Court Opinion

ID: 9398791
Source: CourtListenerOpinion
Date Created: 2023-06-01 07:16:23.252027+00
Date Added: 2024-06-11T17:19:36.441807
License: Public Domain

COURT OF APPEALS
                               EIGHTH DISTRICT OF TEXAS
                                    EL PASO, TEXAS

  WC 4TH AND RIO GRANDE, LP,                    §               No. 08-22-00225-CV

                                Appellant,      §                 Appeals from the

  v.                                            §            345th Judicial District Court

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

                                Appellee.       §             (TC# D-1-GN-22-000195)

                                MEMORANDUM OPINION

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

similarly styled, is No. 08-22-00073-CV.

       I. THE FACTS UNDERLYING THE FIRST APPEAL

       As we explained in our first opinion, a Harris County district court entered an order

appointing attorney Seth Kretzer as a receiver to collect on a judgment owed by World Class

Capital Group (WCCG) and Great Value Storage (GVS) to Princeton Capital Corporation (the

Receivership Order). In his receiver capacity, Kretzer entered an appearance in a lawsuit pending

in a Travis County district court where WC 4th and Rio Grande, LP (Rio Grande, LP) had sued

Appellee La Zona Rio, LLC (La Zona Rio) in an attempt to stop La Zona Rio from foreclosing on

a building Rio Grande, LP owned. In his notice, Kretzer stated he was replacing the attorney for
Rio Grande, LP, which he contended was a “subsidiary” of WCCG but filed no evidence in support

thereof.

        Rio Grande, LP then filed an unsworn motion challenging Kretzer’s authority to act on the

partnership’s behalf, arguing that it was neither a subsidiary of WCCG nor an entity owned or

managed by WCCG, but a separate legal entity. The trial court did not rule on the motion. Instead,

the trial court impliedly found that Kretzer had the authority to act on the partnership’s behalf and

granted a joint motion to dismiss Rio Grande, LP’s lawsuit based on the representations made by

Kretzer and La Zona Rio’s attorney that the parties had resolved their claims against each other.

Rio Grande, LP thereafter filed a motion seeking reconsideration of the dismissal order, providing

documentation from its tax records indicating that Rio Grande, LP consisted of a general partner

(WC 4th and Rio Grande GP, LLC) with a 25% interest in the partnership and two limited partners

with a significant interest in the partnership: Sangreal Investments, II, LLC and Flash Property

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

the motion was overruled by operation of law, Rio Grande, LP appealed from the order dismissing

its lawsuit, which was docketed in this Court as No. 08-22-00073-CV. 1

        II. THE FACTS UNDERLYING THE SECOND APPEAL

        Shortly thereafter, acting pursuant to the settlement agreement he had negotiated in

Rio Grande, LP’s first lawsuit, Kretzer signed a warranty deed as the “Court-Appointed Receiver

for the property of World Class Capital Group, LLC” in which he transferred the subject building

to La Zona Rio as the Grantee, naming Rio Grande, LP the Grantor. The deed stated that the

transfer was “in lieu of foreclosure” and in consideration of $10. Rio Grande, LP then filed a

1
 That case was transferred from our sister court in Austin pursuant to a docket equalization order issued by the
Supreme Court of Texas. See TEX. R. APP. P. 41.3.

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second lawsuit against La Zona Rio, which is the subject of the present appeal, bringing claims of

quiet title and trespass to try title and seeking a declaration that it was the true owner of the

property. Kretzer filed a notice of nonsuit of Rio Grande, LP’s second lawsuit, stating that he was

acting in the capacity as the “court appointed Receiver for World Class Capital Group, LLC,

Manager of WC 4th And Rio Grande, LP.” He thereafter moved for the entry of an order

dismissing Rio Grande, LP’s lawsuit on the partnership’s behalf, again stating that he was acting

as the receiver for WCCG. Rio Grande, LP filed a motion challenging Kretzer’s authority,

contending that it was a separate entity from WCCG, relying in part on its partnership agreement

demonstrating that Sangreal Investments, LLC and Flash Property Management, LLC had made

capital contributions of $2,250,000 each to the partnership and that a third limited partner existed

that had a 7.5% interest in the partnership and had made a $500,000 contribution thereto. 2

         Kretzer presented some evidence that WCCG was linked to Rio Grande, LP as follows.

    1. Natin Paul is the president, sole member, and manager of World Class Capital Group, LLC.

    2. World Class Capital Group, LLC is the sole member and manager of World Class Real

         Estate, LLC.

    3. World Class Real Estate, LLC is the sole member of WC 4th and Rio Grande GP, LLC.

    4. WC 4th and Rio Grande, LP was created as a partnership between WC 4th and Rio Grande

         GP, LLC, as the general partner and the three other limited partners identified above.

2
  We note that while the partnership’s tax records refer to Sangreal as “Sangreal Investments II, LLC,” the partnership
agreement refers to it as “Sangreal Investments, LLC.”

                                                          3
         The trial court denied Rio Grande, LP’s motion and entered an order granting Kretzer’s

motion for entry of dismissal, dismissing Rio Grande, LP’s lawsuit with prejudice. Rio Grande, LP

filed a notice of appeal from that order, which was docketed in this Court as 08-22-00225-CV. 3

         III. THE REMAND OF THE FIRST APPEAL

         Both appeals center on the question of whether Kretzer had the authority to take over the

management of Rio Grande, LP’s cause of action and to transfer the partnership’s property as part

of his collection efforts. In our first opinion, we concluded that the record did not support the trial

court’s implied finding that Kretzer had the authority to act on Rio Grande, LP’s behalf in his

receiver capacity. As we explained in that case, even if Rio Grande, LP’s general partner was

affiliated with WCCG, 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, 563 (Tex. App.—Houston [1st Dist.] 2017, no pet.) (recognizing that a

“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 individual partner has received or is owed and must do so through

3
  This case was also 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.

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a charging order. 4 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 that a charging order is the exclusive remedy by which a

partner’s judgment creditor may satisfy a judgment out of judgment debtor’s partnership interest)

(citing Stanley, 314 S.W.3d at 664).

         We recognized in our opinion that certain limited exceptions to this rule allow a court to

issue a turnover order of a partnership’s assets, i.e., 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—as the purpose of requiring a charging order is to avoid disruption to the partnership’s

business and to protect the other partners’ interests. 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

4
  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 v. Royal W. Investments LLC, Series E, 518 S.W.3d 557, 563 (Tex. App.—Houston [1st Dist.] 2017,
no pet.) (citing Stanley v. Reef Sec., Inc., 314 S.W.3d 659, 664-65 (Tex. App.—Dallas 2010, no pet.). 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; see also Goodman v. Compass Bank, No. 05-15-00812-CV, 2016
WL 4142243, at *11 (Tex. App.—Dallas Aug. 3, 2016, no pet.) (mem. op.) (affirming order requiring turnover of
property that included present and future rights to proceeds from limited partnerships, LLCs, and other corporate
entities)).

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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.”). But we noted that the record in the first

case reflected that Rio Grande, LP was a partnership with at least two other partners possessing a

substantial interest in the partnership. And we concluded that absent evidence the other partners

were themselves connected to WCCG, the Receivership Order could not have authorized Kretzer

to “take possession” of Rio Grande, LP’s cause of action and its property as part of its collection

efforts to satisfy WCCG’s debt. We therefore reversed the trial court’s judgment in that case and

remanded the matter to the trial court for further proceedings to reconsider whether Kretzer had

the authority to appear and act on behalf of Rio Grande, LP as he did.

         IV. THE REMAND IN THIS CASE

         In the present case, the record suffers from this same deficiency. Although Kretzer supplied

additional evidence in the trial court that more clearly links Rio Grande, LP’s general partner to

WCCG, the record does not support a finding that the other limited partners in the partnership—

whose interests were at stake in both proceedings—had any relationship to WCCG. And as we

noted in the first opinion, a judgment creditor may not seize the assets of a legitimate partnership

to the detriment of other partners and the partnership itself to satisfy an individual partner’s

judgment debt. Accordingly, we reverse the trial court’s order in this case and similarly remand to

the trial court to reconsider the issue of Kretzer’s authority in light of our analysis. 5

5
  We note that Kretzer also filed a motion to dismiss this appeal, claiming that he alone had the authority to file the
appeal on Rio Grande, LP’s behalf, given his effective takeover of the partnership’s management. In light of our
disposition of the appeal, we deny the motion as moot.

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                                             LISA J. SOTO, Justice

May 25, 2023

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

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