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Shannon Medical Center v. Triad Holdings III, L.L.C.

Court of Appeals of Texas, Fourteenth District

December 5, 2019

SHANNON MEDICAL CENTER, Appellant
v.
TRIAD HOLDINGS III, L.L.C., INDIVIDUALLY AND DERIVATIVELY ON BEHALF OF REGIONAL CANCER TREATMENT CENTER, LTD., Appellee

          On Appeal from the 340th District Court Tom Green County, Texas Trial Court Cause No. C150381C

          Panel consists of Justices Christopher, Bourliot, and Zimmerer.

          OPINION

          TRACY CHRISTOPHER, JUSTICE

         Shannon Medical Center and Triad Holdings III, L.LC. are general partners in Regional Cancer Treatment Center, Ltd. (the Partnership). The Partnership operates its regional cancer-treatment center (RCTC) on premises leased from Shannon's subsidiary, Shannon Real Estate Services, Inc. (SRES). Shannon, the managing general partner, sued for judicial dissolution of the Partnership so that it can take over RCTC's operations. Triad, both individually and derivatively on behalf of the Partnership, sued Shannon for breach of common-law and statutory fiduciary duties. In accordance with the jury's verdict, the trial court rendered judgment denying Shannon's request for judicial dissolution and awarding the Partnership actual damages in the amount of excess rent that Shannon bound the Partnership to pay to SRES. The trial court additionally ordered Shannon to pay the identical amount to Triad as equitable disgorgement of profits. Finally, the trial court awarded Triad and the Partnership their attorneys' fees, costs, and expenses. Shannon appeals the judgment.[1]

         We affirm the portions of the judgment denying Shannon's request for judicial dissolution and awarding actual damages to the Partnership; however, we reverse the disgorgement award to Triad because there is neither a finding nor evidence of Shannon's profits from the excessive rent charged by, and paid to, a different entity. In light of our disposition of these claims, we reverse the awards of attorney's fees, costs, and expenses, and we remand the case solely for relitigation of this ancillary relief.

         I. Background

         Since its formation in 1988, the Partnership has operated RCTC from a building constructed by the Trust of the Margaret Shannon Estate. The Trust then transferred the building to Shannon, and in 2007 Shannon transferred the building to its wholly owned subsidiary, SRES. Except for this partnership, Shannon and Triad are competitors.

         Under the terms of the Partnership Agreement, the general partners manage and control the Partnership "through and by virtue of their selection of the Partnership Committee and the Managing General Partner." The Partnership Committee consists of one representative of each general partner. For several years Shannon and Triad have been the only general partners. Shannon serves as the managing general partner, for which the Partnership pays Shannon management fees under a separate agreement.

         For some time now, Shannon has been attempting to dissolve the Partnership and take over RCTC. The Partnership Agreement provides that the Partnership will dissolve upon the earliest of (a) December 31, 2038; (b) approval of 75% of the partnership units; (c) the Partnership's ceasing to operate a radiotherapy facility; or (d) the occurrence of any other circumstance that, under the Texas Revised Limited Partnership Act, [2] would require dissolution. Shannon has attempted to obtain the right to vote 75% of the partnership units in favor of dissolution.

         There originally were three general partners and a varying number of limited partners, but the third general partner left the Partnership and sold its partnership units to Shannon and Triad. With the addition of those units, Shannon owned about 72.32% of the partnership units, Triad owned about 24.35%, and limited partners Drs. Bolen, Gordon, and Hughes owned, respectively, 1.72%, 0.86%, and 0.75%.

         A. The 2012 Lease Amendment

         The Partnership's landlord SRES informed the Partnership that it would not renew the Partnership's five-year lease upon its expiration in 2012. SRES offered to withdraw the notice of termination if Triad, as the only other member of the Partnership Committee, would agree to change the Partnership's name to "Shannon Regional Cancer Treatment Center, Ltd." Triad declined.

         Three days before the lease expired, Bryan Horner, who is both Shannon's chief executive officer and SRES's president, sent the Partnership and Triad a lease amendment he had executed on behalf of Shannon, as the Partnership's managing partner, and SRES. The lease raised the Partnership's annual rent of about $16.00/sq. ft. to $31.04/sq. ft., of which $11.79/sq. ft.was purportedly to reimburse SRES for specialized tenant improvements it made to the building for the Partnership's use. The building's features that are characterized as specialized tenant improvements are two vaults designed to contain radiation from the facility's linear accelerators. Contrary to these representations, however, Shannon knew that SRES had not modified the building and that the Trust had included the vaults as part of the building's original construction in 1988.

         B. Assignment of Voting Rights

         To reach the 75% threshold needed for it to dissolve the Partnership, Shannon proposed voting agreements with the limited partners, offering a guaranteed floor price for a limited partner's units upon dissolution of the Partnership in exchange for the limited partner's proxy. Triad blocked this move by entering into a voting agreement with Dr. Bolen. The Triad-Bolen Voting Agreement is binding upon the parties' successors and assigns and it cannot be assigned absent the other party's written consent. With this agreement, Triad controlled the votes of more than 26% of the Partnership, effectively preventing Shannon from forcing the Partnership to dissolve without Triad's consent.

         Shannon subsequently bought some of partnership units that were subject to the Triad-Bolen Voting Agreement before entering into a similar voting agreement with Dr. Hughes. Believing that these transactions gave it the right to vote 75% of the partnership units, Shannon unilaterally issued a "Written Consent" purporting to dissolve the Partnership and transfer the Partnership's assets and liabilities to Shannon. In response, Triad pointed out that its proxy to vote Dr. Bolen's partnership units is binding on Dr. Bolen's successors, so that Triad retains the right to vote those units that Dr. Bolen later sold to Shannon. Shannon concedes this point and agrees that the Written Consent was ineffective.

         By the time of trial, Shannon and Triad had purchased all of the limited partners' partnership units, making them the only members of the partnership. Due to the voting agreements, Shannon has the right to vote slightly less than 74% of the partnership units, and Triad has the right to vote slightly more than 26%.

         C. The Lawsuit

         Unable to cast the votes of 75% of the partnership units as needed to dissolve the Partnership, Shannon filed this suit for judicial dissolution on the ground that it is not reasonably practicable to carry on the Partnership's business in conformity with its governing documents. Triad counterclaimed in its individual capacity and additionally brought a derivative action on behalf of the Partnership. For clarity, we refer to the derivative claims as if brought by the Partnership directly.

         The jury charge contained separate questions asking whether Shannon complied with common-law fiduciary duties, with the statutory duty of loyalty, and with the statutory duty of care. Regardless of the theory of liability, the jury was told to measure the Partnership's damages, if any, by "[t]he amount of any improperly charged rents." The jury found that Shannon did not comply with any of these duties to the Partnership or to Triad and assessed the Partnership damages of $572, 725.00, which is equal to the sum of the annual charges of $11.79/sq. ft. of the leased premises over the five-year lease term. This is the amount that Shannon bound the Partnership to pay SRES, purportedly to reimburse SRES for its costs of constructing the vaults. The trial court also included an allegedly unpleaded claim, asking the jury if Shannon committed fraud by non-disclosure against Triad "in connection with the Lease Amendment." The jury then was again asked, "What was the amount of any improperly charged rents," and again answered, "$572.725.00." The jury answered all of Shannon's affirmative-defense questions in the negative and failed to find any of the statutory grounds for judicial dissolution of the Partnership.

         The trial court awarded the Partnership actual damages of $572, 725.00 as found by the jury for breach of duty. Triad recovered no damages, but the trial court ordered Shannon to pay Triad $572, 725.00 as equitable disgorgement of profits. Finally, Shannon was ordered to pay Triad's and the Partnership's attorneys' fees and expenses. Shannon appeals the judgment.

         II. Issues Presented

         Of Shannon's first two issues, we address only the arguments in Shannon's second issue challenging the jury's finding that Shannon breached its statutory duty of care.[3] In its fourth issue, Shannon seeks reversal of Triad's disgorgement award, and in its fifth issue, Shannon argues that it conclusively established a basis for judicial dissolution of the Partnership. In its two remaining issues, Shannon challenges both the unconditional nature of the award of appellate attorneys' fees and the amount of fees awarded.

         Given the differences in the claims and the relief awarded to the Partnership and to Triad individually, we separately address Shannon's appellate arguments concerning the Partnership's claims, Triad's individual claims, and Shannon's judicial-dissolution claim, before addressing the incidental relief of attorneys' fees, costs, and expenses.

         III. Breach of the Duty of Care to the Partnership

         In this issue, Shannon maintains that the charge's question regarding breach of the duty of care does not support the judgment because none of the transactions or conduct relied upon give rise to a legally viable claim.[4]

         A. Question 6: The Charge on the ...


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