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Rainier Southlake DST v. Woodbury Strategic Partners Fund, LP

Court of Appeals of Texas, Second District, Fort Worth

December 7, 2017

RAINIER SOUTHLAKE DST, A DELAWARE STATUTORY TRUST; RAINIER DST SERVICES, LLC, IN ITS CAPACITY AS SIGNATORY TRUSTEE FOR RAINIER SOUTHLAKE DST, A DELAWARE STATUTORY TRUST; AND RAINIER CAPITAL MANAGEMENT, LP APPELLANTS
v.
WOODBURY STRATEGIC PARTNERS FUND, LP AND LAGO DEL SUR, LLC APPELLEES

          FROM THE 96TH DISTRICT COURT OF TARRANT COUNTY TRIAL COURT NO. 096-263045-12

          PANEL: WALKER and MEIER, JJ.; and CHARLES BLEIL (Senior Justice, Retired, Sitting by Assignment).

          MEMORANDUM OPINION[1]

          SUE WALKER JUSTICE

          I. Introduction

         This is a summary-judgment appeal. Appellants Rainier Southlake DST, a Delaware statutory trust; Rainier DST Services, LLC, in its capacity as signatory trustee for Rainier Southlake DST, a Delaware statutory trust; and Rainier Capital Management, LP (collectively "Rainier") sued Appellees Woodbury Strategic Partners Fund, LP and Lago Del Sur, LLC (collectively "Woodbury"), alleging breach of fiduciary duty and breach of contract. Rainier also sought a constructive trust over certain properties and exemplary damages. Woodbury filed a combined no-evidence and traditional motion for summary judgment, and the trial court granted summary judgment for Woodbury on all of Rainier's claims without specifying the grounds for its ruling. In eight issues, Rainier challenges the trial court's summary judgment. We will affirm.

         II. Factual and Procedural Background

         In 2012, Rainier owned a building portfolio in Southlake, Texas, consisting of twenty-one buildings. To finance the purchase of that portfolio, Rainier had taken out a loan of $15, 400, 000 secured by a lien on the portfolio properties as evidenced by a deed of trust for the benefit of the lender. Rainier defaulted on the loan, and the lender transferred it to a special servicer, Midland Loan Services. To avoid foreclosure on the portfolio properties, Rainier began working with Quarter Circle Capital (QCC)--an investor in distressed real-estate collateralized loans--to evaluate possible financial solutions. QCC identified Woodbury as a potential investor, and Rainier, QCC, and Midland Loan Services began negotiating towards a restructure of the loan. The negotiations quickly moved to discussions of a discounted payoff. Woodbury and Rainier thereafter engaged in extensive negotiations regarding Woodbury's potential purchase of the loan at a discounted price for a preferred return.

         On February 15, 2012, QCC in conjunction with Woodbury submitted to Rainier a "Proposed Term Sheet" containing the terms of Woodbury's contemplated purchase of the loan; the proposed term sheet stated that the project closing date was "TBD." [2] The proposed term sheet stated:

QCC and Rainier have negotiated a discounted payoff of the existing loan for $12, 000, 000 and other consideration. To execute the discounted payoff and to minimize the tax consequences to [Rainier] that would occur in foreclosure, QCC and [Rainier] mutually agree to the terms herein that will be incorporated into a single purpose entity that will govern the Partnership going forward.

         The term "Partnership" was defined in the proposed term sheet as a "single purpose limited liability company."

         The proposed term sheet also contained other provisions, including provisions relating to the capital to be invested, the preferred return, a profit split, a disposition fee, an asset management fee, an acquisition fee, and others. The proposed term sheet contained the following deadline for acceptance:

If this Term Sheet dated February 15th, 2012[, ] meets with your approval, please acknowledge your acceptance of its fundamental terms by your signature herein provided below, and return to [QCC] via email or facsimile, on or before February 17th, 2012[, ] at 11:59 PM (PST), or this Term Sheet will become null and void.

         On March 7, 2012, Starr Schulke, the Chief Investment Officer of QCC, emailed a copy of the proposed term sheet, signed by Woodbury, to Sean Cross, Rainier's representative. That same day, Cross emailed Schulke and told him that a "clarification" needed to be added to the term sheet regarding when a disposition fee called for in the term sheet was to be paid; Cross suggested, "[L]et's discuss tomorrow[.]" Schulke responded that "[w]e can firm up the language [about the disposition fee] in the management agreement. Let's get the executed Term Sheet over to Midland." So on March 8, 2012, Cross emailed a copy of the proposed term sheet, signed by both Woodbury and Rainier, to Midland.[3]

         On March 15, 2012, Schulke requested that Cross forward an executed copy of the proposed term sheet to QCC. Rather than forwarding an executed copy to QCC as Schulke had requested, Cross sent the following email to Schulke:

We sent the signed term sheet over to Midland to keep the ball moving. There were items in it, including the property management agreement[, ] that we need to get finalized before it's in final form to sign. I've attached comments / changes to the term sheet and another copy of the proposed property management agreement for review. . . . Let's discuss.

         A redline version of the proposed term sheet, making changes to the "Disposition Fee" and "Property Management" sections, was attached to Cross's email. Before Cross's changes, the "Disposition Fee" section had read as follows:

[Woodbury] and Co-Investor agree to pay a Disposition Fee to Rainier equal to 1% of the gross sales price upon sale of the portfolio. The Disposition Fee shall be subordinate to the Preferred Return.

         Cross removed the language calling for the disposition fee to be subordinate to the preferred return so that after his redline changes, the "Disposition Fee" section stated:

[Woodbury] and Co-Investor agree to pay a Disposition Fee at closing to Rainier equal to 1% of the gross sales price of any assets, in whole or part, of the portfolio.

         Prior to Cross's changes, the "Property Management" section had read as follows:

[Woodbury] agrees to maintain the existing property management company at an annual fee of 4% of the annual income. This will be governed by a standard property management agreement between the Partnership and the property manager.

         After Cross's redline changes, the "Property Management" section stated:

[Woodbury] agrees to engage Rainier Property Management, L.P. to maintain the existing property management of the portfolio subject to a separate property management agreement.

         Cross also attached to his email an eighteen-page proposed "Property Management Agreement, " which called for a management fee of 5% of the monthly gross revenues of the preceding month in addition to a $500 monthly accounting fee payable to the property manager.

          The parties continued to negotiate the terms of a property management agreement after Cross's March 15 email. On March 30, 2012, Danny Woodbury, Woodbury's representative, emailed Cross a new version of a property management agreement that included Woodbury's proposed changes. Woodbury proposed numerous changes, including deleting the $500 monthly accounting fee and changing the management fee to 4% of the monthly gross revenues of the preceding month. Despite these negotiations, the parties never finalized a property management agreement. And Rainier never provided Schulke and Woodbury with a fully executed copy of the proposed term sheet, despite Schulke's request for it and the deadline for acceptance.

         Meanwhile, Rainier began negotiating a different deal with Karlin Real Estate, LLC. On April 25, 2012, a Karlin representative emailed Cross a quote that included a $9, 400, 000 senior secured term loan and a $3, 000, 000 equity contribution. On May 14, 2012, Cross emailed a Midland representative and informed him that "we are also talking with Karlin Real Estate about the Southlake transaction." Two weeks later, Cross emailed the Midland representative and forwarded a proposed term sheet between Karlin and Rainier that included a $12, 000, 000 senior secured term loan.[4]

         Midland realized that the proposed deal between Rainier and Woodbury "was not as 'fully baked' as [Midland] had been led to believe, " so Midland decided to sell the loan to the highest bidder through a public auction. Woodbury purchased the note at the auction through its affiliate, Lago Del Sur, LLC. According to Cross, Lago Del Sur used "confidential information" that Woodbury had obtained from Rainier to help Lago Del Sur in the bidding process.

         Rainier filed suit against Woodbury alleging claims for breach of fiduciary duty and breach of contract.[5] Rainier alleged that the proposed term sheet constituted a partnership agreement that imposed fiduciary partnership duties on Woodbury and that Woodbury had breached the partnership-imposed fiduciary duties and the partnership contract (the proposed term sheet). Rainier sought a constructive trust over the buildings in the portfolio and exemplary damages.

         Woodbury filed a combined no-evidence and traditional motion for summary judgment. Woodbury's no-evidence motion asserted that Rainier had "no evidence that Woodbury owed or breached a fiduciary duty" and that Rainier had "no evidence that a partnership existed between [Rainier] and Woodbury." Woodbury's traditional motion asserted that no genuine issue of material fact existed as to these same two elements.[6] Woodbury argued that the proposed term sheet was not an enforceable partnership agreement because it was not a valid contract. Woodbury pointed out that the proposed term sheet was rejected by Rainier when Cross emailed his changes-a counteroffer-to Schulke.

         Rainier's summary-judgment response asserted that Woodbury owed Rainier a fiduciary duty because Woodbury and Rainier had "entered into an enforceable partnership agreement"-the proposed term sheet.

         The trial court granted summary judgment for Woodbury on both of Rainier's claims. Rainier then perfected this appeal.

         III. ...


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