UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
__________________
No. 98-30991
__________________
MARGUERITE LEWIS HAWKING
Plaintiff
versus
FORD MOTOR CREDIT CO.; ET AL
Defendants
____________________
FIDELITY NATIONAL BANK
Plaintiff
versus
CONSOLIDATED LEWIS INVESTMENT CORP
Defendant - Counter
Claimant - Appellant -
Cross Appellee
and
MARGUERITE LEWIS HAWKING; ARTHUR CULLEN
LEWIS, III; ALEXIS VOORHIES LEWIS; PATRICIA
ANN LEWIS WILLIAMS
Defendants - Counter
Claimants - Cross
Appellees
versus
FORD MOTOR CREDIT CO.
Defendant - Counter
Defendant - Appellee -
Cross Appellant
____________________
In the Matter of: CONSOLIDATED LEWIS INVESTMENT CORP.
Debtor.
FORD MOTOR CREDIT CO.
Appellee - Cross
Appellant
versus
MARGUERITE LEWIS HAWKING; ARTHUR CULLEN
LEWIS, III; ALEXIS VOORHIES LEWIS; PATRICIA
ANN LEWIS WILLIAMS
Cross Appellees
and
CONSOLIDATED LEWIS INVESTMENT CORP.
Appellant - Cross
Appellee
___________________________
Appeals from the United States District Court
for the Middle District of Louisiana
____________________________
May 4, 2000
Before GARWOOD, WIENER, and DENNIS, Circuit Judges.
WIENER, Circuit Judge:
At the core of this appeal is the question whether Appellee-
Cross Appellant Ford Motor Credit Corporation (“FMCC”), a
commercial lender, can be held liable for the alleged fiduciary
breach of a trustee who, purporting to act in his capacity as
trustee, took out a loan on behalf of the trusts under his control,
and then allegedly used the loan proceeds to satisfy his personal
debts. We conclude that Appellant-Cross Appellee Consolidated
Lewis Investment Corporation - Limited Partnership (“CLIC-LP”), a
Louisiana partnership in comendam that was formed to manage the
2
trusts’ affairs, has not come forward with evidence sufficient to
create a genuine issue of material fact regarding whether, at the
time it closed the loan in question, FMCC either knew or should
have known that the trustee was planning to breach his fiduciary
duty to the trusts. We therefore affirm the district court’s grant
of summary judgment in favor of FMCC.
In its cross-appeal, FMCC asks us to review of the bankruptcy
court’s order remanding claims by the former beneficiaries of the
trusts individually. As we lack jurisdiction over appeals from
such remand orders of the bankruptcy court, we dismiss FMCC’s
cross-appeal.
I.
FACTS AND PROCEEDINGS
A. Factual Background
Arthur C. Lewis, Jr. (“Lewis”) was a real estate developer in
Baton Rouge, Louisiana. In 1962 his mother, Ida Lewis, settled
four trusts (the “Trusts”), one each for the benefit of one of
Lewis’s four children (her grandchildren), namely: Marguerite Lewis
Hawking; Arthur Cullen Lewis, III; Alexis Voorhies Lewis; and
Patricia Ann Lewis Williams (the “Lewis heirs”). She appointed
Lewis as trustee of each trust.
With the exception of the identity of the beneficiary, the
trust instruments are identical: Each empowered Lewis to borrow
3
funds on its behalf and to pledge trust assets as collateral.1
Lewis managed the Trusts’ assets collectively, as though the four
Trusts were one. In 1980, Lewis approached FMCC seeking a loan on
behalf of the Trusts. FMCC performed extensive “due diligence”
investigation which included confirming that Lewis was authorized
to borrow and receive funds on behalf of the Trusts and to encumber
Trust property as security for such loans; that Lewis was an
“influential and prosperous property owner who has consistently
maintained a good credit record,” and about whom FMCC’s
investigation “revealed no derogatory information”; that the
Trusts’ combined net worth was $36 million; and that Lewis had a
personal net worth of $28 million.
After completing its due diligence, FMCC submitted a
1
Each trust instrument provides:
¶2.2. Without limitation upon any of the TRUSTEE’S other
powers given by law or by other provisions of this
instrument, and by way of illustration only, the TRUSTEE
is specifically given the power to do all of the
following acts from time to time in his discretion, and
without order or license of the Court:
* * *
¶2.9. To borrow money and, if the TRUSTEE sees fit, to
give security for such funds as may be borrowed in such
fashion as the TRUSTEE may see fit by mortgage, pledge,
or otherwise and, in connection with any security which
may be given, to give security for funds borrowed for a
term which may extend beyond the term of the trust. The
TRUSTEE may borrow money to be used for the joint benefit
of the beneficiary of this trust and for the benefit of
the beneficiaries of similar trusts, the corpus of which
consists of undivided interests of the same property as
the corpus of this trust . . . .
4
commitment letter to Lewis as trustee offering to make a $2.23
million loan to the Trusts. As proposed, the loan was to be an in
rem obligation of the Trusts, secured by collateral mortgages on
specified immovable property (“real estate”) owned by the Trusts.
Acting in his capacity as Trustee, Lewis formally accepted FMCC’s
proposal. To provide additional security to FMCC, Lewis and his
wife personally guaranteed the loan.
Prior to closing, Lewis assured FMCC, in writing, that “[t]he
proceeds of these loan funds will be applied to the reduction of
outstanding bank obligations owed by the Trusts,” and the Trusts’
attorney gave FMCC an opinion letter confirming that the loan “has
been duly authorized” and that the proceeds, “when delivered, will
constitute [a] valid and legally binding obligation[] of” the
Trusts. The loan was closed on December 29, 1980, and the loan
proceeds were then disbursed in accordance with the written
instruction of Lewis as Trustee.
Almost two years after the loan was closed, on October 7,
1982, Lewis effected a transfer of all real estate owned by the
Trusts to the newley-formed CLIC-LP. Trust properties mortgaged to
secure FMCC’s in rem loan were transferred to the partnership
subject to those encumbrances. Each Trust received a limited
partnership interest in exchange for the real estate it had
transferred. The general partner of CLIC-LP was a Louisiana
corporation of which Lewis was president. In that capacity he had
5
essentially the same control of the properties as he had when he
served as trustee of the Trusts. After this transfer, all periodic
loan payments to FMCC were made by CLIC-LP on behalf of the
Trusts.2 In June 1983, CLIC-LP repaid the loan in full. FMCC
released its lien on the subject properties and released Lewis and
his wife from their personal guarantees.
In July 1985, Lewis died; in September 1986, his wife died.
Pursuant to an express provision of the trust instruments the
Trusts terminated at the death of Lewis’s wife and all remaining
property of the Trusts was distributed to the respective
beneficiaries. As a result, the Lewis heirs, all majors, became
direct owners of the CLIC-LP limited partnership shares that had
formerly been held in trust for their benefit.
B. Procedural History
After Lewis died, Fidelity National Bank of Baton Rouge
(“Fidelity”) filed suit in Louisiana state court against, inter
alia, Lewis’s succession, the Lewis heirs, and CLIC-LP. The suit
was brought to collect outstanding debts that had been incurred,
guaranteed, or succeeded to by the various defendants. Shortly
thereafter, CLIC-LP filed for Chapter 11 bankruptcy protection.
More than one year after Fidelity filed its state-court
action, and after CLIC-LP had filed for Chapter 11 bankruptcy,
2
The loan was an interest-only (i.e., non-amortizing) loan;
therefore, CLIC-LP made a portion of the interest payments (those
coming due after the transfer) and it repaid the full principal
balance, or “balloon,” when it became due.
6
CLIC-LP amended its responsive pleading in the state-court action
that had been commenced against it by Fidelity. By the amendment,
CLIC-LP asserted (1) a reconventional demand against Fidelity, (2)
a cross-claim against Lewis’s succession, and (3) a third-party
demand against FMCC.3 CLIC-LP alleged that Lewis, as trustee of
the Trusts and as president of the corporate general partner of
CLIC-LP, had borrowed substantial sums of money on behalf of the
Trusts and the partnership but had used the loan proceeds for his
own purposes and for other purposes not in the best interests of
CLIC-LP or the Trusts; that Lewis had commingled CLIC-LP’s funds
with his personal funds and funds belonging to the Trusts; and that
Lewis had thereby violated both the CLIC-LP partnership agreement
and his fiduciary duty as trustee.
CLIC-LP contended that both Fidelity and FMCC were solidarily
liable with Lewis’s succession for the damages that resulted from
Lewis’s malfeasance.4 The gravamen of CLIC-LP’s claim against FMCC
was that FMCC knew —— or at least should have known —— that Lewis
was planning to misuse the proceeds of FMCC’s loan in violation of
3
CLIC-LP also sued Hibernia National Bank as successor to
Fidelity for Fidelity’s alleged wrongdoing and also for Hibernia’s
own alleged transgressions. For clarity, we will refer to both
entities as Fidelity.
4
CLIC-LP alleged that Fidelity knew or should have known that
Lewis was repeatedly commingling funds in his account at that bank
and further that Fidelity encouraged this conduct to facilitate
Lewis’s repayment of his personal debts to Fidelity. CLIC-LP has
settled with Fidelity; that controversy is not before us in this
appeal.
7
his fiduciary duty. And, CLIC-LP urged, because Lewis had breached
his fiduciary duty to the trusts by pledging their assets to borrow
money nominally for the trust but in fact for himself, the loan by
FMCC was not a valid obligation of the Trusts. Thus, reasons CLIC-
LP, because the Trusts should never have been obligated to repay
the loan, when they did so it constituted the “payment of a thing
not due,”5 making the repayment recoverable under the Louisiana
Civil Code as a quasi-contractual obligation.
The claims asserted by CLIC-LP’s amended pleading, if
successful, would inure to the benefit of the bankruptcy estate,
making these claims at least “related to” CLIC-LP’s Chapter 11
bankruptcy.6 Thus, as a result of CLIC-LP’s pleading amendment,
the state-court action became removable to federal court pursuant
to 28 U.S.C. §1452(a).7 Both Fidelity and FMCC removed the case to
federal district court and the district court referred it, as an
adversary proceeding, to the bankruptcy court overseeing CLIC-LP’s
Chapter 11 bankruptcy. (While the adversary proceeding was pending
in the bankruptcy court, CLIC-LP and the Lewis heirs settled with
Fidelity.)
5
See La. Civ. Code art. 2301 et seq.
6
See 28 U.S.C. §1334(b); Randall & Blake, Inc. v. Evans, 196
F.3d 579 (5th Cir. 1999).
7
28 U.S.C. §1452(a) provides: “A party may remove any claim or
cause of action in a civil action . . . to the district court for
the district where such civil action is pending, if such district
court has jurisdiction of such claim or cause of action under
section 1334 of [Title 28].”
8
After years of delay and extensive procedural wrangling, which
we need not recount for purposes of this appeal, FMCC amended the
answer it had filed in response to CLIC-LP’s third-party demand.
By this amendment, FMCC added, inter alia, (1) a counterclaim
against CLIC-LP and (2) a third-party demand against the Lewis
heirs. FMCC sought a declaratory judgment decreeing who between
the Lewis heirs and CLIC-LP owned the cause of action against FMCC,
assuming any cause of action had been stated. By joining all
potential claimants, FMCC was attempting to avoid the risk of
inconsistent verdicts and multiple liability that might attend
piecemeal litigation.
Ultimately the bankruptcy court issued one judgment and one
report and recommendation. In its judgment, the bankruptcy court
ruled first that if any cause of action against FMCC exists in
favor of CLIC-LP and the Lewis heirs, it consists of two separate
claims: (1) a claim of the former beneficiaries of the previously-
expired Trusts, i.e., the Lewis heirs, for any damages incurred
prior to October 7, 1982, the date on which the Trusts transferred
their real estate to CLIC-LP; and (2) a claim of CLIC-LP for any
damages incurred from that date forward. Second, the bankruptcy
court severed the Lewis heirs’ pre-October 1982 claim from CLIC-
LP’s post-October 1982 claim and remanded the heirs’ claim to the
state court from which the lawsuit initiated there by Fidelity had
been removed. The bankruptcy court held in the alternative that it
9
would abstain from further proceedings regarding the Lewis heirs’
pre-October 1982 claim.
In its report and recommendation, the bankruptcy court
recommended to the district court that it grant summary judgment in
favor of FMCC and dismiss CLIC-LP’s complaint. The district court
adopted the bankruptcy court’s report and recommendation and
granted summary judgment in favor of FMCC. It also affirmed the
bankruptcy court’s judgment remanding the Lewis heirs’ claims
against CLIC-LP, or in the alternative, abstaining from exercising
jurisdiction over those claims. CLIC-LP timely appealed the
district court’s grant of summary judgment, and FMCC cross-appealed
that court’s remand and alternative abstention, arguing that the
bankruptcy court erred reversibly by severing the cause of action
brought by CLIC-LP into two claims and remanding one of them, the
Lewis heirs’ claim, to state court.
II.
ANALYSIS
A. Jurisdiction & Standard of Review
We have jurisdiction over appeals from final judgments of the
district courts in bankruptcy cases under 28 U.S.C. §158(d). We
review the district court’s grant of summary judgment de novo.8
B. Summary Judgment Burden
8
See Interlogic Trace, Inc. v. Ernst & Young, LLP, 200 F.3d
382, 386 (5th Cir. 2000).
10
Summary judgment is appropriate only if “there is no genuine
issue as to any material fact and . . . and the moving party is
entitled to judgment as a matter of law.”9 All inferences drawn
from the underlying facts must be viewed in the light most
favorable to the nonmoving party,10 here CLIC-LP. If, however, the
evidence submitted by the nonmoving party is merely colorable or is
not significantly probative, summary judgment may be granted11
because “[w]here the record taken as a whole could not lead a
rational trier of fact to find for the non-moving party, there is
no ‘genuine’ issue for trial.”12 Finally, once a motion for summary
judgment has been made and supported the party opposing the motion
“may not rest upon the mere allegations or denials of the adverse
party’s pleading, but . . . must set forth specific facts showing
that there is a genuine issue for trial. If the adverse party does
not so respond, summary judgment, if appropriate, shall be entered
against the adverse party.”13
Even though in this case federal jurisdiction is grounded in
9
Fed. R. Civ. P. 56(c).
10
See, e.g., Poller v. Columbia Broadcasting System, Inc., 368
U.S. 464, 473 (1962).
11
See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50
(1986).
12
Matsushita Electric Industrial Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986) (citing First National Bank of
Arizona v. Cities Service Co., 391 U.S. 253, 288-89 (1968)).
13
Fed. R. Civ. P. 56(e).
11
bankruptcy, resolution of the adversary claims between CLIC-LP and
FMCC depends on construction of Louisiana law. Jurisdiction is not
at issue so the first step in our summary judgment review is to
isolate the relevant legal principles of Louisiana law.14 Once we
have narrowed the legal inquiry, which in turn will enable us to
identify those facts that are material, our second step will be to
determine whether, as the bankruptcy and district courts found,
CLIC-LP has failed to make a showing sufficient to establish the
existence of an element essential to its case. “[I]n such a
situation, there can be ‘no genuine issue as to any material fact,’
since a complete failure of proof concerting an essential element
of the nonmoving party’s case necessarily renders all other facts
immaterial.”15
C. CLIC-LP’s Arguments
CLIC-LP’s first argument can be disposed of quickly as it is
based on a fallacious notion of the judicial function. CLIC-LP
suggests that between the Lewis heirs, who it says were completely
innocent and unaware of Lewis’s alleged fiduciary breach, and FMCC,
which it says could have (and, the heirs assert, should have)
ascertained that Lewis was planning to breach his fiduciary duty,
14
See generally, Songbird, Inc. v. Bearsville Records, Inc.,
104 F.3d 773, 776-77 (5th Cir. 1997) (detailing special Erie
considerations necessary when a federal court applies Louisiana
law).
15
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (5th Cir.
1986).
12
FMCC is the more culpable and therefore should bear the loss
resulting from Lewis’s alleged misconduct. We are not, however,
free to settle accounts among litigants based solely on our
subjective sense of what is “just”; rather, our task is to apply
the law. We therefore reject CLIC-LP’s suggestion that, as the
least-culpable party, it is entitled to recover.
CLIC-LP next urges that, under Louisiana law, its repayment of
the $2.23 million loan constituted “payment of a thing not due”
entitling it to repayment from FMCC. But CLIC-LP misapprehends the
legal doctrine on which it relies.
The articles governing the payment of a thing not due are
found in Title V of Book III of the Civil Code, articles 2031-
2314.16 CLIC-LP rests its argument on the first two of these
articles:
Art. 2301. He who receives what is not due to him,
whether he receives it through error or knowingly,
obligates himself to restore it to him from whom he has
unduly received it.
Art. 2302. He who has paid through mistake, believing
himself a debtor, may reclaim what he has paid.
By its plain terms, article 2301 imposes the obligation to restore
only on one who has received what “is not due to him.” And, to
recover under article 2302, the claimant must have paid “through
mistake.” Consequently, if (1) there was a valid obligation,
16
These articles were revised by Acts 1995, No. 1041, §1, eff.
January 1, 1996. The pre-revision articles would, if applicable,
govern this case. See La. Civ. Code art. 6.
13
making the loan payments received by FMCC something other than a
payment that “is not due to [it],” and (2) the loan payments by
CLIC-LP were made other than “through mistake,” these Code articles
are not even potentially applicable.
As we understand CLIC-LP’s argument, its “mistake” was the
erroneous conclusion that the Trusts (and therefore CLIC-LP as
successor of the Trusts)17 were contractually bound to repay the
loan. Thus the applicability of the above-quoted Civil Code
articles turns on whether the Trusts owed a legal obligation to
FMCC. If such an obligation existed, then as a matter of law FMCC
could not have received a thing not due, so CLIC-LP could not have
paid through mistake. This would render both article 2301 and 2302
inapplicable. Indeed, under the circumstances, CLIC-LP’s only
recourse would be against the Succession of Lewis, the party who
benefitted from the loan proceeds.18
To support its assertion that it was not obligated to repay
the loan, CLIC-LP refers us almost exclusively to cases construing
the Louisiana Business Corporations law. 19 These cases stand for
the unexceptional proposition that when an agent purports to act on
17
CLIC-LP has never sought to recoup its repayment of the loans
on the ground that the Trusts, not CLIC-LP, was the true obligor;
CLIC-LP acknowledges that when it repaid FMCC it did so as
successor to and on behalf of the Trusts.
18
See La. Civ. Code art. 2310 (1995); LEVASSEUR, LOUISIANA LAW OF
UNJUST ENRICHMENT AND QUASI-CONTRACTS 168 (1991).
19
See La. Rev. Stat. §12:1 et seq.
14
behalf of a corporation, but in so doing exceeds the scope of his
mandate —— acts ultra vires —— the agent does not bind the
corporation.20
CLIC-LP would have us liken Lewis to the corporate agents in
these cases, suggesting that because Lewis had no authority to
pledge trust assets to secure his personal obligations, his act ——
signing the loan documents in his capacity as trustee —— was ultra
vires. CLIC-LP thus concludes that neither it nor the Trusts were
ever obligated to repay the loan.21
What CLIC-LP fails to recognize is that, unlike the corporate
agents in the cases it cites, Lewis had actual authority to borrow
money on the Trusts’ behalf. The Trust instruments could not have
been clearer in this regard, expressly empowering Lewis “to borrow
money and, if [Lewis] sees fit, to give security for such funds as
20
See, e.g., Buckley v. Woodlawn Development. Corp., 98 So. 2d
92 (La. 1957); Jones v. Shreveport Lodge No. 122, B.P.O.E., 60 So.
2d 889 (La. 1952); Lilliedahl & Mitchel, Inc. v. Avoyelles Trust &
Savings Bank, 352 So. 2d 781 (La. App. 3d Cir. 1977).
21
CLIC-LP also relies on two cases construing La. Civ. Code
art. 2301, Roney v. Payton, 159 So. 469 (La. App. 1935) and Smith
v. Phillips, 143 So. 47 (La. App. 1932). In Roney, an agent paid
a personal obligation with his principal’s funds. The recipient of
that payment was appraised of facts that “clearly showed” that an
agent made the subject payment to satisfy his personal obligation
and that the principal was not a party to the transaction. As
discussed more fully in the context of CLIC-LP’s third argument,
neither of these facts can be shown here. Therefore we find Roney
distinguishable.
The Smith case deals with the situation where one satisfies an
obligation that was, at the time of the payment, valid, but that
was later invalidated. If we were to accept CLIC-LP’s argument, we
would conclude that the obligation in this case was void ab initio.
Thus, Smith sheds no light on this case.
15
may be borrowed . . . by mortgage, pledge, or otherwise.”22 On the
summary judgment record before us, the evidence indicating that
this was precisely the power that Lewis purported to exercise in
his dealings with FMCC is overwhelming and uncontroverted.
This leads us to conclude that the Trusts were legally
obligated to repay FMCC, so we are not faced with the payment of a
thing not due, and articles 2301 and 2302 do not apply.23 To be
sure, if the beneficiaries could show that Lewis abused his
authority and his abuse rose to the level of a fiduciary breach,
then the beneficiaries could recover against Lewis; it does not
follow, however, that the beneficiaries could necessarily recover
from FMCC as well.
CLIC-LP’s third argument is that FMCC aided Lewis in breaching
his fiduciary duty, and FMCC is therefore solidarily liable with
Lewis’s succession for the damages resulting from that breach.
Louisiana law is not clear as to just what CLIC-LP would have to
prove to recover from FMCC on this theory. The two possibilities
are: (1) the standard set forth in the Louisiana version of the
Uniform Fiduciaries Act, under which CLIC-LP would have to show
that FMCC’s actions were taken other than “in good faith”; and (2)
22
The relevant provisions of the Trust instruments are set out
more fully above. See supra n.1.
23
Accord McKinney Saw & Cycle v. Barris, 626 So. 2d 786, 790
(La. App. 1993) (holding that article 2302 has no application to
where the payment in question was made to satisfy a valid
judgment).
16
the majority common-law trust standard, under which CLIC-LP would
have to show that, as one alleged to have aided the trustee in his
breach, FMCC had either actual or constructive knowledge that the
trustee was planning to commit a breach of trust.
Louisiana has adopted the Uniform Fiduciaries Act (the
“Act”),24 a statute that governs the potential liability of persons
entering into specified transactions with a fiduciary. The general
purpose of the Act is
to establish uniform and definite rules in place of the
diverse and indefinite rules now prevailing as to
‘constructive notice’ of breaches of fiduciary
obligations. In some cases there should be no liability
in the absence of actual knowledge or bad faith; in
others there should be action at peril. In none of the
situations here treated is the standard of due care or
negligence made the test.25
CLIC-LP asserts that the Act does not apply here because FMCC is
not a bank. Although some sections of that Act do apply only to
transactions between banks and fiduciaries,26 La. Rev. Stat.
§9:3802, the provision that, if applicable, sets the standard
against which FMCC’s conduct vis-à-vis the trustee must be judged,
expressly applies to any “person” —— a term defined to include
corporations (not just banks) —— that transacts with a fiduciary.
That section provides:
24
La. Rev. Stat. §9:3801 et seq.
25
Commissioner’s Prefatory Note on Uniform Act, reprinted in
the Louisiana Revised Statutes annotated volumes directly before
La. Rev. Stat. §9:3801.
26
See, e.g., La. Rev. Stat. §9:3807.
17
A person who in good faith pays or transfers to a
fiduciary any money or other property which the fiduciary
as such is authorized to receive, is not responsible for
the proper application thereof by the fiduciary; and any
right or title acquired from the fiduciary is
consideration of such payment or transfer is not invalid
in consequence of a misapplication by the fiduciary.27
As detailed above, the fiduciary in this case (Lewis) was
authorized to receive funds on behalf of the trust. Under the Act,
therefore, FMCC’s “is not responsible for the proper application”
of the loan proceeds if FMCC acted “in good faith.” Under the a
Act, “[a] thing is done ‘in good faith’ . . . when it is in fact
done honestly, whether it be done negligently or not.”28
The Louisiana courts have not yet had occasion to put a
judicial gloss on the phrase “good faith” in the context of the
Act, but the language of the Act itself and case law from other
jurisdictions —— which are particularly persuasive authority when
construction of a Uniform Act is at issue —— indicate that the Act
imposes a greater burden on the plaintiff in a suit to recover from
one alleged to have aided a fiduciary in a breach-of-trust than
does the common-law standard of actual or constructive knowledge.29
27
La. Rev. Stat. §9:3202. This section is identical to §2 of
the Uniform Fiduciaries Act, 7A Uniform Law Annotated, Maser
Edition at506 (1999 Master Edition).
28
La. Rev. Stat. §9:3801(5).
29
See, e.g., Bogert and Bogert, The Law of Trusts and Trustees
§902 (1995) (“The Uniform Fiduciaries Act expressly denies the
existence of a duty on the part of one paying money or delivering
other property to the trustee to see to its application by the
trustee.”); Trenton Trust Company v. Western Surety Co., 599 S.W.2d
481, 492 (Mo. 1980) (en banc) (“The mere failure to make inquiry,
18
It is therefore not surprising that CLIC-LP insists that we
should apply the common-law standard. CLIC-LP maintains that if it
can show that FMCC either knew or should have known that Lewis was
planning to breach his fiduciary duty, then FMCC could be held
liable for the damages that result from that breach. CLIC-LP has
not cited any Louisiana jurisprudence adopting the common-law
actual-or-constructive-knowledge standard and our independent
research has revealed none. But CLIC-LP’s assertion does comport
with the general rule set forth in the Restatement (Second) of
Trusts:
If a third person pays or conveys to the trustee money or
other property which the trustee as such is authorized to
receive, and the trustee misapplies the money or other
property, the third person is liable for participation in
the breach of trust, if, but only if, when he made such
payment or conveyance he had notice that the trustee was
misapplying or intending to misapply the money or other
property.30
A person is deemed to have “notice,” under the Restatement, if “he
knows or should know of the breach of trust.”31 The leading
treatises state the general rule similarly.32
even though there may be suspicious circumstances, does not”
indicate the absence of good faith as defined in the Act “unless
such failure is due to the deliberate desire to evade knowledge
because of a belief or fear that inquiry would disclose a vice or
defect in the transaction, that is to say, where there is an
intentional closing of the yes or stopping of the ears.”).
30
RESTATEMENT (SECOND) OF TRUSTS §321.
31
Id. at §297.
32
See BOGERT & BOGERT, THE LAW OF TRUSTS AND TRUSTEES §901 (1995);
FRATCHER, SCOTT ON TRUSTS §321 (1989).
19
Lacking adequate guidance in this area of state law, we will
indulge, for the sake of argument, CLIC-LP’s suggestion that the
more liberal common-law standard applies. Under it, the appropriate
inquiry is whether CLIC-LP has set forth specific facts showing
that FMCC at least should have known that Lewis was planning to
breach his fiduciary duty.
Two documents in the record are proffered by CLIC-LP as
creating a genuine issue of material fact on this point. The first
is a sixteen-page loan proposal summary, an internal FMCC
memorandum that sets forth the terms of a proposed loan to the
Trusts, detailing the creditworthiness of the borrower (the Trusts)
and the guarantors (Lewis and his wife), and recommending approval
of the loan. CLIC-LP maintains that, after reviewing this
document, a fact finder could reasonably conclude that FMCC knew
that the purpose of the loan was to pay off the debts of the “Lewis
entities,” and that Lewis habitually used the term “Lewis entities”
in reference to all of the legal entities under his control —— a
universe that included businesses and properties in addition to
those forming the Trusts’ res.
Our scrutiny of this memorandum reveals that in the section
summarizing the proposal, the purpose of the loan was clearly
stated to be “[p]rovid[ing] funds to liquidate Borrower’s short
term debt with commercial banks.”33 The Borrower is expressly
33
Emphasis added.
20
identified as “Trust C - Arthur Cullen Lewis, Jr., Trustee.” The
loan memorandum also discusses the financial condition of Lewis’s
business affairs, including the financial wherewithal of
enterprises other than the trust —— explaining the unremarkable
reference to the “Lewis entities.” As Lewis and his wife gave
their personal guarantees it is only natural that FMCC would
investigate all of Lewis’s many business affairs.
The second document proffered by CLIC-LP in support of its
position that FMCC should have known of Lewis’s planned breach is
a letter that Lewis sent to FMCC directing FMCC to wire the loan
proceeds to “the account of A. C. Lewis, Jr., Account No. [omitted]
with Fidelity[.]” The letter goes on to say that “[f]or and in
consideration of the Loan made by [FMCC], the undersigned hereby
authorizes, requests and directs [FMCC] shall not be held
accountable for making the advance under the Loan to said account
of A. C. Lewis, Jr.” The letter is signed by Lewis “as trustee.”
By the terms of the letter, Lewis’s hold harmless covenant is
granted in consideration of FMCC’s making the loan to the Trusts,
not for disbursing the proceeds to the specified account.
Asking rhetorically why any borrower would send such a letter,
CLIC-LP argues that a jury could reasonably infer from its contents
that FMCC should have known that Lewis was planning to breach his
fiduciary duty.34 We note, however, that before it got this letter
34
CLIC-LP cites to other facts which, it urges, could lead a
rational fact finder to infer that FMCC should have known about
21
FMCC had received another letter from Lewis specifically declaring
that “[t]he proceeds of these loan funds will be applied to the
reduction of outstanding bank obligations owed by the Trusts.”
FMCC adduced summary judgment evidence disputing the
contention that it either knew or should have known that Lewis was
planning to misapply the loan proceeds. This evidence consisted of
affidavits from various FMCC personnel, including loan officers and
the attorney representing FMCC in the subject transaction, stating
that neither Lewis nor Lewis’s agents ever told them or even gave
them any reason to suspect that Lewis planned to breach his duty to
the Trusts. In addition, FMCC submitted the affidavit of the
attorney at law who represented Lewis in both personal and business
ventures, including in his various representative capacities such
as corporate president and trustee of the Trusts. Lewis’s lawyer
averred that Lewis never told him or even suggested that the
proceeds of the loans would be used for anything other than payment
of the Trusts’ legitimate obligations. Further, Lewis’s attorney
swore that he had no independent knowledge (or even a suspicion)
that Lewis intended to breach his fiduciary duty. The sworn
statements of these witnesses stand uncontroverted.
Having carefully reviewed the summary-judgment evidence, we
Lewis’s nefarious intentions. For example, CLIC-LP urges that
because the loan was an in rem obligation of the Trusts, FMCC
should have known of Lewis’s plot. We find this “evidence” even
more specious than that discussed in the body of this opinion, and
question whether it is even relevant.
22
conclude, like the district and bankruptcy courts before us, that
even when we view the evidence and reasonable inferences that can
be drawn from it in the light most favorable to CLIC-LP, the record
does not support the position advanced by CLIC-LP sufficiently to
create a genuine dispute of material fact.35 As the Supreme Court
has held, when evidence submitted by the nonmoving party is merely
colorable or is not significantly probative, summary judgment may
be granted36 because “[w]here the record taken as a whole could not
lead a rational trier of fact to find for the non-moving party,
there is no ‘genuine’ issue for trial.”37 We agree with the
district court’s grant of summary judgment to FMCC.
D. FMCC’s cross appeal
FMCC argues that the bankruptcy court abused its discretion
when it remanded to state court the Lewis heirs’ claims against
FMCC, rather than disposing of those claims by granting summary
judgment in FMCC’s favor. Unfortunately for FMCC, the statute
authorizing that remand, 28 U.S.C. §1452(b), precludes appellate
35
See Fontenot v. Upjohn Co., 780 F.2d 1190 (5th Cir. 1986)
(Rubin, J.) (“Absent evidence, direct, circumstantial, or
inferential, that would create a genuine issue of fact, and absent
any suggestion concerning the utility of additional time for
further discovery, the [summary judgment] motion should be
granted.”).
36
See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50
(1986).
37
Matsushita Electric Industrial Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986) (citing First National Bank of
Arizona v. Cities Service Co., 391 U.S. 253, 288-89 (1968)).
23
review of such orders in bankruptcy cases.38 As we do not have
jurisdiction over the substance of FMCC’s cross appeal, we must
dismiss it.
III.
CONCLUSION
For the forgoing reasons, we affirm the district court’s grant
of summary judgment in favor of FMCC and dismiss FMCC’s cross
appeal challenging the bankruptcy court’s disposition of the Lewis
heirs’ claims by remanding them to state court.
APPEAL AFFIRMED; CROSS APPEAL DISMISSED
38
See Sykes v. Texas Air Corp., 834 F.2d 488 (5th Cir. 1987).
24