Midwestern Cattle Marketing v. Legend Bank, N. A. ( 2019 )

Case: 18-10755 Document: 00515235104 Page: 1 Date Filed: 12/13/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 18-10755 December 13, 2019
Lyle W. Cayce
MIDWESTERN CATTLE MARKETING, L.L.C., Clerk
Plaintiff - Appellant
v.
LEGEND BANK, N. A.,
Defendant - Appellee
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 4:17-CV-375
Before BARKSDALE, STEWART, and COSTA, Circuit Judges.
PER CURIAM:*
This diversity action stems from a check-kiting scheme in North Texas.
Plaintiff-Appellant Midwestern Cattle Marketing, L.L.C. (“MCM”) appeals the
two summary judgment rulings in favor of Defendant-Appellee Legend Bank,
N.A. (“Legend”). For the reasons stated herein, we AFFIRM in part and
REVERSE and REMAND in part.
* 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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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I.
At the heart of this action is a checking-kiting scheme 1 within the
livestock industry that grew to be “one of the largest cattle fraud cases in Texas
history.” 2
Tony Lyon was the perpetrator of this fraudulent scheme that eventually
caused MCM to go out of business. MCM was a cattle brokerage company in
the business of buying cattle from producers, picking the cattle up from
producers, and delivering the cattle to a buyer for a commission. Jason
O’Connell and his uncle operated MCM. During the relevant period, MCM
banked with Points West Bank (“Points West”).
To facilitate the check-kiting, Tony Lyon used his parents’, Owen and
Monna Lyon (the “Lyons”) 3, business account with Legend. The bank account
(the “Lyons’ account”) was opened at Legend in 2005 at Legend’s Decatur,
Texas, branch office. The Lyons’ account was used for the Lyons’ ranching
company, Lyon Farms. During the relevant period, Brennan Williams was the
branch president. 4
1Check-kiting is a fraudulent scheme designed to trick banks into honoring checks
drawn against an account with insufficient funds and extending a line of credit to honor that
check on the accountholder’s behalf. United States v. Frydenlund, 990 F.2d 822, 824 (5th Cir.
1993) (citations omitted).
2Natalie Posgate and Mark Curriden, Jack Co. Family Hit with $23M Cattle Fraud
Verdict, THE TEXAS LAWBOOK (Jan. 24, 2017),
https://www.bellnunnally.com/27F299/assets/files/Documents/1-24-17%20-
%20The%20Texas%20Lawbook%20-%20Trowbridge%20and%20Cheek.pdf.
3 To be clear, this shorthand reference only includes Owen and Monna Lyon, not Tony
Lyon.
4 Brennan Williams and his father have also engaged in a cattle transaction with
Owen Lyon. Brennan Williams testified by deposition twice regarding this cattle purchase.
Initially, he testified that he was unaware of this cattle agreement with Owen Lyon, and he
later recanted that deposition testimony in a subsequent deposition and acknowledged the
transaction.
2
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Tony Lyon assisted his parents with Lyon Farms, but the record is
unclear how much assistance Tony Lyon provided in operating the business. 5
Brennan Williams and other Legend employees were aware that Tony Lyon
helped with the Lyons’ cattle business. There is no evidence indicating
Brennan Williams and other Legend employees were aware that Tony Lyon
had access or was otherwise using the Lyons’ account for fraudulent purposes.
Brennan Williams testified, in a 2017 trial 6, that he met and communicated
with Tony Lyon a handful of times, once at a Decatur Livestock Market and a
“time or two” at the branch office. 7
A.
MCM’s and Tony Lyon’s Business Relationship
Tony Lyon was in the business of buying, selling, and grazing cattle. In
2002, he was convicted of making a false statement to a banking institution,
Bank of America (“BOA”), concerning cattle loans. The court sentenced him to
thirty-seven months in prison and awarded BOA just over $6 million in
5MCM’s first amended complaint states that Tony Lyon operated the business and
Owen Lyon was only a “part time rancher”. However, the affidavits of Tony Lyon, Owen
Lyon, and Monna Lyon do not acknowledge that Tony Lyon was involved in Lyon Farms and
Brennan Williams testified, in a 2017 trial (see, infra, Sect.II), that Owen Lyon informed him
that Tony Lyon “had been helping him a time or two”.
6 He testified in a related case, Midwestern Cattle Marketing, LLC v. Tony Lyon d/b/a
Lyon Farms, Owen Lyon, and Manna Lyon, Case No. 15—07—061 in the 271st Judicial
District Court of Jack County, Texas. See, infra, Sect.II.
7MCM points to several dozen phone records to indicate that Brennan Williams and
Tony Lyon frequently communicated. Upon review, only phone numbers are listed in these
records. There is no verification that these numbers belong to Brennan Williams or Tony
Lyon. The records that contain the actual text messages only show several messages that
reference Owen Lyon. Moreover, no testimony corroborates this texting history between
them. Because there is nothing more to suggest that these individuals communicated often,
we do not reach the same conclusion as MCM.
3
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restitution. Tony Lyon’s affidavit stated that he resumed running his
independent cattle business after his release from prison.
In July 2011, at a sale barn in Graham, Texas, Jason O’Connell and Tony
Lyon met and developed a business relationship—which led to an agreement
where Tony Lyon would buy cattle for MCM. 8 Using the Lyons’ account, 9 Tony
Lyon bought cattle from local ranchers and sale barns to sell to MCM. MCM
or Tony Lyon would then find a buyer for the cattle and would split the profits.
From 2011 to 2014, Tony Lyon and MCM completed dozens of cattle sales
without incident.
According to Jason O’Connell’s affidavit, as the business relationship
progressed, Tony Lyon informed Jason O’Connell of his previous conviction in
defrauding BOA. Jason O’Connell’s knowledge of Tony Lyon’s conviction did
not deter or otherwise hinder MCM’s business dealings with Tony Lyon.
According to Jason O’Connell, he believed in giving “second chances.”
B.
The Exchange of Checkbooks Leads to Check-Kiting
To accelerate the cattle transactions and transfer of funds, Tony Lyon
(with authorization from the Lyons) and MCM provided each other with pre-
authorized checks from their respective banks. MCM provided Tony Lyon with
blank Points West checks and an MCM authorized signature stamp, and Tony
Lyon (through Monna Lyon’s authorization) provided pre-signed Legend
8 There is conflicting affidavit testimony (between Jason O’Connell, his uncle, and
Tony Lyon) as to whether the business arrangement involved the Lyons and Lyon Farms.
There is no evidence of MCM directly communicating with Owen or Monna Lyon in
facilitating this engagement. In turn, we presume that the arrangement only involved Tony
Lyon and MCM.
9 Originally, Tony Lyon used his First Financial Bank account to facilitate cattle
transactions, but BOA soon levied that account. Thus, in an effort to avoid the BOA
“interference,” Tony Lyon used the Lyons’ account.
4
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checks to MCM. This approach allowed Tony Lyon and MCM to send each
other invoices for authorization to fill in the blank checks and deposit them in
Points West or Legend (respectively). This arrangement essentially provided
Tony Lyon with check-writing control to both accounts. 10
With this authority, Tony Lyon devised a check-kiting scheme. The
scheme involved a fictitious businessman and company, “John George” and
George Cattle Company (“GCC”). Tony Lyon informed MCM that he developed
a relationship with John George and portrayed him to be a wealthy
businessman interested in making cattle investments.
Tony Lyon began to falsely claim to purchase cattle using MCM’s line of
credit, then submitted fake invoices to MCM, and would afterward state that
he resold the cattle to GCC. After brokering this purported deal, Tony Lyon
would have his mother, Monna Lyon, authorize a Legend check to MCM for
the line of credit and profit on the GCC transaction. Tony Lyon would have
this Legend check issued with the full understanding that the Lyons’ account
had insufficient funds to cover the check. But shortly thereafter, Tony Lyon
would receive permission from MCM to deposit a pre-authorized Points West
check for additional credit to purchase more cattle. That additional credit
would cover the previously issued check payable to MCM. In essence, these
two accounts were exchanging and drawing checks on each other, so when
Points West processed a check and sought payment from Legend, the payee
bank, there was sufficient provisional credit in the Lyons’ account to cover,
based on a recently deposited Points West check.
Over the span of the check-kiting scheme (between late 2014 through
10 The record does not reflect that the Lyons informed Legend of Tony Lyon’s new
authority vis-à-vis the Lyons’ account. The same can be said about Points West as it also
was not informed of Tony Lyon’s authority in issuing these Points West checks with MCM’s
signature stamp.
5
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June 2015), a cascade of hundreds of checks rebounded back and forth between
the Lyons’ account and the MCM’s Points West account.
C.
Legend’s Oversight of the Lyons’ Account and the Scheme’s Collapse
Nothing in the record suggests that Legend conspired with or assisted
Tony Lyon in devising and executing this check-kiting scheme. The frequent
withdrawals and deposits within the Lyons’ account would often incur
overdrafts and negative balances to the Lyons’ account. Legend understood
that the increase was due to business dealings with MCM. And in the event of
an overdraft, Brennan Williams, the branch president, would advance
provisional credit to the Lyons’ account. The overdrafts and provisional credits
varied from as little as $152,000.00 to $4.4 million over the course of four
months.
As the volume of transactions escalated, Legend’s internal systems
(which consist of several check fraud detection monitoring programs) began
alerting Legend about the Lyons’ account activities as early as January 27,
2015. The alerts included red flags for check-kiting activity and overdraft
insufficient notices. Despite the fraud detection system notifications, Legend
did not report such alerts or otherwise cease advancing its lines of credit until
June 26, 2015.
On that date, Points West sought payment from Legend for a $5 million
check payable to MCM. At the time, the Lyons’ account only contained the
credit that Legend floated, and Legend was still waiting on Points West to
honor several MCM checks payable to the Lyons. Considering the risks in
honoring the $5 million check when the Lyons’ account only contained
provisional credit, Legend placed a stop payment on the check and returned it
to Points West for insufficient funds. This caused the scheme to collapse, and
because Legend was the first bank to act and not honor a check, Legend did
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not lose any money in this scheme. In contrast, MCM sustained significant
loss and went out of business in June 2015.
II.
Considering the foregoing, MCM filed a lawsuit against Tony Lyon, Lyon
Farms, and Owen and Monna Lyon that resulted in a jury trial verdict in
MCM’s favor totaling over $23 million. In a separate criminal matter, Tony
Lyon subsequently pleaded guilty to, inter alia, fraud and the check-kiting
scheme. He was sentenced to 10 years in prison and ordered to pay over $5
million in restitution.
In May 2017, MCM initiated this action against Legend because it
maintains that Legend profited from and was complicit in the check-kiting
scheme. MCM sought recovery for fraudulent transfer (Count One), money
had and received (Count Two), unjust enrichment (Count Three), common law
fraud (Count Four), aiding and abetting (Count Five), conspiracy (Counts Six
and Seven), violation of the garnishment statute (Count Eight), negligent
misrepresentation (Count Nine), violations of the Uniform Commercial Code
(Count Ten), and negligence, negligence per se, and gross negligence (Count
Eleven). MCM’s prayer of relief included exemplary damages and attorney’s
fees (Counts Twelve and Thirteen).
Legend filed a motion for summary judgment. The district court granted
the motion in part as to counts two through twelve. In a supplemental order,
it granted summary judgment on the remaining claim. MCM timely appealed
the district court’s summary judgment rulings and its evidentiary ruling
excluding MCM’s three experts.
III.
“We review a [district court’s order] grant[ing] summary judgment de
novo, viewing all evidence in the light most favorable to the nonmoving party
7
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and drawing all reasonable inferences in that party’s favor.” 11 Pierce v. Dep’t
of U.S. Air Force, 512 F.3d 184, 186 (5th Cir. 2007). “Summary judgment is
appropriate when ‘there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.’” Lyda Swinerton Builders,
Inc. v. Okla. Sur. Co., 903 F.3d 435, 444 (5th Cir. 2018) (quoting FED. R. CIV.
P. 56(a)).
This diversity action relates to check-kiting, overdrafts, and provisional
credits. Article 4 of the Uniform Commercial Code (“UCC”), found in Texas
Business and Commerce Code Chapter 4, is the governing body for bank
deposits and collections, and it serves as the guidepost for our analysis. TEX.
BUS. & COM. CODE § 4.101, et seq.; Am. Airlines Emps. Fed. Credit Union v.
Martin, 29 S.W.3d 86, 91 (Tex. 2000) (“Article 4 of the UCC . . . establishes the
rights and duties between banks and their customers regarding deposits and
collections.”).
“We have jurisdiction over this case owing to the diversity of the parties,
so we apply Texas substantive law. [citation] In doing so, we are bound by the
decisions of the Supreme Court of Texas.” DeJoria v. Maghreb Petroleum
Expl., S.A., 935 F.3d 381, 387 (5th Cir. 2019) (citing Comm’r v. Bosch’s Estate,
387 U.S. 456, 465 (1967) and Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)).
Money “Had and Received” and Unjust Enrichment
In dismissing MCM’s money had and received claim, the district court
determined that Legend properly asserted an unclean hands defense and that
MCM failed to demonstrate ownership. 12 We disagree.
11 Except for the district court’s evidentiary ruling to exclude expert testimony and
application of an equitable defense, each issue shall be reviewed de novo.
12Legend also maintains that money had and received claims have been supplanted
by the UCC. This position contradicts precedent. We have held that the UCC did not displace
Texas’s money had and received claim, and Texas courts have adopted our reasoning. See
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A legal “action for money had and received arises when [a party] obtains
money which in equity and good conscience belongs to the plaintiff.” Amoco
Prod. Co. v. Smith, 946 S.W.2d 162, 164 (Tex. App.—El Paso 1997, no pet.).
Money had and received claims “‘belong[] conceptually to the doctrine of unjust
enrichment.’” Edwards v. Mid—Continent Office Distribs., L.P., 252 S.W.3d
833, 837 (Tex. App.—Dallas 2008, writ denied) (quoting Amoco, 946 S.W.2d at
164). Specifically, it is “an equitable doctrine applied to prevent unjust
enrichment.” Miller-Rogaska, Inc. v. Bank One, Tex., N.A., 931 S.W.2d 655,
662 (Tex. App.—Dallas 1996, no writ), superseded on other grounds by TEX.
BUS. & COM. CODE § 3.419. Unjust enrichment results from the “failure to
make restitution [of benefits] under circumstances that give rise to an implied
or quasi-contractual obligation to return those benefits.” Edwards, 252 S.W.3d
at 837 (citations omitted). 13
We review application of the unclean hands doctrine for
abuse of discretion. Radiator Specialty Co. v. Pennzoil-Quaker State Co., 207
Peerless Ins. Co. v. Texas Commerce Bank-New Braunfels, N.A., 791 F.2d 1177, 1179–81 (5th
Cir. 1986); see also Stone v. First City Bank of Plano, N.A., 794 S.W.2d 537, 543 (Tex. App.—
Dallas 1990, writ denied) (“In our view, the opinion of Peerless employs sound reasoning, and
we adopt it as our own.”). Even a conflict between the UCC and a common law claim like
money had and received does not necessarily warrant the displacement of the cause of action
if the two can be reconciled. See Coastal Agric. Supply, Inc. v. JP Morgan Chase Bank, N.A.,
759 F.3d 498, 508 (5th Cir. 2014) (“[T]he conflict between the money had and received claim
at common law and [Tex. Bus. & Com. Code] § 3.405 can be resolved without entirely
displacing the money had and received claim. Rather, the money had and received claim as
applied in this situation must simply incorporate the affirmative defense provided by [Tex.
Bus. & Com. Code] § 3.405.”). Moreover, Legend does not point to a conflict that would bear
on this case.
13 Legend claims that Texas does not recognize unjust enrichment as a distinct
standalone claim. We have held that while unjust enrichment may not be an independent
claim in Texas, “[a] party may [still] recover under the unjust enrichment theory . . . .” Harris
Cty. Tex. v. MERSCORP Inc., 791 F.3d 545, 561 (5th Cir. 2015) (citing Heldenfels Bros., Inc.
v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992)). MCM may therefore recover on an
unjust enrichment theory as long as it proves that Legend obtained a benefit from MCM “by
fraud, duress, or the taking of an undue advantage.” Forbes v. CitiMortgage Inc., 998 F.
Supp. 2d 541, 553 (S.D. Tex. 2014) (quoting Heldenfels Bros., 832 S.W.2d at 41).
9
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F. App’x 361, 362–63 (5th Cir. 2004) (per curiam). 14 “A district court abuses
its discretion if it: (1) relies on clearly erroneous factual findings; (2) relies on
erroneous conclusions of law; or (3) misapplies the law to the facts.” Combs v.
City of Huntington, Tex., 829 F.3d 388, 391 (5th Cir. 2016) (quoting Allen v. C
& H Distribs., L.L.C., 813 F.3d 566, 572 (5th Cir. 2015)).
The equitable defense of unclean hands is based on “the common-law
notion that a plaintiff’s recovery may be barred by his own wrongful conduct.”
Rogers v. McDorman, 521 F.3d 381, 385 (5th Cir. 2008) (internal quotation
omitted). “[T]he unclean hands defense is inapplicable altogether where the
plaintiff’s sins do not affect or prejudice the defendant.” Bank of Saipan v.
CNG Fin. Corp., 380 F.3d 836, 842 (5th Cir. 2004) (citing Rodgers v. Tracy, 242
S.W.2d 900, 905–06 (Tex. App.—Amarillo 1951, writ ref’d n.r.e.)). To dismiss
a money had and received claim under an affirmative unclean hands defense,
a court should balance “plaintiff’s errors of omission or commission . . . against
the defendant’s unjust acts.” Id. at 841 (citation omitted). This defense offsets
a plaintiff’s recovery like comparative negligence would for a negligence claim.
Bank of Saipan, 380 F.3d at 841. Indeed, when the defense “sounds in
negligence,” the issues of the plaintiff’s negligence and how much it offsets the
defendant’s conduct raise fact issues usually appropriate for a jury. See id. at
841–42.
14 As mentioned, “[w]e review a grant of summary judgment de novo, viewing all
evidence in the light most favorable to the nonmoving party and drawing all reasonable
inferences in that party’s favor.” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205–06
(5th Cir. 2007) (citing Crawford v. Formosa Plastics Corp., 234 F.3d 899, 902 (5th Cir. 2000)).
However, because unclean hands “is an equitable doctrine, and the decision whether to
invoke it [is] within the court’s discretion, we review for abuse of discretion” the district
court’s decision to invoke it. In re Coastal Plains, Inc., 179 F.3d 197, 205 (5th Cir. 1999)
(discussing standard of review of a determination of judicial estoppel, another equitable
doctrine) (citation omitted).
10
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The weighing of the equities is absent from the court’s analysis. The
district court merely states that “plaintiff contributed to its own predicament
by giving [a convicted felon,] Tony[,] its checkbook and a signature stamp.”
Midwestern Cattle Marketing, LLC v. Legend Bank, N.A., Case No. 4:17–CV–
375–A, 2018 WL 2244339, at *5 (N.D. Tex. May 16, 2018). In its supplemental
order, the district court continues to emphasize that plaintiff’s “own actions
played a role in the outcome” without balancing the effect this conduct had on
Legend. Absent a balancing of the comparative equities, neither we nor the
district court can “say as a matter of law that unclean hands completely bars
recovery in this case.” Id. at 842. In failing to properly analyze or otherwise
appropriately assess this defense, we hold that this district court abused its
discretion. See Williams v. Manitowoc Cranes, L.L.C., 898 F.3d 607, 615 (5th
Cir. 2018) (“A district court abuses its discretion when its ruling is based on an
erroneous view of the law or a clearly erroneous assessment of the evidence.”)
(internal quotation marks omitted). For this reason, we reverse and remand
MCM’s money had and received claim for the district court to properly assess
the undisputed facts and the equities of both parties and to determine whether
MCM’s “sins . . . affect or prejudice” Legend, warranting the application of this
defense. Bank of Saipan, 380 F.3d at 842.
Legend’s next position is that MCM failed to demonstrate ownership of
funds held by Legend, which it asserts is necessary to succeed on a claim for
money had and received. This argument rests on a technical element, but the
money had and received claim is “less restricted and fettered by technical rules
and formalities than any other form of action.” Staats v. Miller, 243 S.W.2d
686, 687 (Tex. 1951) (internal quotations omitted). “[A]ll that a ‘plaintiff need
show [to prove a claim for money had and received] is that defendant holds
money which in equity and good conscience belongs to him.’” Villarreal v. First
Presidio Bank, 283 F. Supp. 3d 548, 557 (W.D. Tex. 2017) (citing Staats, 243
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S.W.2d at 687). That showing is in dispute here in light of MCM’s evidence
and position claiming that it is the rightful owner of the disputed funds. See,
infra, Sect.III (Texas Uniform Fraudulent Transfer Act (“TUFTA”) Claim).
Thus, to the extent the district court granted summary judgment here for
failure to demonstrate ownership, these claims are reinstated and remanded.
The Constructive Trust Remedy
“A constructive trust is an equitable remedy created by the courts to
prevent unjust enrichment.” Hubbard v. Shankle, 138 S.W.3d 474, 485 (Tex.
App.—Fort Worth 2004, pet. denied) (citation omitted). It is not an
independent cause of action under Texas law. In re Moore, 608 F.3d 253, 263
(5th Cir. 2010). “To obtain a constructive trust, the proponent must prove (1)
the breach of a special trust, fiduciary relationship, or actual fraud, (2) unjust
enrichment of the wrongdoer, and (3) tracing to an identifiable res.” In re
UTSA Apartments 8, L.L.C., 886 F.3d 473, 488 (5th Cir. 2018) (quoting Gray
v. Sangrey, 428 S.W.3d 311, 315 (Tex. App.—Texarkana 2014, pet. denied)).
MCM’s money had and received and unjust enrichment theories are
premised on the fact that the Lyons’ account contained fraudulently obtained
funds that MCM claims to own. Assuming the court or a jury finds this to be
the case, then the district court will determine whether to impose a
constructive trust.
We note that the district court already determined that this is not the
type of case where a constructive trust is appropriate because there is no
specific identifiable res. We disagree. First, paragraphs 78 and 81 of the First
Amended Complaint identify four specific alleged payments to trace. See
RESTATEMENT (THIRD) OF RESTITUTION & UNJUST ENRICHMENT § 59(1) & cmt.
c, illus. 1 (2011); Cf. In re Hayward, 480 S.W.3d 48, 52–55 (Tex. App.—Fort
Worth 2015, no pet.) (concluding imposition of a constructive trust was
improper where funds were not traceable). Second, it is premature to make
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this determination because “a constructive trust is a remedy generally
contemplated by the court at the remedies phase of a legal proceeding, only
after an entitlement to judgment has been ascertained.”
GE Capital Commercial, Inc. v. Wright & Wright, Inc., No. 3:09–CV–572–L.,
2009 WL 5173954, at *10 (N.D. Tex. Dec. 31, 2009). We therefore reinstate
this remedy to be evaluated after judgment is determined (either at summary
judgment or trial).
Negligence and Gross Negligence Claims
The district court granted summary judgment against MCM’s negligence
theories (i.e., negligence, negligence per se, and gross negligence) because (1)
Legend did not owe a duty to MCM, a non-customer; and (2) MCM’s injury is
purely economic, precluding recovery under the economic loss rule. The first
point warrants summary judgment.
Negligence encompasses four key elements—the first, owing a duty to
the plaintiff, is the central issue here. Mission Petroleum Carriers, Inc. v.
Solomon, 106 S.W.3d 705, 710 (Tex. 2003). “The existence of a duty is a
question of law.” Id.
MCM asserts Legend owed it a duty because “if a bank knows or has
reason to know that its customer is perpetrating a fraud, the bank has a duty
not to continue to enable the fraud”. 15
15MCM points to several cases to support its argument that it is owed a duty, but the
problem with each case is that it advances a responsibility owed to fiduciary parties or trust
beneficiaries, not unaffiliated non-customers. Grebe v. First State Bank of Bishop, 150
S.W.2d 64, 68 (Tex. 1941) (stating that a bank may come under a legal duty to protect the
third parties when “[t]he bank . . . with full knowledge that the funds on deposit belonged in
part to the minor daughter, knowingly permitted the surviving widow [the fiduciary] to check
them out of the bank and appropriate them to her own personal use and benefit.”); Steere v.
Stockyards Nat. Bank, 256 S.W. 586, 590–91 (Tex. Comm’n App. 1923) (precluding the bank
from offsetting the depositor’s debts because the bank was aware that the account contained
trust funds); U.S. Fid. & Guar. Co. v. Adoue & Lobit, 137 S.W. 648, 652–53 (Tex. 1911)
(holding a bank liable for allowing a fiduciary to misappropriate the trust funds that were
held in the bank to pay the trustee’s personal debts).
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MCM’s position is foreclosed by Texas law, which maintains that, in the
absence of a fiduciary or confidential relationship, a bank owes no duty to a
person with whom the bank has not dealt and otherwise has no relationship.
Guerra v. Regions Bank, 188 S.W.3d 744, 747 (Tex. App.—Tyler 2006, no pet.)
(“Because he was not a Regions customer and had no other relationship with
Regions, as a matter of law Regions owed no duty to Appellant.”); Marlin v.
Moody Nat’l Bank, N.A., 248 F. App’x 534, 540 (5th Cir. 2007) (“Further, a bank
owes a duty of care to customers but not third parties.”) (citing Guerra, 188
S.W.3d at 747). Because MCM did not “deal” with the bank and because its
only relevant relationship was with Tony Lyon—not Legend—the alternative
“fiduciary or confidential relationship” is absent.
For these reasons, we affirm the dismissal of MCM’s negligence claims.
We also affirm the district court’s ruling as to MCM’s gross negligence claim
as it likewise fails to satisfy the duty element. Austin v. Kroger Tex. L.P., 746
F.3d 191, 196 n.2 (5th Cir. 2014) (“To recover for gross negligence in Texas, a
plaintiff must satisfy the elements of an ordinary negligence . . . claim.”).
Conspiracy Claim
Because MCM failed to adduce evidence of genuine disputes of material
fact suggesting Legend and Tony Lyon were co-conspirators, the district court
granted Legend’s summary judgment motion against this claim. We affirm
this ruling. A civil conspiracy must be premised on an underlying tortious act.
Agar Corp., Inc. v. Electro Circuits Int’l, LLC, 580 S.W.3d 136, 138 (Tex. 2019)
(stating that “civil conspiracy is a derivative tort that ‘depends on participation
in some underlying tort’”) (quoting Tilton v. Marshall, 925 S.W.2d 672, 681
(Tex. 1996)). MCM points to no derivative tort to support its civil conspiracy
claim. Walker v. Beaumont Indep. Sch. Dist., 938 F.3d 724, 752 (5th Cir. 2019)
(dismissing civil conspiracy claim for lack of underlying tort). Even if its
negligence claims remained, negligence cannot form the basis of a civil
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conspiracy. See Triplex Commc’ns, Inc. v. Riley, 900 S.W.2d 716, 720 n.2 (Tex.
1995) (“Given [civil conspiracy’s] requirement of specific intent, parties cannot
engage in a civil conspiracy to be negligent.”).
We affirm the district court’s summary judgment ruling to dismiss
MCM’s conspiracy claim.
Aiding and Abetting
We agree with the district court’s dismissal here but for different reasons
as the law has changed since the district court’s ruling. MCM contends that
several events raise genuine disputes of material fact as to whether Legend
intended to enable Tony Lyon’s scheme via the Lyons’ account. A month after
the district court ruled on summary judgment, we handed down a decision
stating that aiding and abetting does not exist as a distinct cause of action in
Texas. In re DePuy Orthopaedics, Inc., Pinnacle Hip Implant Prod. Liab. Litig.,
888 F.3d 753, 781–82 (5th Cir. 2018). In DePuy, the district court “exceeded
its circumscribed institutional role” by recognizing a cause of action for aiding
and abetting under Texas law. 888 F.3d at 781. We noted that the “Texas
Supreme Court ‘has not expressly decided whether Texas recognizes a cause of
action for aiding and abetting,’” and “[w]hen sitting in diversity, a federal court
exceeds the bounds of its legitimacy in fashioning novel causes of action not yet
recognized by the state courts.” Id. (citations omitted). Therefore, we cannot
recognize a claim that the Texas Supreme Court has yet to expressly adopt.
Id. For these reasons, we affirm the dismissal of the aiding and abetting claim.
Texas Uniform Fraudulent Transfer Act (“TUFTA”) Claim
MCM contends that the Lyons, the debtors, fraudulently transferred
funds to Legend. According to MCM, the district court erroneously concluded
that the deposits into the Lyons’ account were not a potential fraudulent
transfer under TUFTA. In its supplemental order, the district court dismissed
this TUFTA claim because the deposits at issue were based on MCM checks
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that were not property of the debtors, the Lyons. Rather, the transferred
property at issue allegedly belonged to MCM, not the debtors—which MCM
admitted to in the parties’ joint pretrial order. We agree with the district
court’s ruling.
TUFTA allows the recovery of property transfers made “with actual
intent to hinder, delay, or defraud any creditor of the debtor.” TEX. BUS. &
COM. CODE § 24.005(a)(1). “A fraudulent conveyance [under TUFTA] is a
transfer by a debtor with the intent to hinder, delay, or defraud his creditors
by placing the debtor’s property beyond the creditor’s reach.” Nobles v. Marcus,
533 S.W.2d 923, 925 (Tex. 1976). The debtor’s property is also known as an
asset. TEX. BUS. & COM. CODE § 24.002(2) (stating that “[a]sset means
property of a debtor”) (internal quotation marks omitted); Nwokedi v.
Unlimited Restoration Specialists, Inc., 428 S.W.3d 191, 204–05 (Tex. App.—
Houston [1st Dist.] 2014, pet. denied) (“An asset is the property of the debtor,
which includes anything that may be the subject of ownership.”) (internal
quotations and citation omitted). “Without an asset, no fraudulent transfer
can occur under [TUFTA].” Retamco Operating, Inc. v. Republic Drilling Co.,
278 S.W.3d 333, 341 (Tex. 2009). In turn, the transferred property must belong
to the debtor.
Here, in the parties’ joint-pretrial order, MCM admitted that it owned
the transferred property at issue. MCM states that the “funds [transferred]
never belonged to the Lyons”, rather “the funds in the Legend account belonged
to [MCM].” Said differently, MCM seeks to recover for the transfers of its
assets, not the debtors’ (the Lyons’). Because MCM disclosed that the transfers
at issue were not debtor property, the district court rightfully dismissed this
claim sua sponte. Carroll v. Fort James Corp., 470 F.3d 1171, 1177 (5th Cir.
2006) (stating that the court has the authority to consider the sufficiency of a
complaint and “dismiss an action on its own motion ‘as long as the procedure
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employed is fair’”) (quoting Bazrowx v. Scott, 136 F.3d 1053, 1054 (5th Cir.
1998)).
IV.
We separately review MCM’s appeal to the district court’s order
excluding MCM’s expert testimony.
When navigating the expert-qualification process, the district court has
“[w]ide latitude.” Roman v. W. Mfg., Inc., 691 F.3d 686, 692 (5th Cir. 2012)
(stating that the district court was within its wide discretion in making its
expert testimony rulings). Therefore, “[w]e review the district court’s
determination of admissibility of expert evidence . . . for abuse of discretion.”
Pipitone v. Biomatrix, Inc., 288 F.3d 239, 243 (5th Cir. 2002).
“A witness who is qualified as an expert . . . may testify in the form of an
opinion or otherwise if,” among other things, “the expert’s scientific, technical,
or other specialized knowledge will help the trier of fact to understand the
evidence or to determine a fact in issue.” FED. R. EVID. 702. “[W]hether the
situation is a proper one for the use of expert testimony is to be determined on
the basis of assisting the trier [of fact].” Peters v. Five Star Marine Serv., 898
F.2d 448, 449 (5th Cir. 1990) (internal quotation marks omitted).
The district court’s decision to exclude expert testimony was based on
the rationale that MCM had one remaining claim for fraudulent transfer under
TUFTA—which the court later dismissed in a supplemental order. We have
now affirmed the dismissal of the fraudulent transfer claim and only reinstate
MCM’s money had and received claim. The balancing of the equities required
to evaluate money had and received and unclean hands can “sound[] in
negligence” too. See Bank of Saipan, 380 F.3d at 841–42. In turn, because
MCM’s banking industry experts were to opine on MCM’s negligence claims
(as the district court mentioned), it is necessary for the court to consider
whether these experts could help a factfinder decide the money had and
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received claim. We therefore remand to the district court to make this expert
testimony assessment in the first instance.
V.
For the foregoing reasons, we REVERSE the district court’s summary
judgment order dismissing MCM’s claim for money had and received and
rejecting MCM’s request for the imposition of a constructive trust. We
REMAND for further proceedings consistent with this opinion as it relates to
that claim and remedy. We also REMAND for the district court to consider
whether MCM’s previously-designated expert witnesses should be allowed to
testify in relation to the money had and received claim. The district court’s
ruling is otherwise AFFIRMED.
Accordingly, the district court’s summary judgment orders are
AFFIRMED in part, and REVERSED and REMANDED in part.
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