Black v. Shor

• Decision Date: 18 April 2013
• Docket Number: No. 13–11–00413–CV.,13–11–00413–CV.
• Parties: Paul BLACK, et al., Appellants, v. Toby SHOR and Seashore Investments Management Trust, Appellees.
• Court: Texas Court of Appeals

443 S.W.3d 154

Paul BLACK, et al., Appellants

v.Toby SHOR and Seashore Investments Management Trust, Appellees.

No. 13–11–00413–CV.

Court of Appeals of Texas, Corpus Christi–Edinburg.

April 18, 2013.

Rehearing Overruled May 24, 2013.

Kevin W. Grillo, Pena & Grillo, PLLC, Corpus Christi, Alan B. Daughtry, Doyle Raizner LLP, Houston, Ben C. Broocks, Austin, for Appellants.

Jean C. Frizzell, John S. Black, Billy Berryhill, Reynolds, Frizzell, Black, Houston, Ron Barroso, Corpus Christi, Richard D. Daly, Houston, Robin C. Gibbs, Jeff Cotner, Houston, for Appellees.

Before Justices GARZA, BENAVIDES and PERKES.

OPINION

Opinion by Justice BENAVIDES.

Appellants, Paul Black, PBF Investments, Ltd., BNP Holdings, Ltd., BNP Commercial Properties, Ltd., Pagenergy Company, LLC, TSE Equities I LLC, TSE Equities Company, Ltd., BNP Management LLC, and 500 Water Street Property LLC, appeal from the judgment of the trial court affirming an arbitration award rendered against them and in favor of Seashore Investments Management Trust (“Seashore”) through its trustee, Toby Shor (collectively “appellees”). We affirm.¹

I. Background

Seashore was created in 2001 for the purpose of investing in various oil and gas and commercial property companies owned and managed by Paul Black. Kenton McDonald was the original trustee for Seashore. Seashore and Black entered into several agreements pertaining to the terms of the investment, including an Agreement Regarding Termination of Joint Ownership, a Restructure Agreement, and an Indemnity Agreement. Through the trust, Shor, the grantor for Seashore, made substantial investments in the Black group of companies. In 2007, Shor succeeded McDonald as trustee of Seashore and began investigating the financial relationships of the companies.

After concluding that appellants had committed misfeasance with regard to Seashore's investments, Shor brought suit against appellants for injunctive relief and pre-arbitration discovery in Nueces County Court at Law Number One. Shor alleged that the agreements between the parties provided for arbitration and that the assets and records of the jointly owned companies had to be preserved to protect the right to a meaningful arbitration. The trial court appointed a special master to assist in the pre-arbitration process. In response to the allegations against them, appellants sought sanctions against Shor, sent Seashore a “termination notice” seeking to dissolve their relationship with it, and participated in a mediation led by the court-appointed special master. Subsequently, appellants filed a separate lawsuit against Seashore in County Court at Law Number Three for an alleged breach of the Agreement Regarding Termination.

Under the terms of the arbitration agreements between the parties, these matters were ultimately submitted to arbitration before a panel of three arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association. After months of pre-arbitration discovery and motions practice, the arbitration hearing was held from June 2, 2010 to June 15, 2010. In its detailed, ten-page award, the arbitration panel awarded Seashore “substantial relief” and denied the Black parties' claims “in their entirety.” Specifically, the panel concluded that Black “intentionally and over a lengthy period of years, extracted millions of dollars from the jointly-owned entities for his own personal use and benefit.” The panel awarded Seashore approximately $31,000,000 for its claims for breach of contract, breach of fiduciary duty, and fraud. The award states, in part:

In 2001, Seashore invested in a group of companies run by Paul Black and PBF Investments, Limited (“PBF”) consisting mainly of limited partnerships in the real estate and oil and gas businesses, with Paul Black directly or indirectly holding majority interests in and controlling the general partners, and Seashore holding minority and limited partnership interests.... Paul Black, BNP Management, LC, Pagenergy Company, LLC and other Paul Black-owned or controlled entities stood in a fiduciary relationship to Seashore.

The evidence presented at the Arbitration Hearing clearly and convincingly established that Paul Black treated the entities jointly-owned with Seashore as his own without regard for Seashore's rights and interests. In particular, the evidence established that Paul Black, intentionally and over a lengthy period of years, extracted millions of dollars from the jointly-owned entities for his own personal use and benefit. Paul Black transferred substantial sums of money to companies wholly owned by himself. He used company credit cards of the jointly-owned entities to pay personal expenses, and instructed company employees to transfer funds from the business as necessary to prevent his personal checking account to be overdrawn. He made other improper transfers. He continued to make transfers for his own benefit even after some of his improper transfers and expenditures were discovered and he had signed a written agreement expressly prohibiting such transfers in the future. Mr. Black continued to make such transfers even when the entities lacked funds to pay their own creditors and obligations. As a fiduciary, Mr. Black had the burden to establish the fairness of all such transactions; based on the evidence presented at the Arbitration hearing, he failed to do so. Mr. Black's claims of implicit permission from Seashore and/or its trustee to engage in such self-dealings were contradicted by the evidence presented and belied by the written agreements between the Parties. The preponderance of the credible evidence established that Mr. Black, individually, and through PBF and the entities he controlled, violated fiduciary and other duties owed to Seashore and breached the agreements with Seashore. [Appellants], on the other hand, failed to establish entitlement to any of the relief they sought.

For these reasons, as discussed in greater detail below, we award [appellees] substantial relief on their claims asserted herein and deny [appellants'] claims in their entirety.

The award further details, inter alia, that appellants failed to make payments to appellees under promissory notes and guarantees; breached fiduciary duties to appellees “by wrongly taking and permitting or effecting excessive distributions from the jointly-owned entities [and] making improper transfers and misusing company funds;” “engaged in fraud and fraudulently induced Seashore to make an initial and subsequent investments in the jointly-owned entities” through promissory notes and other agreements; and “hid or attempted to hide transfers to benefit Mr. Black.” The arbitration panel also concluded that the “type of misconduct proven in this case is precisely the sort of misbehavior Texas law seeks to deter by permitting awards of exemplary damages in appropriate cases” and awarded $5 million in punitive damages based on “a persisted pattern of willful, intentional, malicious conduct and grossly negligent conduct on the part of Mr. Black toward Seashore over an extended period of time,” for which the panel concluded that Mr. Black was “personally liable.”

In County Court at Law Number One, Seashore moved to confirm the arbitration award, whereas appellants moved to vacate the award in County Court at Law Number Three. These cases were ultimately consolidated. The arbitration award was affirmed by judgment rendered by County Court at Law Number Three on April 6, 2011. This appeal ensued.

Appellants raise six issues on appeal: (1) the judgment and arbitration award should be vacated and set aside because the award is made to Seashore, which is not a legal entity, and the time for correcting the award has passed; (2) the judgment should be reversed because after modifying the award and the judgment, the trial court failed to issue findings of fact and conclusions of law to find a clerical error and that judge is no longer on the bench, precluding supplemental findings now; (3) the award on the “so-called” tort claims, which are related to the partnership interests, should be reversed and rendered because Seashore had transferred its partnership interest to the Toby Shor 2004 Grantor Retained Annuity Trust (“Toby Shor 2004 GRAT”), which was not a party to the arbitration; (4) the judgment and award should be set aside and remanded to a different arbitration panel because the panel failed to give effect to the termination of the partnership, and the allocation of liabilities and offsets in a termination requires a new arbitration proceeding; (5) the judgment and award should be reformed to eliminate duplicative tort and contract recovery, including amounts that were awarded for appellants' breach of the promissory notes underlying the transactions between appellants and appellees, or alternatively, reject any tort recovery outright for appellants' failure to pay the promissory notes; and (6) the award of attorney's fees to Shor should be reversed and rendered because she was not a prevailing party and there is no other basis for awarding her fees.²

II. Standard of Review

Arbitration is strongly favored by Texas law, and judicial review of an arbitration award is extraordinarily narrow. See E. Tex. Salt Water Disposal Co., Inc. v. Werline, 307 S.W.3d 267, 271 (Tex.2010) (citing Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 898 (Tex.1995) ; CVN Group, Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex.2002) ); see also In re Guardianship of Cantu de Villarreal, 330 S.W.3d 11, 17 (Tex.App.-Corpus Christi 2010, no pet.). “Subjecting arbitration awards to judicial review adds expense and delay, thereby diminishing the benefits of arbitration as an efficient, economical system for resolving disputes.” CVN Group, Inc., 95 S.W.3d at 238. An arbitration award is given the same effect as a judgment of last resort and all reasonable presumptions are indulged in favor of the award and none against it. Id. Accordingly, we review a trial...