Campbell v. Tex. Tea Reclamation, LLC
| Decision Date | 06 May 2021 |
| Docket Number | CIVIL ACTION NO. 3:20-CV-00090 |
| Parties | STUART CAMPBELL, JR., in his capacity as Executor of the Estate of H. Stuart Campbell, Sr., Plaintiff. v. TEXAS TEA RECLAMATION, LLC, ET AL., Defendant. |
| Court | U.S. District Court — Southern District of Texas |
Currently before me are two motions to dismiss. First, Defendant Texas Tea Reclamation, LLC ("Texas Tea") has filed a Motion to Dismiss Counts 30-33, 36, and 37 of Plaintiff's Second Amended Complaint. See Dkt. 31. Defendants Dymra Henderson Williams and John E. Williams (collectively, "the Williamses") have joined in Texas Tea's motion to dismiss. See Dkt. 32. Second, the Williamses have filed a Motion to Dismiss Counts 29 and 35 of Plaintiff's Second Amended Complaint. See Dkt. 33. I have carefully reviewed the Second Amended Complaint, the briefing related to the motions to dismiss, and the applicable law. For the reasons set forth below, I recommend that Texas Tea's motion to dismiss be GRANTED and that the Williamses' motion to dismiss be GRANTED in part and DENIED in part.
H. Stuart Campbell, Sr. ("Campbell, Sr.") was a successful businessman who lived in North Carolina. In July 2014, according to the Second Amended Complaint, Campbell, Sr.'s nephew, John E. Williams, and John's wife, Dymra Henderson Williams, pitched an investment concept to Campbell, Sr. The Williamses had formed Texas Tea Reclamation, LLC ("Texas Tea") as an environmental and oil field services company offering to reclaim and remediate hydrocarbons from oil mud, and they encouraged Campbell, Sr. to invest. On July 31, 2014, Campbell, Sr. put $2 million in Texas Tea. In return, Campbell, Sr. allegedly received a membership interest in Texas Tea.
In addition to his $2 million initial investment in Texas Tea, Campbell, Sr. agreed to enter into a total of 28 demand promissory notes with Texas Tea for an aggregate amount of $2.375 million. These notes were executed between December 2015 and August 2018 and provided Texas Tea with additional capital.
After Campbell, Sr. died in December 2018, his estate demanded repayment of the promissory notes. When Texas Tea failed to pay, H. Stuart Campbell, Jr. ("Campbell, Jr."), as the executor of the Estate of H. Stuart Campbell, Sr., filed this lawsuit. The original lawsuit asserted one cause of action: breach of contract. A Second Amended Complaint, filed on September 9, 2020 asserts a laundry list of claims.
Texas Tea has moved to dismiss Counts 30 through 33 of the Second Amended Complaint, which allege that Texas Tea and the Williamses violated theTexas Uniform Fraudulent Transfer Act. Texas Tea has also moved to dismiss Counts 36 and 37 of the Second Amended Complaint, which allege that Texas Tea and the Williamses committed fraud and made negligent misrepresentations to Campbell, Sr. In addition to joining Texas Tea's motion to dismiss those claims, the Williamses have filed a separate motion to dismiss Counts 29 and 35 of the Second Amended Complaint, which allege that the Williamses breached fiduciary duties owed to Campbell, Sr. and unjustly enriched themselves. The Second Amended Complaint's allegations of breach of contract against Texas Tea (Counts one through 28) and return of distributions against the Williamses (Count 34) are not addressed in the motions to dismiss.
To bring a lawsuit in federal court, the complaint must provide "a short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). The Supreme Court has construed that rule as requiring the plaintiff to plead "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Defendants may challenge the sufficiency of the plaintiff's complaint by filing a motion to dismiss for "failure to state a claim upon which relief can be granted." FED. R. CIV. P. 12(b)(6). A motion to dismiss under Rule 12(b)(6) "is viewed with disfavor and is rarely granted." See Leal v. McHugh, 731 F.3d 405, 410 (5th Cir. 2013) (quotation omitted).
In considering a motion to dismiss, a district court must accept the factual allegations in the live complaint as true and construe the facts in the light most favorable to the plaintiff. See Alexander v. Verizon Wireless Servs., L.L.C., 875 F.3d 243, 249 (5th Cir. 2017). The district Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010).
Texas Tea's motion to dismiss seeks to eliminate the fraud, negligent misrepresentation, and fraudulent transfer claims raised in the Second Amended Complaint. For the following reasons, I recommend that Texas Tea's motion be granted and that the fraud, negligent misrepresentation, and fraudulent transfer claims be dismissed.
When a complaint alleges fraud, the pleading standard is heightened to require a claim that "state[s] with particularity the circumstances constituting fraud." FED. R. CIV. P. 9(b). To satisfy this pleading standard, the Fifth Circuit has held that the allegations must include "the particulars of time, place, and contents of the false representations, as well as the identity of the person making themisrepresentation and what he obtained thereby." Benchmark Elecs., Inc. v. J.M. Huber, 343 F.3d 719, 724 (5th Cir. 2003) (quotation omitted). Put another way, Rule 9(b) requires the complaint to lay out the "who, what, when, where, why, and how the false statements were made and to whom they were made." Askanase v. Fatjo, 130 F.3d 657, 676 (5th Cir. 1997). See also Matter of Life Partners Holdings, Inc., 926 F.3d 103, 117 (5th Cir. 2019) (same). As one district court has explained:
The rule has three purposes. First, it ensures that the allegations are specific enough to inform a defendant of the act of which the plaintiff complains and to enable him to prepare an effective response and defense. Second, it eliminates those complaints filed as a pretext for discovery of unknown wrongs. The Second Circuit explained: "A complaint alleging fraud should be filed only after a wrong is reasonably believed to have occurred; it should seek to redress a wrong, not to find one." Segal v. Gordon, 467 F.2d 602, 607-08 (2d Cir. 1972). A plaintiff in a non-9(b) suit can sue now and discover later what his claim is, but a Rule 9(b) claimant must know what his claim is when he files it. Third, Rule 9(b) seeks to protect defendants from unfounded charges of wrongdoing which injure their reputations and goodwill.
In re Commonwealth Oil/Tesoro Petroleum Corp. Sec. Litig., 467 F. Supp. 227, 250 (W.D. Tex. 1979) (cleaned up). "The Fifth Circuit applies Rule 9(b) to fraud complaints with bite and without apology, while recognizing that Rule 9(b) supplements but does not supplant Rule 8(a)'s notice pleading." Carlton v. Cannon, 184 F. Supp. 3d 428, 456 (S.D. Tex. 2016) (quotation omitted). Rule 9(b) "requires only simple, concise, and direct allegations of the circumstances constituting fraud, which after Twombly must make relief plausible, not merely conceivable, when taken as true." Id. (quotation omitted).
Rule 9(b)'s heightened pleading requirements apply to negligent misrepresentation claims when the fraud and negligent misrepresentation claims "are based on the same set of alleged facts." Benchmark, 343 F.3d at 723. Failure to plead fraud and those negligent misrepresentation claims subject to Rule 9(b) with specificity can result in dismissal under Rule 12(b)(6) for failure to state a claim. See Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1017 (5th Cir. 1996) ().
Campbell, Jr. alleges that the Williamses committed fraud and negligent misrepresentation by making material misrepresentations to, and withholding material information from, Campbell, Sr. to induce him into loaning substantial sums of money to their company, Texas Tea. The lawsuit alleges that the Williamses told Campbell, Sr. that Texas Tea would use the loan proceeds on legitimate business expenses, despite knowing full well that they had no intention of using the loaned funds to operate Texas Tea. According to the Second Amended Complaint, the Williamses used the loans from Campbell, Sr. to personally enrich themselves by siphoning off large sums from Texas Tea to pay off their personal indebtedness to the Internal Revenue Service, purchase an expensive home, and otherwise line their pockets.
Turning to the pleading standard, I can readily ascertain that Campbell, Jr. alleges that Texas Tea and the Williamses (the "who") made misrepresentations that they would use loan proceeds on legitimate business expenses of Texas Tea(the "what") in order to further their personal financial interests (the "why"). Missing from the Second Amended Complaint are the other required elements of a fraud claim under Rule 9(b): the "when," "where," and "how."
Let's start with the "when." The Second Amended Complaint states that "[b]eginning in late-2015 and continuing through the first half of 2018, Jack and Dymra Williams approached Campbell, Sr. for more money." Dkt. 30 at 28. This language certainly implies that the purported misstatements and omissions at issue occurred between late-2015 through the first half of 2018—a span of roughly two-and-a-half to three years. This is not particular enough. See U....
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