The Houston Fourteenth Court of Appeals recently issued an opinion that addresses a couple of important issues for supersedeas practice, namely consolidated financial statements, burden of proof, and expert requirements.

In Hunter Buildings & Manufacturing L.P. v. MBI Global L.L.C., the trial court signed a judgment against six entities for joint-and-several liability.  Three of the judgment debtors–who I’ll call X, Y, and Z–filed net worth affidavits and posted cash bonds.  X posted a cash bond of $1,579,190, claiming net worth of $2,864,743.25.  Y and Z each posted cash bonds of $100, claiming negative net worths.  MBI Global filed a contest to the affidavits of net worth.  The trial court found Y’s net worth to be $9,997,810 and ordered additional security to be posted.  The trial court made no findings as to X’s and Z’s net worth. X, Y, and Z moved for review of the net worth determinations under Appellate Rule 24.

The court of appeals first held that GAAP’s rule relating to consolidated financial statements did not override case law requiring that the net worth of each individual judgment debtor must be determined separately.  The trial court had determined Y’s net worth based upon a consolidated financial statement that included 8 different entities.

Next, the court of appeals held that a judgment debtor does not have to present audited net worth evidence with a certification from a CPA that all requirements of GAAP have been met.  Instead, a judgment debtor can meet its burden of proof by evidence from a bookkeeper with knowledge of the debtor’s records and can present a balance sheet of the debtor using GAAP principles to show net worth.

In addition, the court of appeals held that uncontradicted testimony can be used to prove net worth as a matter of law.

Finally, the court of appeals held that the trial court erred in using a consolidated financial statement of Y based only on evidence Y controlled the subsidiaries listed when there was no evidence that Y was the alter ego of the other entities listed.

The court’s opinion may be found here.