FILED IN BUSINESS COURT OF TEXAS BEVERLY CRUMLEY, CLERK ENTERED 5/13/2025 2025 Tex. Bus. 16
The Business Court of Texas, 1st Division
ATLAS IDF, LP, Plaintiff § § V. § § NEXPOINT REAL ESTATE § Cause No. 25-BC01B-0004 PARTNERS, LLC F/K/A HCRE § PARTNERS, LLC AND NANCY § DONDERO, as Trustee of the § Dugaboy Investment Trust, § Defendants
═══════════════════════════════════════ OPINION ═══════════════════════════════════════
Syllabus *0F
This opinion addresses Texas Government Code Chapter 25A’s use of “qualified transaction,” including (i) when an action “aris[es] out of” a qualified transaction; (ii) the relevant period for determining the aggregate value of a qualified transaction; and (iii) the burden for establishing the same. The opinion also addresses what forms of “interest” are excluded in determining the amount in controversy under this chapter.
* This syllabus is provided for the reader’s convenience; it is not part of the court’s opinion; and it is not legal authority. [¶ 1] Because this court has “a duty to examine [its] own jurisdiction,”
it requested briefing regarding its jurisdiction over this case considering
Government Code § 25A.001(14)’s definition of “qualified transaction.” See
Guillen v. U.S. Bank, N.A., 494 S.W.3d 861, 865 (Tex. App.—Houston [14th
Dist.] 2016, no pet.). Having considered the parties’ pleadings, submissions,
arguments, responses, and evidence, the court concludes that it has
jurisdiction because this action arises out of a qualified transaction and the
amount in controversy exceeds $10 million.
[¶ 2] Here, the assignment of the two promissory notes at issue is a
qualified transaction because a party to the transaction (plaintiff) received
aggregate consideration of at least $10 million. And the “amount in
controversy” includes a promissory note’s contracted-for interest.
I. BACKGROUND
[¶ 3] The court takes these facts from Plaintiff’s Original Petition (Pet.)
and supporting exhibits unless otherwise indicated:
A. The Parties
[¶ 4] Plaintiff Atlas IDF, LP is a Delaware limited partnership. 1 1F
1 Pet. ¶ 3.
OPINION AND ORDER, Page 2 [¶ 5] Defendants are NexPoint Real Estate Partners, LLC f/k/a/ HCRE
Partners, LLC, a Delaware limited liability company, and Nancy Dondero, as
Trustee for The Dugaboy Investment Trust. 2 2F For convenience, the court
refers to NexPoint as HCRE.
[¶ 6] Highland Capital Management, LP is not a party to this action, but
its interactions with Atlas and HCRE give rise to this lawsuit.
B. The Underlying Transactions
[¶ 7] Atlas sued to collect on two demand promissory notes HCRE
executed (the HCRE Notes) and Dondero’s related guaranty. Highland is the
named payee in both notes.
[¶ 8] HCRE executed the first HCRE Note on May 7, 2014. That note
was for $2.3 million in principal, together with interest at 9% per annum
compounded annually. 3 3F
[¶ 9] HCRE executed the second HCRE Note on May 27, 2014. That
note was for $5 million in principal, together with 9% interest per annum,
compounded annually. 4 4F
2 Pet. ¶ 4–5. 3 Pet. ¶ 10; Pet. Ex. 1. 4 Pet. ¶ 11; Pet. Ex. 2.
OPINION AND ORDER, Page 3 [¶ 10] On October 12, 2016, Highland—among other things—assigned
the HCRE Notes to Atlas pursuant to a Purchase and Sale Agreement (PSA). 5 5F
[¶ 11] The PSA memorializes two earlier transactions. First, in 2014,
Highland received from third parties two additional notes with aggregate
principal amounts of $10 million (the Third-Party Notes). 66F
[¶ 12] Second, on September 26, 2016, Highland transferred the Third-
Party Notes to Atlas. In exchange, Atlas paid over $1 million to Highland and
delivered to it two “seller notes,” with an aggregate principal amount of about
$9.7 million when they were executed (the Third-Party Seller Notes). 7 7F
[¶ 13] In total, the PSA produced these transfers:
• Atlas received the HCRE Notes from Highland, 8 and Atlas’s debt 8F
under the Third-Party Seller Notes was terminated. 9 9F
• Highland received the Third Party Notes back from Atlas, 10 and 10F
received a new seller note (HCRE Seller Note) from Atlas. 11 11F
5 Pet. ¶ 12; Pet. Ex. 3 (PSA). 6 PSA, Ex. A & Ex. B. 7 PSA at 1–2; PSA Ex. E & Ex. F. 8 PSA § 2(b) 9 PSA § 2(a). 10 PSA § 2(a). 11 PSA § 2(b).
OPINION AND ORDER, Page 4 [¶ 14] As of January 31, 2025, HCRE owed $7.3 million in principal and
around $6.4 million in interest, for a combined total of $13.7 million, on the
HCRE Notes. 12 Atlas sues to recover those amounts from defendants. 12F
C. Parties’ Arguments
[¶ 15] The court asked the parties to address the court’s jurisdiction
considering Government Code § 25A.001(14)’s “qualified transaction”
definition.
[¶ 16] The court later asked for the HCRE Notes’ balances on October
12, 2016, the PSA’s effective date. The parties generally agreed that the notes
had an aggregate combined principal and interest of about $8.9 million on that
date. 13 13F
[¶ 17] The court also asked whether the PSA could be considered a
“qualified transaction.”
[¶ 18] Atlas argued that jurisdiction exists because a § 25A.001(14)
“qualified transaction” includes where a party to the transaction “is entitled
to receive [] consideration with an aggregate value of at least $10 million” and
12 Pet. ¶s 17–18. 13 Defendants’ counsel noted that PSA § 4(h) represented that the HCRE Notes’ value to be around $7.5 million but could not explain the difference.
OPINION AND ORDER, Page 5 is not limited to the HCRE Notes’ principal amounts. 14 It further argued that 14F
the PSA was a transaction entitling Atlas to receive in excess of $10 million
from HCRE, as evidenced by the nearly $14 million demand in this case. 15 15F
Finally, Atlas urged that “qualified transaction” refers to the transaction’s
aggregate value when made, including principal and anticipated interest. 16 16F
Because the HCRE Notes are demand notes, Atlas urged us to credit its good-
faith pleading allegations of their anticipated value. 17 17F
[¶ 19] Atlas later reiterated its premise that “consideration” includes
anticipated interest as part of the demand notes’ bargain and that the court
should accept the allegations in its pleadings based on precedents from the
Texas Supreme Court and this court. 18 18F Atlas attached as evidence its
calculations and emails with the court demonstrating the parties’ general
14 Atlas’s 4/9/2025 Brief on the Court’s Jurisdiction (Atlas’s Br.) at 3. 15 Atlas’s Br. at 7. 16 Atlas’s Br. at 9–10. 17 Atlas’s Br. 11. 18 Atlas’s 4/21/2025 Response on the Court’s Jurisdiction (Atlas’s Resp.) at 4–9 (citing Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex. 2000) and C Ten 31 LLC ex. rel. SummerMoon Holdings LLC v. Tarbox, 2025 Tex. Bus. 1, ¶ 51, 708 S.W.3d 223, 243 (3rd Div.)).
OPINION AND ORDER, Page 6 agreement that the HCRE Notes had a combined outstanding balance of
around $8.9 million at the time the PSA was executed. 19 19F
[¶ 20] HCRE agreed that a “qualified transaction” is determined based
on the bargain when made, which was less than $10 million on the HCRE
Notes because they had yet to accrue any interest. 20 HCRE also urged that the 20F
amount in controversy requirement failed because this was not an action
exceeding $10 million “excluding interest.” 21 21F
[¶ 21] HCRE further argued that the PSA is not a “qualified transaction”
because it is not the “lending transaction at issue.” 22 HCRE also reiterated 22F
its argument that the statute’s unambiguous language prohibits including
interest due under the notes when determining the amount in controversy. 23 23F
II. DISCUSSION
A. Applicable Standards
[¶ 22] Atlas pled subject matter jurisdiction based on a Government
Code § 25A.004(d) “qualified transaction.” So, for jurisdiction to exist, (i)
19 Atlas’s Resp. at 1, Ex. 1 & Ex. 2. 20 HCRE’s 4/14/2025 Brief on Jurisdiction (HCRE’s Br.) at 2–3. 21 HCRE’s Br. at 3–4. 22 HCRE’s 4/21/2025 Response on the Court’s Jurisdiction (HCRE’s Resp.) at 1–5. 23 HCRE’s Resp. at 1, 6–8.
OPINION AND ORDER, Page 7 the action must arise out of a qualified transaction (id. at § 25A.004(d)(1)) and
(ii) the amount in controversy must exceed $10 million, excluding interest,
statutory damages, exemplary damages, penalties, attorney’s fees, and court
costs (id. at § 25A.004(d)).
[¶ 23] The court asked the parties to address the subject matter
jurisdiction question. We analyze their submissions using plea to the
jurisdiction standards.
[¶ 24] A plea to the jurisdiction is a procedural vehicle to challenge a
trial court’s subject matter jurisdiction. See Texas Dep’t of Parks & Wildlife v.
Miranda, 133 S.W.3d 217, 225–6 (Tex. 2004) (sovereign immunity
challenge). Whether a court has subject matter jurisdiction is a question of
law. Id. at 226.
[¶ 25] When a plea challenges pleadings, courts determine whether the
pled facts demonstrate the court’s jurisdiction to hear the cause. Id. In that
context, courts construe the pleadings liberally in the pleader’s favor and look
to the pleader’s intent. Id.
[¶ 26] If a plea challenges the existence of jurisdictional facts, the court
must consider relevant evidence. Id. at 227. If the evidence creates a fact
question regarding the jurisdictional issue, the court cannot grant the plea and
OPINION AND ORDER, Page 8 the fact finder will resolve the fact issue. Id. at 227–28. However, if the
evidence fails to raise a fact question on the jurisdictional issue, the trial court
rules on the plea as a matter of law. Id. at 228. This standard generally mirrors
the Texas summary judgment standards. Id.
B. “Qualified Transaction”
1. Atlas alleged an action arising out of a qualified transaction.
[¶ 27] A qualified transaction means:
a transaction . . . under which a party: (A) pays or receives, or is obligated to pay or is entitled to receive, consideration with an aggregate value of at least $10 million; or (B) lends, advances, borrows, receives, is obligated to lend or advance, or is entitled to borrow or receive money or credit with an aggregate value of at least $10 million.
TEX. GOV’T CODE § 25A.001(14).
[¶ 28] Atlas pled that jurisdiction exists because its claims arise out of a
qualified transaction. 24 The court concludes that the PSA is a qualified 24F
transaction because Atlas would not have its claims in the suit but for the PSA.
[¶ 29] Specifically, courts interpret “arising out of” as denoting a broad
causal relationship—akin to “but for” causation instead of the narrower and
limiting linkage required of “proximate” causation. See Pinto Tech. Ventures,
24 Pet. ¶ 7.
OPINION AND ORDER, Page 9 L.P. v. Sheldon, 526 S.W.3d 428, 437–40 (Tex. 2017) (forum-selection clause:
“arising out of” has “broad significance” and “but for” causation suffices,
even without direct or proximate causation); In re Swift Transp. Co., Inc., 279
S.W.3d 403, 408 (Tex. App.—Dallas 2009, orig. proceeding) (arbitration
clause: “arising out of or relating to” satisfied when injury would not have
occurred “but for” agreement); Utica Nat’l Ins. Co. of Texas v. Am. Indem. Co.,
141 S.W.3d 198, 203 (Tex. 2004) (insurance policy: “arising out of” means
simply a “casual connection or relation”).
[¶ 30] Here, Atlas’s only alleged basis to sue HCRE on the HCRE Notes
is that Highland assigned them to Atlas. 25 But for that assignment, Atlas 25F
could not bring this suit. Accordingly, we conclude that the PSA is a “qualified
transaction” if it meets the $10 million aggregate value requirement. TEX.
GOV’T CODE § 25A.001(14)(A), (B).
2. The PSA has an aggregate value of at least $10 million.
a. Aggregate value is measured at the time of transaction.
[¶ 31] The parties agree that a potential qualified transaction’s aggregate
value is measured at the time of transaction. 26 Both sides rely on Goosehead 26F
25 Pet. ¶ 12. 26 Atlas’s Br. at 9; HCRE’s Br. at 2.
OPINION AND ORDER, Page 10 Ins. Agency, LLC v. Williams Ins. and Consulting, Inc., 533 F.Supp.3d 367, 376
(N.D. Tex. 2020), which construed “qualified transaction” in TEX. BUS. &
COM. § 271.001. But for a different threshold dollar amount, the “qualified
transaction” definition under that code is essentially identical to
§ 25A.001(14).
[¶ 32] Focusing on the statute’s meaning of “consideration,” the
Goosehead court held that “the plain meaning of ʻconsideration’ . . . plac[es]
focus on the time of transaction.” Id. at 380. And “[c]onsideration focuses on
the bargain—not the outcome or actual performance.” Id. Thus, the court
concluded that the “relevant time to value the transaction is at the time it was
entered, rather than the time of dispute.” Id. at 376.
[¶ 33] We agree regarding § 25A.001(14)(A)’s use of “consideration.”
And § 25A.001(14)(B)’s terms “lends, advances, borrows, receives,” or “is
obligated to lend or advance, or is entitled to borrow or receive” also focus on
when the transaction was made. Because § 25A.004(d)(1) must “aris[e] out
of” a qualified transaction, that transaction must exist prior to the action. So,
§ 25A.001(14)’s “qualified transaction” definition looks at when the
transaction happened, and § 25A.004(d)’s amount in controversy requirement
looks to when the suit is filed.
OPINION AND ORDER, Page 11 b. Plaintiff’s uncontroverted pleadings are determinative.
[¶ 34] The HCRE Notes are demand notes. 27 The time of payment on a 27F
demand note is not definite when it is made and thus neither is the total
amount of interest that will be due on the note. TEX. BUS. & COM. CODE §
3.108. But the payee’s expected interest on one is part of its consideration for
the note. See Goosehead, 533 F. Supp. 3d at 380 (“[T]he value agreed to by
the parties in advance constitutes the consideration.”) (emphasis removed).
Good faith, uncontroverted allegations of that value are determinative in the
jurisdictional analysis. See Miranda, 133 S.W.3d at 226–27.
c. Application to the PSA
[¶ 35] We conclude that, as a party to the PSA, Atlas received
consideration with an aggregate value of at least $10 million for two reasons.
[¶ 36] First, before considering the Third-Party Notes’ termination
value, the consideration Atlas received on October 12, 2016, by receiving the
HCRE Notes reasonably could have been valued above their combined
aggregate principal and accrued interest as of that date of $8.9 28 or $7.5 29 28F 29F
27 Including the HCRE Notes, the Third-Party Notes, and the various seller notes. 28 Atlas’s Reply at 1, Ex. 1, and Ex. 2. 29 PSA at § 4(h).
OPINION AND ORDER, Page 12 million. That is, the parties could have reasonably “placed value on [the]
transaction” higher than the then-current value of the notes because of the
expectation that the amount of interest would grow before there was a payment
demand. See Goosehead, 533 F.Supp.3d at 380.
[¶ 37] We credit Atlas’s allegations to that effect because it pled that this
action arises out of a qualified transaction with an aggregate value of at least
$10 million, and HCRE has not provided any contrary evidence. 30 The only 30F
evidence Atlas or defendants provided on this issue is two letters from early-
2025 suggesting that the present value of the HCRE Notes was between $0
and $500,000 because of the legal costs and time required to collect on
them. 31 However, those letters are not evidence challenging the value placed 31F
on the notes by the parties to the PSA in October 2016, nine years earlier.
[¶ 38] Regardless, Atlas’s PSA consideration also included the Third-
Party Seller Notes’ value of around $9.7 million, 32 because Highland’s 32F
termination of those notes eliminated Atlas’s related debts. Thus, Atlas’s
consideration (what it received) totaled around at least $18.6 or $17.2 million
30 Pet. ¶ 7. 31 HCRE’s Br. Exs. 1 & 2. 32 PSA at 1–2.
OPINION AND ORDER, Page 13 based on the HCRE Notes’ present value on October 12, 2016 (without
interest), plus the value of the terminated Third-Party Seller Notes ($9.7M +
$8.9M or $7.5M).
[¶ 39] Thus, the aggregate value of consideration Atlas received is at
least $10 million and the PSA is a “qualified transaction.”
C. Amount in Controversy
[¶ 40] HCRE does not challenge that when the suit was filed the HCRE
Notes’ aggregate principal and interest exceeded $10 million. 33 Thus, the 33F
amount in controversy requirement is met if interest is included. 34 34F
[¶ 41] However, HCRE argues that only the combined principal amounts
of $7.3 million may be considered because the statute grants jurisdiction only
if “the amount in controversy exceeds $10 million, excluding interest,
statutory damages, exemplary damages, penalties, attorney’s fees, and court
costs.” TEX. GOV’T CODE § 25A.004(d) (emphasis added). That is, HCRE
urges that accrued interest due on the notes’ terms does not count. We
disagree for two reasons.
33 Pet. § 18. 34 See HCRE’s Br. at 3 (“[T]his Court lacks jurisdiction because the amount in controversy does not exceed $10 million when interest is excluded.”) (emphasis original).
OPINION AND ORDER, Page 14 [¶ 42] First, we conclude that “jurisdiction is determined by the amount
recoverable under the pleadings at the commencement of the suit.” See Ritchie
v. Am. Sur. Co. of N. Y., 145 Tex. 422, 432 (1946); Nix v. Nix, 797 S.W.2d 64,
65 (Tex. App.—Corpus Christi 1990, no writ) (“The amount in controversy at
the time of filing a pleading is the determining sum for jurisdictional
purposes.”); supra ¶ 33.
[¶ 43] Second, we conclude that interest accrued on the terms of a
promissory note before filing suit is not the type of “interest” § 25A.004(d)
excludes. Rather, the entire principal and interest due on the HCRE Notes
represents the amount in controversy because “[i]t has long been the law that
the phrase ʻamount in controversy,’ in the jurisdictional context, means ʻthe
sum of money or the value of the thing originally sued for.’” Tune v. Texas Dep’t
of Pub. Safety, 23 S.W.3d 358, 361 (Tex. 2000) (emphasis original) (quoting
Gulf, C. & S.F.Ry. Co. v. Cunnigan, 95 Tex. 439, 67 S.W. 888, 890 (1902));
see also Amount in Controversy, BLACK’S LAW DICTIONARY (12th ed. 2024)
(“The damages claimed or relief demanded by the injured party in a lawsuit.”).
OPINION AND ORDER, Page 15 [¶ 44] Here, Atlas sues for approximately $13.7 million based on the
HCRE Notes’ full balance. 35 As the Texas Court of Appeals stated in 1887, 35F
“[t]his suit being upon a promissory note, it is manifest the plaintiff could
recover no more than legal interest as damages, and in fact his suit is brought
to recover no more than the principal and interest of the debt” and therefore
the “real amount in controversy was the debt and interest thereon.” B.
Oppenheimer & Co. v. Fritter, 3 Willson 320 (Tex. Ct. App. 1887).
[¶ 45] But some cases exclude promissory note interest from amount in
controversy requirements for the county and justice of the peace court
requirements. See, e.g., Eanes v. Haynes, 135 S.W.2d 190, 191 (Tex. Civ.
App.—Eastland 1939, no writ) (“It has been determined, in considering the
foregoing constitutional provision fixing the jurisdiction of the County Court,
in a suit upon a promissory note, that interest cannot be taken into
consideration in determining the amount in controversy.”).
[¶ 46] This court declines to follow those cases because they concern
different statutes with different wording from our jurisdictional statute.
Instead, reading the present statutory language in context with applicable
35 Pet. ¶ 18.
OPINION AND ORDER, Page 16 rules of construction, we conclude that the type of “interest” excluded by
Government Code § 25A.004(d) refers to only accessory items, such as
statutory interest, that do not form the principal or essential part of plaintiff’s
damages claims.
[¶ 47] Specifically, statutory construction is to implement the
legislature’s intent by giving effect to every word, clause, and sentence.
Sunstate Equip. Co. v. Hegar, 601 S.W.3d 685, 689–90 (Tex. 2020). Indeed,
statutory text is the “first and foremost” indication of legislative intent.
Greater Hous. P’Ship v. Paxton, 468 S.W.3d 51, 58 (Tex. 2015). Thus, courts
apply the words’ common, ordinary meanings unless (i) the text supplies a
different meaning or (ii) the common meaning produces absurd results. Fort
Worth Transp. Auth. v. Rodriguez, 547 S.W.3d 830, 838 (Tex. 2018).
[¶ 48] HCRE’s premise that the plain meaning of “interest” means all
forms of interest without distinction ignores the surrounding statutory
context. 3636F That is, § 25A.004(d) excludes “interest, statutory damages,
exemplary damages, penalties, attorney’s fees, and court costs” from the
amount in controversy calculation. But the noscitur a sociis canon—“it is
36 HCRE’s Br. at 4.
OPINION AND ORDER, Page 17 known by its associates”—provides that a word’s meaning in a list should be
known by the other words included in the list. Paxton, 468 S.W.3d at 61.
Given that principle, all the items § 25A.004(d) excludes are additional,
accessory sums that may be included in a plaintiff’s ultimate recovery but are
not the primary basis of its suit.
[¶ 49] Accordingly, we conclude that the type of “interest” Government
Code § 25A.004(d) excludes means only accessory forms of interest, such as
statutory interest, and not interest that forms the primary basis of a party’s
claim. See Tucker v. Pac-Van, Inc., No. 13-19-00536-CV, 2021 WL 1687040,
at *2 (Tex. App.—Corpus Christi Apr. 29, 2021) (mem. op.) (the exclusion of
“interest” under TEX. GOV’T CODE § 27.031(a)(1) (JP court) refers to
“statutory interest”).
[¶ 50] As of January 31, 2025, the HCRE Notes are alleged to carry
approximately $13.7 million in combined principal and interest and therefore
the amount in controversy was over $10 million at the time Atlas filed its
Original Petition on February 13, 2025. 37 37F
37 Pet. ¶ 18.
OPINION AND ORDER, Page 18 [¶ 51] Accordingly, this suit meets our jurisdictional amount in
controversy requirement under Government Code § 25A.004(d).
III. CONCLUSION
[¶ 52] For these reasons, the court signed its April 22, 2025, order
concluding at this stage that the amount in controversy exceeds $10 million
and this action arises out of a qualified transaction.
BILL WHITEHILL Judge, Texas Business Court First Division
SIGNED: May 13, 2025
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