Curtis v. Law Office of Rogelio Solis PLLC (In re Josiah's Trucking, LLC)

645 B.R. 208

IN RE: JOSIAH'S TRUCKING, LLC, Debtor.

Catherine Stone Curtis, Plaintiff,

v.Law Office of Rogelio Solis PLLC and Ana Gomez, Defendants.

CASE NO: 21-70009

ADVERSARY NO. 21-7002

United States Bankruptcy Court, S.D. Texas, McAllen Division.

Signed November 9, 2022

Simon Richard Mayer, Locke Lord LLP, Houston, TX, for Plaintiff.

David L. Curry, Jr., Matthew Scott Okin, Okin Adams, LLP, Houston, TX, for Defendants.

MEMORANDUM OPINION

Eduardo Rodriguez, United States Bankruptcy Judge

The Law Office of Rogelio Solis, PLLC and Ana Gomez seek dismissal of chapter 7 trustee Catherine Stone Curtis's avoidance actions brought pursuant to 11 U.S.C. §§ 547 and 550. Catherine Stone Curtis filed a response on May 3, 2021. On November 3, 2022, the Court held a hearing and for the reasons stated herein, the Law Office of Rogelio Solis, PLLC and Ana Gomez's motion to dismiss the complaint is denied.

I. BACKGROUND

1. On December 19, 2020, an automobile accident occurred when the trailer from a tractor trailer owned by Josiah's Trucking, LLC ("Debtor ") entered into the southbound lane of FM 493 and collided with a vehicle carrying Carlos Tellez, Jr., and Anna Isabel Ortiz, ultimately resulting in their deaths ("Accident ").¹

2. Anna Isabel Ortiz is survived by Defendant Ana Gomez ("Gomez ") and Reyes Adrian Ortiz (collectively, "Ortiz Family ").²

3. Carlos Tellez, Jr. is survived by Sonia Tellez, Carlos Tellez, Rose Mary Rodriquez, and I. Tellez, a minor (collectively, "Tellez Family " or "Petitioning Creditors ").³

4. Shortly after the Accident both Gomez and the Tellez Family engaged counsel and began the claims process. Gomez employed the Solis Law Firm ("Solis " and together with Gomez, "Defendants "); and the Tellez Family engaged Escobedo & Cardenas, L.L.P.⁴

5. At the time of the Accident, Brooklyn Specialty Insurance Company RRG, Inc. ("Brooklyn Specialty ") insured Debtor under Policy ATP-4-062020 ("Policy "). Brooklyn Specialty has alleged that the applicable limit of liability under the policy is $1,000,000.00 ("Policy Limit ").⁵

6. Gomez, through the Solis Law Firm, made a Stowers demand on Brooklyn Specialty for the limits of the Policy.⁶

7. On January 12, 2021, Brooklyn Specialty paid as much as $1,000,000.00 ("Policy Proceeds ") into Solis's IOLTA account Ana Gomez, thereby exhausting the alleged Policy Limits.⁷

8. On January 18, 2021, the Solis Law Firm caused two checks to be drafted from its IOLTA account. Check number 223, in the amount of $680,000.00, was made payable to Gomez. Check number 224, in the amount of $320,000.00, was made payable to Solis, for Gomez's attorney's fees.⁸

9. On January 26, 2021, the Tellez Family filed an involuntary bankruptcy petition ("Involuntary Proceeding ") against Debtor under chapter 7 of title 11 of the United States Code⁹ in the United States Bankruptcy Court for the Southern District of Texas, McAllen Division.

10. On February 9, 2021, Catherine Curtis ("Trustee " or "Plaintiff "), then the interim trustee, filed the "Complaint to Avoid and Recover Transfer Pursuant to 11 U.S.C. §§ 547 and 550"¹⁰ initiating this Adversary Proceeding against Defendants.

11. On February 9, 2021, Trustee, filed her Emergency Motion for Temporary Restraining Order and Preliminary Injunction¹¹ ("TRO Motion "), seeking a temporary restraining order and preliminary injunction enjoining Defendants from distributing or otherwise disbursing any of the Policy Proceeds or funds they received, whether directly or from their counsel, from the Policy or from Brooklyn Specialty.

12. On February 11, 2021, the Court entered a Stipulation and Agreed Order, which resolved the temporary restraining order of the TRO Motion and sought to maintain the status quo until March 11, 2021.¹²

13. On February 25, 2021, the Court entered its "Order Granting Emergency Motion of Josiah's Trucking LLC to Convert to Chapter 11"¹³ converting the Involuntary Proceeding into a bankruptcy case under chapter 11 of the Bankruptcy Code.

14. On March 3, 2021, the Court entered its "Order Vacating Order Directing Appointment of Chapter 11 Trustee"¹⁴ and "Corrected Order Directing Appointment of Chapter 11 Trustee Pursuant to 11 U.S.C § 1104"¹⁵ directing the appointment of a chapter 11 trustee by the United States Trustee ("UST ").

15. On March 9, 2021, the UST filed its "Application for Order Approving Appointment of Chapter 11 Trustee."¹⁶

16. On March 9, 2021, the Court entered another Stipulation and Agreed Order¹⁷ ("Second Stipulation ") which, among other things, requires that Defendants will maintain in their possession, custody, and control a combined balance of not less than $400,000 during the time period the Second Stipulation is in effect, which period shall be no less than sixty days from the date the Court enters the Second Stipulation.

17. On March 10, 2021, the Court entered the "Order Approving Appointment of Chapter 11 Trustee in the Josiah's Trucking, LLC Case,"¹⁸ approving the appointment of Catherine Stone Curtis as chapter 11 trustee.

18. On March 22, 2021, Trustee filed her "Expedited Motion To Convert Chapter 11 Case To Chapter 7."¹⁹

19. On March 25, 2021, Debtor filed "David Vasquez's Non-Opposition To Trustee's Motion To Convert Chapter 11 Case To Chapter 7."²⁰

20. On March 26, 2021, Trustee filed her amended complaint²¹ ("Complaint ") setting forth two causes of action: Count I – Transfer Avoidable Under 11 U.S.C. § 547 ; and Count II – Transfer Recoverable Under 11 U.S.C. § 550.²²

21. On April 7, 2021, the Court signed an order converting the case to chapter 7.²³

22. On April 9, 2021, Defendants filed the instant "Defendants’ Motion to Dismiss the Plaintiff's Complaint"²⁴ ("Motion to Dismiss "). On the same date, Defendants filed their "Defendants’ Motion to Withdraw the Reference."²⁵

23. On May 3, 2021, Trustee filed "Plaintiff's Objection to Defendants’ Motion to Withdraw the Reference."²⁶

24. On May 13, 2021, this Court issued its Report and Recommendation to the United States District Court recommending that the reference be immediately withdrawn, but that the District Court then refer the adversary proceeding to the undersigned judge for adjudication of all pretrial matters, with the undersigned judge thereafter notifying the District Court when the dispute is ready to be tried.²⁷

25. On July 14, 2022, the United States District Court adopted this Court's recommendation.²⁸

26. On November 3, 2022, a hearing on the Motion to Dismiss was held (the "Hearing ") and the Court now issues the instant memorandum opinion.²⁹

II. JURISDICTION AND VENUE

This Court holds jurisdiction pursuant to 28 U.S.C. § 1334, which provides "the district courts shall have original and exclusive jurisdiction of all cases under Title 11 or arising in or related to cases under Title 11." An adversary proceeding falls within the Court's "related to" jurisdiction if the "outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy."³⁰ Section 157 allows a district court to "refer" all bankruptcy and related cases to the bankruptcy court, wherein the latter court will appropriately preside over the matter.³¹ This Court determines that since the Complaint alleges a preference claim under § 547 and for recovery of the funds under § 550 of the Bankruptcy Code, the adjudication of preference claims and for recovery are statutorily "core" under 28 U.S.C. § 157(b)(2)(A), (F), and (O).

Furthermore, this Court may only hear a case in which venue is proper.³² Pursuant to § 1409(a), "a proceeding arising under title 11 or arising in or related to a case under title 11 may be commenced in the district court in which such case is pending."³³ Debtor's underlying chapter 7 case is presently pending in this Court and therefore, venue of this adversary proceeding is proper.

III. ANALYSIS

A. Standard of Review for Motions to Dismiss Under Federal Rule of Civil Procedure 12(b)(6)

To survive a motion to dismiss under Rule 12(b)(6), a plaintiff's complaint must clear two hurdles. First, the complaint must describe the claim in enough detail to give fair notice of the claim and the grounds for it.³⁴ "[A] formulaic recitation of the elements of a cause of action will not do."³⁵ Specifics are unnecessary, but some facts must support each element.³⁶ Second, the complaint must state a claim "plausible on its face,"³⁷ meaning the plaintiff's right to relief must rise above a "speculative level."³⁸ Rule 8(a)(2) requires a plaintiff to plead "a short and plain statement of the claim showing that the pleader is entitled to relief."³⁹ In Ashcroft v. Iqbal , the Supreme Court held that Rule 8(a)(2) requires that "the well-pleaded facts ... permit the court to infer more than the mere possibility of misconduct."⁴⁰ "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."⁴¹ "The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully."⁴²

Motions to dismiss are disfavored and thus, rarely granted.⁴³ When considering a motion to dismiss under Rule 12(b)(6), courts accept well-pleaded allegations as true and liberally construe the complaint in favor of the plaintiff.⁴⁴ This Court reviews motions under Rule 12(b)(6) by "accepting all well-pleaded facts as true and viewing those facts in the light most favorable to the plaintiffs."⁴⁵ When considering a motion to dismiss under Rule 12(b)(6), the Court must assess the legal feasibility of the complaint, not weigh the evidence that might be offered in its support.⁴⁶ The Court's consideration "is limited to facts stated on the face of the complaint and in the documents appended to the complaint or incorporated in the complaint by reference, as well as to matters of which judicial notice may be taken." ⁴⁷

And although this Court "will not strain to find...