Wealth Assistants LLC v. Thread Bank, No. 4:2024cv00040 - Document 20 (S.D. Tex. 2024)
Court Description: MEMORANDUM OPINION AND ORDER, granting 12 AMENDED 6 MOTION to Intervene by John Paul Bustamante, Steven Paul, Michael Whitten, John Moore and Christopher Tawil. (Signed by Judge Sim Lake) Parties notified. (jld4)
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Wealth Assistants LLC v. Thread Bank Doc. 20 United States District Court Southern District of Texas ENTERED IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION WEALTH ASSISTANTS LLC, March 29, 2024 Nathan Ochsner, Clerk § § § \ Plaintiff, § v. § § THREAD BANK, § § Defendant. CIVIL ACTION NO. H-24-040 § MEMORANDUM OPINION AND ORDER Wealth against Assistants Thread Bank LLC ("Plaintiff") ("Defendant"), wrongfully froze its bank accounts. 1 brought alleging this that action Defendant Pending before the court is the Amended Opposed Motion to Intervene by John Paul Bustamante, Steven Paul, Michael Whitten, ("Motion to Intervene") Whitten, Moore, John Moore, and Christopher Tawil (Docket Entry No. 12). and Tawil ( "Intervenors") Bustamante, Paul, allege that Plaintiff defrauded them and that they are the rightful owners of funds in the frozen accounts. 2 For the reasons stated below, the Motion to Intervene will be granted. 1 Plaintiff Wealth Assistants LLC's Amended Petition ("Plaintiff's Complaint") , Docket Entry No. 13, p. 3 1 7. For purposes of identification all page numbers reference the pagination imprinted at the top of the page by the court's Electronic Case Filing ("ECF") system. 2 Motion to Intervene, Docket Entry No. 12, p. 3; Proposed Complaint in Intervention by John Paul Bustamante, Steven Paul, Michael Whitten, John Moore, and Christopher Tawil ("Intervenors' Proposed Complaint") , attached to Motion to Intervene, Docket. Entry No. 12-2, p. 1 1 1. Dockets.Justia.com I. Background Plaintiff filed this action against Defendant on January 5, 2024. 3 - Plaintiff alleges that five of its accounts with Defendant - ending in *1232, *1233, *1234, *1235, and *1236 - are wrongfully frozen. 4 Plaintiff alleges claims under the Texas Deceptive Trade Practices Act and claims for Money Had and Received and Unjust Enrichment. 5 Intervenors filed the Motion to Intervene on February 9, 2024, Plaintiff responded, and Intervenors replied. 6 that they are entitled to intervention of Intervenors argue right and, in the alternative, that the court should allow permissive interyention. 7 Intervenors evidence argue that particular, the that Plaintiff proceeds are in defrauded the them frozen and present accounts. 8 In Intervenors argue that Plaintiff defrauded them by selling them a business opportunity and failing to provide the 3 Plaintiff Wealth Assistant LLC's Original Petition, Docket Entry No. 1. The live pleading is Plaintiff's Complaint filed on February 21, 2024, Docket Entry No. 13. 4 Plaintiff's Complaint, Docket Entry No. 13, p. 3 5 Id. at 4-6. ~ 7. 6 Motion to Intervene, Docket Entry No. 12; Plaintiff Wealth Assistants LLC' s Response to Motion to Intervene ("Plaintiff's Response") , Docket Entry No. 14; Reply Supporting Amended Motion to Intervene by John Paul Bustamante, Steven Paul, Michael Whitten, John Moore, and Christopher Tawil ("Intervenors' Reply"), Docket Entry No. 15. Defendant has made no filings regarding the Motion to Intervene. 7 Motion to Intervene, Docket Entry No. 12, pp. 5, 8. 8 Id. at 3-4. -2- services as promised. 9 Plaintiff responds that arbitration clauses in the Intervenors' contracts should prevent them from intervening, that Intervenors are not entitled to intervention of right, and that the court should not allow permissive intervention. 10 Intervenors attach their Proposed Complaint, which would allege a common-law fraud claim against Plaintiff: 11 II. A. Legal Standard Intervention of Right "On timely motion, the court must permit anyone to intervene who claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, existing parties adequately represent that interest." unless Fed. R. Civ. P. 24(a). "The burden of establishing inadequate representation [by the existing parties] is on the applicant for intervention." v. City of Houston, requirement 1 78 F.3d 983, is 1005 satisfied if (5th Cir. the Edwards 1996). applicant "'This shows that representation of his interest "may be" inadequate; and the burden of making 9 that showing should be treated as minimal. '" Id. Id. at 3. 10 Plaintiff's Response, Docket Entry No. 14, pp. 3-4, 8. 11 Intervenors' Proposed Complaint, Intervene, Docket Entry No. 12-2, p. 10 -3- attached 11 51-54. to Motion to (quoting Trbovich v. United Mine Workers of America, 92 S. Ct. 630, 636 n.10 (1972)). B. Permissive Intervention "On timely motion, the court may permit anyone to intervene who . . . has a claim or defense that shares with the main action a common question of law or fact." Fed. R. Civ. P. 24 {b) (1) (B). "In exercising its discretion, the court must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties' rights." Fed. R. Civ. P. 24(b) (3). III. Analysis Intervenors argue that they are entitled to intervention of right and, in the alternative, permissive intervention. 12 that the court should allow Plaintiff argues that the Intervenors' claims are subject to arbitration clauses, that intervention of right does not apply, and that permissive intervention should be denied. 13 A. Arbitration Plaintiff argues arbitration clauses. 14 that Intervenors' claims are subject to Plaintiff cites no authority holding that a court should consider arbitration clauses in deciding whether to 12 Motion to Intervene, Docket Entry No. 12, pp. 5, 8. 13 Plaintiff's Response, Docket Entry No. 14, pp. 3-4, 8. 14 Id. at 3-4. -4- permit intervention. It is doubtful that the court could compel arbitration of a claim that is not before the court. Moreover, the Intervenors state that they intend to challenge the arbitration clauses . 15 B. Intervention of Right The Intervenors argue that they qualify for intervention of right because they are the rightful owners of some of the frozen funds, because disposing of Plaintiff's.claims in its favor could impair Interveµors' ability to trace and recover the funds, and because Defendant does not adequately represent their interest in the funds . 16 Plaintiff responds that Intervenors have not shown more than a mere economic interest in the outcome of Plaintiff's claims, that Intervenors can protect their claimed interest in a separate lawsuit, and .that Intervenors have not shown that Defendant cannot adequately represent their claimed interest. 17 1. Intervenors' Interest in the Frozen Funds Intervenors argue "[t]he funds . . . still lawfully belong to the Intervenors, so they have an important interest in the funds. " 18 Plaintiff responds that "Intervenors have, at best, asserted a 15 Intervenors' Reply, Docket Entry No. 15, pp. 3-5. 16 Motion to Intervene, Docket Entry No. 12, pp. 5-8. 17 Plaintiff's Response, Docket Entry No. 14, p. 5 18 Motion to Intervene, Docket Entry No. 12, p. 6. 118. -5- 1 13, p. 7 potential general economic interest in [Plaintiff's] general funds and assets [.] " 19 Intervention economic of interest" right in the requires "something outcome of the more than existing an case. ·New Orleans Public Service, Inc. v. United Gas Pipe Line Co., 732 F. 2d 452, 464 (5th Cir. 1984) (en bane) . For example, it is not enough that the case will affect whether a party has sufficient assets to satisfy a separate judgment held by the intervenor. 22 Acquisition No. H-03-5425, Corp. v. Technical Risks, 2005 WL 8164106, at *3 Inc., Civil See Action (S.D. Tex. Feb. 4, 2005), report and recommendation adopted sub nom. 2005 WL 8164107 (S.D. Tex. Mar. 7, 2005). Intervenors attach Bustamante's, Paul's, and Moore's escrow agreements with two law firms that facilitated their payments to Plaintiff, a series of emails with the law firms confirming that they transferred payments into Plaintiff's bank accounts ending in *1234 and *1235, and a wire transfer authorization by Whitten to Plaintiff's bank account ending in *1236. 20 Intervenors do not present evidence regarding Tawil's payments. Plaintiff offers no 19 Plaintiff's Response, Docket Entry No. 14, p. 5 20 ~ 13. Escrow Agreement, Exhibit 1 to Motion to Intervene, Docket Entry No. 12-1, pp. 4-6; Escrow Relationship Notice, Exhibit 2 to Motion to Intervene, Docket Entry No. 12-1, pp. 18-19; Escrow Agreement, Exhibit 6 to Motion to Intervene, Docket Entry No. 12-1; pp. 37-39; Email Correspondence Re: Bank info, Exhibit 3 to Motion to Intervene, Docket Entry No. 12-1, pp. 23-26; Domestic Wire Transfer Request/Authorization, Exhibit 4 to Motion to Intervene, Docket Entry No. 12-1, p. 28. -6- evidence to contradict Intervenors' Unlike tracing. the prospective intervenor in 22 Acquisition Corp., Bustamante, Paul, Whitten, and Moore have traced and claim rightful ownership of· particular funds at issue in Plaintiff's claims. The court is persuaded that Bustamante, Paul, Whitten, and Moore have shown that they have an "interest relating to the property or transaction that is the subject of the action[.]" 2. The Effect of Resolving the Case on Intervenors' Interest Intervenors [Plaintiff] court - Fed. R. Civ. P. 24(a). argue "if sends money to likely will not be able to recover those Intervenors argue that Plaintiff is likely to disperse the assets, citing Plaintiff's routing of Intervenors' through law firm payment processors. 22 bankruptcy [Defendant] either voluntarily or pursuant to an order of the Intervenors funds." 21 that case involving a payments Intervenors also cite a past business operated by Plaintiff's ultimate owners - Max Day and Michael Day. 23 some of Michael Day, Max K. Day, and Max 0. Day owned and operated the bankrupt business. 24 21 The business's customers filed "over 300 proofs of Motion to Intervene, Docket Entry No. 12, p. 6. 22 Id. at 4, 7. The court understands Intervenors to mean that by using the law firms as intermediaries, Plaintiff sought to avoid. providing account information directly to Intervenors that would enable them to later trace their funds. 23 Plaintiff identifies its two 50% owners as WWKB LLC and Dreams to Reality LLC. Plaintiff's Complaint, Docket Entry No. 13, p. 1 11. WWKB LLC has two 50% owners - Max Day and Michael Day. Id. at 1-2 1 1. Trustee's Third Amended Complaint, Bankruptcy No. 06-3285 (Lead Bankruptcy No. 05-90080), Docket Entry No. 465, pp. 33 1126. 24 -7- claim" against the business's assets, "largely contend[ing] that [it] sold them worthless equipment [.] " 25 The trustee appointed to represent a the business's estate filed third~party complaint against the Days, alleging that they had "denuded" the business of its assets despite its substantial debts. 26 If this action is resolved by Defendant providing Plaintiff access to the frozen funds, Plaintiff may transfer or commingle them so that Intervenors can no longer trace their payments. would frustrate Intervenors' This ability to recover the funds, for example by making it difficult to obtain a constructive trust on the funds. . See Remedies, Ch. 12-A § 3 (2024 ed.) O'Connor's Texas Causes of Action ("The court may place a constructive trust on proceeds, funds, or property obtained as a result of fraud . . . The plaintiff has the initial burden to trace improperly obtained funds to the property sought to be recovered."). were to prevail in a separate fraud action If Intervenors after Plaintiff disperses the funds, Intervenors would instead have to attempt to enforce a judgment against Plaintiff's general assets. The court is persuaded "that disposing of the action may as a practical matter impair or impede the [Intervenors'] [their] interest" in the frozen funds. ability to protect Fed. R. Civ. P. 24(a). 25 In re Today's Destiny, Inc., Bankruptcy No. 05-90080, 2008 WL 5479109, at *l (Bankr. S.D. Tex. Nov. 26, 2008). 26 Trustee' s Third Amended Complaint, Bankruptcy No. 06-3285 (Lead Bankruptcy No. 05-90080), Docket Entry No. 465, pp. 33-34 11 127-31. -8- 3. Representation of Intervenors' Interest Intervenors argue that Defendant has "little incentive to correctly determine the true owner of the funds in the accounts at issue" and that " [i] ts primary interest is likely to relinquish control of the funds as soon as possible so that it can avoid being involved in litigation [.] " 27 Defendant and the Intervenors do not have the same incentives. Defendant is motivated in part by the desire to avoid liability to Plaintiff, while the Intervenors are motivated by the desire to recover the frozen funds. its risk of liability For example, if Defendant decided that to Plaintiff and cost of litigating outweighed its compliance and other risks, it might decide to send the funds to Plaintiff in exchange for a favorable settlement. court is therefore persuaded that the "existing parties adequately represent [Intervenors'] interest." Fed. The [do not] R. Civ. P. 24 (a) . Because Bustamante, interest relating to the Paul, Whitten, [funds] that and Moore [are] "claim[] an the subject of the action," because they are "so situated that disposing of the action may as a practical matter impair or impede protect [their] not] ability to interest," and because the "existing parties adequately represent that interest," intervention of right. 27 [their] they are entitled to Fed. R. Civ. P. 24(a). Motion to Intervene, Docket Entry No. 12, p. 8. -9- [do C. Permissive Intervention In the alternative, permissive intervention. shares a common Intervenors ask the court to allow Intervenors argue that their fraud claim question with Plaintiff's claims "whether [Plaintiff] could claim rightful possession of [the] assets." 28 If the funds are found to be proceeds of fraud against the Intervenors, that would likely vindicate the Defendant's alleged freezing of the accounts. The claims therefore share a "common question of law or fact [,] " and the court may grant . permissive intervention. is likely to Fed. R. Civ. P. 24 (b) (1) (B). conserve avoiding duplicative the parties' and Permitting intervention court's resources litigation of ove·rlapping factual by issues. Moreover, the court is not persuaded that "intervention will unduly delay or prejudice rights." Fed. R. the Civ. adjudication of P. 24 (b) (3). the original parties' Plaintiff presents only a vague objection that "the rights of [Plaintiff and Defendant] will be prejudiced by having a heavily protracted side-litigation ongoing over contractuai matters and specious allegations of fraud vs. a relatively simple dispute involving a small amount of facts as to whether [Plaintiff's] [Defendant] Accounts." 29 wrongfully withheld funds Plaintiff offers no support for its argument that litigation of Intervenors' claim will be "heavily 2aid. 29 in Plaintiff's Response, Docket Entry No. 14, p. 9 -10- ~ 23. protracted" or that litigation "relatively simple[.]" 30 of its own claims will be The court concludes that the Intervenors should be allowed permissive intervention. IV. Conclusion and Order Four of the Intervenors - Bustamante, Paul, Whitten, and Moore have shown that they are entitled to intervention of right. Moreover, permissive intervention is appropriate as to all five Intervenors. Bustamante, The Amended Opposed Motion to Intervene by John Paul Steven Paul, Michael Whitten, John Moore, and Christopher Tawil (Docket Entry No. 12) is therefore GRANTED. The Proposed Complaint in Intervention by John Paul Bustamante, Steven Paul, Michael Whitten, John Moore, and Christopher Tawil (Docket Entry No. 12-2) is ORDERED to be DOCKETED. SIGNED at Houston, Texas, on this 29th day of March, 2024. SIM LAKE SENIOR UNITED STATES DISTRICT JUDGE -11-
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