N. Frac Proppants, LLC v. Regions Bank, NA

600 F.Supp.3d 644

NORTHERN FRAC PROPPANTS, LLC, et al.

v.REGIONS BANK, NA, et al.

CIVIL ACTION NO. 19-00811-BAJ-EWD

United States District Court, M.D. Louisiana.

Signed April 29, 2022

Kyle M. Keegan, Amber Nicole Robichaux, J. Brian Juban, Keegan, Juban, Lowe & Robichaux, LLC, Baton Rouge, LA, George J. Spathis, Pro Hac Vice, Levelfeld Pearlstein, LLC, Chicago, IL, for Northern Frac Proppants, LLC, et al.

Michael David Ferachi, Juston M. O'Brien, Lucas Allen Schenk, Amanda Strickland Stout, McGlinchey Stafford PLLC, Baton Rouge, LA, for Regions Bank, NA.

RULING AND ORDER

BRIAN A. JACKSON, UNITED STATES DISTRICT JUDGE

This action seeks damages from Defendant Regions Bank, NA ("Regions") for having allowed Plaintiff Northern Frac Proppants, LLC's ("NFP") commercial checking account to be reassigned to a wholly separate corporate entity bearing a similar name. Plaintiffs’ Amended Complaint asserts claims of breach of the Deposit Agreement governing NFP's account; violations of the Louisiana Uniform Fiduciaries Law, La. R.S. 9:3801, et seq. ("LUFL"); and negligence. (Doc. 46).

Now before the Court is Regions’ Motion For Summary Judgment (Doc. 66). Regions argues that Plaintiffs’ action fails and must be dismissed because Plaintiffs’ breach of contract and negligence claims are time-barred, and because the LUFL is inapplicable to Regions’ conduct. (See Doc. 66-1). Plaintiffs oppose Regions’ Motion. (Doc. 80). For the reasons stated herein, Regions’ Motion will be granted, and Plaintiffs’ action will be dismissed with prejudice.

I. BACKGROUND

The following facts are drawn from Regions’ Statement Of Material Facts (Doc. 66-25, "RB SOF"), Plaintiffs’ Response To Regions’ Statement Of Material Facts (Doc. 80, "NFP's Response SOF"), Regions’ Reply to Plaintiffs’ Statement Of Additional Facts (Doc. 84-1, "RB Reply SOF"), the parties’ joint Pretrial Order (Doc. 101-1, "Joint PTO"), and the record evidence submitted in support of these pleadings.

Plaintiff NFP is a Delaware LLC whose business is to locate and excavate "frac sand," a material used by oil and gas companies engaged in hydraulic fracturing ("fracking"). NFP is organized as a "series LLC," meaning that it can operate as a single umbrella entity with the ability to partition its assets and liabilities among various sub-entities. Plaintiffs Northern Frac Proppants, LLC Series 1 ("NFP Series 1") and Northern Frac Proppants, LLC Series II ("NFP Series 2") are each also Delaware LLCs, organized as sub-entities of NFP. Collectively, NFP, NFP Series 1, and NFP Series 2 form the NFP Series.

Non-party Kenneth Landgaard ("Landgaard") formed NFP in December 2012, as a successor to NF Holdings, LLC, yet another Delaware LLC engaged in the "frac sand" business. NFP's original Operating Agreement identifies Mr. Landgaard as NFP's sole member and manager. (Doc. 80-4 at §§ 1.01-Definitions, 4.03-Managers). Shortly after formation, however, non-party Jefferies Alston joined NFP as a member and manager. (Doc. 101-1 at § G(3)). Landgaard and Alston agreed that Alston would serve as NFP's CEO, with ultimate responsibility for managing NFP's day-to-day affairs. (RB SOF at ¶ 3; NFP's Response SOF at ¶ 3¹ ). According to Landgaard, Alston's role was "to take the ball and run." (Doc. 66-1 at p. 34). To this end, Alston was granted full authority to open and manage bank accounts on NFP's behalf. (RB SOF at ¶ 3; NFP's Response SOF at ¶ 3; see also Join PTO at § G(4)).

Alston lived in Amite, Louisiana, and was among Regions’ biggest customers. (NFP's Response SOF at ¶¶ 20, 57; RB Reply SOF at ¶¶ 20, 57). Perhaps not surprisingly, then, Alston chose Regions’ Amite branch when it came time to open a business account for NFP. Alston does not remember when (or whether) he visited Regions’ Amite branch to open an account, but the record reflects that on January 11, 2013 Regions opened a business checking account in NFP's name ("Account 0083") (RB SOF at ¶ 4; NFP's Response SOF at ¶ 4; see also Joint PTO at § G(4)). The record also shows that when he opened Account 0083, Alston provided NFP's unique federal Employer Identification Number (EIN), designated himself as the authorized signer, and arranged for Account 0083's monthly statements to be mailed to 414 E. Mulberry Street, Amite, Louisiana, the business address of Alston Equipment (a separate business that Alston controlled). (RB SOF at ¶¶ 5-6; NFP's Response SOF at ¶¶ 5-6; Joint PTO at § G(5)).

NFP opened Account 0083 subject to the terms of Regions’ standard Deposit Agreement. (RB SOF at ¶ 10; NFP's Response SOF at ¶ 10). In relevant part, the Deposit Agreement requires Regions’ customers to "exercis[e] reasonable promptness in examining your account statement each statement period," and imposes a strict 30-day limit on customers’ ability to report and challenge unauthorized transactions. (RB SOF at ¶ 13; NFP's Response SOF at ¶ 13; Doc. 66-4 at pp. 25-26). Each of NFP's statements for Account 0083 contained similar warnings regarding NFP's duty to timely inspect the accuracy of all transactions, and to promptly report any fraudulent activity. (RB SOF at ¶ 9; NFP's Response SOF at ¶ 9).

Here is where things get interesting. Plaintiffs contend that shortly after opening Account 0083, Alston implemented a scheme to divert business assets and opportunities away from NFP to a new company under Alston's control. For purposes of Plaintiffs’ claims against Regions, the salient details of Alston's scheme are as follows² :

First, in August 2013, Alston organized Northern Frac Proppants II , LLC ("NFP II"), a new company bearing a deceptively similar name to NFP, but not related to the NFP Series. (Joint PTO at § G(8); NFP's Response SOF at ¶ 46; RB Reply SOF at ¶ 46).

Then, in November 2013, Alston added non-party Brian Mora as an authorized signer to Account 0083. (RB SOF at ¶ 16; NFP's Response SOF at ¶ 16; Doc. 66-4 at p. 62). Mora's signatory status is reflected on an updated Non-Personal Account Maintenance and Signature Form bearing Mora's signature, effective November 19, 2013. (Doc. 66-4 at ¶ 17; see also id. at p. 62).

Thereafter, in December 2013, Alston entered NFP II into a loan agreement with Deutsche Bank AG, in order to obtain $77 million of financing to purchase an undeveloped frac sand mining property in Wisconsin. (NFP's Response SOF at ¶ 53; RB Reply SOF at ¶ 53). Under this loan agreement, Alston pledged Account 0083 to Deutsche Bank as collateral, despite NFP being Account 0083's actual owner. (NFP's Response SOF at ¶¶ 55-56; RB Reply SOF at ¶¶ 55-56). Regions knew of Alston's pledge, and obviously knew of NFP's ownership status at the time it was made. (NFP's Response SOF at ¶¶ 57-58; RB Reply SOF at ¶¶ 57-58). Yet, Regions still endorsed and enabled the pledge, by executing a Deposit Account Control Agreement (DACA) identifying Account 0083 as the property of NFP II , and relinquishing control of the same to Wells Fargo Bank, N.A., the administrator of the Deutsche Bank loan. (NFP's Response SOF at ¶¶ 67-68; RB Reply SOF at ¶¶ 67-68). NFP II could not have obtained the Deutsche Bank loan but for Regions’ execution of the DACA. (NFP's Response SOF at ¶¶ 59-61; RB Reply SOF at ¶¶ 59-61).

Finally, on January 7, 2014, at Alston's direction, Mora emailed written instructions to Regions ordering that the name associated with Account 0083 be changed from NFP to NFP II, and that the EIN associated with Account 0083 be changed from NFP's EIN to NFP II's EIN. (NFP's Response SOF at ¶ 62; RB Reply SOF at ¶ 62).³ Regions dutifully complied, changing the EIN on Account 0083 to NFP II's EIN on January 8, 2014, and changing the name on Account 0083 to NFP II on March 31, 2014. (RB SOF at ¶¶ 22-23; NFP's Response SOF at ¶¶ 22-23).

In practical effect, Mora's January 7 order re-assigned ownership and control of Account 0083 from NFP to NFP II. Thereafter, tens of millions of dollars of NFP II's profits flowed through Account 0083, none of which was shared with NFP. (NFP's Response SOF at ¶¶ 92-93; RB Reply SOF at ¶¶ 92-93).

Prior to Mora's change order, Account 0083's statements were addressed to "NORTHERN FRAC PROPPANTS LLC," obviously reflecting NFP ’s ownership of the account. The last such statement is dated February 28, 2014, and shows an ending balance of $724,813.23. (RB SOF at ¶ 39; NFP's Response SOF at ¶ 39; see Doc. 66-4 at p. 63). After Mora's change order, Account 0083's were addressed to "NORTHERN FRAC PROPPANTS II LLC," obviously reflecting NFP II ’s ownership of the account. The first such statement is dated March 31, 2014, and shows an ending balance of $260,195.48. (RB SOF at ¶ 40; NFP's Response SOF at ¶ 40; see Doc. 66-4 at p. 66).

Importantly, NFP admits that it regularly received (and retained) its monthly account statements, albeit at the 414 E. Mulberry Street provided by Alston. (RB SOF at ¶ 7; NFP's Response SOF at ¶ 7; see Doc. 66-2 at pp. 34-35). NFP also admits that as of March 2013, Account 0083 was enrolled in online banking, making all transactions, statements, and account details available online at any time. (RB SOF at ¶ 8; NFP's Response SOF at ¶ 8). Despite these admissions, NFP insists that it did not know of Mora's re-assignment of Account 0083 from NFP to NFP II until years later, when Landgaard learned the facts in a separate lawsuit against Alston (as set forth below).

Even if NFP was initially unaware of Alston's duplicity, Landgaard's relationship with Alston deteriorated rapidly after March 2014, resulting in multiple lawsuits. First, in February 2015, NF Holdings—NFP's predecessor—sued NFP II, Alston, and others in Texas state court, in the matter styled 2011 NF Holdings, LLC, f/k/a NF Holdings v. Northern Frac Proppants, II, LLC, et al. , DC-15-01754 (162nd Judicial District Dallas County, Texas). (RB SOF at ¶ 26; NFP's Response SOF at ¶ 26). Landgaard initiated this original Texas lawsuit because he believed Alston was defrauding him, and specifically alleged that Alston and others "acted in concert,...