Magna Equities II, LLC et al v. Heartland Bank

Filing 49

MEMORANDUM OPINION AND ORDER granting in part and denying in part 38 Opposed MOTION to Designate Responsible Third Party (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)

United States District Court
Southern District of Texas

ENTERED

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
MAGNA EQUITIES II, LLC; TIMUR
§
SALIKHBAYEV; BTG INVESTMENTS,
§
LLC; AVI MIRMAN; JAI ALAI
§
INSURANCE, INC; DAVID A. FIELDS; §
MITCHELL LUKIN; BETTY ANN PURDIE;§
SHANNON P. PRATT; FRANCIS
§
JUNGERS; GEORGE GILMAN; MONICA
§
WEHBY; FRANK MARSHIK; and TOWNES §
PRESSLER,
§

February 28, 2018
David J. Bradley, Clerk

CIVIL ACTION NO. H-17-1479

§

Plaintiffs,

§
§
§
§

v.

HEARTLAND BANK

§

I

§

Defendant.

§

MEMORANDUM OPINION AND ORDER

Plaintiffs,

Magna Equities II,

LLC,

Timur Salikhbayev,

Investments, LLC, Avi Mirman, Jai Alai Insurance,

BTG

Inc., David A.

Fields, Mitchell Lukin, Betty Ann Purdie, Shannon P. Pratt, Francis
Jungers,

George Gilman,

Pressler

(collectively,

Monica Wehby,

Frank Marshik,

"Plaintiffs"),

bring

causes

and Townes
of

action

against defendant, Heartland Bank ("Heartland" or "Defendant") for
fraud, negligent misrepresentation, money had and received, unjust
enrichment, and promissory estoppel.

Pending before the court is

Heartland Bank's Motion for Leave to Designate Responsible Third
Parties ("Defendant's Motion to Designate")

(Docket Entry No. 38) .

For the reasons set forth below, Defendant's Motion to Designate
will be granted for the fraud, negligent misrepresentation, money
had and received, and unjust enrichment claims.

I.
In

August

of

2014

Background

Heartland

Bank

and

McLarty

Capital

("Lenders") entered into a Credit Agreement and an Account Purchase
Agreement with an oilfield services company called HII technologies
( "HII") . 1

By

spring

of

2015

HII

requirements of the Credit Agreement.

defaulted

on

its

financial

On April 30, 2015, HII and

Lenders entered into a Third Modification and Waiver Agreement to
the Credit Agreement ("Third Modification to Credit Agreement") . 2
In the Third Modification to Credit Agreement HII acknowledged it
was in default, agreed to certain conditions to obtain a waiver of
past defaults, and agreed to release claims HII might have against
Lenders.

Plaintiffs allege that Defendant promised that "if HII

raised at least $2.735 million, Defendant would issue a waiver of
covenants and waive any defaults [,]

would permit HII to

acquire a profitable oilfield water management company called Water
Transfer LLC[,]

[and] would allow HII to continue to operate

as a going concern." 3

Defendant cites the Third Modification to

Credit Agreement to support its claim that "HII agreed to raise

1

Credit Agreement (Term Loan), August 12, 2014, Exhibit 1 to
Defendant Heartland Bank's Second Amended Answer to Plaintiffs'
Second Amended Complaint and Counterclaim ("Defendant's Second
Amended Answer"), Docket Entry No. 46-1, pp. 20-111.
2

Third Modification to Credit Agreement,
Exhibit 2 to
Defendant's Second Amended Answer, Docket Entry No. 46-1, pp. 112127.
3

Plaintiffs'
pp. 4-5 ~ 22.

Second Amended Complaint,
-2-

Docket Entry No.

20,

$2,735,000 in equity and that those funds were to be used to pay
HII's creditors and the Lenders, not to purchase another entity." 4
HII management engaged placement agent Roth Capital to raise the
capital by issuing shares of HII series B convertible preferred
stock and warrants.

Around May 20, 2015, HII raised the required

equity from Plaintiffs'

investments, and Lenders waived existing

defaults and the default rate interest.
Plaintiffs allege that on July 9, 2015, Defendant's attorneys
issued a Notice of Default to HII, froze HII's checking accounts,
and "swept all of its cash,

including Plaintiffs'

thereby causing HII to collapse." 5

investments,

Defendant alleges that around

July 15, 2015, it learned that HII instructed its customers to no
longer

make

Defendant,

payments

to

in violation of

a

lockbox
the

account

administered

Credit Agreement. 6

by

Plaintiffs

allege that at a meeting on July 16, 2015, Defendant explained that
"unbeknownst to HII or Plaintiffs, it was going to foreclose on HII
assets, create a new company, hire HII's CFO as president to run
the new company,

and usurp HII' s opportunity to purchase Water

Transfer, LLC." 7

On July 30, 2015, Defendant obtained a Temporary

4

Defendant's Second Amended Answer,
p. 14.
5

p. 8

Plaintiffs'
26.

Second Amended Complaint,

46-1,

Docket Entry No.

20,

~
6

Defendant's Second Amended Answer,
p. 15.
7

p. 9

Docket Entry No.

Docket Entry No.

46-1,

Plaintiffs' Second Amended Complaint, Docket Entry No.
27.

~

-3-

20,

Restraining Order in the 129th District Court of Harris County,
Texas, against HII requiring HII to direct all payments into the
lockbox pursuant to the Credit Agreement. 8
Lenders,

HII,

and

Magna

Equities

II

On August 7,

entered

into

a

2015,
Fourth

Modification and Forbearance Agreement to the Credit Agreement. 9
On September 18, 2015, HII filed for Chapter 11 bankruptcy.
Plaintiffs, who were investors in HII, allege that they relied
on Heartland's fraudulent representations and that "[a]s a result
of Defendant's bad faith and gross and intentional misconduct, the
value of Plaintiffs' investments was destroyed and HII wound up in
bankruptcy. " 10
negligent

Plaintiffs

bring

misrepresentation,

enrichment,

and

promissory

causes

money

had

estoppel. 11

of
and
On

action

for

received,
January

8,

fraud,
unjust
2018,

Defendant filed its Motion to Designate seeking to designate Roth
Capital

and

HII

CEO,

Matthew

Flemming,

as

responsible

third

parties . 12

8

See Temporary Restraining Order and Order Setting Hearing For
Temporary Injunction, Exhibit 4 to Defendant's Second Amended
Answer, Docket Entry No. 46-1, pp. 195-99.
9

Fourth Modification to Credit Agreement, Exhibit 5 to
Defendant's Second Amended Answer, Docket Entry 46-1, pp. 200-12.
10

p. 9

~

Plaintiffs' Second Amended Complaint, Docket Entry No. 20,
29.

11

Id. at 12-15.

12

Defendant's Motion to Designate, Docket Entry No. 38, p. 7.
-4-

II.
A.

Analysis

Applicable Law

Pursuant

to

Chapter

33

of

the

Texas

Civil

Practices

and

Remedies Code a defendant may "designate a person as a responsible
third party by filing a motion for leave to designate that person
as

a

responsible

§ 33.004(a)
before

the

third party.

Tex.

11

Civ.

Prac.

&

Rem.

Code

"The motion must be filed on or before the 60th day
trial

date

With

II

certain

express

exceptions, Chapter 33 applies to all common law torts, statutory
torts that do not include a separate and conflicting legislative
fault-allocation scheme,

and actions under

Practices-Consumer Protection Act.
§ 33.002; JCW Electronics,
(Tex. 2008).

Tex.

the Deceptive Trade

Civ.

Prac.

& Rem.

Inc. v. Garza, 257 S.W.3d 701,

Code

704-06

Section 33.011 defines a responsible third party as:

any person who is alleged to have caused or contributed
to causing in any way the harm for which recovery of
damages is sought, whether by negligent act or omission,
by any defective or unreasonably dangerous product, by
other conduct or activity that violates an applicable
legal standard, or by any combination of these.
Tex. Civ. Prac. & Rem. Code§ 33.011(6).
are not

limited to those who can be

litigation.
outside

the

Responsible third parties
joined as parties

to the

Responsible third parties may be persons or entities
court's

jurisdiction,

plaintiff, or even unknown.

unable

to

be

sued

by

the

See In re Unitec Elevator Services

Co., 178 S.W.3d 53, 58 n.5 (Tex. App.--Houston [1st Dist.] 2005, no
pet.); Tex. Civ. Prac. & Rem. Code§§ 33.004(j)-(k).
-5-

"A court shall grant leave to designate the named person as a
responsible third party unless another party files an objection to
the motion for leave on or before the 15th day after the date the
motion is served."

Tex. Civ. Prac. & Rem. Code § 33.004(f).

To

successfully prevent designation of a responsible third party, the
burden is on the plaintiffs to establish that
(1)
the defendant did not plead sufficient facts
concerning the alleged responsibility of the [third
party] to satisfy the pleading requirement of the Texas
Rules of Civil Procedure; and
(2) after having been granted leave to replead, the
defendant failed to plead sufficient facts concerning the
alleged responsibility of the person to satisfy the
pleading requirements of the Texas Rules of Civil
Procedure.
Tex. Civ. Prac. & Rem. Code § 33.004(g).
A

court's

grant

of

a

motion

for

leave

to

designate

a

responsible third party at this stage in the litigation does not
preclude a party from later challenging the designation.
adequate

time

for

discovery,

a

party may move

to

"After

strike

the

designation of a responsible third party on the ground that there
is no evidence that the designated person is responsible for any
portion of the claimant's alleged injury or damage."
Prac. & Rem. Code§ 33.004(1).

Tex.

Civ.

"The court shall grant the motion

to strike unless a defendant produces sufficient evidence to raise
a

genuine

issue

of

fact

regarding

the

designated

responsibility for the claimant's injury or damage."

person's
The

burden is on the defendant to produce sufficient evidence to raise
-6-

a

genuine

issue

of

fact

regarding

the

designated

responsibility for the claimant's injury or damage.

party's

Additionally,

before trial the court must determine whether there is sufficient
evidence

to

regarding
Prac.

&

support

the

Rem.

the

designated
Code§

submission of
party's

33.003(b).

a

question

to

responsibility.
Therefore,

the
Tex.

jury
Civ.

while the pleading

requirements at the outset are not stringent, as trial approaches
the

requirement

for

sufficient

evidence

to

support

the

actual

submission of a question on the responsibility of the designated
third parties becomes more demanding.
Plaintiffs timely filed an objection to Defendant's Motion to
Designate arguing that Defendant has failed to satisfy the pleading
requirements of the Texas Rules of Civil Procedure to establish
third party responsibility, that Section 33.004 is inapplicable to
Plaintiffs' promissory estoppel claim, and that Defendant's motion
is untimely. 13
B.

Whether Heartland Met the Pleading Requirements

The Texas Rules of Civil Procedure provide that a defendant's
pleading must contain "a short statement of the cause of action
sufficient to give fair notice of the claim involved."
Ci v. P. 4 7 (a) .

Tex. R.

Under this 'fair notice' standard, " [a] pleading is

13

Plaintiffs' Objections to Defendant's Motion for Leave to
Designate Responsible Third Parties ("Plaintiffs' Objections") ,
Docket Entry No. 39, pp. 2, 6-9.
-7-

sufficient when 'an opposing party can ascertain from the pleading
the nature, basic issues, and the type of evidence that might be
relevant to the controversy. '"

Taylor v.

TASER International,

Inc., Civil Action No. H-17-673, 2017 WL 3506885, at *2 (S.D. Tex.
Aug.

16,

2017)

2007)).

(quoting Low v. Henry,

To determine whether a

221 S.W.3d 609,

612

(Tex.

defendant has pled sufficient

facts,

federal courts may "look at allegations in a defendant's

answer

and/or

counterclaim[,]

[and]

allegations

in

a

plaintiff's pleading that demonstrate responsibility of a third
party."

See

Eisenstadt v.

Telephone

Electronics

Corp. ,

Civil

Action No. 3:06-1196-0, 2008 WL 4452999, at *2 (N.D. Tex. Sept. 30,
2008); see also In re CVR Energy,
App.- -Houston [1st Dist.]
this low threshold.

Inc.,

500 S.W.3d 67,

2016, no pet.)

("[Defendant]

80

(Tex.

satisfied

Its motion for leave to designate [the third

party] quoted from Plaintiffs' own allegations against [the third
party] . ") .
District

of

"Given this liberal approach, courts in the Southern
Texas

have

recognized

with

regard

to

motions

to

designate responsible third parties that the 'pleading requirements
at the outset are not stringent. '"

Brewer v.

Suzuki Motor of

America, Inc., Civil Action No. 4:15-00197, 2016 WL 4159754, at *3
(S.D. Tex. Aug. 3, 2016)

(citation omitted).

Because Chapter 33

defines "[r]esponsible third party" as "any person who is alleged
to have caused or contributed to causing in any way the harm for
which recovery of damages is sought,"

-8-

Defendant only needs to

plead facts capable of showing how the third-parties it seeks to
designate as responsible third-parties caused or contributed to
Plaintiffs' alleged injury.
Defendant
support

its

cites

claim

Plaintiffs'

that

Roth

responsible third parties. 14

Second

Capital

Amended

and Matthew

Complaint

to

Flemming are

Defendant argues "Plaintiffs allege

that Roth Capital and Flemming made promises to them,

and that

these promises form the basis of Plaintiffs' claims." 15

In their

Second Amended Complaint Plaintiffs allege that "Plaintiffs each
were recipients of Defendant's promises directly from Defendant or
through HII management,

Roth,

or both,

and made the decision to

purchase the HII series B convertible preferred stock and warrants
based on Defendant's promises." 16

Plaintiffs also allege that they

"received Defendant's promises and representations through oral and
written communications with
Matthew Flemming .

[either]

Roth Capital

[or]

HII CEO,

"l7

Plaintiffs argue that "Defendant's First Amended Answer and
Counterclaim also does not contain any allegation sufficient to put
Plaintiffs on notice of Defendant's position that Flemming or Roth

14

See Defendant's Motion to Designate, Docket Entry No. 3 8,
p. 3 ("[I]f Plaintiffs' allegations are accepted, Roth Capital and
Flemming are 'responsible third parties.'").
lsid.
16

Plaintiffs' Second Amended Complaint, Docket Entry No.
p. 5 ~ 23.
17

Id. at 5-7

~

25.
-9-

20,

somehow share

legal

responsibility for

Plaintiffs'

injuries. " 18

Plaintiffs argue that
Simply regurgitating Plaintiffs' factual allegations that
Roth and Flemming--unaware of Defendant's intentions and
believing its representations to be true--passed along
Defendant's false promises to Plaintiffs is insufficient
to meet the pleading standard under Section 33.004 when
those factual allegations do not give rise to any legal
theory for liability. Merely relaying a representation
or promise is not in and of itself a breach of any legal
duty or standard. 19
The

court

Plaintiffs'

is

Second

not

persuaded

Amended

by

Complaint

Plaintiffs'
alleges

arguments.

that

Defendant

communicated with Roth Capital and Flemming "with the intent and
expectation that its promises and representations would be repeated
to investors such as Plaintiffs. " 20

Plaintiffs' argument that Roth

Capital and Flemming did not violate a
ultimately found to be true,

&

Rem. Code

applicable

legal

(emphasis added) .

§

33.011 (6)
standard,

Flemming

18

62.
were

third parties.

Civ.

or activity that violates an

(".
or

See Tex.

by

any

combination

of

these")

Also, at this stage the court may not review the

truth of the allegations.
S.W.3d at

even if

does not preclude Roth Capital and

Flemming from being responsible
Prac.

legal standard,

Therefore,
simply

In re Unitec Elevator Services Co., 178
even assuming that Roth Capital and

puppets

used

to

relay

information

from

Plaintiffs' Objections, Docket Entry No. 39, p. 5.

19Id.

20

p. 10

Plaintiffs' Second Amended Complaint, Docket Entry No. 20,
~ 32.

-10-

Defendant,

the allegations are sufficient to suggest that Roth

Capital and Flemming "caused or contributed to causing in any way
the harm for which recovery of damages is sought .
Civ. Prac. & Rem. Code
Because

§

Plaintiffs'

II

Tex.

33.011(6).
own allegations

name Roth Capital and

Flemming as involved in the alleged representations, Plaintiffs are
easily on fair notice of the claim involved.

At this early stage

of the case Defendant meets the low pleading threshold of the Texas
Rules of Civil Procedure for designating responsible third parties
because the nature of Roth Capital's and Flemming's responsibility
lies in Plaintiffs' Second Amended Complaint.
C.

Plaintiffs' Promissory Estoppel Claim
Plaintiffs argue that Section 33.004 does not apply to its

promissory estoppel claim because promissory estoppel sounds in
contract law and Section 33.004 is limited to claims based in tort
or the Texas Deceptive Trade Practices Act. 21

Defendant argues in

its Reply that none of Plaintiffs' cited cases apply to responsible
third parties, and that courts have granted motions to designate
responsible third parties for promissory estoppel claims. 22

But

since Defendant states that "Heartland need not seek to designate
Roth and Flemming as responsible third parties as to the promissory

21

Plaintiffs' Objections, Docket Entry No. 39, pp. 6-7.

22

Heartland Bank's Reply to Plaintiffs' Objections to Heartland
Bank's Motion for Leave to Designate Responsible Third Parties
("Defendant's Reply"), Docket Entry No. 41, p. 8.
-11-

estoppel claim, " 23 the court will not designate Roth Capital and
Flemming as responsible third parties as to this claim.
D.

Whether Heartland's Motion is Timely

Heartland filed its Motion to Designate on January 8, 2018. 24
Since docket call is scheduled for September 14, 2018,

25

Defendant

filed its Motion more than 60 days prior to trial as required by
Section 33.004(a).

Plaintiffs argue that Defendant's Motion to

Designate is untimely, however, because the applicable statute of
limitations

has

expired with

respect

to

Plaintiffs'

negligent

misrepresentation, money had and received, and unjust enrichment
claims. 26
1.

Applicable Law

Section 33.004(d) states that a defendant may not designate a
person as a responsible third party
after the applicable limitations period on the cause of
action has expired with respect to the responsible third
party if the defendant has failed to comply with its
obligations, if any, to timely disclose that the person
may be designated as a responsible third party under the
Texas Rules of Civil Procedure.
Id.

§

33.004(d).

"'This limitation seeks to address a defendant's

interest in identifying nonparties who may have some culpability

23Id.

24

See Defendant's Motion to Designate, Docket Entry No. 38.

25

See Docket Control Order, Docket Entry No. 25, p. 2.

26

Plaintiffs' Objections, Docket Entry No. 39, pp. 7-9.
-12-

while recognizing that a plaintiff has time limitations on pursuing
its claims against parties not already included in its suit."
Vasquez v. Tristar Products, Inc., Civil Action No. B:15-108, 2017
WL 7038196,

at *2

(S.D.

Tex.

May 22,

2017)

(quoting Ranolls v.

Dewling, Civil Action No. 1:15-111, 2016 WL 7356809, at *3
Tex. March 7,

2016)).

that a

"may request disclosure"

party

(E.D.

Texas Rule of Civil Procedure 194 states
of a

person who may be

designated as a responsible third party, and the responding party
"must serve a written response" within certain time limitations.
Tex. R. Civ. P. 194.2-194.3.
Federal district courts in the Fifth Circuit have varying
approaches to the disclosure requirement of Section 33.004(d) and
the Texas
court.

Rules

of

Civil

Procedure's

applicability

in

federal

See Morris v. Aircon Corp., Civil Action No. 9:16-35, 2017

WL 2927478, at *3 (E.D. Tex. June 15, 2017)
Fifth Circuit]

("Other courts [in the

have similarly struggled with the notion that in

federal court, a Texas rule of discovery could play a determining
role in the designation of responsible third parties.") ; Spencer v.
BMW of North America,
WL 1529773,

at

*2 n.3

LLC,
(W.D.

Civil Action No.
Tex.

April

2,

5:14-869-DAE,
2015)

("There

2015
is a

reasonable argument that Texas Rules of Civil Procedure ceased to
have any relevancy to the case once the action was removed to
federal court."); Withers v. Schneider National Carriers, Inc., 13
F. Supp. 3d 686,

690-91

(E.D. Tex. 2014)

(reasoning that Section

33.004 is substantive law applicable to litigation in federal court
-13-

even though "discovery is generally governed by the Federal, rather
than Texas Rules of Civil Procedure")
Civil Action No.
July 3,

2013)

Procedure are
Section

4:12-181-A,

2.

Webber, LLC v. Symons Corp. ,

2013 WL 3356291,

at *3

(N.D.

Tex.

(reasoning that either the Texas Rules of Civil
inapplicable in federal

33.004(b)

disclosure).

i

and

thus

court or apply only for

require

plaintiffs

to

request

The Fifth Circuit has not addressed this issue.

The Parties' Arguments

Plaintiffs did not request disclosure of potential responsible
third parties.

Defendant argues that Webber and Spencer therefore

apply and that Plaintiffs'

failure to request disclosure renders

Defendant's designation timely, even if the statute of limitations
has expired. 27
even

if

the

obligation
disclosure)

See Webber,
Texas

remains
i

2013 WL 3356291, at *2

procedural

rules

nonexistent

do

until

apply,
a

(holding that
a

defendant's

plaintiff

requests

Spencer, 2015 WL 1529773, at *2 ("Plaintiff has never

requested this information of Defendants.

Accordingly, Defendants

had no disclosure obligations regarding responsible third party
designations under the Texas Rules of Civil Procedure.").
Plaintiffs argue that Withers applies, and that a plaintiff's
request

for

necessary.

27

disclosure

of

responsible

third

Withers, 13 F. Supp. 3d at 690-91.

Defendant's
pp. 4-5.

Motion

to

Designate,
-14-

parties

is

not

But Withers analyzed

Docket

Entry

No.

38,

what

constitutes

"particularly,

"timely"

whether a

disclosure

under

disclosure made

Section

after the

33.004(d),
statute of

limitations has run can nevertheless be deemed 'timely.'"
690.
§

"In

33. 004 (d) ,

construing
however,

the

'timely

this

Court

disclosure'

must

presume

requirement
that

Legislature intended 'a just and reasonable result.'
the

'timeliness'

citations omitted)

requirement

has

no

meaning."

Id. at

Id.

the

of

Texas

Otherwise,
(internal

The court explained that

Notwithstanding the different disclosure obligations
imposed by the Federal and the Texas Rules of Civil
Procedure, a defendant has a duty to disclose the
existence of any potential responsible third parties as
soon as reasonably possible, so a plaintiff may have an
opportunity to join such parties before they are time
barred. The obligation on the Defendant to timely
discover and disclose any such responsible third parties
before the statute of limitations runs is but a fair and
reasonable burden when compared to the excessive burden
that would otherwise be visited upon the Plaintiff.
Id. at 691.

The court denied the defendant's motion because the

limitations period had run and the defendant had "ample information
available" to designate the third party since the day the incident
giving rise to the action occurred.

Id.

Defendant argues that even if a request for disclosure by the
plaintiff is not necessary, Withers has been distinguished by other
courts that have held that designation is timely even after the
limitations period has ended. 28

Defendant relies on Spencer and

-15-

Curlee v.

United Parcel Service,

Inc. ,

Civil Action No.

00344-P, 2014 WL 11516541 (N.D. Tex. Dec. 12, 2014).

3: 13-

In Spencer

the court reasoned that
To the extent that the Withers court was correct that
§ 33.004(d) contains a general timeliness requirement
separate from disclosure obligations under Texas Rules of
Civil Procedure, this Court finds the instant case
distinguishable.
In Withers, the plaintiff filed his
case on February 26, 2013, over seven months before the
statute of limitations period had run.
Id. at 687. As
such, the defendants had over seven months to discover
and timely designate the responsible third party before
the statute of limitations expired. Id. In the instant
case, Plaintiff filed suit eight days before the statute
of limitations expired.
Eight days would not have
permitted Defendants the opportunity to discover and
designate [the third party] as a responsible third party.
If the purpose of the timeliness requirement is to afford
the plaintiff an opportunity to name the responsible
third party as a defendant in the suit, Plaintiff
eliminated such a possibility by filing her case so close
to the expiration of the statute of limitations.
Spencer, 2015 WL 1529773, at *2 n.4.

In Curlee the court held that

the defendant's designation was timely even though limitations had
run,

in part because the plaintiffs had knowledge of the third

parties.

Curlee, 2014 WL 11516541, at *2.

It reasoned:

Plaintiffs filed this case one day before the expiration
of the limitations period.
Because of this,
Defendants had no realistic opportunity to designate
responsible third parties before expiration of the
limitations period. Additionally, Plaintiffs at that time
claimed civil conspiracy involving [the third parties] ,
and had knowledge of the threatening letter.
Plaintiffs' own complaint shows that they had notice of
these parties.
Id.

Plaintiffs responded that
unlike in those cases
[Spencer and Curlee] ,
the
identities of Roth and Flemming (HII's former CEO) were
ascertainable to Defendant from day one of this lawsuit,
-16-

May 12, 2015 . . . . In contrast to the one-day and eightday designation windows afforded to the Curlee and
Spencer defendants, Defendant in this case had nearly two
months from the filing of Plaintiffs' lawsuit to the
expiration of the limitations period to designate HII
management (including Flemming) or Roth as responsible
third parties, yet chose not to do so. 29
Since both parties agree that the limitations period for the
fraud claim has not expired, Defendant's Motion to Designate as to
that claim is timely.
limitations applies

The parties agree that a two-year statute of
to Plaintiffs'

negligent misrepresentation,

money had and received, and unjust enrichment claims, but disagree
on when the limitations period ran.
933

S.W.2d 1,

4-6

(Tex.

1996),

Plaintiffs cite S.V. v. R.V.,

to support their argument

"[t]hese causes of action accrued on July 9,
Defendant

noticed

investments .

the

default

and

2015,

swept

that

the day that

away

Plaintiffs'

" and that "the statute of limitations for these

claims expired on July 9,

2017. " 30

This was

two months after

Plaintiffs filed this action and six months before Defendant filed
the pending motion.
Co.,

Defendant cites Sabine Towing

Inc. v. Holliday Insurance Agency,

App.--Texarkana 2001, pet. denied),

29

Inc.,

&

Transportation

54 S.W.3d 57

(Tex.

to support its argument that

Plaintiffs' Objections, Docket Entry No. 39, p. 9.

30

Id. at p. 7.
Plaintiffs argue without citing any authority
that the limitations period for their claims for unjust enrichment
and money had and received also accrued on July 9, 2015.
Since
neither party has favored the court with briefing as to the accrual
date for those claims the court will assume for the purpose of
Defendant's Motion to Designate that their accrual date is the same
as the accrual date for Plaintiffs' negligent misrepresentation
claim.
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"[t] he claims accrued when the misrepresentations were made
Defendant argues that Plaintiffs'

" 31

claims are time-barred by the

two-year limitations period because "Plaintiffs' Complaint makes it
clear that the representations on which all their claims are based
were made between March 2015 and May 2015.
suit on May 12,

Plaintiffs filed this

more than two years later." 32

2017,

Defendant

argues that it was therefore "impossible for Heartland to designate
the third parties within the limitations period." 33
3.

Statute of Limitations

In Texas

" [a] s

a

rule,

a

cause of

action accrues when a

wrongful act causes some legal injury, even if the fact of injury
is not discovered until later, and even if all resulting damages
have not yet occurred."

Weaver and Tidwell, L.L.P. v. Guarantee

Co. of North America USA, 427 S.W.3d 559, 567
2014,

pet.

denied)

(Tex. App.--Dallas

(internal quotations and citations omitted) .

Texas courts use different methods to decide when an injury occurs
and thus have reached different conclusions on accrual.
v.

Louis A.

Williams

&

Associates,

Inc.,

(Tex. App.--Texarkana 2002, pet. denied)

See Rice

86 S.W.3d 329,

336-41

(discussing Texas courts'

various theories and applications of the "legal injury rule" and
the statute of limitations) .

31

Murphy v. Campbell established the

Defendant's Reply, Docket Entry No. 41, p. 5.

32Id.

33

Id.
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rule that "a person suffers legal injury from faulty professional
advice when the advice is taken[,]" unless the fault in the advice
is "inherently undiscoverable"

in which case the "claim accrues

when the claimant knows or in the exercise of ordinary diligence
should

know

of

the

"Discovery Rule").

wrongful

act

and

resulting

injury"

(the

964 S.W.2d 265, 271 (Tex. 1997).

Plaintiffs' reliance on S.V. v. R.V. is misplaced because that
case

did

not

involve

misrepresentation.

a

cause

of

action

Although Sabine Towing,

for

negligent

cited by Defendant,

involved negligent misrepresentation, Sabine Towing is a 2001 case,
dealt with a certificate of insurance, and has been distinguished
by other Texas courts.

Weaver is a recent Texas case that involves

a fact pattern similar to this case, analyzes Murphy, and has not
been distinguished or overruled.

Weaver,

427 S.W.3d 559.

Weaver the plaintiff issued performance bonds for a

In

company in

reliance on audited financial statements provided by the defendantaccounting firm.
its contracts,

Id. at 562-63.

After the company defaulted on

the plaintiff had to take over payment under its

performance bonds and suffered losses on the bonds.

Id.

The

plaintiff brought suit for injuries resulting from the defendantaccounting

firm's

negligent

financial statements.

misrepresentations

Id. at 563.

in

the

audited

The court held that the cause

of action for negligent misrepresentation accrued on the date the
advice was taken -- i.e. the date the plaintiff issued its first

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bond in alleged reliance on the defendant's representations in the
audit.

Id. at 568 (citing Murphy, 964 S.W.2d at 270).

Under Weaver's holding both parties are mistaken as to when
the causes of action accrued.

For the purpose of Defendant's

Motion to Designate, the court concludes that Plaintiffs' cause of
action for negligent misrepresentation accrued on May 20, 2015, the
day

they

invested

promises. 34

in

HII

in

alleged

reliance

Plaintiffs filed suit on May 12, 2017,

year limitations period.
ran on May 20,

2017,

on

35

Defendant's

within the two-

Since the two-year statute of limitations
Defendant

would have

had eight

days

to

designate responsible third parties within the limitations period.
4.

Timely Disclosure

The court agrees with other courts
§

in this District

that

33.004(d) contains a general timeliness requirement as outlined

in Withers.

See

Vasquez, 2017 WL 7038196, at *2 (holding that the

defendants

complied

with

disclosure

requirements

when

they

disclosed their relationship to the third parties as part of the
initial

disclosures);

Armstrong

v.

National

Shipping

Co.

of

Saudi Arabia, Civil Action No. 4:15-868, 2017 WL 2156358, at *1-3
(S.D.

Tex.

May

17,

2017)

(citing

constitutes "timely disclosure").

Withers

Additionally,

Withers, Spencer, and Curlee can be reconciled.

34

See Plaintiffs'
No. 20, pp. 6-8 ~ 25.
35

Second

to

Amended

determine

what

the holdings of

"[Withers] did not

Complaint,

Docket

Entry

See Plaintiffs' Original Complaint, Docket Entry No. 1.
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announce

a

applicable

general

rule

statute of

that

all

limitations

disclosures
have

untimely for purposes of§ 33.004(d) ."
*2.

made

after

expired must

the

be deemed

Morris, 2017 WL 2927478, at

Rather Withers states:
To be clear, by this holding the Court does not purport
to announce a general rule that all disclosures made
after the applicable statute of limitations have expired
must be deemed untimely for purpose of § 33. 004 (d) .
§ 33.004(d) must be applied in those circumstances as the
facts of each case require. Timeliness is determined in
every trial court on a case by case basis.

Withers, 13 F. Supp. 3d at 691.
Because Plaintiffs knew about Roth Capital and Flemming before
they filed their Second Amended Complaint,

Defendant's "duty to

disclose the existence of any potential responsible third parties
as

soon

as

reasonably

possible,

so

a

plaintiff

may

have

an

opportunity to join such parties before they are time barred" was
fulfilled.

Withers,

13 F.

Supp.

3d at 691.

Defendant did not

violate disclosure requirements because the existence of potential
third parties was known to Plaintiffs -- Plaintiffs' Second Amended
Complaint discusses Roth Capital's and Flemming's involvement at
length.

See

Curlee,

2014 WL 11516541, at *2

("Plaintiffs' own

complaint shows that they had notice of these parties."); In re CVR
Energy.

Inc.,

500 S.W.3d 67,

2016, pet. denied)

80

(Tex. App.--Houston

[1st Dist.]

(holding that the defendant provided sufficient

notice because the plaintiffs
amended petition of

[the

"include [d]

third party's]

misconduct").
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allegations
allegedly

in their

intentional

Moreover,

the court agrees with the analysis in Spencer and

Curlee that the court should consider Plaintiffs' timing in filing
suit

to

determine

the

"just

and

reasonable"

result.

Here,

Plaintiffs filed their case eight days before the expiration of the
statute of limitations, which did not afford Defendant a realistic
opportunity to

designate

limitations period.
unique

a

third party before

the

end of

the

The "just and reasonable" result under the

circumstances

of

this

case

is

to

allow

Defendant

to

designate Roth Capital and Matthew Flemming as responsible third
parties even though the limitations period has expired.
III.

Conclusions and Order

For the reasons explained above, Heartland Bank's Motion for
Leave to Designate Responsible Third Parties (Docket Entry No. 38)
is GRANTED as to Plaintiffs'

fraud,

negligent misrepresentation,

money had and received, and unjust enrichment claims and is DENIED
as to Plaintiffs' promissory estoppel claim.
SIGNED at Houston, Texas, on this 28th day of February, 2018.

SIM LAKE
UNITED STATES DISTRICT JUDGE

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