Parker County's Squaw Creek Downs, L.P. AND James R. Dunnagan v. Joseph Earl Watson, Larry C. Lawley, and James R. Dunnagan AND Joseph Earl Watson ( 2009 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-08-255-CV
PARKER COUNTY’S SQUAW APPELLANTS
CREEK DOWNS, L.P. AND
JAMES R. DUNNAGAN
V.
JOSEPH EARL WATSON, LARRY APPELLEES
C. LAWLEY, AND JAMES R.
DUNNAGAN AND JOSEPH
EARL WATSON
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FROM THE 43RD DISTRICT COURT OF PARKER COUNTY
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AND
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NO. 2-08-354-CV
IN RE JAMES R. DUNNAGAN RELATOR
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ORIGINAL PROCEEDING
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MEMORANDUM OPINION 1
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1
… See Tex. R. App. P. 47.4.
I. INTRODUCTION
Appellants Parker County’s Squaw Creek Downs, L.P. (“the limited
partnership”) and James R. Dunnagan separately appeal the trial court’s orders
appointing a receiver to wind up the limited partnership’s affairs and ruling that
the limited partnership’s attorney has no authority to act on behalf of the
limited partnership. Dunnagan also filed a petition for writ of mandamus
seeking relief from the same challenged orders. Appellee Joseph Earl Watson
filed motions to dismiss the appeals of Dunnagan and the limited partnership.
We consolidated the appeals, cause no. 2-08-255-CV, with the original
proceeding, cause no. 2-08-354-CV. Because we hold that the trial court
abused its discretion by appointing a receiver to wind up the limited
partnership’s affairs, we conditionally grant Dunnagan relief in the mandamus
proceeding. We dismiss the appeals and Watson’s motions to dismiss the
appeals as moot.
II. B ACKGROUND
In September 1997, Dunnagan, Watson, and Appellee Larry C. Lawley
entered into a limited partnership agreement as limited partners for the purpose
of acquiring, holding, managing, and operating the former Trinity Meadows
horse racing facility in Willow Park, Parker County. Parker County III, Inc. (“PC
III”), a Texas corporation, served as the limited partnership’s general partner.
2
In 2001, litigation ensued between Dunnagan, Watson, Lawley, and the
limited partnership. A jury subsequently found that Watson had breached
fiduciary duties owed to the limited partnership, that Dunnagan had not
breached fiduciary duties owed to the limited partnership, and that Dunnagan’s
actions rendered it not practicable for the limited partnership to continue. The
trial court entered judgment on the verdict, which, among other things, ordered
that the limited partnership be dissolved.
Both Dunnagan and Watson appealed the trial court’s 2004 judgment.
This court affirmed the trial court’s judgment, and the Supreme Court of Texas
denied the petition for review. See Dunnagan v. Watson, 204 S.W.3d 30 (Tex.
App.—Fort Worth 2006, pet. denied). Mandate issued on April 10, 2007.
Watson filed an “Application to Wind Up Partnership and for Appointment
of a Person to Wind up Partnership” in October 2006, but the trial court did not
hold a hearing on Watson’s application until May 31, 2007. On May 7, 2007,
before the hearing on Watson’s request to appoint a receiver, the shareholders
of PC III voted to dissolve the limited partnership in accordance with section
11:5 of the limited partnership agreement, which is titled “Distributions in
Kind.” Shortly thereafter, on May 17, 2007, at a special directors' meeting of
PC III, the directors “unanimously adopted a Liquidation Statement dividing the
assets and debts of the [l]imited partnership in-kind, . . . authorized [Dunnagan]
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as President of [PC III] to execute the necessary documents to accomplish the
dissolution,” and distributed the property and the debts of the limited
partnership in kind.
On May 28, 2008, the trial court signed the order appointing a receiver
about which Dunnagan and the limited partnership now complain. Pursuant to
the May 28, 2008 order, the trial court found, among other things, that “[g]ood
cause exists for the appointment of a Receiver or Liquidating Trustee” and that
the “[limited partnership] is in need of a Receiver or Liquidating Trustee to wind
up the [limited partnership’s] affairs in an orderly and expeditious fashion.” The
order appointed Mark C. Hill as receiver of and for the limited partnership.
On July 3, 2008, the trial court signed an “Order on Motion to Strike
Notice of Appeal and to Show Authority Under Rule 12, Tex. R. Civ. P.”
ordering that “David Cook, Esq., has no authority to act on behalf of [the
limited partnership] since entry of this Court’s” order appointing a receiver and
ordering that “all pleadings filed by Mr. Cook on behalf of [the limited
partnership] after May 28 th , 2008 are stricken, set aside and held for naught.”
Both the limited partnership and Dunnagan filed notices of appeal challenging
this July 3, 2008 order.
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III. M OOTNESS
In the first issue in his petition for writ of mandamus, Dunnagan argues
that Watson’s request for a court-appointed receiver to wind up the affairs of
the limited partnership was rendered moot when PC III liquidated the assets and
liabilities of the limited partnership after the 2004 judgment became final by
carrying out an authorized in-kind distribution pursuant to section 11:5 of the
limited partnership agreement. Because the section 11:5 in-kind distribution
rendered moot Watson’s request for a court-appointed receiver, according to
Dunnagan, the trial court lacked subject matter jurisdiction to enter the May 28,
2008 order appointing a receiver to wind up the limited partnership’s affairs.
And because the trial court lacked subject matter jurisdiction to enter the order,
the order is void and constitutes an abuse of discretion warranting mandamus
relief. Watson contends that PC III did not exist when it distributed in kind the
limited partnership’s assets and liabilities and, alternatively, that the trial court
entered the May 28, 2008 order to enforce its 2004 judgment.
Generally, mandamus relief is proper only to correct a clear abuse of
discretion when there is no adequate remedy by appeal. In re Prudential Ins.
Co. of Am., 148 S.W.3d 124, 135–36 (Tex. 2004) (orig. proceeding).
Mandamus will also lie to correct a void order, i.e., an order that the trial court
had no power or jurisdiction to enter. In re Ashton, 266 S.W.3d 602, 604
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(Tex. App.—Dallas 2008, orig. proceeding); In re Hancock, 212 S.W.3d 922,
926 (Tex. App.—Fort Worth 2007, orig. proceeding). The issuance of a void
order is thus an abuse of discretion. In re Sw. Bell Tel. Co., 35 S.W.3d 602,
605 (Tex. 2000) (orig. proceeding). When an order is adjudged to be void, a
relator need not also show the lack of an adequate remedy by appeal. Id.;
Ashton, 266 S.W.3d at 604.
It is fundamental that a court must have jurisdiction over the parties and
the subject matter before it or else any judgment it renders is void. Crawford
v. State, 153 S.W.3d 497, 500 (Tex. App.—Amarillo 2004, no pet.); see also
Mapco, Inc. v. Forrest, 795 S.W.2d 700, 703 (Tex. 1990) (providing that any
judicial action by a court without jurisdiction is void). Absence of mootness is
a component of subject-matter jurisdiction. State Bar of Tex. v. Gomez, 891
S.W.2d 243, 244 (Tex. 1994); Black v. Jackson, 82 S.W.3d 44, 51–52 (Tex.
App.—Tyler 2002, no pet.); see also Joachim v. Travelers Ins. Co., No. 07-06-
0322-CV, 2008 WL 4367872, at *3 (Tex. App.—Amarillo September 28,
2008, pet. filed) (stating that a moot case lacks justiciability). A case becomes
moot if a controversy ceases to exist between the parties at any stage of the
legal proceedings. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737
(Tex. 2005) (orig. proceeding). In other words, a case becomes moot, and thus
unreviewable, when one seeks to obtain relief on some alleged controversy
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when in reality none exists, or on some matter that, when granted, cannot have
any practical legal effect on a then-existing controversy. See In re Guerra, 235
S.W.3d 392, 433 n.198 (Tex. App.— Corpus Christi 2007, orig. proceeding);
see also In re H&R Block Fin. Advisors, Inc., 262 S.W.3d 896, 900 (Tex.
App.—Houston [14th Dist.] 2008, orig. proceeding). Thus, if the controversy
between the parties becomes moot, it is no longer live; this destroys subject-
matter jurisdiction, and any ruling by the court is impermissibly advisory and
therefore void. Valley Baptist Med. Ctr. v. Gonzalez, 33 S.W.3d 821, 822
(Tex. 2000).
Section 8.02(2) of the Texas Revised Limited Partnership Act (“TRLPA”)
provides that a court may decree dissolution of a limited partnership if it is
determined that “another partner has engaged in conduct relating to the limited
partnership business that makes it not reasonably practicable to carry on the
business in limited partnership with that partner.” Tex. Rev. Civ. Stat. Ann. art.
6132a–1, § 8.02(2) (Vernon Supp. 2008). Watson asserted a claim for judicial
dissolution of the limited partnership in his second amended original petition,
averring that “Dunnagan’s conduct has been such as to render it no longer
practicable for [Watson] and Defendant Dunnagan to continue as partners.” At
the 2003 trial, the trial court’s jury question number eight tracked most of the
language of section 8.02(2) and asked, “Do you find that the actions of James
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R. Dunnagan rendered it not practicable for [the limited partnership] to
continue?” The jury answered, “Yes.” The trial court’s 2004 judgment
consequently ordered that the limited partnership “be dissolved in accordance
with the Limited Partnership Agreement of Parker County’s Squaw Creek
Downs, L.P., and those applicable provisions of the Texas Limited Partnership
Act.”
When the relationship among partners is governed by a written
partnership agreement, the agreement governs the rights of the parties.
Hoagland v. Finholt, 773 S.W.2d 740, 743 n.4 (Tex. App.—Dallas 1989, no
writ). We construe the limited partnership agreement under the law of
contracts. Park Cities Corp. v. Byrd, 534 S.W.2d 668, 672 (Tex. 1976); see
Bird v. Lubricants, USA, LP, No. 02-06-00061-CV, 2007 WL 2460352, at *3
(Tex. App.—Fort Worth Aug. 31, 2007, pet. denied) (mem. op.) (setting forth
contract construction rules).
Article XI of the limited partnership agreement, titled “Dissolution and
Liquidation of the Partnership,” allows for two types of “Distributions” to be
made in the event of dissolution: “Distributions in Liquidation” and
“Distributions in Kind.” “Distribution in Liquidation,” section 11:3 of the limited
partnership agreement, provides that upon dissolution of the limited partnership,
“the General Partner shall take full account of the Partnership Property and
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liabilities, the Partnership Property shall be liquidated (subject to Sec. 11:5
hereof) as promptly as is consistent with obtaining fair value therefore, and the
proceeds therefrom . . . shall be applied and distributed . . . .” “Distribution in
Kind,” section 11:5 of the limited partnership agreement, provides in relevant
part, “In the event a distribution of Partnership Property in kind is made, such
property shall be . . . (2) transferred and conveyed to the Partners on a
property-by-property basis, as determined by the General Partner in such
Partner’s sole and absolute discretion.” Section 11:5 further provides,
“Notwithstanding anything to the contrary herein contained, distributions in
kind are expressly authorized to such extent and in such manner as the General
Partner determines in such Partner’s sole and absolute discretion . . . .”
On May 7, 2007, the shareholders of PC III voted to dissolve the limited
partnership in accordance with section 11:5 of the limited partnership
agreement. Shortly thereafter, on May 17, 2007, the directors of PC III
distributed in kind the limited partnership’s property, assets, and liabilities
pursuant to section 11:5 of the limited partnership agreement. Specifically, by
warranty deeds dated May 18, 2007, the limited partnership distributed its real
estate to Dunnagan, Watson, and Lawley.2 The limited partnership also
2
… For “Consideration,” the deeds state,
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assigned to Dunnagan all of the limited partnership’s personal property,
including all claims, liabilities, causes of action, debts, or notes for which the
limited partnership is liable, and it assigned to Watson (pursuant to an
“Assignment of Judgment”) the judgment that the limited partnership obtained
against Watson resulting from the 2003 trial. 3 In accordance with section 11:7
of the limited partnership, all of the limited partners were sent a “Liquidation
Statement,” which set forth “what was to be distributed in kind to each of the
Limited Partners.” 4
PC III thus performed an in-kind distribution of the limited partnership’s
assets and liabilities as authorized by section 11:5 of Article XI of the limited
An in-kind distribution upon dissolution as allowed by the Limited
Partnership Agreement of Parker County’s Squaw Creek Downs,
L.P. . . . and requirements of a Judgment dated the 17 th day of
February 2003, in Cause No. 49,072, entitled Joseph Earl Watson
vs. Larry C. Lawley and James R. Dunnagan, Parker County’s
Squaw Creek Downs, L.P. vs. Joseph Earl Watson, in the 43 rd
Judicial District Court of Parker County, Texas.
3
… The jury found that Watson had failed to comply with his fiduciary
duties owed to the limited partnership, and it found that $459,645.69 would
fairly and reasonably compensate the limited partnership for its damages that
were proximately caused by Watson’s failure to comply with his fiduciary
duties.
4
… Section 11:7 provides in part, “The General Partner shall furnish each
of the Partners, at the Partnership’s expense, . . . a statement which shall set
forth the properties and liabilities of the Partnership as of the date of final
liquidation as herein provided. Such statement shall also schedule the receipts
and disbursements made with respect to such liquidation . . . .”
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partnership agreement. Watson complains about the manner in which PC III
distributed in kind the limited partnership’s assets and liabilities, but section
11:5 of the limited partnership agreement provides that “distributions in kind
are expressly authorized to such extent and in such manner as the General
Partner determines in such Partner’s sole discretion.” To the extent Watson
contends that section 11:3 controls dissolution of the limited partnership, there
is no provision in Article XI of the limited partnership agreement requiring that
dissolution of the limited partnership proceed pursuant to the distributions in
liquidation provision in section 11:3 instead of the distributions in kind provision
in section 11:5. Section 11:3 is also expressly subject to section 11:5.
Further, there is no provision in Article XI triggering the TRLPA’s section
8.04(a) winding up procedures to the exclusion of section 11:5. 5 To the extent
Watson contends that section 8.04(a) of the TRLPA governs dissolution of the
limited partnership, section 8.04(a) begins by stating, “Except as provided in
the partnership agreement . . . .” See Tex. Rev. Civ. Stat. Ann. art. 6132a–1,
§ 8.04(a). TRLPA’s section 8.04(a) winding up procedures are expressly
5
… Section 8.04(a) of the TRLPA, titled “Winding up,” provides in part
that “a court of competent jurisdiction . . . may appoint a person to carry out
the liquidation . . . .” Tex. Rev. Civ. Stat. Ann. art. 6132a–1, § 8.04(a).
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subject to the limited partnership agreement’s section 11:5 distribution in kind
procedure.6
Part 2(a)–(l) of the trial court’s May 28, 2008 order sets forth actions
that the receiver is authorized and directed to take in relation to his duties as
receiver for the limited partnership, including taking immediate possession of
the assets of the limited partnership; gathering and collecting all limited
partnership property; selling, transferring, assigning, or conveying to any person
or entity any and all of the limited partnership property; and obtaining and
maintaining insurance coverage on any of the limited partnership property. All
of theses actions, however, are unnecessary and impossible to achieve because
the limited partnership was dissolved in accordance with the terms of the
limited partnership agreement and those applicable provisions of the TRLPA
(which, under these circumstances, are none) before the trial court’s hearing on
Watson’s application to appoint a receiver and before the trial court signed its
May 28, 2008 order appointing a receiver to wind up the limited partnership’s
6
… This is entirely consistent with the purpose of the TRLPA. The
TRLPA’s “Source and Comment” provides that “[l]ike most revised statutes,
TRLPA aims at modernization, clarification, coherence and comprehensiveness.
But its overriding objectives are flexibility and limited partner protection.” Tex.
Rev. Civ. Stat. Ann. art. 6132a–1, cmt. “Flexibility is to give partners and
drafters of their agreements wide leeway to create structures and relationships
tailored to their financial, control, tax and other desires. Flexibility is achieved
largely through an enhanced role for the partnership agreement . . . .” Id.
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affairs. The section 11:5 distribution in kind thus rendered moot Watson’s
request for the appointment of a receiver or liquidating trustee. See Guerra,
235 S.W.3d at 433 n.198; see also H&R Block Fin. Advisors, Inc., 262 S.W.3d
at 900 (stating that “an issue may be moot if it becomes impossible for the
court to grant effectual relief for any reason”).
Watson argues that PC III did not exist when it distributed in kind the
limited partnership’s assets and liabilities because it forfeited its corporate
existence for failure to pay its franchise taxes before the trial court entered its
September 2004 judgment. Chapter 171 of the tax code is titled “Franchise
Tax.” See Tex. Tax Code Ann. ch. 171 (Vernon 2008). Subchapter G of
chapter 171 is titled, “Forfeiture of Charter or Certificate of Authority.” Id.
§§ 171.301–.317. Section 171.301 provides that it is a ground for the
forfeiture of a corporation’s charter or certificate of authority if the corporate
privileges of the corporation are forfeited under this chapter and the corporation
does not pay, within 120 days after the date the corporate privileges are
forfeited, the amount necessary for the corporation to revive under this chapter
its corporate privileges. Id. § 171.301(1). Under section 171.302, after the
120th day after the date that the corporate privileges of a corporation are
forfeited under this chapter, the comptroller is required to certify the name of
the corporation to the attorney general and to the secretary of state. Id.
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§ 171.302. The secretary of state is then permitted to forfeit the corporate
charter if (1) the secretary receives the comptroller’s certification under section
171.302 and (2) the taxable entity does not revive its forfeited privileges within
120 days after the date the privileges were forfeited. Id. § 171.309.
These procedures were utilized in this case. Watson directs us to a
“forfeiture order” titled “Forfeiture pursuant to Section 171.309 of the Texas
Tax Code of [PC III].” 7 It provides, “The Secretary of State received
certification from the Comptroller of Public Accounts under Section 171.302
of the Texas Tax Code that there are grounds for forfeiture of the charter or
certificate of authority of” PC III. The order continues, “[PC III] has not revived
its forfeited corporate privileges within 120 days after the date that the
corporation privileges were forfeited.” It then orders that PC III’s “charter or
certificate of authority . . . be forfeited without judicial ascertainment and that
the proper entry be made upon the permanent files and records of [PC III] to
show such forfeiture as of [February 13, 2004].
The tax code, however, allows a corporation whose charter is forfeited
by the secretary of state to have its charter and corporate privileges revived if
7
… We take judicial notice of the public records provided to this court by
Watson and Dunnagan as they relate to this issue. See Office of Pub. Util.
Counsel v. Pub. Util. Comm’n of Tex., 878 S.W.2d 598, 600 (Tex. 1994).
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the corporation files the required reports; pays any taxes, penalties, and interest
owed; and has the secretary of state set aside the forfeiture pursuant to a
section 171.313 proceeding. See id. § 171.312. Dunnagan says that this “is
exactly what has happened in the instant case,” and we agree. He directs us
to a “Certificate of Filing” that states the following:
The undersigned, as Secretary of State of Texas, hereby certifies
that the application for reinstatement for the above named entity
has been received in this office and has been found to conform to
law. It is further certified that the entity has been reinstated to
active status on the records of this office.
ACCORDINGLY the undersigned, as Secretary of State, and by
virtue of the authority vested in the Secretary by law hereby issues
this Certificate of Filing.
Dated: 10/06/2008
Effective: 10/06/2008
Thus, PC III revived its previously forfeited corporate charter.
Neither the forfeiture of corporate privileges by the comptroller nor the
forfeiture of a corporation’s charter by the secretary of state extinguishes the
corporation as an entity. See Hinkle v. Adams, 74 S.W.3d 189, 193 (Tex.
App.—Texarkana 2002, no pet.); Lighthouse Church of Cloverleaf v. Tex. Bank,
889 S.W.2d 595, 601 (Tex. App.—Houston [14th Dist.] 1994, writ denied).
Moreover, if a corporation files its delinquent reports and pays its delinquent
franchise taxes, its corporate privileges and charter are retroactively reinstated.
15
Hinkle, 74 S.W.3d at 193–94. Because PC III revived its corporate charter, it
is as though the forfeiture never existed. Contrary to Watson’s argument, PC
III existed when it distributed in kind the limited partnership’s assets and
liabilities.
Watson also argues that the trial court entered the May 28, 2008 order
to enforce its 2004 judgment.8 But as explained above, it was unnecessary for
the trial court to enforce its own judgment by entry of the May 28, 2008 order
(which occurred after the trial court’s plenary power had expired) because PC
III had conducted an authorized distribution in kind of the limited partnership’s
assets and liabilities before the trial court entered the order, thus rendering
moot Watson’s request to appoint a receiver. Moreover, the trial court’s order
appointing a receiver is impermissibly inconsistent with its original, 2004
judgment because the order limits the method by which the limited partnership
may be dissolved: the order appoints a receiver to liquidate the limited
partnership, which has the effect of prohibiting the limited partnership from
being dissolved pursuant to section 11:5 of the limited partnership agreement,
8
… See Rapid Settlements, Ltd. v. Symetra Life Ins. Co., 234 S.W.3d
788, 795 (Tex. App.—Tyler 2007, no pet.) (stating that a trial court has the
power to enforce its judgments even after its plenary power has expired, that
this power is part of the court’s jurisdiction, and that the court may employ
suitable methods to enforce its jurisdiction); see also Tex. Gov’t Code Ann.
§ 21.001(a) (Vernon 2004); Tex. R. Civ. P. 308.
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which conflicts with the portion of the 2004 judgment requiring that the limited
partnership “be dissolved in accordance with the Limited Partnership Agreement
of Parker County’s Squaw Creek Downs, L.P., and those applicable provisions
of the Texas Limited Partnership Act.” See Custom Corporates, Inc. v. Security
Storage, Inc., 207 S.W.3d 835, 839 (Tex. App.—Houston [14th Dist.] 2006,
no pet.) (“The trial court may not . . . issue an order that is inconsistent with
the original judgment or that otherwise constitutes ‘a material change in the
substantive adjudicative portions of the judgment’ after its plenary power had
expired.”).
Because the in-kind distribution rendered moot Watson’s request to
appoint a receiver, the trial court lacked subject matter jurisdiction to enter the
May 28, 2008 order. See Gonzalez, 33 S.W.3d at 822. The May 28, 2008
order is therefore void, and we hold that the trial court clearly abused its
discretion by entering the void order. See Sw. Bell Tel. Co., 35 S.W.3d at 605;
Gonzalez, 33 S.W.3d at 822. We sustain the first issue in Dunnagan’s petition
for writ of mandamus.
IV. C ONCLUSION
Dunnagan does not have to show that he has no adequate remedy by
appeal. See Sw. Bell Tel. Co., 35 S.W.3d at 605; Ashton, 266 S.W.3d at 604.
Having held that the May 28, 2008 order is void, we conditionally grant
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Dunnagan mandamus relief and order the trial court to vacate its May 28, 2008
order. A writ will issue only if the trial court fails to comply with this order.
Because the May 28, 2008 order is void, we dismiss as moot the appeals of
Dunnagan and the limited partnership challenging the May 28, 2008 order, the
appeals of Dunnagan and the limited partnership challenging the trial court’s
July 3, 2008 “Order on Motion to Strike Notice of Appeal and to Show
Authority Under Rule 12, Tex. R. Civ. P.,” and Watson’s motions to dismiss the
appeals of Dunnagan and the limited partnership—all consolidated under cause
no. 2-08-255-CV. See Tex. R. App. P. 43.2(f); see generally In re Mask, 198
S.W.3d 231, 235 (Tex App.—San Antonio 2006, orig. proceeding) (stating that
a void order has no force or effect and confers no rights; it is a mere nullity).
DIXON W. HOLMAN
JUSTICE
PANEL: CAYCE, C.J.; LIVINGSTON, J.; and DIXON W. HOLMAN (Senior
Justice, Retired, Sitting by Assignment).
DELIVERED: April 2, 2009
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