Covarrubias v. Dukes et al

Filing 85

REPORT AND RECOMMENDATIONS re 75 Motion for Summary Judgment, filed by Adrian Cervantes Covarrubias; 76 Motion for Default Judgment, filed by Adrian Cervantes Covarrubias. Signed by Judge Mark Lane. (jk)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS,
AUSTIN DIVISION
ADRIAN CERVANTES COVARRUBIAS, §
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PLAINTIFF,
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V.
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GREGORY E. DUKES; HOUSTON
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AVIATION TECHNICAL SERVICES,
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INC., ALLIANCE AIRPARTS, INC.,
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CARLOS RYERSON; AND
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RYERSON AND ASSOCIATES, P.C.,
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AND MANAGEMENT BY GT
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SERVICES, INC.,
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DEFENDANTS
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CAUSE NO. 1:14-CV-379-LY

REPORT AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
TO: THE HONORABLE LEE YEAKEL
UNITED STATES DISTRICT JUDGE
Before the Court are the following pending dispositive motions and responsive pleadings:
Plaintiff’s Motion for Summary Judgment Against Gregory Dukes [Clerk’s Dkt. No. 75], Duke’s
Response in Opposition thereto [Clerk’s Dkt. 82], Plaintiff’s Reply to Dukes’ Response [Dkt.
No. 82]; and Plaintiff’s Motion for Default Judgment Against Houston Aviation Technical Servs,
Inc. [Clerk’s Dkt. No. 76].
All dispositive motions in this case have been referred to the undersigned by United
States District Judge, Lee Yeakel, for a Report and Recommendation as to the merits pursuant to
28 U.S.C. § 636(b), Rule 72 of the Federal Rules of Civil Procedure, and Rule 1(d) of Appendix
C of the Local Rules of the United States District Court for the Western District of Texas. After
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reviewing the pending motions, the relevant case law, as well as the entire case file, the
undersigned issues the following Report and Recommendation
I. Background
This case arises out of Plaintiff’s allegations that Defendant Gregory E. Dukes (“Dukes”)
stole the Plaintiff’s private airplane in May of 2012 and sold it for parts in August of 2012.
Third Am. Compl. ¶ 13 [Clerk’s Dkt. No. 43]. Plaintiff allegedly sent the aircraft to Dukes’
repair facility, Houston Aviation Technical Services, Inc. (“HATS”), for repairs in 2009. Id. at
¶ 12. Also in 2009, Plaintiff hired Defendant Carlos Ryerson and his law firm, Ryerson and
Associates, P.C. (collectively, “the Ryerson Defendants”), to set up a trust to allow Plaintiff, a
citizen of Mexico, to register the airplane in the United States under the rules applicable to
United States Citizens. Id. at ¶ 11.
Ryerson resigned as trustee of the aircraft trust in November of 2011. Id. at ¶ 21. Dukes
allegedly forged Ryerson’s signature to transfer ownership of the plane from the Trust to Dukes,
effective December 15, 2011, and filed the Bill of Sale with the FAA in May of 2012. Id. at ¶
18. Plaintiff asserts he “found out about the Theft in July of 2012 when a title search was
performed by Insured Aircraft Title Service, Inc.” Id. at ¶ 17.
Dukes sold the plane to Alliance Air Parts, Inc. (“Alliance”) in August of 2012. Id.
at ¶ 18. Dukes disbursed some of the proceeds of that sale to Plaintiff’s pilot, Jose Bautista
Lopez (“Bautista”), and allegedly transferred his own share of the proceeds of aircraft sale to his
company, Defendant Management by GT Services, Inc. (“GT Services”). Id. at ¶ 17.
Plaintiff brought suit in this Court on May 2, 2014. See generally Orig. Pet. [Clerk’s
Dkt. 1]. Plaintiff named as defendants all of the parties listed above, with the exception of GT
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Services and Bautista. Id. 1 Plaintiff first named GT Services as a Defendant in the Third
Amended Complaint, filed October 23, 2014, which is the operative pleading in this matter.
[Clerk’s Dkt. 43.] Baustista is not a Defendant.
II. Pending Motions
A. Motion for Summary Judgment
1. Standard of Review
Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil Procedure
only “if the movant shows there is no genuine dispute as to any material fact and that the movant
is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a). A dispute is genuine only if
the evidence is such that a reasonable jury could return a verdict for the nonmoving party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254,106 S. Ct. 2505, 2513 (1986).
The party moving for summary judgment bears the initial burden of “informing the
district court of the basis for its motion, and identifying those portions of [the record] which it
believes demonstrates the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett,
477 U.S. 317, 323, 106 S. Ct. 2548, 2553 (1986). The burden then shifts to the nonmoving party
to establish the existence of a genuine issue for trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 585-87,106 S. Ct. 1348, 1355-56 (1986); Wise v. E.I. Dupont de
Nemours & Co., 58 F.3d 193, 195 (5th Cir. 1995). The parties may satisfy their respective
burdens by tendering depositions, affidavits, and other competent evidence. Estate of Smith v.
United States, 391 F.3d 621, 625 (5th Cir. 2004).
The Court will view the summary judgment evidence in the light most favorable to the

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Plaintiff and Alliance have since mutually dismissed their claims and counterclaims against each other. [Clerk’s
Dkt. 65, 70].

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non-movant. Griffin v. United Parcel Serv., Inc., 661 F.3d 216, 221 (5th Cir. 2011). The nonmovant must respond to the motion by setting forth particular facts indicating that there is a
genuine issue for trial. Miss. River Basin Alliance v. Westphal, 230 F.3d 170, 174 (5th Cir.
2000). “After the non-movant has been given the opportunity to raise a genuine factual issue, if
no reasonable juror could find for the non-movant, summary judgment will be granted.” Id.
2. Objection to Dukes’ Evidence Relating to Affirmative Defenses
Plaintiff includes in his motion for summary judgment a request to strike all evidence
relating to Dukes’ affirmative defenses, apparently as a discovery sanction for “fail[ing] to file
his Disclosures under the scheduling order.” Mot. Summ. J. [Clerk’s Dkt. 75] at 9-10. The
Scheduling Order in this case specifically orders the parties to “serve, but not file, the
disclosures required by Federal Rule of Procedure 26(a)(2)(B).” Order of October 1, 2014
[Clerk’s Dkt. 37] (emphasis added). Plaintiff does not allege Dukes failed to serve responses to
Rule 26 disclosures, and thus Plaintiff has stated no breach of any discovery duty on Dukes’ part.
Plaintiff complains regarding the sufficiency of Dukes’ responses to various written
discovery requests, Mot. Summ. J. [Clerk’s Dkt. 75] at 9-10, but Plaintiff has filed no motion to
compel discovery or otherwise objected to the sufficiency of Defendant’s discovery responses
within the discovery period. See Order of October 1, 2014 [Clerk’s Dkt. 37] (setting close of
discovery for January 30, 2015 and expressly stating “there will be no intervention by the Court
except in extraordinary circumstances” after this deadline). Plaintiff’s first objections to the
sufficiency of Dukes’ discovery responses appear in the context of this motion for summary
judgment, seeking to prevent Dukes from presenting evidence in support of any defenses he may
raise. Mot. Summ. J. [Clerk’s Dkt. 75] at 9-10.

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Federal Rule of Civil Procedure 37 authorizes a court to sanction a party that flagrantly
and intentionally disregards the court’s orders concerning discovery. In this case, Plaintiff has
not pointed to any such disobedience, and the undersigned declines to impose the severe sanction
of striking any competent summary judgment evidence available to the Defendant.
3. Analysis of Summary Judgment Evidence
Plaintiff alleges Greg Dukes stole his aircraft and sold it, splitting the proceeds with
Plaintiff’s captain, Bautista. Mot. Summ. J. [Clerk’s Dkt. 75] at 10-11. The evidence adduced
by Plaintiff in support of this contention establishes the following:
As of November, 2011, Plaintiff was the sole member of the company, Falcon N297PF,
LLC, that had previously held the plane in trust for Plaintiff’s benefit through trustee, Carlos
Reyerson.

See Id. at Ex. 1, Affidavit of Adrian Cervantes Covarrubias ¶ 2 and attached

November 9, 2011 Resolutions Adopted by Unanimous Consent in Lieu of Annual Meeting of
the Sole Member of Falcon N297PF, LLC (hereafter “Ex. A-1, November 9, 2011 Resolutions”).
On or about November 9, 2011, Falcon N297PF, LLC, through Plaintiff as its sole member,
“approved, ratified, and adopted” the actions “taken on behalf of the Company by Miguel
Velázquez to remove [the aircraft] from the Civil Aviation Registry maintained by the United
States Federal Aviation Administration.” Id. at Ex. A-1, November 9, 2011 Resolutions. There
is no evidence in the record, however, that the aircraft was ever in fact removed from the FAA
registry.
On May 8, 2012, the FAA recorded an Aircraft Bill of Sale, dated December 15, 2011,
that transferred ownership of the plane, still registered to Falcon N297PF, LLC, to Greg Dukes
by authority of “Carlos Ryerson,” the “manager” of Falcon N297PF, LLC. Id. at Ex. 2, Bill of

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Sale. Plaintiff asserts the Bill of Sale recorded on May 8, 2012 is fraudulent, and has provided
the affidavit of Carlos Reyerson in support of this allegation. Reyerson’s affidavit swears the
signature on the Bill of Sale is not his, he had no knowledge of the Bill of Sale, and he was not
involved in any transactions or actions affecting the aircraft after he “resigned from all positions
of authority in the Company and as Trustee for the beneficial owner of the Company in late
2011.” Id. at Ex. 3, Affidavit of Carlos Reyerson ¶¶ 1-4.
Reyerson’s signature on the Bill of Sale may have been forged, but there is no competent
summary judgment evidence that Dukes had knowledge of, or participated in the forgery. On the
contrary, Dukes has provided sworn affidavit testimony that he received the December 15, 2011
Bill of Sale from Plaintiff’s captain, Bautista. Resp. Mot. Summ. J. [Clerk’s Dkt. No. 82] at Ex.
1, Affidavit of Gregory Dukes ¶ 10. Dukes’ affidavit further states “virtually every aspect of the
operation, maintenance, and decision-making concerning every aspect of owning and operating
the subject aircraft was handled by and through Plaintiff’s Chief Pilot Capt. Jesus Bautista
(‘Bautista’).” Id. at Ex. 1, Dukes Aff. ¶ 5. 2
Dukes did not file the Bill of Sale with the FAA until May of 2012. Resp. Mot. Summ. J.
[Clerk’s Dkt. 82] at Ex. 1, Dukes Aff. ¶ 12. Plaintiff acknowledges that he was personally aware
of the FAA filing of the Bill of Sale transferring ownership of the aircraft from the Company to
Dukes (a United States Citizen) by at least July 20, 2012. Third Am. Compl. [Clerk’s Dkt. 43]
at ¶ 15. There is no evidence Plaintiff took any action—including contacting Dukes—to contest
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By way of background, it is worth noting that, according to Plaintiff, the Company, Falcon N297PF, LLC, was
originally created in 2009 with Reyerson as the Trustee and executive officer “in an effort to effectuate registration
of the Aircraft in the United States with the [FAA’s] Registry as a United States Citizen.” Third Am. Compl.
[Clerk’s Dkt. 43] at ¶¶ 11, 1. Plaintiff acknowledges that the resignation of Reyerson (the only U.S. Citizen
involved in the Company) in late 2011 may have “resulted in the illegal registration of the aircraft.” Id. at ¶ 21.
Whether or not the transfer of title from “Reyerson” and the Company to Dukes in December of 2011 occurred with
Plaintiff’s knowledge, the fact remains that Dukes is a U.S. Citizen, and putting title in his name may have had the
effect of maintaining the legal FAA registration of the aircraft after Reyerson’s unexpected resignation. See id.

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the transfer of ownership from the Company to Dukes between July 20, 2012 and August 23,
2012, when Dukes recorded the title transfer to Alliance Airparts. See Mot. Summ. J. [Clerk’s
Dkt. 75] at Ex. 5, Bill of Sale to Alliance Airparts. 3
It is undisputed that Dukes sold the aircraft to Alliance Airparts, Inc. Mot. Summ. J.
[Clerk’s Dkt. No. 75] at Ex. 6-A, Aircraft Purchase Agreement. Plaintiff asserts this sale was
made by Dukes without Plaintiff’s knowledge and “for his own [Dukes’] benefit.” Id. at 3.
Plaintiff’s live pleading, however, acknowledges that he hired Dukes “to ready the Aircraft for
sale.” Third Am. Compl. [Clerk’s Dkt. 43] at ¶ 12.
Dukes, for his part, provides affidavit testimony and a canceled check showing that he
paid $124,000 of the net $179,700 sale price of the plane to Plaintiffs’ apparent agent, Captain
Bautista, and Dukes’ affidavit testimony further states the remainder of the proceeds were used
to pay not only himself, but also other vendors and contractor mechanics for work performed to
make the plane airworthy. Resp. Mot. Summ. J. [Clerk’s Dkt. 82] Ex. 1, Dukes Aff. ¶15 and Ex.
2, August 24, 2014 Check to Jesus Bautista. Dukes states the work performed to make the plane
airworthy was done with the actual assistance of Plaintiff’s apparent agent, Captain Bautista, in
Mexico, from December, 2011 through May, 2012, and Bautista flew the aircraft to Houston
with Dukes on May 20, 2012. Id. at Ex. 1, Dukes Aff. ¶¶ 11-14.
The affidavits and other summary judgment evidence described above support at least
two plausible, but conflicting stories. Plaintiff’s version is that Dukes forged the signature of
Reyerson in an attempt to steal title to the aircraft and later sell it for parts, likely in conspiracy
with Bautista. Dukes’ version of the story is that Plaintiff’s apparent agent, Bautista, gave him a
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Plaintiff does allege he sent pilots to try to repossess the Aircraft in November of 2012 (after the sale to Alliance
had been completed), and that Dukes turned them away and told them not to return. Third Am. Compl. [Clerk’s
Dkt. 43] at ¶ 14.

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Bill of Sale transferring title to the aircraft as of December 15, 2011—an action that likely had
the effect of maintaining the legal FAA registration of the aircraft by keeping a U.S. Citizen on
the title after Reyerson unexpectedly resigned. Bautista, still acting as Plaintiff’s apparent agent,
participated in the repair and sale of the plane for parts, and accepted the lion’s share of the
proceeds from the sale. Whether it is alleged Bautista defrauded Plaintiff or acted on his behalf,
Dukes’ version of the story is that he reasonably believed he was authorized by Plaintiff’s agent,
Bautista, to take title to the plane, repair it, sell it in his own name but pass the proceeds on to
Bautista, and reimburse himself for the repair work from the remaining sale proceeds.
Reading the evidence in the light most favorable to the nonmovant, Dukes, there are
material fact issues as to whether Dukes participated in, had knowledge of, or reasonably should
have had knowledge of any unauthorized scheme to sell the plane without the true owner’s
consent. These material fact issues as to what Dukes knew, did, and reasonably should have
known or done prevent summary judgment on Plaintiff’s claims of fraud and theft. Therefore,
the undersigned recommends that Plaintiff’s Motion for Summary Judgment [Clerk’s Dkt. 75] be
DENIED.
B. Motion for Default Judgment
1. Standard of Review
Federal Rule of Civil Procedure 55 provides for the entry of default upon a showing, by
affidavit or otherwise, that a properly served defendant has failed to plead or otherwise defend
the suit. In this matter, Houston Aviation Technical Services, Inc. (“HATS”) was served and
attempted to answer through its owner/operator, Gregory Dukes. As a corporation must be
represented by counsel and may not proceed pro se or through a non-attorney, see Donovan v.
Road Rangers Country Junction, Inc., 736 F.2d 1004, 1005 (5th Cir. 1984), this Court granted
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Plaintiff’s motion to strike the defective answer and warned HATS that it must secure
representation by counsel to defend the suit. Order of Oct. 1, 2014 [Clerk’s Dkt. No. 29]. HATS
failed to do so, and on December 3, 2014, Plaintiff moved for entry of default against this
Defendant. [Clerk’s Dkt. No. 61]. The Clerk filed the entry of default on December 4, 2014
[Clerk’s Dkt. No. 64]. No motion to set aside the default has been filed, nor has any attorney
appeared on behalf of HATS.
Nevertheless, Fifth Circuit case law is clear: “a defendant's default does not in itself
warrant the court in entering a default judgment. There must be a sufficient basis in the
pleadings for the judgment entered.” Wooten v. McDonald Transit Assocs., 775 F.3d 689, 693
(5th Cir. Tex. 2015) (emphasis added). While a defaulting party necessarily admits the well
pleaded allegations of the complaint, “[t]he defendant is not held to admit facts that are not wellpleaded or to admit conclusions of law.” Id. (citing Nishimatsu Constr. Co. v. Hous. Nat'l Bank,
515 F.2d 1200, 1206 (5th Cir. 1975)).
2. Analysis
The allegations against HATS in the live pleading are sparse. Plaintiff specifically names
HATS as a defendant in his theft and fraud causes of action, but the factual allegations plead in
support of these claims specifically and exclusively relate to the alleged actions of Greg Dukes
as an individual. Id. ¶¶ 17-18. Plaintiff’s failure to make any factual allegations that could
support a fraud or theft claim against HATS necessarily means that Plaintiff has not established a
right to default judgment on these claims. Wooten, 775 F.3d at 693; Nishimatsu Constr. Co., 515
F.2d at 1206.
Plaintiff’s more detailed factual allegations against HATS in Paragraphs 12 and 19 of the

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Third Amended Complaint also fail to establish his right to default judgment:
12. In or about 2009, Bautista also referred Plaintiff to Houston Aviation
Technical Services, Inc. in Houston, Texas, owned by Mr. Greg Dukes. The
Aircraft was kept there for maintenance and repair. Dukes took possession of the
Aircraft with the permission of Plaintiff in order to perform such maintenance
and repair duties as were requested to ready the Aircraft for sale.
19. Defendant HATS was to hold the Aircraft for the benefit of the Plaintiff
while performing the work for which it was hired to do, instead the Aircraft was
stolen while in the possession of HATS. Such actions constitute a breach of
contract and breach of fiduciary duties resulting in Damages to Plaintiff in the
amount of fair market value of the Aircraft at the time of the theft.
Third Am. Compl. [Clerk’s Dkt. No. 43] at ¶¶ 12, 19.
Paragraph 12 of the Third Amended Complaint, regarding the transfer of the plane to
HATS in 2009 for maintenance and repair, does not allege any cause of action because Plaintiff
admits he gave permission for Dukes to take possession of the plane (at the HATS facility) at
this time. Id. at ¶ 12.
Paragraph 19 alleges a few conclusory facts that are “inextricably bound up with legal
conclusions.” Wooten, 775 F.3d at 695. For example, in the instant case, the undersigned has
concluded that material fact issues exist regarding whether any theft occurred at all. See supra,
Section II.A.3. Thus, HATS cannot be deemed to have admitted the legal conclusion that the
plane was stolen. Nishimatsu Constr. Co., 515 F.2d at 1206. 4 The undersigned further notes
HATS’ co-defendant, Dukes, has introduced summary judgment evidence that the plane was in
Mexico for repairs from December 2011 to May of 2012, Resp. Mot. Summ. J. [Clerk’s Dkt. 82]
at Ex. 1, Dukes Aff. ¶¶ 11-14, undermining Plaintiff’s conclusory allegation that the plane was
stolen while in the possession of HATS. Third Am. Compl. [Clerk’s Dkt. No. 43] at ¶ 19.

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Paragraph 19’s legal conclusions regarding breach of contract and fiduciary duty are likewise not deemed . Id.; see
also Wooten, 775 F.3d at 695.

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Federal Rule of Civil Procedure 55(b)(2)(C) authorizes an evidentiary hearing on a
motion for default judgment when necessary to “establish the truth of any allegation by
evidence.” Plaintiff’s factual allegations, to the extent they implicate conduct of HATS at all, are
inextricably bound up with legal conclusions that cannot fairly be made without a fact finder’s
evaluation of the underlying evidence in this case. See supra, Section II.A.3. Under these
circumstances, the undersigned RECOMMENDS that Plaintiff’s Motion for Default Judgment
Against Houston Aviation Technical Services, Inc. be DENIED without prejudice to re-urging as
a Motion for Judgment as a Matter of Law at an appropriate time. Fed. R. Civ. P. 50(a).
OBJECTIONS
The parties may file objections to this Report and Recommendation. A party filing
objections must specifically identify those findings or recommendations to which objections are
being made. The District Court need not consider frivolous, conclusive, or general objections.
See Battle v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987).
A party’s failure to file written objections to the proposed findings and recommendations
contained in this Report within fourteen (14) days after the party is served with a copy of the
Report shall bar that party from de novo review by the District Court of the proposed findings
and recommendations in the Report and, except upon grounds of plain error, shall bar the party
from appellate review of unobjected-to proposed factual findings and legal conclusions accepted
by the District Court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53, 106
S. Ct. 466, 472-74 (1985); Douglass v. United Servs. Auto. Ass’n, 79 F.3d 1415, 1428-29 (5th
Cir. 1996) (en banc).
To the extent that a party has not been served by the Clerk with this Report and
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Recommendation electronically, pursuant to the CM/ECF procedures of this District, the Clerk is
ORDERED to mail such party a copy of this Report and Recommendation by certified mail,
return receipt requested.
SIGNED on April 2, 2015.
__________________________________________
Mark Lane,
United States Magistrate Judge

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