643 B.R. 436
Bankr. S.D. Tex.2022Background
- Debtors Pearl Resources LLC and Pearl Resources Operating Co. filed Chapter 11 on March 3, 2020; the Texas General Land Office (GLO) appeared and on Pearl’s Schedule E/F the GLO was listed as an unsecured creditor with amount “Unknown.”
- GLO sued Pearl for declaratory relief (May 28, 2020). Pearl asserted counterclaims (quiet title, trespass to try title, later amended to add breach of contract).
- On January 7, 2022 the GLO filed counterclaims in reply (breach of contract, trespass to try title) and sought attorney’s fees under Tex. Civ. Prac. & Rem. Code §§ 37.004 and 38.001.
- Pearl moved to strike the reply counterclaims and moved to dismiss them under Fed. R. Civ. P. 12(b)(1) and 12(b)(6); parties litigated whether a plaintiff may assert standalone counterclaims in a reply and whether the GLO’s prepetition monetary claims survived given bankruptcy procedures.
- The Court denied Pearl’s motion to strike, held that reply counterclaims filed as a separate pleading are permissible (not governed by Rule 15), but dismissed the GLO’s breach-of-contract counterclaim for lack of subject-matter jurisdiction and for failure to state a claim because the GLO did not file a proof of claim after being listed as “unknown” and the confirmed Plan’s Class 12 barred late-filed claims; attorney-fee requests under § 37.004 were dismissed, § 38.001 claim survived pleading-stage scrutiny but was moot after dismissal of the underlying claim. The Court set the GLO’s motion for leave to amend for further hearing.
Issues
| Issue | Plaintiff's Argument (GLO) | Defendant's Argument (Pearl) | Held |
|---|---|---|---|
| Whether a plaintiff may assert counterclaims in reply to defendant’s counterclaims | Rules 7 and 13 permit counterclaims in a reply; GLO filed its reply-counterclaims as part of its answer, not as an amendment | Reply counterclaims are impermissible or must be treated as amendments subject to Rule 15 (and leave) | Court: Distinguishes two situations. If reply counterclaim seeks to amend the complaint, Rule 15 governs. If it is filed as a separate pleading (answer/reply), Rule 15 does not apply and reply counterclaims are permitted. Motion to strike denied. |
| Whether GLO’s breach-of-contract reply-counterclaim is barred because GLO failed to file a proof of claim | GLO argued it could plead defensively (setoff/recoupment) and thus was not required to file a proof of claim | Pearl argued scheduling the GLO as “Unknown” obligated GLO to file a proof of claim; failure bars recovery and voting/distribution rights; Plan also bars late claims | Court: GLO did not plead setoff/recoupment defensively; scheduling as “unknown” does not create prima facie amount under Rule 3003(b) so GLO was required to file a proof of claim. Breach counterclaim dismissed under 12(b)(1). |
| Whether the confirmed Modified Plan bars GLO’s recovery on the prepetition breach claim | GLO did not directly contest that the Plan governs distributions | Pearl relied on Plan Class 12 that disallows claims not filed by the bar date (May 1, 2021) | Court: Alternative ground for dismissal — Plan’s Class 12 bars GLO’s monetary recovery because GLO failed to file timely claim. |
| Availability of attorney’s fees under Texas law for GLO’s breach claim | GLO sought fees under Tex. Civ. Prac. & Rem. Code §§ 37.004 and 38.001 (conceded minor citation error re § 37.009) | Pearl argued § 37.004 (as pled) is incorrect and fee recovery under § 38.001 unavailable against LLC | Court: Dismissed fee claim under § 37.004 (pleading error). Held that § 38.001 permits fees against an "organization" (which includes LLCs) on a contract claim; but § 38.001 award was moot once the underlying breach claim was dismissed. |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (2011) (limits on bankruptcy courts entering final judgments in certain state-law counterclaims)
- Wood v. Wood (In re Wood), 825 F.2d 90 (5th Cir. 1987) (standard for related-to bankruptcy jurisdiction)
- Twombly v. Bell Atlantic, 550 U.S. 544 (2007) (plausibility pleading standard under Rule 8)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (application of plausibility standard to pleadings)
- Foman v. Davis, 371 U.S. 178 (1962) (factors for granting leave to amend under Rule 15)
- Davis & Cox v. Summa Corp., 751 F.2d 1507 (9th Cir. 1985) (court discussion concerning scope of permissible counterclaims in reply)
- Southmark Corp. v. ??? (In re Southmark Corp.), 163 F.3d 925 (5th Cir. 1999) (definition of core proceedings under § 157)