Fed. Deposit Ins. Corp. v. Murex LLC
| Decision Date | 12 November 2020 |
| Docket Number | 16 Civ. 7703 (PAE) |
| Citation | 500 F.Supp.3d 76 |
| Parties | The FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for First NBC Bank, Plaintiff, v. MUREX LLC, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Allen Maines, Cynthia G. Burnside, Grant Edward LaVelle Schnell, Holland & Knight LLP, Atlanta, GA, Benjamin Richard Wilson, Robert Joseph Burns, Holland & Knight LLP, Kristin Marie Jamberdino, Zackary Lane Stillings, Kathleen M. Balderston, Nixon Peabody LLP, New York, NY, Leah Threatte Bojnowski, Nixon Peabody, Albany, NY, Peter Richard Jarvis, Holland & Knight LLP, Portland, OR, for Plaintiff.
Michael Bruce Miller, Morrison & Foerster LLP, New York, NY, Robert N. LeMay, Richard L. Hathaway, Andrew Robertson, Jaime M. DeWees, John Joseph Kane, Kane Russell Coleman Logan PC, Dallas, TX, for Defendant.
This case concerns a bank's purchases of receivables from defendant Murex LLC ("Murex"), and whether the allegedly sham nature of the transactions underlying those receivables requires Murex to buy them back. The bank, First NBC Bank ("FNBC"), originally brought this action in 2016. But in 2017, the Louisiana Office of Financial Institutions closed FNBC and appointed the Federal Deposit Insurance Corporation ("FDIC") as its receiver. The FDIC now pursues these claims on FNBC's behalf.
The FDIC claims that Murex fraudulently obtained $69 million from FNBC by selling FNBC five sets of debts purportedly owed to Murex by Murex's customer, Abengoa Bioenergy Company, LLC ("ABC"). Those debts (the "ABC Receivables") supposedly arose from bona fide, arm's length sales of ethanol from Murex, an ethanol distributor, to ABC, an ethanol producer. In fact, the FDIC contends, these were sham transactions concocted by Murex and ABC. For each alleged set of contracts reflecting sales by Murex, the FDIC alleges, Murex and ABC entered into a separate set of contracts providing for offsetting purchases by Murex, such that, in substance, ethanol never changed hands. The paperwork reporting the sham transactions, the FDIC contends, was used to induce unsuspecting buyers such as FNBC to lend money to ABC, which in turn paid Murex for its participation in the scheme. ABC has now defaulted on more than $69 million owed to FNBC, and has filed for bankruptcy. Murex counters by defending as bona fide the transactions underlying the ABC Receivables. It asserts that each sales contract between it and ABC was legitimate and enforceable and that offsetting "buy/sell transactions" are common in the ethanol industry. Apart from disputing the FDIC's claims—for breach of contract, fraudulent inducement, unjust enrichment, and rescission—on the merits, Murex argues that the FDIC's claims are barred by various contract terms and by judicial estoppel.
With discovery complete, the FDIC now moves for partial summary judgment on Count I of its second amended complaint, which alleges breach of contract based on Murex's failure to repurchase the ABC Receivables. Murex opposes this motion and cross-moves for summary judgment on all of the FDIC's claims.
For the reasons below, the Court grants the FDIC's partial summary judgment motion. Murex's false representation that the ABC Receivables arose from bona fide, arm's length sales of actual ethanol gave rise to an absolute, unconditional, and irrevocable obligation on its part to repurchase those receivables. It failed to do so, in breach of its agreements, and the evidence adduced in discovery would not permit a trier of fact to find otherwise. As for Murex's motion, the Court grants it in part and denies it in part. The Court grants the motion to the extent it seeks summary judgment on the FDIC's claims of fraudulent inducement and for unjust enrichment, but otherwise denies the motion.
This litigation will now proceed to resolve the question left open by this decision: the proper remedy for Murex's contract breach.
FNBC was a state-chartered bank organized and existing under the laws of Louisiana, with its registered office and principal place of business in the Parish of Orleans, Louisiana. JSF ¶ 1. When FNBC purchased the ABC Receivables, Ashton J. Ryan, Jr. was its chief executive officer ("CEO") and board chairman, Mary Beth Verdigets was its chief financial officer ("CFO"), and Marc Parra managed the credit department. Id. ¶ 2. On April 28, 2017, the Louisiana Office of Financial Institutions closed FNBC and appointed the FDIC as its receiver. Id. ¶ 5.
Murex is a limited liability company with its principal place of business in Plano, Texas. Id. ¶ 8. Murex is a marketer and distributor of domestic ethanol, export ethanol, crude oil, Renewable Identification Numbers ("RINs"), and other gasoline blendstocks to major oil companies and regional refiners. Id. ¶ 9. It actively trades ethanol, crude oil, and gasoline blendstocks, but does not produce ethanol. Id. ; Pl. 56.1 ¶¶ 5–6. When Murex sold FNBC the ABC Receivables, Robert Wright was Murex's president, Richard Bartel was its CFO, James Trinh was its controller, Luke Parkhurst was director of ethanol and RIN trading, and Dana Savage was a logistics coordinator at the company. JSF ¶ 10.
ABC, not a party here, was an ethanol manufacturer before it filed for bankruptcy on February 24, 2016. Id. ¶¶ 14–15. ABC owned ethanol-producing plants in the United States, id. ¶ 13, but was an indirect subsidiary of Abengoa, S.A. ("Abengoa"), a corporation chartered under the laws of the Kingdom of Spain, id. ¶¶ 11–12. Abengoa is currently in insolvency proceedings in Spain. Id. ¶ 11.
The Receivables Exchange, LLC ("TRE"), also not a party here, was an online auction-based exchange that aimed to connect sellers of trade receivables to a network of institutional buyers. Id. ¶ 16. After TRE defaulted on its secured debt in late 2015, it was foreclosed upon, acquired by a company called LiquidX, and wound down. Id. ¶ 17. After TRE's December 2015 strict foreclosure, one employee—Michael Gonik—remained employed there for "several months" to resolve outstanding issues, including those related to ABC. Id.2
This suit arises out of the market for ethanol and, more specifically, for a derivative financial product: a "receivable." A party who owns a receivable—i.e. , the right to receive payment—may opt to sell that right in order to obtain payment more quickly than it otherwise might. Def. 56.1 ¶ 139. Generally, a seller must do so at a discount from the face value of the receivable because the purchasing party assumes the risk of nonpayment and may have to spend money on collection efforts. Id.
Now-defunct TRE provided a platform on which holders of receivables could connect with willing buyers and, for a fee, sell those receivables at a discounted price for more readily available cash. JSF ¶¶ 16, 20.
Murex was one such seller. On November 4, 2013, Murex and TRE entered into a contract, titled "Corporate Seller Program Agreement," governing Murex's sales of receivables on TRE. See id. ¶ 22; Balderston Decl., Ex. 14 ("Seller Agreement"). Murex and TRE later amended their Seller Agreement, once on the day they signed it, JSF ¶ 22, and again on April 9, 2015, id. ¶ 27. The Seller Agreement expressly designated any buyer of a receivable sold by Murex as a third-party beneficiary of the agreement. See Seller Agreement (cover page).
FNBC was a buyer on TRE. On July 28, 2011, FNBC and TRE entered into a similar contract, titled "Corporate Buyer Program Agreement," governing FNBC's purchases of receivables over TRE. Def. App'x, Ex. 51 ("Buyer Agreement"). Similar to the Seller Agreement, the Buyer Agreement expressly designated any seller of a receivable bought by FNBC as a third-party beneficiary of that agreement. Id. (cover page). The FDIC, as receiver for FNBC, sues Murex here in its capacity as a third-party beneficiary to the Seller Agreement, which it alleges Murex breached by failing to repurchase the ABC Receivables.
Under the Seller Agreement, Murex was "required" to, and "absolutely, unconditionally, and irrevocably agree[d] to repurchase" any receivables it sold on TRE "upon the occurrence of" a "Repurchase Event." Seller Agreement § 8.2.1.3 A Repurchase Event, in turn, includes situations in which (1) "any representation or warranty made by Seller under (and limited to) Section 10.1, with respect to a Traded Receivable, is materially inaccurate or materially incorrect when made, or (2) the Account Debtor fails to pay a Traded Receivable in full by the Repurchase Date, in which case a Dispute will be presumed to have arisen, unless an Account Debtor Insolvency Event has occurred on or prior to such Repurchase Date." Id. § 8.2.1(i), (ii). As to the first situation, concerning inaccurate representations and warranties, section 10.1 sets out, as relevant here, the following representations: (1) "The Receivable arises out of a bona fide, arm's length sale of goods or services in the ordinary course of Seller's business, and the Account Debtor has accepted the goods or services billed under the related Invoice without condition"; and (2) "The Receivable does not result from a conditional sale." Id. §§ 10.1.5, 10.1.6.
Under the Buyer Agreement, FNBC expressly "transfer[red] and assign[ed] ... all of [its] Enforcement Rights against Defaulting Account Debtors and against Defaulting Sellers" to TRE. Buyer Agreement § 5.9.2.4 Accordingly, FNBC did "not have the unilateral right to elect not to have [TRE] collect amounts owed by Defaulting Account Debtors and Defaulting Sellers on [FNBC's] behalf." Id. § 5.10.1. The agreement, however, permitted FNBC to pursue such actions by "executing a Buyer Opt-Out Agreement in form and substance acceptable to [TRE] and its counsel." Id. Neither agreement further defines "Buyer Opt-Out Agreement."
Beginning no later than 2006, Murex and ABC had a business...
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