St. Francisville BK, LLC v. JEC Real Estate Inv.

ST. FRANCISVILLE BK, LLC v. JEC REAL ESTATE INVESTMENT, LLC, ET AL.

No. 2020 CA 1318

Court of Appeals of Louisiana, First Circuit

February 23, 2022

NOT DESIGNATED FOR PUBLICATION

ON APPEAL FROM THE TWENTIETH JUDICIAL DISTRICT COURT NUMBER 23164, DIVISION A, PARISH OF WEST FELICIANA STATE OF LOUISIANA HONORABLE KATHRYN E. "BETSY" JONES, JUDGE

Curtis R. Shelton Lee H. Ayres Ryan P. Telep R. Chaz Coleman Shreveport, Louisiana Counsel for Third Party Defendants - Appellants, Petro -Chem Operating Company, Inc., Lary L Hock, and Universal Energy, LLC

Sidney W. Degan, III Travis L. Bourgeois New Orleans, Louisiana Counsel for Third Parry Defendant/ Third Party Plaintiff -Appellee, StarNet Insurance Company

Michael Keeley C. Adams Brinley Dallas, Texas Phillip W Preis Baton Rouge, Louisiana Counsel for Defendant/Third Party Plaintiff/Defendant-Appellee, Delta Bank

BEFORE: WHIPPLE, C.J., WELCH, AND CHUTZ, JJ.

CHUTZ J.

The defendants appeal a summary judgment ordering them to return $2, 000, 000.00 an attorney misappropriated from a client trust account and used to pay an obligation he owed to the defendants. For the following reasons, we reverse and remand this matter to the district court.

FACTUAL AND PROCEDURAL BACKGROUND

In November 2017, Delta Bank (Delta) hired James Rex Fair, Jr. (Fair) to act as the closing attorney for a real estate transaction to be financed by Delta. On November 20, 2017, at 2:18 p.m., Delta wire transferred $2, 435, 045.41 to Fair's client trust account (the trust account) with the intent that he distribute the funds in accordance with the settlement statement. Immediately prior to the wire transfer, the balance in the trust account was only $150, 701.29. Approximately ten minutes after receiving the Delta wire transfer, Fair initiated three wire transfers totaling $2, 000, 000.00 from the trust account to the following parties, who had no connection with the proposed real estate transaction: $625, 000.00 to Universal Energy, LLC (Universal); $625, 000.00 to Universal on behalf of Larry and Norma Hock; and $750, 000.00 to Petro-Chem Operating Company, Inc. (collectively, the defendants). No other deposits or transfers were made to the trust account between the receipt of the Delta wire transfer and the initiation of the wire transfers to the defendants.

Fair owed an obligation to the defendants in the amounts transferred because they had previously deposited funds in those amounts with him to be held in escrow pending a potential investment deal. Pursuant to escrow agreements between the defendants and Fair, the defendants were entitled to the return of their funds if the investment deal was not completed by certain specified dates. The investment deal was not finalized by the specified dates and, in fact, was never completed. On November 16, 2017, several days before the Delta wire transfer, the defendants demanded a return from Fair of the respective amounts they had deposited in escrow in the trust account. Fair made the November 20, 2017 wire transfers to the defendants in response to these demands.

After Fair unexpectedly passed away on January 7, 2018, a conservator was appointed to handle the affairs of his law practice. Shortly thereafter, the conservator notified Delta that the loan proceeds it had wire transferred to Fair were never sent to the seller in accordance with the closing statement and, moreover, those proceeds were not in the trust account. Once Delta learned of the $2, 000, 000.00 in wire transfers to the defendants on the same date as Delta's wire transfer, counsel for Delta sent letters to the defendants demanding the return of the funds Fair wire transferred to them. A similar demand letter was sent to the defendants by counsel for StarNet Insurance Company (StarNet), which had previously issued a "Financial Institutions Bond for Depository Institutions" (Bankers Bond), as well as a "Management Liability Insurance Policy," to Delta (through Delta's holding company). The defendants did not return any funds to Delta.

Extensive litigation resulted from Fair's misappropriation of the Delta loan proceeds from the trust account. The prospective seller in the sale the loan proceeds were intended to finance filed suit naming Delta, among others, as a defendant. Delta therein filed a third-party demand against StarNet. In its petition, Delta asserted StarNet was liable for the losses Delta sustained as a result of Fair's misappropriation both under the Bankers Bond and the liability policy it had issued. Delta and StarNet eventually reached a settlement, and Delta assigned all of its rights against the defendants to StarNet.

In its capacity as Delta's assignee, StarNet filed a third-party demand against the defendants asserting a revendicatory action for the return of property, as well as claims for conversion, fraud, civil conspiracy, and unjust enrichment. StarNet prayed for judgment against the defendants for $1, 849, 298.71, which it asserted was "the amount Fair transferred to the [the defendants] that is identifiable and traceable."^[1] Subsequently, on July 6, 2020, StarNet filed a motion for summary judgment against the defendants for $2, 000, 000.00, plus legal interest. In its motion, StarNet argued it was entitled, as Delta's assignee, to a return of the "stolen" loan proceeds transferred to the defendants based on claims for a revendicatory action, conversion, and unjust enrichment. Thereafter, the defendants filed a cross motion for summary judgment seeking dismissal of StarNet's claims.

Following a hearing on StarNet's motion for summary judgment, the district court granted the motion and signed a judgment on August 26, 2020, ordering the defendants, collectively, to pay StarNet a total of $2, 000, 000.00, plus legal interest. Each defendant was ordered to pay the amount they had received from Fair by wire transfer, i.e., Larry Hock $625, 000.00, Universal Energy, LLC $625, 000.00, and Petro-Chem Operating Company $750, 000.00.^[2] In its oral reasons for judgment, the district court concluded the funds the defendants received could be tracked through its various transfers between banks, and, therefore, were "in effect the same money" Delta wire transferred to Fair and must be returned by the defendants since Fair stole those funds from Delta. The district court rejected StarNet's claim of unjust enrichment, finding Fair was the only party at fault and the only party unjustly enriched by his actions. Additionally, on September 3, 2020, the district court signed a judgment holding the defendants' motion for summary judgment was moot as a result of the summary judgment in favor of StarNet.

The defendants now appeal the August 26, 2020 summary judgment in favor of StarNet. In five assignments of error, they argue the district court committed legal and factual error: 1) in failing to distinguish between stolen things and things obtained by fraud for purposes of applying La. C.C. art. 521; 2) in finding the funds transferred by Fair to the defendants were the same funds Delta wire transferred to the trust account; 3) in concluding a party without fault can be liable for conversion; 4) in failing to apply comparative fault; and 5) in determining there were no issues of material fact regarding the amount of Delta's actual damages.

SUMMARY JUDGMENT

After there has been an opportunity for adequate discovery, a motion for summary judgment shall be granted if the motion, memorandum, and supporting documents admitted for purposes of the motion for summary judgment show there is no genuine issue as to material fact and the mover is entitled to judgment as a matter of law. La. C.C.P. art. 966(A)(3) & (4). Appellate courts review evidence de novo under the same criteria that govern the district court's determination of whether summary judgment is appropriate. Alvarado v. Lodge at the Bluffs, LLC, 16-0624 (La.App. 1st Cir. 3/29/17), 217 So.3d 429, 432, writ denied. 17-0697 (La. 6/16/17), 219 So.3d 340. The burden of proof rests with the mover. La. C.C.P. art. 966(D)(1). All reasonable inferences that may be drawn from the record are to be viewed in the light most favorable to the non-movant, and all doubts should be resolved in favor of the non-movant. Hines v. Garrett, 04-0806 (La. 6/25/04), 876 So.2d 764, 765 (per curiam).

DISCUSSION

Based on our de novo review, we find StarNet failed to establish it was entitled as a matter of law to judgment awarding recovery from the defendants of the funds misappropriated by Fair.

It is undisputed that Fair violated his fiduciary duty to Delta when he misappropriated the closing funds Delta transferred to him by using the funds to pay his personal obligations to the defendants rather than distributing the funds in accordance with the closing statement. See Louisiana State Bar Association v. Nabonne, 539 So.2d 1207, 1209 (La. 1989). Nevertheless, that fact is not dispositive of the issue of whether StarNet, as Delta's assignee, is entitled to recover the funds misappropriated by Fair from the good faith beneficiaries of wire transfers who received the funds in satisfaction of legitimate obligations owed to them by Fair.

Louisiana Revised Statutes 9:3805^[3] is part of the Uniform Fiduciaries Law (aka the Uniform Fiduciaries Act (UFA)) and provides:

If a check or other bill of exchange is drawn by a fiduciary as such or in the name of his principal by a fiduciary empowered to draw such instrument in the name of his principal, the payee is not bound to inquire whether the fiduciary is committing a breach of his obligation as fiduciary in drawing or delivering the instrument and is not chargeable with notice that the fiduciary is committing a breach of his obligation as fiduciary unless he takes the instrument with actual

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