United States District Court, N.D. Texas, Fort Worth Division
Court Case No. 4:16-CV-200-A
MEMORANDUM OPINION AND ORDER
MCBRYDE UNITED, STATE DISTRICT JUDGE.
for consideration multiple motions filed by defendants in the
above-captioned action seeking dismissal of claims made by
plaintiffs, Life Partners Creditors' Trust and Alan M.
Jacobs, as Trustee for Life Partners Creditors' Trust, in
their third amended complaint
("Complaint"). After having considered such motions,
the allegations of the Complaint, plaintiffs' omnibus
response to the motions,  replies of defendants,  the report and
recommendation regarding such motions issued by the
bankruptcy judge on October 19, 2017,  objections to the
report and recommendation,  plaintiffs' responses to
defendants' objections,  and pertinent legal authorities,
the court has concluded that all claims asserted by
plaintiffs in the Complaint should be
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. 136 at 6-8,
¶¶ 26-36. On those same subjects, the court makes
reference to the Motion for Leave to: (1) Substitute
Plaintiffs; and (2) Substitute Plaintiffs' Counsel filed
February 14, 2017, in Adversary No. 15-04087-rfn, and its
related February 17, 2017 Order. Adv. Docs. 133 and 134.
defendants are collectively referred to in the Complaint as
"Defendant Licensees." Adv. Doc. 136 at 2.
Plaintiffs also say that defendants "are Life
Partners' Referring Licensees, " but then refer to
"all Referring Licensees" as though defendants are
a sub-group of them. Id. at 3, ¶ 4. They are
listed in paragraphs 9-23 of the Complaint, id. at
alleged in the Introduction of the Complaint that the
"lawsuit seeks to recover commissions paid to the
Defendants by [Life Partners]" and "damages
suffered by investors who assigned their claims to the
Creditors Trust." Adv. Doc. 136 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 "(1) 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; 46-48. The assignments
of those claims to plaintiffs were alleged to have been
accomplished by, or pursuant to, the bankruptcy plan that was
confirmed November 1, 2016, and became effective December 9,
2016. Id. at 8, ¶¶ 35-36.
dollar amount of recovery plaintiffs are seeking from each of
the defendants is not alleged in the Complaint unless the
"Grand Totals" shown on the Complaint's Exhibit
4 relate to that subject. Adv. Doc. 136-4. The Complaint does
say that "all Referring Licensees received in excess of
$102 million in commissions." Adv. Doc. 136 at 3, ¶
4. Confusingly, it also says that "the Defendant
Licensees collectively received over $27.6 million in
commissions and fees." Id. at 26, ¶ 93.
And, in Count 2, it says debtors "made or authorized
Transfers totaling over $ 9.9 million to Licensees during the
period from 2008 to 2015." Id. at 41, ¶
142. And, it alleges that plaintiffs should recover
"amounts paid to all Licensees and described herein from
2011 to 2015 in an amount of more than $ 9.9 million."
Id. at 42, ¶ 153. In addition to seeking
recovery of unspecified amounts of monetary damages from
defendants, id. at 49, ¶ 205, plaintiffs seek
to impose a constructive trust against all licensees.
Id. at 48, ¶¶ 200-02. While the
allegations lack clarity, apparently the res of the
trust is to be whatever money each of the defendants received
as compensation for sales on behalf of Life Partners of
fractional interests in life insurance policies to the
thousands of investors that are identified in Exhibit 5 to
the Complaint. Id.; Doc. 136-5.
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 & Commerce Code
through 11 U.S.C. § 544. Adv. Doc. 136 at 38-40,
Count 2 asserts constructive fraudulent transfer claims based
on section 24.005(a)(2) of the Texas Business & Commerce
Code through 11 U.S.C. § 544, again brought against all
Licensees shown on Exhibit 4. Id. at 40-42,
Count 3 asserts actual fraudulent transfers against certain
Licensees as contemplated by 11 U.S.C. § 548(a)(1)(A).
Id. at 42, ¶¶ 154-58.
Count 4 asserts constructive fraudulent transfer claims
against certain Licensees as contemplated by 11 U.S.C. §
548(a)(1)(B). Id. at 42-43, ¶¶ 159-66.
Count 5 asserts preference claims brought pursuant to 11
U.S.C. § 547 against certain Licensees shown on Exhibit
4. Id. at 43-44, ¶¶ 167-73.
Count 6 asserts claims against all Licensees for recovery of
all avoided transfers as authorized by 11 U.S.C. § 550.
Id. at 44, ¶¶ 174-76.
Count 7 asserts breach of contract claims against all
Licensees. Id. at 44-45, ¶¶ 177-82. The
court's understanding is that the breach of contract
claims have been abandoned by plaintiffs, Doc. 50-1 at 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. 136 at 45, ¶¶ 183-86.
Count 9 seeks disallowance of all claims of all Licensees
pursuant to the authority of 11 U.S.C. § 502(d).
Id. at 45-46, ¶¶ 187-88.
"Investor Assigned Claims" alleged by plaintiffs
are as follows:
Count 10 asserts negligent misrepresentation claims against
certain Licensees. Id. at 46, ¶¶ 189-
Count 11 asserts claims against certain Licensees for breach
of the Texas Securities Act. Id. at 47, ¶¶
Count 12 asserts claims of breach of fiduciary duty against
certain Licensees. Id. at 47-48, ¶¶
addition to the Estate Claims and Investor Assigned Claims
mentioned above, plaintiffs make constructive trust claims,
apparently against all Licensees, and a request for recovery
of attorneys' fees and costs, again apparently against
all Licensees, pursuant to the authority of section 24.013 of
the Texas Business & Commerce Code. Id.
at 48-49, ¶¶ 200-04.
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, 594 F.3d 383, 387 n.3 (5th Cir.
2010); see also Berry, 608 F.Supp.2d at 799; 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 Ingalls, 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
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 ...