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11/27/2019 3:19 PM
Velva L. Price
District Clerk
Travis County
D-1-GN-18-007636
CAUSE NO. D-1-GN-18-007636 Irene Silva
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THE ROY F. & JOANN COLE MITTE § IN THE DISTRICT COURT
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FOUNDATION, §
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Plaintiff, §
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WC 1ST AND TRINITY, L.P., §
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WC 1ST AND TRINITY GP, LLC, §
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WC 3RD AND CONGRESS, L.P. and §
WC 3RD AND CONGRESS GP, LLC § 126TH JUDICIAL DISTRICT
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Defendants § TRAVIS COUNTY
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DEFENDANTS’ RESPONSE TO PLAINTIFF’S EMERGENCY
APPLICATION FOR APPOINTMENT OF RECEIVER
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Defendants WC 1st and Trinity, L.P., WC 1st and Trinity GP, LLC, WC 3rd and Congress,
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L.P., and WC 3rd and Congress GP, LLC (“Defendants”) file their Response to Plaintiff’s
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Emergency Application for Appointment of Receiver and in support thereof would show as
follows:
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INTRODUCTION
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Plaintiff and Applicant The Roy F. & Joann Cole Mitte Foundation (“Plaintiff” or “Mitte”)
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is a minority limited partner in two limited partnerships registered in the state of Texas, WC 1st
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and Trinity, L.P. and WC 3rd and Congress, L.P. (the “Partnerships”). Mitte currently holds a 6%
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limited partnership interest in WC 1st and Trinity LP, and a 16% limited partnership interest in WC
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3rd and Congress L.P.
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Both Partnerships were formed for the sole purpose of purchasing and owning tracts of real
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property in the state of Texas. The real property owned by WC 1st and Trinity, L.P. is a tract of
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land containing a warehouse and small surface parking lot. The warehouse is leased out once
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every year during the South by Southwest festival, and the parking lot is presently leased. There
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is a loan on the real property that is current, the terms of which have been extended through 2022.
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The real property owned by WC 3rd and Congress, L.P. is a building subject to a ground
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lease, which helps cover the costs of taxes and other operating expenses. The general partner, WC
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3rd and Congress GP, LLC, and the lender holding the loan on that real property are currently
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amicably engaged in discussions to restructure the terms of the loan, although those discussions
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are being hindered by the ongoing litigation between Mitte and the Defendants.
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Since the partnerships were created, the properties have appreciated at rates many times
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that of their carrying costs, and the properties remain favorably positioned to continue to increase
in value. For this reason, the general partners, WC 1st and Trinity GP, LLC and WC 3rd and
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Congress GP, LLC, have engaged in a “hold” strategy which has been extremely beneficial for all
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the partners, including Mitte.
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In recent years, however, due to mismanagement and malfeasance by its former President,
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Dilum Chandrosoma, Mitte’s endowment has decreased dramatically. Because there is no
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provision in the partnership agreements that permits a minority partner to force the sale of the
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partnership properties or demand a return of its investment, Mitte has embarked upon a scheme to
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try to force the majority partners to either sell the properties immediately or buy out Mitte at an
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amount higher than the fair market value of its interest.
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First, Mitte engaged in covert discussions with prospective buyers of the properties in
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violation of the express terms of the partnership agreements which do not authorize a minority
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partner to market or sell the property on behalf of the Partnerships. Then, Mitte engaged in covert
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discussions with one partnership’s lender to try to buy out the loan securing the partnership
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property, with the apparent plan to become a predatory lender and extort the majority partners to
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pay Mitte more than the fair market value for its minority interest in the Partnerships.
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When those efforts failed, Mitte filed this action and now seeks to have a receiver appointed
to take control of not only the real property owned by the Partnerships, but also the Partnerships
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themselves, and to liquidate the Partnerships based upon Mitte’s alleged fear that the partnership
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property is going to be “lost, destroyed, or materially injured.”
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Mitte has not met (and cannot meet) its burden of proof on its receivership application.
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There is no present danger of the properties being “lost, destroyed, or materially injured” within
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the meaning of Texas Civil Practice and Remedies Code Section 64.001. First, the law recognizes
that there is no danger of property being “lost, destroyed, or materially injured” where, as is
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undisputedly the case here, the value of the partnership assets greatly exceeds their debts. Second,
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there are no imminent foreclosure proceedings against the properties. Finally, the Third Court of
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Appeals has already issued an order preventing the alienation of the properties during the pendency
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of an ongoing mandamus action. This shows that not only is there a less drastic remedy available
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to protect the properties, but that remedy has already been deemed sufficient by another court and
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has already been implemented. Mitte’s Emergency Motion for Appointment of Receiver should
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be denied in its entirety.
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RELEVANT PROCEDURAL HISTORY
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Plaintiff originally filed this action against the Partnerships and their respective general
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partners, WC 1st and Trinity GP, LLC and WC 3rd and Congress GP, LLC (the “General Partners”)
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on December 21, 2018, seeking injunctive relief in the form of access to the Partnerships’ books
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and records pursuant to Texas Business Organizations Code § 153.552. See Original Petition at 7.
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Since that date, the parties have been arbitrating other respective claims arising under the
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partnership agreements of the Partnerships, both of which contain mandatory arbitration
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provisions, in AAA arbitration.
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On October 2, 2019, Mitte moved to have the AAA arbitrator, Judge Suzanne Covington,
appoint a receiver. Defendants objected on the basis that an arbitrator does not have the power to
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appoint a receiver under either Texas law or the partnership agreements. Over Defendants’
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objections, the arbitrator issued an Order Appointing Receiver on October 11, 2019. 1
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On October 23, 2019, Mitte filed an Application for Confirmation of Arbitration Award in
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which it asked this Court to confirm the arbitrator’s Order Appointing Receiver under Tex. Civ.
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Prac. & Rem. Code 171.086(b)(3)(A) and (B) and 171.086(b)(6), or, alternatively, to appoint a
receiver under Tex. Civ. Prac. & Rem. Code 64.001. 2 On October 31, 2019, the Court issued an
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order confirming the arbitrator’s appointment of a receiver (“Confirmation Order”). 3 The visiting
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judge who entered the Confirmation Order stated “I am not appointing a receiver . . . I am
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confirming an award in arbitration.” 4
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On November 4, 2019, Defendants filed a Petition for Writ of Mandamus in the Third
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Court of Appeals, seeking mandamus on the grounds that this Court did not have jurisdiction to
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confirm the arbitrator’s interlocutory order appointing a receiver. 5 Defendants contemporaneously
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Exhibit A to Emergency Application for Appointment of Receiver.
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Second Amended Petition and Application for Confirmation of Arbitration Award at 5-6.
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Exhibit A to Emergency Application for Appointment of Receiver.
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Exhibit 1 to Notice of Stay (Transcript of 10/31/2019 Hearing on Application for Confirmation of Arbitration
Award) at 54.
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Exhibit 2 to Defendants’ Notice of Statutory Stay, or in the alternative, Emergency Motion to Stay Hearing on
Plaintiff’s Emergency Application for Appointment of Receiver (“Notice of Stay”).
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filed an Emergency Motion for Temporary Relief seeking a stay of this Court’s Confirmation
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Order during the pendency of the mandamus action. 6
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Also on November 4, 2019, Defendants filed a Notice of Appeal pursuant to Texas Rule
of Appellate Procedure 28.1 and Texas Civil Practices and Remedies Code section 51.014(a)(1)
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and (2), giving this Court notice of their intent to appeal to the Third Court of Appeals from the
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Confirmation Order. See Notice of Appeal. Defendants filed and perfected that protective
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interlocutory appeal in the event the Third Court of Appeals determines that the Court’s
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Confirmation Order was in fact an order appointing a receiver or an order overruling a motion to
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vacate an order appointing a receiver. Id.
On November 6, 2019, the Third Court of Appeals granted the Emergency Motion for
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Temporary Relief and entered an order staying this Court’s Confirmation Order. 7 The Third Court
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of Appeals also ordered that the real property owned by the partnerships not be alienated while the
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stay is in place, evidently finding that that restriction would provide adequate protection for the
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real property for the duration of the stay. 8 Following that order by the appellate court, the arbitrator
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stayed her Order Appointing Receiver pending a decision by the Third Court of Appeals on the
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merits of the mandamus action.
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On November 18, 2019 Mitte filed its response in opposition to Defendants’ Petition for
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Writ of Mandamus (“Response”). 9 In its Response, Mitte argued that this Court “had jurisdiction
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Exhibit 3 to Notice of Stay.
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Exhibit B to Emergency Application for Appointment of Receiver.
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Id.
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Exhibit 4 to Notice of Stay.
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to confirm the arbitrator’s appointment of a receiver…,” Response at 6, and urged the Third Court
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of Appeals to reject Defendants’ request for mandamus relief on those grounds. Response at 21.
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While it maintains that this Court had jurisdiction to issue its Confirmation Order and that
that order is therefore not void, Mitte has filed this Emergency Application for Appointment of
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Receiver in which it now asks this Court to issue an overlapping and yet contradictory order
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appointing a receiver. The Court should decline to hear Mitte’s application, because the relief
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Mitte seeks is either automatically stayed (by Defendants’ perfection of an interlocutory appeal)
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or moot (because the Court previously awarded Mitte the primary relief it sought—confirmation—
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and declined to appoint a receiver in the alternative). If, however, the Court hears the application,
it should find that receivership is not an appropriate remedy under the existing circumstances and
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decline to appoint a receiver.
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ARGUMENT AND AUTHORITIES
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I. THE COURT SHOULD NOT ENTERTAIN MITTE’S EMERGENCY
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APPLICATION FOR APPOINTMENT OF A RECEIVER.
As a preliminary matter, for the reasons detailed in Defendants’ Notice of Statutory Stay,
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or in the alternative, Emergency Motion to Stay Hearing on Plaintiff’s Emergency Application for
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Appointment of Receiver, the Court should decline to hear Mitte’s Application.
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II. A RECEIVERSHIP IS NOT JUSTIFIED.
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If the Court decides to hear Mitte’s application, it should deny the application, because
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Mitte cannot make the required showing to justify the appointment of a receiver. Under Tex. Civ.
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Prac. & Rem. Code Section 64.001, under which Mitte has applied for appointment of a receiver,
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see Emergency Application for Appointment of Receiver at 5-6, a receiver can only be appointed
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when the property the applicant seeks the receiver over is “in danger of being lost, removed, or
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materially injured.” TEX. CIV. PRAC. & REM. CODE § 64.001(b).
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In itsapplication, Mitte relies on a litany of unsubstantiated allegations about historical
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acts, unrelated proceedings, and “indications of insolvency” of the Partnerships. Even ifMitte
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could provide sufficient evidence in support of all these allegations (which it cannot do, because
they are largely untrue 10), the allegations do not show that the Partnerships’ property is at risk of
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being “lost, removed, or materially injured” and thus do not justify the appointment of a receiver
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under Texas law.
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Additionally, a receivership is not to be used as a means of applying leverage. San Antonio
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Suburban Irrigated Farms v. Bexar-Medina-Atascosa Ctys. Water Improvement Dist. No. 1, 49
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S.W.2d 511, 512 (Tex. Civ. App. 1932) (“The statute must be construed in the light of age old
rules of equity and cannot be taken as meaning that a creditor can, in forcing the collection of any
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debt, obtain a receiver to aid him.”). Here, Mitte is attempting to do just that – use the threat of a
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receivership to extort the Partnerships for a payout in excess of the fair market value of its minority
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ownership interests in the Partnerships.
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Because Mitte cannot satisfy its burden to show that a receivership is justified to protect
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the partnership properties (and, in fact, only wants a receiver to be appointed for leverage in its
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buyout negotiations with the general partners), its Emergency Application for Appointment of
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Receiver must be denied.
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While Mitte’s allegations, even if true, are insufficient to justify a receivership under Texas law for the reasons set
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forth herein, Defendants feel obliged to correct certain misstatements. First, the settlement agreement between the
parties contemplated nonpayment by the Defendants and even provided Mitte with an election of remedies in the event
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of nonpayment. Instead of opting to obtain a judgment in the amount of the monies owed under the settlement
agreement in this Court or another court of competent jurisdiction, Mitte opted to void the settlement agreement,
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accept an increased ownership stake in one of the Partnerships, and continue the arbitration between the parties. Mitte
also implies that an FBI raid and “foreclosure postings of [other] World Class properties” somehow have a bearing on
the two Partnerships and the real property at issue in this litigationbut does not provide any support for those
insinuations.
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A. MITTE CANNOT SHOW THAT THE PARTNERSHIPS’ PROPERTIES
ARE IN PRESENT DANGER OF BEING LOST, REMOVED, OR
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MATERIALLY INJURED.
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As Texas courts have recognized, under the plain language of Section 64.001, “a receiver
should be appointed only in those situations where the property involved is in present danger of
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being lost, removed or materially injured and should never be ordered if another remedy, less
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harsh, is available which will afford the needed protection.” Parness v. Parness, 560 S.W.2d 181,
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182 (Tex. Civ. App.—Dallas 1977) (collecting cases); see also TEX. CIV. PRAC. REM. CODE §
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64.001. The burden is on the party requesting a receiver to show that the property is in present
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danger of being lost, removed, or materially injured, and if the applicant is unable to make that
showing, a receivership is not justified. Duncan v. Thompson, 25 S.W.2d 634, 636 (Tex. Civ.
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App.—Dallas 1930) (collecting cases).
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In Parness, the appellate court vacated an order appointing a receiver upon finding that “no
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showing was made” that the property at issue would be lost absent appointment of a receiver
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because, inter alia, “the property was not in eminent danger of destruction by deterioration,” and
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“[t]here [was] no evidence that the [mortgage] payments were delinquent or that foreclosure was
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imminent.” 560 S.W.2d at 182.
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Here, likewise, Plaintiff cannot meet its burden of showing that the real property owned by
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the Partnerships is at any risk of being lost, removed, or materially injured. There is no urgency
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requiring sale of the Partnerships’ property, none of the property is in danger of deterioration, and
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foreclosure is not imminent on either property. 11 For these reasons, as in Parness, a receivership
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is not justified.
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Ironically, and notably not mentioned by Mitte, the partnership property could be “lost, removed, or materially
injured” by the appointment of a receiver. The mere granting of a receivership will in fact cause immense harm – to
the Partnerships, to other limited partners and the general partners, and to the value of the real properties at issue.
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imposition of a receivership could create an event of default on the two loans owed by the partnerships. One of the
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B. THE VALUE OF THE PARTNERSHIP ASSETS GREATLY EXCEEDS
THE PARTNERSHIPS’ DEBTS.
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Additionally, it has been long established in Texas that “[a] receiver should not be
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appointed where the value of the mortgaged property greatly exceeds the debt secured.” Fisher v.
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First Nat. Bank, 112 S.W.2d 1085, 1087 (Tex. Civ. App.—Beaumont 1938) (citing 36 Tex. Jur.
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49); see also In re Estate of Martinez, No. 01-18-00217-CV, 2019 WL 1442100, at *6 (Tex.
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App.—Houston Apr. 2, 2019). In Fisher, the court discharged a receiver whose appointment was
“erroneous” because “the mortgaged property was of value more than double the amount of [the
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owner’s] debt.” Fisher, 112 S.W.2d at 1087. Likewise, in Martinez, the court found that there was
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no danger of “loss, removal, or material injury” where “the estate had more assets than debts.”
2019 WL 1442100, at *6. ct
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Nor does a showing of “mere insolvency” suffice to “justify the appointment of a receiver.”
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Wichita Royalty Co. v. City Nat. Bank of Wichita Falls, 36 S.W.2d 1057, 1059 (Tex. Civ. App.—
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Ft. Worth 1931); see also Martinez, 2019 WL 1442100, at *6 (“Evidence of [lack of cash on hand
to cover obligations becoming due] does not satisfy the statutory standard, however, because it
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does not show that the real property at issue is in danger of being lost, removed, or materially
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injured.”). In Martinez, the court vacated an appointment of a receiver upon finding that no
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foreclosure suit had been threatened and the proponent of a receivership had not shown that the
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owners would not pay operating costs such as taxes to avoid foreclosure. 2019 WL 1442100, at
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*6.
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results of such an event would be to increase the interest rates on the loans from 5% and 7% respectively to 18% – an
increase from approximately $80,000 per month to approximately $280,000 per month. Additionally, a forced
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marketing and sale of a property in a receivership status would materially harm the Partnerships. Mitte seeking a
forced sale has a high likelihood in resulting in less than a fair market value of the Partnerships’ assets and would
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therefore not be in the best interest of the Partnerships.
Further, this would result in a loss to other limited partners
and the general partner which is why this power is not granted to a minority limited partner under the partnership
agreements or at law.
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Here, Plaintiff has admitted that the value of the properties significantly exceeds the debts
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owed on the properties. Emergency Application for Appointment of Receiver at 7, 8. This alone
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precludes appointment of a receiver.
C. RECEIVERSHIP IS AN “EXTRAORDINARY” REMEDY THAT SHOULD
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NOT BE USED WHEN ANOTHER LESS DRASTIC REMEDY EXISTS.
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Finally, even if Mitte were able to show any risk of the properties being “lost, removed, or
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materially injured,” receivership would still not be the appropriate remedy to protect the properties.
This is because receivership is an “extraordinary” remedy. Ritchie v. Rupe, 443 S.W.3d 856, 873
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(Tex. 2014). Indeed, “[o]f all the extraordinary remedies authorized by law, the appointment of a
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receiver is the most drastic and far-reaching in its effect.” Delcambre v. Murphy, 5 S.W.2d 789,
791 (Tex. App.—Dallas 1928, no writ); accord ct
Myerscough v. Garrett, 45 S.W.2d 1003, 1005
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(Tex. App.—Waco 1932, no writ); Pajooh v. Royal W. Invs. LLC, Series E, 518 S.W.3d 557, 567
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(Tex. App.—Houston [1st Dist.] 2017, no pet.) (a receivership is “harsh, drastic, and
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extraordinary”).
Because a receivership is “extraordinary” and “drastic,” it must “be used cautiously” and
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only where no other “remedy exists, either legal or equitable,” Akin, Gump, Strauss, Hauer & Feld,
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LLP v. E Court, Inc., No. 03-02-00714-CV, 2003 WL 21025030, at *4 (Tex. App.—Austin May
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8, 2003, no pet.); see also N. Side Bank v. Wachendorfer, 585 S.W.2d 789, 792 (Tex. Civ. App.—
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Houston 1979) (“[A]ppointment of a receiver is not proper where a less drastic remedy is available
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to protect the property.” In Wachendorfer, the court found that it was error to appoint a receiver
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where a temporary restraining order would have provided a sufficient remedy. 585 S.W.2d at 792.
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Here, the Third Court of Appeals already entered an order prohibiting the alienation of the
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Partnerships’ real property, evidently viewing that as an adequate remedy to protect the property
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pending its future decision on Defendants’ Petition for Writ of Mandamus:
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We grant the motion and temporarily stay the District Court’s order confirming the
arbitrator’s order appointing a receiver pending further order of this Court. See id.
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52.10(b), 29.3. The Court prohibits the alienation of the real property owned by the
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Partnerships while the Court’s stay is in place.
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Exhibit B to Emergency Application for Appointment of Receiver. Because the Third Court of
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11/27/2019 3:19 PM Velva L. Price District Clerk Travis County D-1-GN-18-007636 CAUSE NO. D-1-GN-18-007636 Irene Silva e THE ROY F. & JOANN COLE MITTE § IN THE DISTRICT COURT ic FOUNDATION, § Pr § Plaintiff, § § L. v. § § a WC 1ST AND TRINITY, L.P., § lv WC 1ST AND TRINITY GP, LLC, § Ve WC 3RD AND CONGRESS, L.P. and § WC 3RD AND CONGRESS GP, LLC § 126TH JUDICIAL DISTRICT § k § er Defendants § TRAVIS COUNTY Cl DEFENDANTS’ RESPONSE TO PLAINTIFF’S EMERGENCY APPLICATION FOR APPOINTMENT OF RECEIVER ct tri Defendants WC 1st and Trinity, L.P., WC 1st and Trinity GP, LLC, WC 3rd and Congress, D is L.P., and WC 3rd and Congress GP, LLC (“Defendants”) file their Response to Plaintiff’s . Co Emergency Application for Appointment of Receiver and in support thereof would show as follows: is INTRODUCTION av Plaintiff and Applicant The Roy F. & Joann Cole Mitte Foundation (“Plaintiff” or “Mitte”) Tr is a minority limited partner in two limited partnerships registered in the state of Texas, WC 1st y op and Trinity, L.P. and WC 3rd and Congress, L.P. (the “Partnerships”). Mitte currently holds a 6% c limited partnership interest in WC 1st and Trinity LP, and a 16% limited partnership interest in WC l ia 3rd and Congress L.P. fic Both Partnerships were formed for the sole purpose of purchasing and owning tracts of real of property in the state of Texas. The real property owned by WC 1st and Trinity, L.P. is a tract of Un land containing a warehouse and small surface parking lot. The warehouse is leased out once 1 every year during the South by Southwest festival, and the parking lot is presently leased. There e is a loan on the real property that is current, the terms of which have been extended through 2022. ic The real property owned by WC 3rd and Congress, L.P. is a building subject to a ground Pr lease, which helps cover the costs of taxes and other operating expenses. The general partner, WC L. 3rd and Congress GP, LLC, and the lender holding the loan on that real property are currently a lv amicably engaged in discussions to restructure the terms of the loan, although those discussions Ve are being hindered by the ongoing litigation between Mitte and the Defendants. k Since the partnerships were created, the properties have appreciated at rates many times er Cl that of their carrying costs, and the properties remain favorably positioned to continue to increase in value. For this reason, the general partners, WC 1st and Trinity GP, LLC and WC 3rd and ct tri Congress GP, LLC, have engaged in a “hold” strategy which has been extremely beneficial for all is the partners, including Mitte. D In recent years, however, due to mismanagement and malfeasance by its former President, . Co Dilum Chandrosoma, Mitte’s endowment has decreased dramatically. Because there is no is provision in the partnership agreements that permits a minority partner to force the sale of the av partnership properties or demand a return of its investment, Mitte has embarked upon a scheme to Tr try to force the majority partners to either sell the properties immediately or buy out Mitte at an y amount higher than the fair market value of its interest. op First, Mitte engaged in covert discussions with prospective buyers of the properties in l c violation of the express terms of the partnership agreements which do not authorize a minority ia fic partner to market or sell the property on behalf of the Partnerships. Then, Mitte engaged in covert of discussions with one partnership’s lender to try to buy out the loan securing the partnership Un 2 property, with the apparent plan to become a predatory lender and extort the majority partners to e pay Mitte more than the fair market value for its minority interest in the Partnerships. ic Pr When those efforts failed, Mitte filed this action and now seeks to have a receiver appointed to take control of not only the real property owned by the Partnerships, but also the Partnerships L. themselves, and to liquidate the Partnerships based upon Mitte’s alleged fear that the partnership a lv property is going to be “lost, destroyed, or materially injured.” Ve Mitte has not met (and cannot meet) its burden of proof on its receivership application. k There is no present danger of the properties being “lost, destroyed, or materially injured” within er Cl the meaning of Texas Civil Practice and Remedies Code Section 64.001. First, the law recognizes that there is no danger of property being “lost, destroyed, or materially injured” where, as is ct tri undisputedly the case here, the value of the partnership assets greatly exceeds their debts. Second, is there are no imminent foreclosure proceedings against the properties. Finally, the Third Court of D Appeals has already issued an order preventing the alienation of the properties during the pendency . Co of an ongoing mandamus action. This shows that not only is there a less drastic remedy available is to protect the properties, but that remedy has already been deemed sufficient by another court and av has already been implemented. Mitte’s Emergency Motion for Appointment of Receiver should Tr be denied in its entirety. y RELEVANT PROCEDURAL HISTORY op Plaintiff originally filed this action against the Partnerships and their respective general l c partners, WC 1st and Trinity GP, LLC and WC 3rd and Congress GP, LLC (the “General Partners”) ia fic on December 21, 2018, seeking injunctive relief in the form of access to the Partnerships’ books of and records pursuant to Texas Business Organizations Code § 153.552. See Original Petition at 7. Un Since that date, the parties have been arbitrating other respective claims arising under the 3 partnership agreements of the Partnerships, both of which contain mandatory arbitration e provisions, in AAA arbitration. ic Pr On October 2, 2019, Mitte moved to have the AAA arbitrator, Judge Suzanne Covington, appoint a receiver. Defendants objected on the basis that an arbitrator does not have the power to L. appoint a receiver under either Texas law or the partnership agreements. Over Defendants’ a lv objections, the arbitrator issued an Order Appointing Receiver on October 11, 2019. 1 Ve On October 23, 2019, Mitte filed an Application for Confirmation of Arbitration Award in k which it asked this Court to confirm the arbitrator’s Order Appointing Receiver under Tex. Civ. er Cl Prac. & Rem. Code 171.086(b)(3)(A) and (B) and 171.086(b)(6), or, alternatively, to appoint a receiver under Tex. Civ. Prac. & Rem. Code 64.001. 2 On October 31, 2019, the Court issued an ct tri order confirming the arbitrator’s appointment of a receiver (“Confirmation Order”). 3 The visiting is judge who entered the Confirmation Order stated “I am not appointing a receiver . . . I am D confirming an award in arbitration.” 4 . Co On November 4, 2019, Defendants filed a Petition for Writ of Mandamus in the Third is Court of Appeals, seeking mandamus on the grounds that this Court did not have jurisdiction to av confirm the arbitrator’s interlocutory order appointing a receiver. 5 Defendants contemporaneously Tr y op c 1 Exhibit A to Emergency Application for Appointment of Receiver. l ia 2 Second Amended Petition and Application for Confirmation of Arbitration Award at 5-6. fic 3 Exhibit A to Emergency Application for Appointment of Receiver. of 4 Exhibit 1 to Notice of Stay (Transcript of 10/31/2019 Hearing on Application for Confirmation of Arbitration Award) at 54. Un 5 Exhibit 2 to Defendants’ Notice of Statutory Stay, or in the alternative, Emergency Motion to Stay Hearing on Plaintiff’s Emergency Application for Appointment of Receiver (“Notice of Stay”). 4 filed an Emergency Motion for Temporary Relief seeking a stay of this Court’s Confirmation e Order during the pendency of the mandamus action. 6 ic Pr Also on November 4, 2019, Defendants filed a Notice of Appeal pursuant to Texas Rule of Appellate Procedure 28.1 and Texas Civil Practices and Remedies Code section 51.014(a)(1) L. and (2), giving this Court notice of their intent to appeal to the Third Court of Appeals from the a lv Confirmation Order. See Notice of Appeal. Defendants filed and perfected that protective Ve interlocutory appeal in the event the Third Court of Appeals determines that the Court’s k Confirmation Order was in fact an order appointing a receiver or an order overruling a motion to er Cl vacate an order appointing a receiver. Id. On November 6, 2019, the Third Court of Appeals granted the Emergency Motion for ct tri Temporary Relief and entered an order staying this Court’s Confirmation Order. 7 The Third Court is of Appeals also ordered that the real property owned by the partnerships not be alienated while the D stay is in place, evidently finding that that restriction would provide adequate protection for the . Co real property for the duration of the stay. 8 Following that order by the appellate court, the arbitrator is stayed her Order Appointing Receiver pending a decision by the Third Court of Appeals on the av merits of the mandamus action. Tr On November 18, 2019 Mitte filed its response in opposition to Defendants’ Petition for y Writ of Mandamus (“Response”). 9 In its Response, Mitte argued that this Court “had jurisdiction op c l ia fic 6 Exhibit 3 to Notice of Stay. of 7 Exhibit B to Emergency Application for Appointment of Receiver. Un 8 Id. 9 Exhibit 4 to Notice of Stay. 5 to confirm the arbitrator’s appointment of a receiver…,” Response at 6, and urged the Third Court e of Appeals to reject Defendants’ request for mandamus relief on those grounds. Response at 21. ic Pr While it maintains that this Court had jurisdiction to issue its Confirmation Order and that that order is therefore not void, Mitte has filed this Emergency Application for Appointment of L. Receiver in which it now asks this Court to issue an overlapping and yet contradictory order a lv appointing a receiver. The Court should decline to hear Mitte’s application, because the relief Ve Mitte seeks is either automatically stayed (by Defendants’ perfection of an interlocutory appeal) k or moot (because the Court previously awarded Mitte the primary relief it sought—confirmation— er Cl and declined to appoint a receiver in the alternative). If, however, the Court hears the application, it should find that receivership is not an appropriate remedy under the existing circumstances and ct tri decline to appoint a receiver. is ARGUMENT AND AUTHORITIES D I. THE COURT SHOULD NOT ENTERTAIN MITTE’S EMERGENCY . Co APPLICATION FOR APPOINTMENT OF A RECEIVER. As a preliminary matter, for the reasons detailed in Defendants’ Notice of Statutory Stay, is or in the alternative, Emergency Motion to Stay Hearing on Plaintiff’s Emergency Application for av Appointment of Receiver, the Court should decline to hear Mitte’s Application. Tr II. A RECEIVERSHIP IS NOT JUSTIFIED. y op If the Court decides to hear Mitte’s application, it should deny the application, because c Mitte cannot make the required showing to justify the appointment of a receiver. Under Tex. Civ. l ia Prac. & Rem. Code Section 64.001, under which Mitte has applied for appointment of a receiver, fic see Emergency Application for Appointment of Receiver at 5-6, a receiver can only be appointed of when the property the applicant seeks the receiver over is “in danger of being lost, removed, or Un materially injured.” TEX. CIV. PRAC. & REM. CODE § 64.001(b). 6 In itsapplication, Mitte relies on a litany of unsubstantiated allegations about historical e acts, unrelated proceedings, and “indications of insolvency” of the Partnerships. Even ifMitte ic Pr could provide sufficient evidence in support of all these allegations (which it cannot do, because they are largely untrue 10), the allegations do not show that the Partnerships’ property is at risk of L. being “lost, removed, or materially injured” and thus do not justify the appointment of a receiver a lv under Texas law. Ve Additionally, a receivership is not to be used as a means of applying leverage. San Antonio k Suburban Irrigated Farms v. Bexar-Medina-Atascosa Ctys. Water Improvement Dist. No. 1, 49 er Cl S.W.2d 511, 512 (Tex. Civ. App. 1932) (“The statute must be construed in the light of age old rules of equity and cannot be taken as meaning that a creditor can, in forcing the collection of any ct tri debt, obtain a receiver to aid him.”). Here, Mitte is attempting to do just that – use the threat of a is receivership to extort the Partnerships for a payout in excess of the fair market value of its minority D ownership interests in the Partnerships. . Co Because Mitte cannot satisfy its burden to show that a receivership is justified to protect is the partnership properties (and, in fact, only wants a receiver to be appointed for leverage in its av buyout negotiations with the general partners), its Emergency Application for Appointment of Tr Receiver must be denied. y op c l ia 10 While Mitte’s allegations, even if true, are insufficient to justify a receivership under Texas law for the reasons set fic forth herein, Defendants feel obliged to correct certain misstatements. First, the settlement agreement between the parties contemplated nonpayment by the Defendants and even provided Mitte with an election of remedies in the event of of nonpayment. Instead of opting to obtain a judgment in the amount of the monies owed under the settlement agreement in this Court or another court of competent jurisdiction, Mitte opted to void the settlement agreement, Un accept an increased ownership stake in one of the Partnerships, and continue the arbitration between the parties. Mitte also implies that an FBI raid and “foreclosure postings of [other] World Class properties” somehow have a bearing on the two Partnerships and the real property at issue in this litigationbut does not provide any support for those insinuations. 7 A. MITTE CANNOT SHOW THAT THE PARTNERSHIPS’ PROPERTIES ARE IN PRESENT DANGER OF BEING LOST, REMOVED, OR e MATERIALLY INJURED. ic Pr As Texas courts have recognized, under the plain language of Section 64.001, “a receiver should be appointed only in those situations where the property involved is in present danger of L. being lost, removed or materially injured and should never be ordered if another remedy, less a lv harsh, is available which will afford the needed protection.” Parness v. Parness, 560 S.W.2d 181, Ve 182 (Tex. Civ. App.—Dallas 1977) (collecting cases); see also TEX. CIV. PRAC. REM. CODE § k 64.001. The burden is on the party requesting a receiver to show that the property is in present er Cl danger of being lost, removed, or materially injured, and if the applicant is unable to make that showing, a receivership is not justified. Duncan v. Thompson, 25 S.W.2d 634, 636 (Tex. Civ. ct tri App.—Dallas 1930) (collecting cases). is In Parness, the appellate court vacated an order appointing a receiver upon finding that “no D showing was made” that the property at issue would be lost absent appointment of a receiver . Co because, inter alia, “the property was not in eminent danger of destruction by deterioration,” and is “[t]here [was] no evidence that the [mortgage] payments were delinquent or that foreclosure was av imminent.” 560 S.W.2d at 182. Tr Here, likewise, Plaintiff cannot meet its burden of showing that the real property owned by y the Partnerships is at any risk of being lost, removed, or materially injured. There is no urgency op requiring sale of the Partnerships’ property, none of the property is in danger of deterioration, and l c foreclosure is not imminent on either property. 11 For these reasons, as in Parness, a receivership ia fic is not justified. of Un 11 Ironically, and notably not mentioned by Mitte, the partnership property could be “lost, removed, or materially injured” by the appointment of a receiver. The mere granting of a receivership will in fact cause immense harm – to the Partnerships, to other limited partners and the general partners, and to the value of the real properties at issue. The imposition of a receivership could create an event of default on the two loans owed by the partnerships. One of the 8 B. THE VALUE OF THE PARTNERSHIP ASSETS GREATLY EXCEEDS THE PARTNERSHIPS’ DEBTS. e ic Additionally, it has been long established in Texas that “[a] receiver should not be Pr appointed where the value of the mortgaged property greatly exceeds the debt secured.” Fisher v. L. First Nat. Bank, 112 S.W.2d 1085, 1087 (Tex. Civ. App.—Beaumont 1938) (citing 36 Tex. Jur. a 49); see also In re Estate of Martinez, No. 01-18-00217-CV, 2019 WL 1442100, at *6 (Tex. lv Ve App.—Houston Apr. 2, 2019). In Fisher, the court discharged a receiver whose appointment was “erroneous” because “the mortgaged property was of value more than double the amount of [the k er owner’s] debt.” Fisher, 112 S.W.2d at 1087. Likewise, in Martinez, the court found that there was Cl no danger of “loss, removal, or material injury” where “the estate had more assets than debts.” 2019 WL 1442100, at *6. ct tri Nor does a showing of “mere insolvency” suffice to “justify the appointment of a receiver.” D is Wichita Royalty Co. v. City Nat. Bank of Wichita Falls, 36 S.W.2d 1057, 1059 (Tex. Civ. App.— . Co Ft. Worth 1931); see also Martinez, 2019 WL 1442100, at *6 (“Evidence of [lack of cash on hand to cover obligations becoming due] does not satisfy the statutory standard, however, because it is does not show that the real property at issue is in danger of being lost, removed, or materially av injured.”). In Martinez, the court vacated an appointment of a receiver upon finding that no Tr foreclosure suit had been threatened and the proponent of a receivership had not shown that the y op owners would not pay operating costs such as taxes to avoid foreclosure. 2019 WL 1442100, at c *6. l ia fic results of such an event would be to increase the interest rates on the loans from 5% and 7% respectively to 18% – an increase from approximately $80,000 per month to approximately $280,000 per month. Additionally, a forced of marketing and sale of a property in a receivership status would materially harm the Partnerships. Mitte seeking a forced sale has a high likelihood in resulting in less than a fair market value of the Partnerships’ assets and would Un therefore not be in the best interest of the Partnerships. Further, this would result in a loss to other limited partners and the general partner which is why this power is not granted to a minority limited partner under the partnership agreements or at law. 9 Here, Plaintiff has admitted that the value of the properties significantly exceeds the debts e owed on the properties. Emergency Application for Appointment of Receiver at 7, 8. This alone ic Pr precludes appointment of a receiver. C. RECEIVERSHIP IS AN “EXTRAORDINARY” REMEDY THAT SHOULD L. NOT BE USED WHEN ANOTHER LESS DRASTIC REMEDY EXISTS. a Finally, even if Mitte were able to show any risk of the properties being “lost, removed, or lv Ve materially injured,” receivership would still not be the appropriate remedy to protect the properties. This is because receivership is an “extraordinary” remedy. Ritchie v. Rupe, 443 S.W.3d 856, 873 k er (Tex. 2014). Indeed, “[o]f all the extraordinary remedies authorized by law, the appointment of a Cl receiver is the most drastic and far-reaching in its effect.” Delcambre v. Murphy, 5 S.W.2d 789, 791 (Tex. App.—Dallas 1928, no writ); accord ct Myerscough v. Garrett, 45 S.W.2d 1003, 1005 tri (Tex. App.—Waco 1932, no writ); Pajooh v. Royal W. Invs. LLC, Series E, 518 S.W.3d 557, 567 D is (Tex. App.—Houston [1st Dist.] 2017, no pet.) (a receivership is “harsh, drastic, and . Co extraordinary”). Because a receivership is “extraordinary” and “drastic,” it must “be used cautiously” and is only where no other “remedy exists, either legal or equitable,” Akin, Gump, Strauss, Hauer & Feld, av LLP v. E Court, Inc., No. 03-02-00714-CV, 2003 WL 21025030, at *4 (Tex. App.—Austin May Tr 8, 2003, no pet.); see also N. Side Bank v. Wachendorfer, 585 S.W.2d 789, 792 (Tex. Civ. App.— y op Houston 1979) (“[A]ppointment of a receiver is not proper where a less drastic remedy is available c to protect the property.” In Wachendorfer, the court found that it was error to appoint a receiver l ia where a temporary restraining order would have provided a sufficient remedy. 585 S.W.2d at 792. fic Here, the Third Court of Appeals already entered an order prohibiting the alienation of the of Partnerships’ real property, evidently viewing that as an adequate remedy to protect the property Un pending its future decision on Defendants’ Petition for Writ of Mandamus: 10 We grant the motion and temporarily stay the District Court’s order confirming the arbitrator’s order appointing a receiver pending further order of this Court. See id. e 52.10(b), 29.3. The Court prohibits the alienation of the real property owned by the ic Partnerships while the Court’s stay is in place. Pr Exhibit B to Emergency Application for Appointment of Receiver. Because the Third Court of