Shannon Medical Center v. Triad Holdings III, L.L.C., Individually Derivatively on Behalf of Regional Cancer Treatment Center, Ltd. ( 2019 )

Affirmed in Part; Reversed and Rendered in Part; Reversed and Remanded in
Part; and Opinion filed December 5, 2019.
In The
Fourteenth Court of Appeals
NO. 14-18-00638-CV
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
OPINION
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.
1
Pursuant to an order by the Supreme Court of Texas, this case was transferred to us from
the Third Court of Appeals, and we have applied that court’s precedent to the extent that it is
inconsistent with our own. See TEX. R. APP. P. 41.3.
2
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
2
The Act expired in 2010; now see Title 4 of the Texas Business Organizations Code, TEX.
BUS. ORGS. CODE ANN. §§ 151.001–154.204.
3
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
4
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
5
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
3
Shannon’s first two issues challenge the jury’s findings on three alternative theories of
liability: (1) breach of general, common-law fiduciary duties; (2) breach of the statutory duty of
loyalty; and (3) breach of the statutory duty of care. Because we affirm the judgment for the
Partnership based on Shannon’s breach of the statutory duty of care, it is unnecessary to address
the Partnership’s alternative liability theories.
6
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 Statutory Duty of Care
Shannon first contends the trial court erroneously charged the jury on breach
of the statutory duty of care. A trial court must submit jury questions, instructions,
and definitions that “are raised by the written pleadings and the evidence.” TEX. R.
CIV. P. 278; United Scaffolding, Inc. v. Levine, 537 S.W.3d 463, 469 (Tex. 2017).
When reviewing a complaint of charge error, we consider “the pleadings of the
parties and the nature of the case, the evidence presented at trial, and the charge in
its entirety.” United Scaffolding, 537 S.W.3d at 469 (quoting Columbia Rio Grande
Healthcare, L.P. v. Hawley, 284 S.W.3d 851, 862 (Tex. 2009)). We review the trial
court’s ruling on charge objections and charge requests for abuse of discretion. Sw.
Energy Prod. Co. v. Berry–Helfand, 491 S.W.3d 699, 727 (Tex. 2016). A trial court
abuses its discretion when it acts without reference to guiding rules or principles. In
re Thetford, 574 S.W.3d 362, 374 (Tex. 2019) (orig. proceeding). Charge error is
reversible if, under the totality of these circumstances, the error “amounted to such
a denial of the rights of the complaining party as was reasonably calculated and
probably did cause the rendition of an improper judgment.” United Scaffolding, 537
4
Although this question pertains both to the Partnership and to Triad individually, we
dispose of the judgment for Triad on other grounds. See Section IV, infra.
7
S.W.3d at 469 (quoting Island Recreational Dev. Corp. v. Republic of Tex. Sav.
Ass’n, 710 S.W.2d 551, 555 (Tex. 1986) (op. on reh’g)).
Question 6 of the charge addressed the duty of care as follows:
Did Shannon comply with its duty of care to [Triad] and the
Partnership?
As a partner in the Partnership, Shannon owes [Triad] and
the Partnership a duty of care. Shannon must discharge
this duty and conduct the Partnership business (1) in good
faith and (2) in a manner that Shannon reasonably believes
to be in the best interest of the Partnership.
To prove it complied with its duty of care, Shannon must
show that, in conducting the Partnership’s business, it
acted with the care of an ordinarily prudent person in
similar circumstances. An error in judgment does not by
itself constitute a breach of the duty of care.
A partner is presumed to have satisfied the duty of care if
the partner acted on an informed basis, in good faith, and
in a manner that the partner reasonably believed to be in
the best interest of the Partnership.
A partner does not violate a duty or obligation merely
because the partner’s conduct furthers the partner’s own
interests.
The jury answered “no” as to both Triad and the Partnership. A “no” answer to
Question 6 was one of several alternative predicates to Question 7, in which the jury
was asked to determine the amount that would compensate the Partnership for its
damages, if any, “that were proximately caused by the non-compliant conduct.” The
jury was instructed to consider only “[t]he amount of any improperly charged rents,
determined at the time and place of the payment.”
1. Alleged Casteel Error
Shannon asserts that trial court reversibly erred in submitting Question 6
because it commingles valid and invalid theories of liability. See Crown Life Ins. Co.
8
v. Casteel, 22 S.W.3d 378, 388 (Tex. 2000) (op. on reh’g) (“[W]hen a trial court
submits a single broad-form liability question incorporating multiple theories of
liability, the error is harmful and a new trial is required when the appellate court
cannot determine whether the jury based its verdict on an improperly submitted
invalid theory.”). Shannon argues that a breach of duty cannot be based on its attempt
to dissolve the Partnership by Written Consent because “partners have no duty to
remain partners.”5 Shannon further contends that a breach of duty cannot be based
on “transactions that never closed, proposals that were rejected, or actions that had
no legal effect,” such as Shannon’s various offers to purchase partnership units, the
proposal to the Partnership to choose between renaming itself after Shannon or
vacating the premises, and its attempts to obtain voting agreements from Drs.
Hughes and Bolen. Shannon states in its brief that these theories cannot support a
finding that it failed to comply with the duty of care it owed to the Partnership
because these uncompleted transactions neither benefited Shannon nor harmed
Triad.
We disagree that the jury could have based its answers on any of these
scenarios. The damage question that is predicated on any finding that Shannon failed
to comply with a common-law or statutory duty required the jury to determine the
amount of “improperly charged rents” proximately caused by Shannon’s “non-
compliant conduct.” Thus, the non-compliant conduct at issue was Shannon’s
agreement, as the Partnership’s managing partner, to pay SRES the “improperly
charged rents.”
Some of the scenarios that Shannon alleges were improperly encompassed in
Question 6 could not have been included for the additional reason that they were
5
Bohatch v. Butler & Binion, 977 S.W.2d 543, 544 (Tex. 1998).
9
excluded by the accompanying instruction. The instruction informed the jury that
Shannon owed a duty of care in conducting the Partnership’s business, not
Shannon’s own business, and we presume the jury followed the charge instructions.
See Barnes v. Mathis, 353 S.W.3d 760, 765 (Tex. 2011) (per curiam). In attempting
to purchase partnership units, Shannon was conducting its own business, not
Partnership business, and the renaming ultimatum was made by SRES, not by
Shannon. As defined in the charge, “Shannon” meant only Shannon Medical Center
and specifically excluded SRES and the Trust.
We conclude that the scenarios Shannon describes as invalid theories of
liability were not submitted to the jury. They instead were merely factual matters
that were admitted into evidence without objection or a request for a limiting
instruction, and they were not encompassed in Question 6.
2. The Partnership Agreement’s Effect on the Duty of Care
On appeal, Shannon also reurges its objection that the duty-of-care question
“does not adequately address the partnership agreement and the alterations of the
statutory duty of care.” See TEX. BUS. ORGS. CODE ANN. §§ 152.206, 153.003.
Shannon argues on appeal that the duty of care was contractually disclaimed and that
Shannon’s conduct was authorized.
As a matter of law, however, the duty of care cannot be disclaimed. See id.
§ 152.002(b)(3). A partner must conduct the partnership’s business “with the care
an ordinarily prudent person would exercise in similar circumstances.” Id.
§ 152.206(a). A partner additionally must discharge the partner’s duties “in good
faith” and “in a manner the partner reasonably believes to be in the best interest of
the partnership.” Id. § 152.204(b). Although the Partnership Agreement authorizes
contracts between the Partnership and a partner or a partner’s affiliate, a partner
entering into such a contract still must comply with the duty of care by acting in
10
good faith and in a manner the partner reasonably believes to be in the partnership’s
best interest. The Partnership Agreement could not change this and did not purport
to do so.
The instructions accompanying this question tracked the statute. The
instructions additionally clarified that “[a] partner does not violate a duty or
obligation merely because the partner’s conduct furthers the partner’s own interest”
and that “a[n] error in judgment does not by itself constitute a breach of the duty of
care.” Under these instructions, the jury could find that Shannon complied with its
duty of care by entering into a contract with the Partnership that furthered Shannon’s
interest, so long as Shannon acted in good faith and reasonably believed that the
contract also was in the Partnership’s best interest. Because this charge correctly
reflects both the governing law and the Partnership Agreement’s terms, the trial
court did not abuse its discretion in overruling Shannnon’s objection. See Tex. Dep’t
of Human Servs. v. E.B., 802 S.W.2d 647, 649 (Tex. 1990) (op. on reh’g) (no abuse
of discretion where controlling question was accompanied by instructions tracking
statute’s language).
B. The Evidence That Shannon Failed to Comply with Its Duty of Care
Shannon further asserts there is no evidence to support the jury’s finding that
Shannon failed to comply with its statutory duty of care. Because the jury returned
an adverse finding on this issue on which Shannon bore the burden of proof, Shannon
must demonstrate on appeal that the evidence conclusively established that it
complied with its statutory duty of care. See Dow Chem. Co. v. Francis, 46 S.W.3d
237, 241 (Tex. 2001).6 We review the record in the light most favorable to the
6
In a footnote in its brief, Shannon states that it also objected to the three breach-of-duty
questions on the ground that they improperly shifted the burden to Shannon. Shannon offers no
argument or authority in support of that objection; thus, it too is waived. See TEX. R. APP. P.
38.1(i). We note, however, that under the common law, when a fiduciary enters into a transaction
11
challenged finding, crediting favorable evidence if a reasonable factfinder could and
disregarding contrary evidence unless a reasonable factfinder could not. See City of
Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005) (per curiam). After reviewing
the record in accordance with this standard, we hold that the evidence does not
conclusively show that Shannon complied with its duty of care concerning the lease
amendment.
Before the lease was renewed in 2012, SRES asked appraiser Dale Scoggins
to analyze the fair-market rental value of the leased premises. Scoggins determined
that the annual fair-market rental range was $18.50 to $19.25/sq. ft. In his report,
Scoggins stated,
The above rental amount does not include consideration of the
amortization of the specialized items of tenant improvements (TI) that
might be a part of a new lease agreement. The subject suite has two
vaults that house linear accelerator equipment. The estimated costs for
each of these vaults is $450,000 or a total of $900,000. These
improvements were installed at the time of original construction. The
building was built in 1988 making the improvements 24 years old.
Typical economic life for medical office buildings is 50 years. The
accrued depreciation attributable to the vault improvements would
therefore be (24/50) 48%. . . . The depreciated value of the specialized
TI is $468,000. Typically specialized TI is amortized over the primary
lease term. In this case no amortization of this cost has occurred.
in which its self-interest might conflict with the beneficiary’s interests, the fiduciary bears the
burden to show compliance with the duty of care. Stephens Cty. Museum, Inc. v. Swenson, 517
S.W.2d 257, 260 (Tex. 1974). The Texas Business Organizations Code makes this burden-shifting
rule applicable to alleged violations of statutory duties as well. See TEX. BUS. ORGS. CODE ANN.
§ 153.003 (in matters not addressed in Business Organizations Code chapter 153 dealing with
limited partnerships, “the provisions of Chapter 152 governing partnerships that are not limited
partnerships and the rules of law and equity govern”); id. § 152.003 (“The principles of law and
equity and the other partnership provisions supplement this chapter unless otherwise provided by
this chapter or the other partnership provisions.”); see also id. §§ 152.004, 153.002(b) (“The rule
that a statute in derogation of the common law is to be strictly construed does not apply” to the
statute’s partnership and limited-partnership provisions).
12
From these figures, Scoggins calculated that the post-depreciation cost of the two
vaults, if amortized over a five-year term, would increase the annual rent by
$11.79/sq. ft.
The day after receiving the report, Bryan Horner, both in his capacity as
Shannon’s CEO and as president of SRES, executed a lease amendment and sent it
to Triad and the Partnership, enclosing a copy of Scoggins’s report. The lease
amendment states, “A market rental analysis prepared for SRES indicates that
specialized tenant improvements funded by the landlord, such as the [Partnership]
linear accelerator vaults, are typically amortized and reimbursed by the tenant.”7 The
amendment called for annual rent of $31.04/sq. ft., which is the sum of the highest
fair-market rental value found by Scoggins plus an additional $11.79/sq. ft. to
“reimburse” SRES.
But Shannon knew that SRES did not fund the improvements that were made
in 1988, because Shannon was the previous owner and transferred the building—
with the vaults already in place—to SRES in 2007.
Moreover, there is legally sufficient evidence that the improvements also were
not funded by Shannon. According to Horner, the building was constructed by the
Trust, which then transferred ownership to Shannon, who later transferred the
building to SRES.
Further still, the original lease indicates that the Partnership had no financial
responsibility for improvements that were part of the original construction. Attached
to the Partnership’s original 1988 lease is an exhibit cover sheet that appears to give
directions to clerical staff, stating, “Attach floor plan of demised premises
showing . . . all improvements to be constructed by Landlord” and directing
7
Emphasis added.
13
someone to type on the floor plan, “All improvements, equipment and furnishings
shown hereon are to be constructed, furnished and installed at the sole cost and
expense of Landlord.” A private placement memorandum seeking investors in the
Partnership identifies the Trust as the landlord.
Although the floor plan itself is missing from the lease, the building’s 1987
blueprints show that the vaults are part of the original construction. The 1988 lease
did not require the Partnership to pay for any part of the original construction but to
pay only for those improvements that were added after the lease’s “Commencement
Date,” which was defined as the date the Partnership “delivers written notice to
Landlord that the demised premises are complete and fully suitable to [the
Partnership] for the purpose for which same are leased.”
From this evidence, the jury reasonably could conclude that the Trust assumed
sole responsibility for the cost of constructing a building suitable for use as a
radiotherapy center, and this included construction of the vaults shown on the
blueprints.
The evidence also establishes that Shannon knew there was no support for the
position taken in the 2012 lease amendment that “a rate of $31.04 per year per square
foot (including reimbursement of specialized tenant improvements funded by SRES)
is within the range of fair market value.” Shannon knew that the vaults were included
in the original construction nearly two decades before SRES acquired the building.
Moreover, Scoggins asked for documentation of the costs of constructing the vaults,
but because the vaults were included as an integral part of the building’s original
construction, Shannon could find none. To the contrary, Shannon’s controller
informed Horner, “The best I’ve been able to come up with for the 1988 vaults is a
lease agreement that indicates [the] landlord is responsible for all leasehold
improvements . . . .” Scoggins additionally explained to Horner, “The TI increment
14
is not included in the market rental amount as it is not an aspect of market rent but
an individual modification to a building for a particular tenant rather than a feature
that would be typical of the market.”8 Thus, Shannon knew that (1) the vaults were
not a modification to the building, and thus, they were not a “tenant improvement”;
(2) the Trust, not SRES, paid to construct the building, including the vaults; and
(3) the vaults’ construction-costs are not part of the building’s fair-market rental
value. There accordingly was no basis for Shannon, as the Partnership’s managing
general partner, to bind the Partnership to “reimburse” SRES for construction costs
Shannon knew had been paid by the Trust in accordance with its agreement with the
Partnership.
Although Shannon emphasizes that the Partnership Agreement permits the
Partnership to contract with a partner’s affiliate such as SRES, the agreement
specifies that such contracts “must be competitive with the terms that the Partnership
could obtain from third parties in an arm’s length transaction.” The Partnership was
not renting space that SRES had modified at the landlord’s expense to satisfy the
Partnership’s requirements; the Partnership was renting a space that already satisfied
the Partnership’s requirements without requiring the landlord to modify it.
Scoggins’s report shows that the highest annual fair-market rental value for the
property was $19.25/sq. ft., and the record supports the finding that in binding the
Partnership to pay SRES an additional $11.79/sq. ft., Shannon did not act “on an
informed basis, in good faith, and in a manner [it] reasonably believed to be in the
[Partnership’s] best interest.”
We conclude the jury’s assessment of the Partnership’s actual damages is
amply supported by the evidence. We overrule Shannon’s second issue, and we
8
Emphasis added.
15
affirm the portion of the judgment awarding the Partnership actual damages as found
by the jury.
IV. TRIAD’S DISGORGEMENT AWARD
Shannon argues that Triad’s disgorgement award must be reversed because,
among other reasons, there is no evidence of Shannon’s profits. We agree, and
because this point is dispositive, we do not address Shannon’s remaining challenges
to this award.9
In determining the amount that equity required Shannon to disgorge to Triad,
the trial court relied on the jury’s answer to Question 9 of the charge, in which the
jury was asked, “What was the amount of any improperly charged rent?” The jury
answered, “$572,725.00.”
But Texas law limits profit disgorgement to the amount of a fiduciary’s profits
obtained as a result of the fiduciary’s breach of duty. See Longview Energy Co. v.
Huff Energy Fund LP, 533 S.W.3d 866, 877–78 (Tex. 2017) (citing ERI Consulting
Eng’rs, Inc. v. Swinnea, 318 S.W.3d 867, 873 (Tex. 2010)).10 As Shannon pointed
out at the charge conference, the Partnership paid the rent to its landlord SRES, and
SRES is a corporation distinct from Shannon, SRES’s sole shareholder. See Grain
9
Shannon argues in its third issue that the disgorgement award cannot be supported by the
jury’s finding of fraud by non-disclosure in connection with the lease amendment, because (a) the
claim was not pleaded, (b) Triad lacks standing to pursue the claim, and (c) there is no evidence
of one or more elements of fraud by non-disclosure. In its fourth issue, Shannon contends that the
trial court abused its discretion in ordering equitable disgorgement to Triad of Shannon’s profits
because (a) that request for relief was not pleaded, (b) there is no direct relationship between Triad
and the amount to be disgorged, (c) no clear and serious breach occurred, and (d) there is no basis
for the amount awarded. Under the latter subheading, Shannon argues that the rent was paid to
SRES, not Shannon, and there is no evidence of Shannon’s profits from the 2012 lease amendment.
Because this point is dispositive of the judgment in Triad’s favor, we do not address Shannon’s
other arguments.
10
We address only the disgorgement of profits, not the forfeiture or disgorgement of fees,
which are not at issue in this appeal.
16
Dealers Mut. Ins. Co v. McKee, 943 S.W.2d 455, 458 (Tex. 1997) (“Under Texas
law, a corporation is an entity separate from its shareholders.”). The excess rent was
SRES’s profit, not Shannon’s, and Triad did not plead or litigate any basis for
ignoring the distinction between the two entities. The extent to which Shannon
profited from the excess rent paid to SRES was a question of fact11 on which there
is no finding and no evidence.
In response, Triad asserts that the damages Shannon now must pay to the
Partnership “inure . . . primarily to Shannon’s benefit as the [Partnership’s] majority
owner.” But this argument misses the mark for several reasons. First, the judgment
Shannon must pay to the Partnership is not Shannon’s profit; it is Shannon’s debt.
See TEX. CIV. PRAC. & REM. CODE ANN. § 31.008(h)(2) (party against whom
judgment is rendered is a “judgment debtor”). Second, when Shannon pays the
judgment, the money will inure to the Partnership’s benefit, not to Shannon’s. The
extent of Shannon’s partnership interest is irrelevant, because a partnership is “an
entity distinct from its partners” and “[p]artnership property is not property of the
partners.” TEX. BUS. ORGS. CODE ANN. §§ 152.056, 152.101. Third, if Triad intends
to imply that some part of the judgment that Shannon pays to the Partnership will
later be repaid to Shannon in the form of a partnership distribution, this theory cannot
support the judgment because there is no fact finding on the subject. And fourth, no
evidence was offered that would have supported the submission of a question asking
the jury to measure Shannon’s profits from the improperly charged rents by the
amount of a partnership distribution. The rent increase became effective in October
2012, and the evidence showed that the only distribution since that time was in
January 2013. The distribution could not have included any improperly charged rent,
11
See Longview, 533 S.W.3d at 877–78.
17
because the Partnership paid the rent to SRES, so the Partnership had no improperly
charged rent to distribute.
For each of these reasons, we sustain Shannon’s fourth issue in part, and we
do not reach Shannon’s remaining challenges to the judgment in Triad’s favor.
Because Triad’s only recovery was the disgorgement award, which cannot stand, we
reverse this part of the judgment and render judgment that Triad take nothing by its
claims in its individual capacity.
V. SHANNON’S CLAIM FOR JUDICIAL DISSOLUTION OF THE PARTNERSHIP
On application by a partner in a domestic partnership, a district court may
order the winding up and termination of the partnership “if the court determines that
it is not reasonably practicable to carry on the entity’s business in conformity with
its governing documents.”12 The jury was asked, “Is it reasonably practicable to
carry on the Partnership’s business in conformity with the governing documents, and
the jury answered, “Yes.” In its fifth issue, Shannon contends it is entitled to judicial
dissolution of the Partnership because it conclusively established the contrary.
Citing Wiess v. McFaddin, 211 S.W. 337, 342 (Tex. App.—Beaumont 1919,
no writ), Shannon argues that voting deadlock is a recognized basis for judicial
dissolution of a partnership, and now that Shannon and Triad are the only partners,
the two are bound to become deadlocked on important matters. But the evidence
before us—and Shannon’s own admission—easily distinguish the facts in this case
from those in Wiess. In Wiess, all of the property of an unincorporated joint stock
association was vested in a board of three trustees: Wiess, Kyle, and McFaddin. Id.
at 338. Wiess died and was succeeded by one of his children; however, the joint-
12
Act of May 13, 2003, 78th Leg., R.S., ch. 182, § 1, sec. 11.314(2), 2003 TEX. GEN. LAWS
267, 400–01 (amended 2009 & 2017; now codified at TEX. BUS. ORGS. CODE ANN. § 11.314(3)).
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stock agreement provided that the election of a new trustee would not be complete
unless a certificate of acknowledgment was signed by the two remaining trustees
and the new trustee signed an acceptance of the trust. Id. at 338–39. Wiess’s
successor was elected, but McFaddin refused to sign the necessary certificate. Id. at
339. The court noted that it was decided in an earlier case that McFaddin could not
be compelled to sign the certificate, and Kyle refused to act until the board was
complete. See id. at 342 (citing McFaddin v. Wiess, 168 S.W. 486, 487 (Tex. App.—
Galveston 1914, no writ)). Because it was impossible to operate the business in
conformity with its governing documents, the court affirmed the business’s judicial
dissolution. See id.
No such deadlock does, or could, exist here. As Shannon admits, the
Partnership Agreement provides that a deadlock may be broken “upon the ‘Approval
of the General Partners,’” which is defined as the approval by those general partners
holding a majority of the partnership units. Shannon concedes that it can “break the
deadlock on its own because it holds the majority” of the partnership units.
Shannon nevertheless speculates that “Triad would inevitably object to any
effort by Shannon to resolve the deadlock on its own” and “would resort to a
lawsuit.” But “speculation is not evidence.” Joe v. Two Thirty Nine Joint Venture,
145 S.W.3d 150, 164 (Tex. 2004). Moreover, a partnership can carry on its business
in accordance with its governing documents despite litigation between partners—
and the Partnership has done so.
Shannon’s arguments, and the record, fall far short of conclusively
establishing that it is not “reasonably practicable to carry on the Partnership’s
business in conformity with its governing documents.” We overrule this issue.
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VI. ATTORNEYS’ FEES
A trial court has discretion to award the plaintiff reasonable attorneys’ fees
and expenses if the plaintiff is wholly or partly successful in prosecuting a derivative
action. TEX. BUS. ORGS. CODE ANN. § 153.405. Moreover, the Partnership
Agreement provides that in litigation between partners relating to the Partnership,
the prevailing partner “shall be entitled to recover, in addition to all damages allowed
by law and other relief, all court costs and reasonable attorney’s fees incurred in
connection therewith from the Partner or Partners not prevailing.” Based on these
provisions, the trial court ordered Shannon to pay Triad’s and the Partnership’s fees,
expenses, and court costs. These amounted to almost $1.19 million in attorney’s fees
through trial, expenses of nearly $247,000, and over $12,000 in court costs. The trial
court also conditionally awarded attorneys’ fees of $75,000 in the event of an appeal
to an intermediate court of appeals; $25,000 in the event that a petition for review is
filed with the Texas Supreme Court, and $55,000 if the Texas Supreme Court
requests briefing on the merits.
In its sixth issue, Shannon contends that the trial court erred in failing to
condition the award of appellate attorneys’ fees upon the success of the appeal, and
in its seventh issue, Shannon argues that reversal of the judgment requires remand
for a new trial on attorneys’ fees, costs, and expenses. We agree with both points.
Awards of appellate fees must be conditioned upon a successful appeal. See
A.G. Edwards & Sons, Inc. v. Beyer, 235 S.W.3d 704, 707 n.1 (Tex. 2007). Triad
acknowledges this and does not oppose reformation of the judgment to expressly
condition the award of appellate attorneys’ fees upon Shannon’s success on appeal;
however, in light of our reversal of Triad’s disgorgement award, the case must be
remanded for a redetermination of the appropriate award of fees, costs, and
expenses. Cf. Young v. Qualls, 223 S.W.3d 312, 314 (Tex. 2007) (per curiam)
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(“Although attorney’s fees in this case were awarded by the trial court rather than
the jury, the factors governing their assessment are the same and include
consideration of the ‘results obtained.’” (quoting Arthur Andersen & Co. v. Perry
Equip. Corp., 945 S.W.2d 812, 818 (Tex. 1997))).
We sustain Shannon’s sixth and seventh issues, and we remand the case for
for a new trial solely on the issues of attorneys’ fees, reasonable expenses, and costs,
and with instructions to the trial court to condition any award of appellate attorneys’
fees on a successful appeal.
VII. CONCLUSION
We overrule Shannon’s arguments challenging the portion of the judgment
awarding the Partnership actual damages for Shannon’s breach of the duty of care,
and we affirm this part of the judgment without reaching Shannon’s arguments
regarding the Partnership’s remaining claims. We likewise affirm the portion of the
judgment denying Shannon’s request for judicial dissolution of the Partnership.
Because no evidence supports the trial court’s disgorgement-of-profits award
to Triad, we reverse this part of the judgment and render judgment that Triad take
nothing by its claims in its individual capacity. In light of this result, we reverse the
trial court’s award of attorneys’ fees, expenses, and costs, and we remand the case
to the trial court for a new trial only on this ancillary relief, with any award of
appellate attorneys’ fees to be conditioned on a successful appeal.
/s/ Tracy Christopher
Justice
Panel consists of Justices Christopher, Bourliot, and Zimmerer.
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