Court Opinion

ID: 9398790
Source: CourtListenerOpinion
Date Created: 2023-06-01 07:16:22.554947+00
Date Added: 2024-06-11T17:19:36.358640
License: Public Domain

COURT OF APPEALS
                               EIGHTH DISTRICT OF TEXAS
                                    EL PASO, TEXAS

  WC 4TH AND RIO GRANDE, LP,                    §               No. 08-22-00073-CV

                                Appellant,      §                  Appeal from the

  v.                                            §            345th Judicial District Court

   LA ZONA RIO, LLC,                            §              of Travis County, Texas

                                Appellee.       §             (TC#D-1-GN-20-007177)

                                         OPINION

       This is the first of two companion opinions we issue today. The second opinion, which is

similarly styled, is No. 08-22-00225-CV. Here, Appellant WC 4th and Rio Grande, LP

(Rio Grande, LP) sued Appellee La Zona Rio, LLC (La Zona Rio) in a Travis County district court

seeking to avoid foreclosure on a promissory note La Zona Rio held on a building Rio Grande, LP

owned. While the suit was pending, a Harris County district court appointed a receiver to collect

on a judgment owed by World Class Capital Group, LLC (WCCG) and Great Value Storage, LLC

(GVS) to Princeton Capital Corporation (Princeton) stemming from an unrelated lawsuit. The

receiver, contending that Rio Grande, LP was a “subsidiary” of WCCG, entered an appearance in

the lawsuit stating that he was taking over for Rio Grande, LP and entered into a settlement

agreement with La Zona Rio allowing La Zona Rio to foreclose on the building. The trial court
thereafter granted the receiver’s motion to dismiss the lawsuit pursuant to that agreement, and

Rio Grande, LP appealed. 1 Because factual questions remain on whether the receiver had the

authority to act on Rio Grande, LP’s behalf, we reverse the trial court’s judgment and remand for

further proceedings.

         I. FACTUAL BACKGROUND
             A. Rio Grande, LP’s breach of contract claim against La Zona Rio

         The underlying litigation in the current appeal stems from a $4.25 million loan that

Rio Grande, LP obtained from La Zona Rio’s predecessor-in-interest in July of 2014. The loan

terms were reflected in a promissory note, which was secured by a building owned by

Rio Grande, LP at the corner of 4th Street and Rio Grande in downtown Austin. Significant to this

appeal, local real estate developer Natin Paul signed the promissory note on behalf of

Rio Grande, LP as the president of WC 4th and Rio Grande GP, LLC—Rio Grande, LP’s general

partner. After Rio Grande, LP defaulted on the note, La Zona Rio initiated foreclosure

proceedings. Rio Grande, LP attempted to pay off the amount owed on the note ($4 million), but

La Zona Rio rebuffed its attempts. Rio Grande, LP then filed a lawsuit in a Travis County district

court claiming La Zona Rio was in breach of contract and further seeking a declaratory judgment

regarding its right to pay off the note under the parties’ agreement.

             B. The Harris County district court’s receivership order

         The background facts leading to the Harris County district court’s appointment of the

receiver are set forth in Great Value Storage, LLC v. Princeton Capital Corp., No. 01-21-00284-

1
  This case was transferred from our sister court in Austin, and we decide it in accordance with the precedent of that
court to the extent required by TEX. R. APP. P. 41.3.

                                                          2
CV, 2023 WL 3010773, at *1-6 (Tex. App.—Houston [1st Dist.] Apr. 20, 2023, no pet. h.)

(mem. op.). Below are the salient facts from that opinion and the record before us.

         In July 2012, GVS and WCCG entered into a Note Purchase Agreement (NPA) with

Capital Point Partners II, L.P., the predecessor-in-interest to Princeton. Id. at *1. Natin Paul was

the sole member and manager of both WCCG and GVS. Id. Under the NPA, GVS executed two

promissory notes in favor of Capital Point in exchange for money. Id. In March 2015, Princeton

purchased the NPA together with the promissory notes issued pursuant to the NPA. Id. at *2. In

October 2018, Princeton sent WCCG and GVS a default notice, and when they failed to correct

the deficiency on the note, Princeton filed a lawsuit against them in a Harris County district court,

alleging, among other claims, breach of contract. Id. In March 2021, the trial court entered a final

judgment granting summary judgment in Princeton’s favor on its breach-of-contract claim and

awarded Princeton over $9.7 million in damages representing the principal and interest owed on

the notes. Id. at *6.

         In June 2021, Princeton filed a motion for a post-judgment receivership under Texas Civil

Practice and Remedies Code Chapters 31 and 64 to collect on the judgment. 2 Id. at *6. Princeton

asserted that WCCG and GVS had refused to participate in discovery throughout the course of the

litigation and had refused to produce discovery regarding their assets. Relying on both companies’

websites, Princeton argued that WCCG and GVS had nonexempt assets that could be used to

satisfy the judgment. Id. The trial court granted Princeton’s motion and issued a receivership order

appointing attorney Seth Kretzer as the receiver, giving him broad powers to assist Princeton in its

2
  Section 31.002 of the Code provides, “judgment creditor is entitled to aid from a court of appropriate jurisdiction . . .
in order to reach property to obtain satisfaction on the judgment if the judgment debtor owns property, including
present or future rights to property, that is not exempt from attachment, execution, or seizure for the satisfaction of
liabilities.” TEX. CIV. PRAC. & REM. CODE ANN. § 31.002(a). As part of this aid, the court may “appoint a receiver
with the authority to take possession of the nonexempt property, sell it, and pay the proceeds to the judgment creditor
to the extent required to satisfy the judgment.” Id. at § 31.002(b)(3).

                                                            3
collection efforts by, among other things, allowing Kretzer to seize any “interests” that WCCG

and GVS owned in other business entities (the Receivership Order). The Receivership Order

provided that Kretzer was entitled to a fee of 25% of all gross proceeds coming into his possession

not to exceed 25% of the balance due on the judgment. The First Court of Appeals temporarily

stayed the Receivership Order sometime in October 2021 to provide the judgment debtors the

opportunity to post a supersedeas bond, but the stay was lifted on November 18, 2021.

            C. Kretzer’s notice of appearance in Rio Grande’s lawsuit

       At 5:06 p.m. on the same day the stay was lifted, Kretzer filed a “Receiver’s Notice of

Appearance” in Rio Grande, LP’s breach-of-contract lawsuit, asserting he was the “court-

appointed Receiver for World Class Capital Group, LLC,” and was appearing “for World Class

Capital Group, LLC and its subsidiary WC 4th and Rio Grande, L.P.” The notice stated that

Kretzer, who was represented by attorney James Volberding, “hereby replaces prior counsel of

record for WC 4th and Rio Grande, L.P.” Later that day, at 6:51 p.m., a “Joint Motion to Dismiss

With Prejudice” was filed, stating the “parties have resolved all claims asserted in this case and

therefore request that the Court enter an order dismissing with prejudice all claims asserted in this

case.” The motion was signed by Kretzer, on behalf of Rio Grande, LP, as well as La Zona Rio’s

attorney.

            D. Rio Grande, LP’s motion challenging Kretzer’s authority

       Less than a week later, on November 24, 2021, Rio Grande, LP, through its retained

attorney, Brian Elliott, filed a document entitled, “WC 4th and Rio Grande, LP’s Sworn Motion to

Show Authority of Kretzer & Voldberding [sic] . . . to Represent World Class Capital Group, LLC

and WC 4th and Rio Grande, L.P., Motion to Vacate Seth Kretzer’s Actions for Lack of Standing

                                                 4
or Capacity, and Motion for Rule 13 Sanctions.” 3 In its motion, Rio Grande, LP asserted that

Kretzer had not provided any evidence to support a finding that he had the authority to replace

Rio Grande, LP’s attorney. Rio Grande, LP further maintained that Kretzer’s appointment as the

receiver for Princeton was limited to collecting on assets owned by WCCG, the judgment debtor

in that case. Rio Grande, LP argued it was a separate legal entity, i.e., a limited partnership, which

was not a subsidiary of WCCG and was not owned or managed by WCCG. Rio Grande, LP also

argued that even if WCCG had a partnership interest in Rio Grande, LP, Kretzer would not be

permitted to seize any assets belonging to Rio Grande, LP because a charging order is the exclusive

remedy by which to collect on a judgment debtor’s interest in the partnership. And finally,

Rio Grande, LP sought Rule 13 sanctions against Kretzer and his attorney contending that they

were both experienced attorneys who knew or should have known they lacked the authority to sign

the pleadings in this matter as Rio Grande, LP’s counsel, and their actions were therefore in “bad

faith.” To its motion, Rio Grande, LP attached a copy of the Receivership Order and a letter dated

November 22, 2021, from Kretzer to Brian Elliott, Rio Grande, LP’s attorney at the time. The letter

advised Elliott to take no further action in the proceeding without Kretzer’s “permission.” 4 Kretzer

did not respond to the motion, and the trial court record does not contain a ruling on the motion.

               E. The trial court’s dismissal of the lawsuit and Rio Grande, LP’s motion to
                  reinstate

           On December 20, 2021, the trial court granted the joint motion to dismiss the lawsuit with

prejudice, labeling its order as a final judgment. On January 19, 2022, Rio Grande, LP, through

3
    Although the motion stated it was a “sworn” Rule 12 motion, no verification was attached to the motion.
4
  On December 7 and 8, 2021, the trial court granted the unopposed motions allowing two law firms that had
previously represented Rio Grande, LP to withdraw from the case. However, the record does not reflect that Elliott
sought to withdraw from his representation of Rio Grande, LP in the trial proceedings.

                                                           5
attorney Brent Perry, filed a “Motion to Reinstate, or in the Alternative, for New Trial,” again

challenging Kretzer’s authority to act on its behalf. In the motion, Rio Grande, LP argued that

Kretzer had no authority to seize the assets of the partnership or otherwise participate in its

management, as WCCG did not own “own or control” Rio Grande, LP. In support thereof,

Rio Grande, LP filed a declaration from Natin Paul asserting he is the “governing person for WC

4th and Rio Grande GP, LLC, the general partner of WC 4th and Rio Grande, LP.” He averred that

“World Class Capital Group, LLC is not an owner of WC 4th and Rio Grande, LP” and that neither

WC 4th and Rio Grande GP, LLC (the general partner of Rio Grande, LP) nor Rio Grande, LP had

authorized Kretzer to act on the partnership’s behalf. Paul further declared that contrary to

Kretzer’s contention in the joint motion to dismiss, the partnership had not resolved its claims

against La Zona Rio.

       In addition, Rio Grande, LP attached numerous documents to the motion, including the

promissory note on which Rio Grande, LP had defaulted and various financial documents, all of

which listed Rio Grande, LP as the borrower and were signed by Natin Paul on behalf of

Rio Grande, LP in his capacity as the president of WC 4th and Rio Grande GP, LLC—

Rio Grande, LP’s general partner. Finally, Rio Grande, LP attached a copy of its 2021 “Texas

Franchise Tax Public Information Report” indicating the partnership had two other limited partners

with more than a 10% share in the partnership: Sangreal Investments II, LLC and Flash Property

Management, LLC were each listed as having a 33.75% interest in the partnership.

       The trial court did not rule on the “Motion to Reinstate, or in the Alternative, for New

Trial.” After it was overruled by operation of law, Rio Grande, LP appealed from the trial court’s

order dismissing its lawsuit.

                                                6
           F. The First Court of Appeals’s opinion upholding the Receivership Order

       While Rio Grande, LP’s appeal was pending in our Court, the First Court of Appeals issued

its opinion in Princeton Capital Corporation upholding the Harris County trial court’s order

granting summary judgment on Princeton’s breach-of-contract claim and the $9.7 million

judgment against WCCG and GVS. Great Value Storage, LLC v. Princeton Capital Corp., 2023

WL 3010773, at *15. The First Court also held that the trial court properly exercised its discretion

in appointing the receiver to assist Princeton in collecting on the judgment. Id. at *19. In its

opinion, the First Court noted that WCCG and GVS had only preserved one issue for appeal, which

centered on their objection in the trial court that Princeton had failed to identify sufficient

nonexempt assets to support the court’s entry of the order, as required by Texas Civil Practice and

Remedies Code § 31.002. Id. at *15-16. The First Court concluded Princeton did satisfy that

requirement. Id. at *19. Given the limited scope of the appeal, the First Court did not opine on the

validity of the Receivership Order’s provisions.

       II. ISSUES ON APPEAL
       Rio Grande, LP raises two broad, related issues on appeal challenging Kretzer’s authority

under the Receivership Order to settle its lawsuit against La Zona Rio. Rio Grande, LP frames

Issue One as: “Whether the trial court abused its discretion when overruling by operation of law

Appellant’s Motion to Reinstate or, in the Alternative, Motion for New Trial, which resulted in the

dismissal with prejudice of Appellant’s claims by an attorney acting without authority.” It frames

Issue Two as: “Whether the receiver lacked authority, both as a matter of uncontroverted facts and

as a matter of law, to appear for Appellant in the underlying suit [and] replace Appellant’s

counsel[.]” Prior to addressing the fundamental issue of whether Kretzer had the authority to

                                                   7
appear in the suit on Appellant’s behalf, we address Kretzer’s motion to dismiss the appeal and

the procedural issues La Zona Rio raises.

       III. KRETZER’S MOTION TO DISMISS THE APPEAL
       As a preliminary matter, we note that when Rio Grande, LP first appealed, Kretzer filed a

motion to dismiss contending Rio Grande, LP had no authority to file the appeal. According to

Kretzer, the appeal was in effect filed by Natin Paul; Kretzer characterized the appeal as part of

Paul’s ongoing attempt to delay secured creditors’ efforts to obtain and collect on judgments

against his various World Class entities. And Kretzer contends that because he assumed control of

Rio Grande, LP’s lawsuit pursuant to the Receivership Order, he alone had authority to act on

Rio Grande, LP’s behalf and Paul was required to obtain Kretzer’s permission before filing this

appeal. Kretzer argues this appeal should be dismissed because Paul did not seek his permission.

       Kretzer’s argument, however, assumes the Receivership Order granted him the authority

to act on Rio Grande, LP’s behalf in settling its lawsuit against La Zona Rio, which is the very

subject of Rio Grande, LP’s appeal. Accordingly, we carried Kretzer’s motion to dismiss to allow

us to resolve it at the same time as the appeal. And given our disposition of this appeal, we deny

Kretzer’s motion as moot.

       IV. PROCEDURAL ISSUES
       Next, as another preliminary matter, we turn to two procedural issues. The first is

La Zona Rio’s request for this Court to take judicial notice of the record in the companion case.

The second is La Zona Rio’s argument that Rio Grande, LP’s challenge to the validity of the

Receivership Order is an impermissible collateral attack.

                                                8
           A. We limit our review to the appellate record in this case

       The companion appeal before this Court, 08-22-00225-CV, stems from a second lawsuit

Rio Grande, LP filed through attorney Brent Perry bringing claims to quiet title and for trespass to

try title as well as seeking a declaratory judgment that Kretzer did not have the authority to sign a

warranty deed transferring ownership of the subject building to La Zona Rio pursuant to the

settlement agreement he negotiated on Rio Grande, LP’s behalf. La Zona Rio asks us to take

judicial notice of the record in 08-22-00225-CV when determining whether the trial court in this

case erred in granting Kretzer’s motion to dismiss, i.e., whether Kretzer had the authority to act on

Rio Grande, LP’s behalf.

       In certain circumstances, an appellate court may take judicial notice of the record in a

related case, such as when the record impacts a court’s jurisdiction to hear a case or bears on

mootness issues. See FinServ Cas. Corp. v. Transamerica Life Ins. Co., 523 S.W.3d 129, 147

(Tex. App.—Houston [14th Dist.] 2016, pet. denied); see also SEI Bus. Sys., Inc. v. Bank One

Texas, N.A., 803 S.W.2d 838, 841 (Tex. App.—Dallas 1991, no writ) (“As a general rule, appellate

courts take judicial notice of facts outside the record only to determine jurisdiction over an appeal

or to resolve matters ancillary to decisions which are mandated by law . . . .”). However, “[t]aking

judicial notice of documents not considered by the trial court often is not appropriate because, in

analyzing the merits of an appeal, appellate courts generally cannot consider evidence not before

the trial court when the court made the challenged ruling.” FinServ Cas. Corp., 523 S.W.3d at 147

(citing Bowden v. Phillips Petroleum Co., 247 S.W.3d 690, 707 (Tex. 2008); Univ. of Texas v.

Morris, 344 S.W.2d 426, 429 (Tex. 1961); see also Kreit v. Brewer & Pritchard, P.C., 530 S.W.3d

231, 240 (Tex. App.—Houston [14th Dist.] 2017, pet. denied) (recognizing appellate courts

                                                 9
“generally do not take judicial notice of documents that were not before the trial court when the

trial court made its challenged ruling”).

       Here, to the extent we are called to determine whether the trial court erred in rendering its

decision, we decline to take judicial notice of evidence that was not before the trial court when it

made its decision. See Morris, 344 S.W.2d at 429 (court’s decision to affirm the trial court’s order

granting an injunction was “controlled by the record made in the trial court at the time the

injunction was issued”); see also In re Servicios Legales de Mesoamerica S. de R.L., No. 13-12-

00466-CV, 2014 WL 895513, at *8 (Tex. App.—Corpus Christi Mar. 6, 2014, no pet.) (mem. op)

(“In determining whether or not the trial court has abused its discretion, we must focus on the

record that was before the court.”) (citing In re Bristol–Myers Squibb Co., 975 S.W.2d 601, 605

(Tex. 1998) (orig. proceeding); In re Taylor, 113 S.W.3d 385, 389 (Tex. App.—Houston

[1st Dist.] 2003, orig. proceeding)); see generally Perry Homes v. Cull, 258 S.W.3d 580, 596 n.89

(Tex. 2008) (limiting its review “to the record before the trial judge”).

           B. Whether Rio Grande, LP’s challenge is a collateral attack on the Receivership
              Order

       As set forth above, the First Court’s opinion in Princeton Capital Corporation affirmed

that Kretzer was properly appointed as the receiver to collect on the Princeton judgment but did

not address the validity of any of the Receivership Order’s provisions. Great Value Storage, LLC.,

2023 WL 3010773, at *19. As La Zona Rio points out, Rio Grande, LP at times appears to be

challenging not only Kretzer’s authority to intervene in this lawsuit under the provisions of the

Receivership Order but the validity of those provisions as well, questioning whether a receivership

order would allow a receiver to intervene in a partnership’s lawsuit. Further, La Zona Rio contends

that Rio Grande, LP is engaging in an impermissible collateral attack on the order, citing to our

                                                 10
opinion in 1st & Trinity Super Majority, LLC v. Milligan, 657 S.W.3d 349, 365 (Tex. App.—

El Paso 2022, no pet.).

        In Super Majority, a trial court had entered a receivership order to take over one of Natin

Paul’s “World Class” entities’ operations in which a charitable foundation had invested, based on

the foundation’s claim that its assets were materially threatened due to how the World Class

entities were operating. Id. at 358-59. The World Class entities filed a direct appeal challenging

the order’s validity. Id. at 359. Thereafter, the entities in question transferred all of their interests

in the ongoing litigation to another set of newly-created entities known as the “Super Majority

Entities.” Id. at 365. The Super Majority Entities then brought a suit against the receiver in another

court, claiming among other things that the receiver had breached his fiduciary duties and seeking

a declaration regarding his scope of authority. Id at 359. In finding that the request for declaratory

relief was an improper collateral attack on the receivership order, we held that although the Super

Majority Entities were not the original parties in the receivership proceedings, they were clearly

in privity with the original parties as their successors in interest—having been given all of their

interest in the proceedings. Id. at 365.

        Rio Grande, LP contends that, unlike the situation in Super Majority, it was neither a party

to the Princeton Capital Corporation lawsuit nor the successor in interest to any of the parties.

Therefore, it had no control over the lawsuit and its interests were not represented by any party to

the action. Rio Grande, LP posits that because it was not in privity with any of the parties to the

lawsuit, it cannot be estopped from challenging the validity of the Receivership Order in this

proceeding. See HECI Expl. Co. v. Neel, 982 S.W.2d 881, 890 (Tex. 1998) (“generally, parties are

in privity for purposes of collateral estoppel when: (1) they control an action even if they are not

parties to it; (2) their interests are represented by a party to the action; or (3) they are successors in

                                                   11
interest, deriving their claims through a party to the prior action”). La Zona Rio does not counter

this argument, and as explained below, the only evidence in the record indicates Rio Grande, LP

is a separate legal entity not in privity with WCCG. If that is in fact the case, we agree that

Rio Grande, LP is entitled to challenge the Receivership Order’s validity, at least insofar as it

applies to Kretzer’s actions in this case affecting Rio Grande, LP’s interests.

         V. STANDARD OF REVIEW
         Having addressed the preliminary matters, we must determine whether the record supports

the trial court’s implied finding that Kretzer had the authority to act on Rio Grande, LP’s behalf. 5

And we treat that issue as a question of law that we review de novo. See Penny v. El Patio, LLC,

466 S.W.3d 914, 918 (Tex. App.—Austin 2015, pet. denied) (treating the issue of whether an

attorney had the authority to file or maintain a lawsuit on behalf of an LLC as a question of law to

be reviewed de novo) (citing State v. Evangelical Lutheran Good Samaritan Soc’y, 981 S.W.2d

509, 511 (Tex. App.–Austin 1998, no pet.) (citing Gulf Reg’l Educ. Television Affiliates v.

University of Houston, 746 S.W.2d 803, 806 (Tex. App.–Houston [14th Dist.] 1988, writ denied));

see also Metz v. Lake LBJ Mun. Util. Dist., No. 03-01-000312-CV, 2002 WL 31476887, at *4

(Tex. App.–Austin Nov. 7, 2002, no pet.) (mem. op.).

5
  Rio Grande, LP’s timely, supported “Motion to Reinstate, or in the Alternative, Motion for New Trial” specifically
preserved this issue for appeal; although the trial court did not rule on the motion, there is no other way to interpret
the trial court’s dismissal except by recognizing its implicit finding that Kretzer had the authority pursuant to the
Receivership Order to step in on Rio Grande, LP’s behalf, as Kretzer represented to the court. See TEX. R. APP. P.
33.1(a)(1), (a)(2)(A) and (b) (requiring timely, specific complaint to trial court and express or implied ruling for
preserving error on appeal; civil case motion for new trial overruling by operation of law preserves complaint properly
made in motion); see also Seim v. Allstate Texas Lloyds, 551 S.W.3d 161, 166 (Tex. 2018) (citing In re Z.L.T., 124
S.W.3d 163, 165 (Tex. 2003) (holding a ruling was implied because the implication was clear)).

                                                          12
       VI. WHETHER THE RECORD SUPPORTS FINDING OF KRETZER’S
           AUTHORITY TO SETTLE PARTNERSHIP’S LAWSUIT
       As set forth above, Kretzer entered his appearance by providing a “notice” stating he was

WCCG’s receiver and Rio Grande, LP was a WCCG “subsidiary.” Kretzer asserted he was

appearing as “counsel of record for World Class Capital Group, LLC and its subsidiary WC 4th

and Rio Grande, L.P. . . . replac[ing] prior counsel of record for WC 4th and Rio Grande, L.P.”

Kretzer did not provide any documentation to the trial court to show that Rio Grande, LP was a

“subsidiary” of WCCG or that Kretzer had any authority to seize any assets belonging to the

partnership. It was Rio Grande, LP that supplied the limited record we have in this case.

       On appeal, La Zona Rio argues Kretzer had the authority to replace Rio Grande, LP’s

attorney in the lawsuit and settle the lawsuit against La Zona Rio, focusing on the Receivership

Order, which directed World Class “to identify and turn over to the [R]eceiver all interests of

[World Class] in any business or venture, including limited liability companies and limited

partnerships.” According to La Zona Rio, the Receivership Order then broadly authorized Kretzer

“to seize the membership interest of any Limited Liability Company in which [World Class] is a

member,” and “to sell, manage, and operate the Limited Liability Company as the Receiver shall

think appropriate.” And in turn, La Zona Rio contends this authority included taking possession of

“real property . . . causes of action . . . [and] contract rights.” La Zona Rio contends Kretzer “did

just that by seizing World Class’s membership interest in the general partner of WC 4th and acting

on WC 4th’s behalf in this litigation[,]” asserting that “managing litigation falls squarely within

the descriptions of ‘manag[ing]’ and ‘operat[ing]’ an entity as the Receiver thought appropriate.”

La Zona Rio’s argument is problematic on at least two levels.

                                                 13
              A. No right to seize partnership assets or the partnership’s cause of action

         First, La Zona Rio’s argument conflates several separate provisions in the Receivership

Order. The provision giving Kretzer the right to take possession of “real property . . . causes of

action . . . [and] contract rights” relates to assets belonging to WCCG—the judgment debtor. Here,

Kretzer took “possession” of a cause of action filed by Rio Grande, LP.

         A business entity, such as a partnership, is a distinct legal entity in the eyes of the law,

separate and apart from its partners and members, and has the right to bring suit on its behalf. 6 A

partnership’s assets belong to the partnership itself, not to the individual partners. 7 The

“partnership interest” of a partner is his “share of profits and losses or similar items and the right

to receive distributions.” 8

6
  See Pike v. Texas EMC Mgmt., LLC, 610 S.W.3d 763, 778 (Tex. 2020) (recognizing that a business organization is
a “separate and independent entity.”); see also Am. Star Energy & Minerals Corp. v. Stowers, 457 S.W.3d 427, 431
(Tex. 2015); (recognizing the “Legislature unequivocally embrace[d] the entity theory of partnership when it enacted
the Texas Revised Partnership Act (TRPA), since codified in the Texas Business Organizations Code”) (internal
quotation marks omitted); Rieder v. Woods, 603 S.W.3d 86, 98 (Tex. 2020) (recognizing “well-established legal
principle that limited liability companies and their obligations are legally distinct from their members and managers”);
TEX. R. CIV. P. 28 (“Any partnership . . . may sue or be sued in its partnership, assumed or common name for the
purpose of enforcing for or against it a substantive right . . .”); see also Mims Bros. v. N. A. James, Inc., 174 S.W.2d
276, 278 (Tex. App.—Austin 1943, writ ref’d) (recognizing Rule 28 requires the court to treat a partnership as a
separate legal entity, “at least to the extent of obtaining and enforcing a judgment by or against it”); Am. Star Energy
& Minerals Corp., 457 S.W.3d at 429 (recognizing that a partnership, as an “independent entity . . . may enter into
contracts in its own name, may own its own property, and may sue and be sued in its own name).
7
  See TEX. BUS. ORGS. CODE ANN. § 152.101 (partnership property is “not property of the partners,” and a partner:
“does not have an interest in partnership property”); see also Pajooh v. Royal W. Investments LLC, Series E, 518
S.W.3d 557, 562 (Tex. App.—Houston [1st Dist.] 2017, no pet.) (recognizing individual partner has no ownership
interest in the specific property belonging to the partnership); Am. Star Energy & Minerals Corp., 457 S.W.3d at 429
(recognizing partnership’s right to own property).
8
  Pajooh, 518 S.W.3d at 562; see also Stanley v. Reef Sec., Inc., 314 S.W.3d 659, 664 (Tex. App.—Dallas 2010, no
pet.) (recognizing partnership interest limited to the partner’s right to receive his distributive share of the profits and
surpluses of the partnership) (citing Marshall v. Marshall, 735 S.W.2d 587, 593–94 (Tex. App.—Dallas 1987, writ
ref’d n.r.e.); Alan M. Weinberger, Making Partners Pay Child Support: The Charging Order at 100, 27 Hous. L. Rev.
297, 303 (1990); see generally In re Allcat Claims Serv., L.P., 356 S.W.3d 455, 465-66 (Tex. 2011) (recognizing
“partnership profits” themselves are not the “property of, subject to the control of, or income to the separate partners”
and that only distributions actually made may be considered as such). The right to receive a distribution is subject to
the partnership’s ability to satisfy its liabilities. In re Allcat Claims Serv., L.P., 356 S.W.3d at 465-66 (citing TEX. BUS.
ORGS. CODE ANN. § 153.210 (providing distributions may not be made if, immediately after giving effect to the
distribution, liabilities of the partnership will exceed the fair value of the partnership assets)).

                                                            14
         Accordingly, a judgment creditor of an individual partner has no right to obtain possession

of or otherwise exercise “legal or equitable remedies” with respect to a limited partnership’s

property when collecting on that judgment. TEX. BUS. ORGS. CODE ANN. § 153.256(f) (the

“creditor of a partner or of any other owner of a partnership interest does not have the right to

obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property

of the limited partnership”); see also Pajooh v. Royal W. Investments LLC, Series E, 518 S.W.3d

557, 565 (Tex. App.—Houston [1st Dist.] 2017, no pet.) (recognizing “judgment creditor may not

obtain possession of, or otherwise exercise legal or equitable remedies with respect to, the property

of the limited partnership”) (internal quotation marks omitted). Instead, a judgment creditor of an

individual partner may only seek to satisfy the judgment from any distributions that the partner

has received or is owed, which may only be done through a charging order. 9 See Pajooh, 518

S.W.3d at 562 (recognizing that entry of a charging order attaching a partner’s distributions is the

“exclusive remedy” by which a partner’s judgment creditor may “satisfy a judgment out of the

judgment debtor’s partnership interest”) (citing TEX. BUS. ORGS. CODE ANN. § 153.256(d) (“The

entry of a charging order is the exclusive remedy by which a judgment creditor of a partner or of

any other owner of a partnership interest may satisfy a judgment out of the judgment debtor’s

partnership interest”)); see also In re Prodigy Servs., LLC, 2014 WL 2936928, at *5 (recognizing

9
  A charging order charges “the partnership interest of the judgment debtor to satisfy the judgment” by giving a
judgment creditor “the right to receive any distribution to which the judgment debtor would otherwise be entitled in
respect of the partnership interest.” TEX. BUS. ORGS. CODE ANN. § 153.256(a), (b). A charging order constitutes a lien
on the judgment debtor’s partnership interest, but the judgment creditor has no right to foreclose on the lien. Id.
§ 153.256(c). Importantly, it does not entitle a creditor to participate in the partnership or compel distribution of
profits. Pajooh, 518 S.W.3d at 563 (citing Stanley, 314 S.W.3d at 664-65. However, a Chapter 31 turnover and
receivership order may be used to monitor partnership distributions and effectuate a charging order. Id. (citing Stanley,
314 S.W.3d at 664–65).

                                                          15
that a charging order is the exclusive remedy by which a partner’s judgment creditor may satisfy

a judgment out of a judgment debtor’s partnership interest) (citing Stanley, 314 S.W.3d at 664).

         La Zona Rio points out exceptions to this rule that allow a court to issue a turnover order

of a partnership’s assets, such as when the debtor is the only member of the partnership, no other

partner’s interests are at stake, and the order will not interfere with the entity’s business 10—as the

purpose of requiring a charging order is to avoid disrupting the partnership’s business and to

protect the other partners’ interests. 11 The record reflects that Rio Grande, LP is a partnership with

at least two other partners that possess a substantial interest in the partnership. Absent evidence

that the two other partners are themselves connected to WCCG, the Receivership Order could not

have authorized Kretzer to “take possession” of the partnership’s cause of action or any of its

property as part of its collection efforts to satisfy WCCG’s debt.

              B. No right to manage the partnership

         Second, La Zona Rio also seeks to uphold Kretzer’s actions by pointing to the Receivership

Order provision giving Kretzer the right “to seize the membership interest of any Limited Liability

Company in which [WCCG] is a member,” and “to sell, manage, and operate the Limited Liability

Company as the Receiver shall think appropriate.” Although La Zona Rio appears to recognize

10
   See Heckert v. Heckert, No. 02-16-00213-CV, 2017 WL 5184840, at *7-9 (Tex. App.—Fort Worth Nov. 9, 2017,
no pet.) (mem. op.) (upholding turnover order directing ex-husband to turn over to ex-wife assets he placed in a non-
operating LLC and partnership in which he was the sole member and partner, as there would be no disruption to the
operating business or detriment to other individuals); (citing Michael C. Riddle, et al., Choice of Business Entity in
Texas, 4 Hous. Bus. & Tax L.J. 292, 318 (2004) (“[T]he charging order developed as a way to prevent the creditor of
one partner from holding up the business of the entire partnership and causing injustice to the other partners.”).
11
   In a footnote, La Zona Rio contends that the holding in Pajooh only applies to judgment creditors and not to court-
appointed receivers. However, La Zona Rio cites no authority for the proposition that a receiver is to be treated
differently than a judgment creditor in collecting on a judgment from a partner in an LP. And there appear to be cases
in which courts have, at least indirectly, indicated that a receiver must also apply for a charging order to be entitled to
seize a partnership interest belonging to a judgment debtor. See, e.g., Howe v. Red Oak State Bank, No. 10-90-037-
CV, 1990 WL 10089566, at *3 (Tex. App.—Waco Dec. 20, 1990, no writ) (finding receiver was authorized to apply
for a charging order to collect on a judgment).

                                                           16
that the Receivership Order does not give Kretzer the authority to manage or operate

Rio Grande, LP directly, as it was not a Limited Liability Company, La Zona Rio contends Kretzer

was authorized to do so indirectly by taking over the management and operation of

Rio Grande, LP’s general partner, Rio Grande, GP, LLC, which was in fact a limited liability

company. And in turn, La Zona Rio contends that “managing litigation falls squarely within the

descriptions of ‘manag[ing]’ and ‘operat[ing]’” the LLC, which it contends gave Kretzer the

authority to settle Rio Grande, LP’s lawsuit.

        La Zona Rio’s argument is dependent upon a finding that WCCG has a “membership

interest” in Rio Grande, GP, LLC. According to La Zona Rio, we should find that WCCG has such

an interest by virtue of Natin Paul’s involvement as the president and “governing person” for the

LLC. 12 And while La Zona Rio is correct that both this Court and the Third Court of Appeals have

recognized that Paul does “business through a network of entities which used ‘World Class’ or

‘WC’ in their names,” with his “principal entity” being WCCG, this alone is not a sufficient basis

upon which to conclude WCCG has a “membership interest” in every limited liability company

(or partnership) in which Paul is involved. 13 Even if we were to conclude that WCCG had a

membership interest in Rio Grande GP, LLC, there is nothing in this record on which the trial court

could have relied to conclude Kretzer had the authority as general partner of Rio Grande, LP to

12
  In its brief, La Zona Rio also relies on evidence submitted in the subsequent lawsuit, but as set forth above, we
consider only what was before the trial court when it made its decision.
13
   We recognized Paul’s propensity to use such names in the business entities he controls in our opinion in 1st &
Trinity Super Majority, LLC v. Milligan, 657 S.W.3d 349, 357 (Tex. App.—El Paso 2022, no pet.), as did the Third
Court of Appeals in WC 1st & Trinity, LP v. Roy F. & JoAnn Cole Mitte Found., No. 03-19-00799-CV, 2021 WL
4465995, at *1 (Tex. App.—Austin Sept. 30, 2021, pet. denied) (mem. op.). Neither this Court nor the Third Court,
however, held that WCCG controls all of Paul’s businesses.

                                                        17
manage, operate, and even transact the partnership’s assets under the guise of collecting on the

general partner’s debt. 14

        Accordingly, based on the record in this case, we conclude that the trial court erred when

it granted Kretzer’s motion to dismiss Rio Grande, LP’s lawsuit without an adequate showing of

Kretzer’s authority to act on Rio Grande, LP’s behalf. We further conclude that the trial court erred

by failing to grant Rio Grande, LP’s motion for reconsideration of its order dismissing the lawsuit

and request to reconsider whether Kretzer had the authority to act on its behalf.

        We sustain Rio Grande, LP’s Issues One and Two.

        VII. CONCLUSION
        We reverse the trial court’s judgment and remand to the trial court for further proceedings

to reconsider whether Kretzer had the authority to appear and act on Rio Grande, LP’s behalf.

                                                  LISA J. SOTO, Justice
May 25, 2023

Before Rodriguez, C.J., Palafox, J. and Soto, J.

14
   In light of this conclusion, we need not address Rio Grande, LP’s alternative argument that a stay of the
Receivership Order was in place when Kretzer entered his appearance in the lawsuit, which deprived him of the
authority to take any action to collect on the judgment at that time.

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