Castle Arch Real Estate Company Litigation

The matter

A liquidating trustee suing former management on assigned claims.

Castle Arch Real Estate Company, LLC filed for bankruptcy in October 2011. A Chapter 11 trustee was appointed, and under the Chapter 11 plan of liquidation the trustee took assignment of the causes of action held by CAREIC’s creditors and equity holders against former management, officers, directors, insiders and others.

The trustee’s theory was that the assignors lost millions because of fraud and other misconduct — not because of the 2008 collapse in real estate values. That distinction carried the case: if the losses were the market’s doing, most of the claims failed on causation.

Nineteen causes of action were pleaded: breach of fiduciary duty; securities fraud under Utah, Nevada, Arizona and California law; federal securities fraud under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, with control person liability under section 20(a); common law fraud; negligent misrepresentation; civil conspiracy; Utah and Nevada state racketeering claims; seven bankruptcy avoidance and recovery counts; disallowance and subordination of claims; constructive trust; and unjust enrichment and disgorgement.

The result

Eleven claims gone with prejudice, and the trustee’s summary judgment motion defeated.

Every federal securities fraud claim was dismissed with prejudice, along with common law fraud, negligent misrepresentation and all seven bankruptcy avoidance and recovery counts. Separately, the trustee moved for summary judgment on the state securities fraud claim and lost — and most of those assigned state claims were then dismissed as time-barred under the state securities statutes of limitation and repose.

Dismissed with prejudice

• Federal securities fraud

  Securities Exchange Act of 1934 § 10(b); SEC Rule 10b-5

• Control person liability

  Securities Exchange Act of 1934 § 20(a)

• Common law fraud

  Utah common law

• Negligent misrepresentation

  Utah common law

• Avoidance of fraudulent transfers — actual intent

  11 U.S.C. § 548(a)(1)(A)

• Avoidance of fraudulent transfers — constructive

  11 U.S.C. § 548(a)(1)(B)

• Avoidance of fraudulent transfers under state law

  11 U.S.C. § 544(b); Utah Code Ann. §§ 25-6-5(1)(a), 25-6-8

• Avoidance of fraudulent transfers under state law

  11 U.S.C. § 544(b); Utah Code Ann. §§ 25-6-5(1)(b), 25-6-8

• Avoidance of fraudulent transfers under state law

  11 U.S.C. § 544(b); Utah Code Ann. §§ 25-6-6(1), 25-6-8

• Avoidance of preferential transfers

  11 U.S.C. § 547(b)

• Recovery of avoided transfers

  11 U.S.C. §§ 550, 551

Defeated on summary judgment

• State securities fraud — the trustee’s motion denied, and the majority of the assigned claims dismissed on statute of limitations and statute of repose grounds

  Utah, Nevada, Arizona and California securities law — second claim for relief

The record

The filings that decided it.

A selection of the material filings, reproduced as filed — not the full docket. They are published because the reasoning is more useful than a description of it would be.

Rule 12(b)(6) — failure to state a claim

• Motion to Dismiss Amended Complaint in its Entirety for Failure to Sufficiently State Claims for Relief under Rule 12(b)(6)

  991 KB

• Declaration of Evans and Exhibits in Support of Motion to Dismiss Amended Complaint under Rule 12(b)(6)

  16.6 MB

• Request for Judicial Notice in Support of Motion to Dismiss Amended Complaint under Rule 12(b)(6)

  259 KB

Rule 12(b)(2) — lack of personal jurisdiction

• Motion to Dismiss for Lack of Personal Jurisdiction Pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure

  855 KB

• Reply in Support of Motion to Dismiss for Lack of Personal Jurisdiction Pursuant to Rule 12(b)(2)

  1004 KB

Answer and counterclaims

• Answer to Amended Complaint and Counterclaims for Declaratory Relief

  724 KB

Summary judgment — state securities claims

• Opposition to Plaintiff’s Motion for Summary Judgment on Second Claim for Relief (Violation of Utah, Nevada, Arizona and California Securities Law)

  520 KB

• Objections to Evidence in Plaintiff’s Reply in Support of Motion for Summary Judgment on Second Claim for Relief

  328 KB

Supplemental briefing — bankruptcy tolling of the limitations period

• Supplemental Brief in Response to Court’s Request for Additional Briefing on Section 108(a) of the Bankruptcy Code and Potential Tolling of the Statute of Limitations

  221 KB

• Response to Plaintiff’s Supplemental Brief on Section 108(a) of the Bankruptcy Code and Potential Tolling of the Statute of Limitations

  297 KB

The decision

• Order and Memorandum Decision on Plaintiff’s Motion for Summary Judgment on Second Claim for Relief (Violation of Utah, Nevada, Arizona and California Securities Law)

  229 KB