WC 1st & Trinity, LP v. The Roy F. & JoAnn Cole Mitte Found.
| Decision Date | 30 September 2021 |
| Docket Number | 03-19-00799-CV,03-19-00905-CV |
| Court | Texas Court of Appeals |
| Parties | WC 1st and Trinity, LP; WC 1st and Trinity GP, LLC; WC 3rd and Congress, LP; and WC 3rd and Congress GP, LLC, Appellants v. The Roy F. & JoAnn Cole Mitte Foundation, Appellee WC 1st and Trinity, LP; WC 1st and Trinity GP, LLC; WC 3rd and Congress, LP; and WC 3rd and Congress GP, LLC, Appellants v. The Roy F. and JoAnn Cole Mitte Foundation, Appellee |
FROM THE 126TH DISTRICT COURT OF TRAVIS COUNTY NO D-1-GN-18-007636, THE HONORABLE JAMES LEE CARROLL, JUDGE PRESIDING.
FROM THE 126TH DISTRICT COURT OF TRAVIS COUNTY NO D-1-GN-18-007636, THE HONORABLE JAN SOIFER, JUDGE PRESIDING
Before Chief Justice Byrne, Justices Baker and Smith
These appeals arise out of a commercial arbitration between the Roy F. & JoAnn Cole Mitte Foundation's (Mitte) and appellants, which are several corporate entities controlled by real estate investor Nate Paul. While the arbitration was ongoing, the arbitrator appointed a receiver to take charge of certain real property owned by two appellants. The district court confirmed that order and, subseqently appointed a receiver over the same properties using the court's statutory powers. Appellants appeal from both orders. We will dismiss the appeal of the order confirming the receiver's appointment for want of jursidiction (cause No. 03-00799-CV) and affirm the district court's appointment of a receiver (cause No. 03-00905-CV).
BACKGROUND[1]
Paul is a real estate investor who does business through a network of entities with "WC" or "World Class" in the name. His principal entity is World Class Capital Group (WCCG). Employees of WCCG, such as Vice President of Accounting Barbra Lee and in-house counsel Maryann Norwood perform work for other WC entities that are involved with his real estate development projects.
This dispute concerns two limited partnerships, WC 1st and Trinity, LP, and WC 3rd and Congress, LP (collectively, Limited Partnerships). WC 1st owns property at 1st and Trinity streets in Austin, and WC 3rd owns property at 3rd and Congress (collectively, Properties). The general partner of each entity is a limited-liability corporation with almost the same name as the partnership: WC 1st and Trinity GP, LLC, and WC 3rd and Congress GP, LLC (collectively, General Partners).[2] Each general partner owns a controlling interest in its limited partnership and has sole authority to manage the limited partnership's affairs. It is undisputed that Paul controls both general partnerships.
In 2011, Mitte invested a portion of its endowment with the Limited Partnerships, acquiring approximately 16% of WC 1st and 6% of WC 3rd. Paul initially represented to investors that he was either developing the Properties or marketing them for sale. In 2018, appellants allegedly stopped providing Mitte with financial information regarding the Limited Partnerships. Mitte filed suit, and appellants invoked an arbitration provision in the partnership agreements. In July of 2019, the parties reached a settlement agreement whereby appellants agreed to purchase Mitte's interests in the Limited Partnerships for $10.5 million. Payment was due no later than August 20, 2019.
On August 16, 2019, the FBI raided appellants' office and Paul's residence in connection with pending federal criminal investigations. The day before the payment deadline, Norwood informed Mitte's counsel that appellants would not be paying the settlement. The settlement agreement gave Mitte two options in the case of nonpayment: to end the arbitration and sue for breach of the settlement agreement or to declare the agreement void and continue with the arbitration. Mitte chose the latter option, and the arbitration continued.
In October 2019, Mitte filed a motion asking the arbitrator to appoint a receiver because the assets of the Limited Partnerships were "at imminent risk of being lost, removed, or materially injured." The motion cited the raid, appellants' failure to pay the settlement agreement, and other factors that indicated that the entities might be in financial distress. Following a day-long evidentiary hearing on Friday, October 4, 2019, the arbitrator announced that she would grant Mitte's application and appoint Greg Milligan as receiver. Appellants' counsel asked the arbitrator to delay signing the order until the following Monday, when another hearing was scheduled before the same arbitrator, so that counsel could review the order over the weekend. The arbitrator agreed. On Monday, shortly before the scheduled start time of the hearing, appellants informed the arbitrator and Mitte by letter that the Properties had been sold to unnamed "affiliates" of appellants. The 1st and Trinity Property had been sold for $23 million and the 3rd and Congress Property for $25 million. The letter further stated that the sale price for the First and Trinity Property "is equal to the highest offer yet made" on that property. The arbitrator subsequently signed an order appointing Milligan as receiver over the Properties.
Less than a month later, Mitte filed a petition with the district court to confirm Milligan's appointment as receiver. See Tex. Civ. Prac. &Rem. Code § 171.086(b)(6) (). The district court held an evidentiary hearing and signed an order stating that the arbitrator's order "is hereby confirmed and adopted as the Order of this Court" and ordered Milligan to carry out his duties in conformity with that order under the arbitrator's supervision (Confirmation Order). Appellants took an interlocutory appeal from the Confirmation Order and filed a petition for mandamus relief.[3]
This Court temporarily stayed the Confirmation Order and "prohibit[ed] the alienation of the real property owned by the [Limited] Partnerships while the Court's stay is in place." In re WC 1st &Trinity, LP, No. 03-19-00798-CV, 2019 WL 5793123, at *1 (Tex. App.-Austin Nov. 6, 2019, order) (mem. op.) (per curiam). Three days later, Mitte filed a petition asking the district court to appoint a receiver over the Limited Partnerships and the partnership properties under Section 64.001 of the Civil Practice and Remedies Code. See Tex. Civ. Prac. &Rem. Code § 64.001 (). Appellants filed a motion to stay in the district court arguing that their interlocutory appeal of the Confirmation Order stayed further proceedings in this case. See id. § 51.014(b) ().
The district court took up appellants' motion to stay at the beginning of the hearing on Mitte's motion for appointment of a receiver. During the ensuing discussion, appellants' counsel represented that the Limited Partnerships were "still the owners" of the Properties. The district court overruled appellants' motion and turned to Mitte's motion. Mitte called Barbra Lee, Michael Shaunessy (one of Mitte's attorneys), and Milligan to testify in support of its application. Mitte's counsel read the deposition of Lee into the record because she allegedly had avoided service. Shaunessy testified regarding the history of the case. Among other things, he described his unsuccessful efforts to obtain copies of the closing documents from the purported sale or other documentary proof of the transaction. Milligan described the resistance he encountered in trying to obtain any information about the Limited Partnerships or the sale from appellants. He also tried unsuccessfully to confirm that the sale had occurred and added that no deed reflecting the conveyance had been recorded in the real property records. Appellants called Kenneth Albert Richey, a representative of the lender that holds a lien on the Third and Congress Property. The district court subsequently rendered an order appointing Milligan as receiver over the Limited Partnerships and all their properties (Appointment Order). See Tex. Bus. Orgs. Code § 11.404 ("Appointment of Receiver to Rehabilitate Domestic Entity"). The Appointment Order granted the receiver all powers to manage the Limited Partnerships' assets that the general partners possess under the partnership agreements.
Appellants filed an interlocutory appeal of the Appointment Order and sought emergency relief. This Court granted emergency relief in part and prohibited any alienation of real property owned by the Limited Partnerships. WC 1st &Trinity, LP v Roy F. &JoAnn Cole Mitte Found., No. 03-19-00905-CV, 2019 WL 6972679, at *1 (Tex. App.-Austin Dec. 19, 2019, order) (mem. op.) (per curiam). We also abated the appeal and remanded the case for the district court to determine "whether appellants' rights would be adequately protected by supersedeas or another order under Texas Rule of Appellate Procedure 24." Id. In March 2020, the parties filed a status report informing us that the district court had ordered appellants to post a $3, 875, 305.00 supersedeas bond by April 7, 2020. WC 1st &Trinity, LP v. Roy F. &JoAnn Cole Mitte Found., No. 03-19-00905-CV, 2020 WL 2832486, at *1 (Tex. App.-Austin May 29, 2020, order) (mem. op.) (per curiam). The following month, appellants informed us that they had sought and received a two-week extension, making the bond due on April 21, 2020. Id. Mitte informed us on May 7, 2020, that appellees "had not yet filed the bond" but had requested an additional three-day extension. Id. Appellants never filed a response, and we received no information...
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