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Trendmaker, Inc. v. Resolution Trust Corp.
Citations: 789 F. Supp. 854; 1992 U.S. Dist. LEXIS 6302; 1992 WL 90352Docket: Civ. A. No. H-89-1061
Court: District Court, S.D. Texas; April 30, 1992; Federal District Court
The Resolution Trust Corporation (RTC), acting as receiver for the insolvent University Savings Association, and Trendmaker are partners in a joint venture for land development in Fort Bend County. Following University Savings' insolvency in 1988, the RTC argues for liquidation of the venture, while Trendmaker asserts its right to continue the venture until its expiration in 2004, as the non-defaulting partner under their agreement. The agreement specifies that upon a partner's insolvency, the non-defaulting partner has options including continuation of the venture, a buy-sell procedure, or liquidation. Trendmaker initiated a buy-sell request, but University Savings did not respond adequately, leading Trendmaker to believe it can continue the venture. The RTC contends that under the Texas Uniform Partnership Act, liquidation is necessary due to lack of profitability and irreconcilable differences, but does not dispute Trendmaker’s right to continue the venture under the agreement’s terms. The RTC claims to have invested over $50 million in a property, currently valued at $6 million, with annual holding costs of $1 million and no future sales prospects. It argues that forcing a partner to incur further losses under the hope of future profits is unjust, citing Wallace v. Sinclair. However, the economic analysis presented by the RTC is flawed; profitability should be assessed based on the net present value of cash flows relative to the fair market value of the invested capital, while the initial investment is a sunk cost and irrelevant for future profitability. The RTC has not demonstrated that the partnership will operate at a loss. At the time of contracting, the partners agreed on remedies, including liquidation, but the choice of action lies with Trendmaker. The RTC, as the defaulting party, cannot invoke the Act to evade its contractual obligations, and it would be inequitable to impose liquidation losses on the non-defaulting partner, especially given the 20-year term of the agreement. Trendmaker retains the option to either proceed with a buy-sell procedure or continue the venture until 2004. Therefore, there is no basis for a court-ordered liquidation under the partners' agreement.