining whether the trial court made a reasonable decision. See id. at 430. A trial court abuses its discretion if “it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law.” Roosth v. Daggett, 869 S.W.2d 634, 637 (Tex. App.--Houston [14th Dist.] 1994, no writ) citing Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex. 1985).

To be valid, a turnover order must be “definite, clear, and concise in order to give the

person to whom it is directed sufficient information as to his duties and should not be such as would call on him for interpretations, inferences, or conclusions.” Thomas, 917 S.W.2d at 434. Thus, a trial court also abuses its discretion if it fails to specify in its turnover order which nonexempt property is subject to the order. See Burns, 948 S.W.2d at 322.

When review by appeal is inadequate, an appellate court may hear a petition for writ of mandamus and thereby review the actions of a trial court on a turnover request. See Enis v. Smith, 883 S.W.2d 662, 663 (Tex. 1994). A turnover order also may be challenged through a writ of habeas corpus. If a judgment debtor refuses to obey a turnover order, the trial court may find the debtor in contempt and confine the debtor. The debtor can petition an appellate court for a writ of habeas corpus. See Ex parte Swate, 922 S.W.2d 122, 124 (Tex. 1996). The debtor must show that the turnover order is void as exceeding the trial court’s power or as depriving the debtor of due process of law. See Ex parte Chambers, 898 S.W.2d 257, 259-60 (Tex. 1995).

IX. BANKRUPTCY

While this article does not focus on bankruptcy issues, there are a few important points that need to be addressed. Federal bankruptcy statutes do not necessarily suspend the right of a state court to appoint a receiver or receivership actions. See Gilchrist v. General Elec. Capital Corp., 262 F.3d 295, 302 (4th Cir. 2001). However, the automatic stay provisions of the bankruptcy statutes impose an immediate freeze to all collection activities, litigation, lien enforcement, or any other actions which are attempts to enforce or collect pre-petition debts. Id. at 303. See 11 U.S.C. § 362(a). Automatic stay does not prevent the commencement or continuation of an action or proceeding for the collection of support, alimony or maintenance. 11 U.S.C. § 362(b).

However, a state court receiver must abstain from the taking action with respect to

property of the judgment debtor, turn over the property to the trustee and file an accounting. See 11 U.S.C. §§ 101(11)(A), 362. See In re Bezoza, 271 B.R. 46, 53 (Bankr. S.D.N.Y. 2002); In re 245 Assocs., LLC, 188 B.R. 743, 748 (Bankr. S.D.N.Y. 1995). The receiver delivers any property of the debtor held by or transferred to the receiver, or proceeds, product, offspring, rents, or profits of such party, that is in the receiver’s possession, custody, or control on the date that the receiver acquires knowledge of the commencement of the bankruptcy action. See 11 U.S.C. § 362(b)(1).

31


X. SUMMARY AND CONCLUSION

The intent of this article is to highlight to the family law practitioner the availability and use of receiverships and turnover proceedings in the family law case. Receiverships can be an effective remedy to preserve community assets and collect judgments. However, as has been shown in this article, receiverships can be a harsh remedy that can subject the inexperienced practitioner to a procedural and costly nightmare. Evaluate your case carefully and understand the statues and cases before you venture into this area.

32


APPENDIX A TEXAS FAMILY CODE § 6.502

§ 6.502. Temporary Injunction and Other Temporary Orders (a) While a suit for dissolution of a marriage is pending and on the motion of a party or on

the court's own motion after notice and hearing, the court may render an appropriate order, including the granting of a temporary injunction for the preservation of the property and protection of the parties as deemed necessary and equitable and including an order directed to one or both parties: (1) requiring a sworn inventory and appraisement of the real and personal property

owned or claimed by the parties and specifying the form, manner, and substance of the inventory and appraisal and list of debts and liabilities;

(2) requiring payments to be made for the support of either spouse; (3) requiring the production of books, papers, documents, and tangible things by a

party; (4) ordering payment of reasonable attorney's fees and expenses; (5) appointing a receiver for the preservation and protection of the property of the

parties; (6) awarding one spouse exclusive occupancy of the residence during the pendency

of the case; (7) prohibiting the parties, or either party, from spending funds beyond an amount the

court determines to be for reasonable and necessary living expenses; (8) awarding one spouse exclusive control of a party's usual business or occupation;

or

(9) prohibiting an act described by Section 6.501(a).

(b) Not later than the 30th day after the date a receiver is appointed under Subsection (a)(5), the receiver shall give notice of the appointment to each lienholder of any property under the receiver's control.

33


APPENDIX B TEXAS FAMILY CODE § 6.709

§ 6.709. Temporary Orders During Appeal (a) Not later than the 30th day after the date an appeal is perfected, on the motion of a party

or on the court's own motion, after notice and hearing, the trial court may render a temporary order necessary for the preservation of the property and for the protection of the parties during the appeal, including an order to:

(1) require the support of either spouse; (2) require the payment of reasonable attorney's fees and expenses;

(3) appoint a receiver for the preservation and protection of the property of the

parties; or

(4) award one spouse exclusive occupancy of the parties' residence pending the appeal.

(b) The trial court retains jurisdiction to enforce a temporary order under this section unless the appellate court, on a proper showing, supersedes the trial court's order.

34


APPENDIX C TEXAS CIVIL PRACTICE AND REMEDIES CODE § 64.001

§ 64.001. Availability of Remedy (a) A court of competent jurisdiction may appoint a receiver: (1) in an action by a vendor to vacate a fraudulent purchase of property;

(2) in an action by a creditor to subject any property or fund to his claim;

(3) in an action between partners or others jointly owning or interested in any property or fund;

(4) in an action by a mortgagee for the foreclosure of the mortgage and sale of the

mortgaged property;

(5) for a corporation that is insolvent, is in imminent danger of insolvency, has been dissolved, or has forfeited its corporate rights; or

(6) in any other case in which a receiver may be appointed under the rules of equity.

(b) Under Subsection (a)(1), (2), or (3), the receiver may be appointed on the application of

the plaintiff in the action or another party. The party must have a probable interest in or right to the property or fund, and the property or fund must be in danger of being lost, removed, or materially injured.

(c) Under Subsection (a)(4), the court may appoint a receiver only if:

(1) it appears that the mortgaged property is in danger of being lost, removed, or materially injured; or

(2) the condition of the mortgage has not been performed and the property is

probably insufficient to discharge the mortgage debt. (d) A court having family law jurisdiction or a probate court located in the county in which a

missing person, as defined by Article 63.001, Code of Criminal Procedure, resides or, if the missing person is not a resident of this state, located in the county in which the majority of the property of a missing person's estate is located may, on the court's own motion or on the application of an interested party, appoint a receiver for the missing person if:

(1) it appears that the estate of the missing person is in danger of injury, loss, or

waste; and (2) the estate of the missing person is in need of a representative.

35


APPENDIX D TEXAS CIVIL PRACTICE AND REMEDIES CODE § 31.002

§ 31.002. Collection of Judgment Through Court Proceeding

(a) A judgment creditor is entitled to aid from a court of appropriate jurisdiction through

injunction or other means in order to reach property to obtain satisfaction on the judgment if the judgment debtor owns property, including present or future rights to property, that: (1) cannot readily be attached or levied on by ordinary legal process; and (2) is not exempt from attachment, execution, or seizure for the satisfaction of

liabilities.

(b) The court may: (1) order the judgment debtor to turn over nonexempt property that is in the debtor's

possession or is subject to the debtor's control, together with all documents or records related to the property, to a designated sheriff or constable for execution;

(2) otherwise apply the property to the satisfaction of the judgment; or (3) appoint a receiver with the authority to take possession of the nonexempt

property, sell it, and pay the proceeds to the judgment creditor to the extent required to satisfy the judgment.

(c) The court may enforce the order by contempt proceedings or by other appropriate means

in the event of refusal or disobedience.

(d) The judgment creditor may move for the court's assistance under this section in the same proceeding in which the judgment is rendered or in an independent proceeding.

(e) The judgment creditor is entitled to recover reasonable costs, including attorney's fees.

(f) A court may not enter or enforce an order under this section that requires the turnover of the proceeds of, or the disbursement of, property exempt under any statute, including Section 42.0021, Property Code. This subsection does not apply to the enforcement of a child support obligation or a judgment for past due child support.

(g) With respect to turnover of property held by a financial institution in the name of or on behalf of the judgment debtor as customer of the financial institution, the rights of a receiver appointed under Subsection (b)(3) do not attach until the financial institution receives service of a certified copy of the order of receivership in the manner specified by Section 59.008, Finance Code.

36


APPENDIX E TEXAS PROPERTY CODE § 42.001

§ 42.001. Personal Property Exemption (a) Personal property, as described in Section 42.002, is exempt from garnishment,

attachment, execution, or other seizure if:

(1) the property is provided for a family and has an aggregate fair market value of not more than $60,000, exclusive of the amount of any liens, security interests, or other charges encumbering the property; or

(2) the property is owned by a single adult, who is not a member of a family, and has

an aggregate fair market value of not more than $30,000, exclusive of the amount of any liens, security interests, or other charges encumbering the property.

(b) The following personal property is exempt from seizure and is not included in the

aggregate limitations prescribed by Subsection (a):

(1) current wages for personal services, except for the enforcement of court-ordered child support payments;

(2) professionally prescribed health aids of a debtor or a dependent of a debtor; and

(3) alimony, support, or separate maintenance received or to be received by the debtor for the support of the debtor or a dependent of the debtor.

(c) This section does not prevent seizure by a secured creditor with a contractual landlord's

lien or other security in the property to be seized. (d) Unpaid commissions for personal services not to exceed 25 percent of the aggregate

limitations prescribed by Subsection (a) are exempt from seizure and are included in the aggregate.

37


APPENDIX F TEXAS CIVIL PRACTICE AND REMEDIES CODE § 42.002

§ 42.002. Personal Property (a) The following personal property is exempt under Section 42.001(a): (1) home furnishings, including family heirlooms; (2) provisions for consumption; (3) farming or ranching vehicles and implements;

(4) tools, equipment, books, and apparatus, including boats and motor vehicles used in a trade or profession;

(5) wearing apparel;

(6) jewelry not to exceed 25 percent of the aggregate limitations prescribed by Section 42.001(a);

(7) two firearms; (8) athletic and sporting equipment, including bicycles;

(9) a two-wheeled, three-wheeled, or four-wheeled motor vehicle for each member of a family or single adult who holds a driver's license or who does not hold a driver's license but who relies on another person to operate the vehicle for the benefit of the nonlicensed person;

(10) the following animals and forage on hand for their consumption: (A) two horses, mules, or donkeys and a saddle, blanket, and bridle for each; (B) 12 head of cattle;

(C) 60 head of other types of livestock; and

(D) 120 fowl; and

(11) household pets. (b) Personal property, unless precluded from being encumbered by other law, may be

encumbered by a security interest under Subchapter B, Chapter 9, Business & Commerce Code, or Subchapter F, Chapter 501, Transportation Code, or by a lien fixed by other law, and the security interest or lien may not be avoided on the ground that the property is exempt under this chapter.

38


APPENDIX G TEXAS CIVIL PRACTICE AND REMEDIES CODE § 42.0021

§ 42.0021. Additional Exemption for Retirement Plan (a) In addition to the exemption prescribed by Section 42.001, a person's right to the assets

held in or to receive payments, whether vested or not, under any stock bonus, pension, profit-sharing, or similar plan, including a retirement plan for self-employed individuals, and under any annuity or similar contract purchased with assets distributed from that type of plan, and under any retirement annuity or account described by Section 403(b) or 408A of the Internal Revenue Code of 1986, [26 U.S.C.A. § 403(b) or 408A] and under any individual retirement account or any individual retirement annuity, including a simplified employee pension plan, is exempt from attachment, execution, and seizure for the satisfaction of debts unless the plan, contract, or account does not qualify under the applicable provisions of the Internal Revenue Code of 1986. [26 U.S.C.A § 1 et seq.] A person's right to the assets held in or to receive payments, whether vested or not, under a government or church plan or contract is also exempt unless the plan or contract does not qualify under the definition of a government or church plan under the applicable provisions of the Federal Employee Retirement Income Security Act of 1974. [29 U.S.C.A. § 1001 et seq.] If this subsection is held invalid or preempted by federal law in whole or in part or in certain circumstances, the subsection remains in effect in all other respects to the maximum extent permitted by law.

(b) Contributions to an individual retirement account, other than contributions to a Roth IRA

described in Section 408A, Internal Revenue Code of 1986, or annuity that exceed the amounts deductible under the applicable provisions of the Internal Revenue Code of 1986 and any accrued earnings on such contributions are not exempt under this section unless otherwise exempt by law. Amounts qualifying as nontaxable rollover contributions under Section 402(a)(5), 403(a)(4), 403(b)(8), or 408(d)(3) of the Internal Revenue Code of 1986 [26 U.S.C.A. §§ 402(a)(5), 403(a)(4), 403(b)(8) or 408(d)(3)] before January 1, 1993, are treated as exempt amounts under Subsection (a). Amounts treated as qualified rollover contributions under Section 408A, Internal Revenue Code of 1986, are treated as exempt amounts under Subsection (a). In addition, amounts qualifying as nontaxable rollover contributions under Section 402(c), 402(e)(6), 402(f), 403(a)(4), 403(a)(5), 403(b)(8), 403(b)(10), 408(d)(3), or 408A of the Internal Revenue Code of 1986 on or after January 1, 1993, are treated as exempt amounts under Subsection (a).

(c) Amounts distributed from a plan or contract entitled to the exemption under Subsection

(a) are not subject to seizure for a creditor's claim for 60 days after the date of distribution if the amounts qualify as a nontaxable rollover contribution under Subsection (b).

(d) A participant or beneficiary of a stock bonus, pension, profit-sharing, retirement plan, or

government plan is not prohibited from granting a valid and enforceable security interest in the participant's or beneficiary's right to the assets held in or to receive payments under the plan to secure a loan to the participant or beneficiary from the plan, and the right to the assets held in or to receive payments from the plan is subject to attachment,

39


40

execution, and seizure for the satisfaction of the security interest or lien granted by the participant or beneficiary to secure the loan.

(e) If Subsection (a) is declared invalid or preempted by federal law, in whole or in part or in

certain circumstances, as applied to a person who has not brought a proceeding under Title 11, United States Code, the subsection remains in effect, to the maximum extent permitted by law, as to any person who has filed that type of proceeding.

(f) A reference in this section to a specific provision of the Internal Revenue Code of 1986

includes a subsequent amendment of the substance of that provision.

Receiver Ships

Documents

Transcript of Receiver Ships