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Sistrunk v. Haddox

United States District Court, W.D. Louisiana, Shreveport Division

September 12, 2019

GLYNN DALE SISTRUNK, ET AL.
v.
GREGORY LAMAR HADDOX, ETAL.

          MAGISTRATE JUDGE HORNSBY

          MEMORANDUM RULING

          ELIZABETH ERNY FOOTE UNITED STATES DISTRICT JUDGE.

         Now before the Court is a Motion to Dismiss for Failure to State a Claim Upon Which Relief can be Granted filed by Glynn and Lawana Sistrunk ("Plaintiffs") pursuant to Federal Rule of Civil Procedure 12(b)(6). [Record Document 45]. Plaintiffs seek to dismiss a counterclaim filed by Defendant Lincoln Financial Advisors Corporation ("LFA"). [Record Document 41]. The motion is opposed. [Record Document 51]. For the reasons discussed below, the motion to dismiss is GRANTED IN PART and DENIED IN PART.

         FACTUAL BACKGROUND

         Plaintiffs filed the original action against their former investment advisor Gregory Lamar Haddox ("Haddox") and his firm LFA (together, "Defendants") for allegedly "churning"[1] their account and other fraudulent activity. See Record Document 9, ¶ 2.[2]Plaintiffs brought a variety of federal and state law claims against Defendants, including claims that Defendants' conduct violated Texas's deceptive trade practice laws. Record Document 9, ¶s 137-38. LFA filed a counterclaim against Plaintiffs and a crossclaim against Haddox pursuant to Federal Rule of Civil Procedure 13. Record Document 41.

         LFA's counterclaim alleges that Plaintiffs' claims against it under the Texas Deceptive Trade Practices Act ("DTPA") are groundless in fact or law, brought in bad faith, or brought for the purpose of harassment. Record Document 41, ¶ 12. LFA states it is therefore entitled to recover attorney's fees and court costs from Plaintiffs pursuant to Texas Business & Commercial Code § 17.50(c). Id. LFA also alleges that it is entitled to recover damages because Plaintiffs' lawsuit constitutes an unfair method of competition and an unfair or deceptive act or practice, in violation of Louisiana Revised Statutes § 51:1405. Id. at ¶ 13.

         LAW & ANALYSIS

         I. Legal Standard

         In order to survive a motion to dismiss brought under Rule 12(b)(6), a plaintiff must "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "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." Id. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. A court must accept as true all of the factual allegations in the complaint in determining whether plaintiff has stated a plausible claim. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007); In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007). However, a court is "not bound to accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 286 (1986). If a complaint cannot meet this standard, it may be dismissed for failure to state a claim upon which relief can be granted. Iqbal, 556 U.S. at 678-79. A court does not evaluate a plaintiffs likelihood for success, but instead determines whether a plaintiff has pleaded a legally cognizable claim. U.S. ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370, 376 (5th Cir. 2004). A dismissal under 12(b)(6) ends the case "at the point of minimum expenditure of time and money by the parties and the court." Twombty, 550 U.S. at 558.

         II. LFA's Claims Under the DTPA

         A. Applicable Law

         Plaintiffs allege that LFA violated Texas's deceptive trade practice laws by purposefully deceiving them in order to gain an economic advantage and by engaging in unfair, deceptive, and illegal acts and omissions designed to gain economic benefit from the deception. Record Document 9, ¶s 137-38. Section 17.50(a) of the DTPA allows a consumer to maintain a civil action for (1) the use of a false, misleading, or deceptive act or practice, (2) breach of warranty, (3) any unconscionable action or course of action, or (4) the use or employment by any person of an act or practice that violates Chapter 541 of the Insurance Code. Tex. Bus. & Com. Code Ann. § 17.50(a). LFA's counterclaim asserts that Plaintiffs' lawsuit against it violates § 17.50(c) of the DTPA. Record Document 41, ¶ 12. Section 17.50(c) states that "[o]n a finding by the court that an action under this section was groundless in fact or law or brought in bad faith, or brought for the purpose of harassment, the court shall award to the defendant reasonable and necessary attorneys' fees and court costs." Tex. Bus. & Com. Code Ann. § 17.50(c). Under this statute, the party claiming attorney's fees bears the burden of proving that the claims were groundless and brought in bad faith. Phillips Petroleum Co. v. Loucks, 42 F.3d 641, 1994 WL 708633, at* 3 (5th Cir. 1994) (per curiam). The court, not the fact finder, must determine the existence of groundlessness, bad faith, and harassment under § 17.50(c). Id. at *4 (quoting Donwerth v. Preston II Chrysler-Dodge, Inc., 775 S.W.2d 634, 638 (Tex. 1989)).

         Under the DTPA, an action is considered groundless if it has no basis in law or fact and is not warranted by a good faith argument for the extension, modification, or reversal of existing law. Donwerth, 775 S.W.2d at 637. The proper standard for determining groundlessness is "whether the totality of the tendered evidence demonstrates an arguable basis in fact and law for the consumer's claim." Splettstosser v. Myer, 779 S.W.2d 806, 808 (Tex. 1989). A suit is brought in bad faith if it is motivated by a malicious or discriminatory purpose. Schlager v. Clements, 939 S.W.2d 183, 190 (Tex. App.-Houston [14th Dist] 1996, writ denied). A lawsuit meets § 17.50(c)'s definition of harassment only if that lawsuit was brought solely for the purpose of harassment. Donwerth, 775 S.W.2d at 638.

         B. Arguments ...


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