RECEIVERSHIP, TEMPORARY INJUNCTION ORDER REVERSED IN INTERLOCUTORY
APPEAL
Benefield v. State of Texas (Tex.App.- Houston [1st Dist.] Aug. 14, 2008)(Bland)
(quo warranto proceeding, receivership, interlocutory appeal, orders granting a temporary injunction and
order appointing receiver reversed)
REVERSE TC JUDGMENT AND REMAND CASE TO TC FOR FURTHER PROCEEDINGS:
Opinion by Justice Jane Nenninger Bland
Before Justices Taft, Jennings and Bland
01-07-00970-CV Nancy Benefield, Nancy S. McNulty, Naomi Morales, Robert Seton, Ruthie Parker, Susan
Berkley, Gloria Reeves, Shirley Buelow and Angela Breedlove v. The State of Texas on Relation of the Alvin
community Health Endeavor, Inc. and Brazoria County, Texas
Appeal from 239th District Court of Brazoria County
O P I N I O N
After a conflict developed among the board members of a private, nonprofit community healthcare clinic,
Brazoria County, on behalf of the State of Texas, brought a quo warranto proceeding, in which it sought a
temporary restraining order and a temporary injunction against the chief executive and certain board
members of the nonprofit, and the appointment of a receiver to run the clinic. The trial court granted the
temporary restraining order and, in a subsequent hearing, ordered a temporary injunction against the board
members from taking further action on behalf of the nonprofit.
In addition, the court appointed a receiver to oversee all of its assets and business affairs, relying on Article
1396-7.05(A) of the Revised Civil Statutes. See Tex. Rev. Civ. Stat. Ann. art. 1396-7.05(A) (Vernon 2003).
The board members appeal the temporary injunction and the order appointing a receiver, contending that
the trial court (1) erred in determining that Brazoria County was authorized to bring this quo warranto action
against a nonprofit, (2) abused its discretion in ordering a temporary injunction and appointing a receiver,
and (3) abused its discretion in admitting documents that were not properly authenticated. We conclude that
Brazoria County has failed to show irreparable harm, or any grounds upon which it may impose a receiver to
run the nonprofit.
We therefore reverse the trial court’s orders.
Background
The Alvin Community Health Endeavor (“ACHE”), a nonprofit corporation founded in 1970, provides primary
and supplemental healthcare services to community residents who are medically indigent or have limited
healthcare provider options. Since its inception, ACHE has operated through various sources of funding,
including private donations and donations from charitable organizations. In September 2005, ACHE began to
receive federal funding as a Federally Qualified Health Center (“FQHC”) to cope with additional medical care
needs in Brazoria County in the wake of hurricanes Katrina and Rita. Brazoria County owns the property
upon which ACHE’s facility is located and leases the land to ACHE pursuant to an agreement that ACHE
provide free and low-cost healthcare benefits to Brazoria County residents. The lease agreement recognizes
that ACHE had attained FQHC status.
In May 2007, the Health Resources and Services Administration (“HRSA”) of the United States Department of
Health and Human Services, the federal agency overseeing FQHC funding, conducted an on-site diagnostic
review of ACHE after it received complaints about ACHE’s then-current chief executive officer, Nancy
Benefield. Benefield had served as the chief executive officer since 1994. Based on its review, HRSA
concluded that ACHE had failed to comply with various requirements for federal funding, and expressed
“significant concerns regarding ACHE’s clinical, fiscal and administrative operations as well as its
governance.” HRSA expressed its findings in a July 19 letter to Nancy McNulty, an ACHE board member. In
the letter, HRSA recommended follow-up actions, and stated that if ACHE did not correct the deficiencies
HRSA found, as well as comply with various requirements, it would deny ACHE’s grant application, resulting in
the loss of its federal funding. The letter requested a “Board-approved Corrective Action Plan, with time-
framed objectives responsive to the concerns noted,” by September 1.
Following the letter, in a series of events that spanned three days in late July, some members of ACHE’s
board of directors met and voted to terminate Benefield as CEO of ACHE. Then, board member Jerry Smith
and others changed the locks at ACHE’s clinic facility, issued a criminal trespass citation against
Benefield, cancelled ACHE’s insurance contracts, pulled the internet cabling out of the walls of ACHE’s office,
cancelled ACHE’s housekeeping contract, and terminated employees of ACHE, all without any formal
approval of the board of directors. Finally, certain other members of the board met again in an emergency
meeting and voted to restore Benefield as CEO of ACHE.
In response to HRSA’s warnings, ACHE hired a healthcare management company, which proposed a Clinic
Management and Medical Staffing Agreement to ACHE to resolve the issues that concerned HRSA. Before
the September deadline, Benefield sent a corrective action plan to HRSA, describing ACHE’s
accomplishments and continuing efforts to comply with the federal funding requirements. The healthcare
management company also sent a letter to ACHE’s board of directors that outlined the progress made and
planned future actions that would resolve the problems that HRSA identified in its summary of findings.
Fearful that ACHE stood to lose its federal funding, Brazoria County sued. In October 2007, the trial court
granted Brazoria County leave to file “an information in the nature of a quo warranto.” The county also
applied for a temporary restraining order, a temporary injunction, and the appointment of a receiver
over ACHE. In the quo warranto action against Benefield and eight other directors, the county alleges illegal
corporate conduct, human resource code violations, and breach of ACHE’s lease.
The trial court granted the county’s request for a temporary restraining order. Thereafter, the trial court
heard the applications for the temporary injunction and appointment of a receiver. The parties presented
testimony from ex-board member Gary Goff, board members Nancy McNulty and Nancy Benefield, and Lynda
Bible, who manages similar healthcare facilities in neighboring counties. At Brazoria County’s request, the
trial court also admitted several pieces of correspondence from HRSA. At the conclusion of the hearing, the
trial court enjoined ACHE’s directors from taking any action whatsoever on behalf of ACHE, except as
directed by the receiver, and barred access to all funds, accounts, and real, personal, or mixed property. In
addition, it appointed Bible as a receiver for ACHE, and authorized her to conduct all of ACHE’s affairs.
Benefield and the other board members bring an interlocutory appeal, seeking reversal of the temporary
injunction and the appointment of the receiver. See Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(1), (4)
(Vernon 2008). Recently, the trial court extended the receivership until November 30, 2008. We granted the
board members’ motion to consider that order as part of this appeal. See Tex. R. App. P. 29.6 (“While an
appeal from an interlocutory order is pending, on a party’s motion or on the appellate court’s own initiative,
the appellate court may review . . . a further appealable interlocutory order concerning the same subject
matter.”).
Appellate Jurisdiction
As an initial matter, Brazoria County contests our jurisdiction over the board members’ appeal of Brazoria
County’s authority to bring a quo warranto proceeding, contending that we lack jurisdiction to consider this
argument in an interlocutory appeal. The board members argue that quo warranto proceedings are
extraordinary in nature, and are not available to challenge the legality or propriety of board member
conduct. See Newsom v. State, 922 S.W.2d 274, 279 (Tex. App.—Austin 1996, writ denied).
Appellate courts have jurisdiction to consider immediate appeals of interlocutory orders only if a statute
expressly provides appellate jurisdiction. Stary v. DeBord, 967 S.W.2d 352, 352–53 (Tex. 1998). The Texas
Civil Practice and Remedies Code allows for an appeal from an interlocutory order that appoints a receiver or
grants a temporary injunction. Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(1), (4) (Vernon 2008) (listing
appealable interlocutory orders). An order granting leave to file “an information in the nature of a quo
warranto” is not included in the statute affording interlocutory appeals. See id. § 51.014; Eichelberger v.
Hayton, 814 S.W.2d 179, 182 (Tex. App.—Houston [1st Dist.] 1991, writ denied). In addition, the record on
appeal contains no trial court proceeding or order that could be framed as a plea to the jurisdiction. Texas
courts strictly construe statutes authorizing interlocutory appeals. Walker Sand, Inc. v. Baytown Asphalt
Materials, Ltd., 95 S.W.3d 511, 514 (Tex. App.—Houston [1st Dist.] 2002, no pet.). An order “granting leave
to file an information in the nature of a quo warranto” is neither a final judgment, nor is it an interlocutory
order made appealable by statute. Consequently, we lack jurisdiction to review Brazoria County’s authority
to bring the underlying proceeding, except insofar as it implicates the appeal of the temporary injunction and
the appointment of a receiver.
Temporary Injunction
The board members contend that the trial court abused its discretion in ordering a temporary injunction
because Brazoria County did not plead and prove the elements required for a temporary injunction.
The purpose of a temporary injunction is to preserve the status quo pending trial, but it is an extraordinary
remedy and does not issue as a matter of right. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002).
Trial courts have broad discretion in deciding whether to grant or deny a temporary injunction, and an
appellate court should reverse only if it finds a clear abuse of that discretion. Tel. Equip. Network, Inc. v.
TA/Westchase Place, Ltd., 80 S.W.3d 601, 607 (Tex. App.—Houston [1st Dist.] 2002, no pet.). We should
not reverse a trial court’s temporary injunction unless it is “so arbitrary as to exceed the bounds of
reasonable discretion.” Id. We review the evidence in a light most favorable to the trial court’s order, but an
erroneous application of the law to undisputed facts constitutes an abuse of discretion. Id.
To obtain a temporary injunction, an applicant must prove (1) a cause of action against a defendant, (2) a
probable right to the relief sought, and (3) a probable, imminent, and irreparable injury in the interim.
Butnaru, 84 S.W.3d at 204. An injury is irreparable if there is no adequate remedy at law; if for example, a
prevailing applicant could not be compensated adequately in damages, or if damages cannot be measured
by any certain pecuniary standard. Id. While the board members contend that none of these elements
exists, the absence of any one renders an award of temporary injunctive relief inappropriate. See id. We
find the third element dispositive.
Brazoria County asserts that ACHE is an important part of its obligation to provide healthcare assistance to
its low-income residents. It leases county-owned land to ACHE to carry out that purpose. In support of the
trial court’s order, Brazoria County relies on evidence that ACHE might not qualify for the federal grant it had
been receiving since 2005. ACHE, on the other hand, presented evidence that it was taking steps to comply
with federal regulations. While the county’s evidence suggests the possibility that this nonprofit corporation
might lose its federal funding, it did not suggest that the loss of federal funding would jeopardize ACHE or its
ability to serve low-income residents of Brazoria County. To the contrary, the testimony at the hearing was
that ACHE operates through various sources of funding, and it operated without federal funding for thirty-five
years before it first received federal funds. Brazoria County implies that ACHE has an obligation to it to seek
and receive federal funding, but no evidence suggests that ACHE, a private, nonprofit corporation, either
requires or depends on federal funding to be able to provide healthcare services to Brazoria County
residents. Nor has Brazoria County offered any evidence of such an obligation to it, either in the lease
agreements or otherwise. Consequently, Brazoria County fails to show that it would suffer an imminent,
irreparable injury, even if ACHE were to lose its federal funding. At most, Brazoria County has established a
fear of the possibility of a future injury, and such a contingency “is not sufficient to support issuance of a
temporary injunction.” See Reach Group, L.L.C. v. Angelina Group, 173 S.W.3d 834, 838 (Tex. App.—
Houston [14th Dist.] 2005, no pet.) (citing EMSL Analytical, Inc. v. Younker, 154 S.W.3d 693, 697 (Tex. App.
—Houston [14th Dist.] 2004, no pet.)). Because the evidence does not support the trial court’s finding that
irreparable harm to Brazoria County is probable or imminent, Brazoria County has not satisfied the third
element necessary to obtain a temporary injunction.
Appointment of Receiver
The board members further contend that the trial court abused its discretion in appointing a receiver over all
of the assets and business affairs of ACHE because the county did not plead and prove the elements
required for the appointment of a receiver.
Whether authorized by statute or by equity, we should affirm the interlocutory appointment of a receiver
unless the trial court clearly abused its discretion. Mueller v. Beamalloy, Inc., 994 S.W.2d 855, 858 (Tex. App.
—Houston [1st Dist.] 1999, no pet); Abella v. Knight Oil Tools, 945 S.W.2d 847, 849 (Tex. App.—Houston
[1st Dist.] 1997, no writ). A trial court abuses its discretion when it acts without reference to guiding rules and
principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42 (Tex. 1985). If the decision was
within the trial court’s discretionary authority, we may not reverse simply because we might have reached a
different decision. Beaumont Bank, N.A. v. Buller, 806 S.W.2d 223, 226 (Tex. 1991).
The appointment of a receiver, nevertheless, is a harsh, drastic, and extraordinary remedy, to be used
cautiously. Hunt v. Merch. Mart, Inc., 391 S.W.2d 141, 145 (Tex. Civ. App.—Dallas 1965, writ ref’d n.r.e.);
see Balias v. Balias, Inc., 748 S.W.2d 253, 257 (Tex. App.—Houston [14th Dist.] 1988, writ denied). Even if a
specific statutory provision authorizes a receivership, as in this case, a trial court should not appoint a
receiver if another remedy exists, either legal or equitable. Rowe v. Rowe, 887 S.W.2d 191, 200 (Tex. App.—
Fort Worth 1994, writ denied) (observing that statute permitting appointment of receiver over corporation
authorizes appointment only if party seeking relief convinces trial court that all other legal and equitable
remedies are inadequate). Rather, receivership is warranted only if the evidence shows a threat of serious
injury to the applicant. Parness v. Parness, 560 S.W.2d 181, 182 (Tex. Civ. App.—Dallas 1977, no writ);
Hughes v. Marshall Nat’l Bank, 538 S.W.2d 820, 824 (Tex. Civ. App.—Tyler 1976, writ ref’d n.r.e.); Gunther v.
Dorff, 296 S.W.2d 638, 640 (Tex. Civ. App.—Waco 1956, writ dism’d). Our review focuses on whether the
pleadings and evidence are sufficient to justify a receivership. See Covington Knox, Inc. v. State, 577 S.W.
2d 323, 325 (Tex. Civ. App.—Houston [14th Dist.] 1979, no pet.) (noting that when appeal from order
overruling motion to vacate receivership is perfected, question becomes simply one of sufficiency of petition
to support appointment of receiver).
The Texas Nonprofit Corporation Act governs the appointment of a receiver to rehabilitate a nonprofit
corporation, and it states in relevant part:
(A) A receiver may be appointed for the assets and business of a corporation by the district court for the
county in which the registered office of the corporation is located, whenever circumstances exist deemed by
the court to require the appointment of a receiver to conserve the assets and affairs of the corporation and
to avoid damage to parties at interest, but only if all other requirements of law are complied with and if all
other remedies available either at law or in equity, including the appointment of a receiver for specific assets
of the corporation, are determined by the court to be inadequate, and only in the following instances:
(1) In an action by a member when it is established:
(a) That the corporation is insolvent or in imminent danger of insolvency; or
(b) That the directors are deadlocked in the management of the corporate affairs and the members are
unable to break the deadlock, and that irreparable injury to the corporation is being suffered or is threatened
by reason thereof; or
(c) That the acts of the directors or those in control of the corporation are illegal, oppressive, or fraudulent;
or
(d) That the corporate assets are being misapplied or wasted.
Tex. Rev. Civ. Stat. Ann. art. 1396-7.05(A). A court may appoint a receiver over an entire corporation only if
all other remedies are deemed inadequate. See Aubin v. Territorial Mortgage Co. of Am., Inc., 640 S.W.2d
737, 741–42 (Tex. App.—Houston [14th Dist.] 1982, no writ). The burden of proof to show the existence of
circumstances justifying the appointment of a receiver rests on the party seeking the appointment. See
Furgerson v. First Nat’l Bank, 218 S.W.2d 1019, 1020 (Tex. Civ. App.—Texarkana 1949, no writ). To
determine whether the appointment of the receiver was authorized, therefore, we first consider whether
Brazoria County has met its burden to plead and prove that other remedies available either in law or in equity
are inadequate. See Aubin, 640 S.W.2d at 741–42.
Nothing in the record indicates that Brazoria County met this burden or that the trial court considered
remedies less drastic than a receivership. For example, if Brazoria County has a contractual interest in
ensuring that ACHE maintains its FQHC status, as it contends, it has not shown that other remedies, such as
money damages, cannot adequately protect that contractual interest. Because remedies at law were not
even considered, they could not have been deemed “inadequate” as required by the Texas Nonprofit
Corporation Act.
Furthermore, no evidence suggests that ACHE is insolvent or in imminent danger of insolvency to justify the
appointment of a receiver to take control of the entire corporation and all of its assets; the county has merely
shown that ACHE might lose one of its sources of funding. Brazoria County maintains that the public interest,
as reflected in the Texas Health and Safety Code, requires the county to provide healthcare services to its
low income residents, and that to meet this obligation, it leased county-owned land to ACHE on which ACHE
operates a clinic that provides such services. See Tex. Health & Safety Code Ann. § 61.028(a) (Vernon
2001) (listing healthcare services county must provide for its indigent residents). In 2005, the county
extended its lease with ACHE and noted that ACHE had become a FQHC, but nothing in the lease requires
ACHE to maintain its status as a FQHC. The county also asserts that its own obligation to provide healthcare
to its indigent residents gives the county a legal and contractual interest in ensuring that ACHE maintain its
FQHC status. The county’s effort to transfer its own statutory obligation onto a private corporation, however,
fails to meet the statutory test for a receivership—namely that without one, a danger of insolvency or injury to
the county or its residents exists. Brazoria County’s obligation to provide healthcare services to its residents
does not require it to provide federally-funded healthcare services, nor is ACHE—a private corporation—
required to maintain FQHC status to avoid a complete government takeover of its operations. Brazoria
County fails to show how the county or its residents would be irreparably injured were ACHE to lose FQHC
status, or that the loss of federal funding would place ACHE in danger of insolvency, or even that the loss of
federal funding is a foregone conclusion. Accordingly, the county did not justify the appointment of a
receiver on this ground.
Nor has Brazoria County demonstrated that the acts of the directors or those in control of the corporation are
illegal, oppressive, or fraudulent. The county has shown only that, while one of ACHE’s board members was
on a brief sick leave, the board of directors had eight rather than the required nine members. This showing
does not support Brazoria County’s contention that the board was therefore illegally constituted in general.
Brazoria County relies heavily on Greater Fort Worth & Tarrant County Community Action Agency v. Mims to
justify the appointment of the receiver, but Mims is distinguishable. See 574 S.W.2d 870, 871 (Tex. Civ. App.
—Fort Worth 1978, writ dism’d w.o.j.). The trial court in Mims appointed a receiver for the specific and limited
purpose of ensuring that the dysfunctional board was properly constituted to allow a proper vote on a
director’s employment status. Id. at 871–72. The Mims court did not appoint a receiver to take full control
over the entire corporation as the trial court did in this case. See id. Mims upheld the appointment of a
receiver for the sole purpose of making a dysfunctional board functional and properly constituted; it did not
authorize a receivership over all of a corporation’s assets and business affairs.
Furthermore, Mims authorized such a limited receivership to reconstitute a dysfunctional board only when the
board was “so impaired that it was no longer organized or functioning as it was established or constituted,”
and only when the court determines that a board is “illegally constituted.” See Swain v. Wiley College, 74 S.W.
3d 143, 148 (Tex. App.—Texarkana 2002, no pet.). No evidence suggests that ACHE’s board was so
impaired and dysfunctional that it was illegally constituted. On the contrary, the record indicates that ACHE’s
board was functional and that it was taking steps to correct the deficiencies found by the HRSA.
Because the appointment of a receiver over the assets and business affairs of a corporation is a “radical
remedy,” it should never be applied “unless some serious injury to the complainant will result, or is
threatened.” See Tex. Consol. Oils v. Hartwell, 240 S.W.2d 324, 327 (Tex. Civ. App.—Dallas 1951, orig.
proceeding). Brazoria County has failed to demonstrate that a serious injury is threatened or will result to the
county or its residents, and thus we hold that the court abused its discretion in appointing a receiver over all
of ACHE’s assets and business affairs.
Admission of Evidence
Last, the board members contend that the trial court abused its discretion in admitting certain exhibits
reflecting correspondence from HRSA to ACHE, because the documents are not properly authenticated,
constitute hearsay, and are irrelevant. The admission and exclusion of evidence is committed to the trial
court’s sound discretion, but a trial court abuses that discretion when it acts without regard for any guiding
rules or principles. City of Brownsville v. Alvarado, 897 S.W.2d 750, 753–54 (Tex. 1995).
Texas Rule of Evidence 803(8) excludes records from public offices and agencies from the hearsay rule.
Tex. R. Evid. 803(8). However, such records must be properly authenticated to be admissible. Tex. R. Evid.
901(a). Generally, the requirement of authentication or identification as a condition precedent to
admissibility is satisfied by evidence sufficient to support a finding that the matter in question is what the
proponent claims, and specifically, public records or reports may be authenticated by evidence that the
purported public record or report is from the public office where items of this nature are kept. Tex. R. Evid.
901(a); 901(b)(7). While Brazoria County contends that Rule 803(8) creates a presumption of admissibility,
with the burden being placed on the party opposing the admission of the report to show its untrustworthiness,
that presumption does not exempt the offered document from satisfying other requirements of the rules. See
1001 McKinney, Ltd. v. Credit Suisse First Boston Mortgage Capital, 192 S.W.3d 20, 27–28 (Tex. App.—
Houston [14th Dist.] 2005, pet. denied). The rules of evidence do not require extrinsic evidence of
authenticity as a condition precedent to admissibility for certified copies of public records because they are
self-authenticating. Tex. R. Evid. 902(4). The contested exhibits here, however, were not authenticated by
either certification or any extrinsic evidence. The trial court therefore erred in admitting these documents
over objections to their authenticity.
Conclusion
We conclude that we do not have jurisdiction to consider the status of the pending quo warranto proceeding
in this interlocutory appeal, but because Brazoria County does not show the necessary irreparable harm to
support a temporary injunction or the appointment of a receiver, we reverse the trial court’s orders granting a
temporary injunction and a receivership, and remand the cause to the trial court for further proceedings.
We dismiss all pending motions as moot.
Jane Bland
Justice
Panel consists of Justices Taft, Jennings, and Bland.