Patek v. Alfaro (In re Primera Energy, LLC)

Decision Date29 September 2016
Docket NumberCASE NO. 15-51396-CAG,ADVERSARY NO. 15-05047-CAG
Citation560 B.R. 448
Parties In re: Primera Energy, LLC, Debtor. Frederick Patek, et al., Plaintiffs, v. Brian K. Alfaro; Primera Energy, LLC ; Alfaro Oil and Gas, LLC ; Alfaro Energy, LLC; King Minerals, LLC ; Silver Star Resources, LLC ; 430 Assets, LLC, a Montana LLC; Kristi Michelle Alfaro; Brian and Kristi Alfaro, as Trustees of the Brian and Kristi Alfaro Living Trust; and Ana and Avery's Candy Island, LLC, Defendants.
CourtU.S. Bankruptcy Court — Western District of Texas

Brandon Barchus, Houston, TX, Lawrence Morales, II, The Morales Firm, P.C., Natalie F. Wilson, David S. Gragg, Langley & Banack, Inc, San Antonio, TX, for Plaintiffs.

J. Mitchell Little, Patrick J. Schurr, Scheef & Stone, LLP, Frisco, TX, for Defendants.



Came on for consideration Defendants' Motion to Dismiss Plaintiffs' Fourth Amended Complaint Pursuant to Rule 12(b) of the Federal Rules of Civil Procedure as Made Applicable to Adversary Proceedings Under Rule 7012 of the Federal Rules of Bankruptcy Procedure (ECF No. 128)1 ("Motion to Dismiss"). Defendants also filed a Memorandum of Law in Support of the Motion to Dismiss (ECF No. 131)2 , and Plaintiffs filed a Response to the Motion to Dismiss on April 8, 2016 (ECF No. 141). The Court took the matter under advisement without necessity of a hearing.


Plaintiffs commenced this action by filing their lawsuit styled Frederick Patek, Geraldine Patek, Jim Gregory, Cal Curtner, Lisa Simpson, Jasper Campise, Karen Smith, William Crawford, Mike Covington, Marc Keese, Mike McPherson, Ed McPherson, Wesley Crow, Dieter Jansen, Quackenbush Petroleum, James Reiley, Betty Reiley, Rick Reiley, Greg Shilts and Jana Shilts and on behalf of All Other Similarly Situated Investors of Defendants' "Screaming Eagle," "Montague Legacy" and "Buda Well" Investments vs. Brian K. Alfaro, Primera Energy, LLC, Alfaro Oil and Gas, LLC and Alfaro Energy, LLC , in the 288th District Court for Bexar County on April 24, 2015 (the "State Court Action").

In the State Court Action, Plaintiffs sought and obtained a temporary restraining order ("TRO") against Brian Alfaro ("Alfaro"), Primera Energy, LLC ("Primera"), Alfaro Oil and Gas, LLC and Alfaro Energy, LLC on April 28, 2015. The TRO expired on May 12, 2015, and on May 19, 2015, Plaintiffs filed a motion to extend the TRO. On May 22, 2015, the TRO was extended to June 1, 2015. On June 2, 2015, the state court judge entered a temporary injunction against Defendants Alfaro, Primera, Alfaro Oil and Gas, LLC and Alfaro Energy, LLC.

On June 3, 2015, Primera filed for relief under Title 11 of the U.S. Code commencing Bankruptcy Case No. 15–51396 (the "Bankruptcy Case"). On June 19, 2015, Alfaro, Primera, Alfaro Oil and Gas, LLC, Alfaro Energy, LLC, King Minerals, LLC and Silver Star Resources, LLC removed the State Court Action to this Court, commencing this Adversary Proceeding No. 15–05047 (the "Adversary"). Also on June 19, 2015, Plaintiffs filed their Second Amended Petition in the State Court Action adding King Minerals, LLC and Silver Star Resources, LLC as Defendants.

On July 13, 2015, Jason Searcy was appointed chapter 11 trustee for the estate of Primera in the Bankruptcy Case. On August 14, 2015, Plaintiffs filed their Third Amended Complaint (ECF No. 29) in this Adversary. Plaintiffs added the following Defendants in their Third Amended Complaint: 430 Assets, LLC; Kristi Michelle Alfaro; Brian Alfaro and Kristi Alfaro, as trustees for the Brian and Kristi Alfaro Living Trust; and Ana and Averys Candy Island, LLC. On December 8, 2015, Defendants filed a Motion to Dismiss the Third Amended Complaint (ECF No. 109). Thereafter, on January 28, 2016, Plaintiffs sought leave of this Court to file a Fourth Amended Complaint (ECF No. 115), and filed their Response to Defendants' Motion to Dismiss Third Amended Complaint (ECF No. 116). At a hearing held February 23, 2016, the Court granted Plaintiffs' request for leave to file a Fourth Amended Complaint and permitted Defendants to file a second Motion to Dismiss in response to the new complaint.

Although Plaintiffs attached their Fourth Amended Complaint to their Motion for Leave to File Fourth Amended Complaint (ECF No. 115), they mistakenly did not re-file the complaint on the docket until March 21, 2016 (ECF No. 133). Nonetheless, Defendants filed their new Motion to Dismiss timely on March 18, 2016 (ECF No. 128), to which Plaintiffs filed a Response on April 8, 2016 (ECF No. 141). This Court elected to take the matter under advisement without necessity of a hearing and shall now rule on the moving papers.

I. Pleading Standards

When considering a motion to dismiss for failure to state a claim, the court must "accept all well-pleaded facts as true and view all facts in the light most favorable to the plaintiff." Thompson v. City of Waco, Texas , 764 F.3d 500, 502–03 (5th Cir. 2014) (citing Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). "To survive dismissal, a plaintiff must plead ‘enough facts to state a claim to relief that is plausible on its face.’ " Id. (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ; see also Twombly , 550 U.S. at 570, 127 S.Ct. 1955 (holding complaint must allege enough facts to move the claim "across the line from conceivable to plausible").

The determination of whether the plausibility standard has been met is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal , 556 U.S. at 679, 129 S.Ct. 1937 ; see also Doe ex rel. Magee v. Covington Cnty. Sch. Dist. ex rel. Keys , 675 F.3d 849, 854 (5th Cir. 2012) (en banc) ("Our task, then, is to determine whether the plaintiff stated a legally cognizable claim that is plausible, not to evaluate the plaintiff's likelihood of success."). Motions to dismiss under Fed. R. Civ. P. 12(b)(6) are "viewed with disfavor and [are] rarely granted." Leal v. McHugh , 731 F.3d 405, 410 (5th Cir. 2013) (citing Turner v. Pleasant , 663 F.3d 770, 775 (5th Cir. 2011) ).

Federal Rule of Civil Procedure 8(a), made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7008, provides:

A pleading that states a claim for relief must contain:

(1) a short and plain statement of the grounds for this court's jurisdiction, unless the court already has jurisdiction and the claim needs no new jurisdictional support;
(2) a short and plain statement of the claim showing that the pleader is entitled to relief; and
(3) a demand for the relief sought, which may include relief in the alternative or different types of relief.

Fed. R. Civ. P. 8(a). "Although the rule encourages brevity, the complaint must say enough to give the defendant ‘fair notice of what the plaintiff's claim is and the grounds upon which it rests.’ " Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 319, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (quoting Dura Pharmaceuticals v. Broudo , 544 U.S. 336, 346, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005) ).

Moreover, where fraud or mistake is alleged in the pleadings, Federal Rule of Civil Procedure 9(b), made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7009, requires the pleading meet a heightened standard. The rule states:

In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.

Fed. R. Civ. P. 9(b). Rule 9(b)'s heightened pleading requirement, "stands as an exception to an overarching policy of immediate access to discovery." Williams v. WMX Techs., Inc. , 112 F.3d 175, 178 (5th Cir. 1997). Rather, plaintiffs alleging fraud or mistake must lay out the "who, what, when and where" in their pleading before gaining access to the discovery process. Id. The heightened pleading standard of Rule 9(b), however, is not a subscription to fact pleading but 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." U.S. ex rel. Grubbs v. Kanneganti , 565 F.3d 180, 186 (5th Cir. 2009) (quoting Williams , 112 F.3d at 178 ).

II. Ponzi Scheme Presumption

Plaintiffs raise the argument that allegations of a Ponzi scheme are sufficient to create a presumption which simplifies the burden of proof to obtain a finding of actual fraud by requiring the pleader to simply show that the defendant was engaged in a Ponzi scheme. Plaintiffs cite to Janvey v. Brown , 767 F.3d 430 (5th Cir. 2014), Janvey v. Alguire , 647 F.3d 585 (5th Cir. 2011), and Warfield v. Byron , 436 F.3d 551 (5th Cir. 2006), to support their argument that the Fifth Circuit applies the Ponzi scheme presumption to simplify the standard of pleading where involvement in a Ponzi scheme is alleged. Plaintiffs' argument, however, misunderstands the context and procedural position in which the Fifth Circuit has applied the Ponzi scheme presumption.

In Brown , the court appointed a receiver in an SEC-initiated civil suit against a principal, along with his agents and entities, which were determined to have perpetrated a Ponzi scheme. 767 F.3d at 433. The receiver brought numerous fraudulent transfer...

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