Prod. Credit Ass'n of S. New Mex. v. Tres Rios Cattle Co. (In re Gomez-Torres)
| Decision Date | 28 June 2022 |
| Docket Number | 21-50051-RLJ-7,Adversary 21-05014 |
| Parties | In re: ROGELIO GUADALUPE GOMEZ-TORRES and MARCELA GOMEZ, Debtors. v. TRES RIOS CATTLE COMPANY, LLC, ROGELIO GUADALUPE GOMEZ-TORRES, and MARCELA GOMEZ, Defendants. PRODUCTION CREDIT ASSOCIATION OF SOUTHERN NEW MEXICO, Plaintiff, |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
This adversary proceeding arises under the chapter 7 bankruptcy of Rogelio Guadalupe Gomez-Torres and Marcela Gomez. Rogelio and Marcela were the owners/managers of Tres Rios Cattle Company LLC ("Tres Rios"), which is also in bankruptcy (Rogelio, Marcela, and Tres Rios collectively referred to as "Debtors"). Production Credit Association of Southern New Mexico ("Production Credit"), a creditor of the Debtors and the plaintiff in this case, brought this adversary proceeding under both §§ 523 and 727 of the Bankruptcy Code. Section 523 concerns exceptions to the discharge of debts owed to the plaintiff; section 727 concerns the denial of discharge of all debts of the debtor. The Debtors now move to dismiss nine claims in Production Credit's complaint ("Complaint"). As explained below, the Court denies the motion in part and, if Production Credit fails to amend the Complaint, grants the motion in part.
Production Credit alleges the following facts, among others, in the Complaint:
Loans to the Debtors
On November 1, 2018, the Debtors and Production Credit executed a note and loan agreement extending $1,800,000 to the Debtors as a revolving line of credit. The Debtors defaulted on the note by failing to meet their borrowing-base requirements and on September 4, 2019, Production Credit gave the Debtors a notice of default on the note. On January 29, 2020, the Debtors and Production Credit entered into a forbearance agreement. Under the agreement, the Debtors provided Production Credit liens on certain property, and Production Credit agreed to forbear from exercising its remedies under the note and extended the existing line of credit.
After the forbearance, the Debtors made a series of defaults by failing to make payments under the note, failing to meet borrowing-base requirements, failing to provide financial statements, and failing to convey property to Production Credit. The Debtors and Production Credit subsequently entered into three amendments to the forbearance agreement. Under the amendments, Production Credit agreed to continue to forbear from exercising its remedies in exchange for new liens, financial statements, and proceeds of property sales. The Debtors continued to default on their obligations after each amendment and remained in default up to the date they filed bankruptcy, April 16, 2021.
To assess the operations of the Debtors, Production Credit employees conducted an onsite inspection and evaluation of the Debtors' cattle operations on March 30, 2021. At the inspection, the Debtors represented that they owned 3,470 head of cattle. After the Debtors filed bankruptcy, they sought the use of Production Credit's cash collateral, and the Court authorized such use on May 20, 2021. Under the Court's cash-collateral order, the Debtors were required to, among other things: (1) regularly provide Production Credit with borrowing base reports, (2) provide Production Credit with any new contracts for the sale of cattle, (3) provide Production Credit with reports on the cattle operation, and (4) maintain an inventory of at least 3,000 head of cattle. The Debtors failed to comply with each of these obligations.
Because the Debtors failed to supply Production Credit with the information required under the cash-collateral order, Production Credit conducted another inspection of the Debtors' operations on July 9, 2021. At that inspection, Production Credit discovered the Debtors had further failed to comply with the order. Production Credit found only 1,548 head of cattle at the Debtors' farm-1,922 less than were identified at the March inspection-when they were required to maintain an inventory of 3,000. The missing 1,922 cattle were either sold, with the proceeds kept for the Debtors, or falsely identified as cattle belonging to other parties.
The Debtors urged Production Credit to perform another inspection, contending they actually held 3,750 head of cattle. On August 18, 2021, Production Credit performed a third inspection and found that conditions at the Debtors' farm had significantly deteriorated. The Debtors produced that morning a borrowing base report showing only 1,321 head of cattle, and Production Credit found numerous dead and malnourished cattle at the farm.
The Debtors represented to Production Credit that they had a "custom cattle operation" under which they would care for cattle owned by other parties. But such an operation never existed-the operation was a façade invented to hide collateral and proceeds from Production Credit. Under this scheme, the Debtors used Production-Credit loans to fund the purchase of "custom cattle" and disguised the purchases through fabricated invoices for goods. The Debtors would then represent to Production Credit that the cattle were owned by third parties, when in fact they were owned exclusively by the Debtors and constituted Production Credit's collateral. The Debtors never presented to Production Credit a "custom cattle" agreement with any of the other cattle operations with which the Debtors claimed to be working.
Additionally, the Debtors have continued to sell cattle in violation of orders by the Court and the bankruptcy trustee that directed them to halt transactions taken without necessary Court approval. These sales occurred "off the books" to avoid accounting for proceeds in the bankruptcy proceedings. The Debtors also sold collateral through a non-debtor entity, Optimum Cattle, LLC, as a way to conceal such sales from the Court and the trustee.
At the 341(a) meeting of creditors held on June 25, 2021, Marcela Gomez committed to no longer take payments from Tres Rios going forward. Despite this, the Debtors continued to list Marcela on the payroll, and she continued to receive payments as an employee.
On September 22, 2021, the Court issued an order granting Production Credit's motion for relief from the automatic stay. The order allowed Production Credit immediate access to its collateral then in possession of the Debtors and ordered the Debtors to not interfere with Production Credit's attempts to take control of the collateral. The Debtors did not, however, remove themselves from the farm once Production Credit arrived. When Production Credit's employees entered the premises to take possession of Production Credit's collateral, the Debtors' representatives brandished knives and exhibited threatening behavior. Rogelio and Marcela's son threatened Production Credit's night watchman with a gun and threatened potential purchasers of cattle to leave the premises or "bullets [would] start flying." ECF No. 1 at 17.[1]And the Debtors contacted the Texas Department of Health to prevent Production Credit from shipping cattle from the Tres Rios farm.
On December 20, 2021, Production Credit filed the Complaint, asserting causes of action for breach of contract, punitive damages, attorney's fees; and, as pertinent here, asserting nine causes of action opposing either Rogelio and Marcela's discharge of all debts (the § 727 dischargeability causes) or their discharge of debts owed to Production Credit (the § 523 dischargeability causes). On March 4, 2022, the Debtors brought the present motion for dismissal of the nine discharge/dischargeability causes of action.
The Debtors move to dismiss the Complaint for failure to state a claim under Rule 12(b)(6).[2] To avoid dismissal, a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2).[3] "Though the complaint need not contain 'detailed factual allegations,' it must contain sufficient factual material that, accepted as true, 'allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Kelson v. Clark, 1 F.4th 411, 416 (5th Cir. 2021) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). "Determining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679.
When fraud is alleged in a pleading, the standard for surviving a motion to dismiss is raised, and Fed.R.Civ.P. 9(b).[4] "At a minimum, Rule 9(b) requires allegations of the particulars of time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby." Thomas v. Abebe, 833 Fed.Appx. 551, 554 (5th Cir. 2020) (quoting Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 724 (5th Cir. 2003)). "Put simply, Rule 9(b) requires 'the who, what, when, where, and how' to be laid out." Shandong Yinguang Chem. Indus. Joint Stock Co., Ltd. v. Potter, 607 F.3d 1029, 1032 (5th Cir. 2010) (quoting Benchmark, 343 F.3d at 724).
In reviewing the Complaint, the Court must "draw all inferences in favor of the nonmoving party, and view all facts and inferences in the light most favorable to the nonmoving party." McLin v. Ard, 866 F.3d 682 688 (5th Cir. 2017) (quoting Club Retro,...
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