Judge Bill Whitehill
The Dallas Business Court (1st Division) has denied a real estate investor’s attempt to remand his lawsuit against various entities involved in a major apartment complex project in Dallas.
Faisal Chaudhry and Still Water Development Fund, LLC, individually and derivatively on behalf of Taylor Street Investments, LLC; SW Taylor Street Owner, LP; and SW Taylor Street Development, LLC v. Stillwater Capital Investments, LLC; SW Taylor Street Manager, LLC; Aaron Sherman; Robert Elliott; MCA 2800 Taylor LLC; and Origin Bank (No. 25-BC01B-0017; 2025 Tex. Bus. 31; August 12, 2025) arose from a dispute between an investor and the managers of an apartment complex development in Dallas. In 2020 Chaudhry invested $3 million in Stillwater Capital for the construction of the project. Sherman and Elliot were the members and managers of Stillwater Capital and created SW Taylor Street Manager, LLC, to manage the development of the project. SW Taylor Street Owner, LP (Owner) was created as a holding company. Defendant Origin Bank provided a $46,545,000 construction loan for the project, which replaced an earlier HUD loan with a lower interest rate.
In 2022 Capital replaced HUD financing with a commercial loan and secured equity funding from another investor, Mount Auburn. Capital created another entity (“Owner”) to assume ownership of the development’s membership interests, well as a new entity (Taylor Investor LP) to hold Mount Auburn’s interest. As a result, Chaudhry’s equity interest was subordinated in favor of the new investors. In spite of his increasingly precarious position in the deal, he agreed to increase his capital contribution from $8 million to $9.5 million, while Capital committed roughly 1.241 million, which it did not fund. Taylor Investor also invested at least $17 million in exchange for preferential return. By early 2023 project costs had ballooned to $72 million, so Chaudhry and Capital restructured the agreement to reflect the updated equity contributions. Before signing, Chaudhry assigned a portion of his Development membership interest to OZ, his development fund created expressly for the project. Beset with further setbacks, the project necessitated further loans, subordinating Chaudhry’s equity to increased debt or preferred returns than originally projected.
In April Chaudhry filed suit in a Dallas County district court, alleging derivative breach of fiduciary duty against various parties, misrepresentation and fraud, and statutory real estate fraud. He also sought to recover exemplary damages and attorney’s fees. Origin filed a notice of removal, invoking the business court’s jurisdiction under Chapter 25A, Government Code. Capital filed a counterclaim alleging breach of the parties’ Amended Company Agreement for failure to provide required additional capital Chaudhry allegedly agreed to contribute. Plaintiffs challenged removal of his cause of actions based on the Origin loan and the statutory real estate claim. He also asked the court to adopt federal abstention principles and to abate the breach of fiduciary and fraud claims, while remanding the others to the district court. He likewise asserted the dominant jurisdiction doctrine in support of his request for the court to remand, transfer, or abate those claims.
Defendants opposed the motion, pointing to § 25A.004(b), which concerns an entity’s internal, entity-owner affairs Chaudhry replied that Origin lacked standing because it wasn’t a party to the breach of fiduciary duty claims, that the district court possessed indisputable jurisdiction over the whole case, that Origin failed to address the abstention factors, and that independent, original jurisdiction does not apply to the fraud and statutory real estate fraud theories. Chaudhry further asserted for the first time that the Capital Defendants and MCA had waived and lacked standing to support removal because they failed to file separate removal notices, join Origin’s notice, or file a consent to removal. Chaudhry conceded however, that his federal abstention principles didn’t apply in state court and that the legislature didn’t provide a specific remedy to avoid wasteful parallel proceedings that can arise when a plaintiff in a removed proceeding does not agree to supplemental jurisdiction.
In an opinion by Justice Whitehill, the court denied Chaudhry’s motion to abate the case. First, the court rejected Chaudhry’s argument that Origin lacks standing to contest remand because the statute dictates that a removal notice removes the entire case, not parts of it. The court likewise rejected his argument that the non-Origin defendants waived removal jurisdiction by not filing their own removal notices. The statute doesn’t require that, only that a party file a removal notice.
Moving on to Chaudhry’s assertion that the court lacked jurisdiction over the common law fraud and statutory fraud claims involving the Origin bank loan, the court determined that it had original jurisdiction over both those claims and the Capital Defendants’ counterclaim. The issue was whether the court had jurisdiction based on § 25A.004(b)(2) or (4), which apply to actions regarding governance, governing documents, or internal affairs of an organization or actions by an LLC member against a controlling person for an act in that capacity. Judge Whitehill answered in the affirmative, finding that Chaudhry’s common law fraud claims alleged fraud “regarding” the Capital Defendants’ internal affairs and governing documents (i.e., the company agreement’s provisions regarding Chaudhry’s membership and ownership interest in Capital). Additionally, Chaudhry’s claim that Capital “induced him to sign two company agreements” constituted “claims regarding the company’s governance, governing documents, or internal affairs. Similarly, the court had jurisdiction under (b)(4) because Defendants were controlling persons of Capital and Chaudhry alleged fraud against each of them in their capacities as such. As to the statutory real estate fraud claim, it simply repeats the same allegations as the common law fraud theory, so the court had jurisdiction over it as well.
Chaudhry also asked the court to dismiss Defendants’ counterclaim because their potential damages did not reach the $5 million threshold stipulated by § 25A.004(b). This court rejected this argument because its jurisdiction exists if “the claims in the suit, collectively, put more than $5 million in controversy.” C Ten, 2025 Tex. Bus. 1. Accordingly, based on Origin’s plea that the amount in controversy exceeded $5 million in its removal notice, the amount in controversy requirement was met.
Chaudhry then asserted comity and dominant jurisdiction, and asked the Court to abate this case for some or all of its causes of actions to proceed in the district court. The court said no because the statute confers no power on the court to shirk its original subject matter jurisdiction for causes of action related to claims within its original jurisdiction. Instead, the court is statutorily required to continue to exercise its jurisdiction over claims in its original jurisdiction in the event that other related claims are remanded. § 25A.004(f). Pursuant to the legislature’s intent, the Court declined to abate this case.
Note: Chaudhry also sought mandamus in the 15th Court of Appeals, which was denied.
TCJL Intern Satchel Williams researched and prepared the first draft of this article.
