Complete Oil Field Srv v. Unitd Frac Sand ( 2021 )

Case: 20-50952 Document: 00516057021 Page: 1 Date Filed: 10/15/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
No. 20-50952 October 15, 2021
Summary Calendar Lyle W. Cayce
Clerk
Bates Energy Oil & Gas, L.L.C.,
Plaintiff,
versus
Complete Oil Field Services, L.L.C.,
Defendant—Counter Plaintiff—Appellee,
versus
Unlimited Frac Sand, doing business as Frac Sand Unlimited;
David Bravo,
Counter Defendants—Appellants.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 5:17-CV-808
Before King, Costa, and Ho, Circuit Judges.
Per Curiam:*
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 20-50952 Document: 00516057021 Page: 2 Date Filed: 10/15/2021
No. 20-50952
David Bravo and his company Unlimited Frac Sand, doing business as
Frac Sand Unlimited, appeal from a judgment of the district court finding
them jointly and severally liable for $652,146.22 in damages (less any amount
recovered from settlements with other parties) and $227,614.77 in attorneys’
fees for their part in a conspiracy to defraud and steal money from Complete
Oil Field Services, LLC. Because there was sufficient evidence for the trial
court to conclude that Bravo and his company were part of the conspiracy,
we AFFIRM.
I. FACTS & PROCEDURAL HISTORY
This case stems from a 2017 agreement whereby Bates Energy Oil &
Gas, LLC (“Bates Energy”) and its principal, Stanley Bates, agreed to
procure frac sand1 for Complete Oil Field Services, LLC (“COFS”). One of
the key officials in Bates Energy was David Bravo, who was consistently listed
and referred to as its Chief Operating Officer (COO). Bravo also later formed
a new company, Unlimited Frac Sand, LLC d/b/a Frac Sand Unlimited
(“FSU”), that was involved in these endeavors. FSU was managed by Bravo,
had listed Bates’s girlfriend as a manager, and had featured Bates as a Vice
President/Member under the alias Phillip Stanley.
COFS and Bates Energy further agreed to place $1,000,000 of
COFS’s funds into an escrow account. A Proof of Funds letter for that
account was sent to David Bravo as the COO of Bates Energy. Seeking to
protect these funds, the money in the account could be withdrawn only with
the mutual consent of both COFS and Bates Energy.
However, protection was not to be found. Unbeknownst to COFS,
Dewayne Naumann, the principal of the escrow account, was a close
1
“Frac sand” is used in the oil and gas industry and is essential for hydraulic
fracturing, or fracking.
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associate of Bates. Over a period of several months, between April and
August 2017, Bates, Bravo, and Naumann coordinated the withdrawal of
money out of the escrow account, without authorization, while maintaining
the façade that Naumann was a neutral entity and that Bates and Bravo were
diligently searching for frac sand to fulfill the contract. Ultimately, they
misappropriated $652,146.22 of COFS’s money and delivered no sand.
This fraud and theft occurred in two ways; Bravo played a key role in
both. First, the group executed a series of unauthorized disbursements of
COFS’s money from the escrow account to Bates and his associates. This
included David Bravo, who was listed as an intended recipient and received
$47,500.00 through accounts held in his wife’s name. Each of the
disbursement authorizations stated: “electronic signature added under
authorization by Frac Sand Unlimited, LLC.” For one round of
disbursements, the authorizations were signed by Bates but indicated in the
“by” section that they were made by “David Bravo, CEO.” Despite the clear
terms of the escrow agreement, each of these disbursements was made
without the knowledge or approval of COFS.
The group additionally defrauded COFS through a fraudulent
purchase of sand from Tier 1 Sands (“Tier 1”). In connection with this
transaction (and, again, without COFS’s authorization or knowledge), Bates
Energy and FSU arranged to pay Tier 1 the full price of the sand from the
escrow account before the sand had been delivered. This is despite the fact
that Bates Energy’s agreement with COFS called for only half payment when
the sand was loaded (as proven by a bill of lading) and then half payment upon
receipt by COFS. One of the disbursement authorizations from the escrow
account related to these transactions was signed by David Bravo, acting as
CEO of FSU. Bravo also admitted during trial that he was aware that the
funds for the purchase from Tier 1 came from the escrow account.
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According to the purchase order, the sand from Tier 1 was slated to
be delivered to David Bravo and FSU (not COFS) and listed Phillip Stanley
(Bates’s alias) as FSU’s Vice President of Operations. Bates then provided
COFS with bills of lading for part of the sand included in the purchase,
leading COFS to authorize a distribution of funds for half of the purchase
price for that portion (despite the fact that money had already been paid to
Tier 1 from the escrow account for the shipments). This distribution for sand
shipped by Tier 1 and supported by bills of lading was one of only two
authorized distributions from the escrow account.2 And even with proof that
the sand had been bought, paid for, and shipped, COFS still did not receive
any sand from Bates Energy. Bravo, FSU, and Bates, however, did receive
sand—they simply declined to deliver it to its rightful purchaser, COFS.
Instead, they kept the sand that had been purchased with COFS’s money and
later sold it on August 11, 2017, to a third party.
By July 2017, Bates Energy had yet to provide any frac sand to COFS
per the contract; it would in fact never provide any sand throughout the
course of its contractual relationship with COFS. However, as the district
court noted, “though Bates and his associates were short on frac sand, they
enjoyed a surplus of chutzpah.” In a bold attempt at further obfuscation,
Bates Energy sued COFS, alleging that COFS had refused delivery of frac
sand and had “regularly sought withdrawals from the escrow account
without the required authorization from Bates Energy.”3 Bates Energy
funded its lawsuit against COFS with additional money disbursed from
2
The other authorized distribution was made to another sand provider to cover for
Bates Energy’s failure to provide sand.
3
David Bravo and FSU were not parties to that state-court lawsuit, which was
solely filed by Bates Energy. Bravo and FSU were added in COFS’s third amended
counterclaim, after COFS had removed Bates Energy’s initial complaint to federal court.
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COFS’s escrow account. Understandably perturbed to have been sued for
breach of contract by the party who had failed to provide any frac sand per
the contract, COFS terminated its agreement with Bates Energy on August
15, 2017, and demanded return of all funds from the escrow account. Still
unaware of the unauthorized disbursements, COFS believed that amount to
be $960,000. When all was said and done, the amount remaining in the
escrow account and deposited in the court registry on order of the district
court was just $347,853.78.
Shortly after receiving the notice of termination and the demand for
the remaining funds from COFS, Bates e-mailed Bravo and Dewayne
Naumann, the principal of the escrow account and ostensible neutral
manager of the funds, “It’s NOW or NEVER!” On August 23, 2017, Bates
issued another distribution-of-funds request to the escrow account for
demurrage charges to be paid to Bates Energy. These charges were not
supported by any documentation and were supposedly in relation to
demurrage for the shipment from Tier 1 that had been sold by Bravo and FSU
to a third party on August 11, 2017.
After a two-day bench trial in March 2020, the district court found
David Bravo and FSU liable for conspiracy to commit fraud and conspiracy
to commit theft. The court therefore found them jointly and severally liable
for damages amounting to $652,146.22. They were additionally found jointly
and severally liable for $227,614.77 in attorneys’ fees. Bravo and FSU filed a
motion for a new trial which was denied. Bravo and FSU timely appeal.
II. STANDARD OF REVIEW
“The standard of review for a bench trial is well established: findings
of fact are reviewed for clear error and legal issues are reviewed de novo.”
Preston Expl. Co. v. GSF, L.L.C., 669 F.3d 518, 522 (5th Cir. 2012) (quoting
Kona Tech. Corp. v. S. Pac. Transp. Co., 225 F.3d 595, 601 (5th Cir. 2000)).
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So long as the “district court’s account of the evidence is plausible in light of
the record viewed in its entirety,” its findings must be affirmed, even if the
court of appeals might “have weighed the evidence differently.” Anderson v.
Bessemer City, 470 U.S. 564, 574 (1985). A court of appeals may only overturn
a district court’s factual finding “when there is no evidence to support it, or
if the reviewing court, after assessing all of the evidence, is left with the
definite and firm conviction that a mistake has been committed.” In re
Chinese-Manufactured Drywall Prods. Liab. Litig., 742 F.3d 576, 584 (5th Cir.
2014).
III. DISCUSSION
Bravo appeals the district court’s judgment, arguing that he did not
participate in a conspiracy. As this is a diversity action, we apply state law.
See Samuels v. Drs. Hosp., Inc., 588 F.2d 485, 488-89 (5th Cir. 1979). “In
Texas, a civil conspiracy is a combination by two or more persons to
accomplish an unlawful purpose or to accomplish a lawful purpose by
unlawful means.” Firestone Steel Prods. Co. v. Barajas, 927 S.W.2d 608, 614
(Tex. 1996). “The essential elements are: (1) two or more persons; (2) an
object to be accomplished; (3) a meeting of minds on the object or course of
action; (4) one or more unlawful, overt acts; and (5) damages as the
proximate result.” Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex.
1983) (citations omitted).
One can be liable for conspiracy even if he himself did not commit the
underlying bad acts; civil conspiracy “extend[s] liability in tort . . . beyond
the active wrongdoer to those who have merely planned, assisted, or
encouraged his acts.” Carroll v. Timmers Chevrolet, Inc., 592 S.W.2d 922,
925-26 (Tex. 1979) (alteration in original) (quoting W. PROSSER, HANDBOOK
OF THE LAW OF TORTS § 46, at 293 (1971)). “Once a conspiracy is proven,
each co-conspirator ‘is responsible for all acts done by any of the conspirators
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in furtherance of the unlawful combination.’ ” Id. at 926 (quoting State v.
Standard Oil Co., 107 S.W.2d 550, 559 (Tex. 1937)). Additionally, direct
evidence of a conspiracy (such as smoking-gun phone calls or e-mails) are not
required; “proof of a conspiracy may be, and usually must be made by
circumstantial evidence.” Schlumberger Well Surveying Corp. v. Nortex Oil &
Gas Corp., 435 S.W.2d 854, 858 (Tex. 1968).
In this case, the district court found a conspiracy to commit two
unlawful acts: fraud and theft. Therefore, there must be sufficient evidence
(1) that a fraud and theft occurred and caused COFS damage, and (2) that
there was a meeting of the minds between Bravo, FSU, and other parties in
furtherance of that fraud and theft. There is. We take each conspiracy claim
in turn.
A. Conspiracy to Commit Fraud
“To prevail on a fraud claim, a plaintiff must show: (1) the defendant
‘made a material representation that was false’; (2) the defendant ‘knew the
representation was false or made it recklessly as a positive assertion without
any knowledge of its truth[’;] (3) the defendant intended to induce the
plaintiff to act upon the representation; and (4) the plaintiff actually and
justifiably relied upon the representation and suffered injury as a result.”
JPMorgan Chase Bank, N.A. v. Orca Assets G.P., 546 S.W.3d 648, 653 (Tex.
2018) (quoting Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573,
577 (Tex. 2001)).
There is ample evidence both that Bates, Bates Energy, and other
parties hatched a scheme to defraud COFS, and that Bravo was a co-
conspirator in that scheme. From the beginning of its contractual relationship
with COFS, Bates Energy misled COFS about its ability to procure and
provide the amount of sand specified in the contract. It additionally made
false statements to COFS about the nature of the escrow account.
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Specifically, its assertions that money would only be withdrawn from the
account with the authorization of both parties and to pay for sand shipments
supported by a bill of lading and then actually delivered were false.
The conspirators’ actions and words demonstrate an intent to
misappropriate COFS’s money without ever providing sand under the
contract. Examples include the sale of the only sand ever procured (with
COFS’s money) to a third party who was not COFS, and the e-mail sent by
Bates to the other co-conspirators stating “it’s NOW or NEVER” after
learning that their access to the escrow account was about to be blocked.
Further proof comes from the fact that this e-mail was followed by another
unauthorized disbursement, one made after the group had knowledge that
COFS had demanded return of its money and terminated the agreement.
COFS was justified to rely on these representations and to trust in the
contracts it had signed, which stated that Bates Energy would procure sand
and that COFS’s money would be protected in an escrow account. This
scheme was a fraud, plain and simple.
Additionally, there is ample evidence to support the judgment that
Bravo and FSU were members of the conspiracy. Bravo was listed as the
COO of Bates Energy, the company that defrauded COFS. Further, in a
state-court proceeding, Bravo testified that COO “might have been one of
the titles . . . relegated to” him and, in the same proceeding, Bravo was
identified by Bates Energy’s attorney as the company’s COO. While Bravo
may have testified at trial that he was not an employee of Bates Energy and
did not consider himself its COO, the trial court was well within its rights to
credit the substantial evidence to the contrary. See Anderson, 470 U.S. at 574(“Where there are two permissible views of the evidence, the factfinder’s
choice between them cannot be clearly erroneous.”). In addition, Stanley
Bates, Bates Energy’s principal and the apparent leader of the conspiracy,
was listed as a Vice President of FSU.
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Bravo and FSU’s names peppered the disbursement authorizations
that were issued without COFS’s consent. Bravo additionally received a
substantial amount of money from these disbursements through an account
held in his wife’s name. Bravo and FSU themselves made the fraudulent
purchase of sand from Tier 1 with COFS’s money and then sold it to a third
party rather than delivering it to COFS. All of this evidence directly
contradicts Bravo’s assertions that he did not have access to the escrow
account. In any event, that contention is irrelevant since another member of
the conspiracy, Naumann, did have access to the account, and abused that
access by making unauthorized distributions of funds to others, including
Bravo.
Bravo was also a recipient of Bates’s panicked “NOW or NEVER” e-
mail when it was clear that the well of funds was about to run dry; the trial
court was within its rights not to be convinced by Bravo’s assertions that he
believed this e-mail to be referring to fulfillment of the contract that had been
terminated earlier that day. We hold that there was sufficient evidence to find
that Bravo was a member of the conspiracy to commit fraud. And because
Bravo’s knowledge is imputed to the company he ran, FSU, it is appropriate
to hold FSU liable for conspiracy as well. See United States ex rel. Vavra v.
Kellogg Brown & Root, Inc., 848 F.3d 366, 372 (5th Cir. 2017) (“A corporation
cannot act or have a mental state by itself, and thus, under the common law,
the acts and mental states of its agents and employees will be imputed to the
corporation where such natural persons acted on behalf of the corporation.”
(quotations omitted)).
B. Conspiracy to Commit Theft
A claim for theft derives from the Texas Theft Liability Act, which
states that “ ‘[t]heft’ means unlawfully appropriating property . . . as
described by” certain sections of the Texas Penal Code. Tex. Civ. Prac.
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& Rem. Code § 134.002 (2021). The relevant portion of the Penal Code,
Section 31.03, states that:
(a) A person commits an offense if he unlawfully appropriates
property with intent to deprive the owner of property.
(b) Appropriation of property is unlawful if:
(1) it is without the owner’s effective consent; [or]
(2) the property is stolen and the actor appropriates the
property knowing it was stolen by another[.]
Tex. Penal Code § 31.03(a), (b)(1)-(2) (2021).
The same evidence that supports the existence of a fraud, and a
conspiracy to commit that fraud, supports the claim for theft and conspiracy
to commit theft. By making unauthorized distributions from the escrow
account, without COFS’s consent as required by the terms of the escrow
agreement, the conspiracy unlawfully appropriated COFS’s money, and
intended to do so. Those actions alone are sufficient to prove theft. And just
as Bravo and FSU had more than sufficient connections to prove conspiracy
liability for fraud, there is clear evidence to support a judgment of liability for
conspiracy to commit theft. Bravo was aware after at least the second
transaction that the money he was receiving came from the escrow account.
Bravo also had his name listed on at least one of the disbursement
authorizations, and FSU was listed on every authorization.
Throughout the entire course of their dealings with COFS, “Bates
and his cadre . . . . lied, cheated, and stole.” There was sufficient evidence to
support the district court’s judgment that Bravo and FSU were part of that
cadre, and thus jointly and severally liable for conspiracy.
IV. CONCLUSION
For the foregoing reasons, we AFFIRM.
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