Eisenberg v. Grand Bank for Savings , 70 F. App'x 765 ( 2003 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
July 18, 2003
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk
________________________
No. 02-60695
________________________
ERIC EISENBERG
Plaintiff-Appellee
v.
GRAND BANK FOR SAVINGS, FSB, et al.
Defendants
RICK LENOIR
Defendant-Appellant.
Appeal from the United States District Court
for the Southern District of Mississippi
(00-CV-263)
Before WIENER and CLEMENT, Circuit Judges, and LITTLE*, District Judge.
LITTLE, District Judge:**
Rick Lenoir appeals the district court’s summary judgment in favor of Eric
Eisenberg. The court ordered Lenoir to return funds to Eisenberg. As we shall explain,
the funds belonging to Eisenberg had been misappropriated by the malefactor and
*
District Judge of the Western District of Louisiana, sitting by designation.
**
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published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 CIR. R. 47.5.4.
deposited into Lenoir’s account. For the following reasons, we AFFIRM the judgment
of the district court.
I. FACTUAL AND PROCEDURAL BACKGROUND
This case involves two men connected through a common wrongdoer. From
approximately 1995 to 1999, Douglas Reid performed multiple stock transactions as
appellant Rick Lenoir’s stockbroker. Reid used a letterhead that falsely represented him
to be an agent of the Bear Stearns Company (“Bear Stearns”). In order to reduce
paperwork, Lenoir asked Reid to send account summaries only upon his request in lieu
of usual stock trade confirmations sent on a monthly basis.
In November 1999, appellee Eric Eisenberg invested money with Reid. Like
Lenoir, Eisenberg was under the impression that Reid was affiliated with Bear Stearns.
On 15 November 1999, Eisenberg wired Reid $1 million to an account entitled Douglas
Reid d/b/a Bear Stearns (“Reid account”). Eisenberg expected Reid to invest for
Eisenberg’s account from the $1 million deposit. Within a week, Lenoir asked Reid to
withdraw $415,000 from his account and transfer that sum to Lenoir. On 22 November
1999, Reid wired $415,000 from the Reid account to Lenoir’s bank account at Grand Bank
for Savings, FSB (“Grand Bank”). An investigation determined that Eisenberg’s $1
million was the source of funds transferred by Reid to Lenoir’s account. After a
government investigation, Reid pled guilty to charges of money laundering and wire
fraud.
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On 17 October 2000, Eisenberg filed a complaint bottomed on diversity
jurisdiction against Grand Bank and unknown defendants in the United States District
Court, Southern District of Mississippi. In the complaint, Eisenberg alleged that
$415,000 of his money was improperly transferred to Lenoir’s account at Grand Bank.
Ultimately, Lenoir, having received the money, became the lone defendant in the case.
Eisenberg posited that Reid caused funds from the Eisenberg account to be deposited
to Lenoir’s account. Eisenberg sought return from Lenoir of the funds stolen. On 26
December 2001, Lenoir filed a motion for summary judgment and Eisenberg responded
with a cross-motion for summary judgment. Applying Mississippi law, the district court
granted Eisenberg’s motion for summary judgment finding that the source of the funds
was readily traceable to Eisenberg and that Lenoir parted with nothing of value to
justify his retention of the stolen property. The court ordered Lenoir to pay Eisenberg
$250,662.83,1 plus post judgment interest and all costs of court. Lenoir subsequently
filed the appeal that is presently before the court.
II. DISCUSSION
A. Standard of Review
This court reviews de novo a district court’s grant of summary judgment,
applying the same standard of review as the district court. See Gowesky v. Singer River
Host Hosp. Sys., 321 F.3d 503, 507 (5th Cir.2003)(citing Walker v. Thompson, 214 F.3d
1The district court found that Eisenberg had previously recovered $749,337.17 of his
$1 million from other sources. The court adjusted the amount owed by Lenoir to avoid double
recovery.
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615, 624 (5th Cir.2000)). Summary judgment is appropriate “if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). “If the
moving party meets the initial burden of showing that there is no genuine issue of
material fact, the burden shifts to the nonmoving party to produce evidence or designate
specific facts showing the existence of a genuine issue for trial.” Allen v. Rapides Parish
Sch. Bd., 204 F.3d 619, 621 (5th Cir.2000)(internal quotations and citations omitted).
Doubts are resolved in favor of the nonmoving party, and any reasonable inferences are
drawn in favor of that party. Gowesky, 321 F.3d at 507 (citing Burch v. City of
Nacogdoches, 174 F.3d 615, 619 (5th Cir.1999)).
B. Applicable Law
In diversity cases we apply state substantive law. See Krieser v. Hobbs, 166 F.3d
736, 739 (5th Cir.1999). “The core of what has become known as the ‘Erie Doctrine’ is
that the substantive law to be applied by a federal court in any case before it is state
law, except when the matter before the court is governed by the United States
Constitution, an Act of Congress, a treaty, international law, the domestic law of another
country, or in special circumstances, by federal common law.” Hanley v. Forester, 903
F.2d 1030, 1032 (5th Cir.1990)(citing Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82
L.Ed. 1188 (1938)). In deciding an unsettled issue of state law, we must consider how
the Supreme Court of Mississippi has, or would interpret the question. See Batts v.
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Tow-Motor Forklift Co., 978 F.2d 1386, 1389 (5th Cir.1992)(citing American Waste &
Pollution Control Co. v. Browning-Ferris, Inc., 949 F.2d 1384, 1386 (5th Cir.1991)). “When
we are required to make an Erie guess, it is not our role to create or modify state law,
rather only to predict it.” Id.C. Analysis
The district court used a stolen property and a bona fide purchaser analysis to
support summary judgment in favor of Eisenberg. The court noted that, under
Mississippi law, a thief cannot obtain or convey valid title to stolen property. The court
also considered, and rejected, Lenoir’s contention that he was a bonafide purchaser and
could acquire good title to the stolen funds. Relying on an analogous case from the Sixth
Circuit, the district court concluded that Eisenberg was not a bona fide purchaser for
value. The court stated that “a bona fide purchaser for value must have departed [sic]
with some valuable consideration to be entitled to invoke the legal protection provided
by that status.” The court held that even if Reid paid Lenoir $415,000 to satisfy a pre-
existing debt, Lenoir was not a bona fide purchaser for value. The court noted “that one
who receives money from a thief in satisfaction of a pre-existing debt does not have a
defense against the person from whom the money was stolen.” Although the court
considered this case a “close question,” the court held that summary judgment was
appropriate “based upon the fact that the $415,000 received by Lenoir from Reid came
directly from Eisenberg’s funds and that Lenoir departed [sic] with nothing of value.”
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Lenoir contends that he was an innocent victim of Reid’s deception. He simply
requested a withdrawal of $415,000 from his account. After receiving the money, Lenoir
expected his account to reflect the withdrawal. He states that he “never defrauded
Eisenberg, nor did he attempt to take any money that rightfully belonged to Eisenberg.”
Lenoir argues that the district court erred in granting Eisenberg summary judgment for
two2 reasons: (1) a genuine issue of material fact exists precluding a finding of summary
judgment; and (2) the court mistakenly concluded that Lenoir was not a bona fide
purchaser for value. We discuss each of these arguments in turn.
1. Genuine Issue of Material Fact
The Supreme Court has distinguished genuine issues of material fact from mere
factual disputes. In Anderson v. Liberty Lobby, Inc., the Court stated that “[o]nly
disputes over facts that might affect the outcome of the suit under the governing law
will properly preclude the entry of summary judgment. Factual disputes that are
irrelevant or unnecessary will not be counted.” 477 U.S. 242, 248, 106 S.Ct. 2505, 2510,
91 L.Ed.2d 202 (1986). Moreover, a dispute about a material fact is genuine “if the
evidence is such that a reasonable jury could return a verdict for the nonmoving party.”
Id.In his original appellant brief filed 12 November 2002, Lenoir contends that summary
2
judgment was inappropriate because the record “is devoid of affidavits, declarations or
evidence of any sort.” Lenoir appears to abandon this seemingly vague argument in his
supplemental appellant brief filed 20 December 2002.
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The parties dispute the balance in Lenoir’s account with Reid during November
1999. Lenoir refers to a facsimile dated 1 March 1999 to show an account balance in
excess of $1.5 million. Conversely, Eisenberg contends that account statements from
November 1999 show Lenoir’s balance as less than $40,000. Lenoir argues that this
disagreement is a dispute of a genuine issue of material fact and, thus, precludes
summary judgment.
The parties certainly disagree over Lenoir’s November 1999 balance. The relevant
query, however, is whether this is a dispute over a genuine issue of material fact. After
reviewing the facts of this case, we conclude that this dispute is not sufficient to
preclude summary judgment. The record contains only one set of contemporaneous
account statements for November 1999. These statements show a total balance less
than $40,000. Even if opposing evidence for this same time frame existed, such a
dispute is not a genuine issue of material fact. As explained below, the actual amount
in Lenoir’s account prior to his withdrawal request does not affect the analysis or
outcome of this case.
2. Bona Fide Purchaser for Value
On appeal, Lenoir argues that the district court erred by relying on Stone v.
Webster, 199 F.2d 127 (6th Cir.1952), to find that he did not part with the valuable
consideration necessary for a bona fide purchaser for value. In Stone, the Sixth Circuit
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held that a recipient of stolen funds was not a bona fide purchaser for value since
crediting the money the employee placed in its treasury did not constitute parting of
consideration. 199 F.2d at 131. An employee of Stone and Webster Engineering
Company (“Stone”) stole $5000 from a bank and placed the money into the Stone
treasury account to cover up his previous embezzlement. Stone argued that with respect
to the $5000, it became a holder in due course, in good faith, and for value without
knowledge of its employee’s wrongdoings. Further, Stone contended that the money
became commingled with, and indistinguishable from, other funds in the treasury. The
Sixth Circuit disagreed, stating that “[t]rue, the weight of the authority is to the effect
that it is sufficient for the receiver of stolen money to act in good faith and without notice
of its tainted character. But he must also have parted with a valuable consideration
therefor; and so, if he is a mere depository for the thief, the money may be recovered
from him.” Id.
Lenoir argues that the facts in Stone are distinguishable from the instant case.
He contends that in Stone, the company was unaware that it received the deposited
stolen funds. Lenoir asserts that when he requested the withdrawal from Reid, he
expected his account balance to decrease by $415,000. He argues that since he can no
longer withdraw the $415,000 from his account he parted with valuable consideration.
Eisenberg, on the other hand, contends that Lenoir is not a bona fide purchaser for value
even if Reid owed him a pre-existing debt. Eisenberg states that “[t]his is not a case
where the transferee, Mr. Lenoir, ‘has changed position after a transaction and it is
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impossible or impractical to restore [him] to his ... original position,’ such that ‘restitution
may be denied.’” (quoting 66 Am.Jur.2d Restitution and Implied Contracts § 144 (2001)).
The Mississippi Supreme Court defines bona fide purchasers for value as those
who “advanced some new consideration, either in money or property, or have
relinquished a pre-existing security for his debt, or have done some act on the faith of
the purchase itself which cannot be retracted.” Hinds v. Pugh, 48 Miss. 268, 1873 WL
6017, *4 (Miss. 1873). Here, the district court and the parties focus on whether Lenoir
parted with valuable consideration as required for a bona fide purchaser for value.
Before we consider this issue, we turn to Mississippi law surrounding stolen property
and transfer of title. After a review of the pertinent case law, we conclude that whether
Lenoir parted with valuable consideration and is a bona fide purchaser for value is
irrelevant to the analysis of this case.
3. Transfer of Stolen Property
Mississippi law is clear that an individual who obtains goods in a fraudulent
manner does not have the power to pass title to those goods. See South Mississippi
Finance Co. v. Mississippi State Tax Comm’n, 605 So.2d 736, 739 (Miss.1992). A
transferor can only pass the rights that he has in the goods and “a thief has neither title
nor power to convey such.” See Allstate Ins. Co. v. Estes, 345 So.2d 265, 266 (Miss.1977).
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In Newman v. Stuart, the Supreme Court of Mississippi stated “[i]n this state, as in most
states, the law is that neither the thief of stolen property nor his transferees, can convey
any title or property right to such property. A bona fide purchaser of stolen property
acquires no title or interest therein.” 597 So.2d 609, 613-14 (Miss.1992)(citing Allstate
Ins. Co. v. Estes, 345 So.2d 265,266 (Miss.1977)). In sum, Mississippi case law indicates
that whether an individual is a bona fide purchaser for value is irrelevant to a stolen
property analysis. Even someone who parted with valuable consideration, and
otherwise meets the requirements of a bona fide purchaser for value, cannot acquire
proper title to stolen property.
One issue remains before we can apply Mississippi stolen property analysis to
the instant case. The Mississippi cases dealing with transfer of stolen property involve
automobiles and other goods that are identifiable by their characteristics and title. The
concern here is whether we can safely apply Mississippi stolen property analysis to a
case involving stolen money. Money is not property in the usual sense. Money is
fungible. Once transferred, money typically becomes commingled inside accounts and
loses identifiable characteristics. Further, Mississippi law periodically treats currency
different from ordinary goods. See, e.g., MS ST § 75-2-105(1)(Mississippi Uniform
Commercial Code defining “goods” as “all things ... which are movable at the time of
identification to the contract for sale other than the money in which the price is to be
paid”); MS ST § 75-3-102 (stating that Article 3 of the Mississippi Uniform Commercial
Code applies to negotiable instruments and not money). As stated above, in situations
10
where Mississippi law is unsettled, we must attempt to predict how the Supreme Court
of Mississippi would decide the issue.
The facts of this case show the funds at issue are traceable and identifiable. The
Eisenberg’s $1 million remained in an account until transferred to Lenoir. The record
shows no evidence of any commingling of funds. In fact, the evidence admits of no other
sustainable conclusion. On 15 November 1999, Eisenberg wired $1 million to an account
at Wachovia Bank, N.A. (“Wachovia Bank”) “for further credit to Bear Stearns.” An
account held at Wachovia Bank under the name Douglas Walter Reid d/b/a Bear Stearns
(“Reid account”) received a wire transfer in the amount of $1 million on 15 November
1999. Prior to this $1 million deposit, this account had a minuscule balance of $432.05.
On 22 November 1999, $415,000 was wired from the Reid account to Lenoir’s account
held at Grand Bank Savings. During the week of 15 November 1999 to 22 November
1999, no other deposits were made to the Reid account. The record of transactions
clearly traces the $415,000.
The identifiable nature of the funds allows this court to apply Mississippi case
law regarding stolen property without reservation. Reid stole money from Eisenberg
and transferred the funds to Lenoir. Reid had no right to the stolen money and therefore
could not transfer any right to Lenoir. Lenoir’s innocence of any involvement in the
wrongdoing does not entitle him to retain the money. The funds were not commingled,
but remained identifiable. Further, whether or not Lenoir parted with consideration, and
could thus qualify as a bona fide purchaser for value, has no bearing on this analysis.
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“Even though the sale of the property is made to a bona fide purchaser for value, if it is
stolen property, the person from whom it was stolen is not divested of his title.” See
Walker v. Johnson, 354 So.2d 792, 793 (Miss.1978); see also Textile Supplies, Inc. v.
Garrett, 687 F.2d 123, 127 (5th Cir.1982)(applying Mississippi law and finding that when
a salesman stole carpet from his employer he obtained only “void title” and employer
retained title to the carpet even after sale to unknowing buyer). We therefore need not
decide whether Lenoir parted with valuable consideration or was a bona fide purchaser
for value. Mississippi case law regarding stolen property requires Lenoir to return the
$415,000 to Eisenberg. Lenoir cannot benefit from Reid’s wrongdoing. See Hans v.
Hans, 482 So.2d 1117, 1122 (Miss. 1986) (stating that unjust enrichment occurs when one
“is in possession of money or property which in good conscience and justice he should
not retain but should deliver to another”).
III. CONCLUSION
Mississippi case law is clear that a thief does not obtain title to stolen property
and, subsequently, cannot transfer title even to an unknowing purchaser. The $415,000
deposited in Lenoir’s account is readily identifiable as having come from funds stolen
from Eisenberg. Lenoir’s innocence of any wrongdoing and his unawareness of Reid’s
fraudulent behavior is irrelevant to this analysis. The money must be returned to
Eisenberg. Lenoir, however, is not without recourse. Lenoir maintains a claim against
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Reid for an accounting of his funds manipulated by Reid. Accordingly, we AFFIRM the
district court’s decision in its entirety.
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