United States District Court, S.D. Texas, Houston Division
MAGNA EQUITIES II, LLC; TIMUR SALIKHBAYEV; BTG INVESTMENTS, LLC; AVI MIRMAN; JAI ALAI INSURANCE, INC; DAVID A. FIELDS; MITCHELL LUKIN; BETTY ANN PURDIE; SHANNON P. PRATT; FRANCIS JUNGERS; GEORGE GILMAN; MONICA WEHBY; FRANK MARSHIK; and TOWNES PRESSLER, Plaintiffs,
HEARTLAND BANK, Defendant.
MEMORANDUM OPINION AND ORDER
LAKE, UNITED STATES DISTRICT JUDGE.
Magna Equities II, LLC, Timur Salikhbayev, BTG Investments,
LLC, Avi Mirman, Jai Alai Insurance, Inc., David A. Fields,
Mitchell Lukin, Betty Ann Purdie, Shannon P. Pratt, Francis
Jungers, George Gilman, Monica Wehby, Frank Marshik, and
Townes Pressler (collectively, "Plaintiffs"), bring
causes of action against defendant, Heartland Bank
("Heartland" or "Defendant") for fraud,
negligent misrepresentation, money had and received, unjust
enrichment, and promissory estoppel. Pending before the court
is Heartland Bank's Motion for Leave to Designate
Responsible Third Parties ("Defendant's Motion to
Designate") (Docket Entry No. 38) . For the reasons set
forth below, Defendant's Motion to Designate will be
granted for the fraud, negligent misrepresentation, money had
and received, and unjust enrichment claims.
August of 2 014 Heartland Bank and McLarty Capital
("Lenders") entered into a Credit Agreement and an
Account Purchase Agreement with an oilfield services company
called HII technologies ("HII"). By spring of 2015
HII defaulted on its financial requirements of the
Credit Agreement. On April 30, 2015, HII and Lenders entered
into a Third Modification and Waiver Agreement to the Credit
Agreement ("Third Modification to Credit
Agreement").In the Third Modification to Credit
Agreement HII acknowledged it was in default, agreed to
certain conditions to obtain a waiver of past defaults, and
agreed to release claims HII might have against Lenders.
Plaintiffs allege that Defendant promised that "if HII
raised at least $2, 735 million, Defendant would issue a
waiver of covenants and waive any defaults [, ] . . . would
permit HII to acquire a profitable oilfield water management
company called Water Transfer LLC[, ] . . . [and] would allow
HII to continue to operate as a going
concern." Defendant cites the Third Modification to
Credit Agreement to support its claim that "HII agreed
to raise $2, 735, 000 in equity and that those funds were to
be used to pay HII's creditors and the Lenders, not to
purchase another entity."HII management engaged placement
agent Roth Capital to raise the capital by issuing shares of
HII series B convertible preferred stock and warrants. Around
May 20, 2015, HII raised the required equity from
Plaintiffs' investments, and Lenders waived existing
defaults and the default rate interest.
allege that on July 9, 2015, Defendant's attorneys issued
a Notice of Default to HII, froze HII's checking
accounts, and "swept all of its cash, including
Plaintiffs' investments, thereby causing HII to
collapse." Defendant alleges that around July 15,
2015, it learned that HII instructed its customers to no
longer make payments to a lockbox account administered by
Defendant, in violation of the Credit
Agreement. Plaintiffs allege that at a meeting on
July 16, 2015, Defendant explained that "unbeknownst to
HII or Plaintiffs, it was going to foreclose on HII assets,
create a new company, hire HII's CFO as president to run
the new company, and usurp HII's opportunity to purchase
Water Transfer, LLC." On July 30, 2015, Defendant obtained a
Temporary Restraining Order in the 129th District Court of
Harris County, Texas, against HII requiring HII to direct all
payments into the lockbox pursuant to the Credit
Agreement. On August 7, 2015, Lenders, HII, and Magna
Equities II entered into a Fourth Modification and
Forbearance Agreement to the Credit Agreement.On September 18,
2015, HII filed for Chapter 11 bankruptcy.
who were investors in HII, allege that they relied on
Heartland's fraudulent representations and that
"[a]s a result of Defendant's bad faith and gross
and intentional misconduct, the value of Plaintiffs'
investments was destroyed and HII wound up in
bankruptcy." Plaintiffs bring causes of action for
fraud, negligent misrepresentation, money had and received,
unjust enrichment, and promissory estoppel. On January 8,
2018, Defendant filed its Motion to Designate seeking to
designate Roth Capital and HII CEO, Matthew Flemming, as
responsible third parties.
to Chapter 33 of the Texas Civil Practices and Remedies Code
a defendant may "designate a person as a responsible
third party by filing a motion for leave to designate that
person as a responsible third party." Tex. Civ. Prac.
& Rem. Code § 33.004(a). "The motion must be
filed on or before the 60th day before the trial date . . .
." Id. With certain express exceptions, Chapter
33 applies to all common law torts, statutory torts that do
not include a separate and conflicting legislative
fault-allocation scheme, and actions under the Deceptive
Trade Practices-Consumer Protection Act. Tex. Civ. Prac.
& Rem. Code § 33.002; JCW Electronics, Inc. v.
Garza, 257 S.W.3d 701, 704-06 (Tex. 2008) . Section
33.011 defines a responsible third party as:
any person who is alleged to have caused or contributed to
causing in any way the harm for which recovery of damages is
sought, whether by negligent act or omission, by any
defective or unreasonably dangerous product, by other conduct
or activity that violates an applicable legal standard, or by
any combination of these.
Tex. Civ. Prac. & Rem. Code § 33.011(6). Responsible
third parties are not limited to those who can be joined as
parties to the litigation. Responsible third parties may be
persons or entities outside the court's jurisdiction,
unable to be sued by the plaintiff, or even unknown. See
In re Unitec Elevator Services Co., 178 S.W.3d
53, 58 n.5 (Tex. App.--Houston [1st Dist.] 2005, no pet.);
Tex. Civ. Prac. & Rem. Code §§ 33.004(j)-(k).
court shall grant leave to designate the named person as a
responsible third party unless another party files an
objection to the motion for leave on or before the 15th day
after the date the motion is served." Tex. Civ. Prac.
& Rem. Code § 33.004(f). To successfully prevent
designation of a responsible third party, the burden is on
the plaintiffs to establish that
(1) the defendant did not plead sufficient facts concerning
the alleged responsibility of the [third party] to satisfy
the pleading requirement of the Texas Rules of Civil
(2) after having been granted leave to replead, the defendant
failed to plead sufficient facts concerning the alleged
responsibility of the person to satisfy the pleading
requirements of the Texas Rules of Civil Procedure.
Tex. Civ. Prac. & Rem. Code § 33.004(g).
court's grant of a motion for leave to designate a
responsible third party at this stage in the litigation does
not preclude a party from later challenging the designation.
"After adequate time for discovery, a party may move to
strike the designation of a responsible third party on the
ground that there is no evidence that the designated person
is responsible for any portion of the claimant's alleged
injury or damage." Tex. Civ. Prac. & Rem. Code
§ 33.004(1). "The court shall grant the motion to
strike unless a defendant produces sufficient evidence to
raise a genuine issue of fact regarding the designated
person's responsibility for the claimant's injury or
damage." Id. The burden is on the defendant to
produce sufficient evidence to raise a genuine issue of fact
regarding the designated party's responsibility for the
claimant's injury or damage. Additionally, before trial
the court must determine whether there is sufficient evidence
to support the submission of a question to the jury regarding
the designated party's responsibility. Tex. Civ. Prac.
& Rem. Code § 33.003(b). Therefore, while the
pleading requirements at the outset are not stringent, as
trial approaches the requirement for sufficient evidence to
support the actual submission of a question on the
responsibility of the designated third parties becomes more
timely filed an objection to Defendant's Motion to
Designate arguing that Defendant has failed to satisfy the
pleading requirements of the Texas Rules of Civil Procedure
to establish third party responsibility, that Section 33.004
is inapplicable to Plaintiffs' promissory estoppel claim,
and that Defendant's motion is untimely.
Whether Heartland Met the Pleading Requirements
Texas Rules of Civil Procedure provide that a defendant's
pleading must contain "a short statement of the cause of
action sufficient to give fair notice of the claim
involved." Tex.R.Civ.P. 47(a). Under this 'fair
notice' standard, "[a] pleading is sufficient
when” an opposing party can ascertain from the pleading
the nature, basic issues, and the type of evidence that might
be relevant to the controversy.'" Taylor v.
TASER International, Inc., Civil Action No. H-17-673,
2017 WL 3506885, at *2 (S.D. Tex. Aug. 16, 2017) (quoting
Low v. Henry, 221 S.W.3d 609, 612 (Tex. 2007)). To
determine whether a defendant has pled sufficient facts,
federal courts may "look at allegations in a
defendant's answer and/or counterclaim[, ] . . . [and]
allegations in a plaintiff's pleading that demonstrate
responsibility of a third party." See Eisenstadt v.
Telephone Electronics Corp., Civil Action No.
3:06-1196-0, 2008 WL 4452999, at *2 (N.D. Tex. Sept. 30,
2008); see also In re CVR Energy, Inc., 500 S.W.3d
67, 80 (Tex. App.--Houston [1st Dist.] 2016, no pet.)
("[Defendant] satisfied this low threshold. Its motion
for leave to designate [the third party] quoted from
Plaintiffs' own allegations against [the third
party]."). "Given this liberal approach, courts in
the Southern District of Texas have recognized with regard to
motions to designate responsible third parties that the
'pleading requirements at the outset are not
stringent.'" Brewer v. Suzuki Motor of America,
Inc., Civil Action No. 4:15-00197, 2016 WL 4159754, at
*3 (S.D. Tex. Aug. 3, 2016) (citation omitted). Because
Chapter 33 defines "[r]esponsible third party" as
"any person who is alleged to have caused or contributed
to causing in any way the harm for which recovery of damages
is sought, " Defendant only needs to plead facts capable
of showing how the third-parties it seeks to designate as
responsible third-parties caused or contributed to
Plaintiffs' alleged injury.
cites Plaintiffs' Second Amended Complaint to support its
claim that Roth Capital and Matthew Flemming are responsible
third parties. Defendant argues "Plaintiffs allege
that Roth Capital and Flemming made promises to them, and
that these promises form the basis of Plaintiffs'
claims." In their Second Amended Complaint
Plaintiffs allege that "Plaintiffs each were recipients
of Defendant's promises directly from Defendant or
through HII management, Roth, or both, and made the decision
to purchase the HII series B convertible preferred stock and
warrants based on Defendant's
promises." Plaintiffs also allege that they
"received Defendant's promises and representations
through oral and written communications with [either] Roth
Capital [or] HII CEO, Matthew Flemming . . .
argue that "Defendant's First Amended Answer and
Counterclaim also does not contain any allegation sufficient
to put Plaintiffs on notice of Defendant's position that
Flemming or Roth somehow share legal responsibility for
Plaintiffs' injuries." Plaintiffs argue that
Simply regurgitating Plaintiffs' factual allegations that
Roth and Flemming-unaware of Defendant's intentions and
believing its representations to be true-passed along
Defendant's false promises to Plaintiffs is insufficient
to meet the pleading standard under Section 33.004 when those
factual allegations do not give rise to any legal theory for
liability. Merely relaying a representation or promise is not
in and of itself a breach of any legal duty or
court is not persuaded by Plaintiffs' arguments.
Plaintiffs' Second Amended Complaint alleges that
Defendant communicated with Roth Capital and Flemming
"with the intent and expectation that its promises and
representations would be repeated to investors such as
Plaintiffs." Plaintiffs' argument that Roth
Capital and Flemming did not violate a legal standard, even
if ultimately found to be true, does not preclude Roth
Capital and Flemming from being responsible third parties.
See Tex. Civ. Prac. & Rem. Code § 33.011(6)
(". . . or activity that violates an applicable
legal standard, or by any combination of these")
(emphasis added). Also, at this stage the court may not
review the truth of the allegations. In re Unitec
Elevator Services Co., 178 S.W.3d at 62. Therefore, even
assuming that Roth Capital and Flemming were simply puppets
used to relay information from Defendant, the allegations are
sufficient to suggest that Roth Capital and Flemming
"caused or contributed to causing in any way the harm
for which recovery of damages is sought . . . ." Tex.
Civ. Prac. & Rem. Code § 33.011(6).
Plaintiffs' own allegations name Roth Capital and
Flemming as involved in the alleged representations,
Plaintiffs are easily on fair notice of the claim involved.
At this early stage of the case Defendant meets the low
pleading threshold of the Texas Rules of Civil Procedure for
designating responsible third parties because the nature of
Roth Capital's and Flemming's responsibility lies in
Plaintiffs' Second Amended Complaint.
Plaintiffs' Promissory Estoppel Claim
argue that Section 33.004 does not apply to its promissory
estoppel claim because promissory estoppel sounds in contract
law and Section 33.004 is limited to claims based in tort or
the Texas Deceptive Trade Practices Act. Defendant
argues in its Reply that none of Plaintiffs' cited cases
apply to responsible third parties, and that courts have
granted motions to designate responsible third parties for
promissory estoppel claims. But since Defendant states
that "Heartland need not seek to designate Roth and
Flemming as responsible third parties as to the promissory
estoppel claim, " the court will not designate Roth
Capital and Flemming as responsible third parties as to this
Whether Heartland's Motion is Timely
filed its Motion to Designate on January 8,
2018.Since docket call is scheduled for
September 14, 2018,  Defendant filed its Motion more than 60
days prior to trial as required by Section 33.004(a).
Plaintiffs argue that Defendant's Motion to Designate is
untimely, however, because the applicable statute of
limitations has expired with respect to ...