In Re: Huffines Retail Partners, L.P.

United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
FILED
October 9, 2020
No. 20-10581 Lyle W. Cayce
Clerk
In re: Huffines Retail Partners, L.P.; The Haley
Angelica Huffines 2019 Trust Dated February 19, 2019, As
Successor in Interest to the Haley Angelica Huffines
1995 Trust Dated October 26, 1995, also known as Haley
Angelica Huffines 1995 Children's Trust; The Garrett
James Huffines 2019 Trust Dated February 19, 2019, As
Successor in Interest to the Garrett James Huffines
1995 Trust Dated October 26, 1995, also known as The
Garrett James Huffines 1995 Children's Trust; The
Hayden Hartwell Huffines 2019 Trust, As Successor in
Interest to the Hayden Hartwell Huffines 1995 Trust
Dated October 26, 1995, also known as The Hayden
Hartwell Huffines 1995 Children's Trust; The Colin 1996
Investment Trust U/A/D/ May 10, 1996, As Successor in
Interest to the Donald B. Huffines 1996 Children's
Investment Trust Dated May 10, 1996; The Devin 1996
Investment Trust Fund U/A/D May 10, 1996, As Successor
in Interest to the Donald B. Huffines 1996 Children's
Investment Trust Dated May 10, 1996; The Dierdre 1996
Investment Trust U/A/D May 10, 1996, As Successor in
Interest to the Donald B. Huffines 1996 Children's
Investment Trust Dated May 10, 1996; The Russell 1996
Investment Trust U/A/D May 10, 1996, As Successor in
Interest to the Donald B. Huffines 1996 Children's
Investment Trust Dated May 10, 1996; The Terence 1996
Investment Trust U/A/D May 10, 1996, As Successor in
Interest to the Donald B. Huffines 1996 Children's
Investment Trust Dated May 10, 1996; Huffines Plano
Properties, L.P.; The Phillip W. and Holly A. Huffines
2011 Children's Trust, for the use and benefit of Haley
Angelica Huffines U/A/D August 23, 2011; The Phillip W.
and Holly A. Huffines 2011 Children's Trust, for the use
and benefit of Garrett James Huffines U/A/D August 23,
2011; The Phillip W. and Holly A. Huffines 2011
No. 20-10581
Children's Trust, for the use and benefit of Hayden
Hartwell Huffines U/A/D August 23, 2011; Riverside
DPH, L.P.; HC Operating, L.P.; The Phillip Huffines1996
Trust U/A/D June 26, 1996, also known as The Phillip
Huffines 1996 Trust; The Donald Huffines1996 Trust
U/A/D June 26, 1996, also known as The Donald Huffines
1996 Trust; HC Harmony Hill Manager, Incorporated;
HC LHFJ Wilmer, L.P.; Benbrook Winchester,, L.P.,
Petitioners.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:19-CV-2425
Before Jones, Higginson, and Oldham, Circuit Judges
ORDER:
For reasons stated below, the petition for mandamus filed in this case
by HC Operating, LP, and others, is GRANTED. The district court shall
withdraw its orders dated April 8 and May 5, 2020, and shall order
expunction of the Notices of Lis Pendens filed in this case.
The Petitioners are members of multiple limited liability companies
(LLCs/Sellers) that own, operate and are developing multi-family housing
units in the towns of Lewisville and Rowlett, Texas. Respondents including
Atlas Apartments Acquisition, LLC (Purchasers) entered into multiple
agreements to acquire all of the Membership Interests in the LLCs that
possessed title to various tracts of land. The purchased interests included
control of, inter alia, the Hebron 121 Station and Harmony Hill apartments,
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No. 20-10581
operating and income producing apartment buildings, member capital
accounts, two ongoing construction projects, existing loans on the real
property, construction loans for real property development and a parcel of
undeveloped land. The agreements memorializing these acquisitions, which
were signed by Atlas and one or more of the Sellers on October 3, 2018 at the
latest, were titled Membership Interest Purchase Agreements and designated
as Hebron 1-4 Agreement, Hebron 5 Agreement, Hebron 6 Agreement,
Harmony 1 Agreement and Harmony 2 Agreement. The agreements were
amended numerous times.
The Agreements were predicated on obtaining certain lender
consents. During summer 2019, such consents failed to materialize, and
scheduled closing did not occur. When any possible closing date passed by
September, the Agreements expired by their own terms. Sellers filed suit in
state court on that date alleging breach of contract and breach of guaranty
claims, and the case was soon removed to federal court.
In early December, Purchasers filed two Notices of Lis Pendens, in
Denton County and Dallas County real property records. Sellers moved to
expunge the Notices, followed by related pleadings, which were forwarded to
a magistrate judge for recommendations. On each such pleading, the
magistrate judge issued findings, conclusions and recommendations denying
relief, and the district court accepted his recommendations. As a result, the
district court denied Motions to Expunge Lis Pendens Notices, and Motions
to Cancel the notices. Sellers allege the existence of the Notices ties up title
to approximately 102 acres of real property valued at approximately $365
million. Sellers contend that mandamus by this court is required to correct
the district court’s clear abuse of discretion.
This court is constrained to issue writs of mandamus only in situations
that amount to a clear abuse of judicial power or judicial usurpation. Cheney
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v. United States Dist. Ct. for DC, 542 U.S. 367, 380 (2004). The
preconditions for such a writ are that (1) petitioner “[must] have no other
adequate means of obtaining his desired relief; (2) the right to a writ must be
“clear and indisputable”; and (3) even if the first two parts are satisfied, the
court must be satisfied that issuance of the writ is “appropriate under the
circumstances.” Id. at 380-81(internal citations omitted). Although this
court has written frequently on the permissible grounds for mandamus relief,1
our en banc decision well states the controlling considerations. In re
Volkswagen of America, Inc., 545 F.3d 304, 309-310 (5th Cir. 2008). Drawing
from Supreme Court authorities, we admonished that the writ cannot be
granted to correct “a mere abuse of discretion, even though such might be
reversible on a normal appeal.” We noted the usual standard for abuse of
discretion review: whether the disputed order relies on clearly erroneous
factual findings; relies on erroneous conclusions of law; or misapplies the law
to the facts. Id. And then we cautioned: “On mandamus review, we review
for these types of errors, but we will only grant mandamus relief when such
errors produce a patently erroneous result.” Id. Chastened by this stringent
reasoning, we proceed to analyze the petition in this case.
After careful review of the record, we conclude that the district court
misread the governing acquisition documents, misapprehended Texas law
regarding notices of lis pendens, misapplied the facts to the law and therefore
acquiesced in a gross abuse by Purchasers of state lis pendens law.
1. Acquisition documents
By its express terms, a “Membership Interest Purchase Agreement”
was executed covering Phases 1, 2, 3 and 4—Hebron 121 Station (Hebron 1-
1
See, e.g., Sammons v. Economou, 940 F.3d 183, 187 (5th Cir. 2019); In re Itron, Inc., 883 F.3d
553, 567 (5th Cir. 2018); Randall D. Wolcott, M.D., P.A. v. Sebelius, 635 F.3d 757, 768 (5th Cir. 2011).
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No. 20-10581
4 Agreement), and a separate, similar “Membership Interest Purchase
Agreement” covering Phase 5—Hebron 121 Station (Hebron 5 Agreement).
These are not, whatever else they may be, documents simply about real
estate. 2 For instance, the “whereas” clauses identify the Hebron 1-4
transaction as a restructure of certain existing LLCs, including the creation
of a new entity, followed by the new entity members, together with the LLC
that owns Hebron Phase 4, becoming the “Seller” of the “Membership
Interests.”
Article II describes the Purchase and Sale of “Membership
Interests.” Section 2.01. In so doing, the Sellers “acknowledge” that the
sale will encompass all of the Company’s rights to identified property. The
property, in turn, comprises the apartment projects’ real estate parcels, but
separate paragraphs of that section also include appurtenances,
improvements, personalty, assumed contracts, intangible property, and
tenant leases. To “acknowledge” what is owned by the selling members and
their Company is not to “sell” the property alone, but to warrant that the
business entity owns what is being purchased. Interpreting this
acknowledgement as a freestanding real estate parcel sale is simply not what
the parties contemplated or were doing.
The fact that the sale of the membership interests depended on a
clean, or fixed-up title survey and policy is hardly a surprise. Similar
provisions throughout the Membership Interest Purchase Agreements
embody assurances and permit audits for the purchasers to verify the
ownership and status of the other “property” in the business entity.
Numerous schedules and exhibits and warranties effectuate the purchaser’s
rights and expectations. The Hebron 5 Agreement varies in form and
representations because, although also a sale of membership interests, it
2
Hebron 6 is excluded from this discussion because it is plainly a real estate deal.
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No. 20-10581
concerns an ongoing construction project for which separate documentation
was required. Again, the existence of a title policy alone or a closing
statement from a title company does not detract from the overall
transactional character as a sale of entity interests.
Finally, the fact that Hebron 6 is documented purely as a real estate
sale reinforces the idea that the other agreements were not mere real estate
transactions. It states that “[e]ach Seller agrees to sell to Purchaser . . . all of
such Seller’s right, title and interest in and to . . . the respective Parcels of
unimproved real property, including all right, title, and interest therein,
owned by Phase 6 Seller. . . .”
2. Texas Law
Two questions of Texas law are posed here. First, does the underlying
lawsuit “involve title to real property, the establishment of an interest in real
property, or the enforcement of an encumbrance against real property,”
which are the criteria for a notice of lis pendens? Tex. Prop. Code
Sec. 12.007(a). Second, what evidence is pertinent to making this decision?
In re Cohen, 340 S.W.3d 889, 892-93 (Tex. App. 2011) noted that
under current law, a party may seek to overturn a lis pendens based on either
(1) the pleadings’ failure adequately to assert a “real property claim”, or
(2) failure to prove by a preponderance the “probable validity of the real
property claim.” Tex. Prop. Code Sec. 12.0071(c); see also Maniatis v. SLF
IV-114 Assemblage, LP, No. 06-18-00061-CV, 2019 WL 1560680 (Tex. App.
Apr. 11, 2019). The district court here rested its conclusion on the latter
proposition, as it found a genuine fact issue whether the parties’ transaction
is in essence a real estate sale. We disagree with the court’s proceeding to
the second statutory alternative and find the first alternative unsatisfied.
First, the Purchasers’ counterclaim is not a “real property claim.”
Their counterclaim seeks recovery for multiple alleged breaches of the
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No. 20-10581
Membership Interest Purchase Agreements and injunctive relief that would
order the sellers to complete the sales of those interests. On its face, the
pleading does not “involve” the actual titles to real property or the
establishment of a direct interest in real property underlying the sales
contracts. Among other remedial requests, to accomplish specific
performance of the Agreements, the Purchasers request an injunction to
prevent the Sellers from disposing of any of the properties and assets
“identified in any of the Agreements” or from permitting any lien or
encumbrance to be placed on any properties or assets “identified in any of
the Agreements.” Specific performance of the Membership Interest
Purchase Agreements, i.e. contracts for entities that own real property, is not
specific performance of a contract for deed or specific performance to
transfer deeds or specific performance to recognize ownership of real
property subject to a title dispute. In fact, the only injunctive relief sought
here that pertains to the real property is negative. That is, the Purchasers
would prevent the Sellers from disposing of the real property to anyone else;
they do not pray for the real property titles to be transferred to them.
Texas law interpreting the lis pendens statute corroborates that the
Purchasers’ contract-based counterclaim here, considering the pleadings
alone as permitted by Cohen, did not “involve” title to real property and
instead implicated the real property only “collaterally.” In such situations,
notices of lis pendens were held void or impermissible. Two cases construing
similar transactions are virtually on point. See In re Med Plus Equity Inv., LP,
No. 0-50-05-00404-CV, 2005 WL 1385238 (Tex. App. Jun. 13, 2005)
(because claims pled “would only address an interest in the partnership, [a]n
interest in the partnership is distinct from an interest in real estate which may
be owned by the partnership” and lis pendens is void); Mangione v. Jaffe,
61 S.W.3d 591, 593 (Tex. App. 2001) (suit for specific performance of a sales
contract merely affecting land, where a mall was the only partnership
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No. 20-10581
property, was breach of contract that did not involve a claim of an interest or
right in the underlying land). Our research has found no cases to the contrary
concerning this specific type of transaction.3
The district court here relied on the magistrate judge’s report
following an evidentiary hearing, which allegedly produced a genuine fact
issue as to whether the parties’ transaction involved title to real estate as
provided in the statute. Contrary to the court’s view, In re Collins fails to
support the use of extrinsic evidence here. The basic issue in that case was
whether the claimants had been defrauded of their ownership interest in a
shopping mall. The court found a fact issue was raised by the evidence “on
the question of whether the Collins parties have a direct interest in the Mall
property . . .” 172 S.W.3d 287, 297. Moreover, the transaction creating the
fact issue was based in part on an oral understanding. Title to the property
was fundamentally at issue.
This case, in contrast, arises from membership interest purchase
agreements that cover hundreds of pages and are complete in themselves.
Fraud is not alleged, nor is the counterclaim premised on oral
(mis)understandings. The Purchasers, instead, seek to enforce the contracts
as they construe them. In such circumstances, Texas law holds that the
interpretation of the contracts is a matter of law. Reliant Energy Servs. v Enron
Can. Corp., 349 F.3d 816, 821 (5th Cir. 2003). Thus, “extrinsic” testimonial
evidence is irrelevant to construe the contracts, and the Purchasers have
3
In re Cohen, 340 S.W.3d at 899, is factually distinguishable because there, plaintiffs were
alleged co-owners who sought to set aside liens on and real property transfers based on allegations
of fraudulent transfers. In Long Beach Mtg. Co. v. Evans, 284 S.W 3d 406, 414 (Tex. App. 2009), the
court affirmed a lis pendens in a suit for constructive trust and title to real property arising from
fraudulent transfers; see also Walker v Walker, No. 14-18-00569-CV, 2020 WL 1951631, at *1–2
(Tex. App. Apr. 23, 2020) (breach of oral agreement to convey house); Tex. Kidney, Inc. v. ASD
Specialty Hardware, 2014 Tex. App., No. 14–13–01106–CV, 2014 WL 3002425, at *8–9 (Tex. App.
Jul. 1, 2014) (suit where fraudulent transfer established interest in real property).
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No. 20-10581
produced no case law explaining why the lis pendens statute would authorize
“extrinsic” evidence to recharacterize transactional documents that are self-
referential and complete.4
For these reasons, consistent with Texas law, the lis pendens notices
were void and should have been cancelled by the district court.
3. Mandamus Considerations
There remains an issue whether mandamus is a proper vehicle to
require expunction of the lis pendens notices. We hold that it is. First, Texas
law specifically authorizes cancellation of improper notices by means of
mandamus. In re Collins, 172 S.W.3d at 297 (“It is well settled that
mandamus is the appropriate remedy when issues arise concerning the
propriety of a notice of lis pendens.” (citations omitted)); In re Cohen,
340 S.W.3d at 900 (same). Were the federal court to disallow this important
remedy as it is afforded in state court, we would deviate from the Erie-backed
rule requiring federal court decisions to be modelled on applicable state law
in diversity cases. Concomitantly, the federal courts would be used for forum
shopping by those seeking to gain inappropriate leverage over opponents in
ordinary contract-based lawsuits. And finally, state lis pendens law would be
applied disparately and inequitably to parties depending on whether there
was diversity of citizenship. Thus, although mandamus is an extraordinary
remedy, it must be available in federal court to the same extent as in the
courts of Texas.
Although petitioners have demonstrated a clear and indisputable right
to the writ in this case, they must demonstrate that they have no other
4
Aside from the testimony, the purchasers focus on a proposed “closing statement” from
the title company, which purports to relate to a transfer of title. Taken in light of the transactional
documentation as a whole, the closing statement is a summary of cost allocations, not itself a title
document or evidence of direct real property title transfers to the purchasers.
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No. 20-10581
adequate remedy at law and are otherwise entitled to its issuance. Notices of
lis pendens constitute significant impediments to legitimate transfers of real
property and may tie up realty for years during the pendency of litigation. As
a result, Texas courts have generally held the petitioners had no adequate
legal remedy where a lis pendens is invalid. See In re Med Plus Equity, No. 0-
50-05-00404-CV, 2005 WL 1385238, at *1–2 (Tex. App. Jun. 13, 2005); First
Nat’l. Petroleum Corp. v. Lloyd, 908 S.W.2d 23, 24–25 (Tex. App. 1995); Moss
v. Tennant, 722 S.W.2d 762, 763 (Tex. App. 1986). We are constrained to
follow the state courts’ decisions.
Further, the consequences of misapplying the writ are exemplified
here, where the notices have tied up a transaction valued at well over $300
million, prevented refinancing and inhibited completion of the underlying
construction projects.
In sum, allowing the Purchasers to maintain the notices of lis pendens
filed in this case was based on clear and indisputable errors of fact and law;
the Sellers have no other adequate means of seeking redress than by issuance
of this writ; and mandamus is “appropriate under the circumstances.”
For the foregoing reasons, we GRANT the writ.
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No. 20-10581
Stephen A. Higginson, Circuit Judge, dissenting:
Section 12.007(a) of the Texas Property Code allows a litigant to file
a notice of lis pendens “during the pendency of an action involving title to
real property” (emphasis added). Interpreting this language, Texas courts
draw a distinction between a party who claims a direct interest in real
property and one who merely asserts a collateral interest. See, e.g., In re
Collins, 172 S.W.3d 287, 293 (Tex. App. 2005).
After a full day of evidence-taking, a hearing requested by the Seller
Petitioners, the magistrate judge and district court found that the pleadings,
documents, and testimony together created a question of fact regarding
whether the Purchaser Respondents’ underlying claim asserts a direct and
present interest in real property. See Tex. Prop. Code § 12.007(a); In re
Collins, 172 S.W.3d at 295.1 Reviewing that same record, I see no clear or
patent error. To the contrary, the testimony and documents extensively
reviewed by those courts—as well as the underlying pleading, which asks
the court to “close the transactions contemplated by the Agreements”—
confirm that the property interests asserted would have a direct effect on
the potential use of the subject property. See In re Jamail, 156 S.W.3d 104,
107 (Tex. App. 2004) (“[O]nly a party to the action who is seeking
affirmative relief may file a lis pendens.”); see also Rachel M. Kane et al., 1A
1
When evaluating a motion to expunge a lis pendens, Texas courts may consider
“oral testimony” and “any other proof” to determine the true nature of the litigation.
Tex. Prop. Code § 12.0071(b)(1), (e). See also In re Collins, 172 S.W.3d at 295 (“If . . . a
motion seeking the removal of a lis pendens challenges the existence of facts supporting
the pleader’s alleged interest in the property, the trial court should consider evidence
relevant to the question of whether the alleged property interest is direct or collateral.”).
Legally, I find citation to non-lis pendens law about contract interpretation inapposite.
And factually, the majority’s candid acknowledgement that Hebron 6 was “purely . . . a
real estate sale” highlights that this case has required five federal judges to attempt to
discern, albeit disagreeingly, whether the transactions are ones involving real property
interests.
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No. 20-10581
Tex. Jur. Actions § 374 (3d ed. 2020) (“To be a sufficient property interest
to support a filing of lis pendens, the property interest must be one that will
be affected by the outcome of the litigation.”).
As a result, I would deny the writ because I do not see that the
district court reached a patently erroneous result when it denied the Seller
Petitioners’ motion to expunge lis pendens. Importantly, Texas law
provides ample protection against a litigant’s attempt to file a notice of lis
pendens when the litigation has no nexus to owned property, see, e.g., Tex.
Prop. Code § 12.008, but our panel is not tasked with determining whether
to impose or expunge a lis pendens. Our role on mandamus is an
appropriately narrow one: identifying a proposition of fact or law that the
district court patently lacked the authority to make. See In re Lloyd’s Register
N. Am., Inc., 780 F.3d 283, 290 (5th Cir. 2015) (“[W]e require more than
showing that the court misinterpreted the law, misapplied it to the facts, or
otherwise engaged in an abuse of discretion.”). To the extent that the Seller
Petitioners rely on Texas state cases in which a writ of mandamus has been
granted under allegedly similar circumstances, those cases used a
considerably more lenient standard to evaluate a petition for a writ of
mandamus. Compare In re Med Plus Equity Invs., LP, No. 0-50-05-00404-
CV, 2005 WL 1385238, at *2 (Tex. App. 2005) (granting the writ after
concluding that the trial court “abused its discretion”), with In re
Volkswagen of Am., Inc., 545 F.3d 304, 310 (5th Cir. 2008) (en banc) (“[W]e
only will grant mandamus relief when [the district court’s] errors produce a
patently erroneous result.”). Regardless, the two Texas cases which the
Seller Petitioners offer and the majority finds to be persuasive for the
proposition that Texas courts do not recognize lis pendens when property
purchases occur through real estate companies owned by the parties in
interest—In re Med Plus, 2005 WL 1385238, and Mangione v. Jaffe, 61
S.W.3d 591 (Tex. App. 2001)—are readily distinguishable and do not prove
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No. 20-10581
that the district court reached a clearly erroneous result when it held that a
question of fact existed with respect to the Purchaser Respondents’ interest
in the property. See In re Med Plus, 2005 WL 1385238, at *1 (holding that
there was no direct interest in property where the limited partnership
agreed to purchase property after the deal was complete); Mangione, 61
S.W.3d at 593 (pre-Collins case holding on the pleadings that there was no
direct interest in property where the petition sought “full ownership of the
partnership interests,” rather than an interest in real property).
Without Texas caselaw that demonstrates the district court reached
even an erroneous result—and no federal mandamus caselaw on this issue
at all—I would deny the writ.
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