Newstream Roanoke 6.125, LLC v. Jonell Shore, Young Ok Kim, and Soon Boon Change

CourtCourt of Appeals of Texas
DecidedAugust 31, 2023
Docket02-22-00506-CV
StatusPublished

This text of Newstream Roanoke 6.125, LLC v. Jonell Shore, Young Ok Kim, and Soon Boon Change (Newstream Roanoke 6.125, LLC v. Jonell Shore, Young Ok Kim, and Soon Boon Change) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Newstream Roanoke 6.125, LLC v. Jonell Shore, Young Ok Kim, and Soon Boon Change, (Tex. Ct. App. 2023).

Opinion

In the Court of Appeals Second Appellate District of Texas at Fort Worth ___________________________ No. 02-22-00506-CV ___________________________

NEWSTREAM ROANOKE 6.125, LLC, Appellant

V.

JONELL SHORE, YOUNG OK KIM, AND SOON BOON CHANGE, Appellees

On Appeal from the 431st District Court Denton County, Texas Trial Court No. 22-5855-431

Before Sudderth, C.J.; Bassel and Womack, JJ. Memorandum Opinion by Justice Womack MEMORANDUM OPINION

I. INTRODUCTION

This is an interlocutory appeal from the trial court’s order denying Appellant

Newstream Roanoke 6.125, LLC’s (Newstream) motion to dismiss the breach of

fiduciary duty claim of Appellees Jonell Shore, Young Ok Kim, and Soon Boon

Chang1 on Texas Citizen’s Participation Act (TCPA) grounds. See Tex. Civ. Prac. &

Rem. Code Ann. §§ 27.001–.011, 51.014(a). Newstream contends that Appellees’

breach of fiduciary duty claim is “based on or is in response to” its right to petition—

the filing of a Rule 11 agreement between Newstream and two other entities. See id. at

§§ 27.003(a), .005(b)(1)(B). Because we conclude that Appellees’ claim is not “based

on or is in response to” the Rule 11 agreement, we will affirm. See id.

II. BACKGROUND

This appeal stems from a business dispute involving the purchase and

development of certain real estate. In March 2022, Silk Capital Development, LLC

(Silk) sued Newstream, Newstream Land Partners – Roanoke LLC (the Company),

and Timothy C. Nystrom, stating that “[s]ometime in 2018,” Nystrom approached

Silk and proposed that it and several other investors form a company to purchase,

develop, and sell approximately 6.125 acres of real property in Roanoke, Tarrant

The style in the pleadings before the trial court spells Chang’s name “Change.” 1

Because this appears to be a typographical error, we will refer to this Appellee by “Chang,” which is the name used in Appellees’ brief and the Company Agreement.

2 County, Texas (the Property).2 Nystrom was alleged to own or operate Newstream.3

According to Silk, it agreed to invest $1,450,000 and to receive a majority share in the

Company’s ownership. Newstream was the Company’s managing member, and

Shore, Kim, and Chang were three of the Company’s minority members. The

Company was governed by the “Company Agreement of Newstream Land Partners –

Roanoke LLC” (the Company Agreement).

Citing “misdeeds and failures to comply” with the Company Agreement, Silk’s

lawsuit sought an involuntary winding up and termination of the Company and

alleged various causes of action. Shortly after the lawsuit was filed, Appellees

intervened in the lawsuit.4

In May 2022, Silk settled its claims in the lawsuit against Newstream, the

Company, and Nystrom by way of a Rule 11 agreement that was filed with the trial

court. The Rule 11 agreement called for the Company to sell the Property; for Silk to

release its claims against Newstream, the Company, and Nystrom; for proceeds from

2 Silk, the Company, and Nystrom are not parties to this appeal. 3 Silk’s pleadings stated that Nystrom “owned and controlled” Newstream through his company Newstream Commercial, LLC. 4 On the same day that it filed suit, Silk sent a letter to Newstream notifying it that Silk had “determined, in good faith” that Newstream was “guilty of gross negligence, fraud, theft, willful misconduct, and/or misappropriation of funds” and that it was removing Newstream as manager of the Company and appointing itself as “substitute” manager of the Company. According to Appellees, despite these allegations, Newstream was not removed because it “obtained the acquiescence of Silk to waive its complaints about [Newstream’s] misconduct.”

3 the Property’s sale to pay off a portion of Silk’s loan to the Company; and for

proceeds from the Property’s sale to be preferentially distributed to Silk. Silk later

nonsuited its claims against Newstream, the Company, and Nystrom.

Thereafter, Appellees amended their petition in intervention, quoted from the

Rule 11 agreement, and alleged both direct causes of action and derivative claims—

including breach of fiduciary duty—against Newstream. Appellees claimed that

Newstream sold the Property to its “affiliate” and, rather than distribute the proceeds

pro rata as required by the Company Agreement, gave Silk an “unlawful preferential

distribution” of the proceeds. The suit alleged that Newstream as manager owed

fiduciary duties to the Company and engaged in an “interested transaction” and used

the company assets for its own self-interest. See Tex. Bus. Orgs. Code Ann.

§ 101.255(b)(1)–(2) (providing that “[a]n otherwise valid and enforceable contract or

transaction” is valid and enforceable if one of the stated conditions is satisfied).

Further, Appellees asserted that “the terms of the Property sale were less favorable

than would have been achievable on the open market.”

Newstream moved to dismiss Appellees’ breach of fiduciary duty claim

pursuant to the TCPA. It alleged that Appellees’ claim was a legal action based on or

brought in response to its right to petition. Citing Texas Civil Practice and Remedies

Code Section 27.001(4), Newstream contended that the “settlement agreement and

the Rule 11 memorialization of same, as well as the filing of the Rule 11 [a]greement

into the record, are all protected communications because those communications

4 were made ‘in or pertaining to a judicial proceeding.’” In addition, Newstream

asserted that Appellees’ claim failed because it was barred by “judicial privilege.”5

Thereafter, Appellees amended their petition in intervention and filed their

response to the motion to dismiss. In their response, Appellees asserted that the

breach of fiduciary duty claim was “based upon the actions of [Newstream] leading up

to and prompting the memorialization of the Rule 11, not the Rule 11, per se.”

According to Appellees, the Rule 11 agreement was only “the instrument

memorializing the bad acts” previously engaged in by Newstream.

In their amended petition in intervention, Appellees attached and incorporated

several documents, including the Company Agreement; affidavit of Shore; Silk’s letter

removing Newstream as manager; the Rule 11 agreement; affidavit of Yuri Han, a

clerk with Appellees’ law firm, setting out information about the demand for an

accounting; the order of non-suit regarding claims by Silk against Newstream, the

Company, and Nystrom; the minority shareholder’s letter requesting to inspect books

and records and to preserve documents; the shareholder’s letter demanding corporate

action to remedy the alleged wrongdoing by Newstream, the Company, and Silk; and

emails between the attorneys. Shore’s affidavit stated the following:

• She invested $500,000 in the Company in return for her membership units;

5 While Newstream and Appellees argued the applicability of “judicial privilege” before the trial court, neither addressed it on appeal. Therefore, it is waived. See Tex. R. App. P. 38.1(f), (i).

5 • Around March 4, 2022, she learned that the Company intended to sell its final property assets—the Property—to an entity affiliated with Newstream and to split the proceeds pro rata among the Company’s members;

• Newstream never provided her with any information about whether the proposed sale of the Property was for market price or whether it presented the best return to the Company;

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Newstream Roanoke 6.125, LLC v. Jonell Shore, Young Ok Kim, and Soon Boon Change, Counsel Stack Legal Research, https://law.counselstack.com/opinion/newstream-roanoke-6125-llc-v-jonell-shore-young-ok-kim-and-soon-boon-texapp-2023.