Opinion ID: 801993
Heading Depth: 4
Heading Rank: 2

Heading: Unauthorized Control Over the Escrow Funds

Text: Assuming arguendo that the Investors preserved their breach of fiduciary duty claim, however, their argument fails. The Investors suggest that Morgan Stanley was not authorized to “net” the escrow funds against the loan’s purchase price and that it knew it was not authorized to do so. They predicate their argument on Morgan Stanley’s purported fiduciary duty to them, suggesting that Morgan Stanley could disburse the funds only in their interest and with their explicit permission. First, IPA Lender, if anyone, exercised unauthorized control over the funds in the escrow accounts. Yet, were this not the case, the Investors cannot establish a fiduciary relationship between themselves and Morgan Stanley. Under Indiana law, a “mortgagor/mortgagee relationship[] . . . do[es] not transform a traditional debtor-creditor relationship into a fiduciary relationship absent an intent by the parties to do so.” Paul v. Home Bank SB, 953 N.E.2d 497, 504 (Ind. Ct. App. 2011) (quoting Wilson v. Lincoln Fed. Sav. Bank, 790 N.E.2d 1042, 1046-47 (Ind. Ct. App. 2003)). Section 6.1 of the Mortgage expressly disavows such a relationship, stating, The relationship between [the Investors] and [Morgan Stanley] is solely that of debtor and creditor, and [Morgan Stanley] has no fiduciary or other special relationship with [the Investors], and no term or condition of any of the Note, this Security Instrument, and the Other Security Documents shall be construed so as to deem the relationship between [the Investors] and [Morgan Stanley] to be other than that of debtor and creditor. 22 No. 11-2891 Per the express terms of their agreement, the Investors cannot demonstrate that Morgan Stanley owed them any fiduciary duty. See id. (“Absent special circumstances, a lender does not owe a fiduciary duty to a borrower.”). Morgan Stanley enjoyed an independent security interest in the escrow accounts and did not hold the funds as a fiduciary for them. Consequently, they cannot prove that Morgan Stanley exercised unauthorized control of the accounts on this basis. Notably, Section 3.4 of the RSA further undermines the Investors’ unauthorized control argument. In that section, the Investors represented that “[they] underst[ood] and agree[d] that, in connection with any sale of the Loan pursuant to Section 18.1 of the Security Instrument, all of [Morgan Stanley’s] interest in the Reserves and the Reserve Escrow Accounts will be assigned to the transferee of the Loan.” Simply put, the Investors gave Morgan Stanley express permission to assign its interest in the escrow accounts to whoever purchased the loan, and they imposed no restrictions on the means by which it structured that assignment—applying the total in the funds against the purchase price of the loan is not prohibited under the RSA, particularly given that commingling funds was permitted under its terms. At best, the Investors may argue that Morgan Stanley was not authorized to assign the funds to Okun or his entities because he was the manager of IPA Fund Manager, which was forbidden from holding an ownership interest in the twenty limited liability companies for whom it acted. See supra Part I.A.1. Yet, regardless of No. 11-2891 23 whether the Investors’ Consent and LLC Amendments precluded Okun, in his individual capacity or through different entities, from taking a putative ownership interest in the Investors’ companies by holding their loan, Morgan Stanley was not a party to either of those contracts. Therefore, Morgan Stanley did not commit any unauthorized control by assigning its interest in the funds to the Okun-controlled entity, IPA Lender. Because the Investors cannot prove unauthorized use, we need not examine the scienter and causation elements of their conversion claim. They cannot prevail. Morgan Stanley was not barred by the Note, the Mortgage, or the RSA from assigning its interest in the escrow accounts to Okun or structuring a sale of the loan as it wished. We conclude that Morgan Stanley committed neither breach of contract nor conversion and was entitled to judgment as a matter of law. The district court correctly granted its motion for summary judgment. B. The District Court Properly Denied the Investors’ Motion for Summary Judgment Because the district court properly granted summary judgment for Morgan Stanley, it appropriately denied the Investors’ motion for summary judgment.