Colbert et al v. Brennan et al

Filing 144

ORDER granting 23 Motion to Dismiss for Failure to State a Claim. Parties Shawn Tiffany Brennan (in her capacity as independent co-executors of the Succession of James Charles Brennan), Brennan's Claims, LLC, Owen E Brennan, Jr and Samantha Scott Brennan (in her capacity as independent co-executors of the Succession of James Charles Brennan) are dismissed. Signed by Judge Susie Morgan. (cbn)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
EDWARD TUCK COLBERT, et al.,
Plaintiffs

CIVIL ACTION

VERSUS

NO. 12-2442

OWEN BRENNAN, et al.,
Defendants

SECTION “E”

ORDER AND REASONS
Before the Court is a motion to dismiss1 filed by plaintiffs Edward Tuck Colbert
(“Colbert”) and Kenyon & Kenyon, LLP (“Kenyon”) (collectively, “Plaintiffs”2). Plaintiffs
seek to dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(6), counterclaims3 filed
by defendants Shawn Tiffany Brennan and Samantha Scott Brennan, in their capacities as
independent co-executors of the Succession of James Charles Brennan (the “Succession”),
and to dismiss counterclaims4 filed by defendant Owen Brennan (“Pip”). The Succession
and Pip both filed oppositions to the motion to dismiss.5 Plaintiffs filed a reply in further
support of their motion to dismiss.6 On February 20, 2013, the Court heard oral argument
on the motion to dismiss from counsel for Plaintiffs, counsel for the Succession, and

1

R. Doc. 23.

2

On June 18, 2013, Brennan’s Claims, LLC, as assignee of Plaintiffs’ rights, was substituted for
Edward Tuck Colbert and Kenyon & Kenyon, LLP as the proper party plaintiff in this case. See R. Doc.
132. This substitution does not affect the Court’s resolution of the pending motion to dismiss.
3

R. Doc. 13.

4

R. Doc. 15.

5

See R. Doc. 25 (The Succession’s opposition to the motion to dismiss); R. Doc. 27 (Pip Brennan’s
opposition to the motion to dismiss).
6

R. Doc. 32.

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counsel for Pip.7
For the reasons set forth below, Plaintiffs’ motion to dismiss the counterclaims
asserted by the Succession and by Pip is granted, and those counterclaims are dismissed
in their entirety.
BACKGROUND
I.

Plaintiffs’ Causes of Action

Plaintiffs assert two causes of action in this case: (1) that Brennan’s, Inc.’s
repurchase/redemption of stock from the Succession and Pip was unlawful, because
Brennan’s, Inc. was insolvent at the time, thus entitling Plaintiffs to exercise their rights
under Louisiana Revised Statute 12:93(D) directly against Pip and the Succession, in
amounts equal to the unlawful payments already made and any future unlawful payments;8
and (2) a revocatory action under Louisiana Civil Code Article 2036 et seq. against
Brennan’s, Inc., the Succession, and Pip, asserting that the payments made to the
Succession and to Pip caused or increased Brennan’s, Inc.’s insolvency and are thus subject
to revocation.
II.

The Succession’s Counterclaims

In addition to answering Plaintiffs’ complaint and asserting a crossclaim against
Brennan’s, Inc., the Succession has filed counterclaims against Plaintiffs. In those
counterclaims, the Succession asserts a revocatory action against Plaintiffs, asserting that
the transfer/assignment to Plaintiffs of Brennan’s, Inc.’s claim for settlement proceeds

7

R. Doc. 42 (Minute entry from February 20, 2013 oral argument).

8

For a more detailed exploration of this cause of action, see R. Doc. 127 (June 11, 2013 Order
denying Plaintiffs’ motion for summary judgment on their 12:93(D) claim against the Succession).

2

arising out of the BP Oil Spill caused or increased Brennan’s, Inc.’s insolvency, and thus the
assignment is subject to revocation. The Succession also contends that, if the Louisiana
Fourth Circuit Court of Appeal affirms a state trial court’s decision granting summary
judgment in favor of Colbert and Kenyon on Brennan’s, Inc.’s legal malpractice action
against them,9 Brennan’s, Inc.’s failure to properly oppose the motion for summary
judgment10 constitutes a failure on the part of Brennan’s, Inc. to properly exercise a right,
and that failure either caused or increased Brennan’s, Inc.’s insolvency. The Succession
thus contends that it is entitled to assert a legal malpractice action against Kenyon as an
oblique plaintiff pursuant to Louisiana Civil Code article 2044 et seq.
III.

Pip Brennan’s Counterclaims

Pip has also answered Plaintiffs’ complaint, asserted a crossclaim against Brennan’s,
Inc., and asserted counterclaims against Plaintiffs. Pip’s counterclaims are virtually
identical to the counterclaims asserted by the Succession.

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After being sued for legal malpractice in state court by Brennan’s, Inc., Colbert and Kenyon
counterclaimed for unpaid attorney’s fees. The state trial court granted Colbert’s and Kenyon’s motion for
summary judgment on the counterclaim for unpaid attorney’s fees, which led to Colbert and Kenyon being
judgment creditors of Brennan’s, Inc. The trial court also granted Brennan’s, Inc.’s motion for summary
judgment that Theodore Brennan was not individually responsible for the debt owed by Brennan’s, Inc. to
Colbert and Kenyon. In addition, the state trial court granted Colbert and Kenyon’s motion for summary
judgment on Brennan’s, Inc.’s legal malpractice action, holding that Brennan’s, Inc. did not have a claim
for legal malpractice. Colbert and Kenyon appealed the finding with respect to the “piercing the corporate
veil” issue, while Brennan’s, Inc. appealed the finding with respect to the legal malpractice action. The
Louisiana Fourth Circuit Court of Appeal affirmed the trial court’s finding with respect to the piercing the
corporate veil issue and remanded the case with respect to the legal malpractice action so the parties could
prepare a better record. Before the appeal was re-lodged, the claim was dismissed with prejudice by the
parties. The Court takes judicial notice that motions have been filed in the state court to revive the state
court legal malpractice action. As of the date of this Order, the state court action and appeals remain
dismissed with prejudice.
10

The Succession contends that summary judgment on the malpractice issue was only granted in
Plaintiffs’ favor only because Brennan’s, Inc. “failed to properly oppose” that motion.

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ANALYSIS
I.

Rule 12(b)(6) Standard

Federal Rule of Civil Procedure 12(b)(6) provides for dismissal of a claim if the
claimant fails to set forth a factual allegation in support of its claim that would entitle it to
relief (i.e. for "failure to state a claim"). See, e.g. Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555 (2007); see also Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007). Those factual
allegations "must be enough to raise a right to relief above the speculative level.” Gonzalez
v. Kay, 577 F.3d 600, 603 (5th Cir. 2009) (quoting Twombly, 550 U.S. at 555)). "To
survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted
as true, to ‘state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Twombly, 550 U.S. at 570)). “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." Id. The Court must accept all
well-pled facts as true and must draw all reasonable inferences in favor of the non-moving
party, Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 239 (5th Cir. 2009), but the Court
need not accept as true legal conclusions couched as factual allegations. Iqbal, 556 U.S. at
678.
II.

The Revocatory Action Counterclaims

With respect to the revocatory action counterclaims, Plaintiffs argue the assignment
to them of Brennan’s, Inc.’s claim for BP settlement proceeds is not revocable under
Louisiana law because the assignment was not a transfer of an “asset,” but instead a
“consensual security interest.” Plaintiffs also argue that no money actually changed hands,
and thus, even if the assignment could be considered a transfer of an asset, the assignment
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is nevertheless not revocable because it was a “balance sheet neutral” payment of a just and
due debt.
Under Louisiana law, the revocatory action is the “civil law analogue to the common
law suit to set aside a fraudulent conveyance.” LA. CIV. CODE art. 2036 cmt. (c). Article
2036 states that “[a]n obligee has a right to annul an act of the obligor, or the result of a
failure to act of the obligor, made or effected after the right of the obligee arose, that causes
or increases the obligor's insolvency.” Thus, in order for an obligee to annul an act of the
obligor, the obligee must establish two elements: (1) an act or failure to act on the part of
the obligor that causes or increases the obligor’s insolvency; and (2) that the act occurred
after the obligor’s rights arose. See Parish Nat’l Bank v. Wilks, 04-1439 (La. App. 1 Cir.
8/3/05); 923 So.2d 8, 10. As such, “anteriority of the debt and insolvency of the debtor are
prerequisites to the revocatory action.” LA. CIV. CODE art. 2036 cmt. (f); see also Lewis v.
Hood, 97-2118 (La. App. 1 Cir. 11/6/98); 721 So.2d 1078, 1080. For purposes of the
revocatory action, “[a]n obligor is insolvent when the total of his liabilities exceeds the total
of his fairly appraised assets.” LA. CIV. CODE ANN. art. 2037.
In Warren v. Bergeron, 93-899 (La. App. 1 Cir. 4/18/94); 636 So.2d 1013, the
Louisiana Court of Appeals, First Circuit, analyzed the changes to the revocatory action
after a 1984 revision to the Louisiana Civil Code. Id. at 1017. The Warren court explained:
Under the prior law, contracts or acts transferring ownership
of property or giving a determinate right on it were within the
purview of the Revocatory Action. The prerequisites for the
Revocatory Action under the former law were: (1) insolvency of
the debtor; (2) injury to the creditor; (3) intent to defraud the
creditor and (4) preexisting and accrued indebtedness. A
contract was deemed to have been made in fraud of creditors
when the obligee knew the obligor was insolvent and the
contract gave an advantage to the creditor/obligee over other
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creditors of the obligor. If the fraud consisted merely of giving
a preference to one creditor over other creditors to secure a just
debt, and the value of the security was commensurate with the
amount that was justly due and owing, the recourse of the
disadvantaged creditors was that the advantaged creditor
would lose the advantage secured by the contract.
Id. at 1016 (internal citations and quotation marks omitted). The Warren court further
explained the changes to the revocatory action effected by the 1984 amendment:
In the 1984 Obligations Revision several substantive changes
were made in the Revocatory Action. . . . The primary change
from the prior law is that the fraud element of the prior law has
been abandoned for the objective test of whether the act causes
or increases the obligor's insolvency. Another major change is
that the substance of former articles 1968, 1983, and 1984
which dealt with the giving by the obligor of an advantage or
preference to a creditor over other creditors of the obligor, were
not reproduced in the 1984 Obligations Revision. Comment (g)
of article 2036 provides: “The articles in this section do not
address situations in which an already insolvent obligor gives
an unfair advantage to one of his creditors. Situations of that
kind are regulated by federal bankruptcy law.”
The new law eliminates the availability of the Revocatory
Action for the mere giving of a preference to a creditor by
means of a security device for the payment of a just debt, when
the value of the security is commensurate with the amount of
the debt. . . . [A]cts granting only a security interest would be
revocable only in bankruptcy and those causing or increasing
insolvency would be revocable under the civil code.
Id. at 1016-17 (internal citations omitted). The Court finds the Warren court’s discussion
of this change in the law instructive in its analysis in this case. As evidenced by these
passages, it clear that the revocatory action, in its current iteration, does not allow for the
revocation of an act that merely gives preference to one creditor over another. Id. Instead,
as the Warren court explained, the revocatory action allows only for the revocation of
certain acts by an insolvent debtor that cause or increase the debtor’s insolvency, such as

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a pledge securing a fraudulent or simulated debt, a pledge that was actually a dation en
paiement, a pledge securing a debt for which the fee causing the debt was not earned by the
obligee, or a pledge of stock or property that was greater than the just and owing debt for
which the pledge provided security. Id. at 1017.
Even taking as true the allegations in the revocatory action counterclaims asserted
by Pip and the Succession, the Court finds those counterclaims fail to state a facially
plausible cause of action. To the extent the assignment of the BP settlement proceeds is a
security interest which merely grants a preference to one creditor over another, the
revocatory action does not apply, and thus the counterclaims fail to state a claim for
revocation under Louisiana law. Warren, 636 So.2d at 1016-17. Alternatively, to the extent
the assignment of the BP settlement proceeds is a pledge securing a debt owed by
Brennan’s, Inc. to Plaintiffs in the form of a judgment, neither Pip nor the Succession has
alleged in their counterclaims that the judgment obtained by Colbert and Kenyon against
Brennan’s, Inc. is fraudulent or a simulation, that the pledge was actually a dation, or that
the amount of the pledge vastly exceeds the amount of the judgment. As a result, the
counterclaims do not allege facts sufficient to support a finding that the pledge caused or
increased Brennan’s, Inc.’s insolvency, and Pip and the Succession have not stated a claim
for revocation that is plausible on its face. See id. at 1017.
Plaintiffs’ motion to dismiss Pip’s and the Succession’s revocatory action
counterclaims under Rule 12(b)(6) is granted.11

11

The Court notes that the documents attached to Plaintiffs’ motion to dismiss are central to the
revocatory action counterclaims, and thus the documents were properly attached to the motion to dismiss
and the Court could and did properly consider them in resolving this Rule 12(b)(6) motion to dismiss. See,
e.g., Jonesfilm v. Hoffman, No. 11-1994, 2012 WL 4325461, at *1 (E.D. La. Sept. 20, 2011) (quoting
Maloney Gaming Mgmt., L.L.C. v. St. Tammany Parish, 456 F. App’x. 336, 340–341 (5th Cir. 2011)

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III.

The Oblique Action Counterclaims

The Court now turns to the oblique action counterclaims asserted by Pip and the
Succession. Louisiana Civil Code article 2044 states that "[i]f an obligor causes or increases
his insolvency by failing to exercise a right, the obligee may exercise it himself, unless the
right is strictly personal to the obligor. LA. CIV. CODE. art. 2044. It is clear from the
language of this code article that an insolvent obligor’s failure to act is required before an
oblique action may asserted by an obligee.
Pip and the Succession allege they are entitled to assert a legal malpractice action
against Colbert and Kenyon as oblique plaintiffs, but in both oblique action counterclaims,
it is alleged that Brennan’s, Inc. instituted a legal malpractice action against Colbert and
Kenyon in 2004.12 Taking these allegations as true, as the Court must, the oblique actions
fail to state a cause of action for which relief may be granted. Louisiana law does not allow
for a third party obligee to step into the shoes of an insolvent obligor and assert a right on
behalf of the obligor unless the obligor has failed to assert that right. Because Brennan’s,
Inc. instituted a legal malpractice action, it could not have failed to act in that regard, and
thus there is no basis in Louisiana law for an oblique action. The Court need not consider
Plaintiffs’ other arguments for the dismissal of the oblique action counterclaims.
Plaintiffs’ motion to dismiss Pip’s and the Succession’s oblique action counterclaims
under Rule 12(b)(6) is granted.

(“When considering a Rule 12(b)(6) motion, a court may consider documents outside the complaint when
they are: (1) attached to the motion; (2) referenced in the complaint; and (3) central to the plaintiff's
claims.”)). The Court rejects the Succession’s argument that the Court either should not have considered
those attachments or should have converted this motion to dismiss to a motion for summary judgment.
12

See R. Doc. 15 at ¶ 36 (Pip); R. Doc. 13 at ¶ 41 (Succession).

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IV.

Pip’s and the Succession’s Crossclaims Against Brennan’s, Inc.

Louisiana law required Pip and the Succession to name Brennan’s, Inc. as a nominal
defendant in their revocatory action and oblique action counterclaims. See La. Civ. Code
Ann. art. 2042 (“In an action to annul either his obligor's act, or the result of his obligor's
failure to act, the obligee must join the obligor and the third persons involved in that act or
failure to act.”); La. Civ. Code Ann. art. 2044 (to assert an oblique action, “the obligee must
join in the suit his obligor and the third person against whom that right is asserted”).
Because Brennan’s, Inc. is a defendant in this case, Pip and the Succession named
Brennan’s, Inc. as a nominal defendant-in-crossclaim rather than as a nominal defendantin-counterclaim.13 Now that Pip’s and the Succession’s revocatory action and oblique action
counterclaims have been dismissed, there is no basis for and no need for the revocatory
action and oblique action crossclaims asserted against Brennan’s, Inc.
Pip’s and the Succession’s revocatory action and oblique action crossclaims against
Brennan’s, Inc. are dismissed.
CONCLUSION
For all the reasons set forth herein, IT IS ORDERED that Plaintiffs’ motion to
dismiss be and hereby is GRANTED.
IT IS FURTHER ORDERED that the revocatory action and oblique action
counterclaims asserted by the Succession and Pip against Plaintiffs be and hereby are
DISMISSED in their entirety.

13

The Succession later amended its crossclaim to add additional crossclaims against Brennan’s,
Inc. The relief sought in the Succession’s revocatory action and oblique action crossclaims is separate and
distinct from the relief sought in the amendments to the Succession’s crossclaim. The Court has already
resolved the issues raised by the amendments to the Succession’s crossclaim.

9

IT IS FURTHER ORDERED that the revocatory action and oblique action
crossclaims asserted by Pip and the Succession against Brennan’s, Inc. be and hereby are
DISMISSED.

21st
New Orleans, Louisiana, this ___ day of June, 2013.
_____________________________
SUSIE MORGAN
UNITED STATES DISTRICT JUDGE

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