Merchants & Farmers Bank v. Coxwell (In Re Fish & Fisher, Inc.) , 557 F. App'x 259 ( 2014 )

Case: 13-60368 Document: 00512525993 Page: 1 Date Filed: 02/07/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 13-60368 FILED
February 7, 2014
Lyle W. Cayce
Clerk
In the Matter of:
FISH & FISHER, INCORPORATED, c/o James W. O’Mara,
Debtor.
MERCHANTS & FARMERS BANK,
Appellant,
versus
FRANK COXWELL; COXWELL & ASSOCIATES,
Appellees.
Appeal from the United States District Court
for the Southern District of Mississippi
No. 3:12-CV-549
Case: 13-60368 Document: 00512525993 Page: 2 Date Filed: 02/07/2014
No. 13-60368
Before SMITH, DeMOSS, and HIGGINSON, Circuit Judges.
PER CURIAM:*
Merchants & Farmers Bank (“M&F”) appeals the district court’s affirm-
ance of the bankruptcy court’s Federal Rule of Civil Procedure 12(b)(6) dismis-
sal for failure to state a claim and the denial of a motion to amend. We affirm.
I.
“We review a district court’s affirmance of a bankruptcy court decision
by applying the same standard of review to the bankruptcy court decision that
the district court applied. We thus generally review factual findings for clear
error and conclusions of law de novo.” Liberty Mut. Ins. Co. v. Lamesa Nat’l
Bank (In re Schooler), 725 F.3d 498, 503 (5th Cir. 2013) (internal quotation
marks and citations omitted). In reviewing a ruling on a Rule 12(b)(6) motion,
however, we take plaintiff’s facts as true and decide whether those facts make
out a “plausible” claim for relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544
(2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009).
M&F alleged that it obtained a perfected security interest in the
accounts receivable of Fish & Fisher (“F&F”) in exchange for a $681,000 loan
on which F&F defaulted. F&F later obtained a significant arbitration award
against one of its clients, hired appellee Coxwell & Associates (“Coxwell”) to
hold the award in trust and distribute it appropriately, and finally distributed
the bulk of the proceeds to numerous creditors. No amount of the proceeds was
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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distributed to M&F despite the purported security interest. After this distri-
bution, M&F and two other creditors forced F&F into involuntary bankruptcy,
then Coxwell disbursed the remaining $91,972.87 of the $1.2 million award to
F&F, with M&F still receiving nothing.
M&F alleged, against Coxwell, violations of constructive trust, negli-
gence, and arguably conversion. The thrust of all of these claims is that M&F
put Coxwell on notice via email that the arbitration award was its collateral,
so Coxwell is liable for the entire amount of F&F’s liability. Significantly, M&F
also alleged that Coxwell disbursed the money “in violation of a prior Order of
another Court.”
II.
We agree with the bankruptcy court that M&F fails to state a claim for
constructive trust or negligence. M&F may have had a priority security inter-
est in the arbitration award, but it did not allege that it had reduced its lien to
judgment or obtained a writ of garnishment or replevin. Nor did it file its
involuntary bankruptcy petition until after the distribution of the proceeds. It
may be that F&F owes M&F money and that M&F is a secured creditor, but
the proper mechanism for obtaining any money owed is the bankruptcy pro-
cess. It may be that M&F can recover, from junior or unsecured creditors, its
portions of the arbitration award under fraudulent-conveyance law or some
other bankruptcy provisions, but those claims were not before the bankruptcy
court and are not before us now. It may be, finally, that disbursing the money
after the petition was filed violated the automatic stay, but that issue also is
not before us.
The only question is whether Coxwell, hired by F&F to hold onto and
distribute the arbitration proceeds, is somehow liable to M&F for F&F’s liabil-
ity. M&F posited theories of negligence and constructive trust and possibly
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conversion. As for negligence, the bankruptcy court found that M&F had not
alleged that Coxwell owed any duty to it, so it had failed to state the elements
of a negligence claim. M&F does not raise any arguments on appeal with
respect to that ruling.
As for constructive trust, we agree that—taken as true—M&F’s facts are
insufficient to defeat a Rule 12(b)(6) dismissal. As explained in the bankruptcy
court’s decision, under Mississippi law a constructive trust arises only where
there has been fraud, duress, or abuse of confidence by the commission of a
wrong or some unconscionable conduct or where there has been unjust enrich-
ment. See McNeil v. Hester, 753 So. 2d 1057, 1064 (Miss. 2000); Planters Bank
& Trust Co. v. Sklar, 555 So. 2d 1024, 1034 (Miss. 1990). M&F has not alleged
any facts suggesting unconscionable conduct, fraud, or unjust enrichment.
III.
That leaves the conversion claim. The bankruptcy court ruled that M&F
had abandoned it in its second amended complaint by omitting the word “con-
verting” or “conversion,” both of which were present in earlier versions of the
complaint. M&F cites Dussouy v. Gulf Coast Investment Corp., 660 F.2d 594,
601 (Former 5th Cir. Nov. 1981), for the proposition that as long as the ele-
ments of the claim are in the complaint, that is sufficient to raise that claim.
We agree. M&F alleged that Coxwell “obtained possession and/or exercised
control over the entire amount of the arbitration award to the exclusion of
Bank and in defiance of Bank’s ownership/lien rights.” That is a sufficient
recitation of the elements of conversion.
Whether M&F has alleged sufficient facts suggesting that it actually had
ownership of those funds is another matter; the bankruptcy court ruled, in the
alternative, that the conversion claim failed because M&F “did not present
Coxwell with any proof of ownership of the funds.” M&F, however, alleged that
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Coxwell had disbursed the remaining funds “in violation of a prior Order of
another Court.”
We now assume, without deciding, that a conversion claim of this sort
against an attorney is cognizable under Mississippi law. We also assume that
such a claim requires knowledge on the part of the lawyer of a court order or
some other knowledge that the lien has been reduced to judgment. Such a
requirement would be consistent with the analogous and persuasive cases of
Grayson v. Bank of Little Rock, 971 S.W.2d 788 (Ark. 1988), and Northeast
Bank of Lewiston & Auburn v. Murphy, 512 A.2d 344, 346−48 (Me. 1986). At
the very least, a successful conversion claim would require proof of ownership.
See Cmty. Bank, Ellisville, Miss. v. Courtney, 884 So. 2d 767, 772 (Miss. 2004).
The question for our purposes is whether M&F has alleged sufficient
facts to prevail on a Rule 12(b)(6) motion where all it alleges is that it sent an
email to Coxwell stating, “As you know, the arbitration award is my client’s
collateral,” and that Coxwell disbursed the funds “in violation of a prior Order
of another Court.” The bankruptcy court based its ruling solely on the email
and did not address the allegation of the existence of an order from another
court. These facts, nevertheless, are insufficient to defeat a Rule 12(b)(6)
motion under Twombly and Iqbal.
Under the older Rule 12(b)(6) standard from in Conley v. Gibson, 355
U.S. 41 (1957), those allegations might be sufficient to state a claim. If there
were in fact specific reference to, or attachment of, a court order of which
Coxwell had knowledge that established M&F’s possessory interest in the
funds, then M&F might have a claim for conversion under the persuasive
authority provided in Grayson and Murphy. Twombly and Iqbal, however,
require that the plaintiff plead “enough facts” so that the claim is “plausible on
its face,” that is, so that it is more than merely “conceivable.” Twombly, 550
U.S. at 570. “A claim has facial plausibility when the plaintiff pleads factual
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content that allows the court to draw the reasonable inference that the defen-
dant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.
The Fifth Circuit has fleshed out this pleading standard in numerous
cases. In a products-liability tort case, for example, we dismissed a complaint
because it
does not specify the manufacturing defect; nor does it specify a
causal connection between the failure of the specific manufactur-
ing process and the specific defect in the process that caused the
personal injury[; n]or does the complaint tell us how the manufac-
turing process failed, or how it deviated from the FDA approved
manufacturing process.
Funk v. Stryker Corp., 631 F.3d 777, 782 (5th Cir. 2011).
M&F has not pleaded sufficient facts from which reasonably to infer
wrongdoing. The complaint did not specify what court issued the order, when
it was issued, or to whom it was directed; the complaint did not describe what
the order required and therefore whether the allegation of a violation is plaus-
ible or merely fantastical. Further, merely alleging a perfected security inter-
est is insufficient to establish ownership, and the complaint did not describe
whether the court order established M&F’s possessory interest in the funds by
reducing its claim to judgment. Reading the complaint, we are left with no
inference of wrongdoing but only with the impression that we have basically
no understanding of what happened, why it happened, and whether it was
wrong that it happened. The pleading standard exists precisely to avoid such
lack of clarity so that defendants may be put on notice of the factual and legal
bases of claims. The bankruptcy court did not err in dismissing for failure to
state a claim.
IV.
M&F moved to amend the complaint for a third time. The bankruptcy
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court denied the motion on the ground of undue delay and alternatively on the
ground that M&F’s new facts did not cure the factual insufficiency. We agree
that the new facts do not fix the insufficiency. M&F’s new facts are solely
intended to buttress its allegation that Coxwell was aware that M&F was
claiming a security interest in the proceeds. Because the new evidence does
nothing to flesh out what Coxwell was required to do with that knowledge,
whether M&F in fact had a present possessory interest in the funds, and why
the action Coxwell did take was unlawful, it does nothing to cure the deficien-
cies of the second amended complaint.
The judgment of the district court, affirming the bankruptcy court’s judg-
ment of dismissal, is AFFIRMED.
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