Preview
FILED
11/6/2023 8:55 AM
FELICIA PITRE
DISTRICT CLERK
DALLAS CO., TEXAS
Martin Reyes DEPUTY
CAUSE NO. DC-21-11406
MILTON 635 GRAVOIS ROAD LLC, THE DISTRICT COURT
§§§§§§§§§§§§§§
IN
635 GRAVOIS ROAD LEASING LLC,
and 635 GRAVOIS ROAD REAL
ESTATE LLC,
Plaintiffs,
vs. 44th JUDICIAL DISTRICT
TRT HOLDINGS, |NC.,
RBR REAL ESTATE HOLDINGS, LLC,
BRIAN ZELMAN, and ADAM ZEITSIFF,
Defendants. DALLAS COUNTY, TEXAS
PLAINTIFFs’ RESPONSE To DEFENDANTS’ OBJECTIONs To
POST-CONTRACTUAL EVIDENCE
Plaintiffs Milton 635 Gravois Road LLC (“Gravois LLC”), 635 Gravois Road Leasing
LLC (“Gravois Leasing”), and 635 Gravois Road Real Estate LLC (“Gravois Real Estate”)
(collectively “Plaintiffs”) file this Response to Defendants’ Objections to Post-Contractual
Evidence and would respectfully show the Court the following:
I. Summary
Plaintiffs are entitled to present admissible, relevant evidence on all elements of
proof for which they bear the burden. Defendants' Objections generally focus on only the
fraudulent inducement aspect of certain of Plaintiffs' claims, arguing that only evidence of
fraud prior to the time of inducing the contract dated November 27, 2019, is relevant. By
improperly focusing on only the timing of the misrepresentations at issue, Defendants'
Objections wholly ignore Plaintiffs' burden to prove that Defendants' conduct caused their
damages, and that such damages were foreseeable and related to Defendants' fraudulent
misrepresentations and omissions. Plaintiffs' claims all require proof of causation and
damages, which necessarily require proof of circumstances occurring after the
transaction closed.
Through the filing of Defendants’ Motion in Limine and the arguments advanced
during the Court's pretrial hearings, Defendants seek to exclude relevant and admissible
evidence relating to events occurring after November 27, 2019—the date the parties
closed on the subject transaction. See Defs.’ Mot. in Lim., 111i 17—19. In essence,
Defendants contend that evidence relating to: (1) Gold’s Gym International's (“GGI”) 2020
Chapter 11 bankruptcy; (2) the financial performance Gold’s Gym (including GGI, Gold’s
St. Louis, LLC, or the Gold’s Gym location at issue herein) from 2019 to May 2020; and
(3) Gold’s Gym’s operations and actions—including its efforts to market and sell other
gyms—is irrelevant to this proceeding and should not be admissible. To the contrary,
evidence relating to each of these topics is directly relevant to Plaintiffs’ claims and the
damages Plaintiffs seek to recover based upon Defendants’ fraudulent conduct.
Likewise, evidence concerning these topics is relevant to several of the affirmative
defenses Defendants have pleaded. For the reasons set forth below, Plaintiffs respectfully
request that Defendants’ evidentiary objections to the topics identified herein should be
overruled.
INTRODUCTION1
Plaintiffs’ claims against Defendants TRT Holdings, Inc. (“TRT”) and RBR Real
Estate Holdings, LLC (“RBR”)—as well as Defendant Brian Zelman (“Zelman”) who acted
on their behalf, and Defendant Adam Zeitsiff (“Zeitsiff”)—arise from Defendants’
1Plaintiffs incorporate by reference the factual allegations asserted within their Third Amended Petition as
if fully set forth herein.
concerted fraud in a real estate transaction. Defendants made deceptive partial
disclosures of fact, omitted facts that should have been disclosed, and represented to
Plaintiffs’ principals that the Fenton Gym and the Tenant of the Property—Gold’s St. Louis
LLC (“Tenant”)—were extremely we|| performing and that Gold’s Gym was committed to
the St. Louis market? In furtherance of Defendants’ representations and omissions
regarding the Property’s value, and as an inducement to Plaintiffs’ principals, Defendants
agreed, inter alia, that upon Plaintiffs’ purchase of the Property, Defendant TRT would
cause Tenant to agree to a six-year extension of the then-existing lease with a rent
increase above market, thereby securing the future income stream which anchored the
value of the Property.
In reliance on Defendants’ representations and omissions regarding the existing
and future income stream via the lease and the Lease Extension from the Tenant and the
assurance of existing very well performing solid business and operational performance
by the Tenant and the Fenton Gym justifying the rental stream, Plaintiffs’ affiliate Leeton
Real Estate, Inc. (“Leeton”) entered into a First Amendment to Agreement of Purchase
and Sale (“APSA”) on or about September 27, 2019, with Defendant RBR, for the
purchase and sale of the Property. Pursuant to the APSA, RBR agreed to enter into a
First Amendment to Amended and Restated Shopping Center Lease with Tenant (“Lease
Extension”). The transaction ultimately closed on November 27, 2019, and in reliance on
the representations and omissions, Plaintiffs entered into various contracts and acquired
the Property.
2The “Property”—as used herein—refers to the real estate development located at 635 Gravois Road,
Fenton, Missouri 63026.
Plaintiff Gravois Leasing received rent payments for approximately four (4)
months, until May 2020 (April 2020 was the last rent payment received). Neither GGI, nor
the Tenant, ever performed under the terms of the Lease Extension. Rather, as set forth
in Plaintiffs’ pleadings and this Court's judicial notice of publicly-filed proceedings, on or
about May 4, 2020, GGI and its affiliates and subsidiaries, including the Tenant, as
Debtors, filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division. All leases with the Tenant were ultimately
rejected by the Bankruptcy Court because, accordingly to Gold’s Gym, the associated
gyms—including the Fenton Gym—had been historically poorly performing locations. In
reality, however, leases for well performing Gold's Gym locations (as the Fenton Gym
was represented to be) were not rejected and remain performing by creating income for
their landlords.
Ill.
Argument & Authorities
Defendants seek to exclude relevant and admissible evidence relating to events
occurring after November 27, 2019—the date the parties closed on the subject
transaction. Specifically, Defendants contend that evidence relating to: (1) GGl's 2020
Chapter 11 bankruptcy; (2) Gold’s Gym’s financial performance from 2019 to May 2020;
and (3) Gold’s Gym’s operations and actions—including its efforts to market and sell other
gyms—is irrelevant and inadmissible. Evidence relating to each of these topics, however,
is directly relevant to Plaintiffs’ claims and the damages Plaintiffs seek to recover.
In fraud cases, there are two measures of damages: out-of-pocket damages and
benefit-of-the-bargain damages. Arthur Andersen & Co. v. Perry Equip. Corp., 945
S.W.2d 812, 817 (Tex.1997). Out-of-pocket damages measure the difference between
the amount the buyer paid and the value of the property the buyer received. Leyendecker
& Assocs., Inc. v. Wechter, 683 S.W.2d 369, 373 (Tex. 1984). While benefit-of—the-
bargain damages measure the difference between the value of the property as
represented and the actual value of the property. Id.
Losses that arise after the time of sale may be recoverable as consequential
damages. Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, lnc., 960 S.W.2d
41, 49 n.1 (Tex. 1998). Consequential damages must be foreseeable and directly
traceable to the misrepresentation and result from it. Arthur Andersen, 945 S.W.2d at
816. In an action for fraud, consequential damages may include profits from other
business opportunities that were lost as a result of the fraudulent misrepresentation.
Bohnsack v. Varco, L.P., 668 F.3d 262, 276 (5th Cir. 2012) (applying Texas law).
Here, the evidence Defendants seek to exclude—Gold’s Gym’s financial
performance, bankruptcy, and its operations and actions—is directly relevant to
Defendants’ fraudulent conduct, Plaintiffs’ claims, and the damages Plaintiffs seek to
recover therefrom. Without evidence of the same, Plaintiffs would not have discovered
Defendants’ fraudulent misrepresentations and omissions, issues which are central and
at the heart of this case—Le. the financial wherewithal of GGI and the Tenant; their
respective financial performance and stability; that the value of the Tenant's lease was
justified by the volume of gym memberships; and the fraudulent nature of the Lease
Extension based upon the Tenant’s “ability” to perform under the Lease Extension.
Likewise, and without evidence of the same, Plaintiffs could not demonstrate that the
damages each sustained is directly tied to Defendants' fraudulent misrepresentations and
omissions (which is evidenced by the topics Defendants seek to exclude from the jury’s
consideration).
In a related vein, evidence concerning Gold’s Gym's financial performance,
bankruptcy, and its operations and actions is also relevant to Defendants’ affirmative
defenses. Defendants, and through the filing of their Answer to Plaintiffs’ Third Amended
Petition, assert that Plaintiffs’ recovery should be offset by the amounts Plaintiffs
recovered or could have recovered as the result of GGl’s bankruptcy. Defs.’ Answer. to
Pls.’ Third. Am. Pet., 11 12. Defendants further contend that Plaintiffs’ claims are barred
because the acts or omissions of one or more third parties caused or contributed to
Plaintiffs’ alleged injuries, including superseding acts associated with the global pandemic
and decisions by GGI (i.e. its decision to pursue bankruptcy relief). Id. at 11 13.
Defendants, however, cannot claim that each of these topics are irrelevant and
inadmissible—while simultaneously seeking to introduce evidence regarding the same
and to their advantage. As the expression goes: you cannot have your cake and eat it
too.
Defendants’ contentions aside, evidence regarding Gold’s Gym’s financial
performance, bankruptcy, and its operations and actions is relevant to Plaintiffs’ claims,
the damages Plaintiffs seek to recover, and the affirmative defenses to which Defendants
will pursue. ln sum, Defendants’ objections to the admissibility of evidence regarding each
of these topics should be overruled.
CONCLUSION
For these reasons stated herein, Plaintiffs respectfully request that Defendants’
Objections to Post-Contractual Evidence be overruled.
Respectfully submitted,
KANE RUSSELL COLEMAN LOGAN PC
By: /s/ Robert N. LeMay
Robert N. LeMay
State Bar No. 12188750
rlemay@krcl.com
Jaime M. DeWees
State Bar No. 24097593
jdewees@krcl.com
Collin Delano
State Bar No. 24109801
cdelano@krcl.cm
901 Main Street
Suite 5200
Dallas, Texas 75202
Telephone (214) 777-4254
Facsimile (214) 777-4299
ATTORNEYS FOR PLAINTIFFS
c_ERTIFICAT§ 0F SERVICE
l hereby certify that a true and correct copy of the above and foregoing document
was fonNarded to all known counsel of record in this cause in accordance with the Texas
Rules of Civil Procedure on this 6t“ day of November, 2023.
VIA EFILE
Elliot Strader
Xakema Henderson
AKERMAN LLP
2001 Ross Avenue, Suite 3600
Dallas, Texas 75201
elliot.strader@akerman.com
ATTORNEYS FOR DEFENDANTS
/s/ Robert N. LeMaV
Robert N. LeMay
Automated Certificate of eService
This automated certificate of service was created by the efiling system.
The filer served this document via email generated by the efiling system
on the date and to the persons listed below. The rules governing
certificates of service have not changed. Filers must still provide a
certificate of service that complies with all applicable rules.
Teresa Rowe on behalf of Robert LeMay
Bar No. 12188750
trowe@krcl.com
Envelope ID: 81318433
Filing Code Description: Response
Filing Description: TO DEFENDANTS OBJECTIONS TO POST
CONTRACTFUL EVIDENCE
Status as of 11/7/2023 8:31 AM CST
Associated Case Party: MILTON 635 GRAVOIS ROAD LLC
Name BarNumber Email TimestampSubmitted Status
Collin Delano cdelano@krcl.com 11/6/2023 8:55:48 AM SENT
Associated Case Party: TRT HOLDINGS, INC.
Name BarNumber Email TimestampSubmitted Status
Elliot Strader elliot.strader@akerman.com 11/6/2023 8:55:48 AM SENT
Xakema Henderson xakema.henderson@akerman.com 11/6/2023 8:55:48 AM SENT
Case Contacts
Name BarNumber Email TimestampSubmitted Status
Robert LeMay rlemay@krcl.com 11/6/2023 8:55:48 AM SENT
Jaime DeWees jdewees@krcl.com 11/6/2023 8:55:48 AM SENT
Teresa Rowe trowe@krcl.com 11/6/2023 8:55:48 AM SENT
Connie Nims cnims@krcl.com 11/6/2023 8:55:48 AM SENT
Bree Kimball BKimball@krcl.com 11/6/2023 8:55:48 AM SENT
Preview
FILED 11/6/2023 8:55 AM FELICIA PITRE DISTRICT CLERK DALLAS CO., TEXAS Martin Reyes DEPUTY CAUSE NO. DC-21-11406 MILTON 635 GRAVOIS ROAD LLC, THE DISTRICT COURT §§§§§§§§§§§§§§ IN 635 GRAVOIS ROAD LEASING LLC, and 635 GRAVOIS ROAD REAL ESTATE LLC, Plaintiffs, vs. 44th JUDICIAL DISTRICT TRT HOLDINGS, |NC., RBR REAL ESTATE HOLDINGS, LLC, BRIAN ZELMAN, and ADAM ZEITSIFF, Defendants. DALLAS COUNTY, TEXAS PLAINTIFFs’ RESPONSE To DEFENDANTS’ OBJECTIONs To POST-CONTRACTUAL EVIDENCE Plaintiffs Milton 635 Gravois Road LLC (“Gravois LLC”), 635 Gravois Road Leasing LLC (“Gravois Leasing”), and 635 Gravois Road Real Estate LLC (“Gravois Real Estate”) (collectively “Plaintiffs”) file this Response to Defendants’ Objections to Post-Contractual Evidence and would respectfully show the Court the following: I. Summary Plaintiffs are entitled to present admissible, relevant evidence on all elements of proof for which they bear the burden. Defendants' Objections generally focus on only the fraudulent inducement aspect of certain of Plaintiffs' claims, arguing that only evidence of fraud prior to the time of inducing the contract dated November 27, 2019, is relevant. By improperly focusing on only the timing of the misrepresentations at issue, Defendants' Objections wholly ignore Plaintiffs' burden to prove that Defendants' conduct caused their damages, and that such damages were foreseeable and related to Defendants' fraudulent misrepresentations and omissions. Plaintiffs' claims all require proof of causation and damages, which necessarily require proof of circumstances occurring after the transaction closed. Through the filing of Defendants’ Motion in Limine and the arguments advanced during the Court's pretrial hearings, Defendants seek to exclude relevant and admissible evidence relating to events occurring after November 27, 2019—the date the parties closed on the subject transaction. See Defs.’ Mot. in Lim., 111i 17—19. In essence, Defendants contend that evidence relating to: (1) Gold’s Gym International's (“GGI”) 2020 Chapter 11 bankruptcy; (2) the financial performance Gold’s Gym (including GGI, Gold’s St. Louis, LLC, or the Gold’s Gym location at issue herein) from 2019 to May 2020; and (3) Gold’s Gym’s operations and actions—including its efforts to market and sell other gyms—is irrelevant to this proceeding and should not be admissible. To the contrary, evidence relating to each of these topics is directly relevant to Plaintiffs’ claims and the damages Plaintiffs seek to recover based upon Defendants’ fraudulent conduct. Likewise, evidence concerning these topics is relevant to several of the affirmative defenses Defendants have pleaded. For the reasons set forth below, Plaintiffs respectfully request that Defendants’ evidentiary objections to the topics identified herein should be overruled. INTRODUCTION1 Plaintiffs’ claims against Defendants TRT Holdings, Inc. (“TRT”) and RBR Real Estate Holdings, LLC (“RBR”)—as well as Defendant Brian Zelman (“Zelman”) who acted on their behalf, and Defendant Adam Zeitsiff (“Zeitsiff”)—arise from Defendants’ 1Plaintiffs incorporate by reference the factual allegations asserted within their Third Amended Petition as if fully set forth herein. concerted fraud in a real estate transaction. Defendants made deceptive partial disclosures of fact, omitted facts that should have been disclosed, and represented to Plaintiffs’ principals that the Fenton Gym and the Tenant of the Property—Gold’s St. Louis LLC (“Tenant”)—were extremely we|| performing and that Gold’s Gym was committed to the St. Louis market? In furtherance of Defendants’ representations and omissions regarding the Property’s value, and as an inducement to Plaintiffs’ principals, Defendants agreed, inter alia, that upon Plaintiffs’ purchase of the Property, Defendant TRT would cause Tenant to agree to a six-year extension of the then-existing lease with a rent increase above market, thereby securing the future income stream which anchored the value of the Property. In reliance on Defendants’ representations and omissions regarding the existing and future income stream via the lease and the Lease Extension from the Tenant and the assurance of existing very well performing solid business and operational performance by the Tenant and the Fenton Gym justifying the rental stream, Plaintiffs’ affiliate Leeton Real Estate, Inc. (“Leeton”) entered into a First Amendment to Agreement of Purchase and Sale (“APSA”) on or about September 27, 2019, with Defendant RBR, for the purchase and sale of the Property. Pursuant to the APSA, RBR agreed to enter into a First Amendment to Amended and Restated Shopping Center Lease with Tenant (“Lease Extension”). The transaction ultimately closed on November 27, 2019, and in reliance on the representations and omissions, Plaintiffs entered into various contracts and acquired the Property. 2The “Property”—as used herein—refers to the real estate development located at 635 Gravois Road, Fenton, Missouri 63026. Plaintiff Gravois Leasing received rent payments for approximately four (4) months, until May 2020 (April 2020 was the last rent payment received). Neither GGI, nor the Tenant, ever performed under the terms of the Lease Extension. Rather, as set forth in Plaintiffs’ pleadings and this Court's judicial notice of publicly-filed proceedings, on or about May 4, 2020, GGI and its affiliates and subsidiaries, including the Tenant, as Debtors, filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division. All leases with the Tenant were ultimately rejected by the Bankruptcy Court because, accordingly to Gold’s Gym, the associated gyms—including the Fenton Gym—had been historically poorly performing locations. In reality, however, leases for well performing Gold's Gym locations (as the Fenton Gym was represented to be) were not rejected and remain performing by creating income for their landlords. Ill. Argument & Authorities Defendants seek to exclude relevant and admissible evidence relating to events occurring after November 27, 2019—the date the parties closed on the subject transaction. Specifically, Defendants contend that evidence relating to: (1) GGl's 2020 Chapter 11 bankruptcy; (2) Gold’s Gym’s financial performance from 2019 to May 2020; and (3) Gold’s Gym’s operations and actions—including its efforts to market and sell other gyms—is irrelevant and inadmissible. Evidence relating to each of these topics, however, is directly relevant to Plaintiffs’ claims and the damages Plaintiffs seek to recover. In fraud cases, there are two measures of damages: out-of-pocket damages and benefit-of-the-bargain damages. Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 817 (Tex.1997). Out-of-pocket damages measure the difference between the amount the buyer paid and the value of the property the buyer received. Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d 369, 373 (Tex. 1984). While benefit-of—the- bargain damages measure the difference between the value of the property as represented and the actual value of the property. Id. Losses that arise after the time of sale may be recoverable as consequential damages. Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, lnc., 960 S.W.2d 41, 49 n.1 (Tex. 1998). Consequential damages must be foreseeable and directly traceable to the misrepresentation and result from it. Arthur Andersen, 945 S.W.2d at 816. In an action for fraud, consequential damages may include profits from other business opportunities that were lost as a result of the fraudulent misrepresentation. Bohnsack v. Varco, L.P., 668 F.3d 262, 276 (5th Cir. 2012) (applying Texas law). Here, the evidence Defendants seek to exclude—Gold’s Gym’s financial performance, bankruptcy, and its operations and actions—is directly relevant to Defendants’ fraudulent conduct, Plaintiffs’ claims, and the damages Plaintiffs seek to recover therefrom. Without evidence of the same, Plaintiffs would not have discovered Defendants’ fraudulent misrepresentations and omissions, issues which are central and at the heart of this case—Le. the financial wherewithal of GGI and the Tenant; their respective financial performance and stability; that the value of the Tenant's lease was justified by the volume of gym memberships; and the fraudulent nature of the Lease Extension based upon the Tenant’s “ability” to perform under the Lease Extension. Likewise, and without evidence of the same, Plaintiffs could not demonstrate that the damages each sustained is directly tied to Defendants' fraudulent misrepresentations and omissions (which is evidenced by the topics Defendants seek to exclude from the jury’s consideration). In a related vein, evidence concerning Gold’s Gym's financial performance, bankruptcy, and its operations and actions is also relevant to Defendants’ affirmative defenses. Defendants, and through the filing of their Answer to Plaintiffs’ Third Amended Petition, assert that Plaintiffs’ recovery should be offset by the amounts Plaintiffs recovered or could have recovered as the result of GGl’s bankruptcy. Defs.’ Answer. to Pls.’ Third. Am. Pet., 11 12. Defendants further contend that Plaintiffs’ claims are barred because the acts or omissions of one or more third parties caused or contributed to Plaintiffs’ alleged injuries, including superseding acts associated with the global pandemic and decisions by GGI (i.e. its decision to pursue bankruptcy relief). Id. at 11 13. Defendants, however, cannot claim that each of these topics are irrelevant and inadmissible—while simultaneously seeking to introduce evidence regarding the same and to their advantage. As the expression goes: you cannot have your cake and eat it too. Defendants’ contentions aside, evidence regarding Gold’s Gym’s financial performance, bankruptcy, and its operations and actions is relevant to Plaintiffs’ claims, the damages Plaintiffs seek to recover, and the affirmative defenses to which Defendants will pursue. ln sum, Defendants’ objections to the admissibility of evidence regarding each of these topics should be overruled. CONCLUSION For these reasons stated herein, Plaintiffs respectfully request that Defendants’ Objections to Post-Contractual Evidence be overruled. Respectfully submitted, KANE RUSSELL COLEMAN LOGAN PC By: /s/ Robert N. LeMay Robert N. LeMay State Bar No. 12188750 rlemay@krcl.com Jaime M. DeWees State Bar No. 24097593 jdewees@krcl.com Collin Delano State Bar No. 24109801 cdelano@krcl.cm 901 Main Street Suite 5200 Dallas, Texas 75202 Telephone (214) 777-4254 Facsimile (214) 777-4299 ATTORNEYS FOR PLAINTIFFS c_ERTIFICAT§ 0F SERVICE l hereby certify that a true and correct copy of the above and foregoing document was fonNarded to all known counsel of record in this cause in accordance with the Texas Rules of Civil Procedure on this 6t“ day of November, 2023. VIA EFILE Elliot Strader Xakema Henderson AKERMAN LLP 2001 Ross Avenue, Suite 3600 Dallas, Texas 75201 elliot.strader@akerman.com ATTORNEYS FOR DEFENDANTS /s/ Robert N. LeMaV Robert N. LeMay Automated Certificate of eService This automated certificate of service was created by the efiling system. The filer served this document via email generated by the efiling system on the date and to the persons listed below. The rules governing certificates of service have not changed. Filers must still provide a certificate of service that complies with all applicable rules. Teresa Rowe on behalf of Robert LeMay Bar No. 12188750 trowe@krcl.com Envelope ID: 81318433 Filing Code Description: Response Filing Description: TO DEFENDANTS OBJECTIONS TO POST CONTRACTFUL EVIDENCE Status as of 11/7/2023 8:31 AM CST Associated Case Party: MILTON 635 GRAVOIS ROAD LLC Name BarNumber Email TimestampSubmitted Status Collin Delano cdelano@krcl.com 11/6/2023 8:55:48 AM SENT Associated Case Party: TRT HOLDINGS, INC. Name BarNumber Email TimestampSubmitted Status Elliot Strader elliot.strader@akerman.com 11/6/2023 8:55:48 AM SENT Xakema Henderson xakema.henderson@akerman.com 11/6/2023 8:55:48 AM SENT Case Contacts Name BarNumber Email TimestampSubmitted Status Robert LeMay rlemay@krcl.com 11/6/2023 8:55:48 AM SENT Jaime DeWees jdewees@krcl.com 11/6/2023 8:55:48 AM SENT Teresa Rowe trowe@krcl.com 11/6/2023 8:55:48 AM SENT Connie Nims cnims@krcl.com 11/6/2023 8:55:48 AM SENT Bree Kimball BKimball@krcl.com 11/6/2023 8:55:48 AM SENT