Oaic Commercial Assets v. Stonegate Village

• Decision Date: 16 August 2007
• Docket Number: No. 05-05-01471-CV.,05-05-01471-CV.
• Citation: 234 S.W.3d 726
• Parties: OAIC COMMERCIAL ASSETS, L.L.C., Appellant/Cross-Appellee, v. STONEGATE VILLAGE, L.P., Cross-Appellant; CAWC Financial, Inc., Appellee/Cross-Appellant; and Larry B. White, Appellee.
• Court: Texas Court of Appeals

234 S.W.3d 726

OAIC COMMERCIAL ASSETS, L.L.C., Appellant/Cross-Appellee, v. STONEGATE VILLAGE, L.P., Cross-Appellant; CAWC Financial, Inc., Appellee/Cross-Appellant; and Larry B. White, Appellee.

No. 05-05-01471-CV.

Court of Appeals of Texas, Dallas.

August 16, 2007.

Opinion Denying Rehearing October 17, 2007.

Kurt Howard Kuhn, Virginia K. Hoelscher, Brown McCarroll, L.L.P., Austin, TX, Peter J. Harry, Brown McCarroll, LLP, Dallas, TX, for Appellant.

James C. Mosser, Byron Kevin Henry, Mosser Mallers, PLLC, Dallas, TX, for Appellees.

Before Justices WRIGHT, RICHTER, and LANG.

OPINION

Opinion by Justice LANG.

This case involves a dispute respecting the ownership and operation of a limited partnership, Stonegate Village, L.P. ("Stonegate"). At the trial court, OAIC Commercial Assets, L.L.C. ("OAIC"), recovered judgment in the amount of $1,703,615 in damages and $400,000 in attorney's fees against Stonegate and CAWC Financial, Inc. ("CAWC"), for various claims based upon a limited partnership agreement (the "agreement") respecting Stonegate. OAIC appealed, complaining of the denial of two of its claims by the trial court against CAWC and Larry B. White ("White"), the principal of CAWC. Before us, appellees Stonegate and CAWC raise several cross-points.¹

We focus upon OAIC's claimed status as an "unadmitted assignee" of an original limited partner's interest as defined by the agreement. That status of "unadmitted assignee" is pivotal regarding OAIC's standing to bring suit against appellees. For the reasons set forth below, we vacate the trial court's judgment and dismiss this case because, on this record, OAIC is not an "unadmitted assignee" under the agreement and, therefore, lacks standing to bring its actions against appellees.

I. SUMMARY OF THE CLAIMS AND STANDING ISSUE

At the heart of its claims, OAIC contends it was denied the return on its capital investment to which it was entitled because it was a purchaser of a limited partner's interest or, alternatively, a limited partner's assignee under the agreement. According to OAIC, it was injured by the wrongful acts of CAWC, the general partner of Stonegate, and White, and was damaged in the amount of at least $10,430,502.94.

After a trial on the merits to the court, the trial court ruled in favor of OAIC on its claims for breach of contract and attorney's fees. In addition, pursuant to OAIC's claims for declaratory relief, the trial court: (1) declared OAIC a limited partner in Stonegate; (2) appointed OAIC liquidator of Stonegate; and (3) affirmed its partial summary judgment that OAIC, "with the status of at least an unadmitted assignee" in Stonegate, is entitled to all distributions related to the interest of OAIC's assignor. OAIC's claims for breach of fiduciary duty and conspiracy to breach fiduciary duty against CAWC and White were denied. Both sides appeal the trial court's judgment.

On appeal, OAIC contends the trial court erred in denying its claims for breach of fiduciary duty and conspiracy to breach fiduciary duty because CAWC and White owed a fiduciary duty to OAIC as a limited partner, an unadmitted assignee, and/or the purchaser of an interest in Stonegate. OAIC asserts that duty was breached when CAWC and White, working in concert, "drained partnership assets" without paying OAIC the return to which it was entitled under the agreement.

Pivotal to our disposition of this case is appellees' position that OAIC lacks standing. Stonegate, CAWC, and White assert, inter alia, that OAIC lacked standing to bring its claims because, pursuant to the terms of the agreement, OAIC was not a limited partner in Stonegate, an unadmitted assignee, or "an assignee of any kind."²

We conclude there is no evidence in the record to support OAIC's claim and the trial court's judgment that, pursuant to the agreement, OAIC is "at least an unadmitted assignee" in Stonegate or "a limited partner, an unadmitted assignee, and/or the purchaser of [an interest in Stonegate]." Therefore, OAIC lacks standing to bring any of its claims against appellees. Based upon those conclusions, we vacate the trial court's judgment and dismiss OAIC's claims for lack of subject-matter jurisdiction.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. Events Giving Rise to This Action

Stonegate, a Georgia limited partnership, was formed in April 1998 for the purpose of constructing and operating an apartment complex, Stonegate Village Apartments, in Chandler, Arizona. CAWC, a Texas corporation, served as general partner. At the time of the partnership's formation, the limited partners were Frey Ventures, L.L.C. ("Frey"), an Arizona limited liability company; CAWC/Stonegate Partners, L.P. ("CAWC/Stonegate"), a Texas limited partnership; and AFC Equities, L.P. ("AFC"), a Georgia limited partnership. Stonegate was owned 1% by CAWC, 1% by AFC, 16% by Frey, and 83% by CAWC/Stonegate.

Pursuant to the terms of the agreement, Stonegate borrowed $14 million from First American Bank of Texas to finance construction of the apartment complex. Stonegate granted a first lien against the apartment complex to secure the loan. In 1999 and 2000, Stonegate borrowed $1,158,349.31 pursuant to twenty-eight additional loans (the "second lien loans") which were secured by liens junior to the first lien granted to First American Bank of Texas.

AFC purported to transfer its interest in Stonegate to OAIC, a Florida limited liability company, effective January 18, 2000.³ According to an April 12, 2001 "Officer's Certificate and Release Agreement" executed by AFC's parent corporation, a "certificate of termination of AFC" was filed with the Georgia Secretary of State in November 2000. On March 22, 2001, Stonegate received a letter signed by attorney Steven Chantelois, deputy general counsel of AFC's parent corporation. According to OAIC, the letter met the agreement's requirement contained in section 9.3(d) that "the transferor shall provide an opinion of counsel satisfactory to the Partnership, to the effect that the Transfer is exempt from applicable registration requirements and will not violate any applicable laws regulating the Transfer of securities." The letter stated in relevant part:

You have asked us to provide you with our legal opinion as to whether the offering and sale of AFC Equities, L.P.'s limited partnership interests in Stonegate Village, L.P. (The "Interest"), as described in that Sale and Assignment Agreement (the "Sale Agreement") dated January 18, 2000, is exempt from applicable registration requirements and not in violation of the applicable laws regulating the Transfer of securities.

....

Based on and subject to the foregoing assumptions, we are of the opinion that the offering and sale of the Interests from AFC Equities, L.P. to OAIC—Commercial Assets, Inc. is exempt from registration under the Securities Act of 1933 and not otherwise in violation of the applicable laws regulating the Transfer of securities.

....

This opinion is delivered to you for the sole purpose of admitting OAIC—Commercial Assets, Inc. as a Limited Partner in Stonegate Village, L.P. and may not be delivered to or relied upon by any other party without prior written consent.

In April 2001, Stonegate transferred ownership of the apartment complex to Stonegate Chandler Village Holdings, L.L.C. ("Stonegate Chandler"), a holding company solely owned by Stonegate, in return for a membership interest in Stonegate Chandler. On April 24, 2001, Stonegate Chandler obtained financing from General Electric Credit Corporation ("GECC") to pay the first lien loan, the second lien loans, and closing costs associated with the transaction. Stonegate Chandler filed for bankruptcy in Texas on September 29, 2003. In May 2004, the bankruptcy court ordered a sale of the apartment complex. The $18,999,000.00 proceeds from the sale are currently under control of the bankruptcy court.

B. The Parties' Claims

On April 20, 2001, OAIC filed this action. OAIC contended in relevant part that, in consideration for a cash investment contributed by AFC to Stonegate, AFC, and hence, OAIC, as AFC's assignee, was entitled, pursuant to the agreement, to be paid "a preferred return prior to any distributions being made to the other partners (the `Preferred Return')." Further, according to OAIC, "On or about January 18, 2000, AFC sold and assigned all of its Interest (the `AFC Interest') in Stonegate Village to OAIC ... for an assigned price of $4,105,215." OAIC contends in its fifth amended original petition, "Pursuant to Section 9.2(a) of the Partnership Agreement, AFC had the absolute right to transfer all or any portion of its ownership Interest, including all or part of its right to the Preferred Return." (emphasis original).

According to OAIC, the unauthorized acts of the defendants "deferred indefinitely, and effectively eliminated, the Preferred Return to be paid on the AFC Interest and eliminated the approval protection rights granted to the AFC Interest" in the agreement. Specifically, OAIC contended defendants used excess cash from the GECC loan to pay off unauthorized loans secured by second liens wrongfully placed against the apartment complex. Further, OAIC asserted defendants breached the agreement by failing to fund construction overruns and cash flow deficits in accordance with the agreement and by conveying the apartment complex, without the consent of OAIC, to Stonegate Chandler.

In their answers, Stonegate, CAWC, and White ("defendants") generally denied OAIC's allegations, asserted counterclaims for breach of the agreement and attorney's fees, and contended OAIC is not entitled to recover in this lawsuit because it lacked standing to sue.

In their second plea to the jurisdiction,⁴ defendants contended, "It is undisputed that prior to the attempted transfer of its interest to [OAIC], AFC did not provide any securities opinion to the partnership pursuant to ¶ 9.3(d) of the partnership agreement." Therefore, defendants...