Premium Hospitality, L.L.C. et al v. Astra Capital Funding et al

Filing 46

ORDER & REASONS re granting in part and denying in part Defendant Fidelity National Title Company's ("Fidelity") 29 Motion to Dismiss Pursuant to Federal Rule 12(b)(6) 29 : for the reasons stated, IT IS HEREBY ORDERED that Fidelity&# 039;s "Motion to Dismiss Pursuant to Federal Rule12(b)(6)" is GRANTED IN PART and DENIED IN PART; IT IS FURTHER ORDERED that Plaintiffs' claims against Fidelity for breach of fiduciary duty and failure to perform due diligence are DISMISSED WITH PREJUDICE. Signed by Judge Nannette Jolivette Brown on 7/19/2013. (rll, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
PREMIUM HOSPITALITY, L.L.C., et al.

CIVIL ACTION

VERSUS

NO. 12-0779

ASTRA CAPITAL FUNDING, et al.

SECTION: “G”(5)

ORDER AND REASONS
Before the Court is Defendant Fidelity National Title Company's ("Fidelity") "Motion to
Dismiss Pursuant to Federal Rule 12(b)(6),"1 wherein it seeks the dismissal of all claims against it
here. After considering the complaint, the pending motion, the memorandum in support, the
opposition, the record, and the applicable law, the Court will grant in part and deny in part the
pending motion.
I. Background
A. Factual Background
Plaintiffs are Premium Hospitality, L.L.C. ("Premium Hospitality"), Kajal, Incorporated
("Kajal"), and Ashok Patel ("Patel") (collectively, "Plaintiffs").2 Defendants are Astra Capital
Funding, Inc. ("Astra"), John Burton Ramsey ("Ramsey"), Sandeep Nagin Patel ("Sandeep Patel"),
BP Communications LTD ("BP"), World Trade Holdings, LLC ("World Trade"), and Fidelity.3
Patel acted as President of both Premium Hospitality and Kajal, which are both engaged in
the hotel industry. In that capacity, Patel sought loans to finance specific projects concerning each

1

Rec. Doc. 29.

2

Rec. Doc. 26 at ¶ 3 (Amended Complaint).

3

Id. at ¶ 4.

corporation.4 Patel contacted Mortgage Corp, whose agent was Defendant Sandeep Patel, who in
turn referred him to Astra. Plaintiffs claim that they reached an agreement with Astra, whereby
Premium Hospitality would receive a $1,150,000.00 loan and Kajal would receive a $1,680,00.00
loan.5 According to Plaintiffs, two letters of commitment, dated November 17, 2011, were drafted
and signed by both parties, and a $200,000 escrow deposit for each loan was requested as a down
payment.6 Fidelity was designated to hold the escrow deposit funds.7 On December 2, 2011, the
escrow funds were wired to Fidelity, and the loans were scheduled to close on February 24, 2012.8
However, according to Plaintiffs on December 6, 2011, Fidelity received a "Conditional Letter of
Guarantee" purportedly from Ron My of Wells Fargo Bank, N.A., and the funds were released from
the escrow account. Plaintiffs claim a $300,000 wire transfer was sent to BP and a $100,000
payment was sent to World Trade.9 Ramsey signed the wire transfer. Plaintiff claim that "[t]hese
funds then subsequently disappeared."10
Plaintiffs claim that "violations of law have occurred in this matter, and comprise fraud,
breach of contract, breach of duty of good faith and fair dealing, negligent misrepresentation, breach
of fiduciary duty, detrimental reliance, and failure to perform due diligence. Plaintiffs bring causes

4

Id. at ¶ 5.

5

Id. at ¶ 6.

6

Id.

7

Id. at ¶ 7.

8

Id.

9

Id. at ¶ 8.

10

Id.

2

of action under the Louisiana Credit Agreement Statute,11 and Louisiana Civil Code articles 1983,
1759, and 1967.12 Specifically, with regard to Fidelity, Plaintiff claims that it is "liable to Plaintiffs
herein for breach of fiduciary duty, detrimental reliance, and failure to perform due diligence. [It
was] the repository for the escrow fund and allegedly conducted due diligence prior to the transfer
of the escrow account by assuring plaintiffs of the integrity of the escrow transfer."13
B. Procedural Background
Plaintiffs filed the original complaint in this matter on March 23, 2012, invoking this Court's
diversity jurisdiction.14 On August 9, 2012, Fidelity filed a motion to dismiss pursuant to Federal
Rule of Civil Procedure 12(b)(6).15 Plaintiffs filed an opposition on September 4, 2012.16 On March
6, 2013, this Court discovered certain pleading deficiencies that created some doubt as to whether
this Court had subject matter jurisdiction. In response, the Court ordered Plaintiffs to file an
amended complaint to properly allege the citizenship of all parties, and denied Defendants first
motion to dismiss without prejudice, with leave to refile the motion after such time as the Court
determined it had subject matter jurisdiction.17

11

La. R.S. § 6:1122.

12

Rec. Doc. 26 at ¶ 9.

13

Id. at ¶ 12.

14

Rec. Doc. 1. In the original complaint, Plaintiffs mistakenly claimed that jurisdiction "is proper under the
diversity provision of 28 U.S.C. § 1345. See id. at ¶ 2. Plaintiffs correct this mistake in the amended complaint. See Rec.
Doc. 26 at ¶ 2.
15

Rec. Doc. 9.

16

Rec. Doc. 13.

17

Rec. Doc. 22.

3

On March 13, 2013, Plaintiffs filed an amended complaint.18 Further, on March 28, 2013,
Fidelity filed a memorandum in support of subject matter jurisdiction, alleging the citizenship of all
parties and demonstrating complete diversity.19 On that same day, Fidelity refiled their motion to
dismiss.20 Plaintiffs did not refile an opposition to this motion to dismiss, and therefore the Court
will construe their opposition to Fidelity's first motion to dismiss as the opposition to the pending
motion.
II. Parties' Arguments
A. Fidelity's Arguments in Support of Dismissal of Plaintiff's Claims Against It
In support of the pending motion, Fidelity seeks the dismissal of Plaintiff's claims against
it for breach of fiduciary duty, failure to perform due diligence, and detrimental reliance, claiming
Plaintiffs have failed to a state a claim upon which relief can be granted for each cause of action.21
Fidelity argues that Plaintiffs have "sued Fidelity as a backstop," in case they cannot recover against
the other named defendants, and that the "sole fact alleged in support of [their] claims is that Fidelity
was the 'the repository for the escrow fund and allegedly conducted due diligence prior to the
transfer of the escrow account by assuring plaintiffs of the integrity of the escrow transfer.'"22
Therefore, Fidelity contends that Plaintiffs have failed to state a claim for which relief can be
granted regarding the claims against Fidelity.

18

Rec. Doc. 26.

19

Rec. Doc. 27.

20

Rec. Doc. 29.

21

Rec. Doc. 29-1 at p. 1.

22

Id. at p. 4.

4

Fidelity also notes that Patel and Astra entered into an Escrow Agreement with Fidelity on
or around December 1, 2011.23 Fidelity recognizes that on a motion to dismiss a court typically
should only consider the pleadings, but cites Fifth Circuit precedent that a court may consider
documents attached to a motion to dismiss if they are cental to the plaintiff's claims.24 Fidelity
highlights that under the Escrow Agreement, its obligations and liability are limited:

23. CLARIFICATION OF DUTIES
Fidelity National Title Company – Builder Services serves ONLY as an Escrow
Holder in connection with these instructions and cannot give legal advice to any
party hereto.
Escrow Holder is not to be held accountable or liable for the sufficiency or
correctness as to form, manner of execution, or validity of any instrument deposited
in this escrow, nor as to the identity, authority or rights of any person executing
same. Escrow Holder’s duties hereunder shall be limited to the proper handling of
such money and the proper safekeeping of such instruments, or other documents
received by Escrow Holder, and for the disposition of same in accordance with the
written instructions accepted by Escrow Holder.25
First, Fidelity contends that California law governs Plaintiffs' claims against it.26 Because this
Court sits in Louisiana, Fidelity recognizes that Louisiana's approach to conflict of law applies.
Fidelity contends that in consideration of Louisiana's specific choice of law provisions and relevant
case law, California law should apply because Fidelity is domiciled in California, the Escrow

23

Id. at p. 2.

24

Id. n. 5 (citing Collins v. Morgan Stnaley Dean Witter, 224 F.3d 496 (5th Cir. 2000)).

25

Id. at pp. 2-3 (citing Escrow Agreement, Rec. Doc. 29-2).

26

Id. at p. 6.

5

Agreement was drafted in California, performance under the Escrow Agreement took place in
California, and the Escrow Agreement references California law.27
Applying California law, Fidelity avers that "an escrow holder is the agent and fiduciary of
the parties to the escrow."28 However, Fidelity argues that because the escrow holder is a "dual
agent" for both parties to the escrow, the escrow holder's duty is limited "to the obligation [] to carry
out the instructions of each of the parties to the escrow," and therefore Fidelity cannot be held liable
for breach of fiduciary duty or failure to provide due diligence based on Plaintiff's allegations.29
Moreover, Fidelity notes that the California Supreme Court has stated that "'[a]bsent clear evidence
of fraud, an escrow holder's obligations are limited to compliance with the parties' instructions.'"30
Further, Fidelity claims that many California appellate courts have held that an escrow holder's duty
is confined to acting in accordance with the escrow instructions, and there is no duty to notify the
escrow parties or investigate suspicious facts that could affect the parties.31
Fidelity contends that these causes of action nevertheless fail even if Louisiana law were to
apply, because "the fiduciary duty of an escrow holder is the same as that under California law."32
Therefore, Fidelity argues that the breach of fiduciary duty and failure to perform due diligence
claims should be dismissed:

27

See id. at pp. 6-8.

28

Id. at p. 8 (citing Siegel v. Fid. Nat'l Title Ins. Co., 54 Cal. Rptr. 2d 84, 91 (Cal. Ct. App. 2d Dist. 1996)).

29

Id. at pp. 8-9 (citing Schaefer v. Mfrs. Bank, 163 Cal. Rptr. 402, 407 (Cal. Ct. App. 2d Dist. 1980)).

30

Id. at p. 9 (citing Summit Fin. Holdings, Ltd. v. Cont'l Lawyers Title Co., 41 P.3d 548, 552 (Cal. 2002)).

31

See id. at pp. 9-13 (citing cases).

32
Id. at p. 13 (citing Newman v. Great Am. Mort. Invs., No. 87-CA-842, 1988 WL 903143 (La. Ct. App. July
26, 1988) (unpublished)).

6

As noted above, an escrow agent may be held liable to the extent that the escrow
agent fails to follow the parties’ instructions. Here, the Complaint does not allege that
Fidelity did not follow the instructions provided to it. Instead, the Complaint alleges
that Fidelity released the Escrow Funds pursuant to a Conditional Letter of Guarantee
from Wells Fargo. Without alleging whether Fidelity failed to follow the escrow
instructions, Plaintiffs’ breach of fiduciary duty and failure to perform due diligence
claims are merely conclusory and should be dismissed as a matter of law.33
Next, Fidelity contends that Plaintiffs have failed to state a claim for detrimental reliance
against it.34 Fidelity argues that the complaint "does not allege any facts that an alleged
representation by Fidelity changed Plaintiffs' position to their detriment," which would be necessary
to state a cause of cation under either California or Louisiana law.35 However, Fidelity further argues
that even if Plaintiffs relied on a representation by Fidelity, Plaintiffs were not reasonable or justified
in doing so, because a party to an escrow agreement is "not reasonable in relying on any alleged
statements that [are] contrary to the narrow duties of escrow holders."36 Again, Fidelity also stresses
that the Escrow Agreement specifically stated that Fidelity was not accountable or liable for the
sufficiency or correctness of any of the instruments deposited in escrow. Finally, Fidelity argues that
the detrimental reliance claim fails under both California and Louisiana law because such relief is
equitable, and generally applicable only when the plaintiff does not have a breach of contract
claim.37

33

Id. (footnote omitted).

34

Id. at p. 15.

35

Id. at p. 18 (emphasis in original).

36

Id. (citing Oakview Terrace v. Owens Fin. Group, Inc., No. C-93-2446, 1994 WL 173928 (N.D. Cal. Apr.

19, 1994)).
37

Id. at p. 19.

7

B. Plaintiffs' Arguments in Opposition
In opposition, Plaintiffs provide detail about their allegations against Fidelity.38 Plaintiffs
claim that the following day after Patel and Ramsey signed the Escrow Agreement and specified that
Wells Fargo Bank would guarantee the funds, on December 2, 2011, Fidelity received an incoming
wire transfer in the amount of $400,000 that was credited to Patel's escrow account.39 Thereafter,
in an email dated December 6, 2011, Natalie Priestley ("Priestley"), a Vice President and Senior
Commercial Escrow Officer with Fidelity, informed Patel and Ramsey that she received the
Conditional Letter of Guarantee from Ron My of Wells Fargo.40 The next day, Priestley again
contacted Patel and Ramsey and stated:
I spoke with Ron My this morning and confirmed that the Conditional Letter of
Guarantee that I received yesterday is, in fact, an official letter from Wells Fargo and
was signed by him personally.41
Plaintiffs claim that "[w]ith the assurance that his interests were protected by this
verification, Ashok Patel signed an Astra Capital Funding Fund Control Agreement authorizing
Fidelity National Title Company to release the funds held in escrow to the 'Private Equity Partners
of ASTRA."42 That same day, according to Plaintiffs, Ramsey contacted Fidelity and secured the
transfer of the escrow funds. Plaintiffs claim that Patel was unable to contact Ramsey during this

38

Rec. Doc. 13 at p. 2. Again, the Court notes that this opposition was filed in response to Fidelity's first motion
to dismiss that was dismissed without prejudice. Plaintiffs never filed a separate opposition after Fidelity filed the
pending motion.
39

Id.

40

Id. at pp. 2-3.

41

Id. at p. 3 (citing Rec. Doc. 13-2).

42

Id.

8

time "and it became obvious that the loans would not be forthcoming, and more importantly that
[Patel's] funds had disappeared."43
Patel subsequently contacted Wells Fargo about the Conditional Letter of Guarantee and
hired an investigator. Plaintiffs claim that they discovered that Ron My, who allegedly sent the letter
to Fidelity, is a real person and employee of Wells Fargo, but he had not actually sent the
Conditional Letter of Guarantee.44 Plaintiffs allege that the "document was bogus, and the
perpetrators had simply put a prearranged telephone number on the document, complete with preplanned responses to pose as both a Wells Fargo office and Ron My."45 "With this false telephone
number in place, John B. Ramsey merely contacted Natalie Priestly and requested that she verify
the Conditional Letter of Guarantee by utilizing the same telephone number."46
Regarding the choice of law analysis, Plaintiffs submit that Louisiana Civil Code article
3515, including the 1991 Revision comments concerning dépeçage,47 article 3537, and article 3540,
are "relevant to the instant matter."48 Plaintiffs further cite a case from the Western District of
Louisiana, where it claims the court applied dépeçage and found that a breach of fiduciary duty
claim may be subject to Louisiana law.49 Plaintiffs provide no further analysis of the Louisiana

43

Id.

44

Id.

45

Id. at pp. 3-4.

46

Id. at p. 4.

47

"Dépeçage" refers to the scenario where a choice of law analysis results in the laws of different states being
applied to different issues within the same dispute. Comment (d) to La. Civ. Code art. 3515; Favaroth v. Appleyard,
2000-0359 (La. App. 4 Cir. 5/21/01); 785 So. 2d 262, 265.
48

Rec. Doc. 13 at pp. 10-11.

49

Id. at pp. 11-12 (citing Thomas v. Fid. Brokerage Servs., 977 F.Supp. 791, 796 (W.D. La. 1997)

9

choice of law provisions it highlights, except to state that "Plaintiffs Ashok Patel and Kajal,
Incorporated are domiciled in Louisiana," "[a] significant loss was incurred by a Louisiana resident
and Louisiana corporation," and Fidelity "conducts business throughout the country and such status
implies instances where the company may be subject to other state law."50
Addressing their claim for detrimental reliance against Fidelity, Plaintiffs claim that under
Louisiana law, a plaintiff must prove: (1) a representation by conduct or word; (2) justifiable
reliance thereon; and (3) a change in position to one's detriment because of the reliance.51 Plaintiffs
then provide myriad excerpts from Louisiana appellate courts exploring different aspects of this
cause of action.52 At the end of this survey, Plaintiffs aver that the "specific facts in the instant matter
coincide with the doctrine of detrimental reliance," because Fidelity owed a duty to Plaintiffs to
convey true information to them as the relying parties, and allegedly caused Plaintiffs harm as a
result of Priestley's alleged statement.53
Concerning their breach of fiduciary duty/failure to perform due diligence claim, Plaintiffs
note that a plaintiff must allege fraud, breach of trust, or an action outside the limits of the fiduciary's
authority in order to state a claim upon which relief can be granted.54 Plaintiffs attempt to rebut
Fidelity's arguments made in support of the pending motion:
The general argument made by Fidelity National Title Company is that an escrow
company has protection of law based upon the operation characteristics of their

50

Id. at p. 12.

51

Id. at p. 6 (citing Clark v. America's Favorite Chicken Co., 916 F.Supp. 586, 591 (E.D. La. 1996), aff'd 220
F.3d 295 (5th Cir. 1997)).
52

See id. at pp. 6-9.

53

Id. at p. 9.

54

Id. at p. 12 (citing Thomas, 977 F.Supp. at 794-95).

10

industry. The duty implied is only to process the pertinent documents and provide
the holding accounts for escrow funds. Yet an employee departed from this basic
function to offer information on the validity of a document that gave cause for
justifiable reliance upon the information on the part of the Plaintiffs. This reliance
became acutely manifest when Ashok Patel waited for the loan closings after being
assured that the other party had provided a genuine Conditional Letter of Guarantee
that protected his interest. Meanwhile, as several weeks passed, his $400,000.00 had
disappeared into the corporate maze previously described herein.
John B. Ramsey, the opposite party in the transaction, unilaterally made the request
to call the number provided on the Conditional Letter of Guarantee. An employee
followed his instructions, and choose to inform Ashok Patel with an e-mail assuring
the viability of the document. Essentially, this action changed the nature of the
relationship in a number of ways. There was an exercise of diligence not particularly
provided for in the contracted services. The act gave cause for detrimental reliance
on the part of the plaintiffs. By respondeat superior, the employee’s action becomes
the responsibility of the Fidelity National Title Company. Also, this event changed
the relationship of the parties with respect to fiduciary duty and due diligence.55
III. Standard on a Motion to Dismiss
On a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), "the central
issue is whether, in the light most favorable to the plaintiff, the complaint states a valid claim for
relief."56 "A motion to dismiss on the basis of the pleadings alone should rarely be granted."57
Although a court must accept the factual allegations in the pleadings as true, the plaintiff must plead
enough facts to state a claim to relief that is plausible on its face.58 “Determining whether a
complaint states a plausible claim for relief will [] be a context-specific task that requires the
reviewing court to draw on its judicial experience and common sense."59 "Conclusory allegations

55

Id. at pp. 13-14.

56

Doe v. MySpace, Inc., 528 F.3d 413, 418 (5th Cir. 2008).

57

Madison v. Purdy, 410 F.2d 99, 100 (5th Cir. 1969).

58

Doe, 528 F.3d at 418 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)).

59

Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

11

or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to
dismiss.”60 "Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice... [W]here the well-pleaded facts do not permit the court to infer more than
the mere possibility of misconduct, the complaint has alleged—but it has not show[n]—that the
pleader is entitled to relief."61 Factual allegations must be enough to raise a right to relief above the
speculative level on the assumption that all of the allegations in the complaint are true.62 While in
considering a motion to dismiss for failure to state a claim, a district court must limit itself to the
contents of the pleadings, the Fifth Circuit has instructed that consideration of documents attached
to the motion to dismiss may also be considered when they are referred to in the complaint and are
central to the plaintiff's claim.63
IV. Law and Analysis
A. Choice of Law
Before this Court can decide whether Plaintiffs have made claims upon which relief can be
granted against Fidelity, the Court must determine the law that must be applied to Plaintiffs' claims.64

60

Drs. Bethea, Moustoukas & Weaver, LLC v. St. Paul Guardian Ins. Co., 376 F.3d 399, 403 n. 7 (5th Cir.

61

Ashcroft, 556 U.S. at 678-79 (2009) (internal quotation marks omitted).

62

Twombly, 550 U.S. at 555-56.

63

See Gines v. D.R. Horton, Inc., 699 F.3d 812, 820 (5th Cir. 2012); see also Collins, 224 F.3d at 498-99

2004).

(dictum);
64

While not addressed by either party, the Court notes that if the laws of the two proposed states do not
conflict, a choice of law analysis is unnecessary, and a court simply applies the law of the forum state. See Schneider
Nat. Transport v. Ford Motor Co., 280 F.3d 532, 536 (5th Cir. 2002). As will be explained in greater depth below, upon
this Court's review of California and Louisiana jurisprudence, California law is much more explicit than the law of
Louisiana that the duty of escrow holders is limited. See infra Part IV.B.1. As this distinction is particularly relevant to
the claims at issue in the pending motion, a choice of law analysis is appropriate here.

12

As a federal court sitting in diversity, this Court must apply the choice of law principles of the state
in which it sits.65A district court's choice of law determination is reviewed de novo.66 The Fifth
Circuit "give[s] no deference to the district court's determination of state law."67
1. Relevant Choice of Law Provisions
Louisiana, the state in which this Court sits, generally sets out its choice of law principles
in Louisiana Civil Code article 3515:
Except as otherwise provided in this Book, an issue in a case having contacts with
other states is governed by the law of the state whose policies would be most
seriously impaired if its law were not applied to that issue.
That state is determined by evaluating the strength and pertinence of the relevant
policies of all involved states in the light of: (1) the relationship of each state to the
parties and the dispute; and (2) the policies and needs of the interstate and
international systems, including the policies of upholding the justified expectations
of parties and of minimizing the adverse consequences that might follow from
subjecting a party to the law of more than one state.68
However, as both parties have recognized, Louisiana Civil Code article 3537 provides a more
specific choice of law provision when the issue involves conventional obligations and contracts:
Except as otherwise provided in this Title, an issue of conventional obligations is
governed by the law of the state whose policies would be most seriously impaired
if its law were not applied to that issue.
That state is determined by evaluating the strength and pertinence of the relevant
policies of the involved states in the light of: (1) the pertinent contacts of each state
to the parties and the transaction, including the place of negotiation, formation, and
performance of the contract, the location of the object of the contract, and the place
of domicile, habitual residence, or business of the parties; (2) the nature, type, and
65

Klaxon Co. v. Stenor Elec. Mfg Co., 313 U.S. 487 (1941); Cain v. Altec Indus., 236 F. App'x 965, 967 (5th

Cir. 2007).
66

Abraham v. State Farm Mut. Auto. Ins., 465 F.3d 609, 611 (5th Cir. 2006).

67

Cain v. Altec Indus., 236 F. App'x 965, 967 (5th Cir. 2007).

68

La. Civ. Code art. 3515.

13

purpose of the contract; and (3) the policies referred to in Article 3515, as well as the
policies of facilitating the orderly planning of transactions, of promoting multistate
commercial intercourse, and of protecting one party from undue imposition by the
other.69
As it is undisputed that the relationship between Plaintiffs and Fidelity, and Fidelity's alleged duties
owed to Plaintiffs, arise out of the Escrow Agreement, it appears that Article 3537 applies to the
choice of law analysis. However, even more specifically, and as will be relevant in this matter,
Louisiana Civil Code article 3540 instructs that the law relied upon by the parties in the formation
of a contract, unless contrary to public policy, should apply:
All other issues of conventional obligations are governed by the law expressly
chosen or clearly relied upon by the parties, except to the extent that law contravenes
the public policy of the state whose law would otherwise be applicable under Article
3537.70
Finally, Plaintiffs raised the issue of dépeçage, but fail to provide any argument as to its
applicability in this matter, nor do they make any case that different states' laws should apply to its
separate claims against Fidelity.71 Moreover, 1991 Revision Comment (d) to Louisiana Civil Code
article 3515 specifically discuss the issue of dépeçage, and demonstrate a clear preference within
Louisiana law to avoid the practice if possible:
(d) Issue-by-issue analysis and dépeçage. The use of the term “issue” in the first
paragraph of this Article is intended to focus the choice-of-law-process on the
particular issue as to which there exists an actual conflict of laws. When a conflict
exists with regard to only one issue, the court should focus on the factual contacts
and policies that are pertinent to that issue. When a conflict exists with regard to
more than one issue, each issue should be analyzed separately, since each may
implicate different states, or may bring into play different policies of these states.
Seen from another angle, each state having factual contacts with a given multi-state

69

La. Civ. Code art. 3537.

70

La. Civ. Code art. 3540.

71

See Rec. Doc. 13 at pp. 10-12.

14

case may not have an equally strong interest in regulating all issues in the case, but
only those issues that actually implicate its policies in a significant way.
This so-called issue-by-issue analysis is an integral feature of all modern American
choice-of-law methodologies and facilitates a more nuanced and individualized
resolution of conflicts problems. One result of this analysis might be that the laws
of different states may be applied to different issues in the same dispute. This
phenomenon is known in conflicts literature by its French name of dépeçage.
Although infrequently referred to by this name, this phenomenon is now a common
occurrence in the United States and has received official recognition in Europe. This
Article does not prohibit dépeçage. However, dépeçage should not be pursued for
its own sake. The unnecessary splitting of the case should be avoided, especially
when it results in distorting the policies of the involved states.72
This Court notes that "[w]hile statements contained in the official comments are not part of the
statute and are not binding on courts, they are not discounted entirely, and [the Louisiana Supreme
Court] find[s] that they provide some aid in interpreting legislative intent.73 In light of this
instruction, and because Plaintiffs articulate no argument as to why this Court should engage in
dépeçage regarding its claims against Fidelity, the Court declines to do so here. Therefore, the Court
finds that Louisiana Civil Code article 3537, which governs the choice of law analysis for
conventional obligations, and Louisiana Civil Code article 3540, to the extent that the Escrow
Agreement demonstrates state law which was "clearly chosen or relied upon by the parties," controls
the choice of law analysis for Plaintiffs' claims against Fidelity here.

72

1991 Revision Comment (d) to La. Civ. Code art. 3515 (emphasis added).

73

Broussard v. Hilcorp Energy Co., 2009-C-0449 (La. 10/20/09); 24 So. 3d 813, 816 n. 5.

15

2. Choice of Law Analysis
Louisiana Civil Code article 3537 instructs that an issue is governed by the law of the state
whose policies would most seriously be impaired if its laws were not applied to that issue.74 Article
3537 provides express guidance on what a court is to consider in this determination:
(1) the pertinent contacts of each state to the parties and the transaction, including
the place of negotiation, formation, and performance of the contract, the location of
the object of the contract, and the place of domicile, habitual residence, or business
of the parties; (2) the nature, type, and purpose of the contract; and (3) the policies
referred to in Article 3515, as well as the policies of facilitating the orderly planning
of transactions, of promoting multistate commercial intercourse, and of protecting
one party from undue imposition by the other.75
Concerning the first factor, Fidelity is domiciled in California, the Escrow Agreement was drafted
in California, and Fidelity's performance of the contract occurred in California.76 In contrast,
Plaintiffs emphasize that Plaintiffs Patel and Kajal are domiciled in Louisiana, and as a result the
alleged loss was "incurred by a Louisiana resident and Louisiana corporation."77 Plaintiffs allege no
other contacts that Louisiana has to this dispute, nor do they provide any additional argument as to
why Louisiana's interests would be substantially harmed if its law were not applied to this dispute.78
Plaintiffs merely make the general statement that Fidelity "conducts business throughout the country
and such status implies instances where the company may be subject to other state law."79 The
Louisiana Supreme Court has previously held that a particular state's law should apply under an

74

La. Civ. Code. art. 3537.

75

Id.

76

Rec. Doc. 29-1 at p. 8.

77

Rec. Doc. 13 at p. 12.

78

See id.

79

Id.

16

Article 3537 analysis where one party was a resident of that state, and the negotiation and formation
of the contract occurred in that state, even where the other party was a resident of Louisiana and the
incident giving rise to the suit occurred in Louisiana.80 Fidelity and Plaintiffs have connections to
California and Louisiana, respectively, but because the Escrow Agreement was drafted and
performed in California, this factor weighs in favor of applying California's law.
Neither party has made arguments relevant to Article 3537's second factor, regarding the
nature, type, and purpose of the contract. However, Louisiana courts have recognized that this factor
weighs in favor of applying another state's law when the contract was formed in that foreign state
and the issue concerns an area which Congress "has allowed fifty states to have their own uniform
system of regulations governing" that area.81 Again, here, the Escrow Agreement was formed in
California. As will be explained in greater detail below, California law has a uniform system of
regulations governing escrow holders' obligations.82 Therefore, and considering that Plaintiffs
articulate no competing interest of Louisiana to support applying its law, the Court finds that this
factor also weighs in favor of applying California law.
Third, Article 3537 requires courts to consider "the policies referred to in Article 3515, as
well as the policies of facilitating the orderly planning of transactions, of promoting multistate
commercial intercourse, and of protecting one party from undue imposition by the other." Again,
Article 3515 dictates that a court should determine the strength and pertinence of states' policies in
light of:

80

See Champagne v. Ward, 2003-3211 (La. 1/19/05); 893 So. 2d 773

81

Murden v. Acands, 2005-0319 (La. App. 4 Cir. 12/14/05); 921 So. 2d 165, 171.

82

See infra Part IV.B.1.

17

(1) the relationship of each state to the parties and the dispute; and (2) the policies
and needs of the interstate and international systems, including the policies of
upholding the justified expectations of parties and of minimizing the adverse
consequences that might follow from subjecting a party to the law of more than one
state.
The Louisiana Supreme Court has recognized that states have a substantial interest in the application
of its laws to contracts formed within their state.83 Again, as will be explained in greater detail
below, California law severely limits the duties and obligations of escrow holders like Fidelity.84
Therefore, not applying the law of California could substantially harm California's policy decision
to limit its escrow holders' liability.85 Accordingly, this Court finds that under Article 3537,
California's policies would be most seriously impaired if its laws were not applied to this dispute.
While an application and analysis of Article 3537 independently supports the application of
California law to Plaintiffs' claims against Fidelity, additionally, this Court is further persuaded that
the application of California law to Plaintiffs' claims against Fidelity is appropriate after considering
Article 3540, which instructs that the law of the state chosen by the parties, "or clearly relied upon,"
governs an issue.86 As Fidelity has noted, the Escrow Agreement references California law in its first
section regarding general provisions and the deposit of funds.87 While the Escrow Agreement does
not contain a choice of law clause, this Court finds that the inclusion and the reference to application
of a California statute, in the absence of any other express reference to another state's law, supports

83

Id.

84

See infra Part IV.B.1.

85

See Champagne, 893 So. 2d at 789 (applying Mississippi law after recognizing that Mississippi had the more
substantial interest in applying its laws because the issue in the case would concern the regulation of its industries and
the contractual obligations that arose under a contract formed in Mississippi).
86

La. Civ. Code art. 3540.

87

Escrow Agreement, Rec. Doc. 29-2 at p. 2, § 1 (referencing the application of Cal. Ins. Code § 1243.5).

18

a finding that the parties relied upon California law to govern the Escrow Agreement. The Court
again notes that Plaintiffs have not come forward to allege any connection Louisiana has to this
dispute or interest that would be substantially harmed by failing to apply its laws except that
Plaintiffs reside in Louisiana.88 Therefore, for all the reasons cited above, the Court finds that the
application of California's law is appropriate regarding Plaintiffs' claims against Fidelity.
B. Whether Plaintiffs Have Stated a Claim Upon Which Relief Can Be Granted
1. Breach of Fiduciary Duty
Generally, under California law, "[t]he elements of a cause of action for breach of fiduciary
duty are the existence of a fiduciary relationship, breach of fiduciary duty, and damages."89 An
escrow holder is the agent and fiduciary of the parties to the escrow.90 However, the California
Supreme Court has stated that "[t]he agency created by the escrow is limited—limited to the
obligation of the escrow holder to carry out the instructions of each of the parties to the escrow."91
While an escrow holder has a fiduciary duty to comply with the instructions of the parties "[o]n the
other hand, an escrow holder 'has no general duty to police the affairs of its depositors'; rather, an
escrow holder's obligations are 'limited to faithful compliance with [the depositors'] instructions.'"92

88

See Rec. Doc. 13 at p. 12.

89

Oasis West Realty, LLC v. Goldman, 51 Cal. 4th 811, 820 (Cal. 2011).

90

Summit Fin. Holdings, 41 P.3d at 551.

91

Id.

92
Id. at 552 (citing Claussen v First Am. Title Guaranty Co., 186 Cal. App. 3d 429, 435-36 (Cal Ct. App. 6th
Dist. 1986) (alterations in original).

19

In fact, [a]bsent clear evidence of fraud, an escrow holder's obligations are limited to compliance
with the parties' instructions."93
Here, in the pleadings, Plaintiffs make no allegation that Fidelity failed to comply with the
instructions of any of the parties to the escrow, nor that Fidelity engaged in, or was aware of, any
fraud.94 Instead, Plaintiffs claim that Fidelity is liable because it was "the repository for the escrow
fund," and now claim that the funds were disbursed to an unknown party pretending to be the
intended recipient.95 However, as the California Supreme Court precedent cited above instructs,
under California law, an escrow holder is only responsible to carry out the instructions of the parties
to the escrow agreement.96 In fact, a California intermediate appellate court has expressly rejected
the proposition that an "escrow holder is under a fiduciary duty to go beyond the escrow instructions
and [] notify each party to the escrow of any suspicious fact or circumstance which has come to his
attention before or during the life of the escrow which could conceivably affect such party even
though the fact or circumstance is not related to his specific escrow instructions."97 While a federal
court sitting in diversity, such as this Court, must apply "state law as announced by the highest court
of the State,"98 "[a] federal court sitting in diversity is bound to follow decisions of the state's

93

Id.

94

See Amended Complaint, Rec. Doc. 26; see also Summit Fin. Holdings, 41 P.3d at 552 (noting that there was
no evidence that an escrow holder "was aware of any collusion or fraud in the disbursement that would have adversely
affected any party to the escrow").
95

See Rec. Doc. 26 at p. 5; see also Rec. Doc. 13 at p. 4.

96

Summit Fin. Holdings, 41 P.3d at 551-52.

97

Lee, 264 Cal. App. 2d at 162-64.

98

C.I.R. v. Bosch’s Estate, 387 U.S. 456, 463 (1967)

20

intermediate appellate courts unless it is 'convinced by other persuasive data that the highest court
of the state would decide otherwise.'"99
Aside from the limited duties imposed on escrow holders under California law, the terms of
the Escrow Agreement further indicate that Fidelity did not breach its fiduciary duty for allegedly
disbursing the funds to an improper party without actually violating any instruction of a party to the
escrow. The Escrow Agreement expressly states that "Escrow Holder [Fidelity] is not to be held
accountable or liable for the sufficiency or correctness as to form, manner of execution, or validity
of any instrument deposited in this escrow, nor as to the identity, authority or rights of any person
executing same."100 Therefore, Plaintiffs cause of action for breach of fiduciary duty against Fidelity
fails as a matter of law, because Plaintiffs have not claimed that Fidelity failed to follow the
instructions of any party to the escrow holder or that Fidelity participated in, or knew of, any fraud
in the disbursement of the escrow funds.
2. Failure to Perform Due Diligence
It is unclear from Plaintiffs’ pleadings if this cause of action is separate and distinct from
Plaintiffs’ claim for breach of fiduciary duty. However, in opposition to the pending motion,
Plaintiffs discuss them together as one cause of action under the heading "Breach of fiduciary
duty/failure to perform due diligence."101 Moreover, California courts have recognized that in the
context of an escrow relationship "[b]reach of fiduciary duty and negligence are different terms for

99

Exxon Co., U.S.A., a Div. of Exxon Corp. v. Banque de Paris Et Des Pays-Bas, 889 F.2d 674, 677 (5th Cir.
1989) (quoting West v. AT & T, 311 U.S. 223, 237 (1940)).
100

Escrow Agreement, Rec. Doc. 29-2 at p. 4, § 23 (Clarification of Duties section) (emphasis added).

101

Rec. Doc. 13 at p. 12.

21

the same cause of action."102 A claim for failure to perform due diligence is a negligence claim.103
Therefore, considering the limited duties of an escrow holder and for the reasons stated above,104 the
Court also dismisses any claim against Fidelity for "failure to perform due diligence."
3. Detrimental Reliance/Promissory Estoppel
Under California law, detrimental reliance, or promissory estoppel as it is normally referred
to, requires (1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the
promise is made; (3) the reliance must be both reasonable and foreseeable; and (4) the party
asserting the estoppel must be injured by his reliance.105 Fidelity argues that this cause of action
should be dismissed for two distinct reasons. First, Fidelity cites Oakview Terrace v. Owens
Financial Group,106 from the Northern District of California, to argue that Plaintiffs' claim fails as
a matter of law because even if Fidelity did make a promise or statement to Plaintiffs, it would not
be reasonable for Plaintiffs to rely on any statement it made that exceeded the narrow duties of
escrow holders.107 However, this argument is not supported by Oakview, which would nonetheless
not be binding on this Court.
In Oakview, the escrow holder, Old Republic, was accused by the plaintiff, Oakview, of
failing to disclose certain information:

102

Zang v. Nw. Title Co., 185 Cal. Rptr. 176, 182 (Cal. Ct. App.1st Dist. 1982).

103

See generally, Bily v. Arthur Young & Co., 834 P.2d 745 (Cal. 1992).

104

See supra Part IV.B.1.

105

US Ecology, Inc. v. State, 129 Cal.App. 4th 887, 905 (Cal. Ct. App. 4th Dist 2005) (citing Kajima/Ray
Wilson v. Los Angeles Cnty Metropolitan Transp. Auth., 1 P.3d 63 (Cal. 2000)); see also Santana Row Hotel Partners,
L.P. v. Zurich Am. Ins. Co., 446 F.Supp. 2d 1109, 1108 (N.D. Cal. 2006).
106

No. C-93-2446-MHP, 1994 WL 173928 (N.D. Cal. Apr. 19, 1994).

107

Rec. Doc. 29-1 at p. 18.

22

It is important to note at the outset that Oakview does not allege that it received any
affirmative representations from Old Republic. Old Republic's allegedly tortious
conduct is a failure to disclose to Oakview's limited partners the conduct of
Oakview's general partner, JMH. Because Oakview's claims are based on a failure
to disclose, its three fraud-based claims, as well as its claims for breach of fiduciary
duty and negligence, require a duty on the part of Old Republic to supply the
information allegedly withheld.108
The Oakview court relied on the same principles of California law regarding an escrow holder’s
narrow duties that this Court outlined above to hold that Old Republic did not have a duty to
disclose.109
Unlike the escrow holder in Oakview, here, Plaintiffs have alleged that an employee of
Fidelity, Priestley, made an affirmative representation that the Conditional Letter of Guarantee that
was allegedly sent by Ron My was "in fact, an official letter from Wells Fargo and was signed by
him [Ron My] personally."110 As such, this matter is distinguishable from Oakview, and Fidelity, for
the purposes of the pending motion, may not simply rely on an escrow holder’s limited duties under
California law. No element for a cause of action of promissory estoppel or detrimental reliance
requires the existence of a duty.111 Plaintiffs have alleged that Fidelity (1) made a promise; (2) that
they relied on that promise; (3) that their reliance was reasonable; and (4) that they were injured by
this reliance because they allowed for the disbursement of the escrow funds to an unintended party,
believing the letter of guarantee to actually be from Ron My of Wells Fargo. The existence of the

108

1994 WL 173928, at *2.

109

Id. at *3-*4.

110

Rec. Doc. 13 at p. 3.

111

See US Ecology Inc., 129 Cal. App.4th at 905.

23

elements of promissory estoppel is a question of fact.112 Upon a motion to dismiss, this Court must
accept all the factual allegations in the pleadings as true.113 Therefore, Plaintiffs have stated a claim
that satisfies all the elements of detrimental reliance or promissory estoppel under California law.
Fidelity’s second proposed reason as to why this cause of action should be dismissed is
because it is barred considering Plaintiffs and Fidelity were parties to a contract. Fidelity contends
that because there was a contract between the parties, the Escrow Agreement, a cause of action for
detrimental reliance or promissory estoppel is foreclosed.114 Fidelity states that "detrimental reliance
claims are equitable in nature and are generally applicable only when the plaintiff does not have a
breach of contract claim."115 In support of this argument, Fidelity cites Money Store Investment
Corp. v. Southern California Bank.116
In Money Store Investment Corp., the plaintiff brought causes of action against the
defendant-escrow holder for breach of contract, claiming that the defendant failed to follow the
escrow instructions, and promissory estoppel, alleging that it would not have closed the loan had it
known the defendant would not follow the terms of the escrow agreement.117 The district court
granted the defendant’s motion for summary judgment and dismissed the claims.118 On appeal, the
intermediate appellate court reversed the district court’s dismissal of the breach of contract claim,
112

Div. Of Labor Law Enforcement v. Transpacific Transp. Co., 137 Cal. Rptr. 855, 860 (Cal. Ct. App. 1st Dist.

113

Doe, 528 F.3d at 418 (citing Twombly, 550 U.S. at 544).

114

Rec. Doc. 29-1 at p. 19.

115

Id.

116

120 Cal. Rptr. 2d 58 (Cal. Ct. App. 4th Dist. 2002).

117

Id. at 61.

118

Id.

1977).

24

finding that their was a triable issue of fact.119 However, with regard to the promissory estoppel
claim, the court noted that "promissory estoppel provides a substitute for consideration to allow
enforcement of a promise."120 Because the plaintiff still had the breach of contract claim, the court
held that "[a] cause of action for promissory estoppel would be superfluous," and instructed the trial
court to grant the defendant’s motion on this cause of action and dismiss.121
In contrast to the plaintiff in Money Store Investment Corp., here, Plaintiffs have not brought
a cause of action for breach of contract against Fidelity. As this Court has detailed above, Plaintiffs’
pleadings do not allege that Fidelity violated any provision of the Escrow Agreement. Furthermore,
as this Court has dismissed Plaintiffs’ other claims against Fidelity, there is nothing left to which
Plaintiffs’ claim of promissory estoppel could be "superfluous." The nature of Plaintiffs’ claims
against Fidelity is that an employee of Fidelity made an affirmative assertion to Plaintiffs that was
incorrect and caused them injury. These allegations do not concern the duties and obligations
imposed pursuant to the Escrow Agreement, which is why Plaintiffs have not brought, and do not
allege, a breach of contract claim against Fidelity. Plaintiffs’ cause of action for promissory estoppel
or detrimental reliance is not foreclosed simply by the existence of the Escrow Agreement.
Therefore, the Court finds that Plaintiffs have stated a claim upon which relief can be granted for
detrimental reliance or promissory estoppel against Fidelity, and will deny the pending motion in
this regard.

119

Id. at 64

120

Id. at 65.

121

Id.

25

V. Conclusion
For the reasons stated above, the Court finds that the law of California governs Plaintiffs’
claims against Fidelity. Under California law, Plaintiffs have failed to state a claim upon which relief
can be granted for breach or fiduciary duty and failure to perform due diligence, and these claims
fail as a matter of law. However, accepting all Plaintiffs’ factual allegations as true, Plaintiffs have
stated a claim upon which relief can be granted for detrimental reliance or promissory estoppel.
Accordingly,
IT IS HEREBY ORDERED that Fidelity’s "Motion to Dismiss Pursuant to Federal Rule
12(b)(6)"122 is GRANTED IN PART and DENIED IN PART;
IT IS FURTHER ORDERED that Plaintiffs’ claims against Fidelity for breach of fiduciary
duty and failure to perform due diligence are DISMISSED WITH PREJUDICE;
NEW ORLEANS, LOUISIANA, this ____ day of July, 2013.

_________________________________
NANNETTE JOLIVETTE BROWN
UNITED STATES DISTRICT JUDGE

122

Rec. Doc. 29.

26