05-19-00440-CV
Tex. App.Jul 30, 2021Background
- Kendall Harter formed Blue Matrix (and Hydro Toys) and retained ARCO Ideas (now Obsidian) to develop product concepts (self‑sealing water balloons, a sandwich machine, a launcher) and to design office space; a mutual NDA governed confidential disclosures.
- Blue Matrix later filed Chapter 11; it executed an Asset Purchase Agreement (APA) selling assets to KBIDC (a vehicle created by investor Jeff Kent).
- The APA contained an Assumed Contracts Schedule; contracts not listed on that schedule were expressly excluded from the Acquired Assets.
- KBIDC sued Obsidian for breach of development and build‑out agreements, breach of the NDA, fraud, unjust enrichment, and money had and received; a jury found breach of the NDA (no damages) and awarded unjust enrichment damages.
- Obsidian asserted jurisdictional and capacity defenses (KBIDC had not been assigned the contracts and the bankruptcy process/control issues); the trial court found KBIDC had authority to pursue the suit.
- The court of appeals held the bankruptcy dismissal revested estate property in Blue Matrix (so not exclusively in bankruptcy court), but concluded the APA did not assign the ARCO contracts to KBIDC; KBIDC therefore lacked capacity to sue/recover and the judgment was reversed and rendered for Obsidian.
Issues
| Issue | Plaintiff's Argument (KBIDC) | Defendant's Argument (Obsidian) | Held |
|---|---|---|---|
| Whether the bankruptcy court retained exclusive jurisdiction over the claims because they were not scheduled in bankruptcy | KBIDC implicitly argued the claims were free to be litigated in state court after the asset sale/dismissal | Obsidian argued undisclosed claims remained estate property and within bankruptcy court jurisdiction | Dismissal of the bankruptcy case revested estate property in Blue Matrix under 11 U.S.C. §349(b); claims were not exclusively in bankruptcy court, so state court jurisdiction was proper |
| Whether KBIDC had standing/capacity to sue on the contracts and related claims (assignment under the APA) | KBIDC argued the APA transferred rights/causes of action to it under broad asset categories (rights/chooses in action, causes of action relating to Acquired Assets) | Obsidian argued the APA’s plain language excluded contracts not listed on the Assumed Contracts Schedule, so the ARCO contracts were retained by Blue Matrix and not assigned to KBIDC | The APA’s plain terms excluded all contracts not listed on the Assumed Contracts Schedule from the Acquired Assets; the contracts at issue were not listed and therefore were not assigned—KBIDC lacked capacity to sue or recover on those claims |
| Whether Obsidian waived its capacity defense by untimely verified pleading or by not seeking dismissal below | KBIDC contended Obsidian failed to timely plead capacity defenses and thereby waived them | Obsidian pointed to trial evidence and argument over the APA’s scope and to its verified pleading (albeit late) | The capacity issue was tried by consent at trial (both sides litigated assignment/privity); the appellate court therefore considered capacity on the merits rather than finding waiver |
| Disposition of the trial judgment and remedies | KBIDC sought affirmance of jury verdict/award and attorneys’ fees | Obsidian sought reversal based on lack of jurisdiction/capacity | Because KBIDC lacked capacity to pursue contract‑based claims, the court reversed and rendered judgment that KBIDC take nothing (no need to reach other issues) |
Key Cases Cited
- Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440 (Tex. 1993) (standing is jurisdictional and a lack of standing deprives a court of subject‑matter jurisdiction)
- Heckman v. Williamson Cnty., 369 S.W.3d 137 (Tex. 2012) (standing is a question of law reviewed de novo)
- Crawford v. Franklin Credit Mgmt. Corp., 758 F.3d 473 (2d Cir. 2014) (11 U.S.C. §349(b)(3) revests estate property in the prepetition owner upon dismissal)
- Revell v. Morrison Supply Co., LLC, 501 S.W.3d 255 (Tex. App.—Fort Worth 2016) (court may alter revesting on dismissal for cause; otherwise §349(b) operates automatically)
- Highland Credit Opportunities CDO, L.P. v. UBS AG, 451 S.W.3d 508 (Tex. App.—Dallas 2014) (distinguishing standing from capacity and treating privity/assignment as a capacity/merits issue)
- Austin Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845 (Tex. 2005) (capacity and standing are distinct: standing concerns justiciable interest; capacity concerns legal authority to sue)