Preview
FILED
DALLAS COUNTY
2 CIT/ ESERVE 8/5/2019 4:07PM
FELICIA PITRE
DISTRICT CLERK
JAVIER HERNANDEZ
DC_1 9-1
9_1 1 136
CAUSE NO.
BERNARD BURKHOLDER AND IN THE DISTRICT COURT
BLAKE BURKHOLDER
INDIVIDUALLY AND IN THEIR
CAPACITY AS A LIMITED
PARTNERS OF WESTERN
DEVELOPMENT GROUP, LP AND
AS MANAGERS OF WESTERN
DEVELOPMENT GROUP GP, LLC
Plaintiff,
192ND
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< JUDICIAL DISTRICT
THOMAS A. MACDONALD AND
KAREN MACDONALD
Defendants,
AND WESTERN DEVELOPMENT
GROUP, LP AND WESTERN
DEVELOPMENT GROUP GP, LLC
Nominal Defendants. DALLAS COUNTY, TEXAS
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION
TO THE HONORABLE JUDGE OF SAID COURT:
COMES NOW Plaintiffs Bernard Burkholder (“Burkholder”) and Blake Burkholder
individually and in their capacity as Limited Partners 0f Western
of Development Group, LP (the
“Partnership”) and as Managers 0f of Western Development Group GP, LLC (the “General Partner”)
(sometimes collectively “Plaintiffs”) and file this Plaintiffs’ Original Petition for Judicial
Expulsion complaining of Defendants Thomas A. MacDonald (“MacDonald”) and Karen
MacDonald (sometimes collectively for convenience the “MacDonalds”) and for cause 0f
of action
would respectfully show the Court as follows:
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page of 26
1 0f
I.
PARTIES
1.01 Plaintiff Patrick Bernard Burkholder, individually and in his capacity as a Limited
Partner 0f Western Development Group, LP and as Manager 0f Western Development Group GP,
LLC, is an adult individual residing in Biloxi, Mississippi.
1.02 Plaintiff Blake Burkholder, individually and in his capacity as a Limited Partner 0f
Western Development Group, LP and as Manager 0f Western Development Group GP, LLC, isan
adult individual residing in Biloxi, Mississippi.
1.03 Defendant Thomas A. MacDonald is an individual who at all times material t0 this
action is engaged and has engaged in business in Texas, as more fully described below. Defendant
Thomas A. MacDonald individually, does not maintain a place 0f regular business in Texas and
has n0 designated agent 0n whom service 0f citation may be made in this action. The cause 0f
action asserted herein arose from 0r are connected with purposeful acts committed in Texas, and
business done in Texas, by Defendant Thomas A. MacDonald because (a) Thomas A. MacDonald
has executed agreements, contracts, deeds, loans and other documents including, without
limitation, (i) the Partnership Agreement on behalf of the Texas Partnership (ii)the Regulations
0n behalf 0f the Texas General Partner, (iii)a Partnership Pledge Agreement 0n behalf 0f the Texas
Partnership, (iv) loan agreements 0n behalf 0f the Texas Partnership and (V) deeds 0n behalf 0f the
Texas Partnership; (b) the MacDonalds have organized and invested in a Texas limited partnership
as a limited partner and currently each own a 24.75% limited partnership interest in the Partnership
(collectively 49.5%); (c) the MacDonalds have organized and invested in a Texas limited liability
company as members and currently each own a 25% membership interest in the General Partner
(collectively 50%); (d) the claims and controversies involved in this cause 0f action arise out 0f 0r
relate t0 the MacDonalds contacts with the state 0f Texas with regard t0 the Partnership and
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 2 0f 26
General Partner; (e) both the Partnership Agreement and the General Partner Regulations provide
that such entities shall be governed by the laws 0f the state 0f Texas; and (f) both the Partnership
Agreement, the General Partner Regulations and certificates filed with the Texas Secretary 0f State
provide that their Registered Agent, Principal Place 0f Business and/or Principal Office are located
in Dallas County, Texas. Pursuant t0 Texas Business Organizations Code §152.501(b)(5),
Defendant Thomas A. MacDonald’s willful and material breach 0f the Partnership Agreement 0f
the Texas Partnership, duties owed t0 the Texas Partnership 0r the other partners, wrongful conduct
adversely and materially affecting the Texas Partnership business and other conduct relating t0 the
Texas Partnership business that made itnot reasonably practicable t0 carry 0n the business in
partnership with that partner is the basis 0f Plaintiffs’ cause 0f action. Accordingly, pursuant t0
Section 17.044 0f the Texas Civil Practice & Remedies Code, Defendant Thomas A. MacDonald
may be served with citation by and through the Secretary 0f State 0f Texas, at his home and
residential address located at 48413 Desert Springs Road, Summer Lake, Oregon 97640.
1.04 Defendant Karen MacDonald isan individual who at all times material t0 this action
is engaged and has engaged in business in Texas, as more fully described below. Defendant Karen
MacDonald individually, does not maintain a place 0f regular business in Texas and has n0
designated agent 0n whom service 0f citation may be made in this action. The cause 0f action
asserted herein arose from 0r are connected with purposeful acts committed in Texas, and business
done in Texas, by Defendant Karen MacDonald and/or her husband Thomas A. MacDonald 0n
her behalf 0r for her benefit, because (a) the MacDonalds have executed agreements, contracts and
other documents 0n behalf 0f the Texas Partnership; (b) the MacDonalds have invested in a Texas
limited partnership as a limited partner and currently each own a 24.75% limited partnership
interest in the Partnership (collectively 49.5%); (c) the MacDonalds have invested in a Texas
limited liability company as members and currently each own a 25% membership interest in the
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 3 0f 26
General Partner (collectively 50%); (d) the claims and controversies involved in this cause 0f
action arise out 0f 0r relate t0 the MacDonalds contacts with the state 0f Texas with regard t0 the
Partnership and General Partner; (e) both the Partnership Agreement and the General Partner
Regulations provide that such entities shall be governed by the laws 0f the state 0f Texas; and (f)
both the Partnership Agreement, the General Partner Regulations and certificates filed with the
Texas Secretary 0f State provide that their Registered Agent, Principal Place 0f Business and/or
Principal Office are located in Dallas County, Texas. Pursuant t0 Texas Business Organization
Code §152.501(b)(5), Defendant Karen MacDonald’s willful and material breach 0f the
Partnership Agreement 0f the Texas Partnership, duties owed t0 the Texas Partnership 0r the other
partners, wrongful conduct adversely and materially affecting the Texas Partnership business and
other conduct relating t0 the Texas Partnership business that made itnot reasonably practicable t0
carry 0n the business in partnership with that partner isthe basis 0f Plaintiffs’ cause 0f action.
Accordingly, pursuant t0 Section 17.044 0f the Texas Civil Practice & Remedies Code, Defendant
Karen MacDonald may be served with citation by and through the Secretary 0f State 0f Texas, at
her home and residential address located at 48413 Desert Springs Road, Summer Lake, Oregon
97640.
1.05 Western Development Group, LP is a Texas limited partnership which may be
served with process in this cause by serving its registered agent Troy D. Phillips at itsregistered
address at 14801 Quorum Drive, Suite 500, Dallas, Texas 75254-1449.
1.06 Western Development Group GP, LLC is a Texas limited liability company which
may be served with process in this cause by serving its registered agent Troy D. Phillips at its
registered address located at 14801 Quorum Drive, Suite 500, Dallas, Texas 75254-1449.
II.
DISCOVERY CONTROL PLAN
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 4 0f 26
2.01 Plaintiffs request that discovery be governed by Section 190.3 0f the Texas Rules
of Civil Procedure.
III.
STATEMENT OF RELIEF SOUGHT
3.01 Plaintiffs seek the statutory expulsion 0f Thomas A. MacDonald and Karen
MacDonald as limited partners 0f the Partnership under Texas Business Organizations Code
§152.50 1 (b)(S), but n0 monetary relief, in this cause other than reasonable attorney’s fees alleged
1
herein.
IV.
JURISDICTION AND VENUE
4.01 This Court has original jurisdiction over this matter pursuant t0 Section
152.501(b)(5) 0f the Texas Business Organization Code and Section 24.007(a) and (b) as provided
in Article V, Section 8 0f the Texas Constitution since this a statutory suit t0 expel limited partners
0f the Partnership pursuant t0 Section 152.501(b)(5).
4.02 Venue is proper in Dallas County, Texas pursuant t0 Texas Civil Practice &
Remedies Code Section 15.002(a)(1) and (3) because all 0r a substantial part 0f the events 0r
omissions giving rise t0 the claim occurred in Dallas County, Texas and the principal and
registered offices 0f Western Development Group, LP and Western Development Group, LLC in
Texas are located in Dallas County, Texas.
V.
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are engaged in extensive litigation in Oregon, including Case No. 18CV47457 styled Summer Lake Trout
1
The parties
Farm, Inc., an Oregon Corporation; Bernard Burkholder, Individually and in his capacity as limited partner of Western
Development Group, LP and as manager of Western Development Group GP, LLC; and Ethan Negus, Plaintiffs V.
Thomas A. MacDonald; Karen MacDonald; Megan MacDonald; and Edward MacDonald, Defendants and Western
Development Group, LP; and Western Development GP, LLC as Nominal Parties in the Circuit Court of the State of
Oregon for the County of Lake. The Plaintiffs assert claims for declaratory judgment, quiet title, trover, conversion,
detinue, unjust enrichment, breach of fiduciary duty, financial abuse and specific performance in the Oregon litigation,
but not for judicial expulsion from the Partnership Which is a Texas limited partnership.
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 5 0f 26
FACTUAL BACKGROUND
Summer Lake Trout Farm
(The trout farm operator)
5.01 The Summer Lake Trout Farm (“Trout Farm”) also known as Desert Springs Fish
Hatchery, hatches and grows fish, primarily rainbow trout, for sale t0 public and private buyers in
both the live and food markets. Summer Lake Trout Farm, Inc. (“SLTF”) owns and operates the
Trout Farm business and is a closely held Oregon corporation with its corporate office and
principal place 0f business located in Lake County, Oregon. SLTF does not own any real property.
Instead, SLTF leases property from the Partnership. The Trout Farm operation depends 0n natural
aquifers and other water rights which provide large quantities 0f pure water required for the
raceways in which the trout are reared. Lake County is an arid county located along Oregon’s
Southern border 0n the eastern side 0f the Cascade Mountain Range. It isimportant that the Trout
Farm operation have sufficient land and water not only for existing operations but also for future
expansion.
The Partnership
(Owner 0f 900-Acre Property Containing the Trout Farm Land)
5.02 The Trout Farm and corporate headquarters 0f SLTF are located 0n approximately
900 acres 0f land (the “Partnership Property”) that is owned by Western Development Group, LP
(the “Partnership”). The Partnership is held by the following partners:
Bernie Burkholder 24.50% Limited Partner Interest
Blake Burkholder 25.00% Limited Partner Interest
Thomas A. MacDonald 24.75% Limited Partner Interest
Karen MacDonald 24.75% Limited Partner Interest
Western Development 1.00% General Partner Interest
Group GP, LLC
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 6 0f 26
5.03 Western Development Group GP, LLC (the “General Partner”) is the general
partner 0f the Partnership. The General Partner is a limited liability company held as follows:
Bernie Burkholder 30% Membership Interest
Blake Burkholder 20% Membership Interest
Thomas MacDonald 25% Membership Interest
Karen MacDonald 25% Membership Interest
The Partnership and the General Partner are both named as nominal defendants t0 this action. At
various times throughout the Partnership’s history, the Partnership has held real property in its own
name as well as in the name 0f one 0r more 0f its partners. Notwithstanding such changes in the
names 0n the deeds t0 such property, the property (including Partnership Property) was purchased
and improved with partnership and SLTF assets and has maintained its status as property 0f the
Partnership consistent with and as defined by Texas Business Organizations Code §152. 101-102
and Oregon Revised Statutes 67.065. Burkholder and the MacDonalds have both run cattle 0n the
Partnership’s property that is not being used for aquaculture.
Corporate Ownership and Management 0f SLTF
5.04 At all relevant times until 20 1 8, SLTF was owned by three shareholders as follows:
Bernie Burkholder 44.58%
Thomas A. MacDonald 44.58%
Ethan Negus 10.84%
Ethan Negus (“Negus”) is the full time onsite manager 0f the Trout Farm.
5.05 At all relevant times until 2018, SLTF had three officers as follows:
Thomas A. MacDonald President
Bernie Burkholder Vice President
Ethan Negus Secretary
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 7 0f 26
MacDonald, Burkholder, and Negus were also members 0f SLTF’S board 0f directors.
5.06 During 201 8, MacDonald was removed as an officer and director 0f SLTF. SLTF
purchased MacDonald’s SLTF stock, after which 0f SLTF’S remaining shares were held as
follows:
Bernie Burkholder 80.44%
Ethan Negus 19.56%
Since July 13, 2018, Burkholder has been president 0f SLTF. Since July 13, 201 8, the members 0f
SLTF’S board 0f directors have been Burkholder and Negus.
Columbia Bank Secured, Guaranteed Loans
5.07 SLTF and the Partnership shared common ownership prior to the fall of 2018.
5.08 SLTF and the Partnership each obtained loans from Columbia Bank prior t0 the
summer 0f 201 8. Each 0f those loans was secured and cross-collateralized by the assets (including
real and personal property) 0f both SLTF and the Partnership. Columbia Bank has a blanket
security interest 0n all categories 0f collateral, including equipment, as well as Trust Deeds 0n real
property (including the Partnership Property) and fixture filings as t0 any fixtures attached t0 real
property.
5.09 Columbia Bank also filed a UCC-l Financing Statement 0n SLTF’S assets.
5.10 MacDonald and Burkholder personally guaranteed repayment 0f the loans from
Columbia Bank.
Marianne Burkholder Loans And Pledge Agreement
5.11 MacDonald and Burkholder were involved in a real estate development venture in
the mid- t0 late-ZOOOS. Due t0 unexpected cash demands in conjunction with that development,
MacDonald and Burkholder borrowed cash from Burkholder’s former spouse, Marianne
Burkholder (“Marianne”). Marianne was concerned that MacDonald would refuse t0 repay his
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 8 0f 26
share 0f the loans. She, therefore, insisted that MacDonald, Burkholder, the Partnership, and the
General Partner allbe obligated t0 repay those loans, and each undertook that obligation.
5. 12 Marianne further demanded that MacDonald, Burkholder and the General Partner
each pledge their interest in the Partnership and the General Partner by executing a Pledge
Agreement, which each did. A copy 0f that Pledge Agreement is attached hereto as Exhibit A.
5.13 In 2016, MacDonald, Burkholder, the General Partner, and the Partnership
executed a Letter 0f Understanding concerning the repayment 0f the Loans. A copy 0f that Letter
0f Understanding is attached hereto as Exhibit B.
5. 14 Pursuant t0 the Letter 0f Understanding, MacDonald agreed t0 execute and deliver
a promissory note, which would replace and supersede all prior promissory notes t0 Marianne.
MacDonald has failed t0 execute such a note. A form for such a note is attached as Exhibit C.
5 .15 Pursuant t0 the Letter 0f Understanding, MacDonald also agreed that Marianne was
t0 hold a pledge 0f 3.5 percent 0f each partner’s interest in the Partnership, including the
partnership interests held by Burkholder, MacDonald, and the General Partner. Under the Pledge
Agreement, Marianne had the power t0 exercise ownership rights over that pledged amount upon
default with a Power 0f Attorney.
SLTF Expansion and Future Expansion Plans
5.16 When SLTF was first formed, itassumed ownership 0f an existing hatchery with
raceways and other facilities t0 raise trout. Since that time, however, SLTF and the Partnership
have substantially expanded the current and future capacity 0f the Trout Farm by adding new
raceways, wells, and other trade fixtures used in its business. Ithas done so using funds borrowed
from its creditors and from its own cashflow, substantially improving the property 0n which the
Trout Farm islocated.
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 9 0f 26
5. 17 Many 0f the improvements have been made for future expansion 0f the Trout Farm
on the Partnership Property, which property is 0f sufficient acreage, has sufficient appurtenant
water and water rights, land, and slope t0 increase its fish capacity many times over. The
topography and available water supplies make the Trout Farm an ideal location for a highly
efficient modern aquaculture operation.
5.18 The shareholders 0f SLTF and the partners 0f the Partnership relied 0n the certain
ability t0 expand capacity 0f the Trout Farm when they invested in the acquisition 0f the
Partnership Property and related water supplies, the companies, and the improvements. It was the
ability t0 expand that made this investment 0f time and money so attractive.
MacDonald’s Attempted Convevance 0f 750 Acres
5.19 On 0r about October, 2014, MacDonald attempted t0 convey approximately 750
acres 0f the Partnership Property and all appurtenances thereto (the “Affected 750 Acres”) t0
himself and his wife Karen MacDonald. He did so by executing and recording a deed that he signed
in his own name as “Partner” 0f the Partnership (the “750-Acre Deed”). A copy 0f that 750-Acre
Deed is attached hereto as Exhibit D. The attempted conveyance 0f the 750 acres and all
appurtenances thereto 0r other interests associated therewith including, without limitation the
Water Rights, was null, void, invalid, unauthorized and constituted a breach 0f contractual,
fiduciary and statutory duties for the reasons set forth below:
5.20 MacDonald was never a general partner 0f the Partnership and, as such, he lacked
the requisite legal authority t0 execute the 750-Acre Deed, 0r any other conveyance 0f the
Partnership’s real property, as a “Partner” 0n behalf 0f the Partnership.
5.21 MacDonald is a limited partner 0f the Partnership. A limited partner has n0 legal
authority t0 convey property 0n behalf 0f the Partnership. As such MacDonald lacked the requisite
legal authority t0 execute the 750-Acre Deed as a limited partner 0f the Partnership.
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 10 0f 26
5.22 MacDonald is a member 0f the LLC that is the General Partner 0f the Partnership.
He did not, however, execute the 750-Acre Deed in his capacity as a member 0r manager 0f that
LLC.
5.23 MacDonald did not have authority t0 execute the 750-Acre Deed as a member 0r
manager of the LLC that is the General Partner 0f the Partnership. T0 execute such deed as a
member 0r manager 0f the General Partner, he would have first needed t0 obtain a majority vote
0f the membership interest holders 0r the managers 0f the General Partner under the General
Partner’s Regulations (operating agreement) and under applicable state law. There has never been
such a vote. MacDonald did not disclose the proposed conveyance t0 the other members, much
less obtain a majority vote t0 proceed with the conveyance.
5.24 Section 5.6 0f the Partnership Agreement prohibits the sale 0r conveyance 0f any
substantial portion 0f the assets 0f the Partnership absent approval by the “majority Vote 0f the
General Partners and approval by a two-thirds maj ority Vote 0f the Limited Partners.” Neither vote
occurred prior t0, 0r after, MacDonald’s attempt t0 deed the property t0 himself.
5.25 MacDonald’s attempt t0 convey the Affected 750 Acres t0 himself and Karen
MacDonald also violated Section 5.4 0f the Partnership Agreement. That Section provides:
“Obligations 0f the General Partner as Partnership Manager. The General
Partner shall manage the Partnership affairs in a prudent and businesslike
manner, and in accordance with good practices in the industry. The General
Partner at all times shall act in the best interests 0f the Partnership in
fulfillment of the purposes herein expressed.”
The self—interested clandestine attempt t0 convey most 0f the valuable real estate that belongs t0
the Partnership t0 himself for zero consideration was not prudent, businesslike, 0r in accordance
with good practices 0f any industry. Nor would such conveyance have been in the best interests 0f
the Partnership.
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 11 0f 26
5.26 T0 the extent MacDonald attempts t0 characterize the 750-Acre Deed as an in-kind
distribution t0 himself, such distribution would Violate Section 3.4 0f the Partnership Agreement
and Sec. 5.02 and Article IX 0f the Regulations 0f the General Partner. Such conveyance would
have required a proportional in-kind distribution, a valuation 0f the property and capital account
adjustment t0 other partners pursuant t0 Section 3.4 0f the Partnership Agreement. Further, such
distribution would breach Section 5.02 0f the General Partner’s Regulations, which requires in-
kind distributions t0 be in accordance with ownership percentage. Yet MacDonald did not make
proportional in-kind distributions t0 other partners 0r members and did not report such
distributions t0 the other partners, other members, the Oregon Department 0f Revenue 0r the IRS.
5.27 T0 the extent MacDonald attempts t0 characterize the 750-Acre Deed as
compensation, he has failed t0 (a) establish any legal 0r contractual basis for the compensation 0r
(b) include such compensation 0n his W-2 Form, t0 claim such compensation 0n his state and
federal tax returns, t0 provide for withholding, 0r t0 pay the ordinary income tax that would be
attributed t0 such compensation. Moreover, the Partnership Agreement does not provide for
payment 0f compensation t0 an individual partner; rather, Section 5.5 contemplates that any
compensation would g0 t0 the General Partner (the LLC) upon approval by the General Partner
(which was not obtained).
5.28 MacDonald’s attempt t0 convey the Affected 750 Acres violates Section 6.10 0f
the Regulations 0f the LLC that is the General Partner 0f the Partnership because MacDonald
purports t0 convey the property t0 himself for n0 consideration, which is certainly less favorable
for the Partnership than the terms the Partnership would otherwise have been able t0 secure from
third party buyers. Section 6. 10 provides, in relevant part:
“Conflicts * * *
0f Interest. The Company may transact business with any
Manager, Member, officer 0r Affiliate thereof, provided the terms 0f those
transactions are n0 less favorable than those the Company could obtain from
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 12 0f 26
unrelated third parties.”
5.29 T0 the extent MacDonald’s attempt t0 convey the property was successful, he isliable
t0 the General Partner pursuant t0 the Organizational Consent 0f Managers Section 11.05, which
provides:
“A Manager shall be liable t0 the company for the following actions:
‘6
a. A breach 0f their duty 0f loyalty t0 the company, 0r t0 its Members;
“b. An act 0r omission that was taken in bad faith and which constitutes a
breach 0f the Manager’s duty t0 the company by an act that is grossly
negligent, malicious, 0r intentional, as those terms are defined by law.
‘6
c. A transaction in which the Manager benefits t0 the detriment 0f the
company 0r its Members.
“d. An action for which the Manager is liable at law and for which an
indemnification is not allowed.”
5.30 T0 the extent MacDonald’s attempt t0 convey the property was successful, such
conveyance breaches the covenants contained in the Partnership’s loan agreement and trust deed
with Columbia Bank, which holds a security interest in the property. Causing such a Violation
would also constitute a breach 0f MacDonald’s fiduciary duty t0 the Partnership, SLTF, and their
creditors.
5.31 MacDonald’s attempt t0 convey the property, if successful, would also breach
MacDonald’s warranties and obligations contained in the Partnership Pledge Agreement and Letter
0f Understanding with Marianne Burkholder.
5.32 Even if the property was held in the name 0f MacDonald and Karen MacDonald,
the 750 acres and all appurtenances thereto, 0r other interests associated therewith including,
without limitation, the Water Rights, remains Partnership property, pursuant t0 Texas Business
Organizations Code §152.101-102 and Oregon Revised Statutes 67.065 because the property was
purchased and improved with Partnership assets.
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 13 0f 26
5.33 Even if the 750 Acre Deed were valid, MacDonald and his wife Karen MacDonald
would have been unjustly enriched in the amount 0f the fair market value 0f the property by
receiving that property without paying any consideration therefore.
Appropriation 0f Water Rights
5.34 The entirety 0f the Trout Farm is located 0n the Partnership Property, which
property the Partnership has leased t0 SLTF solely for such purpose. The land MacDonald and his
wife attempted t0 transfer t0 themselves included land 0n which existing raceways for trout farm
operation were located. The attempted transfer also included land intended for further expansion
0f the trout farm operations and itswater rights. There are both inchoate and vested water rights
that are appurtenant t0 the Partnership Property and, therefore, are owned by the Partnership, which
include the following, as identified in the records 0f the Oregon Water Resources Department: (1)
Pre-1909 Claim identified as SWR 170; (2) Water Rights Certificate 83069; (3) Water Right
Certificate 83065; and (4) Permit G-17749 (collectively, the “Water Rights”).
5.35 Evidence 0f SLTF’S and the Partnership’s continuing development, use, and
maintenance 0f the Water Rights includes, but is not limited t0, the following activities, the
completion 0f which has compelled substantial investments by SLTF and the Partnership in terms
of money, time, and labor:
(a) Legal fees incurred with a water rights specialty firm t0 survey and protect the
Water Rights;
(b) Completion 0f groundwater wells t0 utilize and perfect groundwater rights; and
(c) Construction 0f new raceways, trenching, and other facilities t0 utilize and/or
perfect the Water Rights.
5.36 Burkholder, Negus, SLTF, the Partnership, and the General Partner made such
investments t0 further develop, use and maintain the Water Rights as necessary in order t0
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 14 0f 26
sufficiently enhance the water supply 0n the Partnership Property t0 expand the capacity 0f the
Trout Farm for the exclusive benefit 0f SLTF and the Partnership.
5.37 Burkholder, Negus, SLTF, the Partnership, and the General Partner would never
have made such investments in the Partnership Property and the accompanying Water Rights if
they believed that such investments could be conveyed t0 MacDonald and Karen MacDonald. At
n0 time did Burkholder, Negus, SLTF, the Partnership, and the General Partner either individually
0r collectively ever agree t0 convey all 0r any portion 0f the Water Rights and all 0r any portion
0f the water appropriated thereunder t0 MacDonald 0r Karen MacDonald.
5.38 As the Water Rights are appurtenant t0 the Partnership Property owned by the
Partnership and leased by SLTF, the Water Rights are owned by the Partnership and leased by
SLTF irrespective 0f whose names appear 0n each 0f the Water Rights documents listed above
and irrespective 0f how the lands were held. Such water rights are appurtenant t0 the lands owned
by the Partnership and leased by SLTF.
5.39 MacDonald now asserts the Water Rights belong t0 him and the right t0 start his
own competing trout farm operation 0n the land. Those assertions, and the successful conveyance
0f the Water Rights t0 him, constitute an attempt t0 usurp an opportunity owned by SLTF and the
Partnership for his own benefit and violates MacDonald’s fiduciary obligations t0 the Partnership,
the warranties and obligations contained in the loan documents with Columbia Bank, and the
provisions 0f the Partnership Pledge Agreement and Letter 0f Understanding with Marianne
Burkholder.
5.40 MacDonald’s attempt t0 convey the Partnership Property violates MacDonald’s
warranties and obligations contained in the Partnership Pledge Agreement and Letter 0f
Understanding with Marianne Burkholder.
Distrained Partnership Personal PropertV
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5.41 The Partnership purchased personal property including, without limitation, the
following machinery, equipment, and vehicles located at the trout farm in Lake County, Oregon
(the “Partnership Personal Property”):
Takahachi track-hoe
John Deere bulldozer
portable fuel tank
Upon information and belief, MacDonald sold the John Deere bulldozer in October 2018 but still
is in possession 0f the track-hoe and fuel tank.
5.42 The Partnership and MacDonald have consistently characterized the Partnership
Personal Property as an asset 0f the Partnership 0n itsdepreciation and amortization schedules.
5.43 MacDonald has taken and distrained the Partnership Personal Property and is
storing such property in Lake County, Oregon while attempting t0 sell such Partnership Personal
Property and/or has otherwise converted it t0 his personal use.
Threats t0 Seize Fish Inventorv
5.44 In May 2018, MacDonald threatened t0 exclude SLTF employees from having
access t0 care for, and maintain, an inventory 0f several hundred thousand dollars’ worth 0f trophy-
sized rainbow trout that were under contract t0 be sold and delivered during the summer 0f 2018.
MacDonald threatened t0 seize SLTF’S fish inventory, which he lacked the feed, equipment, and
ability t0 care for. On July 23, 20 1 9, MacDonald repeated the same threats he had previously made
in May 2018. Columbia Bank holds a recorded UCC security interest in those fish and, as such,
the seizure 0f those fish would have triggered a default 0f the Columbia Bank loan. On 0r about
May 8, 201 8, MacDonald posted “N0 Trespassing” signs around the disputed trout raceways and
other trout farm facilities 0n the disputed property. Employees reported being told not t0 come
back 0n the property t0 care for, 0r remove, fish.
PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 16 0f 26
Status Ouo Agreements
5.45 T0 avoid that risk t0 SLTF’S fish inventory and irreparable damage t0 SLTF’S
relationship with its customers, Burkholder entered into a Status Quo Assurance Agreement with
MacDonald t0 allow SLTF’S employees access t0 care for, sell, and account for its fish.
MacDonald, through counsel, added a provision t0 the initial draft requiring proceeds from the
sale 0f fish t0 be used for certain purposes 0r, unless 0r until used for those purposes, t0 be placed
either in escrow 0r in the IOLTA account 0f Burkholder’s attorney. A copy 0f the first Status Quo
Agreement, together with the subsequent extension, is attached t0 this complaint as
Preview
FILED DALLAS COUNTY 2 CIT/ ESERVE 8/5/2019 4:07PM FELICIA PITRE DISTRICT CLERK JAVIER HERNANDEZ DC_1 9-1 9_1 1 136 CAUSE NO. BERNARD BURKHOLDER AND IN THE DISTRICT COURT BLAKE BURKHOLDER INDIVIDUALLY AND IN THEIR CAPACITY AS A LIMITED PARTNERS OF WESTERN DEVELOPMENT GROUP, LP AND AS MANAGERS OF WESTERN DEVELOPMENT GROUP GP, LLC Plaintiff, 192ND OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO mmwwammmmmmmmmmmwwww < JUDICIAL DISTRICT THOMAS A. MACDONALD AND KAREN MACDONALD Defendants, AND WESTERN DEVELOPMENT GROUP, LP AND WESTERN DEVELOPMENT GROUP GP, LLC Nominal Defendants. DALLAS COUNTY, TEXAS PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION TO THE HONORABLE JUDGE OF SAID COURT: COMES NOW Plaintiffs Bernard Burkholder (“Burkholder”) and Blake Burkholder individually and in their capacity as Limited Partners 0f Western of Development Group, LP (the “Partnership”) and as Managers 0f of Western Development Group GP, LLC (the “General Partner”) (sometimes collectively “Plaintiffs”) and file this Plaintiffs’ Original Petition for Judicial Expulsion complaining of Defendants Thomas A. MacDonald (“MacDonald”) and Karen MacDonald (sometimes collectively for convenience the “MacDonalds”) and for cause 0f of action would respectfully show the Court as follows: PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page of 26 1 0f I. PARTIES 1.01 Plaintiff Patrick Bernard Burkholder, individually and in his capacity as a Limited Partner 0f Western Development Group, LP and as Manager 0f Western Development Group GP, LLC, is an adult individual residing in Biloxi, Mississippi. 1.02 Plaintiff Blake Burkholder, individually and in his capacity as a Limited Partner 0f Western Development Group, LP and as Manager 0f Western Development Group GP, LLC, isan adult individual residing in Biloxi, Mississippi. 1.03 Defendant Thomas A. MacDonald is an individual who at all times material t0 this action is engaged and has engaged in business in Texas, as more fully described below. Defendant Thomas A. MacDonald individually, does not maintain a place 0f regular business in Texas and has n0 designated agent 0n whom service 0f citation may be made in this action. The cause 0f action asserted herein arose from 0r are connected with purposeful acts committed in Texas, and business done in Texas, by Defendant Thomas A. MacDonald because (a) Thomas A. MacDonald has executed agreements, contracts, deeds, loans and other documents including, without limitation, (i) the Partnership Agreement on behalf of the Texas Partnership (ii)the Regulations 0n behalf 0f the Texas General Partner, (iii)a Partnership Pledge Agreement 0n behalf 0f the Texas Partnership, (iv) loan agreements 0n behalf 0f the Texas Partnership and (V) deeds 0n behalf 0f the Texas Partnership; (b) the MacDonalds have organized and invested in a Texas limited partnership as a limited partner and currently each own a 24.75% limited partnership interest in the Partnership (collectively 49.5%); (c) the MacDonalds have organized and invested in a Texas limited liability company as members and currently each own a 25% membership interest in the General Partner (collectively 50%); (d) the claims and controversies involved in this cause 0f action arise out 0f 0r relate t0 the MacDonalds contacts with the state 0f Texas with regard t0 the Partnership and PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 2 0f 26 General Partner; (e) both the Partnership Agreement and the General Partner Regulations provide that such entities shall be governed by the laws 0f the state 0f Texas; and (f) both the Partnership Agreement, the General Partner Regulations and certificates filed with the Texas Secretary 0f State provide that their Registered Agent, Principal Place 0f Business and/or Principal Office are located in Dallas County, Texas. Pursuant t0 Texas Business Organizations Code §152.501(b)(5), Defendant Thomas A. MacDonald’s willful and material breach 0f the Partnership Agreement 0f the Texas Partnership, duties owed t0 the Texas Partnership 0r the other partners, wrongful conduct adversely and materially affecting the Texas Partnership business and other conduct relating t0 the Texas Partnership business that made itnot reasonably practicable t0 carry 0n the business in partnership with that partner is the basis 0f Plaintiffs’ cause 0f action. Accordingly, pursuant t0 Section 17.044 0f the Texas Civil Practice & Remedies Code, Defendant Thomas A. MacDonald may be served with citation by and through the Secretary 0f State 0f Texas, at his home and residential address located at 48413 Desert Springs Road, Summer Lake, Oregon 97640. 1.04 Defendant Karen MacDonald isan individual who at all times material t0 this action is engaged and has engaged in business in Texas, as more fully described below. Defendant Karen MacDonald individually, does not maintain a place 0f regular business in Texas and has n0 designated agent 0n whom service 0f citation may be made in this action. The cause 0f action asserted herein arose from 0r are connected with purposeful acts committed in Texas, and business done in Texas, by Defendant Karen MacDonald and/or her husband Thomas A. MacDonald 0n her behalf 0r for her benefit, because (a) the MacDonalds have executed agreements, contracts and other documents 0n behalf 0f the Texas Partnership; (b) the MacDonalds have invested in a Texas limited partnership as a limited partner and currently each own a 24.75% limited partnership interest in the Partnership (collectively 49.5%); (c) the MacDonalds have invested in a Texas limited liability company as members and currently each own a 25% membership interest in the PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 3 0f 26 General Partner (collectively 50%); (d) the claims and controversies involved in this cause 0f action arise out 0f 0r relate t0 the MacDonalds contacts with the state 0f Texas with regard t0 the Partnership and General Partner; (e) both the Partnership Agreement and the General Partner Regulations provide that such entities shall be governed by the laws 0f the state 0f Texas; and (f) both the Partnership Agreement, the General Partner Regulations and certificates filed with the Texas Secretary 0f State provide that their Registered Agent, Principal Place 0f Business and/or Principal Office are located in Dallas County, Texas. Pursuant t0 Texas Business Organization Code §152.501(b)(5), Defendant Karen MacDonald’s willful and material breach 0f the Partnership Agreement 0f the Texas Partnership, duties owed t0 the Texas Partnership 0r the other partners, wrongful conduct adversely and materially affecting the Texas Partnership business and other conduct relating t0 the Texas Partnership business that made itnot reasonably practicable t0 carry 0n the business in partnership with that partner isthe basis 0f Plaintiffs’ cause 0f action. Accordingly, pursuant t0 Section 17.044 0f the Texas Civil Practice & Remedies Code, Defendant Karen MacDonald may be served with citation by and through the Secretary 0f State 0f Texas, at her home and residential address located at 48413 Desert Springs Road, Summer Lake, Oregon 97640. 1.05 Western Development Group, LP is a Texas limited partnership which may be served with process in this cause by serving its registered agent Troy D. Phillips at itsregistered address at 14801 Quorum Drive, Suite 500, Dallas, Texas 75254-1449. 1.06 Western Development Group GP, LLC is a Texas limited liability company which may be served with process in this cause by serving its registered agent Troy D. Phillips at its registered address located at 14801 Quorum Drive, Suite 500, Dallas, Texas 75254-1449. II. DISCOVERY CONTROL PLAN PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 4 0f 26 2.01 Plaintiffs request that discovery be governed by Section 190.3 0f the Texas Rules of Civil Procedure. III. STATEMENT OF RELIEF SOUGHT 3.01 Plaintiffs seek the statutory expulsion 0f Thomas A. MacDonald and Karen MacDonald as limited partners 0f the Partnership under Texas Business Organizations Code §152.50 1 (b)(S), but n0 monetary relief, in this cause other than reasonable attorney’s fees alleged 1 herein. IV. JURISDICTION AND VENUE 4.01 This Court has original jurisdiction over this matter pursuant t0 Section 152.501(b)(5) 0f the Texas Business Organization Code and Section 24.007(a) and (b) as provided in Article V, Section 8 0f the Texas Constitution since this a statutory suit t0 expel limited partners 0f the Partnership pursuant t0 Section 152.501(b)(5). 4.02 Venue is proper in Dallas County, Texas pursuant t0 Texas Civil Practice & Remedies Code Section 15.002(a)(1) and (3) because all 0r a substantial part 0f the events 0r omissions giving rise t0 the claim occurred in Dallas County, Texas and the principal and registered offices 0f Western Development Group, LP and Western Development Group, LLC in Texas are located in Dallas County, Texas. V. WWW################## are engaged in extensive litigation in Oregon, including Case No. 18CV47457 styled Summer Lake Trout 1 The parties Farm, Inc., an Oregon Corporation; Bernard Burkholder, Individually and in his capacity as limited partner of Western Development Group, LP and as manager of Western Development Group GP, LLC; and Ethan Negus, Plaintiffs V. Thomas A. MacDonald; Karen MacDonald; Megan MacDonald; and Edward MacDonald, Defendants and Western Development Group, LP; and Western Development GP, LLC as Nominal Parties in the Circuit Court of the State of Oregon for the County of Lake. The Plaintiffs assert claims for declaratory judgment, quiet title, trover, conversion, detinue, unjust enrichment, breach of fiduciary duty, financial abuse and specific performance in the Oregon litigation, but not for judicial expulsion from the Partnership Which is a Texas limited partnership. PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 5 0f 26 FACTUAL BACKGROUND Summer Lake Trout Farm (The trout farm operator) 5.01 The Summer Lake Trout Farm (“Trout Farm”) also known as Desert Springs Fish Hatchery, hatches and grows fish, primarily rainbow trout, for sale t0 public and private buyers in both the live and food markets. Summer Lake Trout Farm, Inc. (“SLTF”) owns and operates the Trout Farm business and is a closely held Oregon corporation with its corporate office and principal place 0f business located in Lake County, Oregon. SLTF does not own any real property. Instead, SLTF leases property from the Partnership. The Trout Farm operation depends 0n natural aquifers and other water rights which provide large quantities 0f pure water required for the raceways in which the trout are reared. Lake County is an arid county located along Oregon’s Southern border 0n the eastern side 0f the Cascade Mountain Range. It isimportant that the Trout Farm operation have sufficient land and water not only for existing operations but also for future expansion. The Partnership (Owner 0f 900-Acre Property Containing the Trout Farm Land) 5.02 The Trout Farm and corporate headquarters 0f SLTF are located 0n approximately 900 acres 0f land (the “Partnership Property”) that is owned by Western Development Group, LP (the “Partnership”). The Partnership is held by the following partners: Bernie Burkholder 24.50% Limited Partner Interest Blake Burkholder 25.00% Limited Partner Interest Thomas A. MacDonald 24.75% Limited Partner Interest Karen MacDonald 24.75% Limited Partner Interest Western Development 1.00% General Partner Interest Group GP, LLC PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 6 0f 26 5.03 Western Development Group GP, LLC (the “General Partner”) is the general partner 0f the Partnership. The General Partner is a limited liability company held as follows: Bernie Burkholder 30% Membership Interest Blake Burkholder 20% Membership Interest Thomas MacDonald 25% Membership Interest Karen MacDonald 25% Membership Interest The Partnership and the General Partner are both named as nominal defendants t0 this action. At various times throughout the Partnership’s history, the Partnership has held real property in its own name as well as in the name 0f one 0r more 0f its partners. Notwithstanding such changes in the names 0n the deeds t0 such property, the property (including Partnership Property) was purchased and improved with partnership and SLTF assets and has maintained its status as property 0f the Partnership consistent with and as defined by Texas Business Organizations Code §152. 101-102 and Oregon Revised Statutes 67.065. Burkholder and the MacDonalds have both run cattle 0n the Partnership’s property that is not being used for aquaculture. Corporate Ownership and Management 0f SLTF 5.04 At all relevant times until 20 1 8, SLTF was owned by three shareholders as follows: Bernie Burkholder 44.58% Thomas A. MacDonald 44.58% Ethan Negus 10.84% Ethan Negus (“Negus”) is the full time onsite manager 0f the Trout Farm. 5.05 At all relevant times until 2018, SLTF had three officers as follows: Thomas A. MacDonald President Bernie Burkholder Vice President Ethan Negus Secretary PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 7 0f 26 MacDonald, Burkholder, and Negus were also members 0f SLTF’S board 0f directors. 5.06 During 201 8, MacDonald was removed as an officer and director 0f SLTF. SLTF purchased MacDonald’s SLTF stock, after which 0f SLTF’S remaining shares were held as follows: Bernie Burkholder 80.44% Ethan Negus 19.56% Since July 13, 2018, Burkholder has been president 0f SLTF. Since July 13, 201 8, the members 0f SLTF’S board 0f directors have been Burkholder and Negus. Columbia Bank Secured, Guaranteed Loans 5.07 SLTF and the Partnership shared common ownership prior to the fall of 2018. 5.08 SLTF and the Partnership each obtained loans from Columbia Bank prior t0 the summer 0f 201 8. Each 0f those loans was secured and cross-collateralized by the assets (including real and personal property) 0f both SLTF and the Partnership. Columbia Bank has a blanket security interest 0n all categories 0f collateral, including equipment, as well as Trust Deeds 0n real property (including the Partnership Property) and fixture filings as t0 any fixtures attached t0 real property. 5.09 Columbia Bank also filed a UCC-l Financing Statement 0n SLTF’S assets. 5.10 MacDonald and Burkholder personally guaranteed repayment 0f the loans from Columbia Bank. Marianne Burkholder Loans And Pledge Agreement 5.11 MacDonald and Burkholder were involved in a real estate development venture in the mid- t0 late-ZOOOS. Due t0 unexpected cash demands in conjunction with that development, MacDonald and Burkholder borrowed cash from Burkholder’s former spouse, Marianne Burkholder (“Marianne”). Marianne was concerned that MacDonald would refuse t0 repay his PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 8 0f 26 share 0f the loans. She, therefore, insisted that MacDonald, Burkholder, the Partnership, and the General Partner allbe obligated t0 repay those loans, and each undertook that obligation. 5. 12 Marianne further demanded that MacDonald, Burkholder and the General Partner each pledge their interest in the Partnership and the General Partner by executing a Pledge Agreement, which each did. A copy 0f that Pledge Agreement is attached hereto as Exhibit A. 5.13 In 2016, MacDonald, Burkholder, the General Partner, and the Partnership executed a Letter 0f Understanding concerning the repayment 0f the Loans. A copy 0f that Letter 0f Understanding is attached hereto as Exhibit B. 5. 14 Pursuant t0 the Letter 0f Understanding, MacDonald agreed t0 execute and deliver a promissory note, which would replace and supersede all prior promissory notes t0 Marianne. MacDonald has failed t0 execute such a note. A form for such a note is attached as Exhibit C. 5 .15 Pursuant t0 the Letter 0f Understanding, MacDonald also agreed that Marianne was t0 hold a pledge 0f 3.5 percent 0f each partner’s interest in the Partnership, including the partnership interests held by Burkholder, MacDonald, and the General Partner. Under the Pledge Agreement, Marianne had the power t0 exercise ownership rights over that pledged amount upon default with a Power 0f Attorney. SLTF Expansion and Future Expansion Plans 5.16 When SLTF was first formed, itassumed ownership 0f an existing hatchery with raceways and other facilities t0 raise trout. Since that time, however, SLTF and the Partnership have substantially expanded the current and future capacity 0f the Trout Farm by adding new raceways, wells, and other trade fixtures used in its business. Ithas done so using funds borrowed from its creditors and from its own cashflow, substantially improving the property 0n which the Trout Farm islocated. PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 9 0f 26 5. 17 Many 0f the improvements have been made for future expansion 0f the Trout Farm on the Partnership Property, which property is 0f sufficient acreage, has sufficient appurtenant water and water rights, land, and slope t0 increase its fish capacity many times over. The topography and available water supplies make the Trout Farm an ideal location for a highly efficient modern aquaculture operation. 5.18 The shareholders 0f SLTF and the partners 0f the Partnership relied 0n the certain ability t0 expand capacity 0f the Trout Farm when they invested in the acquisition 0f the Partnership Property and related water supplies, the companies, and the improvements. It was the ability t0 expand that made this investment 0f time and money so attractive. MacDonald’s Attempted Convevance 0f 750 Acres 5.19 On 0r about October, 2014, MacDonald attempted t0 convey approximately 750 acres 0f the Partnership Property and all appurtenances thereto (the “Affected 750 Acres”) t0 himself and his wife Karen MacDonald. He did so by executing and recording a deed that he signed in his own name as “Partner” 0f the Partnership (the “750-Acre Deed”). A copy 0f that 750-Acre Deed is attached hereto as Exhibit D. The attempted conveyance 0f the 750 acres and all appurtenances thereto 0r other interests associated therewith including, without limitation the Water Rights, was null, void, invalid, unauthorized and constituted a breach 0f contractual, fiduciary and statutory duties for the reasons set forth below: 5.20 MacDonald was never a general partner 0f the Partnership and, as such, he lacked the requisite legal authority t0 execute the 750-Acre Deed, 0r any other conveyance 0f the Partnership’s real property, as a “Partner” 0n behalf 0f the Partnership. 5.21 MacDonald is a limited partner 0f the Partnership. A limited partner has n0 legal authority t0 convey property 0n behalf 0f the Partnership. As such MacDonald lacked the requisite legal authority t0 execute the 750-Acre Deed as a limited partner 0f the Partnership. PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 10 0f 26 5.22 MacDonald is a member 0f the LLC that is the General Partner 0f the Partnership. He did not, however, execute the 750-Acre Deed in his capacity as a member 0r manager 0f that LLC. 5.23 MacDonald did not have authority t0 execute the 750-Acre Deed as a member 0r manager of the LLC that is the General Partner 0f the Partnership. T0 execute such deed as a member 0r manager 0f the General Partner, he would have first needed t0 obtain a majority vote 0f the membership interest holders 0r the managers 0f the General Partner under the General Partner’s Regulations (operating agreement) and under applicable state law. There has never been such a vote. MacDonald did not disclose the proposed conveyance t0 the other members, much less obtain a majority vote t0 proceed with the conveyance. 5.24 Section 5.6 0f the Partnership Agreement prohibits the sale 0r conveyance 0f any substantial portion 0f the assets 0f the Partnership absent approval by the “majority Vote 0f the General Partners and approval by a two-thirds maj ority Vote 0f the Limited Partners.” Neither vote occurred prior t0, 0r after, MacDonald’s attempt t0 deed the property t0 himself. 5.25 MacDonald’s attempt t0 convey the Affected 750 Acres t0 himself and Karen MacDonald also violated Section 5.4 0f the Partnership Agreement. That Section provides: “Obligations 0f the General Partner as Partnership Manager. The General Partner shall manage the Partnership affairs in a prudent and businesslike manner, and in accordance with good practices in the industry. The General Partner at all times shall act in the best interests 0f the Partnership in fulfillment of the purposes herein expressed.” The self—interested clandestine attempt t0 convey most 0f the valuable real estate that belongs t0 the Partnership t0 himself for zero consideration was not prudent, businesslike, 0r in accordance with good practices 0f any industry. Nor would such conveyance have been in the best interests 0f the Partnership. PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 11 0f 26 5.26 T0 the extent MacDonald attempts t0 characterize the 750-Acre Deed as an in-kind distribution t0 himself, such distribution would Violate Section 3.4 0f the Partnership Agreement and Sec. 5.02 and Article IX 0f the Regulations 0f the General Partner. Such conveyance would have required a proportional in-kind distribution, a valuation 0f the property and capital account adjustment t0 other partners pursuant t0 Section 3.4 0f the Partnership Agreement. Further, such distribution would breach Section 5.02 0f the General Partner’s Regulations, which requires in- kind distributions t0 be in accordance with ownership percentage. Yet MacDonald did not make proportional in-kind distributions t0 other partners 0r members and did not report such distributions t0 the other partners, other members, the Oregon Department 0f Revenue 0r the IRS. 5.27 T0 the extent MacDonald attempts t0 characterize the 750-Acre Deed as compensation, he has failed t0 (a) establish any legal 0r contractual basis for the compensation 0r (b) include such compensation 0n his W-2 Form, t0 claim such compensation 0n his state and federal tax returns, t0 provide for withholding, 0r t0 pay the ordinary income tax that would be attributed t0 such compensation. Moreover, the Partnership Agreement does not provide for payment 0f compensation t0 an individual partner; rather, Section 5.5 contemplates that any compensation would g0 t0 the General Partner (the LLC) upon approval by the General Partner (which was not obtained). 5.28 MacDonald’s attempt t0 convey the Affected 750 Acres violates Section 6.10 0f the Regulations 0f the LLC that is the General Partner 0f the Partnership because MacDonald purports t0 convey the property t0 himself for n0 consideration, which is certainly less favorable for the Partnership than the terms the Partnership would otherwise have been able t0 secure from third party buyers. Section 6. 10 provides, in relevant part: “Conflicts * * * 0f Interest. The Company may transact business with any Manager, Member, officer 0r Affiliate thereof, provided the terms 0f those transactions are n0 less favorable than those the Company could obtain from PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 12 0f 26 unrelated third parties.” 5.29 T0 the extent MacDonald’s attempt t0 convey the property was successful, he isliable t0 the General Partner pursuant t0 the Organizational Consent 0f Managers Section 11.05, which provides: “A Manager shall be liable t0 the company for the following actions: ‘6 a. A breach 0f their duty 0f loyalty t0 the company, 0r t0 its Members; “b. An act 0r omission that was taken in bad faith and which constitutes a breach 0f the Manager’s duty t0 the company by an act that is grossly negligent, malicious, 0r intentional, as those terms are defined by law. ‘6 c. A transaction in which the Manager benefits t0 the detriment 0f the company 0r its Members. “d. An action for which the Manager is liable at law and for which an indemnification is not allowed.” 5.30 T0 the extent MacDonald’s attempt t0 convey the property was successful, such conveyance breaches the covenants contained in the Partnership’s loan agreement and trust deed with Columbia Bank, which holds a security interest in the property. Causing such a Violation would also constitute a breach 0f MacDonald’s fiduciary duty t0 the Partnership, SLTF, and their creditors. 5.31 MacDonald’s attempt t0 convey the property, if successful, would also breach MacDonald’s warranties and obligations contained in the Partnership Pledge Agreement and Letter 0f Understanding with Marianne Burkholder. 5.32 Even if the property was held in the name 0f MacDonald and Karen MacDonald, the 750 acres and all appurtenances thereto, 0r other interests associated therewith including, without limitation, the Water Rights, remains Partnership property, pursuant t0 Texas Business Organizations Code §152.101-102 and Oregon Revised Statutes 67.065 because the property was purchased and improved with Partnership assets. PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 13 0f 26 5.33 Even if the 750 Acre Deed were valid, MacDonald and his wife Karen MacDonald would have been unjustly enriched in the amount 0f the fair market value 0f the property by receiving that property without paying any consideration therefore. Appropriation 0f Water Rights 5.34 The entirety 0f the Trout Farm is located 0n the Partnership Property, which property the Partnership has leased t0 SLTF solely for such purpose. The land MacDonald and his wife attempted t0 transfer t0 themselves included land 0n which existing raceways for trout farm operation were located. The attempted transfer also included land intended for further expansion 0f the trout farm operations and itswater rights. There are both inchoate and vested water rights that are appurtenant t0 the Partnership Property and, therefore, are owned by the Partnership, which include the following, as identified in the records 0f the Oregon Water Resources Department: (1) Pre-1909 Claim identified as SWR 170; (2) Water Rights Certificate 83069; (3) Water Right Certificate 83065; and (4) Permit G-17749 (collectively, the “Water Rights”). 5.35 Evidence 0f SLTF’S and the Partnership’s continuing development, use, and maintenance 0f the Water Rights includes, but is not limited t0, the following activities, the completion 0f which has compelled substantial investments by SLTF and the Partnership in terms of money, time, and labor: (a) Legal fees incurred with a water rights specialty firm t0 survey and protect the Water Rights; (b) Completion 0f groundwater wells t0 utilize and perfect groundwater rights; and (c) Construction 0f new raceways, trenching, and other facilities t0 utilize and/or perfect the Water Rights. 5.36 Burkholder, Negus, SLTF, the Partnership, and the General Partner made such investments t0 further develop, use and maintain the Water Rights as necessary in order t0 PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 14 0f 26 sufficiently enhance the water supply 0n the Partnership Property t0 expand the capacity 0f the Trout Farm for the exclusive benefit 0f SLTF and the Partnership. 5.37 Burkholder, Negus, SLTF, the Partnership, and the General Partner would never have made such investments in the Partnership Property and the accompanying Water Rights if they believed that such investments could be conveyed t0 MacDonald and Karen MacDonald. At n0 time did Burkholder, Negus, SLTF, the Partnership, and the General Partner either individually 0r collectively ever agree t0 convey all 0r any portion 0f the Water Rights and all 0r any portion 0f the water appropriated thereunder t0 MacDonald 0r Karen MacDonald. 5.38 As the Water Rights are appurtenant t0 the Partnership Property owned by the Partnership and leased by SLTF, the Water Rights are owned by the Partnership and leased by SLTF irrespective 0f whose names appear 0n each 0f the Water Rights documents listed above and irrespective 0f how the lands were held. Such water rights are appurtenant t0 the lands owned by the Partnership and leased by SLTF. 5.39 MacDonald now asserts the Water Rights belong t0 him and the right t0 start his own competing trout farm operation 0n the land. Those assertions, and the successful conveyance 0f the Water Rights t0 him, constitute an attempt t0 usurp an opportunity owned by SLTF and the Partnership for his own benefit and violates MacDonald’s fiduciary obligations t0 the Partnership, the warranties and obligations contained in the loan documents with Columbia Bank, and the provisions 0f the Partnership Pledge Agreement and Letter 0f Understanding with Marianne Burkholder. 5.40 MacDonald’s attempt t0 convey the Partnership Property violates MacDonald’s warranties and obligations contained in the Partnership Pledge Agreement and Letter 0f Understanding with Marianne Burkholder. Distrained Partnership Personal PropertV PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 15 0f 26 5.41 The Partnership purchased personal property including, without limitation, the following machinery, equipment, and vehicles located at the trout farm in Lake County, Oregon (the “Partnership Personal Property”): Takahachi track-hoe John Deere bulldozer portable fuel tank Upon information and belief, MacDonald sold the John Deere bulldozer in October 2018 but still is in possession 0f the track-hoe and fuel tank. 5.42 The Partnership and MacDonald have consistently characterized the Partnership Personal Property as an asset 0f the Partnership 0n itsdepreciation and amortization schedules. 5.43 MacDonald has taken and distrained the Partnership Personal Property and is storing such property in Lake County, Oregon while attempting t0 sell such Partnership Personal Property and/or has otherwise converted it t0 his personal use. Threats t0 Seize Fish Inventorv 5.44 In May 2018, MacDonald threatened t0 exclude SLTF employees from having access t0 care for, and maintain, an inventory 0f several hundred thousand dollars’ worth 0f trophy- sized rainbow trout that were under contract t0 be sold and delivered during the summer 0f 2018. MacDonald threatened t0 seize SLTF’S fish inventory, which he lacked the feed, equipment, and ability t0 care for. On July 23, 20 1 9, MacDonald repeated the same threats he had previously made in May 2018. Columbia Bank holds a recorded UCC security interest in those fish and, as such, the seizure 0f those fish would have triggered a default 0f the Columbia Bank loan. On 0r about May 8, 201 8, MacDonald posted “N0 Trespassing” signs around the disputed trout raceways and other trout farm facilities 0n the disputed property. Employees reported being told not t0 come back 0n the property t0 care for, 0r remove, fish. PLAINTIFFS’ ORIGINAL PETITION FOR JUDICIAL EXPULSION - Page 16 0f 26 Status Ouo Agreements 5.45 T0 avoid that risk t0 SLTF’S fish inventory and irreparable damage t0 SLTF’S relationship with its customers, Burkholder entered into a Status Quo Assurance Agreement with MacDonald t0 allow SLTF’S employees access t0 care for, sell, and account for its fish. MacDonald, through counsel, added a provision t0 the initial draft requiring proceeds from the sale 0f fish t0 be used for certain purposes 0r, unless 0r until used for those purposes, t0 be placed either in escrow 0r in the IOLTA account 0f Burkholder’s attorney. A copy 0f the first Status Quo Agreement, together with the subsequent extension, is attached t0 this complaint as