Roger Arora, Maxim Bay III, LP, Bombay Group, LLC, and Bombay Maximo, LLC v. MSG Business, LLC

Affirmed and Opinion filed August 22, 2024.

In The

Fourteenth Court of Appeals

NO. 14-23-00197-CV

ROGER ARORA, MAXIM BAY III, LP, BOMBAY GROUP, LLC, AND
BOMBAY MAXIMO, LLC, Appellant
V.
MSG BUSINESS, LLC, Appellee

On Appeal from the 333rd District Court
Harris County, Texas
Trial Court Cause No. 2020-70776

OPINION

In this appeal four defendants-appellants raise one issue: they challenge the
trial court’s summary judgment in favor of the plaintiff-appellee on its promissory
note. The trial court was presented various questions concerning appellants’
liability for their obligations for three different loans made to a limited partnership.
Today, appellants’ collective argument however only implicates the judgment as it
relates to one appellant, Bombay Group, LLC (“Bombay Group”), concerning one
loan. As to that appellant and the sole claim at issue, we affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

Appellee MSG Business, LLC (“MSG”) made three loans to Maxim Bay III,
LP (“Maxim Bay”):

1. A $300,000 loan (“Loan One”) on February 12, 2018, guaranteed by
Roger Arora, and also signed by Arora in his representative capacity for
Maxim Bay’s general partner, appellant Bombay Group. 1 This loan was
renewed one year later on February 12, 2019, but the renewal was signed
by Maxim Bay’s new general partner, Bombay Maximo, LLC (“Bombay
Maximo”).

2. A $300,000 loan (“Loan Two”) on January 1, 2019.

3. A $100,000 loan (“Loan Three”) on March 27, 2019.

Only Loan One and its renewal are at issue in this appeal. The Loan One
note required quarterly interest payments the first year and full payment of the
principal amount and all unpaid accrued interest one year following the loan.
Throughout 2018, Maxim Bay made quarterly interest payments pursuant to the
terms. On February 12, 2019, when the maturity date under the original note
arrived, Maxim Bay and MSG executed a renewal promissory note extending the
maturity date to February 12, 2020. The renewal note was again signed by Roger
Arora but this time in his representative capacity for Maxim Bay’s new general

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Bombay Group, LLC is also joined in this appeal by fellow named appellants, Maxim Bay, LP,
the borrower; Bombay Maximo, LLC, the LP’s general partner that succeeded Bombay Group,
and Roger Arora, the director, signatory, guarantor and human component to these entities.
Though all co-appellants unsuccessfully defended claims asserted against them by Maxim Bay,
only Bombay Group asserts any issue on appeal. To the extent the other appellants believe they
have issues or arguments in this appeal, they have been waived as inadequately briefed. Tex. R.
App. P. 38.1.

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partner, Bombay Maximo.

After unsuccessful demands to recover on the renewal note (and Loans Two
and Three), MSG filed suit against Maxim Bay, Aurora, and the general partners,
including appellant Bombay Group. MSG filed a traditional summary judgment
on its claims and a no evidence summary judgment on the affirmative defenses.

MSG provided undisputed proof on each of the elements to support its claim
on the renewed promissory note for Loan One. It also provided undisputed proof
that at the time the original note for Loan One was executed—and at the time the
$300,000 loan was made—Bombay Group was a general partner of the borrower,
Maxim Bay.

MSG also sought to prove facts demonstrating that Bombay Group was not
shielded from liability under section 153.161 of the Business Organizations Code
concerning debts incurred by the limited partnership after Bombay Group ceased to
be a general partner. Section 153.161 provides:

Unless otherwise provided by a written partnership agreement and
subject to the liability created under Section 153.162, a general
partner who ceases to be a general partner under Section 153.155 is
not personally liable in the partner’s capacity as a general partner for
partnership debt incurred after that partner ceases to be a general
partner unless the applicable creditor at the time the debt was incurred
reasonably believed that the partner remained a general partner.
(b) A creditor of the partnership has reason to believe that a partner
remains a general partner if:
(1) the creditor had no knowledge or notice of the general partner’s
withdrawal and:
(A) was a creditor of the partnership at the time of the general
partner’s withdrawal; or
(B) had extended credit to the partnership within two years before the
date of withdrawal; or

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(2) the creditor had known that the partner was a general partner in the
partnership before the general partner’s withdrawal and had no
knowledge or notice of the withdrawal and the general partner’s
withdrawal had not been advertised in a newspaper of general
circulation in each place at which the partnership business was
regularly conducted.
Tex. Bus. Orgs. Code § 153.161.

Significantly, MSG argued and supplied affidavit testimony for the assertion
that it “had no knowledge or notice of [Bombay Group’s] withdrawal as a general
partner of Defendant Maxim Bay III, LP when it agreed to extend the terms of
Loan 1.”

In its summary-judgment response, Bombay Group provided affidavit
testimony contradicting MSG’s lack of knowledge of its withdrawal at the time the
renewal note was entered. In the affidavit, its managing member Arora states that
“[MSG] was fully aware about Bombay Group LLC no longer being a general
partner at [Maxim Bay] because I myself notified [MSG] of the same and it was
[MSG] itself that prepared the Renewal Note 1, . . . substituting the name therein of
Bombay Group LLC to Bombay Maximo LLC.” Upon this proof, Bombay Group
argued that a genuine issue of material fact precluded summary judgment.

The trial court entered a partial summary judgment for MSG on Loans One
and Three, but found there was a fact issue with respect to Loan Two, specifically,
whether MSG was aware that Bombay Group was no longer the general partner of
Maxim Bay when the Loan Two note was executed. When the case was set for
trial, MSG dropped its claims against Bombay Group for Loans Two and Three
and the parties stipulated to attorney’s fees thus obviating the need for trial. The
trial court entered a final judgment on all three loans for MSG against the
borrower/limited partnership Maxim Bay and against the guarantors. However, as
previously noted, the only issue on this appeal is whether Maxim Bay’s general
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partner, Bombay Group, is liable on Loan One and its renewal.

II. ISSUES AND ANALYSIS

The limited partnership’s liability under the renewed promissory note is
unchallenged. The sole issue raised on appeal concerns the trial court’s order
granting summary judgment on MSG’s claim on Bombay Group’s liability
stemming from its role as a general partner to the limited partnership with respect
to the Loan One renewal note.

Standard of Review

We review a trial court's order granting a traditional summary judgment de
novo. Mayer v. Willowbrook Plaza Ltd. P’ship, 278 S.W.3d 901, 908 (Tex. App.—
Houston [14th Dist.] 2009, no pet.). We take as true all evidence favorable to the
nonmovant and indulge every reasonable inference and resolve any doubts in the
nonmovant's favor. Id.

To be entitled to a traditional summary judgment, the movant must show
there is no genuine issue of material fact and that the movant is entitled to
judgment as a matter of law. Tex. R. Civ. P. 166a(c). If the movant does so, the
burden shifts to the nonmovant to produce evidence raising a fact issue. Lyda
Swinerton Builders, Inc. v. Cathay Bank, 409 S.W.3d 221, 229 (Tex. App.—
Houston [14th Dist.] 2013, pet. denied). In reviewing the summary judgment, we
consider only grounds that were expressly set forth in the motion. Brown v.
Hearthwood II Owners Ass’n, Inc., 201 S.W.3d 153, 159 (Tex. App.—Houston
[14th Dist.] 2006, pet. denied) (“A summary judgment must stand or fall on its
own merits, and the nonmovant’s failure to except or respond cannot supply by
default the grounds for summary judgment or the summary judgment proof
necessary to establish the movant’s right.”)

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Did MSG conclusively prove that Bombay Group was liable under the renewed
promissory note executed by the limited partnership?

The liabilities of the general partner in a limited partnership are like those in
an ordinary partnership, that is, “a general partner of a limited partnership has the
liabilities of a partner in a partnership without limited partners to a person other
than the partnership and the other partners.” Tex. Bus. Orgs. Code § 153.152(b). A
general partner to a limited partnership is liable for the debts incurred by the
partnership. Doctors Hosp. at Renaissance, Ltd. v. Andrade, 493 S.W.3d 545, 551
(Tex. 2016). Establishing the general partner’s liability for the debts of a
partnership is generally a simple matter of proving the party was an acting general
partner in the partnership or limited partnership at the relevant time. See Tex. Bus.
Orgs. Code Ann. § 152.306(a), 153.152(b); Kao Holdings, L.P. v. Young, 261
S.W.3d 60, 64 (Tex. 2008) (“a judgment against the partnership is not
automatically a judgment against the partner, and that judgment cannot be rendered
against a partner who has not been served merely because judgment has been
rendered against the partnership.”). However, when a creditor seeks to hold a
party liable as general partner for a partnership debt incurred before or after the
party’s tenure as a general partner, pleading and proof requirements are more
nuanced. Tex. Bus. Orgs. Code § 152.304(b)(not liable for certain events arising
before admission to partnership); Tex. Bus. Orgs. Code § 152.505(d)(subsequently
modified debts of the partnership incurred before the date a general partner
withdrawal from the partnership); Tex. Bus. Orgs. Code § 153.161 (debts incurred
after that partner ceases to be a general partner).

In its motion for summary judgment, MSG originally argued generally that
the Bombay Group was statutorily liable for the partnership’s debt incurred under
the three loans as a general partner and included the nuanced argument that under
section 153.161 that Bombay Group was liable for partnership debts (including
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under the renewed promissory note) that were incurred after it ceased to be a
general partner. MSG provided affidavit testimony intended to establish that, at
the time of the renewal note, MSG reasonably believed that Bombay Group
remained a general partner. See Tex. Bus. Orgs. Code § 153.161. This fact—
MSG’s knowledge of Bombay Group’s withdrawal—was fervently disputed by
Bombay Group with contradicting evidence, recognized by the trial court to
present a fact issue, and prompted MSG to drop other claims against Bombay
Group based on other promissory notes for subsequent debts (under Loan Two and
Three) incurred after Bombay Group ceased to be a general partner.

With the nuanced fact issues under section 153.161 (pertaining to debts
incurred after the partner’s withdrawal) resolved, MSG retained its claim against
Bombay Group on Loan One and its renewal. The Partial Summary Judgment
order reflects the court’s implicit determination that that even if Bombay Group
had withdrawn before the date the renewal note was executed, it had still been a
general partner when the debt on Loan One had been incurred. Today, we do not
disturb this implicit conclusion.

In the circumstances present in this case, Bombay Group was the undisputed
general partner of the partnership at the time the original note for Loan One was
executed. After having established the partnership’s liability, the path for MSG to
hold Bombay Group statutorily liable for the debt incurred by Loan One when it
remained a partner was not particularly nuanced. Bombay Group could not
automatically escape this liability if it chose to withdraw as a partner. Tex. Bus.
Orgs. Code § 152.505(a) (“Withdrawal of a partner does not by itself discharge the
partner's liability for an obligation of the partnership incurred before the date of
withdrawal.”) However, as it recognizes in its Reply Brief, a withdrawn general
partner may become discharged of such a liability by circumstances defined under

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section 152.505, when a creditor has notice of the partner’s withdrawal and obtains
consent to a material alteration. Tex. Bus. Orgs. Code § 152.505(d). So we briefly
address this argument and its place in the proceedings.

We first note in agreement with Bombay Group that the provision is
applicable to limited partnerships. Chapter 153 provides that, to the extent chapter
153 is silent, chapter 152’s provisions governing general partnerships also apply to
limited partnerships. Tex. Bus. Orgs. Code § 153.003(a). While Chapter 153 is
silent on the effect of a general partner’s withdrawal from a limited partnership on
that partner’s existing liability, and in particular changes are made to that existing
liability, in section 152.505(d), Chapter 152 provides this defense:

If a creditor of a partnership has notice of a partner’s withdrawal and
without the consent of the withdrawn partner agrees to a material
alteration in the nature or time of payment of an obligation of the
partnership incurred before the date of withdrawal, the withdrawn
partner is discharged from the obligation.
Tex. Bus. Orgs. Code Ann. § 152.505(d).

Given the plain direction under section 153.003(a), and the absence of any
provision in Chapter 153 governing the discharge of withdrawn partner’s liability
for debts incurred prior to the withdrawal, we see no basis for concluding that this
provision does not apply to general partners of a limited partnership. See also
Doctors Hosp. at Renaissance, Ltd. v. Andrade, 493 S.W.3d 545, 547 (Tex.
2016)(applying Chapter 152’s provision which addresses the limits of partnership’s
liability certain acts of its partners (152.303) to limited partnerships and acts of
limited partners). Notwithstanding our conclusion the provision applies to limited
partnerships for at least two reasons today, section 152.505(d), does not afford
Bombay Group relief from the judgment that it seeks.

Bombay Group Failed to Plead or Prove its Statutory Discharge Defense

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In order for a withdrawn partner to be discharged by a renewal note under
152.505(d), there must be a showing that the renewal was a “material alteration”
and that the withdrawn partner consented to the renewal. Tex. Bus. Orgs. Code
Ann. § 152.505(d).

Although MSG’s summary-judgment motion does not address the material
facts implicated by Bombay Group’s withdrawal as pertaining to the discharge of
liability under section 152.505, it was not incumbent upon MSG to address the
matter. Section 152.505 provides that, upon a showing of certain facts, a
withdrawn partner is discharged from a partnership debt. We construe the
provision as an affirmative defense. In fact and function, 152.505 bears too strong
a resemblance to a novation or a material alteration affirmative defense to treat it
differently procedurally. See Schwab v. Schlumberger Well Surveying Corp., 145
Tex. 379, 384, 198 S.W.2d 79, 82 (1946) (novation); Bullock v. Kehoe, 678
S.W.2d 558, 559 (Tex. App.—Houston [14th Dist.] 1984, writ ref'd n.r.e.)(material
alteration). Thus, the fact that Bombay Group neither raised section 152.505(d) as
an affirmative defense in its pleading nor argued it at the summary judgment phase
is fatal. But that’s not all.

No alteration was “material” as to Bombay Group’s obligation

Even presuming Bombay Group had preserved its statutory discharge
defense, certain unavoidable facts in the record suggest the defense lacked merit.
To preclude MSG’s summary judgment on the Loan One renewal under its
statutory discharge defense Bombay Group was required to demonstrate issues of
material fact concerning MSG’s knowledge of Bombay’s withdrawal prior to the
renewal note, Bombay’s consent, and that the renewal note in fact was a “material
alteration” to Bombay Groups existing obligation. See Tex. Bus. Orgs. Code §
152.505(d). It is the latter element that is particularly deficient on our record.

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Texas court have historically considered an alteration to an existing
obligation material when it is “detrimental” to the party asserting the defense. See
Lissiak v. SW Loan OO, L.P., 499 S.W.3d 481, 497 (Tex. App.—Tyler 2016, no
pet.); Fed. Deposit Ins. Corp. v. Attayi, 745 S.W.2d 939, 944 (Tex. App.—Houston
[1st Dist.] 1988, no writ) (“A ‘material alteration’ of a contract between a creditor
and principal debtor is one that either injures or enhances the risk of injury to the
guarantor”) citing United Concrete Pipe Corp. v. Spin–Line Co., 430 S.W.2d 360,
365 (Tex. 1968). The plain meaning of the word “material” as used section
152.505(d), carries this same meaning, such that the party asserting the defense
must show the alteration was detrimental in some way.

Loan One’s renewal note differed from the original loan in two respects. The
renewal note (1) extended the date of repayment one year, from Feb. 12, 2019, to
Feb. 12, 2020, and (2) reduced the interest rate from 20% to 15%, but otherwise
involved the same obligation based on the same $300,000 received, a debt incurred
on or about February 12, 2018, when Bombay Group unquestionably was the
general partner. The reduction in interest and extension of time for repayment of
the existing loan were unquestionably alterations to the existing agreement. But
from Bombay Group’s standpoint it had to prove a material, or detrimental,
alteration. If anything, the renewal of Loan One was favorable to the partnership,
not detrimental. The record before us shows nothing about the renewal note that
constituted a material, or detrimental, obligation as to Bombay Group.

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III. CONCLUSION

Having concluded that the trial court did not err we affirm the judgment in
all respects.

/s/ Randy Wilson
Justice

Panel consists of Chief Justice Christopher and Justices Zimmerer and Wilson.

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