Texas Court: Trustee’s Complaint Fails to Factually Support its Assertions
January 18, 2022, Southern District of Texas – The opinion refers to Defendant NSPS Metals, LLC’s motion for dismissal of Plaintiff-Debtor All Texas Electrical Contractors, Inc.’s (ATE) amended complaint for failure to state a claim.
The facts of the case as summarized in the court opinion are: The dispute relates to the construction of a multimillion-dollar steel processing facility in Houston, Texas, organized by NSPS. NSPS hired American Commercial Contractors, LLC (“ACC”) as its general contractor concerning the construction. ATE entered into a lump sum subcontractor agreement with ACC for $915,405.00 to provide labor and materials. ATE pled that it allegedly timely performed its obligations pursuant to the subcontract and submitted its invoices, but ACC “slow-paid” its invoices before ceasing payment altogether. Eventually, ATE filed for bankruptcy and later initiated an adversary proceeding against NSPS and others. As of the date of the bankruptcy petition filing, ATE maintains that it was still owed $586,496.15. ATE’s complaint asserted several claims, including; § 542 turnover, §§ 548(a)(1)(B) and 550 constructive “fraudulent transfer;” TUFTA constructive “fraudulent transfer;” quantum meruit; unjust enrichment; et al. as against NSPS.
The Court noted that ATE contends that NSPS is in possession of construction trust funds for which ATE is the beneficiary and that NSPS must turn over those funds to ATE. However, the Court found that ATE did not sufficiently plead a plausible claim under either a §542(a) or § 542(b) theory.
First, the Court concluded that NSPS could not be in possession of the trust funds since ATE defines these funds as those that have already been paid to ACC. Therefore, the Court ruled that ATE did not meet its pleading burden under § 542(a) to allege that NSPS has the rightful property in the Plaintiff’s bankruptcy estate. Next, the Court ruled that even under § 542(b), ATE’s claim fails because it is merely a disputed “breach of contract claim,” and ATE seeks to recover for unpaid materials and services subject to its agreement with ACC in the sub-contract. Thus, the Court ruled that ATE cannot bring turnover action to demand the disputed funds.
The Court also dismissed Plaintiff’s claim under §§ 548(a)(1)(B) and 550 as to NSPS. The Court found that ATE pled generally and its allegations did not provide any factual support for its assertions, such as balance sheets or additional financial information. The Court further found that ATE’s pleadings were entirely open-ended and non-committal. About the claim under the Texas Uniform Fraudulent Transfer Act (TUFTA) and quantum meruit, the Court found that the ATE failed to clarify under which of the TUFTA subsections it brings its claim, and without pleading with the required specificity, ATE cannot state a claim under Section 24.005(a)(2). The Court also dismissed the rest of ATE’s claims and ruled in favor of NSPS.
In re All Tex. Elec. Contractors, 2022 Bankr. LEXIS 113, United States Bankruptcy Court for the Southern District of Texas