Originally published by Carrington Coleman.
Lyndon F. Bittle
Resolving important issues of appellate jurisdiction as well as substantive issues of fiduciary relationships and guaranty agreements, the Dallas Court of Appeals rejected claims by investors in two failed construction projects.
Rainier Income Fund I, Ltd. v. Gans
Dallas Court of Appeals (June 7, 2016)
Justices Francis (Opinion), Lang-Miers, and Myers
At the heart of this case are two limited partnerships (collectively, “R-75”) created for office construction projects in Allen, Texas. Two Rainier Funds (collectively, “Rainier”) were limited partners in R-75, to which they made loans and capital contributions. FNS Holdings was another limited partner, and Star Creek Construction was the general partner in R-75. Fred Gans was the president of Star Creek and a co-owner of FNS; he also personally guaranteed the Rainier loans to R-75. The construction projects were funded by bank loans to R-75. The projects failed, and the bank foreclosed, leaving nothing for the investors.
When Gans refused to pay under the guaranty agreements, Rainier sued him for breach of contract and breach of fiduciary duty. After litigating over two years, the parties agreed to submit their dispute to a “Trial by Special Judge” under Chapter 151 of the Texas Civil Practice and Remedies Code. By agreement, the special judge adjudicated the case on stipulated facts, exhibits, and affidavits. He ultimately determined Gans did not owe fiduciary duties to Rainier and had breached his guaranty on some grounds but not others, and entered a judgment awarding damages, interest, and attorneys’ fees to Rainier. On Rainier’s motion, the trial court signed an order adopting the special judge’s final judgment. Seven days later, Gans filed a motion for new trial. Rainier filed a notice of appeal within 30 days of the trial court’s order, and Gans filed a notice of cross-appeal 64 days after that order was signed.
Appellate Jurisdiction
Appellate jurisdiction depends, in part, on timely filing of a notice of appeal. After asking the parties to brief jurisdictional issues it had raised sua sponte, the Court addressed two related issues. First, it agreed with the parties that under Chapter 151 the time for appealing a special judge’s judgment does not begin to run until the referring court adopts or incorporates it into a final judgment. Rainier’s notice of appeal, filed 27 days after the referring court’s order, was therefore timely. Gans’s cross-appeal, filed 46 days after the trial court’s order, was untimely— unless its motion for new trial extended the deadline. Although the Court acknowledged that the referring court had no authority to grant a new trial under Chapter 151, it held a new-trial motion can properly be filed solely for the purpose of extending the appeal deadline. The Court therefore decided it had jurisdiction to reach the merits.
No Fiduciary Duty
Rainier argued that Gans, as president of the general partner of the partnership and co-owner of the other limited partner, owed fiduciary duties to the partnership and Rainier, and breached those duties by not declaring the partnerships were dissolved and liquidated (which would have triggered Gans’s payment obligations under the guaranty). The Court, however, summarily rejected the premise that an officer of a general partner owes a formal fiduciary duty to the partnership. And without a prior relationship between the parties, no informal fiduciary duties could have arisen.
No Breach of Guaranty
Rainier alleged two breaches of the guaranty: (1) failure to repay Rainier’s loans and capital contributions following the bank’s foreclosure; and (2) failure to pay accrued interest and investment preferences during the partnerships’ existence. The lower court found for Gans, and the Court of Appeals affirmed, on the first claim because the foreclosure sale was not a sale “by the Partnership” and thus not an event of liquidation triggering the guaranty repayment obligations. On the second claim, the lower court held for Rainier and awarded damages. Addressing Gans’s cross-appeal, the Court of Appeals parsed the language of the partnership agreements and the guaranty, concluding that “while the partnerships were required to make distributions, regardless of cash flow, Gans did not guarantee those payments.” The Court therefore reversed the judgment on this claim, resulting in a take-nothing judgment.
Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.
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