Huddleston et al v. Fort Apache Energy, Inc.

Filing 20

Memorandum Opinion and Order : The Court concludes the bankruptcy court's findings of fact are not clearly erroneous, and the bankruptcy court's conclusions of law are correct. Accordingly, the Court AFFIRMS the bankruptcy court's final judgment dated July 6, 2017, as well as the bankruptcy court's findings of fact and conclusions of law dated March 31, 2017. (Ordered by Judge Ed Kinkeade on 3/6/2018) (ndt) Modified on 3/7/2018 (ndt).

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE:

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BILLY DEAN HUDDLESTON, JR.,
Debtor.
___________________________________
BILLY DEAN HUDDLESTON, JR.,
Appellant,

v.
FORT APACHE ENERGY, INC.,
Appellee.

Case No. 16-31488-sgj-7
Chapter 7

Adversary Proceeding No.
16-03130-sgj
Civil Action No. 3:17-cv-1964-K

MEMORANDUM OPINION AND ORDER
Before the Court is an appeal from the bankruptcy court’s order granting Final
Judgment in favor of Fort Apache Energy, Inc. (“Fort Apache”) on July 7, 2017. Billy
Dean Huddleston, Jr., (“Huddleston”) asserts six issues on appeal: (1) the bankruptcy
court erred in excepting Fort Apache’s claim from discharge; (2) the bankruptcy court
erred in piercing the veil to find Huddleston personally liable for Huddleston
Exploration LLC’s debt to Fort Apache; (3) the bankruptcy court erred in calculating
the amount of Fort Apache’s claim; (4) the bankruptcy court erred in awarding
attorney’s fees to Fort Apache; (5) the bankruptcy court erred by including irrelevant
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evidence of facts that occurred prior to the June 2014 Agreement; (6) the bankruptcy
court erred in not finding Fort Apache elected its remedy before filing suit in the state
court. For the following reasons, the Court AFFIRMS the bankruptcy court’s order
granting Final Judgment in favor of Fort Apache.
I. Background
Huddleston is the sole managing member of Huddleston Exploration LLC
(“Huddleston Exploration”). In June 2012, Huddleston Exploration entered a joint
operating agreement with Fort Apache in which Huddleston Exploration agreed to raise
funds required to drill and complete an oil well in Louisiana in exchange interest in the
well. Huddleston Exploration repeatedly failed to make payments, and Huddleston
repeatedly represented to Fort Apache that he needed more time to raise the money.
Based on these representations, the parties renegotiated their agreement and signed the
June 2014 Agreement, reducing Huddleston Exploration’s interest in the well and
reducing the amount owed. The June 2014 Agreement also made Huddleston
personally liable for $1,400,000.
In November 2014, Fort Apache filed suit in state court for breach of contract.
Through discovery Fort Apache learned Huddleston Exploration had raised millions
more than it paid to Fort Apache. Instead, Huddleston transferred the money from
Huddleston Exploration’s accounts to his personal accounts. Huddleston gambled
away the money or spent it on other personal items all the while telling Fort Apache
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he could not raise sufficient funds to make the payments. On April 8, 2016, the state
suit was stayed when both Huddleston and Huddleston Exploration filed for Chapter
7 bankruptcy. Fort Apache then filed this adversary proceeding to address the
dischargeability of the debt Huddleston personally owed Fort Apache.
The bankruptcy court found Huddleston was liable for his obligation under the
June 2016 Agreement and, through piercing the corporate veil, liable for the entire debt
Huddleston Exploration owed to Fort Apache under the joint operating agreement. The
bankruptcy court found this debt was a nondischargable debt because Huddleston
“perpetuated a fraudulent scheme by transferring investor funds from Huddleston
Exploration to himself and spending them on personal expenses with the intent of
defrauding Fort Apache as a creditor.” In re Huddleston, Civ. Action No. 16-31488-sgj7, 2017 WL 1207522, at *14 (Bankr. N.D. Tex. March 31, 2017).
II. Legal Standard
This Court reviews the bankruptcy court's conclusions of law under a de novo
standard, findings of fact under a clearly erroneous standard, and mixed questions of
fact and law under a de novo standard. See In re National Gypsum Co., 208 F.3d 498,
504 (5th Cir.), cert. denied, 531 U.S. 871 (2000). A bankruptcy court's findings of fact
are reversed only if, based on the entire evidence, the appellate court is left “with the
definite and firm conviction that a mistake has been made.” In re Young, 995 F.2d 547,
548 (5th Cir. 1993).
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III.

Analysis

Huddleston raises six points of error on appeal but cites no case law supporting
his arguments. After review of the bankruptcy court record, the briefs of the parties,
and the applicable law, the Court concludes that the bankruptcy court’s findings of fact
are not clearly erroneous. Furthermore, the bankruptcy court’s conclusions of law are
correct. The bankruptcy court did not err in excepting Fort Apache’s claim from
discharge because Huddleston failed to plead the affirmative defense of election of
remedies. See JPMorgan Chase Bank, N.A. v. Classic Home Financial, Inc., 548 Fed. App’x
205, 208–209 (5th Cir. 2013). Because Huddleston failed to plead the affirmative
defense of election of remedies, the bankruptcy court did not err in finding Huddleston
had no defense of election of remedies as Huddleston alleges in his sixth issue on
appeal.
In Huddleston’s brief he admits that the pleadings, the evidence, and the
bankruptcy court’s findings of fact and conclusions of law support piercing the
corporate veil. Huddleston makes a convoluted argument without any legal support
that Fort Apache would not be harmed by only receiving the money Huddleston owes
it personally under the June 2014 Agreement. Huddleston failed to cite the Court to
any authority supporting this argument. The Court is not persuaded by Huddleston’s
argument. Thus, the bankruptcy court did not err in piercing the veil to find
Huddleston personally liable for Huddleston Exploration’s debt. See Mosa v. Wilson4

Bates Furniture Co., 583 P.2d 453, 454–455 (Nev. 1978). Because the bankruptcy court
properly pierced the veil, the court did not err in calculating the amount of Fort
Apache’s claim excepted from discharge and did not err in awarding attorney’s fees.
Huddleston argues the bankruptcy court erred in admitting allegedly irrelevant
evidence of facts that occurred prior to the June 2014 Agreement. Given that these
facts contributed to the court’s determination Huddleston committed fraud and
supported piercing the veil, the facts were relevant and properly admitted. See FED. R.
EVID. 401. Thus, the bankruptcy court did not err by including the evidence of facts
occurring prior to the June 2014 Agreement.
IV.

Conclusion

The Court concludes the bankruptcy court’s findings of fact are not clearly
erroneous, and the bankruptcy court’s conclusions of law are correct. Accordingly, the
Court AFFIRMS the bankruptcy court’s final judgment dated July 6, 2017, as well as
the bankruptcy court’s findings of fact and conclusions of law dated March 31, 2017.
SO ORDERED.
Signed March 6th, 2018.
______________________________________
ED KINKEADE
UNITED STATES DISTRICT JUDGE

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