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Clapper v. American Realty Investors Inc.

United States District Court, N.D. Texas, Dallas Division

November 7, 2019

DAVID M. CLAPPER; ATLANTIC MIDWEST LLC; and ATLANTIC XIII, LLC, Plaintiffs,
v.
AMERICAN REALTY INVESTORS, INC.; AMERICAN REALTY TRUST, INC.; TRANSCONTINENTAL REALTY INVESTORS, INC.; PILLAR INCOME ASSET MANAGEMENT, INC.; PRIME INCOME ASSET MANAGEMENT, INC.; PRIME INCOME ASSET MANAGEMENT, LLC; EQK HOLDINGS, INC.; BASIC CAPITAL MANAGEMENT, INC.; GENE E. PHILIPS, Defendants.[[1]]

          MEMORANDUM OPINION AND ORDER

          Sam A. Lindsay United States District Judge

         Before the court are the Joint Motion to Strike All or Portions of Plaintiffs' Fifth Amended Complaint Pursuant to Rules 15(a)(2) and 41(b) of the Federal Rules of Civil Procedure (Doc. 785), filed January 11, 2019; Defendant Gene E. Phillips' Motion to Dismiss Plaintiffs' Complaint, and Memorandum in Support Thereof, filed January 11, 2019 (Doc. 787); Defendant American Realty Investors, Inc.'s Motion to Dismiss Fifth Amended Complaint and Memorandum in Support (Doc. 788), filed January 11, 2019; Defendant American Realty Trust, Inc.'s Motion to Dismiss Fifth Amended Complaint and Memorandum in Support (Doc. 792), filed January 11, 2019; Defendant EQK Holdings, Inc.'s Amended Motion to Dismiss Fifth Amended Complaint and Memorandum in Support (Doc. 794), filed January 11, 2019; Plaintiffs' Motion for Leave to File Motion to Strike or, Alternatively, Motion in Limine (Doc. 836), filed May 1, 2019; and Plaintiffs' Motion for Leave to File Rule 11 Motions (Doc. 837), filed May 14, 2019. Also pending is whether ARI and EQK are entitled to entry of summary judgment on Plaintiffs' unjust enrichment claims, a matter raised sua sponte by the court, and fully briefed by the parties (see Docs. 729 and 738).

         After carefully considering the motions, responses, replies, pleadings, record, and applicable law, the court grants in part Joint Motion to Strike All or Portions of Plaintiffs' Fifth Amended Complaint Pursuant to Rules 15(a)(2) and 41(b) of the Federal Rules of Civil Procedure (Doc. 785); grants summary judgment in favor of ARI and EQK on Plaintiffs' unjust enrichment claims, a matter raised sua sponte by the court and fully briefed by the parties; denies Defendant Gene E. Phillips' Motion to Dismiss Plaintiffs' Complaint (Doc. 787); denies Defendant American Realty Investors, Inc.'s Motion to Dismiss Fifth Amended Complaint (Doc. 788); denies Defendant American Realty Trust, Inc.'s Motion to Dismiss Fifth Amended Complaint (Doc. 792); denies Defendant EQK Holdings, Inc.'s Amended Motion to Dismiss Fifth Amended Complaint (Doc. 794); grants Plaintiffs' Motion for Leave to File Motion to Strike or, Alternatively, Motion in Limine (Doc. 836); and denies Plaintiffs' Motion for Leave to File Rule 11 Motions (Doc. 837).

         I. Factual Background and Procedural History

         On August 19, 2014, Plaintiffs David M. Clapper (“Clapper”), Atlantic Midwest, L.L.C. (“Atlantic Midwest”), and Atlantic XIII, L.L.C. (“Atlantic XIII”)-judgment creditors of Defendant American Realty Trust, Inc. (“ART”)-filed this lawsuit against ART and numerous other defendants. Plaintiffs allege that ART unlawfully transferred assets to its parent, Defendant American Realty Investors, Inc. (“ARI”), and other entities and persons in an attempt to evade a final judgment entered in their favor by the Honorable David C. Godbey on October 11, 2011, in ART Midwest, Inc. v. Clapper, No. 3-99-cv-2355-N.[2]

         In the Original Complaint, Plaintiffs alleged the following claims: fraudulent conveyance in violation of the Texas Uniform Fraudulent Transfer Act, Tex. Bus. & Com. Code Ann. § 24.001 et seq. (West 2018) (“TUFTA”); unjust enrichment/constructive trust; alter ego; civil conspiracy to commit fraudulent conveyances; and violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962. As the basis for federal subject matter jurisdiction, Plaintiffs invoked this court's diversity jurisdiction and also its federal question jurisdiction based on the assertion of their civil RICO claim. See Compl. ¶ 1 (“This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332, (diversity jurisdiction) and based on a federal question being raised pursuant to RICO.”). On October 31, 2014, following the recusal of the Honorable Jorge A. Solis, the matter was reassigned to the Honorable Sidney A. Fitzwater. After allowing Plaintiffs leave to amend the pleadings twice, he granted in part Defendants' motion to dismiss Plaintiffs' Second Amended Complaint, dismissing, among other claims, the civil RICO claim, the sole source of federal question jurisdiction, finding it “speculative, conclusory, and insufficient to state a claim on which relief can be granted.” Clapper v. American Realty Investors, Inc., 2016 WL 302313, at *10 (N.D. Tex. Jan. 25, 2016) (Fitzwater, J.) (“Clapper III”) (“[T]he court dismisses plaintiffs' civil RICO claim because the allegations in the second amended complaint do not allow the court to draw the reasonable inference that defendants engaged in a pattern of racketeering activity.”).

         On March 24, 2017, with leave of court, see Clapper v. American Realty Investors, Inc., 2017 WL 978098 (N.D. Tex. Mar. 14, 2017) (Fitzwater, J.) (“Clapper IV”), Plaintiffs filed a Third Amended Complaint that added alter ego claims against ARI. Following the court's rulings in Clapper III and Clapper IV, the following state law claims remained: fraudulent conveyance in violation of TUFTA against ART, ARI, and EQK Holdings, Inc. (“EQK”) (sometimes collectively, the “Entity Defendants”); unjust enrichment/constructive trust against ARI and EQK; and alter ego claims against Gene Phillips (“Phillips”) and ARI.

         On December 5, 2017, in reviewing Plaintiffs' Third Amended Complaint, the court noted that Plaintiffs predicated subject matter jurisdiction on diversity of citizenship under 28 U.S.C. § 1332, and that they failed to allege properly the various parties' citizenship. The court issued an order, sua sponte, stating, “Because diversity jurisdiction is now the sole basis for the court's subject matter jurisdiction, the court orders that plaintiffs amend their complaint to properly plead the citizenship of the parties specified in this order.” Order 2 (Doc. 643) (“December 5, 2017 Order”). The court further ordered Plaintiffs to “file a fourth amended complaint that alleges diversity of citizenship, in conformity with 28 U.S.C. § 1332[, ]” stating that “otherwise, this action will be dismissed for want of subject matter jurisdiction.” Id. at 3.

         In response, on December 26, 2017, Plaintiffs Clapper and Atlantic Midwest-but not Atlantic XIII-filed a Fourth Amended Complaint. On January 16, 2018, Defendants jointly moved to dismiss Plaintiffs' claims in their entirety pursuant to Rule 12(b)(1), for failing to establish complete diversity of citizenship in their pleadings. Alternatively, Defendants moved to strike Plaintiffs' Fourth Amended Complaint (“Motion to Strike Unauthorized Pleadings and Prayer in the Fourth Amended Complaint”), arguing that Plaintiffs included new damages allegations and an expanded prayer for damage relief that was not authorized by Judge Fitzwater's December 5, 2017 Order, allowing amendment only to cure defects in allegations relating to the parties' citizenship.

         On February 28, 2018, the court granted Defendants' Rule 12(b)(1) motion to dismiss, concluding that complete diversity of citizenship was lacking. Clapper v. American Realty Investors, Inc., 2018 WL 1083609, at *5 (N.D. Tex. Feb. 28, 2018) (Fitzwater, J.) (“Clapper V”) (“Because there are Georgia citizens on both sides of the controversy, the court cannot exercise diversity jurisdiction. Accordingly, the Entity Defendants' and Phillips' motion to dismiss are granted.”). The court's decision to dismiss rendered moot Defendants' Motion to Strike Unauthorized Pleadings and Prayer in the Fourth Amended Complaint. Rather than dismiss the case for want of federal subject matter jurisdiction, however, the court stated:

Although plaintiffs can now pursue this litigation against defendants in state court, because this case has been pending in this court since August 19, 2014, the court will give plaintiffs 21 days from the date this memorandum opinion and order is filed to move for any available relief that would enable this court to exercise subject matter jurisdiction. This may include demonstrating sufficient grounds for this court to exercise supplemental jurisdiction under 28 U.S.C. § 1367(a), considering that the court had federal-question jurisdiction at the time the lawsuit was filed.

Id. at *6 (footnote omitted).

         In response to Clapper V, Plaintiffs moved for leave to file their Fifth Amended Complaint pleading supplemental jurisdiction for the first time, or, in the alternative, to remove the Atlantic entities from the lawsuit. On June 6, 2018, Judge Fitzwater determined that, in his discretion, he would exercise supplemental jurisdiction over the remaining claims under 28 U.S.C. § 1367(a), and denied Plaintiffs' motion without prejudice after concluding a formal amendment of the pleadings was not necessary. See Clapper v. American Realty Investors, Inc., 2018 WL 2739014, at *1 (N.D. Tex. June 6, 2018) (Fitzwater, J.) (“Clapper VI”).

         On August 14, 2018, the court addressed multiple outstanding motions, including then-pending motions to dismiss the Fourth Amended Complaint and motions for summary judgment. Clapper v. American Realty Investors, Inc., 2018 WL 3868703 (N.D. Tex. Aug. 14, 2018) (Fitzwater, J.) (“Clapper VIII”). In a lengthy opinion, the court granted in part the pending motions, sua sponte raised whether ARI and EQK are entitled to summary judgment on Plaintiffs' unjust enrichment claims, and set out a briefing schedule pertaining to the unjust enrichment claims. See Id. at *23-24. Following Clapper VIII, a dispute arose concerning Judge Fitzwater's reference to the Fourth Amended Complaint as the operative pleading and whether, as Plaintiffs argued, he intended Atlantic XIII to remain a plaintiff in this lawsuit. On October 10, 2018, Plaintiffs filed a motion for clarification as to the operative complaint or, alternatively, a motion for leave to file a Fifth Amended Complaint. While Plaintiffs' motion was pending, on November 13, 2018, Defendants sought leave to file their Motion for Ruling on Defendants' Previously Filed Motion to Strike Unauthorized Pleadings and Prayer in the Fourth Amended Complaint (“Motion for Ruling”) (Doc. 765), reiterating their argument that Plaintiffs, in the Fourth Amended Complaint, had added new damages allegations that were unauthorized by Judge Fitzwater's December 5, 2017 Order, and requesting a ruling from the court, stating that, “Though the Court has since ruled to permit Plaintiffs' case to move forward under supplemental jurisdiction, there has been no determination or ruling on Defendants' outstanding objections to the defects in the new damage pleadings and final prayer of Plaintiffs' Fourth Amended Complaint.” Defs.' Mot. for Ruling 2, ¶ 7 (Doc. 765).

         On November 16, 2018, Judge Fitzwater granted Plaintiffs' motion for leave to file a Fifth Amended Complaint to reinclude Atlantic XIII as a party:

[B]ecause Atlantic XIII was dropped as a plaintiff before the court decided it would exercise supplemental jurisdiction, and it is the court's intention that all three plaintiffs named in the 3AC be allowed to participate as plaintiffs, the court concludes that it should permit the filing of a 5AC that includes Atlantic XIII as a plaintiff.

Clapper v. American Realty Investors, Inc., 2018 WL 6011182, at *3 (N.D. Tex. Nov. 16, 2018) (“Clapper IX”). By separate order, Judge Fitzwater denied Defendants' Motion for Ruling without prejudice, stating:

Defendants' November 13, 2018 motion for leave to file motion for ruling by the court on defendants' previously filed motion to strike unauthorized pleadings and prayer in plaintiffs' fourth amended complaint is denied without prejudice. In a memorandum opinion and order filed today, the court is granting plaintiffs leave to file a fifth amended complaint and granting defendants leave to file responsive pleadings to the fifth amended complaint. It therefore appears that defendants' motion to strike is moot. Even if it is not, the successor judge should be able to decide whether such leave should be granted.

Order 1 (Doc. 771) (emphasis added).

         On November 16, 2018, after presiding over this matter for over four years, Judge Fitzwater-who had taken senior status-recused himself, and the matter was reassigned to the Honorable Sam R. Cummings. On December 7, 2018, as permitted by Clapper IX, Plaintiffs filed their Fifth Amended Complaint. The next day, December 11, 2018, Judge Cummings recused himself, and the matter was reassigned to the Honorable Karen G. Scholer, who recused herself on December 12, 2018, after which it was reassigned to this court.

         On January 11, 2019, in four separate motions, Defendants Phillips, ARI, ART, and EQK move to dismiss the Fifth Amended Complaint under Rule 12(b)(6). In a separate motion, Defendants collectively move to strike newly-added allegations in the Fifth Amended Complaint pertaining to damages, contending these amended allegations exceeded the scope of court orders granting leave to amend, and reiterating their arguments previously made in Defendants' Motion to Strike Unauthorized Pleadings and Prayer in the Fourth Amended Complaint, which became moot when Judge Fitzwater granted Defendants' Rule 12(b)(1) motion to dismiss. In the alternative to striking the newly-added damages allegation, Defendants move to dismiss the Fifth Amended Complaint in its entirety. Plaintiffs oppose the pending motions arguing, among other things, that Judge Fitzwater previously ruled on the issues presented and that Defendants are deliberately attempting to mislead the court in arguing to the contrary.

         On January 16, 2019, given the complex nature of the case and court's busy docket, the court vacated the March 2019 trial setting and advised the parties that it would reset the trial, pretrial conference, and pretrial material deadlines by separate order once it addressed all pending motions.[3] On May 1, 2019, Plaintiffs filed a Motion for Leave to File Motion to Strike or, Alternatively, Motion in Limine (Doc. 836), seeking to strike, among other things, Defendants' designated expert, Davor Rukivina, insofar as Defendants only recently designated him as an expert on the alter ego claims. On May 14, 2019, Plaintiffs filed a Motion for Leave to File Rule 11 Motions (Doc. 837), requesting the court to sanction Defendants for seeking in bad faith to relitigate matters already decided by Judge Fitzwater. Both motions for leave are opposed.

         Finally, on October 11, 2019, with leave of court, Defendants filed their Motion to Dismiss Supplemental Claims for Lack of Jurisdiction Under 28 U.S.C. § 1367, urging the court to reverse Clapper VI, decline to exercise supplemental jurisdiction over the remaining state law claims, and dismiss this lawsuit. On October 31, 2019, the court issued a memorandum opinion and order, denying Defendants' motion and declining their invitation to reverse Judge Fitzwater's decision to exercise supplemental jurisdiction over Plaintiffs' remaining state law claims. Clapper v. American Realty Investors, Inc., 2019 WL 5684436 (N.D. Tex. Oct. 31, 2019) (Lindsay, J.).

         II. Legal Standards

         Prior to addressing the merits of the pending motions, the court sets out the applicable legal standards that govern the disposition of the motions.

         A. Federal Rule of Civil Procedure 12(b)(6) - Failure to State a Claim

         To defeat a motion to dismiss filed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); Reliable Consultants, Inc. v. Earle, 517 F.3d 738, 742 (5th Cir. 2008); Guidry v. American Pub. Life Ins. Co., 512 F.3d 177, 180 (5th Cir. 2007). A claim meets the plausibility test “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. 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.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations omitted). While a complaint need not contain detailed factual allegations, it must set forth “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (citation omitted). The “[f]actual allegations of [a complaint] must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Id. (quotation marks, citations, and footnote omitted). When the allegations of the pleading do not allow the court to infer more than the mere possibility of wrongdoing, they fall short of showing that the pleader is entitled to relief. Iqbal, 556 U.S. at 679. In reviewing a Rule 12(b)(6) motion, the court must accept all well-pleaded facts in the complaint as true and view them in the light most favorable to the plaintiff. Sonnier v. State Farm Mutual Auto. Ins. Co., 509 F.3d 673, 675 (5th Cir. 2007); Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004); Baker v. Putnal, 75 F.3d 190, 196 (5th Cir. 1996). In ruling on such a motion, the court cannot look beyond the pleadings. Id.; Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999). The pleadings include the complaint and any documents attached to it. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000). Likewise, “‘[d]ocuments that a defendant attaches to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to [the plaintiff's] claims.'” Id. (quoting Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993)). In this regard, a document that is part of the record but not referred to in a plaintiff's complaint and not attached to a motion to dismiss may not be considered by the court in ruling on a 12(b)(6) motion. Gines v. D.R. Horton, Inc., 699 F.3d 812, 820 & n.9 (5th Cir. 2012) (citation omitted). Further, it is well-established and ‘“clearly proper in deciding a 12(b)(6) motion [that a court may] take judicial notice of matters of public record.”' Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011) (quoting Norris v. Hearst Trust, 500 F.3d 454, 461 n.9 (5th Cir. 2007) (citing Cinel v. Connick, 15 F.3d 1338, 1343 n.6 (5th Cir. 1994)).

         The ultimate question in a Rule 12(b)(6) motion is whether the complaint states a valid claim when it is viewed in the light most favorable to the plaintiff. Great Plains Trust Co. v. Morgan Stanley Dean Witter, 313 F.3d 305, 312 (5th Cir. 2002). While well-pleaded facts of a complaint are to be accepted as true, legal conclusions are not “entitled to the assumption of truth.” Iqbal, 556 U.S. at 679 (citation omitted). Further, a court is not to strain to find inferences favorable to the plaintiff and is not to accept conclusory allegations, unwarranted deductions, or legal conclusions. R2 Invs. LDC v. Phillips, 401 F.3d 638, 642 (5th Cir. 2005) (citations omitted). The court does not evaluate the plaintiff's likelihood of success; instead, it only determines whether the plaintiff has pleaded a legally cognizable claim. United States ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370, 376 (5th Cir. 2004). Stated another way, when a court deals with a Rule 12(b)(6) motion, its task is to test the sufficiency of the allegations contained in the pleadings to determine whether they are adequate enough to state a claim upon which relief can be granted. Mann v. Adams Realty Co., 556 F.2d 288, 293 (5th Cir. 1977); Doe v. Hillsboro Indep. Sch. Dist., 81 F.3d 1395, 1401 (5th Cir. 1996), rev'd on other grounds, 113 F.3d 1412 (5th Cir. 1997) (en banc). Accordingly, denial of a 12(b)(6) motion has no bearing on whether a plaintiff ultimately establishes the necessary proof to prevail on a claim that withstands a 12(b)(6) challenge. Adams, 556 F.2d at 293.

         B. Rules 15(a) and 15(a)(2) - Amendment of the Pleadings

         Federal Rule of Civil Procedure 15(a) provides that a party may amend its pleading once as a matter of course within 21 days of serving it, or if the pleading is one to which a responsive pleading is required, 21 days after service of a responsive pleading or 21 days after service of a motion under Rule 12(b), (e), or (f), whichever is earlier. See Fed. R. Civ. P. 15(a)(1)(A), (B). “In all other cases, a party may amend its pleading only with the opposing party's written consent or the court's leave.” Fed.R.Civ.P. 15(a)(2).

         When a plaintiff amends its complaint without consent or leave of the court, either the entire complaint or that part of the complaint that is added without leave may be stricken. See Barbour v. City of Forney, 2015 WL 4094005, at *3 (N.D. Tex. June 17, 2015) (amended complaint stricken when filed without consent or leave to amend); BPW Rhythmic Records, L.L.C. v. CDNOW, Inc., 2000 WL 15126620, at *1 (S.D. Tex. Oct. 12, 2000) (motion to strike second amended complaint granted when complaint filed without consent or leave of court); CAPPA Fund III v. ...


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