Gerald Terry v. SunTrust Banks, Incorporated

UNPUBLISHED

UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 11-1704

GERALD R. TERRY; ANN T. ROBBINS; JANE T. EVANS, on their own
behalf and on behalf of a class of others similarly
situated,

Plaintiffs – Appellants,

v.

SUNTRUST BANKS, INC.,

Defendant – Appellee,

and

THEODORE L. CHANDLER, JR.; CHRISTINE R. VLAHCEVIC; G.
WILLIAM EVANS; RONALD B. RAMOS; DEVON M. JONES; STEPHEN
CONNER,

Defendants.

No. 11-1707

ANGELA M. ARTHUR, as Trustee of the Arthur Declaration of
Trust, dated December 29, 1988, and all similarly situated;
VIVIAN R. HAYS, an individual, and all others similarly
situated; LEAPIN EAGLE LLC, a limited liability company, and
all others similarly situated; DENISE J. WILSON, an
individual, and all others similarly situated,

Plaintiffs – Appellants,

v.
SUNTRUST BANKS, INC., a Georgia corporation,

Defendant – Appellee,

and

G. WILLIAM EVANS, an individual; STEPHEN CONNOR, an
individual,

Defendants.

Appeals from the United States District Court for the District
of South Carolina, at Anderson. Joseph F. Anderson, Jr.,
District Judge. (8:09-cv-00415-JFA; 8:09-cv-01739-JFA)

Argued: May 17, 2012 Decided: July 2, 2012

Before AGEE, DAVIS, and WYNN, Circuit Judges.

Affirmed by unpublished opinion. Judge Davis wrote the opinion,
in which Judge Agee and Judge Wynn joined.

ARGUED: Thomas G. Foley, Jr., FOLEY BEZEK BEHLE & CURTIS, LLP,
Santa Barbara, California, for Appellants. Cory Hohnbaum, KING
& SPALDING, LLP, Charlotte, North Carolina, for Appellees. ON
BRIEF: Cheryl F. Perkins, WHETSTONE MYERS PERKINS & FULDA, LLC,
Columbia, South Carolina, James R. Gilreath, GILREATH LAW FIRM,
Greenville, South Carolina, for Appellants Gerald R. Terry, Ann
T. Robbins, Jane Evans; Robert L. Brace, HOLLISTER AND BRACE,
Santa Barbara, California, for Appellants Angela M. Arthur,
Vivian R. Hays, Leapin Eagle LLC, Denise J. Wilson.

Unpublished opinions are not binding precedent in this circuit.

2
DAVIS, Circuit Judge:

In these diversity actions, consolidated for pre-trial

proceedings in the District of South Carolina by the Judicial

Panel on Multi-District Litigation (“JPML”), the district court

dismissed with prejudice pursuant to Federal Rule of Civil

Procedure 12(b)(6) all claims against Appellee SunTrust Banks,

Inc. (“SunTrust”). 1 The principal question presented is whether

LandAmerica 1031 Exchange Services, Inc. (“LES”), which (before

it filed a petition in bankruptcy) acted as a “qualified

intermediary” (“QI”) in the exchange of investment properties

pursuant to 26 U.S.C. § 1031(a)(1), assumed fiduciary duties

with respect to the proceeds of the sale of the relinquished

properties. Appellants (“the Exchangers”) are the named

representatives of putative classes consisting of approximately

400 members that engaged LES as a QI between February and

1
The Exchangers brought other claims that are not at issue
in this appeal, including claims against several individual
officers and directors of LES and its corporate parent,
LandAmerica Financial Group, Inc. (“LFG”). The individual
defendants, the claims against whom have been and remain stayed,
are Theodore L. Chandler, Jr. (Chairman and Chief Executive
Officer of LFG), Stephen Conner (Senior Vice President of LES
and LFG), G. William Evans (Executive Vice President and Chief
Financial Officer of LFG, director and officer of LES), Ronald
B. Ramos (Vice President and Treasurer of LES and Senior Vice
President and Treasurer of LFG), and Devon M. Jones (Vice
President and Assistant Treasurer of LES and LFG). Among the
claims against the individual defendants are allegations of
fraud, discussed infra at 27-38.

3
November 2008. The district court ruled LES did not assume

fiduciary duties; thus SunTrust -– which had held LES’s general

operating account, sold LES certain securities, and extended LES

a line of credit –- could not be liable for aiding and abetting

the breach of a fiduciary duty by LES. The district court also

dismissed the Exchangers’ claim of civil conspiracy. We affirm.

I.

First, we address the claim of aiding and abetting breach

of fiduciary duties. We review a district court’s dismissal

pursuant to Rule 12(b)(6) de novo. Nemet Chevrolet, Ltd. v.

Consumeraffairs.com, Inc., 591 F.3d 250, 253 (4th Cir. 2009). We

assume all well-pled facts are true, and draw all reasonable

inferences in favor of the plaintiff. Id. The “complaint must

contain sufficient factual matter, accepted as true, to ‘state a

claim to relief that is plausible on its face.’” Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 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.” Id.

We begin with an explanation of the statutory and

regulatory framework out of which this dispute arose. We then

4
summarize the district court’s rulings. Finally, we explain why

we discern no error by the district court.

A.

Ordinarily, if a person owns real property for business or

investment purposes that has risen in value over time (i.e., has

a low adjusted basis and a high fair market value), the property

owner incurs capital gains taxes upon selling the property. In

some circumstances, however, a property owner may defer the

recognition of capital gains if the property is “held for

productive use in a trade or business or for investment” and if

the owner “exchange[s]” the property (known as “relinquished

property”) for another property “of like kind” (known as

“replacement property”). 26 U.S.C. § 1031(a)(1). The property

owner must identify replacement property “of like kind” within

45 days of the sale of the original property, and must close on

the new property within 180 days of the original sale. Moreover,

the property owner must not actually or constructively receive

the proceeds of the sale of the first property. 26 C.F.R. §

1.1031(k)–1(f)(2). The Internal Revenue Service has defined four

“safe harbors” available to ensure a determination of non-

receipt: a “qualified escrow account,” a “qualified trust,” a

“qualified intermediary,” or certain security or guarantee

arrangements. See id. § 1.1031(k)–1(g).

5
 B.

The Exchangers chose the qualified intermediary option, and

engaged LES as a QI between February and November 2008. As IRS

regulations require, LES’s role was to “acquire[] the

relinquished property from the taxpayer, transfer[] the

relinquished property, acquire[] the replacement property, and

transfer[] the replacement property to the taxpayer.” Id. §

1.1031(k)–1(g)(4)(iii)(B). The Exchangers all executed the same

Exchange Agreement, which, among other things, enumerated the

parties’ rights with respect to the “Exchange Funds” -- the

proceeds LES would receive upon selling the relinquished

property, decreased by remaining debts on the property, real

estate commissions, closing costs, and other expenses. 2

As for the Exchange Funds, LES agreed in § 2(a) of the

Agreement to “hold” them and “apply” them toward the purchase of

replacement properties. LES also agreed in § 3(a) to “deposit”

the funds in an account at SunTrust and to “unconditionally

guarantee the return and availability of the Exchange Funds” as

well as certain rates of “guaranteed interest.” The Exchangers,

for their part, agreed in § 2(c) that LES would have “sole and

exclusive possession, dominion, control and use of all Exchange

2
A sample Exchange Agreement is at J.A. 822-32. All
citations to sections of the agreement are to that sample
agreement.

6
Funds” during the course of the exchange, and that the

Exchangers would have “no right, title, or interest in or to the

Exchange Funds or any earnings thereon,” as well as “no right,

power, or option to demand, call for, receive, pledge, borrow or

otherwise obtain the benefits of any of [the] Exchange Funds,”

other than the right to receive any remaining balance of the

Exchange Funds after LES purchased replacement property. The

Exchangers also acknowledged that LES would “invest[]” the

Exchange Funds, and that “the amount of the Exchange Funds may

be in excess of the maximum amount of deposit insurance carried

by [SunTrust].” As compensation for LES’s services, the

Exchangers agreed to pay fees of approximately $750 to $1,000

per exchange.

The Agreement also provided the following:

• Section 6(b) recites that LES was “entering into this

Exchange Agreement solely for the purpose of facilitating

taxpayers’ exchange” (emphasis and capitalization omitted);

• Section 6(c) limits LES’s duties to those “expressly set

forth herein,” and provides that “no additional duties or

obligations shall be implied hereunder or by operation of

law or otherwise”;

• Section 11, an integration clause, provides: “This Exchange

Agreement contains the entire understanding between and

among the parties hereto.”

7
LES abided by its contractual obligation to sell the Exchangers’

relinquished property, and received the net proceeds. LES

deposited the Exchange Funds in its general operating account, a

money market account at a SunTrust bank in Virginia (the “3318

account”). LES failed, however, to complete the exchanges.

Prior to agreeing to serve as the Exchangers’ QI, LES had

used other property owners’ exchange funds in part to buy

hundreds of millions of dollars of auction rate securities

(“ARS”). ARS are long-term variable-rate debt securities with

interest rates or dividends that are reset at frequent

intervals. Most of the ARS held by LES had been sold to LES by

SunTrust Robinson Humphrey, Inc. (“STRH”), a SunTrust-related

entity. In February 2008, the auctions through which ARS

interest rates were set began to fail, and the ARS market froze.

LES held ARS with a par value of $290.5 million, but the frozen

market left those securities with a liquidation value of only a

small percentage of par. With those assets frozen, LES’s liquid

assets were insufficient to acquire replacement properties for

the property owners under existing exchange agreements. While

LES eventually declared bankruptcy, it did not do so

immediately. Rather, apparently hoping the ARS market would

normalize, LES continued to enter into new exchange agreements,

including those with the Exchangers, allegedly using new

8
exchange funds to cover old exchanges as they came due -- an

arrangement the Exchangers call a Ponzi scheme.

C.

LES filed for Chapter 11 bankruptcy on November 26, 2008.

One of the issues before the bankruptcy court was whether the

Exchange Funds (a) became the property of LES when they were

received in the SunTrust account, in which case the Exchangers

would be limited to a pro rata share of the assets in LES’s

bankruptcy estate, or (b) remained the property of the

Exchangers, in which case the Exchangers would be entitled to

preferential recovery of those funds. As explained in detail

below, the Bankruptcy Court concluded the Exchange Funds became

LES’s property, and therefore were subject to pro rata

distribution in bankruptcy. Frontier Pepper’s Ferry, LLC v.

LandAmerica 1031 Exch. Serv. (In re LandAmerica Fin. Group

Inc.), No. 08-35994, 2009 WL 1269578 (Bankr. E.D. Va. May 7,

2009); see also Millard Refrigerated Servs., Inc. v. Landamerica

1031 Exhange Servs. (In re LandAmerica Financial Group, Inc.),

412 B.R. 800, 815 (Bankr. E.D. Va. 2009) (reaching the same

conclusion with respect to a minority of the property owners

whose funds were held in segregated rather than commingled

accounts at SunTrust).

After that issue was resolved in favor of LES’s trustee,

the trustee ratably distributed LES’s remaining assets among

9
LES’s creditors, including the Exchangers. The Exchangers

recovered only a portion of the Exchange Funds from LES in that

process. They then turned their attention to SunTrust (among

others, see supra n.1), for the role it allegedly played in the

loss of the Exchange Funds.

The Arthur plaintiffs filed suit in the Southern District

of California and the Terry plaintiffs filed suit in South

Carolina state court. The Terry action was removed to federal

court and the JPML consolidated the cases in the District of

South Carolina for pretrial proceedings and discovery. After the

district court dismissed certain claims against SunTrust in a

consolidated amended complaint, for failure to plausibly allege

that SunTrust knew about “LES’s [a]ctivities,” In re § 1031

Exchange Litigation, 716 F. Supp. 2d 415, 428 (D.S.C. 2010)

(“Terry I”), the plaintiffs filed a second amended complaint

(“SAC”) on October 6, 2010.

In the SAC, the Exchangers asserted three claims against

SunTrust, two of which are at issue on appeal: aiding and

abetting LES’s breach of fiduciary duty, and civil conspiracy. 3

In their aiding-and-abetting claim against SunTrust, the

Exchangers allege that LES owed fiduciary duties to the

3
We address the conspiracy claim infra at 27-38. The SAC
also alleged conversion and aiding and abetting conversion; the
Exchangers have not appealed the dismissal of those claims.

10
Exchangers and that SunTrust knowingly “assisted LES in

breaching its fiduciary duties to Exchangers.” (SAC ¶5.) 4 They

allege that SunTrust not only knew that LES’s assets were tied

up in the frozen ARS market, but also that “neither [LES’s

parent] LFG nor LES had a rolling source of liquid assets to

fund exchanges other than the daily influx of new Exchange

Funds.” (SAC ¶12.) SunTrust and LES, they allege, “plan[ned] . .

. to conceal the scheme from new Exchangers” until LES somehow

came up with money to plug the gap in its balance sheet. (SAC

¶18.) The plaintiffs further allege SunTrust aided and abetted

LES’s actions because it had a financial incentive to do so: Not

only did SunTrust hold LES’s operating account; it also had sold

ARS to LES through STRH and had extended LES a $200 million

revolving line of credit. SunTrust, they allege, hoped that by

helping LES operate its alleged Ponzi scheme, LES would be more

likely able to repay a portion of the $100 million outstanding

on the line of credit.

The Exchangers also allege that SunTrust committed common

law civil conspiracy. They allege that certain agents or

representatives of SunTrust, including its Deputy General

4
The SAC and attached exhibits appear at pages 743-1160 in
the Joint Appendix, and at ECF No. 130 on the district court’s
docket. We will refer to the Exchangers’ allegations by the
numbered paragraphs in the SAC where they appear.

11
Counsel and Senior Vice President Brian Edwards, and

representatives Samuel Ballesteros, Kris Anderson, Bill

Mayfield, Linda Burras and Sheridan Reese, “engaged in concerted

action” with the individual defendants (Allen, Ramos, Conner,

Jones and Chandler) “for the united purpose” of (1) breaching

LES’s fiduciary duties to the Exchangers, and (2) “defrauding

the Exchangers out of their Exchange Funds.” (SAC ¶209.)

The district court dismissed the aiding-and-abetting claim

primarily because it concluded LES did not owe the Exchangers a

fiduciary duty. See In re IRS § 1031 Exchange Litigation, MDL

No. 8:09-mn-2054-JFA, 2011 WL 2444805 (D.S.C. June 15, 2011)

(“Terry II”). It also dismissed the conspiracy claim. See Terry

I, 716 F. Supp. 2d at 427-28 (dismissing without prejudice the

conspiracy claim in the first amended complaint); Terry II, 2011

WL 2444805, at *6 (dismissing the conspiracy claim in the second

amended complaint). The Exchangers timely appealed.

D.

The principal question presented in this appeal is the

legal issue of whether LES plausibly owed a fiduciary duty to

the Exchangers. The Exchangers offer three alternative theories

for why the Agreement created a fiduciary relationship between

themselves and LES: (1) the Exchange Funds were held by LES in

trust; (2) LES was the Exchangers’ agent; and/or (3) LES served

as a real estate broker. As evidence of LES’s alleged fiduciary

12
status, they point to language in the Agreement, particularly

LES’s commitment to “hold” the exchange funds and “apply” them

toward the purchase of replacement properties, as well as

evidence of trade usage and extrinsic evidence of the parties’

intent. We are not persuaded by any of those theories that

reversal is warranted.

1.

(a)

The Exchangers first argue LES was a fiduciary because the

Agreement created either an express or resulting trust, with LES

as the trustee. 5 An express trust is created when the parties

“affirmatively manifest an intention that certain property be

held in trust for the benefit of a third party.” In re Dameron,

155 F.3d 718, 722 (4th Cir. 1998). A resulting trust is “an

indirect trust that arises from the parties’ intent or from the

nature of the transaction and does not require an express

declaration of trust.” 1924 Leonard Rd., LLC v. Roekel, 636

S.E.2d 378, 383 (Va. 2006). When a trust has been created, the

beneficiary remains the “equitable owner of the trust property.”

In re Dameron, 155 F.3d at 722 (quoting Broaddus v. Gresham, 26

5
The parties agree that Virginia law governs the question
whether LES was a fiduciary. The district court below considered
whether to certify the question of LES’s fiduciary status to the
Virginia Supreme Court or the California Supreme Court. All
parties opposed certification.

13
S.E.2d 33, 35 (Va. 1943)). 6 The Exchangers argue that under the

Agreement they “reserved an equitable interest in their exchange

proceeds” and limited LES’s role to “hold[ing]” those funds and

applying them toward the purchase of replacement property;

therefore, they argue, LES held the funds in trust. 7 They rely on

three categories of evidence to show that LES held the funds in

trust: (1) the language of the Agreement; (2) custom and usage

in the QI industry; and (3) extrinsic evidence of the parties’

intent.

As for the language of the Agreement, the Exchangers point

to four terms or phrases:

(1) LES’s obligation was to “hold” the funds and “apply”
them toward replacement properties, see § 2(a) (“to
hold and apply the Exchange Funds in accordance with
the terms and conditions of [the] Exchange
Agreement.”); § 2(c) (referring to the funds “held by
LES”).

(2) § 3(a) provides that LES “will deposit the Exchange
Funds” in a SunTrust account, and discloses that “the
amount of the Exchange Funds may be in excess of the

6
Virginia law also recognizes constructive trusts, which
arise “by operation of law, independently of the intention of
the parties,” In re Dameron, 155 F.3d at 722. The Exchangers do
not argue a constructive trust was formed; their argument is
that the parties intended to create a trust.
7
Although the Exchangers do not specify whether they
believe an express or resulting trust was formed, in these
circumstances the question presented is the same regardless:
whether the Agreement and the surrounding circumstances reveal
the parties’ intent that LES would hold the Exchange Funds in
trust for the benefit of the Exchangers.

14
 maximum amount of deposit insurance carried by the
depository institution [i.e., SunTrust].”

(3) In § 3(a) LES “unconditionally guarantee[d] the return
and availability of the Exchange Funds.”

(4) § 6(b) limits LES’s role to one “solely for the
purpose of facilitating taxpayers’ exchange.”

These terms are evidence of LES’s trustee status, the Exchangers

argue, because they “direct[] that the Funds be used and

applied” for a specific purpose, Appellant’s Reply Br. at 18,

and belie a conclusion that LES “received full ownership of the

exchange funds with the right to spend the funds however it

chose.” Appellants’ Br. at 41.

The Exchangers also point to industry custom and usage.

They argue that the QI industry “promotes, through marketing

materials and its industry trade group, the recognition that

qualified intermediaries are fiduciaries owing fiduciary duties

to protect and preserve the monies they handle.” Appellant’s Br.

at 52. For example, the Code of Ethics and Conduct of the

Federation of Exchange Accommodators, the national trade group

for qualified intermediaries, provides that exchange

accommodators such as LES “shall have the responsibility to act

as custodian for all exchange funds,” “shall invest exchange

funds in investments which meet the ‘Prudent Investor

Standard,’” shall not “knowingly commingle[]” exchange funds

with operating accounts, and shall not invest exchange funds “in

15
a manner that does not provide sufficient liquidity to meet the

Exchange Accommodator’s contractual obligations to its clients

and does not preserve the principal of the exchange funds.” J.A.

95.

Finally, although they concede that some provisions run

contrary to their interpretation, the Exchangers argue that at

most those provisions render the Agreement ambiguous; given the

ambiguity we may rely on extrinsic evidence, which, they argue,

shows that the parties considered LES a trustee. For example,

LES’s website described Exchange Funds as “Held in Trust,” (SAC

¶161); an “Executive Summary” that LES provided to SunTrust

stated that LES “serves in a fiduciary capacity” for its

customers (SAC ¶6; J.A. 846); LFG’s 10-K referred to Exchange

Funds as “the customer’s funds,” which “are held by us for the

benefit of our customers and are therefore not included as our

assets” (SAC ¶9); minutes of an October 1, 2008, LFG Investment

Funds meeting stated that “the company is acting in a fiduciary

capacity, with the funds ultimately belonging to the retail

client” (SAC ¶139); and an October 6, 2008, letter from LFG to

the Nebraska Department of Insurance, which described LES’s

exchange agreements as “a specialized form of escrow.” (SAC

¶140; J.A. 1137.) In addition, in an October 7, 2008, letter to

SunTrust, LFG’s general counsel stated that LES “holds [Exchange

Funds] in escrow as a fiduciary,” and invests them “on behalf of

16
its customers,” “until the funds (with the related earnings) are

returned to customers to complete the 1031 exchange.” (SAC ¶94;

J.A. 1056.)

The district court rejected these arguments, as had the

bankruptcy court that oversaw the LES bankruptcy, where, as

here, the Exchangers argued that they retained an “equitable

interest in the ownership of the Exchange Funds” and accordingly

LES’s rights to the funds were limited to those of a trustee.

The courts reasoned, to the contrary, that by entering the

Agreement the Exchangers “relinquished any and all interests in

the [Exchange Funds], including the equitable interest that a

beneficiary of a trust would retain in trust property,” an

action that is “inconsistent with the establishment of a trust.”

Frontier Pepper’s Ferry, 2009 WL 1269578, at *9; see also Terry

II, 2011 WL 2444805, at *4 (“[F]or those reasons expressed by

the bankruptcy court in Frontier Pepper’s Ferry, . . . the court

finds that Virginia law would not impose a fiduciary

relationship between LES and the Plaintiffs under the facts of

this case through either an express or resulting trust.”).

(b)

Under Virginia law, a contract “must be construed as a

whole to determine the parties’ intent with respect to specific

provisions.” Westmoreland-LG&E Partners v. Virginia Elec. &

Power Co., 486 S.E.2d 289, 294 (Va. 1997). If a contract is

17
“complete, unambiguous, and unconditional,” evidence of prior or

contemporaneous oral negotiations is “generally inadmissible to

alter, contradict, or explain the terms” of the contract. Id.

Whether a contract is ambiguous depends on whether its language

“admits of being understood in more than one way,” id., that is,

whether “its parts can be read together without conflict,”

Doswell Ltd. P’Ship v. Virginia Elec. & Power Co., 468 S.E.2d

84, 88 (Va. 1996). If a contract’s “parts can be read together

without conflict,” a court “must construe the language as

written.” Id.

Unlike such parol evidence, “[e]vidence that contract

phrases or terms have acquired, by custom in the locality, or by

usage of the trade, a peculiar meaning not attached to them in

their ordinary use is admissible even though the phrases or

terms themselves are unambiguous.” Doswell, 468 S.E.2d at 90.

Such evidence of “usage of trade” is admissible to “ascertain[]

the meaning of the parties’ agreement,” “give particular meaning

to specific terms of the agreement,” and/or “supplement or

qualify the terms of the agreement,” Va. Code Ann. § 8.1A-

303(d), so long as “the usage in question operated upon the

minds of the parties in using the language which was employed in

the contract.” Westmoreland, 486 S.E.2d at 293.

Thus, the question presented is whether the language of the

Agreement, as “supplement[ed] or qualif[ied]” by relevant

18
evidence of trade usage, Va. Code Ann. § 8.1A-303(d),

unambiguously excludes any interpretation that LES assumed the

fiduciary duties of a trustee. We conclude it does.

First, the bankruptcy court correctly observed, “not only

is there an absence of any language that the parties intended to

create a trust”; the language above “actually evidences an

intent not to do so.” Frontier Pepper’s Ferry, 2009 WL 1269578,

at *9 (emphasis in original). The Exchangers expressly granted

to LES “sole and exclusive possession, dominion, control and use

of all Exchange Funds” during the course of the exchange. They

disclaimed any “right, title, or interest in or to the Exchange

Funds or any earnings thereon.” They also disclaimed any “right,

power, or option to demand, call for, receive, pledge, borrow or

otherwise obtain the benefits of any of [the] Exchange Funds,”

other than the right to receive any remaining balance of the

Exchange Funds after LES purchased replacement property. The

Agreement disclaimed all duties other than those “expressly set

forth herein,” and provided that “no additional duties or

obligations shall be implied hereunder or by operation of law or

otherwise” (§ 6(c)). The Agreement also stated that it

“contain[ed] the entire understanding between and among the

parties hereto” (§ 11). For these reasons, the Agreement

unambiguously did not create a trust.

19
 The aspects of the Agreement the Exchangers focus on do not

render the Agreement ambiguous. LES’s obligation to “hold” and

“apply” the funds toward replacement properties is equally

susceptible to interpretations that LES was or was not a

fiduciary; the unavoidable impact of the provisions quoted

above, however, is that the parties did not intend to create a

trust. Moreover, although § 2(c) does not specifically disclaim

fiduciary duties, that absence is far from dispositive, because

it is the meaning of the Agreement as a whole, not § 2 in

particular, that controls whether LES was a trustee. Finally, we

recognize that LES’s assumption of “purely contractual” duties,

Appellee’s Br. at 25, does not necessarily mean that LES was not

a trustee; it is the nature of the duties LES assumed in the

Agreement that determines whether LES was a fiduciary. See Frank

H. Easterbrook & Daniel R. Fischel, Contract and Fiduciary Duty,

36 J.L. & Econ. 425, 446 (1993) (“Contract and fiduciary duty

lie on a continuum best understood as using a single, although

singularly complex, algorithm.”); see also Victor Brudney,

Contract and Fiduciary Duty in Corporate Law, 38 B.C. L. Rev.

595 (1997) (discussing the overlap between contractual duties

and fiduciary duties). Nonetheless, our reading of the Agreement

is the same as that of the bankruptcy and district courts. The

Agreement unambiguously precludes a finding that LES held the

Exchange Funds in trust.

20
 The evidence of trade usage proffered by the Exchangers

also does not alter this conclusion. According to the

Exchangers, they may not have been required to grant LES “sole

and exclusive possession, dominion, control and use of all

Exchange Funds.” Other exchange accommodators apparently do not

require that exchangers grant QIs such a replete bundle of

rights to the proceeds of the sale of relinquished property. Cf.

In re Exchanged Titles, 159 B.R. 303, 305 (Bankr. C.D. Cal.

1993) (finding that a different exchange agreement by a

different accommodator was “ambiguous” as to “whether the

parties intended to transfer both legal and equitable rights” to

the relinquished property or rather legal title only). But it is

LES’s Exchange Agreement, not that of other QIs, that we must

consider, and that Agreement unambiguously did not render LES a

trustee.

Finally, we note that the Exchangers, in electing to rely

on a safe harbor under § 1031, were not required to use a

qualified intermediary. As mentioned above, the Treasury

regulations allow exchangers to use, among other things, a

“qualified escrow” or a “qualified trust.” As the bankruptcy

judge explained in one of the related adversary proceedings:

Instead of using either of these available options,
the parties chose the “qualified intermediary” safe
harbor. . . . The parties did not in addition
separately satisfy the terms and conditions of the
Treasury Regulations for the creation of either a

21
 qualified escrow or a qualified trust. . . . [T]he
parties’ decision to eschew the escrow and trust
provisions of the tax code in favor of a different
safe harbor evidences that there was no intention to
create a trust relationship.

Millard Refrigerated Servs., 412 B.R. at 815. This reasoning is

sound.

In sum, we hold that the parties’ Exchange Agreement

unambiguously did not render LES a trustee with respect to the

Exchange Funds. Accordingly, and because the Agreement is

“complete” and “unconditional,” Virginia law precludes our

consideration of extrinsic evidence of the parties’ intent.

2.

The Exchangers next argue that LES was “acting as an agent

on behalf of the Property Owners to consummate these exchange

transactions.” Appellant’s Br. at 35. An agency relationship

arises under Virginia law when one person manifests consent to

another “that the other shall act on his behalf and subject to

his control.” Murphy v. Holiday Inns, Inc., 219 S.E.2d 874, 876

(Va. 1975) (quoting Restatement (Second) of Agency § 1 (1958)).

When a principal-agent relationship exists, the agent is

obligated “to interpret the principal’s statement of authority,

as well as any interim instructions received from the principal,

in a reasonable manner to further purposes of the principal that

the agent knows or should know, in light of facts that the agent

knows or should know at the time of acting.” Restatement (Third)

22
of Agency § 1.01 cmt. e. Virginia characterizes such duties as

those of a fiduciary. See Banks v. Mario Indus., 650 S.E.2d 687,

695 (Va. 2007) (“[O]nce an agency relationship was established,

[the agents] necessarily owed a fiduciary duty to [the

principal].”). “It is open to question,” however, “whether an

agent’s unconflicted exercise of discretion as to how to best

carry out the agent’s undertaking implicates fiduciary

doctrines.” Restatement (Third) of Agency § 1.01 cmt. e.

As evidence that LES was the Exchangers’ agent, the

Exchangers argue LES “was subject to [their] direction” in

various ways, such as identifying the replacement property and

the buyer of the relinquished property, as well as setting the

purchase price. Appellant’s Br. at 60-61. Moreover, the Treasury

Regulation governing QIs characterizes a QI as acquiring and

transferring relinquished properties “either on its own behalf

or as the agent” of a party to the transaction, 26 C.F.R. §

1.1031(k)-1(g)(4)(iv)(B); because LES “explicitly did not

contract on its own behalf,” the Exchangers argue, it must have

been their “agent.” Appellant’s Reply Br. at 16. Finally, they

argue, the safe-harbor regulation states that for purposes of

determining whether a taxpayer received property (and thereby

whether the taxpayer is eligible for § 1031 treatment), the QI

is treated “as if [it] is not the agent of the taxpayer.” 26

C.F.R. § 1.1031(k)-1(g)(4) (emphasis added). This language, the

23
Exchangers argue, implies that LES was their agent “for all

other purposes.” Appellant’s Br. at 62. Finally, they argue,

under Virginia law “an agency relationship is not one that can

be disclaimed.” Appellant’s Reply Br. at 19 (citing Murphy, 219

S.E.2d at 875).

In response, SunTrust argues that although “LES was

contractually obligated to facilitate Appellants’ purchase of

replacement property,” the nature and extent of that obligation

did not render LES the Exchangers’ agent. Appellee’s Br. at 42.

We agree. In a wide variety of contexts, parties execute

contracts, like the Agreement here, that allow one party to

direct another to perform certain actions. Such obligations do

not automatically create fiduciary relationships. Only those

where the agent assents to act “on the principal’s behalf and

subject to the principal’s control” does a fiduciary

relationship arise. Cf. Restatement (Third) of Agency § 1.01. As

explained above, the Exchangers granted LES “sole and exclusive”

possession and use of the Exchange Funds, and disclaimed any

“right, title, or interest in or to the Exchange Funds.” In

light of these provisions, LES cannot be said to have been

acting on the Exchangers’ behalf and subject to their control.

Finally, although the Treasury Regulations do not prohibit a QI

from being an agent of its customer, and treat a QI “as if” it

were not the Exchangers’ agent, nothing in those regulations

24
requires that result either. The language of the Agreement

controls, and that language is inconsistent with LES having

become a fiduciary under agency law.

3.

The Exchangers’ third argument is that LES was a real

estate broker, and thereby owed them fiduciary duties. Virginia

law defines “real estate broker” as a person or entity “who, for

compensation or valuable consideration,”

(i) sells or offers for sale, buys or offers to buy,
or negotiates the purchase or sale or exchange of real
estate . . . , or

(ii) leases or offers to lease, or rents or offers for
rent, any real estate or the improvements thereon for
others.

Va. Code Ann. § 54.1-2100. The statute expressly excludes from

the definition the following: attorneys acting in the

performance of their duties; trustees, administrators or

executors; auctioneers; property management companies; and

owners or lessors of property acting “in the regular course of

or incident to the management of the property and the investment

therein.” Id. § 54.1-2103. Real estate brokers are subject to

what the Exchangers call “statutory fiduciary duties,”

Appellants’ Br. at 36, namely that they (1) must “[a]ccount in a

timely manner for all money and property received by the

licensee in which the seller has or may have an interest,” Va.

Code Ann. § 54.1-2131(A)(5), (2) must disclose all material

25
facts known to the broker, id. § 54.1-2131(A)(6), and (3) must

not “divert or misuse any funds held in escrow or otherwise held

by him for another,” id. § 54.1-2108.

The Exchangers argue LES was a real estate broker because

LES received compensation for its role as an exchange

accommodator, which involved selling relinquished properties and

buying replacement properties, and QIs are not expressly exempt

from the statutory definition of real estate brokers. We

disagree. Simply put, we believe the Virginia legislature would

not have intended QIs like LES to be considered real estate

brokers. QIs exist as a mechanism for qualifying taxpayers to

defer the recognition of gains on investment properties. They

serve a different, more specialized function than do real estate

brokers as the term is commonly understood. Moreover, and

importantly, the Exchangers agreed to limit LES’s duties to

those “expressly set forth” in the Agreement, and LES is more

analogous to the entities listed among the exceptions than to

real estate brokers. For these reasons, we hold as a matter of

law that LES was not, and may not be treated as, a real estate

broker under Virginia law. 8

8
SunTrust argues in the alternative that, even if the
Agreement rendered LES a real estate broker under Virginia law,
LES disclaimed any corresponding duties imposed by virtue of
that status. The Exchangers argue to the extent there was such a
disclaimer, it should be “void as a matter of public policy.”
(Continued)
26
 For the foregoing reasons, read as a whole, the Agreements

did not impose fiduciary duties on LES, and therefore the

district court properly dismissed the claim seeking to hold

SunTrust liable for aiding and abetting LES’s alleged breach of

fiduciary duty. 9

II.

We now turn to the Exchangers’ claim alleging common law

civil conspiracy, judging the sufficiency of the SAC by the same

standard. See supra at 4. Under Virginia common law, “[a] civil

conspiracy is [1] a combination of two or more persons, [2] by

some concerted action, [3] to accomplish some criminal or

unlawful purpose, or to accomplish some purpose, not in itself

criminal or unlawful, by criminal or unlawful means.” Hechler

Chevrolet, Inc. v. Gen. Motors Corp., 337 S.E.2d 744, 748 (Va.

Appellants’ Reply Br. at 22-23 (citing Fairfax Gas & Supply Co.
v. Hadary, 151 F.2d 939, 940 (4th Cir. 1945); All Bus.
Solutions, Inc. v. NationsLine, Inc., 629 F. Supp. 2d 553, 560
(W.D. Va. 2009)). Because we conclude LES was not a real estate
broker under Virginia law, we need not resolve this issue.
9
Because we conclude LES was not a fiduciary under Virginia
law, we need not resolve SunTrust’s alternative argument that
Virginia does not recognize a cause of action of aiding and
abetting a tort.

27
1985). 10 The “unlawful act” element requires that a member of the

alleged conspiracy have “committed” an “underlying tort,” Almy

v. Grisham, 639 S.E.2d 182, 188 (Va. 2007), such as inducing a

breach of contract, Catercorp, Inc. v. Catering Concepts, Inc.,

431 S.E.2d 277, 281 (Va. 1993). Further, a claim for civil

conspiracy requires that the alleged conspirators’ unlawful act

have caused damages; a plaintiff may not recover for “the mere

combination of two or more persons to accomplish an unlawful

purpose or use unlawful means.” Id. at 282.

California law, which the district court concluded applies

to the Arthur plaintiffs’ conspiracy claim, see Terry I, 2011 WL

2444805, at *3, treats allegations of civil conspiracy in much

the same way as does Virginia law, although it considers

conspiracy to be “not a cause of action, but a legal doctrine

that imposes liability on persons who, although not actually

committing a tort themselves, share with the immediate

tortfeasors a common plan or design in its perpetration.”

Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 869 P.2d 454,

10
Virginia also has statutory tort of “Combination[] to
injure others in their reputation, trade, business or
profession,” Va. Code Ann. § 18.2-499, which principally
prohibits two or more persons from combining to “willfully and
maliciously injur[e] another in his reputation, trade, business
or profession.” Id. That statute is not at issue, because the
Exchangers allege only a conspiracy under Virginia common law,
not a violation of § 18.2-499.

28
457 (Cal. 1994). “By participation in a civil conspiracy, a

coconspirator effectively adopts as his or her own the torts of

other coconspirators within the ambit of the conspiracy.” Id.

“In this way, a coconspirator incurs tort liability co-equal

with the immediate tortfeasors.” Id. Like Virginia law,

California law requires that “a conspiracy . . . be activated by

the commission of an actual tort,” and that the “civil wrong”

have “result[ed] in damage.” Id. A plaintiff alleging conspiracy

“must show that each member of the conspiracy acted in concert

and came to a mutual understanding to accomplish a common and

unlawful plan, and that one or more of them committed an overt

act to further it.” Choate v. County of Orange, 103 Cal. Rptr.

2d 339, 353 (Cal. Ct. App. 2000).

We discern no conflict between Virginia and California law

on the elements of a properly pled civil conspiracy claim as

applied to the facts here, and the parties have not pointed to

one. Thus, we need not resolve this choice-of-law question, and

we proceed to explain why the Exchangers have failed to state a

claim for civil conspiracy under either Virginia or California

law.

29
 As noted, the Exchangers’ complaint, fairly read, alleges

two underlying torts: breach of fiduciary duty and fraud. 11 To

the extent the alleged underlying tort was LES’s breach of

fiduciary duty, the district court dismissed the conspiracy

claim upon concluding that LES was not a fiduciary. See Terry

II, 2011 WL 2444805, at *6. We agree that, because LES did not

owe the Exchangers a fiduciary duty, that theory of the

Exchangers’ conspiracy claim did not allege an “unlawful act,”

and thus was properly dismissed.

As to the Exchangers’ conspiracy-to-defraud theory, they

allege that SunTrust engaged in concerted action with LES’s

officers to conceal LES’s imminent collapse from the Exchangers,

with the common purpose of deceiving the Exchangers into

entering Exchange Agreements that they otherwise would not have

entered. The district court concluded that the complaint “does

not contain sufficient factual matter to move the Customers’

conspiracy claim from the conceivable to the plausible.” Terry

I, 716 F. Supp. 2d at 428. 12 That is also the basis on which

11
The conspiracy count also alleges that an object of the
conspiracy was to “operate an unlawful Ponzi scheme.” J.A. 812.
Because the “unlawful act” element requires an allegation of an
underlying tort, we read this as a further allegation of either
a breach of fiduciary duty or fraud.
12
The district court reached that conclusion upon
dismissing the Exchangers’ first amended complaint, before they
filed the second amended complaint. Because upon dismissing the
(Continued)
30
SunTrust argues we should affirm the dismissal of the fraud

component of the Exchangers’ conspiracy claim. See Appellee’s

Br. at 49-50 (arguing the claim was properly dismissed because

the Exchangers “failed to plead anything beyond conclusory

allegations of the existence of the conspiracy” and “failed to

adequately allege the existence of an underlying tort”).

Because this component of the Exchangers’ conspiracy claim

alleges fraud, the Exchangers’ complaint must comply not only

with Rule 12(b)(6) but also with Federal Rule of Civil Procedure

9(b), which requires that plaintiffs alleging fraud plead “with

particularity the circumstances constituting fraud.” Fed. R.

Civ. P. 9(b). The “circumstances” that must be pled with

particularity are “the time, place, and contents of the false

representations, as well as the identity of the person making

the misrepresentation and what he obtained thereby.” Harrison v.

Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir.

1999) (quoting 5 Charles Alan Wright and Arthur R. Miller,

Federal Practice and Procedure: Civil § 1297, at 590 (2d ed.

1990)). The defendant’s “knowledge as to the true facts” and

latter the district court stated that it “maintain[ed] its
previous finding” that the Exchangers had failed to sufficiently
plead a civil conspiracy cause of action, Terry II, 2011 WL
2444805, at *6, we assume the court’s rationale for dismissing
the fraud component of the conspiracy claim was that the factual
allegations were insufficient.

31
“intent to deceive” may be pled “generally,” Fed. R. Civ. P.

9(b), but a complaint must nonetheless “show[],” that the

defendants’ knowledge and/or intent, where relevant, plausibly

entitles the plaintiff to relief. Fed. Rule Civ. P. 8(a)(2);

Iqbal, 556 U.S. at 678, 686-87. Upon reviewing the factual

allegations in the Exchangers’ complaint and the attached

exhibits, we agree that the Exchangers have not shown that their

factual allegations “plausibly give rise to an entitlement to

relief” for conspiracy. Iqbal, 556 U.S. at 679.

The second amended complaint alleges that by mid-2008, LES

and its officers knew LES was insolvent, as nearly all of its

assets were tied up in frozen ARS, leaving just $28 million to

cover pending exchanges of over $290 million, and by early

November 2008, LES and LFG were preparing to declare bankruptcy.

(SAC ¶118.) Throughout this time, the Exchangers allege, the

individual defendants, along with LES, LFG and SunTrust, had

“actual knowledge of material adverse facts that any and all

potential Exchange clients would irrefutably consider material,”

including that LES’s “financial status” was “dire” and “that LES

was operating a Ponzi scheme and applying their Funds to prior

obligations.” (SAC ¶221.)

Despite this knowledge, the Exchangers allege, and “with

intent to deceive so that the Exchange Clients continued to

deposit Funds with LES,” the individual defendants intentionally

32
breached their duty “to disclose to the Exchange Clients all

material facts concerning the Exchange transactions.” (SAC

¶222.) Moreover, as part of the fraudulent scheme, they allege,

two of the individual defendants, Ronald Ramos and Devon Jones,

arranged for LFG to transfer funds from LFG as “lulling

payments.” (SAC ¶145.) These payments, which temporarily allowed

LES to continue meeting some prior exchange obligations, further

served to fraudulently conceal LES’s “insolvency and imminent

failure . . . from prospective Exchange clients whose Funds were

needed to keep LES going in the short term.” (Id.) Thus, the

Exchangers allege, by intentionally failing to disclose to the

Exchangers that, if the ARS market were to remain frozen, LES

would be unable to comply with its obligation to purchase the

Exchangers’ replacement properties, the individual defendants

committed fraud.

Those factual allegations, which must be taken as true at

this stage, satisfy the “unlawful act” element of a conspiracy

claim under Virginia or California law. The Exchangers also

clearly and plausibly allege that they were harmed by the

failure of LES and the individual defendants to disclose the

above facts. The remaining question is whether the Exchangers

have plausibly and non-conclusorily alleged that SunTrust

“combin[ed]” with LES to engage in “concerted action” to commit

that fraud, as required by Virginia law, see Hechler Chevrolet,

33
337 S.E.2d at 748, and “acted in concert and came to a mutual

understanding” with the individual defendants “to accomplish a

common and unlawful plan,” as required by California law, see

Choate, 103 Cal. Rptr. 2d at 353. For the following reasons, we

conclude the Exchangers’ allegations are insufficient.

The Exchangers do plausibly allege that, at least by

October 2008 and probably before, SunTrust representatives,

including Brian Edwards (its Deputy General Counsel and Senior

Vice President), were aware that LES was facing “severe

liquidity problems that threatened its continued viability” and

that LES was using Exchange Funds “to pay prior commitments on

older Exchange Transactions.” (SAC ¶94.) Indeed, LES provided

detailed disclosures directly to SunTrust, in part because LES

was “imploring SunTrust for financial assistance which

necessarily included disclosing to SunTrust all of the financial

constraints both LFG and LES were operating under.” (SAC ¶111.)

For example, LES provided to SunTrust the “Executive Summary”

described above, which disclosed to SunTrust that “the credit

crisis caused a portion ($290.5 [million]) of the underlying,

liquid investments of our exchange customers to become illiquid

at a time when we were holding approximately $700 million of

client funds.” J.A. 847. The document also explained that

“during the height of the credit crisis, outflows exceeded

inflows by nearly $400 million,” and that although LES

34
“expect[s] the balance in the investment portfolio to be under

less pressure,” “it is likely that during the 4th quarter there

will be a timing difference between inflows and outflows,

requiring liquidity on a portion of the $290.5 million in

auction rate securities.” Id. In the words of LES’s general

counsel, Michelle Gluck, LES desired SunTrust to be “involve[d]”

in LES’s “liquidity plan,” and thus sought to keep SunTrust

apprised of its efforts. J.A. 836. Indeed, on October 23, 2008,

Gluck expressed her “appreciate[ion]” that Edwards and Bill

Mayfield, who was also in SunTrust’s general counsel’s office,

were “remaining in the loop.” Id.

The fact that SunTrust allegedly knew all the above

information does not amount to a plausible allegation that it

“conspired with agents and representatives of LES . . . and

engaged in concerted action for the united purpose of . . .

defrauding the Exchangers out of their Exchange Funds,” J.A.

812. To state a claim that SunTrust conspired to commit fraud,

the Exchangers would have to allege that SunTrust not only knew

about what LES was doing and failed to stop it; they would have

to allege that SunTrust took concerted action with agents or

representatives of LES “in furtherance” of a common purpose of

defrauding the Exchangers, with a “mutual understanding” of that

purpose. The allegations do not rise to this level.

35
 The principal allegations of SunTrust’s actions are the

following. First, the Exchangers allege that even after SunTrust

learned that LES was facing major liquidity problems, SunTrust

“continue[d] to service the 3318 account and accept deposits

received from unsuspecting Exchangers thereby assisting LES in

processing purchases of replacement property for LES’s prior

exchangers with new exchangers’ money.” (SAC ¶95.) SunTrust was

LES’s bank; the 3318 account was at SunTrust’s Richmond branch.

The fact that SunTrust allowed LES to continue to make deposits

into and withdrawals from the 3318 account is a far cry from the

concerted action necessary to evince a decision to conspire in

the defrauding of the Exchangers.

Second, the Exchangers allege that on November 29, 2007,

SunTrust agreed to amend SunTrust’s Revolving Credit Agreement

to “reduc[e] certain financial covenants which LFG could not

satisfy” so that LES and LFG would not need to disclose its

inability to meet LES’s credit obligations. (SAC ¶104.) The ARS

market did not freeze until April 2008, however -- five months

after the renegotiation of the line of credit. There simply is

no correlation in that regard plausibly supporting concerted

action with an intent to defraud.

Third, the Exchangers allege that SunTrust “assisted LES

between November 21, 2008 and November 25, 2008, on the eve of

bankruptcy cleaning out . . . the 3318 account of all but $1,”

36
processing “seven transfers totaling $46 million to [an account]

at Smith Barney.” (SAC ¶125.) The Exchangers immediately then

concede, however, that the $46 million remained available to

satisfy LES’s creditors, and indeed was the subject of the

dispute in bankruptcy over whether Exchange Funds were or were

not part of LES’s estate. (Id.)

Fourth, the Exchangers allege that in June 2008, in

negotiating an amendment to LFG’s revolving line of credit,

SunTrust, despite knowing that LFG was “financially impaired,”

“avoided declaring LFG in default, which assisted LES to stay in

the business to continue to solicit new Exchange Funds and

perpetuate the known Ponzi scheme.” (SAC ¶107.) As the

Exchangers acknowledge, however, SunTrust had decided to reduce

the amount it would allow LFG to borrow on its existing line of

credit. 13 SunTrust’s decision not to also declare LFG in default

13
This also rendered SunTrust’s role distinguishable from
certain creditors’ alleged role in perpetuating Edward Okun’s
fraudulent scheme involving § 1031 exchange funds. In the
district court the Exchangers argued SunTrust’s role was
analogous to the alleged role of certain defendants in Hunter v.
Citibank, N.A., No. C 09–02079 JW, 2011 WL 7462143 (N.D. Cal.
May 5, 2011), which the court found sufficient to state a claim
of conspiracy to commit fraud and conversion. See id. at *6.
There, however, the creditor defendants decided to lend Okun
“millions of dollars” knowing “that the monies were being used
to perpetuate Okun’s Ponzi scheme” by “enabl[ing] him to
continue [his] misconduct through lulling payments.” Id.; see
also United States v. Okun, 453 F. App’x 364 (4th Cir. 2011)
(affirming 1,200-month sentence for Okun’s fraud). There is no
(Continued)
37
falls short of concerted action with the purpose of defrauding

the Exchangers required under Virginia and California law.

Thus, the Exchangers have not alleged that SunTrust engaged

in concerted action with the individual defendants, with a

mutual understanding of a common purpose to defraud, required by

Virginia and California law. Indeed, the allegations in the

complaint and the hundreds of pages of emails and other

documents attached to the complaint belie concerted action to

defraud. SunTrust repeatedly expressed its concern to LES that,

by using funds in LES’s “safekeeping account” to purchase ARS,

LES “may have violated its fiduciary duty and/or otherwise acted

improperly with respect to these customers.” J.A. 837.

Furthermore, as noted, by June 30, 2008, SunTrust had reduced

its loan commitment to LFG.

For these reasons, we conclude the Exchangers have not

stated a claim for conspiracy to commit fraud, and affirm the

dismissal of the Exchangers’ conspiracy claim.

allegation here that SunTrust lent additional funds to LES once
SunTrust knew of LES’s liquidity problems.

38
 III.

For the foregoing reasons, the judgment of the district

court dismissing the Exchangers’ claims against SunTrust is

AFFIRMED.

39