Ruff v. Destination Dev. Partners

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SUZANN RUFF, Appellant, v. DESTINATION DEVELOPMENT PARTNERS, INC., ET AL., Appellees.

No. 4:22-cv-1035-P

United States District Court, N.D. Texas, Fort Worth Division

November 1, 2023

MEMORANDUM OPINION & ORDER

MARK T. PITTMAN UNITED STATES DISTRICT JUDGE

Before the Court is Suzann Ruff's appeal of the Bankruptcy Court's Amended Final Judgment with brief in support. See ECF Nos. 1, 11. Having considered the briefing evidence of record, and applicable law, the Court OVERRULES Ruff's points on appeal and AFFIRMS the Bankruptcy Court's decision.

BACKGROUND

The Ruff's relationship is rough. In fact, this bankruptcy proceeding represents merely the latest chapter in a long saga of contention between Suzann Ruff and her sons Mike and Mark. For at least a decade, Suzann and her sons have thrown competing allegations of impropriety against each other regarding their business dealings in an array of closely held holding companies and related ranchland in Palo Pinto County. The Ruffs took their differences to arbitration, where Suzann obtained a favorable judgment against Mike and a constructive trust on all properties Mike owned or held “in any capacity.” That award was subsequently incorporated into a related probate court judgment. Mike and Mark fell back on the tried-and-true delay tactic of frivolously removing the case to federal court in August 2015. After remand of that action and slow progress in state court Suzann initiated the adversary proceeding which gives rise to this appeal.

Suzann's arbitration win expectedly caused several of Mike's businesses to declare Chapter 11 bankruptcy in 2018. All told, ten relevant entities filed for bankruptcy that year. The separate Chapter 11 proceedings were consolidated in November 2018 and John Spicer (the “Trustee”) was appointed as Chapter 11 Trustee. After an onerous bankruptcy proceeding, seven of the cases were dismissed in May 2023 leaving only CM Resorts LLC, Specfac Group LLC, and Sundance Lodge LLC (collectively, the “Debtors”). The particulars of each relevant entity are largely irrelevant what matters is whether the Debtors' assets fall under Suzann's constructive trust. The core proceeding was simple and revolved around that single question: does Suzann's constructive trust under the Arbitration Order cover properties owned by the Debtors? Suzann thinks it does; Mike disagrees.

As Suzann sees things, the Debtors are Mike's alter egos. And even if the Court won't make that legal determination, Suzann nevertheless contends the Debtors are transferees in clear privity with Mike vis-a-vis the contested property and the probate court's judgment. However the Court gets there, Suzann contends the Debtors' property is actually Mike's, meaning it falls into her constructive trust as outlined in the Arbitration Order and incorporated in the judgment. Because Suzann waived her other causes of action in the core proceeding, her briefing relies solely on the constructive trust claim as articulated in the Arbitration Order.^[1]

The Bankruptcy Court denied relief for Suzann's claims. Suzann says the Bankruptcy Court was wrong on the facts, and she designated issues on appeal in December 2022. Painting with a broad brush, Suzann attacks the Bankruptcy Court's legal reasoning on one point and the Court's factual determinations on four points. The legal consideration on appeal relates to the Bankruptcy Court's requirement that certain disputed properties be deeded to Mike by name for Suzann's constructive trust to apply. The four factual disputes on appeal relate to the evidence in support of Suzann's contention that Mike constructively owns properties currently held in the Debtors' bankruptcy estates. While not technically a point on appeal, Suzann separately argues the Bankruptcy Court erred in declining to reach a determination as to whether the Debtors are in privity with Mike. As discussed below, however, the Court endorses the Bankruptcy Court's decision not to rule on this issue, as it was rendered moot by the Bankruptcy Court's determination that the probate court's judgment doesn't attach to the Debtors under the doctrine of res judicata.

JURISDICTION

This Court has jurisdiction over appeals of a bankruptcy court's judgment pursuant to 28 U.S.C. § 158(a).

STANDARD OF REVIEW

When a district court reviews a bankruptcy court's decision, it functions as an appellate court and utilizes the same standard of review generally applied by federal courts of appeals. In re Webb, 954 F.2d 1102, 1104 (5th Cir. 1992). Conclusions of law are reviewed de novo. In re Young, 995 F.2d 547, 548 (5th Cir. 1993). And findings of fact are reviewed for clear error. In re Allison, 960 F.2d 481, 483 (5th Cir. 1992). These findings are reversed only if, based on the entire body of evidence, the court is left “with the definite and firm conviction that a mistake has been made.” Beaulieu v. Ragos, 700 F.3d 220, 222 (5th Cir. 2012).

ANALYSIS

As noted above, Suzann's briefing broadly addresses five issues on appeal: (1) whether the Bankruptcy Court erred in finding she failed to establish that property from Exhibit A of the probate court's judgment was identified in the deed she executed to an entity called Icarus Investments IV (2) whether the Bankruptcy Court erred in holding Mike's name had to appear on the deed given the constructive trust's broad wording (applying to property Mike “held or owned . . . in any capacity”); (3) whether the Bankruptcy Court erred in finding Suzann inadequately traced the Debtors' property to the Icarus Investments IV transaction; (4) whether the Bankruptcy Court erred in finding the Debtors weren't Mike's alter egos; and (5) whether the Bankruptcy Court erred by finding a lack of privity between the Debtors and Mike. See generally ECF No. 11 at 9. With the exception of (2), these are all factual disputes. The Court briefly touches Suzann's legal argument below before proceeding to her factual disputes. To conclude, the Court addresses the propriety of the Bankruptcy Court's determination on res judicata vis-a-vis the probate court's judgment and the Debtors.

A. The Bankruptcy Court applied proper legal standards in determining the relevant properties had to be deeded to Mike by name absent other evidence of ownership.

“The fundamental fact-admitted by Appellant-is that title to the property in question was never in the name of Mike Ruff.” ECF No. 17 at 24 (citing ECF No. 11 at 23-24). With those words, Appellee appropriately cuts to the chase on this issue. That's what lawyers call a “bad fact” for Suzann, who asks the Court to apply her constructive trust to properties that were never deeded to Mike. See ECF No. 11 at 23-24 (“Throughout its lengthy oral opinion, the bankruptcy court notes that Mike never owned the property in question, i.e., his name, as an individual, is not on any of the deeds. That is true. But the bankruptcy court's conclusion from this fact, that the constructive trust never attached, is simply incorrect ....”). While the Court will later discuss Suzann's arguments that the Debtors were Mike's alter egos, the fact remains that the broad wording “held or owned . . . in any capacity” doesn't entitle Suzann to properties that were never deeded to Mike. And try as she might in the briefing, Suzann fails to show the Bankruptcy Court disregarded the probate court's judgment by reaching this conclusion. See id. (saying the Bankruptcy Court “ignore[d] the plain language of the constructive trust clause in the Judgment”).

Semantics aside, it strains interpretive leniency too far to interpret the judgment's language as applying to property deeded to someone other than Mike. Whatever “in any capacity” means, it is qualified by the initial clause that the contested property must actually be held by Mike. Moreover, as discussed in detail below, the Bankruptcy Court rightly opined that “absolutely no evidence was introduced of Michael's holding or ownership in any capacity of any real estate claimed to be owned by any of the debtor-defendants as of the bankruptcy filing, which is now property of the respective debtor-defendants' bankruptcy estates.” Bankr. Rec. at 125. Thus, the Bankruptcy Court did not reject wholesale the notion that property could be Mike's even if not deeded to him by name. Rather, the Bankruptcy Court merely observed that, absent other evidence suggesting the property was Mike's, the Court cannot overlook the fact that the property was never deeded to him. While not dispositive, the Court's inquiry necessarily begins by looking to the legal document that conveyed the disputed properties. If the legal instrument conveyed the properties to someone other than Mike, Suzann must carry a heavy evidentiary burden to convince the Court that the instrument should be disregarded. See generally Jackson v. Hernandez, 285 S.W.2d 184, 186-87 (Tex. 1955) (explicating long standing Texas jurisprudence on parol considerations that can overcome the express terms of a conveying instrument). She failed to do so.

Suzann tries to skirt this bad fact by relying on Fitz-Gerald v Hull, 237 S.W.2d 256 (Tex. 1951). There, the Texas Supreme Court found equitable relief-a constructive trust-warranted under the case's facts. Id. at 261-62. Most salient among the case's facts was the existence of a breach of confidence/fiduciary duty. See id. (“While a confidential or fiduciary relationship does not in itself give rise to a constructive trust, an abuse of confidence rendering the acquisition of retention of property by one person unconscionable against another suffices generally to ground equitable relief in the form of the declaration and enforcement of a constructive trust.”). The Court agrees with Fitz-Gerald that, for such an extraordinary...