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Great Southwest Regional Center, LLC v. ACSWD, LP

Court of Appeals of Texas, Fourteenth District

January 14, 2020

ACSWD, LP, Appellee

          On Appeal from the 53rd District Court Travis County, Texas Trial Court Cause No. D-1-GN-15-000558

          Panel consists of Chief Justice Frost and Justices Wise and Hassan.


          Meagan Hassan Justice

         Appellee ACSWD, LP sued appellant Great Southwest Regional Center, LLC asserting claims arising from an investment venture. After a bench trial, the trial court signed a judgment in favor of ACSWD awarding it $500, 000 in damages. Great Southwest appealed and raises issues challenging (1) ACSWD's standing to pursue its claims; (2) the trial court's interpretation of ACSWD's partnership agreement; (3) the sufficiency of the evidence supporting certain findings of fact; and (4) the trial court's awards for damages, attorney's fees, and prejudgment interest. For the reasons below, we affirm.[1]


         I. Overview of the EB-5 Investment Program and the Parties Involved in the Underlying Dispute

         The investment venture at issue sought to capitalize on the EB-5 immigrant investor program administered by the U.S. Citizenship and Immigration Services ("USCIS"). The EB-5 program permits foreign investors to obtain a green card by investing in a U.S. business that creates 10 jobs. To accomplish this objective, the foreign investor's funds are invested in a new commercial enterprise which, in turn, deploys the funds to a job-creating entity. This process is administered by a regional center approved by the USCIS.

         Operating as a regional center, Great Southwest sponsored an EB-5 project involving salt water disposal wells in west Texas. Great Southwest is 100% owned by Frost Rains Holdings, LLC. Robert Frost is the Chief Executive Officer of Frost Rains Holdings and owns 66% of the company; his brother, Kenneth Frost, serves as the company's president.

         Great Southwest organized ACSWD as a limited partnership to serve as the new commercial enterprise for the salt water disposal project, with Great Southwest serving as ACSWD's general partner. Great Southwest contracted with Atlantic Investment International Group, Ltd. to locate immigrant investors for ACSWD. ACSWD was advertised to potential investors as a $500, 000 investment in exchange for a limited partnership interest in ACSWD. The partnership interests were offered pursuant to the terms of ACSWD's partnership agreement and private placement offering memorandum (the "Memorandum"). In relevant part, these documents state:

• ACSWD was organized solely for the purpose of operating as an investment limited partnership for EB-5 immigrant investors.

• ACSWD would loan 100% of its EB-5 investments to 3:16 Disposal Systems, Series LLC, which would manage the EB-5 project's salt water disposal facilities.

         Lu Jun is a Chinese citizen who sought to obtain a green card through the EB-5 program. Working with Atlantic Investment, Jun agreed to invest in ACSWD and, in November 2014, wired Great Southwest $575, 550 for the project: $500, 000 for the EB-5 investment, $45, 000 for an administration fee, $15, 000 for attorney's fees, and $1, 550 for miscellaneous fees. Jun signed ACSWD's "Subscription Agreement," which stated her limited partnership interest in the entity was obtained pursuant to the Memorandum. Jun also signed ACSWD's partnership agreement. No other EB-5 investors were secured for the ACSWD limited partnership and Jun served as the sole limited partner with a 99% interest.

         In January 2015, Jun mailed a letter to Robert Frost requesting a refund of the $575, 550 she wired for the EB-5 project. Her money was not returned.

         II. Underlying Proceedings and Bench Trial

         Great Southwest sued Atlantic Investment in February 2015, asserting Atlantic Investment failed to secure the required number of EB-5 investors for the ACSWD project. Jun filed a plea in intervention, asserting claims against ACSWD, Great Southwest, and Robert Frost. Jun sought a return of the money wired to ACSWD for the EB-5 salt water disposal project.

         Great Southwest's claims against Atlantic Investment were severed and referred to arbitration. With respect to Jun's claims, Great Southwest, Frost Rains Holdings, and Robert Frost filed a motion to dismiss for lack of jurisdiction, asserting Jun lacked standing to pursue her lawsuit because she had executed an assignment of her claims to a separate entity: SWD Investment Recovery Fund, LLC.

         Jun filed a third amended petition in intervention, stating that she, in her capacity as ACSWD's sole limited partner, removed Great Southwest as ACSWD's general partner and appointed SWD Investment Recovery Fund to the role. Jun nonsuited her claims against ACSWD and, in February 2017, ACSWD filed a plea in intervention asserting against Great Southwest, Frost Rains Holdings, Robert Frost, and Kenneth Frost claims for breach of contract, breach of fiduciary duties, and fraudulent transfer. ACSWD also requested a declaratory judgment regarding the status of ACSWD's general and limited partners.

         The trial court signed an agreed order to "Realign Parties and Style of the Case". Following the realignment, ACSWD was the sole plaintiff asserting claims against Great Southwest, Frost Rains Holdings, Robert Frost, and Kenneth Frost. The parties proceeded to a bench trial in January 2018. Kenneth Frost and Jun testified at trial regarding the transactions at issue; Kenneth Lehrer, an economist, testified for Great Southwest with respect to ACSWD's claimed damages.

         Much of Kenneth Frost's testimony discussed two different loans from ACSWD: one to 3:16 Disposal Systems, Series LLC (the "3:16 loan") and a later loan to Frost Rains Holdings (the "Frost Rains loan"). According to Kenneth Frost, the 3:16 loan was not "consummated" and documents evidencing the loan were signed as an "exemplar" of how the loan to 3:16 Disposal Systems, Series LLC would be undertaken. The promissory note for the Frost Rains loan was dated approximately four months after the 3:16 loan and contained less favorable terms. Kenneth Frost said the Frost Rains loan was undertaken when it became clear that the company intended to supervise operations under the 3:16 loan would be unable to complete its obligations. The proceeds from the Frost Rains loan were deposited into Frost Rains Holdings' general bank account and used to pay expenses incurred by Frost Rains Holdings, including car loans and credit card bills.

         After the parties rested, the trial court signed a final judgment in favor of ACSWD and against Great Southwest, Frost Rains Holdings, Kenneth Frost, and Robert Frost.[2] The trial court awarded ACSWD $500, 000 in damages, pre- and post-judgment interest, and attorney's fees. The trial court's final judgment also included a declaratory judgment stating:

1. Great Southwest was removed as ACSWD's general partner and became a limited partner without the right to vote owning a .99% interest.

2. SWD Investment Recovery Fund became the general partner of ACSWD with a 1% interest.

3. Jun's limited partnership interest was reduced from 99% to 98.01%.

         Approximately eight weeks after signing the final judgment, the trial court issued findings of fact and conclusions of law. The trial court concluded Great Southwest breached the fiduciary duties it owed to ACSWD and, through the execution of the Frost Rains loan, engaged in a "self-dealing, interested transaction." The trial court determined the Frost Rains loan benefited Great Southwest "at the expense and to the detriment of ACSWD." The trial court stated that, because of these breaches, ACSWD suffered $500, 000 in damages.

         The trial court also concluded that the Frost Rains loan constituted a breach of ACSWD's partnership agreement and the Memorandum. The trial court determined these breaches of contract caused ACSWD to suffer $500, 000 in damages.

         Great Southwest timely appealed.


         Great Southwest asserts six issues on appeal:

1. The trial court lacked jurisdiction to hear ACSWD's claims.

2. The trial court misapplied ACSWD's partnership agreement when it declared that SWD Investment Recovery Fund was ACSWD's general partner.

3. Insufficient evidence supports certain findings of fact.

4. The trial court erred in awarding damages against Great Southwest on the basis of the Memorandum.

5. The trial court's attorney's fee award improperly includes fees incurred for claims on which ACSWD did not prevail.

6. The trial court's pre-judgment interest award is improperly computed as compound interest and commences on the wrong date.

         We address these issues below.

         I. Jurisdiction Over ACSWD's Claims

         Asserting the trial court lacked subject matter jurisdiction over ACSWD's breach of contract and breach of fiduciary duty claims, Great Southwest contends the claims are not ripe for adjudication because, "until the time for payment has passed, it is pure speculation whether ACSWD will suffer any damage" from the differences between the 3:16 loan and the Frost Rains loan. Therefore, Great Southwest argues, there is "no evidence" ACSWD was injured as necessary to pursue its claims.

         A. Governing Law and Standard of Review

         Ripeness is a threshold issue that implicates the trial court's subject matter jurisdiction. Waco Indep. Sch. Dist. v. Gibson, 22 S.W.3d 849, 851 (Tex. 2000); Rea v. State, 297 S.W.3d 379, 383 (Tex. App.-Austin 2009, no pet.). A claim is ripe if, at the time the lawsuit was filed, the facts involved show that "'an injury has occurred or is likely to occur.'" City of Austin v. Whittington, 385 S.W.3d 28, 33 (Tex. App.-Austin 2007, no pet.) (quoting Patterson v. Planned Parenthood of Houston & Se. Tex., Inc., 971 S.W.2d 439, 442 (Tex. 1998)). In other words, there must be a concrete injury for the claim to be ripe. See Atmos Energy Corp. v. Abbott, 127 S.W.3d 852, 857 (Tex. App.-Austin 2004, no ...

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