PNC Bank NA et al v. 2013 Travis Oak Creek GP LLC et al

Response in Opposition to Motion

W.D. Tex.July 12, 2018

1 UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION PNC BANK, N.A. COLUMBIA § HOUSING SLP CORPORATION, and § 2013 TRAVIS OAK CREEK, LP § § Plaintiffs, § § v. § Civil Action No. 1:17-cv-584-RP § (Consolidated with 1:17-cv-560-RP) § 2013 TRAVIS OAK CREEK GP, LLC, § 2013 TRAVIS OAK CREEK § DEVELOPER, INC., § CHULA INVESTMENTS, LTD., § and RENE O. CAMPOS § § Defendants. § PLAINTIFFS’ RESPONSE IN OPPOSITION TO MOTION FOR LEAVE TO FILE INTERVENOR COMPLAINT AND BRIEF IN SUPPORT Plaintiffs PNC Bank, N.A. (“PNC Bank”), Columbia Housing SLP Corporation (“Columbia”), and Travis Oak Creek, LP (the “Partnership”) (collectively, “Plaintiffs”) hereby submit this response in opposition to the Motion for Leave to Intervene (the “Motion”) (Doc. 141) filed by 2007 Travis Heights LP (“Travis Heights”), an affiliate of Defendant 2013 Travis Oak Creek GP, LLC (the “First GP”), and urge the Court to deny the Motion, as follows: I. SUMMARY OF ARGUMENT This case is a dispute regarding the control and management of a partnership. Travis Heights’ proposed intervention is nothing more than an attempt to cloud the issues in what should be a straight-forward case about the parties’ rights under the partnership agreement at the heart of this dispute. For this reason, in addition to the many others outlined below, the Court Case 1:17-cv-00584-RP Document 146 Filed 07/12/18 Page 1 of 11 2 should decline Travis Heights’ invitation to unnecessarily complicate this case that has been pending for over a year. As a preliminary matter, Travis Heights has not pleaded independent grounds for the Court to exercise its diversity jurisdiction over this case. Specifically, Travis Heights has not identified the citizenship of its partners in its proposed Intervenor Complaint (“Intervenor Complaint”) to allow the Court to exercise diversity jurisdiction over Travis Heights’ proposed claims under 28 U.S.C. § 1332. Because an applicant for intervention must plead and prove an independent ground for jurisdiction, the Motion should be denied on this basis alone. Further, Travis Heights’ proposed claims are barred by the relevant agreements it executed and thus would be subject to dismissal under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. For this reason, allowing leave to intervene would be futile. Moreover, Travis Heights cannot meet all the requirements to intervene as a matter of right in this action under Federal Rule of Civil Procedure 24(a)(2). First, the Motion is untimely—Travis Heights has known the basis for its claims in the Intervenor Complaint for more than a year, and adding these claims now will unduly prejudice Plaintiffs in the disposition of this action. Second, Plaintiffs do not seek relief that impairs or impedes Travis Heights’ interest in the “Seller’s Note” upon which Travis Heights bases the Intervenor Complaint, and, as a result, the disposition of this action will not impair or impede Travis Heights’ ability to protect that interest. Indeed, the plain language of the Partnership Agreement expressly excludes the Seller Note from automatic termination in the event of a removal of the First GP, and that point has not been disputed by the parties. Plaintiffs have recognized this fact in connection with the preliminary injunction proceeding in this case, as well as in their proposed Second Amended Complaint filed in connection with their Motion for Leave to file the same (Doc. 142). Third, Case 1:17-cv-00584-RP Document 146 Filed 07/12/18 Page 2 of 11 3 Travis Heights cannot show that its interests in the Seller Note will be inadequately represented by the same lawyers who are also representing its affiliates in this matter. Finally, because there are no common issues of fact or law involved in the two actions, and because the addition of Travis Heights’ intervenor claims to this lawsuit will unduly delay the resolution of the claims between the parties that are unrelated to the Seller Note, the Motion for permissive intervention under Federal Rule of Civil Procedure 24(b)(1)(B) should be denied. Allowing Travis Heights to intervene, particularly when it has known the facts forming the basis of its claims for over a year, will unduly delay this action. II. RELEVANT FACTUAL AND PROCEDURAL BACKGROUND A. The Partnership Agreement and Subordination Agreement On or about May 23, 2014, PNC Bank and Columbia, as limited partners, and the First GP, entered into the Amended and Restated Agreement of Limited Partnership of 2013 Travis Oak Creek, LP (the “Partnership Agreement”). See Partnership Agreement, (Doc. No. 72-3 (Plaintiffs’ Exhibit 3)) at § 1.1, p. 6. The purpose of the Partnership is to develop, construct, and operate a low-income housing multifamily apartment complex located in Austin, known as the Lucero Apartments (the “Project”). The Partnership financed the construction with a $26 million loan (“the Construction Loan”) from J.P. Morgan Chase Bank, N.A. Travis Heights alleges that it “sold the real property upon which the Lucero Apartments were constructed to the Partnership and agreed to defer receipt of the purchase price for the sale of the land, and accepted a promissory note in the amount of $7,330,000.00 that was payable on a subordinated basis in the transaction” (the “Seller Note”). Motion ¶ 4; see also Intervenor Compl. ¶ 5. The “subordinated basis” Travis Heights refers to in its complaint is contained in the Intercreditor and Subordination Agreement dated May 23, 2014, and attached hereto as Exhibit Case 1:17-cv-00584-RP Document 146 Filed 07/12/18 Page 3 of 11 4 A (the “Subordination Agreement”).1 The Subordination Agreement modified the Seller Note by subordinating Travis Heights’ payment rights under the Seller Note to the Construction Loan, referred to in the Subordination Agreement as the “First Mortgage Loan,” and other payment obligations. See Subordination Agreement § 4(a). Further, the agreement requires Travis Heights, the “Subordinated Lender,” to obtain written consent from PNC Bank, the “Senior Lender”,2 before “accelerat[ing] the Subordinate Loan, commenc[ing] foreclosure proceedings with respect to the Property, collect[ing] rents, appoint[ing] (or seek[ing] the appointment of) a receiver or institut[ing] any other collection or enforcement action or pursue any other remedies at law or in equity, including filing an involuntary petition in bankruptcy.” Travis Heights did not obtain this consent before filing its Motion. Under the Partnership Agreement, the First GP was to manage and oversee the construction and ongoing operation of the Project. See Partnership Agreement §§ 6.1, 6.5 & 6.7 (Doc. 72-3). Importantly, the Partnership Agreement provided that if the First GP failed to fulfill its contractual obligations, then an “Event of Default” would occur, which would empower Columbia to remove and replace the First GP. See id., § 7.7. Upon an Event of Default and removal of the First GP from the Partnership, the First GP agreed that “[a]ny and all rights and claims the General Partner or any of its Affiliates may have against the Partnership for fees, 1 Because Travis Heights refers to and relies upon documents in the Intervenor Complaint that are central to its claims, the Court may properly consider the Subordination Agreement in deciding whether the Intervenor Complaint fails to state a claim. See Sullivan v. Leor Energy, LLC, 600 F.3d 542, 546 (5th Cir. 2010) (“[A] court may consider documents attached to a motion to dismiss that ‘are referred to in the plaintiff’s complaint and are central to the plaintiff’s claim.’”) (quoting Scanlan v. Tex. A & M Univ., 343 F.3d 533, 536 (5th Cir. 2003)). 2 PNC Bank purchased the “First Mortgage Loan” referred to in the Subordination Agreement from JPMorgan Chase Bank N.A. in October 2017, and succeeded Chase as the “Senior Lender” under the terms of the Subordination Agreement now that it is the legal holder of the First Mortgage Loan. Subordination Agreement, § 1 (providing that “[w]hen any other Person becomes the legal holder of the First Mortgage Note, such other Person shall automatically become the Senior Lender.”); see also General Assignment of Loan Documents, attached hereto as Exhibit B. There is no allegation in the Third-Party Complaint that Travis Heights obtained consent from either Chase or PNC Bank before purportedly accelerating payment of the Seller Note. Case 1:17-cv-00584-RP Document 146 Filed 07/12/18 Page 4 of 11 5 repayment of any loan (specifically excluding the Seller Loan3 and GP Predevelopment Loan) shall terminate . . . .” See id. § 7.7(c)(4) (Doc. 72-3, p. 49) (emphasis added). B. The First GP’s Removal and Preliminary Injunction Proceedings On June 7, 2017, Columbia exercised its right to remove and replace the First GP as the Partnership’s general partner. When the First GP flatly refused to relinquish control of the Partnership and instead interfered with Columbia’s right to perform as general partner, this litigation ensued. An evidentiary hearing on Plaintiffs’ motion for preliminary injunction was held on July 21 and July 25, 2017. On August 2, 2017, the Court found that Plaintiffs had a substantial likelihood of establishing multiple Events of Default by the First GP at a trial on the merits and enjoined the First GP from interfering with Columbia’s singular exercise of its rights as the Partnership’s new general partner. (Doc. No. 73). Importantly, at multiple points during the preliminary injunction hearing, PNC and Columbia made clear their position that the Seller Note would not be forfeited under the Partnership Agreement upon removal of the First GP, because Section 7.7(c)(4) expressly excludes it from forfeiture. See Tr. of July 21, 2017 Hearing at 241:5–7; 242:6–13; and Tr. of July 25, 2017 Hearing at 58:3–15. III. ARGUMENTS AND AUTHORITIES A. Travis Heights Has Failed To Plead an Independent Basis for Jurisdiction. It is well-established that a party must have “independent jurisdictional grounds” to intervene permissively under Rule 24(b). Bear Ranch, LLC v. HeartBrand Beef, Inc., 286 F.R.D. 313, 318 (S.D. Tex. 2012) (citing Harris v. Amoco Prod. Co., 768 F.2d 669, 675 (5th Cir. 3 “Seller Loan” is defined in the Schedule to the Partnership Agreement as “the mortgage loan to the Partnership from the 2007 Travis Oak Creek, LP (the “Seller Lender”) in the maximum principal amount of $7.330,000 . . . .” and is the same “Seller Note” upon which the Intervenor Complaint is based. Doc. 72-3, p. 83. Case 1:17-cv-00584-RP Document 146 Filed 07/12/18 Page 5 of 11 6 1985)). However, the Intervenor Complaint is devoid of any allegations that support the court’s exercise of jurisdiction over this matter. On this basis alone, the Court should deny the Motion. In the Intervenor Complaint, Travis Heights alleges that “Intervenor 2007 Travis Heights, LP is a Texas limited partnership having its principal office in Travis County, Texas.” Intervenor Compl. ¶ 1. But Travis Heights failed to plead the citizenship of its partners, which is necessary for the Court to evaluate whether it can exercise jurisdiction based on the diversity of citizenship between the parties under 28 U.S.C. § 1332. See Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1079 (5th Cir. 2008) (“The citizenship of a limited partnership is based upon the citizenship of each of its partners.”). Thus, the Court should deny the Motion. B. Intervention Is Futile Because Travis Heights’ Claims Are Barred by the Relevant Contracts. Courts may deny leave to intervene where the proposed intervenor complaint fails to state claim. See Saavedra v. Murphy Oil U.S.A., Inc., 930 F.2d 1104, 1109 (5th Cir. 1991) (“[A] proper basis for denying leave to intervene may be a finding that the proposed intervention would fail to state a claim.”) (internal quotation marks omitted). Here, both of Travis Heights proposed claims fail to state viable claims, and thus the Motion should be denied. Travis Heights’ breach of contract claim fails because, under the express terms of the Subordination Agreement, which modified the Seller Note, Travis Heights’ right to payment of the Seller Note is subordinated to the prior payment in full of the Construction Loan. See Subordination Agreement § 4(a). Thus, the Seller Note is not even payable yet, and therefore, this claim is not yet ripe. Even if it was payable, which it is not, no event of default has occurred under the plain language of Section 7.3(vii) of the Seller Note upon which Travis Heights bases its claim. Further, the Subordination Agreement requires Travis Heights to obtain PNC Bank’s consent before accelerating the Seller Note and instituting any action to enforce payment of the Case 1:17-cv-00584-RP Document 146 Filed 07/12/18 Page 6 of 11 7 Seller Note against the Partnership. Thus, because all conditions precedent to the Seller Note have not been satisfied, and the Seller Note is not currently payable. Travis Heights’ unjust enrichment claim against both PNC and Columbia is barred by the express terms of the Seller Note. The Seller Note provides that “no partner of Maker [i.e., the Partnership] shall have any personal liability for any breach or Event of Default under this Note or the other Loan Documents.” See Seller Note, Ex. A to Intervenor Compl. (Doc. 141-1), at § 2.4. Yet that is exactly what Travis’ Heights claim against PNC Bank and Columbia seeks to do—to hold PNC Bank and Columbia, the partners in the Partnership, liable on the Seller Note and recover damages against them “jointly and severally, for . . . the purchase price represented by the Seller’s Note.” Intervenor Compl. § 18. Because this claim is barred under the plain language of the Seller Note that Travis Heights executed, the Court should deny the Motion. C. Travis Heights’ Intervention As a Matter of Right Should Be Denied Because Travis Heights Cannot Meet All Requirements. Absent a statutory right, a movant must satisfy four requirements in order to intervene as a matter of right under Federal Rule of Civil Procedure 24(a)(2): (1) the motion to intervene must be timely; (2) the movant must demonstrate an interest that is related to the property or transaction forming the basis of the action in which it seeks to intervene; (3) the disposition of the main action must impair or impede the movant’s ability to protect its interest; and (4) the existing parties must not adequately represent the movant’s interest. Saldano v. Roach, 363 F.3d 545, 551 (5th Cir. 2004). “Failure to satisfy any one requirement precludes intervention of right.” Haspel & Davis Milling & Planting Co. Ltd. v. Bd. of Levee Comm’rs, 493 F.3d 570, 578 (5th Cir. 2007). First, Travis Heights’ motion to intervene is untimely. Timeliness is determined by: “the length of time the party knew or should have known of its interest in the lawsuit, the prejudice to Case 1:17-cv-00584-RP Document 146 Filed 07/12/18 Page 7 of 11 8 existing parties, prejudice to the intervening party if intervention is denied, and the presence of unusual circumstances.” Kneeland v. Nat’l Collegiate Athletic Ass’n, 806 F.2d 1285, 1289 (5th Cir. 1987). Here, despite having the facts that purportedly form the basis for its proposed claim for enforcement of the Seller Note against the Partnership and/or PNC Bank and Columbia ever since the Partnership was joined to the action on June 9, 2018 (Doc. No. 9), Travis Heights has waited more than a year to assert its claims for accelerated enforcement of that Note. It has provided no explanation for that delay, and there is no explanation for it—it has dragged its feet to this point and should not be allowed to intervene now. Further, if allowed to intervene at this stage in the litigation, Travis Heights’ intervention will undoubtedly delay the completion of discovery in this case. See Lucas v. McKeithen, 102 F.3d 171, 173 (5th Cir. 1996) (court of appeals affirmed denial of motion to intervene filed over a year into litigation); Med. Liab. Mut. Ins. Co. v. Alan Curtis LLC, 485 F.3d 1006, 1008–09 (8th Cir. 2007) (court of appeals affirmed district court’s denial of motion to intervene one year into litigation). At the same time, Travis Heights would suffer no prejudice if leave to intervene is denied. As stated in the hearing on Plaintiff’s motion for preliminary injunction, the Partnership Agreement specifically excludes the Seller Note from forfeiture by the First GP or its affiliates upon First GP’s removal from the Partnership. See Partnership Agreement (Doc. 72-3), § 7.7(c)(4); Tr. of July 21, 2017 Hearing at 241:5–7; 242:6–13; Tr. of July 25, 2017 Hearing at 58:3–15; Order (Doc. 73) (noting that Plaintiffs argued during the hearing that Seller Note is specifically excluded from forfeiture upon removal of the First GP from the Partnership). As such, the Court will not be called upon to decide any issues regarding the viability or enforceability of the Seller Note in this action. Case 1:17-cv-00584-RP Document 146 Filed 07/12/18 Page 8 of 11 9 For those same reasons, Travis Heights’ interest in the Seller Note will not be impeded or impaired by the disposition of any issues in the current action. Thus, Travis Heights cannot meet the third requirement in order to intervene as a matter of right under Federal Rule of Civil Procedure 24(a)(2). The only “impairment” Travis Heights will arguably face is “the inconvenience of having to file an independent lawsuit,” which will not hinder it from protecting its interest in the Seller Note. See Akuna Matata Investments, Ltd. v. Texas Nom Ltd. P’ship, No. SA-05-CA-1053-H, 2010 WL 11595701, at *2 (W.D. Tex. June 17, 2010) (denying government leave to intervene in a case involving dissolution of a partnership to “protect” its interest in enforcing a lien against partnership assets). Finally, Travis Heights does not provide sufficient basis to conclude that its affiliate, the First GP (see Mot. ¶ 4), who is a party to this action and represented by the same counsel, will inadequately protect its interests with respect to the Seller Note. Indeed, “when the party seeking to intervene has the same ultimate objective as a party to the suit, the existing party is presumed to adequately represent the party seeking to intervene unless that party demonstrates adversity of interest, collusion, or nonfeasance.” Haspel, 493 F.3d at 578–79 (citation and internal quotation marks omitted). Here, Travis Heights has the same ultimate objective as to Plaintiffs as does the First GP who is already a party to the action—namely to recover all fees and payments allegedly due and owing to them by the Partnership. Compare Counterclaim (Doc. 78) ¶ 14, with Motion ¶ 5. Yet Travis Heights does not allege any adversity of interest, collusion, or nonfeasance on the part of the First GP that would hinder its affiliates’ representation of their interest in protecting the Seller Note. Travis Heights therefore cannot meet all the required elements under Rule 24(a)(2). Case 1:17-cv-00584-RP Document 146 Filed 07/12/18 Page 9 of 11 10 D. Travis Heights’ Permissive Intervention Should Be Denied. Permissive intervention may be granted under Fed. R. Civ. P. 24(b) if the putative intervenor “has a claim or defense that shares with the main action a common question of law or fact.” Fed. R. Civ. P. 24(b). Courts consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties in exercising its discretion. Fed. R. Civ. P. 24(b); Taylor Commc’ns Grp., Inc. v. Sw. Bell Tel. Co., 172 F.3d 385, 389 (5th Cir. 1999); Williams v. City of Austin, No. 1:16-CV-1338-RP, 2017 WL 3166679, at *2 (W.D. Tex. July 25, 2017) (denying motion for leave to intervene where litigating unrelated facts would cause undue delay). “Permissive intervention is at the discretion of the court even if the potential intervenor satisfies the requirements of Rule 24(b).” Walker v. Alta Colleges, Inc., No. A-09-CA- 894-LY, 2011 WL 13269547, at *2 (W.D. Tex. Aug. 10, 2011) (citing Kneeland, 806 F.2d 1285 at 1289). Here, because the Seller Note is specifically excluded from those interests that are subject to termination under Section 7.7(c)(4) of the Partnership Agreement upon the removal of the First GP, the claims asserted in the Intervenor Complaint share no disputed issue of fact or law in common with the claims currently pending in this action, which relate to the control and management of the partnership under the terms of the Partnership Agreement. Importantly, Travis Heights is not a party to that agreement. The Seller Note simply is not at issue here, and allowing Travis Heights to intervene will unnecessarily complicate the issues in this suit. Moreover, like a motion to intervene as a matter of right, a motion for permissive intervention must be timely. See Fed. R. Civ. P. 24(b). As explained above, Travis Heights has waited more than a year, with little time remaining in the discovery period, to assert its claims seeking payment of that loan. See Section C, supra; Walker, 2011 WL 13269547, at *2 (denying untimely motion for intervention). For those reasons, the Motion should be denied. Case 1:17-cv-00584-RP Document 146 Filed 07/12/18 Page 10 of 11 11 IV. CONCLUSION Because Travis Heights cannot meet all the requirements for intervention as a matter of right, and its claims do not share common issues of law or fact with those claims presently pending in this action, Plaintiffs respectfully request that the Court deny the Travis Heights’ Motion for Leave to Intervene. Dated: July 12, 2018. Respectfully submitted, By: /s/ John T. Gerhart, Jr. Edward Fernandes Texas Bar No. 06932700 efernandes@huntonAK.com 111 Congress Avenue, Suite 510 Austin, TX 78701 Telephone: (512) 542-5010 Fax: (512) 542-5049 John T. Gerhart., Jr. Texas Bar No. 00784122 jgerhart@huntonAK.com 1445 Ross Avenue, Suite 3700 Dallas, Texas 75202-2799 Telephone: (214) 468-3327 Fax: (214) 880-0011 HUNTON ANDREWS KURTH LLP ATTORNEYS FOR PLAINTIFFS CERTIFICATE OF SERVICE I hereby certify that on July 12, 2018, I served the foregoing on all counsel of record registered with the Court’s ECF system, by electronic service via the Court’s ECF filing system. /s/ John T. Gerhart, Jr. John T. Gerhart, Jr. 99900.15521 EMF_US 70136563v4 Case 1:17-cv-00584-RP Document 146 Filed 07/12/18 Page 11 of 11