- Case Type:
- Case Status:
- Affirmed in part and Reversed in part
- 19-20152 (5th Circuit, Dec 15,2020) Published
- A state court that granted summary judgment improperly excluded evidence that would be sufficient to change the outcome of the summary judgment motion. The state court's evidentiary rulings are reversed. Reversal of a state court's evidentiary rulings is proper because the state court rulings are treated as rulings of a lower federal court in a case removed to federal court. Because the evidentiary rulings are reversed, the summary judgment is vacated, and the case is remanded for further proceedings consistent with the reversal of the state court's evidentiary rulings.
- Procedural context:
- The case originated as a state court proceeding asserting claims for fraud, conspiracy to breach a fiduciary duty, aiding and participating in a breach of a fiduciary duty, breach of a fiduciary duty, and fraudulent transfer under the Texas Uniform Fraudulent Transfer Act. Two of the defendants moved for summary judgment. In connection with granting the summary judgment motion, the state court granted several evidentiary objections and excluded certain evidence. The case was removed to federal court after certain limited partnerships in the state court litigation became chapter 7 debtors. Reference to the bankruptcy court was withdrawn by the United States District Court for the Southern District of Texas, which subsequently entered an "agreed final judgment" on February 7, 2019.
- This is a case of real estate wheeling-dealing gone awry, one that begs for a playbill and a spreadsheet. The property is a 7.5 acre tract at the corner of Alabama and Dunlavy inside Loop 610 in Houston, Texas (the “Alabama Property”). The Alabama Property can be developed for retail. The parties: Jay H. Cohen, the appellant, owned limited partnership interests in a limited partnership, Alabama & Dunlavy (“A&D”), that was formed to purchase the Alabama Property. Matthew Dilick, owned 9.5% of the limited partnership interests in A&D and controlled Commerce Equities II, A&D’s general partner. Robert Abercrombie controls Texas Abercrombie Family Interests, Ltd. (“TAFI”), which purchased the Alabama Property from A&D in a sale arranged by Dilick with a loan procured by Dilick. Dilick, on behalf of A&D, borrowed about $13.5 million against the Alabama Property. The debt, held by Wedge Real Estate Finance, matured at the end of 2008. Wedge started foreclosure proceedings against the Alabama Property. Abercrombie had previously tried to develop the property by securing ground leases with CVS and Kroger, but those deals had fallen through. The Alleged Fraud: In fall 2009, Dilick learned from Abercrombie that a company wanted to put a grocery on the Alabama Property through a long-term ground lease. Dilick had experience with such leases and knew from a third-party that the Alabama Property with that lease would be collateralize a loan of over $18 million. In December 2009, Abercrombie and Dilick approached Howard Herbert, the trustee of JHC Trust II, about selling the Alabama Property. The parties initially agreed to a $16.7 million purchase price, which Herbert accepted because he thought it would result in around $3 million in profit for the partnership. The only other offer for the Alabama Property at the time was from Wal-Mart for about $9 million. But Dilick and Abercrombie concealed details in these discussions, including Abercrombie’s negotiations with the grocery store chain and Dilick’s emails with a grocery store chain representative. Dilick also concealed the third-party valuation report stating that the property coupled with a long-term ground lease could be worth over $18 million. On February 4, 2010, the grocery-store chain agreed to a lucrative long-term lease of the Alabama Property with TAFI, which was not even formed. Abercrombie signed the term sheet for the lease on behalf of TAFI. He also signed TAFI’s limited partnership agreement as a representative of its general partner, as a limited partner, as the manager of a different corporation and limited partner called European Capital Fund (“ECF”), and as the manager of two other non-existent, never-formed companies listed as limited partners. Abercrombie and Dilick still had problems. The lessee could back out of the lease. TAFI did not yet own the property. And Wedge, the holder of the debt, had scheduled foreclosure. Dilick and Abercrombie had to move quickly to transfer the property from A&D to TAFI. To buy time to transfer the Alabama Property from A&D to TAFI, Dilick obtained a bridge loan from Adam Acquisition Company to pay off Wedge. Although Adam Acquisition lent the money to TAFI, it was Dilick, not Abercrombie who made the arrangements. On February 11, 2010, Dilick asked Adam Acquisition for a $15 million "personal bridge loan." Counsel for Adam Acquisition emailed Dilick about the prospects of a loan to him or to an entity he owned. Dilick then provided documentation to Adam Acquisition including an undated, notarized statement in which both he and Abercrombie certified that "any and all investments, loans, legal and organization documents with Mr. Don Adams are 100% in the sole control and sole decision-making authority of Matthew G. Dilick." Adam Acquisition's counsel testified that he thought this meant Dilick oversaw Abercrombie and TAFI. On February 26, 2010, Dilick, acting on behalf of the A&D partnership, sold the Alabama Property to TAFI. Dilick provided TAFI the $2 million it needed to close the $15 million bridge loan. And Dilick, not Abercrombie, personally guaranteed the bridge loan. But the A&D/TAFI sale was not for the agreed upon price of $16.7 million. Instead, Dilick sold the property for $13.5 million, which was just enough to pay off Wedge. A&D also received an unsecured, non-recourse note from Abercrombie for $334,837. It appears that Abercrombie could not contribute financially to the deal's closing as he had recently asked Dilick for a loan to help him avoid returning to jail for a failure to pay child support. Abercrombie could, however, contribute his signature. On June 17, 2010, following the sale from A&D to TAFI and with the grocery store lease in place, TAFI closed a $19.9 million loan secured by the Alabama Property. At the closing, Abercrombie testified that "[he] signed a bunch of blank documents, … just signature pages" and that "[he] didn't look at any of it. [He] just signed them." These blank pages sent money to multiple entities. From the disbursements at closing, TAFI received $2.94 million. But $1.06 million of that $2.94 million left TAFI and traveled a circuitous path to Dilick's Commerce Equities. First, it went into an account opened in the name of TAFI's limited partner ECF. Though Abercrombie signed paperwork as ECF's manager, Dilick's associate and tenant Luis Bodmer, opened the account. Bodmer had nothing to do with ECF on paper and no authority to act for it, yet he signed the bank paperwork as member and manager of ECF. After spending twenty-four hours in the ECF account, the money passed into the account of Kings Cross Ventures, a restaurant business run by Michael Horan that operated out of a location Dilick leased to him. After receiving the funds, Horan transferred them in two transactions on two consecutive days into an account for Mid Rise Builders. From there, the money was mixed with other funds and then transferred into Commerce Equities. $225,000 was transferred from ECF to Richard Golden, the grocery store-lessee's director of real estate, with whom Abercrombie and Dilick had started lease negotiations back in November 2009. Upon discovering the self-dealing, Cohen sued Abercrombie, TAFI and others in Texas state court, alleging fraud and other claims in connection with the sale of the Alabama Property from A&D to TAFI.
- Graves, Costa, and Engelhardt
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