Sister Initiative, LLC v. Broughton Maint. Ass'n, 02-19-00102-CV

• Decision Date: 13 February 2020
• Docket Number: No. 02-19-00102-CV,02-19-00102-CV
• Parties: SISTER INITIATIVE, LLC; DAVID BAGWELL; AND SUSAN BAGWELL, Appellants v. BROUGHTON MAINTENANCE ASSOCIATION, INC.; OLD GROVE MAINTENANCE ASSOCIATION, INC.; AND WHITTIER HEIGHTS MAINTENANCE ASSOCIATION, INC., Appellees
• Court: Court of Appeals of Texas

SISTER INITIATIVE, LLC; DAVID BAGWELL; AND SUSAN BAGWELL, Appellants v. BROUGHTON MAINTENANCE ASSOCIATION, INC.;

OLD GROVE MAINTENANCE ASSOCIATION, INC.;

AND WHITTIER HEIGHTS MAINTENANCE ASSOCIATION, INC., Appellees

No. 02-19-00102-CV

Court of Appeals Second Appellate District of Texas at Fort Worth

February 13, 2020

On Appeal from the 96th District Court Tarrant County, Texas

Trial Court No. 096-256351-11

Before Kerr, Birdwell, and Bassel, JJ.

Memorandum Opinion by Justice Bassel MEMORANDUM OPINION

I. Introduction

This is an appeal from a four-week bench trial. The reporter's record consists of fifteen volumes of testimony and argument and an additional five volumes containing hundreds of exhibits. The antagonists are Appellants David and Susan Bagwell and Sister Initiative, LLC on one side and three homeowners' associations—Appellees Broughton Maintenance Association, Inc.; Old Grove Maintenance Association, Inc.; and Whittier Heights Maintenance Association, Inc. (collectively, the HOAs)—on the other.

The Bagwells, who are husband and wife, served as directors of the nonprofit HOAs. During the time that the Bagwells were directors of the HOAs, loans were obtained from Sister Initiative, an entity owned by the Bagwells' daughters, on terms that made the HOAs liable for the loans' repayment. The Bagwells were subsequently ousted as directors of the HOAs, and litigation involving the loans ensued.

As the size of the record suggests, that litigation involved a host of issues. But the controversy before us centers on the trial court's judgment that found the loans from Sister Initiative to be invalid and unenforceable and that awarded the HOAs damages for the portions of the loans repaid to Sister Initiative. In essence, the trial court found that the Bagwells used the Sister Initiative loans as a means of funneling money to themselves while leaving the HOAs liable for the loans' repayment.

Appellants challenge the trial court's judgment with two broad issues: (1) the trial court erred by voiding the loans made by Sister Initiative and awarding the HOAs compensatory damages; and (2) the trial court erred by failing to enter a judgment awarding recovery on the loans in the same fashion as it did for another party that loaned funds to the HOAs.

We briefly summarize our disposition of the issues:

• The primary issues in this appeal involve the Bagwells' argument that they cannot be held liable for breach of fiduciary duty for entering into self-dealing transactions in the form of the loans because the boards of the HOAs authorized the loans in accordance with Section 22.230 of the Texas Business Organizations Code and because the loans were "fair" to the HOAs. We hold that the boards never properly authorized the loans in accordance with the requirements of Section 22.230 and reject the Bagwells' arguments challenging the trial court's findings and conclusions that the loans were not fair because they give us no legal basis to overturn those findings and conclusions.

• After disposing of the issues involving Section 22.230, we turn to a number of subsidiary arguments raised by Appellants:

? Appellants' claims that the HOAs were not harmed by the making of the loans do not invalidate the judgment because their argument ignores the trial court's findings showing how the loans were implemented for a purpose that was harmful to the HOAs;? Appellants' claims that the Bagwells did not benefit from the loans fail because

¦ The HOAs are not receiving a "windfall" from the trial court's voiding the loans, and

¦ There are proper bases to hold Sister Initiative jointly liable for the Bagwells' breach of fiduciary duty;

? Appellants suffered no harmful error from the trial court's entry of allegedly immaterial findings; and

? Appellants do not have a viable claim for money had and received.

We therefore affirm the trial court's judgment.

II. Factual and Procedural Background

We take much of the following background from the detailed findings of fact and conclusions of law signed by the trial court. We attach the findings and conclusions as an appendix to this opinion.

The Bagwells are in the business of real estate development. Through limited partnerships, they developed three neighborhoods in Tarrant County named Old Grove, Broughton, and Whittier Heights. As described below, the Bagwells owned and operated various legal entities, which are interrelated to their involvement with the neighborhoods; at the highest level of generality, the HOAs that became theBagwells' opponents in this litigation were the entities that the Bagwells had created "to serve as the homeowners association for each respective neighborhood."

The Bagwells acted as directors of each of the HOAs. Each HOA also had a third director, Dale Crane, who was a long-time friend and business associate of the Bagwells. This board structure was in place from the formation of the HOAs until the Bagwells and Crane were ousted as directors in August 2011.

Another major player in the litigation was Sister Initiative, LLC. The members of the LLC were the Bagwells' two daughters. Susan Bagwell served as the manager of the LLC.

A closer look at the various entities that underlie the Bagwells' operations involving the neighborhoods reveals a complicated and interlocking business structure. The trial court's fifth finding of fact identified each of the entities involved and their interrelation as follows:

a. The David Bagwell Company: The David Bagwell Company ("DBCo") is a for-profit company formed during the marriage of the Bagwells, owned 100% by David Bagwell, and operated exclusively by, and for the benefit of, the Bagwells. At all times relevant, David Bagwell served as President and Treasurer of DBCo, and Susan Bagwell served as Vice President and Secretary of DBCo.

b. The Limited Partnerships: Among the Bagwells' real estate developments are three neighborhoods located in Tarrant County as follows: Old Grove, Broughton, and Whittier Heights. The land whereupon these three neighborhoods are located was purchased and developed by limited partnerships formed at the behest of the Bagwells as follows: Old Grove LP, Broughton LP, and Broadland LP, respectively. The three limited partnerships were operated for a profit, and the general partner of each of the three limited partnerships isDBCo. As Manager of the general partner, David Bagwell solicited and received cash investments from third[ ]parties in exchange for limited partnership interests in each of the limited partnerships.

c. Evermore Corporation: Evermore Corporation ("Evermore" or "EMC") is a for-profit company, formed during the marriage of the Bagwells, owned 100% by DBCo, and exclusively operated by the Bagwells. At all times relevant, David Bagwell served as President and Treasurer of Evermore, and Susan Bagwell served as Vice President and Secretary of Evermore.

d. Broadacre Partners: Broadacre Partners is a general partnership formed during the marriage of the Bagwells by David Bagwell and Dale Crane for the purpose of receiving a 49.5% "carried" or profit interest in each of the Limited Partnerships, without having invested any capital. Broadacre Partners is owned 85% by Evermore Communities, Ltd. and 15% by Dale Crane. By way of his interest in Broadacre Partners, Dale Crane had a financial interest in all of the Limited Partnerships.

e. Evermore Communities, Ltd.: Evermore Communities, Ltd. is a limited partnership established by David Bagwell. The sole limited partner of Evermore Communities, Ltd. is the David S. Bagwell Trust, which is managed by David Bagwell as trustee. Evermore Corporation serves as the general partner of Evermore Communities, Ltd.

f. Sister Initiative, LLC: Sister Initiative LLC ("Sister Initiative") is a for-profit limited liability company with two members and one manager. The two members of Sister Initiative are the two daughters of the Bagwells, Meredith Carolina Bagwell Matlock and Sarah Brooke Bagwell Krueger. Susan Bagwell served as the Manager for Sister Initiative. The purpose, mission[,] and top priority of Sister Initiative is to support the Bagwell "family business." Sister Initiative supports the Bagwell "family business" by making monetary investments in, or loans to, entities owned and/or controlled by the Bagwells, including DBCo, Evermore, and/or the Limited Partnerships. At all times relevant, Sister Initiative was under the complete and exclusive control of the Bagwells. Although neither a member nor manager of Sister Initiative, David Bagwell influenced and at times controlled its decisions and operations, and was an authorized signer on the SisterInitiative bank account. A significant portion of Sister Initiative's capital came from money the Bagwells' daughters inherited from their deceased grandmother.

g. The foregoing business entities are sometimes referred to hereafter as the "Bagwell 'family business' entities."

Another entity involved in the controversy was Stonegate Financial Corporation, an entity owned by Crane.

According to the Bagwells, the recession of 2008 had a financial impact on the development of the neighborhoods. According to them, assessments needed to operate the various neighborhoods ceased to be paid. To avoid foreclosure, the Limited Partnerships developing the three neighborhoods were forced to file bankruptcy.

The Bagwells asserted that they retained Evermore Corporation to provide maintenance, accounting, and financial services to the HOAs that oversaw the three neighborhoods. The Bagwells claimed that because the assessments had dried up as a source of income, they took a number of steps to obtain funds, including seeking loans from third parties. As described in detail below, the HOAs consented to taking on loans and tasked David with seeking out lenders. According to his portrayal, outside lenders could not be located, and the Bagwells turned to Sister Initiative and Crane's company, Stonegate, to obtain loans. Between September and December 2010...