Apollo Property Partners, LLC v. Diamond Houston I, L.P., Diamond Houston, Inc., Northbrook Houston I, LLC, and NH INvestors, LLC--Appeal from 80th District Court of Harris County

Reversed and Remanded and Memorandum Opinion filed August 5, 2008

Reversed and Remanded and Memorandum Opinion filed August 5, 2008.

In The

Fourteenth Court of Appeals

____________

NO. 14-07-00528-CV

____________

APOLLO PROPERTY PARTNERS, LLC, Appellant

V.

DIAMOND HOUSTON I, L.P., DIAMOND HOUSTON, INC., NORTHBROOK HOUSTON I, LLC, AND NH INVESTORS, LLC, Appellees

On Appeal from the 80th Judicial District

Harris County, Texas

Trial Court Cause No. 07-21442

M E M O R A N D U M O P I N I O N

In this action seeking judicial dissolution of a limited partnership, we must determine whether the trial court properly dismissed the suit after concluding that it is within the scope of a forum-selection clause. A partner in a limited partnership filed suit seeking judicial dissolution of the partnership on the basis of economic frustration. The defendants filed a motion to compel arbitration under an arbitration provision in the limited partnership agreement. The defendants alternatively moved to dismiss based on a purported forum-selection clause in the limited partnership agreement. The trial court did not grant the motion to compel arbitration but did grant the motion to dismiss based on the purported forum-selection clause. We conclude that, as a matter of law, this suit does not fall within the scope of the clause. Accordingly, we conclude the trial court abused its discretion in dismissing this suit, and we reverse and remand.

I. Factual and Procedural Background

Appellant Apollo Property Partners, LLC (hereinafter AApollo@) petitioned the trial court for judicial dissolution of Diamond Houston I, L.P., a Texas limited partnership (hereinafter APartnership@). At all material times, appellee Diamond Houston, Inc. was the general partner of the Partnership (hereinafter AGeneral Partner@); the limited partners of the Partnership were Apollo and appellees Northbrook Houston I, LLC, and NH Investors, LLC. In its petition, Apollo asserted that the economic purpose of the Partnership was and would continue to be Aunreasonably frustrated,@ and Apollo sought judicial dissolution of the Partnership under Section 8.02(1) of the Texas Revised Limited Partnership Act.[1] Apollo sued the Partnership, the General Partner, Northbrook Houston I, LLC, and NH Investors, LLC (hereinafter collectively the ADiamond Parties@).

The Amended and Restated Limited Partnership Agreement for the Partnership (hereinafter AAgreement@) contains a provision mandating arbitration of certain claims and disputes before the American Arbitration Association (hereinafter AAAA@) in Cook County, Illinois (hereinafter AArbitration Provision@). The Diamond Parties filed a AMotion to Compel Arbitration, or Alternatively, Motion to Dismiss.@ In this motion, the Diamond Parties argued that this suit falls within the scope of the Arbitration Provision because Apollo=s claim for judicial dissolution was a dispute among partners relating to the Agreement and subject the Agreement=s provisions. In their motion to compel, the Diamond Parties sought an order compelling arbitration under the Arbitration Provision. In the alternative and in the event that the trial court determined the suit should not be arbitrated, the defendants moved to dismiss based on a purported forum-selection clause in Section 9.03 of the Agreement. The trial court did not grant the motion to compel arbitration but did grant the motion to dismiss based on the forum-selection clause.

II. Issue and Analysis

Challenging the trial court=s dismissal order on appeal, Apollo asserts that the trial court abused its discretion in granting the Diamond Parties= motion to dismiss. We review the trial court=s granting of a motion to dismiss to enforce a forum-selection clause for an abuse of discretion. Phoenix Network Techs. (Europe) Ltd. v. Neon Sys., Inc., 177 S.W.3d 605, 610 (Tex. App.CHouston [1st Dist.] 2005, no pet.). However, to the extent that our review involves the construction or interpretation of an unambiguous contract, the standard of review is de novo. See id.

Article VIII of the Agreement is entitled AArbitration.@ In it, the partners agreed, among other things, to the following:

! Certain disagreements, disputes, conflicts, claims, and controversies shall be resolved by arbitration in Cook County, Illinois before the AAA.

! Judgment upon the award or decision of the AAA shall be binding on the parties and may be entered in any court having jurisdiction thereof.

Though the Diamond Parties sought to compel arbitration under this provision of the Agreement, the trial court did not rule on their motion to compel.[2] Therefore, there is no issue before this court as to whether arbitration of this suit should be compelled under the Arbitration Provision. Nonetheless, we describe this provision to provide context for construction of the part of the Agreement upon which the trial court dismissed this suit.

In Article IX of the Agreement, entitled AMiscellaneous,@ the parties agreed as follows:

The parties irrevocably submit to the jurisdiction of any Illinois court, or federal court sitting in Cook County, Illinois, to enforce ruling [sic] arising out of or relating to this Agreement; and the parties consent to Cook County, Illinois and irrevocably waive to the fullest extent permitted by law, any objection to such venue as being an inconvenient forum.

(hereinafter ASection 9.03 @). Based on the structure of the Diamond Parties= motion, by granting their motion to dismiss, the trial court necessarily made the following determinations:

! This suit is not arbitrable under the Arbitration Provision.

! Section 9.03 is a mandatory and enforceable forum-selection clause requiring that this suit be litigated in state or federal court in Cook County, Illinois.

! Section 9.03 should be enforced by dismissing this suit so that suit can be refiled in state or federal court in Cook County, Illinois.

However, under the unambiguous language of Section 9.03, the parties did not agree that any disputes or claims must be litigated in state or federal court in Cook County, Illinois. If the parties had so agreed, such a provision would conflict with the parties= broad arbitration agreement in the Arbitration Provision. Rather, in Section 9.03 the parties waive any personal jurisdiction, venue, and forum non conveniens objections they might have as to suits in state or federal court in Cook County, Illinois that are brought Ato enforce ruling [sic] arising out of or relating to this Agreement.@

Apollo asserts that the trial court abused its discretion in granting the motion to dismiss because this suit does not fall within the scope of Section 9.03. After agreeing to a broad arbitration provision requiring arbitration before the AAA in Cook County, Illinois, the parties agreed in Section 9.03 to waive personal jurisdiction, venue, and forum non conveniens objections as to proceedings in state or federal court in Cook County, Illinois Ato enforce ruling [sic] arising out of or relating to this Agreement.@ In the context of the Agreement, Section 9.03 allows any party to seek to enforce any arbitration ruling in courts in Cook County, Illinois, by waiving all objections that the partners could raise to such a suit based on personal jurisdiction, venue, and forum non conveniens.[3] Under the unambiguous language of Section 9.03, Apollo=s suit seeking judicial dissolution of the Partnership is not a suit Ato enforce ruling [sic] arising out of or relating to this Agreement.@ Therefore, as a matter of law, this suit is not within the scope of Section 9.03. See Deep Water Slender Wells, Ltd. v. Shell Int=l Exploration & Prod., Inc., 234 S.W.3d 679, 687B88 (Tex. App.CHouston [14th Dist.] 2007, pet. filed) (stating that courts determine whether a suit falls within the scope of a forum-selection clause based on the language of the clause and the nature of the claims that allegedly are subject to the clause). Therefore, the trial court abused its discretion in dismissing this suit based on Section 9.03.[4] This error probably caused the rendition of an improper judgment because the trial court=s dismissal of Apollo=s suit was improperly based on a determination that Section 9.03 mandates litigation of this suit in courts in Illinois.[5]

III. Conclusion

Seeking to enforce Section 9.03 of the Agreement, the trial court dismissed this suit. However, this suit is not within the scope of Section 9.03. Therefore, the trial court abused its discretion by granting the motion to dismiss. We express no opinion on the merits of the motion to compel arbitration.[6] We sustain Apollo=s sole issue, reverse the trial court=s

judgment, and remand for further proceedings consistent with this opinion.

/s/ Kem Thompson Frost

Justice

Judgment rendered and Memorandum Opinion filed August 5, 2008.

Panel consists of Justices Fowler, Frost, and Seymore.

[1] Tex. Rev. Civ. Stat. Ann. art. 6132a-1, '8.02(1) (Vernon Supp. 2007).

[2] In their appellate brief, the Diamond Parties assert that the trial court granted both their motion to compel and their motion to dismiss. Because the motion to dismiss was premised on the trial court=s determination that arbitration should not be compelled, such a ruling would have resulted in inconsistent relief. The record reflects that the Diamond Parties submitted a proposed order that contained language granting only the motion to compel arbitration and that the trial court changed the proposed order so that the motion being granted in the order was the motion to dismiss rather than the motion to compel arbitration. Therefore, the trial court granted the motion to dismiss and did not rule on the motion to compel.

[3] This interpretation is supported by Section 9.15 of the Agreement, in which the parties agree that any dispute arising from the enforcement of an arbitration ruling may be brought only in the Aappropriate@federal district court or Illinois state court having subject-matter jurisdiction. The parties do not state in Section 9.15 which court or courts in Illinois are Aappropriate,@indicating that Section 9.03 answers this question by specifying federal or state courts in Cook County, Illinois and by waiving all objections that the partners could raise to such a suit based on venue and forum non conveniens. The Diamond Parties did not move to dismiss under Section 9.15.

[4] In addition, we also note that, under the plain meaning of Section 9.03, the parties did not agree to a mandatory forum selection clause; rather, they agreed in this provision to allow certain proceedings to be brought in certain courts despite any personal jurisdiction, venue, or forum non conveniens objections that the parties otherwise would have been entitled to assert. See Mabon Ltd. v. Afri-Carib Enters., Inc., 29 S.W.3d 291, 296 (Tex. App.CHouston [14th Dist.] 2000, no pet.) (holding that clause was not a mandatory forum selection clause but rather was permissive), abrogation recognized on other grounds by Phoenix Network Techs. (Europe) Ltd., 177 S.W.3d at 611B12; Southwest Intelecom, Inc. v. Hotel Networks Corp., 997 S.W.2d 322, 323B26 (Tex. App.CAustin 1999, pet. denied), abrogation recognized on other grounds by Phoenix Network Techs. (Europe) Ltd., 177 S.W.3d at 611B12. In Section 9.03, Apollo did not agree that any dispute or claim must be litigated in state or federal courts in Cook County, Illinois. Therefore, this Section is not a mandatory forum-selection clause that would require this suit to be dismissed.

[5] The Diamond Parties assert that, presuming there is such error, it is harmless because the trial court could have enforced the Arbitration Provision by means of a dismissal order. However, this argument lacks merit because the order under review, if affirmed, would preclude re-litigation of the trial court=s determinations that this suit is not arbitrable and that Section 9.03 requires litigation of this suit in courts in Illinois. See Nguyen v. Desai, 132 S.W.3d 115, 118 (Tex. App.CHouston [14th Dist.] 2004, no pet.); 18 Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure ' 4418, at 465B70 (2d ed. 2002); Restatement (Second) of Judgments ' 27 cmt. b (1982). If the trial court held that this suit must be arbitrated and dismissed the suit on that basis, the effect of that dismissal would be to bar re-litigation of the court=s determination that this suit must be arbitrated in Illinois. Therefore, the trial court=s error is not harmless.

[6] The Diamond Parties have moved to dismiss Apollo=s appeal for mootness on the basis that Apollo has now filed for arbitration in Illinois. In support of its AMotion to Dismiss for Mootness,@ the Diamond Parties attached a demand for arbitration filed by Apollo, which we consider for the purpose of determining whether the issue is moot, as a jurisdictional question. See Tex. R. App. P. 10.2; Sabine Offshore Serv., Inc. v. Port Arthur, 595 S.W.2d 840, 841 (Tex. 1979). Apollo=s demand does not seek dissolution of the partnership; rather, it alleges misconduct by individual partners of the Partnership, such as breach of the Agreement, fraud, failure to disclose, self-dealing, and breach of fiduciary duties, which are actions Apollo claims the Agreement governs. Apollo=s demand names individuals who are not named in the petition in this case. By its demand Apollo seeks to compel the individuals= performance to avoid actions that would constitute a breach and seeks arbitration orders enjoining and restricting the individuals= actions that would constitute a breach, as provided in the Agreement. Apollo=s sole issue in this appeal is whether the trial court erred in granting the Diamond Parties=motion to dismiss Apollo=s suit for statutory judicial dissolution under the Texas Revised Limited Partnership Act on the basis of economic frustration. There is no issue in this appeal regarding the arbitrability of this suit. The disposition of this appeal necessarily will determine whether Section 9.03 requires litigation of this suit in Cook County, Illinois, as the trial court concluded. See Pinnacle Gas Treating, Inc. v. Read, 104 S.W.3d 544, 545B46 (Tex. 2003). Because Apollo sought review of the trial court=s dismissal of its claims under Section 9.03, there is a live controversy and a ruling on the merits will affect the rights of the parties. See id. Accordingly, this appeal is not moot, and Apollo=s motion is denied.