Key Points

  • The Fifth Circuit affirmed the Rule 12(b)(6) dismissal of 82 Glenwood Avenue LLC's claims against escrow agent Evan Lipp, Kane Title LLC and David Kane in an unpublished per curiam opinion.
  • The breach of contract claim failed for lack of mutual assent because 82 Glenwood was never mentioned or identified in the emails with Lipp, and its claimed agent was presented to Lipp as Schutze's deal partner.
  • The negligence and breach of fiduciary duty claims failed on proximate cause because, on the complaint's allegations, a deal partner's theft of the earnest money was not foreseeable as a matter of law.
  • Lipp's emailed opinion on how a draft contract would operate was not a promise as a matter of law, defeating the promissory estoppel claim; reliance on a draft was also not foreseeable.
  • The claims against Kane were dismissed because the complaint made no factual allegations against him.

A federal appeals court on Oct. 30 refused to revive a New York company's lawsuit against a Texas title company and its escrow agent over $3 million in earnest money for an Austin real estate deal that the title company wired to one of the deal's partners. The company alleges that the partner kept the money for himself.

A three-judge panel of the U.S. Court of Appeals for the Fifth Circuit, made up of Circuit Judges Richman, Haynes and Douglas, affirmed in an unsigned opinion the dismissal of claims brought by 82 Glenwood Avenue LLC against escrow agent Evan Lipp, Kane Title LLC and David Kane. The opinion is not designated for publication.

Applying Texas law, the panel held that 82 Glenwood had not sufficiently pleaded that the escrow agent agreed to return the money only to 82 Glenwood, which his emails about the deal never mentioned or identified. The panel also held that the agent could not have foreseen one partner stealing from the others. The ruling leaves 82 Glenwood without a claim against the agent or the title company that employed him and wired out the funds.

According to the complaint, which the court accepted as true at this stage, BHL Capital LLC, owned by Nolan Schutze, agreed to buy property in Austin from WC 6th & Rio Grande LP. The purchase agreement required a $3 million earnest money deposit. BHL Capital lacked the funds to close, so it took on partners. Those partners were brothers Jake and Austin Deraaff. Their company and the Mermelstein brothers' company formed 82 Glenwood, which joined BHL Capital as the only members of a purchasing entity, 601 Rio LLC.

Before any money moved, Schutze introduced Lipp by email to "my partners on the deal," including Evan Mizrahi, whom 82 Glenwood describes as its agent. Mizrahi then asked Lipp to confirm "that we would receive a wire of $3,000,000 back on day 46," after a 45-day feasibility period. Lipp answered that "the job or purpose of an escrow agent is to act as a neutral third party and not to interpret the contract, but rather to follow the instructions of the contract." He added: "In my opinion, I would agree with you and Nolan [Schutze] in that the $3,000,000 would be released once the feasibility period ends or if the contract were to cancel."

On Feb. 14, 2023, 82 Glenwood wired the $3 million to Lipp, acting on behalf of 601 Rio LLC. Lipp's receipt did not identify the sender. Within 30 minutes, Schutze emailed Lipp, copying no one else, and asked that the money be refunded directly to him. Kane Title wired Schutze the funds "immediately," after deducting its 2.5% fee of $75,000.

About 45 days later, 82 Glenwood asked for its money back. Lipp replied that he did not know who the purchasing entity's members were and wrote, "I am not releasing any funds to anyone until I have a clear understanding of who can sign for the company and who the members are." The panel noted that the email implied he had not already released the funds to anyone.

82 Glenwood sued Schutze, BHL Capital, Lipp, Kane and Kane Title in the U.S. District Court for the Northern District of Texas. It settled its breach of contract and fraud claims against BHL Capital and Schutze. The district court then granted motions by Lipp, Kane and Kane Title to dismiss the remaining claims for breach of contract, breach of fiduciary duty, negligence and promissory estoppel under Federal Rule of Civil Procedure 12(b)(6).

On appeal, 82 Glenwood argued that "the email exchange demonstrates mutual assent to the same terms" and that the parties' "course of dealing demonstrates that all parties understood they were entering an escrow arrangement." Mutual assent, the meeting of the minds that Texas requires for any contract, was where the panel found the claim failed. "The email correspondence does not suggest in any way that Lipp intended to be bound to an agreement with 82 Glenwood, who is not mentioned or identified anywhere in the emails," the panel wrote.

The panel noted that the emails described Schutze, Mizrahi and the Deraaff brothers as a single group of partners. "82 Glenwood argues Mizrahi was its agent, but that was never communicated to Lipp," the court wrote. Even an account showing 82 Glenwood as the sender, the court added, would not have shown that Lipp agreed to return the funds only to it. Because the contract claim against Lipp failed, the derivative claim against Kane Title failed as well.

The negligence and fiduciary duty claims failed on proximate cause. The panel agreed with the district court, which had reasoned that "[t]he logical conclusion is that they, too, were deceived by Schutze's scheme." It noted that Lipp and Schutze had worked together before and that the complaint did not allege anything in those dealings that should have raised suspicion. "Based on the allegations in the complaint, Schutze's actions were not foreseeable as a matter of law," the panel wrote. Quoting Texas Supreme Court precedent, it added that "foreseeability requires more than someone, viewing the facts in retrospect, theorizing an extraordinary sequence of events whereby the defendant's conduct brings about the injury."

The promissory estoppel claim fared no better. 82 Glenwood argued that Lipp's "opinion" email was a promise to hold its money and return it on day 46. The panel disagreed, pointing to Lipp's statement that his role was not to interpret the contract. "His opinion of what the draft contract provided for regarding the down payment does not constitute a promise as a matter of law," the court wrote.

Even if the email had been a promise, the panel held, 82 Glenwood had not adequately alleged that Lipp should have foreseen reliance on it, because the emails concerned only a draft. "For all Lipp knew, the contract could be subject to further revisions," the court wrote.

The claims against Kane fell on a separate ground: "the complaint makes no factual allegations against Kane," the panel wrote.

The Fifth Circuit affirmed the judgment dismissing the case, No. 3:23-CV-2231. Because 82 Glenwood had already settled with BHL Capital and Schutze, the affirmance leaves no remaining claims against any defendant in the suit.