Opinion
No. 05-14-01258-CV
04-28-2016
RENATE NIXDORF GMBH & CO. KG AND WATERCREST PARTNERS, L.P., Appellants v. MIDLAND INVESTORS, LLC, Appellee
On Appeal from the 191st Judicial District Court Dallas County, Texas
Trial Court Cause No. DC-14-10153-J
MEMORANDUM OPINION ON REHEARING
Before Justices Francis, Myers, and Stoddart
Opinion by Justice Myers
We grant appellee's motion for rehearing. This Court's opinion of December 8, 2015, is withdrawn, and the judgment of that date is vacated. The following is now the opinion of this Court.
Renate Nixdorf GmbH & Co. KG and Watercrest Partners, L.P. appeal the trial court's judgment that they take nothing on their claims against Midland Investors, LLC ("Midland"). Appellants bring two issues on appeal contending the trial court erred by (1) granting Midland's motion for summary judgment and (2) severing appellants' claims against Midland from the underlying litigation. We conclude appellants lack standing to bring their claims against Midland under the Texas Uniform Fraudulent Transfer Act, and we affirm the trial court's judgment.
BACKGROUND
This case concerns appellants' attempt to collect on a judgment against W. Eric Brauss, Christine Brauss, and various entities they controlled. Appellants assert their claims arose in 2008 and mid-2009 when the Brausses and their entities defaulted on promissory notes and guaranty agreements.
TRA Midland Properties, LLC ("TRA") was a limited liability company that owned twenty-one apartment complexes. It was owned by a limited partnership managed by Eric Brauss. Effective November 10, 2009, the Brausses and several entities they controlled transferred to Midland Residential Investment, LLC ("MRI") their interests in the general-partner and limited-partner entities that owned the limited partnership that owned TRA. No consideration was paid for the transfer of the interests. The Brausses then moved to Brazil. On December 10, 2010, appellants and many other individuals and entities obtained judgments against the Brausses and certain of their entities for over $48 million. See generally Brauss v. Triple M Holding GmbH, 411 S.W.3d 614 (Tex. App.—Dallas 2013, pet. denied) (affirming trial court's judgment). This lawsuit concerns appellants' attempt to collect on that judgment through a suit under the Texas Uniform Fraudulent Transfer Act.
The record contains the following evidence concerning the ownership of TRA Midland Properties, LLC, which owned the apartment complexes. That company was a limited liability company wholly owned by a limited partnership, TRA APT WEST TX, LP. That limited partnership was owned by its general partner, TRA Apt GP, Inc., which owned 1 percent, and its limited partner TRA Apt Inv, LP, which owned 99 percent. The general partner, TRA Apt GP, Inc., was a corporation owned by Eric Brauss. The limited partner, TRA Apt Inv, LP, was itself a limited partnership. Its general partner was TRA Inv GP, Inc. (which was owned by Today Realty Advisers, Inc., which was owned by Eric Brauss), which owned 1 percent of it. Its limited partners were TRA Midland Investors, LP, with 19 percent, CDB Holdings LP, with 40 percent, and Today Realty Advisers, Inc., with 40 percent. TRA Midland Investors, LP was a limited partnership whose general partner was TRA Midland Investors GP, Inc., a corporation owned by Eric Brauss; and its limited partner was Midland Equity, LLC, a limited liability company owned by Eric Brauss. CDB Holdings, LP, was a limited partnership whose general partner was CDBGP-1, LLC, a limited liability company owned by Christine Brauss, and the sole limited partner was Christine Brauss. Today Realty Advisors, Inc., was a corporation owned by Eric Brauss.
The 2009 transactions were as follows: Eric Brauss transferred his shares in TRA Apt GP, Inc. to MRI. Today Realty Advisors, Inc. transferred its shares in TRA Inv GP, Inc. to MRI. Eric Brauss transferred his interest in the shares of TRA Midland Investors GP, Inc. to MRI. CDB Holdings, LP and Today Realty Advisors, Inc. transferred their interests in TRA Apt Inv, LP to MRI. Eric Brauss transferred his membership interests in Midland Equity, LLC to MRI.
The December 10, 2010 judgment granted judgment for Nixdorf against the Brausses, Today Realty Advisors, Inc., and Today Financial, LLC for $48,755,607.01 and against eight other entities for differing amounts totaling $47,155,607.01. The judgment in favor of Watercrest was against the Brausses and Today Realty Advisors, Inc. for $300,000.
In 2012, TRA was interested in selling the apartment complexes, and Midland's parent, Pivotal Finance, looked into purchasing the complexes. Pivotal and TRA reached an agreement for the purchase and sale of the complexes for $170 million with Pivotal assuming a $130 million loan and paying $40 million cash at the closing. Pivotal created Midland to hold the properties. Appellants alleged the $40 million from Midland was transferred at the closing to Pillar Income Asset Management, Inc. and not to TRA.
Pillar explained in its answer to an interrogatory from Nixdorf why it received the $40 million cash from the sale: "Pillar is an asset manager for the entities that owned TRA Midland as of the closing date of the sale of the Apartment Complexes. Part of those services included cash management. Pillar regularly handles funds for the companies it manages."
In 2013, appellants brought suit against Midland as well as TRA, Pillar, and MRI asserting claims under the Texas Uniform Fraudulent Transfer Act. Midland moved for summary judgment on all of appellants' claims against it, and the trial court granted the motion for summary judgment. Midland then moved to have appellants' claims against it severed from the claims against the other defendants, which the court granted.
SUMMARY JUDGMENT
The standard for reviewing a traditional summary judgment is well established. See Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985); McAfee, Inc. v. Agilysys, Inc., 316 S.W.3d 820, 825 (Tex. App.—Dallas 2010, no pet.). The movant has the burden of showing that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c). In deciding whether a disputed material fact issue exists precluding summary judgment, evidence favorable to the nonmovant will be taken as true. Nixon, 690 S.W.2d at 549; In re Estate of Berry, 280 S.W.3d 478, 480 (Tex. App.—Dallas 2009, no pet.). Every reasonable inference must be indulged in favor of the nonmovant and any doubts resolved in its favor. City of Keller v. Wilson, 168 S.W.3d 802, 824 (Tex. 2005). We review a summary judgment de novo to determine whether a party's right to prevail is established as a matter of law. Dickey v. Club Corp., 12 S.W.3d 172, 175 (Tex. App.—Dallas 2000, pet. denied).
We review a no-evidence summary judgment under the same legal sufficiency standard used to review a directed verdict. See TEX. R. CIV. P. 166a(i); Flood v. Katz, 294 S.W.3d 756, 762 (Tex. App.—Dallas 2009, pet. denied). Thus, we must determine whether the nonmovant produced more than a scintilla of probative evidence to raise a fact issue on the material questions presented. See id. When analyzing a no-evidence summary judgment, we consider all the evidence in the light most favorable to the nonmovant, indulging every reasonable inference and resolving any doubts against the movant. Sudan v. Sudan, 199 S.W.3d 291, 292 (Tex. 2006) (quoting City of Keller v. Wilson, 168 S.W.3d 802, 824 (Tex. 2005)). A no-evidence summary judgment is improperly granted if the respondent brings forth more than a scintilla of probative evidence to raise a genuine issue of material fact. King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003). "More than a scintilla of evidence exists when the evidence rises to a level that would enable reasonable, fair-minded persons to differ in their conclusions." Id. (quoting Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997)). "Less than a scintilla of evidence exists when the evidence is 'so weak as to do no more than create a mere surmise or suspicion' of a fact." Id. (quoting Kindred v. Con/Chem, Inc., 650 S.W.2d 61, 63 (Tex. 1983)).
UNIFORM FRAUDULENT TRANSFER ACT
The Texas Uniform Fraudulent Transfer Act provides that if a debtor transfers assets in a manner that defrauds the rights of its creditors, the trial court may set aside the transfer or take other actions to protect the creditors. See TEX. BUS. & COM. CODE ANN. §§ 24.001-.013 (West 2015 & Supp. 2015).
Section 24.005 provides that a transfer by a debtor is fraudulent as to a creditor, if the debtor made the transfer:
(1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or
(2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
Id. § 24.005(a)(1), (2). The Act defines "Transfer" as meaning "every mode, direct or indirect, . . . of disposing of or parting with an asset or an interest in an asset . . . ." Id. § 24.002(12).(A) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
(B) intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due.
Section 24.006(a) provides that if a creditor's claim against a debtor arose before the debtor made a transfer of assets, the transfer is fraudulent if the debtor did not receive "a reasonably equivalent value in exchange for the transfer" and the debtor was insolvent at the time of the transfer or became insolvent as a result of the transfer. Id. § 24.006(a).
If a creditor proves a fraudulent transfer, the creditor may obtain (1) avoidance of the transfer; (2) an attachment against the asset; (3) an injunction against the debtor, a transferee, or both prohibiting further disposition of the asset or other property; (4) the appointment of a receiver to take charge of the asset or other property of the transferee; (5) a judgment against a transferee of the asset for the value of the asset transferred; or (6) "any other relief the circumstances may require." Id. §§ 24.008, .009(b). A judgment avoiding a fraudulent transfer may be entered against the first transferee of the asset or any subsequent transferee "other than a good faith transferee who took for value or from any subsequent transferee." Id. § 24.009(b).
APPELLANTS' CAUSES OF ACTION
Appellants pleaded three causes of action. Their first cause of action alleged the 2009 transactions (the Brausses' transfer to MRI of the various entities owning TRA's parent) were fraudulent transfers under section 24.005(a)(1) because they were made "with actual intent to delay, hinder or defraud Plaintiffs, which had claims against [Eric] Brauss and [Christine Brauss] . . . ." Appellants then alleged, "Thereafter, Defendants diverted over $40 million in sale proceeds from the Midland Investors transaction to Pillar in order to delay, hinder and defraud Plaintiffs, who could have partially satisfied their judgments out of those proceeds." Appellants' second and third causes of action alleged that the 2009 transactions were fraudulent transfers under sections 24.005(a)(2) and 24.006(a). Appellants' second cause of action also alleged, "As a result of Defendants' conduct, Plaintiffs have been unable to apply sale proceeds from the Midland Investors transaction [i.e., the sale of the apartment complexes to Midland] toward the satisfaction of Plaintiffs' Judgments."
In their response to the motion for rehearing, appellants assert they alleged in a supplemental petition a fourth cause of action for aiding and abetting fraudulent transfer. They also assert they raised in the supplemental petition corporate-veil piercing and alleged that TRA "was used as a sham to perpetrate a fraud, and recognizing the separate corporate existence of [TRA] would bring about an inequitable result." Appellants' supplemental petition was not in the appellate record when we issued our opinion on December 8, 2015. After we issued that opinion, appellants supplemented the clerk's record to include their supplemental petition. Appellants did not contend in their briefs on appeal that the trial court erred by granting summary judgment on their aiding and abetting cause of action. Nor did not they assert in their briefs corporate-veil piercing, that TRA was used as a sham, or that recognizing TRA's separate corporate existence would bring about an inequitable result. "A motion for rehearing does not afford a party an opportunity to raise new issues after the case has been briefed, argued, and decided on other grounds, unless the error is fundamental." OAIC Commercial Assets, L.L.C. v. Stonegate Vill., L.P., 234 S.W.3d 726, 747 (Tex. App.—Dallas 2007, pet. denied) (op. on reh'g). Fundamental error exists "in those rare instances in which the record shows the court lacked jurisdiction or that the public interest is directly and adversely affected as that interest is declared in the statutes or the Constitution of Texas." Id (quoting Pirtle v. Gregory, 629 S.W.2d 919, 920 (Tex. 1982)). Appellants' fourth cause of action and corporate-veil-piercing arguments do not raise issues involving fundamental error. Because these arguments were not raised in appellants' brief, we do not consider them. See Humphries v. Advanced Print Media, 339 S.W.3d 206, 208 (Tex. App.—Dallas 2011, no pet.) ("[A]n issue raised for the first time in a reply brief may not be considered."). --------
In each of the causes of action, appellants sought all the remedies provided by sections 24.008 and 24.009(b), including a "judgment for the value of the asset transferred . . . ."
STANDING
In their first issue, appellants contend the trial court erred by granting appellee's motion for summary judgment. Appellee asserted in its supplemental motion for summary judgment that appellants failed to show they were creditors of TRA to have standing to raise a claim of fraudulent transfer concerning the 2012 transaction.
Appellants argue the trial court did not grant summary judgment on this ground. Appellee raised the question of standing in its supplemental motion for summary judgment. This supplemental motion stated it was a "Supplement to its No Evidence and Traditional Motions for Summary Judgment." The trial court's order stated, "On this day the Court considered Defendant Midland Investors, LLC's No Evidence and Traditional Motions for Summary Judgment (the 'Motion'). After consideration of the pleadings, evidence, and arguments of counsel, the Court finds that the Motion is meritorious and is hereby GRANTED." Appellants assert that because the trial court's order did not mention the supplement, the trial court's order granting the motions for summary judgment did not include any supplements to the motion. Therefore, appellants argue, the trial court's order granting the motion for summary judgment did not include any ground raised only in the supplement to the motion. Appellants cite no authority in support of this position. We disagree with appellants. Under these circumstances and absent any indication to the contrary, the trial court's order granting Midland's "No Evidence and Traditional Motions for Summary Judgment" necessarily included Midland's timely filed "Supplement to its No Evidence and Traditional Motions for Summary Judgment."
Even if the supplemental motion for summary judgment were not part of the motion for summary judgment granted by the trial court, we could still consider Midland's assertions that appellants lack standing. Standing is a component of a court's subject-matter jurisdiction. Tex. Ass'n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 445 (Tex. 1993). Because the question of standing is a legal question concerning jurisdiction, standing cannot be waived and can be raised for the first time on appeal. Id. at 445-46.
Standing pertains to a person's justiciable interest in a suit. Austin Nursing Ctr. v. Lovato, 171 S.W.3d 845, 848 (Tex. 2005). The issue of standing focuses on whether a party has a sufficient relationship with the lawsuit so as to have a justiciable interest in its outcome. Id. at 849. There are three necessary elements for standing: (1) the plaintiff must be personally injured—he must plead facts demonstrating that he (rather than a third party) suffered the injury—and the injury must be concrete and particularized, actual or imminent, not hypothetical; (2) the plaintiff's alleged injury is fairly traceable to the defendant's conduct; and (3) the plaintiff's alleged injury is likely to be redressed by each form of requested relief. Heckman v. Williamson County, 369 S.W.3d 137, 155 (Tex. 2012). When determining whether a party has standing, we construe the petition in favor of that party, and we review the record to determine whether any evidence supports standing. Tex. Ass'n of Bus., 852 S.W.2d at 446.
To have standing to bring a cause of action for fraudulent transfer, a plaintiff must allege it is a "creditor" with a "claim" against a "debtor," that there was a fraudulent transfer of property by the debtor, and the plaintiff seeks relief concerning the fraudulently transferred property. TEX. BUS. & COM. CODE ANN. §§ 24.002(3), (4), (6), 24.005, 24.006, 24.008, 24.009. The Act defines "claim" as meaning "a right to payment or property, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured." Id. § 24.002(3). "'Creditor' means a person . . . who has a claim." Id. § 24.002(4). "'Debtor' means a person who is liable on a claim." Id. § 24.002(6). Under the Act, there are three different types of defendants: the debtor making the fraudulent transfer, the party receiving the asset in the fraudulent transfer, and any subsequent transferees of the asset. See id. §§ 24.008, 24.009(b).
In their petition, appellants alleged they had a judgment against the Brausses and that the Brausses had transferred or assigned their interests in TRA or "in the [TRA]-affiliated entities" without receiving reasonably equivalent value or with the intent to delay, hinder, or defraud appellants. The summary judgment evidence identified "the [TRA]-affiliated entities" that were transferred. Thus, appellants' allegations and the summary judgment evidence showed they had a claim, their judgment against the Brausses, that they were creditors of the Brausses and the Brausses were their debtors, and that the Brausses made a fraudulent transfer—the 2009 transactions to MRI of the general and limited partners of the limited partnership that owned TRA. Appellants have standing to seek relief under the Fraudulent Transfer Act against the Brausses, the transferees of the assets transferred in the 2009 transactions, and any subsequent transferees of those assets. However, the 2009 transactions did not transfer ownership of the apartment complexes. The record shows TRA owned the apartment complexes in 2008 and it continued to own them until the 2012 transaction when it transferred them to Midland. The apartment complexes were not part of the 2009 transactions, and the 2012 transaction did not involve property that was fraudulently transferred in 2009. Appellants' allegations and the summary judgment evidence do not show there was any relationship that makes appellants creditors of TRA or Midland. Therefore, appellants have failed to allege or present any evidence of standing to seek relief under the Fraudulent Transfer Act concerning TRA's sale of the apartment complexes to Midland and Midland's transfer of $40 million at the closing.
Appellants argue in their reply brief that they are creditors of TRA under the Fraudulent Transfer Act because they have a claim against TRA: "Appellants sued [TRA] for fraudulent transfer in 2013 based on conduct that occurred in 2009. Thus, it is undisputed that Appellants had a claim against [TRA] that arose in 2009, and was filed in 2013." However, appellants' pleading does not allege a cause of action against TRA under the Fraudulent Transfer Act. It does not allege that appellants had a claim against TRA or that TRA received property in 2009 from a debtor of appellants, or that it was a subsequent transferee of any such property. Instead, appellants' allegations and the summary judgment evidence show appellants' debtors, the Brausses and other entities, transferred entities that owned the partnership interests in TRA's parent, but TRA itself was not a recipient of any property in the 2009 transactions, nor did it subsequently transfer any property from those transactions.
We conclude the trial court did not err by granting appellee's motion for summary judgment. We overrule appellants' first issue.
SEVERANCE ORDER
In their second issue, appellants contend the trial court abused its discretion by granting appellee's motion to sever appellants' causes of action against appellee from the remainder of the case. Appellants state, "[t]his issue is conditional because there is no harm to Appellants as a result of the severance if the Court affirms the summary judgment in full." Because we affirm the summary judgment, we overrule appellants' second issue.
CONCLUSION
We affirm the trial court's judgment.
/Lana Myers/
LANA MYERS
JUSTICE 141258F.P05
JUDGMENT
On Appeal from the 191st Judicial District Court, Dallas County, Texas
Trial Court Cause No. DC-14-10153-J.
Opinion delivered by Justice Myers. Justices Francis and Stoddart participating.
We GRANT appellee's motion for rehearing. This Court's opinion of December 8, 2015 is WITHDRAWN and the judgment of December 8, 2015 is VACATED. The following is now the judgment of this Court:
In accordance with this Court's opinion of this date, the judgment of the trial court is AFFIRMED.
It is ORDERED that appellee MIDLAND INVESTORS, LLC recover its costs of this appeal from appellants RENATE NIXDORF GMBH & CO. KG and WATERCREST PARTNERS, L.P. Judgment entered this 28th day of April, 2016.