Court Opinion

ID: 4299777
Source: CourtListenerOpinion
Date Created: 2018-08-01 08:49:48.804126+00
Date Added: 2024-06-11T14:42:27.023639
License: Public Domain

Opinion issued July 31, 2018

                                       In The

                                Court of Appeals
                                       For The

                           First District of Texas
                              ————————————
                               NO. 01-17-00687-CV
                             ———————————
          ROSALIND NG AND JOSHUA WOHLSTEIN, Appellants
                                          V.
           KATY-WASHINGTON, L.C. AND AVI RON, Appellees

                     On Appeal from the 151st District Court
                              Harris County, Texas
                        Trial Court Case No. 2015-27561

                           MEMORANDUM OPINION

      This appeal concerns the terms of a settlement agreement. The underlying

dispute arises from the sale of real property.

      Avi Ron and Rosalind Ng formed Katy-Washington, L.C. (the Company) to

purchase investment property with funds provided by Joshua Wohlstein, who was
Ng’s husband and Ron’s business partner. Wohlstein provided the funds, and the

Company purchased the property. Ron and Ng each owned 50% of the Company.

Years later, the Company sold the property for a profit. Ng, Wohlstein, and Ron

disputed how to allocate the proceeds from the sale. Litigation ensued, and the case

proceeded to trial.

      Shortly after trial began, the parties announced that they had settled the case,

and they read the terms of their agreement into the record. But, when the parties

attempted to memorialize their agreement in writing, they disagreed on whether the

agreement released Wohlstein’s claim against the Company for reimbursement for

the Company’s 2016 franchise taxes, which Wohlstein had paid out of pocket.

      Ron filed a motion to enforce the parties’ agreement, which, according to

Ron, included Wohlstein’s agreement to release his tax-reimbursement claim. The

trial court granted the motion, construing the parties’ agreement as releasing the

claim. The trial court later entered final judgment, which again found that

Wohlstein had released his claim and appointed Ron as the Company’s liquidator.

      In three issues, Ng and Wohlstein contend that (1) the trial court erred in

granting Ron’s motion to enforce the Rule 11 agreement without requiring Ron to

plead and prove a breach-of-contract claim, (2) the trial court erred in construing

the Rule 11 agreement as releasing Wohlstein’s claim for reimbursement for

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payment of the Company’s 2016 franchise taxes, and (3) the trial court abused its

discretion in appointing Ron to serve as the Company’s liquidator. We affirm.

                                  Background

Ron and Ng form the Company

      Ron and Wohlstein are former business partners. For twenty-some-odd

years, Ron and Wohlstein purchased and resold real estate through a series of

single purpose entities. In January 1998, Wohlstein’s wife, Rosalind Ng, acting

with Ron, formed the Company to purchase investment property with funds

provided by an entity owned by Wohlstein, Vileria, Ltd.

      Ron and Ng were the Company’s only two members, and each owned a 50%

interest. Ron was the sole manager and took care of the Company’s day-to-day

operations. As manager, Ron had the right to “act as liquidator” during the

Company’s winding up. Ng oversaw the Company’s financial matters and bank

account.

The Company purchases property with funds provided by Vileria

      After the Company’s formation, Wohlstein, through Vileria, provided the

Company with two tranches of funds, totaling $484,000. The first tranche was for

$180,000, which the Company used to purchase property in west Houston. The

second tranche was for $304,000, which the Company used, along with the

                                        3
proceeds from the sale of the west Houston property, to purchase property in

northeast Houston.

The Company sells the property and escrows the disputed funds

      The Company held the northeast property for roughly sixteen years. Then, in

March 2015, Ron, acting in his capacity as manager, entered into an agreement on

the Company’s behalf to sell the property to a third-party buyer. The terms of the

sale included a roughly $7.6 million purchase price and a 4% broker’s commission

split equally between the two brokers. An employee of Ron’s real estate firm,

Justin Patchen, served as the Company’s broker in the transaction.

      But before the transaction closed, a dispute arose between Ron, Ng, and

Wohlstein concerning whether Ng had consented to the terms of the sale and how

the parties would distribute the net proceeds. Ng and Wohlstein alleged that Ng

never agreed to the 4% broker’s commission and that Wohlstein was owed a “fair

return” on the $484,000 provided by Vileria to purchase the property in 1998. As a

result of the dispute, the parties entered into an escrow agreement, which allowed

the Company to close the sale and deposit the proceeds into escrow pending

resolution of their dispute.

Litigation ensues

      The parties did not resolve their dispute, and litigation ensued. In May 2015,

Ron and the Company sued Ng. As amended, the petition requested that the trial

                                         4
court declare how to distribute the escrowed funds and order the winding up of the

Company. Ng filed an answer and a counterclaim. In her counterclaim, Ng sought

an accounting and asserted claims for money had and received, breach of contract,

and breach of fiduciary duty, among others. Wohlstein intervened, seeking a fair

return on the funds provided by Vileria.

       The litigation’s focus was on the proper distribution of the escrowed funds.

Ron argued that Vileria should be repaid its $484,000 without interest, his

employee Patchen should receive his full commission, and Ron and Ng should split

the remainder. Ng and Wohlstein argued that there should be a “fair” distribution

of the proceeds in light of all the circumstances, including Wohlstein’s

disproportionate contribution of funds through Vileria and Ron’s alleged failure to

reimburse Ng for various company expenses. Ng and Wohlstein further argued, in

the alternative, that the funds provided by Vileria should be characterized as a loan

entitling Vileria to statutory interest.

Wohlstein pays the Company’s annual franchise taxes

       In April 2016, while suit was pending, Wohlstein emailed Patchen, who had

been acting as Ron’s agent, to coordinate payment of the Company’s annual

franchise taxes. In the email, Wohlstein stated that the Company needed to pay

$33,000 by April 15. Wohlstein further stated he was “laying out the entire

amount” on behalf of the Company and was “making a cash call for half the

                                           5
amount,” $16,500. He asked that Ron make a check payable to the Company for

that amount and mail it to Ng. Wohlstein stated that he would forward Patchen and

Ron the “tax extension papers” as soon as he received them from his accountant.

      The next day, Patchen responded that he needed a “better understanding

regarding the $33,000 for taxes.” He asked Wohlstein to provide him with “back

up for what exactly the $33,000 is being paid, and a copy of the check [he] sent.”

Patchen further asked Wohlstein to “clarify to which taxing authority” he was

paying the $33,000. Patchen continued:

      As this is a LP, any taxes owed would flow thru the K1’s which then
      become the responsibility of the partners . . . . Once I have more
      detailed information, we will be happy to pay our half of the amount
      owed.

      In late April, Wohlstein paid $33,000 out of pocket for the Company’s

franchise taxes. Roughly five months later, the Texas comptroller refunded

$12,522.39 to the Company. The refund was deposited into the Company’s bank

account. But Ron never reimbursed Wohlstein for his share of the $33,000 advance

or paid him the $12,522.39 refund, and Wohlstein amended his Rule 194

disclosures to state that his damages should be based on both his contribution of

$484,000 in 1998 to purchase the property and his contribution of $33,000 in 2016

to pay the Company’s franchise taxes.

                                         6
The parties enter into a Rule 11 agreement to settle the case

      Ng and Wohlstein eventually lost their “fairness” claims on summary

judgment, and the case proceeded to trial. During a break in jury selection, the

parties reached a settlement. Under the agreement, Patchen would reduce his

commission by one-half, Ron would bear sole responsibility for paying Patchen’s

reduced commission, Wohlstein would not receive any return on his $484,000

investment, and the parties would release their claims against each other and

dissolve the Company with the winding-up expenses split evenly. The settlement

was read into the record by the parties’ attorneys:

      Ron’s attorney: The parties to the settlement agreement are: Katy
      Washington L.C., Avi Ron, Joshua Wohlstein, Rosalind Ng, Vileria
      Ltd. and Justin Patchen. The payment terms are $484,000 returned to
      Vileria Ltd. by sending it to John McFarland’s Trust Account.

      Ng and Wohlstein’s attorney: The funds are going to be paid to Joshua
      Wohlstein and/or Rosalind Ng by payment into the trust account for
      Joyce and McFarland L.L.P. In full satisfaction of whatever moneys
      are owed to Vileria and with an indemnity, I will be flowing back
      from either Ms. Ng, or both Ms. Ng and Mr. Wohlstein for any
      potential third-party liability to Vileria that may flow from that
      payment.

      Ron’s attorney: Yes. Also, let’s see. Avi Ron on the one hand, and
      then Rosalind Ng and Joshua Wohlstein on the other, will be splitting
      50/50 of the remaining assets in escrow—the remaining assets of the
      company, including the escrow, except that Avi Ron—50/50, I think I
      said that. 50/50 is the split, except that Avi Ron will have his recovery
      reduced by $80,000 which shall be paid to Justin Patchen. The parties
      will bear the cost to [wind] up Katy-Washington L.C., 50/50. That is
      Ng and Wohlstein on the one hand and Avi Ron on the other, and the
      split, again, on wind up is 50/50. Let’s see. Justin Patchen’s judgment
                                          7
      against Katy-Washington L.C., will be satisfied and released. And the
      parties to this settlement will enter mutual releases among and
      applicable to all the parties releasing all of the other parties—

      Ron’s attorney: —related to the claims in this suit.

      Ron’s attorney: Parties agree to dissolve Katy-Washington L.C., and
      file tax returns in a prompt manner.

      Patchen’s attorney: And there is one additional condition that the
      parties agree and stipulate that: There is no breach of fiduciary
      relationship or fraud by any party to this action.

      Ron’s attorney: I believe the way we phrased it was: There has been
      no finding of any breach of fiduciary duty or fraud in this case.

      Patchen’s attorney: That’s fine.

      Ng and Wohlstein’s attorney: Correct. And all of these claims are
      disputed claims that have been solved.

      Patchen’s attorney: And each party is going to pay, I believe, is going
      to pay their own attorney’s fees.

      Ron’s attorney: Costs and attorney’s fees will be paid by the party.

                                   *     *      *

      Trial court: Okay. So, we have a valid Rule 11 agreement dictated in
      open Court.

      After the parties’ read their Rule 11 agreement into the record, they agreed

to release the jury.

                                         8
The parties dispute whether the settlement agreement released Wohlstein’s claim
for reimbursement for the Company’s taxes

      To memorialize and effectuate the parties’ Rule 11 agreement, Ron drafted a

written agreement, entitled “Confidential Settlement and Release Agreement.” The

draft agreement included the following two sections, which addressed the

distribution of the escrowed funds and the winding up of the Company:

      3.    Distribution of Assets.

      The Parties shall submit an agreed order so that the escrowed
      funds . . . shall as soon as is practical be distributed as follows:

      • $484,000 will be distributed to the IOLTA account of Joyce +
        McFarland LLP for the benefit of Vileria;

      • $80,000 will be distributed to Patchen;

      • $80,000 will be distributed to the Wohlstein Parties;

      • One half of the remaining Funds will be distributed to the
        Wohlstein Parties; and

      • One half of the remaining Funds will be distributed in equal parts
        to Avi Ron (or his designee) and [Ron’s wife] (or her designee).

      The distributions set forth in this Section 3 and Section 4, below, are
      the only amounts owed by Katy-Washington to any Party.

      4. Winding Up

      Pursuant to sections 11.051(2) and 101.552(a)(1) of the Texas
      Business Organizations Code, the Member Parties agree to voluntarily
      terminate Katy-Washington’s existence once the distributions required
      by Section 3 hereof are completed. In the event the parties are unable
      to agree to the conduct of the winding-up of Katy-Washington,

                                         9
      pursuant to section 11.054 of the Texas Business Organizations Code,
      the parties expressly consent to allow a District Court of Harris
      County, Texas to supervise the winding-up and to appoint a person to
      carry-out the winding up. The Parties agree to equally bear the
      reasonably and necessary costs of the wind-up to the extent that they
      exceed the cash available from the Company after the distributions set
      forth in Section 3 above.

      Following the wind-up of Katy-Washington, L.C., any remaining net
      assets of Katy-Washington, including without limitation, all cash,
      receivables, property, tax credits, or assets of any form shall be
      distributed one half (50%) to the Wohlstein Parties and one half in
      equal parts (25% and 25%) to Avi Ron (or his designee) and Suzanne
      Ron (or her designee).

      Ng and Wohlstein objected to the wording, noting that Wohlstein had

“loaned the company funds to pay company expenses”—i.e., the $33,000 for the

Company’s 2016 franchise taxes. They contended that this loan was “not included

in Ng’s capital account” and needed to be “carved out” of the escrowed funds. Ron

disagreed. In an email reply, he stated: “There was no carve out of these ‘loans’

from [Wohlstein] to [the Company]. We specifically discussed that and it almost

blew the deal . . . . We specifically stated that this was going to be a release and

recited it on the record.”

      The parties reached an impasse, prompting Ron and the Company to file a

motion to enforce the Rule 11 agreement. The motion requested that the trial court

(1) compel Ng and Wohlstein to execute a release of any claims related to the suit,

including Wohlstein’s claim for reimbursement for payment of the Company’s

franchise taxes as part of the Company’s winding up, and (2) declare that the Rule
                                        10
11 agreement released any claim asserted by Wohlstein that might be satisfied by

the escrowed funds or through the Company’s winding up.

      Ng and Wohlstein filed a response to Ron’s motion to enforce, arguing that

the Company’s obligation to repay Wohlstein for the $33,000 loan remained a

liability to be addressed during the winding up process. According to Ng and

Wohlstein, the parties had always contemplated a winding up process whereby

they would settle any remaining liabilities of the Company before splitting the

assets, and nothing in the parties’ Rule 11 agreement impugned Wohlstein’s right

to be repaid on a loan for a legitimate company expense paid after the lawsuit was

filed but before the settlement. Ng and Wohlstein noted that, “if the funds had

come from an unrelated party—e.g., a financial institution—no one would argue

that the company should not have to repay the loan.” Ng and Wohlstein requested

that the trial court deny the motion to enforce, order the disbursement of the

escrowed funds not in dispute, and appoint a third-party receiver to preside over

the Company’s winding up.

      The trial court granted Ron and the Company’s motion to enforce:

“Plaintiffs’ Motion to Enforce Rule 11 Agreement is granted. Defendants Rosalind

Ng and Joshua Wohlstein released all claims against Plaintiffs to be paid out of the

escrowed funds or upon the winding-up of Katy-Washington. This includes any

                                        11
claims that Wohlstein paid franchise taxes for or on behalf of Katy-Washington.

Ng and Wohlstein shall execute a formal release of these claims.”

      Ng and Wohlstein filed a motion to reconsider. In the motion, Ng and

Wohlstein argued, for the first time, that the motion to enforce was not the proper

procedure for resolving the parties’ dispute and that Ron and the Company were

required instead to plead and prove a breach-of-contract claim.

      The trial court denied Ng and Wohlstein’s motion to reconsider and, after

additional briefing from both sides, entered final judgment, which enforced the

Rule 11 agreement. The trial court expressly found that Wohlstein’s claim for the

$33,000 loan had been released and appointed Ron to serve as the Company’s

liquidator:

      Katy-Washington shall be dissolved and wound-up in accordance with
      its Regulations, including the provision thereof designating its
      manager, Avi Ron, as liquidator. Ron and Ng shall each bear half the
      costs of the winding-up of Katy-Washington. These costs shall not
      include the $33,000 claim referenced Ng and Wohlstein’s May 25,
      2017 Response to Motion to Enforce Rule 11 Agreement because that
      claim was settled and released in the parties’ Rule 11 Agreement.
      Katy-Washington shall file all required tax returns in a timely manner.

Ng and Wohlstein appeal.

                         Propriety of Motion to Enforce

      In their first issue, Ng and Wohlstein argue that the trial court erred in

granting Ron’s motion to enforce the Rule 11 agreement because the motion was

not the proper procedural vehicle for resolving the parties’ dispute over whether

                                        12
the Rule 11 agreement released Wohlstein’s claim for reimbursement for the

Company’s 2016 franchise taxes. Instead, Ng and Wohlstein argue, Ron was

required to amend his petition to assert a breach-of-contract claim, and the trial

court was required to permit the parties to conduct discovery before resolving the

claim through summary judgment or a conventional trial.

      Ng and Wohlstein did not raise this issue in their response to Ron’s motion

to enforce the Rule 11 agreement. Instead, they waited until the trial court granted

Ron’s motion to enforce and then raised the issue in their motion to reconsider. By

failing to raise the issue in their response to Ron’s motion to enforce, Ng and

Wohlstein waived error. See Guevara v. WCA Waste Corp., No. 01-15-01075-CV,

2017 WL 1483320, at *6 (Tex. App.—Houston [1st Dist.] Apr. 25, 2017, pet.

dism’d) (mem. op.). We overrule Ng and Wohlstein’s first issue.

                       Construction of Rule 11 Agreement

      In their second issue, Ng and Wohlstein contend that the trial court erred in

construing the Rule 11 agreement as releasing Wohlstein’s claim for

reimbursement for payment of the Company’s 2016 franchise taxes.

A.    Standard of review

      The interpretation of an unambiguous contract is a question of law we

review de novo using well-settled contract-construction principles.1 URI, Inc. v.

1
      Neither party contends that the Rule 11 agreement is ambiguous.
                                         13
Kleberg Cty., 543 S.W.3d 755, 763 (Tex. 2018). When a contract’s meaning is

disputed, our primary objective is to ascertain and give effect to the parties’

expressed intent. Id. Objective manifestations of intent control, not what the parties

allege they intended to say but did not. Id. at 763–64.

B.    Analysis

      Ng and Wohlstein contend that the trial court’s construction of the Rule 11

agreement was erroneous because it (1) conflicts with the plain meaning of the

parties’ agreement and (2) results in a forfeiture of Wohlstein’s claim against the

Company, which is disfavored under Texas law. We consider each reason in turn.

      First, Ng and Wohlstein contend that the trial court’s construction of the

Rule 11 agreement conflicts with the agreement’s plain meaning. The parties’ Rule

11 agreement, as read into the record, contemplated four steps: First, Vileria would

be paid $484,000 from the escrowed funds. Second, Ron, on the one hand, and Ng

and Wohlstein, on the other, would each receive 50% of the remaining escrowed

funds, except that Ron’s recovery would be reduced by $80,000 to pay Patchen’s

commission. Third, the parties would wind up the Company, splitting any

outstanding debts or expenses. Finally, the parties would execute mutual releases

“related to the claims in this suit.” Thus, Ng and Wohlstein argue, the parties

agreed to wind-up the Company—and, as part of the wind-up, to discharge the

                                          14
Company’s obligation to repay Wohlstein—before executing mutual releases. We

disagree.

      Ng and Wohlstein’s proposed construction defeats the purpose of the

parties’ agreement, which was to settle the parties’ claims. During the litigation,

Wohlstein sought a disproportionate share of the proceeds because he had provided

the funds to purchase the property and the funds to pay the Company’s 2016

franchise taxes. Ng sought a disproportionate share of the proceeds because she

had allegedly paid expenses like the Company’s taxes without reimbursement from

Ron. And they both sought interest allegedly due under the “loan contract” with

Vileria. Under Ng and Wohlstein’s proposed construction of the Rule 11

agreement, after the parties paid Vileria and divided the remaining escrowed funds,

Ng and Wohlstein could simply re-assert their claims during the winding up of the

Company, characterizing their claims as debts owed to them by the Company per

their payment of Company expenses. If the Rule 11 agreement permitted the

parties to recover on their claims against the Company during the winding-up

process, then the agreement would not have actually settled the parties’ claims

against each other. Under these circumstances, and looking at the entirety of the

Rule 11 agreement, the trial court did not err in concluding that the release of

claims by Ng and Wohlstein released all their claims to reimbursements and that

the winding-up process was for expenses paid to third parties.

                                        15
      Next, Ng and Wohlstein contend that the trial court’s construction of the

Rule 11 agreement was erroneous because it results in a forfeiture of Wohlstein’s

claim against the Company. Again, we disagree.

      “Forfeitures are not favored in Texas, and contracts are construed to avoid

them.” Fischer v. CTMI, L.L.C., 479 S.W.3d 231, 239 (Tex. 2016) (quoting

Aquaplex, Inc. v. Rancho La Valencia, Inc., 297 S.W.3d 768, 774 (Tex. 2009)).

But the Rule 11 agreement did not result in a forfeiture. “Forfeiture” is variously

defined as “the divestiture of property without compensation,” “the loss of a right,

privilege, or property because of a crime, breach of obligation, or neglect of duty,”

and “a destruction or deprivation of some estate or right because of the failure to

perform some contractual obligation or condition.” Forfeiture, BLACK’S LAW

DICTIONARY (10th ed. 2014). The Rule 11 agreement did not divest Wohlstein of

his claim without compensation. Under the Rule 11 agreement, Wohlstein released

his claim against the Company in exchange for a payment to Vileria, half of the

Company’s remaining assets, and the release of Ron’s claims against him,

including his claim for attorney’s fees. Thus, the Rule 11 agreement functioned

like any other settlement agreement: Wohlstein gave something up (his franchise

tax claim and other claims) and received something in return (payment to Vileria,

half the remaining escrowed fund, and a release of his liability for attorneys’ fees).

      We overrule Ng and Wohlstein’s second issue.

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                              Appointment of Receiver

       In the third issue raised in their brief, Ng and Wohlstein contend that the trial

court abused its discretion in appointing Ron, and not an independent, third-party

receiver, to preside over the Company’s winding up. However, at oral argument,

Ng and Wohlstein conceded that the trial court did not abuse its discretion because

the company agreement gave Ron, as manager, the right to “act as liquidator”

during the Company’s winding up. Accordingly, we overrule Ng and Wohlstein’s

third issue.

                                     Conclusion

       We affirm the trial court’s judgment.

                                               Harvey Brown
                                               Justice

Panel consists of Justices Higley, Brown, and Caughey.

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