Flat Stone Development Co. v. Jay Cohen ( 2020 )

Case: 19-20152 Document: 00515673592 Page: 1 Date Filed: 12/15/2020
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
December 15, 2020
No. 19-20152 Lyle W. Cayce
Clerk
In the Matter of: Alabama & Dunlavy, Limited; Flat
Stone II, Limited; Flat Stone, Limited;
Debtors,
Jay H. Cohen, Individually and as Trustee of the JHC
Trusts I and II,
Appellant,
versus
John Gilmore, Administrator of the Estate of Robert
Haden Abercrombie; Texas Abercrombie Family
Interests, Limited,
Appellees.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:16-CV-283
Before Graves, Costa, and Engelhardt, Circuit Judges.
James E. Graves, Jr., Circuit Judge,
Appellant Jay Cohen contends that Appellee Robert Abercrombie
played a key role as a strawman purchaser in a fraudulent land transfer where
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valuable property passed from a limited partnership named Alabama &
Dunlavy (“A&D”) to another limited partnership in Abercrombie’s control
named Texas Abercrombie Family Interests, Ltd. (“TAFI”). An associate of
Cohen named Matthew Dilick controlled A&D’s general partner while
Cohen controlled A&D’s largest limited partner. Cohen claims that Dilick
and Abercrombie made millions from the transaction and that Abercrombie’s
actions helped conceal Dilick’s involvement in the self-dealing sale and
helped Dilick breach his fiduciary duties and commit fraud.
Before the suit was removed to federal court under bankruptcy
jurisdiction, a Texas state trial court granted several evidentiary objections to
Cohen’s detriment, dismissed Cohen’s claims against Abercrombie and
TAFI on summary judgment, and expunged a notice of lis pendens that Cohen
had placed on the property. This appeal concerns the grant of those orders.
We find that the state trial court abused its discretion in granting the
evidentiary objections and granted summary judgment despite there being
issues of material fact with respect to all of Cohen’s claims. We also find that
the controversy surrounding the state court’s expungement of the notice of
lis pendens is moot because the property at issue was sold to a third party
months after the trial court’s expungement. We therefore affirm in part,
vacate in part, and remand for proceedings consistent with this opinion.
I.
This suit involves a seven-and-a-half-acre tract located at the corner
of Alabama and Dunlavy inside Loop 610 in Houston, Texas. In 2005, the
limited partnership A&D, was formed and the Alabama property transferred
into it. The Cohen-controlled JHC II Trust was an eighty percent limited
partner in A&D. Rock Hill Development was a ten percent limited partner,
Matthew Dilick was a nine-and-a-half percent limited partner, and a Dilick-
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controlled company named Commerce Equities II held the remaining half
percent as the general partner.
Over the years, Dilick, on behalf of A&D, borrowed approximately
$13.5 million against the Alabama property. At the end of 2008, the recession
began, and the debt, which was then held by Wedge Real Estate Finance,
matured. Wedge refused an extension and threatened foreclosure. But Dilick
succeeded in postponing the foreclosure just long enough to sell the property
to TAFI in early 2009.
Abercrombie had previously tried to develop the property by securing
ground leases with CVS and Kroger, but those deals had fallen through. In
fall 2009, Dilick learned from Abercrombie that HEB wanted to put a grocery
on the Alabama property through a long-term ground lease. Dilick had
experience with such leases and knew from an estimate provided by
QuadCapital Advisors, LLC, that the Alabama property with the HEB lease
would be enough collateral for a loan of over $18 million.
In December 2009, Abercrombie and Dilick approached Howard
Herbert, trustee of JHC Trust II, about selling the Alabama property. The
parties initially agreed to a $16.7 million purchase price, which Herbert
accepted because he thought it would result in around $3 million in profit for
the partnership. The only other offer at the time was from Wal-Mart for
about $9 million.
But Dilick and Abercrombie concealed details from A&D, including
Abercrombie’s negotiations with HEB and Dilick’s emails with a HEB
representative, wherein he answered questions about the property. Dilick
also concealed the QuadCapital report stating that the property coupled with
a long-term ground lease could be worth over $18 million.
On February 4, 2010, HEB agreed to the terms of a lucrative long-
term lease of the Alabama property with TAFI (an entity not formed until
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February 9, 2020). Abercrombie signed the term sheet for the HEB lease on
behalf of TAFI. He also signed TAFI’s limited partnership agreement as a
representative of its general partner, as a limited partner, as the manager of a
different corporation and limited partner called European Capital Fund
(“ECF”), and as the manager of two other non-existent, never-formed
companies listed as limited partners.
Though the terms were in place, Abercrombie and Dilick still had
problems. HEB could back out of the lease. TAFI did not yet own the
property. And Wedge had scheduled foreclosure. This meant that Dilick and
Abercrombie had to move quickly to transfer the property from A&D to
TAFI. To do so, Dilick sought a bridge loan from Adam Acquisition
Company to pay off Wedge.
Although Adam Acquisition lent the money to TAFI, it was Dilick,
not Abercrombie who made the arrangements. On February 11, 2010, Dilick
emailed Adam Acquisition seeking a “personal bridge loan” for $15 million.
The next day, counsel for Adam Acquisition emailed Dilick about the
prospects of a loan to him or to an entity he owned. Dilick then provided
documentation to Adam Acquisition including an undated, notarized
statement in which both he and Abercrombie certified that “any and all
investments, loans, legal and organization documents with Mr. Don Adams
are 100% in the sole control and sole decision-making authority of Matthew
G. Dilick.” Adam Acquisition’s counsel testified that he thought this meant
Dilick oversaw Abercrombie and TAFI. After all, Dilick’s CPA and his in-
house counsel produced TAFI’s financial statement and provided an opinion
of counsel for Adam Acquisition.
On February 26, 2010, Dilick, acting on behalf of the A&D
partnership, sold the Alabama property to TAFI. Dilick provided TAFI the
$2 million that it needed to close the $15 million bridge loan. And Dilick, not
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Abercrombie, personally guaranteed the loan. But the sale was not for the
agreed upon price of $16.7 million. Instead, Dilick sold the property for the
lesser amount of $13.5 million, which was just enough to pay off Wedge. A&D
also received an unsecured, non-recourse note from Abercrombie for
$334,837. It appears that Abercrombie was unable to contribute financially to
the deal’s closing as he had recently asked Dilick for a loan to help him avoid
returning to jail for a failure to pay child support.
Abercrombie could, however, contribute his signature. On June 17,
2010, following the sale from A&D to TAFI and with the HEB lease in place,
TAFI closed a $19.9 million loan secured by the Alabama property. At the
closing, Abercrombie testified that “[he] signed a bunch of blank documents,
. . . just signature pages” and that “[he] didn’t look at any of it. [He] just
signed them.”
These blank pages sent money to multiple entities. From the
disbursements at closing, TAFI received $2.94 million. But $1.06 million of
that $2.94 million left TAFI and traveled a circuitous path to Dilick’s
Commerce Equities. First, it went into an account that had been opened in
the name of TAFI’s limited partner ECF. Though Abercrombie signed
paperwork as ECF’s manager, Dilick’s associate and tenant Luis Bodmer,
not Abercrombie, opened the account. Bodmer had nothing to do with ECF
on paper and no authority to act for it, yet he signed the bank paperwork as
member and manager of ECF.
After spending twenty-four hours in the ECF account, the money
passed into the account of Kings Cross Ventures, a restaurant business run
by Michael Horan that operated out of a location Dilick leased to him. After
receiving the funds, Horan transferred them in two separate transactions on
two consecutive days into an account for Mid Rise Builders. From there, the
money was mixed with other funds and then transferred into Commerce
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Equities. Someone also transferred $225,000 from ECF to Richard Golden.
Golden was HEB’s director of real estate, with whom Abercrombie and
Dilick had started lease negotiations back in November 2009. Cohen
contends this was a kick back.
II.
Cohen sued Abercrombie and TAFI, among several others, in Texas
state court seeking redress for the sale of the Alabama property to TAFI and
the subsequent $19.9 million loan from which the Dilick-controlled
Commerce Equities received at least $1 million. Cohen asserted against
Abercrombie and TAFI claims for conspiracy to commit fraud, conspiracy to
breach a fiduciary duty, aiding and participating in a breach of fiduciary duty,
and fraudulent transfer under the Texas Uniform Fraudulent Transfer Act
(“TUFTA”). Along with monetary damages and attorney’s fees, Cohen
sought to rescind the allegedly fraudulent transfer of the Alabama property
and restore its title free and clear of fraudulently created liens.
Abercrombie and TAFI filed a summary judgment motion. In
November 2013, the state trial court granted that motion in full and expunged
a notice of lis pendens that Cohen had placed on the Alabama property. This
case then traveled a peculiar path to the Fifth Circuit and has left us in the
position of having to review a grant of summary judgment entered in Texas
state court some seven years ago.
On February 24, 2015, following the Chapter 7 bankruptcy filing of the
limited partnerships involved in the case, including A&D, Regions Bank
(another defendant) removed the state case to federal court pursuant to the
bankruptcy removal statute. See 28 U.S.C. § 1452. The subsequent reference
to the United States Bankruptcy Court for the Southern District of Texas
was soon withdrawn and the case taken up by the United States District
Court for the Southern District of Texas. The district court entered an
agreed final judgment on February 7, 2019. In the intervening seven years
between the state court’s grant of summary judgment and the district court’s
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entry of final judgment, Abercrombie, and the attorney who represented him
in state court, both passed away, and the Alabama property, free of the lis
pendens, was sold to Montrose Real Estate Partners in July 2014.1
The district court neither addressed the claims against Abercrombie
in detail nor issued an order adopting the state court’s rulings as its own, and
neither Abercrombie nor TAFI participated in the district court litigation. So
what happens when, as here, a party appeals a state trial court decision to a
federal court of appeals without a federal district judge’s prior consideration?
In this circuit, when a case is removed from state court to federal
court, the federal court takes the case as it finds it and treats the state court
rulings as its own. In re Meyerland Co., 960 F.2d 512, 520 (5th Cir. 1992) (en
banc) (citing Granny Goose Foods, Inc. v. Bhd. of Teamsters, Etc., 415 U.S. 423,
435–36 (1974) (“Judicial economy is promoted by providing that proceedings
had in state court shall have force and effect in federal court, so that pleadings
in state court, for example, need not be duplicated in federal court.”)).
Since the Fifth Circuit has eschewed legal formalities and treated
cases like this one as reviewable even if the district court provided little
discussion of the state court decision, this case is ready for appellate review.2
1
Federal Rule of Evidence 201(b)(2) provides that Courts may “judicially notice a
fact that is not subject to reasonable dispute because it . . . can be accurately and readily
determined from sources whose accuracy cannot reasonably be questioned.”
2
The only mention of Abercrombie and TAFI by the District Court came when it
addressed a 12(b)(6) motion to dismiss filed by remaining defendants. There, towards the
end of the order, the district court denied the motion but inexplicably granted the motion
with respect to Abercrombie and TAFI saying that:
[T]o the extent these cross-claims have already been resolved by the
summary judgments granted by the state district court in Cause No. 2010-
20973 in favor of Bayou on the Bend Hold, Ltd., SE Texas Note
Acquisitions 2010-11, LLC, Robert Haden Abercrombie and Texas
Abercrombie Family Interests, Ltd., the Motion is granted with regards to
those entities.
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In re Meyerland Co., 960 F.2d at 520 (holding that the district court should
simply “take the state judgment as it finds it, prepare the record as required
for appeal, and forward the case to the appellate court for review.”); see also
Breedlove v. Cabou, 296 F. Supp. 2d 253, 263 (N.D.N.Y. 2003) (collecting and
comparing cases). Neither party contests jurisdiction.
III.
The outcome of this de novo review hinges on the record evidence we
can and should consider. See Ford Motor Credit Card Co. v. Bright, 34 F.3d
322, 324 (5th Cir. 1994). TAFI and Abercrombie contend that much of the
evidence is improperly before this court because the state trial court did not
grant the motion admitting the evidence until a month after it granted the
motion for summary judgment. But this is not as strange as TAFI and
Abercrombie make it sound.
Some of the summary judgment evidence filed was the subject of a
protective order, and while it was attached and submitted alongside Cohen’s
filings related to the relevant motions, it was not formally admitted into the
record until after the trial court completed an in camera review. A read of the
state court documents relating to the summary judgment motion reveals that
the trial court had all the evidence before it and reviewed the same evidence
currently before this court. So, this is not a case where, as TAFI and
Abercrombie would describe it, the panel is reviewing evidence that was not
before the trial court.
Cohen contends that the state trial court abused its discretion in
granting several evidentiary objections in TAFI’s and Abercrombie’s favor.
Since the district court cannot dismiss claims that previously were dismissed
following a grant of summary judgment, it appears that the district summarily granted parts
of the motion in error. We see the grant of the 12(b)(6) motion as an ineffectual slip of a
pen best construed as an attempt at saying that the state court’s previous rulings are left
undisturbed.
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See Bright, 34 F.3d at 324. We agree. The grant of these objections improperly
excluded important evidence from consideration. To start, the state trial
court offered no explanation as to why it granted the objections. It simply
checked boxes on a form saying that the objections were sustained. Since a
trial court can abuse its discretion by failing to explain the reasons for
excluding evidence, the lack of a reasoned explanation weighs in favor of
overturning the objections. See Underwriters at Lloyd’s, London v. Axon
Pressure Prods. Inc., 951 F.3d 248, 268–69 (5th Cir. 2020). Courts also
typically consider evidence unless the objecting party can show that it could
not be reduced to an admissible form at trial. See Fed. R. Civ. P. 56(c)(2);
Maurer v. Indep. Town, 870 F.3d 380, 384 (5th Cir. 2017).
The first two objections are sweeping and seek to exclude almost all of
Cohen’s evidence or alternatively, limit the evidence considered. But TAFI
and Abercrombie admitted that an inadvertently excluded affidavit cured the
authentication issues that supported the objections, and there is, again, no
specific reason as to why we cannot consider all the evidence before us.
Three of the objections concern the Alabama property’s value and
address a property appraisal, Dilick’s valuation of the property in an affidavit,
and a TAFI financial statement listing the value of the property. While some
of this evidence may be considered hearsay in certain contexts, TAFI and
Abercrombie have not shown that it is entirely inadmissible. It could for
example be admitted to provide clarity or be considered as a statement by a
party and admitted under Federal Rule of Evidence 801(d)(2).
The final objection concerns a diagram that Cohen prepared to
illustrate the flow of funds after the parties closed the $19.9 million loan on
the Alabama property. The underlying bank records support this exhibit and
TAFI and Abercrombie offer no explanation as to why it would be
inadmissible. Thus, we conclude that the state trial court abused its
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discretion when it granted these objections without explanation, and we
consider all the evidence before us.
IV.
A.
Cohen sued Abercrombie and TAFI under the Texas Uniform
Fraudulent Transfer Act. TUFTA prevents debtors from prejudicing
creditors by improperly moving assets beyond their reach. Cohen qualifies as
a creditor for purposes of this claim because a trust that he controlled had an
ownership interest in the A&D partnership and a right to payment when
Dilick sold A&D’s sole asset and then derived millions of dollars in profits
when he, Abercrombie, and TAFI refinanced that asset. See Tex. Bus. &
Comm. Code § 24.002(2)-(6). Under TUFTA, a transfer made with
actual or constructive intent to defraud any creditor may be avoided to satisfy
the creditor’s claims. The act defines a fraudulent transaction in two ways:
(a) A transfer made or obligation incurred by a debtor is
fraudulent as to a creditor . . . if the debtor made the transfer or
incurred the obligation:
(1) with actual intent to hinder, delay, or defraud any
creditor of the debtor; or
(2) without receiving a reasonably equivalent value in
exchange for the transfer or obligation, and the debtor:
(A) was engaged or was about to engage in a
business or a transaction for which the remaining
assets of the debtor were unreasonably small in
relation to the business or transaction; or
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(B) intended to incur, or believed or reasonably
should have believed that the debtor would
incur, debts beyond the debtor’s ability to pay as
they became due.
Id. § 24.005.
Cohen has shown there is a question of material fact with regard to
both versions of the TUFTA test, i.e., he has made credible allegations that
Abercrombie and Dilick brought about the transfer of the Alabama property
from A&D to TAFI with either the actual intent to defraud him or without
paying a reasonably appropriate value for A&D’s lone asset. See Id. §
24.005(a)(1)&(2).
1.
Because the intent to hinder, delay, or defraud creditors is seldom
susceptible of direct proof, TUFTA provides badges of fraud on which
creditors and courts can rely. Janvey v. GMAG, L.L.C., 592 S.W.3d 125, 128
(Tex. 2019). TUFTA lists eleven nonexclusive indicia of fraudulent intent
that include: transfer to an insider, concealment of the transfer, transfer of
substantially all the debtor’s assets, and failure to obtain consideration
reasonably equivalent to the value of the asset transferred. Tex. Bus. &
Comm. Code § 24.005(b). Evidence of a single badge of fraud does not
conclusively demonstrate intent, but a confluence of several presents a strong
case of fraud. Janvey v. Golf Channel, Inc., 487 S.W.3d 560, 566–67 (Tex.
2016).
Cohen has shown that there is a question of fact concerning
Abercrombie’s and Dilick’s intent as the four badges of fraud listed above are
present here. The act considers Dilick, as the person in control of A&D’s
general partner, an insider. Tex. Bus. & Comm. Code §
24.002(7)(C)(i). While A&D did not sell the property directly to Dilick, he
derived $1.06 million in profit from the eventual loan, which traveled from
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TAFI to his company through a bank account opened by his associate. A jury
could conclude that acting as an insider, Dilick drained the assets of the A&D
partnership. Dilick and his associates, as well as TAFI and Abercrombie,
went to great lengths to conceal his involvement in the sale, and the sale left
A&D without assets. There also remains a question as to whether A&D
received a reasonably equivalent value in exchange for the property.
2.
TUFTA defines “reasonably equivalent value” as a transfer or
obligation within the range of values for which the transferor would have sold
the assets in an arm’s length transaction. Id. § 24.004(a), (d). TAFI argues
that it paid a reasonably equivalent value because the property was on the
brink of foreclosure and the only other offer for the property was an
approximately $9 million offer from Wal-Mart. It indeed appears A&D could
not forestall foreclosure much longer, and that there was no hope of
refinancing the undeveloped property. That suggests there was little equity
in the property absent a development deal similar to the HEB lease. But
TAFI’s $13.5 million payment was about the lowest offer A&D could accept.
Cohen points to the TAFI balance sheet and underlying appraisals that value
the Alabama property at over $26 million and to the initial offer from TAFI
of approximately $16.5 million as evidence the property was worth more.
Consequently, the question of whether TAFI paid a reasonably equivalent
value for A&D’s only asset remains. See Id. § 24.005(a)(2)(A).
B.
Since a jury could find this transaction fraudulent, the question now
becomes whether Cohen can seek recourse against TAFI and Abercrombie
as the transferees. A creditor can recover damages from a transferee under
TUFTA but not if the transferee took in good faith and for a reasonably
equivalent value. Id. § 24.009(a). Like the reasonably equivalent value
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question, the question of whether TAFI and Abercrombie took in good faith
remains disputed.
TUFTA does not define good faith, so Texas courts have looked to its
common meaning. Janvey v. GMAG, 592 S.W.3d at 129. Good faith has been
defined as “[a] state of mind consisting in (1) honesty in belief or purpose,
(2) faithfulness to one’s duty or obligation, (3) observance of reasonable
commercial standards of fair dealing . . . or (4) absence of intent to defraud
or to seek unconscionable advantage.” Good Faith, Black’s Law
Dictionary (11th ed. 2019). Good faith thus requires honest and
reasonable conduct considering known facts and conduct free from both
improper motive and willful ignorance of fraud. Janvey v. GMAG, 592
S.W.3d at 129; Railroad Comm’n of Tex. v. Gulf Energy Expl. Corp., 482
S.W.3d 559, 569 (Tex. 2016); Wichita Cty. v. Hart, 917 S.W.2d 779, 786 (Tex.
1996).
Under Texas law, TAFI’s and Abercrombie’s good faith purchaser
defenses will fail if they were on inquiry notice of fraud. See Citizens Nat’l
Bank of Tex. v. NXS Constr., Inc., 387 S.W.3d 74, 85 (Tex. App. 2012). Texas
courts have said that a transferee is on inquiry notice when it “takes property
with knowledge of such facts as would excite the suspicions of a person of
ordinary prudence” regarding “the fraudulent nature of an alleged transfer.”
Hahn v. Love, 321 S.W.3d 517, 527 (Tex. App. 2009).
At minimum, a jury could find that Abercrombie knew of red flags that
would have prompted a reasonable person to investigate. Abercrombie denies
knowing details, but he knew enough to suspect that Dilick was on both sides
of the sale and that the sale was not an above-board, arm’s length transaction.
Abercrombie knew that Dilick organized the sale to TAFI and that Dilick
provided information to help secure the HEB lease. Abercrombie also spoke
with Howard Herbert, the trustee of Cohen’s trust, and knew that Herbert
knew nothing about the HEB lease. Moreover, Abercrombie knew that Dilick
dropped the price for the Alabama property by about $3 million shortly before
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closing and assumed that there were no issues when Herbert says he
protested the price drop.
Abercrombie could not contribute monetarily to the deal, but he could
lend his signature any time it was needed. Abercrombie signed documents to
help Dilick and TAFI get a bridge loan to close the deal with A&D. Those
documents represented that Dilick was in control of the bridge loan proceeds
lent to TAFI, when, at least on paper, Dilick had no stake in TAFI or control
over it. He also signed all the documents for the post-sale $19.9 million loan
that sent millions of dollars into TAFI. At the loan’s closing, he claims he
asked no questions about who was getting what and insisted that he did not
look at anything. He claims that he did not know that Dilick received $1.06
million from the loan proceeds, and in his deposition said that he was glad
someone found out what happened to the money.
But it makes no sense for Dilick to risk millions of dollars, have his
CPA produce a balance sheet for an entity he had no control over, and have
his in-house counsel write an opinion letter blessing a deal that Abercrombie
implies was going to return him nothing. Abercrombie shouldered none of
the financial risk while Dilick put millions of his own dollars at stake as
collateral, and Abercrombie claims to have asked no questions about what
was happening. While Abercrombie might not have known all the facts, such
willful ignorance of the details of a multimillion-dollar transaction involving
the purchase, development, and refinancing of a valuable property is enough
to allow a reasonable jury to conclude that TAFI and Abercrombie were
serving as cover for Dilick and that the two were engaged in fraudulent
behavior that breached the fiduciary duties that Dilick owed to A&D.
Abercrombie and TAFI cannot as a matter of law claim they were good faith
purchasers.
C.
The intentional torts of fraud and breach of fiduciary duty can both be
the basis of a civil conspiracy. Ernst & Young v. Pacific Mut. Life Ins. Co., 51
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S.W.3d 573, 583 (Tex. 2001) (fraud); Paschal v. Great W. Drilling, Ltd., 215
S.W.3d 437, 450 (Tex. App. 2006) (breach of fiduciary duty). In order to
establish a civil conspiracy, Cohen must show that appellees and Dilick
intended to defraud him or breach a fiduciary duty owed to him (or the trust)
and that one of the two acted in furtherance of that objective to his detriment.
Tri v. J.T.T., 162 S.W.3d 552, 556 (Tex. 2005).
Because civil conspiracies to defraud are conceived in secrecy and
executed so as to avoid detection, parties ordinarily rely upon circumstantial
evidence to establish their existence. Kirby v. Cruce, 688 S.W.2d 161, 164
(Tex. App. 1985). While such reliance is permissible, the chain of inferences
cannot get too long. See Schlumberger Well Surveying Corp. v. Nortex Oil &
Gas Corp., 435 S.W.2d 854, 856–58 (Tex. 1968).
Here, only a few inferences are needed to conclude that Abercrombie,
TAFI, and Dilick acted with the intent to commit fraud and breach fiduciary
duties. The evidence shows that Abercrombie and Dilick worked together to
transfer the Alabama property to TAFI, to secure the HEB lease, to obtain a
$19.9 million loan, and to share the proceeds of that loan, which allowed
Dilick to net $1.06 million outside of the A&D partnership. Abercrombie
played a key role. He signed documents that formed TAFI and its various
partners, signed the HEB lease, closed the bridge loan with Dilick’s help,
closed the sale of the Alabama property, and closed the post-sale $19.9
million loan.
With respect to fraud, a jury could infer that Dilick and Abercrombie
negotiated one price with Herbert to set the deal in motion only to lower the
price at the last second when it was too late for A&D’s limited partners to
protest. That means a jury could find that the alleged bait-and-switch
maneuver constituted a material misrepresentation intended to induce
agreement to the sale of the Alabama property, or in other words, a
reasonable jury could find that the maneuver constituted fraud. See Ins. Co.
of N. Am. v. Morris, 981 S.W.2d 667, 674–75 (Tex. 1998).
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A jury could also find that Dilick breached his fiduciary duty of loyalty
when he allegedly backchanneled information to HEB regarding the Alabama
property, kept details about the development from the limited partners in
A&D, and derived $1.06 million from the sale and refinance. See, e.g.,
Graham Mortg. Corp. v. Hall, 307 S.W.3d 472, 479 (Tex. App. 2010).
Abercrombie knew Dilick managed A&D’s general partner, so it is no stretch
to say that he knew Dilick was a fiduciary of A&D. Abercrombie was pivotal
in helping Dilick execute the transaction and profit from it. A general partner
owes the highest fiduciary duty to limited partners. And a self-dealing
transaction where details are concealed from the limited partners and the
limited partners have no chance to object is generally presumed to be unfair.
See In re Whittington, 530 B.R. 360, 380 (Bankr. W.D. Tex. 2014); § 12:6.Self-
dealing transactions, Partnership Law & Practice § 12:6 (2019).
This same evidence could also allow a reasonable jury to find
Abercrombie and TAFI liable for knowingly aiding or participating in a
breach of fiduciary duty. Kinzbach Tool Co. v. Corbett-Wallace Corp., 160
S.W.2d 509, 514 (Tex. 1942) (stating that a party that aids in a breach of
fiduciary duty becomes a joint tortfeasor and is liable as such). Consequently,
there are genuine disputes of material fact as to whether Abercrombie and
TAFI were participants in a civil conspiracy to commit fraud and whether
they conspired, aided, and participated in a breach of fiduciary duty.
D.
Abercrombie and TAFI argue that Howard Herbert accepted the
deal’s terms and that because of this, Cohen either waived his right to sue or
should be estopped from pursuing these claims. Waiver requires knowledge
of all the essential facts, and Herbert had no knowledge of the HEB lease and
insists that he protested the price drop from $16.7 million to $13.5 million.
Since Herbert lacked all the relevant information and protested the lower
purchase price, TAFI and Abercrombie cannot establish these affirmative
defenses as a matter of law.
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No. 19-20152
V.
Finally, Cohen insists that the trial court abused its discretion in
expunging his notice of lis pendens on the Alabama property. A lis pendens
notice is limited to situations where the title to the property is directly
implicated by the results of the lawsuit. See Helmsley-Spear of Tex., Inc. v.
Blanton, 699 S.W.2d 643, 645 (Tex. App. 1985). While the state trial court’s
reasoning for dismissing the case and expunging the notice, in 2013, were
questionable, reinstating a notice of lis pendens requires Cohen to show that
prevailing on these claims would allow him to recover title to the Alabama
property from TAFI and Abercrombie. Tex. Prop. Code Ann. §
12.0071(c); see also Lathrop v. Sakatani, 141 P.3d 480, 486 (Haw. 2006)
(“Even assuming . . . that the circuit court erred in granting the defendants
motion to expunge, the plaintiffs would not be able to record another lis
pendens upon the [] property inasmuch as the property has been sold and
[defendants] do not hold title to it.”).
TAFI, however, sold the Alabama property to Montrose Real Estate
Partners in July 2014, over six months after the expungement of the notice of
lis pendens at issue here and at a time when there was no ongoing litigation
against TAFI and Abercrombie.3 Cohen has presented no information as to
who currently owns the Alabama property. But what is known, is that a party
unaffected by these proceedings owns it.
Since TAFI cannot return title to property it no longer owns, this case,
as it currently stands, is one where, though title to the land is sought, only
monetary relief can be accorded. Actually recovering the property would
3
The deed conveying the property from TAFI to Montrose Real Estate Partners,
Ltd., who is not and has never been a party to any of the court actions, is filed under Clerk’s
File No. 20140315848 in the Real Property Records of Harris County, Texas.
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No. 19-20152
require Cohen to sue its current owners—owners who could potentially
benefit from a good faith purchaser defense. See Knapp Dev. & Design v. Pal-
Mal Prop., Ltd., 240 Cal. Rptr. 920, 925 (Cal. Ct. App. 1987) (finding that
third-party purchaser who purchased property after expungement of lis
pendens was presumed to be a bona fide purchaser). The claims currently
pending against TAFI at best indirectly involve ownership of the Alabama
property, and succeeding on them is but a potential step towards recovery.
Because Cohen has failed to make a showing that his current claims directly
put title of the Alabama property at issue, we decline to encumber a property
sold some six-years ago by reinstating the notice of lis pendens.
VI.
AFFIRMED in part, VACATED in part, and REMANDED for
proceedings consistent with this opinion.
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