Dallas Gas Partners LP v. Prospect Energy Corporation
Filing
222
OPINION AND ORDER granting 215 Motion for Judgment; mooting 221 Motion for Conference. (Signed by Judge Melinda Harmon) Parties notified.(htippen, )
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
PROSPECT ENERGY CORPORATION,
§
§
Plaintiff,
§
§
VS.
§
§
DALLAS GAS PARTNERS, LP, DALLAS §
GAS GP, LLC, DAVID NELSON,
§
JEFFREY WEISS, AND TOM MUSE,
§
§
Defendants.
§
CIVIL ACTION H-10-1396
OPINION AND ORDER
Pending before the Court in the above referenced action are
Plaintiff Prospect Energy Corporation’s (“Prospect’s”) motion for
entry of final judgment (instrument #215), Defendant Thomas Muse’s
(“Muse’s”) objections to the proposed final judgment (#216), and
John S. Black and Reynolds, Frizzell, Black, Doyle, Allen &
Oldham’s motion for status conference (#221) regarding the Court’s
order (#220) of January 19, 2012.
On January 6, 2011 the Court granted summary judgment (#190)
in favor of Plaintiff Prospect for breach of an LLC Membership
Interest Purchase Agreement (the “Agreement”) against Defendants
Dallas Gas Partners, L.P., Dallas Gas G.P., L.L.C., David W.
Nelson, Jeffrey Weiss, and Thomas P. Muse.
On March 8, 2011, the
Court issued an Opinion and Order (#210) concluding that New York
law applied and that liability under the Agreement was joint.
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On
November 22, 2011 the Court issued another Opinion and Order (#214)
awarding fees in the amount of $1,189,019.41 and expenses in the
amount of $119,090.131 as actual damages for the breach of contract
claim and ordered Prospect to submit a proposed final judgment.
Prospect now asks the Court to enter final judgment in its
favor, including $1,308,045.54 in damages that the Court previously
awarded plus prejudgment interest under New York law and postjudgment interest.
It maintains that because the Agreement is
governed by New York law, New York law governs the calculations of
prejudgment interest.
Harris v. Mickel, 15 F.3d 428, 429 (5th Cir.
1994)(“State law governs the award of prejudgment interest in
diversity cases.”).
Under New York law, a prevailing party may recover prejudgment
interest upon the sum awarded for breach of contract.
N.Y.
C.P.L.R. § 5001(a) (Consol. 2007)(“Interest shall be recovered upon
a sum awarded because of a breach of performance of contract.”).
The rate is 9% unless otherwise provided by statute or in the
parties’ contract.
NML Capital v. Republic of Argentina, 952 N.E.
2d 482, 488 (N.Y. 2011); N.Y. C.P.L.R. § 5004 (Consol. 2007).
Here, because the contract does not provide a prejudgment interest
1
Prospect points out that the Court awarded it this amount as
requested by Prospect, but that due to a transcription error, the
amount should have been $64 less, i.e., $119,026.13 for expenses as
reported in Exhibit 6 to #176-21. Thus it corrects the amount in
its current request for entry of judgment.
-2-
rate, the statutory 9% per annum rate applies.
N.Y. C.P.L.R. §
5004.
Under New York law, prejudgment interest begins to accrue from
the date that Prospect incurred each payment obligation.
N.Y.
C.P.L.R. § 5001(b) provides,
Interest
shall
be
computed
from
the
earliest
ascertainable date the cause of action existed, except
that interest upon damages incurred thereafter shall be
computed from the date incurred. Where such damages were
incurred at various times, interest shall be computed
upon each item from the date it was incurred or upon all
of the damages from a single reasonable intermediate
date.
The Court’s damages award of all Prospect’s attorney’s fees and
expenses was based on the affidavit of Neil Kenton Alexander
(“Alexander Affidavit”) (#176-14) and Exhibits 2 and 6 to it, which
contain the time entries for the work provided and the expenses
that were incurred.
See also #215, Exhibit A, with the same time
entries in Exhibit 2 to the Alexander Affidavit, plus a calculation
of prejudgment interest from the date that Porter Hedges received
payment for the time billed (Ex. C).
Prospect calculated that the
total prejudgment interest on the attorney’s fee portion of the
damages award is $597,474.10 through December 23, 2011.
Exhibit B to #215 contains identical expenses to those listed
in Exhibit 6 to the Alexander Affidavit, plus a calculation of
prejudgment interest from the date that Porter Hedges received
payment for the expense billed (Exhibit C).
-3-
Prospect calculates
that the total prejudgment interest on Prospect’s expenses as
$59,396.79 through December 23, 2011.
Prospect states that it is entitled to entry of judgment for
$1,308,045.54
in
damages.
In
addition
it
is
entitled
to
prejudgment interest on fees and expenses through December 23,
2011, totaling $656,870.89.
For each day after December 23, 2011
until judgment is entered, prejudgment interest continues to accrue
at $322.53 per day.
The only objections to Prospect’s proposed final judgment are
from Thomas Muse, who asks that the Court reject it against him,
individually, and set a jury trial of the case against him to
resolve remaining issues of material fact.
Muse raises three
objections: (1)Prospect lacks standing to sue Muse under Texas law
because Prospect is not a properly registered corporation with the
Texas Secretary of State; (2) Prospect’s claim against Muse for
breach of contract fails because it did not prove causation; and
(3) prejudgment interest should not be awarded for the period
between August 20, 2008 and April 26, 2010 because the parties
agreed to stay the case during that time.
Regarding the first objection, Muse argues that under Texas
law,
“[a]
foreign
filing
entity
or
the
entity’s
legal
representative may not maintain an action, suit, or proceeding in
a court of this state . . . on a cause of action that arises out of
the transaction of business in this state unless the foreign filing
-4-
entity is registered in accordance with this chapter.”
Orgs. Code Ann. § 9.051(b).
Tex. Bus.
Prospect is a foreign corporation
formed under the laws of Maryland.
The breach of contract action
in Prospect’s counterclaim arose from a business transaction in
Texas.
Although Prospect once registered in compliance with Texas
law, it has since forfeited its existence, and the Court should not
enter judgment in its favor until it properly registers. Troyan v.
Snelling & Snelling, Inc., 524 S.W. 2d 432, 434-35 (Tex. Civ. App.-Dallas 1975, no writ).
At minimum, the Court should not allow
interest to accrue on any judgment against Muse until Prospect
cures its deficient registration with the Texas Secretary of State.
Second, under New York law a plaintiff must prove that “but
for” the defendant’s breach of contract, the plaintiff would not
have suffered damages.
Brown v. Lockwood, 432 N.Y.S. 2d 186 (N.Y.
App. Div. 2d Dep’t 1980).
Muse insists that Prospect has not
established causation as to him.
Prospect alleged only that Muse
“agreed” with his other limited partners that the first lawsuit in
November 2004 should be filed by Dallas Gas Partners, L.P. (“DGP”)
and that he signed a $7,000.00 check from Muse Energy Partners,
L.P., dated November 18, 2004, made payable to DGP.
Muse contends
that neither his agreement nor his signing of the check caused
Prospect’s damages.
Under Texas law his agreement to filing the
suit was not required for the litigation to be pursued:
a general
partner has the authority to file suit in the name of a limited
-5-
partnership only when a majority-in-interest of the partners agree
to that action.
Texas Business Organizations Code § 152.209.
DGP
is a limited partnership with five limited partners divided as
follows:
the General Partner (1.0%); Franklin Brinegar (2.6%);
James C. Langdon, Jr. (12.7%); Tom Muse (27.9%); Jeffrey Weiss
(27.9%); and David Nelson (27.9%).
See Agreement of Limited
Partnership of MNW Acquisition, L.P., Ex. 5 to #106.
Weiss, who
signed the fee agreement with the Arnold & Itkin law firm, and
Nelson (the general partner of DGP just prior to the fee agreement)
owned a combined 55.8% of the interest in DGP, so they did not need
Muse’s agreement to pursue the litigation.
Furthermore, Prospect
has presented no evidence that the $7,000.00 check signed by Muse
was used to fund the litigation.
Prospect also has not explained
how
prove
Muse
Energy’s
check
could
causation
as
to
Muse,
individually.
Muse argues that as a matter of public policy, the Texas
Business Organizations Code protects individual limited partners
from liability for actions taken by the limited partnership entity.
Tex. Bus. Orgs. Code § 153.102.
Section 153.102 provides a “safe
harbor” list of actions for which a limited partner cannot be found
to have participated in the business of the limited partnership for
individual liability purposes.
Section 153.103(1)(E) protects a
limited partner from liability when he acts as a “member or manager
of a limited liability company that is a general partner of the
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limited partnership.”
A limited partner is also protected from
liability for “consulting with or advising a general partner on any
matter, including the business of the limited partnership.”
153.103(3).
§
The alleged agreement of Muse with two of his limited
partners is therefore protected by the safe harbor provisions. So,
too, would be the signing of the $7,000.00 check even if it had
been
issued
expenses.
for
an
obligation
of
DGP
to
pay
its
litigation
§ 153.103(4)(protecting limited partner from liability
for “guaranteeing or assuming one or more specific obligations of
the limited partnership”).
Finally,
argues
Muse,
it
is
not
appropriate
to
award
prejudgment interest which the case was stayed by agreement of all
parties.
1998)(“In
Johnson & Higgins v. Kenneco, 962 S.W. 2d 507, 531 (Tex.
most
circumstances,
[a
standstill
agreement]
would
operate to toll the accrual of prejudgment interest while the
agreement is in effect”); Ellis v. City of Dallas, 111 S.W. 3d 161,
168 (Tex. App.--Eastland 2003)(concluding that the trial court
properly suspended accrual of pre-judgment interest because of an
agreement between the parties to temporarily suspend all aspects of
the lawsuit).
Muse asserts that Defendants requested the stay
pending appeal to the Fifth Circuit (#140) and Prospect not only
agreed, but made its own request for a stay (#147).
The Court
issued its stay order on August 20, 2008 (#149) and did not lift
the stay until 614 days later, on April 26, 2010 (#182).
-7-
In reply (#218), Prospect requests that the Court overrule
Muse’s objections.
First, Prospect is not required to register to
do business in Texas under Texas Business Organizations Code
§
901, et seq., in order to assert its counterclaims against Muse and
the other Defendants because the statute does not apply to the
transaction at issue.
The transaction giving rise to Prospect’s
cause of action was the LLC Membership Interest Purchase Agreement
(the “Agreement”)(#176-2) that contained the Release and Covenant
Not to Sue, which Muse and the other Defendants breached.
The
Agreement did not constitute “the transaction of business in this
state” under § 9.251, which expressly states,
For purposes of this chapter, activities that do not
constitute transaction of business in this state include:
. . .
(9) transacting business in interstate commerce;
(10) conducting an isolated transaction that:
(A) is completed within a period of 30 days;
and
(B) is not in the course of a number of
repeated, similar transactions. . . .
Tex. Bus. Orgs. § 9.251(9)-(10).
The Agreement, governed by New
York law, was for the sale in interstate commerce to Prospect, a
Maryland corporation with its principal place of business in New
York,
of
membership
interests
in
a
Texas
LLC
owned
by
the
Defendants and thus was not “the transaction of business in this
state.” Moreover, the transaction was completed within a period of
30 days and was not in the course of a number of repeated, similar
transactions.
See, e.g., Canatxx Gas Storage Ltd. v. Silverhawk
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Capital Partners, LLC, Civ. A. H-06-1330. 2006 WL 1984627 *2 (S.D.
Tex. July 14, 2006)(Section 9.251(9) exempts “transaction business
in interstate commerce” from § 9.251's definition of “transaction
of business in this state” and Canatxx’s allegations relate to
transaction of business in interstate commerce so Canatxx had
authority to sue in Texas state court); Guardian Underwriters
Reassurance Ltd. v. Thompson, Coe,) Cousins & Irons, L.L.P., No.
Civ.
303CV133H,
2003
WL
22077945,
*2
(N.D.
Tex.
Sept.
2,
2003)(applying exception for interstate commerce to excuse failure
to obtain a certificate of authority from Secretary of State),
citing Diversacon Indus., Inc. v. Nat’l Bank of Commerce of
Mississippi, 629 F.2d 1030, 1034 (5th Cir. 1980)(holding that the
interstate exemption was a “recognition of a constraint imposed
upon
state
power
by
the
Commerce
Clause”
of
the
federal
Constitution. “‘[W]here the business of the foreign corporation is
interstate in nature, a state may not burden such business with
state
qualification
requirements
unless
the
business
of
the
corporation includes a distinct and separable interstate focus, .
. . or the corporation has localized its business within the
state.’”
Id., quoting Radio WHKW, Inc. v. Yarber, 838 F.2d 1439,
1443 (5th Cir. 1988)(citations omitted).
Alternatively, Prospect indicates, should the Court find that
it should have registered with the Secretary of State, Prospect
asks for leave to register now.
-9-
Troyan v. Snelling & Snelling,
Inc.,
524
S.W.
2d
432,
434
(Tex.
App.--Dallas
19875,
no
writ)(permitting plaintiff, after a jury trial, to obtain the
required certificate of authority to do business in Texas before
entry of final judgment).
Prospect points out that this Court has twice held that Muse
and the other Defendants are individually liable for Prospect’s
damages.
#190, entered January 6, 2011, and #210, March 8, 2011.
Thus Muse’s current contention that it should not be liable because
Prospect has not established causation is a “belated attempt to
relitigate this Court’s Order granting summary judgment” against
Muse, an argument which he has waived by delay, which is meritless,
which has been considered and rejected by the Court (#190 and 210),
and
which
constitutes
“yet
another
dilatory
arguments already rejected by this Court.”
repackaging
if
#218 at 4-5.
As for the stay, Prospect maintains that the authority cited
by Muse is inapplicable.2
Prospect’s own research of New York law
has not uncovered any case that eliminated prejudgment interest
during a period of stay.
It has found that New York courts have
2
Prospect asserts that in Johnson & Higgins, the Texas
Supreme Court held that a contractual pre-litigation standstill
agreement that expressly reserved all of the parties’ rights did
not suspend the running of prejudgment interest. 962 S.W. 2d at
531. In Ellis, the Court of Appeals held that prejudgment interest
did not run during the period that the parties’ claims were by
agreement dismissed without prejudice, pending the outcome of other
litigation, because their agreement to dismiss without prejudice
did not reserve all rights or provided that prejudgment interest
would run while the claims were dismissed. 111 S.W. 3d at 167.
-10-
rejected claims that delays in adjudication caused by intermediate
appeals suspend the running of prejudgment interest.
See, e.g.,
Love v. State, 78 N.Y. 2d 540, 544-45, 583 N.E. 2d 1296, 1298 (N.Y.
Nov. 26, 1991)(in a bifurcated trial with an interlocutory appeal,
which is generally the right of all litigants, no matter who caused
the delay the prevailing party is to be fully compensated for its
losses; interest is not a penalty, but a cost of doing business and
for using another person’s money between the time it is determined
that compensation is due until judgment).
Prospect contends that
Defendants have increased the cost of this litigation throughout
its pendency, and that during the 614 days the case was stayed,
Prospect continued to suffer the unreimbursed cost of its defense
in a lawsuit that should never have been filed.
“Prejudgment
interest must be calculated from the date that liability is
established regardless of which party is responsible for the delay,
if any, in the assessment of the plaintiff’s damages.”
N.E. 2d at 1298.
losses.”
Id.
Love, 583
Prospect should be “fully compensated for [its]
See also Van Nostrand v. Froehlich, 44 A.D. 3d 54,
57-58, 844 N.Y.S.2d 293, 295-96 (N.Y.A.D. 2 Dept. 2007)(“Interest
accrues independent of whether either party causes a delay in
reaching the damages trial.”); Gunnarson v. State, 70 N.Y.2d 923,
524 N.Y.S.2d 396, 519 N.E.2d 307 (1987)
-11-
Court’s Decision
The Court full agrees with Prospect that it is entitled to the
entry of its proposed judgment and that Muse’s objections lack
merit.
Accordingly the Court
ORDERS that Prospect’s motion for entry of judgment (#215) is
GRANTED and final judgment shall be entered by separate order. The
Court further
ORDERS that Muse’s objections (#216) are OVERRULED.
Finally,
because this case has been resolved, John S. Black and Reynolds,
Frizzell, Black, Doyle, Allen & Oldham are hereby relieved of their
representation of individual Defendants David Nelson and Jeffrey
Weiss, and thus their motion for status conference (#221) is MOOT.
SIGNED at Houston, Texas, this
20th
day of
June , 2012.
___________________________
MELINDA HARMON
UNITED STATES DISTRICT JUDGE
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