Case bjh Doc 22 Filed 12/30/11 Entered 12/30/11 19:33:15 Desc Main Document Page 1 of 70

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1 Document Page 1 of 70 Richard G. Grant Texas Bar No RICHARD G. GRANT P.C John McCain Road Colleyville, TX Telephone: Facsimile: rgrant@rgglaw.com Robert W. Brower CA Bar No P.O. Box El Sobrante, CA COUNSEL FOR DWIGHT DIXON COLLINS AND KATHLEEN D. COLLINS UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION In re: R.E. LOANS, LLC, R.E. FUTURE, LLC, and CAPITAL SALVAGE, Debtors. Case No BJH-11 Jointly Administered Chapter 11 GREENBERG TRAURIG LLP and ELIZABETH COBEY, v. Plaintiffs, DWIGHT DIXON COLLINS, et al., Defendants. Adv. No ORIGINAL ANSWER OF DWIGHT DIXON COLLINS AND KATHLEEN D. COLLINS Defendants Dwight Dixon Collins, individually, and Kathleen D. Collins, individually (collectively, the Collins Defendants ) files this Original Answer to the Original Complaint for Declaratory Judgment and Temporary Injunction (the Complaint ) filed by Plaintiffs and respectfully state as follows: Original Answer of Dwight Dixon Collins and Kathleen D. Collins Page 1

2 Document Page 2 of Defendants admit the allegations in paragraph 1 of the Complaint. 2. Of the California Actions described in the Complaint, Defendants are parties solely to the causes of action referred to by Plaintiffs as the Collins Action which is styled Dwight Dixon Collins, individually and as Trustee of the Collins 2007 Revocable Trust, and as Trustee of the Collins Development Co. Defined Benefit Pension Plan and 401(k) Profit Sharing Plan; and Kathleen D. Collins, individually, and as trustee of the Collins 2007 Revocable Trust v. Walter NG, Kelly William NG, Bruce Horwitz, R.E. Loans, LLC, Armanino McKenna, LLP, Elizabeth R. Cobey, Greenberg Traurig, LLP, Development Specialists, Inc., and Does 1-100, inclusive, Case No. C , Superior Court of California, County of Contra Costa (the Collins California Case ). A true and correct copy of the First Amended Complaint for Damages filed in the Collins California Case (the Collins Complaint ) is attached hereto as Exhibit A. 3. Defendants admit that Plaintiffs are but two of many other Defendants in the Collins California Case and that Plaintiffs are liable to Defendants for the reasons set forth in the Collins Complaint, but denies the remaining allegations and characterizations set forth in paragraph 2 through 7 of the Complaint. The Collins Complaint properly characterizes the allegations of Defendants in such case. 4. Collins Action. Defendants admit the factual allegations set forth in paragraphs 8-10 of the Complaint; provided, however, Defendants lack knowledge or information sufficient to form a belief about the truth as to whether the Greenberg Parties were actually counsel for the Debtor or counsel for a third party. Original Answer of Dwight Dixon Collins and Kathleen D. Collins Page 2

3 Document Page 3 of Batroa Action. Defendants lack knowledge or information sufficient to form a belief about the truth of the allegations contained in paragraphs and the same are accordingly denied. 6. Noble Action. Defendants lack knowledge or information sufficient to form a belief about the truth of the allegations contained in paragraphs and the same are accordingly denied. 7. Mendes Action. Defendants lack knowledge or information sufficient to form a belief about the truth of the allegations contained in paragraphs and the same are accordingly denied. 8. McGuire Action. Defendants lack knowledge or information sufficient to form a belief about the truth of the allegations contained in paragraphs and the same are accordingly denied. 9. Bankruptcy of Debtors. Defendants admit the factual allegations in paragraph 21 of the Complaint. 10. Jurisdiction. With respect to the allegations set forth in paragraph 22, Defendants deny that this Court has subject-matter jurisdiction over all components of this Adversary Proceeding. To the extent jurisdiction and venue is appropriate with this Court, the three causes of action are core proceedings. 11. Venue. With respect to the allegations set forth in paragraph 23, venue is not proper in this Court in that venue is not proper of the main case (Case No ) under 11 U.S.C Venue of this proceeding is not proper under 11 U.S.C because, inter alia, venue is appropriate where venue is appropriate for the main case. 12. Basis of Relief. Defendants deny any allegations contained in paragraphs Original Answer of Dwight Dixon Collins and Kathleen D. Collins Page 3

4 Document Page 4 of Parties. Defendants lack knowledge or information sufficient to form a belief about the truth of the allegations contained in paragraphs and and the same are accordingly denied. Defendants admit the allegations contained in paragraphs 30, 31, and Characterization of Asserted Problem. Defendants lack knowledge or information sufficient to form a belief about the truth of the allegations contained in paragraphs and the same are accordingly denied. Paragraphs are argumentative in nature and need not be admitted or denied; however, to the extent such paragraphs contain factual allegations, they are denied. 15. First Cause of Action. The allegations set forth in paragraphs are denied; Defendants admit that the Debtors may have causes of action against Plaintiff; however, the causes of action asserted by Defendants are not property of the estate. 16. Second Cause of Action. The allegations set forth in paragraphs are denied. In part, Plaintiff seeks declaratory relief that Section 362 stays (or should be extended to stay ) Defendants proceeding against the non-greenberg Parties. The only claims against parties other than the Greenberg Parties and bankruptcy debtors are Defendants claims against the audit firm Armanino McKenna, LLP ( Armanino ). The claims against Armanino are unique to Defendants in that Defendants are the only known victims to actually have read and relied upon the auditor s report. No other victim of the scheme is known to have a similar cause of action against Armanino. The relief requested should be denied as to Defendants. 17. Third Cause of Action. The allegations set forth in paragraphs are denied. The relief requested should be denied. Original Answer of Dwight Dixon Collins and Kathleen D. Collins Page 4

5 Document Page 5 of Defendants deny any remaining allegations in the Complaint not specifically and expressly admitted herein. Affirmative Defenses 19. Standing Exclusive to Bankruptcy Trustee. Plaintiff is a third party nondebtor defendant to the victims causes of action. Plaintiff does not have standing to assert the causes of action in the Complaint for declaratory and injunctive relief. See, e.g., Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, (2000) (discussing the concept that the duties of the trustee should be prosecuted by the trustee and not by other parties). This is especially true where the arguments being made by Plaintiffs do not assert that Plaintiff is harmed, but that the bankruptcy estate will be harmed. See Count 1 at 57; Count 2 at 61, 63 & 64; Count 3 at 69. The Complaint does not assert in any of the Counts that Plaintiff is harmed. Only the trustee or debtor in possession has standing to assert the causes of action asserted in the Complaint. The Debtor has not joined in or taken a position as to Plaintiff s requested relief. 20. Standing as to Claims against non-greenberg defendants. Plaintiff does not have standing to assert a claim for declaratory or injunctive relief as to claims of Defendants against parties other than Plaintiff (the Non-Greenberg Parties ). 21. Venue. This Court is not the appropriate venue for this Adversary Proceeding. 22. Collateral Estoppel/Res Judicata/Equitable Estoppel. The court in Collins California Case held a show cause hearing on December 23, 2011, at which hearing counsel for Plaintiffs and the Debtor acknowledged to the court, and the court ruled, that the Plaintiff s claims in the Collins Lawsuit against parties other than the Greenberg Parties (to wit: Armanino McKenna, LLP) were not derivative claims, were not property of the Debtor s estate, were not Original Answer of Dwight Dixon Collins and Kathleen D. Collins Page 5

6 Document Page 6 of 70 subject to the automatic stay, and would not be stayed. A copy of the court clerk s Minute Order of such hearing is attached hereto as Exhibit B. The court did stay the causes of action against Plaintiff pending further ruling from the bankruptcy courts. Such ruling and/or the positions taken by the Debtor and Plaintiff are one or more of collateral estoppel, judicial estoppel and res judicata as to the relief requested by Plaintiff. 23. Mootness. Given the December 23, 2011 ruling discussed above, the relief requested as to claims against Plaintiff is moot as to Defendants. WHEREFORE, the Defendants request that the Court dismiss the Complaint with prejudice and granting to Defendants any relief to which they should show themselves to be entitled. Date: December 30, 2011 Respectfully Submitted, RICHARD G. GRANT, P.C. By: /s/ Richard G. Grant Richard G. Grant Texas Bar No John McCain Road Colleyville, Texas Telephone: (214) Facsimile: (214) and Robert W. Brower CA Bar No P.O. Box El Sobrante, CA COUNSEL FOR DWIGHT DIXON COLLINS AND KATHLEEN D. COLLINS Original Answer of Dwight Dixon Collins and Kathleen D. Collins Page 6

7 Document Page 7 of 70 CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the foregoing pleading was transmitted on December 30, 2011 via (a) United States First Class Mail, postage prepaid to the addressees set forth below, (b) electronic mail to the addresses below and (c) via the Court s ECF system. Stephen A. Goodwin Lisa M. Lucas CARRINGTON, COLEMAN, SLOMAN & BLUMENTHAL, LLP 901 Main Street, Suite 5500 Dallas, TX sgoodwin@ccsb.com msutherland@ccsb.com and Tyler A. Baker Jay Pomerantz Ilana S. Rubel FENWICK & WEST LLP Silicon Valley Center 801 California Street Mountain View, CA jpomerantz@fenwick.com IRubel@fenwick.com Attorneys for Plaintiffs Elizabeth R. Cobey and Greenberg Traurig, LLP /s/ Richard G. Grant Richard G. Grant Original Answer of Dwight Dixon Collins and Kathleen D. Collins Page 7

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