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In re Life Partners Holdings, Inc.

United States District Court, N.D. Texas, Fort Worth Division

January 3, 2018

IN RE LIFE PARTNERS HOLDINGS, INC., ET AL., Debtors,
v.
A. CHRIS OSTLER, ET AL., Defendants. LIFE PARTNERS CREDITORS' TRUST AND ALAN M. JACOBS, AS TRUSTEE FOR LIFE PARTNERS CREDITORS' TRUST, Plaintiffs, Nos. 4:16-CV-266-A, 4:17-CV-108-A

          MEMORANDUM OPINION AND ORDER

          JOHN MCBRYDE, UNITED STATES DISTRICT JUDGE.

         Came on for consideration multiple motions[1] 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 amended complaint ("Complaint").[2] After having considered such motions, the allegations of the Complaint, plaintiffs' omnibus responses to the motions, [3] replies of defendants, [4] the report and recommendation regarding such motions issued by the bankruptcy judge on November 27, 2017, [5] plaintiffs' objections to the report and recommendation, [6] the response to plaintiffs' objections, [7] and pertinent legal authorities, the court has concluded that all claims asserted by plaintiffs in the Complaint should be dismissed.[8] The court has also considered plaintiffs' "renewed" motion for leave to file second amended complaint[9] and the response thereto[10] and finds that the motion should be denied.

         I.

         Identities of the Parties and the Nature of the Claims

         Plaintiffs 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. 350 at 8-10, ¶¶ 12-22. 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. 16-04022-rfn, and its related February 16, 2017 Order. Adv. Docs. 341 and 345.

         The defendants are collectively referred to in the Complaint as "Defendant Licensees." Adv. Doc. 350 at 8. 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 5, ¶ 4. They are listed in paragraph 9 of the Complaint, Id. at 6-8, ¶ 9/ and in the Complaint's Exhibit 1, id. at 6, n.2 and Adv. Doc. 350-1. The defendants thus named and listed are 164 in number.[11] Adv. Doc. 350-1 at 25.

         Plaintiffs 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. 3 50 at 4, ¶ 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. §§ 5 02 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 5-6, ¶¶ 5-7; 50-52. 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 10, ¶¶ 21-22.

         The 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 5 relate to that subject. Adv. Doc. 350-5. The Complaint does say that "all Referring Licensees received in excess of $102 million in commissions." Adv. Doc. 350 at 5, ¶ 4. Confusingly, it also says that "the Defendant Licensees collectively received over $12 million in commissions and fees." Id. at 29, ¶79-In addition to seeking recovery of unspecified amounts of monetary damages from defendants, id. at 54, ¶ 191, plaintiffs seek to impose a constructive trust against all licensees. Id. at 52-53, ¶¶ 187-88. 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 6 to the Complaint. Id., at 53; Adv. Doc. 350-6.

         Plaintiffs described the Estate Claims they are asserting as follows:

Count l asserts actual fraudulent transfer claims against all Licensees shown on Exhibit 5 to the Complaint[12] based on section 24.005(a) (1) of the Texas Business & Commerce Code through 11 U.S.C. § 544. Adv. Doc. 350 at 42-45, ¶¶ 115-26.
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 5. Id. at 45-46, ¶¶ 127-39.
Count 3 asserts actual fraudulent transfers against certain Licensees as contemplated by 11 U.S.C. § 548(a)(1)(A). Id. at 46-47 ¶¶ 140-44.
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, ¶¶ 145-52.
Count 5 asserts preference claims brought pursuant to 11 U.S.C. § 547 against certain Licensees shown on Exhibit 5. Id. at 48, ¶¶ 153-59.
Count 6 asserts claims against all Licensees for recovery of all avoided transfers as authorized by 11 U.S.C. § 550. Id. at 48, ¶¶ 160-62.
Count 7 asserts breach of contract claims against all Licensees. Id. at 49-50, ¶¶ 163-68. The court's understanding is that the breach of contract claims have been abandoned by plaintiffs, Doc. 2 0 at 9, ¶ 6; Doc. 50 at 9, ¶ 6.
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. 350 at 50, ¶¶ 169-72.
Count 9 seeks disallowance of all claims of all Licensees pursuant to the authority of 11 U.S.C. § 502(d). IcL at 50, ¶¶ 173-74.

         The "Investor Assigned Claims" alleged by plaintiffs are as follows:

Count 10 asserts negligent misrepresentation claims against certain Licensees.[13] Id. at 50-51, ¶¶ 175-77.
Count 11 asserts claims against certain Licensees for breach of the Texas Securities Act. Id. at 51-52, ¶¶ 178-81.
Count 12 asserts claims of breach of fiduciary duty against certain Licensees. Id. at 52, ...

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