City Wide Cmty. Dev. Corp. v. City of Dall. (In re City Wide Cmty. Dev. Corp.)

656 B.R. 186

IN RE: CITY WIDE COMMUNITY DEVELOPMENT CORP. et al., Debtor.

City Wide Community Development Corp., Plaintiff, v. City of Dallas, Defendant.

Case No. 21-30847

Adv. Pro. No. 22-03051

United States Bankruptcy Court, N.D. Texas, Dallas Division

Signed October 6, 2023

Mark Baggett, James Edward Richards, City of Dallas, Dallas, TX, for Defendant.

Kevin S. Wiley, Sr., The Wiley Law Group, PLLC, Dallas, TX, for Plaintiff.

ORDER GRANTING MOTION TO DISMISS

Michelle V. Larson, United States Bankruptcy Judge

Before the Court is the Motion to Dismiss for Lack of Subject Matter Jurisdiction and Failure to State a Claim¹ and Brief in Support² (together, the "Motion") filed on February 8, 2023, by the City of Dallas (the "City" or the "Defendant"), as well as T.C. Broadnax, Robin Bentley, and David Noguera (collectively, the "Individual Defendants"). The Individual Defendants have since been dismissed without prejudice to refiling.³ By the Motion, the City seeks an order from this Court dismissing the Amended Complaint filed by City Wide Development Corporation (the "Plaintiff" and, together with the Defendant, the "Parties") with prejudice for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).⁴ On February 28, 2023, the Plaintiff filed its Response of City Wide Community Development Corporation to Defendant's Third Motion to Dismiss (the "Response").⁵ On March 14, 2023, the Defendant filed its Reply (the "Reply").⁶

On March 28, 2023, the Court held a hearing on the Motion. Counsel appeared for both the Plaintiff and the City, and the Court heard argument. At the conclusion of the hearing, the Court took the matter under advisement. After considering the briefing and oral arguments of counsel, the Court concludes that the Motion to Dismiss should be GRANTED pursuant to Rule 12(b)(6) as more fully detailed in this Order.

I. Jurisdiction and Venue.

The Court has jurisdiction pursuant to 28 U.S.C. § 1334(b), and the matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(B). Venue is proper in this district pursuant to 28 U.S.C. § 1409(a). Defendant has consented to the entry of a final order by this Court.⁷

II. Factual and Procedural History.

In September 2008, the Plaintiff executed a loan agreement and note to memorialize an agreement (together, the "Redevelopment Agreement") with the City, whereby the City would provide a $500,000.00 loan for the acquisition of certain properties to be redeveloped for residential and commercial uses (the "Opal Project"). On October 21, 2008, the Plaintiff executed a deed of trust securing the loan. By the terms of the agreement, the construction of the development had to be completed within five (5) years of the execution of the loan documents. The loan was modified in five separate instances to increase the amount of the loan to an ultimate figure of $1,331,326.00 and extend the completion deadline to September 12, 2018. The loan was also converted to a conditional grant with the City's remedy for a default changing from foreclosure to the conveyance of the properties to the City.

In early 2017, at least sixteen (16) months prior to the completion deadline set forth in the loan documents, Sherman Roberts ("Mr. Roberts"), the President of the Plaintiff, was advised that the City had placed a pause on housing and economic development. On December 18, 2020, during the pendency of this "freeze" and ongoing negotiations between the Parties as to the next steps in regard to the Opal Project, Mr. Roberts received a letter advising Plaintiff of its alleged default in connection with the Redevelopment Agreement given that the Opal Project had not been completed by September 18, 2018.

On April 30, 2021, the Plaintiff filed a voluntary petition for bankruptcy under Chapter 11 of the Bankruptcy Code.⁸ The City filed a Proof of Claim No. 16-1 ("Claim 16-1") in the bankruptcy case, which attached the deeds of trust, notes, and modifications.⁹ On March 21, 2022, the Plaintiff conceded that the Redevelopment Agreement constituted an executory contract, and elected the following:

Rather than dispute [Claim 16-1] on a contested basis, Debtors will amend their Plan [of Reorganization] to acknowledge a default has occurred in the transactions referenced under [Claim 16-1] that would be [incurable] under 11 U.S.C. § 365 principles. Rather, Debtors will file an amended plan that will include an adversary complaint against the City of Dallas seeking Declaratory and Injunctive relief under Inter Alia, interruption, hindrance, and prevention doctrines. This litigation will be resolved post-confirmation.¹⁰

On May 20, 2022, the Plaintiff filed its Petition to Remove Cloud and Quiet Title by Injunctive and Declaratory Relief (the "Complaint") commencing the above-captioned adversary proceeding (the "Adversary Proceeding") against the Defendants.¹¹

On August 2, 2022, the Defendant filed its original Motion to Dismiss for Failure to State a Claim.¹² On August 23, 2022, the Plaintiff voluntarily amended its Complaint, filing the First Amended Petition to Remove Cloud and Quiet Title by Injunctive and Declaratory Relief,¹³ prompting the Defendant to withdraw its original motion to dismiss and refile a second Motion to Dismiss for Failure to State a Claim on September 6, 2022.¹⁴ Former Defendants Eric Johnson and Raquel Favela filed their Motion to Dismiss for Lack of Subject Matter Jurisdiction Pursuant to Federal Rule of Civil Procedure 12(b)(1) on September 29, 2022.¹⁵ On October 18, 2022, the Plaintiff filed its Motion for Leave to File an Amended Petition, requesting that the Court grant it an additional opportunity to amend its Complaint in order to "add an additional basis for denying [Defendant's second motion to dismiss.]"¹⁶ On the same day, the Plaintiff filed its Second Amended Petition to Remove Cloud and Quiet Title by Injunctive and Declaratory Relief.¹⁷ On October 19, 2022, a hearing was scheduled on the Defendant's second motion to dismiss.¹⁸ At the hearing, the Court granted the Plaintiff's unopposed motion for leave to amend its Complaint a second time,¹⁹ and on the same day, the City and Former Defendants Johnson and Favela withdrew their respective motions to dismiss.²⁰

On October 25, 2022, the Plaintiff filed a Corrected Second Amended Petition to Remove Cloud and Quiet Title by Injunctive and Declaratory Relief.²¹ The Defendants filed their Answer to Plaintiff's Corrected Second Amended Petition to Remove Cloud and Quiet Title by Injunctive and Declaratory Relief on November 15, 2022.²² On January 18, 2023, the Plaintiff filed its Unopposed Motion for Leave to File a Third Amended Petition.²³ Based on the fact that the relief requested was unopposed, the Court granted the Plaintiff's motion for leave.

On January 25, 2023, the Plaintiff filed its Third Amended Petition to Remove Cloud and Quiet Title by Injunctive and Declaratory Relief (the "Amended Complaint"),²⁴ which is the subject of the instant Motion to Dismiss.²⁵ In the Amended Complaint, the Plaintiff asserts the following causes of action:

(I) Suit for Injunctive Relief;

(II) Declaratory Relief;

(III) Declaratory Relief for Equitable Estoppel;

(IV) Declaratory Relief for Promissory Estoppel; and

(V) Attorney's Fees.²⁶

Thereafter, the Defendant filed the instant Motion. The Court held a hearing on the Motion on March 28, 2023. On April 5, 2023, the Plaintiff filed its Post-Trial Brief in Support of Response to Defendant's Motion to Dismiss the Third Amended Petition (the "Supplemental Brief").²⁷ In its Supplemental Brief, the Plaintiff abandoned its earlier arguments that the Defendant's governmental immunity from suit was waived as a result of either ultra vires actions or the Texas Tort Claims Act (the "TTCA").²⁸ The Plaintiff further agreed to non-suit the Individual Defendants.²⁹ Accordingly, the City is the only remaining defendant.

III. Legal Standards: Rule 12(b)(1) and Rule 12(b)(6).

Rule 12(b)(1), incorporated into this adversary proceeding by Bankruptcy Rule 7012, provides for the dismissal of a claim for lack of subject matter jurisdiction. When a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, as it is here, a court should consider the jurisdictional attack prior to turning to the merits.³⁰ In considering a Rule 12(b)(1) motion, the court is empowered to consider matters of fact which may be in dispute.³¹ Ultimately, the motion should be granted only if it appears that the plaintiff cannot prove any set of facts in support of his or her claim that would entitle the plaintiff to relief.³²

Rule 12(b)(6) authorizes dismissal of a complaint that "fail[s] to state a claim upon which relief can be granted."³³ In evaluating a Rule 12(b)(6) motion to dismiss, the Court "must accept all well-pleaded facts as true, and . . . view them in the light most favorable to the plaintiff."³⁴ However, the Court need not "strain to find inferences favorable to the plaintiffs."³⁵ To survive a motion to dismiss under Rule 12(b)(6), a complaint must contain sufficient factual allegations, which, if accepted as true, state a plausible cause of action.³⁶ This plausibility requirement sits somewhere between possible and probable, and is satisfied where the plaintiff's pleaded facts allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.³⁷

In this case, the City has asserted governmental immunity in its Motion, raising arguments for dismissal under both Rule 12(b)(1) and Rule 12(b)(6). Therefore, the Court must first evaluate whether subject matter jurisdiction properly exists before it can decide whether the Amended Complaint properly states a claim upon which relief may be granted.³⁸ Plaintiff argues that because the City filed a proof of claim in the Main Bankruptcy Case, the City's governmental immunity is...