United States Court of Appeals,
Fifth Circuit.
No. 93-2878.
CARNIVAL LEISURE INDUSTRIES, LTD., Plaintiff-Appellee,
v.
George J. AUBIN, Defendant-Appellant.
June 2, 1995.
Appeal from United States District Court for the Southern District
of Texas.
Before JONES, DUHÉ and STEWART, Circuit Judges.
STEWART, Circuit Judge:
This appeal involves the issue of whether an unpaid gambling
debt, which we previously held to be unenforceable as against Texas
public policy, can be used to support an action for fraud against
the gambler who was extended the credit by a casino. We conclude
that it cannot under the facts as presented in this case.
Facts and Procedural History
As indicated above, this is not the first time these litigants
have been before us concerning this $25,000, eight-year dispute.
The first hand in this controversy was played in Carnival Leisure
Industries, Ltd. v. Aubin, 938 F.2d 624 (5th Cir.1991) (Aubin I ).
Our opinion today constitutes a final disposition of the case.
During a January 1987 visit to the Bahamas, George Aubin, an
astute businessman, frequent gambler, and Texas resident, visited
Cable Beach Hotel and Casino, which was owned and operated by
Carnival Leisure, a Bahamian corporation, for fun and frolic.
After gambling away all the money he had brought to the casino,
1
Aubin asked that credit be extended to him so that he could
continue gambling. The casino issued six "markers" to Aubin, which
he signed, totaling $25,000.1 Markers may be used by a patron to
obtain food, beverages, souvenirs, or lodging at the casino.
However, it is undisputed that in this case Aubin obtained $25,000
in gambling chips with his markers.
Aubin contends that he signed markers which did not contain
the name of his Houston bank, his account number, the date, etc.
He contends that the casino added this information to the markers
before presenting them for payment. He denies that he had
authorized the completion or presentation of the markers for
payment. The forms signed by Aubin contained the following
language in small type:
I represent that I have received cash for the above
amount and that said amount is on deposit in said financial
entity in my name, is free and clear of claim and is subject
to this check and is hereby assigned to payee, and I guarantee
payment with exchange and costs in collecting.
Notwithstanding this language, it is undisputed that Aubin did
not receive "cash" in exchange for signing the markers: He
received $25,000 in gambling chips. It is also undisputed that, at
1
A marker is a preprinted form, resembling a bank check or
draft, that a gambler with preapproved credit signs while on the
casino floor in order to obtain tokens or chips to play a casino
game. If the player wins, he can redeem the marker with an
equivalent amount of chips, and he can then exchange the
remainder of the chips for cash. A losing player can redeem the
marker with any remaining casino chips he may have, and pay the
balance with cash or by giving a personal check. If the marker
is not paid within 30 days by cash, check or casino chips, the
casino presents the marker for payment, as a check or draft, to
the bank designated by the player on the initial application for
casino credit.
2
the time Aubin signed the markers, he did not have the $25,000 on
deposit at his Houston bank.
Luck was not a lady to Aubin; he lost the entire $25,000
playing blackjack. However, having been bested in the card game,
Aubin nonetheless beat the casino to the draw: when Aubin did not
redeem the markers within 30 days and the drafts were presented for
payment at Aubin's Houston bank, the casino learned, much to its
consternation, that he had stopped payment on the bank drafts.
After unsuccessful collection attempts, Carnival Leisure sued
Aubin to enforce the debt in the United States District Court for
the Southern District of Texas.2 Carnival later amended its
petition to allege fraud, conversion, and equitable estoppel as
well. The district court granted Carnival's motion for summary
judgment, finding that the debt was enforceable under Texas law
because public policy in that state had changed and now favored
enforcement of gambling debts. Aubin decided to spin the appellate
wheel and take a chance that this court would disagree. We did.
In Aubin I, Judge Garwood, writing for the panel, concluded
that although public policy in Texas may have shifted with regard
to gambling, as evidenced by the enactment of statutes legalizing
certain forms of gambling, there was a continued public policy in
the Lone Star State which disfavors gambling on credit.
2
Although the amount in controversy is only $25,000 in this
diversity case, federal court jurisdiction is proper because suit
was filed in 1987, prior to the effective date of the amendment
to 28 U.S.C. § 1332, which raised the minimum jurisdiction amount
from $10,000 to $50,000. That 1988 amendment applies only to
actions instituted on or 180 days after November 19, 1988.
3
Accordingly, we reversed the district court's grant of summary
judgment in favor of Carnival and remanded to the district court
"for further proceedings consistent with this opinion." Ibid at
626.
On remand, the district court indicated its intention to
dismiss Carnival's case, and invited briefs on the issue of whether
Carnival's fraud claims were barred by Texas public policy. The
district court concluded that the fraud claim was not barred by
public policy, nor by the law of the case, and set the matter for
trial. After a bench trial, the district judge concluded in
Carnival Leisure Industries, Ltd. v. Aubin, 830 F.Supp. 371
(S.D.Tex.1993), that although the gambling debt itself was
unenforceable under this court's mandate, Carnival nonetheless
could recover against Aubin for fraud. He found that, "[w]hen
Aubin signed the drafts, he promised to pay Carnival by honoring
the drafts," Ibid at 377, that Aubin never intended to honor the
drafts when he signed them, and that the facts established fraud.
The court entered judgment in favor of Carnival for $25,000 plus
costs and attorney's fees. Once again, Aubin has rolled the dice
and filed an appeal.
Discussion
As we shuffle the deck for the final hand in this litigation,
we begin with a review of the elements which must be proven by a
plaintiff asserting a cause of action for fraud. Under Texas law,
the elements of fraud are (a) a material misrepresentation of a
present existing fact, (b) that was known to be false when made,
4
(c) that was intended to be acted upon (d) that was relied upon,
and (e) that caused injury. DeSantis v. Wackenhut Corp., 793
S.W.2d 670, 688 (Tex.1990).
In ruling in favor of Carnival on remand, the district judge
held that Aubin committed fraud when he signed the six markers,
finding that Aubin did not intend to repay them at the time he
signed them because he stated that he considered the documents to
be markers and not drafts. By this, Aubin meant that they were
merely a means for the casino to keep track of how much he had lost
and owed. Aubin subjectively predicted that it would not be
necessary for the instruments to be presented for payment because
he, like most gamblers, was ever the optimist and fully expected to
win. The district judge considered Aubin's testimony in this
regard as establishing that Aubin never intended to honor the
drafts, thus supporting a finding of fraud. Carnival, 830 F.Supp.
at 377. The district court also relied heavily upon the fact that
Aubin was a former bank president who knew that a gambling debt was
not always enforceable in Texas. Ibid.
Aubin has proceeded to ante up his best arguments in support
of a reversal on the finding of fraud. We will "deal" with each of
the parties' arguments under our Erie3 duty to apply Texas law.
Aubin first intimates in brief that an action for the $25,000
may not be maintained against him because he "returned" the entire
$25,000 in chips to Carnival by playing and losing at blackjack.
3
Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed.
1188 (1938).
5
We summarily reject this specious argument. To reverse on the
basis that the debt was repaid by the loss of chips during play
would defy common sense.
Aubin's next argument is based on the law of the case
doctrine. The law of the case doctrine states that absent manifest
error, or an intervening change in the law, an appellate court's
decision of a legal issue, whether explicitly or by necessary
implication, establishes the law of the case and must be followed
in all subsequent proceedings in the same case. Morrow v. Dillard,
580 F.2d 1284, 1290 (5th Cir.1978).
Aubin submits that the panel opinion, which held that the
gambling debt is unenforceable under Texas law, precludes a finding
of fraud under the law of the case doctrine. Carnival disagrees.
The thrust of Carnival's argument that law of the case does not
preclude recovery for fraud centers around the fact that Aubin
signed the markers when he knew they were unenforceable under the
law of his home state. Carnival argues that the present issue is
whether Texas public policy protects those who sign negotiable
instruments with fraudulent intent, an issue it contends was not
before this court and was not decided by "necessary implication" in
Aubin I. Carnival claims that Aubin's signing of the markers
constitutes a fraudulent misrepresentation which is actionable and
which exists separate and apart from the determination that the
debt is unenforceable. Carnival's arguments focus on its
contention that the language quoted above on the face of the
markers constituted a material misrepresentation by Aubin that
6
there were sufficient funds in his Houston bank account and that he
would repay the debt.
We have carefully considered Aubin's arguments concerning the
law of the case doctrine, but we do not find this very specific
doctrine directly applicable and dispositive of the case due to the
fact that an action to enforce a debt and an action for fraud are
entirely separate causes of action with different elements which
must be proven. A determination regarding the enforcement of a
debt does not always decide by necessary implication the merits of
a fraud claim. Thus, Aubin's law of the case argument does not add
up to "21." However, because of the obvious similarity between the
two causes of action at issue here, we nonetheless conclude that a
reversal is in order, as explained below.
Aubin contends that the district court's finding of fraud is
inconsistent with Aubin I. We agree. As noted above, after
finding the debt unenforceable, the panel in Aubin I remanded this
case back to the district court for "further proceedings consistent
with this opinion." Carnival Leisure Industries, Ltd. v. Aubin,
supra, 938 F.2d at 626. Aubin contends that the district judge's
order holding him liable for fraud is entirely inconsistent with
this court's prior opinion and should be reversed.4 He argues that
our affirmance of the district court's subsequent finding of fraud
4
Carnival, of course, has a different view. Carnival
contends that, had the panel intended to preclude recovery by the
casino against Aubin on a theory of fraud, it would not have
remanded the case. We disagree. The panel was presented with
the single issue of whether gambling debts are enforceable within
the State of Texas, which it decided. The panel properly
remanded rather than rendering judgment.
7
would amount to little more than a thinly veiled end-run around
this court's previous mandate. Without embracing Aubin's football
analogy in this gambling case, we nonetheless conclude that the
instant judgment is infirm.
Although Carnival's fraud claim is too dissimilar from the
suit to enforce the debt for law of the case purposes, we
nonetheless are convinced that there is sufficient overlap between
the two claims such that we cannot allow the fraud claim and still
remain true to Aubin I. As Aubin I made clear, there is a
continued strong public policy in Texas against enforcement of
gambling debts. For us to allow recovery against Aubin on an
otherwise unenforceable gambling debt under a theory of fraud, when
in fact the only real allegation of misrepresentation was that
Aubin signed the markers knowing they were unenforceable in his
home state (by operation of law), would require that we recognize
an exception to Texas public policy that does not exist. We cannot
in good conscience render an opinion which would do violence to
Aubin I.
In considering whether the district court's finding of fraud
is inconsistent with Aubin I, we have carefully researched the
Texas jurisprudence to determine whether any Texas court has ever
allowed an action for fraud to be maintained against a gambling
debtor in spite of the unenforceable nature of the underlying debt.
We have found no such case. The only Texas case in which a cause
of action for fraud is even mentioned in connection with a gambling
debt is Gulf Collateral, Inc. v. George, 466 S.W.2d 21
8
(Tex.Civ.App.1971), wherein it was merely stated that fraud had
been asserted as an alternative cause of action, without a
discussion of the disposition of the claim.5 In light of our Erie
duty in diversity cases to merely apply the law as we conclude a
Texas state court would, rather than make law, we cannot uphold the
finding of fraud when no state court has ever allowed such a claim
as an alternative basis for recovery on an otherwise unenforceable
gambling debt. We are convinced that a Texas court would not allow
such a claim, and for us to do so would be violative of Erie, as
well as inconsistent with Aubin I.6 In urging us to affirm,
Carnival has asked us, in effect, to stretch Texas law into an
unknown and unexplored frontier. We decline to embark on such a
course. "Litigants who reject a state forum in order to bring suit
in federal court under diversity jurisdiction should not expect
that new trails will be blazed." Ryan v. Royal Ins. Co. of
America, 916 F.2d 731, 744 (1st Cir.1990).
Moreover, we also point out that the facts of this case
particularly militate toward our conclusion. Carnival's complaint
of fraud does not stem from the fact that Aubin signed the markers
nor from the fact that he stopped payment on the drafts. Carnival
sued Aubin because he has not otherwise paid the gambling debt.
5
Recognizing that Texas is a common law state, we even
looked to the case law in other jurisdictions in search of a case
with similar facts. We found none. Thus, it does not appear
that a single court has ever maintained such an action for fraud
in the face of an otherwise unenforceable gambling debt.
6
Because we are convinced that no Texas court would allow a
cause of action for fraud under these facts, we find it
unnecessary to certify the question to the Texas Supreme Court.
9
Had Aubin paid the money back, undoubtedly these litigants would
not be before us today. Under Texas law, Aubin is not obligated to
pay the gambling debt. Thus, the unenforceability of the gambling
debt is what gives rise to Carnival's "loss," and this occurred by
operation of law, not because of anything Aubin did or did not do.
Moreover, any alleged wrongdoing or misrepresentation on the part
of Aubin is so inextricably interwoven with the underlying gambling
debt, which Aubin I declared to be unenforceable, that to uphold
the district court's finding of fraud would render our opinion
utterly inconsistent with Aubin I. The district court's decision
amounted to a back-door enforcement of the gambling debt. This
point is made particularly clear when we consider that the amount
of damages awarded by the district court on the fraud
claim—$25,000—is exactly the same as the sum of the checks which
Aubin I held to be unenforceable. Thus, we reject Carnival's
argument that the district court's determination was consistent
with Aubin I.
To Carnival's other arguments contending that Aubin should be
liable for fraudulently signing the negotiable instrument, we
likewise say "no dice." Thus, Aubin has hit the jackpot and
Carnival craps out.
Conclusion
Now that the chips are down and we must enter our decision, we
conclude that Aubin's arguments are trump: we REVERSE the district
court and RENDER judgment in favor of Aubin.
10