Opinion
14-22-00827-CV
11-14-2023
TEXAS REIT, LLC; DALIO HOLDINGS I, LLC; AND DALIO HOLDINGSII, LLC, Appellants v. WCW HOUSTON PROPERTIES, LLC, Appellee
On Appeal from the 151st District Court Harris County, Texas Trial Court Cause No. 2017-35320
Panel Consists of Justices Jewell, Bourliot, and Spain.
ORDER
PER CURIAM
Appellant Texas REIT, LLC ("TREIT") filed a motion for review of the trial court's August 8, 2023 order setting $4,904,761 as the bond amount necessary to supersede execution of the judgment pending appeal. Tex.R.App.P. 24.4. Appellee WCW Houston Properties has filed a response. Because our order requires TREIT to file additional security in the trial court, enforcement of the judgment is suspended for twenty days from the date of this order. See Tex. R. App. P. 24.4(e).
Background
This appeal is from a final judgment signed August 7, 2022 that, among other things, holds TREIT liable for $6,967,483.00 in damages, plus interest and court costs, in association with an unpaid promissory note.
Appellants TREIT, Dalio Holdings I, LLC, and Dalio Holdings II, LLC, filed a notice of appeal on November 4, 2022. On November 14, 2022, TREIT sought to supersede the judgment by filing a cash deposit of $100.00 in lieu of a supersedeas bond as well as a declaration of net worth pursuant to Texas Rule of Appellate Procedure 24.2(c). In its declaration, TREIT averred that its net worth was negative $16,543,942.84. Appellee filed a contest to TREIT's declaration. The trial court held a hearing on the contest, which primarily consisted of testimony from TREIT's expert Jordan L. Faust and appellee's expert Karyl Van Tassel about the valuation of TREIT's assets and liabilities. The contest centered on whether the four largest liabilities TREIT claimed on its balance sheet should be included as liabilities in calculating TREIT's net worth. The claimed liabilities at issue are: (1) the total amount owed in principal and interest for the promissory note payable to appellee that is the subject of the judgment; (2) the total amount owed in principal and interest on a note owed to co-appellant Dalio Holdings I, LLC; (3) the total amount owed in principal and interest on a loan provided by Caz Creek Holdings 2, LLC for taxes on property owned by TREIT; and (4) unpaid management fees incurred by TREIT to Jetall Companies.
The trial court held in its August 8, 2023 order that none of the above liabilities could be included as liabilities for purposes of calculating net worth under generally accepted accounting principles. The court found that TREIT had not presented sufficient evidence to demonstrate any of those alleged debts were present obligations, nor had it provided any witness with personal knowledge of TREIT's liabilities. Additionally, the trial court concluded that the amount owed under the promissory note payable to appellee was a contingent liability and was thereby not includable as a liability for purposes of net worth. Excluding those alleged liabilities from the ne-worth calculation, the trial court determined that TREIT's net worth was $9,809,522.00. Pursuant to Texas Rule of Appellate Procedure 24.2(a)(1)(A), the trial court required a supersedeas bond of half that amount, or $4,904,761.00, be provided by TREIT to supersede the judgment.
Analysis
Texas Rule of Appellate Procedure 24.4(a)(1) authorizes courts of appeals with jurisdiction over an underlying appeal to review a trial court's ruling on the sufficiency or excessiveness of the amount of a supersedeas bond. Trial court determinations of the net worth of a judgment debtor for supersedeas purposes are reviewed for abuse of discretion. O.C.T.G., L.L.P. v. Laguna Tubular Prods. Corp., 525 S.W.3d 822, 829 (Tex. App.-Houston [14th Dist.] 2017, op. on motion). This standard assesses whether the trial court acted without reference to any guiding rules and principles, acted arbitrarily and unreasonably, or analyzed or applied the law incorrectly. Id. In conducting review of the legal and factual sufficiency of evidence in this context, we are mindful that the trial court is the sole judge of the credibility of witnesses and the weight to be given their testimony. City of Keller v. Wilson, 168 S.W.3d 802, 819 (Tex. 2005). This principle is equally applicable to experts; when multiple experts are presented to the trial court on a disputed issue, the trial court is permitted to credit one over the other. Texas Black Iron, Inc. v. N. Am. Interpipe, Inc., No. 14-20-00068-CV, 2020 WL 10231117, at *8 (Tex. App.- Houston [14th Dist.] July 28, 2020, mem. op. on motion) (citing Gunn v. McCoy, 554 S.W.3d 645, 665 (Tex. 2018)). We will assess in turn whether the trial court abused its discretion in excluding each contested liability from its net worth calculation.
A. Appellee's Promissory Note
Although TREIT no longer asserts that contested money damages associated with appellee's promissory note should be included when calculating its net worth, it insists that the amount it owes on appellee's promissory note must be included. Consequently, it argues the trial court abused its discretion when excluding the amount owed on the promissory note from its net-worth calculation.
TREIT's argument centers on Senior Care Living VI, LLC v. Preston Hollow Capital, LLC, a decision from the First Court of Appeals reviewing a trial court's net-worth calculation following judgment on a breach-of-contract claim for amounts due and owning pursuant to several bonds and notes. See No. 01-21-00602-CV, 2023 WL 1112162, at *3 (Tex. App.-Houston [1st Dist.] January 1, 2023, no pet. h.). After the trial court included as liabilities bond obligations associated with the contested judgment (though not, it must be noted, the amount of the contested money judgment itself), the appellee contended the inclusion was an error since the bond obligations were a contingent liability. Id. at *8. The First Court of Appeals disagreed, emphasizing that although the parties contested whether debt owed on the bonds was "wrongfully accelerated," the appellant would "remain responsible for the bond amounts pursuant to the terms of the [associated] contracts." Id.
We conclude the Senior Care Living decision helps refute TREIT's argument. In contrast to the facts in that case, whether TREIT is obligated to repay appellee's promissory note at all depends on the outcome of this appeal. In its own appellate brief in this case, TREIT contends it has no liability concerning the underlying promissory note because appellee's claim was litigated outside the applicable statute of limitations. Relatedly, this court and other Texas courts of appeals have routinely upheld trial-court decisions excluding the amount owed in an underlying judgment that is the subject of appeal from net-worth calculations as contingent liabilities, for purposes of determining what supersedeas amount is required to suspend enforcement of those judgments. See, O.C.T.G., L.L.P., 525 S.W.3d at 831 (collecting cases and holding trial court did not abuse its discretion when excluding challenged judgment from net-worth calculation). We hold the trial court did not abuse its discretion in excluding appellee's promissory note from its net-worth calculation.
B. Dalio's Note
TREIT takes issue with the trial court excluding from its net worth the principal and interest owed on a note payable to Dalio. We conclude the trial court acted within its discretion in excluding those amounts as liabilities. The evidence before the trial court indicated TREIT had never made a payment on Dalio's note, and there was evidence that TREIT and Dalio had common ownership, thus indicating a related-party transaction. From this, the trial court could have found that the note did not evidence a true obligation. Cf. Am. Akaushi Ass'n, Inc. v. Twinwood Cattle Co., Inc., No. 14-21-00701-CV, 2022 WL 2678851, at *8 (Tex. App.-Houston [14th Dist.] July 12, 2022, op. on motion) (holding trial court acted within its discretion in not treating promissory note as liability partly because evidence indicated it was part of related-party transaction). The trial court accordingly acted within its discretion in excluding Dalio's note from the net-worth calculation.
C. Caz Creek Holdings 2's Loan
TREIT also contests the trial court ruling excluding from the net-worth calculation the value of Caz Creek Holdings 2's property tax loan. At the hearing, TREIT's expert Faust testified as to the loan's status as a liability as well as its alleged value based on what he described as "the actual loan agreement with Caz Creek," as well as a payoff summary statement from Caz Creek and discussions with TREIT management in which they "confirmed to [him] that [the loan] was real and owed."
Out of the sources Faust described, the closest the record comes to evidence of them are three documents admitted into evidence at the hearing after Faust concluded his testimony, two of which are styled as Tax Lien Contracts and one of which is styled as a Loan Modification Agreement. It is unclear whether any of these documents comprises the loan agreement with Caz Creek Holdings 2 that allegedly underlies Faust's opinion that the loan is a liability. But even assuming one of the documents is the one Faust mentioned, they contain notable discrepancies. The Loan Modification Agreement does not mention REIT as a party at all, nor does it mention Caz Creek Holdings 2, LLC but rather a company named "Caz Creek TX, LLC." And although each of the tax-lien contracts mention REIT as a party (or, at least, a party named "Texas Reit, LLC," with "Reit" spelled with only one capital letter), neither of them mentions Caz Creek Holdings 2, LLC, but instead they list either "Caz Creek TX LLC" or "CC2 TX LLC." And as appellee's expert Van Tassel acknowledged at the hearing, there was no sign that any payments had been made by REIT pursuant to the alleged loan. Looking at all the evidence admitted during the trial-court hearing on this issue, we cannot conclude the trial court acted unreasonably in refusing to consider the alleged loan from Caz Creek Holdings 2 a liability.
D. Jetall Companies' Management Fees
Finally, TREIT takes issue with the trial court excluding from its net worth the amount of management fees it says it owes to Jetall. The evidence of these fees presented at the hearing was rather limited; Faust testified as to the amount of fees TREIT allegedly owed Jetall based on an account-payable aging document provided by TREIT management, though that document itself was not presented at the hearing. He further testified that he learned from TREIT management that Jetall provided management, accounting, and other ancillary services to TREIT as TREIT lacked its own employees. Van Tassel, by contrast, stated that she had not seen any documents indicating the management-fees owed constituted a present obligation, or even any obligation at all, and she had not seen any evidence that TREIT had a payment history for the allegedly owed fees. She further testified that the fees had signs of related-party transactions due to TREIT and Jetall sharing common ownership. The trial court was entitled to credit Van Tassel's view of TREIT's liability for Jetall's fees over Faust's. Texas Black Iron, No. 14-20-00068-CV, 2020 WL 10231117, at *8. Accordingly, we conclude that the trial court did not abuse its discretion by concluding excluding the Jetall management fees from its net-worth calculation.
Conclusion
We hold the trial court did not abuse its discretion in calculating the net worth of TREIT. We accordingly deny TREIT's motion. TREIT must file security in the amount of $4,904,761.00 to supersede the trial court's judgment. We lift our August 28, 2023 stay order. Enforcement of the judgment is suspended for twenty days from the date of this order. Tex.R.App.P. 24.4(e).