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Pajooh v. Royal West Investments LLC

Court of Appeals of Texas, First District

March 30, 2017

DANESH PAJOOH AND U.S. CAPITAL INVESTMENTS LLC, Appellants
v.
ROYAL WEST INVESTMENTS LLC, SERIES E, Appellee

         On Appeal from the 11th District Court Harris County, Texas Trial Court Case No. 2014-56530

          Panel consists of Justices Bland, Massengale, and Lloyd.

          OPINION

          Michael Massengale Justice

         Judgment debtors Danesh Pajooh and U.S. Capital Investments LLC appeal from the trial court's imposition of a receivership and grant of a turnover order on the request of their judgment creditor, appellee Royal West Investments LLC, Series E. Appellants Pajooh and U.S. Capital Investments contend that the trial court abused its discretion by appointing a receiver over a limited partnership jointly owned by them. In particular, they argue that the trial court's order conflicts with provisions of the Business Organizations Code which establish charging orders as the exclusive remedy for accessing a judgment debtor's interest in a limited partnership or a limited liability company. See Tex. Bus. Orgs. Code §§ 101.112(d), 153.256(d).

         The appellants also contend that the trial court abused its discretion for the following reasons: (1) they owned no interest in the property owned by the limited partnership; (2) the order imposed a receivership on a third-party entity-County Investment, LP-which was not a party to the underlying judgment; (3) there was no evidence that they owned any nonexempt property that could not be readily attached or levied on by ordinary legal process; and (4) Royal West failed to prove that it was entitled to equitable turnover or receivership relief.

         We affirm the imposition of a receivership over Pajooh and U.S. Capital Investments. But because the trial court erred to the extent it imposed a receivership over the assets of County Investment and Pajooh's membership interest in U.S. Capital Investments, we reverse that aspect of the order.

         Background

         Danesh Pajooh is a commercial real estate developer and investor. County Investment, LP, is a limited partnership comprised of Pajooh (a 99% limited partner) and U.S. Capital Investments LLC (a 1% general partner). The members of U.S. Capital Investments are Pajooh (99% owner) and his sister, Jila Mesgarpouran (1% owner).

         (Image Omitted)

         Pajooh, U.S. Capital Investments, and Royal West Investments LLC, Series E entered into several real-estate transactions, including a purchase-and-sale agreement and a lease agreement. Disputes among the parties led to litigation and, in 2012, a judgment in favor of Royal West in the amount of $352, 380 plus approximately $165, 000 in attorneys' fees. Pajooh and U.S. Capital Investments were jointly and severally liable on this judgment, which was affirmed on appeal. U.S. Capital Invs., LLC v. Shabazi, No. 02-12-00417-CV, 2014 WL 1713464 (Tex. App.-Fort Worth May 1, 2014, no pet.) (mem. op.).

          Royal West's attempts to collect the judgment were nearly entirely fruitless. Two years after entry of judgment, Royal West had obtained property-a rental house owned by Pajooh-which sold for $7, 500 through a writ of execution. Through discovery Royal West learned that Pajooh, individually and as 99% controlling member of U.S. Capital Investments, claimed that there were no nonexempt assets that could be used to satisfy the judgment. County Investment, however, owned real and personal property valued at approximately $4 million, such as commercial real estate, the Lexus SUV that Pajooh drives, antique automobiles, antique rugs, oil paintings, furniture, and other investments.

         Royal West applied for a post-judgment turnover order and appointment of a receiver, but the trial court denied this motion when Pajooh and U.S. Capital Investments argued that the Business Organizations Code provides that a charging order is the exclusive remedy by which a judgment creditor may satisfy a judgment from the membership or partnership interest of a judgment debtor. Tex. Bus. Orgs. Code §§ 101.112(d), 153.256(d). Royal West then sought and obtained a charging order against Pajooh's membership interest in U.S. Capital Investments, prohibiting it from distributing to Pajooh "any membership distributions, profits, cash, assets, or other monies due or that shall become due" to him "by virtue of his membership interest." Instead, U.S. Capital Investments was required to "pay to Royal West Investment LLC, Series E all funds and assets whatsoever, which by virtue of the membership interest" would "have been distributed" to Pajooh. A similar charging order was entered the same day encumbering the partnership interests of Pajooh and U.S. Capital Investments in County Investment.

         In November 2015, the trial court entered another order, requiring turnover and appointing a receiver under Sections 31.002 and 64.001 of the Civil Practice and Remedies Code. This order placed the two judgment debtors, Pajooh and U.S. Capital Investments, under receivership. It granted the receiver broad powers over the judgment debtors' nonexempt assets, expressly excluding their partnership interests in County Investment and Pajooh's membership interest in U.S. Capital Investments. The order specifically acknowledged that a charging order was the "exclusive remedy" to satisfy the judgment from the debtors' partnership interests in County Investment.

         Pajooh and U.S. Capital Investments moved to vacate the turnover and receivership order and for a new trial. Despite the limiting language in the order, Pajooh and U.S. Capital Investments objected to the relief granted against nonparty County Investment as contrary to the exclusivity of the charging-order remedy pursuant to Section 153.256 of the Texas Business Organizations Code. Pajooh made a similar argument under Section 101.112 regarding his membership interest in U.S. Capital Investments.

          The judgment debtors also argued that the order should be vacated because there was no evidence that they owned valuable nonexempt property that could not be readily attached or levied upon by ordinary legal process as required by Chapter 31 of the Civil Practice and Remedies Code. See Tex. Civ. Prac. & Rem. Code § 31.002(a)(2). Meanwhile, Royal West suspected that distributions of money from County Investment to Pajooh were being improperly transmitted in violation of the charging order, so it also sought modification of the turnover and receivership order.

         The trial court amended its order, entirely replacing the prior turnover and receivership order. The court appointed a receiver over "the nonexempt assets" of Pajooh and U.S. Capital Investments, "including (but not limited to) their interest in County Investment L.P." The amended receivership order directed the receiver to:

1. Take immediate possession of all nonexempt property, assets and estates of every kind of Defendants, whatsoever and wheresoever located, belonging to or in their possession, including, but not limited to, all offices maintained by Defendants (including those offices at U.S. Capital Investments, LLC and County Investment LP), rights of action, books, papers, data processing records, evidences of debt, bank accounts (including nonexempt bank accounts belonging to Massood Danesh Pajooh, U.S. Capital Investments, LLC and County Investment L.P.), savings accounts, certificates of deposit, stocks, bonds, debentures and other securities, mortgages, furniture, fixtures, office supplies and equipment, and all real property wherever situated, and to administer such nonexempt assets as is required in order to comply with the directions contained in this Order, and to hold all other assets pending further order of this Court;
2. Investigate the manner in which the affairs of Defendants were conducted and, with leave of this court, institute such actions and legal proceedings, for its benefit and for the benefit of creditors, as the Receiver deems necessary against those individuals, corporations, partnerships, associations and/or unincorporated organizations, which the Receiver may claim have wrongfully, illegally or otherwise improperly misappropriated or transferred monies or other proceeds directly or indirectly traceable from Defendants . . . .;
3. Appoint one or more special agents, employ legal counsel, actuaries, accountants, Clerks, consultants and assistants as the Receiver deems necessary . . . .;
4. Engage persons . . . to assist . . . in carrying out the Receiver's duties and responsibilities, including, but not limited to constables, deputy constables, sheriffs, deputy sheriffs, or a private security firm;
5. Defend, compromise or settle legal actions in which Defendants, or the Receiver is a party, commenced either prior to or subsequent to this Order, ...

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