Texas Business Court Decision – Tuesday, May 13, 2025
No. 25-BC01B-004 Atlas IDF, LP v. Nexpoint Real Estate Partners, LLC, etc., et al. (First Division)
[Whitehill, Author]
Jurisdiction – Amount in Controversy – “Qualified Transaction.”
Atlas, a Delaware limited partnership, sued to collect on two demand promissory notes Nexpoint (referred to HCRE in the opinion) executed and defendant Dondero’s (the trustee for an investment trust) related guarantee; Highland Capital, not a party to this suit, is named payee on both notes; Highland assigned its interest in the notes to Atlas in October, 2016, in a Purchase and Sale Agreement, which also wiped out debts Atlas owed Highland. The notes were for $7.3 million in principal, together with interest at 9% per annum compounded annually; on January 31, 2025, HCRE owed $6.4 million in interest, making the total owed Atlas $13.7 million.
The court asked the parties for briefing on jurisdiction, particularly Government Code Sec. 25A.001(14)’s qualified transaction definition; the court also asked the parties for the balance due (principal and interest) in October, 2016, when the Purchase and Sale Agreement (PSA) was signed (that value was $8.9 in interest and principal); finally, the court asked the parties to brief whether the PSA could be considered a “qualified transaction.” Atlas argued that the court should consider the aggregate of principal and interest and credit its good faith pleading as to the anticipated value of the notes; HCRE argued that the court should determine the value of the qualified transaction at the time the bargain was made – October, 2016 – a time when no interest was yet due, and find the action did not exceed the $10 million threshold; it also argued the PSA was not a qualified transaction because it is not the lending transaction at issue; finally, it argued the statute’s language prohibits including interest due in determining the amount in controversy.
HELD: (1) Atlas has alleged an action arising out of a qualified transaction as required by Tex. Gov’t Code Sec. 25A.001(14); the PSA is a qualified transaction because Atlas would not have its claims in this suit but for the PSA.
(2) The PSA has an aggregate value of at least $10 million. Section 25A.001(14)’s “qualified transaction” definition looks at when the transaction happened, and Sec. 25A.004(d)’s amount in controversy requirement looks to when the suit is filed.
(3) Plaintiff’s uncontroverted pleadings are determinative, and as a party to the PSA, Atlas received consideration of at least $10 million because: (a) the parties could reasonably have placed a value on the transaction higher than the then-current value of the notes because of the expectation that the amount of interest would grow before there was a payment demand, and (b) because Highland terminated Atlas’s debt to it as part of the PSA, Atlas’s consideration (what it received) totaled at least $18.6 or $17.2 million based on the HCRE Notes’ present value in October, 2016 (without interest) plus between $7.5 and $9.7 million in the value of the terminated debt. Thus the aggregate value of consideration Atlas received was at least $10 million, and the PSA is a qualified transaction.
(4) The court rejects HCRE’s argument that only the Notes’ principal amount of $7.3 million should be counted towards the jurisdictional amount (amount in controversy) because accrued interest on the notes’ terms does not count. The court concludes: (a) jurisdiction is determined by the amount recoverable under the pleadings at the commencement of the suit; (b) interest accrued on the terms of a promissory note before filing suit is not the type of interest Sec. 25A.004(d) excludes because the amount in controversy includes the entire principal and interest due on the HCRE notes; (c) the type of interest Government Code Sec. 25A.004(d) excludes means only accessory forms of interest, such as statutory interest, and not interest that forms the primary basis of a party’s claim.
(5) As of January 31, 2025, the HCRE notes are alleged to carry approximately $13.7 million in combined principal and interest, and the amount in controversy was over $10 million when Atlas filed its suit in February, 2025. As the suit arises out of a qualified transaction and the amount in controversy requirement is met, jurisdiction is established.