Ruff v. Ruff

1

JENNIFER C. RUFF Appellant, v. SUZANN RUFF and CHRISTOPHER MOSER, TRUSTEE Appellees.

Civil Action No. 4:22-cv-00321

United States District Court, E.D. Texas, Sherman Division

June 6, 2023

MEMORANDUM OPINION AND ORDER

AMOS L. MAZZANT UNITED STATES DISTRICT JUDGE

Pending before the Court is Appellant Jennifer C. Ruff's appeal from a final judgment entered by the United States Bankruptcy Court for the Eastern District of Texas (Dkt. #1). This appeal presents the Court with myriad issues arising from the Bankruptcy Court's denial of Appellant Jennifer C Ruff's request for a declaratory judgment and its judgment in favor of Appellee Suzann Ruff. Having considered the briefs, the record, and the relevant pleadings, the Court finds that the Bankruptcy Court's decision should be AFFIRMED.

BACKGROUND

This case represents one of many fronts in a multi-pronged family conflict over the estate of Arthur Ruff, who died in 1998 leaving considerable assets to his widow, Appellee Suzann Ruff (Dkt. #9 at pp. 7-8). After Arthur's passing, Suzann Ruff turned to one of her sons, Michael Ruff, to manage the millions of dollars in assets that she inherited from her late husband. That decision set in motion decades of litigation involving allegations of fraud and financial misconduct, featuring stops in Dallas County Probate Court an American Arbitration Association (“AAA”) arbitration, several state district courts, the Court of Appeals for the Fifth District of Texas, and federal bankruptcy courts around the state.^[1]

One of those related bankruptcies is In re JMV Holdings LLC, which was filed in the United States Bankruptcy Court for the Eastern District of Texas on November 9, 2018 (the “Main Case”). In re JMV Holdings, LLC, Case No. 18-42552, (Bankr. E.D. Tex. Nov. 9, 2018) (Main Case No. 18-42552, Dkt. #1). Appellant Jennifer Ruff is the wife of Michael Ruff and a creditor in the Main Case (Dkt. #9 at p. 8).^[2]Jennifer is also the plaintiff in the adversary proceeding underlying this appeal (the “Adversary Case”). See Ruff v. Ruff, Adv. Case No. 21-4003, (Bankr. E.D. Tex. Jan. 11, 2021) (Adversary Case No. 21-4003, Dkt. #1).

I. The Ruff Management Trust and Related Litigation

In 2007, Suzann and Michael formed the Ruff Management Trust (the “Management Trust”) (Adversary Case No. 21-4003, Dkt. #54 ¶ 6). Suzann was both the settlor of the Management Trust and its primary beneficiary. Michael was the Management Trust's sole trustee. Suzann transferred most of her assets to the Management Trust, to be controlled by Michael for her benefit.

Within two years, the relationship between Suzann and Michael grew strained, and Suzann sought “separation from [Michael] financially” (Adversary Case No. 21-4003, Dkt. #67 at p. 26:610). To that end, Michael resigned his position as trustee of the Management Trust in November 2009 (Adversary Case No. 21-4003, Dkt. #54 ¶ 9). In exchange for his resignation, Michael persuaded his mother to sign a Family Settlement Agreement, under which Suzann released any claims that she had against Michael. Frost Bank then succeeded Michael as the trustee of the Management Trust. As a part of the transition to Frost, Suzann signed an agreement that released Frost and the other Ruff children-but not Michael-from liability relating to the Management Trust (Adversary Case No. 21-4003, Dkt. #56 ¶ 8). That agreement contained an arbitration clause (Adversary Case No. 21-4003, Dkt. #56, Findings of Fact ¶ 8).

Suzann subsequently sued Michael in Dallas County Probate Court, alleging that Michael abused his position as trustee of the Management Trust by swindling Suzann out of millions of dollars through a series of fraudulent transactions. In re Ruff Mgmt. Trust, No. PR-11-02825-1 (Probate Ct., Dallas Cnty., Tex. Aug. 19, 2011). Michael responded by invoking the arbitration clause in the Frost agreement and eventually forcing the dispute into a AAA arbitration (the “Arbitration”).

In the Arbitration, Suzann asserted counterclaims against Michael for breach of fiduciary and fraud. The Arbitration stretched out for several years, culminating in a three-day final hearing in October 2017. After the final hearing, a panel of three AAA arbitrators issued a final award, finding that Michael had defrauded Suzann, breached his fiduciary duty, and committed negligence (the “Final Award”) (Adversary Case No. 21-4003, Dkt. #32, Exhibit 1 at p. 4). The AAA panel rejected Michael's affirmative defenses of release and waiver based on the Family Settlement Agreement, finding that Michael had fraudulently induced Suzann into signing the Agreement (Adversary Case No. 21-4003, Dkt. #32, Exhibit 1 at p. 4). Based on these findings, the AAA panel awarded Suzann $49 million in actual damages, $3.9 million in attorneys' fees and costs, and $12.8 million in prejudgment interest (Adversary Case No. 21-4003, Dkt. #32, Exhibit 1 at pp. 5-6). Critically, the AAA panel also made the following determination:

A constructive trust exists and is imposed in favor of Suzann Ruff on Michael Ruff's interests, of whatever nature, in any entity which he formed or invested, in whole or in part with monies or property misappropriated from, and originating with Suzann Ruff in all capacities, which the Panel finds includes, but is not limited to, any interest of whatever nature Michael has in the entities listed on Exhibit “A” attached hereto and made a part hereof for all purposes (Exhibit “A”). Michael Ruff shall hold his ownership interests in such entities as constructive trustee for the benefit of Suzann Ruff, and Suzann Ruff shall be entitled to a lien against such ownership interests to enforce this Award.

(Adversary Case No. 21-4003, Dkt. #32, Exhibit 1 at p. 6).

Suzann then returned to Dallas County Probate Court and sought a final judgment confirming the Arbitration award. Likewise, Michael moved to vacate the Arbitration award, arguing that he did not agree to arbitrate Suzann's tort claims. After an extensive evidentiary hearing, the Probate Court entered a final judgment in favor of Suzann, which incorporated the terms of the Arbitration award. That judgment was subsequently affirmed by the Court of Appeals for the Fifth District of Texas. Ruff v. Ruff, No. 05-18-00326-CV, 2020 WL 4592794, at *15 (Tex. App.-Dallas Aug. 11, 2020, pet. denied).

II. JMV Holdings

Among the entities identified in the Arbitration award and subsequent judgment as being formed, at least in part, with “monies or property misappropriated” from Suzann is JMV Holdings, LLC (“JMV Holdings”) (Adversary Case No. 21-4003, Dkt. #32, Exhibit 1 at p. 9). JMV Holdings is a Texas limited liability company that was formed by Michael in November 2009-one month after he fraudulently induced his mother into signing the Family Settlement Agreement (Adversary Case No. 21-4003, Dkt. #56, Findings of Fact ¶ 18). It is managed by JMV Managers, another Texas limited liability company, which has one member: MAR Living Trust, a living trust created by Michael for the benefit of Jennifer and their minor children. In December 2009, through JMV Holdings, Michael bought a property and accompanying improvements located on Joyce Way in Dallas, Texas (the “Joyce Way Property”) (Adversary Case No. 21-4003, Dkt. #54 ¶ 27). Although Michael purchased the Joyce Way Property in the name of JMV Holdings, he paid the purchase price directly from his personal checking account (Adversary Case No. 21-4003, Dkt. #56, Findings of Fact ¶ 24).

III. The JMV Holdings Bankruptcy

JMV Holdings filed a petition for bankruptcy under Chapter 11 on November 9, 2018 (Main Case No. 18-42552, Dkt. #1). In its initial bankruptcy schedules, JMV Holdings claimed a single asset-the Joyce Way Property (Main Case No. 18-42552, Dkt. #15 at p. 5). The Bankruptcy Court converted the Main Case to a Chapter 7 bankruptcy on May 15, 2019 (Main Case No. 18-42552, Dkt. #25).

Both Jennifer and Suzann filed proofs of claim in the Main Case. Suzann asserted an unsecured claim for $65 million and an equitable lien on the assets of JMV Holdings (Adversary Case No. 21-4003, Dkt. #54 ¶¶ 36-37). Jennifer asserted a secured claim for $743,811.82 based on a purported deed of trust that she filed against the Joyce Way Property on the same day that JMV Holdings filed for bankruptcy (Adversary Case No. 21-4003, Dkt. #54 ¶ 38).

In July 2019, the Chapter 7 Trustee sought and obtained permission from the Bankruptcy Court to place the Joyce Way Property on the market (Main Case No. 18-42552, Dkt. #35). Four months later, the Bankruptcy Court issued an order granting the Chapter 7 Trustee permission to sell the Joyce Way Property under 11 U.S.C. § 363 (the “Sale Order”) (Main Case No. 18-42552, Dkt. #47). In the Sale Order, the Bankruptcy Court acknowledged the proofs of claim filed by Jennifer and Suzann and made clear that “the liens, claims and encumbrances” asserted by both Jennifer and Suzann “attach to the residual proceeds” of the sale to the same extent that they attach to the Joyce Way Property (Main Case No. 18-42552, Dkt. #47 at p. 6). The Joyce Way Property ultimately sold for roughly $490,000, and the Chapter 7 Trustee currently holds the proceeds of the sale (Adversary Case No. 21-4003, Dkt. #54 ¶ 41).

IV. The Adversary Proceeding

In addition to the Main Case, Jennifer initiated the Adversary Case in January 2021. As the Bankruptcy Court noted “at its core, [the Adversary Case] involve[d] claims from Suzann Ruff and Jennifer Ruff to the assets of JMV Holdings” (Adversary Case, No. 21-4003, Dkt. #56 at p. 1). Jennifer specifically requested a declaratory judgment stating: (1) that neither the constructive trust in favor of Suzann or the equitable lien imposed by the judgment enforcing the Arbitration Award is enforceable...