Internacional Realty, Inc. v. 2005 RP W., Ltd.

Decision Date07 October 2014
Docket NumberNo. 01–12–00258–CV.,01–12–00258–CV.
PartiesINTERNACIONAL REALTY, INC., Appellant v. 2005 RP WEST, LTD., Appellee.
CourtTexas Court of Appeals

449 S.W.3d 512

INTERNACIONAL REALTY, INC., Appellant
v.
2005 RP WEST, LTD., Appellee.

No. 01–12–00258–CV.

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

Oct. 7, 2014.
Rehearing Overruled Dec. 23, 2014.


449 S.W.3d 515

John F. Sullivan III, Andre C. DeLaunay, Watt Beckworth Thompson Henneman & Sullivan LLP, Houston, TX, for Appellant.

Kathy D. Patrick, Laura J. Kissel, Gibbs & Bruns, L.L.P., Houston, TX, Richard L. Tate, Tate Moerer & King, L.L.P., Richmond, TX, for Appellee.

Panel consists of Justices KEYES, HIGLEY, and MASSENGALE.

OPINION

MICHAEL MASSENGALE, Justice.

Appellee 2005 RP West, Ltd. sued appellant International Realty, Inc. for breach of a real-estate purchase agreement. The dispute in this appeal primarily

449 S.W.3d 516

concerns the interpretation of the contract to determine what remedy was available to the seller for a breach by the buyer. The trial court rendered judgment on the jury verdict, awarding the buyer $4 million in damages, plus pre- and post-judgment interest and attorney's fees, and the seller challenges that judgment on appeal.

We affirm.

Background

Hugh Caraway, Jr. was the owner of Internacional Realty, Inc. (“IRI”). Beginning in 1993, IRI developed and purchased apartment complexes with Caraway's equity and third-party financing. At one point, IRI managed “about 10,000 apartment units in five or six states.” However, IRI sold many properties between 2006 and 2008, and by the time of trial in this case, its primary business involved “payroll servicing” and ownership of master leases. Caraway was also involved with two related companies: Internacional Realty Management, which was primarily engaged in third-party property management; and Internacional Realty Mortgage Investors, which arranged real-estate financing for IRI and others.

Robert Wilson is a real-estate developer. Over more than 40 years of experience in the real-estate business, he developed approximately ten apartment complex properties in Texas, including two in Fort Bend County: The Reserve and The Villas. Wilson also worked in mortgage banking for over 25 years.

Caraway and Wilson met in the 1980s. Before the transaction that gave rise to this case, Caraway bought three properties developed by Wilson, including The Reserve apartment complex. Both Caraway and Wilson contemplated that The Reserve was Phase I of an overall development plan, which would culminate with Phase II, The Villas, to be located near The Reserve. Wilson formed 2005 RP West, Ltd. (“RP West”), a single-asset limited partnership, for the purpose of developing and building The Villas. Wilson is both a limited partner of RP West and the president and sole employee of Wilson RP West GP, LLC, which serves as the general partner of RP West.

In March 2006, Carraway and Wilson signed a contract, the “Villas Agreement.” Pursuant to this agreement, RP West agreed to build The Villas, and IRI agreed to purchase that complex upon completion for $21.5 million, with closing to occur no later than April 1, 2008. The Villas Agreement was not made contingent upon IRI securing financing. As required by the contract, IRI deposited $215,000 in earnest money with a title company.

The Villas Agreement provided remedies for both parties in the event of a breach of the agreement by the other. In the event that IRI breached the agreement to purchase The Villas, RP West could elect one of the following three “sole and exclusive remedies”: “(i) terminate this Agreement and thereupon shall be entitled to the Earnest Money as liquidated damages (and not as a penalty), or (ii) put the Property to Purchaser and sue Purchaser for the Purchase Price, or (iii) pursue the remedy of specific performance of Purchaser's obligations under this Agreement.” The agreement stated that the parties had provided an option for liquidated damages “because it would be difficult to calculate, on the date hereof, the amount of actual damages for such breach, and Seller and Purchaser agree that these sums represent reasonable compensation to Seller for such breach.” In addition, if the “put” remedy were elected, the contract specified that RP West, as seller, would have “all rights of offset

449 S.W.3d 517

against Purchaser to which Seller may be entitled at law or in equity ....”

RP West financed construction of The Villas with a construction loan from Amegy Bank for $16.2 million, which Wilson personally guaranteed. The Amegy Bank loan was originally due on March 6, 2008. As a condition of this loan, Amegy Bank required both RP West and IRI to sign a “Tri–Party Agreement.” Under this agreement, IRI acknowledged and consented to the construction loan documents securing the loan, specifically RP West's assignment to Amegy Bank of its rights under the Villas Agreement, expressly including the right to earnest money. This agreement also gave Amegy Bank the right to sue for specific performance should IRI default on its obligation to purchase The Villas.

Because the construction and development cost of The Villas exceeded $16.2 million, RP West took a second “mezzanine loan” for $2,113,500 from IRA River Park West II Mezzanine, Ltd., a Texas limited partnership. Caraway was the manager of the general partner of this partnership. The mezzanine lender had repayment rights superior to the equity investors but inferior to Amegy Bank. But the mezzanine loan was not secured by a second lien; rather the mezzanine lender “just had an assignment of the ... individual partner's interest in 2005 RP West.”

Approximately a year after IRI and RP West signed the Villas Agreement, and before construction of the complex was completed, IRI agreed to sell 12 properties, including The Reserve and The Villas, to an investor named Dennis Trimarchi for a combined price of more than $318 million.1 Of that amount, Trimarchi had offered $23,760,000 for The Villas. Thus, by assigning its rights under the Villas Agreement to Trimarchi, IRI stood to receive approximately $2.26 million more than it was obligated to pay for the property under the Villas Agreement. Caraway intended to close on the purchase of The Villas from RP West (in fulfillment of the Villas Agreement) and to simultaneously close on the resale of the property to Trimarchi.

Caraway sent Wilson an email explaining the Trimarchi deal and requesting (1) a change in the closing date, (2) release of IRI's $215,000 earnest money held by the title company, and (3) an agreement to replace the $215,000 earnest money with the earnest money that Trimarchi would provide in connection with his contract with IRI. RP West and IRI later signed an amendment to the Villas Agreement, which released the original $215,000 earnest money to IRI, required redeposit of such earnest money if the Trimarchi contract were “not executed by September 21, 2007,” and included the following “Assignment of Trimarchi Earnest Money”: “Purchaser hereby assigns to Seller all of Purchaser's right, title and interest in and to the Trimarchi Earnest Money, which assignment shall become effective immediately upon execution of the Trimarchi contract. Such assignment is intended to serve as a replacement of the earnest money deposit otherwise provided for under the Villas Contract.” The amendment also stated, “In the event of a conflict between the terms of this Amendment and the other terms of the Contract, the terms of this Amendment shall control.”

RP West released the earnest money in accordance with the amendment. The Trimarchi

449 S.W.3d 518

contract was signed before September 21, 2007, and Trimarchi deposited earnest money with Beacon Title as required by the contract with IRI. Trimarchi was able to secure financing for 10 of the 12 properties, but on October 1, 2007, it terminated the contract with IRI as to The Reserve and The Villas. Caraway did not immediately inform Wilson that Trimarchi terminated their contract with respect to The Villas. The next day, Wilson emailed Caraway to inquire about closing on The Villas, and he responded, “We are still scheduled to close November 15.”

Two days later, Beacon Title released to IRI $74,579 in earnest money from the Trimarchi agreement to purchase The Villas. Despite the assignment language in the amendment to the Villas Agreement, IRI kept the money. At trial Caraway could not recall whether he had informed RP West about having received this earnest money, but he said that he kept it because he was continuing to negotiate with Trimarchi, still believing that the sale of The Villas would close on November 15, 2007 as planned. At that time, IRI did not have $21.5 million in cash, and it was not working to obtain financing to complete its purchase of The Villas in the event that the Trimarchi negotiations failed. Caraway acknowledged at trial that nothing in the contract with RP West would “let [him] off the hook” if the Trimarchi deal fell through.

Trimarchi did not close on The Villas on November 15. Instead, the Trimarchi contract with IRI was amended to require closing on The Villas by January 18, 2008, and Wilson orally agreed to the change in closing date. But by late December 2007, Caraway became aware...

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