United States District Court, N.D. Texas, Fort Worth Division
Court Case No. 4:16-CV-299-A
MEMORANDUM OPINION AND ORDER
for consideration the multiple motions filed
by-defendants in the above-captioned action seeking dismissal
of the claims made by plaintiffs, Life Partners
Creditors' Trust and Alan M. Jacobs, as Trustee for Life
Partners Creditors' Trust, in their second amended
complaint ("Complaint"). After having considered such
motions, the allegations of the Complaint, plaintiffs'
omnibus response to the motions to dismiss,  the report and
recommendation of the bankruptcy judge on October 18, 2017,
objections to the report and recommendation,  plaintiffs'
responses to the objections of certain defendants,
pertinent legal authorities, the court has concluded that all
claims asserted by plaintiffs in the Complaint should be
Identities of the Parties and the Nature of the Claims
Asserted by Plaintiffs in the Complaint
are the Life Partners Creditors' Trust and Alan M.
Jacobs, as trustee for that trust. The background that led to
the creation of the trust, the designation of Alan M. Jacobs
as trustee, and the contentions of plaintiffs concerning
standing to make the claims they are asserting in this action
are described in the Complaint. Adv. Doc. 162 at 11-13,
¶¶ 49-59. On those same subjects, the court makes
reference to the Motion for Leave to: (1) Substitute
Plaintiffs; and (2) Substitute Plaintiff's Counsel filed
February 14, 2017, in Adversary No. 15-04110, and its related
February 16, 2017, order. Adv. Docs. 159, 160.
defendants are collectively referred to in the Complaint as
"Defendant Master Licensees." Adv. Doc. 162 at 2.
They are listed in paragraphs 9-46 of the
Complaint. Id. at 5-10. But, plaintiffs also
say that "[i]n this particular suit, the Defendants are
Life Partners' Referring Licensees, " which they
further describe in a footnote:
Life Partners designated certain licensees as "Master
Licensees" who recruited other Licensees, referred to as
"Referring Licensees." Life Partners also had a
designation of "Sub-Master Licensee" for certain
sales agents who, upon information and belief, acted in the
same manner and pursuant to the same terms as Master
Licensees. The term Master Licensee, as used herein, also
includes Sub-Master Licensees. Master Licensees and Referring
Licensee are collectively referred to herein as Licensees.
Id. at 4, ¶ 4 & n.1. By these impossibly
circular definitions, as noted throughout this memorandum
opinion and order, it appears that plaintiffs are asserting
claims against persons who are not parties to this action.
alleged in the Introduction of the Complaint that the
"lawsuit seeks to recover commissions paid to the
Defendants by the debtors in the above-referenced bankruptcy
proceedings" and "damages suffered by investors who
assigned their claims to the Creditors Trust."
Id. at 2, ¶ 1. The claims asserted in the
Complaint are characterized as either "Estate Claims,
" which are for "(1) fraudulent transfers under the
Texas Uniform Fraudulent Transfer Act and 11 U.S.C. §
548; (2) breach of contract; and (3) preference claims under
11 U.S.C. § 547 and various disallowance claims under 11
U.S.C. §§ 502 and 510, " or "Investor
Claims" or "Investor Assigned Claims,
" which are for "negligent
misrepresentation; (2) breach of the Texas Securities Act
based upon the sale of unregistered securities by unlicensed
brokers; (3) for rescission pursuant to the TSA; and (4) for
breach of fiduciary duty." Id. at 4,
¶¶ 6-7. The assignments of the claims to plaintiffs
were alleged to have been accomplished by, or pursuant to,
the bankruptcy plan that was confirmed. Id. at 4,
dollar amount of the recovery plaintiffs are seeking from
each defendant is not alleged in the Complaint. The Complaint
does say that all "Referring Licensees" received in
excess of $102 million in commissions and caused damages to
assigning investors far exceeding those commissions.
Id. at 4, ¶ 4. As noted, the same paragraph
says that defendants are "Referring Licensees, "
whereas the preamble to the Complaint refers to defendants
collectively as "Master Licensees." Id. at
1. And, to add to the confusion, plaintiffs later plead that
"the Defendant Licensees received over $48 million in
commissions and fees." Id. at 30, ¶ 116.
Plaintiffs also seek to impose a constructive trust against
defendants. Id. at 53-54, ¶¶ 226-28.
Although it is not clear, it appears that the res of
the trust is to be the fees and commissions defendants
received from debtors. Id., ¶¶ 227-28.
described the Estate Claims they are asserting as follows:
Count 1 asserts actual fraudulent transfer claims against all
Licensees shown on Exhibit 4 to the Complaint based on
section 24.005(a) (1) of the Texas Business and Commerce Code
through 11 U.S.C. § 544. Adv. Doc. 162 at 42-45,
Count 2 asserts constructive fraudulent transfer claims based
on section 24.005(a)(2) of the Texas Business and Commerce
Code through 11 U.S.C. § 544, again brought against all
Licensees shown on Exhibit 4. Id. at 45-47,
Count 3 asserts actual fraudulent transfers against certain
Licensees as contemplated by 11 U.S.C. §548(a)(1)(A).
Id. at 47, ¶¶ 177-81.
Count 4 asserts constructive fraudulent transfer claims
against certain Licensees as contemplated by 11 U.S.C. §
548(a) (1) (B) . Id. at 47-48, ¶¶ 182-89.
Count 5 asserts preference claims brought pursuant to 11
U.S.C. § 547 against certain Licensees shown on Exhibit
4. Id. at 48, ¶¶ 190-96.
Count 6 asserts claims against all Licensees for recovery of
all avoided transfers as authorized by 11 U.S.C. § 550.
Id. at 48-49, ¶¶ 197-99.
Count 7 asserts breach of contract claims against all
Licensees. Id. at 49-50, ¶¶ 200-05. The
court's understanding is that plaintiffs are abandoning
their breach of contract claims. Doc. 32 at 17-18.
Count 8 asserts equitable subordination claims by which
plaintiffs seek to cause all claims of all Licensees to be
equitably subordinated as contemplated by 11 U.S.C. §
510(c). Adv. Doc. 162 at 50, ¶¶ 206-09.
Count 9 seeks disallowance of all claims of all Licensees
pursuant to the authority of 11 U.S.C. § 502(d). IdL,
"Investor Assigned Claims" alleged by plaintiffs
are as follows:
Count 10 asserts negligent misrepresentation claims against
certain Licensees. Id. at 51-52, ¶¶
Count 11 asserts claims against certain Licensees for breach
of the Texas Securities Act. Id. at 52, ¶¶
12 asserts claims of breach of fiduciary duty against certain
Licensees. Id. at 52-53, ¶¶ 221- In
addition to the Estate Claims and the Investor Assigned
Claims mentioned above, plaintiffs make constructive trust
claims apparently against all defendants (this time described
as Master Licensees), and a request for recovery of
attorney's fees and costs, again apparently against all
defendants (as Master Licensees), pursuant to the authority
of section 24.013 of the Texas Business and Commerce
Code. Id. at 53-54, ¶¶
Main Grounds of the Motions to Dismiss
grounds for dismissal most frequently asserted in the motions
to dismiss are the failures of plaintiffs to satisfy the
pleading standards of Rules 8(a)(2) and 9(b) of the Federal
Rules of Civil Procedure. Those grounds are discussed in a
general way under this heading.
The Rule 8(a)(2) Pleading Standards
7008 of the Federal Rules of Bankruptcy Procedure
("Bankruptcy Rules") makes Rule 8 of the Federal
Rules of Civil Procedure applicable to adversary proceedings.
Rule 8(a)(2) provides the standard of pleading for a
complaint. It requires that a complaint contain "a short
and plain statement of the claim showing that the pleader is
entitled to relief, " Fed.R.Civ.P. 8(a)(2), "in
order to give the defendant fair notice of what the claim is
and the grounds upon which it rests, " Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal
quotation marks and ellipsis omitted).
a complaint need not contain detailed factual allegations,
the "showing" contemplated by Rule 8 requires the
plaintiff to do more than simply allege legal conclusions or
recite the elements of a cause of action. Twombly,
550 U.S. at 555.& n.3. Thus, while a court must accept
all of the factual allegations in the complaint as true, it
need not credit bare legal conclusions that are unsupported
by any factual underpinnings. See Ashcroft v. Iqbal,
556 U.S. 662, 679 (2009) ("While legal conclusions can
provide the framework of a complaint, they must be supported
by factual allegations.").
to survive a motion to dismiss for failure to state a claim,
the facts pleaded must allow the court to infer that the
plaintiff's right to relief is plausible. Id. To
allege a plausible right to relief, the facts pleaded must
suggest liability; allegations that are merely consistent
with unlawful conduct are insufficient. Twombly, 550
U.S. at 566-69. "Determining whether a complaint states
a plausible claim for relief . . . [is] a context-specific
task, that requires the reviewing court to draw on its
judicial experience and common sense." Iqbal,
556 U.S. at 679.
testing of the adequacy of allegations under Rule 8(a), any
reference by a plaintiff to defendants collectively in a
complaint fails to satisfy the pleading standards of Rule
8(a). See Griggs v. State Farm Lloyds, 181 F.3d 694,
699 (5th Cir. 1999); see also Searcy v. Knight (In re Am.
Int'l Refinery), 402 B.R. 728, 738 (Bankr. W.D. La.
Rule 9(b) Standards for the Pleading of Claims Based on
7009 of the Bankruptcy Rules makes Rule 9(b) of the Federal
Rules of Civil Procedure applicable to adversary proceedings.
Rule 9(b) applies to all cases where the gravamen of the
claim is fraud even though the theory supporting the claim is
not technically termed fraud. Frith v. Guardian Life Ins.
Co. of Am., 9 F.Supp.2d 734, 742 (S.D. Tex. 1998).
Claims alleging violations of the Texas Insurance Code and
the Texas DTPA as well as those for fraud, fraudulent
inducement, fraudulent concealment, and negligent
misrepresentation are subject to the requirements of Rule
9(b). Berry v. Indianapolis Life Ins. Co., 608
F.Supp.2d 785, 800 (N.D. Tex. 2009); Frith, 9
F.Supp.2d at 742. In other words, all claims that have
fraudulent conduct as an element are subject to the Rule 9(b)
pleading standards. See Lone Star Fund V (U.S.), LP v.
Barclays Bank PLC, 5 94 F.3d 383, 387 n.3 (5th Cir.
2010); see also Berry, 608 F.Supp.2d at 7 99; In
re Am. Int'l Refinery, 402 B.R. at 737; Ingalls
v. Edgewater Private Equity Fund III, L.P., No. CIV. A.
H-05-1392, 2005 WL 2647962, at *5 (S.D. Tex. Oct. 17, 2005);
Tigue Inv. Co., Ltd. v. Chase Bank of Tex.,
N.A., No. 3:03-CV-2490-N, 2004 WL 3170789, at *l-*2
(N.D. Tex. Nov. 15, 2004) .
9(b) requires "a plaintiff pleading fraud to specify the
statements contended to be fraudulent, identify the speaker,
state when and where the statements were made, and explain
why the statements were fraudulent." Herrmann
Holdings Ltd. v. Lucent Techs. Inc., 302 F.3d 552,
564-65 (5th Cir. 2002) (internal quotation marks and
citations omitted). To satisfy this requirement, plaintiffs
must identify in the Complaint "the particulars of time,
place, and contents of the false representations, as well as
the identity of the person making the misrepresentation and
what that person obtained thereby." See Tuchman v.
DCS Commc'ns Corp., 14 F.3d 1061, 1068 (5th Cir.
1994) (internal quotation marks and brackets omitted);
see also Dorsey v. Portfolio Equities, Inc., 540
F.3d 333, 339 (5th Cir. 2008).
Ackerman v. Northwestern Mutual Life Insurance Co.,
172 F.3d 467, 469 (7th Cir. 1999), the court provided an
explanation of the defensible purpose of the heightened
pleading requirement of Rule 9(b) by saying that it served
"to force the plaintiff to do more than the usual
investigation before filing his complaint." Id.
The rationale behind Rule 9(b) is that "[f]raud charges
can seriously damage a defendant's reputation, even when
the claim is ultimately defeated." Tigue Inv. Co.,
Ltd., 2004 WL 3170789, at *2.
allegations, which lump all defendants together failing to
segregate the alleged wrongdoing of one from those of another
cannot meet the requirements of Rule 9(b)." Id.
at *1 (brackets, internal quotation marks, and citations
omitted). See also Inqalls, 2005 WL 2647962, at *5
(quoting from Glaser v. Enzo Biochem, Inc., 303
F.Supp.2d 724, 734 (E.D. Va. 2003) (that group pleading does
not satisfy the who, what, where, why, and when required by
9(b), and that, instead, specificity is required for each
defendant)); In re Am. Int'l Refinery, 402 B.R.
at 738 (stating that "[t]he allegations in the Complaint
that refer to Defendants collectively do not satisfy the
heightened pleading standards of Rule 9(b)").
Rule 9(b) standards apply as to each defendant even when
hundreds of similarly situated defendants are named.
See Ackerman, 172 F.3d at 470-71 (stating, in the
context of a multiple-plaintiff lawsuit, that "[o] f
course . . . compliance with Rule 9(b) is burdensome. But you
cannot get around the requirements of the rule just by
joining a lot of separate cases into one.").
disclosed below in the discussions of the counts of the
Complaint, the court has adopted recommendations of the
bankruptcy judge that the allegations of certain counts fail
to comply with the pleading standards of the Federal Rules of
Civil Procedure, with the result that the inadequately
pleaded claims are to be dismissed. As to the other claims,
the court has concluded from the court's independent
evaluation of the merits of the grounds of the motions to
dismiss that all claims asserted by plaintiffs in the
Complaint are insufficiently pleaded, that some are rendered
moot because of insufficient pleading of predicate claims,
and that all claims should be dismissed. With one exception,
the court finds no reason to address recommendations of the
bankruptcy judge that bear on issues unrelated to the reasons
for dismissal discussed in this memorandum opinion and order.
sake of consistency, the court is giving all defendants the
benefit of the court's rulings, even if the ruling is
based on a ground not asserted by a defendant in a motion to
dismiss. Plaintiffs have had ample opportunity to fully
respond to all of the grounds that have led to the
court's decision to dismiss all claims; and, it would be
inappropriate to leave claims pending against some of the
defendants who, because of lack of resources or for other
reason, were ...