In Re: Blue Water Endeavors LLC

Decision Date06 January 2011
Docket NumberAdversary No. 10-1015,Case No. 08-10466
CourtU.S. Bankruptcy Court — Eastern District of Texas
PartiesIn re: BLUE WATER ENDEAVORS, LLC xx-xxx3506 5555 Calder Ave., Beaumont, TX 77706 Confirmed Debtor. BLUE WATER ENDEAVORS, LLC, ROBERT NORDBERG, and DAWN NORDBERG Plaintiffs v. ac & sons, inc., colburn r. McClelland, ANGIE McCLELLAND, and ROBERT O. GROTE Defendants.

Before the Court for consideration is a Motion to Dismiss filed by Defendants AC & Sons, Inc., Colburn McClelland, and Angie McClelland (collectively, "the McClelland Defendants") on August 12, 2010, that alleges that dismissal of the complaint in this adversary proceeding is warranted under Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, made applicable to this proceeding by Fed. R. Bankr. P. 7012. The remaining Defendant, Robert O. Grote, subsequently filed a similar motion that primarily addresses the merits of the complaint, but which incorporates by reference the argumentspresented by the McClelland Defendants. Juxtaposed against the Defendants' dismissal motions is a motion to remand filed by the Plaintiffs, Blue Water Endeavors, LLC, Robert Nordberg, and Dawn Nordberg (the "Plaintiffs"), on August 25, 2010, in which they assert that the Court possesses "no basis... to retain jurisdiction as the Plan provided for repayment to all the creditors of Blue Water Endeavors, LLC" due to the absence of complete diversity among the parties. Based upon the Court's consideration of the pleadings and the evidence submitted by the parties, the Court concludes that the Defendants' respective Motions to Dismiss should be granted in part and denied in part and that, as to the claims of the individual plaintiffs remaining after that dismissal, the Plaintiffs' Motion for Remand should be granted. This memorandum of decision disposes of all issues pending before the Court.1

Factual and Procedural Background2

Fat Mac's Smokehouse is a barbeque restaurant located in Beaumont, Texas. On or about November 20, 2006, one of the Plaintiffs, Blue Water Endeavors, LLC (hereafter "Blue Water") purchased the restaurant and the real property on which it was located. The individual plaintiffs in this proceeding, Robert and Dawn Nordberg, serve as theprincipals and sole owners of Blue Water. Following the closing of the sale in 2006, Blue Water began operating the restaurant under the assumed name Fat Mac's Smokehouse, which it had acquired as a part of the sale.

Subsequent to the sale, Fat Mac's did not financially perform to the level projected and it began experiencing financial difficulties due to significant shortfalls in revenue. As a result, Blue Water began contemplating the sale of the real property upon which the restaurant was located in order to move the business to a more fertile location. However, appraisal and market analysis on the real property demonstrated that the value of that property was less than one-half of that paid for it in the original sale. This loss of value made any sale of the property unfeasible and the ongoing difficulties eventually forced the Nordbergs to pay the outstanding bills for the company as they came due.

Eventually, Blue Water's financial troubles exhausted the Nordbergs' ability to keep the company afloat and the company faced foreclosure by a secondary lienholder on the real property. To avoid this fate, Blue Water filed in this Court a voluntary petition for relief under Chapter 11 of the Bankruptcy Code on August 27, 2008. In fulfillment of its statutory duties as a debtor, Blue Water filed the required schedules and statements on September 9, 2008. Such schedules made no reference to any pending litigation nor did they reveal any potential litigation claims held by the Debtor at the time of the filing of bankruptcy. While under the protection of the Court, Blue Water was designated as a small business debtor and served as a debtor-in-possession pursuant to §1107 of the Bankruptcy Code.

On January 20, 2009, Blue Water proposed a Chapter 11 plan of reorganization as a small business debtor and filed an accompanying disclosure statement.3 The Debtor later amended the plan of reorganization.4 After conditionally approving the Disclosure Statement, the Court confirmed Blue Water's Chapter 11 plan as amended on March 3, 2009.5 The bankruptcy case for Blue Water was closed through the entry of a final decree on September 9, 2009.

Almost fifteen months after its plan confirmation, on June 14, 2010, Blue Water, along with its individual owners, filed an original petition in the 58th Judicial District Court of Jefferson County, Texas under Cause No. A 187-070, styled Blue Water Endeavors, LLC d/b/a Fat Mac's Smokehouse, et al. v. AC & Sons, Inc., et al. In that petition, the Plaintiffs seek relief for various claims arising in the pre-petition period including, inter alia, breach of contract, breach of duty of good faith and fair dealing, several different types of fraud, and various forms of misrepresentation.6 The petition named as defendants Colburn R. McClelland, Angie McClelland, AC & Sons, Inc., and Robert O. Grote, all of whom played some role in the original sale of Fat Mac's Smokehouse to the Blue Water group. The McClelland Defendants removed the case tofederal district court on July 30, 2010 pursuant to 28 U.S.C. § 1334(b) as a matter arising under, arising in, or relating to, the Blue Water bankruptcy case. The United States District Court then referred this case to this Court, which had previously handled the Blue Water bankruptcy case. The McClelland Defendants subsequently filed their motion to dismiss to which the Plaintiffs objected. The Plaintiffs then filed their motion to remand this adversary proceeding back to state court for adjudication to which the Defendants have objected.

The Defendants' Motion outlines two independent grounds for dismissal under Rule 12. First, the Defendants allege that Blue Water, the reorganized debtor, has no standing to bring any complaint against them for claims existing on or before the date of confirmation. According to the Defendants, the plan of reorganization confirmed for the benefit of Blue Water did not retain any of the asserted claims for relief as required by 11 U.S.C. § 1123(b)(3)(B) and that, absent such retention, Blue Water relinquished any standing to prosecute those claims following confirmation of its plan. The Defendants argued alternatively that pleading defects in the Plaintiffs' Original Petition rendered the case appropriate for dismissal under Rule 12(b)(6), which includes the "failure to state a claim upon which relief can be granted."

The issue of standing to bring pre-petition claims in the post-confirmation period involves a determination of whether a reorganized debtor retained such causes of action pursuant to 11 U.S.C. §1123(b)(3). Naturally, that determination requires the Court to analyze certain documents filed in the original bankruptcy case and thus go "outside thepleadings" that have been filed in this adversary proceeding. See Fed. R. Civ. P. 12(d). Specifically germane to the determination of the standing issue are Blue Water's proposed plan of reorganization, the disclosure statement accompanying that plan, the subsequent amendment to the proposed plan, and the schedules that were all filed in the Blue Water bankruptcy case. From an abundance of caution, the Court issued an order by which the parties were notified of the Court's intent to consult matters outside the pleadings in this adversary proceeding and to allow the parties to submit any supplementary materials they believed to be germane to the determination of the pending motions.7 The Court's deadline for submission of supplemental materials was set for November 5, 2010, with a further deadline for rebuttal materials set for November 12, 2010. Both deadlines passed without the submission of supplemental materials by any party.


Standard for Rule 12(b)(1)

A motion to dismiss for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1) is either a "facial" attack complaining that the allegations in the complaint are insufficient to invoke federal jurisdiction or a "factual" attack in which the facts in the complaint which form the basis of subject matter jurisdiction are challenged. Rodriguez v. Texas Com'n of Arts, 992 F.Supp. 876, 878-79 (N.D. Tex. 1998), aff'd, 199 F.3d 199 (5th Cir. 2000). In a "facial" attack, the allegations in the complaint are taken as true, Saraw Partnership v. United States, 67 F.3d 567, 569 (5th Cir. 1995), while in a "factual" attack, the Court may consider any evidence relevant to the determination of jurisdiction. Irwin v. Veterans Admin., 874 F.2d 1092, 1096 (5th Cir. 1989); McDaniel v. United States, 899 F.Supp. 305, 307 (E.D. Tex. 1995), aff'd, 102 F.3d 551 (5th Cir. 1996).

The Defendants' dismissal motion for lack of standing is properly characterized as a factual attack. Thus, the Court may look to any one of the following sources for determination of the Motion: (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts. Barrera-Montenegro v. United States, 74 F.3d 657, 659 (5th Cir.1996), cited with approval in Smith v. Potter, 2010 WL 4009874 at *2 (5th Cir., Oct. 13, 2010) (unpublished). The preceding facts pertinent to the presentation of the Plaintiffs' Original Complaint, the Defendants' Motions to Dismiss, and Plaintiffs' response to that dismissal motion are not subject to genuine dispute. Rather, the parties disagree about the effect or effectiveness of language in the Blue Water Plan of Reorganization as amended, and its Disclosure Statement. The burden of proof regarding the existence of jurisdiction always rests with the plaintiff. Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001) (cit...

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