Opinion
Civil Action No. 3:99-CV-1254-G
February 9, 2001
MEMORANDUM ORDER
Before the Court are the motions of both parties for summary judgment. For the reasons discussed below, the defendant's motion is granted and the plaintiff's motion is denied.
I. BACKGROUND
The facts of this case have already been set out, in large part, in Texas Commerce Bank National Association v. State of Florida, 138 F.3d 179 (5th Cir. 1998). In addition, this court has issued orders relating to these parties on several previous occasions. Nevertheless, the court will repeat the most salient facts for the purpose of resolving this motion.
See, e.g., Florida Department of Insurance v. Chase Bank of Texas National Association, No. 3:99-CV-1254-G, 2000 WL 36065, at *1 (N.D. Tex. Jan. 14, 2000) (denying Chase's motion to dismiss); Texas Commerce Bank National Association v. Florida, No. 3:96-CV-2814-G, 1997 WL 181532, at *1-4 (N.D. Tex. Apr. 9, 1997) (denying Chase's motion for a preliminary injunction), aff'd, Texas Commerce Bank National Association v. State of Florida, 138 F.3d 179 (5th Cir. 1998).
On June 14, 1994, the Florida Department of Insurance ("Florida" or "the plaintiff) was appointed receiver for the remaining assets of the insolvent Western Star Insurance Company ("Western Star"), an Antigua corporation, that was de facto domiciled in the State of Florida and illegally conducting insurance business from Florida using Broadview Services, Inc. ("Broadview"), a Florida corporation, as a cover. Complaint ¶ 2; Consent Order Appointing the Florida Department of Insurance as Receiver for Purposes of Liquidation, Injunction, and Notice of Automatic Stay ("Consent Order") ¶¶ A-H, attached as Exhibit I to Complaint. Before being placed into receivership, Western Star was marketing insurance policies in the United States as an "alien surplus lines insurer." Complaint ¶ 4. To continue the sale of policies and the collection of premiums for policies primarily sold in California both by Western Star and a predecessor in interest, Kyle Insurance Company, Western Star needed to be able to demonstrate to insurance regulators sufficient, valid, and legal reserves for its underwriting. Id. Specifically, to protect policyholders, claimants, and the public, the State of California required a reserve of $5.4 million in cash or equivalent funds. Id. The basis of this suit is the false representation, allegedly made by Chase to enable Western Star to sell new policies and keep existing policies in force, that Chase was holding a $5.4 million Trust Fund in its "actual and sole possession." Id. ¶ 5.
For the sake of simplicity, "Chase" will be used to refer not only to the present defendant but also to the predecessor entities which engaged in these activities.
Florida alleges that, commencing in late 1992 and early 1993, Western Star sought Chase's assistance in a joint plan to conceal the true financial condition of Western Star and to allow the insurance company to continue to sell policies and collect premiums without real reserves. Id. ¶ 7. To implement this plan, Western Star had arranged, in a December 1992 meeting held in Miami, Florida with the representative of a foreign entity, Europe American Capital Corporation ("EACC"), to "rent" a Certificate of Deposit ("CD"). Id. The CD stated that Western Star had "lodged a deposit" in the amount of $5.4 million in "United States Dollars" with the First Asia Development Bank, Ltd., Port Vila, Republic of Vanuatu, an island republic in the South Pacific between Australia and Tahiti. Id.; Certificate of Deposit, attached as Exhibit 3 to Complaint. The First Asia Development Bank, Ltd. ("First Asia") was a private unregulated bank. Complaint ¶ 7. Florida alleges that Western Star neither deposited $5.4 million with First Asia nor even had $5.4 million in cash to deposit. Id. Instead, Western Star allegedly paid a fee of several thousand dollars to EACC for a "credit enhancement," and the CD obtained by this arrangement falsely stated on its face that Western Star had deposited $5.4 million in United States Dollars with First Asia. Id.
After obtaining this "rented" CD, Western Star in January 1993 met with Chase in Dallas, Texas for the purpose of securing Chase's agreement to act as trustee for Western Star in this insurance venture. Complaint ¶ 8. Chase furnished Western Star a copy, partially blacked out, of what purportedly was a "National Association of Insurance Commissioners ("NAIC") Standard Form Trust Agreement for Alien Surplus Lines Insurers." Id. Chase had used the form for another offshore insurance company, Alpine Assurance, Ltd., Turks and Caicos Islands, which also allegedly had sought to inflate its balance sheet and market surplus lines coverage in the United States. Id. Surplus lines coverage was generally regarded as high risk coverage — insuring boats, taxi cabs, and other persons or entities seeking coverage that may not have been available through standard domestic insurance companies. Id.
The NAIC had promulgated a "standard form" trust agreement for the express purpose of protecting policyholders, claimants, and the public. This Trust provided a secure sum of liquid reserve assets in the actual and sole possession of a domestic United States bank trustee as a source of payment in the event of the refusal or inability of the offshore surplus lines insurance company to pay claims. This special purpose NAIC Trust, in conjunction with various uniform laws and reciprocal interstate agreements, would enable an offshore insurance company to be qualified to write alien surplus lines coverage. Complaint ¶ 9. Chase modified the actual "Standard Form" Trust Agreement as promulgated by NAIC that Chase used for both the Western Star and the Alpine Trust Agreements. Chase deleted the provision in paragraph 2.14 requiring Chase, as Trustee, to certify upon execution of the trust agreement all trusteed assets to the National Association Insurer Information Office ("NAIIO"). Chase also deleted the requirement in paragraph 5.3 to obtain authority and approval from the NAIC to modify the "Standard Form" Trust Agreement. Complaint ¶ 10 n. 1.
Florida avers that under the terms of the Trust, fiduciary duty required Chase, as Trustee, to have in its actual and sole possession a $5.4 million Trust Fund for the protection of policyholders and third party claimants. Complaint ¶ 13. According to the Agreement,
1.5 "TRUST FUND" or "TRUST" means the cash, Readily Marketable Securities and Letters of Credit, or any combination thereof, in the actual and sole possession of the Trustee and held under the provisions of this Agreement
NAIC Standard Form Trust Agreement for Alien Surplus Lines Insurers ("Agreement") at 2, ¶ 1.5, attached as Exhibit 2 to Complaint.
Florida alleges that Chase was aware, or should have been aware, that Western Star planned to use the First Asia CD as its trust asset, and that this was not an acceptable trust asset as defined by the NAIC Trust Agreement. Complaint ¶¶ 14, 16. Chase continued to represent that it maintained a $5.4 million Trust Fund in its actual and sole possession," and Western Star continued to sell and collect premiums of up to a million dollars a month from California on new policies being written by Western Star. Complaint ¶¶ 15-25. According to the plaintiff, Chase continued to represent that this CD had value even after the California Department of Insurance, the Office of the Comptroller of Currency, the Texas Department of Insurance, and Florida became increasingly concerned that Western Star was writing insurance policies without any assets in its trust fund. Id. ¶ 26-34. At no time while Chase was Trustee did it declare the Trust Fund insolvent or disavow in any respect the Trust or the allegedly facially false CD. Id. ¶¶ 23, 26, 28, 31. As a result, Western Star collected substantial premiums, but left policyholders, third party claimants, and other creditors with no assets to cover all outstanding claims. Id. ¶ 25. Chase eventually interpled the allegedly worthless First Asia CD into the registry of this court, and the procedural wrangling described in Texas Commerce Bank, 138 F.3d 179, followed.
At some point after commencement of the interpleader case, Western Star's counsel advised the court that the First Asia Development Bank had cancelled the CD and had "disappeared" from the Island Republic of Vanuatu. Complaint ¶ 37.
Florida then brought this action, seeking monetary relief from Chase, on the ground that Chase's representation constitutes a fiduciary's commitment to the plaintiff for $5.4 million. Complaint ¶ 42. Florida makes claims against Chase for, among other things, breach of the Trust Agreement; breach of fiduciary duty; fraudulent concealment of Western Star's insolvency; and fraudulent marketing of insurance; Complaint ¶ 46-56. Chase asserts a counterclaim against Florida, seeking recovery or an offset from the plaintiff — as receiver for Western Star — for any damages, costs, and expenses resulting from the instant action. See Defendant's Answer, Counterclaim, and Third-Party Complaint at 11.
Subject matter jurisdiction is based on diversity of citizenship. Accordingly, these claims are controlled by Texas law. See Morris v. LTV Corporation, 725 F.2d 1024, 1026 (5th Cir. 1984) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938)).
The parties now cross-move for summary judgment.
II. ANALYSIS A. Evidentiary Burdens on Motion for Summary Judgment
Summary judgment is proper when the pleadings and evidence on file show that no genuine issue exists as to any material fact and that the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). "[T]he substantive law will identify which facts are material." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. A movant for summary judgment makes such a showing by informing the court of the basis of its motion and by identifying the portions of the record which reveal there are no genuine material fact issues. Celotex Corporation v. Catrett, 477 U.S. 317, 323 (1986). The pleadings, depositions, admissions, and affidavits, if any, must demonstrate that no genuine issue of material facts exists. FED. R. CIV. P. 56(c).
The disposition of a case through summary judgment "reinforces the purpose of the Rules, to achieve the just, speedy, and inexpensive determination of actions, and, when appropriate, affords a merciful end to litigation that would otherwise be lengthy and expensive." Fontenot v. Upjohn Company, 780 F.2d 1190, 1197 (5th Cir. 1986).
Once the movant makes this showing, the nonmovant must then direct the court's attention to evidence in the record sufficient to establish that there is a genuine issue of material fact for trial. See Celotex, 477 U.S. at 323-24. To carry this burden, the "opponent must do more than simply show. . . some metaphysical doubt as to the material facts." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corporation, 475 U.S. 574, 586 (1986). Instead, the nonmovant must show that the evidence is sufficient to support a resolution of the factual issue in its favor. See Anderson, 477 U.S at 249.
While all of the evidence must be viewed in a light most favorable to the motion's opponent, see Anderson, 477 U.S. at 255 (citing Adickes v. S.H. Kress Company, 398 U.S. 144, 158-59 (1970)), neither conclusory allegations nor unsubstantiated assertions will satisfy the opponent's summary judgment burden. See Little v. Liquid Air Corporation, 37 F.3d 1069, 1075 (5th Cir. 1994) ( en banc); Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert. denied, 506 U.S. 825 (1992). Summary judgment is proper if, after adequate time for discovery, the motion's opponent fails to establish the existence of an element essential to its case and as to which it will bear the burden of proof at trial. See Celotex, 477 U.S. at 322-23.
B. Fraud Claims
Under Texas law, "detrimental reliance" is an essential element of a claim for fraud or misrepresentation. Federal Deposit Insurance Corporation v. Patel, 46 F.3d 482, 486-87 (5th Cir. 1995); see also Jackson v. Speer, 974 F.2d 676, 679 (5th Cir. 1992) ("No fraud has been perpetrated until the claimant has acted in reliance upon false representations.").
Similarly, the plaintiff must also prove that the alleged misrepresentation was the proximate cause of the damages that he or she is seeking to recover. See, e.g., Ratner v. Sioux Natural Gas Corp., 770 F.2d 512, 519 (5th Cir. 1985) ("To prevail on a common law fraud claim in Texas, one must show that a misrepresentation caused him injury."); CC Partners v. Sun Exploration and Production Company, 783 S.W.2d 707, 718-19 (Tex.App.-Dallas 1989, writ denied) ("There must be pleading and proof of a pecuniary loss suffered which is directly traceable to and which resulted from the false representation upon which the injured party relied."). Because proof of these elements is lacking, Chase is entitled to summary judgment on Florida's fraud claims.
To the extent that Florida is seeking to recover on behalf of Western Star policyholders who have unpaid claims, Florida has produced no evidence that any such policyholders purchased their policies, or paid their premiums, in reliance upon Chase's alleged misrepresentations regarding trust assets. Indeed, Florida's counsel stated in open court that it has no evidence of actual reliance by individual policyholders. See Appendix in Support of Defendant Chase Bank of Texas, N.A.'s Response to the Receiver's Motion for Summary Judgment ("Defendant's Appendix") at 8.
Instead, Florida's fraud claims are seemingly based upon a fraud-on-the-market theory. Specifically, Florida contends that the insurance regulators, relying on Chase's alleged misrepresentations regarding the trust, allowed Western Star to sell policies that it otherwise would not have been permitted to sell. Defendant's Appendix 4-8. This argument is flawed, however, in two respects.
First, Texas does not recognize the fraud-on-the-market presumption of reliance for common law fraud actions. See, e.g., Steiner v. Southmark Corporation, 734 F. Supp. 269, 279 (N.D. Tex. 1990) (refusing to extend the fraud-on-the-market presumption of reliance to Texas common law fraud claims); In re Ford Motor Company Vehicle Paint Litigation, 182 F.R.D. 214, 221-22 (E.D. La. 1998) (noting that the vast majority of states have never adopted a rule allowing a presumption of reliance in common law fraud cases). Rather, proof of actual reliance by the policyholders is necessary. See, e.g., Gibraltar Savings v. LDBrinkman Corporation, 860 F.2d 1275, 1303 (5th Cir. 1988) (under Texas law, "no fraud claim could succeed without separate evidence of reliance"), cert. denied, 490 U.S. 1091 (1989); Castano v. American Tobacco Company, 84 F.3d 734, 749 n. 28 (5th Cir. 1996) ("under Texas law, reliance is an essential element of both affirmative fraud and fraudulent concealment") (citations omitted); Rubalcaba v. Pacific/Atlantic Crop Exchange, Inc., 952 S.W.2d 552, 556 (Tex.App.-El Paso 1997, no writ) (under Texas law, "fraud is never presumed" and "all the elements of fraud must be alleged and proven").
Second, even if the alleged reliance of the regulators could be imputed to policyholders, there is no evidence that regulators in California or elsewhere allowed Western Star to sell insurance based on any alleged misrepresentations by Chase. On the contrary, the record clearly establishes that: (1) Western Star, pursuant to its rights under California law, was selling insurance in California without a license long before the trust agreement was ever executed, see Defendant's Appendix at 21-25; (2) when Western Star presented the trust agreement and other allegedly deceptive materials to California regulators in an attempt to obtain a license, the California regulators promptly rejected the trust agreement, declared Western Star insolvent, issued a cease-and-desist order to Western Star, and notified NAIC and the National Association Insurer Information Office ("NAIIO"), see id. at 9-16, 36; and (3) the Florida regulators have testified unequivocally that they did not, as a result of any alleged misrepresentations by Chase, allow any policies to be written by Western Star, see id. at 18.
Florida argues that Chase, as a fiduciary, is estopped — as a matter of law — from even arguing that detrimental reliance is a required element in fraud causes of action. See Receiver's Response to Chase's Motion for Summary Judgment and Memorandum in Support ("Plaintiff's Response Brief") at 20 (citing First Federal Trust Co. v. Stockfleth, 98 Cal.App. 21, 27 (1929); American Republics Corporation v. Houston Oil Company, 173 F.2d 728 (5th Cir.), cert. denied, 338 U.S. 858 (1949); Roberts v. Chadwick, 158 F.2d 374 (5th Cir. 1946); and Murphy v. Jamison,
117 S.W.2d 127 (Tex.Civ.App.-Beaumont 1938, writ ref'd)). The cases cited by Florida in support of this principle, however, merely stand for the unremarkable proposition that in conveyance agreements and deed records, parol evidence is inadmissible to contradict the unambiguous terms of the document except in certain limited circumstances, such as fraud or mistake. They do not remotely suggest that, simply because an alleged misrepresentation was contained in a written document, the defendant accused of fraud is estopped from asserting that the plaintiff did not rely on the alleged misrepresentation. Such a rule would effectively remove the element of detrimental reliance from most commercial fraud cases, and — as noted previously — that is not the law of Texas.
More dubious still is Florida's contention that "[r]eliance sufficient for actual fraud exists in fact and is conclusively presumed by the very nature and purpose of the NAIC trust agreement, the execution of the agreement by Chase . . . as trustee, and the subsequent distribution and communication into the stream of commerce, to regulators, and, indeed, to this court." Plaintiffs Response Brief at 20. Legally, this argument is, in substance, nothing more than a contention that the court should apply the fraud-on-the-market presumption of reliance to this case. That contention, however, is not supported by any legal authority. Indeed, it runs directly counter to Texas law, which, as has already been discussed, does not recognize the fraud-on-the-market presumption of reliance for common law fraud actions.
Florida also urges that, "under the precepts of constructive fraud, Chase carries the burden (to] disprove . . . reliance." Plaintiff's Response Brief at 21. In support of this contention, the plaintiff cites two lines of authority: (1) cases defining the term "constructive fraud"; and (2) cases stating that, in transactions which involve self-dealing by a fiduciary, the burden of proving the fairness of the transaction is on the fiduciary. See id. (emphasis added). None of these authorities, however, supports Florida's contention that Chase bears the burden of disproving reliance in the case at bar.
With respect to the "constructive fraud" line of cases, Florida misses the point. Under Texas law, "constructive fraud" is virtually the same tort as breach of fiduciary duty. See, e.g., United Teacher's Associates Insurance Company v. MacKeen and Bailey, Inc., 847 F. Supp. 521, 533 (W.D. Tex. 1994) (citing Stephanz v. Laird, 846 S.W.2d 895, 903 (Tex.App.-Houston [1st Dist.] 1993, writ denied), and Thompson v. Vinson Elkins, 859 S.W.2d 617, 621 (Tex.App.-Houston [1st Dist.] 1993, writ denied)), reversed in part on other grounds, 99 F.3d 64 (5th Cir. 1996). In counts 3 and 4 of its complaint, Florida has sued Chase for active fraud, not constructive fraud. Complaint ¶¶ 52-57. The plaintiff's constructive fraud claim is in Count 2 of its complaint, which asserts a breach of fiduciary duty. Id. ¶¶ 50-51. As discussed below, that claim fails as a matter of law, because Florida has produced no evidence that the alleged breach of fiduciary duty caused any damages. That Florida has sued Chase for constructive fraud in count 2 does not relieve the plaintiff of its burden to prove detrimental reliance on its active fraud claims in counts 3 and 4.
Likewise, the cases cited by Florida which hold that the fiduciary bears the burden of proving the fairness of self-dealing transactions do not suggest that a fiduciary bears the burden of disproving detrimental reliance in active fraud actions such as those alleged in the instant case. See Plaintiff's Response Brief at 21 n. 8. Florida's fraud claims are not based on allegations that Chase engaged in self-dealing with trust assets. Rather, they are based on alleged misrepresentations and omissions by Chase that purportedly induced policyholders to purchase insurance policies from Western Star. Complaint ¶¶ 53, 56. Florida has not cited, nor has the court independently discovered, any authority holding that a fiduciary's obligation to prove the fairness of self-dealing transactions in actions claiming a breach of fiduciary duty obligates the fiduciary to disprove reliance in common law fraud actions. On the contrary, it is a matter of well settled Texas law that "fraud is never presumed" and that "all elements of fraud must be alleged and proven." Rubalcaba, 952 S.W.2d at 556.
To the extent that Florida is seeking to recover on behalf of Western Star, as opposed to its policyholders, Florida has failed to produce any evidence that Western Star was deceived by Chase about the nature and/or value of the trust fund, or that Chase acted with the requisite intent to deceive Western Star. On the contrary, Florida's complaint is replete with allegations that the alleged misrepresentations regarding the nature and value of the trust fund were part of a "joint plan" between Western Star and Chase to defraud policyholders, not to defraud Western Star, and that Western Star had full knowledge regarding the nature and value of the CD it gave to Chase. See, e.g., Complaint ¶¶ 6-8, 12, 15-22, 27-28, 31-32. Indeed, Florida has admitted in open court that Western Star was not deceived by Chase. See Defendant's Appendix at 7.
In sum, because the record contains no evidence of the requisite detrimental reliance, Chase is entitled to summary judgment on Florida's fraud claims.
C. Breach of Trust and Fiduciary Duty Claims
To survive summary judgment on its breach of trust and fiduciary duty claims, Florida must produce some evidence of causation and damages. See, e.g., Pehnke v. City of Galveston, 977 F. Supp. 827, 832 (S.D. Tex. 1997) (to establish a breach of contract claim in Texas, a plaintiff must show that damage resulted from the breach); Peterson v. Dean Witter Reynolds, Inc., 805 S.W.2d 541, 552 (Tex.App.-Dallas 1991, no writ) (proximate cause is an essential element of breach of fiduciary duty claims); Black v. Acme Markets, Inc., 564 F.2d 681, 685 (5th Cir. 1977) (damages is an element of all tort claims).
In the case at bar, Florida's breach of trust and fiduciary duty claims rest on allegations that Chase breached the Trust Agreement and its fiduciary duties in three ways: (1) by accepting the allegedly worthless CD and the trust fund; (2) by not properly certifying the nature and value of the trust assets; and (3) by not declaring the trust fund insolvent. Florida has produced no evidence, however, that any these alleged breaches caused any damages.
1. Acceptance of the CD into the Trust Fund
With respect to the first alleged breach, a factually analogous claim was discussed in Craft v. Sunwest Bank of Albuquerque, 84 F. Supp. 2 d 1226 (D.N.M. 1999), a case discussed at length in this court's earlier order denying Chase's motion to dismiss. See Florida Department of Insurance v. Chase Bank of Texas National Association, No. 3:99-CV-1254-G, 2000 WL 36065, at *1, 6-7 (N.D. Tex. Jan. 14, 2000). The Craft court, relying in part on Fifth Circuit precedent, reasoned as follows:
If [the bank] breached its duties toward the trust, [the bank] would be liable for the actual damages caused by that breach, but would not be liable for damages that would have occurred even in the absence of the breach.
* * *
What this means in this case is the following: [The bank] is liable only for the amount of additional assets that could have been placed in the trust, if [the bank] had attempted to force the [insurance company] to deposit the correct amount of assets, in the correct form, into the trust. In other words, if [the insurance company] possessed no other assets, at the time the trust was created, to deposit into the trust, [the bank's] breach caused the trust no harm. If [the insurance company] had some other assets, but not enough to make up the $1.5 million, [the bank's] breach harmed the trust only to the extent of the value of the other assets owned by [the insurance company] that could have been contributed to the trust but were not.Craft, 84 F. Supp.2d at 1240 (citing, inter alia, Whitfield v. Lindemann, 853 F.2d 1298, 1304 (5th Cir. 1988) (trustee is not liable for loss if the loss would have occurred even in the absence of the breach of trust), cert. denied, 490 U.S. 1089 (1989), and Donovan v. Bierwirth, 754 F.2d 1049, 1056 (2d Cir. 1985) (remedy for breach of trust is to restore beneficiaries to position they would have been in had no breach occurred)). Here, Florida has offered no evidence that Western Star had any qualifying assets that were available to put into the Trust at the time it was created. On the contrary, Florida has admitted in its interrogatory answers that Western Star was insolvent at the time the Trust was created and at all times subsequent thereto. See Defendant's Appendix 44-46. Because Florida has failed to produce any evidence that Western Star had any additional assets it could have contributed to the trust, it has not been shown that Chase's acceptance of the $5.4 million CD into the trust caused any harm to the trust.
2. Alleged misrepresentations regarding the nature and value of the trusts assets
With respect to Florida's allegations that Chase breached the trust agreement and its fiduciary duties by making misrepresentations regarding the nature and value of the trust assets, those allegations are merely a reiteration of its fraud claims. Accordingly, the allegations fail for the same reason as the plaintiff's fraud claims, i.e., no evidence of reliance has been shown. Although reliance is not technically an element of a breach of trust or fiduciary duty claims, "[i]n the present ease . . . a claim that reliance is nor a component of causation strains credulity." Federal Deposit Insurance Corporation v. Ernst Young, 967 F.2d 166, 170 (5th Cir. 1992) (in negligence action against accounting firm, firm could not be held liable for negligence, because plaintiff association did not rely on accounting firm's audit).
3. Failure to declare the trust fund insolvent
With respect to Florida's third claim — that Chase breached the trust agreement and its fiduciary duties by failing to declare the trust fund insolvent — Florida has also produced no evidence of causation or damages. The plaintiff's apparent theory of causation and damages is that the regulators would have taken action sooner to shut down Western Star but for these alleged breaches by Chase, which, in turn, would have prevented certain unpaid policy claims from arising. This theory finds no support in the evidentiary record, however. Indeed, under the express terms of the Trust Agreement, by the time the trust fund would have been obligated to provide notice of insolvency to the NAIIO — sixty days after certification by Chase that the value of the trust fund was less than $5.4 million — California regulators had already rejected the trust agreement, issued a cease and desist order, and declared Western Star insolvent. See Defendant's Appendix at 9-16, 89-103 (§§ 2.14 (b), 4.1(b), 4.2(b)). It necessarily follows that any subsequent declaration of trust insolvency by Chase would not have caused the regulators to act any sooner.
4. "Lost" Trust Value and "Liquidated Damages"
Finally, perhaps cognizant that it has failed to set forth any facts supporting its damages claim, Florida repeatedly asserts in its reply brief that Chase "lost" the $5.4 million trust fund as a matter of law. See Receiver's Reply Memorandum in Support of Its Motion for Summary Judgment ("Plaintiff's Reply Brief") at II. In particular, it urges that the alleged $5.4 million loss to the value of the trust fund "constitutes a liquidated damage claim on the part of the [plaintiff], with interest due from the date of [the plaintiff's] demand . . ." Id. This claim is meritless.
As an initial matter, it is undisputed that the only trust fund asset Chase ever received was the CD — which Florida alleges was worthless from the beginning. Complaint ¶ 17, 26, 35. Chase did not lose the CD. Rather, it deposited it into the registry of this court pursuant to an order entered by the court in Chase's earlier interpleader action. See Defendant's Appendix at 116-17, 167. Thus, Florida's assertion that the trust fund was "lost" is simply not supported by any evidence.
In support of its purported liquidated damages theory, Florida directs the court to Article IV of the Trust Agreement. See Plaintiff's Reply Brief at 11. Article IV provides in relevant part as follows:
4.4 Transfer of Trust Assets to Domiciliary Commissioner in Event of Insolvency. In the event that the Trust becomes insolvent . . the Trustee shall comply with an order of the Domiciliary Commissioner or court of competent jurisdiction directing the Trustee to transfer to the Domiciliary Commissioner or other designated Receiver all of the assets of the Trust Fund except those assets which are necessary to satisfy the Trustee's Priority Claims as determined pursuant to Articles 2.2 and 3.7. Compliance with such an order shall relieve the Trustee of all further duties. . . .
Agreement, attached as Exhibit 2 to Complaint. "`Liquidated damages' constitute the measure of damages agreed to in advance by the parties as just compensation for a breach of a contract or other harm where the harm caused is difficult to estimate accurately." Newsom v. State, 922 S.W.2d 274, 281 (Tex.App.-Austin 1996, writ denied) (citing Sisk v. Parker, 469 S.W.2d 727, 732 (Tex.Civ.App.-Amarillo 1971, writ ref'd n.r.e.)). The $5.4 million in damages which Florida seeks in this case do not qualify as "liquidated damages." First, the amount sought by Florida was not "agreed to in advance by the parties." Agreement, attached as Exhibit 2 to Complaint. Contrary to Florida's assertion, the Trust Agreement, by its own terms, does not require Chase to deliver $5.4 million or any other specific, predetermined amount to the plaintiff in the event of a breach of contract. Rather, Article IV of the Trust Agreement requires Chase, in the event of the trust's eventual insolvency, to transfer to a designated receiver " all of the assets of the Trust Fund. . . ." Id. (emphasis added). Reference to such an indefinite quantum does not provide a basis for Florida's contention that Article IV constitutes a liquidated damages clause. Even if it did, however, in the instant case — which involves a trust into which no valuable assets were ever placed — the $5.4 million now sought by Florida plainly is not equivalent to "all of the assets of the Trust Fund . . .," which here would be $0.
Moreover, Article IV of the Trust Agreement does not appear to have been intended by the parties as a liquidated damages clause, i.e., as a basis for determining in advance the measure of compensatory damages in the event of a breach of contract. Instead, Article IV ensures that, in the event of the trust's insolvency, all assets remaining in the trust will be transferred to the receiver — not as damages for breach of contract, but as compensation for any claimants with "Matured Claims" against Western Star. Agreement ¶ 4.5.
Because Florida has produced no evidence of causation and damages, and because it has established no legal or factual basis for its "liquidated damages" theory, Chase is entitled to summary judgment on the plaintiff's breach of trust agreement and breach of fiduciary duty claims.
III. CONCLUSION
For the foregoing reasons, the defendant's motion for summary judgment is GRANTED, and the plaintiffs motion for summary judgment is DENIED. Judgment will be entered that Florida take nothing on its claims against Chase.
SO ORDERED.