Federal Deposit Insurance Corporation v. Murex LLC f/k/a Murex N.A. Ltd.

Background

First NBC Bank bought receivables from Murex LLC through The Receivables Exchange, LLC. After Louisiana regulators closed First NBC Bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver, the FDIC pursued the bank’s claims against Murex.

The dispute concerned five sets of receivables totaling $69,139,825.26. The receivables supposedly represented debts that Murex’s customer, Abengoa Bioenergy Company, LLC (ABC), owed for ethanol purchased from Murex. The FDIC alleged that Murex and ABC created paired transactions in which Murex sold ethanol to ABC and ABC immediately sold the same amount back to Murex. No ethanol moved, and the transactions were designed to create receivables that third-party buyers could purchase to provide ABC with short-term cash. Murex disputed the FDIC’s characterization and argued that the transactions were legitimate ethanol sales.

Murex’s Seller Agreement required it to “absolutely, unconditionally, and irrevocably” repurchase a receivable if a representation or warranty about that receivable was materially inaccurate when made. The agreement represented, among other things, that the receivable arose from a genuine, arm’s-length sale of goods or services and did not result from a conditional sale.

Motions and legal standard

After discovery, the FDIC moved for partial summary judgment on its breach-of-contract claim. Summary judgment is a decision without a trial when the evidence shows that no genuine dispute about an important fact remains and the moving party is entitled to judgment under the law. Murex opposed the FDIC’s motion and moved for summary judgment on all remaining FDIC claims.

The court also considered the FDIC’s objections to declarations from Murex employees that contradicted earlier deposition testimony. The court applied the rule barring a party from creating a factual dispute by submitting a later sworn statement that directly contradicts earlier sworn testimony. It disregarded only the contradictory portions, not the declarations in their entirety.

Breach of contract

The court rejected Murex’s threshold arguments that the FDIC could not pursue the contract claim. It held that Murex waived its argument that First NBC Bank had assigned enforcement rights to The Receivables Exchange. The court also found that First NBC Bank had opted out of that assignment arrangement in a March 2, 2016 email exchange with The Receivables Exchange, allowing the FDIC to pursue the action.

The court further held that the Seller Agreement did not unmistakably make The Receivables Exchange’s notice or demand a condition that had to occur before Murex’s repurchase obligation arose. The agreement’s language made the obligation absolute, unconditional, and irrevocable. The court also rejected Murex’s argument that other contract provisions eliminated recourse against Murex, reasoning that the agreement expressly preserved recourse under the repurchase provision. An amendment to The Receivables Exchange’s rules concerning an account debtor’s insolvency likewise did not eliminate the repurchase obligation based on Murex’s inaccurate representations.

The court rejected Murex’s judicial-estoppel argument. It held that the FDIC’s efforts to recover from ABC’s and Abengoa’s bankruptcy proceedings were not clearly inconsistent with its position that the transactions underlying the receivables were not genuine ethanol sales. The FDIC could assert that valid debts existed while also arguing that Murex had falsely represented the transactions’ nature.

On the merits, the court held that the undisputed evidence showed that the transactions were not genuine, arm’s-length ethanol sales. ABC’s finance department determined how much money it wanted to raise, Murex and ABC used that amount to create paired invoices, and the transactions could be canceled if the resulting receivable did not sell on The Receivables Exchange. The court found that the transactions’ purpose was to create receivables that could generate cash for ABC, not to exchange physical ethanol.

The court concluded that Murex’s representation that the receivables arose from bona fide, arm’s-length sales was materially inaccurate. It rejected the FDIC’s separate argument that the transactions were “conditional sales,” explaining that the contract used that term to refer to a particular secured transaction in which possession transfers while ownership remains with the seller. The court did not find that meaning established here, but held that the inaccurate representation concerning genuine, arm’s-length sales independently triggered Murex’s repurchase obligation.

The court also rejected Murex’s argument that the FDIC had to prove that the misrepresentation caused ABC’s default. Under the Seller Agreement, the repurchase obligation arose from the material inaccuracy of Murex’s representation. The court held that Murex’s failure to repurchase the receivables caused the FDIC’s contract damages.

The court therefore granted the FDIC’s partial motion for summary judgment on the breach-of-contract claim, but only as to liability, and denied Murex’s motion on that claim. The court did not decide whether the appropriate remedy would be specific performance requiring repurchase, rescission, or money damages.

Fraudulent inducement

The court granted Murex summary judgment on the FDIC’s fraudulent-inducement claim. It found that factual disputes remained concerning whether Murex made material misrepresentations, intended to defraud, and was reasonably relied on by First NBC Bank. But the FDIC did not provide evidence from which a reasonable jury could find that Murex’s misrepresentations, rather than ABC’s and Abengoa’s later insolvency, directly caused the FDIC’s losses. Because proof of that causal connection was required for the fraud claim, Murex was entitled to judgment on this claim.

Unjust enrichment

The court granted Murex summary judgment on the unjust-enrichment claim. It held that a valid and enforceable contract governed the subject matter of the dispute. Although a plaintiff may plead unjust enrichment as an alternative at the pleading stage, the claim could not proceed at summary judgment once the court determined that the contract was valid and enforceable.

Rescission and equitable defenses

The court denied without prejudice Murex’s motion for summary judgment on the FDIC’s rescission claim. It treated rescission as a remedy rather than a liability issue and concluded that the parties had not adequately briefed whether rescission or another equitable remedy was available.

The court also rejected Murex’s request for summary judgment based on unclean hands and laches as defenses to rescission. It held that the evidence did not establish the immoral or unconscionable conduct required for unclean hands. It also held that Murex had not shown the delay, lack of knowledge, and prejudice required for laches.

Disposition

Judge Paul A. Engelmayer granted the FDIC’s partial motion for summary judgment on liability for breach of contract. He denied Murex’s motion on the contract claim, granted it on the fraudulent-inducement and unjust-enrichment claims, and denied it without prejudice on the rescission claim. The opinion left the appropriate remedy for the contract breach unresolved.