Citrin Holdings, LLC v. Minnis

CITRIN HOLDINGS, LLC AND JACOB CITRIN, Appellants

v.MATTHEW MINNIS AND CULLEN 130, LLC, Appellees

NO. 14-11-00644-CV

State of Texas in the Fourteenth Court of Appeals

Opinions filed: May 9, 2013

Reversed and Rendered and Majority and Dissenting Opinions filed May 9, 2013.

On Appeal from the 133rd District Court

Harris County, Texas

Trial Court Cause No. 2006-78939

MAJORITY OPINION

Appellees, Matthew Minnis and Cullen 130, LLC ("the Minnis Parties"), and appellants, Jacob Citrin and Citrin Holdings, LLC ("the Citrin Parties"), went into business to acquire and develop industrial properties located near airports and seaports. The Minnis Parties alleged that the Citrin Parties excluded them from the business when their business relationship deteriorated. The Minnis Parties sued the Citrin Parties for breach of fiduciary duty, breach of contract, fraud, minorityoppression, and conspiracy to, and/or aiding and abetting, breach of fiduciary duties.

The case was tried to a jury, which found for the Minnis Parties on all their claims, awarded actual damages for each claim in the amount of $28,231,871, and awarded exemplary damages in the amount of $14,154,000. Upon the Minnis Parties' election, the trial court entered judgment in favor of Cullen 130 on its claim for breach of fiduciary duty, awarding actual and exemplary damages in accordance with the jury's verdict, and also attorney's fees.¹ The trial court further provided that the Minnis Parties may recover on any one of their "alternative" claims in case we reverse the judgment on Cullen 130's breach of fiduciary duty claim.

The Citrin Parties appeal the trial court's judgment on Cullen 130's breach of fiduciary duty claim. In conditional cross-points, the Minnis Parties assert, in case we reverse the judgment on Cullen 130's breach of fiduciary duty claim, that we can affirm the judgment on any of their alternative claims. We reverse the trial court's judgment and render judgment that the Minnis Parties take nothing on their claims against the Citrin Parties.

I. BACKGROUND

A. Formation of the Business

Jacob Citrin and Matthew Minnis first met in 2002. At the time, Citrin was working for, and had an interest in, International Airport Centers ("IAC"). Minnis was a broker for Eagle Global Logistics ("Eagle"). Eagle leased a building that Citrin was responsible for leasing. Minnis approached Citrin about IAC's buying a building Eagle owned, the 160 McClellan building. Although IAC decided not topurchase 160 McClellan, Citrin and Minnis purchased it through an entity called Horizon/McClellan, LLC. Citrin's entity, Cargo Ventures Massachusetts, LLC, and Minnis's entity, Southwest Industrial, LLC, each held a 50% interest in Horizon/McClellan.

In 2003, Citrin and Minnis started talking about going into business together to buy property near airports and seaports, lease the property out, and then sell the property. Citrin, Minnis, and their attorneys spent a number of months negotiating an operating agreement for Cargo Ventures, LLC ("Cargo Ventures New York"),² which would pursue opportunities to purchase property and manage projects. Cargo Ventures New York, which was Citrin's company, was already in existence. Under this operating agreement, dated September 30, 2004, Minnis's company, Cullen 130, was admitted as an additional member, holding a 45% interest; Citrin's company, Citrin Holdings, held a 55% interest. Citrin was the manager of Cargo Ventures New York.

Under the business arrangement, a bank would lend most of the money to purchase and develop the properties. An equity investor, Millennium Partners, a company owned by Citrin's father-in-law, Christopher Jeffries, provided the rest of money.

A single-purpose entity would hold title to each property acquired. The members of the single-purpose entities were to be an entity created by Citrin Holdings and Cullen 130 and a Millennium entity. The Citrin Holdings/Cullen 130 entity was known as Cargo Investors, LLC.³ Citrin Holdings had a 55% interest in Cargo Investors, and Cullen 130 had a 45% interest. Citrin Holdings and Cullen130 later created another entity, Cargo Investors II, LLC,⁴ for the purpose of "pursu[ing] a particular project located near Miami, Florida and commonly known as the Miami Free Zone." As further explained below, Citrin Holding held an 80% interest in Cargo Investors II, and Cullen 130 held a 20% interest.

Under the original arrangement between Millennium and Cargo Investors, Millennium would receive an 8% preferred return on its investment. The "Sharing Ratio" of the profits was 75% for Millennium and 25% for Cargo Investors. Only after Millennium was repaid its original investment, plus the 8% preferred return, would Millennium and Cargo Investors share in the profits. The Cargo Investors' 25% share and Millennium's 75% share of the profits was known as the "carried interest."⁵ Later, the arrangement would be modified to a 12% preferred return for Millennium and a sharing ratio of 50% for Millennium and 50% for Cargo Investors. With regard to Cargo Investors II, Millennium would receive a 12% preferred return, and the sharing ratio would be 50% for Millennium and 50% for Cargo Investors II.

Agreements covering the single-purpose entities in which Cargo Investors was a member provided that the Millennium entity would decide whether to sell the property. Those agreements provided for the creation of a "MembersCommittee," comprised of "four natural persons." Millennium appointed three committee members and Cargo Investors appointed one. Thus, Millennium had three votes and Cargo Investors had one.

The "Members Committee" under the agreement covering the Miami Free Zone was comprised of "two natural persons." Millennium and Cargo Investors II each appointed one committee member with one vote. Approval of any action by the committee required the affirmative vote of both committee members.

The single-purpose entity agreements further provided that any transfer of Cargo Investors' or Cargo Investors II's membership interest "shall be to an entity controlled by Jacob Citrin and at least 51% owned by Jacob Citrin."

Minnis alleges that, prior to the signing of Cargo Venture New York operating agreement, he and Citrin entered an oral agreement creating an "overarching" partnership. Subsequently, Minnis and Citrin signed a piece of paper that said, "We are partners. Jake Citrin, Matt Minnis, 45% and 55%." Minnis, who framed the "partnership agreement," claims that it confirmed the creation of the overarching partnership under which Cargo Ventures New York, Cargo Investors, and Cargo Investors II would be created. Citrin, on the other hand, denies that he and Minnis had a partnership distinct from their relationship in the Cargo Entities; according to Citrin, the "partnership" was subsumed into the Cargo Ventures New York operating agreement.

B. Negotiation of New Terms with Millennium

Eventually problems began to develop between Citrin and Minnis. Minnis complains that Citrin negotiated new terms with Millennium that benefitted Millennium. Citrin testified that he and Minnis were looking for new investors, and an entity known as Opus expressed some interest in 2005. Minnis testified thatOpus was offering better terms than what they had with Millennium: Opus would put up all the money for an 8% preferred return and would to split the profits 50/50. Minnis claimed that Citrin told him Millennium was willing to match the terms Opus was offering. No deal was ever reached with Opus, and new terms were negotiated with Millennium: a 12% preferred return and a 50/50 split of the profits. Minnis was not involved in the negotiations with Millennium and later learned of the new terms with Millennium. Minnis "just wanted the 50/50 and the 8 percent just like Opus."

Citrin testified that there was never a formal offer from Opus, and Opus called off talks because it was not "comfortable going into a business deal with [Citrin] because [he] was in litigation with [his] former employer, IAC." Citrin further stated that Millennium was never willing to agree to terms of a 50/50 split and an 8% preferred return, and he never told Minnis that Millennium had agreed to such terms. A term sheet entitled, "Cargo Ventures Logistics Portfolio," that was being discussed with Millennium showed an 8% preferred return and a 50/50 split. Citrin explained that he believed the new terms with Millennium—a 50/50 split with a 12% preferred return—were better than the previous terms—25% to Cargo Ventures, and 75% to Millennium with an 8% preferred return—because, even though Millennium would be paid more on its investment with the 12% return, the Cargo Entities would have a "bigger portion" if the property sold. Citrin testified that he and Minnis "jointly" made the decision on the new terms with Millennium.

C. Employee Profit Sharing

A dispute arose over sharing profits with certain key employees. In order to provide interests to those key employees, Citrin gave Minnis a proposal in September 2006, in which he wanted to reduce Minnis's interest from 45% to 25%,and Citrin's interest would be reduced from 55% to 51%. Minnis was willing to have his interest reduced "point for point" with Citrin's interest, but Citrin was not. Minnis testified that Citrin's interest would actually increase to 59% because they would be allowing for an 8% interest to a future CFO. Minnis testified that this reduction was not on a prospective basis, but would be retroactive from the beginning. Minnis stated that he had no knowledge that Citrin had promised other employees an interest in the business when he hired them. According to Minnis, it was a "take-it-or-leave-it offer." Those key employees never received any interest in the business.

D. Cargo Investors II

Another dispute arose over the Miami Free Zone project. Citrin and Minnis were in Miami working on that project about three weeks before the project closed, when Citrin told Minnis that he was no longer ...