United States District Court, N.D. Texas, Dallas Division
MEMORANDUM OPINION AND ORDER
A. FITZWATER UNITED STATES DISTRICT JUDGE
removed action, plaintiffs Basic Capital Management, Inc.
(“BCM”), American Realty Trust, Inc.
(“ART”), and Transcontinental Realty Investors,
Inc. (“TRI”) bring this action against defendants
Dynex Capital, Inc. (“Dynex”) and Dynex
Commercial, Inc. (“DCI”) to recover on claims for
fraudulent transfer, alter ego, and conspiracy. Dynex and DCI
move to dismiss plaintiffs' state-court original petition
(“petition”). For the reasons that follow, the
court grants Dynex's and DCI's motions to dismiss and
grants plaintiffs leave to file an amended complaint.
this case is the subject of a prior memorandum opinion and
order, Basic Capital Mgmt., Inc. v. Dynex Capital,
Inc., 2017 WL 5197145, at *1 (N.D. Tex. Nov. 7, 2017)
(Fitzwater, J.), the court will recount only the background
facts and procedural history that are pertinent to this
suit relates to a case filed nearly two decades ago. Dynex
and DCI are real estate lending companies. They entered into
a transaction with BCM, acting on behalf of ART and TRI,
which included two loan commitments-one to borrow $33.4
million to acquire and develop three buildings in New
Orleans, and one to borrow $160 million to develop commercial
and multifamily properties (the “$160 Million
Commitment”). In 1999 BCM, ART, and TRI sued DCI in
Texas state court, alleging five claims related to the breach
of the $160 Million Commitment. In 2000 Dynex was added as a
defendant in the state court action. The jury found DCI
liable for breaching the $160 Million Commitment, but found
that Dynex was not liable for any claims related to the $160
Million Commitment.In 2004 the trial court granted
Dynex's and DCI's post-verdict motions for judgment
notwithstanding the verdict and entered a take-nothing
judgment against both DCI and Dynex. Plaintiffs appealed the
take-nothing judgment against DCI but did not appeal the
take-nothing judgment in favor of Dynex. After appeals to the
court of appeals and the Supreme Court of Texas, the trial
court in 2015 entered a final judgment against DCI, awarding
plaintiffs damages for breach of the $160 Million Commitment.
In April 2017 plaintiffs filed the present action in state
court in an attempt to collect against Dynex based on the
state court judgment against DCI. These claims are all based
on plaintiffs' allegations that, beginning in 1999 and
leading up to and through the appellate process, Dynex and
DCI attempted to evade judgment creditors through a series of
transfers of DCI's assets that eventually led to its
insolvency. Their petition alleges claims for fraudulent
transfer and civil conspiracy under the Texas Uniform
Fraudulent Transfer Act (“TUFTA”), Tex. Bus.
& Com. Code Ann. § 24.001 (West 2018), and alter ego
liability. Plaintiffs also seek other remedies relating to
DCI and Dynex's allegedly fraudulent conduct. In May 2017
Dynex and DCI removed the case to this court.
now moves under Fed.R.Civ.P. 12(b)(6) and 9(b) to dismiss
plaintiffs' petition. DCI moves separately under Rule
8(a)(2), 9(b) and 12(b)(6) to dismiss the petition.
Plaintiffs oppose the motion.
Rule 12(b)(6), the court evaluates the pleadings by
“accept[ing] ‘all well-pleaded facts as true,
viewing them in the light most favorable to the
plaintiff.'” In re Katrina Canal Breaches
Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting
Martin K. Eby Constr. Co. v. Dall. Area Rapid
Transit, 369 F.3d 464, 467 (5th Cir. 2004)). To survive
defendants' motions to dismiss, plaintiffs must allege
enough facts “to state a claim to relief that is
plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). “A claim has
facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that
the defendant[s] [are] liable for the misconduct
alleged” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). “The plausibility standard is not akin to a
‘probability requirement, ' but it asks for more
than a sheer possibility that a defendant has acted
unlawfully.” Id.; see also Twombly,
550 U.S. at 555 (“Factual allegations must be enough to
raise a right to relief above the speculative level
[.]”). “[W]here the well-pleaded facts do not
permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged-but it has not
‘show[n]'-‘that the pleader is entitled to
relief.'” Iqbal, 556 U.S. at 679 (quoting
Rule 8(a)(2)). Furthermore, under Rule 8(a)(2), a pleading
must contain “a short and plain statement of the claim
showing that the pleader is entitled to relief.”
Although “the pleading standard Rule 8 announces does
not require ‘detailed factual allegations, '”
it demands more than “‘labels and
conclusions.'” Iqbal, 556 U.S. at 678
(quoting Twombly, 550 U.S. at 555). And
“‘a formulaic recitation of the elements of a
cause of action will not do.'” Id.
(quoting Twombly, 550 U.S. at 555).
9(b) imposes a heightened pleading standard for fraud claims
and requires that a party state with particularity facts
supporting each element of fraud.” Turner v.
AmericaHomeKey Inc., 2011 WL 3606688, at *2 (N.D. Tex.
Aug. 16, 2011) (Fitzwater, C.J.) (citing Benchmark
Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 724 (5th
Cir. 2003)), aff'd, 514 Fed.Appx. 513 (5th Cir.
2013). “At a minimum, Rule 9(b) requires allegations of
the particulars of time, place, and contents of the false
representations, as well as the identity of the person making
the misrepresentation and what he obtained thereby.”
Id. (quoting Benchmark Elecs., 343 F.3d at
724) (internal quotation marks omitted). More colloquially,
plaintiffs must plead the “who, what, when, where, and
how” of the fraud. Williams v. Bell Helicopter
Textron, Inc., 417 F.3d 450, 453 (5th Cir. 2005)
(quoting United States ex rel. Thompson v. Columbia/HCA
Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997)).
and DCI maintain that plaintiffs' pleading of an alter
ego claim does not satisfy the pleading requirements of Rules
12(b)(6) and 9(b).
suit is removed to federal court based on diversity
jurisdiction, district courts “apply the conflict of
laws rule of the state in which it sits to determine which
state's substantive law should be applied.”
Alberto v. Diversified Group, Inc., 55 F.3d 201, 203
(5th Cir. 1995) (citing Klaxon Co. v. Stentor Elec. Mfg.
Co., 313 U.S. 487, 496 (1941)). Under Texas law,
“only the laws of the jurisdiction of incorporation of
a foreign corporation shall govern . . . the liability, if
any, of shareholders of the foreign corporation for the
debts, liabilities, and obligations of the foreign
corporation for which they are not otherwise liable by
statute or agreement.” Tex. Bus. Corp. Act Ann. art.
8.02 (West 2003); see also Ace Am. Ins. Co. v. Huntsman
Corp., 255 F.R.D. 179, 195 (S.D. Tex. 2008) (citing
cases) (“[C]ourts have held that the law of the state
of incorporation for the entity whose corporate form is at
issue applies to determine whether to pierce the corporate
Dynex were both incorporated in Virginia. See Pet.
¶¶ 6-7 (“Defendant [Dynex] is a Virginia
corporation with its principal place of business in Glen
Allen, Virginia, ” and “[DCI] is a Virginia
corporation with its principal place of business in Glen
Allen, Virginia.”). Accordingly, the court applies
Virginia law when determining whether plaintiffs have
sufficiently pleaded an alter ego claim.
Virginia law, “[a] court can pierce the corporate veil
only upon a showing that (1) the corporation was the
‘alter ego, alias, stooge, or dummy' of the other
entity; and (2) ‘the corporation was a device or sham
used to disguise wrongs, obscure fraud, or conceal
crime.'” Oliver v. Omega Protein, Inc.,
2011 WL 1044403, at *5 ...