Wilhite et al v. Acell Investors Limited

Filing 30

MEMORANDUM OPINION AND ORDER granting in part and denying in part 29 Plaintiffs'-Counterdefendants' Motion to Dismiss First Amended Counterclaims and Strike Affirmative Defenses filed by Stephen Jacobs, Stephen Lasher, The Kenneth L Schnitzer Jr 1989 Gift Trust, The Williamsburg Corp, Michael D Thompson, Patrick J Thompson, Michael T Wilhite, Jr. (Ordered by Chief Judge Sidney A Fitzwater on 1/23/2014) (Chief Judge Sidney A Fitzwater)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
MICHAEL T. WILHITE, JR., et al.,
Plaintiffs-counterdefendants,
VS.
ACELL INVESTORS LIMITED,
Defendant-counterplaintiff.

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§ Civil Action No. 3:13-CV-1421-D
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MEMORANDUM OPINION
AND ORDER
Plaintiffs-counterdefendants (“counterdefendants”) move to dismiss the amended
counterclaims of defendant-counterplaintiff Acell Investors Limited (“Acell”) under Fed. R.
Civ. P. 9(b) and 12(b)(6) and to strike Acell’s affirmative defenses under Rule 12(f). Acell
has not responded to the motion. For the reasons that follow, the court grants in part and
denies in part the motion to dismiss the counterclaims and denies the motion to strike the
affirmative defenses.
I
In an October 22, 2013 order, the court granted counterdefendants’ motion to dismiss
Acell’s counterclaims, concluding that counterdefendants had established that the
counterclaims did not comply with Rule 9(b) or 12(b)(6). Except as to Acell’s declaratory
judgment counterclaim, the court granted Acell leave to replead. Acell then filed a second
amended answer and counterclaims (“amended counterclaims”). Counterdefendants now
move to dismiss the amended counterclaims under Rule 9(b) or Rule 12(b)(6) and to strike

Acell’s affirmative defenses under Rule 12(f). Acell has not responded to the motion.
II
The court turns first to Acell’s counterclaim for fraud and fraud in the inducement.
A
The facts pertinent to this counterclaim are as follows.1 Acell is an Irish company
formed for the purpose of owning subsidiaries with revolutionary technologies in the fields
of composite materials and fire suppression. Around April 2012 plaintiff-counterdefendant
Michael T. Wilhite, Jr. (“Wilhite”) was appointed Chairman of the Board of Directors of
Acell. During a November 2012 board meeting, allegedly as part of an ongoing conspiracy
to cause Acell to become indebted and then to use that indebtedness to force a renegotiation
of counterdefendants’ shareholder control rights, Wilhite announced that Acell was
experiencing a severe cash crisis and needed to raise additional capital. He proposed that he
and the other counterdefendants loan Acell capital, and, if the funds were not repaid, that the
debts be converted into additional stock. Allegedly in reliance on this statement, Acell’s
Board of Directors approved certain loans from counterdefendants. In November 2012, after
Wilhite and counterdefendants had “effectively starved Acell of capital,” Wilhite presented
the board with a “fait accompli.” Am. Counterclaims ¶ 109. Acell needed capital, and

1

In deciding counterdefendants’ Rule 12(b)(6) motion to dismiss, the court construes
Acell’s counterclaims in the light most favorable to Acell, accepts as true all well-pleaded
factual allegations, and draws all reasonable inferences in Acell’s favor. See, e.g., Lovick v.
Ritemoney Ltd., 378 F.3d 433, 437 (5th Cir. 2004).
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Wilhite and counterdefendants were prepared to loan Acell the money. Accordingly, Wilhite
had the Board convert the prior approved loans to new terms, ratify various unauthorized
loans, and approve new loans on extremely unfavorable terms, including that all of the loans
be due in full on December 28, 2012. When Acell was unable to pay its debts as they
became due, counterdefendants offered to forgo their loans on the condition that they be
given control of the company; when Acell refused, they filed suit and now seek to obtain a
judgment followed by foreclosure on Acell’s assets.
B
Counterdefendants move to dismiss Acell’s fraud counterclaim, contending that it has
not been pleaded as Rule 9(b) requires. They maintain that Acell has failed to plead a single
specific fraudulent statement or act by counterdefendants Michael D. Thompson, The
Williamsburg Corporation, Patrick J. Thompson, or Stephen Jacobs and Stephen Lasher, the
co-trustees of the Kenneth L. Schnitzer, Jr. 1989 Gift Trust; that Acell cannot recover against
these individuals for the actions of Wilhite and others who are not parties to this lawsuit by
making the conclusory allegation that such individuals were counterdefendants’ “agents,”
and that, with respect to Wilhite, the amended counterclaims fail to identify the “who, what,
when, and where” to support the fraud and fraudulent inducement counterclaims, as Rule
9(b) requires.

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C
The court begins by addressing Acell’s fraud allegations against Wilhite.
1
The elements of common law fraud in Texas are: . . . (1) a
material representation was made; (2) it was false when made;
(3) the speaker either knew it was false, or made it without
knowledge of its truth; (4) the speaker made it with the intent
that it should be acted upon; (5) the party acted in reliance; and
(6) the party was injured as a result.
Choe v. Bank of Am., N.A., 2013 WL 3196571, at *5 (N.D. Tex. June 25, 2013) (Fitzwater,
C.J.) (citing Fluorine On Call, Ltd. v. Fluorogas Ltd., 380 F.3d 849, 858 (5th Cir. 2004)
(Texas law)). “Rule 9(b) imposes a heightened pleading standard for fraud claims and
requires that a party state with particularity facts supporting each element of fraud.” Turner
v. AmericaHomeKey, Inc., 2011 WL 3606688, at *2 (N.D. Tex. Aug. 16, 2011) (Fitzwater,
C.J.) (citing Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 724 (5th Cir. 2003)),
aff’d, 514 Fed. Appx. 513 (5th Cir. 2013). “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.” Id.
(quoting Benchmark Elecs., 343 F.3d at 724) (internal quotation marks omitted). More
colloquially, Acell must plead the “who, what, when, where, and how” of the fraud.
Williams v. Bell Helicopter Textron, Inc., 417 F.3d 450, 453 (5th Cir. 2005) (citations
omitted). Because Rule 9(b) must be “read in conjunction with [Rule] 8 which requires only
a short and plain statement of the [counterclaim] showing that the pleader is entitled to

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relief,” “punctilious pleading detail” is not required. Steiner v. Southmark Corp., 734 F.
Supp. 269, 273 (N.D. Tex. 1990) (Fitzwater, J.) (internal quotation marks and citations
omitted). “The court’s key concern in assessing a [counterclaim] under Rule 9(b) is to
determine whether the [counterplaintiff] seeks to redress specific wrongs or whether the
[counterplaintiff] instead seeks the opportunity to search out actionable wrongs.” Garcia v.
Boyar & Miller, P.C., 2007 WL 2428572, at *4 (N.D. Tex. Aug. 28, 2007) (Fitzwater, J.).
2
Counterdefendants argue that, as to Wilhite, the amended counterclaims fail, as Rule
9(b) requires, to identify the “who, what, when, and where” to support the fraud and
fraudulent inducement counterclaims. The court holds that Acell has pleaded with the
requisite specificity at least one ground in support of its fraud counterclaim.
Acell alleges that
Wilhite, directly representing himself (and, de jure, as) the agent
for Counterdefendants, stated that the notes sued hereunder
would be in a form such that, if they were not paid, the remedy
was to convert them into stock in the company. Wilhite made
that representation at the November 2012 board meeting. In
reality, Wilhite and the counterdefendants never intended to
have notes that were mandatorily convertible into stock.
Am. Counterclaims ¶ 121. This allegation sufficiently pleads the “who, what, when, where,
and how” of the alleged fraud and thus satisfies the pleading requirements of Rule 9(b). See
Williams, 417 F.3d at 453. Counterdefendants do not move to dismiss Acell’s fraud and
fraud in the inducement counterclaim against Wilhite on any basis other than that the
allegations fail to satisfy Rule 9(b). Accordingly, because at least one of the fraud
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allegations against Wilhite is pleaded with the requisite specificity, the court denies the
counterdefendants’ motion to dismiss this counterclaim.
D
The court next considers whether Acell has adequately pleaded its counterclaim for
fraud and fraud in the inducement against the other counterdefendants.
“When agency is an element of a fraud claim, agency must be pleaded with
particularity required under Rule 9(b).” DT Apartment Grp., LP v. CWCapital, LLC, 2013
WL 2317061, at *13 (N.D. Tex. May 28, 2013) (Fitzwater, C.J.) (quoting In re Enron Corp.
Sec., Derivative, & “ERISA” Litig., 540 F.Supp.2d 759, 782 (S.D. Tex. 2007)) (internal
quotation marks omitted). Acell alleges that Wilhite and nonparty Michael Dale (“Dale”)
acted “as the agents of all Counterdefendants,” Am. Counterclaims ¶ 121, but Acell does not
otherwise allege a plausible agency relationship between Wilhite and Dale, on the one hand,
and the other counterdefendants, on the other.2 Acell’s conclusory allegation that Wilhite
and Dale acted as “agents” is insufficient to satisfy the pleading standard of Rule 8, much

2

The amended counterclaims contain other similarly conclusory allegations of agency.
See, e.g., Am. Counterclaims ¶ 93 (“counterdefendants appointed [Theodore C.] Skokos and
Dale their agents to carry out the plan.”); id. at ¶ 100 (“Without Dale to act on their behalf,
Counterdefendants appointed Wilhite and Kru[e]ger as their agents to continue their scheme
against Acell.”); id. at ¶ 121 (“Wilhite, acting on his behalf and as the agent of the remaining
counterdefendants, repeatedly informed Acell that he was committed to raising funds from
investors and that short term loans were needed until those funds could be raised.”); id
(“Dale, acting as the agent of Counterdefendants, informed Acell that he would work to
increase sales at FireStryker”); id. (“Wilhite, directly representing himself (and, de jure, as)
the agent for Counterdefendants, stated that the notes sued hereunder would be in a form
such that, if they were not paid, the remedy was to convert them into stock in the company.”).
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less Rule 9(b).
Accordingly, the court grants counterdefendants’ motion and dismisses Acell’s fraud
and fraudulent inducement counterclaim against all counterdefendants other than Wilhite.
III
In its amended counterclaims, Acell asserts a new counterclaim for aiding and
abetting. Counterdefendants move to dismiss this counterclaim, contending that Acell has
failed to plead any factual basis to support an inference that any counterdefendant knowingly
participated in the alleged wrongful acts of Wilhite or nonparties Dale, Theodore C. Skokos
(“Skokos”), or William Krueger (“Krueger”).
A
“In deciding a Rule 12(b)(6) motion to dismiss, the court evaluates the sufficiency of
[counterplaintiff’s] [amended counterclaims] by accepting all well-pleaded facts as true,
viewing them in the light most favorable to [counterplaintiff].” Bramlett v. Med. Protective
Co. of Fort Wayne, Ind., 855 F.Supp.2d 615, 618 (N.D. Tex. 2012) (Fitzwater, C.J.) (quoting
In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007)) (internal quotation
marks and alteration omitted). To survive counterdefendants’ motion to dismiss under Rule
12(b)(6), Acell must plead “enough facts to state a [counterclaim] that is plausible on its
face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “A [counterclaim] has facial
plausibility when [counterplaintiff] pleads factual content that allows the court to draw the
reasonable inference that [counterdefendants] [are] liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility standard is not akin to a
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‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has
acted unlawfully.” Id.; see also Twombly, 550 U.S. at 555 (“Factual allegations must be
enough to raise a right to relief above the speculative level[.]”). “[W]here the well-pleaded
facts do not permit the court to infer more than the mere possibility of misconduct, the
[counterplaintiff] has alleged—but it has not ‘shown’— ‘that the pleader is entitled to
relief.’” Iqbal, 556 U.S. at 679 (quoting Rule 8(a)(2)) (alteration omitted). “Threadbare
recitals of the elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Id. at 678 (citation omitted).
B
Although Acell alleges a counterclaim for “aiding and abetting,” it appears that Acell
intends to plead a counterclaim for aiding and abetting fraud. See Am. Counterclaims ¶ 128.
Assuming arguendo that the Supreme Court of Texas would recognize such a cause of
action,3 the court holds that Acell has not plausibly pleaded this counterclaim. Acell alleges:
As described above, all of the counterdefendants individually or
through their agents assisted, encouraged, participated with, and
engaged in a concert of action with various principals (including
Skokos, Dale, Krueger, and Wilhite) in committing unlawful
and tortious acts designed to harm Acell, including but not
limited to participating in the fraudulent inducement of the notes
at issue here. Those primary actors did commit tortious actions
and the counterdefendants’ assistance, encouragement,
participation, and concerted action was a substantial factor in
causing the tortious action.

3

See Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 583 n.7 (Tex.
2001) (“Because of our disposition, we do not consider whether Texas law recognizes a
cause of action for ‘aiding and abetting’ fraud separate and apart from a conspiracy claim.”).
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Id. Other than the conclusory allegations that “[t]o effectuate this scheme, counterdefendants
appointed Skokos and Dale their agents to carry out the plan,” id. ¶ 93, and that, “[w]ithout
Dale to act on their behalf, Counterdefendants appointed Wilhite and Kru[e]ger as their
agents to continue their scheme against Acell,” id. ¶ 100, Acell fails to plausibly plead any
facts that would permit the court to infer that any party or nonparty acted as the agent of any
counterdefendant or that any counterdefendants acted in concert to commit tortious acts
designed to harm Acell. See Iqbal, 556 U.S. at 678-79; Twombly, 550 U.S. at 555.
Accordingly, the court grants counterdefendants’ motion and dismisses Acell’s aiding and
abetting counterclaim under Rule 12(b)(6).
IV
The court now considers counterdefendants’ motion to dismiss Acell’s counterclaims
for breach of fiduciary duty, negligence, breach of contract, and civil conspiracy. Although
in response to the court’s October 22, 2013 order Acell has made minor changes to these
counterclaims, none of the changes is material. Accordingly, for the reasons stated in the
October 22, 2013 order, the court dismisses these counterclaims under Rule 9(b) and
12(b)(6).
V
Counterdefendants move to strike all of Acell’s affirmative defenses under Rule 12(f).
They argue that each affirmative defense is entirely devoid of any factual support or
specificity and plainly does not give them fair notice of the defense.

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A
“The court may strike from a pleading an insufficient defense or any redundant,
immaterial, impertinent, or scandalous matter.” Rule 12(f). The decision to grant a motion
to strike is within the court’s discretion. Jacobs v. Tapscott, 2004 WL 2921806, at *2 (N.D.
Tex. Dec. 16, 2004) (Fitzwater, J.), aff’d on other grounds, 277 Fed. Appx. 483 (5th Cir.
2008). “Both because striking a portion of a pleading is a drastic remedy, and because it
often is sought by the movant simply as a dilatory tactic, motions under Rule 12(f) are
viewed with disfavor and are infrequently granted.” Id. (citing FDIC v. Niblo, 821 F. Supp.
441, 449 (N.D. Tex. 1993) (Cummings, J.)). “Although motions to strike a defense are
generally disfavored, a Rule 12(f) motion to dismiss a defense is proper when the defense is
insufficient as a matter of law.” SEC v. Cuban, 798 F.Supp.2d 783, 787 (N.D. Tex. 2011)
(Fitzwater, C.J.) (quoting Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc.,
677 F.2d 1045, 1057 (5th Cir. 1982)) (internal quotation marks omitted).
This court applies a “fair notice” pleading standard for affirmative defenses, as set
forth in Woodfield v. Bowman, 193 F.3d 354, 362 (5th Cir. 1999). See, e.g., Cuban, 798
F.Supp.2d at 795 n.13. This requires that the party asserting the affirmative defense allege
sufficient facts to give fair notice of the nature of the affirmative defense and prevent unfair
surprise. Id. “Although the court in Woodfield noted that in some instances merely pleading
the name of the affirmative defense may be sufficient, a ‘fact-specific analysis’ is required
to determine whether the pleadings set forth the ‘minimum particulars’ needed to ensure the
plaintiff is not the victim of unfair surprise.” Mary Kay, Inc. v. Dunlap, 2012 WL 6625323,
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at *5 (N.D. Tex. Dec. 20, 2012) (Fitzwater, C.J.) (citing Woodfield, 193 F.3d at 362).
B
In their motion to strike, counterdefendants lump all of Acell’s affirmative defenses
together and make the global assertion that the defenses, as pleaded, fail to give them fair
notice. They have neither explained why each particular affirmative defense fails to give fair
notice of the nature of the defense nor have they shown why any particular defense fails to
satisfy the fair notice standard.

Accordingly, the court in its discretion denies

counterdefendants’ motion to strike Acell’s affirmative defenses under Rule 12(f).
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For the foregoing reasons, the court grants in part and denies in part
counterdefendants’ motion to dismiss Acell’s amended counterclaims and denies
counterdefendants’ motion to strike.
SO ORDERED.
January 23, 2014.

_________________________________
SIDNEY A. FITZWATER
CHIEF JUDGE

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