Pastrana v. Bestrenewedoil
- Summarized by Jonathan Batiste , Rensselaer Polytechnic Institute
- 1 month 1 week ago
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- No. 25-20021 (5th Circuit, Jan 09,2026) Not Published
- Tag(s):
-
- Ruling:
- Fraud claims accrue when parties discover the fraud or would have by exercising reasonable diligence. A single written statement does not constitute a red flag demanding further investigation. Plaintiffs are entitled to damages when they rely on a defendant’s deliberate misstatements. Investments made in reliance on fraudulent statements about a venture’s value can establish that investors received zero value. Thus, damages awarded can equal the full amount invested. The bankruptcy court did not err by allowing an expert to testify; it did not rely on that testimony when determining damages.
- Procedural context:
- Plaintiffs filed suit in Texas state court in 2019. A company that a defendant owned then filed a chapter 7 petition in 2023 and removed the action to the bankruptcy court. The court held a four-day trial and ruled in Plaintiffs' favor. Defendants then appealed to the district court, which affirmed the bankruptcy court's findings. Defendants then appealed to the circuit court.
- Facts:
- Juan Fernando Pastrana owns multiple companies and induced others to invest in his venture to build an oil recycling facility. Pastrana hired an investment bank to help with fundraising. The investors, Carlos Ramirez and Dr. Enrique Quintero, relied on a document that the investment bank created to help raise funds. That document contained fabricated numbers and costs that Pastrana and his companies provided to the investment bank. It claimed that Pastrana and his companies incurred costs of over $7 million, which was off by at least $5 million. The investors relied on those fabricated numbers, and they had no reason to doubt the document's accuracy. Pastrana continued to withhold accurate financial reporting and would share inaccurate reports with the investors after securing their investments. Eventually, however, Pastrana drew the investors' scrutiny in a 2017 meeting. After that meeting, the investors sought information from Pastrana and his counsel for two years before they decided to sue. Once the suit reached the circuit court, Pastrana raised several arguments that the court did not agree with. He argued that the investors' cause of action accrued on the days that they invested. The court, however, found that the cause of action accrued when the parties held the 2017 meeting. Pastrana argued that provisions in the investment documents barred the investors' claims. The court, however, found that the provisions did not satisfy Texas law's high bar for disclaiming reliance. Pastrana also argued that the investors failed to prove justifiable reliance. The court, however, found that record evidence supports the bankruptcy court's finding on actual reliance. That record evidence also shows that the investors exercised reasonable care. Further, the record evidence supports the bankruptcy court's finding that the investors' reliance was justified. Pastrana then argued that the investment documents included red flags that should have alerted the investors to the fraud and negated justifiable reliance. The single statement that Pastrana pointed to, however, did not require the investors to go beyond the reasonable care that they exercised. Lastly, Pastrana disputed the damages that the bankruptcy court awarded to the investors. He contended that the investors only suffered the typical losses that may come with risky investments. But their losses stemmed from Pastrana's misstatements, not his company's performance. Their investments had no value because they rested on inaccurate assumptions about Pastrana's behavior. Pastrana also claimed that the bankruptcy court erred by admitting expert testimony on damages. But the bankruptcy court did not rely on the testimony when determining damages, so Pastrana's argument fell flat.
- Judge(s):
- Richman, Higginson, and Oldham
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