LMP Austin English Aire, LLC v. Lafayette English Apartments, LP
| Decision Date | 30 September 2022 |
| Docket Number | 03-21-00219-CV |
| Parties | LMP Austin English Aire, LLC, derivatively through Lafayette English Partner, LLC, (individually and derivatively) through Lafayette English Apartments, LP, Appellants v. Lafayette English Apartments, LP (Nominal Defendant); Lafayette English GP, LLC; HVC English, LLC; HVC Lafayette, LLC; Scott Schaeffer; Austin Lafayette Landing Realty LLC; and Austin CMA English Aire Realty LLC, Appellees |
| Court | Texas Court of Appeals |
FROM THE 459TH DISTRICT COURT OF TRAVIS COUNTY NO D-1-GN-18-001682, HONORABLE DUSTIN M. HOWELL, JUDGE PRESIDING
Before Justices Goodwin, Baker, and Triana
Appellants filed this appeal from a final take-nothing judgment in their suit against Appellees involving the 2015 sale of two southeast Austin apartment complexes (collectively, the Properties) in which Appellants owned an interest. For the reasons stated below, we will affirm the district court's judgment in part and reverse and remand in part.
In 2006, Lafayette English Apartments, LP financed its purchase of the Properties with a $17,300,000 loan from RAIT Partnership, LP that was secured by the Properties. Appellants owned interests in business entities that bought the Properties. In 2009, contending that the Properties were underperforming, the lender took control of the Properties and the entities that owned the Properties were reorganized.
The Properties were sold in 2015, and in 2018, Appellants filed suit challenging the sale. They argued that the Properties were sold at an undervalued price, which deprived them of a distribution of the sale proceeds, and that the sale was improper and should be unwound because it occurred without the consent of a contractually required "Independent Manager." The Properties were sold again in 2018 after Appellants had filed suit.
In their suit, Appellants made derivative claims against: (1) the reorganized entities that owned the Properties (Lafayette English GP, LLC and Scott Schaeffer); (2) the parties who purchased the Properties in 2015 from the lender-controlled owners (HVC English, LLC and HVC Lafayette, LLC); and (3) the ultimate buyers and current owners of the Properties (Austin Lafayette Landing Realty LLC and Austin CMA English Aire Realty LLC). Appellants pleaded claims for breach of contract, breach of fiduciary duty, fraud by nondisclosure "knowing participation/aiding and abetting breach of fiduciary duty," and violations of the Texas Uniform Fraudulent Transfer Act (TUFTA). [1] They sought relief in the form of a declaratory judgment, an accounting, and quieting of title.[2] Appellees responded with several motions including a plea to the jurisdiction and motions to dismiss under the Texas Citizens Participation Act (TCPA)[3] and Texas Rule of Civil Procedure 91a.[4] The parties also filed cross-motions for summary judgment.
After hearing the motions, the district court signed a series of interlocutory orders: (1) granting Appellees' plea to the jurisdiction as to Appellants' TUFTA claims; (2) granting a partial motion to dismiss under the TCPA as to Appellants' claim for "knowing participation/aiding and abetting breach of fiduciary duty"; (3) assessing $50,651.82 in attorney's fees and $50,203.00 in sanctions against Appellants under the TCPA; (4) overruling all parties' objections to the summary-judgment evidence; and (5) granting Appellees summary judgment as to Appellants' remaining claims and denying Appellants' cross-motion for summary judgment. The orders dismissing Appellants' claims and the associated orders awarding attorney's fees and sanctions to Appellees were memorialized in the district court's May 4, 2021 final judgment.
Appellants present multiple issues challenging the final judgment and the subsumed orders. They challenge the order granting the plea to the jurisdiction, asserting that they have standing to bring a TUFTA claim. They challenge the order granting the TCPA motion, contending that the statute is inapplicable to a claim for "knowing participation/aiding and abetting breach of fiduciary duty" in a private business transaction and alternatively, that they presented clear-and-specific evidence to defeat the TCPA motion. Relatedly, they argue that the TCPA attorney's fees award was made without evaluating whether the fees were "reasonably necessary" and that the TCPA sanctions award was "excessive and impermissibly punitive." Lastly, Appellants challenge the district court's evidentiary rulings and order granting Appellees summary judgment as to Appellants' breach-of-contract claim, their claims against the general partner that were not the subject of a summary-judgment motion, their request for declaratory judgment that the property-sale documents were void for lack of consent by an Independent Manager, and their quiet-title claim premised on the void sale of the property.
The number of entities in this case and the similarity of some of their names complicates discussion of the complex background. The relevant corporate structure is:
Richard Nathan is a real-estate investor from Los Angeles who acquired the Properties in 2006. He set up the ownership entities and handled the organization. Lee Minshull (who had had prior dealings with Nathan) along with his brother Paul Minshull, and two others, William Johnson and Balazs Czaki, formed a limited liability company, LMP Austin English Aire, LLC (Subsidiary Limited Partner), to invest in the Properties.
Lafayette English Apartments, LP (Original Partnership) is a Texas limited partnership created to own and manage the Properties. Upon its creation, Original Partnership consisted of a general partner, NCV Austin General, LLC (NCV), a Delaware limited liability company, and a limited partner, Lafayette English Partner, LLC (Limited Partner), a Delaware limited liability company. Limited Partner and NCV each had its own LLC agreement, and Nathan was president of both. NCV had a 0.5% general partnership interest in Original Partnership, while Limited Partner had a 99.5% limited partnership interest. LMP Austin English Aire, LLC (Subsidiary Limited Partner) owned a 46.5% limited partnership interest in Limited Partner.
As we will discuss further, Original Partnership's "Agreement of Limited Partnership of Lafayette English Apartments, LP" (the 2006 Original Partnership Agreement) included provisions designed to make it a "special purpose entity." The 2006 Original Partnership Agreement also included a requirement that the general partner, NCV, have someone serve as an "Independent Manager" for Original Partnership and obtain the Independent Manager's written consent before taking any "Material Action," including sale of "all or substantially all of the assets of the Company."
Original Partnership bought the Properties by obtaining $17,300,000 in first-lien financing from RAIT. The financing involved a nonrecourse loan that required interest-only payments until its maturity date three years later, in 2009. Original Partnership's partners, Limited Partner and NCV, each entered into pledge and security agreements with RAIT that pledged their respective interests in Original Partnership as collateral for the loan. Under the provisions of these pledge and security agreements, any default authorized RAIT to -i.e., Limited Partner's and NCV's interests in Original Partnership-and to "act with respect to the Collateral or the Proceeds as though Lender were the outright owner thereof." These provisions were included as an alternative to judicial foreclosure. As John Reyle, General Counsel for RAIT Financial Trust, explained in his deposition, it is "quicker and easier for a lender to seize the ownership entity than to seize the property itself."
According to Scott Schaeffer, President and Chief Executive Officer of RAIT Financial Trust, the Properties "never performed well."[5] Schaeffer clarified in his deposition that "never performed well," meant that "expenses [we]re high and growing faster than the rents." Appellants dispute that the Properties underperformed.
After maturity of the loan in 2009, and one year into the recession that began the year before, RAIT took over the Properties without a judicial foreclosure. Schaeffer explained that RAIT "took the property back because the property didn't perform either at maturity or during its term paying its interest." As part of this process, the entities were reorganized. After the reorganization, RAIT controlled the management of the entities and Lafayette English GP (General Partner) replaced NCV as general partner of Original Partnership. Both General Partner and Limited Partner of Original Partnership amended their organizational documents substituting RAIT-affiliated employees as Original Partnership's partners and officers. Schaeffer was president of...
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