Texas Business Court Decision – Tuesday, August 12, 2025
No. 25-BC01B-0017 Faisal Chaudhry, et al. v. Stillwater Capital Investments, etc., et al. (First Division, Judge Whitehill) 25-bc01b-0017-chaudhry-v-stillwater-captial-investments-2025-tex-bus-31.pdf
Civil case – Jurisdiction. In 2020, defendant Capital solicited plaintiff Chaudhry to invest in a 192-unit apartment complex in Dallas, and he committed to invest $8 million dollars. In the next two years, the deal changed due to increased construction costs and higher financing rates. Costs increased by $14 million by early 2023, and additional investors were brought in, subordinating Chaudhry’s equity position; he was also required to increase his investment and cover shortfalls; the project, when completed, was underperforming, with rents below projections.
Chaudry sued Capital, the operating company it created (SW Taylor Street Manager – “Manager”), and Capital’s members and managers in Dallas District Court, alleging four counts: (1) derivative fiduciary breach claims against Capital and Manager for breaching duties of obedience, loyalty and care; (2) derivative actions against the members and managers for knowingly participating in the fiduciary breaches; (3) fraud claims against Capital and its members for misrepresentations which induced Chaudhry to sign various agreements; and (4) statutory real estate fraud claims under Business and Commerce Code Sec. 27.01, based on the allegations set forth in Count 3.
One of the defendants named in Count 2 for knowingly participating in the breaches (derivative defendant Origin) filed a removal notice invoking Business Court jurisdiction under Code Chapter 25A.004(b) because the amount in controversy exceed $5 million and, among other grounds, the case involved an action regarding the governance, governing documents, or internal affairs of a private organization and an action by an LLC member against controlling persons acting within their official capacity. No other defendant filed a removal notice, a consent to Origin’s removal, or a joinder in the removal notice.
Chaudhry did not contest jurisdiction over Counts 1 and 2 as derivative claims (see Sec. 25A.004(b)(1)), but he moved to remand Counts 3 and 4 for lack of the court’s original subject matter jurisdiction and objected to the exercise of supplemental jurisdiction. He further argued the case on Counts 1 and 2 should be abated while remanded Counts 3 and 4 were decided in District Court. Defendants argued Counts 3 and 4 were within the Court’s original jurisdiction under subsection (b) because they involved the entity’s internal affairs. Chaudry also filed a Second Motion to Transfer or Dismiss, because the counterclaim filed by defendant Stillwater investments for $1.6 million in damages did not reach the statutory minimum under Sections 25A.004(b) or (d).
Held: (1) the court rejects Chaudhry’s argument that derivative defendant Origin lacks standing to contest remand as to Counts 3 and 4 because it is not a party to those counts because a removal notice removes the entire action, including the counts where Origin was not a party.
(2) the court rejects Chaudhry’s argument that the non-Origin defendants waived their ability to support removal jurisdiction by not filing their own removal notices, consenting or joining Origin’s; no part of Government Code 25A requires a party to do any of those things to defend removal as to it based on another party’s removal.
(3) the court has jurisdiction over the fraud claims in Counts 3 and 4 under Sec. 25A.004(b)(4) because; (a) the fraud claims are “regarding” the company’s “internal affairs” and “governing documents” since they involved fraudulent inducement to sign company agreements; (b) the claims qualify as actions by an LLC member against controlling persons acting in their official capacity; and (c) defendant Capital is a controlling person and Stillwater Capital Investments’ sole manager, and defendants Sherman and Elliott are controlling persons of Capital;
(4) the court rejects Chaudhry’s claim that Stillwater Capital Investments’ counterclaim should be dismissed because it does not reach the $5 million threshold; the Business Court has jurisdiction over the entire lawsuit if the claims in the suit, collectively, exceed $5 million; because Origin’s removal notice plead that the amount in controversy was over $5 million, Sec 25A.004(b)’s amount in controversy is met for Investment’s counterclaims;
(5) the court declines Chaudhry’s request to abate the case for some or all of its causes of action to proceed in district court; the court has no authority under the law to decline to exercise original jurisdiction.
The opinion contains extended discussions of all five of these holdings, especially regarding point 3. While the factual and procedural discussions are complicated, I strongly suggest reading this opinion, in part for the court’s discussion of the the differences between federal and Texas original and supplemental jurisdiction, beginning at page 18 of the opinion.