Case: 15-50405 Document: 00513616347 Page: 1 Date Filed: 07/29/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
No. 15-50405 July 29, 2016
Lyle W. Cayce
Clerk
TESORO REFINING AND MARKETING COMPANY, L.L.C.,
Plaintiff - Appellant
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH,
PENNSYLVANIA,
Defendant - Appellee
Appeal from the United States District Court
for the Western District of Texas
Before DAVIS, SOUTHWICK, and COSTA, Circuit Judges.
LESLIE H. SOUTHWICK, Circuit Judge:
Tesoro Refining and Marketing Company, L.L.C., sued National Union
Fire Insurance Company of Pittsburgh, Pennsylvania, seeking insurance
coverage under a commercial crime policy for alleged acts of forgery
committed by a Tesoro employee. The district court entered summary
judgment for National Union because the policy did not cover Tesoro’s losses.
Tesoro appealed. We AFFIRM.
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FACTUAL AND PROCEDURAL BACKGROUND
Tesoro Refining and Marketing Company, L.L.C., is an independent
refiner and marketer of petroleum products. Beginning in 2003, Tesoro sold
fuel on credit to a petroleum distributor, Enmex Corporation. In mid-2005,
Enmex’s credit account with Tesoro was under the supervision of Calvin
Leavell, Tesoro’s Credit Director. Enmex’s account was unsecured with a
credit limit of $25 million. 1
By December 2007, Enmex’s balance had grown to approximately $45
million. A Deloitte and Touche auditor conducting Tesoro’s year-end review
discussed that outstanding balance with Leavell. Leavell represented that
the Enmex account was secured by a $12 million letter of credit. The auditor
requested documentation a few days later. Shortly after that request,
forensic evidence shows that a document purporting to be a $12 million letter
of credit was created on the password-protected part of Tesoro’s server
storing Leavell’s documents. Deloitte and Touche received a copy of the $12
million letter of credit. Leavell later denied creating this letter of credit or
creating the other fake documents that follow. 2
Similar events occurred in January 2008. A Tesoro consultant asked
Leavell about the Enmex balance. A day later, a document purporting to
modify the $12 million letter of credit into a $24 million letter of credit was
created in the password-protected part of Tesoro’s server storing Leavell’s
documents. Leavell responded to the Tesoro consultant that it was a “slow
paying account” but there was “adequate security.” This $24 million letter of
credit was later forwarded to Deloitte and Touche. Leavell also referenced
1 In September 2008, Enmex and Tesoro entered into a “Modification and Security
Agreement” regarding Enmex’s balance, but the parties agree the Enmex account was
unsecured until that time.
2 It is unclear what motivation Leavell would have for creating these fake documents
as alleged. Leavell has not been charged with committing any crime.
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this $24 million letter of credit in an email to another Tesoro employee, which
he then forwarded to Tesoro officers.
By March 2008, Enmex’s balance was approximately $59 million.
Tesoro’s new auditors, Ernst and Young, discussed the Enmex account with
Leavell and other Tesoro employees. In May, a document purporting to be a
security agreement executed by Enmex in January 2008 was created on the
password-protected part of Tesoro’s server storing Leavell’s documents.
Ernst and Young noted both the earlier $24 million letter of credit and this
security agreement in its reports.
As Enmex’s balance continued to grow and the previous purported
letters of credit expired in September 2008, a new $24 million letter of credit
was created in the same password-protected part of Tesoro’s server as the
other documents. Leavell emailed Tesoro’s risk management vice president
that Tesoro held a $24 million letter of credit for the Enmex account. A PDF
version of this letter of credit was added to the Credit Department’s file share
folder with a Bank of America logo and forged Bank of America
representative’s signature.
By December 2008, Enmex’s balance was $90 million. Tesoro’s risk
management officer asked for the first time to see the $24 million letter of
credit. When Tesoro presented the letter of credit to Bank of America, Bank
of America said it was not valid. Tesoro ceased selling fuel to Enmex and
sued Enmex for breach of contract and fraud. That lawsuit settled.
Tesoro then submitted a proof of loss to National Union Fire Insurance
Company of Pittsburgh, Pennsylvania, under its $15 million commercial
crime insurance policy for its losses on the Enmex account. This commercial
crime policy was a standard industry policy, which contained different
“insuring agreements” covering specific risks like employee theft, forgery and
alteration, or computer fraud. Tesoro claimed the loss fell under the “Forgery
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and Alteration” insuring agreement. National Union denied coverage.
Tesoro submitted an amended proof of loss under the “Employee Theft”
insuring agreement. National Union again denied coverage.
Tesoro then sued National Union in the United States District Court
for the Central District of California, seeking declaratory relief and bringing
claims for breach of contract and bad faith. The lawsuit was transferred to
the Western District of Texas. Tesoro moved for partial summary judgment
on the coverage question, arguing that language in the “Employee Theft”
insuring agreement covered losses due to employee forgery, independent of
any theft. National Union moved for summary judgment, or in the
alternative, a partial summary judgment on the bad faith claim and punitive
damages. The district court granted National Union’s motion for summary
judgment and denied Tesoro’s motion. The district court reasoned that
“Employee Theft” did not cover forgery losses independent of a theft and
instead always required an “unlawful taking” to trigger coverage. The court
then held that Tesoro could not show such a taking had occurred. Tesoro
timely appealed.
DISCUSSION
We review orders granting summary judgment de novo. American
Nat’l Gen. Ins. Co. v. Ryan, 274 F.3d 319, 323 (5th Cir. 2001). Summary
judgment is proper “if the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of
law.” FED. R. CIV. P. 56(a). Interpretation of an insurance contract is a
question of law also reviewed de novo. Ryan, 274 F.3d at 323. The parties
agree that Texas law governs the insurance policy in this diversity case.
Where the highest state court has not spoken on an issue, as is the case in
this appeal, we must make an Erie guess as to how that court would decide
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the issue. See Keen v. Miller Envtl. Grp., Inc., 702 F.3d 239, 243–44 (5th Cir.
2012). We consider intermediate state appellate court decisions in making
our Erie guess. Id. at 244. We first determine the proper interpretation of
the “Employee Theft” insuring agreement and then whether summary
judgment is appropriate.
I. Interpretation of the “Employee Theft” Provision
Under Texas law, we interpret insurance policies using the same rules
of interpretation and construction applicable to contracts generally.
American Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003).
We must construe the policy such that no provision is rendered meaningless.
Id. If an insurance contract “is worded so that it can be given a definite or
certain legal meaning, [then] it is not ambiguous . . . .” Id. Any disagreement
about the meaning of the contract does not render it ambiguous; instead, the
contract must be “susceptible to two or more reasonable interpretations.” Id.
“[A] contract is ambiguous only when the application of pertinent rules of
interpretation to the face of the instrument leaves it genuinely uncertain
which one of two or more meanings is the proper meaning.” RSUI Indem. Co.
v. Lynd Co., 466 S.W.3d 113, 119 (Tex. 2015). Whether an insurance contract
is ambiguous is a question of law. Schaefer, 124 S.W.3d at 157. If we
determine a contract is ambiguous, we must adopt the interpretation
favoring the insured. RSUI Indem., 466 S.W.3d at 118.
The specific insuring agreement relevant to this dispute is Paragraph
A.1 of National Union’s policy, which covers “Employee Theft” and states:
We will pay for loss of or damage to “money”, “securities” and
“other property” resulting directly from “theft” committed by an
“employee”, whether identified or not, acting alone or in collusion
with other persons.
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For the purposes of this Insuring Agreement, “theft” shall also
include forgery.
The policy provides that words and phrases in quotation marks are defined
terms. In the definitions section of the policy, “theft” is defined as “the
unlawful taking of property to the deprivation of the Insured.” The last
sentence of the “Employee Theft” insuring agreement, which states that
“‘theft’ shall also include forgery,” forms the basis for the parties’
disagreement.
Tesoro claims the district court erred by requiring an “unlawful taking”
to create coverage under this insuring agreement. In Tesoro’s view, the
sentence addressing forgery creates coverage for losses from any employee
forgery, independent of any “unlawful taking.” Tesoro argues that the
language “shall also include” means the definition of “theft” is being
expanded to include “something new and different,” that is, forgery.
Quite differently, National Union argues that the “Employee Theft”
insuring agreement always requires a showing that theft, defined as an
“unlawful taking,” has occurred. The word “include” as used in the sentence
addressing forgery, National Union contends, simply means that a forgery
that is within the category of “theft” is also covered. It does not create
coverage for a forgery wholly distinct from “theft.”
National Union argues that the sentence was helpful in avoiding
confusion that could be created by two other policy provisions: the “Forgery or
Alteration” insuring agreement and an “Acts of Employees” coverage
exclusion. The “Forgery Or Alteration” insuring agreement covers limited
kinds of forgery involving commercial paper. A coverage exclusion in
Paragraph D.1.c removes coverage for any employee acts except those covered
under Paragraph A.1, i.e. “Employee Theft.” National Union claims that the
sentence addressing forgery ensures that employee thefts effectuated by
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forgery are covered under “Employee Theft.” National Union asserts that
without this sentence, confusion would exist about whether employee thefts
effectuated by forgery would be covered because the “Acts of Employees”
exclusion removes any employee forgeries from coverage under the “Forgery
Or Alteration” insuring agreement.
Both parties rely on Texas cases to interpret the language. One case
involved a policy covering death “while driving or riding in ‘a private
automobile of pleasure car design,’” which “includ[ed] station wagon[s] or
similar body types . . . .” Prudential Ins. Co. of Am. v. Lucas, 456 S.W.2d 429,
430 (Tex. Civ. App.—Austin 1970, writ ref’d n.r.e.). The court concluded that
a pickup truck was covered as a “private automobile of pleasure car design”
because “include” expanded coverage beyond just the listed examples. Id. at
432–33. Implicit in the court’s reasoning was that a pickup truck was still a
kind of “automobile.” 3 National Union argues that “include” in its policy
similarly did not expand coverage to forgeries that are wholly outside the
category of “theft.” The district court agreed, holding that the policy
unambiguously requires an “unlawful taking” for coverage under the
“Employee Theft” insuring agreement.
Tesoro finds support for its different view in a Texas case in which a
policy covered accidents “arising out of garage operations,” including
“Automobile Hazard 1.” Farmer Enters., Inc. v. Gulf States Ins. Co., 940
S.W.2d 103, 107 (Tex. App.—Dallas 1996, no pet.). The policy defined
“Automobile Hazard 1” to include an individual driving a company car with
the insured’s permission. Id. The Texas appellate court held that the garage
3 The policy’s definition of “private passenger automobile” was a “private automobile
of pleasure car design (including station wagon or similar body types) not in use for
commercial or occupational purposes . . . .” Lucas, 456 S.W.2d at 431. The court did not
expressly state that the pickup truck met this definition, but did consider whether the
pickup truck was functioning similarly to a station wagon or otherwise being used to carry
private passengers.
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operations policy could cover an individual driving a company car with the
insured’s permission, even though such activity was not within an ordinary
understanding of hazards arising from garage operations. Id. at 109–10.
Among the distinctions we see from our case is that “garage operations” was
an undefined term. It “includ[ed]” defined provisions, though, at least one of
which was arguably inconsistent with what would generally be understood as
operations involving a garage. See id. at 107. In our case, the “Employee
Theft” insuring agreement is the opposite. “Theft” is a defined term. The
disputed sentence – “‘theft’ shall also include forgery” – begins with a defined
term that is followed by an undefined term. The fact that “theft” was already
defined helps prevent the reference to forgery from expanding the definition.
Unlike in Farmer Enterprises, “theft” was not an empty vessel in which
meaning would be found largely in the additional terms. Instead, the
definition of “theft” gave meaning to the subsequent term.
Tesoro’s interpretation isolates the sentence addressing forgery from its
context. Context is key and can in part be provided by a document’s title.
RSUI Indem., 466 S.W.3d at 118, 121. This insuring agreement is titled
“Employee Theft.” “[C]ourts should construe contractual provisions in a
manner that is consistent with the labels the parties have given them.” Id. at
121. When an “Employee Theft” insuring agreement contains a sentence
explaining that “theft,” a defined term, shall also include forgery, that
sentence is making clear that a forgery that leads to “theft” is covered.
Tesoro cannot explain why any employee forgery, as opposed to fraud or other
forms of dishonesty, would be covered under this “Employee Theft” insuring
agreement.
National Union’s interpretation, namely, that forgery must be theft-
like, does not render the sentence addressing forgery meaningless. We have
already discussed one explanation for this sentence: a possible need for
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clarification that employee theft effectuated by forgery is covered under the
policy. There may be other compelling explanations. More fundamentally, a
sentence is not rendered meaningless because it is interpreted as illustrative.
See Lucas, 456 S.W.2d at 432 (finding “including” clause illustrative but not
treating it as superfluous). Furthermore, we agree with National Union that
Tesoro’s interpretation would nullify the “Acts of Employees” exclusion when
applied to the “Forgery Or Alteration” insuring agreement. We do not
consider it reasonable to read the policy as excluding all employee forgery
involving commercial paper from the “Forgery or Alteration” insuring
agreement, only then to include all kinds of employee forgery under the
“Employee Theft” insuring agreement.
Because Tesoro’s interpretation would ignore the express definition of
“theft” under the policy and apply the “Employee Theft” insuring agreement
to conduct that is not theft, we find such an interpretation unreasonable.
Instead, the policy is unambiguous. To trigger coverage under the policy,
Tesoro must show that an “unlawful taking” occurred. We turn now to
whether summary judgment was appropriate on that question.
II. “Unlawful Taking” Coverage
The district court held that National Union was entitled to summary
judgment because Tesoro could not create a genuine dispute of material fact
as to whether Leavell committed an “unlawful taking.” The parties took
differing positions on what “unlawful taking” meant under the policy. The
district court decided that an “unlawful taking” was “the act of seizing or
otherwise exercising control over an article such that possession or control of
the article is transferred without the owner’s authorization or consent.”
Applying this definition to Tesoro’s evidence, the district court found that
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Tesoro could not establish a genuine dispute of material fact as to whether
Leavell unlawfully took any of Tesoro’s property.
Before we address Tesoro’s arguments on appeal, we discuss how to
characterize the property that Tesoro claims it lost. Tesoro’s appellate brief
inconsistently describes its loss as its physical property, i.e. the fuel it sold, or
its extension of unsecured credit to Enmex when it sold the fuel. National
Union briefly responds to this inconsistency by noting that if the lost property
is the fuel, Tesoro suffered no real loss because in exchange for its fuel it
received what it bargained for, binding commitments from Enmex to pay for
that fuel. If the lost property is the extension of credit to Enmex, those
accounts receivable are not recoverable under the policy because such
accounts are “intangible property.” The district court, in a footnote,
acknowledged this issue and decided that the “loss” was the credit extended
to Enmex. Due to the nature of our resolution of this appeal, we do not need
to characterize Tesoro’s losses. For purposes of our analysis, we refer to the
loss as Tesoro’s sale of the fuel.
We now turn to the parties’ arguments about the meaning of “unlawful
taking.” Tesoro contends that any act qualifying as theft under Texas
criminal law is sufficient to create coverage, and Leavell committed theft by
deception here. The district court gave “unlawful taking” an ordinary
dictionary meaning, requiring some seizure or exercise of control over the
property. National Union accepts that definition.
We may affirm on any ground supported by the record, even if it was
not relied on by the district court. See United States ex rel. Cal’s A/C & Elec.
v. Famous Constr. Corp., 220 F.3d 326, 329 & n.11 (5th Cir. 2000). We
resolve this case by determining whether Tesoro has created a genuine
dispute of material fact that precludes summary judgment, assuming
arguendo that its definition of “unlawful taking” applies. Under Tesoro’s
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theory, an unlawful taking is any theft under Texas law, including theft by
deception as Tesoro urges occurred here. The Texas Penal Code defines theft
by deception in the following way. First, theft occurs when one “unlawfully
appropriates property with intent to deprive the owner of property.” TEX.
PENAL CODE ANN. § 31.03(a). Property is unlawfully appropriated when,
relevant here, “it is without the owner’s effective consent . . . .” Id. §
31.03(b)(1). “Consent is not effective if . . . induced by deception or
coercion . . . .” Id. § 31.01(3)(A).
Texas caselaw makes clear that theft by deception requires “that the
owner of the misappropriated property was induced to consent to its transfer
because of [the] deceptive act of the” wrongdoer. See, e.g., Fernandez v. State,
479 S.W.3d 835, 838 (Tex. Crim. App. 2016); Swope v. State, 723 S.W.2d 216,
223 (Tex. Ct. App.—Austin 1986), aff’d 805 S.W.2d 442 (Tex. Crim. App.
1991) (en banc); Demond v. State, 452 S.W.3d 435, 453 (Tex. Ct. App.—Austin
2014), pet. ref’d (Mar. 18, 2015). This requirement that the victim rely on the
deception comes from the statute’s definition of consent as not effective when
induced by deception. See Swope, 723 S.W.2d at 223. “The reliance need not
be the sole, or even controlling, reason why the victim decided to provide [his
consent], but it must be a substantial or material factor in the decision-
making process.” Demond, 452 S.W.3d at 453 (alteration in original).
We recognize that Texas criminal caselaw involves a different burden of
proof and standard of review than we have before us. Yet, we find a brief
review of some of this caselaw helpful in understanding what kind of acts
constitute theft by deception, which Tesoro urges Leavell committed.
In Fernandez, the Texas Court of Criminal Appeals found sufficient
evidence of inducement when the defendant, a justice of the peace, obtained a
travel voucher for personal use by failing to correct the impression he had
previously made to the county that the travel was for county business.
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Fernandez, 479 S.W.3d at 836, 839. The defendant originally directed his
chief deputy clerk to use his county-issued credit card to purchase a ticket for
a work conference. Id. The county auditor received documentation showing
the trip was for county business. Id. at 839. The ticket was ultimately
converted into a travel voucher because the defendant could not make the
trip. Id. When the defendant later used the travel voucher for private use,
he never corrected the initial impression he made to the chief deputy clerk or
county auditor. Id.
In another criminal case, Demond, an intermediate Texas appellate
court vacated a conviction for theft by deception because there was
insufficient evidence of inducement. 452 S.W.3d at 455–56. The case
involved a law firm partner and his client’s general manager who conspired
to have the law firm hire two individuals as outside consultants, one of whom
was the general manager’s brother. Id. at 441. The general manager would
funnel money to the two individuals by having the law firm bill the client for
their “services.” Id. The complex billing scheme kept the identities of the two
individuals hidden from the client. Id. at 441, 454.
The court explained that a showing of inducement required evidence
that had the client known these two individuals were receiving payments, it
would not have consented to the payments. Id. at 454. Testimony at trial
showed that potentially the situation could have been reported to the board of
directors. Id. at 455. Employee morale would have lowered because hiring
relatives was generally prohibited. Id. Three current and former directors
testified they would have wanted to know the payments were going to these
two individuals. Id. A former director testified he would have been angry if
he had known. Id. The court concluded this testimony was insufficient to
show “the board would have stepped in and blocked these payments” or
otherwise changed company policy to prevent the situation from recurring.
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Id. Instead, the main consequence of the deception was “frustration,” rather
than consent to payment. Id.
From these cases, we distill the following principles. In Fernandez, the
chief deputy clerk and the county auditor, who both were involved with
issuing the defendant the travel voucher, were under the erroneous
impression that it was for county business. 479 S.W.3d at 839. Accordingly,
and as a matter of common sense, those who consent to the transfer must be
aware of the deceptive representation in order to be induced by it. Similarly,
Demond instructs that inducement requires that the decision-makers would
have acted differently had they known the truth. 452 S.W.3d at 454–55. The
deception needs to be at least a “substantial or material factor in the
decision-making process.” Id. at 453.
We now consider whether Tesoro has offered evidence to create a
genuine dispute of material fact as to whether Leavell committed theft by
deception under Texas law. We assume for purposes of our analysis that
Leavell created the forged letters of credit and security agreement. 4
Tesoro claims Leavell’s “‘appropriation’ was to ‘exercise control’ over
Tesoro’s fuel through his influence as Director of Credit who produced forged
collateral and ‘brought about a transfer’ that was ‘unlawful’ because it was
‘induced by deception.’” Tesoro does not explain in its brief how, factually,
the forged letters of credit and security agreement induced Tesoro to continue
selling fuel to Enmex or what evidence supports this assertion. It certainly
does not identify any evidence that would support such inducement. Later in
its brief, Tesoro cites evidence to support a separate argument that Leavell
exercised control over the fuel under the district court’s definition of
4The parties do the same. The policy does not require the employee who committed
the unlawful taking to be identified for coverage to exist. Paragraph A.1 covers theft “by an
‘employee,’ whether identified or not . . . .”
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“unlawful taking,” rather than under its theft-by-deception theory. We
consider whether this evidence supports inducement under Tesoro’s theft-by-
deception theory as it is the only evidence Tesoro cites.
There is evidence that Leavell had authority to extend, deny, or adjust
credit for Enmex. Outside auditors reviewed the Enmex account and relied
on the forged documents in audit reports. In notes for a due diligence
meeting with the auditors and some of Tesoro management, Leavell
referenced the forged security documents. Leavell mentioned one of the
letters of credit in emails with a Tesoro consultant, who was inquiring about
the status of account receivables. Leavell falsely stated in two trade
receivable aging reports that the Enmex account was “partially secured.”
These reports were sent to the Tesoro treasurer, who oversaw the credit
department. Leavell mentioned a forged letter of credit to the Tesoro CFO in
an email about account receivables.
For the deception to have induced its consent, Tesoro has to show that
the forged security documents were a “substantial or material factor” in its
decision to continue selling Enmex fuel. We cannot ascertain how the
evidence Tesoro offers about what Leavell did would have affected its
decision-making process in selling fuel to Enmex because Tesoro has never
explained how that process works. There is no evidence about how sales of
fuel to customers are authorized or eventually cancelled, or who has the
ultimate decision-making power in authorizing sales of fuel. Tesoro’s
evidence at best shows Leavell mentioned the forged security documents to
outside auditors, a Tesoro consultant, a CFO, and the treasurer. Tesoro
failed to offer any evidence of how these communications affected its decision
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to continue selling fuel to Enmex. 5 No one testified, for example, that absent
the forged documents the sales would not have occurred.
Among the problems with this evidentiary deficit is that what is in
evidence creates doubt that the forgeries necessarily mattered to Tesoro’s
decision to sell fuel to Enmex. The record shows that, for whatever reason,
Enmex was a sufficiently valued customer that at times in which Tesoro
certainly should have known of its security shortfalls with the company, sales
occurred anyway. Tesoro’s corporate representative stated in his deposition
that Tesoro officers had already authorized Enmex to run up a balance that
was at least $15 million over its unsecured credit limit of $25 million, before
any of these forged security documents were created. Additionally, the
corporate representative said that in September 2008, the two initial forged
letters of credit expired and at that point became valueless. For a month
after that, before Leavell forged a new letter of credit, Tesoro continued to
sell fuel to Enmex. The expired letters of credit were available for any Tesoro
officer to review, but none ever looked at them. Accordingly, during the
month when the account appeared unsecured, as it was in reality, Tesoro
continued to sell fuel to Enmex. This evidence contradicts any assertion by
Tesoro that it would have acted differently had it known the letters of credit
were forged and valueless because when the forged letters of credit expired
and were valueless on their face, Tesoro did not act any differently.
In sum, Tesoro failed to offer any evidence that it would have acted
differently had it known the Enmex account was actually not secured. Tesoro
discusses no company policy or statement from a decision-maker that Tesoro
5 It seems possible, and even likely, that as a general matter security documents
play a part in a business’s decision to sell to customers on credit. The problem is that
Tesoro failed to meet its evidentiary burden to offer some evidence that the forged security
documents were a “substantial and material” factor in its decision in this particular case.
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would not have continued to sell fuel to Enmex on an unsecured basis on
these facts. In fact, the evidence indicates otherwise.
The Texas caselaw addressing theft by deception makes clear that the
decision-maker must be aware of the false statement and induced by it.
Tesoro has failed to connect any of the evidence of Leavell mentioning these
forged security documents to Tesoro’s decision-making process in selling fuel
to Enmex, let alone show that the forged documents induced the sale.
Accordingly, even if we were to accept Tesoro’s meaning of “unlawful taking,”
Tesoro cannot survive summary judgment because it has failed to show a
genuine dispute of material fact as to whether a theft by deception occurred.
AFFIRMED.
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