In this=20
case of first impression, we affirm.
Bear,=20
Stearns & Co., Inc., appellee, sued EnviroPower in New York =
state=20
court for breach of contract and quantum meruit alleging that =
EnviroPower=20
failed to pay Bear, Stearns for services performed and expenses =
incurred.=20
The New York court, sua sponte, found that, during discovery, =
EnviroPower=20
intentionally withheld documents, and it struck EnviroPower's =
answer.=20
After an evidentiary hearing, the New York court entered a total =
judgment=20
for Bear, Stearns in the amount of $1,309,880,
In issue=20
two, EnviroPower argues that it is entitled to a stay of =
enforcement while=20
the New York judgment against it is subject to modification on =
appeal by=20
the New York appellate court. After EnviroPower filed its briefing =
in this=20
case, the New York Court of Appeals, sua sponte, dismissed =
EnviroPower's=20
appeal "upon the ground that no substantial constitutional =
question is=20
directly involved." No further appeal of the judgment is pending =
in New=20
York. Accordingly, the issue of a stay is moot and need not be =
addressed.=20
In issue=20
one, EnviroPower argues that the trial court erred in denying its =
motions=20
to vacate and for a new trial because a foreign default judgment =
based on=20
"death penalty" sanctions is "penal" in nature and excepted from=20
enforcement in Texas under the full faith and credit clause. We=20
disagree. Standard =
of=20
Review A court's ruling =
on a motion=20
to vacate, like a ruling on a motion for new trial, is reviewed =
under the=20
abuse of discretion standard. Champion Int'l Corp. v. Twelfth =
Court of=20
Appeals, 762 S.W.2d 898, 899 (Tex. 1988) (trial court has =
wide=20
discretion in denying motion for new trial; its action will not be =
disturbed on appeal absent showing of abuse of=20
discretion). Although the determination of whether EnviroPower =
established=20
an exception to full faith and credit generally involves a factual =
inquiry, not the resolution of a question of law, the trial court =
has no=20
discretion in applying the law to the established facts. See =
Walker v.=20
Packer, 827 S.W.2d 833, 840 (Tex. 1992); Reading & =
Bates=20
Const. Co. v. Baker Energy Res. Corp., 976 S.W.2d 702, 713 =
(Tex.=20
App.--Houston [1st Dist.] 1998, pet. denied). =
Texas law=20
requires a trial court to give full faith and credit to a foreign =
judgment=20
of a sister state unless an exception is established. =
Walker, 827=20
S.W.2d at 840. Therefore, we will review the record to determine =
whether=20
the trial court misapplied the law to the established facts in =
concluding=20
that EnviroPower had not established an exception to full faith =
and=20
credit. Full Faith and Credit Under the "full =
faith and=20
credit" clause of the United States Constitution, a state must =
give the=20
same force and effect to a judgment of a sister state that it =
would give=20
to its own judgments. See U.S. Const. art. IV, =A7 1. =
When a=20
judgment creditor files an authenticated copy of a foreign =
judgment, it=20
satisfies its burden to present a prima facie case for enforcement =
of the=20
judgment. Reading & Bates Constr. Co. v. Baker Energy Res. =
Corp., 976 S.W.2d 702, 712 (Tex. App.--Houston [1st Dist.] =
1998, pet.=20
denied). This is true even if the foreign judgment is taken by =
default.=20
Cash Register Sales and Services of Houston, Inc. v. Copelco =
Capital,=20
Inc., 62 S.W.3d 278, 280-81 (Tex. App.--Houston [1st Dist.] =
2001, no=20
pet.). The burden then shifts to the judgment debtor to prove why =
the=20
sister state's judgment should not be given full faith and credit. =
Id. To overcome this =
burden, the=20
judgment debtor must collaterally attack the foreign judgment by=20
establishing one of the following recognized exceptions to the =
mandates of=20
the full faith and credit clause: (1) the judgment is =
interlocutory, (2)=20
the judgment is subject to modification under the law of the =
rendering=20
state, (3) the rendering state lacked jurisdiction, (4) the =
judgment was=20
procured by fraud or is penal in nature, or (5) limitations has =
expired=20
under Texas Civil Practice and Remedies Code Section 16.066. =
See Russo=20
v. Dear, 105 S.W.3d 43, 46 (Tex. App.--Dallas 2003, pet. =
denied);=20
Reading & Bates Contr. Co., 976 S.W.2d at 712. =
The=20
judgment debtor may overcome the presumption of the validity of =
the=20
foreign judgment only with clear and convincing evidence.=20
Russo, 105 S.W.3d. at 46. In a collateral =
attack, no=20
defense that goes to the merits of the original controversy shall =
be=20
recognized. Id. Finally, =
EnviroPower argues=20
that, because they are penal in nature, death penalty sanctions =
are not=20
enforceable in a foreign jurisdiction. We find the United States =
Supreme=20
Court's opinion in Huntington v. Attrill, 146 U.S. 657, =
13 S. Ct.=20
224 (1892) to be instructive when considering the penal =
classification of=20
death penalty sanctions. Huntington defines the limits of =
penal=20
statutes not entitled to sister state enforcement. The Supreme =
Court=20
explained: The question =
whether a=20
statute of one state, which in some aspects may be called penal, =
is a=20
penal law, in the international sense, so that it cannot be =
enforced in=20
the courts of another state, depends upon the question whether its =
purpose=20
is to punish an offense against the public justice of the state, =
or to=20
afford a private remedy to a person injured by the wrongful=20
act. 146 U.S. at 674, =
13 S. Ct.=20
at 230; Williams v. State of Washington, 581 S.W.2d 494,=20
495 (Tex. Civ. =
App.--Dallas=20
1979, writ ref'd n.r.e.). In Huntington, the Court =
instructed=20
that, in making this determination, we should also consider =
whether the=20
wrong to be discouraged by the statute is a wrong to the public or =
a wrong=20
to the individual. The Court held: [t]he test whether =
a law is=20
penal, in the strict and primary sense, is whether the wrong =
sought to be=20
redressed is a wrong to the public or a wrong to the individual, =
according=20
to the familiar classification of Blackstone: "Wrongs are =
divisible into=20
two sorts of species: private wrongs and public wrongs. The former =
are an=20
infringement or privation of the private or civil rights belonging =
to=20
individuals, considered as individuals, and are thereupon =
frequently=20
termed 'civil injuries;' the latter are a breach and violation of =
public=20
rights and duties, which affect the whole community, considered as =
a=20
community, and are distinguished by the harsher appellation of =
'crimes and=20
misdemeanors.'"
Huntington, 146=20
U.S. at 668-69, 13 S. Ct. at 228 (quoting 3 Bl. Com. 2). The Court =
went on=20
to say that criminal or quasi criminal statutes were the only =
types of=20
penal statutes that fall under the exception to the full faith and =
credit=20
doctrine. It is in this context that the "death penalty" sanctions =
must be=20
evaluated. The central consideration is whether the judgment =
relates to=20
punishment for, or deterrence of, a wrong against the state or =
society, as=20
opposed to a wrong exclusively against the opposing party to the=20
litigation. Death penalty =
sanctions=20
serve as a remedy for parties harmed by another party's wrongful =
actions=20
during litigation. As such, they are designed, under the court's =
rules of=20
procedure, as punishment for and deterrence of a wrong to the =
litigants=20
and not society as a whole. The courts have long recognized that =
discovery=20
sanctions--particularly the rendition of a default judgment =
following the=20
striking of pleadings--are designed to punish the alleged =
wrongdoer as=20
well as deter parties from abusing discovery procedures during =
litigation.=20
See TransAmerican Natural Gas Corp. v. Powell, 811 S.W.2d =
913,=20
918 (Tex. 1991) (legitimate purpose of sanctions are "punishment =
and=20
deterrence"); Downer v. Aquamarine Operators, Inc., 701 =
S.W.2d=20
238, 241-42 (Tex. 1985) (purpose of sanction is to "deter"). Rule =
37 of=20
the Federal Rules of Civil Procedure also permits the striking of=20
pleadings and other sanctions resulting from civil discovery =
violations.=20
In 535 Broadway Associates v. Commercial Corporation of =
America,=20
159 B.R. 403 (S.D.N.Y. 1993), the court held: Sanctions imposed =
under Rule=20
37 have immediate effect of ensuring compliance with court orders =
in the=20
particular case. The rule also serves to "penalize those whose =
conduct . .=20
. warrant such sanctions," by ensuring that the recalcitrant party =
will=20
not enjoy the fruits of its own noncompliance. Finally, the rule =
has the=20
statutory effect of "deterring those who might be tempted to such =
conduct=20
in the absence of such deterrent." Id. at =
406-07.=20
"Rule 37 Sanctions must be applied diligently both 'to penalize =
those=20
whose conduct may be deemed to warrant such a sanction, [and] to =
deter=20
those who might be tempted to such conduct in the absence of such=20
deterrent.'" Roadway Express, Inc. v. Piper, 447 U.S. =
752,=20
763-64, 100 S. Ct. 2455, 2462-63 (1980) (citing Nat'l Hockey =
League v.=20
Metro. Hockey Club, 427 U.S. 639, 643, 96 S. Ct. 2778, 2781 =
(1976)).=20
We overrule issue=20
one. Bond=20
Amount In issue three, =
EnviroPower=20
argues that the trial court erred in refusing to stay enforcement =
of the=20
New York judgment and setting the bond amount at $200,000. =
Specifically,=20
EnviroPower contends it was entitled to a stay without being =
required to=20
file a supersedeas bond. After an =
evidentiary=20
hearing, the trial court denied EnviroPower's motion to vacate =
foreign=20
judgment, motion for new trial, and motion to stay enforcement of =
judgment=20
and made the following findings: (1) The underlying =
New York=20
judgment is entitled to full faith and credit. (2) EnviroPower, =
LLC=20
("Judgment Debtor") has timely filed a notice of appeal from the =
New York=20
judgment. (3) Net Worth has =
not been=20
defined in the supersedeas bond statute. (4) One definition =
of Net=20
Worth is assets minus liabilities. (5) Market Value =
means the=20
amount that would be paid in cash by a willing buyer who desires =
to buy,=20
but is not required to buy, to a willing seller who desires to =
sell, but=20
is under no necessity of selling. (6) The evidence =
adduced at=20
the hearing does not reflect the fair value of the primary assets =
of the=20
Judgment Debtor, which are the federal air permits. (7) Judgment =
Debtor's assets=20
minus liabilities is negative $12,000,000.00. (8) A buyer stands =
willing=20
to purchase Judgment Debtor for $10,000,000.00. (11) Judgment =
Debtor is=20
likely to suffer substantial economic harm if required to post =
security in=20
the full amount required by the supersedeas statute. (12) The Court =
determines=20
that a supersedeas bond in the amount of $200,000.00 will not =
cause=20
Judgment Debtor substantial economic harm. Standard =
of=20
Review We review=20
the trial court's rulings concerning the amount and type of bond =
required=20
and the sufficiency of the sureties under an abuse of discretion =
standard.=20
Tex. R. App. P. 24.4; see also Miller v. Kennedy & =
Minshew, Prof'l=20
Corp., 80 S.W.3d 161, 165 (Tex. App.--Fort Worth 2002, no =
pet.).=20
The test for =
whether a=20
trial court abused its discretion is whether the trial court acted =
arbitrarily or unreasonably in light of all the circumstances of =
the case.=20
McDaniel v. Yarbrough, 898 S.W.2d 251, 253 (Tex. 1995);=20
Lewis v. Western Waste Indus., 950 S.W.2d 407, =
410 (Tex.=20
App.--Houston [1st Dist] 1997, no writ). Ruling on =
Motion to=20
Stay Setting of =
Supersedeas Bond (b) =
Notwithstanding any=20
other law or rule of court, when a judgment is for money, the =
amount of=20
security must not exceed the lesser of: (1) 50 percent of =
the=20
judgment debtor's net worth; or (2) $25=20
million. (c) On a showing =
by the=20
judgment debtor that the judgment debtor is likely to suffer =
substantial=20
economic harm if required to post security in an amount required =
under=20
Subsection (a) or (b), the trial court shall lower the amount of =
the=20
security to an amount that will not cause the judgment debtor =
substantial=20
economic harm.
Tex. Civ. Prac. =
& Rem.=20
Code Ann. =A7 52.006(b) and (c), (emphasis added). The =
Texas Rules=20
of Appellate Procedure, applicable to the security required for =
appeals,=20
also addresses the security calculation, but with a slight =
variation. Rule=20
24.2(a) states that the amount of a security bond cannot exceed 50 =
percent=20
of the judgment debtor's current net worth or $25 =
million. Tex.=20
R. App. P. 24.2(a)(1). Neither statute =
defines "net=20
worth," and EnviroPower argues that we should look to the =
appellate review=20
guidelines in Rule 24.4 for guidance in interpreting the "net =
worth"=20
language of section 52.006. Tex. R. App. P. 24.4 (appellate court =
cannot=20
modify security amount to exceed Rule 24.2(a)(1)).=20
EnviroPower contends that, although section =
52.006 does=20
not contain the clause "current net worth," the phrase is =
necessarily=20
inherent in the code provision because, for bond purposes, a =
judgment=20
debtor's net worth at any other time than "currently" is =
irrelevant. Thus,=20
EnviroPower asserts that its potential future sale for $10 million =
does=20
not support the trial court's finding that the company's net worth =
is $8=20
million. EnviroPower argues that its net worth is negative $12 =
million,=20
and as a consequence, under section 52.006(b) it was not required =
to post=20
security in any amount. We disagree. The trial court =
heard=20
testimony from two witnesses regarding the issue of EnviroPower's =
net=20
worth. Deborah Dawson, the chief financial officer of EnviroPower, =
testified that EnviroPower was formed for the purpose of =
identifying plant=20
locations that were feasible to build power plants, and it has =
obtained=20
air permits in Kentucky and Illinois. Dawson explained that, under =
generally accepted accounting principles, EnviroPower's net worth =
is=20
negative $12,000,000. However, she conceded that, when determining =
the=20
value of a project, she looks at factors other than book value. =
She=20
considers future revenues and streams of revenue to determine the =
value of=20
a company. The initial value of EnviroPower was between $20 and =
$40=20
million. More recently, she reported to potential investors that =
the=20
company was worth $10 million. Dawson testified that Khanjee is to =
pay $10=20
million for EnviroPower in addition to another $8 million to El =
Paso as "a=20
return of their lending to us." Nick D'Ambrosio, a =
senior=20
manager of an international accounting firm, testified that, in =
addition=20
to holding a CPA license, he is also a certified valuation =
analyst, which=20
relates to the valuation of businesses. D'Ambrosio explained that =
valuing=20
a company requires looking at "a historic book value, which is the =
definition as used by Ms. Dawson, and the difference between a =
fair-market=20
net worth, where you take the assets and the liabilities and you =
revalue=20
them at the now, current, fair-market value." Because the =
supersedeas bond=20
statute does not define "net worth," the trial court used =
EnviroPower's=20
market value to determine EnviroPower's net worth. See =
Tex. Civ.=20
Prac. & Rem. Code Ann. =A7 52.006(b). The trial court =
recognized that=20
EnviroPower's assets minus liabilities totaled a negative $12 =
million, but=20
instead found that the evidence adduced at the hearing did not =
accurately=20
reflect the fair value of EnviroPower's primary assets, which are =
federal=20
air permits. The trial court further found that EnviroPower's =
current net=20
worth was $8 million because a buyer stood willing to buy =
EnviroPower for=20
that amount. Considering the =
pending sale=20
of EnviroPower, the trial court ruled that EnviroPower's net worth =
is $8=20
million. However, acting within its discretion, the trial court =
ruled=20
that, if required to provide security for the full amount, =
EnviroPower=20
would suffer substantial economic harm. The court therefore =
lowered the=20
security amount to $200,000. We review the =
trial court's=20
interpretation of the applicable statutes de novo. See Bragg =
v.=20
Edwards Aquifer Auth., 71 S.W.3d 729, 734 (Tex. 2002). The =
overriding=20
objective of statutory construction is to determine and give =
effect to the=20
Legislature's intent. See Cont'l Cas. Co. v. =
Downs, 81=20
S.W.3d 803, 805 (Tex. 2002). In order to ascertain legislative =
intent, we=20
first look to the plain and common meaning of the words used by =
the=20
Legislature. Tex. Gov't Code Ann. =A7 311.011 (Vernon 1998 & =
Supp.=20
2006); St. Luke's Episcopal Hosp. v. Agbor, 952 S.W.2d =
503, 505=20
(Tex. 1997). "Net =
worth" is=20
generally defined as the excess of total assets over total =
liabilities.=20
See, e.g., Black's Law Dictionary 1639 (8th ed. 2004); =
Webster's=20
Third New International Dictionary 1519 (1993 ed.); Investopedia =
(2000=20
ed.). Many courts have also accepted this definition. For example, =
in=20
holding that the unambiguous meaning of the term "net worth" in =
section=20
52.006 means the=20
difference between total assets and total liabilities, the=20
Fourteenth Court of Appeals made the following observation: =
The Legislature =
could have=20
required the trial court to determine the Security Amount based on =
50=20
percent of a judgment debtor's value, using whatever measure of =
value the=20
trial court found to be most appropriate. However, the Legislature =
did not=20
do so; instead, it required that the trial court base this =
determination=20
on the judgment debtor's "net worth." Ramco Oil =
& Gas,=20
Ltd. v. Anglo Dutch (Tenge) L.L.C., 171 S.W.3d 905, 915 (Tex. =
App.--Houston [14th Dist.] 2005, no pet.). Similarly, the United =
States=20
Court of Appeals for the Seventh Circuit held that the plain =
meaning of=20
net worth, in accordance with the generally accepted accounting =
principles=20
("GAAP"), is the difference between total assets and total =
liabilities.=20
Continental Web Press, Inc. v. NLRB, 767 F.2d 321, 323 =
(7th=20
Cir. 1985), disapproved of on other grounds by Comm'r. v. =
Jean, 496 U.S. 154, 160-66, 110 S. Ct. 2316, 2319-23 (1990). =
The=20
court went on to note that, because Congress did not define the =
statutory=20
term "net worth," it is fair to assume that, "if it had thought =
about the=20
question, it would have wanted the courts to refer to generally =
accepted=20
accounting principles." Id. Bear, Stearns =
argues,=20
however, that we should embrace the market value definition of =
"net worth"=20
used by the trial court, arguing that a market value net worth is =
the most=20
accurate way to determine a company's true net worth. A company's =
market=20
value reflects the overall value of the company's stock, and this =
sum may=20
be higher or lower than the company's net worth. Investopedia =
(2000 ed.).=20
An asset's fair market value is usually the best evidence of its =
true=20
value. Zeptner v. Zeptner, 111 S.W.3d 727, 741 (Tex. =
App.--Fort=20
Worth 2003, no pet.); Beavers v. Beavers, 675 S.W.2d 296, =
299=20
(Tex. App.--Dallas 1984, no writ). "Fair market value" has =
consistently=20
been defined as "the price the property will bring when offered =
for sale=20
by one who desires to sell, but is not obliged to sell, and is =
bought by=20
one who desires to buy, but is under no necessity of buying." =
City of=20
Pearland v. Alexander, 483 S.W.2d 244, 247 (Tex. 1972); =
see Ricks=20
v. Ricks, 169 S.W.3d 523, 527 (Tex. App.--Dallas 2005, no =
pet.);=20
Nelson v. Najm, 127 S.W.3d 170, 177 (Tex. App.--Houston =
[1st=20
Dist.] 2003, pet. denied). Market value also encompasses the =
amount that a=20
buyer is willing to pay for a company. In this case, Khanjee is =
willing to=20
pay $10 million for EnviroPower even while assuming "certain =
liabilities."=20
Furthermore, the =
legislative=20
history of section 52.006 of the Texas Civil Practice and Remedies =
Code=20
reveals that, by not defining the term "net worth," the Texas =
Legislature=20
intended to give trial courts the discretion to weigh all of the =
evidence,=20
and not just a company's accounting records, in determining the=20
appropriate amount of a supersedeas bond. See House Res. =
Bill=20
Org., Bill Analysis, H.B. 4, 78th Leg., R.S., p. 46 (2003) ("There =
is no=20
easy way to define 'net worth,' and it is important to give judges =
discretion to determine this on a case-by-case basis. If a =
plaintiff feels=20
that a defendant is manipulating its assets to reduce the bond =
amount, the=20
plaintiff can ask the judge to address this."). Thus we hold that, =
for=20
supersedeas purposes, a company's net worth should be determined =
after=20
evaluating all of the relevant evidence and should not be =
restricted to=20
the narrow definition of the excess of assets over liabilities. As =
both=20
the Legislature and Supreme Court have recognized, a company's =
book value=20
net worth--assets minus liabilities--can be manipulated, making it =
an=20
unreliable means of determining a company's true net worth. =
See=20
id.; Wal-Mart Stores, Inc. v. Alexander, 868 S.W.2d =
322,=20
330-31 (Tex. 1993) (Gonzalez, J., concurring) (punitive damages).=20
Here, the trial =
court=20
weighed all of the pleadings and evidence presented by the =
parties, which=20
included testimony that EnviroPower was in negotiations with at =
least=20
three other willing buyers, all of whom offered to assume its =
liabilities=20
and pay a range of $1 to $10 million for the company. EnviroPower=20
eventually entered an active agreement with Khanjee, whereby =
Khanjee would=20
pay $10 million for the company and assume "certain liabilities." =
By using=20
only its book value to determine its net worth, we would enable=20
EnviroPower to potentially postpone this active agreement with =
Khanjee to=20
avoid satisfying the judgment against it. We, therefore, hold that =
the=20
trial court was within its discretion in finding EnviroPower's =
current net=20
worth to be $8 million. We further hold that the trial court did =
not abuse=20
its discretion setting the bond amount at $200,000. We affirm the =
trial court's=20
judgment. George C. Hanks,=20
Jr. Justice Panel consists of =
Justices=20
Taft, Keyes, and Hanks. 1. 2. 3.