Hrdy v. Second St. Props. LLC

• Decision Date: 29 March 2022
• Docket Number: 01-19-00194-CV
• Citation: 649 S.W.3d 522
• Parties: Camilla HRDY, Catherine Hrdy, Nicholas Hrdy, Wirt Blaffer, Katherine Taylor and Christie Taylor, Individually and Derivatively on Behalf of Freeport Waterfront Properties, L.P., Appellants v. SECOND STREET PROPERTIES LLC, Briarwood Capital Corporation and H. Walker Royall, Appellees
• Court: Texas Court of Appeals

649 S.W.3d 522

Camilla HRDY, Catherine Hrdy, Nicholas Hrdy, Wirt Blaffer, Katherine Taylor and Christie Taylor, Individually and Derivatively on Behalf of Freeport Waterfront Properties, L.P., Appellants

v.SECOND STREET PROPERTIES LLC, Briarwood Capital Corporation and H. Walker Royall, Appellees

NO. 01-19-00194-CV

Court of Appeals of Texas, Houston (1st Dist.).

Opinion issued March 29, 2022

Rehearing Denied June 16, 2022

Mark Ryan Trachtenberg, Houston, Andrew Guthrie, Dallas, John H. McFarland, Houston, Jason Beesinger, for Appellant.

David J. Beck, Houston, Charles Flores, John S. Adcock, Houston, for Appellee.

Panel consists of Chief Justice Radack and Justices Goodman and Farris.

Gordon Goodman, Justice

This is an appeal from a judgment entered after a jury trial. The underlying suit arises from disputes between the appellants, who are a limited partnership's limited partners, and the appellees, who are the partnership's former general partner, the president of the former general partner, and another company he owns.

The main thrust of the appellants’ claims at trial was that the appellees breached fiduciary or other obligations by acquiring several tracts of real property for themselves that belonged or should have belonged to the partnership. The appellees disputed these claims and asserted that the appellants violated the terms of the partnership agreement by the way in which they elected a new general partner.

The jury returned a mixed verdict finding for the appellants with respect to two tracts and against the appellants with respect to two others. The trial court entered judgment on the verdict and, among other things, ordered the partnership to be dissolved because the partnership agreement requires dissolution if, as here, the partnership does not properly elect a new general partner in a specified timeframe.

Both sides now appeal. The appellants raise six issues contending that:

(1) the evidence is legally and factually insufficient to support the jury's findings that the appellees did not breach a fiduciary or other obligation when they acquired two of the four tracts;

(2) if appellants prevail on their evidentiary sufficiency issue, this court should impose a constructive trust on those two tracts rather than remanding to the trial court to decide whether this equitable remedy is apt;

(3) the trial court erred in awarding the appellees an equitable reimbursement reflecting the costs they expended to acquire and hold the two tracts that the jury found they had misappropriated;

(4) the trial court erred in denying the appellants’ request to dissolve two related agreements, given the jury's findings that the appellees had misappropriated two of the four tracts;

(5) the trial court erred in ordering the partnership to be dissolved; and

(6) the trial court erred in not awarding the appellants their costs and reasonable attorney's fees.

The appellees raise a single issue by way of cross-appeal. They too contend the trial court erred in not awarding their costs and reasonable attorney's fees.

For the reasons stated in our opinion, we hold that:

(1) the evidence is legally and factually sufficient to support the jury findings challenged by the appellants;

(2) because the evidence is legally and factually sufficient, the second issue as to whether we should impose a constructive trust on appeal is moot;

(3) the trial court erred in awarding the appellees an equitable reimbursement;

(4) the trial court did not err in denying the appellants’ request to rescind the two related agreements;

(5) the trial court did not err in dissolving the partnership; and

(6) the trial court erred in not awarding costs and attorney's fees to the appellants but did not err in not awarding them to the appellees.

Therefore, we modify the trial court's judgment to delete the equitable reimbursement, reverse this cause in part and remand it to the trial court to conduct a new trial limited to the issue of the amount of the appellants’ costs and reasonable attorney's fees, and otherwise affirm the trial court's judgment as modified.

BACKGROUND

Introduction

In 2002, Walker Royall and several of his cousins inherited some land along the Brazos River from an uncle. This land, known as the Blaffer Tract, had little value.

On it, sat a shopping center that had been vacant for more than five years. Before Walker and his cousins inherited the land, their uncle's estate had tried to give it to the City of Freeport in exchange for a tax write-off. The City declined after it learned that the shopping center had asbestos.

Walker and his cousins formed a limited partnership, Freeport Waterfront Properties, to manage the land with the aim of increasing its value. As Walker had 10 years’ experience in commercial real estate, the partnership designated his wholly owned company Briarwood Capital Corporation the general partner, which wielded substantial decision-making authority. The limited partners of Freeport Waterfront Properties and their respective percentage interests have changed over time. But both then and now, the limited partners included the appellants: Camilla Hrdy, Catherine Hrdy, Nicholas Hrdy, Wirt Blaffer, Katherine Taylor, and Christie Taylor. Walker, or a company wholly owned by him, also has been a limited partner throughout the limited partnership's existence. As shorthand, we generally will refer to the appellants collectively as the Other Limited Partners.

Freeport Waterfront Properties pursued its goal of increasing the value of the Blaffer Tract for many years, but a rift gradually developed between Walker and the Other Limited Partners. After the Other Limited Partners removed Briarwood Capital as general partner and elected another company in its place without Walker's assent, Walker sued. He sought a declaration that the partnership agreement required unanimity when designating a new general partner and that the election of the new company as general partner was therefore invalid. The Other Limited Partners countersued. They alleged Walker and Briarwood Capital had breached the fiduciary duties they owed to the limited partnership by acquiring additional tracts of land that had been bought or should have been bought by the partnership. The Other Limited Partners sought the return of these tracts and more than $1 million in damages.

Trial

The parties tried their claims to a jury, which heard testimony from several witnesses, including Catherine, Christie, Katherine, Nicholas, Walker, and Wirt. In addition, the jury heard from Van Taylor, who was a limited partner from 2003–05; Andrew Caplan, an attorney who represented Walker's companies and the limited partnership outside this litigation; David Fuller and Josh Korman, expert witnesses who opined on the value of the properties at issue; and Max Lummis, an expert who opined on the profits allegedly diverted from the partnership. Through these witnesses, the parties also introduced into evidence a multitude of documents.

In 2002, the City of Freeport approached Walker with a proposal to build a marina on the Brazos River in the vicinity of the Blaffer Tract. Part of this proposal included a plan to develop the Blaffer Tract to provide amenities complementary to the marina, like hotels and restaurants.

Walker negotiated with the City. He had dozens of meetings with the City's officials and its economic development corporation. According to Walker, none of the Other Limited Partners volunteered to participate in these meetings or negotiations. He periodically reported back to the Other Limited Partners when developments warranted it.

Under the initial plan, referred to as the First Development Agreement, Freeport Waterfront Properties was to contribute the waterfront portion of the Blaffer Tract to the marina. It also was to buy various additional properties necessary to build the marina and act as the marina's developer. The relevant additional properties were adjacent to the Blaffer Tract or near it. These included the City and District Tracts as well as the Henderson Tract. As part of the First Development Agreement, the City granted Freeport Waterfront Properties an option to buy the City and District Tracts, which the City owned, for $75,000. The City also committed to assist Freeport Waterfront Properties in acquiring the Henderson Tract, which the City did not own. In addition, the City agreed to loan $6 million to the limited partnership to build the marina. After the marina was completed, the City would then lease it from the partnership.

Neither Walker nor the Other Limited Partners wanted to incur the risks associated with building or operating the marina. So Walker negotiated with Sun Resorts, which had marina expertise, to act as the actual builder and operator. Together, Sun Resorts and Freeport Waterfront Properties, formed a new company, Freeport Marina LP, for this purpose. Freeport Waterfront Properties was a limited partner in this new entity. The virtue of the arrangement, from the perspective of Freeport Waterfront Properties, was that its partners only had to contribute land to the marina project without putting money into the project or incurring other risks.

Before committing to the marina project, Walker sought the assent of the Other Limited Partners. All but one of them, Katherine, agreed to move forward with the project as outlined in the First Development Agreement.

The First Development Agreement was inked in November 2003. That same year, separate from the First Development Agreement, Walker also secured an option for Freeport Waterfront Properties to buy an additional property the City owned within the marina development area for $90,000. This additional property was known as the Stanley Tract.

In June 2004, Freeport Marina LP used $75,000 contributed by Freeport Waterfront Properties to buy the City and District Tracts. Walker testified that he sought and received the approval of the Other Limited Partners before its money was used to make this purchase.

Apart from the...