BBX Operating, L.L.C. v. Bank of America, N.A. ( 2020 )

Case: 19-11050 Document: 00515523457 Page: 1 Date Filed: 08/11/2020
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
August 11, 2020
No. 19-11050
Lyle W. Cayce
Clerk
In the Matter of: Connect Transport, L.L.C.
Debtor,
BBX Operating, L.L.C.,
Appellant,
versus
Bank of America, N.A.,
Appellee.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:17-CV-3219
Before Smith, Graves, and Ho, Circuit Judges.
Per Curiam:*
*
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not be published and is not precedent except under the limited circumstances set forth in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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BBX Operating, L.L.C., appeals a bankruptcy court’s decision,
affirmed by the district court, dismissing its claims against Bank of America,
N.A., for failure to state a claim upon which relief can be granted. We affirm.
I.
BBX Operating, L.L.C., is a Texas limited liability company that drills
and operates wells in East Texas. Murphy Energy Corporation was an entity
whose business included transportation of oil condensate and natural gas
liquids to market. In September 2008, BBX and Murphy entered into a
contract for the sale and purchase of natural gas liquids and condensate.
Under the contract, BBX extracted natural gas, and Murphy, after
identifying the best market for the natural gas, transported it to third-party
customers. These third-party customers then wired payment to a Bank of
America bank account in Murphy’s name. Pursuant to the agreement,
Murphy would take a flat marketing fee and a variable transportation fee from
those funds. At the end of each month, Murphy calculated transportation
costs and provided BBX with a statement estimating BBX’s share. After
receiving the statement, BBX would send Murphy a payment instruction
letter. Murphy then remitted the agreed upon funds to BBX, which then
distributed payments to working interest owners and royalty owners
consistent with their respective ownership interest in the wells that produced
the natural gas.
This arrangement operated smoothly until June 2016 when Bank of
America allegedly swept funds from Murphy’s account. At the time, the
account included proceeds from the natural gas produced in May 2016.
Later that year, Murphy filed for bankruptcy. BBX appeared in the
bankruptcy as one of Murphy’s unsecured creditors. BBX filed this
adversarial action against Bank of America in Murphy’s bankruptcy
proceedings, claiming that BBX was entitled to some of the funds swept by
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Bank of America. After Bank of America filed a motion to dismiss, but prior
to any ruling, BBX withdrew its original pleading and refiled an amended
complaint. Bank of America again moved to dismiss this first amended
complaint, which the bankruptcy court granted.
Following the dismissal, BBX filed a motion asking the bankruptcy
court to reconsider its initial ruling and sought leave to file a third iteration of
the complaint. The bankruptcy court, after reviewing the proposed new
pleading, concluded that “allowing the amendment would be futile” because
“the Second Amended Complaint [did] not cure the legal defects that
resulted in [the bankruptcy court] entering the Dismissal Order.” BBX
appealed that decision to the district court, which in a written opinion
affirmed the bankruptcy court’s decisions on the motion to dismiss and
motion for reconsideration. BBX now appeals to this court.
II.
BBX’s first amended complaint raised claims for (1) conversion, (2)
unjust enrichment, (3) money had and received, and (4) declaratory
judgment. Both the bankruptcy court and district court found that these
claims could not survive a motion to dismiss.
We review de novo the grant of a motion to dismiss. Firefighters’
Retirement Sys. v. Grant Thornton, L.L.P., 894 F.3d 665, 669 (5th Cir. 2018).
To withstand a motion to dismiss, a complaint must contain factual
allegations that, when taken as true, “state a claim to relief that is plausible
on its face.” Bell Atlantic 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 misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
BBX first argues that the district court erred in affirming the
bankruptcy court’s dismissal of BBX’s conversion claim. “Conversion
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occurs when, wrongfully and without authorization, one assumes and
exercises control and dominion over the personal property of another, either
inconsistently with or to the exclusion of the owner’s rights.” United States
v. Boardwalk Motor Sports, Ltd., 692 F.3d 378, 381 (5th Cir. 2012). To state a
claim for conversion under Texas law, a plaintiff must plead four elements:
(1) the plaintiff owned, possessed, or had the right to immediately possess
the property; (2) the defendant unlawfully and without authorization
assumed and exercised control over the property to the exclusion of, or
inconsistent with, the plaintiff’s rights as an owner; (3) the plaintiff
demanded the return of the property; and (4) the defendant refused to return
the property. Arthur W. Tifford, PA v. Tandem Energy Corp., 562 F.3d 699,
705 (5th Cir. 2009). 1
As both the bankruptcy and district courts found, BBX failed to plead
the first element of its conversion claim—“ownership, possession, or the
right of immediate possession” of the allegedly converted money. Boardwalk
Motor Sports, 692 F.3d at 381. The amended complaint did not allege that
BBX possessed or had the immediate right to possess the funds at the time of
the alleged conversion. Instead, BBX attempted to satisfy the first element
of its conversion claim by alleging that it owned the funds. And to be sure,
the amended complaint contained statements to that effect, including
statements that the funds “properly . . . belong[ed] to BBX” and that “the
equitable owner of the funds was BBX.”
But “simply pleading the legal status” of ownership “does not alone
suffice.” See Smit v. SXSW Holdings, Inc., 903 F.3d 522, 528 (5th Cir. 2018).
1
Conversion claims for money require a plaintiff to plead additional elements.
In re TXNB Internal Case, 483 F.3d 292, 308 (5th Cir. 2007). We need not address
whether BBX appropriately pleaded these money-specific elements because the
amended complaint failed to plead the conversion elements outlined here.
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The complaint must put forward “more than labels and conclusions” to
survive a motion to dismiss. Twombly, 550 U.S. at 555; see generally 2 James
W. Moore et al., Moore’s Federal Practice § 8.04[1][f] (3d
ed. 2019). It must contain “well-pleaded facts” that make the allegation of
ownership plausible. Iqbal, 556 U.S. at 679. And those statements regarding
ownership do not do that. They are conclusory allegations, which merely
“parrot the words needed to create a claim” without providing any factual
basis for how BBX maintained an ownership interest in the funds. Gulf Coast
Hotel-Motel Ass’n. v. Miss. Gulf Coast Golf Course Ass’n., 658 F.3d 500, 506
(5th Cir. 2011).
Perhaps recognizing this deficiency, the amended complaint
characterized the funds at issue as “trust funds,” and claimed that Murphy
“held the funds . . . in trust for BBX”—the rightful owner. Yet that label is
again unsupported by any factual allegations. The complaint said nothing of
when or how this alleged trust was formed. And there are no allegations that
Murphy entered into an agreement to create a trust. On appeal, BBX
attempts to resolve this issue by claiming the existence of a constructive trust,
giving BBX an ownership stake in the funds at the time of their alleged
conversion. But this contention misconstrues the nature of constructive
trusts in Texas. Under Texas law, a constructive trust is “not an
arrangement created by parties to a transaction to establish the rights and
duties between them and which can be enforced by a trial court.” York v.
Boatman, 487 S.W.3d 635, 646 (Tex. App.—Texarkana 2016, no pet.).
Instead, it is a remedy created by the courts to prevent unjust enrichment.
Id. Thus, under Texas law, “[n]o constructive trust exists unless and until a
court imposes it as a remedy.” Id. at 647. Here, no court has ordered a
constructive trust to be imposed, so BBX could not have an ownership
interest in the funds at the time of their conversion based on a constructive
trust theory.
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In short, after stripping the amended complaint of its legal
conclusions, BBX has not provided any factual allegations leading to the
plausible inference that it owned, possessed, or had the right to immediate
possession of the funds at the time of their alleged conversion. See Boardwalk
Motor Sports, 692 F.3d at 381. The bankruptcy court did not err in dismissing
BBX’s conversion claim.
Next, BBX argues that the district court erred in affirming the
bankruptcy court’s dismissal of BBX’s unjust enrichment claim. For the
purposes of this appeal, we assume that unjust enrichment is an independent
cause of action under Texas law. 2 To survive a motion to dismiss on an unjust
enrichment claim, a plaintiff must plead facts sufficient to lead to the
plausible inference that the defendant “obtained a benefit from [the plaintiff]
by fraud, duress, or the taking of an undue advantage.” Sullivan v. Leor
Energy, L.L.C., 600 F.3d 542, 550 (5th Cir. 2010) (quoting Heldenfels Bros. v.
City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992)).
Here, as both the bankruptcy and district courts found, BBX has not
alleged such facts. The complaint contains no allegations that when Bank of
America swept Murphy’s account it violated the terms of its account or loan
agreements with Murphy. And nothing in BBX’s allegations, when taken as
true, would establish that Bank of America, through fraud, duress, or the
taking of undue advantage, acquired and retained property belonging to BBX.
Therefore, the district court did not err in affirming the district court’s
dismissal of BBX’s unjust enrichment claim.
2
As we have previously noted, Texas appellate courts “appear split on whether
unjust enrichment is an independent cause of action.” Elias v. Pilo, 781 F. App’x 336,
338 n.3 (5th Cir. 2019). We need not resolve this issue today.
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Third, BBX challenges the bankruptcy court’s dismissal of its money
had and received claim. Money had and received is an equitable doctrine
designed to prevent unjust enrichment. London v. London, 192 S.W.3d 6, 13
(Tex. App.—Houston [14th Dist.] 2005, pet. denied). The cause of action
arises when one “obtains money which in equity and good conscience
belongs to another.” H.E.B., L.L.C. v. Ardinger, 369 S.W.3d 496, 507 (Tex.
App.—Fort Worth 2012, no pet.). A money had and received claim is “not
based on wrongdoing.” Id. Instead, it asks whether the defendant received
money belonging to the plaintiff. See Staats v. Miller, 243 S.W.2d 686, 687–
88 (Tex. 1951).
BBX has not alleged facts demonstrating that the funds Bank of
America swept from Murphy’s account belong to BBX. Nothing in the sales
contract or any other agreement between BBX and Murphy demonstrates
that funds Murphy collected and placed in a Bank of America account in
Murphy’s name belong to BBX. Furthermore, BBX is no more the owner of
those funds than the working interest owners and royalty owners that were
supposed to receive payment after Murphy remitted a portion of the funds to
BBX. At most, the amended complaint demonstrates that BBX has an
unsecured breach of contract claim against Murphy for failing to satisfy
whatever amounts Murphy owed BBX under the sales contract that governed
their relationship. It does not demonstrate that these particular funds belong
to BBX. Thus, the district court properly dismissed BBX’s money had and
received claim.
Finally, BBX’s first amended complaint also sought a declaratory
judgment holding that the funds Bank of America swept are not part of
Murphy’s bankruptcy estate. When considering a declaratory judgment
action, we first consider “whether an actual controversy exists between the
parties to the action.” Orix Credit All., Inc. v. Wolfe, 212 F.3d 891, 895 (5th
Cir. 2000) (internal quotations and citation omitted). An actual controversy
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“must be such that it can presently be litigated and decided and not
hypothetical, conjectural, conditional or based upon the possibility of a
factual situation that may never develop.” Rowan Cos. v. Griffin, 876 F.2d
26, 28 (5th Cir. 1989) (quoting Brown & Root, Inc. v. Big Rock Corp., 383 F.2d
662, 665 (5th Cir. 1967)).
Both the bankruptcy court and the district court correctly found that
no actual controversy existed between the parties. That is because no party
claimed that the funds were part of the Murphy’s estate. BBX claims that it
owns, and always has owned, the funds at issue. And, Bank of America’s
position is that Bank of America currently owns the funds at issue and that it
took possession of the funds prior to the formation of the bankruptcy estate.
No party, not even the Murphy estate, has argued that the estate has any
interest in the funds. Thus, no actual controversy exists between the parties,
and the district court did not err in affirming the bankruptcy court’s dismissal
of BBX’s declaratory judgment claim.
III.
Finally, BBX argues that the district court erred in affirming the
bankruptcy court’s denial of BBX’s motion to amend the complaint as futile.
It is within the bankruptcy court’s discretion to deny a motion to amend that
is futile. See Stripling v. Jordan Prod. Co., 234 F.3d 863, 872–73 (5th Cir.
2000). To determine whether a motion is futile, we apply the same standard
as applied under Rule 12(b)(6). Id. So we ask whether the proposed
complaint “contain[s] sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678 (quoting
Twombly, 550 U.S. at 570).
Here, the second amended complaint proffered by BBX failed put
forth such “sufficient factual matter.” Iqbal, 556 U.S. at 678. A review of
the second amended complaint reveals that BBX added allegations regarding
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the content of the sales contract between Murphy and BBX and allegations
about Bank of America’s payments to a non-party. Those allegations, though
new, do nothing to cure the deficiencies of the first amended complaint. The
new complaint, like the old, fails to state a claim. Thus, the second amended
complaint is futile, and the district court did not err in affirming the
bankruptcy court’s denial of BBX’s motion to amend.
* * *
For the reasons discussed above, we affirm.
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