Revised May 13, 1999

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 97-50412

_____________________

GEORGE R. THOMAS,

Plaintiff - Appellant-Cross-Appellee,

versus

BARTON LODGE II, LTD.,

Defendant - Third Party PlaintiffCounter Defendant-Appellee,

versus

PHAM BARTON LODGE II, LIMITED PARTNERSHIP, Et Al,

 Third Party Defendants,

RON BENEKE, Et Al,

 Third Party Defendants-Cross

 Defendants,

versus

RON BENEKE; PHAM-BARTON LODGE II LIMITED

PARTNERSHIP; THE PAUL D. HINCH FAMILY

PARTNERSHIP, LIMITED; THE DISCOP COMPANY,

INCORPORATED; ALLIANCE/PCA APARTMENT PORTFOLIO

I LIMITED PARTNERSHIP; ALLIANCE/PCA COMPANY;

HBC PARTNERS LIMITED PARTNERSHIP; HINCH PARTNERS,

Third Party Defendants - Cross DefendantsAppellees,
2

GENERAL ELECTRIC CAPITAL CORPORATION; GENERAL

ELECTRIC REAL ESTATE EQUITIES, INCORPORATED,

Third Party Defendants - Cross DefendantsAppellees - Cross-Appellants,

versus

DAVID JOHNSTON; DAVID JOHNSTON CORPORATION,

Third Party Defendants - Cross ClaimantsCross Defendants,

versus

LEE R. LARKIN; ARCH McNEIL,

Cross Claimants-Counter Plaintiffs-Appellants.

_________________________________________________________________

Appeals from the United States District Court for the

Western District of Texas

________________________________________________________________

May 12, 1999

Before JOLLY, WIENER, and PARKER, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

This case involves the alleged malfeasance of numerous parties

to a transaction in which the principal asset of Barton Lodge II,

Ltd. (“BL II”), a limited partnership, was sold by the general

partner to stave off a foreclosure sale. The district court

dismissed the case in a series of summary judgment rulings, and

three of the parties to the litigation, George Thomas, Lee R.

Larkin and Arch McNeil, now appeal. We hold that the district

court erred in part when it held that the plaintiffs failed to

allege actual damages. In most respects, however, we affirm the
3

district court’s summary judgment rulings, including its ruling

that the statute of limitations barred various claims and that the

case of Newton v. Mallory, 601 S.W.2d 181 (Tex.Civ.App. – Dallas

1980, no writ), applies to bar the largest part of the alleged

damages. We therefore affirm in part, reverse in part and remand.

I

The facts regarding the events leading up to the current

dispute are contested by the parties. To the extent possible, we

will present those facts to which all parties agree, and then turn

to the respective versions of events alleged by the defendants and

the plaintiffs in this case.

A

BL II is a Texas limited partnership, which was formed on

September 1, 1982, to construct and own an apartment project (“the

Project”) in Austin, Texas. The partnership consisted of a general

partner, who contributed $99 in capital to the partnership and 56

limited partners who each contributed approximately $50,000 in

capital to the partnership. The general partner of BL II was PHAMBarton Lodge II Limited Partnership (“PHAM”). PHAM itself was a

partnership made up of a number of general partners, one of which,

Ron Beneke, is a named defendant in this case. The named plaintiff

in this case, George Thomas, was one of the limited partners in BL

II.
4

In order to finance the Project, BL II obtained a loan from

University Savings Association (“USA”) for $8.75 million in

exchange for a security interest in the Project. In 1986, BL II

defaulted on the mortgage. In 1990, the Resolution Trust

Corporation (the “RTC”), which had inherited the mortgage from USA,

posted the Project for a May 1, 1990 foreclosure sale.

On April 2, 1990, PHAM sent a letter (“the April 2 letter”) to

the limited partners proposing a sale of the project. The letter

stated:

Although you have thirty days within which to make your

decision under the terms of the partnership agreement, an

immediate response is requested because the general

partner has been informed by the current holder of the

project indebtedness that unless these consents are

received in time to permit the project to be sold on

April 30, 1990, in the transaction described herein, it

is likely that the project will be foreclosed by the

holder of the mortgage indebtedness as soon as legally

possible after May 1, 1990.

The letter went on to describe the proposed transaction:

The General Partner proposes to sell the Project in

a simultaneous two step transaction. In the first phase,

the Partnership would sell the Project to David Johnston

Corporation (“DJC”), which is a corporation owned by

David Johnston who is affiliated with members of the

General Partner, in exchange for $10,000 cash and subject

to the outstanding indebtedness on the Project at the

date of the sale. . . . The purchaser also will agree to

pay the Partnership 70.175% of any sums it receives, if,

as and when received, pursuant to contract rights granted

to the purchaser in the second phase of the transaction.

These contract rights will include 35.625% of any (i) Net

Dispositions and Refinancing Proceeds and (b) Net Cash

Flow (each as hereinafter defined) from the Project.

Since the Partnership will be receiving 70.175% of the

purchaser’s 35.625% contract rights, the Partnership will
5

actually receive 25% of such amounts generated from the

Project.

DJC intends to ask the Resolution Trust Corporation

(“RTC”), which currently holds the mortgage indebtedness

on the Project, to reduce the total payoff for the

outstanding indebtedness on the Project to $6,800,000.

Because DJC intends to use the proceeds from the second

phase of the transaction to pay off the outstanding

indebtedness on the Project and because such payoff will

remove a non-performing asset from the RTC’s portfolio

without the need for foreclosure or the advance by the

RTC of further funds, the General Partner believes that

the RTC will agree to accept the reduced payoff from DJC.

However, there can be no assurance in this regard.

After paying off the reduced debt on the Project,

DJC will sell the Project to Alliance/PCA (“Alliance”).

The sales price will be (a) $6,844,000 in cash, (b)

35.625% of any Net Disposition and Financing Proceeds (as

described below) that Alliance receives when and if it

refinances or disposes of the Project, and (c) 35.625% of

all Net Cash Flow from the Project, meaning operating

income less debt service and preferential return on

capital (including any accruals thereof) and expenses of

operating, managing, repairing, maintaining and improving

the Project. It is highly unlikely that there will be any

Net Cash Flow from the Project. Alliance is a joint

venture whose members include affiliates of General

Electric Capital and a company to be owned by

partnerships and/or trusts for the benefit of the members

and/or families of members of the General Partner.

The acquisition cost of the Project will be financed

through loans and/or equity contributions from affiliates

of General Electric Capital and/or Alliance/PCA (the

“Acquisition Advance”). The Acquisition Advance is

estimated at $6,995,000 including closing costs of

$25,000 plus a one point brokerage fee to the Melody

Company, one point to General Electric Capital Affiliates

and one-half point to PCA affiliates.

On April 26, 1990, Thomas sent a letter to PHAM refusing to

consent to the proposed sale. In that letter he stated:

I believe the General Partner on this proposed sale

is looking after his own interest at the expense of the

limited partner and the limited partner is left “holding

the bag.”
6

There may also be mismanagement and incompetence, as

well as conflict of interest in negotiating with the

lender and the proposed buyer, and I am planning to

consult my attorney about legal remedies.

On April 30, 1990, the Project was sold in a two-step

transaction, first to David Johnston Corporation (“DJC”), then to

Alliance/PCA Apartment Portfolio I Limited Partnership (“A/PCA

Portfolio”). A/PCA Portfolio is a limited partnership made up of

a general partner, Alliance/PCA Company, and two limited partners,

HBC Partners (“HBC”) and General Electric Real Estate Equities,

Inc. (“GE Equities”). The transaction effectively took place

pursuant to the description in the April 2 letter. DJC paid the

proposed $10,000 to BL II and received the Project subject to the

mortgage indebtedness. DJC also agreed to pay BL II 70.175% of its

35.625% contract rights under the sale of the project to A/PCA

Portfolio. DJC then sold the Project to A/PCA Portfolio in

exchange for $6,795,000 and its 35.625% contract rights. The RTC

released DJC of the mortgage indebtedness in exchange for

$6,750,000. In order to purchase the Project from DJC, A/PCA

Portfolio borrowed approximately $6,900,000 from General Electric

Capital Corporation (“GE Capital”).

On September 7, 1990, PHAM sent a letter to the limited

partners stating that the Project had been sold on April 30, 1990.

In December 1990, A/PCA Portfolio sold the Project to Clayton,

Williams & Sherwood for $8,839,500. Under its contract rights, DJC
7

received $407,046. DJC then paid $285,645 to the limited partners

and retained $121,402. The overall consequences to the limited

partners of the transaction were that they received a final payout

of approximately $5,000 on an initial investment of $50,000 and

they received approximately $45,000 in reportable capital earnings

for tax purposes.

B

We now proceed to the version of events presented by the

defendants in this matter. We note that what we iterate now

essentially amounts to allegations made by the defendants. For

purposes of this appeal, we pass no judgment as to the relative

truth of these allegations. 

According to the defendants, BL II, like many real estate

ventures from that period was simply a business failure. In the

mid-80s it became increasingly apparent that BL II’s revenues from

leasing apartments simply could not produce enough money to pay the

interest payments owed on the mortgage. From 1987 on, BL II was

incapable of making interest payments on its loans. By 1990, BL II

owed approximately $10,750,000, and the value of the Project at the

time was approximately $7,500,000. After doing everything in its

power, PHAM finally conceded defeat and sought to negotiate a

bailout.

The defendants argue that, at the time, Alliance/PCA was in

the process of purchasing several other failed projects and was in
8

a position to negotiate a favorable deal with RTC by resolving

several outstanding loans at once. Recognizing that PHAM would not

be able to obtain as much debt forgiveness for BL II by directly

negotiating with the RTC as Alliance/PCA could, PHAM elected to

sell the project to an Alliance/PCA affiliate in exchange for a

percentage of the final sale of the Project after Alliance/PCA had

successfully renegotiated the debt.

The defendants further argue that, given the pressure on PHAM

from the looming foreclosure sale, PHAM took every reasonable

precaution it could to finalize the transaction in a principled and

conscientious manner. PHAM sent out the April 2 letter notifying

the limited partners of the transaction and notifying them that the

parties purchasing the Project had affiliations to members of PHAM.

PHAM then received approval from a majority of the limited partners

in BL II and proceeded with the sale. The defendants argue that,

if PHAM had not negotiated the sale, BL II would simply have lost

the Project without getting anything back on it and BL II’s limited

partners would have received less money and less favorable tax

consequences.

C

Thomas, McNeil, and Larkin (“the plaintiffs”) allege a

significantly different version of events. Again, in iterating the

allegations made by the plaintiffs, we note that we pass no

judgment as to the verity of these assertions.
9

To fully understand the plaintiffs’ version of events, it is

necessary to first understand the make-up of PHAM, the general

partner of BL II. PHAM originally consisted of four managing

general partners, Paul Hinch, Charles Miller, Paul Austin, and Mack

Pogue, and two general partners, Ron Beneke and Hugh Caraway. Of

these six partners, three of them, Hinch, Beneke, and Caraway were

also affiliated with numerous other limited partnerships. These

three, for example, were all partners in HBC, the limited partner

of A/PCA Portfolio. In addition, all three were affiliated with

the Property Company of America, Inc. (“PCA”) and the Property

Company of America Management, Inc. (“PCA Management”), the manager

of A/PCA Portfolio.

The BL II partnership agreement only permitted the managing

general partners of PHAM to act on behalf of BL II. At some point

after 1984, all of the managing partners of PHAM resigned.

Although he did not have the power to do so under the BL II

agreement, Beneke assumed the role of managing partner of PHAM with

respect to BL II. In 1989, PHAM dissolved. The limited partners

of BL II were not notified of this development. At that point,

Beneke arguably had no authority whatsoever to act on behalf of BL
 

1If this point is correct, it would technically be more

appropriate to refer to Beneke’s actions on behalf of BL II as his

actions, rather than PHAM’s actions. For some semblance of

clarity, however, we refer to actions by an entity acting as the

general partner of BL II as actions of PHAM, without passing

judgment on this issue.

10

II.1 He nevertheless negotiated the sale of the Project in April

of 1990.

The plaintiffs do not dispute that BL II consistently lost

money in the 1980s. They do, however, dispute that PHAM was

blameless in its actions leading up to the April 30, 1990 sale.

First, they argue that PHAM took actions that violated the terms of

the BL II partnership agreement. Specifically, under the

agreement, PHAM was obligated to make operating deficit loans

(“ODL’s) to BL II in the event that BL II was unable to meet its

obligations under the mortgage. In addition, they argue that PHAM

amended the BL II agreement without notifying or obtaining the

approval of the BL II limited partners. This amendment permitted

PHAM to avoid liability for incurred cost overruns and operating

expenses that further hindered BL II’s ability to meet its loan

obligations. The plaintiffs also argue that, at a time when BL II

was supposedly unable to make interest payments on its mortgage,

PHAM was funneling funds from BL II to PCA. Had PHAM not engaged

in these activities, the plaintiffs argue, BL II would not have

faced as significant a level of indebtedness as it did. 
11

The plaintiffs go on to assert that Beneke and the other

parties to the transaction realized that the value of real estate

was increasing and recognized an opportunity for personal gain. By

forcing a foreclosure of the Project, the defendants would be able

to reap the benefits of a forced sale. The plaintiffs allege that

Beneke intentionally misled the limited partners into believing

that it was necessary to sell the Project through the April 2

letter. 

The plaintiffs furthermore argue that there were numerous

procedural errors in the attempt to obtain approval of the

transaction. First, the plaintiffs argue that because DJC and

A/PCA Portfolio were affiliates of PHAM partners, the proposed sale

required unanimous consent from the limited partners under the BL

II partnership agreement. The plaintiffs also argue that PHAM did

not obtain a majority approval from the limited partners until

after PHAM had completed the sale.

Finally, the plaintiffs argue that remaining funds owned by BL

II, after the sale of the project, were misappropriated by the

defendants. After the Project was sold, BL II still had a note

from PCA for a $500,000 loan. In addition, BL II had a bond

reserve fund valued at $162,611. Finally, the plaintiffs assert

that BL II had furniture and equipment that was not subject to the

mortgage. The plaintiffs argue that there was never an accounting

for the value of any of these items. 
12

II

Thomas sued multiple parties for their role in the sale of BL

II’s property. For purposes of this appeal, among the defendants,

there are two remaining factions who have not settled. First,

there is Beneke, who acted as the general partner of PHAM. Thomas

sued Beneke for breach of fiduciary duties, breach of contract,

actual, constructive and statutory fraud, negligence and gross

negligence, conversion, breach of duty of good faith and fair

dealing, civil conspiracy, Racketeer Influenced and Corrupt

Organizations Act (“RICO”) violations, and fraudulent transfer.

The other group consists of GE Capital and GE Equities (“the GE

defendants”). They were sued for breach of fiduciary duties,

breach of contract, actual and constructive fraud, negligence and

gross negligence, conversion, civil conspiracy, RICO violations,

and fraudulent transfers.

Thomas’s lawsuit was fashioned as a derivative suit on behalf

of BL II. In response to the suit, Beneke counterclaimed against

BL II and joined each of the limited partners in their individual

capacity. Besides Thomas, the only other limited partners still

involved in the suit are Lee R. Larkin and Arch McNeil. McNeil and

Larkin filed a counterclaim against Beneke and cross-claims against

the other defendants, essentially alleging the same causes of

action alleged by Thomas on behalf of BL II.
13

The district court disposed of the case with a procession of

orders. On February 7, 1997, the court issued two orders. In the

first, an Order Granting in Part and Denying in Part Motion for

Summary Judgment as to the Statutes of Limitations (“SOL Order”),

the district court held that the claims based on breach of

contract, RICO violations, fraudulent transfers and fraud are

subject to four-year statute of limitations while the claims based

on breach of duty of good faith, negligence and gross negligence,

conversion, DTPA violations, breach of fiduciary duties, and

conspiracy are subject to a two-year statute of limitations. The

court then held that all claims subject to a two-year statute of

limitations were barred. In the second order, Order Denying Third

Party Defendant Arch McNeil’s Motion for Summary Judgment (“McNeil

Order”), the court rejected McNeil’s argument that, under § 16.069

of Tex.Civ.Prac.&Rem.Code, a counterclaim or cross-claim is revived

from a statute of limitations bar.

On March 2, 1997, the district court judge, Judge Royal

Furgeson, held that because of a potential conflict of interest,

the case should be transferred to Judge Lucius D. Bunton. 

Then, on May 8, 1997, the court issued an order (“No Damages

Order”) that effectively resolved the case. In that order, the

court first noted that, for the remaining claims (breach of

contract, RICO violations, fraudulent transfers and fraud), the

plaintiff must prove damages. The court found that at the time the
14

project was sold, BL II owed $10,705,830, and that the value of the

project was $7,500,000. The court held that because the total

damages claimed by plaintiffs on behalf of BL II were $8,216,152,

even if the plaintiffs claims were upheld, BL II would not recover

any damages, as those damages would have been owed to the RTC. 

Finally, on May 22, the court entered an order that operated

to strike confessions of judgment related to the case (“Strike

Order”). On June 3, 1997, the court entered an order to clarify

that the court’s No Damages Order and Strike Order had disposed of

all remaining claims, cross-claims, and counterclaims in the case

(“Final Order”).

III

The parties associated with this case raise multiple issues on

appeal. Because of the complexity of the case, we address each

issue raised in relation to its corresponding court order. The

first ruling with which the parties take issue is the SOL Order.

Thomas argues that the district court erred in granting in part the

defendants’ motion for summary judgment pursuant to the statute of

limitations. The GE defendants, on the other hand, argue that with

respect to them, claims based on fraud should be barred by the

limitations period. We find no error with the district court’s

limitations ruling and therefore affirm it.

The next contested ruling is the McNeil Order. McNeil argues

that the district court incorrectly applied Texas law to his
15

procedural claim that, because he is a cross-claimant, his claims

are not barred by the statute of limitations. Because we agree

with the district court that McNeil and Larkin are asserting the

same claims asserted by Thomas, we also affirm the district court

on this issue.

The next issue raised on appeal by Thomas is whether the

district court erred when it issued its No Damages Order. Thomas

contends that the district court misapplied Texas law when it

concluded that the indebtedness of lost property must be factored

into the value of what is lost when a party alleges actual damages.

Thomas further argues that, even if the court correctly applied the

law, the court still erred in calculating the damages alleged by

Thomas. The defendants argue that the district court appropriately

concluded that Thomas had failed to demonstrate any damages and

that Thomas’s claims should therefore be dismissed. We find

Thomas’s second argument persuasive and therefore reverse and

remand on this issue.

Next, McNeil and Larkin protest the dismissal of their claims

pursuant to the Final Order. The Final Order, however, is based on

the district court’s No Damages Order, which we reverse in part.

We therefore hold that, to the extent that our opinion reinstates

Thomas’s claims, McNeil and Larkin’s claims also are reinstated.

The GE defendants cross-appeal arguing that McNeil and Larkin’s

cross-claims are not permitted under the Federal Rules of Civil
16

Procedure. We hold that McNeil and Larkin have properly filed

cross-claims pursuant to the Federal Rules of Civil Procedure.

Finally, Beneke argues that, even if he is not entitled to

summary judgment on the damages issue, he is nevertheless entitled

to summary judgment on other grounds. Because the district court

has not addressed this argument, we remand for an initial

determination by that court. 

IV

This case was determined on the basis of a series of summary

judgment motions. We therefore review under our standard for

summary judgment. Summary judgment is proper if “the pleadings,

depositions, answers to interrogatories and admissions on file,

together with affidavits, if any, show that there is no genuine

dispute as to any material fact and that the moving party is

entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). 

A summary judgment ruling is reviewed de novo, applying the

same criteria employed by the district court. Conkling v. Turner,

18 F.3d 1285, 1295 (5th Cir. 1994). We therefore must determine

“whether the summary judgment evidence on file shows that there is

no genuine issue of material fact and that the moving party is

entitled to judgment as a matter of law.” Ruiz v. Whirlpool, Inc.,

12 F.3d 510, 513 (5th Cir. 1994) (citing Hibernia National Bank v.

Carner, 997 F.2d 94, 97 (5th Cir. 1993). 
17

When a moving party alleges that there is an absence of

evidence necessary to prove a specific element of a case, the

nonmoving party bears the burden of presenting evidence that

provides a genuine issue for trial. See Celotex Corp. v. Catrett,

477 U.S. 317, 322-23 (1986). "[T]here is no issue for trial unless

there is sufficient evidence favoring the nonmoving party for a

jury to return a verdict for that party.... If the evidence is

merely colorable, or is not significantly probative, summary

judgment may be granted." Anderson v. Liberty Lobby, Inc., 477

U.S. 242, 249-50 (1986) (citations omitted). 

V

In its SOL Order, the district court held that all of the

claims, with the exception of the claims for fraud, fraudulent

transfer, breach of contract, and RICO violations, were subject to

two-year limitations periods. The district court then held that

the cause of action accrued on the date of the sale, April 30,

1990. Because Thomas did not file his case until October 1, 1993,

and because the district court found that no doctrine of equitable

tolling applied, the district court held that all claims subject to

a two-year limitations period are barred. Thomas argues that the

district court erred when it held that some of Thomas’s claims were

barred by the statute of limitations. The GE defendants argue

that the district court erred in not barring the fraud claims

alleged against them. We will address each argument in turn. 
18

A

Thomas makes two arguments regarding the SOL Order. Thomas

first argues that the trial court improperly applied a two-year

limitations period to BL II’s Breach of Fiduciary Duty and

Conspiracy to Commit Fraud Claims. Thomas also argues that the

trial court failed to properly apply various tolling doctrines to

the case.

1

Thomas argues that there is a four-year limitations period for

breach of fiduciary duty. The district court followed the clear

and unambiguous language of Kansas Reinsurance Co., Ltd. v.

Congressional Mortg. Corp. of Texas, 20 F.3d 1362 (5th Cir. 1994)

and held that a Texas breach of fiduciary duty claim is subject to

a two-year statute of limitations. Thomas now asks us to ignore

this case and instead look to our decision in Castillo v. First

City Bancorporation of Texas, 43 F.3d 953, 960 (5th Cir. 1994).

Castillo, however, deals with a claim for duress. In short, the

district court relied on binding Fifth Circuit precedent to reach

its conclusion that the limitations period for breach of fiduciary

duty is two years. There are no cases on point that provide

support for a different approach. We therefore affirm the district

court. 
19

Thomas also contends that the district court erred when it

held that civil conspiracy claims are subject to a two-year statute

of limitations. Thomas relies on Lone Star Partners v. NationsBank

Corp., 893 S.W.2d 593, 601 (Tex.App.--Texarkana 1994, writ denied),

and Atlantic Life Ins. Co. v. Hurlbut, 696 S.W.2d 83, 102

(Tex.App.--Dallas 1985), rev’d on other grounds, 749 S.W.2d 762

(Tex. 1988), for support. Neither of these cases actually stand

for Thomas’s proposition that a civil conspiracy claim is subject

to a four-year statute of limitations. The district court cites to

Stevenson v. Koutzarov, 795 S.W.2d 313 (Tex.App.--Houston [1st

Dist.] 1990, writ denied), and Chevalier v. Animal Rehabilitation

Center, Inc., 839 F.Supp. 1224 (N.D. Tex. 1993), for the

proposition that the limitations period is two years. We find the

reasoning in Stevenson and Chevalier persuasive, and affirm the

district court.
20

2

The district court held that the action accrued at the time

the project was sold. In response to Thomas’s argument that the

discovery rule should toll the limitations period, see, e.g.,

Computer Associates Intern., Inc. v. Altai, Inc., 918 S.W.2d 453,

456 (Tex. 1996), the district court held that the plaintiffs

discovered enough to investigate the injury shortly after the sale.

The district court noted that:

The nature of a derivative action fundamentally

alters the application of the discovery rule.

Ordinarily, it is the knowledge of the party bringing the

action which is determinative of the extent to which the

discovery rule will toll limitations. In a limited

partnership derivative action, however, the party

bringing the action is the limited partnership itself.

The knowledge of a general partner would ordinarily be

imputed to the limited partnership. . . . However, if BL

II were to be charged with the knowledge of PHAM, it

would be commensurate with the court holding that the

limited partners are barred from proceeding because PHAM

was aware that the actions taken by PHAM were wrong. The

law does not countenance such inequities. Given that a

derivative action by the limited partners in a limited

partnership is effectively a suit on behalf of the

limited partners, it is really the knowledge of the

limited partners that should be charged to the limited

partnership. Therefore, it is the knowledge of the

limited partners as a class that will be imputed to the

limited partnership.

The district court held that, upon receipt of the April 2, 1990

letter from PHAM that explained the sale of the Project and the

potential conflicts involved and given the subsequent sale, a

reasonable person would have conducted further inquiries. 
21

Thomas first argues that the court improperly imputes the

knowledge of one limited partner (i.e., Thomas’s knowledge) to the

rest of the partnership. However, as the cited passage

illustrates, the district court did not consider the knowledge of

any one particular partner but instead considered the knowledge of

the limited partners as a class. As opposed to the alternative,

applying partnership law to impute the knowledge of the general

partner to the partnership as a whole, this approach strikes us as

eminently practical and sound. 

Thomas also argued that the limitations period should be

tolled by the doctrine of fraudulent concealment, the doctrine that

a defendant who fraudulently conceals a cause of action is estopped

from asserting a limitations defense. Nichols v. Smith, 507 S.W.2d

518, 519 (Tex. 1974). The district court noted that “there cannot

be fraudulent concealment of facts which admittedly were or should

have been known by [the plaintiff]” Timberlake v. A.H. Robins Co.,

Inc., 727 F.2d 1363, 1366-67 (5th Cir. 1984) (quoting Fusco v.

Johns-Manville Products Corp., 643 F.2d 1181, 1184 (5th Cir.

1981)). The district court held that the limited partners should

have had knowledge when informed of the sale of the project.

Thomas argues first that the defendants had an increased obligation

to inform the plaintiffs given their fiduciary duties, and, second,

that the district court ignored a number of affirmative fraudulent

misrepresentations made by the defendants. Neither of these
 

2We note that a rule relieving shareholders of an obligation

to be familiar with the books of a corporation is significantly

different from a rule relieving partners of a similar obligation

with respect to their partnership agreement. For one thing, each

partner clearly has easy access to the partnership agreement,

whereas a shareholder may not be able to easily review the books of

a corporation. For another thing, each partner participates in

forming the partnership agreement: there must be an affirmative act

on the part of the partner to consciously comprehend and acquiesce

to the terms of the agreement. Even if a limited partner has not

taken a role in negotiating the terms of the partnership agreement,

he still must be familiar with them at the time he joins the

partnership.

22

arguments addresses the basis for the district court’s ruling. The

district court held that, at the point when the limited partners

suffered significant damages from the sale of the project, they had

enough knowledge to investigate and a reasonable investigation

would have led the partners to file a claim in court. We find no

error in the district court’s holding. 

Thomas next seizes upon language in the district court’s

opinion stating that a reasonable investor, upon receiving the

April 2 letter, would have looked to the partnership agreement in

investigating the transaction. Thomas argues that the courts have

held that shareholders should not have an affirmative duty to

consult the books of a corporation. There are two problems with

Thomas’s argument. First, it ignores the difference between

shareholders, who often are not sophisticated investors, and the

limited partners here, who clearly were.2 Second, the court does

not rest its holding that the action was discoverable solely on
 

3The plaintiffs argue that the letter does not state that the

purchasers were affiliated with the PHAM. The text of the letter

indicates otherwise: “the Partnership would sell the Project to

David Johnston Corporation (“DJC”), which is a corporation owned by

David Johnston who is affiliated with members of the General

Partner. . . . DJC will sell the Project to Alliance/PCA

(“Alliance”). . . . Alliance is a joint venture whose members

include affiliates of General Electric Capital and a company to be

owned by partnerships and/or trusts for the benefit of the members

and/or families of members of the General Partner.”

23

information in the partnership agreement. Instead, the court notes

that the April 2, 1990 letter should have lead the limited partners

to investigate further, and that a consultation of BL II’s

partnership agreement would have demonstrated that the sale

required unanimous consent. 

Thomas also takes issue with the court’s principal rationale

for concluding that the cause of action was discoverable at the

time the property was sold because the limited partners received

notice through the April 2, 1990 letter. The letter informed the

limited partners that the project would be sold in the face of a

foreclosure sale, that the sale likely would result in considerable

losses to the limited partners, and that the purchasers of the

project were affiliated with the general partner.3 From this

letter, the district court concluded that the limited partners

should have had enough information to investigate the transaction.

Thomas argues that this letter only informs the limited partners of

a potential loss, not of the basis for a claim of fraud. However,

this claim ignores the district court’s reasoning that a letter
24

disclosing an interested transaction that results in significant

losses to sophisticated investors should provide the basis for

those investors to investigate whether there may be potential

fraud.

Finally, Thomas argues that the district court’s ruling leads

to a result that rewards dishonest fiduciaries. The district

court’s ruling, however, is properly limited to the statute of

limitations issue. Whenever a plaintiff is barred from filing a

claim because of the statute of limitations, there is always a risk

that the plaintiff’s claim is meritorious and that the defendant’s

improper conduct has been rewarded. That result alone, however,

cannot form the basis for opening the courts to the plaintiff.

B

On cross-appeal, the GE defendants argue that the district

court incorrectly applied a four-year statute of limitations to the

claims against them for fraud and fraudulent transfers. With

respect to the GE defendants, the claims are based on a theory of

vicarious liability. The district court held that, under

established Texas law, “[e]ach party to a fraudulent transaction is

responsible for the acts of the others done in furtherance of the

scheme.” Crisp v. Southwest Bancshares Leasing Co., 586 S.W.2d

610, 615 (Tex.Ct.App.--Amarillo 1979, writ ref’d n.r.e.)(citations

omitted). The defendants argue that vicarious liability, like

conspiracy, should be subject to a two-year statute of limitations.
 

4McNeil and Larkin presented conflicting arguments in their

briefs regarding the appropriate label for their claims. See

infra, note 6. This uncertainty does not affect our analysis for

purposes of § 16.069.

25

As we have stated above, conspiracy claims are clearly subject to

a two-year statute of limitations period. There does not, however,

appear to be a precedent of a Texas court applying a two-year

statute of limitations to an aiding and abetting claim. Because

there is no binding Texas law on the subject, we must make an Erie

guess as to the appropriate limitations period. We hold that,

where a claim of fraud is based on a defendant aiding and abetting

a co-defendant, the appropriate limitations period is the same as

the underlying fraud, four years.

V

McNeil and Larkin filed a motion for summary judgment in which

they argued that under Tex. Civ. Prac. & Rem. Code § 16.069, even

if Thomas’s claims are barred by the statute of limitations, their

claims should be revived as they are cross-claims or

counterclaims.4 Under § 16.069, a cross-claim or counterclaim

filed within thirty days of a required answer to the original claim

may be filed even though it would be barred by the statute of

limitations if filed separately. In this case, the district court

held that McNeil’s claims were nevertheless barred as McNeil had

effectively filed a derivative claim on behalf of BL II. The

district court relied on Hobbs Trailers v. J.T. Arnett Grain, 560
 

5McNeil also argues that the McNeil Order is inconsistent with

the SOL Order. This supposed inconsistency is that the McNeil

Order treats McNeil’s claim as a claim on behalf of the partnership

while the SOL Order looks to the knowledge of the limited partners

when determining the application of the discovery rule. As we have

already explained, however, the SOL Order looks to the limited

partners as a class. Again, the only reason why the SOL Order

takes this approach is that, if it looked solely to the knowledge

of the partnership under traditional partnership rules, it would

have to impute to the partnership the knowledge of the general

partner. Because BL II is made up of the general partner and the

limited partners, the district court therefore concluded that only

the knowledge reasonably available to the limited partners as a

class should be imputed to BL II. The district court did not look

solely to the knowledge of Thomas in making its decision. See

supra, Part IV.A.

26

S.S.2d 85 (Tex. 1971), that states: “the statute [§ 16.069] may not

be applied to the situation in which the original plaintiff becomes

the nominal defendant.” The district court concluded that, because

the original plaintiff was BL II and because McNeil could only file

claims on behalf of BL II, § 16.069 could not be applied to revive

claims otherwise barred by the statute of limitations. McNeil does

not explain why Hobbs should not control in this instance. There

is no dispute that the original plaintiff was acting on behalf of

BL II and that McNeil, in filing cross-claims and counterclaims,

acted on behalf of BL II. We therefore affirm the district court’s

ruling.5 

VI

We turn now to the order by the district court that had the

greatest impact on this case. The district court effectively

resolved the remaining claims of the case with its No Damages
27

Order. In determining the damages in this case, the district court

followed the rule in Newton v. Mallory, 601 S.W.2d 181, 182

(Tex.Civ.App. – Dallas 1980, no writ), that “the value of the land

lost is the fair market value of the land at the time of

foreclosure, less the indebtedness due thereon.” After adding up

the various damages claimed by the plaintiff, the district court

concluded that the damages were less than the amount of

indebtedness at the time the project was sold. 

In order to properly address this issue, we must first review

Texas law as it pertains to damages. We then revisit the district

court’s treatment of the damages claimed by the plaintiffs under

the remaining causes of action. Finally, we turn to the issue of

whether, in the light of Thomas’s claimed damages, the district

court correctly dismissed this case.

A

Under Texas law, “[t]he general principle of damages is

compensation to plaintiff for his actual loss resulting from

defendant's wrong.” McClung Cotton Co., Inc. v. Cotton

Concentration Co., 479 S.W.2d 733, 737 (Tex.Civ.App.--Dallas 1972,

writ ref'd n.r.e.) (Citing Chicago, M. & St. P. Ry. v.

McCaull-Dinsmore Co., 253 U.S. 97 (1920); Stewart v. Basey, 150

Tex. 666, 245 S.W.2d 484 (1952)). Damages must be alleged with

specificity: “Although damages need not be established with

mathematical precision, the evidence must provide a basis for
28

reasonable inferences.” Dyl v. Adams, 167 F.3d 945, 947 (5th Cir.

1999).

We have found no Texas Supreme Court case that defines the

appropriate measure of damages in a case such as this. However, in

the case of Newton v. Mallory, the Court of Civil Appeals for

Dallas, Texas, encountered an analogous question. 601 S.W.2d 181

(Tex.Civ.App. – Dallas 1980, no writ). In Newton, a partnership

was formed to invest in a property. One of the partners loaned

money to the partnership in exchange for a vendor’s lien on the

property. A partner was appointed as a managing partner and

another was appointed as a trustee. These two partners were given

the responsibility of collecting payments from the partners to pay

installments on the loan. When some of the partners ceased making

their contributions, the managing partner and trustee ceased making

payments without notifying the partnership. The result was a

foreclosure sale on the property. Some of the partners then sued.

As damages, they sought to recover their initial contribution to

the partnership. The court, however, rejected this measure of

damages. Instead, the court held that, where a partnership lost

its principal asset as a result of foreclosure, the measure of

damages should be the value of the property lost less the mortgage

indebtedness of the property. Newton, 601 S.W.2d at 182. 

Because there is no Texas Supreme Court ruling on this issue,

we must make an Erie guess regarding Texas law on this subject. As
29

we stated in U.S. v. Johnson, 160 F.3d 1061, 1063-64 (5th Cir.

1998), “[i]n the absence of Texas Supreme Court pronouncements, we

generally defer to the holdings of lesser state courts unless we

are convinced by other evidence that the state law is otherwise.”

We have no reason to doubt that the decision in Newton represents

Texas law. We therefore adhere to its reasoning that, in a

situation such as this--where a general partner’s action results in

lost property owned by the partnership--the partnership must

account for the indebtedness of the lost property when seeking to

recover the actual damages for its loss.

B

In its No Damages Order, the district court carefully reviewed

the damages alleged by Thomas. These damages consisted of the

following:
30

Note to PCA not Repaid $522,856.00

BL II’s Cash on Hand $4,073.00

Freeze Damage Insurance Proceeds $26,612.00

BL II’s Bond Reserve Fund $162,611.00

Value of the lost project $7,500,000.00

Furniture and Equipment not specified

Cost Overruns not Funded $339,047.00

Operational Expenses not Funded $1,098,670.00

Operational Deficit Loans not Made $931,030.00

Total: $10,584,899.00

The district court then concluded that the damages from cost

overruns and operational expenses not funded and from operational

deficit loans not made each occurred before 1989 and were therefore

barred by the statute of limitations. The district court also held

that the plaintiffs failed to demonstrate that the furniture and

office equipment was not secured by the original $8.75 million

dollar loan. The court further held that the plaintiffs had failed

to quantify the value of the furniture and equipment. Based on

these findings, the court disregarded the plaintiffs’ damages

claims with respect to these items. The court therefore held that

plaintiffs’ alleged damages amounted to $8,216,512.00.

The court then found that the outstanding debt on the Project

at the time the Project was sold was $10,705,830.00. Based on this

finding and the holding in Newton, the court concluded that the
31

plaintiffs had failed to demonstrate a loss that was greater than

the outstanding indebtedness on the property.

C

On appeal, Thomas argues that Newton should not apply to the

calculation of actual damages in this case. Thomas next argues

that, even if Newton should apply, the district court erred in

calculating the value of the damages and the outstanding

indebtedness. Finally, Thomas argues that the district court erred

when it treated property owned by BL II after the sale of the

project as subject to the mortgage indebtedness.

1

Thomas’s first argument is that Newton should not apply to the

calculation of actual damages here. We generally agree with Thomas

that the result reached by applying Newton to this case is

troublesome. There is a straightforward explanation for why this

is so. In Newton, the managing partner and trustee lost the

property through foreclosure and suffered the same losses as the

other partners in the partnership. In this case, the General

Partner actually turned a profit on the sale of the Project. While

it is not entirely clear how much money Hinch, Beneke, and Carraway

(all general partners in PHAM) made, it is apparent that the sale

of the Project, after the RTC’s debt forgiveness, made a profit of

as much as $2 million. Of that sum, only $285,000 made its way

back to the partnership. Because Beneke’s power under BL II’s
32

Partnership Agreement to bring about the transaction is called into

question by the participation of interested parties in the

transaction, there appears to be a case for arguing that the

parties to the transaction have been unjustly enriched through this

transaction.

The fact that Newton’s requirements make it difficult for the

plaintiffs here to allege actual damages does not, however, leave

the plaintiffs without a remedy. What is troublesome in this case

is not just that the defendants sold the project for less than what

it may have been worth, but also that the defendants seem to have

profited from that sale. Under Texas law, the plaintiffs could,

and did in their seventh amended complaint, seek a constructive

trust. As we recently noted in Dyl v. Adams, supra, under Texas

law, a constructive trust is appropriate to prevent unjust

enrichment when a defendant has committed a fraud. 167 F.3d at

948. For whatever reason, this issue was not raised on appeal, and

we are therefore unable to address it.

We hold however that, for actual damages, we are bound to

apply the method used in Newton. In Newton, the court held that

the plaintiffs could not rely on their initial contribution to the

partnership as a measure of actual damages. The court looked

instead to the value of what was lost, the property, and in valuing

the property, the court considered the indebtedness of the

property. In this case, Thomas does not argue that the original
33

contribution of the limited partners should be a measure of the

actual damages of the partnership. Instead, he argues that the

measure of damages should be the losses incurred by the partnership

as a result of the conduct of the defendants, including their

mismanagement of the project, their failure to reduce the

indebtedness of the project, and their failure to obtain the best

price for the project because of their self-interested dealing.

However, because those damages are reflected in the value of the

project when it was sold, the actual damages claimed by Thomas are

identical in form to those addressed by the court in Newton.

As we have noted, in pleading actual damages under Texas law,

the plaintiff must plead them with specificity. In this case, the

plaintiffs’ principal claim for actual damages is the loss of the

value of the project because of the conduct of the general partner

and the purchasers of the project. In Newton, the only claim was

for the loss of the value of the land at the time of foreclosure

because of the conduct of the general partner. The reasoning in

Newton, that the court must account for the indebtedness of the

lost property in calculating actual damages is equally applicable

here. The plaintiffs are certainly entitled to show that the value

of the property is higher than its indebtedness, but, under the

reasoning in Newton, the court may not simply disregard the

indebtedness of the property when determining the value of what was

actually lost. Thus, for purposes of this appeal, we hold that in
34

calculating the actual damages suffered by BL II, the district

court did not err in accounting for the indebtedness of the project

when valuing the loss of the project through its sale.

2

Thomas next argues that the district court erred in its

valuation of the damages claimed by Thomas and in its valuation of

the outstanding mortgage indebtedness. After a careful review of

the record, we cannot agree with any of these arguments. For

instance, Thomas argues that the value of the land at the time the

Project was sold was more than $7,500,000. However, Thomas did not

certify an expert to provide testimony to support a different

figure. Instead, Thomas produced two non-experts, neither of whom

had an ownership interest in the Project, who provided their best

estimates of the value of the land at the time of sale. We agree

with the district court that this evidence is simply inadequate to

support a different value for the project.

Thomas also argued that the amount of mortgage indebtedness

was not the $10,705,830.00. Thomas points to the fact that the

defendants were able to renegotiate the debt by almost $4 million

as evidence that BL II would not have had to pay the full amount of

its indebtedness. However, the defendants have argued and

attempted to demonstrate that the debt renegotiation was part of a

larger negotiation and that BL II could not have renegotiated the

debt in the same way. Although we do not necessarily accept the
35

defendants’ account as true, we note that there is no evidence that

we could find in the record that would lead us to reject their

argument as untrue--and the partnership carries the burden of proof

on these damages. As we have said, under Texas law when alleging

damages, the plaintiff must allege them with specificity. It is

not enough to present conjecture about what might have happened,

the defendant must present real evidence of his loss. We can find

no such evidence here.

The plaintiffs also take issue with the district court’s

exclusion of the damages from the missing furniture and equipment,

the cost overruns and operational expenses not funded, and the

operational deficit loans not made. Because the amount of debt

would still outweigh the damages claimed by the plaintiffs if we

included these items as damages, we do not consider whether the

district court erred in excluding these items.

3

Thomas finally argues that not all of the assets of BL II were

sold with the Project. After the sale, BL II still retained a note

from PCA for $500,000, a bond reserve fund valued at $163,611, its

cash on hand, and the freeze damage insurance proceeds. Thomas

argues that the value of those assets were never distributed among

the limited partners, even though BL II maintained them after

selling the project and escaping its debt. 
36

Beneke argues that the summary judgment evidence demonstrated

as a matter of law that the PCA note was held by BL II exclusively

for the benefit of USA. Beneke further argues that the summary

judgment evidence did not establish that BL II owned the bond

reserve fund. After reviewing the record, we conclude that there

is a genuine issue of material fact regarding the ownership of the

PCA note, the bond reserve fund, BL II’s cash on hand, and the

freeze damage insurance proceeds. If these items were owned by BL

II, there should have been an accounting for them upon the

dissolution of the partnership. Furthermore, because these items

were not tied to the Project, the district court should not have

weighed them against the indebtedness of the Project when making

its damages calculations. We hold that the district court erred in

holding that the plaintiffs had alleged no damages as the

plaintiffs properly alleged that they had lost the value of the PCA

note, the bond reserve fund, BL II’s cash on hand, and the freeze

damage insurance proceeds, to which they may well be entitled. We

therefore reverse the district court’s No Damages Order to this

limited extent.
37

VII

The district court dismissed all of McNeil and Larkin’s claims

in the Final Order. McNeil and Larkin argue that both orders

contain errors of law and fact. Because the Final Order dismissed

McNeil and Larkin’s claims pursuant to the No Damages Order and

because we reverse that order, the claims dismissed by that order

will now be reinstated. 

The GE defendants have raised a purely legal question on

cross-appeal related to McNeil and Larkin’s claims. As described

above, McNeil and Larkin were third party defendants brought into

the suit by a claim made by the PCA defendants (of whom only Beneke

remains in this appeal). With the exception of Beneke, the

defendants have a procedural objection to the claims filed by

McNeil and Larkin. Under Fed.R.Civ.P. 14(a), a third party

defendant may assert claims arising out of the transaction against

the original plaintiff, counterclaims against the third party

plaintiff, and cross claims against a co-party under rule 13(g).

The GE defendants argue that “[m]ost courts have accepted the

definition set forth in Murray v. Haverford Hospital Corp., 278

F.Supp. 5, 6 (E.D. Pa. 1968), where co-parties were defined as

‘parties having like status, such as, co-defendants.’” Georgia

Ports Authority v. Construzioni Meccaniche Industriali Genovesi,

S.P.A., 119 F.R.D. 693, 694 (S.D. Ga. 1988). The GE defendants

argue that, as McNeil and Larkin do not share co-defendant status
 

6In their opening brief, McNeil and Larkin seem prepared to

concede this point, arguing that they should have labeled their

claims “counterclaims,” but claiming that this was a harmless error

nonetheless. The problem with this argument is that their claims

against the non-Beneke defendants cannot be counterclaims as those

defendants did not file any claims against them. McNeil and Larkin

apparently concede this point in their reply brief when they state

that there is “diverse authority on the issue of what to call their

claims,” but that there is nonetheless a “general principle . . .

that [their] claims should go forward.” 

38

with them, McNeil and Larkin cannot be co-parties under rule

13(g).6 

Although some courts have held that third party defendants may

not file cross-claims against original defendants under rule 14(a),

the issue has not been addressed by the Fifth Circuit. We agree

that a reading of rules 14(a) and 13(g) can lead to the conclusion

that third party defendants are barred from filing cross-claims

against original defendants. We, however, find this reading to be

a strained one and the result nonsensical. Under rule 14(a), third

party defendants can join additional parties to the lawsuit to

resolve claims related to the claim made against them. It

therefore seems strange to conclude that they cannot bring those

claims against parties already involved in the suit. The practical

effect of adhering to the defendant’s reasoning would be to hold

that when a third party defendant wishes to allege a claim against

an original defendant, he must file a separate complaint against

the original defendant and then move for joinder of the two

actions. We will not require third party defendants to jump
39

through these additional hoops. We hold that, under Rule 14(a), a

third party defendant may file a cross-claim against an original

defendant even if it would be inappropriate to characterize the

third party defendant as a co-defendant of the original defendant.

VIII

Beneke argues that, even if the district court erred in its No

Damages Order, there is another ground on which the district court

could have granted summary judgment. Beneke argues that Thomas

ratified the acts of the defendants by accepting the proceeds from

the sale and the favorable tax treatment. Because the district

court did not address this claim in its No Damages Order, we remand

to the district court for an initial determination, if in the

district court’s judgment a resolution of this issue is necessary

to properly conclude this case. 

IX

In working its way through this convoluted case, the district

court, admirably, committed only one error, an error in calculating

damages. We hold that the district court correctly determined that

the loss of the project did not result in actual damages to BL II

as the value of the project at the time of the sale was less than

the indebtedness of the project. The district court nevertheless

erred when it dismissed the plaintiffs’ claims on summary judgment,

holding that the plaintiffs had not alleged any actual damages.

The plaintiffs did allege claims for actual damages based on items
40

they assert were in the control of BL II after the sale of the

project but not accounted for in the dissolution of the

partnership. We hold that the district court erred when it failed

to consider as part of the damages the plaintiffs’ claims for the

loss of the PCA note, the bond reserve fund, BL II’s cash on hand

after the sale of the project, and the freeze damage insurance

proceeds. We therefore reverse the grant of summary judgment on

these limited claims. We note, however, that Beneke argues that

summary judgment is appropriate on other grounds. We leave this

argument to the district court to resolve.

In sum, we therefore REVERSE the district court with respect

to its summary judgment rulings on the issue of whether Thomas

failed to demonstrate damages with respect to the limited claims

noted above. In all other respects we AFFIRM the summary judgment

rulings of the district court. We REMAND for further proceedings

not inconsistent with this opinion.

AFFIRMED IN PART, REVERSED IN PART, and REMANDED.