In re Kilroy
| Citation | 357 B.R. 411 |
| Decision Date | 18 December 2006 |
| Docket Number | Adversary No. 06-03324.,Bankruptcy No. 05 90083. |
| Parties | In re William S. KILROY, Jr., Debtor Margaret Nibbi, Robert L. Nibbi, Charles M. Smythe, Jr., Andrew J. Beggins, and Lori A. Beggins, Plaintiffs, v. William S. Kilroy, Jr., Defendant. |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas |
Joshua Walton Wolfshohl, Porter & Hedges, L.L.P., Houston, TX, for plaintiffs.
William S. Kilroy Jr., Houston, TX, pro se.
Wayne Kitchens, Heather Heath McIntyre, Hughes Watters and Askanase, Houston, TX, for Debtor.
On July 11, 2006, the Court held a hearing on: (1) the Defendant's Amended Motion to Dismiss for Failure to State a Claim; and (2) the Plaintiffs' Motion for Leave to Amend Complaint. The Court grants the Plaintiffs' Motion for Leave to Amend Complaint. Further, based on the Plaintiffs' Amended Complaint, the Court denies in part, and grants in part, the Defendant's Amended Motion to Dismiss for Failure to State a Claim.
The Court makes the following Findings of Fact and Conclusions of Law under Federal Rule of Civil Procedure 52 as incorporated into Federal Rule of Bankruptcy Procedure 7052. To the extent that any Finding of Fact is construed to be a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law is construed to be a Finding of Fact, it is adopted as such. The Court reserves the right to make any additional findings and conclusions as may be necessary or as requested by any party.
1. Final Arrangements, LLC (FAL), a Delaware limited liability company, was owned by William S. Kilroy, Jr. ( ), his mother Lora Jean Kilroy (Mrs. Kilroy), and T. Layng Guerriero (Guerriero).2 [Docket No. 9, ¶ 9, 10.]3
2. In the summer of 2000, Guerriero solicited Margaret Nibbi, Robert Nibbi, Charles Smythe, Andrew Beggins, and Lori Beggins (collectively, the Plaintiffs) to invest in FAL via purchasing a partnership interest in Aegis 2000 Partners, L.P (Aegis 2000). [Docket No. 9, ¶ 13-15.]
3. Aegis 2000 was a Texas limited partnership and existed for the sole purpose of investing in FAL. [Docket No. 9, ¶ 11.] The Plaintiffs became limited partners in Aegis 2000, and the general partner of Aegis 2000 was Aegis Asset Management, Inc. (Aegis Asset). Id. The Debtor is the CEO and sole shareholder of Aegis Asset. Id.
4. For the purpose of making presentations to potential outside investors, the Debtor and his attorneys prepared a Private Placement Memorandum (the PPM), dated August 15, 2000, on behalf of FAL. [Docket No. 9, ¶ 10.] Guerriero presented the PPM to each of the Plaintiffs during the sales pitch. [Docket No. 9, ¶ 13-15.]
1. On June 6, 2005, the Plaintiffs filed suit against the Debtor in the 190th Judicial District of Harris County, Texas (the Harris County Lawsuit). [Docket No. 9, ¶ 23.]
2. On October 13, 2005, the Debtor filed a voluntary Chapter 7 petition. [Case No. 05-90083, Docket No. 1.]
3. In February of 2006, the Plaintiffs filed a notice of nonsuit against the Debtor in the Harris County Lawsuit. [Docket No. 19, ¶ 6.] No discovery had taken place in the Harris County Lawsuit, and the Debtor had filed only a Suggestion of Bankruptcy in that suit. [Docket No. 19, ¶ 7.]
4. On February 1, 2006, the Plaintiffs, along with the Margaret Ann Guerriero Trust and Sterling Bank, filed an Agreed Motion to Extend the Time Within Which [those parties] May File Objections to the Dischargeability of Debt Under § 523.4 [Case No. 05-90083, Docket No. 72.] On February 6, 2006, the Court granted, this Motion to Extend which extended the deadline to file such objections until April 7, 2006. [Case No. 05-90083, Docket No. 82.]
5. On March 13, 2006, the certificate of registration of Aegis 2000 was cancelled by the Secretary of the State of Texas for failure to file periodic reports. [Docket No. 16, Ex. D.]
6. On April 7, 2006, the Plaintiffs filed their Original Complaint Objecting to Dischargeability of Debt Pursuant to 11 U.S.C. § 523. [Docket No. 1.]
7. On May 12, 2006, the Debtor filed a Motion to Dismiss Complaint for Failure to State a Claim under Fed. R.Civ.P. 12(b)(6) and 9(b). [Docket No. 6.]
8. On May 19, 2006, the Debtor filed an Amended Motion to Dismiss Complaint for Failure to State a Claim under Fed.R.Civ.P. 12(b)(6) and 9(b) (the Amended Motion to Dismiss). [Docket No. 7.]
9. On June 8, 2006, the Plaintiffs filed a Motion for Leave to Amend Complaint Objecting to Dischargeability of Debt Pursuant to 11 U.S.C. § 523 (the Motion for Leave to Amend Complaint) [Docket No. 8], as well as their proposed Amended Complaint Objecting to Dischargeability of Debt Pursuant to 11 U.S.C. § 523 [Docket No. 9].
10. On June 8, 2006, the Plaintiffs also filed their Response to the Debtor's Amended Motion to Dismiss. [Docket No. 10.]
11. On June 28, 2006, the Debtor filed his Objection to the Plaintiffs' Motion for Leave to Amend Complaint [Docket No. 15] (the Debtor's Objection) and also filed a Reply to the Plaintiffs' Response to the Amended Motion to Dismiss. [Docket No. 16.]
12. On July 10, 2006, the Plaintiffs filed a Reply to the Debtor's Objection to the Motion for Leave to Amend Complaint. [Docket No. 19.]
13. On July 11, 2006, this Court held a hearing on the Debtor's Amended Motion to Dismiss, the Plaintiffs' Motion for Leave to Amend Complaint, and the Debtor's Objection to the Plaintiffs' Motion for Leave to Amend Complaint. [July 11, 2006 Docket Entry.]
14. On July 12, 2006, the Debtor filed a Sur Reply to the Plaintiffs' Response to the Objection to Motion for Leave to Amend Complaint. [Docket No. 20.]
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334(b), 157(a) and (b)(1). This lawsuit is a core proceeding under 28 U.S.C. § 157(b)(2)(I) and (J). Venue is proper pursuant to 28 U.S.C. § 1409.
The Court must first determine whether the Plaintiffs should be allowed to amend their Original Complaint. For the reasons stated below, this Court finds that the Plaintiffs' Motion for Leave to Amend Complaint should be granted. The result of this conclusion is that, in determining whether the Plaintiffs have successfully stated a claim, the Court will analyze the Plaintiffs' Amended Complaint [Docket No. 9] instead of the Plaintiffs' Original Complaint [Docket No. 8].
The Plaintiffs' Motion for Leave to Amend Complaint relies upon Federal Rule of Civil Procedure 15, which is made applicable through Federal Rule of Bankruptcy Procedure 7015. Under Federal Rule 15(a), "A party may amend the party's pleading once as a matter of course at any time before a responsive pleading is served ...." Fed.R.Civ.P. 15(a). Here, the Debtor had filed his Amended Motion to Dismiss prior to the Plaintiffs' attempt to amend. Thus, Rule 15(a) requires that the Plaintiffs seek leave from the Court to amend, and "leave shall be freely given when justice so requires." Id.
There are several well-established justifications to deny leave to amend despite the liberal standard articulated in Rule 15(a). These reasons include "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [and] futility of amendment." Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); Wright v. Allstate Ins. Co., 415 F.3d 384, 391 (5th Cir.2005) (quoting Foman, 371 U.S. at 182, 83 S.Ct. 227). The Fifth Circuit has focused on the importance of whether the non-movant would be unfairly prejudiced by allowing the amendment, calling this "the touchstone of the inquiry under rule 15(a)." Lowrey v. Texas A & M Univ. Sys., 117 F.3d 242, 246 (5th Cir.1997).
The Plaintiffs assert that the Debtor will be not prejudiced by the amendment because: (1) they are not adding any claims or parties, but simply clarifying allegations that were already made in the Original Complaint; (2) they are correcting and addressing issues raised by the Debtor in his Amended Motion to Dismiss; (3) they have not previously amended their Original Complaint; and (4) discovery has yet to begin in this proceeding. [Docket No. 8.]
The Debtor's Objection to the Motion for Leave to Amend Complaint argues that the Plaintiffs should not be allowed to amend due to: (1) undue delay; and (2) the futility of the amendment. [Docket No. 15, ¶ 5.] The Debtor argues that the Plaintiffs have delayed because they had sufficient time to craft a proper complaint. [Id., ¶ 7.]The Plaintiffs first learned of the Debtor's alleged misrepresentations and misappropriations that form the basis of their complaint in the summer of 2003. [Docket No. 9, ¶ 20.] On June 6, 2005, the Plaintiffs filed the Harris County Lawsuit against the Debtor based on the same conduct at issue in this Adversary Proceeding. Thus, the Debtor argues that the Plaintiffs have had enough knowledge to sufficiently plead a complaint in state court since at least December of 2005, and they were already given a 60-day extension by this Court to file their complaint.
The Debtor's argument fails to allege how this delay was "undue." The Debtor ignores the fact that he consented to the Agreed Motion, which gave the Plaintiffs an extra 60 days to file this § 523 complaint, and the Debtor now asks this Court to consider that the Plaintiffs waited until the 60th day to file the complaint as evidence of...
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