Clapper et al v. American Realty Investors Inc et al

Filing 145

MEMORANDUM OPINION AND ORDER granting in part and denying in part #72 MOTION to Dismiss for Failure to State a Claim, filed by Sharon Hunt, Henry A Butler, Donald Phillips, Louis Corna, Ryan T Phillips, Ted R Munselle, Gene S Bertcher, Gene E Phillips, Robert A Jakuszeweki, Mickey N Phillips, Daniel J Moos; #73 MOTION to Dismiss for Failure to State a Claim filed by American Realty Trust, Inc, EQK Holdings Inc, American Realty Investors Inc, Basic Capital Management, Inc; #74 MOTION to Dismiss for Failure to State a Claim, filed by Realty Advisors, Inc., Income Opportunity Realty Investors Inc, Transcontinental Realty Investors Inc, Realty Advisors Management, Inc., The May Trust, Prime Income Asset Management Inc, The Martin Trust, Prime Income Asset Management LLC, Realty Advisors, LLC, Pillar Income Asset Management Inc, Syntek West Inc; #75 MOTION to Dismiss for Failure to State a Claim filed by Transcontinental Realty Acquisition Corporation; #107 MOTION for Protective Order, Motion to Stay filed by Realty Advisors, Inc., Realty Advisors, LLC; #108 MOTION for Protective Order, Motion to Stay, filed by Donald Phillips, Realty Advisors Management, Inc., Ryan T Phillips, The May Trust, Syntek West Inc, The Martin Trust, Mickey N Phillips; #111 MOTION for Protective Order, MOTION to Stay filed by Sharon Hunt, Henry A Butler, Ted R Munselle, Robert A Jakuszeweki; and #119 MOTION to Stay filed by Prime Income Asset Management LLC (Ordered by Judge Sidney A Fitzwater on 6/3/2015) (Judge Sidney A Fitzwater)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
DAVID M. CLAPPER, Individually,
et al.,
Plaintiffs,
VS.
AMERICAN REALTY INVESTORS,
INC., et al.,
Defendants.

§
§
§
§
§ Civil Action No. 3:14-CV-2970-D
§
§
§
§
§
§

MEMORANDUM OPINION
AND ORDER
In this suit alleging claims for fraudulent conveyance, in violation of the Texas
Uniform Fraudulent Transfer Act, (“TUFTA”), Tex. Bus. & Com. Code Ann. § 24.001 et
seq. (West 2015), unjust enrichment/constructive trust, alter ego, civil conspiracy to commit
fraudulent conveyances, and violation of the Racketeer Influenced and Corrupt Organizations
Act (“RICO”), 18 U.S.C. § 1962, defendants move in four separate motions to dismiss under
Fed. R. Civ. P. 9(b) and 12(b)(6). They have also filed four separate motions for protective
orders to stay discovery until 30 days after the court decides the motions to dismiss. For the
reasons that follow, the court grants in part and denies in part the motions to dismiss, and
grants in part and denies in part the motions for protective orders to stay discovery. The
court grants plaintiffs leave to file a second amended complaint within 28 days of the date
this memorandum opinion and order is filed.

I
In 1999 American Realty Trust, Inc. (“ART”) and ART Midwest, Inc. (“ART
Midwest”) sued David M. Clapper (“Clapper”), Atlantic Midwest, LLC (“Atlantic
Midwest”), and Atlantic XIII, LLC (“Atlantic XIII”).1 Following extensive litigation before
Judge Buchmeyer and an appeal to the Fifth Circuit, the case was reassigned to Judge
Godbey.
After Judge Godbey granted summary judgment partially in favor of Clapper, Atlantic
Midwest, and Atlantic XIII (awarding damages totaling over $17 million), the case was tried
to a jury (“January 2011 Trial”). After the jury returned a verdict in favor of Clapper,
Atlantic Midwest, and Atlantic XIII, Judge Godbey filed a Rule 54(b) final judgment
awarding more than $73 million in damages against ART and ART Midwest.
Clapper, Atlantic Midwest, and Atlantic XIII then filed various post-judgment
motions to aid in collecting the judgment. Before the motions were decided, however, ART
and ART Midwest jointly filed a suggestion of bankruptcy.2 Clapper, Atlantic Midwest, and

1

In deciding defendants’ Rule 12(b)(6) motions, the court construes plaintiffs’
amended complaint in the light most favorable to them, accepts as true all well-pleaded
factual allegations, and draws all reasonable inferences in plaintiffs’ favor. See, e.g., Lovick
v. Ritemoney Ltd., 378 F.3d 433, 437 (5th Cir. 2004). “The court’s review [of a Rule
12(b)(6) motion] is limited to the complaint, any documents attached to the complaint, and
any documents attached to the motion to dismiss that are central to the claim and referenced
by the complaint.” Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387
(5th Cir. 2010).
2

Although ART and ART Midwest initially filed for bankruptcy elsewhere, ART’s
bankruptcy (ART Midwest’s was dismissed) was transferred to the United States Bankruptcy
Court for the Northern District of Texas in September 2013, and assigned to Judge Hale.
-2-

Atlantic XIII learned during the bankruptcy proceedings that, on the eve of the January 2011
Trial, ART had transferred all of its shares of stock in defendant Transcontinental Realty
Investors, Inc. (“TCI”),3 a publicly-traded company, to its wholly-owned subsidiary,
defendant EQK Holdings, Inc. (“EQK”), allegedly for little or no value. Additionally, on
January 14, 2011 defendant Basic Capital Management (“BCM”), a wholly-owned subsidiary
of EQK, transferred to EQK as a “dividend” 920,507 shares of TCI stock that it held. ART
then transferred EQK, allegedly for no consideration, to ART’s then parent, defendant
American Realty Investors, Inc. (“ARI”). ARI then transferred its ownership of ART to
another affiliated entity, OneRealco, for $10 million in the form of financing provided by
ARI, with a five-year note receivable at 3% interest.4 In July 2014 the TCI stock held by
EQK was transferred directly to ARI, allegedly for insufficient consideration.
In August 2014 Clapper, Atlantic Midwest, and Atlantic XIII filed this suit alleging
claims for fraudulent conveyance, in violation of TUFTA, unjust enrichment/constructive
trust, alter ego, civil conspiracy to commit fraudulent conveyances, and violation of RICO.
The court later denied their motion for a preliminary injunction and temporary restraining

3

Immediately prior to the January 2011 Trial, ART owned no less than 64% and a
controlling interest in TCI, a publicly-traded company that owns real estate worth at least $1
billion. As the majority holder of TCI’s stock, ART controlled defendant Income
Opportunity Realty Investors, Inc. (“IOT”), a publicly-traded company. Accordingly, when
ART transferred its TCI stock to ARI via the transfer of its wholly-owned subsidiary EQK
Holdings, Inc., ART no longer owned any TCI stock or IOT stock.
4

Clapper, Atlantic Midwest, and Atlantic XIII allege that, in December 2010, ART
also transferred its ownership interests in at least 15 entities, with the intent to defraud ART’s
creditors, by placing its assets out of reach of its creditors.
-3-

order. See Clapper v. Am. Realty Investors, Inc., 2015 WL 264711, at *6 (N.D. Tex. Jan. 21,
2015) (Fitzwater, J.).
In four motions, defendants move to dismiss plaintiffs’ amended complaint.
Defendants Gene E. Phillips (“Gene”), Henry A. Butler (“Butler”), Robert A. Jakuszeweki
(“Jakuszeweki”), Sharon Hunt (“Hunt”), Ted. R. Munselle (“Munselle”), Daniel J. Moos
(“Moos”), Donald Phillips (“Donald”), Mickey Phillips (“Mickey”), Ryan Phillips (“Ryan”),
Gene Bertcher (“Bertcher”), and Louis Corna (“Corna”) (collectively, the “Individual
Defendants”) move to dismiss under Rules 9(b) and 12(b)(6). Defendants ARI, ART, BCM,
and EQK (collectively, the “Entity Defendants”) move to dismiss under Rules 9(b) and
12(b)(6). Defendants TCI, Income Opportunity Realty Investors, Inc. (“IOT”), Pillar Income
Asset Management, Inc. (“Pillar”), Prime Income Asset Management, Inc. (“Prime”), Prime
Income Asset Management, LLC (“Prime LLC”), Syntek West, Inc. (“Syntek”), Realty
Advisors, LLC (“Realty Advisors”), Realty Advisors, Inc. (“RAI”), Realty Advisors
Management, Inc. (“RAMI”), The May Trust, and The Martin Trust (collectively, the
“Unrelated Defendants”) move to dismiss under Rules 9(b) and 12(b)(6). And defendant
Transcontinental Realty Acquisition Corporation (“Transcontinental”) appears to move to
dismiss under Rule 12(b)(6). Plaintiffs oppose the motions.
Defendants have also filed four separate motions seeking protective orders to stay
discovery until 30 days following the court’s decision on their motions to dismiss. IOT, RAI,
and Realty Advisors filed an April 2, 2015 motion for protective order to stay discovery;
Donald, Mickey, Ryan, The May Trust, The Martin Trust, Syntek, and RAMI filed an April
-4-

2, 2015 motion for protective order to stay discovery; and Hunt, Munselle, Butler, and
Jakuszeweki filed an April 2, 2015 motion for protective order to stay discovery and request
for hearing. On April 3, 2015 the court entered an order (which it clarified in an April 9,
2015 order) staying discovery pending a ruling on these motions. On April 13, 2015
Transcontinental, Pillar, Prime, and Prime LLC filed a motion for protective order to stay
discovery. The court entered on April 14, 2015 an order temporarily staying discovery
pending a ruling on the motion.
II
“In deciding a Rule 12(b)(6) motion to dismiss, the court evaluates the sufficiency of
plaintiffs’ amended complaint by accepting all well-pleaded facts as true, viewing them in
the light most favorable to the plaintiff[s].” 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 brackets
omitted). To survive the motions to dismiss under Rule 12(b)(6), plaintiffs must plead
“enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff[s]
plead[] factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
“The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than
a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S.
at 556); see also Twombly, 550 U.S. at 555 (“Factual allegations must be enough to raise a
-5-

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 complaint has
alleged—but it has not ‘shown’—‘that the pleader is entitled to relief.’” Iqbal, 556 U.S. at
679 (brackets omitted) (quoting Rule 8(a)(2)). “Threadbare recitals of the elements of a
cause of action, supported by mere conclusory statements, do not suffice.” Id. at 678
(citation omitted).
“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). “[Rule] 9(b) applies to . . . RICO claims resting on
allegations of fraud.” Williams v. WMX Techs., Inc., 112 F.3d 175, 177 (5th Cir. 1997)
(citing Tel-Phonic Servs., Inc. v. TBS Int’l, Inc., 975 F.2d 1134, 1139 (5th Cir. 1992)); see
also Tel- Phonic Servs., 975 F.2d at 1138 (“[Rule 9(b)] applies to the pleading of fraud as a
predicate act in a RICO claim[.]”). “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.” Turner, 2011 WL
3606688, at *2 (quoting Benchmark Elecs., 343 F.3d at 724) (internal quotation marks
omitted). More colloquially, plaintiffs must plead the “who, what, when, where, and how”
of the fraud. United States ex rel. Williams v. Bell Helicopter Textron Inc., 417 F.3d 450,
453 (5th Cir. 2005) (quoting United States ex rel. Thompson v. Columbia/HCA Healthcare
-6-

Corp., 125 F.3d 899, 903 (5th Cir. 1997)). Because Rule 9(b) must be “read in conjunction
with [Rule] 8 which requires only a short and plain statement of the claim showing that the
pleader is entitled to relief,” “punctilious pleading detail” is not required. Steiner v.
Southmark Corp., 734 F. Supp. 269, 273 (N.D. Tex. 1990) (Fitzwater, J.) (quoting Landry
v. Air Line Pilots Ass’n Int’l AFL-CIO, 892 F.2d 1238, 1264 (5th Cir. 1990)) (internal
quotation marks omitted). “The court’s key concern in assessing a complaint under Rule 9(b)
is to determine whether the plaintiff seeks to redress specific wrongs or whether the plaintiff
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.).
III
The court turns initially to defendants’ contention that plaintiffs’ amended complaint
must be dismissed in its entirety because it relies on group pleading. Defendants contend
that, like plaintiffs’ complaint, their amended complaint is virtually devoid of any detailed
individual allegations and therefore fails to state claims for fraudulent transfer, constructive
trust, alter ego, RICO, and punitive damages. They maintain that plaintiffs’ allegations “still
lump multiple Defendants together for generic acts,” citing several examples from the
amended complaint and contending that plaintiffs “have failed to allege any claims upon
which relief can be granted and [that the] Complaint . . . must be dismissed.” Indiv. Ds. Br.
8, 10.
Plaintiffs respond that, where any defendants are “grouped” in the amended
complaint, “it is because the allegations of the conduct apply as to each Defendant
-7-

identified.” Ps. Indiv. Ds. Resp. Br. 8. They posit that
the fact that more than one person may have committed the
same or similar act or in some way participated in furthering a
fraudulent transfer by their conduct, warrants identifying each
person who did the act. Simply because you identify multiple
parties in the paragraph does not mean that it is “group
pleading” in the sense that Defendants claim. It means that each
person identified committed the same act.
Id. at 9.
The court declines to dismiss plaintiffs’ amended complaint on the basis that they
have engaged in group pleading. Plaintiffs contend that, where paragraphs in the amended
complaint refer to multiple defendants, they intend to allege that each named defendant
committed the alleged acts. Except, for example, where a statute otherwise requires,5
plaintiffs are permitted under federal procedure to allege that more than one defendant (i.e.,
a group of named defendants) committed the same alleged act. The court therefore declines
to dismiss the amended complaint on the basis that plaintiffs have engaged in impermissible
group pleading, and it turns to defendants’ specific challenges to plaintiffs’ claims under
Rules 12(b)(6) and/or 9(b).

5

See, e.g., Fener v. Belo Corp., 425 F.Supp.2d 788, 798 (Fitzwater, J.) (pointing out
that group pleading is not permitted in an action covered by the Private Securities Litigation
Reform Act of 1995, 15 U.S.C. § 78u-4).
-8-

IV
The court begins with plaintiffs’ civil conspiracy claim, which they assert only against
certain of the Individual Defendants.6
A
The Individual Defendants move under Rule 12(b)(6) to dismiss plaintiffs’ claim for
civil conspiracy to commit fraudulent conveyances, contending that plaintiffs have failed to
identify any Individual Defendants as the recipient of the allegedly transferred assets. They
also maintain that, under Texas law, a general creditor, such as plaintiffs, can take advantage
of the Texas fraudulent conveyance statute but cannot recover damages for conspiracy to
commit a fraudulent conveyance.
Plaintiffs respond by citing various reports filed with the Securities and Exchange
Commission (“SEC”) showing that, after the transfers in question, the TCI shares were
beneficially owned by Hunt, Munselle, Butler, Jakuszeweki, Moos, and Bertcher. Plaintiffs
contend that, because this evidence demonstrates that these Individual Defendants are
considered transferees who now own the TCI stock, plaintiffs have at least stated a fraudulent

6

Plaintiffs allege that Gene, Mickey, Ryan, Corna, Bertcher, Moos, Hunt, Munselle,
Jakuszewski, and Butler conspired to commit fraudulent conveyances. They do not allege
that any of the Entity Defendants, the Unrelated Defendants, or Individual Defendant Donald
participated in the alleged conspiracy. See Ps. Entity Ds. Resp. Br. at 6 (“Plaintiffs have not
alleged claims in Count IV of their Amended Complaint against any of the ‘Entity
Defendants[.]’”); Ps. Unrelated Ds. Resp. Br. at 6 (“Plaintiffs have not alleged claims in
Count IV of their Amended Complaint against any of the ‘Unrelated Defendants[.]’”).
Accordingly, to the extent the Entity Defendants, the Unrelated Defendants, and Donald
move to dismiss plaintiffs’ civil conspiracy claim, their motions are denied without prejudice
as moot.
-9-

transfer claim against these defendants. Plaintiffs also posit that they can recover against all
of the Individual Defendants for civil conspiracy to commit fraudulent conveyances of
ART’s real property because, before the transfer of parcels of real property owned by ART
in Dallas, plaintiffs obtained a judgment lien on ART’s property in Texas, Florida, and
Tennessee.
The Individual Defendants reply that plaintiffs cannot refute the general rule in Texas
that a general creditor cannot recover damages for conspiracy to commit a fraudulent
conveyance by creating a fact question through judgment liens that were neither discussed
in nor incorporated by reference into the amended complaint.
B
In Estate of Stonecipher v. Estate of Butts, 591 S.W.2d 806 (Tex. 1979), the Supreme
Court of Texas held that “a judgment creditor, with a lien on the property made the basis of
a cause of action for conspiracy to prevent the collection of such lien, may recover such
damages as result from the conspiracy,” but that as to property as to which a plaintiff is “no
more than a general creditor,” the plaintiff “does not have a cause of action for conspiracy
to prevent the collection of a judgment lien.” Id. at 808; see also Mack v. Newton, 737 F.2d
1343, 1362 (5th Cir. 1984) (“[A] mere general creditor may take advantage of the Texas
fraudulent conveyance statute, but . . . may not recover damages for conspiracy to commit
a fraudulent conveyance.”); FDIC v. White, 1998 WL 120298, at *2 (N.D. Tex. Mar. 5,
1998) (Solis, J.) (“the pertinent statutes [including TUFTA] do not create personal liability
on the part of a co-conspirator for fraudulent conveyances to an extent or in an amount
- 10 -

beyond property which a co-conspirator actually receives or in which he acquires an
interest.”). This is because
a mere general creditor without a lien has no interest in the
debtor’s property, and hence is not legally injured by any
conspiracy with the debtor to aid him in disposing of his
property in order to evade the payment of his financial
obligations, and cannot maintain an action based upon such
conspiracy.
Estate of Stonecipher, 591 S.W.2d at 808 (citation omitted).
Plaintiffs do not allege that, as to the allegedly fraudulently transferred property (i.e.,
the shares of TCI and IOT ), they were more than general creditors. They neither explicitly
plead nor contend in their response that they had a judgment lien on the TCI stock or any of
the other of ART’s assets that are the basis for their fraudulent transfer claim. Accordingly,
under Estate of Stonecipher plaintiffs cannot state a claim for conspiracy to commit a
fraudulent transfer of this stock.7
To the extent plaintiffs suggest that their conspiracy claim is based on the Individual
Defendants’ conspiring to fraudulently transfer real property located in Dallas, against which
plaintiffs had previously obtained a judgment lien, they have failed to allege in their amended
complaint the existence of a judgment lien. As this court has explained, “[m]otions filed

7

To the extent plaintiffs contend that Hunt, Munselle, Butler, Jakuszeweki, Moos, and
Bertcher were the recipients of the fraudulently-transferred stock, plaintiffs correctly contend
that they can maintain their fraudulent conveyance claim under TUFTA against these
individuals. Plaintiffs have failed to plead in their amended complaint, however, that Hunt,
Munselle, Butler, Jakuszeweki, Moos, or Bertcher was the recipient of any of the
fraudulently-transferred stock, contending only that the stock was transferred among ART,
EQK, BCM, and ARI.
- 11 -

under [Rule] 12(b)(6) . . . are designed to test the sufficiency of the pleadings, and courts do
not consider materials outside those pleadings in deciding those motions.” Evanston Ins. Co.
v. Tonmar, L.P., 669 F.Supp.2d 725, 730 (N.D. Tex. 2009) (Fitzwater, C.J.) (quoting In re
Carmelita, Inc., 2009 WL 2356488, at *2 (S.D. Tex. July 29, 2009)).
Accordingly, because plaintiffs have plausibly alleged only that they were general
creditors as to the allegedly fraudulently transferred property, and because, under Texas law,
a general creditor cannot recover damages for conspiracy to commit a fraudulent conveyance,
the court grants the Individual Defendants’ motion to dismiss this claim.
V
The court turns next to plaintiffs’ TUFTA claim.
A
The Individual Defendants and the Unrelated Defendants move under Rule 12(b)(6)
to dismiss plaintiffs’ TUFTA claim,8 contending that because plaintiffs have not pleaded that
the Individual Defendants or Unrelated Defendants were transferees or beneficiaries of the
fraudulent transfers, plaintiffs have failed to plausibly allege a claim under TUFTA against
them.9 In their response, plaintiffs posit that, regarding their fraudulent conveyance claim,
8

It is not clear whether plaintiffs intend to assert their TUFTA claim against the
Individual Defendants. But because plaintiffs refer to the Individual Defendants in
describing defendants’ participation in the allegedly fraudulent transfers, the court will
assume arguendo that plaintiffs intend to plead this claim against the Individual Defendants.
9

The Individual Defendants also move to dismiss plaintiffs’ TUFTA claim under Rule
9(b). Because the court concludes that plaintiffs’ TUFTA claim asserted against them is
subject to dismissal under Rule 12(b)(6), it does not address whether the claim is also subject
to dismissal under Rule 9(b).
- 12 -

they are only requesting that the court enter an order setting aside all of the ART transfers,
and, accordingly, their fraudulent conveyance claim is only being asserted “against those
individual Defendants who now claim to have an interest in the property that was
fraudulently transferred.” Ps. Indiv. Ds. Resp. Br. 11. They contend that, if the court is
unable to set aside all of the ART transfers,
based on information learned through discovery because of
conduct undertaken by the Defendants as to that property, then
and only then do Plaintiffs argue that they would be entitled to
look to any other Defendant to whom the property was
transferred [which, based on the SEC reports attached to
plaintiffs’ brief] includes Defendants Hunt, Munselle, Butler,
Jakuszeweki, Moos and Bertcher.
Id. at 12.
B
To establish a claim under TUFTA, a plaintiff must prove that
(1) [it] is a “creditor” with a claim against a “debtor”; (2) the
debtor transferred assets after, or a short time before, the
plaintiff’s claim arose; and (3) the debtor made the transfer with
the intent to hinder, delay, or defraud the plaintiff.
Dontos v. Vendomation NZ Ltd., 582 Fed. Appx. 338, 344 (5th Cir. 2014) (per curiam) (citing
Nwokedi v. Unlimited Restoration Specialists, Inc., 428 S.W.3d 191, 203-05 (Tex. App.
2013, pet. denied)). TUFTA allows recovery against the debtor, the transferee, or the person
for whose benefit the transfer was made. See Tex. Bus. & Com. Code Ann. §§ 24.008,
24.009; Mack, 737 F.3d at 1361 (addressing TUFTA’s predecessor, the Uniform Fraudulent
Conveyance Act, and noting that the statute “does not provide for recovery other than
recovery of the property transferred or its value from one who is, directly or indirectly, a
- 13 -

transferee or recipient thereof.”).
The majority of plaintiffs’ allegations in support of their TUFTA claim involve the
transfer of TCI stock. But plaintiffs do not plausibly allege that the TCI stock was directly
transferred to any of the Unrelated Defendants or to any of the Individual Defendants,
including Hunt, Munselle, Butler, Jakuszeweki, Moos, or Bertcher.10 Instead, they clearly
allege that the TCI stock was transferred to EQK, that ART’s interest in EQK was transferred
to ARI, that the TCI stock was then transferred to ARI, and that ARI transferred its ownership
of ART to OneRealco.11 And although plaintiffs allege generally that the fraudulent transfers
were for the defendants’ “personal gain and benefit,” Am. Compl. ¶ 100; see also, e.g., id.
¶¶ 126, 128, most of the allegations are conclusory and do not explain how any of the
transfers benefited the Individual Defendants or the Unrelated Defendants.12 See Iqbal, 556
10

Nor do plaintiffs allege that any of the other 15 transactions listed in ¶ 97 of the
amended complaint resulted in a transfer of ownership interest to the Individual Defendants
or to any of the Unrelated Defendants.
11

Plaintiffs allege that “ART purportedly ‘sold’ its TCI stock that it directly owned to
its then wholly owned subsidiary, Defendant EQK,” Am. Compl. ¶ 57; BCM “transferred
920,507 shares of TCI stock it held to Defendant EQK as a ‘dividend,’” id. ¶ 64; ART
“transferred all of its interest in [EQK] directly to Defendant ARI,” id. ¶ 80; ARI
“purportedly transferred its ownership of ART to another affiliated entity, OneRealco,” id.
¶ 88; and EQK transferred the TCI stock “now directly to Defendant ARI,” id. ¶ 134.
12

Plaintiffs rely on evidence filed in support of their response brief that suggests that
Hunt, Munselle, Butler, Jakuszeweki, Moos, and Bertcher were recipients of the TCI stock
that was transferred in January 2011 and again in April 2014. But plaintiffs have failed to
allege these facts in their amended complaint. Accordingly, the court will not rely on this
evidence in deciding the Individual Defendants’ motion to dismiss. See, e.g., Evanston Ins.
Co., 669 F.Supp.2d at 730.
The amended complaint also alleges that Gene “controls” all of the entities, see, e.g.,
Am. Compl. ¶ 133, but it does not plausibly plead that Gene is the transferee or beneficiary
- 14 -

U.S. at 678. In ¶ 122 of the amended complaint, plaintiffs assert that Ryan
is a director of Defendant BCM, a beneficiary of Defendant May
Trust and Defendant Martin Trust and as a result, now controls,
received, or otherwise has possession of assets that were
fraudulently transferred from ART, including but likely not
limited to the TCI and IOT stock that ART once owned[.]
Am. Compl. ¶ 122. In ¶ 130 plaintiffs allege that The May Trust and The Martin Trust “are,
in the chain of title, the ultimate owners and controllers of the shares fraudulently conveyed.”
Id. ¶ 130. To the extent plaintiffs allege that Ryan received, and is now in possession of, the
TCI and IOT stock that ART allegedly fraudulently transferred, and that The May Trust and
The Martin Trust are the owners of the shares fraudulently conveyed, plaintiffs may be able
to recover under TUFTA against these defendants. See Tex. Bus. & Com. Code Ann. §
24.009(b) (permitting creditor to recover judgment for value of asset transferred against “any
subsequent transferee other than a good faith transferee who took for value or from any
subsequent transferee”). Accordingly, the court grants the Individual Defendants’ and the
Unrelated Defendants’ motions to dismiss plaintiffs’ TUFTA claim asserted against them,
except as to the claim asserted against Ryan, The May Trust, and The Martin Trust.
C
The Entity Defendants move to dismiss plaintiffs’ TUFTA claim under Rule 9(b),
contending that “[d]espite vague accusatory allegations that ‘Defendants’ made fraudulent
transfers to avoid the Judgment Action debt, [plaintiffs] completely fail to plead any

regarding the TCI or IOT stock.
- 15 -

particular facts that would prove the Entity Defendants are liable for the misconduct alleged,”
Entity Ds. Br. 10, and that plaintiffs have failed to satisfy the pleading standards of Rules
12(b)(6) and 9(b).
Plaintiffs respond that they have satisfied the pleading standard of Rule 9(b) by
identifying the property transferred, the entities and persons involved, when the transfers
occurred in light of the claims against ART, and where all of this occurred. The court agrees
that plaintiffs’ TUFTA allegations are sufficient with respect to the Entity Defendants to
satisfy the heightened pleading standard of Rule 9(b). See, e.g., Biliouris v. Sundance Res.,
Inc., 559 F.Supp.2d 733, 736 (N.D. Tex. 2008) (Godbey, J.) (deciding not to reach question
whether Rule 9(b) applied to plaintiffs’ TUFTA claim because plaintiffs had pleaded
sufficient facts to state fraudulent transfer claim under Rule 9(b)’s more stringent standard).13
Plaintiffs allege that “[o]n the eve of the January, 2011 trial,” ART purportedly sold
its TCI stock to EQK, and that the “transaction was intended to divest [ART] of assets to
hinder and delay creditors, in particular, the Plaintiffs, from looking to ART’s TCI stock in
satisfaction of the judgment against ART in favor of the Plaintiffs.” Am. Compl. ¶¶ 57-58.
They allege that, on January 14, 2011, BCM transferred 920,507 shares of TCI stock to EQK

13

The court assumes arguendo that the heightened pleading standard of Rule 9(b)
applies to plaintiff’s fraudulent transfer claim asserted against the Entity Defendants. It
notes, however, that courts in this circuit have “determined that Rule 9(b) does not apply to
fraudulent transfer cases against a transferee where the plaintiff has not properly alleged a
fraud claim against that defendant.” Fawaz v. Byers, 2014 WL 1671746, at *5 (S.D. Tex.
Apr. 28, 2014) (citations omitted); see also Janvey v. Alguire, 846 F.Supp.2d 662, 675 (N.D.
Tex. 2011) (Godbey, J) (noting that whether heightened pleading requirement applies to
TUFTA claims “appears to be an open question in the Fifth and some other circuits.”).
- 16 -

as a “dividend,” and that this dividend was issued in order to “prevent ART’s creditors from
looking to the TCI shares owned by ART to satisfy ART’s obligations.” Id. ¶¶ 64, 66.
Plaintiffs contend that, on January 21, 2011, ART transferred all of its interest in EQK
directly to ARI; that this transaction was made to an insider, for little or no consideration, and
at a time when ART was already indebted to plaintiffs for at least $17 million and on the eve
of a trial during which ART could be found liable to plaintiffs for tens of millions more; and
that the purpose of this transfer was to hinder and delay ART’s creditors, particularly
plaintiffs. Id. ¶¶ 80-83. Plaintiffs allege that “[t]en days prior to the commencement of
[ART]’s Nevada bankruptcy,” ARI sold its 100% ownership interest in ART to One Realco
for $10 million, that One Realco had no intention of paying the note for the transfer of ART,
and that the transaction was “made with the intent to hinder and delay ART’s creditors and
prevent Plaintiffs from seeking to look to ART’s fraudulently transferred assets . . . to satisfy
the judgment against ART in favor of Plaintiffs.” Id. ¶¶ 114-115, 140. And, finally,
plaintiffs allege that the TCI stock once owned by ART was again transferred in July 2014,
this time to ARI, “with the intent to further hinder ART’s creditors, namely Plaintiffs, and
move the TCI stock further away from ART.” Id. ¶ 134-35. These allegations contain
specific facts regarding the transactions on which plaintiffs base their TUFTA claim,
including when the transactions occurred, the entities involved in the transactions, how the
transactions were accomplished, and facts that suggest that they were undertaken with an
intent to hinder and delay ART’s creditors. These allegations are sufficient, even under the
heightened pleading standard of Rule 9(b), to withstand the Entity Defendants’ motion to
- 17 -

dismiss. Accordingly, the court denies the Entity Defendants’ motion to dismiss plaintiffs’
TUFTA claim.
D
In sum, the court grants the Individual Defendants’ motion to dismiss plaintiffs’
TUFTA claim, except as to Ryan; grants the Unrelated Defendants’ motion to dismiss
plaintiffs’ TUFTA claim, except as to The May Trust and The Martin Trust; and denies the
Entity Defendants’ motion to dismiss plaintiffs’ TUFTA claim.
VI
The court now considers plaintiffs’ claim for unjust enrichment/constructive trust.
A
“A party may recover under the unjust enrichment theory when one person has
obtained a benefit from another by fraud, duress, or the taking of an undue advantage.”
Heldenfels Bros., Inc. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992). “A key
element of unjust enrichment is that the person sought to be charged wrongly secured or
passively received a benefit.” Ahmed v. Shah, 2015 WL 222171, at *5 (Tex. App. Jan. 15,
2015, no pet.) (mem. op.) (citing Villarreal v. Grant Geophysical, Inc., 136 S.W.3d 265, 270
(Tex. App. 2004, pet. denied)). “Unjust enrichment is not a proper remedy ‘merely because
it might appear expedient or generally fair that some recompense be afforded for an
unfortunate loss to the claimant [.]’” Baxter v. PNC Bank Nat’l Ass’n, 541 Fed. Appx. 395,
398 (5th Cir. 2013) (per curiam) (quoting Heldenfels Bros., 832 S.W.2d at 40). “It is not
enough that the person sought to be charged received some incidental benefit.” Ahmed, 2015
- 18 -

WL 222171, at *5.
“A constructive trust is not a cause of action under Texas law.” In re Moore, 608 F.3d
253, 263 (5th Cir. 2010). Rather, “[a] constructive trust is an equitable remedy used to
prevent unjust enrichment.” Baxter, 541 Fed. Appx. at 398 (citing Everett v. TK-Taito, LLC,
178 S.W.3d 844, 859 (Tex. App. 2005, no pet.)); see also Messier v. Messier, ___ S.W.3d
___, 2015 WL 452171, at *6 (Tex. App. Jan. 27, 2015, no pet.) (“A constructive trust [may
be] imposed when one party holds property that legally belongs to the other.” (citing In re
Marriage of Harrison, 310 S.W.3d 209, 214 (Tex. App. 2010, pet. denied))). “In order to
establish a constructive trust, the proponent must prove: (1) breach of a special trust,
fiduciary relationship, or actual fraud; (2) unjust enrichment of the wrongdoer; and, (3)
tracing to an identifiable res.” Baxter, 541 Fed. Appx. at 398.
The Individual Defendants move to dismiss plaintiffs’ claim for unjust
enrichment/constructive trust, contending that they have failed to allege that the Individual
Defendants have secured any benefit or obtained any assets from plaintiffs that would be
unjust for them to retain. The court agrees as to most of the Individual Defendants. Plaintiffs
contend that “[t]he benefit is that the individuals continue to reap the profits and benefits of
ownership and control of the TCI stock and the other fraudulently transferred ART property
where such a benefit would not have been received by the Defendants if they had not
committed fraud.” Ps. Indiv. Ds. Resp. Br. 14. But plaintiffs fail to plausibly allege that any
of the Individual Defendants (except Ryan, see supra § V(B)) is in possession of the TCI
stock, the IOT stock, or any of the other allegedly fraudulently transferred assets. Rather,
- 19 -

at least as it concerns the TCI and IOT stock, plaintiffs have specifically alleged that all of
that stock is now in Ryan’s possession, and that the TCI stock is ultimately owned and
controlled by The May Trust and The Martin Trust. The court therefore grants the Individual
Defendants’ motion to dismiss plaintiffs’ unjust enrichment/constructive trust claim asserted
against all of the Individual Defendants except Ryan.
The Unrelated Defendants move to dismiss plaintiffs’ unjust enrichment/constructive
trust claim on the same basis. As with plaintiffs’ claim against the Individual Defendants,
except as to The May Trust and The Martin Trust, plaintiffs fail to plausibly allege that any
of the Unrelated Defendants possesses the TCI stock or any of the other allegedly transferred
assets. Accordingly, the court dismisses plaintiffs’ unjust enrichment/constructive trust claim
asserted against all of the Unrelated Defendants except The May Trust and The Martin Trust.
The Entity Defendants also move to dismiss plaintiffs’ unjust enrichment/constructive
trust claim, contending that the amended complaint lacks any allegations of a fiduciary
relationship between plaintiffs and the Entity Defendants, fails to identify any breach of a
fiduciary relationship,14 and fails to allege that the Entity Defendants have secured any
benefit or obtained any assets from plaintiffs that would be unjust to retain. Although
plaintiffs plausibly allege that defendant ARI at one point owned the TCI and IOT stock, they

14

A fiduciary relationship is not a required element of plaintiffs’ unjust
enrichment/constructive trust claim. See Baxter, 541 Fed. Appx. at 396 (“In order to
establish a constructive trust, the proponent must prove: (1) breach of a special trust,
fiduciary relationship, or actual fraud; (2) unjust enrichment of the wrongdoer; and, (3)
tracing to an identifiable res.” (emphasis added)).
- 20 -

do not plausibly allege that ARI or any of the Entity Defendants still holds that stock. In fact,
they assert that the TCI and IOT shares are now in Ryan’s possession, and that the TCI stock
is ultimately owned and controlled by The May Trust and the Martin Trust. With respect to
the December 2010 transfers of ART’s ownership interests in at least 15 entities, however,
plaintiffs have alleged that at least some of the transfers were to EQK. Accordingly, the
court

grants

the

Entity

Defendants’

motion

to

dismiss

plaintiffs’

unjust

enrichment/constructive trust claim, except as to EQK.
VII
The court turns next to plaintiffs’ alter ego theory of recovery, which the parties
contend is governed by Nevada or Texas law.15
A
An alter ego remedy is a type of equitable relief available “when there is such unity
between corporation and individual that the separateness of the corporation has ceased and
holding only the corporation liable would result in injustice.” SEC v. Res. Dev. Int’l, LLC,
487 F.3d 295, 302 (5th Cir. 2007) (quoting Castleberry v. Branscum, 721 S.W.2d 270, 272
(Tex. 1986)); Nev. Rev. Stat. § 78.747 (2015). Traditional veil-piercing uses the alter ego

15

Because the laws of Texas, Nevada, and Georgia do not appear to conflict
concerning the piercing the corporate veil doctrine, because neither side has thoroughly
briefed the choice-of-law issue, and because both sides cite Texas and Nevada law, the court
will assume arguendo that the law of Texas or Nevada applies to plaintiffs’ alter ego claim.
The court notes, however, that ART was incorporated in Georgia and that “courts have held
that the law of the state of incorporation for the entity whose corporate form is at issue
applies to determine whether to pierce the corporate veil.” Ace Am. Ins. Co. v. Huntsman
Corp., 255 F.R.D. 179, 195 (S.D. Tex. 2008) (citing cases).
- 21 -

doctrine to break through corporate formalities and include the assets of a shareholder or
other corporate insider as assets of a corporation. See In re Moore, 379 B.R. 284, 291
(Bankr. N.D. Tex. 2007) (discussing traditional use of corporate veil piercing to “mak[e] a
shareholder liable for a corporation’s contractual debts”); LFC Mktg. Grp., Inc. v. Loomis,
8 P.3d 841, 846 (Nev. 2000) (“[T]he classic alter ego situation involves a creditor reaching
the personal assets of a controlling individual to satisfy a corporation’s debt[.]”). Reverse
veil-piercing, which is a common law doctrine recognized in many states, including Nevada
and Texas, renders the assets of a corporation liable for the debts of a corporate insider based
on a showing that the corporate entity is actually the alter ego of the individual. See Moore,
379 B.R. at 292 (noting that reverse veil-piercing “appl[ies] the traditional veil piercing
doctrine in reverse, so that a corporation’s assets are held accountable for the liabilities of
individuals who treated the corporation as their alter ego” (citing Zahra Spiritual Trust v.
United States, 910 F.2d 240, 243 (5th Cir.1990))); LFC Mktg. Grp., 8 P.3d at 846 (“[T]he
‘reverse’ piercing situation involves a creditor reaching the assets of a corporation to satisfy
the debt of a corporate insider based on a showing that the corporate entity is really the alter
ego of the individual.”).16

16

Plaintiffs allege that “either piercing the veil of ART or reverse piercing the
corporate veil is warranted,” Am. Compl. ¶ 162, and the Individual Defendants, Entity
Defendants, and Unrelated Defendants argue that “the analysis is a reverse-piercing case to
determine whether ART is the alter ego of each of the 27 Defendants,” Indiv. Ds. Br. 14. But
plaintiffs are not seeking to treat the assets of the corporation (ART) as the assets of its
corporate insiders (e.g., Gene, Donald, Mickey, Ryan, or any of the other Entity or Unrelated
Defendants). Rather, they are seeking to treat the assets of certain individuals as assets of
ART, which is more akin to traditional veil piercing.
- 22 -

The elements for finding an alter ego are:
(1) the corporation must be influenced and governed by the
person asserted to be the alter ego; (2) there must be such unity
of interest and ownership that one is inseparable from the other;
and (3) the facts must be such that adherence to the corporate
fiction of a separate entity would, under the circumstances,
sanction [a] fraud or promote injustice.
LFC Mktg. Grp., 8 P.3d at 846-47 (citation omitted); Mancorp, Inc. v. Culpepper, 802
S.W.2d 226, 228 (Tex. 1990) (stating that “[u]nder the alter ego theory, courts disregard the
corporate entity when there exists such unity between corporation and individual that the
corporation ceases to be separate and when holding only the corporation liable would
promote injustice.”). Under Nevada law, courts consider the following nonconclusive factors
as indicative of the existence of an alter ego relationship: “(1) commingling of funds; (2)
undercapitalization; (3) unauthorized diversion of funds; (4) treatment of corporate assets as
the individual’s own; and (5) failure to observe corporate formalities.”17 LFC Mktg. Grp.,
8 P.3d at 847. Courts “have emphasized, however, that ‘[t]here is no litmus test for
determining when the corporate fiction should be disregarded; the result depends on the

17

Texas courts consider similar factors, including:
(1) the payment of alleged corporate debts with personal checks
or other commingling of funds, (2) representations that the
individual will financially back the corporation, (3) the diversion
of company profits to the individual for the individual’s personal
use, (4) inadequate capitalization, and (5) any other failure to
keep corporate and personal assets separate.

Dodd v. Savino, 826 S.W.3d 275, 291 (Tex. App. 2014, no pet.).
- 23 -

circumstances of each case.’” Id. (quoting Polaris Indus. Corp. v. Kaplan, 747 P.2d 884, 887
(Nev. 1987)).
B
The Individual Defendants, the Entity Defendants, and the Unrelated Defendants
move to dismiss plaintiffs’ alter ego claim, contending that plaintiffs have not properly
pleaded alter ego under the requirements of Rule 12(b)(6) or 9(b) because they have failed
to identify any specific facts attributable to the Individual Defendants, the Entity Defendants,
or the Unrelated Defendants. They argue that, although plaintiffs make numerous allegations
about unity among all defendants and ART, they fail to identify the “who, how, where, when,
and why” of the unity and inseparability as required by Rule 9(b). They posit that plaintiffs’
“simple allegations of unity are nothing more than the unadorned, the-defendant-unlawfullyharmed-me accusations that are expressly prohibited by Iqbal, Twombly, Rule 12(b)(6[)] and
the heightened pleading requirements of Rule 9(b).” Indiv. Ds. Br. 16; Entity Ds. Br. 13;
Unrelated Ds. Br. 16.
Plaintiffs respond that defendants have ignored the “multiple layers of alter egos that
exist between the Defendant Entities and individual Defendants, particularly, Gene Phillips,
who is at the top of the pyramid of ‘Egos.’” Ps. Indiv. Ds. Resp. Br. 15. They contend that
they have detailed defendants’ fraudulent conduct and have made allegations that pertain to
the “unity” of interest among all the corporations and certain individual defendants. And
they maintain that

- 24 -

[t]he Alter Ego relief requested as a result of the other claims
asserted by the Plaintiffs and to hold alter egos liable for ART’s
judgment, is limited to the Phillips’ Defendants [i.e., Gene,
Mickey, Donald, and Ryan] since they are the individuals that
control this web of entities such that there is no distinction
between them and the entities that they caused to act! Included
in that chain of alter egos are other Defendants, that are owned
by the Phillips and used to do their bidding.
Ps. Entity Ds. Resp. Br. 14.
C
Plaintiffs’ allegations of a “unity” of interest among Gene, Donald, Ryan, Mickey,
Pillar, Prime, Prime LLC, Syntek, National Advisors,18 RAI, The May Trust, The Martin
Trust, ARI, EQK and ART consists of the following:
A unity between the [above named defendants] is such that the
separateness of Defendant ART ceased for reasons that include
but are not limited to the commingling of funds, guaranties and
representations made by the Defendants for the purpose of
providing financial backing for ART, the diversion of ART’s
assets and/or profits and inadequate capitalization of ART,
confusion between separate properties, records and control and
failure to keep assets separate.
Am. Compl. ¶ 157. Plaintiffs allege throughout the amended complaint that Gene had
“control” over TCI, IOT, ARI, and their subsidiaries, as Judge Hale found in ART’s
bankruptcy proceedings. E.g., id. ¶¶ 133, 161.
The court concludes that plaintiffs’ allegations are conclusory and insufficient to

18

Although plaintiffs refer to “National Advisors,” they may have intended to refer to
“Realty Advisors” because plaintiffs have not named “National Advisors” as a defendant.
- 25 -

plausibly allege plaintiffs’ alter ego claim under Rule 12(b)(6).19 Plaintiffs fail to plausibly
allege any facts in support of their alter ego allegations. For example, they do not specify
which entities’ funds were commingled or allege any facts in support of this allegation; they
do not plead any details of the alleged “guarantees and representations” that defendants
allegedly made (including which defendants made them) for the purpose of providing
financial backing for ART; and they do not plead any facts demonstrating that defendants
failed to keep ART’s assets separate or that there was confusion between separate properties,
records, and control. Accordingly, because plaintiffs have not plausibly alleged that there
was such unity of interest and ownership among Gene, Donald, Ryan, Mickey, Pillar, Prime,
Prime LLC, Syntek, RAI, The May Trust, The Martin Trust, ARI, EQK, and ART that one
is inseparable from the other, the court grants the motions of the Individual Defendants, the
Unrelated Defendants, and the Entity Defendants to dismiss plaintiffs’ alter ego claim.
VIII
The court now considers plaintiffs’ civil RICO claim.
A
RICO makes it unlawful “for any person employed by or associated with any
enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to
conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs

19

Because the court concludes that plaintiffs’ allegations fail to meet the Rule 12(b)(6)
standard (i.e., to state a claim on which relief can be granted), it does not now decide whether
plaintiffs’ alter ego allegations must also comply with the heightened pleading requirements
of Rule 9(b).
- 26 -

through a pattern of racketeering activity[.]” 18 U.S.C. § 1962(c). “‘Reduced to their
simplest terms, the essential elements of a RICO claim are: (1) a person who engages in (2)
a pattern of racketeering activity (3) connected to the acquisition, establishment, conduct, or
control of an enterprise.’” Orthoflex, Inc. v. ThermoTek, Inc., 2012 WL 2864510, at *2
(N.D. Tex. July 12, 2012) (Fitzwater, C.J.) (quoting Larrew v. Barnes, 2002 WL 32130462,
at *1 n.1 (N.D. Tex. Aug. 27, 2002) (Kaplan, J.), rec. adopted, 2002 WL 32130462 (N.D.
Tex. Sept. 17, 2002) (Fitzwater, J.)).
The Individual Defendants, the Unrelated Defendants, and the Entity Defendants
move to dismiss plaintiffs’ civil RICO claim under Rule 9(b), contending that the claim
neither names the Individual Defendants, the Unrelated Defendants, or the Entity Defendants,
nor alleges any acts by the Individual Defendants, the Unrelated Defendants, or the Entity
Defendants that support a claim for relief.
Considering defendants’ first argument, the court concludes that the amended
complaint adequately names the defendants against whom plaintiffs assert their RICO claim.
The complaint alleges that the RICO enterprises are The May Trust, The Martin Trust, Pillar,
Prime, Prime LLC, BCM, ARI, EQK, Syntek, Realty Advisors, RAI, RAMI, ART, TCI and
IOT. Am. Compl. ¶ 175. And it asserts that the following defendants “participated in the
conduct of the enterprise(s)[’] affairs”: The May Trust, The Martin Trust, Pillar, Prime,
Prime LLC, BCM, ARI, EQK, Syntek, Realty Advisors, RAI, RAMI, Bertcher, Moos, Corna,
Gene, Ryan, and Donald. Id. ¶ 176. As to any of the Individual Defendants, the Unrelated
Defendants, or the Entity Defendants who are not included in this list, the court concludes
- 27 -

that plaintiffs have not pleaded a RICO claim against them. Accordingly, to the extent
defendants seek dismissal of the RICO claim as to the unnamed defendants, the court denies
their motion without prejudice as moot.
Defendants’ second argument is that plaintiffs have not satisfied their burden under
Rule 9(b) to “allege[] any acts on the part of the [Individual Defendants, the Entity
Defendants, or the Unrelated Defendants] to support a claim for relief against them.” Indiv.
Ds. Br. 17; Entity Ds. Br. 14; Unrelated Ds. Br. 17. The court denies defendants’ motions
to the extent they are made on this ground. In addition to other allegations in the amended
complaint, plaintiffs plead the following specific acts in support of their RICO Claim:
a.

Creating a scheme to defraud the Plaintiffs by
creating false and fraudulent pretenses,
transactions, loans and documents, all of which
were executed in violation of law and transmitted
by U.S. mail and/or wire to the Securities and
Exchange Commission, attorneys and others in
violation of one or more of the following statutes:
18 [U.S.C. §] 1028[,] 18 [U.S.C. §] 1341, 18
[U.S.C. §] 1343, 18 [U.S.C. §] 1348, 18 [U.S.C.
§] 1350[.]

b.

Through the fraudulent concealment of assets, the
intentional filing of false or incomplete forms
with U.S. Bankruptcy Courts and/or the filing of
false information in several states with respective
bankruptcy courts[.]

c.

By fraudulently preparing and executing
transactional documents to defraud the Plaintiffs
and others for their own benefit, the benefit of the
other Supplementary Defendants and other third
parties through violations of 18 [U.S.C. §] 1028[,]
18 [U.S.C. §] 1341, 18 [U.S.C. §] 1343, 18
- 28 -

[U.S.C. §] 1348, 18 [U.S.C. §] 1350[.]
d.

By violating the Wire Fraud Act via emails,
telephone calls through transmission and
dissemination of false and fraudulent information,
including via U.S. Mail[.]

Am. Compl. ¶ 176. Many (if not most) of these alleged acts constitute “racketeering
activity,” as defined in the RICO statute.20 The court acknowledges that the lengthy amended
complaint, plaintiffs’ tendency to allege that various defendants participated in the same
conduct, and plaintiffs’ failure to link any of defendants’ conduct with a specific provision
of title 18 or other defined “racketeering activity” makes it difficult to assess whether
plaintiffs have adequately pleaded a RICO claim. But it is not sufficient in the context of the
instant motions to dismiss for defendants to effectively shift to the court the burden of
scrutinizing the amended complaint to determine whether there are deficiencies with respect
to each of the 27 named defendants.21 Accordingly, because plaintiffs have not, as
defendants maintain, failed to plead “any acts” in support of their RICO claim, and because,
20

See 18 U.S.C. § 1961, defining “racketeering activity” to include any act that is
indictable under a list of enumerated provisions of title 18 of the United States Code.
21

Stated another way, the burden on a party moving to dismiss under Rule 12(b)(6) or
9(b) is different from the burden borne by a party moving for summary judgment on a claim
or defense for which the party will not have the burden of proof at trial. Such a summary
judgment movant is only obligated to point the court to the absence of evidence of at least
one essential element of the claim or defense. See, e.g., Celotex Corp. v. Catrett, 477 U.S.
317, 325 (1986). Generally, a movant under Rule 12(b)(6) or 9(b) must show why the
pleading being challenged is insufficient rather than simply point to the pleading and assert
that it is defective. And while the court does not suggest that a motion under Rule 12(b)(6)
or 9(b) that points generally to a pleading deficiency can never be sufficient, it is not
adequate here given the nature and elements of the claim and the number of defendants at
issue.
- 29 -

aside from citing a Fifth Circuit case that generally states the standard for pleading fraud,
defendants have failed to point to any specific deficiency in the amended complaint with
respect to plaintiffs’ RICO claim, the court denies defendants’ motions to dismiss the claim
under Rule 9(b).22
IX
The court turns finally to Transcontinental’s Rule 12(b)(6) motion to dismiss.
Transcontinental contends that although it was listed both in the caption of the case and as
a party in the complaint, plaintiffs have eliminated it from the caption and from the “Parties”
section in the amended complaint. Transcontinental requests that, because the amended
complaint contains no claims against it, the court dismiss plaintiffs’ claims against it in their
entirety. Plaintiffs respond that they deliberately excluded Transcontinental from the
amended complaint, and that Transcontinental is no longer a party-defendant.
Accordingly, because plaintiffs acknowledge that Transcontinental has been dropped
as a party-defendant, the court denies Transcontinental’s motion to dismiss without prejudice
as moot. The clerk of court is directed to change the docket, in accordance with the usual
procedure, to reflect that Transcontinental is no longer a party.
X
“Because the court’s usual practice when granting a motion to dismiss is to permit a
plaintiff at least one opportunity to replead, the court will give [plaintiffs] an opportunity to

22

In denying this ground of defendants’ motions to dismiss, the court does not suggest
that the claim can survive summary judgment or trial.
- 30 -

amend [their] complaint.” Shah v. Univ. of Tex. Sw. Med. Sch., 54 F.Supp.3d 681, 707 (N.D.
Tex. 2014) (Fitzwater, C.J.) (citing In re Am. Airlines, Inc., Privacy Litig., 370 F.Supp.2d
552, 567-68 (N.D. Tex. 2005) (Fitzwater, J.)). “[D]istrict courts often afford plaintiffs at
least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear
that the defects are incurable or the plaintiffs advise the court that they are unwilling or
unable to amend in a manner that will avoid dismissal.” Am. Airlines, Inc., Privacy Litig.,
370 F.Supp.2d at 567-68. Although plaintiffs have already amended once, they did so by
agreed order, and before the court identified specific deficiencies in their pleadings.
Plaintiffs are often able to state plausible claims for relief once the court identifies the defects
in their pleadings and permits them to amend. See, e.g., Reneker v. Offill, 2010 WL
1541350, at *2, *7 (N.D. Tex. Apr. 19, 2010) (Fitzwater, C.J.) (after twice granting motions
to dismiss, concluding that plaintiff’s second amended complaint stated claim on which relief
could be granted). Accordingly, the court grants plaintiffs leave to file a second amended
complaint within 28 days of the date this memorandum opinion and order is filed.
If plaintiffs opt not to replead, they must file a notice with the clerk of court indicating
that this is their intent. If plaintiffs file such a notice, defendants must file their answers
within 21 days of the date the notice is filed. They need only address in their answers the
claims that the court has declined to dismiss.
XI
Defendants have filed four separate motions seeking a protective order to stay
discovery until 30 days following the court’s decision on their motions to dismiss.
- 31 -

Because the court has today decided the pending motions to dismiss, all defendants’
motions for protective orders to stay discovery are denied as moot to the extent they seek a
stay while the court decides the motions to dismiss.
Except as to defendants Ryan, The May Trust, and The Martin Trust, the court grants
the motions to the extent of staying discovery as to any moving defendant23 for 30 days from
the date of this memorandum opinion and order. The court denies the part of the April 2,
2015 motion for protective order to stay discovery that seeks relief on behalf of Ryan, The
May Trust, and The Martin Trust, and it lifts the temporary stays of discovery that apply to
these defendants.
The continuation of the discovery stay for 30 days, and the lifting of the temporary
stays as to Ryan, The May Trust, and The Martin Trust, are subject to any discovery orders
issued by Judge Stickney before or after the filing of this memorandum opinion and order.
Judge Stickney is currently addressing discovery matters in this case, including matters that
have included agreements of the parties. It is not the court’s intention to interfere with Judge
Stickney’s orders unless review is sought and granted.
*

*

*

For the reasons explained, the court grants in part and denies in part defendants’
motions to dismiss. The court grants plaintiffs leave to file a second amended complaint

23

A “moving defendant” is a defendant who joined one of the four motions referenced
in § I of this memorandum opinion and order. A handful of defendants did not join any of
these motions.
- 32 -

within 28 days of the date this memorandum opinion and order is filed. The clerk of court
is directed to change the docket, in accordance with the usual procedure, to reflect that
Transcontinental is no longer a party.
Except as to defendants Ryan, The May Trust, and The Martin Trust, the court stays
discovery as to any moving defendant for 30 days from the date of this memorandum opinion
and order. The court denies the part of the April 2, 2015 motion for protective order to stay
discovery that seeks relief on behalf of Ryan, The May Trust, and The Martin Trust, and it
lifts the temporary stay of discovery from these defendants. The continuation of the
discovery stay for 30 days, and the lifting of the temporary stays as to Ryan, The May Trust,
and The Martin Trust, are subject to any discovery orders issued by Judge Stickney before
or after the filing of this memorandum opinion and order.
SO ORDERED.
June 3, 2015.

_________________________________
SIDNEY A. FITZWATER
UNITED STATES DISTRICT JUDGE

- 33 -