Texas Capital Bank, N.A. et al v. First American Title Insurance Co. et al
Filing
103
MEMORANDUM OPINION AND ORDER by Judge John G. Heyburn, II on 2/17/12 sustaining 80 Plaintiffs motion for leave to file their SecondAmended Complaint cc:counsel (DAK)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
CIVIL ACTION NO. 3:09CV-661-H
TEXAS CAPITAL BANK, N.A., et al.,
PLAINTIFFS
V.
FIRST AMERICAN TITLE INSURANCE CO.,
DEFENDANT
MEMORANDUM OPINION AND ORDER
Texas Capital Bank and its insurers (collectively, “Texas Capital” or “Plaintiffs”) brought
this action against First American Title Insurance Company (“First American” or “Defendant”)
for recovery of Texas Capital’s $1.9 million that First American transferred to a third party,
Bounmy Phouthavong (“Phouthavong”), an officer at a residential mortgage loan company.
Phouthavong constructed a scheme of fake home mortgage applications by which she caused
Texas Capital to wire money to First American and then convinced First America that the funds
were wired by mistake and should be transferred to her. Plaintiffs allege Defendant held those
funds in bailment and only had permission to use the money to close specified home mortgage
transactions or return the money to Texas Capital.
I.
Texas Capital’s original Complaint alleged various causes of action based on the same
underlying conduct, but after the parties filed and briefed cross-motions for summary judgment
only Plaintiff’s claim for a breach of an implied bailment contract remains. However, before the
Court had issued its opinion on those motions, Texas Capital filed a motion seeking leave to file
a Second Amended Complaint to add a count for conversion. The proposed Second Amended
Complaint is otherwise identical to the First Amended Complaint. Plaintiffs’ filing came prior to
the deadline for amendment of pleadings the Court set in its April 22, 2011 order from the
scheduling conference.
The Federal Rules provide that a party seeking to amend its pleadings for a second time
must have the opposing party’s consent or seek leave from the court, but that “[t]he court should
freely give leave when justice so requires.” Fed. R. Civ. P. 15(a)(2). First American opposes
granting such leave because of Plaintiffs’ undue delay, the undue prejudice amendment would
cause First American, and the proposed amendment would be futile. See Seals v. Quarterly
Cnty. Court, 526 F.2d 216, 219 (6th Cir. 1975) (quoting Foman v. Davis, 371 U.S. 178, 182
(1962)). None of these arguments persuade the Court to deny Plaintiffs leave to file their Second
Amended Complaint.
II.
First American argues that Texas Capital could have included a claim for conversion
much earlier in the course of litigation. Although this is undoubtedly true, Plaintiffs filed their
Second Amended Complaint by the deadline set by this Court. Meeting this deadline warrants a
presumption that any delay in filling the amendment was not undue and Defendant has not
pointed to any circumstances that would rebut that presumption.
Similarly, meeting the deadline for amending pleadings undermines any argument First
American makes as to undue prejudice. First American points out that the amendment comes
after extensive discovery, depositions, and summary judgment motions. However, all parties
knew and agreed to the possibility of amended pleadings coming at this point in the litigation
when they filed their Rule 26 report and when the Court ordered a litigation schedule.
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Defendant claims allowing amendment would force them to conduct new discovery, but this
does not constitute undue prejudice because the litigation schedule provided for discovery well
after the deadline for amended pleadings.
Finally, First American argues the amendment would be futile because the proposed
conversion claim could not survive a dispositive motion. The claim would either be barred by
the statute of limitations, Defendant contends, or dismissed at summary judgment because the
undisputed facts fail to meet the required elements of a conversion claim. Although the Court
declines to decide these issues without proper briefing, it does not find the conversion claim to
be futile. The statute of limitations is unlikely to defeat the conversion claim because the
Federal Rules allow a new claim to relate back to the date of the original pleading when it is
based on conduct set out in the original pleading. Fed. R. Civ. P. 15(c)(1)(B). Since Texas
Capital filed the original complaint within a year of the relevant events, the two-year statute of
limitations in Ky. Rev. Stat. § 413.125 would not bar the claim.
First American argues the amendment to add a conversion claim is also futile because
Texas Capital cannot demonstrate a necessary element of conversion: the defendant converted
the property to its own use and beneficial enjoyment. See Kentucky Ass’n of Cntys. All Lines
Fund Trust v. McClendon, 157 S.W.3d 626, 632 n.12 (Ky. 2005). However, Texas Capital
identifies authority suggesting defendant’s use of the converted property is not an essential
element and argues the conversion benefitted First American because it was done in the course
of its business. Without deciding these issues, the Court finds the conversion claim would not be
futile.
III.
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Kentucky case law and that of other jurisdictions shows conversion claims often flow
from alleged breaches of a bailee’s duties towards a bailor. See, e.g., 4 William B.
Bardenwerper, et. al, Kentucky Practice Series Methods of Practice § 1:11 (4th ed. 2011)
(describing conversion by bailee and citing cases); 8A Am. Jur. 2d Bailments § 70 (2009) (“a
bailee who makes an unauthorized delivery of bailed property is liable to the bailor for
conversion”); Restatement (Second) of Torts § 234 (1965) (bailee who makes unauthorized
delivery liable for conversion). It appears that if the conversion claim stands, the central issue in
its disposition will be the same issue identified in this Court’s previous order: “whether First
American Title properly discharged its duties under the bailment by disposing of the funds
according to Texas Capital’s instructions.” Texas Capital Bank, N.A. v. First Am. Title Ins. Co.,
No. 3:09CV-661-H, 2011 WL 4500621, at *5 (W.D.Ky. Sept. 27, 2011). First American only
converted Texas Capital’s property if it did not have permission to transfer the funds to
Phouthavong. Adding the count for conversion does not appear to change the course of this
litigation in any significant way, including the Court’s prior ruling as to the inapplicability of an
apportionment instruction. Since leave to amend is to be freely given and Texas Capital filed the
Second Amended Complaint by the deadline previously set, the Court will allow the amended
pleading.
Being otherwise sufficiently advised,
IT IS HEREBY ORDERED that Plaintiffs’ motion for leave to file their Second
Amended Complaint is SUSTAINED.
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February 17, 2012
cc:
Counsel of Record
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