Armando Armendariz, et al v. David Chowaiki, et al

Filing

UNPUBLISHED OPINION FILED. [16-50905 Affirmed in Part, Reversed in Part and Remanded] Judge: CES, Judge: EGJ, Judge: EHJ. Mandate pull date is 04/20/2017 [16-50905]

Case: 16-50905

Document: 00513933120

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Date Filed: 03/30/2017

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit

No. 16-50905
Summary Calendar

FILED
March 30, 2017
Lyle W. Cayce
Clerk

ARMANDO ARMENDARIZ; YVETTE ARMENDARIZ; HECTOR
ARMENDARIZ,
Plaintiffs - Appellants Cross-Appellees
v.
DAVID CHOWAIKI; HILEL CHOWAIKI; DHC REALTY, L.L.C.;
CHOWAIKI HOLDINGS, L.L.C.; EL PASO DHC ENTERPRISES, L.L.C.; EL
PASO DHC ENTEREPRISES FAR EAST, L.L.C.; EL PASO DHC
ENTERPRISES WEST, L.L.C.; DHC GENPAR, L.L.C.; DHC RALNER,
L.L.C.; LEON ERNEST GLUCK; GENECO, L.L.C.; COREY HAUGLAND;
JAMES & HAUGLAND, P.C.; ABRAHAM CHOWAIKI; NADIA NAHMAD,
Defendants - Appellees Cross-Appellants

Appeals from the United States District Court
for the Western District of Texas
USDC No. 3:14-CV-451
Before STEWART, Chief Judge, and JOLLY and JONES, Circuit Judges.
PER CURIAM:*

Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
*

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Plaintiffs-Appellants Armando, Yvette, and Hector Armendariz brought
federal civil Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §
1964(c)–(d) (“RICO”) and various state law claims against DefendantsAppellees David Chowaiki; Hilel Chowaiki; Abraham Chowaiki; Leon Ernest
Gluck; Corey Haugland; Nadia Nahmad; Geneco, LLC (“Geneco”); DHC Realty,
LLC (“DHC Realty”); Chowaiki Holdings, LLC (“Chowaiki Holdings”); El Paso
DHC Enterprises, LLC (“DHC East”); El Paso DHC Enterprises Far East, LLC
(“DHC Far East”); El Paso DHC Enterprises West, LLC (“DHC West”); DHC
Genpar, LLC (“DHC Genpar”); DHC Ralner, LLC (“DHC Ralner”); and James
& Haugland, P.C. 1 arising out of an allegedly fraudulent adversary proceeding
before the U.S. Bankruptcy Court for the Western District of Texas. Appellees
filed a motion to dismiss the case, which the U.S. District Court for the Western
District of Texas granted. Appellees then filed a Rule 11 motion for sanctions,
which the district court denied via text order. For the reasons that follow, we
AFFIRM the district court’s dismissal of the case and REVERSE and
REMAND the district court’s denial of Appellees’ motion for sanctions.
I.

BACKGROUND 2

David and Hilel Chowaiki own three Fuddruckers restaurants, operating
as DHC East, DHC Far East, and DHC West. The brothers also own DHC
Realty, Chowaiki Holdings, DHC Genpar, and DHC Ralner. Armando, Hector,
and Yvette Armendariz all worked for the Fuddruckers restaurants in various
capacities.

As the district court noted, the Armendarizes never served DHC Genpar and DHC
Ralner. Accordingly, we affirm the district court’s dismissal as to these defendants. See
Lewis v. Lynn, 236 F.3d 766, 768 (5th Cir. 2001) (quoting United States v. Peerless Ins. Co.,
374 F.2d 942, 945 (4th Cir. 1967)).
2 The following facts are presumed true and are stated in the light most favorable to
Plaintiffs-Appellants. See Calhoun v. Hargrove, 312 F.3d 730, 733 (5th Cir. 2002).
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In 2010, sales at the three franchises began to decline, and David and
Hilel approached Armando about their financial situation. Armando “offered
to lend” David and Hilel $50,000, despite noticing that “during the entire time
of [his] employment,” from 2006 to 2012, the restaurants were not producing
accurate profit and loss statements, “much of the revenue and profit . . . was
being siphoned off” to “pay[] for many of the cost[s] and expenses of” Chowaiki
Holdings, and the restaurants “did not report any of the sales [from the
restaurants’ catering businesses].” Later that year, David and Hilel again
came to Armando about their financial problems, and Armando loaned them
an additional $50,000. A year later, in 2011, DHC Realty filed for Chapter 11
bankruptcy. Corey Haugland, of James & Haugland, P.C., represented DHC
Realty in those proceedings.
By March 2012, David and Hilel had not repaid the $100,000 loan. At
Armando’s request, David and Hilel paid Armando $14,321.92, the interest
accrued at that point. In April 2012, Armando took a medical leave of absence
and requested repayment of the outstanding loan balance. Shortly thereafter,
while Armando was still on medical leave, David and Hilel terminated Yvette
and Armando’s employment, and Hector “decided to . . . quit.” David and Hilel
still had not repaid Armando for the loan.
According to the Armendarizes, on May 10, 2012, Haugland and James
& Haugland, P.C., “in conspiracy with . . . DAVID [CHOWAIKI], DHC
REALTY, CHOWAIKI HOLDINGS, DHC EAST, DHC FAR EAST, DHC
WEST, HILEL [CHOWAIKI], [LEON ERNEST] GLUCK, GENECO, DHC
GENPAR, and DHC RALNER, with ABRAHAM [CHOWAIKI] and NADIA
[NAHMAD] as accomplices,” sent a letter to the Texas Workforce Commission
“falsely and maliciously” accusing Armando of, inter alia, “theft of food and
money . . . , extortion of sexual favors . . . , and verbally and financially abusing
employees.”
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Thereafter, on May 23, 2012, David Chowaiki, DHC Realty, Chowaiki
Holdings, DHC Far East, and DHC West brought an adversary bankruptcy
proceeding against Armando, Yvette, and Hector Armendariz in the U.S.
Bankruptcy Court for the Western District of Texas. David and Hilel hired
Gluck, who owns Geneco, as an investigator and expert witness. In those
proceedings, David and Hilel alleged that Armando had been “stealing
equipment, including display cases, from [the Fuddruckers restaurants], and
selling the equipment to Calderellas, a restaurant supply store” and
“delivering thousands of dollars [sic] worth of food to the USO[3] without
collecting any sales proceeds or allowing [them] to take a tax deduction for the
donation.” They likewise “accused YVETTE of removing meters from vending
machines located within the EL PASO FUDDRUCKERS restaurants.” David
and Hilel also accused the Armendarizes of “falsifying documents” during the
proceeding. Ultimately, the bankruptcy court dismissed the case on October
9, 2014, for lack of subject matter jurisdiction.
The Armendarizes brought the instant case on December 8, 2014. In
their complaint, the Armendarizes allege that Appellees brought the
bankruptcy case to (1) avoid repaying the outstanding loan, (2) “conceal [David
and Hilel’s] managerial and financial mismanagement,” and (3) “extract some
form of compensation from [them] through false and fraudulent claims and
statements.” The Armendarizes further allege that, “to build their false and
fraudulent case against [them in the bankruptcy proceeding, David and Hilel]
bribed former [Fuddruckers] employees . . . with jobs, or payment of back pay
owed, if they agreed to testify against [the Armendarizes]” and threatened

As the district court detailed, the Armendarizes do not explain what “USO” is, but
the district court assumed it meant the “United Service Organization.” Given that on appeal
the Armendarizes allege misrepresentations “regarding charitable contributions,” this is
likely a correct assumption.
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current employees who did not testify. Finally, the Armendarizes allege that,
“[i]n the [bankruptcy proceeding, Appellees] provided written statements,
allegedly from employees of EL PASO FUDDRUCKERS, which the employees
later claimed they had never before seen, and which [David and Hilel wrote].”
Appellees timely filed a motion to dismiss, but on April 6, 2015, the
district court, “agree[ing] with [Appellees] that [the Armendarizes] allege
portions of their RICO causes of action in a conclusory manner,” ordered “[the
Armendarizes] to file a RICO Case Statement that include[d] the facts upon
which [they] rely to state their RICO claim(s).” The district court, therefore,
denied Appellees’ motion as moot.
The Armendarizes then filed a 521-page RICO Case Statement and later
an 538-page amended complaint, alleging 885 RICO “counts” and eighteen
state law claims. In their filings, the Armendarizes assert that Appellees’ (1)
filings and testimony before the bankruptcy court, (2) letter to the Texas
Workforce Commission, (3) “attempt[] to conceal . . . bankruptcy fraud by
shifting the blame to [the Armendarizes],” (4) “public and private defamation,”
(5) “tortious interference with the Armendarizes’ business activities,” and (6)
alleged siphoning of money from the Fuddruckers franchises violated all four
subsections of the RICO statute.
Appellees filed a second motion to dismiss, which the district court
granted. In its order, the district court found that the Armendarizes had failed
to state a plausible claim for relief under RICO, dismissing their remaining state
law claims for lack of subject matter jurisdiction and declining to afford the
Armendarizes an opportunity to amend their complaint. Thereafter, Appellees
filed a Rule 11 motion seeking sanctions, and the Armendarizes filed a motion
for reconsideration. The district court denied both motions. The Armendarizes
timely appealed, and Appellees timely cross-appealed the district court’s denial
of their Rule 11 motion.
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II.

STANDARD OF REVIEW

We review the district court’s grant of a motion to dismiss de novo.
Lowrey v. Tex. A&M Univ. Sys., 117 F.3d 242, 246 (5th Cir. 1997). As for a
district court’s denial of a motion for leave to amend a complaint, this court
ordinarily reviews for an abuse of discretion. City of Clinton v. Pilgrim’s Pride
Corp., 632 F.3d 148, 152 (5th Cir. 2010). If, however, the district court denied
the motion “based solely on futility,” as it did here, “we apply a de novo
standard of review identical, in practice, to the standard used for reviewing a
dismissal under Rule 12(b)(6).” Id. (citing Wilson v. Bruks-Klockner, Inc., 602
F.3d 363, 368 (5th Cir. 2010)). Finally, we review a district court’s decision to
decline jurisdiction over pendent state-law claims and denial of a Rule 11
motion for an abuse of discretion. See Robertson v. Neuromedical Ctr., 161 F.3d
292, 296 (5th Cir. 1998) (“We will . . . reverse a district court’s decision to
remand pendent state law claims after dismissing all remaining federal claims
only upon a finding of abuse of [the district court’s] ‘wide’ discretion.”); Davis
v. Veslan Ent., 765 F.2d 494, 498 (5th Cir. 1985) (citing Warren v. Reserve
Fund, Inc., 728 F.2d 741, 748 (5th Cir. 1984)) (“In determining whether the
district court erred in imposing [Rule 11] sanctions, this [c]ourt’s review is
limited to determining whether the district court abused its discretion.”).
III.

DISCUSSION

On appeal, the Armendarizes raise eleven assertions of error, which fall
into three categories: (1) the sufficiency of their RICO claim, and the district
court’s refusal to retain jurisdiction over their pendent state law claims; (2) the
district court’s declining to afford Appellants an opportunity to amend their
complaint; and (3) the district court’s denial of Appellants’ motion for
reconsideration.

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A.
After considering the parties’ arguments regarding Appellees’ motion to
dismiss as briefed on appeal and reviewing the record, the applicable law, and
the district court’s well-reasoned and thorough opinion, we affirm the district
court’s judgment as to this issue and adopt its analysis in full.
B.
In their cross-appeal, Appellees assert that the district court abused its
discretion when it denied their Rule 11 motion for sanctions without
explanation in a text order. We agree.
When a district court determines that Rule 11 sanctions are not
warranted, it must provide an explanation of its denial sufficient for this court
to “understand the district court’s disposition.”

Copeland v. Wasserstein,

Perella & Co., Inc., 278 F.3d 472, 484 (5th Cir. 2002). “[O]therwise, we cannot
exercise meaningful review.” Schwarz v. Folloder, 767 F.2d 125, 133 (5th Cir.
1985). “Even though we might comb the record and appellate briefs of the
parties in a de novo effort to find support for the court’s ruling, the fact remains
that we require a reviewable explanation of a sanctions ruling, whether it be a
grant or a denial.” Satellite Dealers Supply, Inc. v. Echostar Commc’ns Corp.,
74 F. App’x 359, 360–61 (5th Cir. 2003).
Here, the district court denied Appellees’ motion for sanctions via text
order, providing no explanation for its denial. Although “[w]e do not relish
prolonging secondary litigation such as this any further than necessary, [] we
are simply unable to review this issue on appeal without at least a brief
statement, on each point, of the reasons for denying sanctions from the
perspective of the judge best positioned to expound on these matters.”
Copeland, 278 F.3d at 485. With no opinion on how this issue should come out
on remand, we reverse and remand this issue to the district court for a “brief
statement of reasons” justifying its denial of Appellees’ motion for sanctions.
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See Schwarz, 767 F.2d at 134. “In so doing, we leave to the sound discretion of
the district court the determination of what further proceedings, if any, may
be necessary or desirable.” Copeland, 278 F.3d at 485.
IV.

CONCLUSION

We AFFIRM the district court’s 12(b)(6) dismissal of all claims against
Appellees, and we REVERSE and REMAND the district court’s denial of
Appellees’ motion for Rule 11 sanctions.

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