Fawaz v. Byers et al

Filing 44

MEMORANDUM OPINION AND ORDER GRANTING IN PART, DENYING IN PART 30 First AMENDED 15 MOTION to dismiss. (Signed by Judge Gray H. Miller) Parties notified.(rkonieczny, 4)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
HUSSEIN FAWAZ,
Plaintiff,
v.
GREGORY BYERS, JOHN STOUT , &
AMTEX SECURITY , INC.,
Defendants.

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CIVIL ACTION H-13-0897

M EMORANDUM O PINION & O RDER
Pending before the court is defendant John Stout’s (“Stout”) motion to dismiss (Dkt. 30)
certain claims filed by plaintiff Hussein Fawaz (“Fawaz”) in his amended complaint. After
considering the amended complaint, motion to dismiss, response, reply, and applicable law, Stout’s
motion to dismiss (Dkt. 30) is GRANTED IN PART & DENIED IN PART.
I. BACKGROUND
In late 2008 through 2009, Fawaz engaged in negotiations with defendant Gregory Byers
(“Byers”) to loan defendant Amtex Security, Inc. (“Amtex”) several thousand dollars.1 Dkt. 29 at
2. Part of the loan was supposed to go toward buying out Amtex’s minority shareholder, defendant
John Stout (“Stout”), and the rest would aid running the business. Dkt. 29 at 1. Once Amtex
repurchased the shares from Stout, Fawaz’s loan was to be converted into equity and Stout’s former
shares issued to Fawaz. Id. Fawaz claims that Amtex paid Stout an unreasonably large amount to
buy the stock back and then never issued Stout’s stock to Fawaz, or paid back the loan. Id.

1 The facts of this case were reviewed in detail in the court’s previous motion to dismiss this case. Dkt. 28. Therefore,
this motion merely summarizes the facts and highlights the newly pleaded facts.

On March 29, 2013, Fawaz filed suit in this court and asserted several claims against Byers,
Stout, and Amtex (collectively, the “defendants”). Dkt. 1 at 6–10. Stout moved to dismiss each of
Fawaz’s causes of action against him pursuant to Federal Rules of Civil Procedure Rule (12)(b)(6).
Dkt. 15. The court granted Stout’s motion to dismiss the claims of statutory fraud, conspiracy,
fraudulent transfer on constructive transfer theory, and money had and received. Dkt. 28. The court
denied the motion as to Fawaz’s claim of fraudulent transfer on actual transfer theory. Id. At that
time, the court granted Fawaz leave to replead his deficient claims.
Fawaz timely filed an amended complaint on May 12, 2014. Dkt. 29. In the amended
complaint, Fawaz made similar assertions to those in the original complaint, but he did make a few
new assertions. Fawaz claims that Stout was motivated to sell his shares of Amtex by any method
and required “assurances that were furnished by Byers’ sharing of the actual plan to obtain Fawaz’s
money.” Id. at 4 ¶ 20. However, Fawaz was not told of the full details of the plan. Id. at 4 ¶ 21.
Fawaz also asserts that when Amtex was insolvent, it owed Stout at least $70,000 in loans, and it
used Fawaz’s money to pay Stout. More specifically, Fawaz asserts that Amtex purchased $150,000
worth of stock back from Stout for $280,000. Id. at 3 ¶ 14; 10 ¶¶ 60–62.
Stout subsequently filed a motion to dismiss the claims in Fawaz’s amended complaint. Dkt.
30. The motion has been responded to and is ripe for discussion.
II. LEGAL STANDARD
For most causes of action, Federal Rule of Civil Procedure Rule 8(a)(2) requires that a
pleading contain “a short and plain statement of the claim showing that the pleader is entitled to
relief.” FED . R. CIV . P. 8(a)(2). A party against whom claims are asserted may move to dismiss
those claims when the nonmovant has failed “to state a claim upon which relief can be granted.”
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FED . R. CIV . P. 12(b)(6). “To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must plead
‘enough facts to state a claim to relief that is plausible on its face.’” In re Katrina Canal Breaches
Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570,
127 S. Ct. 1955 (2007)). “Factual allegations must be enough to raise a right to relief above the
speculative level, . . . on the assumption that all the allegations in the complaint are true (even if
doubtful in fact).” Twombly, 550 U.S. at 555 (citations omitted).
While the allegations need not be overly detailed, a plaintiff’s pleading must still provide the
grounds of his entitlement to relief, which “requires more than labels and conclusions,” and “a
formulaic recitation of the elements of a cause of action will not do.” Id.; see also Ashcroft v. Iqbal,
556 U.S. 662, 678, 129 S. Ct. 1937 (2009) (“[N]aked assertions devoid of further factual
enhancement,” along with “legal conclusions” and “[t]hreadbare recitals of the elements of a cause
of action, supported by mere conclusory statements,” are not entitled to the presumption of truth)
(internal quotation marks omitted). “‘[C]onclusory allegations or legal conclusions masquerading
as factual conclusions will not suffice to prevent a motion to dismiss.’” Blackburn v. City of
Marshall, 42 F.3d 925, 931 (5th Cir. 1995) (quoting Fernandez-Montes v. Allied Pilots Ass’n, 987
F.2d 278, 284 (5th Cir. 1993)). Instead, “[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.” Iqbal, 556 U.S. at 678. Evaluating a motion to dismiss is a “contextspecific task that requires the reviewing court to draw on its judicial experience and common sense.”
Id. at 679.
Moreover, if a party’s claim contains allegations of fraud, the pleading must meet a
heightened standard and “state with particularity the circumstances constituting fraud.” FED . R. CIV .
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P. 9(b). This particularity requirement “does not ‘reflect a subscription to fact pleading.’” United
States v. Kanneganti, 565 F.3d 180, 186 (5th Cir. 2009) (quoting Williams v. WMX Techs., Inc., 112
F.3d 175, 178 (5th Cir. 1997)). Pleadings alleging fraud must instead contain “‘simple, concise, and
direct’ allegations of the ‘circumstances constituting fraud,’ which . . . must make relief plausible,
not merely conceivable, when taken as true.” Id. (referring to the Twombly standard). Indeed, Rule
9(b) supplements, and does not “supplant” the notice pleading requirements of Rule 8(a). Id. at 185.
III. ANALYSIS
Stout moves to dismiss four of Fawaz’s claims: (1) statutory fraud; (2) fraudulent transfer;
(3) conspiracy; (4) money had and received.2 Dkt. 30. The court will consider Stout’s dismissal
arguments as to each claim in turn.
A.

Statutory Fraud

A claim for statutory fraud requires:
A person who (1) has actual awareness of the falsity of a representation or promise
made by another person and (2) fails to disclose the falsity of the representation or
promise to the person defrauded, and (3) benefits from the false representation or
promise commits the fraud described in Subsection (a) of this section and is liable
to the person defrauded for exemplary damages. Actual awareness may be inferred
where objective manifestations indicate that a person acted with actual awareness.
TEX . BUS. & COM . CODE § 27.01(d). Actual awareness means that a person must think, “‘Yes, I
know this is false, deceptive, or unfair to him, but I’m going to do it anyway.’” Woodlands Land

2 Stout also moves to dismiss plaintiff’s alleged claims of fraudulent concealment. Dkt. 30 at 14. However, the court
reads Fawaz’s assertions of the discovery rule and fraudulent concealment as responses to statute of limitations defenses
that defendants might raise. Dkt. 29 at 6–7. Because Fawaz does not appear to assert fraudulent concealment as a standalone claim, and it is traditionally a defense to a claim, Stout’s attempt to dismiss such a claim is denied. See, e.g.,
Seatrax, Inc. v. Sonbeck Intern. Inc., 200 F.3d 358, 366 (5th Cir. 2000) (discussing whether the defense of fraudulent
concealment applied to the case, and referring to the defense as an “equitable doctrine” that tolls the statute of
limitations).

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Dev. Co. v. Jenkins, 48 S.W.3d 415, 426 (Tex. App.—Beaumont 2001, no pet.) (quoting St. Paul
Surplus Lines Ins. Co. v. Dal-Worth Tank Co., 974 S.W.2d 51, 54 (Tex. 1998)).
Federal Rule of Civil Procedure Rule 9(b) also applies to statutory fraud cases arising under
section 27.01 of the Texas Business & Commerce Code. Dorsey v. Portfolio Equities, Inc., 540 F.3d
333, 339–43 (5th Cir. 2008). This standard requires the plaintiff “‘to specify the statements
contended to be fraudulent, identify the speaker, state when and where the statements were made,
and explain why the statements were fraudulent.’” Dorsey, 540 F.3d at 339 (quoting Herrmann
Holdings Ltd. v. Lucent Techs. Inc., 302 F.3d 552, 564–65 (5th Cir. 2002)). Further, while Rule 9(b)
“expressly allows scienter to be ‘averred generally,’ simple allegations that defendants possess
fraudulent intent will not satisfy Rule 9(b).” Meldor v. Morris, 27 F.3d 1097, 1102 (5th Cir. 1994).
Fawaz essentially makes the same claim he did in his original pleading, a claim the court
dismissed. Fawaz again pleads that Stout received $150,000 from Fawaz after the agreement was
finalized and that money was deposited into his bank account. Id. at 5 ¶ 22. Fawaz again
conclusorily states that “Stout knew of Byers’s representations and promises and knew that they were
false. He profited by not disclosing that to Fawaz.” Id. at 8 ¶ 44. The only new facts Fawaz pleads
as to his statutory fraud claim are that Amtex was insolvent (Dkt. 29 at 2– 3 ¶¶ 12-14); that Stout
was motivated to sell his shares of Amtex and required “assurances that were furnished by Byers’
sharing of the actual plan to obtain Fawaz’s money” (Id. at 4 ¶ 20); and that Fawaz was not told of
the secret plan (Id. at 4 ¶ 21).
After reviewing Fawaz’s fraud allegations, the court need not apply Rule 9(b) because the
pleading still fails under Rule 8(a)(2), as it did in the court’s prior order. Fawaz’s allegation that
“Stout . . . knew that [Byers’s representations and promises] were false,” is nothing more than a
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“legal conclusion couched as a factual allegation.” Dkt. 29 at 8 ¶ 44; Twombly, 550 U.S. at 555.
Although Fawaz attempts to establish that Stout had actual knowledge of a plan to defraud Fawaz
by stating that Stout provided assurances to Byers of the plan to obtain Fawaz’s money, this is a
conclusion without supporting facts. Fawaz also does not establish awareness that can be inferred
by providing the court with objective manifestations that indicate Stout acted with actual awareness.
Even if the court found that Fawaz had pled sufficient facts under Rule 8(a)(2), his conclusory
statements do not meet the Rule 9(b) standard that requires the plaintiff to specify the statements
contended to be fraudulent, explain why the statements were fraudulent, and state when and where
the statements were made. Stout’s motion to dismiss Fawaz’s statutory fraud claim is GRANTED.
B.

Fraudulent Transfer

In Texas, fraudulent transfer claims are governed by the Texas Uniform Fraudulent Transfer
Act (“TUFTA”). TEX . BUS. & COM . CODE §§ 24.001 et seq. Under the act, any obligation a debtor
incurs “with actual intent to hinder, delay, or defraud any creditor of the debtor” may be voided, and
a creditor may obtain “an injunction against further disposition by the debtor or a transferee, or both,
of the asset transferred or of other property[.]” Id. §§ 24.005(a)(1), 24.008(a)(3)(A). A plaintiff
must satisfy three elements to establish a TUFTA claim: (1) a debtor-creditor relationship exists
between the parties; and (2) the debtor incurred an obligation (3) with the actual intent to hinder,
delay, or defraud the creditor. Id. § 24.005(a)(1). As an alternative to the last element, a TUFTA
claim may also be premised on constructive fraud of the debtor, without receiving reasonably
equivalent value in exchange for the transfer, engaged in a transaction for which its remaining assets
were unreasonably small or it intended to incur debts beyond its ability to pay as they came due. Id.
§ 24.005(a)(2). A transferee may also be liable unless he can show that he “accepted the transfers
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in good faith and for reasonably equivalent value.” Id. § 24.009(a); Hahn v. Love, 321 S.W.3d 517,
526 (Tex. App.—Houston [1st Dist.] 2009, pet. denied).
Stout makes three new arguments for dismissal of the TUFTA claim, arguing that Fawaz
cannot assert a claim under TUFTA because (1) Fawaz improperly claims that the transfer was valid
and enforceable, yet fraudulent; (2) Stout no longer has a property interest in the stock; (3) Fawaz’s
participation in arranging the transaction constitutes acquiescence that forecloses his TUFTA claim.
Dkt. 30 at 16–18.
As to Stout’s first argument, the Wholstein v. Aliezer case he cites is not supportive of his
argument. 321 S.W.3d 765, 769 (Tex. App.—Houston [14th] 2010, no pet. h.). The only discussion
in Wohlstein relevant to the present case is whether a party qualified as a transferee. The court found
that a fact issue existed because the alleged transferee had significant control over the money
transferred to it. This does not support Stout’s argument that Fawaz cannot claim the transfer was
both valid and fraudulent. To the extent that Stout is instead arguing that Fawaz has not stated a
claim upon which relief can be granted because he allegedly makes conflicting statements, the court
finds below that Fawaz has pled sufficient facts to state a claim upon which relief can be granted at
the motion to dismiss phase.
Stout bases his second argument on the rule that, in a fraudulent transfer claim, the debtor
must have had an interest in the property that was transferred, and he cites In re Avado Brands, Inc.
for support. 358 B.R. 868, 880 (N.D. Tex. 2006). In the section of the case cited by Stout, the court
was considering whether the release of legal claims could be property that could be fraudulently
transferred. Id. at 881. The court declined to determine the issue or dismiss the claim based on the
issue. Id. This court is not persuaded that this case supports dismissing Fawaz’s claim because
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Stout no longer has an interest in the Amtex stock. Fawaz pleads that he loaned money to Amtex,
and that Amtex used that money to buy stock from Stout, an insider, with the intent to defraud
Fawaz. Dkt. 29 at 10. Even though Fawaz was allegedly directed by Amtex to pay money directly
to Stout, instead of Amtex physically taking hold of the money and Amtex transferring the money
itself, Fawaz has pled sufficient facts to claim at this point that the transaction involved an exchange
of money and stock between Amtex and Stout that could be the basis of a TUFTA claim.
As to Stout’s third argument, he cites no authority requiring that Fawaz’s TUFTA claim
against him must be dismissed because Fawaz acquiesced in the transaction. The only cases he cites
speak to equitable doctrines. Even if the court were inclined to grant a motion to dismiss on these
grounds, Fawaz pleads sufficient facts at this juncture to defeat such a motion. Fawaz pleads that
he was unaware of the ultimate plans for his money, and in particular, that he was unaware that the
money would be used to make an unreasonable exchange of $280,000 for stock valued at just
$150,000. Dkt. 29 at 5–6.
Stout’s three new arguments against Fawaz’s TUFTA claims are not sufficient to defeat
Fawaz’s pleadings. Stout also argues that all of Fawaz’s claims fail under Rule 9(b) and Rule 8(a),
and therefore the actual and constructive fraudulent transfer claims fail on this ground. Dkt. 30 at
2, 5. This court has already 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 the defendant.
Dkt. 28 at 9. Therefore, the court only considers whether Fawaz’s claims satisfy Rule 8(a)(2).
A transfer is fraudulent when made “with actual intent to hinder, delay, or defraud any
creditor.” TEX . BUS. & COM . CODE § 24.005(a)(1). There is a list of eleven “badges of fraud” courts
may use to determine whether or not a fraudulent transfer has occurred. Id. § 24.005(b). A single
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badge of fraud is not enough to find a fraudulent transfer occurred, but a few badges together can
support an inference of actual fraudulent transfer. Soza v. Hill, 542 F.3d 1060, 1066–67 (5th Cir.
2008). In the amended complaint, Fawaz sufficiently pleads several badges of fraud (Dkt. 29 at 10
¶ 63), such as that Stout was an insider (Id. at 2,), that the terms of the transfer were concealed from
Fawaz (Id. at 4), and that the transaction occurred simultaneously with Amtex’s incurring of a large
debt to Fawaz (Id. at 5). Because Fawaz alleges the same facts in his amended complaint (Dkt. 29)
as he did in his original complaint (Dkt. 1) that defeated a motion to dismiss, and has now several
badges of fraud, the court finds that Fawaz has satisfied his pleading requirements of an actual
fraudulent transfer claim received by Stout. Thus, Stout’s motion to dismiss Fawaz’s TUFTA claim
under a theory of actual fraud is DENIED.
Fawaz also pleads a TUFTA claim premised on Amtex’s constructive fraud against him.
Dkt. 29 at 10 ¶ 62. Constructive fraudulent transfer is established when the debtor made the transfer
“without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the
debtor was engaged or was about to engage in a business or a transaction for which the remaining
assets of the debtor were unreasonably small in relation to the business or transaction.” TEX . BUS.
& COM . CODE § 24.005(a)(2)(A). Reasonably equivalent value is further defined as being “within
the range of values for which the transferor would have sold the assets in an arm's length
transaction.” Id. § 24.005(d).
Fawaz, in his amended complaint, alleges that Amtex received the loan without receiving
reasonably equivalent value; specifically, Fawaz asserts that when Amtex was insolvent, it used
Fawaz’s money to pay Stout and that it purchased $150,000 in stock for $280,000. Dkt. 29 at 10 ¶¶
60–62. Based on the facts pled, paying nearly twice the amount for stock than what it is valued for
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plausibly establishes that Amtex did not receive reasonably equivalent value. Fawaz has moved past
conclusory statements and mere recitation of the elements of constructive fraudulent transfer by
asserting concrete facts and values. Therefore, Stout’s motion to dismiss Fawaz’s TUFTA claim
arising from constructive fraud is DENIED.
C.

Conspiracy

A civil conspiracy claim requires proof of: “‘(1) two or more persons; (2) an object to be
accomplished; (3) a meeting of minds on the object or course of action; (4) one or more unlawful,
overt acts; and (5) damages as the proximate result.’” Murray v. Earle, 405 F.3d 278, 293 (5th Cir.
2005) (quoting Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex. 1983)). To succeed on a
conspiracy claim, a plaintiff must prove either “that the defendants conspired to accomplish an
unlawful purpose or used unlawful means to accomplish a lawful purpose.” Murray, 405 F.3d 278
at 293. Civil conspiracy also requires a “specific intent” to agree to the unlawful purpose. Juhl v.
Airington, 936 S.W.2d 640, 644 (Tex. 1996) (quoting Triplex Comms., Inc. v. Riley, 900 S.W.2d
716, 719 (Tex. 1995)). Even though civil conspiracy can be shown through circumstantial evidence,
the pleading must assert some facts that Stout and Byers had a common goal or course of action to
defraud Fawaz. See Schlumberger Well Surveying Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d
854, 857– 58 (Tex. 1968). Further, “[c]ivil conspiracy is a derivative tort; therefore, liability for a
civil conspiracy depends on participation in an underlying tort.” Haemic v. Conversion Serv., Inc.,
717 F.3d 388, 402 (5th Cir. 2013) (citing Allstate Ins. Co. v. Receivable Fin. Co., L.L.C., 501 F.3d
398, 414 (5th Cir. 2007)).
Fawaz makes conspiracy claims against Stout as to statutory fraud, fraudulent transfer,
fraudulent inducement, conversion, and promissory estoppel. Dkt. 29 at 11 ¶ 68. Fraudulent transfer
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is a tort. In re Tex. Am. Express, Inc., 190 S.W.3d 720, 725 (Tex. App. – Dallas 2005, no pet). The
fact that conspiracy requires participation in an underlying tort, and Fawaz has not pled claims
against Stout for fraudulent inducement, conversion, and promissory estoppel, means that Fawaz has
not properly pled a conspiracy claim as to those offenses. Further, because the court found that
Fawaz did not sufficiently plead facts to state a claim against Stout for statutory fraud, Fawaz has
not pled a conspiracy claim against Stout. Finally, while Fawaz has pled sufficient facts to assert
a fraudulent transfer claim against Stout, he still must meet the other elements of conspiracy,
including alleging facts that show a common goal to defraud and the specific intent of Stout to
participate in the conspiracy.
The amended complaint again asserts that Stout and Byers “agreed on either or both of the
object of the combination and the course of action to achieve that object [defrauding Fawaz].” Dkt.
29 at 11 ¶ 65. Fawaz attempts to elaborate on Stout’s intent by stating, “Stout knowingly stood silent
so he could profit from those misrepresentations.” Id. at 11 ¶ 66. Fawaz’s amended complaint also
states that Byers shared the “actual plan” with Stout. Id. at 4 ¶ 20. All of these statements are
conclusions. Fawaz’s amended complaint is bare of specific facts that support Stout’s knowledge
and participation in a plan to defraud Fawaz. The conclusion that Stout knew of a plan does not
meet Fawaz’s burden under Rule 8(a)(2) to plead facts that show a claim is plausible. Therefore,
Stout’s motion to dismiss Fawaz’s civil conspiracy claim is GRANTED.
D.

Money Had and Received
A claim for money had and received is an equitable claim based on justice of the case rather

than on wrongdoing. See Stonebridge Life Ins. Co. v. Pitts, 236 S.W.3d 201, 205 (Tex. 2007). In
Texas, the statutory limitations period for a money had and received claim is two years. Merry
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Homes, Inc. v. Dao, 359 S.W.3d 881, 884 (Tex. App.—Houston [14th Dist.] 2012, no pet. h.); see
also Elledge v. Friberg-Cooper Water Supply Corp., 240 S.W.2d 869, 871 (Tex. 2007) (per curiam).
Fawaz has conceded that his claim for money had and received cannot be sustained under an
exception to the statute of limitations. Dkt. 37 at 5. He states, “Fawaz concedes that his pleadings
don’t establish an exception to limitations that would allow him to pursue Stout for money had and
received. Dismissal of that claim would be proper.” Id. Therefore, Stout’s motion to dismiss
Fawaz’s claim for money had and received is GRANTED.
IV. CONCLUSION
For the foregoing reasons, Stout’s motion to dismiss (Dkt. 30) is GRANTED IN PART &
DENIED IN PART. The only remaining claims against Stout are the fraudulent transfer claims.
It is so ORDERED.
Signed at Houston, Texas on November 17, 2014.

_______________________________
Gray H. Miller
United States District Judge

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