Akuna Matata Investments, Ltd. v. Texas Nom Ltd. Partnership

814 F.3d 277, 2016 WL 542713

• Court: Court of Appeals for the Fifth Circuit
• Decided: February 11, 2016
• Docket: No. 14-51158
• Status: Published

Opinions

EDITH H. JONES, Circuit Judge:

Appellee Akuna Matata brought suit in federal court seeking dissolution of an oil and gas partnership and a determination of its ownership share. The district court granted summary judgment in favor of Akuna and ordered the parties to submit additional briefing on the value of the partnership’s assets and the relative share that each partner owned. The district court ultimately ordered termination of the partnership and awarded $213,354.01 in partnership profits to Akuna, plus attorneys’ fees. Finding no reversible error, we AFFIRM the district court.

A.

The parties have been litigating for over ten years and are well acquainted with the facts of this case. But to briefly summarize, the dispute arose from an oil and gas partnership — the Gracey Ranch project. In 2002, Appellee Akuna Matata (“Akuna”) sued Garrison Ltd. (“Garrison”) in state court alleging claims of fraud, conversion, breach of fiduciary duty, and breach of contract.

In 2004, the state trial court determined that the parties had entered into an oral partnership to develop multiple oil and gas leases and awarded Akuna $225,309 for Garrison’s breach of oral partnership and its breach of fiduciary and contractual duties. This amount was equal to Akuna’s net investment in the partnership. Garrison timely appealed and the appellate court affirmed the trial court. Notably, neither of the state courts expressly dissolved the partnership.¹

In 2005, Akuna brought the case being appealed. Garrison responded by arguing that Akuna’s suit was barred by res judica-ta because Akuna was requesting from the federal court the same relief it had requested and received in state court. In granting summary judgement in Akuna’s favor, the district court held that the state court did not dissolve the partnership and that the rancor between the parties required a winding up of the partnership.

On appeal, Garrison raises the following issues: (1) whether Akuna’s lawsuit was barred by res judicata; and (2) whether Garrison was deprived of a trial, or (3) whether Garrison was entitled to present oral testimony on the valuation and ownership issues.

B.

The federal courts follow Texas law of res judicata in this Texas case. Cerda v. 2004-EQR1 L.L.C., 612 F.3d 781, 786 (5th Cir.2010). Res judicata bars subsequent litigation if the earlier case in volved the same parties, a full and final decision, and the same issues that are or could have been raised initially. Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex.2010). The res judicata effect of a prior judgment is a question of law that we review de .novo. Test Masters Educ. Servs., Inc. v. Singh, 428 F.3d 559, 571 (5th Cir.2005). But a district court’s factual findings on whether res judicata applies are reviewed for clear error. Friends of Milwaukee’s Rivers & Alliance for Great Lakes v. Milwaukee Metro. Sewerage Dist., 556 F.3d 603, 609-10 (7th Cir.2009). Like the district court, we conclude that this federal court suit to terminate the partnership, damages for breach of which had been adjudicated only nine months before the filing of this suit, still involves a different transaction.

There are a number of reasons why Garrison’s res judicata argument fails to demonstrate that these cases involved the same transaction. The state court litigation -was predicated exclusively on claims for breach of contract and fiduciary duty. Most importantly, the state courts did not specifically decree “dissolution” or winding up of the partnership. No specific state court findings or conclusions are required by Texas law to authorize a judicial dissolution of a partnership.² No written state court pleadings request formal winding up of the partnership, nor did Akuna seek a partition of its share of partnership assets. The single oral comment by Aku-na’s counsel about winding up, which was uttered in opening argument, did not suffice to request that relief, much less to authorize the court to grant it. Neither party contended at the time of the state court judgment or on appeal that the state court rulings implicitly amounted to a decree of judicial dissolution.

In fact, no Texas cases are cited that countenanced such an implicit declaration of partnership termination by a state court. To the contrary, in finding that a partnership existed between the parties to drill multiple wells in the Graeey Ranch project, the appellate court noted that to the extent the oral partnership agreement failed to include provisions such as the duration of the agreement, the Texas Revised Partnership Act “supplies the missing terms.”³ Texas Partnership law, in turn, directs that the winding up of a partnership occurs only after certain events take place, see Tex.Rev.Civ. Stat. Ann. Art. 6132b-8.01, or after a judicial decree based on certain specific findings.⁴ None of the requirements of those provisions were fulfilled, hence, it would be inconsistent with the state courts’ decision to infer a winding up contrary to statute. The aim 'of Texas law to prescribe winding up procedures for the benefit of the partnership’s creditors and the public, as well as the partners themselves, would be seriously undermined by our finding an exception for “implied dissolution” based only on inconclusive court rulings.

Moreover, the state courts’ approval of “reliance damages” equivalent to Akuna’s net investment in the partnership does not reduce its partnership interest to “zero” or, again by implication, substitute for findings necessary to institute a judicial dissolution. Taken together with its other findings, the court decided that although Akuna had not offered sufficient proof of lost profits from the wells, it had produced sufficient evidence at least to show that its investment had been recovered by the partnership’s income because the partnership had generated substantial net profits. Reliance damages, under Texas law, may be awarded for breach of contract or fiduciary duty under these circumstances. See Medallion Int’l Corp. v. Sylva, No. 10-01-00243-CV, 2004 WL 1211613, at *4 (Tex.App.-Waco 2004, no pet.). An award of reliance damages in an amount equal to a partner’s contribution thus does not necessarily dissolve a partnership or result in that partner’s ownership percentage’s becoming zero. Tex.Rev.Stat. Ann. Art. 6132b-1.01(2) (West 2005) (a partner’s capital account may consist of more than his initial contribution; it may also include profits). And because the complaint sought recovery for breach of contract and fiduciary duty, but not for rescission, there is no reason to make the leap that the court, while declaring that the parties entered into a partnership, simultaneously rescinded the parties’ agreement via its measure of damages. Texas law, additionally, allowed partners to sue each other without the necessary consequence of dissolving the partnership. See Tex.Rev.Civ. Stat. Ann. Art. 6132b-4.06 (West 2005). There is admittedly a shade of ambiguity because the appellate court described reliance damages as being issued to “restore the status quo at the time before the contract.” However, this explanation follows the court’s broader reasoning (a) approving the trial court’s award of “reliance damages for its reliance on the partnership agreement,” and (b) noting the measure of damages for breach of a contract is just compensation for the loss actually sustained. Breach of contract damages, not rescission damages, is the focus of the discussion.⁵

Finally, we reject both parties’ interpretations of the state court’s boiler-plate judgment language denying all relief not specifically requested by Akuna. On one hand, contrary to Akuna’s intimation, such a declaration would not entitle a plaintiff to re-litigate claims on which a court, in the first litigation, expressly denied relief. On the other hand, Garrison’s argument that this language squarely precludes Akuna’s instant • partnership termination claim is “illogical and unpersuasive,” as the district court noted: if the parties had tried by consent the issue of partnership dissolution, the court’s denial of relief meant that the partnership continued, not that it automatically terminated. Our interpretation of this language, however, is that it neither proves nor disproves whether partnership termination was at issue in the first case. Because the record does not otherwise demonstrate that the question was tried by consent, we can draw no inference from the boilerplate language.

Garrison repeatedly contends that because the parties actually litigated the issues surrounding partnership termination, the state court must have decided those questions. In many ways, the parties’ festering disagreements, revealed in the first litigation, might have supported a court’s statutory findings and a judgment requiring winding up of the partnership. But the winding up process consists of more than a showing of “irreconcilable differences.” Under state law, a partnership continues until, inter alia, the partnership’s creditors are notified and satisfied, and the remaining assets are distributed. Tex.Rev.Civ. Stat. Ann. Art. 6132b-8.06 (Westlaw 2005). Garrison did not act, following the state court judgment, as if the partnership was being wound up. Even if Akuna’s interest was “bought out” by the state court judgment and it was no longer a partner, this would have meant a de facto dissolution (since there were only two partners) and Garrison would have been obliged to take the other steps necessary to reclaim the assets for itself alone. That Garrison took no such steps contradicts its position that partnership dissolution was litigated and decided in the state courts.

C.

Garrison requested a trial, but the federal district court determined that there was no need for a trial. The court ordered the parties to submit in writing their findings and arguments concerning the value and ownership of the partnership. In its opening brief, Garrison contends that the district court improperly resolved the issues in a summary disposition because the evidence created issues of material fact. This is incorrect. The record supports that the nature of the district court proceeding approximates a trial on the merits because the court conducted a factual inquiry, assessed credibility, and weighed the evidence. In its Reply Brief, Garrison seems to agree: “[t]he judgment here was a decision on the merits on a highly fact-specific issue, entered on a lengthy, complicated record replete with conflicting evidence____” Neither side had moved for summary judgment on the valuation and ownership issues. Moreover, the district court did not analyze the parties’ written submissions under Rule 56. In sum, nothing in the record suggests that the district court conducted a summary proceeding.⁶

D.

Garrison does not expressly allege that the district court erred in its factual findings, but Garrison does contend that the district court based its ruling on unreliable evidence concerning the amount and value of Akuna’s partnership interest. The factual findings of a district court are reviewed for clear error. See Nat’l Liab. Fire Ins. Co. v. R & R Marine, Inc., 756 F.3d 825, 830 (5th Cir.2014). While Garrison contends that Akuna’s evidence is unreliable on several grounds, it apparently never moved to strike the experts’ reports.

Akuna responds to each of these contentions. That the district court considered the evidence submitted by both parties, not just Akuna’s accountant and petroleum engineer, is supported by the fact that the court awarded Akuna less than half of what Akuna claimed it was owed. Moreover, a review of the record does not indicate that the court’s factual findings were clearly erroneous, even if conflicting evidence was presented. See id. (a judgment on the merits is not reversible merely because of the existence of a fact issue).

For the foregoing reasons, we AFFIRM.

1 . For the purposes of this Opinion, the term dissolution will refer to the termination of the partnership.

2 . The court must find that: (1) the economic purpose of the partnership was likely to be unreasonably frustrated; (2) another partner had engaged in conduct relating to the partnership business that made it not reasonably practicable to carry on the business in partnership with that partner; or (3) it was not otherwise reasonably practicable to carry on the partnership business in conformity with the partnership agreement. Tex.Rev.Civ. Stat. Ann. Art. 6132b-8.01(e) (West 2005).

3 . "The Texas Partnership Act (the "TRPA”) governs partnerships formed on or after January 1, 1994....” Ingram v. Deere, 288 S.W.3d 886, 894 n. 4 (Tex.2009). The Akuna-Garrison partnership was formed in 1997; thus, the TRPA governs. We note, however that the TRPA expired on January 1, 2010. Ingram, 288 S.W.3d at 894 n. 4. The Texas Business Organizations Code now applies to all partnerships, regardless of their formation date. Id..; Tex.Rev.Civ. Stat. Art. 6132b-11.03.

4 . The TRPA provides seven events requiring a winding up: (1) the express will of the majority-in-interest; (2) the expiration of any express term of the partnership or completion of the partnership’s undertaking; (3) the occurrence of an event specified in the partnership agreement as one requiring winding up; (4) an event that makes it illegal to continue the partnership; (5) a judicial decree requiring winding up; (6) the sale of substantially all of the partnership’s property; and (7) a wind up request from a partner. Id.

5 . We think that the dissent is begging the question by assuming that the partnership was terminated by the state court. But whether the partnership was terminated is the very issue we have to decide. The dissent takes the position that Akuna elected its remedy by accepting a return of its partnership contribution as of 2004. The federal district court, however, awarded damages from 2004-07, a period following that judgment until the termination of the partnership. Aku-na’s damage award from the federal district court does not duplicate what it received before, yet it is duplication, not successive damages, that the election of remedies doctrine prevents. For the same reason, we believe that the dissent's reliance on Foley v. Parlier, 68 S.W.3d 870 (Tex.App.—Fort Worth 2002, no pet.), is misplaced. Moreover, Foley is distinguishable for other reasons. In Foley, the partnership had undisputedly been terminated and the plaintiff had expressly elected to recover fraud damages over breach of contract damages. Id. at 876-77. Here, the existence of the partnership was the crux of the litigation and Akuna was never asked to choose damages from two different recovery theories.

6 . For the first time in its Reply Brief, Garrison contends that the district court abused its discretion by refusing to hear live testimony about the partnership’s ownership and value. Generally, issues not raised in the appellant's opening brief are considered abandoned. See Nissho-Iwai Co., Ltd. v. Occidental Crude Sales, 729 F.2d 1530, 1539 n. 14 (5th Cir.1984). We see no reason to deviate from the norm in this case.