99869 Canada Inc, et al. v. Global Security Networks, Inc, et al.

Filing 18

MEMORANDUM OPINION AND ORDER denying 11 MOTION to Dismiss ; granting 13 MOTION for Leave to Amend . GSN's request for attorney's fees and costs is denied. ( Amended Complaint due by 1/13/2017., Initial Pretrial and Scheduling Conference set for 1/27/2017 at 03:00 PM in Courtroom 9B before Judge Sim Lake). (Signed by Judge Sim Lake) Parties notified.(gclair, 4)

United States District Court
Southern District of Texas

ENTERED
December 14, 2016

IN THE UNITED STATES D ISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIV ISION

David J. Bradley, Clerk

99869 CANADA , INC ., 3791068
CANADA , INC .; DAVID BURTNIK ;
GEORGE DeWOLF ; DRACO CAPITAL ,
INC .; ECAL PARTNERS , LTD .;
EOSPHOROS ASSET MANAGEMENT ,
INC .; MARY HANEMAAYER ; DARSHAN
KHURANA ; RO BERT MEN DEL

(
Indi
vidually and As Assignee of
STAN LEY BER AZN IK , ED WARD

PASCAL); MATTEO NOVELLI; DIYA
AL-SARRAJ ; SEQUOIA AGGRESSIVE

GROWTH FUND, LTD . (
Individually,
As Successor to SEQUOIA
DIVERSIFIED GROWTH FUND , LTD .
and As Assignee of RIG III FUND ,
LTD .; SEMPER GESTION , SA ;
ARAN A SSET MANAGEMENT ; ACHIM
GL AU NER ; KAR L -H EIN Z GLAUN ER ;

C IV IL A CT ION N O . H -16 -2788

and CHRISTIAN GLAUNER); ASHWIN
SAIRQM ; PETER TAYLOR ; and
MAR LENE TER SIGN I ,

Plaintiffs ,

GLOBAL SECURITY NETWORKS, INC .
and REINER MAR IO LEMME ,

Defendants .

MEMODAHDUM OPINION AND ORDER

Pending before the court are defendant Global Secure Networks,

Inc .'s

InGSN') Motion
'

to Dismiss

(
Docket

Entry

No .

and

Plaintiffs' Response to E
GSNI'S Motion to Dismiss and Motions for
Leave to Amend (
Docket Entry No.

For the reasons stated

below , GSN 'S Motion to Dism iss will be denied , and Plaintiffs will

be granted leave to amend their Original Petition & Request for

Disclosures (
Exhibit A to Notice of Removal, Docket Entry No.
pp. 3-13).
1.

Factual and Procedural Backcround

Plaintiffs allege that they provided funds to Robert Kubbernus
to

acquire

the

Communications,

controlling

Inc.

(nskyport'
'),

Trustcomm, Inc. ('Trustcomm'
'
').
assurances

that

they

interest

would

which

Skyport

Global

later

renamed

was

Plaintiffs allege that, despite

receive

an

interest

in

Skyport,

Kubbernus acquired the company on behalf of Balaton Group , Inc .

C'
Balaton' an entity that he owned exclusively . On July 23, 2015,
'l

Plaintiffs secured a $16.8 million judgment against Kubbernus and
Balaton

upon

findings of

fraud

and

violations

the

Texas

Securities Act .

Plaintiffs allege that in December of 2011 while Plaintiffs'
suit against Kubbernus was pending , Kubbernus entered into an
agreement with defendant Lemme for Lemme to acquire Trustcomm
through a newly created entity , GSN .

In 2013 Tru stcomm became a

wholly -owned subsidiary of GSN .

Plaintiffs bring

this action

against Defendants GSN

and

Reiner Mario Lemme asserting claims for fraudulent transfer in

violation of the Texas Uniform Fraudulent Transfer Act ('TUFTA'
'
'),
Texas Business and Commerce Code 55 24.005 ( ( and 24.O05( (
a) l)
a) 2)

GSN moves to dism iss Plaintiffs ' claims against it for failure
to state a claim for which relief may be granted and failure to
plead fraud with particularity .
II .

A.

Analysis

Standard of Review

Rule 12 (
b)(6) motion tests the formal sufficiency of the
pleadings

and

'appropriate
'

when

a

defendant

attacks

the

comp laint because it fails to state a legally cognizable claim .'
'

Ramming v . United States, 281 F. 158,
3d

(
5th Cir . 2001), cert.

denied sub nom . Cloud v . United States, 122 S. Ct. 2665 (
2002).
The court must accep t the well-pleaded factual allegations of the
comp laint as true , view them in a light most favorab le to the
plaintiff, and draw all reasonab le inferences in the plaintiff's

favor.
2004)

Lovick v. Ritemoney Ltd w

378 F.3d 433, 437 (
5th Cir.

To defeat a motion to dismiss pursuant to Rule 12 (
b)

a

plaintiff must plead uenough facts to state a claim to relief that
is p lausible on

S.

face .'
'

1955, 1974 (
2007)

Bell Atlantic Corp . v . Twomblv ,

1 claim has facial plausibility when
%
A

the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant
misconduct alleged .'
'

liable for the

Ashcroft v . Icbal,

1937, 1949

(
2009) (
citing Twombly , 127 S. Ct. at 1955).
However, a party

seeking

to avoid dism issal

umust p lead

specific facts , not mere conclusory allegations .' Guidry v . Bank
'

of Laplace, 954 F. 278, 28l (
2d
5th Cir. 1992). Furthermore, courts
uare not requ ired to accept as true conclusory allegations which

are contradicted by

documents referred

Warren v . Fox Familv Worldwide, Incw

to in

the comp laint .'
'

328 F.3d 1136, 1139 (
9th

Cir. 2003) (
citations omitted). Complaints u%
must contain either
direct allegations on every material point necessary to sustain a
recovery

or contain allegations from which an inference

fairly may be drawn that evidence on these material points will be
introduced

at

trial .'' Campbell
'

v . City

(5th Cir. 1995) (
quoting

F .3d

of

San

Antonio , 43

CHARLES ALAN WRIGHT

ARTHUR R . MILLER, FEDERAL PRACTICE AND PROCEDURE 5 1216 (
2d ed .

1990))
When considering a motion to dism iss courts consider the
complaint

and

its

proper

attachments .

Dorsey

v.

Portfolio

Eguities, Incw 54O F. 333, 338 (
3d
5th Cir. 2008). Courts may also
rely on ndocuments incorporated into the complaint by reference ,

and matters of which a court may take judicial notice.' Id.
'
B.

Motion to Dismiss
Failure to State a Claim
A transfer is fraudu lent under TUFTA as to present and future

creditors

(
aq debtor made

obligation'
'

with uactual intent to hinder, delay , or defraud

any creditor of the debtor' or
'

transfer or incurred the

uwithout receiving a reasonably

equivalent value in exchange for the transfer or obligation , and

the debtor'
'

'believed or reasonably should have believed that
'

the debtor would incur , debts beyond the debtor 's ability to pay as

they became due .'
'

Tex . Bus.

Com . Code Ann.

24.O05 (
a).

Plaintiffs allege that the transfer and sale 'by Kubbernus of his
'

shares in Trustcomm to Lemme through (
GSN)
fraudulent transfer under E
TUFTAI.'
'I
transfer was made
defraud
a

Plaintiffs allege that the

with actual intent to hinder , delay and

creditors,

receiv ing

constitutes a

including

reasonably

equivalent

Plaintiffs
value

in

and

without

exchange

for

the

transfer , while he , Kubbernus , believed or reasonably should have

believed that he would incur, debts beyond E
his) ability to pay as
they became due .'
'2

Plaintiffs ' somewhat conclusory allegations are supported by
facts alleged elsewhere in Plaintiffs' Petition and in documents

attached

to

Plaintiffs

GSN 'S Motion
allege

that

to

Dism iss

Kubbernus

and

reply

transferred

h is

support .3
controlling

interest in Trustcomm , wh ich he owned indirectly , after Plaintiffs

initiated the lawsuit that eventually led to a judgment against

l
original Petition & Request for Disclosures (nplaintiffs'
Petition'), Exhibit A to GSN 'S Motion to Dism iss , Docket Entry
'

No. 11- p. 8 f 23.
1,
2 .
Id

3see qenerallv Plaintiffs' Petition , Exhibit A to GSN 'S Motion
to D ismiss, Docket Entry No . 11-17 Plaintiffs ' Original Petition ,
Request for D isclosure , and Request for Production of Documents ,

Exhibit F to Reply in Support of E
GSN'S) Motion to Dismiss and
Opposition to Plaintiffs' Motion for Leave to Amend ('GSN'S
'
Reply'
'), Docket Entry No. 15-6.

Kubbernus and Balaton . Plaintiffs allege that it was Kubbernus who

'sold his controlling interest
'

Trustcomm

(
minus these two

subsidiaries) to Lemme, through a newly created entity named
E N) .MV
GS
GSN

moves

to

dismiss

on

the

grounds

that

GSN

acquired

Trustcomm not from Kubbernus or Balaton but from Bankton Financial

(nBankton' and TII Holdings (nTII'
')
'). Because those entities were

not named in the judgment against Kubbernus and Balaton, GSN argues
that Bankton and TII are not udebtors' under TUFTA and that the
'
transfer was therefore not fraudulent .

Plaintiffs respond with two theories under which the transfer
to GSN could have been fraudu lent .s

TUFTA

defines

'
'transfer' broadly
'

First, Plaintiffs note that

as

uevery

mode,

direct

or

indirect, absolute or conditional, voluntary or involuntary , of
disposing of or parting with an asset or an interest in an asset .'
'

Tex . Bus. & Com . Code

24.002 4
12).

as Plaintiffs allege,

Kubbernus was involved with the transfer of Tru stcomm stock from
Bankton and TII to GSN , the transaction cou ld constitute indirect

disposal of an asset .

Second , Plaintiffs state their intent to

allege that Bankton and TII were merely alter egos of Kubbernus for

the purposes of the transfer to GSN .

4
plaintiffs' Petition , Exhibit A to GSN 'S Motion to Dismiss,

Docket Entry No. 11-1, p. 7 $ 16.
s
plaintiffs' Response to E
GSN'S) Motion to Dismiss and Motions
for Leave to Amend CA
plaintiffs' Response' , Docket Entry No . l3,
o

pp. 3- $ 8 and pp. 5- ! l5.
4
6

To

the

ex tent

that

Plaintiffs ' allegations

support

the

reasonable inference that Kubbernus was acting through Bankton and
TII, the court cannot agree that Plaintiffs have failed to state a
legally cognizable claim .
Statute of Repose
GSN argues that the only potentially fraudu lent transfer ,
i .e ., one in which Kubbernus or Balaton was a transferor, occurred
more than four years before the present action commenced .

GSN

relies on the Stock Purchase Agreement dated May 14 , 2012, to show
that Bankton and TII were Trustcomm 's sole stockholders .

the

transfers from Kubbernus and Balaton to Bankton and TII were the

only alleged fraudulent transfers, the statute of repose m ight bar
any attempt to void the transfer to GSN as a usubsequent transfer .'
'
But Plaintiffs allege that the transfer of Trustcomm 's stock to
GSN , which occurred sometime after May 14 , 2012, was a transfer 'by
'

Kubbernus .'6
'

Plaintiffs argue that Kubbernus was acting at least

indirectly through these '
'shell entities .'
'?

Plaintiffs further

argue , and GSN does not rebut , that the repose period has not run
on the transfer from Bankton and TII to GSN .8 The court therefore

cannot conclude that the statute of repose extingu ishes Plaintiffs'
claims .

6
plaintiffs ' Petition , Exhibit A to Notice of Removal, Docket

Entry No. 1-1, p. 9 $ 23.
7
plaintiffs' Response, Docket Entry No.
8
Id. at 6-7 !

p. l f

Res Judicata
GSN argues that Plaintiffs are barred from asserting that
Bankton and

TII were merely

alter

egos

of

Kubbernus by

the

principle of res judicata. GSN asserts that Plaintiffs u
willingly
abandoned Bankton as a defendant and failed to secure an alter ego

finding against Bankton.'
'g

correct, GSN'S res judicata argument

could invalidate Plaintiffs ' claim and render amendment futile .

' federal court asked to give res judicata effect to a state
%
A
court judgment must apply the res judicata principles of the law of
the state whose decision is set up as a bar to further litigation .'
'
E . D . Svstems Corp . v . Southwestern Bell Tel . Co ., 674 F .2d 453 ,

(
5th Cir . 1982); see also Norris v . Hearst Trust, 500 F. 454,
3d

460-61 (
5th Cir. 2007) (uE
T)he preclusive effect of prior state
court proceedings on federal proceedings is determ ined by the
treatment those state court proceedings would receive in the courts
of the state-here , Texas- in which those prior proceedings were

held.' ; Rollins v . Dwyer, 666 F.2d 141, l44 (
Q
5th

1982)

state court judgment commands the same res judicata effect from the
federal court as

would have

the court that rendered

without regard to whether the state court applied state or federal

1aw .')
'

The court must therefore look to Texas law to determ ine

the preclu sive effect of Plaintiffs' prior lawsuit .

In Texas 'E es judicata precludes relitigation of claims that
' rq
have been finally adjudicated, or that arise out of the same
9
GsN 's Motion to Dism iss , Docket Entry No . l1 , p . l8.
-

8-

subject matter and that could have been litigated in the prior
action .' Amstadt v . United States Brass Corp w 919 S . .2d 644, 652
'
W

(
Tex . 1996) (
citing Barr v . Resolution Trust Corpw 837 S .
W.2d 627,

628 (
Tex. 1992)). Res judicata is an affirmative defense. Fed R.
Civ . P. 8(
c); see also Tex . R . Civ . P. 94; Zurita v . Lombana, 322

S. .
W 3d

474 (
Tex . ApP .

Houston (
14th Dist.q 2010, pet.

denied); Serrano v . First Prestons Mqmt. Corp w 346 S.
W.3d 648, 650

( . App .
Tex

Paso 2009, no pet.).

The party claiming the

defense must prove 1 1) a prior final judgment on the merits by a
:(

court of competent jurisdiction; ( identity of (
2)
the) parties or
those in privity with them; and ( a second action based on the
3)
same claims that were raised or could have been raised in the first
action .' Citizens Ins. Co . of America v . Daccach , 217 S .W .3d 430,
'

449 (
Tex . 2007) (
citing Amstadt, 919 S . . at 652).
W 2d
uUnder

the

transactional

approach

followed

in

Texas , a

subsequent suit is barred if it arises out of the same subject
matter as the prior suit, and that subject matter could have been
litigated in the prior suit.'
'

Id. (
citing Barr, 837 S. .
W 2d at

631). 'A determination of what constitutes the subject matter of
'
a suit necessarily requires an examination of the factual basis of
the claim or claim s
630.

the prior litigation .' Barr , 837 S . .2d at
'
W

uIt requires an analy sis of the factual matters that make up

the gist of the complaint, without regard to the form of action .'
'
Id .

This determination should be made upragmatically , 'giving

weight to such considerations as whether the facts are related in

time, space , origin , or motivation , whether they form a convenient
trial unit, and whether their treatment as a trial unit conforms to
the parties' expectations or business understanding or usage .''
'

Daccach, 217 S. .3d at 449 (
W
quoting Barr, 837 S. .2d at 631). 'Any
W
'
cause of action which arises out of those same facts should , if

practicable , be litigated in the same lawsuit .'
'

Barr , 837 S .W .2d

at 630.

Texas courts have held that ' a) claim for fraudu lent transfer
'E
is a separate cause of action from fraud .' Walker v . Anderson , 232
'

S.
W.3d 899,

(
Tex . App . - Dallas 2007, no pet.) (
citing Nobles

v . Marcus, 533 S. . 923, 925 ( . 1976)7 Mikulich v . Perez, 9l5
W 2d
Tex
S.
W.2d 88,

(
Tex . App . - Amarillo 1996, no writ) (
Rickhoff,

concurring). Moreover, Texas courts have distinguished a claim in

which a party seeks to enforce a judgment from a collateral attack
that would be barred by the doctrine of res judicata. See Matthews
Construction Co ., Inc. v . Rosen, 796 S. . 692, 694 (
W 2d
Tex . 1990)
GSN argues that 'the issue is not whether the fraudulent
'

transfer claim against GSN is itself barred by res judicata, but
whether a necessary legal theory upon which that claim relies is

barred by res judicata.'o But GSN does not show that the alter-ego
'l

issue was adjudicated in the state court litigation. Nor does GSN
explain why Plaintiffs should have asserted this theory in the
prior suit .

The theory that Bankton and

ZO
GSN 'S Rep ly , Docket Entry No . 15 , p . 8 .
-

10 -

are alter egos

Kubbernus is, as GSN points out , a theory of liability . But it is
not one Plaintiffs were requ ired to assert in the prior suit .

Plaintiffs obtained a judgment against Kubbernus directly, piercing
the corporate veil of his alter egos wou ld be superfluous, at least
as to the fraud claim .

At least one court has considered and rejected a similar
argument .

JNS Av iation , Inc . v . Nick Corp ., 418 B .R . 898, 910-11

( . . Tex . 2009), aff' sub nom . In re JNS Aviation, L. .
N D
d
L C., 395

F. App' l27 (
x
5th Cir. 2010). District Judge Robinson explained

why GSN'S reasoning would create an unjust result:
A ssume a situation where a p laintiff sues a corporate
defendant for breach of contract .
The corporate
defendant allows the plaintiff to obtain a default

judgment against the corporation, but transfers the
assets of the corporation to a separate entity ,
effectively preventing the plaintiff from collecting the

judgment because the corporation is now bankrupt. The
plaintiff , at the time of su it, had no cau se to bring a
veil-piercing claim and prior to obtaining the default

judgment, had no awareness of the fraudulent transfer.
To hold that the plaintiff could not bring a second suit
assertinq veil-piercinq claims to collect their nudgment
'
would protect indiv iduals who fraudulentlv transfer
assets from a corporation to avoid nudqments aqainst
'
them . It wou ld also create a catch-22 for p laintiffs in
situations such as the one above . A plaintiff would be
barred from bringing the second su it because the
veil-piercing claim was not asserted in the first su it;
however , the p laintiff cou ld not bring the veil-piercing
claim in the first suit because at that time , there was

no cause to bring the claim.

This would be an unjust

result .

Id. (
emphasis added).

Applying the court's reasoning to the

present case , the 'breach of contract' is analogous to Kubbernus'
'
'

initial fraudulent conduct . The alleged u se of Bankton and TII to
transfer Trustcomm stock that Kubbernus owned indirectly was a

distinct action taken to avoid judgment. Because Kubbernus' fraud
was attributed to him directly in the prior suit , it is not obvious
why Plaintiffs wou ld have needed to assert veil-p iercing claims .
To prevent them from doing so now in an attempt to recover a valid

judgment would be an unjust result.
Moreover, the claim that Kubbernus transferred Trustcomm from

Bankton and TII to GSN to avoid enforcement as opposed to merely
continuing his original fraud suggests a distinct transaction , one
separated in time , origin , and motivation from the original fraud .

The subject matter of the fraudulent transfer claim is therefore
distinct from the underlying fraud .
Finally , because TII was not a party to the prior litigation ,

res judicata does not bar Plaintiffs from asserting that TII was an
alter ego of Kubbernus for the purposes of the transfer to GSN .

Rule 9 ( )
b
GSN argues in its Motion to Dismiss that Plaintiffs' claim
should be dism issed for failure to plead fraud with particu larity .
Plaintiffs

counter

that

their

state-court

Petition

was

not

originally subject to heightened federal pleading standards, and
GSN appears to abandon this point in its Rep ly . Moreover , even in
the case of dism issal for failure to meet heightened pleading
requirements, Plaintiffs should be given leave to amend unless

doing so wou ld be futile .

Hart v . Baver Corp w

199 F .3d 239, 248

(
5th Cir. 2000). Because Plaintiffs will be granted leave to
amend , the issue is moot .
-

12 -

C.

Motion for Leave to Amend
Plaintiffs seek leave to amend their orig inal Petition . Leave

to amend pleadings is not automatic but 'shall be freely given when
'

justice so requires.' Avatar Exploration, Inc. v. Chevron, U. A.,
'
S.
Inc., 933 F.2d 314, 320 (
5th Cir . 1991) (
citing Fed . R . Civ. P.

15(
a)). The decision to grant or deny a motion to amend is within
the sound discretion of the trial court .

Id . The court considers

such factors as M undue delay , bad faith E,) or dilatory motive on
the part of the movant , repeated failure to cure deficiencies by

amendments previously allowed, undue prejudice

the opposing

party by virtue of allowance of the amendment, (
and) futility of
amendment.''
'

Greqory v . Mitchell, 634 F.2d

(
5th

1981) (
citing Foman v . Davis, 83 S . Ct . 227, 230 (
1962))
Plaintiffs filed this action in state court and have not since
had an opportunity to amend their p leadings .

To the extent that

amendment may cure any defects in Plaintiffs' state-court Petition ,

justice requires that Plaintiffs be given that opportunity. The
court, hav ing considered the parties ' arguments, concludes that
amendment would not be futile and that allowing Plaintiffs a chance
to bring their pleadings in line with federal pleading standards

will not unduly prejudice GSN or any other defendants.
111.

Conclusions and Order

For the reasons stated above, GSN 'S Motion to Dismiss (
Docket
Entry No .

is DENIED .

Pla intiffs' Motion for Leave to Amend

(
Docket Entry No . 13) is GRANTED .
will be filed by January

2017.

Plaintiffs' amended complaint
GSN 'S request for attorney 's

fees and costs is DENIED because GSN has failed to justify or even
quantify such an award .

The initial pretrial and schedu ling

conference w ill be held on January 27 , 2017 , at 3 :00 p . .
m

No

additional dispositive motions will be filed before the conference .
SIGNED at Houston , Texas, on this 14th day of December , 2016 .

e

X
SIM LAKE
UNITED STATES DISTRICT JUDGE