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Trial Win for J+M LLP Clients

Joyce + McFarland LLP lawyers John H. McFarland and Jason E. Beesinger prevailed in a trial involving a dispute between their clients, six of the seven limited partners in a partnership owning property along the Old Brazos River in Freeport, Texas, on the one hand, and Hiram Walker Royall, the principal behind that partnership’s Dallas-based general partner and the seventh limited partner, on the other.

Through his entities, Mr. Royall sued the six limited partners seeking declaratory relief to invalidate the actions they took to remove and replace the general partner when he refused to step down after his self-dealing involving partnership assets and opportunities came to light. In response, the limited partners brought counterclaims for the general partner’s failure to comply with the fiduciary and other duties he owed the partnership in a series of transactions through which he acquired nine neighboring tracts of land through Second Street Properties, LLC, a company he formed to hold the properties after learning of the City of Freeport’s intent to enter into a ground lease and spend millions of dollars to develop a marina on the properties. Even though the partnership directly funded the purchase of seven of the nine tracts of land, the general partner’s company ended up owning those properties without any notice or disclosure to the limited partners. The partnership held exclusive options to purchase the remaining two properties, which also ended up being owned by the general partner’s wholly-owned company. Together, those nine properties now house the Freeport Marina; the evidence presented at trial supported a valuation of several million dollars for the nine properties.

After a two-week trial before the Hon. Bill Burke, the jury found that Hiram Walker Royall, personally and through his general partner entity, Briarwood Capital Corporation, failed to comply with the fiduciary duties they owed the partnership and the limited partners, respectively, in the transaction through which Mr. Royall’s wholly-owned company, Second Street Properties, LLC, acquired the seven properties as to which the partnership had provided the original funds. The jury further found that Mr. Royall and Briarwood failed to comply with the Limited Partnership Agreement and failed to act in good faith in that transaction, among other findings. Those seven properties represent the lion’s share of the marina properties that Mr. Royall diverted to his company in the challenged transactions and house the most critical marina improvements, including the dry stack building, wet slips, and the ship store.

As a result of these jury findings, Judge Burke rendered judgment imposing a constructive trust on the seven properties in favor of the partnership and ordered Mr. Royall’s Second Street Properties, LLC to transfer those properties back to the partnership.

Mr. McFarland said this about the case: “The irony is that Walker Royall initiated this suit, suing his cousins, the limited partners, for having the temerity to replace him as the general partner after they learned about how he had diverted the partnership’s property and opportunities to his own company. Had he not brought the suit, his cousins wouldn’t have sued him for his conduct, most of which happened outside of what would have been the controlling limitations period, and he never would have been held to account for his actions. And bringing the claims against the limited partners opened the statutory safe harbor for related counterclaims. The limited partners prevailed on those counterclaims.”

David Beck and Bryon Rice of Beck Redden LLP represented Mr. Royall and his related entities.