O'Cheskey v. CitiGroup Global Mkts., Inc. (In re Am. Hous. Found.)

• Decision Date: 31 December 2015
• Docket Number: Adversary No. 11–02103,Case No.: 09–20232–RLJ
• Citation: 543 B.R. 245
• Parties: In re: American Housing Foundation, Debtor. Walter O'Cheskey, Trustee of the AHF Liquidating Trust, Plaintiff, v. CitiGroup Global Markets, Inc. and CitiBank, N.A., Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Texas

543 B.R. 245

In re: American Housing Foundation, Debtor.Walter O'Cheskey, Trustee of the AHF Liquidating Trust, Plaintiff,

v.CitiGroup Global Markets, Inc. and CitiBank, N.A., Defendants.

Case No.: 09–20232–RLJ

Adversary No. 11–02103

United States Bankruptcy Court, N.D. Texas, Amarillo Division.

Signed December 31, 2015

Stephen A. McCartin, Gardere Wynne Sewell LLP, Dallas, TX, Max Ralph Tarbox, Tarbox Law, P.C., Lubbock, TX, for Plaintiff.

Karl Burrer, Haynes and Boone, LLP, Houston, TX, Autumn D. Highsmith, John C. Middleton, Mark Xavier Mullin, Jarom Joseph Yates, Haynes & Boone, LLP, Dallas, TX, for Defendants.

MEMORANDUM OPINION

Robert L. Jones, United States Bankruptcy Judge

Defendants, CitiGroup Global Markets, Inc. and CitiBank, N.A. (collectively, Citi), seek dismissal of Trustee's Second Amended Complaint [Doc. No. 69], contending that a newly alleged (and late-filed) fraudulent obligation claim cannot relate back to the original complaint, Trustee's Complaint to Recover Avoidable Transfers and Obtain Other Relief (Original Complaint) [Doc. No. 1]; and, further, that the claims of actual fraudulent transfers and obligations do not meet the heightened pleading standards of Rule 9(b) of the Federal Rules of Civil Procedure.¹ The plaintiff, Walter O'Cheskey, Trustee, disputes both charges.

The Texas Supreme Court has recently declared that the four-year time limitations of § 24.010 of the Texas Uniform Fraudulent Transfer Act (TUFTA) is a statute of repose rather than a statute of limitations. Nathan v. Whittington, 408 S.W.3d 870, 874 (Tex.2013). This is a point not raised by the parties here, but it is critical to the question of whether the relation back doctrine under either federal or state law can be used to save an otherwise "extinguished" claim. Tex. Bus. & Com. Code § 24.010 (1993) (providing that claims are "extinguished" if not timely brought). The Court finds that it cannot. As set forth below, the Court also concludes that, even if relation back principles do apply, the new claims set forth in the Second Amended Complaint do not, upon analysis, relate back and are thus not saved. The Court denies dismissal of the claims of fraudulent transfers made with actual fraud, concluding that such matters are sufficiently pleaded to satisfy Federal Rule 9(b).²

BACKGROUND

On April 21, 2009, certain alleged creditors filed an involuntary petition for relief against American Housing Foundation (AHF) under chapter 11 of the Bankruptcy Code. AHF filed a voluntary petition on June 11, 2009. The Court consolidated the two cases pursuant to Rule 1015(a) on July 17, 2009, "to allow for the applicable statutory periods ... to run from the earlier filing date of the involuntary bankruptcy case." Agreed Order Granting Motion to Consolidate Bankruptcy Cases [Case No. 09–20232, Doc. No. 88]. Upon motion and hearing, the Court ordered the appointment of a chapter 11 trustee and then approved the appointment of Walter O'Cheskey as the trustee (Trustee) effective April 29, 2010 [Case No. 09–20232, Doc. Nos. 1096 and 1104].

Trustee filed the Original Complaint here on April 21, 2011, seeking avoidance and recovery of alleged fraudulent transfers made to CitiGroup Global Markets, Inc. (CitiGroup) during the two-year period prior to the petition date. Trustee labelled them collectively as "2–Yr Transfers."³ The Original Complaint alleges actual fraudulent transfers and constructively fraudulent transfers under §§ 548(a)(1)(A) and (a)(1)(B), respectively, (and their complementary provisions, §§ 550 and 551). Trustee, by the complaint, also seeks recovery under § 544 of the Bankruptcy Code and §§ 24.005 and 24.006 of the TUFTA. The prayer requests judgment "declaring that the 2–Yr Transfers are avoided and set aside as fraudulent transfers pursuant to 11 U.S.C. §§ 544 and 548 and the Texas Uniform Fraudulent Transfer Act." Original Complaint at 13.

CitiGroup filed a prior motion to dismiss, which the Court denied on May 11, 2012. It then filed its answer on June 8, 2012. Following a status conference concerning dozens of adversary proceedings arising from the AHF bankruptcy case, the Court entered an Omnibus Scheduling Order that abated this proceeding (and other proceedings) on December 5, 2012; the abatement was subsequently lifted and trial was set for January 2015, and then reset to April 2015.

In early November 2014, Trustee filed a motion for leave to amend the Original Complaint to add CitiBank, N.A. as a named defendant and "to clarify" that he was also requesting that certain obligations be avoided as fraudulent obligations. Trustee's Amended Motion for Leave to Amend the Complaint [Doc. No. 42].⁴ CitiGroup did not object, and the motion for leave was granted on December 11, 2014.⁵ The Trustee's First Amended Complaint [Doc. No. 51], a copy of which had not been included with the motion for leave, was filed the next day.

Less than three months later, on March 3, 2015, Trustee filed his Motion for Leave to Amend the First Amended Complaint [Doc. No. 55]. According to Trustee, further amendment was needed, "out of an abundance of caution," to cite to the TUFTA. Id. at 2.⁶ Citi objected. The Court denied Citi's objection by the Memorandum Opinion [Doc. No. 65] and Order [Doc. No. 66] entered April 30, 2015. The Court noted that "[a]ny prejudice occasioned by the proposed amendment would have initially arisen with the [First Amended] Complaint," and, further, that the amendments would "eliminate the confusion" caused by the poor drafting of the First Amended Complaint. Memorandum Opinion, Doc. No. 65 at 4. Concerning the First Amended Complaint, the Court stated as follows:

[The First Amended Complaint] is not a model of clarity. It recites, in its jurisdiction and venue section, that the "statutory predicate" includes sections 544, 548, 550, and 551 of the Bankruptcy Code. In addition to asserting the same allegedly avoidable transfers as described in the original complaint, it also alleges that certain described transactions—the 2006 Capmark–CitiGroup Credit Application, the 2007 Amarillo Affordable Bond Refinancing Application, and the 2008 CitiBank Walden II Credit Enhancement Application—give rise to fraudulent obligations that are avoidable. These three transactions, according to the December 2014 Complaint, were entered into in November 2006, November 2007, and July 2008, respectively. It thus appears that the first transaction took place beyond two years prior to the bankruptcy filing.

Trustee clearly seeks avoidance of transfers and obligations by the December 2014 Complaint; the stated legal bases for avoidance, however, are muddled. As set forth above, the December 2014 Complaint, in the section addressing jurisdiction and venue, references both sections 544 and 548. But its specific statement of avoidance actions alleges that the various obligations and transfers are avoidable under section 548, with an additional reference to the complementary sections 550 and 551. Then, by its prayer, the December 2014 Complaint seeks judgment declaring that the obligations and transfers be avoided as fraudulent obligations and transfers, "pursuant to 11 U.S.C. § 544." Sections 550 and 551 are mentioned but section 548 is not.

Memorandum Opinion, Doc. No. 65 at 3–4 (citations omitted). The factual background section of the First Amended Complaint was entirely new.⁷ The Court declined to rule on Trustee's request that the amendments relate back to the Original Complaint, stating that "[s]uch question should be considered within the context of the [First Amended] Complaint. The ruling ... [was] thus made without prejudice to consideration of the relation-back question...." Id. at 4.

Trustee filed the Second Amended Complaint on May 5, 2015. This complaint alleges fraudulent transfers and fraudulent obligations, citing to §§ 544, 548, 550, 551, and TUFTA. Citi filed a motion asking the Court to reconsider its ruling; Trustee responded. Hearing was held and the Court issued another Memorandum Opinion and Order [Doc. No. 75], entered June 29, 2015. Citi's principal contention was that the addition, in the Second Amended Complaint, of the two-plus year lookback for the fraudulent obligation count caused undue prejudice to Citi. Id. at 2. The Court found that "Citi's statement that the fraudulent obligation cause is new [was] patently wrong." Id. The Court noted that, as between the First Amended Complaint (to which Citi did not object) and the Second Amended Complaint, "any additional hardship imposed on Citi by going back beyond two years [was] minimal." Id. at 3. The Court denied Citi's motion; the Second Amended Complaint is thus the live pleading setting forth Trustee's claims. Still, the issue of whether the amended complaints related back to the Original Complaint remained unresolved. The Court was clear that any prejudice to Citi from the Second Amended Complaint arose with the filing of the First Amended Complaint. Id. at 2.

Citi then filed its Motion to Dismiss Trustee's Second Amended Complaint and Brief in Support [Doc. No. 79], the matter pending here. Citi seeks a Federal Rule 12(b)(6) dismissal of the amended complaint for its "failure to state a claim for which relief can be granted." Id. ¶ 39. Citi contends that (1) the Second Amended Complaint does not relate back to the Original Complaint under Federal Rule 15(c)(1)(B); and (2) the claims for actual fraudulent transfers under §§ 548(a)(1)(A), 544, and TUFTA are not pleaded with sufficient particularity to satisfy Federal Rules 8(a)(2) and 9(b) for allegations of fraud.

Trustee filed his Brief in Response to Motion to Dismiss Second Amended Complaint [Doc. No. 85]. Trustee argues that the Second Amended Complaint need not relate back to the Original Complaint, but only to the First Amended Complaint, "which itself relates back to the Original Complaint." Id. ¶ 26. Additionally, Trustee submits that a Federal Rule 12(b)(6) dismissal is the improper remedy for a failure to...