Rodriguez v. Cyr (In re Cyr)

• Court: U.S. Bankruptcy Court — Western District of Texas
• Writing for the Court: CRAIG A. GARGOTTA, UNITED STATES BANKRUPTCY JUDGE
• Citation: Rodriguez v. Cyr (In re Cyr), 602 B.R. 315 (Bankr. W.D. Tex. 2019)
• Decision Date: 01 April 2019
• Docket Number: Adversary No. 18-05227-CAG,CASE No. 18-50102-CAG
• Parties: IN RE: Steven Jeffrey CYR, Debtor. Jose Rodriguez, in his capacity as Chapter 7 Trustee of the Estate of Steven Jeffery Cyr, Plaintiff, v. Le Ann Mary Cyr, Individually and in her capacity as Trustee of the Bergerud Heritage Trust, Defendants.

602 B.R. 315

IN RE: Steven Jeffrey CYR, Debtor.

Jose Rodriguez, in his capacity as Chapter 7 Trustee of the Estate of Steven Jeffery Cyr, Plaintiff,

v.Le Ann Mary Cyr, Individually and in her capacity as Trustee of the Bergerud Heritage Trust, Defendants.

CASE No. 18-50102-CAG

Adversary No. 18-05227-CAG

United States Bankruptcy Court, W.D. Texas, San Antonio Division.

Signed April 01, 2019

Patrick H. Autry, Branscomb PC, Paul Thomas Curl, Curl Stahl Geis, P.C., San Antonio, TX, for Plaintiff.

Peter James Stanton, Riverview Towers, San Antonio, TX, Eric J. Taube, Waller Lansden Dortch & Davis, LLP, Austin, TX, for Defendant.

ORDER GRANTING IN PART, AND DENYING IN PART, THE TRUSTEE OF THE BERGERUD HERITAGE TRUST'S MOTION TO DISMISS THE ORIGINAL COMPLAINT OF PLAINTIFF JOSE RODRIGUEZ, IN HIS CAPACITY AS CHAPTER 7 TRUSTEE OF THE ESTATE OF STEVEN JEFFREY CYR (ECF NO. 72) AND DENYING LE ANN MARY CYR'S MOTION TO DISMISS THE ORIGINAL COMPLAINT OF PLAINTIFF JOSE RODRIGUEZ, IN HIS CAPACITY AS CHAPTER 7 TRUSTEE OF THE ESTATE OF STEVEN JEFFREY CYR (ECF NO. 99)

CRAIG A. GARGOTTA, UNITED STATES BANKRUPTCY JUDGE

On November 13, 2018, came on for hearing The Trustee of the Bergerud Heritage Trust's Motion to Dismiss the Original Complaint of Plaintiff Jose Rodriguez, In His Capacity as Chapter 7 Trustee of the Estate of Steven Jeffrey Cyr (ECF No. 72) (the "BHT Trustee's Motion to Dismiss") and Le Ann Mary Cyr's Motion to Dismiss the Original Complaint of Plaintiff Jose Rodriguez, In His Capacity as Chapter 7 Trustee of the Estate of Steven Jeffrey Cyr (ECF No. 99) ("Le Ann Cyr's Motion to Dismiss") (collectively, the "Motions to Dismiss"). Plaintiff, Jose C. Rodriguez, in his capacity as Chapter 7 Trustee (the "Trustee" or "Plaintiff") filed his Response of Plaintiff Jose C. Rodriguez, in His Capacity of Chapter 7 Trustee of the Estate of Steven Jeffrey Cyr, to Defendant's Motion to Dismiss (ECF No. 97) and Response of Plaintiff Jose C. Rodriguez, in His Capacity of Chapter 7 Trustee of the Estate of Steven Jeffrey Cyr, to Defendant Le Ann Mary Cyr's Motion to Dismiss (ECF No. 103). The Trustee of the Bergerud Heritage Trust, Le Ann Mary Cyr (the "BHT Trustee"), filed her Reply to Response to Defendant's Motion to Dismiss (ECF No. 102). The Court set the matters for hearing, the Parties each appeared through counsel and presented argument, and the Court took the matters under advisement. After considering the arguments made and the pleading of counsel, as well as the file and record in the case, the Court finds that the BHT Trustee's Motion to Dismiss should be granted in part, and denied in part, and Le Ann Cyr's Motion to Dismiss should be denied.

JURISDICTION

This Court has jurisdiction over these Motions to Dismiss pursuant to 28 U.S.C. §§ 1334(b), 157(b)(2)(A) (administration of the estate), and (H) (proceedings to determine, avoid, or recover fraudulent conveyances). Venue in this district is proper under 28 U.S.C. §§ 1408 and 1409. The statutory predicate for relief is Fed. R. Civ. P. 12(b)(6), made applicable to this proceeding through Fed. R. Bankr. P. 7012 and Local Rule 7012.

BACKGROUND

On January 20, 2018, Dr. Steven Jeffery Cyr ("Dr. Cyr" or "Debtor") filed bankruptcy under chapter 7 of the Bankruptcy Code (Case No. 18-50102). On June 15, 2018, the BHT Trustee filed this Adversary Proceeding seeking a determination of the Trustee's interest in the Bergerud Heritage Trust (the "BHT") (ECF No. 1). Subsequently, the Trustee filed his Unopposed Motion to Realign the Parties to correct the posture of the case so that the Trustee would be designated as the Plaintiff and the BHT Trustee would be designated as the Defendant (ECF No. 34). The Court entered its Order Granting the Trustee's Unopposed Motion to Realign the Parties (ECF No. 36) and issued a resultant Sua Sponte Order Regarding Pleading Deadlines setting forth new deadlines for the Trustee to file an Original Complaint and the BHT Trustee to serve an answer or dispositive motion (ECF No. 55).

On October 30, 2018, the Trustee filed his Original Complaint of Plaintiff, Jose Rodriguez, In His Capacity as Chapter 7 Trustee of the Estate of Steven Jeffrey Cyr (ECF No. 61) (the "Trustee's Original Complaint"). As part of the Trustee's Original Complaint, the Trustee also added Le Ann Mary Cyr in her individual capacity ("Le Ann Cyr") as a defendant to this Adversary Proceeding. The Motions to Dismiss were filed, the Trustee filed his Responses thereto, and the BHT Trustee filed her Reply to the Trustee's Response. The Trustee asserts eleven claims for relief, ten of which are the subject of the Motions to Dismiss.¹

I. The Bergerud Heritage Trust²

On November 2, 2009, John and Carol Bergerud (the "Trustmakers") created the BHT and at the time of its formation, contributed $ 1,500.00 to the BHT. (ECF No. 77, Exh. A, § 1.04, Sched. A). The BHT is identified as an irrevocable trust. Exh. B, § 1.03 ("This Trust is irrevocable and neither of us can alter, amend, revoke, or terminate it in anyway."). Le Ann Cyr and Debtor are identified as Trustees of the BHT. Moreover, Debtor and Le Ann Cyr are designated as beneficiaries to the BHT. Exh. B, Art. 2. The specific objectives in creating the BHT include having:

Any gift made to the trust be treated as a completed gift for federal estate and gift tax purposes;

The assets of the trust estate, including life insurance proceeds, be excluded for federal estate tax purposes from our gross estates and the gross estates of our trust beneficiaries except to the extent we have explicitly granted a general power of appointment to a trust beneficiary; and

The assets in this trust not be subject to the claims of any beneficiary's creditors.

Exh. A, at § 1.05; Exh. B, § 1.05. Additionally, the Trust Documents contain the following spendthrift provision:

No beneficiary may assign, anticipate, encumber, alienate, or otherwise voluntarily transfer the income or principal of any trust created under this trust. In addition, neither the income nor the principal of any trust created under this trust is subject to attachment, bankruptcy proceedings or any other legal process, the interference or control of creditors or others, or any involuntary transfer.

Exh. A, at § 8.02; Exh. B, § 10.02. Finally, the Trustee alleges that on or about August 1, 2017, Debtor was removed as a trustee of the BHT leaving Le Ann Cyr as the sole remaining trustee. (ECF No. 61, ¶ 17).

DISCUSSION

I. Legal Standard

In the Fifth Circuit, 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) ).

"On a motion to dismiss, the court may properly consider the documents attached to or incorporated by reference in the plaintiff's complaint, facts of which judicial notice may be taken, and matters of public record." U.S. ex rel. Willard v. Humana Health Plan of Tex., Inc. , 336 F.3d 375, 379 (5th Cir.2003) (citing Lovelace v. Software Spectrum, Inc. , 78 F.3d 1015, 1017–18 (5th Cir.1996) ). "A court may take judicial notice of related proceedings and records in cases before the same court." MacMillan Bloedel Ltd. v. Flintkote Co. , 760 F.2d 580, 587 (5th Cir. 1985).

II. Legal Analysis

A. Count 1: Declaratory Judgment

Under Count 1, the Trustee "seeks declaratory judgment ... that the BHT is a self-settled trust or ‘similar device’ under [11] U.S.C. § 548(e)(1),³ all assets of which are property of the Debtor's estate and subject to the claims of creditors." The BHT Trustee argues that Count 1 fails to state a cause of action because the Trustee is asking the Court to ignore the existence of the BHT by alleging facts that lead to the conclusion that the BHT is a sham or illusory trust and as a matter of Texas law, such allegations are inapplicable here. To support its proposition, the BHT Trustee cites to Bradley v. Ingalls (In re Bradley) , 501 F.3d 421, 429 (5th Cir. 2007) (" In re Bradley ").

In re Bradley involved a determination of whether and to what extent Bradley, the debtor and beneficiary to a trust, self-settled that trust such that any or all the assets belonging to the trust should be declared property of Bradley's bankruptcy estate. (Bankr. Case No. 02-12741-FM, Adv. Proc. No. 02-01183; ECF No. 411 at 3). The bankruptcy court reviewed Texas law governing spendthrift trusts, and ultimately concluded that to the extent that (1) Bradley transferred property to the trust and (2) th...