Opinion ID: 1048508
Heading Depth: 2
Heading Rank: 1

Heading: Individual defendants’ liability

Text: Nelson and Muse claim they are not individually liable for breach of the release and covenant not to sue for three reasons. First, they contend that they signed the LLC Membership Interest Purchase Agreement containing the Mutual Release as partners of DGP and not in their personal capacities. Second, they argue that, even if they did sign the LLC Membership Interest Purchase Agreement in their personal capacities, they are not bound because they, as individuals, received no consideration in return for their promise not to sue. Third, assuming they were personally bound, they argue that there was no breach because they never sued Prospect–DGP did.
9 Case: 12-20496 Document: 00512398636 Page: 10 Date Filed: 10/07/2013 Nelson and Muse (as well as DGP and Dallas Gas GP in their brief) argue that the district court was estopped from finding the partners to have signed the LLC Membership Interest Purchase Agreement in their individual capacities. They argue that the district court had previously concluded–and this court affirmed–that Prospect could enforce the covenant not to sue against DGP because the partners signed the agreement as DGP partners and not as individuals. According to the individual defendants, the district court could not later conclude that they signed the agreement in their individual capacities. Because they did not sign the agreement as individuals, Nelson and Muse argue that they, “individually, did not breach any agreement with Prospect,” and Prospect would have to show that Nelson and Muse forfeited their limited liability in order to hold them liable for DGP’s breach. The record does not support defendants’ contentions. The magistrate judge’s report, adopted by the district court in February 2006, found that Nelson and Muse signed the Consent and Agreement of Limited Partners, which expressly agreed to and ratified the Mutual Release and covenant not to sue in the LLC Membership Interest Purchase Agreement, in their capacity as partners of DGP (under its former name, Gas Solutions Partnership II, LLP). The report made no such finding with respect to the LLC Membership Interest Purchase Agreement itself. In that agreement, “Thomas P. Muse, a resident of the State of Texas (‘Muse’), David W. Nelson, a resident of the State of California (‘Nelson’), and Jeffrey Weiss, a resident of the State of Texas (‘Weiss’)” transferred their individual partnership interests in MNW Partners to PEC White Oak LLC. Not only does the language of the LLC Membership Interest Purchase Agreement make clear that it was between the three individuals and the Prospect entity, such a transfer could not have been on the part of DGP because DGP had no partnership interest in MNW Partners. 10 Case: 12-20496 Document: 00512398636 Page: 11 Date Filed: 10/07/2013 There is no estoppel because the district court’s finding in January 2011–that the individual defendants were bound–does not contradict its previous determination that they also signed a separate document in their capacity as DGP partners.10
Nelson and Muse argue that, even if they signed in their individual capacities, there was no valid contract because they did not personally receive consideration for their signatures. They contend that the magistrate’s report, adopted by the district court, previously determined that “all consideration for the Purchase Agreement was paid to DGP; the limited partners did not receive any compensation for undertaking any individual obligations.” Nelson and Muse argue that because no valid contract existed between them as individuals and Prospect, they were not bound by the covenant not to sue. Nelson and Muse raise the lack of consideration argument for the first time here on appeal. Prospect argues that they have waived this argument by failing to raise it in response to Prospect’s summary judgment motion. “If a party fails to assert a legal reason why summary judgment should not be granted, that ground is waived and cannot be considered or raised on appeal.” Keelan v. Majesco Software, Inc., 407 F.3d 332, 339-40 (5th Cir. 2005) (internal marks and citation omitted). Further, “[i]f a party wishes to preserve an argument for appeal, the party must press and not merely intimate the argument during the proceedings before the district court. An argument must 10 In their papers, defendants raise arguments of corporate separateness under Texas and New York law. In particular, at oral argument DGP counsel urged the court not to allow Prospect to prevail against individual defendants without undergoing the established steps for piercing DGP’s corporate veil. Although state law shields limited partners from liability for the acts of the partnership, Prospect is not suing the individual defendants based on their actions as partners but on their actions as individuals. 11 Case: 12-20496 Document: 00512398636 Page: 12 Date Filed: 10/07/2013 be raised to such a degree that the district court has an opportunity to rule on it.” Id. (internal marks and citations omitted). We find that the individual defendants did not waive their consideration argument. Arguing against summary judgment before the district court, Nelson and Muse contended that the court had previously determined that DGP was the “real party in interest.” This is sufficient to preserve the argument that the agreement did not bind them because, receiving no consideration, they had no interest in the agreement. Although not waived, the argument is unpersuasive. Nelson and Muse misstate the magistrate’s report adopted by the district court in its February 2006 order. The report did not find that all consideration went to DGP and none to the individual partners. It noted merely that Nelson’s statement in an affidavit that he received payment only in his individual capacity conflicted with his previous deposition testimony. The magistrate also observed that portions of the $3.95 million went to each of DGP’s limited partners, as well as to pay for DGP’s banker’s fees and $500,000 deposit. Such facts, while supporting a conclusion that DGP received consideration under the contract, did not preclude the district court from later finding that the individual partners received consideration as well. We see no reason to overturn the district court’s holding, as stated in its January 2011 summary judgment order, that “Muse, Nelson and Weiss ratified the LLC Purchase Agreement by retaining the significant consideration ($3.295 million) they were paid by Prospect.”
Finally, Nelson and Muse claim that, even if they are bound by the LLC Membership Interest Purchase Agreement, they did not breach it. According to Nelson and Muse, they “were not plaintiffs to the lawsuits” and only DGP, the named plaintiff, breached the covenant not to sue. They contend that only a party that filed and prosecuted a lawsuit on its own claims could breach the 12 Case: 12-20496 Document: 00512398636 Page: 13 Date Filed: 10/07/2013 agreement. They argue that the district court erred in finding that they violated the unambiguous terms of the release and covenant not to sue, in which they agreed not to “institute, maintain or prosecute any action, claim, suit, proceeding or cause of action of any kind to enforce any of” the released claims because they “caused and funded the filing of” DGP’s lawsuits. Prospect Energy, 761 F. Supp. 2d at 602-03. Individual defendants’ interpretation of the agreement is flawed. The language of the agreement does not support an interpretation that the signatories covenanted not to sue only on their own claims. Rather, the text provides for a much broader release: the parties agreed not to institute, maintain, or prosecute “any” action to enforce “any” of the released claims. Nelson’s and Muse’s construction of the release’s text fails to give meaning to each of the agreement’s terms. See Two Guys from Harrison-N.Y., Inc. v. S.F.R. Realty Assocs., 472 N.E.2d 315 (N.Y. 1984) (“In construing a contract, one of a court’s goals is to avoid an interpretation that would leave contractual clauses meaningless.”). As Nelson’s brief recognizes, the plain meaning of “institute” is “to originate or get established,” and “prosecute” means to “to follow to the end: pursue until finished.”11 Nothing in those definitions suggests that only the named plaintiff can institute an “action, claim, suit, proceeding or cause of action.” Even construing these terms as restricted by definition to a plaintiff’s actions, the release also precludes a signatory from “maintain[ing]” a suit. Nelson’s definition of “maintain”–“to sustain against opposition or danger: uphold and defend[;] . . . to continue or persevere in”–does not cover conduct that is different from the conduct covered by the term “prosecute.” Thus, under Nelson’s definitions, the term “maintain” is superfluous. However, one of Merriam-Webster’s definitions of “maintain” that Nelson does not cite is “to 11 We use the non-movants’ definitions from www.merriam-webster.com. 13 Case: 12-20496 Document: 00512398636 Page: 14 Date Filed: 10/07/2013 support or provide for.” Using this definition, a signatory to the agreement could “maintain” a lawsuit if he provides financial support for the suit. Nelson and Muse do not dispute that they personally funded DGP’s lawsuits. Under an interpretation of the agreement that gives effect to all its terms, Nelson and Muse breached the agreement by funding DGP’s lawsuits. The district court correctly determined that Nelson’s and Muse’s actions violated the release and covenant not to sue.12