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Magnolia Financial Group v. Antos

United States District Court, E.D. Louisiana

August 30, 2017


         SECTION “H”



         Before the Court is a Motion to Dismiss filed by Defendant-in-Cross-Claim Maxum Casualty Insurance Co. (“Maxum”) (Doc. 144). For the following reasons, this Motion is GRANTED IN PART.


         This is a declaratory judgment action on a promissory note that was removed from the 29th Judicial District Court for the Parish of St. Charles. On November 11, 2013, Defendants KCI Investments, LLC (“KCI”), Kenneth Antos, and David Becklean executed a Secured Promissory Note (the “Note”) with Plaintiff Magnolia Financial Group, LLC, (“Magnolia”) for the principal sum of $2,000,000 with an interest rate of 15% per annum. Defendant Becklean also executed a Pledge and Security Agreement (the “Security Agreement”) in favor of Magnolia, wherein he pledged his interest in the proceeds of a Settlement Agreement dated September 22, 2012 among Twin Towers Trading Site Management, LLC, Jeffrey Brandon, Eric Scholer, Becklean, and SMG Group (the “Settlement Agreement”). This pledge was recorded. Subsequently, on January 13, 2015, Defendants entered into a second agreement to borrow an additional $100,000 from Magnolia (the “Second Note”). Plaintiff contends that no principal payments were made on the Notes by the maturity dates and that $2,457,805.60 of principal and interest remains due and owing on the Notes. On November 20, 2015, Plaintiff filed the instant suit seeking a declaratory judgment recognizing its rights under the Notes and the Security Agreement.

         The Court granted Plaintiff summary judgment recognizing Plaintiff as attorney-in-fact for the purposes of carrying out the Security Agreement and establishing Plaintiff’s right to collect attorneys’ fees at the termination of the litigation.[1]

         Twin Towers intervened in this action and filed an interpleader complaint relative to a portion of the Settlement Agreement proceeds. Plaintiff responded, averring that Twin Towers is not entitled to interpleader relief. Plaintiff also brought cross claims against, inter alia, Twin Towers, Donald Porges, and Porges & Eisenberg CPA, LLC (collectively the “Porges Defendants”) for tortious interference with contractual relations, fraud, bad faith breach of conventional obligation, negligent breach of contract, negligent misrepresentation, and general negligence.[2] Plaintiff alleges that Porges, acting personally and on behalf of the other Porges Defendants, represented to Plaintiff that Twin Towers would forward payments under the Settlement Agreement to Plaintiff in the event of Defendants’ default, but later acted to prevent Plaintiff from obtaining the funds.

         On motions by the Porges Defendants, the Court dismissed Plaintiff’s claims for tortious interference with contractual relations and denied summary judgment as to the remaining claims.[3]

         Plaintiff’s Cross-Claim also alleges that Defendant-in-Cross-Claim Maxum has an insurance policy providing coverage to Twin Towers and its employees, including Donald Porges, for Plaintiff’s claims against it. Pursuant to Louisiana’s direct action statute, Plaintiff asserts those claims against Maxum as a solidary obligor. Maxum now moves to dismiss the claims against it under Rule 12(b)(6).


         To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must plead enough facts “to state a claim to relief that is plausible on its face.”[4] A claim is “plausible on its face” when the pleaded facts allow the court to “draw the reasonable inference that the defendant is liable for the misconduct alleged.”[5]A court must accept the complaint’s factual allegations as true and must “draw all reasonable inferences in the plaintiff’s favor.”[6] The Court need not, however, accept as true legal conclusions couched as factual allegations.[7]

         To be legally sufficient, a complaint must establish more than a “sheer possibility” that the plaintiff’s claims are true.[8] “A pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action’’ will not suffice.[9] Rather, the complaint must contain enough factual allegations to raise a reasonable expectation that discovery will reveal evidence of each element of the plaintiff’s claim.[10]


         Maxum asserts three independent grounds for dismissal of Plaintiff’s claims against it: 1) that Louisiana law does not authorize direct action against an insurer on claims arising from a breach of contract, 2) that the policy’s contract exclusion precludes coverage for Plaintiff’s claim against Twin Towers, and 3) that Twin Towers failed to notify Maxum during the policy period. The Court previously held that it would consider Maxum’s insurance policy on a motion to dismiss because the policy was specifically referenced in Plaintiff’s Cross-Claim.[11]

         I. Direct Action

         Maxum first argues that Plaintiff cannot maintain a direct action against it because Plaintiff’s claims are contractual. Louisiana law grants a plaintiff the right to proceed directly against a liability insurer only when the plaintiff has a cause of action against the insured sounding in tort.[12] Whether an action states a tort claim depends on the source of the duty that was breached.[13] If the insured breached an obligation that he contractually assumed, whether as an explicit promise or implied duty, the action sounds in contract.[14] If the insured breached a general duty owed to all persons, then the action sounds in tort.[15]

         Here, Plaintiff’s claims for bad faith breach of conventional obligation and negligent breach of contract sound in contract and are therefore ineligible for direct action. On the other hand, Plaintiff’s claims for fraud, negligent misrepresentation, and general negligence could be based on a duty in either contract or tort.[16] Contrary to Maxum’s argument, these claims do not arise from a contract simply because they relate to the Settlement Agreement. The proper standard is whether the duty allegedly breached was contained in a contract, and Plaintiff’s remaining claims do not depend on a breach of the Settlement Agreement. Plaintiff’s Complaint states a plausible claim that Maxum’s insureds could be liable in tort, and Plaintiff may therefore proceed in direct action against Maxum for the fraud, negligent misrepresentation, and general negligence of Defendants covered by Maxum’s policy.

         Accordingly, Plaintiff’s claims against Maxum for bad faith breach of conventional obligation and ...

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