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CBIF Limited Partnership v. TGI Friday's Inc.

Court of Appeals of Texas, Fifth District, Dallas

April 21, 2017

CBIF LIMITED PARTNERSHIP, COLUMBIA AIRPORT, LLC, AND STEVE FLORY, Appellants
v.
TGI FRIDAY'S INC., LBD CORPORATION, TGIF/DFW PARTNER, LLC, TGIF/DFW MANAGER, LLC, TGIF/DFW TERMINAL A RESTAURANT, DOMAIN ENTERPRISES, INC., TGIF/DFW RESTAURANT JOINT VENTURE, LOUIS STURNS, NORMA ROBY, ERMA JOHNSON HADLEY, AND RSH CONCESSIONS, LLC, TSQF LIMITED PARTNERSHIP, AND TEXAS STAR QUALITY FOODS, LLC, Appellees

         On Appeal from the 68th Judicial District Court Dallas County, Texas Trial Court Cause No. DC-11-04730.

          Before Justices Francis, Stoddart, and Schenck

          MEMORANDUM OPINION

          DAVIDJ.SCHENCK JUSTICE

         On the Court's own motion, we withdraw our opinion issued on December 5, 2016 and vacate our judgment of that date. The following is now the opinion of the Court. CBIF Limited Partnership, Columbia Airport, LLC, and Steve Flory appeal a judgment in favor of TGI Friday's Inc., LBD Corporation, TSQF Limited Partnership, Norma Roby, Louis Sturns, and Erma Johnson-Hadley in a suit for (1) judicial dissolution of a joint venture established to operate TGI Friday's restaurants and café bars at DFW International Airport, (2) reformation of the joint venture's agreement, and (3) damages arising from various aspects of the parties' business relationships.[1] On appeal, one or more of the CBIF parties challenge the legal and factual sufficiency of the evidence to support various jury findings in favor of Friday's, TSQF, and the RSH Group, and argue the trial court erred by (1) denying certain requested jury questions and instructions, (2) dissolving the joint venture pursuant to section 11.314 of the Texas Business Organizations Code, and (3) granting Friday's declaratory judgment relief.

         We conclude Friday's is not entitled to relief under the Uniform Declaratory Judgments Act ("DJA"), but is entitled to all other relief awarded. We further conclude TSQF is entitled to all of the relief awarded and the RSH Group is not entitled to recover attorney's fees from CBIF and Columbia, but is entitled to all other relief awarded. Accordingly, we reverse, in part, that portion of the trial court's judgment awarding Friday's relief pursuant to the DJA, and render judgment, in part, that Friday's take nothing on its attendant attorney's fee claim. We further reverse, in part, that portion of the trial court's judgment awarding the RSH Group attorney's fees against CBIF and Columbia, and render judgment, in part, that the RSH Group take nothing on its claim for attorney's fees under chapter 38 of the civil practice and remedies code. We otherwise affirm the trial court's judgment. Because all issues are settled in law, we issue this memorandum opinion. Tex.R.App.P. 47.4.

         Factual & Procedural Background

         I. DFW Airport Accepts Friday's Bid

         In 1995, DFW International Airport (the "Airport") solicited bids for concession spaces in each of its terminals. Friday's submitted a bid proposing a joint venture with a 35% ownership interest reserved for disadvantaged business enterprise ("DBE") partners.[2] The Airport accepted the bid and awarded Friday's five restaurant locations within the Airport. Once the Airport accepted Friday's proposal, Friday's was obligated to secure a 35% DBE ownership interest in the joint venture.

         II. Creation of TGIFJV

         In addition to itself, Friday's selected three partners for the joint venture, two of which were DBEs. The DBE partners were Star Quality Foods ("SQF"), owned by the RSH Group, and DPC/Jackmont. The remaining partner was Columbia Brokerage and Investments, Inc. ("CBI"), a corporation wholly owned by Flory.[3] The four partners formed TGIF/DFW Restaurant Joint Venture ("TGIFJV") in December 1995. Each partner was to receive an equal 25% ownership interest in TGIFJV in exchange for a capital contribution of $1.55 million.

         The venture partners entered into a Joint Venture Agreement ("TGIFJV Agreement") to govern the affairs of the joint venture. The TGIFJV Agreement set forth the purpose of the joint venture, "to construct, outfit and operate for profit" five restaurants at specific gate locations in what are now Airport Terminals A, B, C, and E, and specified there must be unanimous consent among the venture partners for major decisions, including modification of the TGIFJV Agreement. In addition to the TGIFJV Agreement, the venture partners entered into a Partnership Management Services Agreement ("PMSA") that authorized Friday's to manage TGIFJV's operations at the Airport and gave Friday's the control and supervision over its brands and trademarks.

         III. Creation of TSQF

         Both DBE partners had trouble obtaining the funds necessary to fully satisfy their capital requirements. DPC/Jackmont was ultimately unable to participate in the venture. Flory offered to loan the RSH Group money to fund 51% of SQF's capital contribution in exchange for an opportunity to obtain a 49% interest in SQF. Ultimately Flory, through CBIF, and the RSH Group formed TSQF which acquired SQF's 25% interest in TGIFJV. Texas Star Quality Foods, LLP ("Texas Star"), managed by Columbia (Flory) and Norma Roby ("Roby"), was the general partner of TSQF, and CBIF and the RSH Group were the limited partners of TSQF.[4]

         The TSQF Limited Partnership Agreement ("TSQF LP Agreement") contained a super-majority voting requirement, and the Regulations of TSQF's general partner, Texas Star, contained a majority-of-two provision. With this structure, the RSH Group could not act without Flory's consent, even though it individually and through Texas Star owned 51% of the partnership. As a condition of the loan to the RSH Group, Flory required that CBIF's general partner, Columbia, handle TSQF's finances under a management services agreement ("TSQF MSA").

         IV. Ownership Interest in TGIFJV

         As a result of DPC/Jackmont's failure to fund its capital requirements, CBIF and Friday's exercised their rights of first refusal to acquire a portion of DPC/Jackmont's defaulted interest. TSQF did not exercise its right. Thus, CBIF and Friday's each owned a 37.5% interest in TGIFJV, and TSQF, the sole DBE partner, owned 25%.

         Friday's suggested that CBIF and Friday's each sell 5% of their interests in TGIFJV to a qualified DBE in order to meet TGIFJV's 35% DBE commitment to the Airport. Flory refused to allow CBIF to do so, blaming Friday's for not fully vetting DPC/Jackmont's ability to participate in the venture. As a result, Friday's sold 10% of its interest in TGIFJV to Domain Enterprises, Inc. ("Domain"), a DBE, leaving Friday's with at 27.5% interest in TGIFJV. In the process of selling 10% of its interest in TGIFJV to Domain, Friday's had to first offer to sell the 10% interest to the remaining partners or get a waiver of rights of first refusal. Flory blocked TSQF from purchasing an additional interest in the joint venture and extracted a payment of $109, 000 from Friday's to waive CBIF's right of first refusal. Thereafter, Friday's assigned its 27.5% interest in TGIFJV to LBD Corporation, a subsidiary of Friday's, to comply with liquor license requirements.

         Below is a graph of the structure of TGIFJV after the transfers to Domain and LBD.

         (IMAGE OMITTED)

         V. Master Lease Agreement with the Airport

         In April 1996, TGIFJV entered into a single master lease agreement with the Airport for restaurant locations within the Airport terminals. The initial term of the lease was 10 years with two 5-year renewal options. The lease allowed the Airport to relocate TGIFJV's café bars in Terminals B and C, in which case, the term of the lease for the affected locations would be extended by the number of months that had passed from the commencement of the term through the date that any of the café bars ceased business in the space from which the new location was relocated.

         VI. Airport Terminal D

         In June 2004, the Airport opened up bidding for concession spaces in the newly built Terminal D. Bids were due by the end of August 2004 and bidders had to certify that they were or would be 35% owned by a DBE. On December 10, 2004, Columbia called a meeting of the partners of TSQF. At that meeting, the TSQF partners voted to move forward with the Terminal D project. Within the week, Flory communicated to Friday's, as manager of TGIFJV, that TSQF approved proceeding with the project. Friday's circulated a draft of the Terminal D lease agreement and set forth the deadlines for capital contributions. TGIFJV signed the lease for Terminal D on February 25, 2005 and Friday's set a deadline of April 8, 2005 to make initial capital contributions.

         TSQF held another partnership meeting on April 12, 2005, four days after Friday's deadline to make the initial capital contributions, to discuss funding the Terminal D project. Concerned about meeting the April 8 payment deadline, the RSH Group paid their 51% share of the initial capital contribution directly to TGIFJV. At the partnership meeting, the partners voted to participate in the Terminal D project and the RSH Group told Flory that it had already sent its portion of the capital contribution to Friday's. Flory advised the RSH Group that he had been in contact with Friday's attorney, who indicated there was still time to make the capital contributions, and admonished the RSH Group that it should have made the payment to TSQF, not TGIFJV. Notwithstanding the partnership vote to participate in the Terminal D project, CBIF failed to pay its portion of the capital contribution. The RSH Group attempted to remedy the partnership default on its payment obligation by paying the remaining portion of TSQF's capital contribution to TGIFJV.

         CBIF admonished Friday's that the RSH Group was not authorized to make payments on behalf of TSQF. As a result, Friday's declared TSQF to be in default and LBD and Domain acquired TSQF's allocated 25% interest in the Terminal D project. Immediately thereafter, TSQF obtained its DBE certification. Flory then changed his mind about TSQF participating in the Terminal D project. He approached Friday's about TSQF participating in the project and Friday's told Flory it was too late. Flory then argued that the funds the RSH Group paid to TGIFJV on behalf of TSQF had been timely delivered and threatened a lawsuit if Friday's refused to allow TSQF to participate. To resolve the dispute, LBD and Domain agreed to give TSQF a 25% interest in the Terminal D restaurant.

         CBIF, as a venture partner in TGIFJV, and separate and apart from its role as a limited partner of TSQF, decided it would not participate in the Terminal D project. Flory advised Friday's of CBIF's decision. Several days later, TSQF, LBD and Domain were given the option to purchase pro rata portions of CBIF's allocated 37.5% interest in Terminal D. As a result, TSQF had the opportunity to increase its ownership interest in Terminal D by another 15%. Because the RSH Group wanted to acquire the forfeited interest, it paid TSQF's portion of the initial capital call. Flory again took the position that the RSH Group had no authority to act for the partnership and asserted that TSQF had not authorized pursuit of the additional interest in Terminal D. As a result of Flory's actions, TSQF's interest in the Terminal D project was 25% rather than 40%.

         VII. Concerns Over Federal Policy Developments

         In 2005, the United States Department of Transportation ("USDOT") issued long-awaited revised Airport Concessions Disadvantage Business Entity ("ACDBE") regulations. USDOT noted its concern that some airport joint ventures had circumvented ACDBE requirements by having an ACDBE "silent partner" on payroll and, therefore, the Federal Aviation Authority (FAA) was drafting joint venture guidance on the subject.

         VIII. Dispute over Bank Card Signatures

         Prior to 2006, Flory and Canseco were the only individuals with signature authority over TSQF's bank account. On February 27, 2006, the RSH Group instructed the bank to include the group as signatories. Rather than simply add the RSH Group to the signature card, the bank removed Flory and Canseco as signatories on the account. The mix up on the signature card was discovered when Flory attempted to transfer funds from the account. Upon notification, Roby authorized the transfer and the signature cards were corrected to reflect that Flory, Canseco, and Roby were the only authorized signers on the account.

         Columbia and CBIF sued the RSH Group over the bank signatory and transfer controversy to determine whether the RSH Group had made any misrepresentations to TSQF's bank or made changes to other bank documents (the "Tarrant County Lawsuit"). In connection with that lawsuit and the claims involved, Flory caused TSQF to pay the attorney's fees for services provided to Columbia and CBIF in the amount of $385, 323.52. The RSH Group filed a counterclaim against Columbia and CBIF seeking damages for TSQF's lost profits in Terminal D and rescission/judicial termination of the TSQF MSA to address the persisting control problems in TSQF. That case was consolidated into this case.

         VII. Dispute over Domain owners' Participation in Pappas' Ventures

         In late 2007, TGIFJV discovered the owners of Domain planned to participate in Pappadeaux and Pappasito's restaurants at the Airport. TGIFJV, CBIF, and the RSH Group sued the owners of Domain seeking to enjoin them from participating in the Pappas' ventures claiming doing so violated a non-compete provision in the PMSA (the "Domain Lawsuit"). The Airport supported the owners of Domain's participation in multiple concessions because it disfavored exclusive agreements. TGIFJV and the RSH Group decided not to pursue the matter, but CBIF was intent upon pursuing a claim against Domain.[5] That case was likewise incorporated into this case.

         VIII. FAA Joint Venture Guidance

         In July 2008, the FAA issued its Joint Venture Guidance, in which the FAA restated existing law requiring that a DBE maintain a degree of control at both the DBE partner level and the joint venture level.

         The Airport's Diversity Department required all Airport ACDBE concessionaires to meet the new federal guidelines. Although compliance with the FAA Joint Venture Guidance was voluntary for existing leases, the Airport required compliance for new leases.

         On April 23, 2009, the Airport notified TGIFJV that it did not meet the requirements of the FAA Joint Venture Guidance because a DBE partner did not have the requisite level of control over TGIFJV decisions or operations. The Airport also reminded TGIFJV that TSQF must also comply with the joint venture guidelines and indicated that it looked forward to receiving revised TSQF joint venture agreements and amendments that complied with the new FAA mandate.

         The participants in TGIFJV started drafting amendments to their agreements endeavoring to make them ACDBE compliant. The focus of the proposed amendments was to increase Domain and TSQF's participation and control of the restaurants while protecting Friday's intellectual property. Flory would not agree to the changes proposed by Friday's and refused to change the TSQF agreements. Flory submitted his own proposed changes to the joint venture's governing documents to the Airport. The Airport concluded Flory's proposed amendments did not comply with the regulations.

         IX. DFW Airport's Terminal Renewal and Improvement Program (TRIP)

         In September 2009, the Airport announced its intention to renovate and improve Terminals A, B, C, and E as part of an 8-year, 2 billion dollar construction project. The TRIP project called for a complete overhaul of ticketing, security, and concessions areas, beginning with Terminal A in 2011 and proceeding through completion of all four terminals in approximately 2017. As part of the TRIP project, the Airport began requiring joint venture ACDBE compliance because each location would require a new lease. The Airport directed relocation of TGIFJV restaurants and café bars in Terminals A, B, and C, and sought a remodel of the restaurant in Terminal E if TGIFJV became ACDBE compliant and executed new leases. If TGIFJV failed to become ACDBE compliant and execute new leases, the Airport would exercise its eminent domain power and condemn TGIFJV's leases and put the spaces out for bid.

         X. Terminal A

         The Airport offered TGIFJV space in renovated Terminal A. Shortly thereafter, the FAA completed an audit of four Airport concessionaire joint ventures, including TGIFJV, and issued its findings in a report it provided to the Airport. The report outlined several concerns regarding Friday's management of TGIFJV. In essence, the FAA concluded that Friday's had precluded the TGIFJV's minority-certified partners from participating in the management of TGIFJV in violation of FAA guidelines. The FAA, therefore, recommended that the partners revise TGIFJV's governing agreements to clarify the roles of TSQF and Domain and give them more control over TGIFJV's restaurant operations.

         In October 2010, the Airport asked TGIFJV to submit revised governing agreements by November 22, 2010 addressing the issues raised in the FAA audit. As the November 22 deadline loomed, with no consensus of the partners of TGIFJV on modifications to TGIFJV's governing agreements, Friday's and the RSH Group, through TGIF/DFW Partner and RSH Concessions, LLC, created a new joint venture and secured a lease for a Friday's restaurant in Terminal A. They included a side agreement preserving interests for Domain and CBIF. As a result of this arrangement, TGIFJV no longer owns or operates a Friday's restaurant in Terminal A.[6]

         XI. The Lawsuit

         In April 2011, Friday's filed this lawsuit against the CBIF parties. CBIF and Columbia filed crossclaims against Friday's and third-party claims against TSQF, the RSH Group, and other related entities. In turn, TSQF and the RSH Group asserted claims against the CBIF parties.

         By its suit, Friday's claimed CBIF breached its fiduciary duty by allegedly (1) unreasonably withholding consent to enter into a new lease with the Airport, (2) providing inaccurate information to the Airport, (3) acting out of its own self-interest, and (4) threatening TGIFJV and its constituents with the total loss of the venture's business existence by virtue of condemnation for lack of ACDBE compliance. Friday's sought to hold Columbia and Flory personally accountable for CBIF's breaches-of-fiduciary duty. In connection with its breach-of-fiduciary-duty and aiding-and-abetting claims against Columbia and Flory, Friday's claimed damages of $152, 852.40 representing the attorney's fees it incurred because the CBIF parties complicated the Terminal A leasing process. In addition, Friday's sought a judicial dissolution of TGIFJV and a declaratory judgment as to certain restrictive covenants the CBIF parties claimed Friday's and others breached in connection with the venture Friday's and the RSH Group created to enter into the lease for the renovated space in Terminal A.

         On behalf of TSQF, the RSH Group sued CBIF and Columbia for theft of TSQF funds used to pay attorney's fees in the Tarrant County Lawsuit. TSQF sought to hold Flory accountable for CBIF and Columbia's theft under a conspiracy theory. TSQF sought to recover the legal fees and expenses CBIF and Columbia caused TSQF to pay in the Tarrant County Lawsuit. TSQF also asserted breach-of-fiduciary-duty and breach-of-contract claims against CBIF and Columbia. It also sought to hold Flory personally accountable for CBIF's and Columbia's claimed breaches. In connection with TSQF's breach-of-fiduciary-duty and breach-of-contract claims, TSQF sought to recover as damages the legal fees and expenses paid in connection with the Tarrant County Lawsuit and lost profits on the defaulted interest in the Terminal D project.

         The RSH Group sued CBIF and Columbia for breach-of-fiduciary duty and breach of contract. In its pleadings, the RSH Group sought to recover as damages the attorney's fees it incurred in creating a separate venture to enter into the Terminal A lease and attorney's fees pursuant to chapters 37, 38, and 134 of the civil practice and remedies code, and chapter 154 of the business organizations code.[7] At trial, the RSH Group submitted a claim for attorney's fees under chapter 38 only.

         XII. The Verdict

         After a lengthy trial, the jury made the following findings:

• The economic purpose of TGIFJV had been unreasonably frustrated and likely would be frustrated in the future; CBIF engaged in conduct that made it not reasonably practicable to carry on the business of TGIFJV in partnership with CBIF; and it was not reasonably practicable for the joint venture to carry on its business in conformity with its governing documents.
• Section 12.05 of the PMSA, providing the venture partners would not participate in other restaurant operations at the Airport, was unreasonable and Exhibit B, a restrictive covenant concerning the ownership or operations of restaurants in direct competition with TGI Friday's, was not unreasonable.
• CBIF breached its fiduciary duties to Friday's and Columbia and Flory knowingly participated in those breaches.
• TGIF suffered damages in the amount of $152, 852.40 as a result of CBIF's breach of fiduciary duty.
• CBIF and Columbia breached their fiduciary duties to TSQF and the RSH Group and Flory knowingly participated in those breaches.
• TSQF suffered damages in the amount of $1, 577, 589.52 as a result of CBIF's and Columbia's breaches of fiduciary duties.
• The RSH Group suffered damages in the amount of $33, 221.23 as a result of CBIF's and Columbia's breaches of fiduciary duties.
• CBIF and Columbia committed civil theft by using TSQF funds to pay for Columbia's or CBIF's legal fees in the Tarrant County lawsuit, and CBIF, Columbia, and Flory conspired to commit the alleged theft.
• TSQF suffered damages in the amount of $385, 323.52 as a result of CBIF's and Columbia's theft.
• CBIF breached sections 13.1 and 14.2 of the TSQF LP Agreement and Columbia breached sections 1.02 and 1.03 of the TSQF MSA and sections 3.10, 5.02(a), 6.01(a), and 6.02(a) of the Texas Star Regulations.[8]
• TSQF suffered damages in the amount of $1, 577, 589.52 as a result of CBIF's and Columbia's breaches of contract.
• The RSH Group suffered damages in the amount of $33, 221.23 as a result of CBIF's and Columbia's breaches of contract.
• The RSH Group incurred reasonable fees of $1, 363, 072.67 for prosecuting its breach-of-contact claims and claims on behalf of TSQF.

         In addition, the jury found against the CBIF parties on their affirmative claims for relief.

         XIII. The Judgment

         Based on the jury's verdict and the evidence concerning attorney's fees Friday's submitted to the trial court post-trial, the trial court rendered Final Judgment on November 7, 2014:

1. Dissolving TGIFJV under section 11.314 of the Texas Business Organizations Code and appointing a wind-up representative to carry out the dissolution.
2. Declaring section 12.05 of the PMSA unenforceable and reforming it to provide that the partners could not participate in other restaurant operations at DFW unless the other operation was a Friday's. The court also deleted the Exclusive-License Provision and declared that Exhibit B to the PMSA was inapplicable to the partners' attempts to own or operate competing restaurants at the Airport.
3. Ordering:
(a) CBIF, Columbia, and Flory, jointly and severally, to pay Friday's $152, 852.40 in actual damages plus interest on Friday's breach-of-fiduciary-duty claim;
(b) CBIF and Columbia, jointly and severally, pay Friday's $2.8 million in attorney's fees based on its DJA claim;
(c) CBIF, Columbia, and Flory, jointly and severally, pay TSQF $1, 577, 589.52 in actual damages plus interest on TSQF's breach-of-fiduciary-duty and breach-of-contract claims, comprised of the attorney's fees TSQF paid in connection with the Tarrant County lawsuit in the amount of $385, 323.52 (which was also awarded by the jury on TSQF's theft claim), past lost profits in the amount of $1, 022, 180, and future lost profits in the amount of $170, 986; and
(d) CBIF, Columbia, and Flory, jointly and severally, pay the RSH Group $33, 221.23 in actual damages plus interest on RSH Group's breach-of-fiduciary-duty and breach-of-contract claims, as well as $1, 363, 072.67 in attorney's fees for representation in the Tarrant County lawsuit and this case.

         Issues and Arguments Presented

         On appeal, CBIF raises the following issues. First, CBIF challenges whether the evidence was legally sufficient to support a dissolution of TGIFJV. Second, CBIF contends that the damages awarded to Friday's are unsupportable. Third, CBIF argues the trial court erred by awarding Friday's relief pursuant to the DJA. Fourth, CBIF argues the trial court erred by awarding Friday's attorney's fees on its DJA claim. Fifth, CBIF challenges the legal and factual sufficiency of the evidence to support the finding that CBIF committed theft or conspired to commit theft. Finally, CBIF challenges the legal and factual sufficiency of the evidence to support the damages and attorney's fees awarded to TSQF and the RSH Group.

         In addition to adopting CBIF's brief in its entirety, Columbia and Flory raise twenty-two issues complaining about the Court's Charge, the jury findings, and the trial court's judgment. In issues one and two, Columbia and Flory challenge the legal and factual sufficiency of the evidence to support the findings CBIF breached its fiduciary duty to Friday's, Flory participated in the breach, and the damages awarded on Friday's breach-of-fiduciary-duty claim. In their third, ninth, twelfth, and twentieth issues, Columbia and Flory argue the trial court erred in refusing to submit their requested jury questions and instructions on legal justification, fiduciary duty, and good-faith belief. In their fourth issue, Columbia and Flory challenge the attorney's fees awarded to Friday's on its DJA claim. In issues five through eight and issues ten and eleven, Columbia and Flory challenge the legal and factual sufficiency of the evidence to support the jury's findings on TSQF's breach-of-contract, breach-of-fiduciary-duty, and theft claims, and findings Flory knowingly participated in CBIF's and Columbia's breaches of their fiduciary duties and the CBIF parties conspired to breach a fiduciary duty and to commit theft. In issues thirteen through fifteen, Columbia and Flory challenge the legal and factual sufficiency of the evidence to support the damages awarded to TSQF and argue TSQF's claims for lost profits are barred by limitations. In issues sixteen through nineteen, and issues twenty-one and twenty-two, Columbia and Flory challenge the legal and factual sufficiency of the evidence to support the jury's finding on the RSH Group's breach-of-fiduciary-duty claim and findings Flory knowing participated in the breach and the CBIF parties conspired to breach a fiduciary duty, and the damages and attorney's fees awarded to the RSH Group.

         Discussion

         I. ...


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