14th Court of Appeals rules trial court erred in recovery amount reduction in partnership dispute

By Charmaine Little | Feb 12, 2019

HOUSTON – An appellate court has modified a ruling in a partnership dispute, ruling that the trial court abused its discretion when it reduced a recovery amount.

The 14th District Court modified and affirmed a ruling from the 270th District Court in Harris County on Feb. 7.

Chief Justice Kem Thompson Frost wrote the opinion and Justices Frances Bourliot and Margaret Poissant were on the panel.

Appellants ASR 2620-2630 Fountainview LP, Fountainview Park Plaza LLC and ASRP Investments LLC (limited partnership and two class A limited partners) appealed to the court after the 270th District Court of Harris County ruled in favor of ASR 2620-2630 Fountainview GP LLC, American Spectrum Realty Operating Partnership LP, American Spectrum Realty Inc., and American Spectrum Realty Management LLC (class B limited partner) on class A’s claims against the limited partnership over allegations of breach of limited partnership agreement.

The Appeals Court modified the judgment and affirmed.

"The trial court abused its discretion by reducing the amount of the Park Plaza Parties’ recovery against the first general partner (ASR 2620-2630 Fountainview GP LLC) by $266,400 based on (Fountainview New GP representative Pamela) Castleman’s contempt of court in violating the trial court’s temporary injunction," Frost wrote. "We therefore modify the trial court’s judgment by deleting this offset so that the principal amount of the Park Plaza Parties’ recovery against the First General Partner is $371,147, and we affirm the judgment as modified."

The appellants alleged the "general partner, not the limited partnership, had the duty to make the distributions at issue in this claim,” according to the court. "The limited partnership and the two class A limited partners also assert that the trial court erred in assessing an offset against their recovery against a former general partner."

Two questions were raised at the appeal – which side is responsible for making distributions under the agreement - the limited partnership or the general partner? And, did the trial court make a mistake when lowered the Park Plaza parties recovery on the verdict by $266,400 due to the conduct of someone who isn’t involved in the lawsuit?

As for the first question, the court ruled "when the class B partner became entitled to receive the distribution, the class B partner became a creditor of the limited partnership with respect to the distribution, and was entitled to assert a claim against the limited partnership for breach of agreement by failing to pay the distribution owed” in the contract.

For question number two, the Appeals Court determined the trial court did indeed abuse its discretion when the lowered the amount based on a non-party person being held in contempt of the court. 

Ultimately, the Appeals Court modified the judgment and deleted the $266,400 offset so the amount of recovery against the first general partner is $371,147 and affirmed the lower court ruling as modified.

The general partner and three limited partners formed a limited partnership agreement where they created ASR 2620-2630 Fountainview LP in 2010. Based on that agreement, Fountainview GP was the general partner and Fountain View Park Plaza and ASRP were class A partners and American Spectrum Realty Operating Partnership was the class B partner. 

Things reached a legal matter after the class A partners weren’t happy with ASR 2620-2630 Fountainview LP's performance. They removed the first general partner and brought in Fountainview New GP as the second general partner to serve the limited partnership. 

The limited partnership and class A partners then filed the lawsuit over allegations breach of contract and breach of fiduciary duty.

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Harris County State of Texas 14th Court of Appeals

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