Blackstone Claim Services Motion to Dismiss Ruling

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April 2, 2026 Get Citation Alerts Download PDF Add Note

In re: Blackstone Claim Services, Inc. v. Aaron McKee; Gary H. Pennington

United States Bankruptcy Court, W.D. Texas

• Citations: None known
• Docket Number: 25-05084

• Precedential Status: Unknown Status

• Opinion

• Authorities (67)

• Cited By (0)

• Summaries (0)

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Trial Court Document

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IT IS HEREBY ADJUDGED and DECREED that the “aie ky
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below described is SO ORDERED. ac &.

Dated: April 02, 2026. Cancy A
CRAIG A. □□
CHIEF UNITED STATES BANKRUPTCY JUDGE

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
§
IN RE: § CASE NO. 25-52804-CAG
§
BLACKSTONE CLAIM SERVICES, §
INC. §
§ CHAPTER 11
§ Subchapter V
Debtor. §
§
BLACKSTONE CLAIM SERVICES, §
INC. §
Plaintiff. §
§
Vv. § ADVERSARY NO. 25-05084-CAG
§
§
AARON MCKEE, §
Defendant. §
Vv. §
§
GARY H. PENNINGTON, §
Third-Party Defendant. §

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF BLACKSTONE
CLAIM SERVICES, INC.’S RULE 12(b)(1) AND 12(b)(6) MOTION TO DISMISS
MCKEE’S COUNTERCLAIMS (ECF NO. 22)

Came on to be considered Defendant’s Answer, Affirmative Defenses, Counter-Claims and
Third Party Claim to Plaintiff’s First Amended Complaint (“Counterclaim(s)”) (ECF No. 17),1
Plaintiff Blackstone Claim Services, Inc.’s Rule 12(b)(1) and 12(b)(6) Motion to Dismiss
Defendant’s Counterclaims (“Motion to Dismiss”) (ECF No. 22), Third-Party Defendant Gary H.
Pennington’s Joinder in Part to Plaintiff’s Motion to Dismiss (“Joinder”) (ECF No. 27), and
Defendant’s Response to Plaintiff’s Motion to Dismiss (“Response”) (ECF No. 31). The Court set
the Motion to Dismiss for hearing heard oral argument and took the matter under advisement.
(ECF No. 32). For the reasons stated in this Order, the Motion to Dismiss is GRANTED in part
and DENIED in part.
JURISDICTION
I. McKee’s Claims Against Blackstone
The Court has subject matter jurisdiction over Defendant Aaron McKee’s (“McKee”)
Counterclaims against Blackstone Claim Services, Inc. (“Blackstone”) pursuant to 28 U.S.C.
§§ 1334 (b) and 157(a). This case is referred to the Court under the District Court’s Order on
Reference. Matters referred to a bankruptcy court may be “core” or “non-core” under 28 U.S.C.
§ 157 (b).
“Looking at the parties’ pleadings as they existed at the time of removal, the first issue to

be addressed is whether the court has jurisdiction over the parties’ state court proceeding and, if
so, whether each cause of action asserted within that proceeding is core or non-core.” Legal
Xtranet, Inc. v. AT&T Mgmt. Servs., L.P (In re Legal Xtranet), 453 B.R. 699, 704 (Bankr. W.D.

1 “ECF” denotes electronic filing docket number in Adversary No. 25-05084-cag unless otherwise indicated.
Tex. 2011). “A matter falls within the court’s subject matter jurisdiction if the matter arises under
a provision of title 11, or if the matter arises in or is related to the bankruptcy case.” Id. at 704.
First, “‘Arising under’ jurisdiction involves causes of action created or determined by a
statutory provision of title 11.” Id. Next, “‘Arising in’ jurisdiction is not based on a right expressly

created by title 11, but is based on claims that have no existence outside of bankruptcy.” Id. “Claims that initially arose in a state-court proceeding, long before the debtor filed for bankruptcy
did not ‘arise under’ or ‘arise in’ a title 11 proceeding.” Parkhouse v. Johnson (In re Johnson),
No. 11-06020, 2012 WL 1110342, at *6 (Bankr. W.D. Tex. Apr. 2, 2012) (citation modified). In
such cases, the causes of action obviously “could (and in fact did) exist absent [the debtor’s]
bankruptcy filing.” In re Legal Xtranet, Inc., 453 B.R. at 709. Last, “A matter is related to the
bankruptcy when the outcome of that proceeding could conceivably have any effect on the estate
being administered in bankruptcy.” GDC Investco LP v. Mazav Mgmt., LLC (In re GDC
Technics, LLC), No. 25-05063, 2026 WL 227170, at *3 (Bankr. W.D. Tex. Jan. 27, 2026)
(citation modified). Section 1334’s reference to matters “related to” bankruptcy cases primarily

applies to claims against the debtor that encompass tort, contract, and other legal claims “that, were
it not for bankruptcy, would be ordinary stand-alone lawsuits between the debtor and others but
that section 1334(b) allows to be forced into bankruptcy court so that all claims by and against the
debtor can be determined in the same forum.” Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d 746,
752 (5th Cir. 1995). “A secondary purpose is to force into the bankruptcy court suits to which the
debtor need not be a party but which may affect the amount of property in the bankrupt estate.” Id. Here, McKee asserts 11 U.S.C. § 523 (a) claims against Blackstone. Therefore, the Court
has jurisdiction over those Counterclaims arising under title 11. Additionally, McKee asserts state-
law causes of action against Blackstone that could, and in fact did, exist outside of Blackstone’s
bankruptcy. Therefore, the Court does not have “arising in” jurisdiction over McKee’s state law
claims against Blackstone. McKee’s state-law claims against Blackstone, however, could
conceivably have an effect on Blackstone’s estate being administered in bankruptcy. McKee

brought tort and contract claims against Blackstone in state court about six months before
Blackstone filed for bankruptcy. Were it not for Blackstone’s bankruptcy, the proceeding would
have continued to be a stand-alone lawsuit in state court. Given that Blackstone filed for
bankruptcy, however, the lawsuit can conceivably affect the administration of the bankruptcy
estate. Therefore, the Court has related to jurisdiction over McKee’s state-law claims against
Blackstone.
Next, the Court must determine whether each claim before it is core or non-core. Exec.
Benefits Ins. Agency v. Arkison, 573 U.S. 25, 33 (2014). If the matter is core, 28 U.S.C. § 157 (b)
authorizes the bankruptcy court to hear, determine, and enter final judgment on the claims. If the
matter is non-core, the parties must consent to the bankruptcy court’s jurisdiction to hear,

determine, and enter final judgment on the claims. 28 U.S.C. § 157 (c).
McKee’s Counterclaims against Blackstone are core. “The fact that a claim arises under
state law is not dispositive, as ‘many truly bankruptcy issues, like the determination of the basis
for creditors’ claims, turn on state law.’” Gomez v. Saenz (In re Saenz), No. 13-07024, 2016 WL
9021733, at *2 (Bankr. S.D. Tex. Dec. 19, 2016) (quoting Southmark Corp. v. Coopers &
Lybrand, 163 F.3d 925, 930 (5th Cir. 1999)), aff’d, 899 F.3d 384 (5th Cir. 2018). Further, a matter
is core “if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its
nature, could arise only in the context of a bankruptcy case.” Wood v. Wood (In re Wood, 825 F.2d
90, 97 (5th Cir. 1987). “A claim based on state created rights, which could have proceeded in state
court had there been no bankruptcy, is likely not core.” In re Saenz, 2016 WL 9021733, at *2.
Dischargeability actions, however, are core matters. 28 U.S.C. § 157 (b)(2)(I).
McKee seeks the Court’s determination of the basis for its claim in Blackstone’s underlying
bankruptcy. See Nikoloutsos v. Nikoloutsos (In re Nikoloutsos), 199 F.3d 233, (5th Cir. 2000)

(allowing adversary complaints may qualify as informal proofs of claims). The Court has
jurisdiction to determine Blackstone’s liability, as well as the amount of that liability, in connection
with a dischargeability proceeding. “Because the determination of the validity and amount of a
nondischargeable debt [is] allowed by 11 U.S.C. § 523 (a) and § 157(b)(2)(I) and are also directly
intertwined with the determination of discharge,” the Court may issue final judgment in this matter.
In re Saenz, 2016 WL 9021733, at *4 (collecting cases).
Nevertheless, the Court finds that McKee has implicitly consented to the Court’s issuance
of a final judgment in this proceeding. In Wellness Int’l Network, Ltd. v. Sharif, the Supreme
Court held that bankruptcy courts may adjudicate Article III claims when the “parties knowingly
and voluntarily consent to adjudication.” 575 U.S. 665 (2015). The Court explained that “the key

inquiry” is whether “the litigant or counsel was made aware of the need for consent and the right
to refuse it, and still voluntarily appeared to try the case before the non-Article III adjudicator.”
Id. at 685. A bankruptcy court’s determination of whether a party has consented to its jurisdiction
requires “a deeply factbound analysis of the procedural history” in the proceeding. Id. at 685.
Here, Blackstone originally filed this case in state court pre-petition. (ECF No. 14 at 1).
After filing its bankruptcy petition on November 19, 2025, Blackstone removed the state court
proceeding to this Court pursuant to 28 U.S.C. § 1452 (a). (ECF No. 3). McKee did not move to
remand the case. After Blackstone filed its Complaint and McKee filed his Answer with
Counterclaims, the Court entered its Order Requiring Statement Regarding Consent. (ECF
No. 18). Blackstone and Third-Party Defendant Gary H. Pennington (“Pennington”) both
consented to the entry of final orders and a final judgment by the Court in this Adversary
Proceeding. (ECF Nos. 21, 24). On February 17, 2026, McKee filed his Statement Regarding
Consent, stating that he does not consent to the Court’s entry of final orders and judgment in this

case. (ECF No. 25).
McKee has knowingly and voluntarily consented to the Court’s adjudication of this
Adversary Proceeding. McKee received notice that he should file a statement of consent regarding
whether he consented to the final orders and judgment entered by this Court. (ECF No. 18).
Although McKee declined to consent, he responded to Blackstone’s Motion to Dismiss, requesting
that the Court deny the Motion to Dismiss and allow McKee’s Counterclaims to remain in this
Court. (ECF No. 31). In other words, McKee “still voluntarily appeared to try the case before the
non-Article III adjudicator.” Sharif, 575 U.S. at 685. Further, McKee has gone “so far as to
affirmatively invoke the bankruptcy court’s jurisdiction” by filing Counterclaims in this case and
requesting the Court deny Blackstone’s dispositive motion. Ward v. Cross Keys Bank (In re

Karcredit, LLC), No. 21-30649, 2022 WL 4103265, at *4 (5th Cir. Sept. 7, 2022) (per curiam).
The Court finds: (1) McKee did not request the Court to remand this case; (2) McKee
argues the merits of his Counterclaims; (3) McKee cited no jurisdictional issues in either his
Counterclaims or in his Response to Blackstone’s Motion to Dismiss; (4) McKee is represented
by experienced bankruptcy counsel; and (5) McKee voluntarily participates in the proceedings,
including seeking affirmative relief by filing Counterclaims and opposing Blackstone’s Motion to
Dismiss, while failing to express limitations on its consent. (ECF No. 31). In fact, McKee defends
against dismissal of his Counterclaims under Federal Rule of Civil Procedure 12(b)(1), stating
“Blackstone also filed a Motion to Dismiss under Rule 12(b)(1)—asserting that the very Court it
chose to remove this lawsuit to somehow lacks jurisdiction to hear McKee’s counterclaims.” (ECF
No. 31 at 5). Therefore, the Court finds that McKee has knowingly and voluntarily consented to
this Court’s jurisdiction to enter final orders and judgments in this Adversary Proceeding.2
Venue is proper under 28 U.S.C. §§ 1408 and 1409. Finally, a court has jurisdiction to

determine whether it has subject matter jurisdiction. United States v. Ruiz, 536 U.S. 622, 628 (2002) (“[A] federal court always has jurisdiction to determine its own jurisdiction.”).
II. McKee’s Claims Against Pennington
The Court lacks subject matter jurisdiction over McKee’s third-party claims against
Pennington. McKee’s third-party claims against Pennington do not allege any cause of action
pursuant to a statutory provision of title 11. Rather, McKee alleges purely state-law claims.
Therefore, the Court lacks “arising under” jurisdiction. Additionally, McKee initiated purely state-
law causes of action against Pennington in a state-court proceeding on May 21, 2025. (ECF No. 3
at 1). Blackstone filed its bankruptcy petition on November 19, 2025, which was six months after
McKee filed his claims against Pennington. (Case No. 25-52804, ECF No. 1). McKee’s claims

“could (and in fact did) exist” outside of the underlying bankruptcy. Therefore, the Court does not
have “arising in” jurisdiction.
Bankruptcy courts usually lack “related to” jurisdiction in connection with third-party
complaints. Walker v. Cadle Co. (In re Walker), 51 F.3d 562, 569 (5th Cir. 1995). McKee’s
claims against Pennington involve litigation between two non-debtors. Even if McKee prevails on
every claim asserted against Pennington, there would be no conceivable effect on the

2 To the extent that McKee disagrees, he may move to withdraw the reference. Fed. R. Bankr. P. 5011; see, e.g.,
Unnamed Individuals v. The Academy, Inc. (In re The Academy, Inc.), 288 B.R. 286, 289 (Bankr. M.D. Fla. 2002)
(“[A] party may move for an order of the district court withdrawing the reference to the bankruptcy court.”); Mihov
v. United States, 655 B.R. 584, 589–90 (S.D. Ind. 2023) (citation modified) (discussing a motion to withdraw the
reference must be “timely” filed “either as soon as possible or at the first reasonable opportunity after the moving
party had notice of the grounds for withdrawal”).
administration of the bankruptcy estate. See In re Redf Mktg., LLC, 536 B.R. 646, 663 (Bankr.
W.D. N.C. 2015) (finding the same). Pennington’s liability to McKee would not “alter the debtor’s
rights, liabilities, options, or freedom of action (positively or negatively)” or impact “the handling
and administration of the bankrupt estate.” Id. (quoting Celotex Corp. v. Edwards, 514 U.S. 300,

309 n.6 (1995)). Therefore, the Court lacks “related to” jurisdiction over McKee’s claims against
Pennington.
Accordingly, the Court lacks subject matter jurisdiction over McKee’s third-party claims
against Pennington.3 The Court, therefore, dismisses McKee’s third-party claims against
Pennington.
BACKGROUND
During what is known as “Snowmageddon” of February 2021, temperatures in Bexar
County, Texas, dropped below 32 degrees for several days. (ECF No. 17 at 5). During those days,
the pipes in McKee’s house were frozen and damaged by subfreezing temperatures. (Id.). As
temperatures warmed, the pipes leaked, causing extensive damage to McKee’s home and its

electrical system. (Id. at 6).
On February 22, 2021, McKee entered into a Public Insurance Adjuster Agreement
(“Agreement”) with Pennington’s company, Blackstone Claim Services, Inc. (“Blackstone”).
(ECF No. 12, Ex. A). The Agreement stated that McKee, the insured, owned an insurance policy
by Chubb Lloyds Insurance of Texas (“Chubb”), and retained Blackstone “to assist in the

3 The Court may not exercise supplemental jurisdiction over McKee’s third-party claims. In re Walker, 51 F.3d at 573.
At the hearing, the parties discussed the abstention doctrine. (Hearing on Motion to Dismiss, Audio 8:41:50). But “a
court that lacks jurisdiction over a matter cannot abstain from deciding that matter.” Cody, Inc. v. Cnty. of Orange
(In re Cody, Inc.), 338 F.3d 89, 94 (2d Cir. 2003); see 28 U.S.C. § 1334 (c) (emphasis added) (“[N]othing in his section
prevents a . . . court in the interest of justice, or in the interest of comity with State courts or respect for State law,
from abstaining from hearing a particular proceeding arising in or related to a case under title 11.”). Additionally,
McKee conceded that the Court should dismiss McKee’s third-party claims against Pennington. (Hearing on Motion
to Dismiss, Audio 8:58:50, April 1, 2026).
preparation, adjustment, and presentation of all applicable claims” for the frozen pipes and water
damage. (Id.). McKee agreed to pay Blackstone 10% commission “of the amount of all
settlements, awards, or recovery of funds collected, adjusted, or otherwise received and/or issued”
by Chubb to McKee. (Id.).

After inspection of McKee’s damaged home, Blackstone assessed over $7 million in
damages. (ECF No. 31). McKee opted to litigate the claim against Chubb, which lasted years. (Id.).
In McKee’s pursuit of a claim against Chubb, McKee designated several experts to testify to the
extent of damage to McKee’s home. (Id.). Chubb moved to exclude the testimony of four
witnesses, including Pennington. (Id.). After the magistrate judge ultimately ordered the exclusion
of Pennington’s testimony, McKee and Chubb entered into a settlement agreement for $1,750,000.
(ECF No. 12 at 4).
On March 17, 2025, Blackstone filed suit against McKee in state court. (ECF No. 3). After
McKee filed counterclaims against Blackstone and third-party claims against Pennington,
Blackstone filed its bankruptcy petition under subchapter V of chapter 11 on November 19, 2025.

(Case No. 25-52804, ECF No. 1). The state court litigation was removed to this Court on
November 26, 2026 (ECF Nos. 1, 3), and Blackstone filed its First Amended Complaint
(“Complaint”) on January 5, 2026 (ECF No. 12). On January 23, 2026, McKee filed his Answer
with Counterclaims against Blackstone and third-party claims against Pennington in this Court.
(ECF No. 17). Blackstone moved to dismiss the Counterclaims on February 13, 2026. (ECF
No. 22). Pennington joined Blackstone’s Motion to Dismiss in part. (ECF No. 27). On March 13,
2026, McKee filed his Response. (ECF No. 31).
The Court set the Motion to Dismiss for a hearing on April 1, 2026, in which it considered
the arguments. After consideration thereof, the Court finds that the Motion to Dismiss should be
granted in part and denied in part.
ANALYSIS

I. Rule 12(b)(1)
Blackstone argues that McKee’s Counterclaims against Blackstone should be dismissed
under Fed. R. Civ. P. 12(b)(1). (ECF No. 22 at 6–9).4 Blackstone asserts that McKee lacks standing
to bring Counterclaims in this litigation, and that McKee’s claims are too “speculative and
conjectural” in nature to constitute an injury fact to confer standing. (ECF No. 22 at 6–7).
Therefore, Blackstone argues that the Court lacks subject-matter jurisdiction over McKee’s
Counterclaims against Blackstone.5
McKee, on the other hand, argues that the Court has subject matter jurisdiction because he
has alleged more than $3 million in damages for Blackstone’s failure to document evidence to
support McKee’s adjusted claim against Chubb. (ECF No. 17 at 7–9). McKee argues that the

remedy for destroyed or lost evidence depends on the degree of culpability of the destroyer, so he
has inferred the amount of damages attributed to Blackstone based on Blackstone’s assessment of
the total claim amount of $7,109,134.26. (Id. at 9).
Rule 12(b)(1) provides that a party may challenge the subject matter jurisdiction of a court
to hear a case. Fed. R. Civ. P. 12(b)(1). “[S]tanding and ripeness are essential components of
federal subject matter jurisdiction” and therefore may be challenged through Rule 12(b)(1).
Morrison v. Sonia (In re Jillian Morrison, L.L.C.), 482 F. App’x 872 (5th Cir. 2012) (per

4 The Court shall address only Article III standing as that is what Blackstone pleads under Rule 12(b)(1). (ECF No. 22
at 5–9).
5 The Court does not have subject matter jurisdiction over McKee’s third-party claims against Pennington. The Court’s
12(b)(1) analysis is therefore determinative of McKee’s Counterclaims against Blackstone.
curiam); see also Greathouse v. Cap. Plus Fin. LLC, 690 F. Supp. 3d 610, 626 (N.D. Tex. 2023)
(“Because standing is a central concern of subject-matter jurisdiction, it is properly addressed
under Rule 12(b)(1).”).
“There are three elements that a plaintiff must prove to establish Article III standing: injury

in fact, traceability, and redressability.” Abraugh v. Altimus, 26 F.4th 298, 302 (5th Cir. 2022).
First, “An injury-in-fact constitutes ‘an invasion of a legally protected interest which is (a) concrete
and particularized, and (b) actual or imminent, not conjectural or hypothetical.’” Wendt v. 24 Hour
Fitness USA, Inc., 821 F.3d 547, 550 (5th Cir. 2016) (quoting Lujan v. Def. of Wildlife, 504 U.S.
555, 560 (1992)). “A ‘concrete’ injury must be ‘de facto’; that is, it must actually exist.” Spokeo,
Inc. v. Robins, 578 U.S. 330, 340 (2016). “For an injury to be ‘particularized,’ it ‘must affect the
plaintiff in a personal and individual way.’” Id. at 339 (quoting Lujan, 504 U.S. at 560 n.1). “To
be sufficiently actual or imminent, the injured plaintiff must suffer ‘continuing, present adverse
effects’ or ‘show that he will soon expose himself to the injury’ through ‘concrete plans’
demonstrating his injury is ‘certainly impending.’” Texas v. United States, 524 F. Supp. 3d 598,

618 (S.D. Tex. 2021) (quoting Lujan, 504 U.S. at 564 n.2). “[A] plaintiff must demonstrate
standing for each claim he seeks to press.” DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352 (2006).
Here, there is an injury-in-fact for all causes of action.6 If McKee’s allegations are true,
McKee was injured, and more than $3 million is owed under the policy. (ECF No. 17 at 7–9). In
other words, “Due to Blackstone’s [conduct] the McKees have been damaged by the loss of the
value he should have received from his insurance policy.” (Id. at 8). Blackstone claims that

6 The Court will analyze standing only for the three state law causes of action, as McKee brings his § 523(a)(2)(A)
and (a)(6) claims to determine the debt arising from these state law causes of action as nondischargeable. (See ECF
No. 17 at 9–10).
McKee’s damages are hypothetical, but Blackstone twists how the word is used in the standing
context. (ECF No. 22 at 6–9). The Court asks not whether McKee could definitively prove his
alleged damages, but whether he alleges damages that actually occurred. See Lujan, 504 U.S.
at 561 (“At the pleading stage, general factual allegations of injury resulting from the defendant’s

conduct may suffice.”). McKee’s alleged injury is not some faraway event that may or may not
occur, or, in other words, “hypothetical.” According to McKee’s allegation, the injury already
happened. McKee already suffered damages of more than three million dollars.
Second, “For traceability to exist, ‘there must be a causal connection between the injury
and the conduct complaint of—the injury has to be fairly traceable to the challenged action of the
defendant, and not the result of the independent action of some third party not before the court.’”
Does #1-7 v. Abbott, 345 F. Supp. 3d 763, 773 (N.D. Tex. 2018) (quoting Lujan, 504 U.S. at 560),
aff’d, F.3d 307 (5th Cir. 2019). This requirement “can be satisfied by showing that the defendant’s
acts have caused others to react in a way that injures the plaintiff.” Id. Here, there is traceability for all causes of action. For the first cause of action, there is a

causal connection between Blackstone’s representation that “they were capable of properly
presenting the claims for the pipe freeze losses to the McKees’ Home” and McKee’s injury. (ECF
No. 17 at 7). McKee alleges, “Blackstone’s inability to properly document and preserve claim
evidence only became apparent when its expert testimony was stricken by a federal magistrate
judge.” (Id.). Judge Chestney prohibited Pennington from testifying “as an expert as to the
reasonable and necessary scope of repairs to the plumbing and electrical systems.” (Case No. 22-
cv-0110, ECF No. 61 at 12). She reasoned in part, “Pennington testified in his deposition that he
believes the entire copper plumbing system in Plaintiffs’ home requires complete replacement. But
Pennington could not adequately identify the basis of this opinion.” (Id.) (citations omitted). The
Court finds traceability for the first cause of action. McKee’s second cause of action asserts that
Blackstone was negligent by failing to properly preserve and present evidence regarding McKee’s
plumbing system. In his third cause of action, McKee claims Blackstone breached its contract with
McKee by failing to properly preserve basic evidence and present this evidence for McKee’s

insurance claim. (ECF No. 17 at 9). There is traceability between McKee’s second and third causes
of action and McKee’s injury for the same reasons stated above. Blackstone’s alleged failure to
record and preserve evidence for McKee’s insurance claim is fairly traceable to McKee’s loss in
the amount recoverable under his insurance policy.
Third, “The redressability requirement limits the relief that a plaintiff may seek to that
which is likely to remedy the plaintiff’s alleged injuries.” Stringer v. Whitley, 942 F.3d 715, 720 (5th Cir. 2019). “And this requires plaintiff to show that a favorable decision will likely redress
the injury.” Greathouse, 690 F. Supp. 3d at 628 (citing Inclusive Communities Project, Inc. v.
Dep’t of Treasury, 946 F.3d 649, 655 (5th Cir. 2019)). Here, there is redressability for all causes
of action. McKee’s injury is monetary for all causes of action. A favorable award of actual damages

to McKee will redress the monetary injury. McKee alleges he was not paid enough because of
Blackstone’s actions. Blackstone paying McKee will redress McKee’s injury. Therefore, all of
McKee’s counterclaims satisfy the elements of standing. These claims will not be dismissed
pursuant to Rule 12(b)(1).
II. Rule 12(b)(6)
Blackstone also argues for dismissal of McKee’s Counterclaims pursuant to Rule 12(b)(6).
“To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, ‘to state a claim to relief that is plausible on its face.’” Gonzalez v. Kay, 577 F.3d
600, 603 (5th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). A claim for relief
is plausible on its face “when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Harold H. Huggins
Realty, Inc. v. FNC, Inc., 634 F.3d 787, 796 (5th Cir. 2011). Dismissal is appropriate when the
claimant has “failed to ‘raise a right to relief above the speculative level.” True v. Robles, [571 F.3d

412, 418](https://www.courtlistener.com/opinion/66467/true-v-robles/#418) (5th Cir. 2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (5th Cir. 2007)).
“Detailed factual allegations are not required.” Hershey v. Energy Transfer Partners, LP, 610 F.3d 239, 245 (5th Cir. 2010) (citation modified) (quoting Iqbal, 556 U.S. at 678).
Nevertheless, a court should not accept “threadbare recitals of a cause of action’s elements
supported by mere conclusory statements.” Hershey, 610 F.3d at 245–46 (quoting Iqbal, 556 U.S.
at 678). In reviewing whether a pleading states a claim on which relief may be granted, the Court
must accept all well-pleaded facts as true and view those facts in the light most favorable to the
plaintiff. Robles, 571 F.3d at 417. In considering Blackstone’s Motion to Dismiss pursuant to
Rule 12(b)(6), the Court must base its ruling solely on allegations set forth in the complaint, its
proper attachments, documents incorporated into the complaint by reference, and matters of which

the Court may take judicial notice. Roebuck v. Dothan Sec., Inc., 515 F. App’x 275, 280 (5th Cir.
2013) (per curiam); Innova Hosp. San Antonio, LP v. Blue Cross & Blue Shield of Ga., Inc., 892 F.3d 719, 726 (5th Cir. 2018).
Most causes of action are subject to Rule 8(a)’s pleading standard. Iqbal, 556 U.S. at 677–
78. Rule 9(b) establishes a heightened pleading standard for cases where the plaintiff alleges fraud.
Rule 9 applies to bankruptcy adversary proceedings under Federal Rule of Bankruptcy
Procedure 7009. Rule 9(b) provides, “In alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other
conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). “The Fifth Circuit
has interpreted Federal Rule of Civil Procedure 9(b) strictly, requiring the plaintiff to specify the
statements contended to be fraudulent, identify the speaker, state when and where the statements
were made, and explain why the statements were fraudulent.” Schott, Tr. for Estate of InforMD,
LLC v. Massengale, No. CV-185-759, 2019 WL 4738795, at *13 (M.D. La. Sept. 27, 2019)

(citation modified).
Rule 9(b), therefore, requires the plaintiff to “plead the who, what, when, where, and why
as to the fraudulent conduct.” Life Partner Creditors’ Tr. v. Crowley (In re Life Partners
Holdings, Inc.), 926 F.3d 103, 117 (5th Cir. 2019). Rule 9(b) extends to all claims and allegations
of fraud, including claims alleging violations of the Texas Insurance Code and the Texas Deceptive
Trade Practices-Consumer Protection Act (the “DTPA”). Janssen v. Allstate Vehicle & Prop. Ins.
Co., No. SA-21-CV-00750, 2021 WL 4200618, at *1 (W.D. Tex. Sept. 14, 2021). Accordingly,
the Court will analyze McKee’s fraud claims under the heightened pleading standard of Rule 9(b).
A. Res Judicata and Collateral Estoppel
Blackstone argues that McKee’s Counterclaims are barred under the doctrines of collateral

estoppel and res judicata because he settled the underlying insurance claim against Chubb. (Id.
at 13). McKee argues that res judicata and collateral estoppel do not apply because McKee did not
have an adversarial relationship with Blackstone and Pennington in the Chubb litigation. (ECF
No. 31 at 10). McKee’s acceptance of a settlement in that case has no bearing on his claims against
Blackstone and Pennington for failure to comply with their contract, which is the basis of McKee’s
claims against Blackstone and Pennington in this Court. (Id.).
“Federal law determines the re judicata effect of a prior federal court judgment.” Johnson
v. City of Houston, 444 F. App’x 26, 30 (5th Cir. 2011) (per curiam) (quoting Meza v. Gen. Battery
Corp., 908 F.2d 1262, 1265 (5th Cir. 1990)). The Fifth Circuit recognizes that “the doctrine of res
judicata, in the broadest sense, encompasses two distinct preclusion concepts, claim preclusion
(res judicata) and issue preclusion (collateral estoppel).” Gulf Island-IV, Inc. v. Blue Streak-Gulf
Is Ops, 24 F.3d 743, 746 (5th Cir. 1994).
1. Res judicata

Res judicata does not bar McKee’s Counterclaims against Blackstone in this Adversary
Proceeding. “Res judicata bars the litigation of claims that either have been litigated or should
have been raised in an earlier suit.” Sacks v. Tex. S. Univ., 83 F.4th 340, 344 (5th Cir. 2023) (per
curiam) (citation modified).
True res judicata—also called claim preclusion—applies only if: ‘(1) the parties are
identical or in privity; (2) the judgment in the prior action was rendered by a court
of competent jurisdiction; (3) the prior action was concluded by a final judgment
on the merits; and (4) the same claim or cause of action was involved in both
actions. Id. (quoting Test Masters Educ. Servs., Inc. v. Singh, 428 F.3d 559, 571 (5th Cir. 2005)); see also
Taylor v. Sturgell, 553 U.S. 880, 898 (2008) (“[O]ur decisions emphasize the fundamental rule
that a litigant is not bound by a judgment to which she was not a party.”). Critically, a claim cannot
be barred by res judicata if it did not exist at the time of the prior proceeding. Id. at 345 (citing
Lawlor v. Nat’l Screen Serv. Corp., 349 U.S. 322, 328 (1955)); cf. D-1 Enters., Inc. v. Com. State
Bank, 864 F.2d 36, 40 (5th Cir. 1989) (finding res judicata does not apply “where the claim sought
to be barred could not effectively have been litigated”).
Res judicata does not bar McKee’s Counterclaims against Blackstone. First, the parties
here are not identical, nor are they in privity. See (Hearing on Motion to Dismiss, Audio 8:19:40–
8:20:19, April 1, 2026) (conceding privity does not exist between the parties). Second, McKee
brings causes of action for DTPA violations, negligence, and breach of contract against
Blackstone. (ECF No. 17). These claims were not brought against Chubb in the previous litigation.
(ECF No. 31, Ex. A). Therefore, res judicata does not apply.
2. Collateral Estoppel
“Collateral estoppel prevents parties from re-litigating the same issues conclusively
determined between them in a previous action.” Petro-Hunt, L.L.C. v. United States, 365 F.3d
385, 396 (5th Cir. 2004). Collateral estoppel precludes litigation of an issue already raised in an

earlier proceeding only if: “(1) the issue at stake is identical to the one involved in the earlier
action; (2) the issue was actually litigated in the prior action; and (3) the determination of the issue
in the prior action was a necessary part of the judgment in that action.” Test Masters, 428 F.3d
at 572.
The Court finds that collateral estoppel does not apply. The issue at stake in this case is not
identical to that in the earlier action between McKee and Chubb. Here, McKee alleges that
Blackstone violated the DTPA, was negligent, and breached the Agreement. These issues were not
involved in the Chubb litigation.
Even if it was the same issue, McKee’s earlier suit against Chubb was resolved by
settlement, not by actual litigation or the determination of any issue. See Avondale Shipyards, Inc.

v. Insured Lloyd’s, 786 F.2d 1265, 1272–73 (5th Cir. 1986) (reaffirming that consent judgments
approving settlements ordinarily do not “give rise to issue preclusion or collateral estoppel”).
“[S]ettlements ordinarily occasion no issue preclusion (sometimes called collateral estoppel),
unless it is clear . . . that the parties intend their agreement to have such an effect.” Arizona v.
California, 530 U.S. 392, 414 (2000). “Only where the parties manifest an intention to give
preclusive effect to the consent judgment by including detailed recitations of findings upon which
the judgment is based, is issue preclusion appropriate.” Pasada Del Rey v. Pearson (In re
Pearson), 120 B.R. 396, 398 (Bankr. N.D. Tex. 1990) (collecting cases).
McKee’s claims in the Chubb litigation resulted in an agreed dismissal with prejudice by
both parties. (Case No. 22-cv-0110, ECF Nos. 82, 83). McKee and Chubb filed a Joint Motion to
Dismiss With Prejudice, which stated that “they no longer wish to pursue the claims each has made
or could have made in this suit.” (Case No. 22-cv-0110, ECF No. 81). The Fifth Circuit has held

that a dismissal with prejudice is a final judgment on the merits for the purposes of res judicata.
Anthony v. Marion Cnty. Gen. Hospital, 617 F.2d 1164, 1169–70 (5th Cir. 1980). The Court,
however, has determined that res judicata does not apply to McKee’s claims against Blackstone.
Further, the Court notes that the joint motion for dismissal with prejudice did not manifest an
intention to give preclusive effect by including detailed recitations of findings upon which the
judgment was based. Accordingly, the Court finds that McKee is not collaterally estopped from
litigating his Counterclaims against Blackstone.
B. First Cause of Action: Violations of the Deceptive Trade Practices Act
McKee alleges that Blackstone violated sections 17.46(b)(5), 17.46(b)(7), 17.46(b)(12),
and 17.46(b)(24) of the Texas Business & Commerce Code (known as the Deceptive Trade

Practices-Consumer Protection Act (“DTPA”)). Tex. Bus. & Com. Code Ann. § 17.46. “The
DTPA was enacted to protect consumers from unscrupulous individuals or businesses who
provided inferior products and services and made misrepresentations about those goods or
services.” Gabbert v. Stevens (In re Stevens), No. 22-05073, 2023 WL 4687827, at *10 (Bankr.
W.D. Tex. July 21, 2023). To recover under the DTPA, a plaintiff must show that: (1) the plaintiff
is a consumer; (2) the defendant committed a wrongful act under the DTPA; and (3) the act
constituted a producing cause of the plaintiff’s damage. Crosswell v. Martinez, 120 F.4th 177, 188 (5th Cir. 2024) (citing Doe v. Boys Clubs of Greater Dallas, Inc., 907 S.W.2d 472, 478 (Tex.
1995)). Rule 9(b)’s heightened pleading standard applies to McKee’s DTPA claims. See id. at 188
(applying Rule 9(b) to DTPA claims). McKee satisfies some elements of his DTPA claims.
First, McKee alleges he is a consumer under the DTPA. “To demonstrate consumer status
under the DTPA, Plaintiffs must satisfy two requirements: (1) Plaintiffs must have sought or

acquired goods or services by purchase or lease; and (2) the goods or services purchased or leased
must form the basis of the complaint.” Patek v. Alfara (In re Primera Energy, LLC), 579 B.R.
75, 165 (Bankr. W.D. Tex. 2017) (citing Brittan Commc’ns v. Sw. Bell Tel. Co., 313 F.3d 899,
907 (5th Cir. 2002)). Here, McKee successfully pleads consumer status under the DTPA:
(1) McKee sought to acquire services by purchase; and (2) the services purchased formed the basis
of McKee’s DTPA claim against Blackstone. (ECF No. 17 at 5–7). Therefore, the first element is
met.
Second, McKee properly pleads that Blackstone committed a wrongful act under DTPA.
McKee specifically alleges that Blackstone engaged in false, misleading, and deceptive acts under
DTPA subsections 17.46(b)(5), (7), (12), and (24). Section 17.46(b)(5) prohibits entities in the

conduct of any trade or commerce from representing that its services had sponsorship, approval,
characteristics, use, or benefit that it did not have. Tex. Bus. & Com. Code Ann. § 17.46 (b)(5).
Under this subsection, McKee properly pleads that Blackstone “violated the DTPA by holding
itself out to be competent and capable of measuring, documenting and presenting the McKee’s
insurance claim due to the frozen pipe/water damage cause of loss that occurred on or about
February 16, 2021.” (ECF No. 17 at 7). McKee states that, contrary to Blackstone’s
representations, “Blackstone was aware it did not have the ability nor expertise to take on the
McKees’ claim and continued to misrepresent the process that it had properly documented and
presented the claim to Chubb.” (Id.). McKee, therefore, properly pleads a wrongful act under this
section 17.46(b)(5) of the DTPA.
Section 17.46(b)(7) prohibits such entities from representing that their services are of a
particular standard, quality, or grade when they are of another. Tex. Bus. & Com. Code Ann.

§ 17.46 (b)(7). In McKee’s pleading, it is unclear what particular standard, quality, or grade
Blackstone represented its services to be. (Id. at 5–7). McKee merely states, “Blackstone violated
the DTPA by holding itself out to be a competent and capable of measuring, documenting, and
presenting the McKee’s insurance claim.” (Id. at 7). McKee, therefore, improperly pleads a
wrongful act under section 17.46(b)(7).
Section 17.46(b)(12) prohibits entities engaging in trade and commerce from representing
that an agreement conferred or involved rights, remedies, or obligations that it does not have or
involve. Tex. Bus. & Com. Code Ann. § 17.46 (b)(12). Here, there appears to be no agreement that
does not confer a right it purports to confer, unless McKee is claiming that his contract with
Blackstone is void. This does not appear to be the case, as McKee is bringing a breach-of-contract

claim. (ECF No. 17 at 9). McKee therefore fails to plead wrongful conduct under
section 17.46(b)(12).
Lastly, section 17.46(b)(24) prohibited Blackstone from failing to disclose information
concerning its services that were known at the time of the transaction, and from failing to disclose
such information in a manner intended to induce McKee into a transaction into which he would
not have entered had the information been disclosed. Tex. Bus. & Com. Code Ann. § 17.46 (b)(24).
Here, while McKee alleges facts demonstrating Blackstone misrepresented information, McKee
fails to allege facts demonstrating a nondisclosure of information. (Id. at 5–8). Therefore, McKee
properly pleads a wrongful act only under subsection 17.46(b)(5). The second element is met.
Third, McKee properly alleges that the wrongful acts under subsection 17.46(b)(5) was a
producing cause of his damages. “Producing cause is an efficient, exciting, or contributing cause,
which in a natural sequence produced injuries or damages complained of, if any.” McCarthy v.
Wisch Auto Grp., Inc., No. 14-24-00040-CV, 2026 WL 771396, at *8 (Tex. App.—Houston

[14th Dist.] Mar. 19, 2026), no pet. h.) (collecting cases). The producing cause must be “a
substantial factor which brings about the injury and without which the injury would not have
occurred.” Boys Club of Greater Dallas, 907 S.W.2d at 481. The “plaintiff must show that there
is some unbroken causal connection between the allegedly deceptive act and the actual damages
suffered.” Bartlett v. Schmidt, 33 S.W.3d 35, 39 (Tex. App.—Corpus Christi-Edinburg 2000, pet.
denied).
Here, McKee alleges that “Blackstone violated the DTPA by holding itself out to be
competent and capable of measuring, documenting, and presenting the McKees’ insurance claim
due to the frozen pipe/water damage cause of loss.” (ECF No. 17 at 7). McKee explains,
“Blackstone’s inability to properly document and preserve claim evidence only became apparent

when its expert testimony was stricken by a federal magistrate judge.” (Id. at 7). Judge Chestney
prohibited Pennington from testifying “as an expert as to the reasonable and necessary scope of
repairs to the plumbing and electrical systems.” (Case No. 22-cv-0110, ECF No. 61 at 12).
Judge Chestney reasoned in part, “Pennington testified in his deposition that he believes the entire
copper plumbing system in Plaintiffs’ home requires complete replacement. But Pennington could
not adequately identify the basis of this opinion.” (Id.) (citations omitted). McKee therefore claims,
“Blackstone’s failures resulted in damages to the McKees in excess of three million dollars owed
under the policy.” (Id.). Therefore, McKee properly pleads that Blackstone’s wrongful acts under
subsection 17.46(b)(5) were a producing cause of his damages. Accordingly, McKee’s claim under
subsection 17.46(b)(5) is not dismissed under 12(b)(6).
C. Second Cause of Action: Negligence and Negligence Per Se
McKee properly pleads negligence and negligence per se. “To prevail on a common law

negligence claim, a plaintiff must be able to prove three elements: (1) a legal duty owed by one
person to another; (2) a breach of that duty; and (3) damage proximately caused by the breach.”
Gann v. Anheuser-Busch, Inc., 394 S.W.3d 83, 88 (Tex. App.—El Paso 2012, no pet.). But
“[n]egligence per se is not a separate cause of action independent of a common-law negligence
cause of action. Johnson v. Enriquez, 460 S.W.3d 669, 673 (Tex. App.—El Paso 2015, no pet.).
Negligence per se is “one method of proving, through proof of an unexcused violation of a penal
statute designed to protect the class of persons to which the injured party belongs, the breach of
duty required in any negligence cause of action, establishing negligence as a matter of law.”
Zavala v. Trujillo, 883 S.W.2d 242, 246 (Tex. App.—El Paso 1994, writ denied). In other words,
“negligence per se may substitute for proof that a legal duty was breached.” Thomas v. Uzoka, 290 S.W.3d 437, 445 (Tex. App.—Houston [14th Dist.] 2009). To prove negligence per se, a
plaintiff must prove “(1) the defendant violated a statute or ordinance setting an applicable standard
of care; (2) the breach was the proximate cause of the plaintiff’s damages; and (3) the statute was
designed to prevent an injury to that class of persons to which the plaintiff belongs.” Johnson,
460 S.W.3d at 673–74. As examined above, while negligence per se only proves a breach of duty
under common law negligence, its analysis also encompasses proximate cause, the third element
of common law negligence.
Here, McKee pleads that Blackstone violated sections 4102.102 and 4102.159 of the Texas
Insurance Code. (ECF No. 17 at 8–9). Section 4102.102 provides, “A license holder shall prepare
each claim for an insured represented by the license holder in accordance with the terms and
conditions of the contract of insurance under which recovery is sought.” Tex. Ins. Code.
§ 4102.102. McKee states Blackstone is a licensed public adjuster and that the Texas Insurance
Code mandates this duty upon license holders such as Blackstone. (ECF No. 17 at 8). McKee

further alleges Blackstone failed to fulfill this duty by failing to comply with the McKees’
insurance policy in making the claim, and that McKee therefore incurred damages due to loss of
recovery on amounts he was entitled to under his insurance policy. (Id.). Therefore, McKee
properly pleads negligence and negligence per se regarding section 4102.102 of the Texas
Insurance Code.
McKee also pleads negligence per se under section 4102.159 of the Texas Insurance Code.
(Id.). Section 4102.159 of the Texas Insurance Code provides, “A license holder may not use any
misrepresentation to solicit a contract or agreement to adjust a claim.” Tex. Ins. Code § 4102.159.
McKee alleges Blackstone had a duty not to make any misrepresentations when securing its
contract with McKee. McKee states Blackstone made misrepresentations in its contract that it

could prove the cause of loss. This led McKee to file suit against its insurance carrier, and McKee
lost the case due to Blackstone’s failure to preserve evidence. McKee properly pleads negligence
and negligence per se regarding section 4102.159 of the Texas Insurance Code.
D. Third Cause of Action: Breach of Contract
To plead a valid breach of contract claim, McKee must show “(1) a valid contract exists;
(2) the plaintiff performed or tendered performance as contractually required; (3) the defendant
breached the contract by failing to perform or tender performance as contractually required; and
(4) the plaintiff sustained damages due to breach.” MDK Sociedad De Responsabilidad Limitada
v. Proplant Inc., 25 F.4th 360, 368 (5th Cir. 2022) (quoting Pathfinder Oil & Gas, Inc. v. Great
W. Drilling, Ltd., 574 S.W.3d 882, 890 (Tex. 2019)). McKee’s claim need not contain detailed
factual allegations as to each element, but it must contain enough factual support “to raise a
reasonable expectation that discovery will reveal evidence of each element” of his cause of action.
Martin Res. Mgmt. Co. v. Fed. Ins. Co., No. 20-40571, 2021 WL 4269565, at *3 (5th Cir.

Sept. 20, 2021) (per curiam) (quoting Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 256 (5th Cir.
2009)). McKee attempts to set forth more specific allegations in his Counterclaim by pleading with
more specificity in his Response. (ECF No. 31). The Court, however, must base its ruling solely
on allegations set forth in the Counterclaim. See In re GDC Technics, LLC, 643 B.R. 417 (Bankr.
W.D. Tex. 2022) (citations omitted) (“Subsequent pleading cannot cure a legally deficient claim
for relief. Because a trial court may only consider the allegations set forth in a complaint at the
motion to dismiss stage, setting forth more specific factual allegations in response to a motion to
dismiss does not supplement the complaint.”). Holding true to this bedrock principle, the Court
will not consider any legal theories first articulated in McKee’s Response.
First, McKee pleads that a valid contract exists. (ECF Nos. 17). McKee identifies the

Agreement in his pleading. (ECF No. 17, ¶ 42). Second, McKee, however, does not plead his
performance. (Id. at 9). In fact, McKee admits that a settlement occurred but denies that he owes
payment due to Blackstone’s breach. (Id. at 2, ¶ 15). McKee instead alleges that Blackstone first
committed a material breach, which excused McKee from his nonpayment. See, e.g., (ECF No. 17
at 4) (“Defendant asserts the affirmative defense of material breach by Blackstone . . . .”). “It is a
fundamental principle of contract law that when one party to a contract commits a material breach
of that contract, the other party is discharged or excused from further performance.” Mustang
Pipeline Co. v. Driver Pipeline Co., 134 S.W.3d 195, 196 (Tex. 2004) (per curiam).
Rule 12(b)(6)’s standard requires the Court to accept well-pled factual allegations as true and draw
all reasonable inferences in the nonmovant’s favor. McKee has alleged that Blackstone breached
first, and that the breach was material. Assuming these allegations are true, McKee sufficiently
pleads an excuse for nonperformance.
Third, McKee identifies Blackstone’s obligation to document, preserve, and present a

claim. (Id. at 6). McKee alleges Blackstone’s breach by failure to document causation evidence,
which “necessarily meant destruction of the evidence” that Blackstone was obligated to document
and present, according to the Agreement. (Id.). McKee alleges that Blackstone’s breach was only
discovered after Judge Chestney struck expert testimony in the Chubb litigation. (Id.). McKee
alleges damages of over three million dollars. (Id.)
In its Motion to Dismiss, Blackstone argues that McKee fails to identify a specific
contractual provision requiring Blackstone to serve as a plumbing or electrical expert and provide
litigation-ready expert testimony, or to designate additional experts in federal court. (ECF No. 22
at 10). “It is well-settled in this circuit that the plaintiff must plead what provision of the contract
the defendant violated.” Kim v. Nationwide Mutual Ins. Co., 614 F. Supp. 475, 492 (N.D. Tex.

2022) (collecting cases). But if the “contents of the pleading establish a reasonable or properly
drawn inference that the defendant breached a certain provision (although the provision is not
explicitly stated), the court will not dismiss the breach of contract claim.” Id. (citation modified).
In his Response, McKee points to the Agreement’s language requiring Blackstone to
measure, document, and present the insurance claim. (ECF No. 31); see also (ECF No. 12, Ex. A)
(“Commissions shall include expenses, direct costs, or any other costs accrued by Blackstone for
measuring, documenting and presenting insurance claim(s).”). But even looking solely at the
allegations set forth in McKee’s Counterclaim, the Court finds that the contents of the pleading
establish a reasonable or properly drawn inference that Blackstone breached the Agreement.
McKee refers to the Agreement generally and argues that the cause of damage to McKee’s home
was not properly documented. (ECF No. 17).
The Court finds that, while McKee’s allegations are thin, they satisfy the minimum
pleading standard at this stage. Accepting the well-pled factual allegations as true and drawing all

reasonable inferences in McKee’s favor, the breach of contract claim satisfies the minimum
plausibility threshold required to survive Blackstone’s Motion to Dismiss.
E. Non-Dischargeability Claims
McKee requests the Court to find that his Counterclaims against Blackstone are non-
dischargeable under 11 § 523(a)(2)(A) and (a)(6). (ECF No. 17 at 9–10). Blackstone argues that
McKee fails to plead fraud with particularity for a valid § 523(a)(2)(A) claim and fails to plead
non-conclusory facts showing Blackstone acted with the requisite state of mind for § 523(a)(6).
(ECF No. 22). McKee asserts that his nondischargeability Counterclaims are sufficiently pled
because they incorporate the detailed facts contained in other parts of McKee’s pleadings. (ECF
No. 31 at 13). McKee further states that Blackstone should have moved for a more definite

statement, rather than filing the dispositive motion now before the Court. (Id.).
1. 11 U.S.C. § 523 (a)(2)(A)
McKee sufficiently pleads non-dischargeability under § 523(a)(2)(A) for his remaining
DTPA claim but fails for his negligence and breach of contract claims. Section 523(a)(2)(A)
prohibits the discharge of debts for money obtained by “false pretenses, a false representation, or
actual fraud.” 11 U.S.C. § 523 (a)(2)(A). “Under this definition, fraud implied in law which may
exist without imputation of bad faith or immorality, is insufficient because the provision applies
only to debts obtained by frauds involving moral turpitude or intentional wrong in which the
misrepresentations were knowingly and fraudulently made.” Bailey v. Cook (In re Bailey), 34 F.
App’x 150, 152 (5th Cir. 2002) (per curiam). Claims for relief brought under § 523(a)(2)(A) are
subject to the heightened pleading requirements of Rule 9(b) and Bankruptcy Rule 7009. Bennett
v. Lindsey (In re Lindsey), 733 F. App’x 190, 192 (5th Cir. 2018) (per curiam).
“The United States Supreme Court has distinguished between ‘false pretenses and

representations’ and ‘actual fraud,’ and recognized two distinct paths for nondischargeability
under § 523(a)(2)(A).” K.V. Chowdary & Valley Gastroenterology Clinic, P.A. (In re Ozcelebi), 640 B.R. 884, 896 (Bankr. S.D. Tex 2022) (citing Husky Int’l Elecs., Inc. v. Ritz, 578 U.S. 355 (2016)). “For a debtor’s representation to be a false representation or false pretense, it must have
been: (1) a knowing and fraudulent falsehood; (2) describing past or current facts; (3) that was
relied upon by the other party.” Id. at 896–97; see also RecoverEdge L.P. v. Pentecost, 44 F.3d
1284, 1292–93 (5th Cir. 1995) (finding the same), overruled on other grounds as recognized by
Husky Int’l Elecs., Inc. v. Ritz (In re Ritz), 832 F.3d 560 (5th Cir. 2016). On the other hand,
[T]he elements of actual fraud under § 523(a)(2)(A) generally correspond with the
elements of common law fraud in Texas and include: (1) the debtor made a
representation; (2) the debtor knew the representation was false; (3) the
representation was made with intent to deceive the creditor; (4) the creditor actually
and justifiably relied on the representation; and (5) the creditor sustained a loss as
a proximate result.7

Saenz v. Gomez (In re Saenz), 899 F.3d 384, 394 (5th Cir. 2018).
Here, Blackstone’s alleged debt under section 17.46(b)(5) of the DTPA satisfies the
pleading standard for § 523(a)(2)(A), as the alleged debt was obtained through false pretenses and
representations. The Court notes that although DTPA section 17.46(b)(5) does not require that the
misrepresentation be knowingly and fraudulently made, McKee pleads sufficient facts to
demonstrate the requisite state of mind for a § 5233(a)(2)(A) determination. McKee alleges that

7 But since Ritz, “actual fraud” under § 523(a)(2)(A) can be satisfied without a “representation.” In re Ritz, 578 U.S.
355.
Blackstone made the false representation of being “competent and capable of measuring,
documenting, and presenting the McKees’ insurance claim due to the frozen pipe/water damage.”
(ECF No. 17 at 7). McKee alleges, “Blackstone was aware it did not have the ability nor expertise
to take on the McKees’ claim.” (Id.). These representations described a past or current fact. (Id.).

McKee alleges he “relied upon such representations to his detriment, resulting in substantial
damages.” (Id. at 10). Therefore, McKee properly pleads § 523(a)(2)(A) for his alleged debt under
section 17.46(b)(5).
On the other hand, McKee’s alleged debt under his breach of contract claim and negligence
claim under section 4102.102 of the Texas Insurance Code do not satisfy § 523(a)(2)(A) as he
alleges no false pretenses, false representations, or actual fraud under those causes of action. See
(id. at 8–9). McKee’s alleged debt under section 4102.159 of the Texas Insurance Code also fails
523(a)(2)(A) on its face, as there is no showing of intent. (Id.).
2. 11 U.S.C. § 523 (a)(6)
Section 523(a)(6) bars a debtor’s discharge of a debt “for willful and malicious injury by

the debtor to another entity or to the property of another entity. 11 U.S.C. § 523 (a)(6). “Based on
tort principles, rather than contract, § 523(a)(6) ‘is designed to compensate the injured party for
the injury suffered while not allowing the debtor to escape liability for a willful and malicious
injury by resort to the bankruptcy laws.’” Triumphant Gold Ltd. v. Matloff (In re Matloff),
No. 24-10439, 2025 WL 2848990, at *16 (5th Cir. Oct. 8, 2025) (emphasis added) (quoting
Friendly Fin. Servs. Mid-City, Inc. v. Modicue (In re Modicue), 926 F.2d 452, 453 (5th Cir.
1991)).
“A ‘willful and malicious’ injury results from an act done with the actual intent to cause
injury, not from an act done intentionally that causes injury.” State of Tex. By & Through Bd. of
Regents of Univ. of Tex. Sys. v. Walker, 142 F.3d 813, 823 (5th Cir. 1998). In other words, the
debtor must have intended the injury itself, “not merely a deliberate or intentional act that leads to
injury.” Kawaauhau v. Geiger, 523 U.S. 57, 61 (1998). “[D]ebts arising from recklessly or
negligently inflicted injuries do not fall within the compass of § 523(a)(6).” Kawaauhau v. Geiger, 523 U.S. 57, 64 (1998). The Fifth Circuit has held that an injury is “willful and malicious” when
the debtor had “either an objective substantial certainty of harm or a subjective motive to cause
harm.” Miller v. J.D. Abrams, Inc. (In re Miller), 156 F.3d 598, 603 (5th Cir. 1998).
a. McKee sufficiently pleads non-dischargeability pursuant to
§ 523(a)(6) for his remaining DTPA claim against Blackstone.
DTPA section 17.46(b)(5) prohibits “representing that goods or services have
characteristics, uses, benefits, or qualities which they do not have.” Tex. Bus. Comm. Code Ann.
§ 17.46 (b)(5). Liability under section 17.46(b)(5) does not require that the defendant make a
misrepresentation knowingly, intentionally, or with knowledge that the representation was false.
Ragupathi v. Bairrington (In re Bairrington), 183 B.R. 754, 759 (Bankr. W.D. Tex. 1995)
(collecting cases), overruled on other grounds by Ritz, 832 F.3d 560. “Therefore, a violation of
the [DTPA] . . . based on subdivision 17.46(b)(5) . . . can be founded on behavior that lacks all of
the required elements necessary to support a finding of non-dischargeability under §§ 523(a)(2)(A)
or (6).” Id. at 761. This does not, however, preclude plaintiffs from pleading conduct that
constitutes willful and malicious acts under § 523(a)(6) that also constitute a deceptive trade
practice under section 17.46(b)(5). Id.
Here, McKee alleges that “Blackstone was aware it did not have the ability nor expertise

to take on the McKees’ claim and continued to misrepresent the process that it had properly
documented and presented the claim to Chubb.” (ECF No. 17 at 7) (emphasis added).
Additionally, McKee asserts that “Blackstone’s awareness that it did not have the capability of
properly presenting or adding to the value” of McKee’s claim entitles McKee “to enhanced
damages under the DTPA for Blackstone’s knowing and unconscionable conduct.” (Id.) (emphases
added). McKee also alleges that “Blackstone knew it could not effectuate processing the claim,”
but nevertheless entered into the Agreement with McKee “to gain a 10% interest in the claim that

ultimately adjusted by Chubb despite Blackstone’s interference.” (Id.) (emphasis added).
Based on these allegations, McKee has asserted that Blackstone took actions either with
the intention of causing harm or that were substantially certain to cause harm to McKee. McKee
pleads conduct that may constitute willful and malicious acts under § 523(a)(6) that also may
constitute a deceptive trade practice under section 17.46(b)(5).
b. McKee sufficiently pleads nondischargeability pursuant to
§ 523(a)(6) for his breach of contract claim against Blackstone.
The Fifth Circuit has established that “a knowing breach of a clear contractual obligation
that is certain to cause injury may prevent discharge under § 523(a)(6), regardless of the existence
of separate tortious conduct.” Williams v. Int’l Brotherhood of Elec. Workers Local 520 (In re
Williams), 337 F.3d 504, (5th Cir. 2003). “Contractual debts are excepted from discharge when
those debts result from an intentional or substantially certain injury.” In re Matloff, 2025 WL
2848990, at *16 (citation modified). The plaintiff, however, must prove more than an intentional
breach of contract; there must be “explicit evidence that a debtor’s breach was intended or
substantially certain to cause the injury to the creditor.” In re Williams, 337 F.3d at 511. The
dischargeability determination under § 523(a)(6) “depends upon the knowledge and intent of the
debtor at the time of the breach.” Id. at 510. But negligent or reckless conduct is not willful and

malicious. Kawaauhau v. Geiger, 523 U.S. at 64.
McKee pleads that Blackstone took actions with “either an objective substantial certainty
of harm to McKee and/or Blackstone had a subjective motive to cause harm to McKee.” (ECF
No. 17, ¶ 57). Specifically, McKee asserts that because Blackstone entered into the contract with
the knowledge that it could not perform its obligations, there was substantial certainty or motive
to cause harm to McKee. See (Hearing on Motion to Dismiss, Audio 9:06–9:07:45, April 1, 2026)
(arguing that “entering into an agreement with no ability or no intent to comply with is objectively

substantially certain to cause harm to somebody”). Therefore, the Court finds that McKee has pled
a plausible claim for relief under § 523(a)(6) regarding his allegations that Blackstone either
intended to cause harm or was substantially certain that it would cause harm to McKee through a
breach of the Agreement.8
III. Leave to Amend
Blackstone requests the Court to dismiss McKee’s claims with prejudice. (ECF No. 27,
¶ 52). In his Response, McKee requests the Court, in the event that it finds McKee’s pleading
insufficient, to allow him to amend his claims as provided by the Federal Rules of Bankruptcy
Procedure. (ECF No. 31 at 13–14).
Bankruptcy Rule 7015 incorporates Federal Rule of Civil Procedure 15 into adversary

proceedings. Fed. R. Bankr. P. 7015. Rule 15 allows a party to amend its pleading once as a matter
of course 21 days after serving it, 21 days after service of a responsive pleading, or 21 days after
service of a motion under Rule 12(b), whichever is earlier. Fed. R. Civ. P. 15(a)(1)(B).
Here, McKee served his Answer, along with his Counterclaims against Blackstone on
January 23, 2026. (ECF No. 17). Exactly 21 days later, Blackstone filed its Rule 12(b) Motion on
February 13, 2026. (ECF No. 22). McKee had until March 6, 2026, to amend his pleading. Instead,
McKee requested an order extending the time to file a response to Blackstone’s 12(b) Motion,
which the Court granted. (ECF Nos. 28, 29). McKee then filed his Response pursuant to the

8 Additionally, McKee’s alleged debts under his negligence claim do not satisfy § 523(a)(6). Negligent or reckless
conduct is not willful and malicious.
extended deadline on March 13, 2026. (ECF No. 31). Therefore, McKee may not amend his
pleading as a matter of course.
When the time for amendment as of right has passed, Rule 15 otherwise allows a party to
amend its pleading “only with the opposing party’s written consent or the court’s leave.” Fed. R.

Civ. P. 15(a)(2). The Rule also states that “[t]he court should freely give leave when justice so
requires.” Id. The Fifth Circuit has emphasized that Rule 15(a) “evinces a bias in favor of granting
leave to amend.” Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 597 (5th Cir. 1981). But “a
grant of leave is not automatic.” In re Lindsey, 733 F. App’x at 193. A court should not deny leave
to amend “absent a ‘substantial reason’ such as undue delay, bad faith, dilatory motive, repeated
failures to cure deficiencies, or undue prejudice to the opposing party.” Mayeaux v. La. Health
Serv. & Indem. Co., 376 F.3d 420, 425 (5th Cir. 2004) (citing Forman v. Davis, 371 U.S. 178,
182 (1962)).
Additionally, the Court may deny leave to amend if amendment would be futile. Farmers
Tex. Cnty. Mutual Ins. Co. v. 1st Choice Accident & Injury, L.L.C., 168 F.4th 271, 279 (5th Cir.

2026). An amendment is futile if the amendment “would fail to state a claim upon which relief
could be granted.” Stripling v. Jordan Prod. Co., 234 F.3d 863, 873 (5th Cir. 2000); see also Terry
v. Tex. Partners Bank (In re Chris Pettit & Assocs.), 670 B.R. 602, 611 (Bankr. W.D. Tex. 2025)
(“When a complaint fails to state a claim, the court should generally give the plaintiff at least one
chance to amend before dismissing the action with prejudice unless it is clear that the defects in
the complaint are incurable.”). Thus, the standard to determine whether an amendment would be
futile is “the same standard of legal sufficiency as applied under Rule 12(b)(6).” Id. The Court declines to allow McKee to re-plead his dismissed claims. At the hearing, the
Court asked McKee’s counsel to describe the substantive allegations he would add to his claims if
the Court would permit amendment. See (Hearing on Motion to Dismiss, Audio 9:06:07–16,
April 1, 2026) (“What would you replead? Accepting that it’s your argument to dismiss with leave
to amend, what would you replead?”). In response, McKee’s counsel explained how § 523(a)(6)
is sufficiently pled. See (id. at 9:05:50–10) (arguing the pleading for the § 523(a)(2)(A) claim

overlaps factually with the § 523(a)(6)). McKee’s counsel expressed that he believed the
appropriate remedy is to re-plead without describing any substantive allegations that he could or
would add to his pleadings, if so permitted.9
Additionally, McKee did not file a motion for leave to amend his Counterclaims, nor did
he comply with Local Rule 7015 by attaching “a complete, redline copy of the amended or
supplemental pleading [he] proposes to file.” L. Rule 7015(a). “The failure to attach a copy may
be grounds for denial of relief, without further hearing.” Id. “Because federal trial courts have
considerable latitude in applying their own rules, and because Local Rule 7015 explicitly permits
summary denial relief when a movant fails to file a proposed amended complaint,” the Court
declines to grant McKee’s informal request to amend his insufficient pleadings. In re Lindsey,

733 F. App’x at 194 (affirming bankruptcy court’s denial of such relief based on similar procedural
defects). Because a grant of leave is not automatic, the Court declines to grant McKee’s request to
re-plead his defective claims.
CONCLUSION
For the reasons stated herein,
IT IS THEREFORE ORDERED that Plaintiff Blackstone Claim Services, Inc.
Rule 12(b)(1) and 12(b)(6) Motion to Dismiss McKee’s Counterclaims (ECF No. 22) is
GRANTED IN PART and DENIED IN PART.

9 Further, McKee’s third-party claims against Pennington are dismissed for lack of subject matter jurisdiction. These
claims have an incurable defect. Thus, amending McKee’s claims against Pennington would be futile.
IT IS FURTHER ORDERED that Defendant Aaron McKee’s claims against Blackstone
pursuant to Tex. Bus. & Com. Code Ann. §§ 17.46 (b)(7), (12) and (24) are DISMISSED WITH
PREJUDICE.
IT IS FURTHER ORDERED that Defendant Aaron McKee’s third-party claims against

Gary H. Pennington (ECF No. 17 at 10–15) are DISMISSED WITH PREJUDICE.
# # #