Aubrey et al v. Barlin et al

Filing 536

ORDER MOOTING 453 Motion for Extension of Time to File Response/Reply ; GRANTING 470 Motion to Dismiss for Failure to State a Claim; DENYING 471 Motion to Dismiss. Terminated party Jeffrey Turner, Lesley Karen Williams, Vitaly Zaretsky, Nort h American Title Company and North American Title Company.; GRANTING 475 Motion to Dismiss. Terminated party Jeffrey Turner, Lesley Karen Williams, Vitaly Zaretsky, North American Title Company and North American Title Company.; DENYING 476 Mot ion to Dismiss. Terminated party Jeffrey Turner, Lesley Karen Williams, Vitaly Zaretsky, North American Title Company and North American Title Company.; GRANTING 477 Motion to Dismiss for Failure to State a Claim; DENYING 478 Motion to Dismiss. Terminated party Jeffrey Turner, Lesley Karen Williams, Vitaly Zaretsky, North American Title Company and North American Title Company.; DENYING 480 Motion to Dismiss. Terminated party Jeffrey Turner, Lesley Karen Williams, Vitaly Zaretsky, North American Title Company and North American Title Company.; GRANTING 482 Motion to Dismiss. Terminated party Jeffrey Turner, Lesley Karen Williams, Vitaly Zaretsky, North American Title Company and North American Title Company.; GRANTING 506 Motion for Leave to File; GRANTING 510 Motion for Leave to File Signed by Judge Sam Sparks. (dm)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION

FILED
*7

MAY

2O4

STEVEN B. AUBREY, BRIAN E. VODICKA, and
CHESTER D. TUTOR,
Plaintiffs,
Case No. A-1O-CA-076-SS

-vs-

PETER E. BARLIN, GREGORY H. LAHR,
SANDRA F. GUNN, NORTH AMERICAN TITLE
COMPANY, LESLEY WILLIAMS, JEFFREY
TURNER, VITALY ZARETSKY, and GENNADY
BOROKHOVICH,
Defendants.

ORDER
BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and

specifically the various motions to dismiss Plaintiffs' Second Amended Consolidated Complaint

("Live Complaint") [#467]. With the exception of Jeffrey Turner and Gennady Borokhovich,' the
Defendants have each filed two motions seeking the dismissal of some or all of the Live Complaint.

of their first motions, Defendants move to dismiss pursuant to Federal Rule of Civil

In each

Procedure 8(a), contending that the Plaintiffs' most recent attempt to plead their claims is actually
less cogent than the prior, criticized versions, and, because they have had more than enough

opportunities to plead their claims, Plaintiffs should not be permitted further amendments and the
case should be dismissed with prejudice.

See

Motions to Dismiss [##471, 476, 478,

4801.2

In the

second group of motions, Defendants seek the dismissal of several claims pursuant to Federal Rule

Turner is proceeding pro Se. Borokhovich has never been served in this case. Plaintiffs' Motion for Substituted
Service by Publication to Borokhovich was denied by the Magistrate Judge on December 6, 2013 because it was moot
at that time, and no subsequent attempt at service is reflected in the record.
2

The Court GRANTS Plaintiffs' Motion for Leave to File a Sur-Reply to Defendant Lahr's Reply [#506].

of Civil Procedure 1 2(b)(6). See Motions to Dismiss [##470, 475,477, 482]? Having reviewed these
motions, the Plaintiffs' responses, the Defendants' replies, the governing law, and the file as a whole,
the Court now enters the following opinion and orders.
I.

Defendants' Rule 8(a) Motions
In the four long years this case has been pending, the Court has repeatedly been critical of

the Plaintiffs' pleadings. As early as April 2010, the Court ordered Plaintiffs to file an amended

complaint because the complaint on file was:
far too lengthy, disorganized, and full of extraneous facts. It is, for the most part, a
rambling diatribe against the Defendants, and thus lacks a short, plain statement of
any single cause of action. Furthermore, it lacks a statement of the particulars of the
fraud by which the Plaintiffs claim they were injured.

Order [#61] at 6. On May 11, 2010, Plaintiffs filed their First Amended Complaint [#63], which
reduced the length of the pleading to 39 pages, and was far more clear than the earlier pleading.

Unfortunately, only five months later, Plaintiffs filed their Second Amended Complaint [#86],
which, at 66 pages, was more than 50% longer than the prior complaint. Following a barrage of

motions to dismiss, for sumrnaiy judgment, and to stay or extend the deadlines in the case, in May
2011, the Court reset the case for trial for October 2012. It noted there had "been pending motions
to dismiss through almost the entirety of this case" because of 'Plaintiffs' irresponsibly deficient

pleadings." Order [#140] at 9. After reminding the parties it had "noted on several occasions its
displeasure with Plaintiffs' apparent inability to plead sufficiently and properly," the Court warned
Plaintiffs it "is not required to, nor is it any longer inclined to, sift through a maze of pleadings and

The Court GRANTS Plaintiffs' Motion for Leave to File a Sur-Reply to Defendant NAT/Williams Reply

[5lOJ. The Court further DISMISSES AS MOOT Plaintiffs' Motion to Extend Deadline to Respond to Defendant
William Hemphill, Jr.'s Motion to Dismiss [#4531.

evidence in an attempt to determine whether Plaintiffs have a viable case." id. After the October
2012 trial date passed and the multiple related lawsuits were consolidated, the Court gave the
Plaintiffs what it believed would be one final opportunity to state their claims before trial. As has
been detailed in recent orders, Plaintiffs instead waited more than seven months to file an amended

complaint, which stated entirely new claims, and added a host of new parties. This led to the Court
striking that pleading, and to the eventual filing of the Second Amended Consolidated Complaint
[#467], the document the Defendants now seek to have dismissed. That document is 55 pages long,

and incorporates by reference the 43-page RICO Statement filed with the Second Amended

Consolidated Complaint [#468].
In their Rule 8(a) Motions to Dismiss, Defendants complain that Plaintiffs' Second Amended

Consolidated Complaint is lengthy, verbose, contradictory, repetitive, and confusing, and thus

violates Rule 8(a). While the Second Amended Complaint remains deserving of much of this
criticism, Plaintiffs' pleading is not going to improve. It is well past time to move this case forward.
The liberal pleading requirements of Rule 8 require "a short and plain statement of the claim

showing that the pleader is entitled to relief."

FED.

R. Civ. P. 8(a)(2). The primary purpose of the

complaint is to "give the defendant fair notice of what the.
it rests." Erickson

v.

.

.

claim is and the grounds upon which

Pardus, 551 U.S. 89, 93(2007). Rule 8 explicitly permits a party to state "as

many separate claims or defenses as it has, regardless of consistency."

FED.

R. Civ. P. 8(d)(3).

The Court concludes the Second Amended Complaint, though far from perfect, is sufficient
to satisfy the requirements

of Rule

8. See Skinner v. Switzer, 131 S.Ct. 1289, 1296 (2011)

("[Plaintiff'sI complaint is not a model of the careful drafter's art, but under the Federal Rules of
Civil Procedure, a complaint need not pin plaintiff's claim for relief to a precise legal theory."). One

3

of the factors contributing to this conclusion is that this case has been pending so long, and the
defendants and the Court have incurred significant costs to get to this point. See SerVaas Inc.

v.

Republic oJIraq, 540 F. App'x. 38,42 (2d Cir. 2013) (unpublished) (denying motion to dismiss for

forum non conveniens when it was filed more than two-and-a-half years after plaintiff filed
complaint). Further, the confusion still present in the Second Amended Complaint is substantially
mitigated by the rulings which follow below. Thus, based upon the foregoing, the Court DENIES

Defendants' Rule 8(a) Motions to Dismiss [##471, 476, 478, 4801.

II.

Rule 12(b)(6) Motions
Defendants Barlin, Lahr, Gunn, Zaretsky, North American Title Company (NAT), and

Williams move to dismiss Plaintiffs' Racketeer Influenced and Corrupt Organizations Act (RICO)
claims as barred by the Private Securities Litigation Reform Act (PSLRA) and for failure to state a
claim. NAT and Williams also contend the RICO claims are barred by resjudicata. Finally,NAT and
Williams move to dismiss Tutor's negligence, gross negligence, conspiracy to commit fraud and

beneficiary of fraud claims on statute of limitations grounds.

RICO Claims

A.

Plaintiffs' Second Amended Consolidated Complaint alleges Defendants violated RICO,
U.S.C.

§§

1

18

962(c)(d). Four years ago, represented by their first round of lawyers, Plaintiffs asserted

similar RICO claims. The then-defendants moved for dismissal, arguing the RICO claims were
barred by the PSLRA. See Motion to Dismiss, filed on April 1, 2010 [#34]. At a hearing on the
motions, the Court warned Plaintiffs the RICO claims appeared to be meritless and Plaintiffs were
in danger of Rule 11 sanctions. See Hrg. Tr. [#65] at 14-15. Following the hearing, Plaintiffs decided

to abandon their RICO claims and filed an Amended Complaint alleging various fraud and securities

claims instead. See Amended Complaint [#63]. Now, four years and several rounds of attorneys later,
the Plaintiffs seek to revive their RICO claims in the Second Amended Complaint. Defendants again

argue Plaintiffs' RICO claims are barred under the PLSRA.

The RICO statute provides a private right of action for a person harmed by a pattern of

racketeering activity. 18 U.S.C.

§§

1962, 1964(c); Affco Investments 2001, L. L. C.

v.

Proskauer Rose,

L.L.P., 625 F.3d 185, 189 (5th Cir. 2010). "However, Congress limited this right by amending RICO
in 1995, as part

of the PSLRA, to bar civil RICO claims based on 'any conduct that would have been

actionable as fraud in the purchase or sale of securities." Affco, 625 F.3d at 189 (quoting 18 U.S.C.
§

1964(c)). "Accordingly, if the racketeering activity alleged to support a RICO claim is

characterized by the plaintiffs as wire, mail, or bank fraud, but it also amounts to securities fraud,
the claim must be dismissed." RA Investments I, LLC
1565-G, 2005 WL 1356446, at

5

v.

Deutsche Bank AG, No. Civ.A.3:04-CV-

(N.D. Tex. June 6, 2005) (citing In re Enron Corp. Sec.,

Derivative & ERISA Litig., 284 F. Supp. 2d 511,619 (S.D. Tex. 2003)); see also Bald Eagle Area
Sch. Dist.

v.

Keystone Fin., Inc., 189 F.3d 321, 330 (3d Cir. 1999) ("[A] plaintiff cannot avoid the

5

RICO Amendment's bar by pleading mail fraud, wire fraud and bank fraud as predicate offenses in
a civil RICO action if the conduct giving rise to those predicate offenses amounts to securities

fraud.")

Through the majority of this case's long and tortured history, Plaintiffs have consistently
litigated their claims as fraud in the sale of securities, and not under RICO. Plaintiffs have repeatedly
conceded in their pleadings that the loans at issue in this case "constitute securities" within the

meaning of federal and state securities laws.

See

Original Complaint [#1] at ¶ 102; Amended

Complaint [# 63] at ¶15; Second Amended Complaint [#86] at ¶ 182; Third Amended Complaint
[#202] at ¶ 183. Plaintiffs rely upon the very same conduct and transactions for both their purported

RICO claims and their securities fraud claims. Accordingly, Plaintiffs' RICO claims are barred under

Section 107 of the PSLRA. Independent of the PSLRA bar, the RICO claims should also be
dismissed because Plaintiffs' attempt to reassert the previously-abandoned claims at this late stage

of the proceedings is indicative of bad faith.

See State of La.

v.

Litton Mortg. Co.,

50 F.3d 1298,

1304 (5th Cir. 1995) (affirming district court's denial of motion to amend where plaintiff attempted
to resurrect an abandoned RICO claim after multiple amendments and court found the proposed

amendment was "indicative of possible bad faith and dilatory motive at the worst, and weak attempts
at artful pleading at best")

With regard to Vodicka and Aubrey's RICO claims against North American Title and Lesley

Williams, NAT and Williams also contend that the claims should be dismissed on res judicata
gounds. As these Defendants note, Vodicka and Aubrey brought suit against NAT in state court in

Dallas in 2O11. In their Third Amended Petition filed there, Vodicka and Aubrey presented both

"Direct Causes of Action" and "Dependent or Derivative Causes of Action." The direct claims were
breach of fiduciary duty, Texas Securities Act violations, conspiracy to commit and beneficiary of
fraud, and participation in breach of fiduciary duty, all against NAT. The dependent or derivative

claims were breach of fiduciary duty, violations of the Texas Securities Act, transferring funds of
criminal activity, conspiracy to commit and beneficiary of fraud, and participation in breach of
fiduciary duty, all arising out of the acts of what was referred to as the "Gunn-Lahr-Barlin

Syndicate." On August 8, 2012, NAT was awarded summary judgment on all of the direct causes

of action. [#477-3]. That judgment was affirmed on appeal earlier this year. Vodicka
American Title Co., No. 05-l3-00126-CV, 2014 WL 348530 (Tex.

v.

North

App.Dallas Jan. 30, 2014, no

pet.). NAT and Williams argue the RICO claims are part of the same transaction (the loan) that gave

rise to Vodicka and Aubrey's other claims, and because they could have been brought in the Dallas

litigation, they are precluded by res judicata based on the final judgment in that case. Igal

v.

Brightstar Info. Tech., 250 S.W.3d 78, 86 (Tex. 2008) ("Resjudicata bars the relitigation of claims
that have been finally adjudicated or that could have been litigated in the prior action.")

Vodicka and Aubrey do not contest their RICO claims arise out of the same transaction as
the claims stated against NAT in the Dallas case. Rather, they respond the RICO claims are not

precluded because they actually filed a RICO claim in the Dallas case, summary judgment was not
granted on it, and there is no final judgment barring the claim. They note their direct and derivative

The case was styled Vodicka v. North American Title Co., No. DC-I 1-01 142, in the 162nd Judicial District
Court of Dallas County, Texas. Williams was not a party to the case, but she argues that she is nevertheless a beneficiary,
for resjudicata purposes, of the judgment in that case, as she was in complete privity with NAT dueto being sued for
actions within the scope of her employment with NAT. Mot. Dism. [#477], at 8 (citing Hammonds v. 1-Jolines, 559
S.W.2d 345, 347 (Tex. 1977)). The Third Amended Petition further specifically alleged NAT was "liable for the actions
of its employees, including Williams." [#477-2] at ¶ 27. Plaintiffs do not contest this point anywhere in their response.
7

claims were separated by an order entered on October 20, 2011, severing the cases. The derivative
claims were given a new number, DC-11-13471, and were then

stayed.5

On July 12, 2012, a month

prior to the summaryjudgment being entered, Plaintiffs filed a motion in the severed and stayed case

requesting leave to file an amended petition and asking that the stay be lifted. [#493-8]. The amended
petition they sought leave to file added a RICO claim directly against NAT. [#493-9]. The day after
the Dallas court granted summary judgment on the direct claims (which took place on August 8,
2012), NAT removed the stayed case to federal court based on the proposed amended petition's

assertion of a RICO claim. Ultimately that case was transferred to this court, and consolidated into
this action. Vodicka and Aubrey argue these facts demonstrate "[t]here was never a final

adjudication, and has never been a final adjudication, on the merits of those claims which were
severed, including the RICO claim, as necessary to establish the defense ofresjudicata." [#493] at

¶ 6 (emphasis omitted).
NAT contends this "misunderstand[s] the Motion to Sever filed in the Dallas County State
Court case." [#50 11 at 2. It asserts the RICO claim should never have been filed in the stayed case,

and it only removed that case to federal court to avoid a claim it had waived its right to do so by not

seeking removal within 30 days, as required in 28 U.S.C.

§

1446(b)(3). Instead, because it was a

direct claim, NAT asserts the RICO claim should have been filed in the case in which summary

judgment was granted on August 8, 2012, and the claim is therefore barred as it could have been
brought in that suit.

Those claims were derivative ofthe claims Vodicka and Aubrey had already filed in this Court against Gunn,
Lahr, and Barlin, in the original case ofthe three cases consolidated into this action, No. A-lO-CA-076 SS. The stay was
in deference to this Court's jurisdiction over those claims.
[.]

[]

To call this situated confused is an understatement. The confusion, however, is entirely of
the Plaintiffs' doing, as they chose to file multiple actions against multiple related parties in multiple

courts. The Court's review of the state court record shows that on July 12, 2012, Aubrey and

Vodicka filed a motion asking the state court for two things: (1) a lifting of the stay; and (2) for leave
to file their Second Amended Petition. [#493-8]. In their own words, "this matter should be returned

to the active docket and that Plaintiffs be

permitted

to file

their Second Amended Petition." Id.

(emphasis added). When the case was removed to federal court in Dallas, no order had been entered
on this motion. The stay was never lifted, and leave to file the amended petition was never granted,

either before or after removal. Rather, after the case was transferred to this Court, and before it was

consolidated into this case, Aubrey and Vodicka sought leave to file an amended pleading. No. A- 12CV-768 SS [#27]. At the hearing in November 2012, during which the cases were consolidated, the
Court granted that motion, and the Third Amended Petition was filed on November 26, 2012. [#47].

Thus, the first time a RICO claim by Aubrey and Vodicka was properly filed against NAT

or Williams was on November 26, 2012. Summary judgment was granted in NAT's favor by the
Dallas state court on August 8, 2012. As noted at the outset, Aubrey and Vodicka do

notnor could

theycontest the RICO claim arises out of the very same loan transaction which is the source of the
claims that were dismissed by the Dallas state court in August 2012. Texas has adopted the

"transactional approach" to claim preclusion, and thus a claim which could have been brought in a
lawsuit in which final judgment has been entered is barred if it arises out of the same transaction that
was the basis of the suit. Igal, 250 S.W.3d at 86. Applied here, that doctrine means Aubrey and

Vodicka's RICO claims against Williams and NAT are barred by res judicata, as well as for the
reasons already stated above.

Based upon the foregoing, the Court GRANTS Defendants Barlin, Lahr, Gunn, Zaretsky,
Williams, and NAT's Motions to Dismiss Plaintiffs' RICO claims under 18 U.S.C. § 1962(c)(d)
[##470, 475, 477, 482]. Although Defendant Jeffrey Turner did not file a motion to dismiss, the

Court sua sponte DISMISSES Plaintiffs' RICO claims6 against Defendant Jeffrey Turner for failure
to state a claim, for the same reasons as apply to the other defendants.
B.

Limitations

NAT and Williams also move to dismiss Plaintiff Chester Tutor's negligence, gross
negligence, and conspiracy to commit and beneficiary of the fraud claims on the basis that they are
barred by Texas's two-year statute of limitations. "A statute of limitations may support dismissal
under Rule 1 2(b)(6) where it is evident from the plaintiffs pleadings that the action is barred and the

pleadings fail to raise some basis for tolling or the like."Jones v. Alcoa, Inc., 339 F.3d 359, 366 (5th
Cir. 2003).

Under Texas law, the statutes of limitations for negligence, gross negligence, and conspiracy
to commit and beneficiary of the fraud claims are two years. TEx. Civ. PRAC.
CODE

§

16.003(a); KPMG Peat Marwickv.

(Tex.l999); Navarro

v.

Grant

Harrison

Thornton, LLP,

Cnty

Hous. Fin. Corp.,

316 S.W.3d 715, 719 (Tex.

&

REM.

988 S.W.2d 746, 747

App. Houston

[14th

Dist.] 2010, no pet.). The applicable statutes of limitations generally begin to run when the facts that

authorize a plaintiff to seek judicial relief come into existence. Exxon Corp.
Co.,

L.C.,

348 S.W.3d 194, 202 (Tex. 2011). "In most cases, a cause

v.

Emerald Oil & Gas

of action accrues when a

wrongful act causes a legal injury, regardless of when the plaintiff learns of that injury or if all

6

Plaintiffs have only asserted RICO claims against Defendant Turner.
10

resulting damages have yet to occur." Provident Life andAcc. Ins. Co.

v.

Knott, 128 S.W.3d 211,

221 (Tex. 2003).

Tutor alleges he invested $600,000.00 in a $4.5 million syndicated bridge loan. Complaint
at ¶ 21. Tutor further alleges the borrower of the bridge loan did not own all of the property that

served as collateral for the loan except the title to the 100-acre tract in Wildhorse Ranch. Complaint
at ¶ 20. According to Plaintiffs' allegations, Tutor's loss on the investment occurred on February 3,

2009, when Southside Bank foreclosed on the 100-acre tract in Wildhorse Ranch and took title to
it for the amount

of the indebtedness. Defendants contend Tutor suffered legal injury when his loan

was not repaid and the foreclosure took place on February 3, 2009. Plaintiffs conceded in a

previously filed complaint that February 3, 2009, was in fact the date Tutor's claims accrued. See
First Consolidated Amended Complaint at ¶ 158 [#326] ("Due to the inherent undiscoverable nature

of Plaintiffs' injuries, as well as Defendants' fraudulent concealment of the facts underlying
Plaintiffs' claims, the February 3, 2009 foreclosure was the first possible date Plaintiffs could have
known oftheir fraud and conspiracy claims."). Tutor's negligence, gross negligence, and conspiracy
to commit fraud claims were first stated on May 14, 2012, well past the date the statute on these

claims ran (February 3, 2011). See No. A-12-CA-503 SS [#1].

Tutor contends his pleading of fraudulent concealment in the Second Amended Complaint
tolls the statute of limitation. But he fails to note this only addresses his RICO claims, not his
negligence and conspiracy claims. See Live Complaint [#467] at ¶J 44-46. Moreover, it is the fact

of injurynot when it is discoveredthat matters. Knott, 128 S.W.3d at 221;

S. V. v. R. V.,

933

S.W.2d 1,4 (Tex. 1996). Because the statute of limitations has run on these claims, and there is no
basis for equitable tolling, the Court GRANTS Defendants North American Title Company and

Lesley Karen Williams' Motion to Dismiss [#477] Plaintiff Chester Tutor's negligence, gross

negligence, and conspiracy to commit fraud claims.

III.

Conclusion
Accordingly,
IT IS ORDERED that Plaintiffs' Motion for Leave to File a Sur-Reply to Defendant

Lahr's Reply [#506] is GRANTED;
IT IS FURTHER ORDERED that Plaintiffs' Motion for Leave to File a Sur-Reply
to Defendants NAT/Williams's Reply [#5 101 is GRANTED;
IT IS FURTHER ORDERED that Plaintiffs' Motion to Extend Deadline to Response
to Defendant William Hemphill, Jr.'s Motion to Dismiss [#453] is DISMISSED AS MOOT;

IT IS FURTHER ORDERED that Defendants Peter E. Barlin, Gregory H. Lahr,

Sandra F. Gunn, Vitaly Zaretsky, North American Title Company, and Lesley Karen

Williams' Rule 8(a) Motions to Dismiss {##471, 476, 478, 480] are DENIED;
IT IS FURTHER ORDERED that Defendants Peter E. Barlin, Gregory H. Lahr,
Sandra F. Gunn, Vitaly Zaretsky, Lesley Karen Williams, and North American Title

Company's Motions to Dismiss [##470, 475, 477, 482] are GRANTED;
IT IS FURTHER ORDERED that Plaintiffs' RICO claims against Defendant Jeffrey

Turner are DISMISSED sua

sponte

for failure to state a claim;

IT IS FURTHER ORDERED that Plaintiffs RICO claims against Defendant Gennady

Borokhovich are DISMISSED WITHOUT PREJUDICE sua
claim and failure to obtain service of process;

12

sponte

for failure to state a

IT IS FINALLY ORDERED that the following Defendants, and all claims against

them, are DISMISSED WITH PREJUDICE: North American Title Company, Lesley Karen
Williams, Jeffery Turner, and Vital

SIGNED this

Zaretzky.7

day of Apr4 2014.

S

MSPARKS

U

UNITED STATES DISTRICT JUDGE

The only remaining claims in this lawsuit are Plaintiffs' claims against Defendants Peter E. Barlin, Gregory
H. Lahr, and Sandra F. Gunn under the Texas Securities Act (Counts Nine and Ten).
13