### INTHE UNI TED S TATESCOU RT OFAPPEALS FORTHE FIFTH CIRCU IT

N o. 09- 20268
S HAN DON G YI NGU ANG CHEM I CAL I NDU S TR I ES J OI NT S TOCK C O M P A N Y , L T D
. Pl ai nt i f f

- Appe l l ant

v. M I CHAEL POT TE R D efen da n t
- A pp el l ee

A pp ealf

rom t h e U n i t ed S t ates D i st ri ctC ou rt f or t h e S ou t h ern D i st ri ctof T exas
B ef ore JO N E S , C h i ef

Ju dg e, an d S M ITH an d E L R O D , C i rcui tJu dg es. P E R C U R I A M: A p p e lla n t S h a n d o n gY in g u a n gC h e m ic a l I n d u s tr ie s J o in t S to c k C o ., L td ., ( “Y i n gu an g”) sol d exp l osive chem i cal s t o B est on C h em i calC orporati on ( “ B est on ” ) , a com pa n y w h ol l y- ow n ed by A pp el l ee M i cha elP ot t er. B est on fai l ed to m a k e p a ym en ts on tw o con tracts a n d su b seq u en tl y d eclare d b a n k ru p tcy. In an ef f or tt o r ec ove ri t s l os se s, Y i nguan g sued P ot t erpers onal l y f orc om m on l aw fr aud and f

r audul enti ndu c em ent , and s oughtt o i m pos e pe r so nall i abi l i t y by pi e r c i ng Bes t o n’ s c o r po r at e v e i l
. The di s t r i c t c o ur t di s m i s s e d t he c as e , f i ndi ng t h at Y i n gu an g fai l ed t o m eetthe pl ead i n g requ i rem en t s of F ed. R
. C i v. P
. 9(b) on t he f r aud cl ai m s. The di st r i c tc our tal so hel d t hatYi nguan g di d nothave
s t a n d i n gt o p ur s ue t h e v e i l

- p i e r c i n gc l a i m. F o rt h e r e a s o n s t h a tf o l l o w, we United States Court of App eals

Fifth Circuit 

### F I L E D May 27, 2010 Lyle W . Cayce Clerk Case: 09-20268 Document: 00511124000 Page: 1 Date Filed: 05/27/2010N o. 09- 20268

B estonnotes that some delay was caused bya StateDepartment sanction , issue d 1 inS ep t em ber 20 04, again st Yin gu ang’s shipping agent. The sanctionprohib ited U.S. companies from doing business with the shippingagent and authori zed payments only with permissio n from th e Treasury Department. 2 concl u de that Y i n gu an g di d n ot ad equ atel y pl ead f rau d an d aff

i rm t h e di st ri ct
c o u r t’s d is m is s a l p u r s u a n t t o R u le 1 2 (b )(6 ). I . Bac kgr ound B est on an d Y i n gu an g en t ered i n t o ei gh tcontr act s f or del i very of
c h em i ca l s. A ccord i n g t o t h e w ell -pled a l l eg a ti on s, B eston p a i d for th e fir s t s ix
c o n t r a c t s , b u ti n a n u n t i me l yma n n e r . T h i s a p p e a ls t e ms fr o m t h e l a s tt wo c o n tr a c ts , C o n tr a c ts N o . 7 a n d N o . 8
. T h e p a r tie s e n te r e d in t o C o n tr a c t N o . 7
on F ebru ary 25, 200 4 f or $1, 369 , 216
. 80 a n d C on t ractN o. 8 on Ju n e 1, 200 4 f or $1, 328 , 644
. 80. D u ri n g B est on ’ s and Y i n gu an g’ s busi n ess rel ati on shi p, P ot t er o fte n s p o k e w ith Y in g u a n g ’ s p r e s id e n t, S u n B o w e n . Yi n g u a n ga s s e r t s t h a tP o t t e rmad e t w o t yp e s o f m i s r e pr e s e nt at i o ns dur i ng n egoti ati on s f

or t h ese t w o contr act s. Fir st , on Ju l y 20, 200 3, P ot t er r epresented t h at B est on w as i n “ soun d f i n an ci alcondit i on ” an d that B est on w o u l d p ay f or c urr entand f

ut ure s hi pm en ts
. Sec ond, Pot t err epr es ent ed r epe at edl y t hat B es t on w oul d m ake r egul ar paym ent s on i t s purc hase s. O n F ebr uary 2, 2004,
w h en B ow en asked f

or a l et t er of

cr edi tt o sec u re f

u t u re paym en t s, P ot t er r epl i ed t h at a l et t er of

cr edi tw as un n ecess ary b e ca u se B est on w ou l d m ak e regul ar, t im e ly p a y m e n t s . O n A p r il2 6 , 2 0 0 4 , P o t t e re m a il e d B o w e n d e s c r ib in gB e s t o n ’s f i nanc i aldi f

f i c ul t i e s , b uthe a s s ur e d Bo w e n t hatBes t o n ha d r e m e di e d t he p r o b l e m s a n d t h a t“Yi n g u a n gwi l ls e e c o n t i n u a l , c o n s t a n tp a y m e n t s f r o m BCC [ Be s t o n]
. ” On Apr i l 3 0 , 2 0 0 4 , Po t t e r e m a i l e d Bo wen a g a i n, p r o m i s i ng t hat Bes t o n woul d m ak e pa ym e nt s o n a f r e que ntb as i s . Af

t e rB e s t o n fai l e d t o m ak e pa ym en t s on C on t ractN o. 7, Y i n gu an g ref u sed t o del i ver an y chem i cal s un der C o n tr a c t N o . 8
. O n A u g u s t 2 1 , 2 0 0 4 , P o tt e ra g a in p r o m is e d th a t B e s to n w o u ld pa y Y i n gu an g, an d Y i n gu an g proceeded t o del i ver t h e chem i cal s. 1 Case: 09-20268 Document: 00511124000 Page: 2 Date Filed: 05/27/2010N o. 09- 20268

3 D es pi t e Pot t er ’ s as sur ance s, he om i t t ed t o t el l Y i nguan g t hat B es t on had been un prof

i t able i n 2 0 0 3. I n t h e end , B est on m ad e no regu l ar pay m en t s on ei t her c ont r ac t
. Y i nguan g sue d B es t on i n Texas i n st at e c our ti n A ugust , 2005. Bes t o n a nd Yi ngu ang e nt e r e d i nt o a s e t t l e m e nt ag r e e m e nta nd Be s t o n m ad e o ne pa ym en tof

$49 9, 216
. 80 on M arch 1, 200 6. Si x w eeks l ater , B e sto n filed f or C h ap t er 11 ban kru ptcy. Y i n gu an g w as l eft w i t h a $2, 198 , 644
. 80 u n secured
c la im
. Yi ngu angne xts ue d Pot t e rper s o nal l y i n f e de r aldi s t r i c tc o ur t
. Yi ngu ang al l e ge s t hatPo t t e r c o m m i t t e d f r aud and f

r aud ul e nti nduc e m e ntb y l yi ng t o Sun Bow e n t o e nt i c e Yi ngu angt o e nt e ri nt o Cont r ac t s N o . 7 a nd No. 8
. Al l e gi ng t h at P ot t er used B est on t o perpetrat e a f rau d by f

u n n el i n g m on ey ou tof B est on in t o o t h e rP o t t e r -o w n e d c o r p o r a t e e n t it ie s , it a ls o s e e k s to im p o s e B e s t o n ’s
con tract l i a b i l i ty o n P o tt e r by piercin g th e cor p ora te ve i l
. P otter m ov ed to di sm i ss u n d e r F e d . R
. C i v. P
. 12(b) ( 6)
. Th e di st ri ctcourtgran t ed the m ot i on b e c a u s e Yi n g u a n gd i d n o tme e tt h e h e i g h t e n e d pl e a d i n gr e q u i r e m e n t s o f F e d
. R. Ci v. P. 9 (b) o n t he f r audc l ai m s . The di s t r i c tc o ur ta l s o h el d t h atYi ngu ang l acked st an di n g t o pu rsue t h e vei l

- pi erci n g cl ai m t h at w as property of t h e B est on ban kru ptcy es t ate. Y i n gu an g n ow app eal s. I I . St andard of

R evi ew W e r e v i e w de no vo a d is tr ic t c o u r t’s d is m is s a l fo rfa ilu r e to s ta te a cla im
u n d e rR u le 1 2 (b )(6 ). Jon es v. G reni nger , 1 88 F. 3d 32 2, 32 4 ( 5t h Ci r . 1 99 9)
. The
u l t i m ate questi on i n a R u l e 12(b) ( 6) m ot i on i s w h et h er t h e com pl ai n t stat es a va l i d c l ai m w he n al lw e l l

- pl e ad e d fac t s ar e as s um e d t r ue and ar e vi e w e d i n t he lig h t m o s t fa v o r a b le to th e p la in tiff
. I n r e K at r i na Can al B e aches L it ig
. , 49 5 F. 3d1 91 , 2 05 ( 5t h Ci r . 20 07 )
. The c o ur t ’ s t as k i s t o de t e r m i ne w he t he rt he p l a i n ti ff

h a s stated a leg a l l y co gn i za b l e claim tha t i s p l a u sibl e, n ot to ev a l u a te th e p la in tiff

’ s lik e lih o o d o f s u c c e s s . As h c r of tv . I q ba l , 55 6 U
. S
. ___ , 12 9 S
. C t. 19 37 , 1 94 9 ( 20 09 )
. Fur t he r , w i t h r e s pe c tt o the f r auda nd f

r aud ul e nt i n d u cem en t cl a i m s, F ed
. R
. C i v. P
. 9(b) req u i res th a t A p p ella n t “ state w i th Case: 09-20268 Document: 00511124000 Page: 3 Date Filed: 05/27/2010N o. 09- 20268

4 p a rti cu l a ri ty th e circu m sta n c e s c o n s ti tu ti n g th e frau d
. ” F ED . R. C IV . P. 9 (b ). “P u t s im p ly , R u le 9 (b ) r e q u ir e s ‘ th e w h o , w h a t, w h e n , w h e r e , a n d h o w ’to b e la id
ou t. ” Benc hm ar k El e c t r o ni c s , I nc . v . J. M
. H ube rCor p. , 34 3 F
. 3 d 71 9 , 72 4 ( 5 th C ir. 2 0 0 3 ). I I I . D i s cus s i on A. Fr aud Y i nguan g al l ege s t hatPot t erc om m i t t ed f r aud bot h by af

f i r m at i ve m is r e p r e s e n t a t io n a n d b yo m is s io n . S p e c if ic a ll y , Y in g u a n ga s s e r t s th a tP o t t e r ’s st atem en tt h at B est on w as i n “ soun d f i n an ci a l con di t i on ” w as a m is r e p r e s e n ta tio n b e c a u s e B e s to n w a s u n p r o fita b le in 2 0 0 3 a n d fa ile d to o b ta in a l i n e of

cr edi t
. Th e el em en t s of f rau d i n T exas are (1 ) th e d e fen da n tm ad e a r e pr e s e nt at i o n t o t he pl ai nt i f f; ( 2) t he r e pr e s e nt at i o n was m at e r i al ; ( 3) t he
r e pr e s e nt at i o n was fal s e ; ( 4) w he n t he de fe nda ntm ad e t he r e pr e sent at i o n t he de fe nda ntkne w i tw as fal s e o rm ad e t he r e pr e s e nt at i o n r e c kl e s s l y andw i t ho ut kno w l e dg e o f

i t s t r ut h; ( 5) t he de fe nda ntm ad e t he r e pr e s e nt at i o n wi t h t he i nt e ntt hatt he pl ai nt i f f a c to n i t ; (6) the p l ai nt i f f r e l i e d o n t he r e pr e s e nt at i o n; a n d ( 7 ) th e r e p r e s e n ta tio n c a u s e d t h e p la in tiff inju r y . E r nst & Y

oung, L. L. P. v. Pacif i c Mu t . L if

e I n s. Co. , 5 1 S .W .3 d 5 7 3 , 5 7 7 (T e x . 2 0 0 1 ). Y i n gu an g’ s al l egati on s fai lt o m eett h e p lea d i n g requ i rem en t s of R u le 9 (b ) a s to s e v e r a l o f th e fr a u d e le m e n ts
. F ir s t, Y in g u a n gfa ils s u ffic ie n tly t o al l ege t h at t h e “ soun d f i n an ci alcondit i on ” st atem en tw a s m ater i al
. Afal se r e pr e s e nt at i o n i s m at e r i ali f ar e a s o n a b l e p e r s o n woul d a t t ac h i m po r t anc e t o a nd b e in d u c e d to a c t o n th e in fo r m a tio n . C itizens Nat’ lB an k v. A l l en R ae Invs. , 14 2 S. W
. 3d4 59 , 4 78

- 79 (Tex
. App.

— For tW o r t h 2 00 4, no pe t
. )
. Thi s s t at e m e nt i s i n h erentl y vag u e an d am bi gu ou s. Y i n gu an g di d n otpl ead t h at Pott er pr e s e nt e d a ny de t a i l e d , c o r r o bo r at i ng i nf o r m at i o n, fac t s o rf

i gur e s t o s upp o r tt he
s t at e m e ntt hatm i ghte nt i c e a r e as o nab l e pe r s o n to a t t ac h i m po r t anc e t o t he
s ta te m e n t. S ee id
. Fur t he r , t he s t at e m e nt i s s i gni f i c ant l y at t e nuat e d f

r o m t he executi on of

C on t ractN os. 7 an d 8, w h i ch occurred, res pectivel y, seven an d ten Case: 09-20268 Document: 00511124000 Page: 4 Date Filed: 05/27/2010N o. 09- 20268

5 m o nt hs l at e r . Pot t e r al s o e xp l ai ns , w i t ho ut c o nt r ad i c t i o n, t hat t he st atem e nt
w as m ad e du ri n g a m eet i n g t o assure Y i n gu an g t h at a l ate paym en ton C on t ract N o. 6 w ou l d be f

orth com i n g. F u rth er un d erm i n i n g a n i n feren ce of m a terial i ty i n t h e “ soun d f

i n an ci alcondit i on st atem en t ” i s t h e real i t y t h at i n t h e parti es’
cou rse o f d ea l i n g o n pr i or co n tracts, B eston ’ s p a ym en ts h a d re p ea ted l y b ee n l a te al t h ou gh i t“ gen eral l y” m eti t s obl i gati on s t o Y i n gu an g. U n der al lof t h ese c ir c u m s ta n c e s , Y in g u a n g ’ s b a r e a s s e r tio n o f m a te r ia lity rin g s h o llo w . S econd , Y i n gu an g fai l s s u f f i ci en t l y t o al l ege t h at t h e st atem en tw as fal se w h en m a d e. T h a t B eston w a s u n p rofi tab l e for t h e ye a r 20 0 3 an d u n a b l e to obt ai n a l i ne o f c r edi t so m et i m e i n 2004 do nots upporta c onc l usi on B es t on w as not i n “ so und f

i nanci al c ondi t i on” i n Jul y 2003. M any c om pa n i es h ave u n p rofi tab l e y ea rs b u t rem a i n f i sca l l y so u n d
. A s Y i n gu a n g ’ s p l ea d i n gs ad m i t, B es t on w as abl e t o m ake al lof i ts paym ent s due on pr i orc ont r ac t s i n 2003. S im ila r ly , B e s to n ’ s fa ilu r e to o b ta in a lin e o f c r e d it d o e s n o t n e c e s s a r ilyim p ly th a t B e s to n w a s fin a n c ia llyu n s o u n d
. In s o fa ra s Y in g u a n gre lie s o n t h e s e r ie s o f p r o m is e s to p a yd u r in ge a r ly 200 4, al lbu tone of

t h ese post
- da t e C on t ractN o. 7 an d can n otha ve i n f l u en ced t h e d e c is io n to e n t e rin t o th a tc o n t r a c t . T h e s t a t e m e n t s c o n c e r n i n g B e s t o n ’s p r e s e n tan d f

u t u r e wi l l i n g n e s s t o p a ya r e a l l e g e d t o b e f r a u d u l e n tu n d e rt wo t he o r i e s . Yi n gu an g s ay s t he y w e r e fal s e w he n m ad e b e c aus e Bes t o n ha d no abil i t y t o pay f

or t h e chem i cal s. A l t erna t i vel y, t h ey w ere fal se because B et son n ever ha d an i n t en tt o perf orm t h e contr act
. T h e “ fal se w h en m ad e” t h eory s u ffe r s fr o m a la c k o f s u p p o r tin gd e ta ils f r o m w h ic h a n in fe r e n c e o f fa ls ity co u ld d erive
. A s p rev i ou sly n oted , Y i n gu a n g o ff ers n o con tem p ora ryfin a n ci a lda ta
u n d ercu tti n g P otter’ s as sertion ab ou t t h e com p a n y’ s w i l l i n gn ess to p a y. In fa ct, th o s e a s s e r tio n s a r e c o n s is te n t w ith B e s to n ’ s h is to r y o f p a y in g Y in g u a n g fu lly butunt i m e l y. The Apr i l 26 s t at e m e nt , m o r e o ve r , w as ac c o m pa ni e d by a f r ank adm i ss i on o f

s om e f i nanci aldi f

f i c ul t i es , an adm i ss i on atodds w i t h fal si t y. Case: 09-20268 Document: 00511124000 Page: 5 Date Filed: 05/27/2010N o. 09- 20268

6 Y i n gu an g’ s al t erna t i ve t h eory i s t h at Pott er f rau du l en t l y i n du ced Y i n g u a n g t o en ter i n to C on tracts N o. 7 an d N o. 8 by rep ea ted l y p rom i singto
m ak e pa ym e nt s w i t h no i nt e nt i o n o f pe r f o r m i ng. “A pr o m i s e t o do a n a c ti n t he f u t u re i s act i on able f

rau d w h en m ad e w i t h t h e i n t en t i on , desi gn an d p u rpose of d ece i vin g, an d w i th n o inten ti on of p erfo r m i n g th e a ct. ” Spo l j ar i cv . Pe r c i v al T ou rs, I n c. , 7 0 8 S .W .2 d 4 3 2 , 4 3 4 (T e x . 1 9 8 6 ). “W h ile a p a r ty ’ s in te n t is determ i n ed at t h e t i m e t h e party m ad e t h e rep re se n t ati on , i tm ay be i n ferred fr o m t h e p a rty’ s su b seq u en t acts after the rep rese n tati on i s m a d e.” I d. H o w e v e r , “ fa il u r e to p e r fo r m , s t a n d in ga lo n e , is n o e v id e n c e o f t h e p r o m is s o r ’s i n ten t no t t o p erform w h en the pr om i se w a s m a d e.” Id
. at4 35
. “ ‘ Sl i ght ci rcum st an t i alevi den ce ’ of f rau d, w h en consi dered w i t h t h e breach of prom i se to p erform , is su ff

i ci en t to su p p ort a fi n d i n g of frau d u l en t inten t. ” Id
. T h e court shou l d consi der al lt h e ci rcum st an t i alevi den ce as a w h ol e t o deter m i n e w h et h er th e ev i d en ce “tran scen d [s] m ere s uspi c i on. ” IKO N Of f i ce S ol u t i on s, I

n c. v. E if

ert , 1 2 5 S .W .3 d 1 1 3 , 1 2 4 (T e x .A p p .— H o u s to n [1 4 th D is t.] 2 0 0 3 , p e t. d e n ie d ). Y i n gu an g al l eges, al bei tw i t h ou tspeci f i cs, t h at Pott er “ f

u n n el ed” m on ey f rom B e sto n i n t o hi s ot h er c om pa n i es. I tcontends that t h i s al l egati on c o n s t it u t e s “s li g h tc ir c u m s t a n t ia l e v id e n c e o f f r a u d ” a n d , c o u p le d w it h B e s t o n ’s fa ilu r e to p e r fo r m , is s u ffic ie n t t o a lle g e fr a u d u le n t in d u c e m e n t. Cer t ai nl y, “ f

unne l i ng” m o ne y f

r o m o ne e nt i t y t o a no t he rc o ul d b e “ s l i ght
c i r c um s t ant i ale vi d e n c e o f f r aud , ” b utYi ngu ang ’ s pl e ad i ngs do no tr i s e a bo ve t he l eve lof a c onc l uso r y de sc r i pt i on. Pl eadi ng s t andards dem a n d “m or e t han an
u n a d or n e d , th e d e fe n d a n t-u n la w fu lly -h a r m e d -m e accu sa ti on . ” Ash c r of tv . I qb al , 5 5 6 U .S . __ , 1 2 9 S .C t. a t 1 9 4 9
. T h e cla im m u s t b e p la u s ib le o n its fa c e : Ac l ai m has fac i alpl ausibi l i ty w h en t he pl ai nt i f f pl eads fac t ual c ont entt hatal l ow s t he c our tt o dr aw t he r eas onabl e i nfer enc e t hat th e d efen d a n t i s l i a b l e f or t h e m i scon d u ct a l l eg ed
. T h e p l a u sibi l i ty st an da rd i s not ak i n t o a probab i li t y requ i rem en t , bu ti tasks f or m or e t han a she erpos sibi l i t y t hata de fendanthas ac t ed unl aw f ul l y. W he r e a c o m pl ai ntpl e ad s fac t s t hata r e m e r e l y c o ns i s t e ntw i t h a Case: 09-20268 Document: 00511124000 Page: 6 Date Filed: 05/27/2010N o. 09- 20268

Compare Weinb erger v. Lon ger , 2 2 2 S. W. 3 d 5 5 7 , 5 6 3 (T ex . App .—Ho u st on[ 1 4 thDi st .] 2 2 0 0 7 , pet. de nie d) (co ntr actoru se d pl aintiff ’smo n eyto payf

ormateri also no th erp ro j ects). 7 d efen d a n t’ s lia b i l i ty, i t st op s sh ort of t h e li n e b etw ee n po ssibil i ty a n d p la u sib il ityof e n titlem e n t to re li e f. Id
. at 1949 (i n t erna lci t ati on s a n d qu ot ati on s om i t t ed). Fu rt h er, Rul e 9 (b) i m po s e s a n a ddi t i o nalb ur de n o n t he pl ai nt i f f t o de t ai lfac t s a nd l ayo ut th e “the w h o, w h a t, w h en , w h ere , an d h ow of a f ra u d
. ” B ench m ark , 343 F. 3d at 7 2 4
. T h at Pott er t ran sferred m on ey aw ay f rom B est on i s not, st an di n g al on e, s uf f i c i e ntund e rRul e 9 (b) a nd I qb al
. M o v in g m o n e y from on e com p a n y to
a n o th e rm a yb e co n s is t e n t w ith fr a u d , b u t itd o e s n o t c r e a te a re a s o n a b le i n fer e nc e t hat Pot t e r i s l i ab l e f o r f r aud
. Bes t o n c o ul d hav e had l e gi t i m at e or ille g itim a te re a s o n s fo rtr a n s fe r r i n gm o n e y . Y in g u a n gh a s a lle g e d n o d e ta ils t h at w ou l d c orroborat e a f rau du l en tsc h em e, such a s w h en or w h y P ot t er m oved t he m oney, how m uch m oney w as t r ansf er r ed, or w het hert hi s ac t i on w as in c o n s is te n t w ith th e co m p a n y ’s p a s t p r a c tic e s . In a d d itio n , Y in g u a n gits e lf 2 pl e ad s e vi de nc e t hatc o unt e r s a f r aud ul e nt i nt e nt no t t o pe r f o r m . A s i gni f

i c ant
a m ou n t of

ti m e p a sse d be tw ee n P otter’ s f i rst all eg ed l y false rep rese n tati on to Yi ngu angi n J ul y 20 03 and t he co m pa ny’ s ul t i m at e fai l ur e t o pa y w he n i ts o ugh t b a n k ru p tcy i n M a rch 2 0 0 6
. C o mpar e Uni t e d St at e s v . Shah , 44 F. 3d 285, 293
n . 1 4 ( 5t h C i r . 1995) ( sho r t i nt er val bet w ee n al l ege d pro m i se and fai l ure to perf orm m ay be p robative of fra u d). B est on ’ s i n i t i alm i ssed pay m en t s on C on tracts N o. 7 an d 8 w ere p red i ctab l e, give n i ts h i story of u n ti m ely p a ym en ts on t he f i r sts i x c ont r ac t s. Th e U
. S. St at e D epar t m ents anct i ons c r eat ed a c hange in cir c u m s ta n c e th a t p r e v e n te d B e s to n f r o m s e llin go rd e liv e r in gth e ch e m ic a ls i n t he l a tter p a rt o f

2004. Best on m ade a s i gni f i c antpaym entof

$499, 216. 80 in M a r c h 2 0 0 6
. S e e I KO N, 1 2 5 S
. W
. 3 d at 12 4 ( “P a rti a lpe rform a n ce ca n n eg a te
a n i n ten t no t t o k ee p a p rom i se at the ti m e itw a s m a d e.” ). A l lof th ese ev en ts p o in t a w a yfr o m a n in fe r e n c e th a t P o tt e rn e v e rin te n d e d to p a y . Case: 09-20268 Document: 00511124000 Page: 7 Date Filed: 05/27/2010N o. 09- 20268

8 A l t h ou gh this m ay be a cl ose case du e t o S p o ljar ic ’ s “ sl i ghtc i r c um st ant i al
e v id e n ce ” lan g u a g e , g ive n th e h e igh te n e d p lea d in gre q u ire m e n ts o f R u le 9 (b ),
an d t h e eq u i poi se, on a l lthe fact s p l ead ed read as a w h ol e, betw een an i n ference o f f r a u d a n d o n e o f

B e s t o n ’s b u s in e s s a s u s u a l, w e c o n c lu d e th a tY in g u a n g ’s al l egati on s do not pl au sibl y pl ead f rau du l en ti n t en tnot t o pay a t t h e tim e of P ot t er’ s r epresentati on s. Y i nguan g al so as se r t s t hatPot t erhad a dut y t o di sc l os e Best on’ s f i nanci al
c o n d it io n b u td id n o td o s o , t h e r e b yc o m m it t in gfr a u d b yo m is s io n . Ad e fe n d a n t ’s fai l ur e t o di s c l o s e i nf o r m at i o n wi l ls upp o r ta c l ai m f o rf r audo nl y w he r e t he d e fe n d a n t h a s a d u t y to d is c lo s e . B ra dfor dv. V en to , 48 S. W
. 3d 749, 755 ( Tex. 200 1)
. W h i l e t h ere i s n o g en erald u t y t o di scl ose, a du t y t o speak ari ses betw een non- f i duci ar i es w hen “ one par t y l earn s l a te rt hathi s pre vi ous af f i r m at i ve statem en t w a s fa l se o r m i slead i n g.” Uni o n Pac
. Res
. G r o up v . Rhone

- Pou l e nc , 2 4 7 F .3 d 5 7 4 , 5 8 6 (5 th C ir . 2 0 0 5 ); T empo T am ers , I

n c. v. C row - Hou st on F ou r, Lt d. , 7 1 5 S .W .2d 65 8 , 66 9 (T ex . A p p . — D a l l a s 19 8 6 , w ri t ref ’ d n . r. e.) ( a du ty to di sc l os e a r i se s w hen “ a par t y l at erl ear ns t hatpr evi ous af fi rm at i ve r epr es ent at i ons ar e i n fac tfal se ” )
. W e a r e pe r suade d t hatt he “ so und f i nanci al cond i t i on ” st atem en tw as not p l ed t o be fal se w h en m ad e i n Ju l y 200 3. Fu rt h er, Pot t er ’ s st at em enti ndi c at i ng no l et t erof cr edi tw as n ec es sa r y i n F ebr uary 2004 is n o t su ffic ie n tly p le d to h a v e b e e n fa ls e w h e n m a d e . P o tt e r d id , h o w e v e r , a d m it t h e com pa n y w as suf feri n g f i n an ci aldi f

f i cul t i es i n A pri l200 4, w h en h e coupled h i s adm i ssi on w i t h a f u rt h er prom i se t o pay . F or t h i s s t atem en tt o ha ve i n vol ved
a f r aud ul e nt o m i s s i o n, Yi ngu ang w o ul d hav e t o as s e r t fac t s s ho w i ng i t s o bv i o us i n suff i ci en cy an d patent i n si n ceri t y ( am ou n t i n g t o f rau du l en ti n t en t )
. V i ew ed i n t he t ot al i t y o f

t he par t i es ’deal i ngs— fre quentl at e pay m ent s, f ul lev ent ual paym enton t he f

i r sts i x c ont r ac t s, no r el evanc e t o t he e xec ut i on (i n F ebr uary) of C on t ractN o. 7— an d the absen ce of cor ro b o rat i n g f

i n an ci alfact s asi de f rom t h e even t u aldefau l t , w e are r el u ct an tt o tr a n sf orm t h i s adm i ssi on i n t o a f r a u d u l e n to mi s s i o n c l a i m. Case: 09-20268 Document: 00511124000 Page: 8 Date Filed: 05/27/2010N o. 09- 20268

Yin gu an gcit esT EX B US . C O RP . A CT ANN . art. 2.21 . “ Sections A and B of this articl e, 3 after a legislative reorgani zation of th e statute s governingbu sine ss entitie s effective J anu ary 1, 2 006 , were recodif

ie din substantiallysimil ar form in T EX . B US . O R GS . C ODE § 2.22 3, and §§ 21.2 24-.2 25, respectively .” SS P Part ners , 27 5 S .W.3d at 455(citing Act of May 29, 200 3, 7 8 thLeg ., R .S ., ch
. 1 8 2 , §§ 1 , 2 , 2 0 0 3T ex . Ge n . L aws 2 6 7 , 4 2 7 , 5 9 5). I nthiscircuit, w e d ete rm ine wh eth erana ssert edc au seof actio nari sin gf ro m a 4 corpor ate bankruptcypro perlybelon gs to an indivi dualcre ditor or, b ecau se it b elon gs to the debtor’s e state or se eks to recover p roperty of th e e state, may only be pursue d byth e trustee onb eh alf

of allcre ditors . Inre Sch immel p enn inck , 1 8 3F .3 d 3 4 7 , 3 5 5( 5 thC ir
. 1 9 9 9). Sch immelpenninckh el d th at alt ere go “an d oth er” pi ercing thec orporateveil th eori esmu st b e purs u edo nly onb eh alf of th e deb tor. Id . (c itin g Inre S.I . Acqu isitio n , 81 7 F .2d 1 142 , 11 53 (5thC ir. 1 987). T ex as, however, h as co difie d speci es of veil-pi ercin g that authori zes a c ontr act creditor to pi erce the obligor’s corpor ate veil if t he corpor ate form was used as asha m to perp etrateaf

rau d an d actual fr aud wa s co mmitt eda gain stth at cr editor . T EX . B US . O R GS . C O D E ANN . § 21.2 23(b) (2008) (emphasis added). O therdecision s haveh eld a fr aud clai m, if person al to the creditor, not to b e propertyof the debtor’s e state even thou ghth e debtormight als o po sse ss an d liti gate it s ow n cl aim s a gain stth e es tate
. See Inre SevenSeas, I nc. , 52 2 F .3d 5 7 5 , 5 8 5( 5 thC ir
. 2 0 0 8); In re Educato rs Grou p Health Trus t , 25F .3d 1 281 , 12 85-8 6 (5 th Cir. 9 B . V e i l
- P i e r c i n gC l a i m L a st, Y i n gu a n g se ek s to i m p ose p erso n a ll i a b i l i ty on P otter for C on tracts N o. 7 an d 8 by pi erci n g B ost on ’ s c orporate vei l
. Pier ci n g t h e cor porate vei li s not a separate cau se of act i on , bu ta m et h od to i m pose persona ll i abil i t y on sha rehol ders an d corporate of f i cers w h o w ou l d otherw i se be shi e ld e d f rom l i a b i lity fo rco r p o r a te d e b ts
. G ulf R e duct i on Cor

p. v. B oy l e s G al vani zi ng & P l ati ng Co. , 4 5 6 S .W .2d
. 4 7 6 , 4 8 0 (T e x . A p p .— F o rt W o r t h 1 9 8 7 , n o w rit). Y i n gu an g al l eges t h at Pott er used B est on a s a sha m t o perpetrat e a f rau d, w h i ch
e n tit le s it to p ie r c e th e co r p o r a te v e il a n d im p o s e p e r s o n a l lia b ility
. SSP Part n ers v. G l ad st rong Invs. , 2 7 5 S .W .3 d 4 4 4 , 4 5 5 (T e x . 2 0 0 8 ). T h is cla im
r e q u ir e s p r o o f th a t P o tt e rc o m m itt e d a n a c tu a l f r a u d a g a in s t it
. S ee T EX . B US . O RGS . C ODE A NN . § 2 1 .22 3 (b ); Kingsto n v. Helm , 82 S. W
. 3d 77 5 , 76 5 ( Tex. 3 A p p . — C orp u s C h ri sti20 0 2 , pe t. de n i ed ). A s d i scu sse d a b ov e, Y i n gu a n g fai l s to al l ege an act u alf

rau d, an d theref

ore fa il s t o sust ai n a basi s f or hol di n g P ot t er p e r s o n a lly lia b le fo r C o n tr a c ts N o . 7 a n d N o . 8
. B e c a u s e th e v e il p ie r c in gcla im
m ayb e di s m i s s e d f

o rt h i s reas o n, w e do no ta ddr e s s w he t he rYi ngu ango rt he B e s to n e s ta te o w n e d th e rig h t t o p ie r c e th e co r p o r a te v e il. 4 Case: 09-20268 Document: 00511124000 Page: 9 Date Filed: 05/27/2010N o. 09- 20268

199 4). Neith er SevenSeas nor Ed ucators , however, disturbe d the additio nalrequirementof S.I . Acqu isitio ns , 81 7 F .2d at 1 150 , that an indivi dualclaim seeking recovery or control of the debtor’s pro pertyis subj ect to t he Co de’s automatic stay . Here, it i s argued, even if th e partic ular veil- pie rci n gc l a imass ert s fr aud s pec ifi cally comm itt ed agains t Yingua ng, neverth eless the recoveryof assets wron gfullytaken or “funn eled” fro m B estonshould inure to the ben efit of all of B eston’s cre ditors. B ecau se we nee d not de cide wheth er Yinguan g’s clai m seeks torec over p roperty of th e e state, we do not address wheth erYin guang h as th e right to pursue the clai m in dividually . These facts liebetween Sch immelpenninckan d Seven Seasand theirantece dent s, and weleave def initive res olution of

the iss ue foranotherday. 10 C oncl usi on Fort he f oregoi n g reasons, w e af f i rm t h e di st ri ctcourt ’ s di sm i s s alpur s uant to R u le 1 2 (b )(6). A F F I RMED. Case: 09-20268 Document: 00511124000 Page: 10 Date Filed: 05/27/2010