Amberson v. McAllen

• Decision Date: 19 August 2022
• Docket Number: SA-21-CV-00496-XR,Bankruptcy Case 20-51324-CAG
• Parties: JON CHRISTIAN AMBERSON, Appellant v. JAMES ARGYLE MCALLEN, EL RUCIO LAND AND CATTLE COMPANY, INC., SAN JUANITO PARTNERSHIP, LTD., AND MCALLEN TRUST PARTNERSHIP, LTD. Appellees Appeal of Adv. No. 20-05060-CAG
• Court: U.S. District Court — Western District of Texas

JON CHRISTIAN AMBERSON, Appellant v. JAMES ARGYLE MCALLEN, EL RUCIO LAND AND CATTLE COMPANY, INC., SAN JUANITO PARTNERSHIP, LTD., AND MCALLEN TRUST PARTNERSHIP, LTD. Appellees

Appeal of Adv. No. 20-05060-CAG

No. SA-21-CV-00496-XR

Bankruptcy Case No. 20-51324-CAG

United States District Court, W.D. Texas, San Antonio Division

August 19, 2022

ORDER

XAVIER RODRIGUEZ UNITED STATES DISTRICT JUDGE

This civil action is before the Court on appeal from the United States Bankruptcy Court for the Western District of Texas. For the reasons stated below, the judgment of the bankruptcy court is AFFIRMED and the appeal is DISMISSED.

BACKGROUND

On July 20, 2020, Appellant Jon Christian Amberson filed for bankruptcy under Chapter 11 of the Bankruptcy Code (the “Code”). Thereafter, Appellees James Argyle McAllen (“McAllen”), El Rucio Land and Cattle Company, Inc., San Juanito Land Partnership, Ltd., and McAllen Trust Partnership (collectively, the “McAllen Parties”) initiated an Adversary Proceeding against Amberson, alleging that certain damages in a previous Arbitration Award entered against Amberson for false billing practices before his bankruptcy filing were nondischargeable debts. ECF No. 2-2 at 17-21.

The McAllen parties then moved for summary judgment, arguing that the Arbitration Award was entitled to preclusive effect based on the doctrine of collateral estoppel. ECF No. 2-2 at 132-33. Amberson argued that the Arbitration Award should not be given preclusive effect because of the “disclaimer” it contained:

[T]his Award does not constitute formal Findings of Fact and Conclusions of Law as might be entered by a trial court. The parties agreed to a “reasoned award.” Thus, while the Arbitrator below enters his determinations as to [the false billing] claims by summarizing the elements of each claim, such is not intended as formal findings and/or conclusions.

ECF No. 2-2 at 62. The Bankruptcy Court noted Amberson's objection to collateral estoppel based on the “reasoned award” language, but still concluded that the Arbitration Award supported a finding that the damages awarded in connection with the false litigation expenses (“False Litigation Expenses”) were nondischargeable debts under 11 U.S.C. §§ 523(a)(2)(A) and (a)(4). See id. at 688-90, 694-97.

On appeal, Amberson argues that the Bankruptcy Court erred in adopting the arbitrator's narrative as findings of fact in support of its nondischargeability ruling. See ECF No. 6. Whether the Bankruptcy Court erred depends, of course, on both the facts adopted by the Bankruptcy Court and the legal tests for collateral estoppel and nondischargeability. Accordingly, the Court will summarize both the factual background leading to Arbitration Award and the portions of the Bankruptcy Court's opinion relating to the False Litigation Expenses.

I. The Forest Oil Litigation and Subsequent Arbitrations

The following facts are drawn from Judge Biery's order affirming the Final Judgment in favor of Appellees. See Amberson v. McAllen, No. SA-20-CV-01193-FB, 2021 WL 4760387, at *12 (W.D. Tex. Sept. 29, 2021).

[A]ppellee James McAllen (hereinafter “Mr McAllen”) is an eleventhgeneration rancher who oversees the historic McAllen Ranch, a working cattle ranch, located in Hidalgo County, Texas. For decades, the McAllen Ranch leased its mineral rights to operators such as Forest Oil Corporation (“Forest Oil”), and in the fall of 2004, Mr. McAllen was advised that Forest Oil was secretly burying, on the McAllen Ranch, the highly toxic waste that resulted from its operations instead of properly disposing of it. In addition, Mr. McAllen found out that Forest Oil had donated used piping to the ranch, for a conservation project, but failed to tell him it was radioactive. This revelation caused Mr. McAllen immediate concern for the health of his family, his workers, and his ranch. Mr. McAllen once again turned to his son-in-law and attorney, appellant Jon Christian Amberson, for help as Mr Amberson had represented Mr. McAllen and the McAllen Ranch in previous matters which even included a prior dispute with Forest Oil.

On January 31, 2005, Mr. Amberson, through his firm, appellant Jon Christian Amberson, P.C., filed suit on behalf of [the McAllen Parties] against Forest Oil in the state district court in Hildago County. Within weeks of filing suit, Mr. Amberson began billing Mr. McAllen for charges which were never incurred. In fact, during the Amberson/McAllen dispute, the arbitrator discussed 42 charges found to be fraudulent which included charges for supposed bonds, retainers and arbitration fees and resulted in an award of $2,583,700.00 in actual damages.

....

Mr. Amberson also went to great lengths to hide his fraudulent charges from the arbitration panel and opposing counsel in the aforementioned arbitration proceeding with Forest Oil. Because Mr. McAllen was seeking attorneys' fees from Forest Oil, Mr. Amberson's invoices to Mr. McAllen were discoverable. Mr. Amberson did not disclose his actual invoices but instead created and “produced over 450 pages of purported monthly invoices, ‘show bills,'” with his fraudulent charges removed. The false monetary requests for bonds and retainers were only some of the tactics Mr. Amberson used to obtain money from Mr. McAllen.

Mr. Amberson also borrowed large sums of money which Mr. McAllen collateralized based upon the representation that the loans were for funding litigation and arbitration expenses. However, Mr. Amberson failed to repay these loans. The first of these loans was a line of credit with First Community Bank that Mr. Amberson, through his Firm, established. The principal on this line of credit was close to $2 million by 2012.... Mr. McAllen [later] borrowed $2 million [to pay] off the loan on [Mr. Amberson's behalf], not knowing that three days earlier, Mr. Amberson “had secretly filed for divorce from [Mr.] McAllen's daughter.”

A loan was obtained by Mr. Amberson in 2011 from Jefferson Bank in the original sum of $1.75 million which was increased to $2.25 million. This loan was represented to Mr. McAllen as needed to finance the Forest Oil matter. Mr. McAllen fully collateralized this loan with certificates of deposit owned by him and his wife.

....

From October 31, 2011, through November 19, 2011, the Forest Oil matter was arbitrated before a panel of three arbitrators. Mr. Amberson was co-counsel with two other firms but [did] not take the lead in presenting evidence. The panel ruled in favor of the McAllen Parties on February 29, 2012, and awarded $15.5 million on actual damages, $500,000 in exemplary damages, and over $5 million in attorneys' fees. The panel later awarded an additional $1,764,428 in attorneys' fees. The arbitration award was confirmed on October 9, 2012, by a Harris County district court and a final judgment in favor of the McAllen parties was entered. The Final Judgment was affirmed by the First Court of Appeals on July 24, 2014, and by the Texas Supreme Court on April 28, 2017. The McAllen Parties subsequently collected a $25 million supersedeas bond posted by Forest Oil for the appeal. By that time, the McAllen Parties had spent over $15 million in fees and expenses.

On January 23, 2015, Mr. Amberson filed suit against Mr. McAllen in Hidalgo County district court to recover a contingent fee despite billing and collecting $2.34 million in hourly fees from the McAllen Parties. The parties agreed to abate the proceeding while the Forest Oil appeal was pending. After the Texas Supreme Court affirmed the Forest Oil judgment, Mr. Amberson reinstated his lawsuit against Mr. McAllen. Counterclaims for fraud and breach of fiduciary duty, among others, for Mr. Amberson's fraudulent charges and loans . . . were asserted by the McAllen parties....Judge Luis Singleterry, the Hidalgo district court judge, ruled on two occasions that all of the parties' claims. . . were subject to arbitration. Subsequently, Mr. Amberson proposed that Tom Collins (the “Arbitrator”) serve as arbitrator, and Mr. McAllen agreed.

Id. at *2-6.

The arbitration hearing spanned over ten days in June and July of 2019. ECF No. 2-2 at 33. After hearing testimony from 16 live witnesses and admitting approximately 325 exhibits, the Arbitrator issued as 53-page, single-spaced Arbitration Award on April 30, 2020. Id. at 32-84. The Arbitrator rejected Amberson's contingent fee claim for multiple reasons, including breach of his fiduciary duties. Id. at 14. With respect to the claims for False Litigation Expenses, the Arbitrator awarded the McAllen Parties $2,583,700.00, concluding that Amberson had engaged in a breach of fiduciary duties, fraud, and violations of the Texas Theft Liability Act (“TTLA”), and conversion. Id. at 62-64. As is relevant here, he also awarded the McAllen Parties damages in connection with the First Community Bank (“FCB”) loan ($2,652,953.13), a promissory note Amberson had failed to honor ($916,257.00), and, in a Supplemental Award, the certificates of deposit that McAllen had pledged as security collateral for the Jefferson Bank loan ($1,750,301.21). Id. at 90-91. Based on the parties' stipulations, the Arbitrator further awarded the McAllen Parties $2 million in attorneys' fees. Id. at 66-67, 81-82.

The McAllen Parties moved to confirm the Arbitration Award and Supplemental Award (collectively, the “Award”) in Hidalgo County district court, and a hearing was set for July 21, 2020. See Amberson, 2021 WL 4760387, at *7. The night before the scheduled hearing, ANR filed for bankruptcy followed by Mr. Amberson filing for personal bankruptcy on July 23, 2020. Based on these filings, the ongoing dispute between the Amberson Parties and the McAllen Parties was removed from the Hidalgo County district court to the Southern District of Texas...