Rainier Income Fund I, Ltd. and Rainier Income & Growth Fund II, Ltd. v. Fred Gans
2016 Tex. App. LEXIS 6042
Tex. App.
2016

Background

  • Rainier Income Fund I and Rainier Income & Growth Fund II ("Rainier" or appellants) were limited partners in two development partnerships (R-75 and R-75 II); Star Creek was general partner and Fred Gans was president of Star Creek and co-owner of the other partner entity.
  • Appellants made capital contributions and partner loans that accrued a 10% per annum Investment Preference and 10% interest on Partner Loans; partnership LPAs required monthly cash distributions of accrued interest and Investment Preferences if cash flow existed.
  • The partnerships financed construction with bank loans secured by first liens; both projects failed and the bank foreclosed, selling all assets with no proceeds paid to the partnerships.
  • Appellants demanded payment under Gans’s personal guaranties; Gans refused and appellants sued for breach of guaranty and breach of fiduciary duty.
  • Parties agreed to trial before a chapter 151 special judge on stipulated facts; the special judge found Gans liable for monthly accrued interest and Investment Preferences but not liable to repay unpaid principal balances or contribution-account balances, and found no fiduciary duty.
  • On appeal the court addressed (1) appellate-timing/jurisdiction questions for chapter 151 cases and (2) the merits (whether foreclosure triggered guaranty repayment, whether Gans owed fiduciary duties, and whether Gans guaranteed monthly payments absent cash flow).

Issues

Issue Plaintiff's Argument (Rainier) Defendant's Argument (Gans) Held
When does the appellate clock start in a chapter 151 case? Appeal period begins when special judge issues verdict. Appeal period begins when referring trial court signs order adopting the special judge’s verdict. The appellate clock begins when the trial court signs the order on the special judge’s verdict.
Does a post-judgment motion for new trial in the referring court extend the appeal deadline? No—referring judge lacks substantive power over special judge’s verdict, so a new-trial motion cannot extend deadlines. Yes—a timely motion for new trial in the referring court extends the appellate timetable under the appellate rules. A motion for new trial filed in the trial court after entry of the order on the special judge’s verdict extends the appeal deadline (non-accelerated case).
Did foreclosure sales constitute a "sale by the Partnership" and "collection of all amounts" (a dissolving event) triggering guaranty liability for unpaid principal and contribution-account balances? Foreclosure is a sale (transfer of title) and thus a dissolving event that triggers Gans’s guaranty obligation to repay unpaid balances. The LPAs require a sale "by the Partnership" and collection of amounts by the Partnership; foreclosure sales were by the trustee/bank and produced no proceeds to the partnerships, so no dissolving event occurred. Foreclosure sales were not "sales by the Partnership" nor did the partnerships collect proceeds; therefore guaranty was not triggered for unpaid balances.
Did Gans guarantee monthly payments of accrued interest and Investment Preferences regardless of cash flow? The LPA's "notwithstanding" paragraph required distributions of accrued amounts monthly, so Gans’s guaranty obligates him to pay monthly regardless of cash flow. Gans’s guaranty only covers ‘‘as required’’ payments under sections 8.2.1–8.2.2, which are conditioned on available cash flow; he has no obligation when no cash flow exists. Gans’s guaranty was limited to payments required by sections 8.2.1–8.2.2 (which depend on cash flow); he was not personally obligated to pay monthly amounts in the absence of cash flow.

Key Cases Cited

  • Abel v. Alexander Oil Co., 474 S.W.3d 795 (Tex. App.—Houston [14th Dist.] 2014) (elements and strictissimi juris rule for guaranty recovery)
  • Coker v. Coker, 650 S.W.2d 391 (Tex. 1983) (contract interpretation focuses on parties’ intent and unambiguous language)
  • Old Republic Ins. Co. v. Scott, 846 S.W.2d 832 (Tex. 1993) (filing motion for new trial to extend appellate timetable is a matter of right)
  • Baroid Equip., Inc. v. Odeco Drilling, Inc., 64 S.W.3d 504 (Tex. App.—Houston [1st Dist.] 2001) (chapter 151 special-judge proceedings stay case and appeal is from referring court’s order)
  • Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp., 823 S.W.2d 591 (Tex. 1992) (distinction between formal and informal fiduciary relationships)
  • Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667 (Tex. 1998) (formal fiduciary relationships arise by law, e.g., partners)
  • Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276 (Tex. 1998) (informal/confidential relationships require preexisting trust apart from the transaction)
  • Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171 (Tex. 1997) (informal fiduciary relationship must exist prior to the agreement)
  • Popcap Games, Inc. v. MumboJumbo, LLC, 350 S.W.3d 699 (Tex. App.—Dallas 2011) (motion for new trial extends appellate deadline regardless of merit)
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