Great American Insurance Company v. Chen

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
G REAT AMERICAN I NSURANCE 	§
COMPANY, AS ASSIGNEE AND 	§
SUBROGEE OF A RIS W ATER 	§
SOLUTIONS, I NC., 	§
Plaintiff, 	§
§
v. 	§ 	CIVIL A CTION N O. 4:25-CV-2850
§
V ICTOR CHEN, INDIVIDUALLY, AND 	§
D/ B/ A T YPE A T ECHNOLOGIES , T YPE A 	§
COMPUTER T ECHNOLOGIES , AND 	§
T ECHIES CORNER, 	§
Defendant. 	§
MEMORANDUM AND RECOMMENDATION
Before 	the 	Court 	is 	Plaintiff 	and 	Counter-Defendant 	Great 	American
Insurance 	Company’s 	(“Plaintiff” 	or 	“Great 	American”) 	Motion 	to 	Dismiss
Counterclaim.1 ECF 25. 	After considering the pleadings, the arguments, and the
applicable law, the Court RECOMMENDS that Plaintiff’s Motion to Dismiss
(ECF 25) be GRANTED and Defendant Chen’s counterclaims be DISMISSED.
I. 	Factual and Procedural Background.
Great American, as assignee and subrogee of its insured Aris Water Solutions,
Inc. (“Aris”), brought this action seeking recovery for alleged fraudulent activity
1 The District Judge referred this case to the undersigned Magistrate Judge pursuant to 28 U.S.C.
§ 636(b)(1)(A) and (B), the Cost and Delay Reduction Plan under the Civil Justice Reform Act,
and Federal Rule of Civil Procedure 72. ECF 10.
United States District Court
Southern District of Texas
ENTERED
June 04, 2026
Nathan Ochsner, Clerk
Case 4:25-cv-02850 Document 34 Filed 06/04/26 in TXSD Page 1 of 10

2
committed 	by 	Defendant 	and 	Counter-Plaintiff Victor Chen 	(“Defendant” or
“Chen”) during his employment with Aris. 	ECF 1. 	Plaintiff alleges Defendant
Chen, as Vice President of Information Technology, conducted transactions on Aris’
behalf with several companies he owned without disclosing his interest. ECF 1 ¶¶
7-11. 	Plaintiff further alleges that Defendant, among other fraudulent schemes,
created fraudulent invoices for computers and other items, submitted payment to his
companies, and then failed to provide Aris with the goods. 	Id. 	Great American
claims 	it 	paid 	Aris 	$621,639.05, 	the 	amount 	of 	alleged 	loss 	from 	Chen’s
misappropriation, under a Crime Protection Policy. 	Id. ¶¶ 18. 	Chen moved to
dismiss the complaint (ECF 8), and the Court denied his motion. ECF 16; ECF 32.
Defendant Chen then filed an answer and counterclaims. 	ECF 22. 	Chen
alleges Aris hired him as Director of Information Technology and one of his
responsibilities was to procure equipment through third-party vendors. 	Id. at 1-2.
Chen claims Aris management approved the purchases at issue in this case and that
Aris received and benefited from the purchased items. Id. at 2. Chen further claims
Great American paid Aris’ claim without verifying whether the allegedly fraudulent
invoices were for goods received. Id. Chen also asserts that while he owned several
independent businesses, he properly disclosed conflicts when requested. Id.
Defendant 	Chen 	brings 	counterclaims 	for 	negligent 	investigation 	and
misrepresentation, defamation, and declaratory judgment. Id. at 3-4. Plaintiff Great
Case 4:25-cv-02850 Document 34 Filed 06/04/26 in TXSD Page 2 of 10

3
American moved to dismiss for failure to state a claim. ECF 25. Defendant filed a
Response, to which Plaintiff replied. ECF 28; ECF 29.
II. 	Legal Standards.
To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead “enough
facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the
defendant is liable for the conduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009); Gonzalez v. Kay, 577 F.3d 600, 603 (5th Cir. 2009). In reviewing a motion
to dismiss under Federal Rule of Civil Procedure 12(b)(6), this Court “accepts all
well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.”
Alexander v. AmeriPro Funding, Inc., 848 F.3d 698, 701 (5th Cir. 2017) (citing
Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir.
2004)). However, the court does not apply the same presumption to conclusory
statements or legal conclusions. Iqbal, 556 U.S. at 678-79.
Generally, a court may consider only the allegations in the complaint and any
attachments thereto in ruling on a Rule 12(b)(6) motion. Collins v. Morgan Stanley
Dean Witter, 224 F.3d 496, 498 (5th Cir. 2000). 	If a motion to dismiss refers to
matters outside the pleading it is more properly considered as a motion for summary
judgment. FED. R. CIV. P. 12(d). “A district court may rely on evidence outside the
Case 4:25-cv-02850 Document 34 Filed 06/04/26 in TXSD Page 3 of 10

4
complaint, without converting the Rule 12(b)(6) motion into a motion for summary
judgment, if that evidence is either (a) a document attached to the Rule 12(b)(6)
motion, referred to in the complaint, and central to the plaintiff's claim; or (b) a
matter subject to judicial notice under Federal Rule of Evidence 201. George v. SI
Group, Incorporated, 36 F.4th 611, 619 (5th Cir. 2022). Going beyond the pleadings
is otherwise error. Id.
III. 	Analysis.
A. Defendant fails to state a claim for negligent investigation and
misrepresentation.
As a threshold matter, Defendant’s counterclaim alleges claims for negligent
investigation and misrepresentation. ECF 22 at 3-4. In response to the Motion to
Dismiss, Defendant clarified 	that 	he is 	bringing 	only 	a claim for negligent
misrepresentation. 	ECF 28 at 2. 	Therefore, the Court restricts its analysis to the
claim for negligent misrepresentation. Regardless of Defendant’s clarification, his
investigation claim fails because Texas law does not recognize a cause of action for
negligent investigation or handling of insurance claims. 	Rooters v. State Farm
Lloyds, 428 F. App'x 441, 448 (5th Cir. 2011).
To state a claim for negligent misrepresentation under Texas law, a plaintiff
must plead facts demonstrating: “(1) the representation is made by a defendant in
the course of his business, or in a transaction in which he has a pecuniary interest;
(2) the defendant supplies ‘false information’ for the guidance of others in their
Case 4:25-cv-02850 Document 34 Filed 06/04/26 in TXSD Page 4 of 10

5
business; (3) the defendant did not exercise reasonable care or competence in
obtaining or communicating the information; and (4) the plaintiff suffers pecuniary
loss by justifiably relying on the representation.” Fed. Land Bank Ass'n of Tyler v.
Sloane, 825 S.W.2d 439, 442 (Tex. 1991). See also Gen. Elec. Cap. Corp. v. Posey,
415 F.3d 391, 395–96 (5th Cir. 2005). Negligent misrepresentation is distinguished
from similar torts by its limitation of liability to commercial transactions where the
information is supplied for the guidance of others involved in the transaction, who
then rely on it to their detriment. R ESTATEMENT (SECOND) OF TORTS § 552 (1977).
Defendant claims Plaintiff failed to exercise reasonable care in investigating
Aris’ claim and 	simply 	accepted Aris’ assertion that 	Chen’s 	activities 	were
fraudulent. ECF 22 at 3-4. Defendant further alleges Great American represented
his legitimate business activities as fraudulent to third parties in the course of
Plaintiff’s insurance business. Id. Chen alleges that these unidentified third parties
foreseeably relied on the false statements, which caused him harm. 	Id.; ECF 28 at
2.
Beyond the vague and conclusory allegations that Great American made
misrepresentations to unnamed third parties, Chen has failed to and cannot allege
that he was one of the people for whose benefit and guidance Great American
supplied the allegedly false information. See Great Plains Tr. Co. v. Morgan Stanley
Dean Witter & Co., 313 F.3d 305, 318–19 (5th Cir. 2002) (explaining that the
Case 4:25-cv-02850 Document 34 Filed 06/04/26 in TXSD Page 5 of 10

6
plaintiff must be one of the intended recipients of the information provided as
guidance). Indeed, Chen fully failed to plead the information was supplied for the
guidance of others in their business. 	Finally, Chen also has not and cannot allege
that he relied on the information to his detriment. See In re Stillwater Abbott Dev.,
LLC, No. 24-30097-MVL7, 2026 WL 1293667, at *44 (Bankr. N.D. Tex. May 8,
2026) (explaining that under Texas law, a plaintiff must show actual and justifiable
reliance that proximately caused pecuniary damages). 	Even the most generous
reading of Chen’s pleadings demonstrates that third parties, not Chen, allegedly
relied on the allegedly false information that Chen engaged in fraudulent activities,
thereby causing him reputational and economic harm. 	ECF 22 at 4; ECF 28 at 2.
Therefore, Chen fails to state a claim for negligent misrepresentation.
B. Defendant fails to state a claim for defamation.
Under Texas law, the elements of a defamation claim are: “(1) the defendant
published a false statement; (2) that defamed the plaintiff; (3) with the requisite
degree of fault regarding the truth of the statement (negligence if the plaintiff is a
private individual); and (4) damages, unless the statement constitutes defamation per
se.” 	Warren v. Fed. Nat'l Mortg. Ass'n, 932 F.3d 378, 383 (5th Cir. 2019) (citing
Bedford v. Spassoff, 520 S.W.3d 901, 904 (Tex. 2017)). 	A statement is published
“if the defamatory statements are communicated orally, in writing, or in print to
some third person who is capable of understanding their defamatory import and in
Case 4:25-cv-02850 Document 34 Filed 06/04/26 in TXSD Page 6 of 10

7
such a way that the third person did so understand.” Exxon Mobil Corp. v. Rincones,
520 S.W.3d 572, 579 (Tex. 2017) (internal quotation marks and citation omitted). A
false statement is defamatory if it injures a person’s reputation, as measured by how
a person of ordinary intelligence would perceive the statement. Warren, 932 F.3d at
383–84. Importantly, “[c]ommunications in the due course of a judicial proceeding
will not serve as the basis of a civil action for libel or slander, regardless of the
negligence or malice with which they are made.” 	Landry's, Inc. v. Animal Legal
Def. Fund, 631 S.W.3d 40, 46 (Tex. 2021) (internal quotation marks and citation
omitted). 	This 	includes 	statements 	made 	in 	serious 	contemplation 	of 	such
proceedings. Id.
Defendant 	alleges 	that 	Great 	American’s 	filings 	and 	correspondence
referencing his allegedly fraudulent activities contain false statements and were
published to unnamed third parties, causing Chen reputational and professional
harm. ECF 22 at 4. In his Response in opposition to the Motion to Dismiss, Chen
identifies Aris’ withholding letter and statements by Aris employees repeating Great
American’s allegations as pre-litigation defamatory publications. ECF 28 at 5-6.
Defendant’s conclusory allegations in his Counterclaim and Response fail to
state a claim. 	As Plaintiff correctly points out (ECF 29 at 4-5), Great American’s
filings and litigation-related correspondence are covered by the judicial proceedings
privilege—even if made with malice. Further, Great American cannot be liable for
Case 4:25-cv-02850 Document 34 Filed 06/04/26 in TXSD Page 7 of 10

8
defamatory statements made by Aris in a letter, and Chen fails to identify any facts
indicating that other Aris statements were foreseeable republications of Great
American’s allegations. Chen’s allegations also fail to specifically identify the third
parties 	to 	whom 	Great 	American 	allegedly 	communicated 	the 	defamatory
statements, the content of the statements, and other details of the alleged publication.
See Phillips v. United Parcel Serv., No. 3:10-CV-1197-G-BH, 2011 WL 2680725,
at *13 (N.D. Tex. June 21, 2011) (explaining a plaintiff’s complaint must identify
the 	alleged 	defamatory 	statement, 	its 	speaker, 	to 	whom 	the 	statement 	was
communicated, 	and 	the 	time 	and 	place 	of 	the 	publication), 	report 	and
recommendation adopted, No. 3:10-CV-1197-G BH, 2011 WL 2678949 (N.D. Tex.
July 8, 2011), aff'd, 485 F. App'x 676 (5th Cir. 2012). Therefore, Defendant fails to
state a claim for defamation.
C. Defendant’s request for declaratory judgment should be dismissed.
Defendant Chen brings a counterclaim for declaratory judgment that seeks “a
judicial 	declaration 	that 	the 	alleged 	losses 	were 	not 	the 	result 	of 	fraud 	or
misappropriation 	and 	that 	[Great American’s] claim payments 	(if any) were
unjustified.” ECF 22 at 4. In his Response Chen clarifies that he seeks a declaration
on: the validity of Great American’s claimed loss; the existence and scope of
subrogation rights; the factual basis of Great American’s allegations; and whether
alleged losses are recoverable. ECF 28 at 5. Plaintiff argues Chen’s Counterclaim
Case 4:25-cv-02850 Document 34 Filed 06/04/26 in TXSD Page 8 of 10

9
merely seeks a ruling on the claims Plaintiff brings against Chen in the Complaint
(ECF 1). ECF 29 at 5.
The Court agrees—Chen’s request for declaratory judgment seeks a ruling on
issues that will be resolved by the outcome of Great American’s claims against Chen.
“Courts in this circuit typically dismiss declaratory judgment counterclaims that are
mirror images of claims or that raise issues that turn on disputed facts that will be
resolved in the underlying lawsuit.” United Prop. & Cas. Ins. Co. v. Davis, No. CV
H-18-3227, 2019 WL 4054015, at *8 (S.D. Tex. Aug. 28, 2019) (collecting cases).
See also Hanson Aggregates, Inc. v. Roberts & Schaefer Co., No. 3:05-CV-1883-P,
2006 WL 2285575, at *3 (N.D. Tex. Aug. 9, 2006) (dismissing a counterclaim for
declaratory judgment that sought a determination of issues already before the court
on plaintiff’s claims or defendant’s defenses). Therefore, Defendant’s counterclaim
for declaratory judgment should be dismissed.
IV. 	Conclusion and Recommendation.
For the reasons stated above, the Court RECOMMENDS that Plaintiff’s
Motion to Dismiss (ECF 25) be GRANTED and Defendant Chen’s counterclaims
be DISMISSED.
The 	Clerk 	of 	the 	Court 	shall 	send 	copies 	of 	the 	memorandum 	and
recommendation to the respective parties, who will then have fourteen days to file
written objections, pursuant to 28 U.S.C. § 636(b)(1)(C). 	Failure to file written
Case 4:25-cv-02850 Document 34 Filed 06/04/26 in TXSD Page 9 of 10

10
objections within the time period provided will bar an aggrieved party from attacking
the factual findings and legal conclusions on appeal. Douglass v. United Servs. Auto.
Ass’n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc), superseded by statute on
other grounds.
Christina A. Bryan
United States Magistrate Judge
Signed on June 04, 2026, at Houston, Texas.
Case 4:25-cv-02850 Document 34 Filed 06/04/26 in TXSD Page 10 of 10