Facts

NP SkyLoft, DST is a trust formed to acquire interests in a high-rise, student-housing apartment complex located in Austin, Texas near the university. The trust, governed by an agreement, used a confidential Private Placement Memorandum to market interests to investors, including Sandra Parziale. The memorandum projected payment of 6.13 percent interest in the first two years, increasing to 7 percent by years 9 and 10. It also stated that the complex would ultimately be sold with the investors receiving their initial investment and proportionate share of appreciation. Before enough interests were sold to acquire the property, the memorandum also mentioned that it might need to obtain capital from a preferred equity provider. The trust later issued a supplement disclosing that it had acquired the complex for $123.21 million and a preferred equity provider had contributed $35 million to finalize its acquisition. Parizale's family trust invested $525,235.10 in SkyLoft. She filed suit against Patrick Nelson and others alleging fraud and other securities violations. Nelson and Nelson Partners LLC offered the SkyLoft investments. The other defendants consisted of the preferred equity providers and its principals.

PLAINTIFF'S CONTENTIONS: Plaintiff contended that defendants concealed from investors a secret agreement amongst them. The agreement generally noted that defendants would provide to investors only material relevant to tax treatment or structure. One of the provisions defendants agreed to conceal was that in the event the Nelson Partners failed to repay the preferred equity provider, the provider would have the right to take over SkyLoft, sell the complex and use the sale proceeds to repay itself. Unbeknownst to investors, that provision became a reality in December 2020, leaving the investors with a worthless interest in a trust with no property or assets. Moreover, plaintiff asserted that the trust was not an indispensable party because plaintiff could obtain relief without joining the trust as a party.

DEFENDANTS' CONTENTIONS: Defendants argued that plaintiff failed to include the trust as a necessary party and that plaintiff failed to join the trust as such. They further contended that plaintiff failed to join the trust as a party because claims arising out of the trust were subject to arbitration and waiver of legal rights provisions. According to defendants, complete relief can only be obtained by including the trust because the trust made the alleged misrepresentations in the memorandum and its supplement that defendants were not a party to. Moreover, as a party in a pending Texas case in which the trust is currently contending the purported sale of the complex. As such, the trust has an interest in the present case.

Result

The court granted defendants' motion to dismiss for failure to join an indispensable party and dismissed the action.