Ruff v. Ruff (In re JMV Holdings LLC)
| Decision Date | 31 March 2022 |
| Docket Number | 18-42552,Adversary 21-4003 |
| Parties | IN RE: JMV HOLDINGS LLC DEBTOR v. SUZANN RUFF AND CHRISTOPHER J. MOSER, CHAPTER 7 TRUSTEE Defendants. JENNIFER C. RUFF, Plaintiff, |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Eastern District of Texas |
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The plaintiff, Jennifer C. Ruff, filed a complaint initiating this adversary proceeding on January 11, 2021. The adversary proceeding, at its core, involves competing claims from Suzann Ruff and Jennifer Ruff to the assets of JMV Holdings LLC (the "Debtor" or "JMV") (i.e., $426, 000.00 of proceeds from the sale of the Debtor's only asset, a house, in the underlying bankruptcy case).[1] The chapter 7 trustee also objects to Jennifer's secured claim as a preference, among other objections. The Court conducted a trial on December 28 and 29, 2021, and the parties presented evidence and legal arguments to the Court. The parties subsequently filed a stipulation of facts on January 24 2022.
The Court, having considered the evidence and the parties' legal arguments, as well as the parties' stipulation of facts, makes the following findings of fact and conclusions of law by a preponderance of the evidence pursuant to Federal Rule of Civil Procedure 52, as applied to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7052. Where appropriate, any finding of fact herein that should more appropriately be regarded as a conclusion of law shall be deemed as such, and vice versa.
This Court has jurisdiction of the claims and controversies asserted in this adversary proceeding under 28 U.S.C. § 157(b). The predicates for the relief sought herein are 11 U.S.C. §§ 101 et seq. (the "Bankruptcy Code"), and, more specifically, 11 U.S.C. § 506(a); 28 U.S.C. §§ 2201-2202; as well as Rules 3007, 3012, and 7001(2) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").
1. Suzann is the widow of Arthur Ruff, who died in 1998. Arthur had been an extremely successful businessman. Suzann and Arthur amassed a considerable amount of wealth during their marriage.
2. Suzann and Arthur Ruff had five children: Michael, Matthew Tracy, Kelly and Mark.
3. Suzann is financially unsophisticated. Following Arthur's death, Suzann turned to one of her sons, Michael Arthur Ruff to help manage her financial affairs. Michael was 22 years old at that time and a recent graduate of Rice University.
4. Michael married Jennifer, who had also attended Rice University, several years later in February 2003. Jennifer stopped working after becoming pregnant and has been a full-time mother since 2004.
5. On July 26, 2007, Suzann, as Settlor, and Michael, as the initial trustee, executed an agreement which established the Ruff Management Trust (the "Trust"). Shortly thereafter, Suzann transferred substantially all her assets to the Trust. Suzann was the primary beneficiary of the Trust.
6. By 2009, Suzann had begun to suspect that Michael was abusing his fiduciary position to divest her assets and divert the proceeds for his own use and benefit. On November 20, 2009 due to the family dispute, Michael resigned as trustee of the Trust.
7. In addition, on October 2, 2009, Suzann and Michael signed a Family Settlement Agreement and Release ("FSA").
8. Frost Bank was appointed to serve as the successor trustee of the Trust. On February 26, 2010, Suzann executed a Release and Indemnity Agreement that purported to release Frost as well as all the Ruff children, except Michael, from any claims arising out of the prior administration of the Trust. The 2010 Release and Indemnity Agreement contained an arbitration clause.
9. In 2011, Suzann initiated litigation in the Probate Court of Dallas County, Texas (the "Probate Court"); Cause No. PR-11-02825-1 (the "Fiduciary Lawsuit") to pursue claims of breach of fiduciary duty and fraud against Michael in relation to his prior administration of the Trust and her real property in Palo Pinto County, Texas.
10. Thereafter, relying upon the arbitration provision in the 2010 Release and Indemnity Agreement, among other things, Michael sought to resolve the dispute with his mother through arbitration, filing a Demand for Arbitration against Suzann with the American Arbitration Association ("AAA"), Case No. 71-20-1200-0640 (the "Arbitration"), and a motion to compel arbitration in the Fiduciary Lawsuit. The Probate Court granted the motion and ordered the parties to arbitrate their dispute. Suzann then filed a counterclaim in the Arbitration to assert the same breach of fiduciary duty and fraud claims against Michael as she had asserted in the Fiduciary Lawsuit. Michael asserted affirmative defenses, including that the FSA's release barred her claims against him, and he asserted a counterclaim seeking, among other things, a judgment that the FSA was valid and barred Suzann's claims against him.
11. On December 7, 2017, the AAA issued its Final Award in Arbitration (the "Arbitration Award") pursuant to which the panel awarded Suzan $49 million in actual damages, greater than $3.9 million in attorney's fees and approximately $12.8 million in prejudgment interest against Michael. Additionally, as relevant to this proceeding, the panel determined:
A constructive trust exists and is imposed in favor of Suzann Ruff on Michael Ruff's interests, of whatever nature, in any entity which he formed or invested, in whole or in part with monies or property misappropriated from, and originating with Suzann Ruff in all capacities, which the Panel finds includes, but is not limited to, any interest of whatever nature Michael has in the entities listed on Exhibit "A" to the final Award attached hereto and made a part hereof for all purposes." Michael Ruff shall hold his ownership interests in such interests as constructive trustee for the benefit of Suzann Ruff, and Suzann Ruff shall be entitled to a lien against such ownership interests to enforce this Award.
(Emphasis added.).
12. The Arbitration Award expressly denied Michael's affirmative defenses of release or waiver because Michael had fraudulently induced Suzann into signing "the alleged 2010 Release and Indemnity Agreement (the "2010 RIA"), and any other alleged settlement agreements." The Arbitration Award made specific findings regarding Michael's conduct toward his mother, including the following:
13. The Arbitration Award also specifically found that Michael failed to provide a proper accounting to Suzann in connection with his fiduciary duties as Trustee of the Ruff Management Trust and as agent under a power of attorney from Suzann.
14. Armed with the Arbitration Award, Suzann returned to the Fiduciary Lawsuit pending in Probate Court #1 of Dallas County, Texas. Cause No. PR-11-02825-1 ("State Court Proceeding"). Suzann requested the Dallas County Probate Court's entry of a final judgment consistent with the Arbitration Award. On April 10, 2018, the Dallas County Probate Court entered a Modified and Corrected Final Judgment ("Judgment") incorporating the terms of the Arbitration Award.
15. Neither Plaintiff Jennifer Ruff nor the Debtor JMV Holdings LLC was named as a party in the Arbitration Proceeding or the State Court Proceeding. They did not participate in the Arbitration Proceeding or the State Court Proceeding, and they were not named as a party against whom relief was being granted in the Arbitration Award or the Judgment. However, JMV Holdings LLC and JMV Managers LLC were included on the entities and properties listing attached as Exhibit "A" to the Arbitration Award.
16. Michael filed an appeal of the Judgment to the Fifth Court of Appeals for the State of Texas, which affirmed the Judgment. Michael filed an appeal to the Texas Supreme Court. The Texas Supreme Court in Cause No. 20-0833, styled Michael A. Ruff, et al. v. Suzann Ruff, Individually and in her Capacity as Trustee of the Ruff Management Trust, et al. (the "State Court Appeal"), denied Michael Ruff's Petition for Review of the Judgment and subsequently denied a Michael Ruff's motion for rehearing.
Formation of JMV (Debtor)
17. JMV Holdings, LLC ("JMV" or "Debtor") is a sole member, Texas limited liability company formed by Michael on November 30, 2009. Michael is listed on the Certificate of Formation of Limited Liability Company as the registered agent for JMV, and JMV Managers LLC is listed as the manager.
18. JMV Managers, LLC ("JMV Managers") is a Texas limited liability company which has served as manager of the Debtor from its organization until December 31, 2020. Michael formed, and is the manager of, JMV Managers per the Certificate of Formation of Limited Liability Company filed in the Office of the Secretary of State of Texas on November 30, 2009.
19. The sole member of JMV Managers is the MAR Living Trust ("MAR"), a revocable trust in which Michael is the settlor. Michael is also the trustee for MAR and Jennifer and their minor children are the sole beneficiaries.
20. On December 29, 2009, JMV bought the real property and improvements located at 7047 Joyce Way, Dallas, Texas (the "Joyce Way Property") for $247, 500.00.[2]
21. Michael's testimony that he discussed the purchase of the...
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