Terry Hill v. Thomas Anderson , 420 F. App'x 427 ( 2011 )


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  •      Case: 10-40313 Document: 00511432117 Page: 1 Date Filed: 04/01/2011
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT  United States Court of Appeals
    Fifth Circuit
    FILED
    April 1, 2011
    No. 10-40313                         Lyle W. Cayce
    Clerk
    TERRY L. HILL, STEVE GARVIN
    Plaintiffs - Appellees
    INSTITUTIONAL SECURITIES CORPORATION,
    Plaintiff - Appellee Cross-Appellant
    v.
    THOMAS W. ANDERSON; RS GROUP TRUST COMPANY; A.J. WALKER;
    RETIREMENT SYSTEM DISTRIBUTORS, INC.,
    Defendants - Appellants Cross-Appellees
    Appeals from the United States District Court
    for the Eastern District of Texas
    USDC No. 4:07-CV-315
    Before JONES, Chief Judge, and BENAVIDES, Circuit Judge and AYCOCK,
    District Judge.* **
    EDITH H. JONES, Chief Judge:
    This is an appeal from a judgment for tortious interference with business
    relations and conversion governed by Texas law. Following a jury verdict,
    *
    District Judge, Northern District of Mississippi, sitting by designation.
    **
    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 R. 47.5, the court has determined that this opinion should not
    be published and is not precedent except under the limited circumstances set forth in 5TH CIR .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.
    Case: 10-40313 Document: 00511432117 Page: 2 Date Filed: 04/01/2011
    No. 10-40313
    Appellants filed a motion for judgment as a matter of law, which the district
    court granted in part and denied in part. On appeal, each side challenges the
    portion of that ruling which it considers unfavorable. We affirm in part, reverse
    in part, and render, holding that appellees did not prove a legally sustainable
    case for tortious interference, defamation/negligence, or conversion.
    I.
    This case concerns 403(b) retirement savings accounts maintained for
    employees of Texas state universities and the various entities that administer
    them. Three roles are relevant. First, an account custodian registers with
    employers—in this case, public universities—to make withdrawals from
    employees’ paychecks. Employees cannot contribute to their 403(b) plan except
    through a registered account custodian. Second, the account custodian uses a
    broker-dealer to purchase securities. An investor might also maintain a direct
    relationship with the broker-dealer. Third, the investing employee may choose
    to enlist the services of a financial advisor to aid in selecting investments.
    Plaintiff-Appellee ISC is a broker-dealer. For years, ISC worked with an
    account custodian called QUADS, which was the registered custodian for 403(b)
    accounts at a number of Texas universities. Beginning in 2005, QUADS faced
    financial difficulty. In 2006, QUADS terminated its relationship with ISC, and
    Terry Hill, ISC’s president, relinquished his position on the QUADS board of
    directors. The following year, the Maine Bureau of Financial Institutions forced
    QUADS into conservatorship. The conservator hired RS Group to take over the
    business of QUADS. In its new capacity, RS Group became an account custodian
    at each university with which QUADS was previously registered. RS Group did
    not, however, establish a relationship with ISC or Steve Garvin, who was a
    financial advisor working with ISC and who had maintained a relationship with
    QUADS prior to the dissolution of its relationship with ISC.
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    Concurrently with QUADS’s slide into conservatorship, ISC had been
    trying to attract the clients it previously shared with QUADS. ISC sent letters
    to these clients asking them to select a new account custodian, Mid-Atlantic
    Trust Company, in order to continue working with ISC and its affiliated advisors
    like Garvin.   The parties have stipulated that a majority of ISC’s clients
    requested transfer to another custodian in order to continue working with ISC.
    Although the record is unclear as to how many transfers QUADS completed
    before entering conservatorship, a number of them remained outstanding when
    RS Group took over as account custodian.          As part of its agreement with
    QUADS, RS Group assumed responsibility for transferring accounts to other
    custodians if the clients so desired.
    At trial, Appellees argued that RS Group impeded the transfer process in
    order to buy itself time to persuade investors not to switch custodians. To that
    end, RS Group sent a letter to its clients on May16, 2007, including those who
    had requested transfers, explaining that it was now serving as the account
    custodian for former QUADS clients. Additionally, representatives of RS Group
    and its affiliated broker-dealer, RSDI, contacted the universities’ human
    resources offices to promote their services. Hill argued at trial that in the course
    of these meetings, RS Group’s employees defamed him. The jury partially
    accepted this argument.      It found that Thomas Anderson (an RS Group
    employee) defamed Hill, but it awarded no actual damages for the defamation.
    The jury exonerated the other RS Group employee alleged to have defamed Hill.
    None of the jury interrogatories asked about defamation of ISC.
    Dissatisfied with the pace of the transfer process and eager to retain as
    many former clients as possible, ISC, Hill and Garvin filed suit alleging tortious
    interference with their business relationships, defamation, and conversion of
    fees. The jury returned a verdict favorable to the plaintiffs on virtually all
    counts. In response, RS Group moved for judgment as a matter of law, which the
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    district court granted in part and denied in part.        It reversed the jury’s
    $2,500,000 award on the question whether RS Group negligently harmed the
    plaintiffs and eliminated $400,000 of exemplary damages related to Hill’s
    defamation claim.    The district court left undisturbed the jury’s award for
    intentional interference with existing business relationships and conversion.
    Hill does not challenge the conclusion that he was not entitled to exemplary
    damages in the absence of actual damages. Otherwise, the parties appeal each
    of the district court’s decisions on the motion for judgment as a matter of law.
    II.
    “We review de novo the district court’s denial of a motion for judgment as
    a matter of law, applying the same standard as the district court.” Travelers
    Cas. & Sur. Co. of Am. v. Ernst & Young LLP, 
    542 F.3d 475
    , 481 (5th Cir. 2008).
    Where that standard concerns the sufficiency of the evidence supporting a jury
    verdict, “[a] court should grant a post-judgment motion for judgment as a matter
    of law only when the facts and inferences point so strongly in favor of the movant
    that a rational jury could not reach a contrary verdict.” Allstate Ins. Co. v.
    Receivable Fin. Co., 
    501 F.3d 398
    , 405 (5th Cir. 2007) (internal quotations
    omitted). Where the appeal challenges the district court’s interpretation of state
    law, review is de novo. Baily v. Shell W. E&P, Inc., 
    609 F.3d 710
    , 725 (5th Cir.
    2010).
    III.
    A. ISC’s Tortious Interference Claims
    Following the jury verdict in favor of ISC, the district court denied RS
    Group’s motion for judgment as a matter of law and entered judgment in the
    amount of $434,000.     According to the joint pre-trial order, ISC’s tortious
    interference claim rests on RS Group’s intentional delay in transferring accounts
    to Mid-Atlantic and other custodians who would continue to do business with
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    ISC and Garvin. Neither Appellee predicates its tortious interference claim on
    anything other than RS Group’s handling of account transfers.
    Under Texas law, “to recover for tortious interference with a prospective
    business relation[,] a plaintiff must prove that the defendant’s conduct was
    independently tortious or wrongful.” Wal-Mart Stores, Inc. v. Sturges, 
    52 S.W.3d 711
    , 726 (Tex. 2001). This requirement does not oblige the plaintiff to show that
    the defendant is guilty of a tort, but rather that “the defendant’s conduct would
    be actionable under a recognized tort.” 
    Id. To borrow
    an example from Sturges,
    a defendant is guilty of tortious interference if he makes a materially false
    statement about the plaintiff to a third party with whom the plaintiff has a
    business relationship. 
    Id. The statement
    constitutes “tortious conduct” even if
    other elements of fraud are absent (e.g., the third party’s reliance). 
    Id. Unless the
    defendant engages in conduct capable of giving rise to a tort, an action for
    interference with business relationships will not lie.1
    Appellees present no argument on the existence of independently tortious
    conduct. In neither of their briefs do they cite Sturges or confront the principle
    it expounds. The only independently tortious conduct they identify is Anderson’s
    defamation. While defamatory statements could support a claim for interference
    with business relationships under some circumstances, they do not in this case.
    Appellees introduced no evidence linking Anderson’s defamatory statements
    with RS Group’s alleged delay in transferring accounts. Only the latter forms
    the basis of ISC’s tortious interference claim against RS Group. Whatever harm
    Anderson’s defamation of Terry Hill might have inflicted, it did not affect the
    pace of transfers from RS Group to Mid-Atlantic.                   RS Group’s conduct in
    1
    The related tort of interference with a contract lacks the requirement of independently
    tortious conduct. Coca-Cola Co. v. Harmar Bottling Co., 
    218 S.W.3d 671
    , 690 (Tex. 2006).
    Here, both the pre-trial order and the jury interrogatories refer to interference with a business
    relationship. ISC must therefore clear the higher threshold.
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    transferring accounts was not wrongful independent of its interference with
    Appellees’ business relationships.    Absent any other allegations of tortious
    conduct, ISC failed to present evidence on this element of its interference claim.
    The omission is fatal, and the district court erred in denying RS Group’s motion
    for judgment as a matter of law on this point.
    A separate basis for reversing the judgement concerns ISC’s inadequate
    showing of causation and damages. Texas law requires the plaintiff in an
    intentional interference case to establish that the defendant’s “intentional
    interference was the proximate cause of damage . . . .” Weakly v. East, 
    900 S.W.3d 755
    , 759 (Tex. App. 1995). If a plaintiff succeeds in establishing
    causation, he must also show with reasonable certainty the amount of harm
    caused: “There can be no recovery for damages that are speculative or
    conjectural.” U.S. Bank Nat. Ass’n v. Stanley, 
    297 S.W.3d 815
    , 822 (Tex. App.
    2009). ISC failed to meet these standards.
    In approving the jury’s finding, the district court observed that “there was
    some evidence—which was largely not objected to on admission—to support the
    jury’s verdict, and the court will not disturb these findings.” Although Appellees
    presented some evidence to support their theory of causation and harm, the
    evidence was conclusory and failed to establish a budgetary baseline from which
    a reasonable jury could assess damages. Indeed, the jury’s award of $434,000
    corresponds to testimony from ISC’s executive vice president and chief
    compliance officer, Scott Hayes, who reached his estimate by comparing the
    “normal amount of time it should take . . . versus what we actually encountered.”
    He did not, however, introduce evidence demonstrating the “normal” cost of
    administering account transfers. On cross-examination, Hayes admitted that
    he did not compare expenses between the RS Group transfer process and those
    of a similar-sized process in 2006.
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    Concluding that RS Group’s actions caused any additional expenditures
    requires, at a minimum, evidence of (1) the expenses in this case and (2) an
    estimate of what would be reasonable under the circumstances.           Without
    demonstrating that its costs exceeded the reasonable amount for conducting a
    transfer of this scale, ISC failed to meet its burden. For the same reasons, the
    $434,000 award is speculative and therefore improper under Texas law.
    B. Garvin’s Tortious Interference Claims
    According to the pre-trial order, Garvin’s claims against RS Group parallel
    those of ISC.    Because he makes the same allegation of interference with
    business relationships, Garvin stumbles on the same failure to identify
    independently tortious conduct. His problems in establishing causation are
    equally fatal.
    The divorce between QUADS and ISC caused most—if not all—of Garvin’s
    damages, but it predated RS Group’s involvement in the case by approximately
    one year. Garvin admitted that he lost the vast majority of his customers when
    QUADS terminated its relationship with ISC. In response to questioning by the
    district court, Garvin stated that without a relationship with QUADS in 2006
    and 2007, “I would have to look for another approved vendor . . . .” RS Group
    could not have caused whatever damages Garvin suffered as a result of QUADS
    and ISC parting ways.
    This oversight regarding causation also infects the jury’s calculation of
    damages. Garvin’s testimony concerning damages stated only that his fees at
    the University of North Texas “varied year to year, but I would probably say
    about 150,000 from UNT.” An estimate of total fees is insufficient, however,
    when RS Group caused much less than all of Garvin’s loss. At the very least, the
    $150,000 figure would seem to impose a cap on the amount he could recover.
    Instead, the jury awarded $260,000. In his briefing on appeal, Garvin defends
    his award as the sum of his lost fees and “approximately $45,000 - $52,500 per
    7
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    year . . . as a result of the conduct of Anderson.” This argument is no help,
    however, because the jury found that Anderson defamed only Terry Hill.
    Moreover, as explained above, the jury saw no evidence linking defamatory
    statements about Hill with delay in transferring accounts.
    RS Group deserves judgment as a matter of law on Garvin’s tortious
    interference claim for two reasons. First, the missing element of independently
    tortious conduct discussed above applies here as well. Second, Garvin’s business
    relationships had already ended when Appellants delayed transferring accounts
    to other custodians. Either of these reasons supports the conclusion that it was
    error for the district court to enter judgment in Garvin’s favor on tortious
    interference.
    C. Defamation
    In coss-appeal, ISC argues that the district court erred in granting
    Appellants’ motion for judgment as a matter of law on its defamation claim.
    Although allegations of defamation of ISC appear in the pre-trial order, they did
    not reach the jury. No jury interrogatory asked whether anyone defamed ISC.
    Appellees maintain, however, that defamation was the unnamed cause of action
    behind the negligence interrogatory on which the jury awarded ISC $2,500,000.2
    We are skeptical that negligence ever referred to defamation, but even assuming
    it did, the jury’s findings did not establish all the elements of defamation.
    The connection between negligence and defamation is tenuous and seems
    unique to this appeal. In the pre-trial order, ISC invoked negligence as a theory
    2
    The jury interrogatory that ISC would construe as raising the issue of defamation
    stated: “Do you find by a preponderance of the evidence that the negligence, if any, of those
    named below proximately caused harm to INSTITUTIONAL SECURITIES CORPORATION?”
    In contrast, the district court included conventional defamation interrogatories regarding
    Terry Hill. These jury questions began by identifying a set of statements and defining
    defamation. They then expressly asked about the offense: “Do you find that the statements
    listed in Question G were defamatory concerning Terry Hill?” The jury faced no similar
    questions or instructions about ISC.
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    of liability unconnected to defamation. The order stated that RS Group had “a
    common law duty to accomplish [account] transfers, as requested by the account
    owners . . . . The conduct of RS Group, as described herein, was a breach of that
    duty of care and caused material financial loss to ISC because of the unnecessary
    amount of work caused by RS Group for which ISC now sues.” In closing
    arguments, counsel for Appellees again connected negligence with the delay in
    transferring accounts: “[RS Group] made these transfers come to a screeching
    halt. As a result of that, it cost ISC a lot of money and a lot of trouble with
    respect to their customers. And that’s nothing but negligence.”3 Finally, the
    district court understood ISC’s negligence argument to relate to the process of
    transferring accounts. In granting RS Group judgment as a matter of law, the
    court spoke exclusively in terms of the transfer process. It explained that “any
    duty of care, if such existed, ran to the account holders, not Plaintiffs.” The
    court added several alternative grounds for its holding (e.g., economic loss rule,
    speculative nature of damages), each of which confirms that the district court
    understood negligence with reference to account transfers rather than
    defamation. In light of numerous discussions of negligence in connection with
    account transfers, it is hard to credit counsel’s claim at oral argument that “[t]he
    jury knew exactly what was going on. They knew that . . . we were arguing the
    defamation on behalf of ISC.          They understood that.         There was no other
    negligence in the record.” (emphasis added).
    As a substantive matter, the district court correctly held that any duty
    that RS Group might have breached ran exclusively to the account owners.
    Despite the assertion that “ISC was requested by a great majority of the account
    3
    Defense counsel likewise addressed negligence only in the context of delayed
    transfers: “Let’s talk about the negligence question, because Mr. Springer specifically
    addressed that. . . . You’ve heard no testimony of what would be expected coming out of other
    conservatorships with trust companies, what -- what that process should be, what the delay
    should be.”
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    owners to act for . . . the account owner in accomplishing the transfers,” ISC has
    no right to press negligence claims on their behalf.
    Even assuming the negligence jury question was a camouflaged component
    of ISC’s defamation claim, the jury’s affirmative response is insufficient to
    establish RS Group’s culpability.       Texas law allows a cause of action for
    defamation where the defendant: (1) published a statement, (2) that was
    defamatory as to the plaintiff, (3) “while acting with either actual malice, if the
    plaintiff was a public official or public figure, or negligence, if the plaintiff was
    a private individual, regarding the truth of the statement.” WFAA-TV, Inc. v.
    McLemore, 
    978 S.W.2d 568
    , 571 (Tex. 1998). RS Group does not dispute that
    ISC is a private entity or the resulting negligence threshold for fault. Under
    these circumstances, negligence appears in the formula for defamation, but so
    do other elements. The interrogatory to which the jury responded affirmatively
    says nothing about (1) the statement in question, (2) publication, (3) whether the
    statement was defamatory, and (4) the connection between negligence and truth
    or falsity. ISC cannot import the missing elements from the jury’s conclusions
    in Questions G through L, as those findings related to Terry Hill alone, not his
    company.    Finally, as the district court observed, “there was absolutely no
    evidence that anyone in this case had been damaged by the amount rendered by
    the jury.” Our review of the record confirms that the jury’s award of $2,500,000
    was speculative.
    Only on appeal has the jury’s finding of negligence on the part of RS Group
    been asserted to have a connection to defamation. Conventionally, defamation
    would have been its own question for the jury. If, as ISC’s counsel maintained
    at oral argument, the district court refused to include such an instruction, then
    ISC had the responsibility to object and, if necessary, appeal the denial of their
    requested jury instructions.     F ED. R. C IV. P. 51.   Instead, ISC attempts to
    shoehorn defamation into general negligence. But defamation is larger than
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    negligence. It includes other elements, which the jury did not find. Moreover,
    no rational jury could connect (unidentified) statements by RS Group with
    $2,500,000 in damages to ISC. For these reasons, RS Group was entitled to
    judgment as a matter of law on negligence.
    D. Conversion
    The district court entered judgment in favor of ISC on its conversion cause
    of action.   Although the contours of conversion are difficult to define, the
    payments in question are most akin to commissions and therefore ineligible for
    conversion under Texas law.
    Conversion under Texas law requires that the plaintiff owned or had a
    legal right to possess some property, over which the defendant unlawfully
    assumed control, to the exclusion of the plaintiff’s rights. J.P. Morgan Chase
    Bank, N.A. v. Tex. Contract Carpet, Inc., 
    302 S.W.3d 515
    , 536 (Tex. App. 2009)
    (listing elements).   Not all property can support an action for conversion,
    however. “Money is subject to conversion only when it is a specific chattel, and
    not where an indebtedness may be discharged by the payment of money
    generally.” Newsome v. Charter Bank Colonial, 
    940 S.W.2d 157
    , 161 (Tex. App.
    1996). Examples of money as a specific chattel include funds “delivered for safe
    keeping” or money “intended to be kept segregated.” 
    Id. One class
    of money
    payments that are not a specific chattel are commissions earned by an employee.
    Wheat v. Am. Title Ins. Co., 
    751 S.W.2d 943
    , 944 (Tex. App. 1988); see generally
    15 Tex. Jur. 3d Conversion § 21 (2011).
    In the present case, ISC succeeded in its claim that RS Group converted
    so-called “12b-1 fees.” Those fees, paid by investment companies, reward broker-
    dealers who steer clients toward the companies’ funds. Because the 12b-1 fees
    operate as a reward for generating business, they are most akin to commissions,
    which Wheat concluded are not a specific chattel. The district court did not
    analyze the specific chattel requirement and appears unconcerned with the
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    chattel-versus-debt taxonomy: “No matter what label is attached to them, the
    commissions belonged to Plaintiffs . . . .” Appellees do not contest their debt, but
    merely its characterization as conversion.      Amy Morneweck, an RS Group
    employee familiar with 12b-1 fee payments, responded affirmatively to the
    following question: “RSDI ended up with a substantial amount of broker-dealer
    fees that should -- should have been paid to Mr. Hill . . . . Is that what you’re
    saying?” Even if RS Group owes ISC the amounts it received in 12b-1 fees, it is
    not guilty of conversion.
    Texas law provides a cause of action for conversion only where the
    defendant takes a specific chattel. Because general debts are not claims to
    specific funds, Appellees have the better argument on conversion. The withheld
    12b-1 fees should be treated as a general debt.
    IV.
    Several nuances of Texas law resolve the issues in this case.           First,
    tortious interference with business relationships requires a showing of
    independently wrongful conduct. We therefore REVERSE the district court’s
    denial of judgment as a matter of law on both ISC’s and Hill’s claims of tortious
    interference with business relationships. We likewise REVERSE the entry of
    judgment in favor of ISC on the issue of conversion, holding that 12b-1 fees are
    not specific chattels and thus ineligible for conversion under Texas law. Finally,
    we AFFIRM the district court’s refusal to enter judgment on the jury’s
    negligence verdict. In sum, Terry Hill, Steve Garvin and ISC take nothing from
    the defendants.
    Affirmed in part, reversed in part, and rendered.
    12