1

United States Court of Appeals,

Fifth Circuit.

No. 93-2878.

CARNIVAL LEISURE INDUSTRIES, LTD., Plaintiff-Appellee,

v.

George J. AUBIN, Defendant-Appellant.

June 2, 1995.

Appeal from United States District Court for the Southern District

of Texas.

Before JONES, DUHÉ and STEWART, Circuit Judges.

STEWART, Circuit Judge:

This appeal involves the issue of whether an unpaid gambling

debt, which we previously held to be unenforceable as against Texas

public policy, can be used to support an action for fraud against

the gambler who was extended the credit by a casino. We conclude

that it cannot under the facts as presented in this case.

Facts and Procedural History

As indicated above, this is not the first time these litigants

have been before us concerning this $25,000, eight-year dispute.

The first hand in this controversy was played in Carnival Leisure

Industries, Ltd. v. Aubin, 938 F.2d 624 (5th Cir.1991) (Aubin I ).

Our opinion today constitutes a final disposition of the case.

During a January 1987 visit to the Bahamas, George Aubin, an

astute businessman, frequent gambler, and Texas resident, visited

Cable Beach Hotel and Casino, which was owned and operated by

Carnival Leisure, a Bahamian corporation, for fun and frolic.

After gambling away all the money he had brought to the casino,
 

1A marker is a preprinted form, resembling a bank check or

draft, that a gambler with preapproved credit signs while on the

casino floor in order to obtain tokens or chips to play a casino

game. If the player wins, he can redeem the marker with an

equivalent amount of chips, and he can then exchange the

remainder of the chips for cash. A losing player can redeem the

marker with any remaining casino chips he may have, and pay the

balance with cash or by giving a personal check. If the marker

is not paid within 30 days by cash, check or casino chips, the

casino presents the marker for payment, as a check or draft, to

the bank designated by the player on the initial application for

casino credit. 

2

Aubin asked that credit be extended to him so that he could

continue gambling. The casino issued six "markers" to Aubin, which

he signed, totaling $25,000.1 Markers may be used by a patron to

obtain food, beverages, souvenirs, or lodging at the casino.

However, it is undisputed that in this case Aubin obtained $25,000

in gambling chips with his markers.

Aubin contends that he signed markers which did not contain

the name of his Houston bank, his account number, the date, etc.

He contends that the casino added this information to the markers

before presenting them for payment. He denies that he had

authorized the completion or presentation of the markers for

payment. The forms signed by Aubin contained the following

language in small type:

I represent that I have received cash for the above

amount and that said amount is on deposit in said financial

entity in my name, is free and clear of claim and is subject

to this check and is hereby assigned to payee, and I guarantee

payment with exchange and costs in collecting.

Notwithstanding this language, it is undisputed that Aubin did

not receive "cash" in exchange for signing the markers: He

received $25,000 in gambling chips. It is also undisputed that, at
 

2Although the amount in controversy is only $25,000 in this

diversity case, federal court jurisdiction is proper because suit

was filed in 1987, prior to the effective date of the amendment

to 28 U.S.C. § 1332, which raised the minimum jurisdiction amount

from $10,000 to $50,000. That 1988 amendment applies only to

actions instituted on or 180 days after November 19, 1988. 

3

the time Aubin signed the markers, he did not have the $25,000 on

deposit at his Houston bank.

Luck was not a lady to Aubin; he lost the entire $25,000

playing blackjack. However, having been bested in the card game,

Aubin nonetheless beat the casino to the draw: when Aubin did not

redeem the markers within 30 days and the drafts were presented for

payment at Aubin's Houston bank, the casino learned, much to its

consternation, that he had stopped payment on the bank drafts.

After unsuccessful collection attempts, Carnival Leisure sued

Aubin to enforce the debt in the United States District Court for

the Southern District of Texas.2 Carnival later amended its

petition to allege fraud, conversion, and equitable estoppel as

well. The district court granted Carnival's motion for summary

judgment, finding that the debt was enforceable under Texas law

because public policy in that state had changed and now favored

enforcement of gambling debts. Aubin decided to spin the appellate

wheel and take a chance that this court would disagree. We did.

In Aubin I, Judge Garwood, writing for the panel, concluded

that although public policy in Texas may have shifted with regard

to gambling, as evidenced by the enactment of statutes legalizing

certain forms of gambling, there was a continued public policy in

the Lone Star State which disfavors gambling on credit.
4

Accordingly, we reversed the district court's grant of summary

judgment in favor of Carnival and remanded to the district court

"for further proceedings consistent with this opinion." Ibid at

626.

On remand, the district court indicated its intention to

dismiss Carnival's case, and invited briefs on the issue of whether

Carnival's fraud claims were barred by Texas public policy. The

district court concluded that the fraud claim was not barred by

public policy, nor by the law of the case, and set the matter for

trial. After a bench trial, the district judge concluded in

Carnival Leisure Industries, Ltd. v. Aubin, 830 F.Supp. 371

(S.D.Tex.1993), that although the gambling debt itself was

unenforceable under this court's mandate, Carnival nonetheless

could recover against Aubin for fraud. He found that, "[w]hen

Aubin signed the drafts, he promised to pay Carnival by honoring

the drafts," Ibid at 377, that Aubin never intended to honor the

drafts when he signed them, and that the facts established fraud.

The court entered judgment in favor of Carnival for $25,000 plus

costs and attorney's fees. Once again, Aubin has rolled the dice

and filed an appeal.

Discussion

As we shuffle the deck for the final hand in this litigation,

we begin with a review of the elements which must be proven by a

plaintiff asserting a cause of action for fraud. Under Texas law,

the elements of fraud are (a) a material misrepresentation of a

present existing fact, (b) that was known to be false when made,
 

3Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed.

1188 (1938). 

5

(c) that was intended to be acted upon (d) that was relied upon,

and (e) that caused injury. DeSantis v. Wackenhut Corp., 793

S.W.2d 670, 688 (Tex.1990).

In ruling in favor of Carnival on remand, the district judge

held that Aubin committed fraud when he signed the six markers,

finding that Aubin did not intend to repay them at the time he

signed them because he stated that he considered the documents to

be markers and not drafts. By this, Aubin meant that they were

merely a means for the casino to keep track of how much he had lost

and owed. Aubin subjectively predicted that it would not be

necessary for the instruments to be presented for payment because

he, like most gamblers, was ever the optimist and fully expected to

win. The district judge considered Aubin's testimony in this

regard as establishing that Aubin never intended to honor the

drafts, thus supporting a finding of fraud. Carnival, 830 F.Supp.

at 377. The district court also relied heavily upon the fact that

Aubin was a former bank president who knew that a gambling debt was

not always enforceable in Texas. Ibid.

Aubin has proceeded to ante up his best arguments in support

of a reversal on the finding of fraud. We will "deal" with each of

the parties' arguments under our Erie3 duty to apply Texas law.

Aubin first intimates in brief that an action for the $25,000

may not be maintained against him because he "returned" the entire

$25,000 in chips to Carnival by playing and losing at blackjack.
6

We summarily reject this specious argument. To reverse on the

basis that the debt was repaid by the loss of chips during play

would defy common sense.

Aubin's next argument is based on the law of the case

doctrine. The law of the case doctrine states that absent manifest

error, or an intervening change in the law, an appellate court's

decision of a legal issue, whether explicitly or by necessary

implication, establishes the law of the case and must be followed

in all subsequent proceedings in the same case. Morrow v. Dillard,

580 F.2d 1284, 1290 (5th Cir.1978).

Aubin submits that the panel opinion, which held that the

gambling debt is unenforceable under Texas law, precludes a finding

of fraud under the law of the case doctrine. Carnival disagrees.

The thrust of Carnival's argument that law of the case does not

preclude recovery for fraud centers around the fact that Aubin

signed the markers when he knew they were unenforceable under the

law of his home state. Carnival argues that the present issue is

whether Texas public policy protects those who sign negotiable

instruments with fraudulent intent, an issue it contends was not

before this court and was not decided by "necessary implication" in

Aubin I. Carnival claims that Aubin's signing of the markers

constitutes a fraudulent misrepresentation which is actionable and

which exists separate and apart from the determination that the

debt is unenforceable. Carnival's arguments focus on its

contention that the language quoted above on the face of the

markers constituted a material misrepresentation by Aubin that
 

4Carnival, of course, has a different view. Carnival

contends that, had the panel intended to preclude recovery by the

casino against Aubin on a theory of fraud, it would not have

remanded the case. We disagree. The panel was presented with

the single issue of whether gambling debts are enforceable within

the State of Texas, which it decided. The panel properly

remanded rather than rendering judgment. 

7

there were sufficient funds in his Houston bank account and that he

would repay the debt.

We have carefully considered Aubin's arguments concerning the

law of the case doctrine, but we do not find this very specific

doctrine directly applicable and dispositive of the case due to the

fact that an action to enforce a debt and an action for fraud are

entirely separate causes of action with different elements which

must be proven. A determination regarding the enforcement of a

debt does not always decide by necessary implication the merits of

a fraud claim. Thus, Aubin's law of the case argument does not add

up to "21." However, because of the obvious similarity between the

two causes of action at issue here, we nonetheless conclude that a

reversal is in order, as explained below.

Aubin contends that the district court's finding of fraud is

inconsistent with Aubin I. We agree. As noted above, after

finding the debt unenforceable, the panel in Aubin I remanded this

case back to the district court for "further proceedings consistent

with this opinion." Carnival Leisure Industries, Ltd. v. Aubin,

supra, 938 F.2d at 626. Aubin contends that the district judge's

order holding him liable for fraud is entirely inconsistent with

this court's prior opinion and should be reversed.4 He argues that

our affirmance of the district court's subsequent finding of fraud
8

would amount to little more than a thinly veiled end-run around

this court's previous mandate. Without embracing Aubin's football

analogy in this gambling case, we nonetheless conclude that the

instant judgment is infirm.

Although Carnival's fraud claim is too dissimilar from the

suit to enforce the debt for law of the case purposes, we

nonetheless are convinced that there is sufficient overlap between

the two claims such that we cannot allow the fraud claim and still

remain true to Aubin I. As Aubin I made clear, there is a

continued strong public policy in Texas against enforcement of

gambling debts. For us to allow recovery against Aubin on an

otherwise unenforceable gambling debt under a theory of fraud, when

in fact the only real allegation of misrepresentation was that

Aubin signed the markers knowing they were unenforceable in his

home state (by operation of law), would require that we recognize

an exception to Texas public policy that does not exist. We cannot

in good conscience render an opinion which would do violence to

Aubin I.

In considering whether the district court's finding of fraud

is inconsistent with Aubin I, we have carefully researched the

Texas jurisprudence to determine whether any Texas court has ever

allowed an action for fraud to be maintained against a gambling

debtor in spite of the unenforceable nature of the underlying debt.

We have found no such case. The only Texas case in which a cause

of action for fraud is even mentioned in connection with a gambling

debt is Gulf Collateral, Inc. v. George, 466 S.W.2d 21
 

5Recognizing that Texas is a common law state, we even

looked to the case law in other jurisdictions in search of a case

with similar facts. We found none. Thus, it does not appear

that a single court has ever maintained such an action for fraud

in the face of an otherwise unenforceable gambling debt. 

 

6Because we are convinced that no Texas court would allow a

cause of action for fraud under these facts, we find it

unnecessary to certify the question to the Texas Supreme Court. 

9

(Tex.Civ.App.1971), wherein it was merely stated that fraud had

been asserted as an alternative cause of action, without a

discussion of the disposition of the claim.5 In light of our Erie

duty in diversity cases to merely apply the law as we conclude a

Texas state court would, rather than make law, we cannot uphold the

finding of fraud when no state court has ever allowed such a claim

as an alternative basis for recovery on an otherwise unenforceable

gambling debt. We are convinced that a Texas court would not allow

such a claim, and for us to do so would be violative of Erie, as

well as inconsistent with Aubin I.

6 In urging us to affirm,

Carnival has asked us, in effect, to stretch Texas law into an

unknown and unexplored frontier. We decline to embark on such a

course. "Litigants who reject a state forum in order to bring suit

in federal court under diversity jurisdiction should not expect

that new trails will be blazed." Ryan v. Royal Ins. Co. of

America, 916 F.2d 731, 744 (1st Cir.1990).

Moreover, we also point out that the facts of this case

particularly militate toward our conclusion. Carnival's complaint

of fraud does not stem from the fact that Aubin signed the markers

nor from the fact that he stopped payment on the drafts. Carnival

sued Aubin because he has not otherwise paid the gambling debt.
10

Had Aubin paid the money back, undoubtedly these litigants would

not be before us today. Under Texas law, Aubin is not obligated to

pay the gambling debt. Thus, the unenforceability of the gambling

debt is what gives rise to Carnival's "loss," and this occurred by

operation of law, not because of anything Aubin did or did not do.

Moreover, any alleged wrongdoing or misrepresentation on the part

of Aubin is so inextricably interwoven with the underlying gambling

debt, which Aubin I declared to be unenforceable, that to uphold

the district court's finding of fraud would render our opinion

utterly inconsistent with Aubin I. The district court's decision

amounted to a back-door enforcement of the gambling debt. This

point is made particularly clear when we consider that the amount

of damages awarded by the district court on the fraud

claim—$25,000—is exactly the same as the sum of the checks which

Aubin I held to be unenforceable. Thus, we reject Carnival's

argument that the district court's determination was consistent

with Aubin I.

To Carnival's other arguments contending that Aubin should be

liable for fraudulently signing the negotiable instrument, we

likewise say "no dice." Thus, Aubin has hit the jackpot and

Carnival craps out.

Conclusion

Now that the chips are down and we must enter our decision, we

conclude that Aubin's arguments are trump: we REVERSE the district

court and RENDER judgment in favor of Aubin.