587 B.R. 866
Bankr. N.D. Tex.2018Background
- Debtor Jerry Artho (d/b/a Artho Cattle) filed chapter 12 on March 2, 2015; a chapter 12 plan (filed June 17, 2015) was confirmed June 19, 2015 and provided for public auction of his real and personal property to pay secured creditors, including Happy State Bank (HSB).
- The Plan expressly reserved bankruptcy and certain prepetition claims generally and specifically referenced alleged claims against HSB.
- An auction occurred in August 2015; Outpost Ranches purchased two tracts. The Court approved the sales and distributions in November 2015; proceeds were paid to secured creditors and professionals, with some funds to unsecured creditors and a small turnover to Artho.
- Artho filed an adversary complaint (amended May 31, 2017) asserting fraud by false promises, duress, various civil conspiracy claims (including under 18 U.S.C. § 152(5) and RICO § 1962(b)) against HSB and co-defendants (Burdett, OPR H2O, Outpost, Panhandle).
- Defendants moved to dismiss under Rules 12(b)(1), 12(b)(6), and 9(b), arguing lack of standing for claims not reserved, statute of frauds, failure to plead fraud with particularity, res judicata based on the confirmation and sale approval orders, statute of limitations, and that certain criminal statutes provide no private right of action.
- The bankruptcy court considered the bankruptcy record, found jurisdiction (all parties consented), and evaluated standing, pleading sufficiency, statutory defenses, res judicata, and futility of amendment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to pursue pre- and post-confirmation claims | Artho argues his Plan reserved claims (esp. against HSB) and § 1227(b) converts estate property to debtor property on confirmation, preserving standing | Defendants say chapter 12 plan did not specifically reserve the alleged claims and plaintiff lacks standing for claims not reserved | Court: Plan reservation (particularly against HSB) preserved standing; chapter 12 rules differ from chapter 11 and § 1227(b) supports Artho's standing for pre- and post-petition claims |
| Fraud by false promises and Statute of Frauds | Artho alleges HSB orally promised extra time to conduct an auction and he relied to his detriment | HSB argues oral modification of loan terms >$50,000 is unenforceable under Tex. Bus. & Com. Code § 26.02 and plaintiff's allegations are conclusory, not particularized | Court: Oral promise modifying loan terms is barred by the Statute of Frauds; reliance-based out-of-pocket damages survive only if justifiable reliance pleaded — here reliance contradicted by written loan terms and fraud claims dismissed for lack of particularity |
| Claims arising from the bankruptcy auction and sale approval (res judicata) | Artho claims auction misconduct injured him and gives rise to post-confirmation causes | Defendants argue the confirmed plan and the Court's approved Report of Sale are final judgments that bar relitigation of issues that were or could have been raised | Court: Order approving sale is a final judgment; claims grounded in the auction/sale are barred by res judicata and dismissed |
| Civil conspiracy, criminal-conspiracy claim under 18 U.S.C. § 152(5), and RICO conspiracy (§ 1962) | Artho alleges co-defendants conspired to acquire his parcels below market and to defeat bankruptcy provisions | Defendants contend plaintiff fails to plead a meeting of the minds, particular unlawful acts, and that § 152(5) provides no private cause of action; RICO enterprise/predicate acts inadequately pleaded | Court: Conspiracy claims fail for lack of factual allegations showing a meeting of the minds and unlawful agreement; § 152(5) gives no private remedy; RICO conspiracy fails because plaintiff is not a proper enterprise and predicate acts/continuity not pleaded |
Key Cases Cited
- Wellness Int'l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (U.S. 2015) (parties can consent to bankruptcy court adjudication of core/non-core claims)
- United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (U.S. 2010) (confirmation order is a final judgment)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for Rule 12(b)(6) pleading)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading requires factual plausibility, not conclusory allegations)
- ASARCO LLC v. Mont. Res., Inc., 858 F.3d 949 (5th Cir. 2017) (disclosure duties in bankruptcy and potential estoppel from incomplete schedules)
- Eubanks v. F.D.I.C., 977 F.2d 166 (5th Cir. 1992) (res judicata applies to claims that were or could have been raised in the bankruptcy proceeding)