SBI Investments, LLC, 2014-1 And L2 Capital LLC v. Quantum Materials Corp. and Empire Stock Transfer, Inc.
03-17-00749-CV
| Tex. App. | Jan 2, 2018Background
- Quantum Materials Corp. obtained a temporary injunction restraining Empire Stock Transfer from transferring certain Quantum shares that had been recorded as collateral for loans to appellants L2 Capital and SBI Investments.
- Appellants intervened and argued the injunction should be dissolved because Empire (the enjoined party) allegedly lacked proper notice of the injunction hearing. Appellants attended, cross-examined witnesses, and presented their own witness at the October 26 hearing.
- Quantum presented evidence at the hearing that Empire’s ledger transfers, if allowed, would trigger dilution/reset provisions and could induce a ‘‘death spiral’’ causing irreparable harm to Quantum’s business and capital structure.
- The trial court credited Quantum’s evidence and entered an injunction preserving the status quo of the stock as collateral pending final resolution.
- Appellants appealed, primarily arguing defective service on Empire and that Quantum’s harm was purely monetary; Quantum (appellee) contends Empire received actual/constructive notice, appellants lack standing to challenge service on a third party, and irreparable injury was shown.
Issues
| Issue | Plaintiff's Argument (Quantum) | Defendant's Argument (Appellants) | Held |
|---|---|---|---|
| Whether Empire received adequate notice of the injunction hearing | Empire had actual and constructive notice; court took judicial notice of service and compliance | Service on Empire was defective, so injunction was obtained without proper notice | Court found notice effective and that record shows Empire received and complied with order |
| Whether appellants have standing to challenge alleged defective service on Empire | Appellants lack third-party standing because injunction neither names nor injures them; they fully participated in the hearing | Appellants assert injury from injunction's economic effects and challenge service on Empire | Court concluded appellants lacked standing to litigate service defects for a party they do not represent and who was present/participated |
| Whether appellants waived notice objections by participating in the hearing | Participation, presentation of witnesses, and cross-examination waive procedural objections | Appellants contended they could preserve appeal despite appearances | Court treated active participation as waiver of notice argument |
| Whether Quantum showed probable success and irreparable harm warranting injunction | Expert testimony and CEO evidence of death-spiral dilution and loss of going-concern value; testified notes were paid and collateral should remain | Appellants argued harms were monetary and disputed facts about defaults/payments | Court credited Quantum's evidence, finding probable right to prevail and that injunction preventing transfer avoided definitive irreparable injury |
Key Cases Cited
- Butnaru v. Ford Motor Co., 84 S.W.3d 198 (Tex. 2002) (trial-court injunction reviewed for abuse of discretion; appellate court should not substitute judgment when evidence supports injunction).
- Nootsie, Ltd. v. Williamson County Appraisal Dist., 925 S.W.2d 659 (Tex. 1996) (standing requires a justiciable interest; real controversy determined by requested relief).
- Miller v. K & M P’ship, 770 S.W.2d 84 (Tex. App.—Houston [1st Dist.] 1989) (injunctive relief proper where harm not readily susceptible to accurate measurement and damages may be inadequate).
- Amalgamated Acme Affiliates v. Minton, 33 S.W.3d 387 (Tex. App.—Austin 2000) (appearance by counsel and participation can constitute waiver of procedural defects).
- Pilf Invs. v. Arlitt, 940 S.W.2d 255 (Tex. App.—San Antonio 1997) (distinguishes when counsel’s notice does not automatically bind unnamed defendants who lacked authorization to be defended).
- ForScan Corp. v. Dresser Indus., 789 S.W.2d 389 (Tex. App.—Houston [14th Dist.] 1990) (injunctive relief supported where defendant’s conduct threatened ongoing business and marketability).
- Shaw's D. B. & L., Inc. v. Fletcher, 580 S.W.2d 91 (Tex. Civ. App.—Houston [1st Dist.] 1979) (unreasonable refusal to transfer stock may constitute conversion supporting equitable relief).