W. Loop Hospitality, LLC v. Hous. Galleria Lodging Assocs., LLC

• Court: Texas Court of Appeals
• Writing for the Court: April L. Farris, Justice
• Citation: W. Loop Hospitality, LLC v. Hous. Galleria Lodging Assocs., LLC, 649 S.W.3d 461 (Tex. App. 2022)
• Decision Date: 03 March 2022
• Docket Number: 01-19-00885-CV
• Parties: WEST LOOP HOSPITALITY, LLC, Jetall Companies, Inc., and Ali Choudhri, Appellants/Cross-Appellees v. HOUSTON GALLERIA LODGING ASSOCIATES, LLC, Raymond Management Co., Inc., the Estate of C.J. Raymond, and Barry Perkel, Appellees/Cross-Appellants

649 S.W.3d 461

WEST LOOP HOSPITALITY, LLC, Jetall Companies, Inc., and Ali Choudhri, Appellants/Cross-Appellees

v.HOUSTON GALLERIA LODGING ASSOCIATES, LLC, Raymond Management Co., Inc., the Estate of C.J. Raymond, and Barry Perkel, Appellees/Cross-Appellants

NO. 01-19-00885-CV

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

Opinion issued March 3, 2022

Rehearing Denied May 19, 2022

Joe Sibley, Camara & Sibley, L.L.P., 1108 Lavaca St., Ste. 110263, Austin, Texas 78701, for Appellant.

Roger L. McCleary, John D. Bullock, Parsons McEntire McCleary PLLC, One Riverway, Ste. 1800, Houston, Texas 77056, Rodney L. Drinnon, McCathern, 2000 West Loop South, Ste. 1850, Houston, Texas 77027, for Appellee.

Panel consists of Justices Kelly, Hightower, and Farris.

April L. Farris, Justice

This dispute arises out of a property purchase gone wrong with respect to a Galleria-area hotel development. Appellees/cross-appellants Houston Galleria Lodging Associates, LLC ("HGLA"), Raymond Management Co., Inc., the Estate of C.J. Raymond, and Barry Perkel (collectively, "the developers") sued appellants/cross-appellees West Loop Hospitality, LLC, Jetall Companies, Inc., and Ali Choudhri (collectively, "the sellers") on several claims arising out of the failed sale, including breach of contract and fraudulent inducement. The sellers filed counterclaims, including claims for breach of contract, fraud, and breach of fiduciary duty.

The trial court disposed of the claims in a series of four summary judgment orders. On appeal, the sellers argue that the trial court erred by granting summary judgment in favor of the developers (1) on Choudhri's breach of fiduciary duty claim because Choudhri was not a third-party beneficiary under the contract, and he presented evidence raising a fact issue concerning the existence of a fiduciary relationship between him and the developers; (2) on the sellers' fraud claims because the claims were neither barred by the economic loss rule nor by a disclaimer of reliance; and (3) on West Loop's claim for attorney's fees under Civil Practice and Remedies Code Section 38.001.

The developers filed a cross-appeal. They challenge the trial court's (1) denial of HGLA's motion for summary judgment on its breach of contract claim; (2) denial of HGLA's motion for summary judgment on its claim for attorney fees under Section 38.001 ; and (3) grant of summary judgment for the sellers on HGLA's fraudulent inducement claim. Finally, they contend that if the trial court did in fact render a summary judgment in West Loop's favor on its breach of contract claim, then we should reverse and render judgment on West Loop's breach of contract claim against HGLA.

We affirm in part and reverse in part.

BACKGROUND

A. The Parties' Negotiations and the Purchase Agreement

In 2011, C.J. "Jeff" Raymond, an experienced real estate developer from Wisconsin, sought to develop a hotel in the Galleria area of Houston.¹ Raymond and a company that he owned, Raymond Management Co., Inc., created entity Houston Galleria Lodging Associates, LLC, to pursue development opportunities. Appellee Barry Perkel is the director of real estate for Raymond Management.

The developers engaged a local real estate broker in Houston to assist them in finding a suitable location for a hotel. During this search, the developers discovered a vacant lot ("the subject property") along Interstate 610 Loop, just north of Westheimer Road. The subject property was owned by Mody Group, Ltd. ("Mody"). This lot had access to the frontage road of Loop 610, but it did not have access to Westheimer.

Just south of the subject property was an improved lot, 2425 West Loop South ("the 2425 Property"). In addition to having an office building and a parking garage located on the property, this property had access to Westheimer. The 2425 Property was owned by 2425 West Loop, L.P. The general partner of 2425 West Loop, L.P. was an entity solely owned by Ali Choudhri. Choudhri owns multiple entities involved in the real estate business in Houston, including Jetall Companies, Inc. ("Jetall"). In August 2013, Choudhri created West Loop Hospitality, LLC ("West Loop"), and Jetall assigned its rights under the contract at issue to this new entity. Both entities are controlled by Choudhri.

The developers believed that the subject property would be a desirable location for a hotel if patrons could gain access to Westheimer through the 2425 Property and use the garage on that property. In 2012, the broker hired by the developers introduced Perkel and Raymond to Choudhri. They began discussing the purchase of the subject property from Mody, an access easement to Westheimer through the 2425 Property, and a parking lease agreement for the garage on the 2425 Property.

On February 25, 2013, Mody and Jetall entered into an earnest money contract for sale of the subject property. Jetall agreed to deposit $100,000 as earnest money and agreed to a total purchase price of $7,767,800 for the subject property.

After Jetall entered into the contract with Mody, Choudhri continued negotiating with Raymond and Perkel for purchase of the subject property. In April 2013, Choudhri and Raymond met in person to discuss the transaction. After this meeting, Raymond wired $250,000 to Jetall ("the negotiation fee"). Raymond did not characterize this payment as earnest money, as no contract existed at this time between the developers and the sellers. He testified that the payment was "an investment in good faith trying to get the conversation that we meant business to buy a site." The developers and the sellers continued attempting to reach a deal.

On June 11 and 12, 2013, Jetall and HGLA executed a contract to purchase the subject property ("the Purchase Agreement"). The Purchase Agreement contained two relevant closing dates: the "Contract Closing Date," set for July 1, 2013, and the "Closing Date," set for July 1, 2014. HGLA acknowledged that, at the time the contract was executed, Jetall did not have title to the subject property. Rather, Jetall had the right to purchase the property. If Jetall determined that it could not obtain title to the subject property before the Contract Closing Date but might be able to acquire title before the Closing Date, Jetall could unilaterally extend the Contract Closing Date to any date before July 1, 2014.

The Purchase Agreement required HGLA to pay a total purchase price of $13,321,954. The agreement acknowledged that a $250,000 "negotiation fee" had already been paid. The agreement provided that this fee would be applied to the purchase price if closing occurred, but also stated that this fee "has already been fully earned by Seller" and "shall not be refundable to Buyer except as otherwise specified herein." HGLA also agreed to pay $750,000 in non-refundable earnest money that would also be applied to the purchase price. It is undisputed that the negotiation fee and the earnest money—totaling $1,000,000—is all that has been paid by the developers to the sellers under the Purchase Agreement.

On the Contract Closing Date, HGLA agreed to pay $3,000,000 to Jetall ("the first payment"), also to be applied to the purchase price. When the negotiation fee, the earnest money, and the first payment were all applied to the purchase price, the unpaid balance of the purchase price would be $9,311,954. The parties agreed to enter into a contract for deed on the Contract Closing Date, with HGLA obtaining possession of the subject property. HGLA agreed to pay $61,952.66 per month following the Contract Closing Date, paid toward the balance of the purchase price. On the Closing Date, HGLA would pay the remainder of the unpaid balance and obtain fee simple title to the subject property.

Jetall agreed to grant HGLA, on the Contract Closing Date, a "perpetual easement allowing access to Westheimer Ave. through the adjacent property owned by Seller and located at 2425 West Loop South (the ‘2425 Property’)." The parties also agreed that, on that date, they would enter into a parking agreement "under which Seller shall grant Buyer for an initial 20 year term subject to renewal at Buyer's option for three successive 20 year renewal terms the right to park up to 130 cars from 6 p.m. to 7 a.m. in the parking garage located on the 2425 Property" at a specified rate.

Both Jetall and HGLA made express warranties and representations in the Purchase Agreement. Jetall represented, among other things, that it "has all requisite power and authority and has taken all actions required by its organizational documents and applicable law, and has obtained all necessary consents, to execute and deliver this Agreement and perform its obligations hereunder." It also represented that "[t]here is no suit, claim, action, arbitration, investigation or legal, administrative or other proceeding pending against or affecting Seller ...." Jetall promised that the warranties and representations made in the Purchase Agreement were "true and correct as of the Acceptance Date and as of the Closing Date."

The Purchase Agreement also contained provisions concerning title insurance. Jetall agreed to cause Independence Title Company to (1) issue a current title commitment showing the status of record title to the property and committing to insure HGLA's title to the property, subject only to certain "permitted exceptions"; and (2) issue a title insurance policy insuring HGLA in the amount of the purchase price on the Contract Closing Date.

HGLA had the right to object to any exception on the title commitment that "shall substantially and materially interfere with [HGLA's] development of a hotel on the Property." Jetall could either cure the objection by causing the exception to be removed from the title commitment or "insured over," or it could elect not to cure the objection. If Jetall did not cure the objection, HGLA could either waive the objection and proceed to closing, or HGLA could terminate the Purchase Agreement and recover the negotiation fee and...