Bethlyn Krakauer, Andrew B. Baron, David C. Barski, David K. Bennett, Mark A. Brown, Walter Burgess, Leigh A. Chura, William L. Fortune, III, American Direct Merchant Systems, Inc., Gary and Jane Holcombe v. Wells Fargo Bank, N.A., Wells Fargo Bank South Central, N.A., Wells Fargo Financial Bank, and Wells Fargo Financial Texas, Inc.
COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-14-00273-CV
BETHLYN KRAKAUER, ANDREW APPELLANTS
B. BARON, DAVID C. BARSKI,
DAVID K. BENNETT, MARK A.
BROWN, WALTER BURGESS,
LEIGH A. CHURA, WILLIAM L.
FORTUNE, III, AMERICAN DIRECT
MERCHANT SYSTEMS, INC.,
GARY AND JANE HOLCOMBE,
INDIVIDUALLY AND AS TRUSTEES
OF BROADHURST TRUST AND
GERALD AND GRACE GORDON
TRUST, PATHWAY BUILDERS,
L.P., BROADHURST TRUST,
GERALD AND GRACE GORDON
TRUST, ROGER MOURLAM, MARK
NAUGLE, MANOHAR K. SARAF,
KAMLESH SISODIYA, OM-SHUBH-
LABH, F.L.P., GLENN SKEHAN,
KENNETH J. STRASSER, KEITH L.
STRASSER, JERRY D.
WAKEFIELD, MYLES WALSH,
DIANE WALSH, DR. DAVID ZEHR,
TRENDA BETH BROWN, AND
MDW CAPITAL INVESTMENTS,
LLC
V.
WELLS FARGO BANK, N.A., APPELLEES
WELLS FARGO BANK SOUTH
CENTRAL, N.A., WELLS FARGO
FINANCIAL BANK, AND WELLS
FARGO FINANCIAL TEXAS, INC.
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FROM THE 153RD DISTRICT COURT OF TARRANT COUNTY
TRIAL COURT NO. 153-272645-14
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MEMORANDUM OPINION1
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In five issues, Appellants (the Investors) appeal from the trial court’s
summary judgment in favor of Appellee Wells Fargo Bank, N.A. (the Bank) on all
of the Investors’ claims.2 We affirm.
Procedural Background
The Investors sued the Bank and Teisha D. Boles—the vice president, as
well as a manager and member—of Metro Buys Homes, LLC and the wife of
David C. Boles, Metro’s president. The Investors alleged that Metro, David, and
Teisha conspired to fraudulently induce them to invest money in Metro, promising
quick, high returns on their investments. The investments were secured by
“allegedly valid” deeds of trust and first mortgage liens on properties. The
Investors alleged that “[t]he entire operation was a fraud and a sham” because
1
See Tex. R. App. P. 47.4.
2
The Investors also sued Appellees Wells Fargo Financial Bank South
Central, N.A., Wells Fargo Financial Bank, and Wells Fargo Financial Texas,
Inc., and the trial court also granted summary judgment in favor of these banking
entities on all of the Investors’ claims. On appeal, the Investors do not challenge
the summary judgment on their claims against these three Appellees.
2
on many occasions, Metro did not own the properties securing the investments
and because David would, from time to time, issue checks to the Investors
representing that the checks were for returns on the investments when they were
really a return of the Investors’ initial principal investment or money received from
other investors.
The Investors alleged that their investment funds were fiduciary funds and
that those funds were deposited primarily into one of Metro’s four accounts at the
Bank. The Investors claimed that their investment funds were funneled through
accounts at the Bank and were used for David’s and Teisha’s personal use.
According to the Investors, the Bank had a business relationship with Metro and
David that spanned a number of years. The Investors claimed that the Bank had
knowledge of Metro’s business, knew that the Investors were investing money in
Metro through wire transfers and checks, and knew that the funds from the
Investors were fiduciary in nature.
The Investors further claimed that many of the checks Metro issued to
them as purported returns or earnings on their investments were denied due to
insufficient funds when the Investors tried to deposit or cash them. The Investors
contended that the Bank knew about Metro’s Ponzi scheme and profited from it
by collecting overdraft fees, loan payments, and “bank originated debits” out of
the same account into which Metro was depositing the Investors’ funds.
The Investors asserted claims against the Bank for negligence, conspiracy
to commit fraud, common law and statutory fraud, breach of contract, breach of
3
fiduciary duty, knowing participation in breach of fiduciary duty, and violations of
the Texas Securities Act. In addition to actual and exemplary damages, the
Investors prayed for attorney’s fees and disgorgement. The Bank moved for
traditional and no-evidence summary judgment on all of the Investors’ claims.
The Investors timely filed a summary judgment response and timely amended
their pleadings to add causes of action for wrongful offset, unjust enrichment,
money had and received, aiding and abetting common law fraud, and aiding and
abetting negligence. The Investors also added a request for an accounting.
In their summary judgment response, the Investors argued, among other
things, that the Bank’s summary judgment motion did not address their newly-
pled claims for wrongful offset, unjust enrichment, and money had and received
nor did it address their request for an accounting. The day before the summary
judgment hearing, the Bank filed a reply brief arguing, among other things, that
the Investors’ relationship with David and Metro was not a fiduciary relationship
because the investments were in the form of secured loans and that, therefore,
the relationship between the Investors and David and Metro was a debtor-
creditor relationship and the funds were not “trust funds” or “fiduciary funds.”
The trial court granted the Bank’s summary judgment motion without
specifying the grounds upon which it relied and severed the Investors’ claims
against Teisha. The Investors filed a motion for new trial, again complaining that
the Bank had not sought summary judgment on the Investors’ claims for wrongful
offset, unjust enrichment, and money had and received and the Investors’
4
request for an accounting. The Investors also complained that the Bank’s
argument in its summary judgment reply—that David and Metro did not owe a
fiduciary duty to the Investors—was a new summary judgment ground and asked
the trial court to strike that portion of the Bank’s reply. The trial court denied the
Investors’ motion for new trial and denied the Investors’ motion to strike.
The Investors have appealed. They challenge the summary judgment
against them only on their claims for wrongful offset, unjust enrichment, money
had and received, an accounting, knowing participation in breach of fiduciary
duty, and statutory real estate fraud. They argue on appeal that the trial court
erred by granting summary judgment in favor of the Bank because (1) the Bank
knew or should have known that the funds in David’s and Metro’s accounts at the
Bank belonged to the Investors, (2) the Bank did not address the Investors’
newly-pled claims, (3) the Bank asserted a new ground in its summary judgment
reply, (4) there was evidence that the Bank knowingly participated in David’s
breach of fiduciary duty, and (5) there was evidence of statutory real estate fraud.
Standards of Review
After an adequate time for discovery, the party without the burden of proof
may, without presenting evidence, move for summary judgment on the ground
that there is no evidence to support an essential element of the nonmovant’s
claim or defense. Tex. R. Civ. P. 166a(i). The motion must specifically state the
elements for which there is no evidence. Id.; Timpte Indus., Inc. v. Gish,
286 S.W.3d 306, 310 (Tex. 2009). The trial court must grant the motion unless
5
the nonmovant produces summary judgment evidence that raises a genuine
issue of material fact. See Tex. R. Civ. P. 166a(i) & cmt.; Hamilton v. Wilson,
249 S.W.3d 425, 426 (Tex. 2008).
When reviewing a no-evidence summary judgment, we examine the entire
record in the light most favorable to the nonmovant, indulging every reasonable
inference and resolving any doubts against the motion. Sudan v. Sudan,
199 S.W.3d 291, 292 (Tex. 2006). We review a no-evidence summary judgment
for evidence that would enable reasonable and fair-minded jurors to differ in their
conclusions. Hamilton, 249 S.W.3d at 426 (citing City of Keller v. Wilson, 168
S.W.3d 802, 822 (Tex. 2005)). We credit evidence favorable to the nonmovant if
reasonable jurors could, and we disregard evidence contrary to the nonmovant
unless reasonable jurors could not. Timpte Indus., 286 S.W.3d at 310 (quoting
Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006)). If the
nonmovant brings forward more than a scintilla of probative evidence that raises
a genuine issue of material fact, then a no-evidence summary judgment is not
proper. Smith v. O’Donnell, 288 S.W.3d 417, 424 (Tex. 2009); King Ranch, Inc.
v. Chapman, 118 S.W.3d 742, 751 (Tex. 2003), cert. denied, 541 U.S. 1030
(2004).
We review a summary judgment de novo. Travelers Ins. Co. v. Joachim,
315 S.W.3d 860, 862 (Tex. 2010). We consider the evidence presented in the
light most favorable to the nonmovant, crediting evidence favorable to the
nonmovant if reasonable jurors could, and disregarding evidence contrary to the
6
nonmovant unless reasonable jurors could not. Mann Frankfort Stein & Lipp
Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We indulge every
reasonable inference and resolve any doubts in the nonmovant’s favor. 20801,
Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008). A defendant who conclusively
negates at least one essential element of a cause of action is entitled to
summary judgment on that claim. Frost Nat’l Bank v. Fernandez, 315 S.W.3d
494, 508 (Tex. 2010), cert. denied, 562 U.S. 1180 (2011); see Tex. R. Civ. P.
166a(b), (c).
When, as here, a trial court’s order granting summary judgment does not
specify the ground or grounds relied on for its ruling, summary judgment will be
affirmed on appeal if any of the theories presented to the trial court and
preserved for appellate review are meritorious. Provident Life & Accident Ins.
Co. v. Knott, 128 S.W.3d 211, 216 (Tex. 2003); Star-Telegram, Inc. v. Doe, 915
S.W.2d 471, 473 (Tex. 1995). When the trial court’s judgment rests upon more
than one independent ground or defense, the aggrieved party must assign error
to each ground, or the judgment will be affirmed on the ground to which no
complaint is made. Scott v. Galusha, 890 S.W.2d 945, 948 (Tex. App.—Fort
Worth 1994, writ denied).
The “Trust Fund Doctrine” Claims
Because the Investors’ first three issues hinge on the application of what
they call the “trust fund doctrine,” we review them together.
7
Generally, when a depositor deposits funds into a bank account, the funds
are unrestricted. Mauriceville Nat’l Bank v. Zernial, 892 S.W.2d 858, 860 (Tex.
1995). The bank is obligated to pay those funds back pursuant to the depositor’s
instruction, but the funds are subject to the bank’s common law right of setoff. Id.
However, a bank with knowledge of the trust character of money deposited into
an account cannot use the trust fund to offset a depositor’s debt. See, e.g.,
S. Cent. Livestock Dealers, Inc. v. Sec. State Bank of Hedley, Tex., 551 F.2d
1346, 1349 (5th Cir. 1977) (“Texas has long held that if a bank knows that
deposits by a debtor in his own name are in fact held by him in a fiduciary
capacity, then the bank may not apply such funds to the individual indebtedness
of the debtor.”); Steere v. Stockyards Nat’l Bank, 256 S.W. 586, 588 (Tex. 1923)
(holding that where bank knew that deposited funds belonged not to the
depositor but to the depositor’s customers, bank committed conversion by using
those proceeds to pay depositor’s overdraft); Cont’l Nat’l Bank v. Great Am.
Mgmt. & Inv., Inc., 606 S.W.2d 346, 347 (Tex. Civ. App.—Fort Worth 1980, writ
ref’d n.r.e.) (concluding that bank committed conversion when it had pre-deposit
knowledge that all funds deposited were advanced for a particular purpose); see
also Mauriceville Nat’l Bank, 892 S.W.2d at 859–60 (collecting additional cases).
The Investors refer to this legal principle as the trust fund doctrine,3 and they
3
The “trust fund doctrine” also refers to “a method through which creditors
are able to reach the assets of a dissolved corporation in order to pay corporate
debts.” Christian Otteson, Current Application of the Trust Fund Doctrine in
Texas, 55 Baylor L. Rev. 313, 313 (2003).
8
base their claims for wrongful offset, unjust enrichment, and money had and
received and their request for an accounting on it. Because they refer to the
claims based on this principle as their trust fund doctrine claims, we will do the
same.
In their first two issues, the Investors argue that the trial court erred in
granting the Bank summary judgment on their trust fund doctrine claims because
the funds in Metro’s and David’s accounts belonged to the Investors. Metro’s
and David’s accounts were regular deposit accounts, and the Investors conceded
in their summary judgment response that the accounts were not designated as
trust, fiduciary, or any other type of special accounts. Nevertheless, they argue
that because the bank knew or should have known that funds deposited into
David’s and Metro’s accounts belonged to the Investors, the Bank wrongfully
took funds from those accounts to pay David’s lines of credit and personal loans,
overdraft fees, and “bank originated debits.”
As pointed out by the supreme court in Mauriceville National Bank v.
Zernial, the line of cases relied upon by the Investors is “inapposite” because “[i]n
those cases, the banks had a pre-deposit arrangement with the depositor,
creating a trust or allowing the deposit of a third-party’s funds.” 892 S.W.2d at
860. Here, there is no evidence of a pre-deposit arrangement between Metro
and the Bank or David and the Bank that the funds would be held in trust for a
third-party. See id. at 860. The Investors point to extensive deposition testimony
from Bank employees who stated that they knew that the funds deposited into
9
the accounts came from investors, but this is no evidence that the Bank knew
prior to the deposit that the funds would be held in trust for a third party. Simply
knowing that David and Metro were depositing money from investors is not
enough to raise a fact issue as to whether the Bank knew that the funds were to
be held “in trust.” See Mary E. Bivins Found. v. Highland Capital Mgmt.,
451 S.W.3d 104, 114 (Tex. App.—Dallas 2014, no pet.) (holding that hedge fund
investment manager, manager’s president, and manager’s chief investment
officer did not owe fiduciary duty to hedge fund investor). Accordingly, we
conclude that the trust fund doctrine (as that phrase has been used by the
Investors in this case) does not apply to the facts of this case.
As part of their first and second issues, the Investors also argue that the
trial court erred by granting summary judgment for the Bank on their trust fund
claims because the Bank did not seek summary judgment on them. A trial court
cannot grant summary judgment on grounds not presented in the motion. See
Tex. R. Civ. P. 166a(c); G & H Towing Co. v. Magee, 347 S.W.3d 293, 297 (Tex.
2011) (“Granting a summary judgment on a claim not addressed in the summary
judgment motion therefore is, as a general rule, reversible error.”). However,
“[a]lthough a trial court errs in granting a summary judgment on a cause of action
not expressly presented by written motion . . . the error is harmless when the
omitted cause of action is precluded as a matter of law by other grounds raised in
the case.” G & H Towing, 347 S.W.3d at 297–98.
10
The Investors amended their petition to add their trust fund doctrine claims
after the Bank filed its summary judgment motion. Broadly read, the Bank’s reply
does not fairly address the newly-pled claims, and the Bank disavowed raising
anything new in the reply at the summary judgment hearing. Thus, the Bank did
not move for summary judgment on the trust fund doctrine claims. However, the
Bank moved for traditional summary judgment on the Investors’ breach of
fiduciary duty claim on the ground that the funds were held in ordinary deposit
accounts at the Bank, thereby challenging the nature of the funds on deposit.
Thus, even though the trial court granted summary judgment on the trust fund
doctrine claims—which were not specifically addressed in the Bank’s summary
judgment motion—the error was harmless because the Bank moved for summary
judgment on an element common to these claims—the nature of the funds on
deposit—on which the trial court found in favor of the Bank. We therefore
overrule the Investors’ first and second issues.
And because we have determined that the trial court could have granted
summary judgment for the Bank on the grounds that the funds were held in
ordinary deposit accounts and that the trust fund doctrine does not apply, we
need not address the Investors’ third issue complaining that the Bank’s reply brief
addressed a different issue than the trust fund doctrine issue and thereby raised
11
a new summary judgment ground.4 See Knott, 128 S.W.3d at 216; Star-
Telegram, Inc., 915 S.W.2d at 473; see also Tex. R. App. P. 47.1.
Knowing Participation in Breach of Fiduciary Duty
In their fourth issue, the Investors assert the trial court erred by granting
summary judgment on their claim against the Bank for knowing participation in
breach of fiduciary duty. The Investors alleged that David owed them a fiduciary
duty and that the Bank, knowing that the funds on deposit were fiduciary funds
and funds held in trust for their benefit by Metro and David, assisted in David’s
misappropriation of funds and knowingly participated by misappropriating the
Investors’ investments.
The Bank moved for summary judgment on this claim on both traditional
and no-evidence grounds. On appeal, the Investors argue that the Bank failed to
conclusively establish that it did not “knowingly participate” in David’s breach of
fiduciary duty, and they do not challenge the granting of summary judgment on
no-evidence grounds. Because the Investors have failed to raise a challenge to
the granting of the summary judgment on no-evidence grounds, we must affirm
the summary judgment against the Investors on their claim for knowing
4
Specifically, the Investors argue that in addressing their trust fund doctrine
claims in its reply, the Bank asserted a new summary judgment ground—the
funds David and Metro deposited at Wells Fargo were not “trust funds” or
“fiduciary funds”; in other words, the funds in the account did not belong to the
Investors.
12
participation in breach of fiduciary duty on those grounds. See Scott,
890 S.W.2d at 948. We therefore overrule the Investors’ fourth issue.
Statutory Fraud
In their fifth issue, the Investors argue that the trial court erred by granting
summary judgment on their claim for statutory real estate fraud under section
27.01(d) of the business and commerce code.5 Tex. Bus. & Com. Code Ann.
§ 27.01(d) (West 2015). The investors alleged that the Bank had actual
awareness of the falsity of Metro’s and David’s representations or promises,
failed to disclose the falsity of the representations or promises made to the
Investors, and benefited from the false representations to the Investors’
detriment. The Bank moved for summary judgment on both traditional and no-
evidence grounds, alleging that it was not involved in any real estate transaction
related to the lawsuit.
A claim for statutory fraud under section 27.01(d) requires:
[a] person who (1) has actual awareness of the falsity of a
representation or promise made by another person and (2) fails to
disclose the falsity of the representation or promise to the person
defrauded, and (3) benefits from the false representation or promise
commits the fraud described in Subsection (a) of this section and is
liable to the person defrauded for exemplary damages. Actual
awareness may be inferred where objective manifestations indicate
that a person acted with actual awareness.
5
The Investors do not challenge the summary judgment against them on
their statutory fraud claims under business and commerce code section
27.01(a)(1) or (a)(2). Tex. Bus. & Com. Code Ann. § 27.01(a)(1), (2) (West
2015).
13
Id. The Investors also sued the Bank for common law fraud, aiding and abetting
the commission of common law fraud, and conspiracy to commit fraud. In
support of each of these claims, the Investors alleged that the Bank failed to
disclose the falsity of Metro’s and David’s representations. On appeal, the
Investors do not challenge the summary judgment against them on these claims.
Even though the Bank did not expressly move for summary judgment on the
Investors’ claim for statutory real estate fraud under section 27.01(d), any error
was harmless because of the trial court’s unchallenged ruling that there was no
fraud by nondisclosure committed by the Bank. See G & H Towing, 347 S.W.3d
at 297–98. Accordingly, we overrule the Investors’ fifth issue.
Conclusion
Having overruled each of the Investors’ five issues, we affirm the trial
court’s judgment.
/s/ Anne Gardner
ANNE GARDNER
JUSTICE
PANEL: GARDNER, MEIER, and SUDDERTH, JJ.
DELIVERED: October 6, 2016
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