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Dallas City Limits Property Co., L.P. v. Austin Jockey Club, Ltd.

Court of Appeals of Texas, Fourteenth District, Houston

December 10, 2013

AUSTIN JOCKEY CLUB, LTD. and KTAGS Downs Holding Company, L.L.C., Appellees.

Rehearing Overruled Jan. 7, 2014.

Page 728

Richard A. Illmer, Elizabeth G. Bloch, Chad Andrew Johnson, Houston, for appellant.

A. Randall Friday, Ernest W. Boyd Jr., Houston, Marvin W. Jones, Bryan Dwayne Snoddy, Austin, Michael T. Gallagher, Eric Michael Adams, Houston, for appellees.

Panel consists of Justices McCALLY, BUSBY, and DONOVAN.



This interpleader action is but one of multiple lawsuits [1] and administrative proceedings pertaining to ownership of or rights in a racetrack license— a license that is the sole asset of Longhorn Downs, Inc.

Appellant Dallas City Limits Property Co., L.P. (Dallas City Limits) challenges the trial court's final judgment ordering the interpled stock in this case delivered to KTAGS Downs Holding Company, L.L.C. and awarding attorney's fees to KTAGS and Austin Jockey Club, Ltd. In five issues, Dallas City Limits asserts that: (1) inasmuch as the judgment in the Dallas County litigation has been reversed, the judgment here arising from res judicata should be reversed; (2) the trial court abused its discretion by refusing to keep this interpleader action abated until final resolution of the Dallas County litigation; (3) the trial court erred in applying principals of res judicata to the Dallas County trial court's take-nothing judgment; (4) the trial court erred in interpreting the Texas Racing Commission's approval of KTAGS as a " potential" transferee of the interplead stock; and (5) the trial court erred in awarding Austin Jockey Club and KTAGS attorney's fees. We conclude that because the trial court's final judgment in this case rests upon a judgment from another case that has since been reversed, the judgment in this cause must likewise be reversed.


In August 2005, Dallas City Limits [2] sought to purchase 100% of the common

Page 729

stock of Longhorn Downs, Inc., a wholly-owned subsidiary of Austin Jockey Club. The only asset of Longhorn Downs was a Class 2 Racetrack License issued by the Texas Racing Commission. To effectuate this purchase, Austin Jockey Club and Dallas City Limits entered into a stock purchase agreement (the DCL Stock Purchase Agreement or the Agreement), which required certain government approvals for the transfer, including the approval of the transfer of the Longhorn Downs stock by the Racing Commission. Dallas City Limits paid Austin Jockey Club the purchase price of $1.5 million in several non-refundable installments. Both Dallas City Limits and Austin Jockey Club were required to use their reasonable best efforts to effectuate the terms of the Agreement. The parties set no time limit for closing of the DCL Stock Purchase Agreement; however the Agreement did contain a time-is-of-the-essence clause. The Agreement provided that the Longhorn Downs stock would be held in escrow pending closing of the sale, pursuant to an escrow agreement.

Several delays hampered the closing of the DCL Stock Purchase Agreement. But on September 15, 2009, Austin Jockey Club presented Dallas City Limits' application for transfer of the Longhorn Downs stock at a hearing of the Racing Commission. At this hearing, the Commission unanimously voted to deny Dallas City Limits' application, citing various deficiencies in the application. The Racing Commission noted that nothing prevented Dallas City Limits from amending its application and having it resubmitted by Austin Jockey Club at a later hearing.

On November 6, 2009, Austin Jockey Club wrote to Dallas City Limits, [3] stating that it had received a letter dated October 27, 2009, from the Racing Commission, which it previously had forwarded to Dallas City Limits' attorney. According to this October 27th letter, the Racing Commission had provided Austin Jockey Club until November 6, 2009, to:

• Have a request to establish a racetrack location with any needed updated information on the racetrack facility;
• Provide a general description of the proposed business model to be used by Austin Jockey Club, including plans for pre-opening simulcasting; and
• Provide a timeline with dates for completing planning, developing, and construction of the racetrack facility. The timeline was to identify a realistic schedule for building the facilities and collecting purse revenue in time to conduct live racing on July 29, 2011. The schedule was to include sufficient time for Racing Commission personnel review and approval.
Austin Jockey Club stated in its November 6th letter to Dallas City Limits that it had " previously demanded" that Dallas City Limits " cure all defaults" by 3:00 p.m. on November 5, 2009. The Club declared in this letter that, because Dallas City Limits had failed to timely provide the Club information required by the Racing Commission, Dallas City Limits was in breach of the DCL Stock Purchase Agreement. Austin Jockey Club further stated that if it " did not take immediate and responsive corrective action to mitigate its damages

Page 730

and respond appropriately to the Texas Racing Commission, the Racing Commission would proceed to revoke" the Longhorn Downs racing license. The Club explained that, due to Dallas City Limits' " repeated failures" to " accomplish the fundamental tasks necessary to both effect a transfer of the ownership of and preserve the License since it undertook that obligation on August 25, 2005," Austin Jockey Club was entitled to terminate the Agreement. In this letter, the Club notified Dallas City Limits that the DCL Stock Purchase Agreement was terminated and demanded that Dallas City Limits " execute all directives necessary to release the Longhorn Downs common stock from escrow and return it to Austin Jockey Club."

That same day, Austin Jockey Club entered into a second stock purchase agreement with KTAGS Downs Holding Company, LLC (the KTAGS Agreement) purporting to transfer the Longhorn Downs stock to KTAGS for the purchase price of $100.00. The KTAGS Agreement specifically stated that Dallas City Limits claimed to have continuing rights under the DCL Stock Purchase Agreement and refused to consent to the release of the Longhorn Downs stock from escrow. The KTAGS Agreement further provided, " The rights granted in this instrument are subject to any rights, if any [sic], which may remain in Dallas City Limits or its successors" pursuant to the DCL Stock Purchase Agreement.

This impasse spawned two lawsuits. In November 2009, Dallas City Limits sued Austin Jockey Club for breach of the DCL Stock Purchase Agreement in the 160th District Court in Dallas County (the Dallas County litigation). Austin Jockey Club counterclaimed, asserting that Dallas City Limits had breached the Agreement, which justified its termination. Then, on March 15, 2010, the escrow agent holding the Longhorn Downs stock, Crady, Jewett & McCulley, L.L.P., filed this interpleader ...

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