Court Opinion

ID: 803512
Source: CourtListenerOpinion
Date Created: 2012-07-02 18:48:49+00
Date Added: 2024-06-11T18:00:08.529920
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                              No. 11-1704

GERALD R. TERRY; ANN T. ROBBINS; JANE T. EVANS, on their own
behalf and on behalf of a class of others similarly
situated,

                Plaintiffs – Appellants,

          v.

SUNTRUST BANKS, INC.,

                Defendant – Appellee,

          and

THEODORE L. CHANDLER, JR.; CHRISTINE        R. VLAHCEVIC; G.
WILLIAM EVANS; RONALD B. RAMOS; DEVON       M. JONES; STEPHEN
CONNER,

                Defendants.

                              No. 11-1707

ANGELA M. ARTHUR, as Trustee of the Arthur Declaration of
Trust, dated December 29, 1988, and all similarly situated;
VIVIAN R. HAYS, an individual, and all others similarly
situated; LEAPIN EAGLE LLC, a limited liability company, and
all others similarly situated; DENISE J. WILSON, an
individual, and all others similarly situated,

                Plaintiffs – Appellants,

          v.
SUNTRUST BANKS, INC., a Georgia corporation,

                  Defendant – Appellee,

           and

G. WILLIAM       EVANS,   an    individual;   STEPHEN   CONNOR,   an
individual,

                  Defendants.

Appeals from the United States District Court for the District
of South Carolina, at Anderson.      Joseph F. Anderson, Jr.,
District Judge. (8:09-cv-00415-JFA; 8:09-cv-01739-JFA)

Argued:   May 17, 2012                          Decided:   July 2, 2012

Before AGEE, DAVIS, and WYNN, Circuit Judges.

Affirmed by unpublished opinion. Judge Davis wrote the opinion,
in which Judge Agee and Judge Wynn joined.

ARGUED: Thomas G. Foley, Jr., FOLEY BEZEK BEHLE & CURTIS, LLP,
Santa Barbara, California, for Appellants.    Cory Hohnbaum, KING
& SPALDING, LLP, Charlotte, North Carolina, for Appellees.     ON
BRIEF: Cheryl F. Perkins, WHETSTONE MYERS PERKINS & FULDA, LLC,
Columbia, South Carolina, James R. Gilreath, GILREATH LAW FIRM,
Greenville, South Carolina, for Appellants Gerald R. Terry, Ann
T. Robbins, Jane Evans; Robert L. Brace, HOLLISTER AND BRACE,
Santa Barbara, California, for Appellants Angela M. Arthur,
Vivian R. Hays, Leapin Eagle LLC, Denise J. Wilson.

Unpublished opinions are not binding precedent in this circuit.

                                     2
DAVIS, Circuit Judge:

       In     these   diversity      actions,       consolidated        for    pre-trial

proceedings in the District of South Carolina by the Judicial

Panel on Multi-District Litigation (“JPML”), the district court

dismissed      with   prejudice       pursuant      to    Federal      Rule    of   Civil

Procedure 12(b)(6) all claims against Appellee SunTrust Banks,

Inc. (“SunTrust”). 1 The principal question presented is whether

LandAmerica 1031 Exchange Services, Inc. (“LES”), which (before

it    filed    a   petition     in    bankruptcy)         acted   as      a   “qualified

intermediary” (“QI”) in the exchange of investment properties

pursuant to 26 U.S.C. § 1031(a)(1), assumed fiduciary duties

with respect to the proceeds of the sale of the relinquished

properties.        Appellants        (“the       Exchangers”)       are       the   named

representatives of putative classes consisting of approximately

400   members      that   engaged     LES    as    a     QI   between     February   and

       1
       The Exchangers brought other claims that are not at issue
in this appeal, including claims against several individual
officers and directors of LES and its corporate parent,
LandAmerica Financial Group, Inc. (“LFG”). The individual
defendants, the claims against whom have been and remain stayed,
are Theodore L. Chandler, Jr. (Chairman and Chief Executive
Officer of LFG), Stephen Conner (Senior Vice President of LES
and LFG), G. William Evans (Executive Vice President and Chief
Financial Officer of LFG, director and officer of LES), Ronald
B. Ramos (Vice President and Treasurer of LES and Senior Vice
President and Treasurer of LFG), and Devon M. Jones (Vice
President and Assistant Treasurer of LES and LFG). Among the
claims against the individual defendants are allegations of
fraud, discussed infra at 27-38.

                                             3
November     2008.    The        district      court     ruled     LES   did   not    assume

fiduciary duties; thus SunTrust -– which had held LES’s general

operating account, sold LES certain securities, and extended LES

a line of credit –- could not be liable for aiding and abetting

the breach of a fiduciary duty by LES. The district court also

dismissed the Exchangers’ claim of civil conspiracy. We affirm.

                                               I.

      First, we address the claim of aiding and abetting breach

of   fiduciary      duties.       We    review       a   district    court’s     dismissal

pursuant    to     Rule   12(b)(6)        de    novo.     Nemet     Chevrolet,       Ltd.    v.

Consumeraffairs.com, Inc., 591 F.3d 250, 253 (4th Cir. 2009). We

assume all well-pled facts are true, and draw all reasonable

inferences in favor of the plaintiff. Id. The “complaint must

contain sufficient factual matter, accepted as true, to ‘state a

claim to relief that is plausible on its face.’” Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.

Twombly,     550     U.S.        544,    570    (2007)).      “A     claim     has    facial

plausibility       when     the     plaintiff        pleads      factual     content    that

allows     the   court      to    draw    the       reasonable     inference     that       the

defendant is liable for the misconduct alleged.” Id.

      We    begin     with        an     explanation        of     the     statutory        and

regulatory framework out of which this dispute arose. We then

                                                4
summarize the district court’s rulings. Finally, we explain why

we discern no error by the district court.

                                        A.

       Ordinarily, if a person owns real property for business or

investment purposes that has risen in value over time (i.e., has

a low adjusted basis and a high fair market value), the property

owner incurs capital gains taxes upon selling the property. In

some    circumstances,   however,       a    property     owner      may   defer     the

recognition     of   capital   gains        if   the   property      is    “held     for

productive use in a trade or business or for investment” and if

the    owner   “exchange[s]”     the    property       (known   as    “relinquished

property”)     for   another     property        “of    like    kind”      (known     as

“replacement property”). 26 U.S.C. § 1031(a)(1). The property

owner must identify replacement property “of like kind” within

45 days of the sale of the original property, and must close on

the new property within 180 days of the original sale. Moreover,

the property owner must not actually or constructively receive

the proceeds of the sale of the first property. 26 C.F.R. §

1.1031(k)–1(f)(2). The Internal Revenue Service has defined four

“safe    harbors”    available    to    ensure     a    determination        of     non-

receipt: a “qualified escrow account,” a “qualified trust,” a

“qualified     intermediary,”      or       certain     security      or    guarantee

arrangements. See id. § 1.1031(k)–1(g).

                                         5
                                            B.

      The Exchangers chose the qualified intermediary option, and

engaged LES as a QI between February and November 2008. As IRS

regulations         require,       LES’s     role        was     to    “acquire[]       the

relinquished        property        from     the     taxpayer,         transfer[]       the

relinquished property, acquire[] the replacement property, and

transfer[]      the    replacement      property         to    the    taxpayer.”   Id.   §

1.1031(k)–1(g)(4)(iii)(B). The Exchangers all executed the same

Exchange Agreement, which, among other things, enumerated the

parties’      rights       with   respect   to     the    “Exchange      Funds”    --   the

proceeds      LES     would       receive    upon        selling      the   relinquished

property, decreased by remaining debts on the property, real

estate commissions, closing costs, and other expenses. 2

      As for the Exchange Funds, LES agreed in § 2(a) of the

Agreement to “hold” them and “apply” them toward the purchase of

replacement properties. LES also agreed in § 3(a) to “deposit”

the   funds    in     an    account   at    SunTrust       and   to    “unconditionally

guarantee the return and availability of the Exchange Funds” as

well as certain rates of “guaranteed interest.” The Exchangers,

for their part, agreed in § 2(c) that LES would have “sole and

exclusive possession, dominion, control and use of all Exchange

      2
        A sample Exchange              Agreement is at J.A.                 822-32. All
citations to sections of               the agreement are to                 that sample
agreement.

                                             6
Funds”      during        the     course     of       the    exchange,     and   that    the

Exchangers would have “no right, title, or interest in or to the

Exchange Funds or any earnings thereon,” as well as “no right,

power, or option to demand, call for, receive, pledge, borrow or

otherwise obtain the benefits of any of [the] Exchange Funds,”

other than the right to receive any remaining balance of the

Exchange      Funds       after    LES     purchased        replacement     property.    The

Exchangers         also    acknowledged           that      LES    would   “invest[]”    the

Exchange Funds, and that “the amount of the Exchange Funds may

be in excess of the maximum amount of deposit insurance carried

by       [SunTrust].”       As     compensation             for    LES’s   services,     the

Exchangers agreed to pay fees of approximately $750 to $1,000

per exchange.

         The Agreement also provided the following:

     •   Section    6(b)        recites    that       LES    was    “entering    into   this

         Exchange Agreement solely for the purpose of facilitating

         taxpayers’ exchange” (emphasis and capitalization omitted);

     •   Section 6(c) limits LES’s duties to those “expressly set

         forth herein,” and provides that “no additional duties or

         obligations shall be implied hereunder or by operation of

         law or otherwise”;

     •   Section 11, an integration clause, provides: “This Exchange

         Agreement    contains       the     entire         understanding     between    and

         among the parties hereto.”

                                                  7
LES abided by its contractual obligation to sell the Exchangers’

relinquished       property,      and     received        the    net      proceeds.       LES

deposited the Exchange Funds in its general operating account, a

money market account at a SunTrust bank in Virginia (the “3318

account”). LES failed, however, to complete the exchanges.

       Prior to agreeing to serve as the Exchangers’ QI, LES had

used   other      property      owners’    exchange       funds      in    part    to    buy

hundreds    of     millions     of   dollars      of   auction         rate     securities

(“ARS”). ARS are long-term variable-rate debt securities with

interest     rates       or   dividends         that   are      reset      at     frequent

intervals. Most of the ARS held by LES had been sold to LES by

SunTrust    Robinson      Humphrey,       Inc.    (“STRH”),      a     SunTrust-related

entity.     In    February      2008,     the     auctions       through        which    ARS

interest rates were set began to fail, and the ARS market froze.

LES held ARS with a par value of $290.5 million, but the frozen

market left those securities with a liquidation value of only a

small percentage of par. With those assets frozen, LES’s liquid

assets were insufficient to acquire replacement properties for

the property owners under existing exchange agreements. While

LES    eventually        declared       bankruptcy,        it     did      not      do    so

immediately.       Rather,      apparently       hoping    the    ARS      market       would

normalize, LES continued to enter into new exchange agreements,

including        those   with     the     Exchangers,        allegedly          using    new

                                            8
exchange funds to cover old exchanges as they came due -- an

arrangement the Exchangers call a Ponzi scheme.

                                             C.

      LES filed for Chapter 11 bankruptcy on November 26, 2008.

One of the issues before the bankruptcy court was whether the

Exchange Funds (a) became the property of LES when they were

received in the SunTrust account, in which case the Exchangers

would be limited to a pro rata share of the assets in LES’s

bankruptcy      estate,       or     (b)     remained      the   property      of        the

Exchangers, in which case the Exchangers would be entitled to

preferential recovery of those funds. As explained in detail

below, the Bankruptcy Court concluded the Exchange Funds became

LES’s   property,       and        therefore      were     subject     to    pro     rata

distribution     in    bankruptcy.          Frontier      Pepper’s    Ferry,       LLC    v.

LandAmerica     1031    Exch.       Serv.     (In   re    LandAmerica       Fin.    Group

Inc.), No. 08-35994, 2009 WL 1269578 (Bankr. E.D. Va. May 7,

2009); see also Millard Refrigerated Servs., Inc. v. Landamerica

1031 Exhange Servs. (In re LandAmerica Financial Group, Inc.),

412 B.R. 800, 815 (Bankr. E.D. Va. 2009) (reaching the same

conclusion with respect to a minority of the property owners

whose   funds    were     held      in     segregated     rather     than   commingled

accounts at SunTrust).

      After that issue was resolved in favor of LES’s trustee,

the   trustee    ratably      distributed         LES’s    remaining    assets      among

                                             9
LES’s      creditors,        including       the     Exchangers.         The    Exchangers

recovered only a portion of the Exchange Funds from LES in that

process. They then turned their attention to SunTrust (among

others, see supra n.1), for the role it allegedly played in the

loss of the Exchange Funds.

       The Arthur plaintiffs filed suit in the Southern District

of   California       and    the     Terry    plaintiffs        filed    suit    in       South

Carolina state court. The Terry action was removed to federal

court and the JPML consolidated the cases in the District of

South Carolina for pretrial proceedings and discovery. After the

district court dismissed certain claims against SunTrust in a

consolidated amended complaint, for failure to plausibly allege

that    SunTrust      knew    about    “LES’s      [a]ctivities,”         In    re    §    1031

Exchange       Litigation,     716    F.     Supp.    2d   415,    428    (D.S.C.         2010)

(“Terry I”), the plaintiffs filed a second amended complaint

(“SAC”) on October 6, 2010.

       In the SAC, the Exchangers asserted three claims against

SunTrust,       two   of     which    are    at    issue   on     appeal:      aiding      and

abetting LES’s breach of fiduciary duty, and civil conspiracy. 3

In     their     aiding-and-abetting              claim    against       SunTrust,         the

Exchangers       allege       that    LES     owed    fiduciary         duties       to    the

       3
       We address the conspiracy claim infra at 27-38. The SAC
also alleged conversion and aiding and abetting conversion; the
Exchangers have not appealed the dismissal of those claims.

                                             10
Exchangers        and    that      SunTrust        knowingly       “assisted       LES   in

breaching its fiduciary duties to Exchangers.” (SAC ¶5.) 4 They

allege that SunTrust not only knew that LES’s assets were tied

up    in    the   frozen     ARS    market,     but    also   that      “neither     [LES’s

parent] LFG nor LES had a rolling source of liquid assets to

fund       exchanges    other      than   the      daily    influx      of   new   Exchange

Funds.” (SAC ¶12.) SunTrust and LES, they allege, “plan[ned] . .

. to conceal the scheme from new Exchangers” until LES somehow

came up with money to plug the gap in its balance sheet. (SAC

¶18.) The plaintiffs further allege SunTrust aided and abetted

LES’s actions because it had a financial incentive to do so: Not

only did SunTrust hold LES’s operating account; it also had sold

ARS to LES through STRH and had extended LES a $200 million

revolving line of credit. SunTrust, they allege, hoped that by

helping LES operate its alleged Ponzi scheme, LES would be more

likely able to repay a portion of the $100 million outstanding

on the line of credit.

       The Exchangers also allege that SunTrust committed common

law    civil      conspiracy.        They   allege         that    certain     agents    or

representatives         of      SunTrust,       including         its    Deputy     General

       4
       The SAC and attached exhibits appear at pages 743-1160 in
the Joint Appendix, and at ECF No. 130 on the district court’s
docket. We will refer to the Exchangers’ allegations by the
numbered paragraphs in the SAC where they appear.

                                              11
Counsel    and    Senior     Vice    President        Brian     Edwards,        and

representatives     Samuel     Ballesteros,      Kris         Anderson,        Bill

Mayfield, Linda Burras and Sheridan Reese, “engaged in concerted

action” with the individual defendants (Allen, Ramos, Conner,

Jones and Chandler) “for the united purpose” of (1) breaching

LES’s fiduciary duties to the Exchangers, and (2) “defrauding

the Exchangers out of their Exchange Funds.” (SAC ¶209.)

     The district court dismissed the aiding-and-abetting claim

primarily because it concluded LES did not owe the Exchangers a

fiduciary duty. See In re IRS § 1031 Exchange Litigation, MDL

No. 8:09-mn-2054-JFA, 2011 WL 2444805 (D.S.C. June 15, 2011)

(“Terry II”). It also dismissed the conspiracy claim. See Terry

I, 716 F. Supp. 2d at 427-28 (dismissing without prejudice the

conspiracy claim in the first amended complaint); Terry II, 2011

WL 2444805, at *6 (dismissing the conspiracy claim in the second

amended complaint). The Exchangers timely appealed.

                                     D.

     The   principal   question     presented    in    this    appeal     is    the

legal issue of whether LES plausibly owed a fiduciary duty to

the Exchangers. The Exchangers offer three alternative theories

for why the Agreement created a fiduciary relationship between

themselves and LES: (1) the Exchange Funds were held by LES in

trust; (2) LES was the Exchangers’ agent; and/or (3) LES served

as a real estate broker. As evidence of LES’s alleged fiduciary

                                     12
status, they point to language in the Agreement, particularly

LES’s commitment to “hold” the exchange funds and “apply” them

toward    the    purchase    of   replacement        properties,         as    well    as

evidence of trade usage and extrinsic evidence of the parties’

intent.   We    are   not   persuaded    by    any    of    those    theories         that

reversal is warranted.

                                        1.

                                        (a)

     The Exchangers first argue LES was a fiduciary because the

Agreement created either an express or resulting trust, with LES

as the trustee. 5 An express trust is created when the parties

“affirmatively manifest an intention that certain property be

held in trust for the benefit of a third party.” In re Dameron,

155 F.3d 718, 722 (4th Cir. 1998). A resulting trust is “an

indirect trust that arises from the parties’ intent or from the

nature    of    the   transaction      and    does   not    require       an   express

declaration     of    trust.”   1924    Leonard      Rd.,   LLC     v.   Roekel,      636

S.E.2d 378, 383 (Va. 2006). When a trust has been created, the

beneficiary remains the “equitable owner of the trust property.”

In re Dameron, 155 F.3d at 722 (quoting Broaddus v. Gresham, 26

     5
       The parties agree that Virginia law governs the question
whether LES was a fiduciary. The district court below considered
whether to certify the question of LES’s fiduciary status to the
Virginia Supreme Court or the California Supreme Court. All
parties opposed certification.

                                        13
S.E.2d 33, 35 (Va. 1943)). 6 The Exchangers argue that under the

Agreement they “reserved an equitable interest in their exchange

proceeds” and limited LES’s role to “hold[ing]” those funds and

applying   them   toward   the   purchase   of   replacement   property;

therefore, they argue, LES held the funds in trust. 7 They rely on

three categories of evidence to show that LES held the funds in

trust: (1) the language of the Agreement; (2) custom and usage

in the QI industry; and (3) extrinsic evidence of the parties’

intent.

     As for the language of the Agreement, the Exchangers point

to four terms or phrases:

     (1)   LES’s obligation was to “hold” the funds and “apply”
           them toward replacement properties, see § 2(a) (“to
           hold and apply the Exchange Funds in accordance with
           the    terms  and   conditions   of   [the]  Exchange
           Agreement.”); § 2(c) (referring to the funds “held by
           LES”).

     (2)   § 3(a) provides that LES “will deposit the Exchange
           Funds” in a SunTrust account, and discloses that “the
           amount of the Exchange Funds may be in excess of the

     6
       Virginia law also recognizes constructive trusts, which
arise “by operation of law, independently of the intention of
the parties,” In re Dameron, 155 F.3d at 722. The Exchangers do
not argue a constructive trust was formed; their argument is
that the parties intended to create a trust.
     7
        Although the Exchangers do not specify whether they
believe an express or resulting trust was formed, in these
circumstances the question presented is the same regardless:
whether the Agreement and the surrounding circumstances reveal
the parties’ intent that LES would hold the Exchange Funds in
trust for the benefit of the Exchangers.

                                   14
                 maximum amount of deposit insurance carried                        by   the
                 depository institution [i.e., SunTrust].”

       (3)       In § 3(a) LES “unconditionally guarantee[d] the return
                 and availability of the Exchange Funds.”

       (4)       § 6(b) limits LES’s role to one “solely                         for     the
                 purpose of facilitating taxpayers’ exchange.”

These terms are evidence of LES’s trustee status, the Exchangers

argue,       because   they      “direct[]          that   the   Funds    be   used      and

applied” for a specific purpose, Appellant’s Reply Br. at 18,

and belie a conclusion that LES “received full ownership of the

exchange funds with the right to spend the funds however it

chose.” Appellants’ Br. at 41.

       The Exchangers also point to industry custom and usage.

They argue that the QI industry “promotes, through marketing

materials and its industry trade group, the recognition that

qualified intermediaries are fiduciaries owing fiduciary duties

to protect and preserve the monies they handle.” Appellant’s Br.

at    52.    For    example,     the    Code    of     Ethics    and   Conduct      of   the

Federation of Exchange Accommodators, the national trade group

for      qualified         intermediaries,             provides        that      exchange

accommodators such as LES “shall have the responsibility to act

as custodian for all exchange funds,” “shall invest exchange

funds       in     investments         which        meet   the    ‘Prudent       Investor

Standard,’”        shall   not    “knowingly          commingle[]”       exchange    funds

with operating accounts, and shall not invest exchange funds “in

                                               15
a manner that does not provide sufficient liquidity to meet the

Exchange Accommodator’s contractual obligations to its clients

and does not preserve the principal of the exchange funds.” J.A.

95.

      Finally,    although       they      concede   that    some       provisions        run

contrary to their interpretation, the Exchangers argue that at

most those provisions render the Agreement ambiguous; given the

ambiguity we may rely on extrinsic evidence, which, they argue,

shows that the parties considered LES a trustee. For example,

LES’s website described Exchange Funds as “Held in Trust,” (SAC

¶161);   an    “Executive    Summary”        that    LES    provided         to   SunTrust

stated   that     LES   “serves       in    a    fiduciary        capacity”       for    its

customers (SAC ¶6; J.A. 846); LFG’s 10-K referred to Exchange

Funds as “the customer’s funds,” which “are held by us for the

benefit of our customers and are therefore not included as our

assets” (SAC ¶9); minutes of an October 1, 2008, LFG Investment

Funds meeting stated that “the company is acting in a fiduciary

capacity,      with   the   funds     ultimately      belonging         to    the   retail

client” (SAC ¶139); and an October 6, 2008, letter from LFG to

the   Nebraska    Department        of     Insurance,      which     described          LES’s

exchange      agreements    as   “a      specialized       form    of   escrow.”        (SAC

¶140; J.A. 1137.) In addition, in an October 7, 2008, letter to

SunTrust, LFG’s general counsel stated that LES “holds [Exchange

Funds] in escrow as a fiduciary,” and invests them “on behalf of

                                            16
its customers,” “until the funds (with the related earnings) are

returned to customers to complete the 1031 exchange.” (SAC ¶94;

J.A. 1056.)

      The district court rejected these arguments, as had the

bankruptcy     court     that   oversaw       the   LES   bankruptcy,            where,      as

here, the Exchangers argued that they retained an “equitable

interest in the ownership of the Exchange Funds” and accordingly

LES’s rights to the funds were limited to those of a trustee.

The   courts   reasoned,        to    the    contrary,       that      by    entering     the

Agreement the Exchangers “relinquished any and all interests in

the [Exchange Funds], including the equitable interest that a

beneficiary     of   a   trust       would    retain    in     trust        property,”       an

action that is “inconsistent with the establishment of a trust.”

Frontier Pepper’s Ferry, 2009 WL 1269578, at *9; see also Terry

II, 2011 WL 2444805, at *4 (“[F]or those reasons expressed by

the bankruptcy court in Frontier Pepper’s Ferry, . . . the court

finds   that     Virginia        law        would   not       impose         a   fiduciary

relationship between LES and the Plaintiffs under the facts of

this case through either an express or resulting trust.”).

                                            (b)

      Under    Virginia    law,      a   contract      “must      be    construed       as    a

whole to determine the parties’ intent with respect to specific

provisions.”     Westmoreland-LG&E            Partners       v.     Virginia      Elec.       &

Power Co., 486 S.E.2d 289, 294 (Va. 1997). If a contract is

                                             17
“complete, unambiguous, and unconditional,” evidence of prior or

contemporaneous oral negotiations is “generally inadmissible to

alter, contradict, or explain the terms” of the contract. Id.

Whether a contract is ambiguous depends on whether its language

“admits of being understood in more than one way,” id., that is,

whether   “its       parts    can    be    read        together     without        conflict,”

Doswell Ltd. P’Ship v. Virginia Elec. & Power Co., 468 S.E.2d

84, 88 (Va. 1996). If a contract’s “parts can be read together

without   conflict,”         a    court     “must       construe      the     language     as

written.” Id.

      Unlike     such       parol     evidence,         “[e]vidence        that      contract

phrases or terms have acquired, by custom in the locality, or by

usage of the trade, a peculiar meaning not attached to them in

their   ordinary      use    is     admissible         even   though    the    phrases     or

terms themselves are unambiguous.” Doswell, 468 S.E.2d at 90.

Such evidence of “usage of trade” is admissible to “ascertain[]

the meaning of the parties’ agreement,” “give particular meaning

to   specific    terms       of     the   agreement,”          and/or      “supplement     or

qualify   the    terms       of   the     agreement,”         Va.   Code    Ann.     §   8.1A-

303(d), so long as “the usage in question operated upon the

minds of the parties in using the language which was employed in

the contract.” Westmoreland, 486 S.E.2d at 293.

      Thus, the question presented is whether the language of the

Agreement,      as    “supplement[ed]             or     qualif[ied]”         by     relevant

                                             18
evidence       of     trade     usage,      Va.        Code     Ann.     §     8.1A-303(d),

unambiguously excludes any interpretation that LES assumed the

fiduciary duties of a trustee. We conclude it does.

     First, the bankruptcy court correctly observed, “not only

is there an absence of any language that the parties intended to

create    a    trust”;      the    language          above     “actually      evidences     an

intent not to do so.” Frontier Pepper’s Ferry, 2009 WL 1269578,

at *9 (emphasis in original). The Exchangers expressly granted

to LES “sole and exclusive possession, dominion, control and use

of all Exchange Funds” during the course of the exchange. They

disclaimed any “right, title, or interest in or to the Exchange

Funds or any earnings thereon.” They also disclaimed any “right,

power, or option to demand, call for, receive, pledge, borrow or

otherwise obtain the benefits of any of [the] Exchange Funds,”

other than the right to receive any remaining balance of the

Exchange      Funds     after     LES    purchased       replacement         property.      The

Agreement disclaimed all duties other than those “expressly set

forth    herein,”         and   provided        that     “no    additional         duties   or

obligations shall be implied hereunder or by operation of law or

otherwise”       (§     6(c)).      The     Agreement          also    stated       that    it

“contain[ed]        the    entire       understanding          between     and     among    the

parties       hereto”      (§   11).      For        these    reasons,       the   Agreement

unambiguously did not create a trust.

                                                19
     The aspects of the Agreement the Exchangers focus on do not

render the Agreement ambiguous. LES’s obligation to “hold” and

“apply”   the     funds    toward   replacement     properties      is    equally

susceptible      to   interpretations      that   LES   was    or   was    not   a

fiduciary;      the   unavoidable    impact    of   the    provisions      quoted

above, however, is that the parties did not intend to create a

trust. Moreover, although § 2(c) does not specifically disclaim

fiduciary duties, that absence is far from dispositive, because

it is the meaning of the Agreement as a whole, not § 2 in

particular, that controls whether LES was a trustee. Finally, we

recognize that LES’s assumption of “purely contractual” duties,

Appellee’s Br. at 25, does not necessarily mean that LES was not

a trustee; it is the nature of the duties LES assumed in the

Agreement that determines whether LES was a fiduciary. See Frank

H. Easterbrook & Daniel R. Fischel, Contract and Fiduciary Duty,

36 J.L. & Econ. 425, 446 (1993) (“Contract and fiduciary duty

lie on a continuum best understood as using a single, although

singularly      complex,    algorithm.”);     see   also      Victor      Brudney,

Contract and Fiduciary Duty in Corporate Law, 38 B.C. L. Rev.

595 (1997) (discussing the overlap between contractual duties

and fiduciary duties). Nonetheless, our reading of the Agreement

is the same as that of the bankruptcy and district courts. The

Agreement unambiguously precludes a finding that LES held the

Exchange Funds in trust.

                                      20
          The evidence of trade usage proffered by the Exchangers

also       does     not     alter       this      conclusion.         According       to        the

Exchangers, they may not have been required to grant LES “sole

and       exclusive    possession,            dominion,    control      and    use       of     all

Exchange Funds.” Other exchange accommodators apparently do not

require      that     exchangers         grant    QIs     such   a    replete       bundle       of

rights to the proceeds of the sale of relinquished property. Cf.

In re Exchanged Titles, 159 B.R. 303, 305 (Bankr. C.D. Cal.

1993)       (finding      that      a    different        exchange      agreement          by     a

different         accommodator          was    “ambiguous”       as    to     “whether          the

parties intended to transfer both legal and equitable rights” to

the relinquished property or rather legal title only). But it is

LES’s Exchange Agreement, not that of other QIs, that we must

consider, and that Agreement unambiguously did not render LES a

trustee.

          Finally, we note that the Exchangers, in electing to rely

on    a    safe   harbor     under       §    1031,   were   not      required      to    use     a

qualified         intermediary.          As      mentioned       above,       the    Treasury

regulations         allow    exchangers          to   use,   among      other       things,       a

“qualified escrow” or a “qualified trust.” As the bankruptcy

judge explained in one of the related adversary proceedings:

          Instead of using either of these available options,
          the parties chose the “qualified intermediary” safe
          harbor. . . . The parties did not in addition
          separately satisfy the terms and conditions of the
          Treasury Regulations for the creation of either a

                                                 21
       qualified escrow or a qualified trust. . . . [T]he
       parties’ decision to eschew the escrow and trust
       provisions of the tax code in favor of a different
       safe harbor evidences that there was no intention to
       create a trust relationship.

Millard Refrigerated Servs., 412 B.R. at 815. This reasoning is

sound.

       In    sum,   we    hold   that   the      parties’    Exchange     Agreement

unambiguously did not render LES a trustee with respect to the

Exchange      Funds.     Accordingly,      and     because    the     Agreement    is

“complete”      and      “unconditional,”        Virginia    law    precludes     our

consideration of extrinsic evidence of the parties’ intent.

                                           2.

       The Exchangers next argue that LES was “acting as an agent

on behalf of the Property Owners to consummate these exchange

transactions.”        Appellant’s    Br.    at    35.   An   agency    relationship

arises under Virginia law when one person manifests consent to

another “that the other shall act on his behalf and subject to

his control.” Murphy v. Holiday Inns, Inc., 219 S.E.2d 874, 876

(Va. 1975) (quoting Restatement (Second) of Agency § 1 (1958)).

When     a   principal-agent        relationship        exists,     the   agent   is

obligated “to interpret the principal’s statement of authority,

as well as any interim instructions received from the principal,

in a reasonable manner to further purposes of the principal that

the agent knows or should know, in light of facts that the agent

knows or should know at the time of acting.” Restatement (Third)

                                           22
of Agency § 1.01 cmt. e. Virginia characterizes such duties as

those of a fiduciary. See Banks v. Mario Indus., 650 S.E.2d 687,

695 (Va. 2007) (“[O]nce an agency relationship was established,

[the    agents]      necessarily        owed   a     fiduciary      duty   to     [the

principal].”). “It is open to question,” however, “whether an

agent’s unconflicted exercise of discretion as to how to best

carry       out    the    agent’s       undertaking        implicates      fiduciary

doctrines.” Restatement (Third) of Agency § 1.01 cmt. e.

       As    evidence     that    LES    was   the       Exchangers’     agent,    the

Exchangers        argue   LES    “was   subject     to    [their]   direction”      in

various ways, such as identifying the replacement property and

the buyer of the relinquished property, as well as setting the

purchase price. Appellant’s Br. at 60-61. Moreover, the Treasury

Regulation governing QIs characterizes a QI as acquiring and

transferring relinquished properties “either on its own behalf

or as the agent” of a party to the transaction, 26 C.F.R. §

1.1031(k)-1(g)(4)(iv)(B);           because        LES     “explicitly     did     not

contract on its own behalf,” the Exchangers argue, it must have

been their “agent.” Appellant’s Reply Br. at 16. Finally, they

argue, the safe-harbor regulation states that for purposes of

determining whether a taxpayer received property (and thereby

whether the taxpayer is eligible for § 1031 treatment), the QI

is treated “as if [it] is not the agent of the taxpayer.” 26

C.F.R. § 1.1031(k)-1(g)(4) (emphasis added). This language, the

                                          23
Exchangers      argue,        implies      that     LES   was   their       agent    “for    all

other purposes.” Appellant’s Br. at 62. Finally, they argue,

under Virginia law “an agency relationship is not one that can

be disclaimed.” Appellant’s Reply Br. at 19 (citing Murphy, 219

S.E.2d at 875).

      In     response,            SunTrust    argues       that      although       “LES     was

contractually          obligated      to     facilitate      Appellants’          purchase    of

replacement property,” the nature and extent of that obligation

did not render LES the Exchangers’ agent. Appellee’s Br. at 42.

We    agree.      In    a    wide     variety       of    contexts,     parties       execute

contracts,      like        the    Agreement      here,    that      allow    one    party    to

direct another to perform certain actions. Such obligations do

not   automatically           create       fiduciary      relationships.          Only     those

where the agent assents to act “on the principal’s behalf and

subject      to        the        principal’s       control”         does     a     fiduciary

relationship arise. Cf. Restatement (Third) of Agency § 1.01. As

explained above, the Exchangers granted LES “sole and exclusive”

possession and use of the Exchange Funds, and disclaimed any

“right, title, or interest in or to the Exchange Funds.” In

light   of     these        provisions,      LES    cannot      be   said    to     have    been

acting on the Exchangers’ behalf and subject to their control.

Finally, although the Treasury Regulations do not prohibit a QI

from being an agent of its customer, and treat a QI “as if” it

were not the Exchangers’ agent, nothing in those regulations

                                               24
requires       that      result    either.     The    language      of    the    Agreement

controls,      and     that    language       is   inconsistent      with       LES    having

become a fiduciary under agency law.

                                              3.

       The    Exchangers’         third   argument      is   that    LES    was       a    real

estate broker, and thereby owed them fiduciary duties. Virginia

law defines “real estate broker” as a person or entity “who, for

compensation or valuable consideration,”

       (i) sells or offers for sale, buys or offers to buy,
       or negotiates the purchase or sale or exchange of real
       estate . . . , or

       (ii) leases or offers to lease, or rents or offers for
       rent, any real estate or the improvements thereon for
       others.

Va. Code Ann. § 54.1-2100. The statute expressly excludes from

the    definition          the       following:       attorneys      acting           in    the

performance         of     their      duties;       trustees,     administrators            or

executors;       auctioneers;          property       management         companies;        and

owners or lessors of property acting “in the regular course of

or incident to the management of the property and the investment

therein.” Id. § 54.1-2103. Real estate brokers are subject to

what     the        Exchangers        call     “statutory       fiduciary         duties,”

Appellants’ Br. at 36, namely that they (1) must “[a]ccount in a

timely    manner         for   all    money     and    property     received          by   the

licensee in which the seller has or may have an interest,” Va.

Code   Ann.     §     54.1-2131(A)(5),        (2)     must   disclose      all    material

                                              25
facts known to the broker, id. § 54.1-2131(A)(6), and (3) must

not “divert or misuse any funds held in escrow or otherwise held

by him for another,” id. § 54.1-2108.

       The Exchangers argue LES was a real estate broker because

LES    received       compensation       for    its      role    as    an    exchange

accommodator, which involved selling relinquished properties and

buying replacement properties, and QIs are not expressly exempt

from       the    statutory      definition    of   real    estate     brokers.      We

disagree. Simply put, we believe the Virginia legislature would

not have intended QIs like LES to be considered real estate

brokers. QIs exist as a mechanism for qualifying taxpayers to

defer the recognition of gains on investment properties. They

serve a different, more specialized function than do real estate

brokers      as    the    term    is   commonly     understood.       Moreover,      and

importantly,        the   Exchangers     agreed     to   limit   LES’s      duties    to

those “expressly set forth” in the Agreement, and LES is more

analogous to the entities listed among the exceptions than to

real estate brokers. For these reasons, we hold as a matter of

law that LES was not, and may not be treated as, a real estate

broker under Virginia law. 8

       8
       SunTrust argues in the alternative that, even if the
Agreement rendered LES a real estate broker under Virginia law,
LES disclaimed any corresponding duties imposed by virtue of
that status. The Exchangers argue to the extent there was such a
disclaimer, it should be “void as a matter of public policy.”
(Continued)
                                          26
       For the foregoing reasons, read as a whole, the Agreements

did    not    impose    fiduciary   duties     on    LES,   and      therefore   the

district      court    properly   dismissed    the    claim    seeking     to    hold

SunTrust liable for aiding and abetting LES’s alleged breach of

fiduciary duty. 9

                                        II.

       We now turn to the Exchangers’ claim alleging common law

civil conspiracy, judging the sufficiency of the SAC by the same

standard. See supra at 4. Under Virginia common law, “[a] civil

conspiracy is [1] a combination of two or more persons, [2] by

some       concerted   action,    [3]   to    accomplish      some    criminal    or

unlawful purpose, or to accomplish some purpose, not in itself

criminal or unlawful, by criminal or unlawful means.” Hechler

Chevrolet, Inc. v. Gen. Motors Corp., 337 S.E.2d 744, 748 (Va.

Appellants’ Reply Br. at 22-23 (citing Fairfax Gas & Supply Co.
v. Hadary, 151 F.2d 939, 940 (4th Cir. 1945); All Bus.
Solutions, Inc. v. NationsLine, Inc., 629 F. Supp. 2d 553, 560
(W.D. Va. 2009)). Because we conclude LES was not a real estate
broker under Virginia law, we need not resolve this issue.
       9
       Because we conclude LES was not a fiduciary under Virginia
law, we need not resolve SunTrust’s alternative argument that
Virginia does not recognize a cause of action of aiding and
abetting a tort.

                                        27
1985). 10 The “unlawful act” element requires that a member of the

alleged conspiracy have “committed” an “underlying tort,” Almy

v. Grisham, 639 S.E.2d 182, 188 (Va. 2007), such as inducing a

breach of contract, Catercorp, Inc. v. Catering Concepts, Inc.,

431   S.E.2d    277,      281   (Va.    1993).    Further,     a   claim   for   civil

conspiracy requires that the alleged conspirators’ unlawful act

have caused damages; a plaintiff may not recover for “the mere

combination of two or more persons to accomplish an unlawful

purpose or use unlawful means.” Id. at 282.

      California law, which the district court concluded applies

to the Arthur plaintiffs’ conspiracy claim, see Terry I, 2011 WL

2444805, at *3, treats allegations of civil conspiracy in much

the   same     way   as    does    Virginia       law,    although    it   considers

conspiracy to be “not a cause of action, but a legal doctrine

that imposes liability on persons who, although not actually

committing      a    tort       themselves,       share    with      the   immediate

tortfeasors      a   common      plan    or     design    in   its   perpetration.”

Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 869 P.2d 454,

      10
        Virginia also has statutory tort of “Combination[] to
injure   others  in   their   reputation, trade,   business  or
profession,” Va. Code Ann. § 18.2-499, which principally
prohibits two or more persons from combining to “willfully and
maliciously injur[e] another in his reputation, trade, business
or profession.” Id. That statute is not at issue, because the
Exchangers allege only a conspiracy under Virginia common law,
not a violation of § 18.2-499.

                                           28
457    (Cal.   1994).   “By   participation   in    a   civil   conspiracy,   a

coconspirator effectively adopts as his or her own the torts of

other coconspirators within the ambit of the conspiracy.” Id.

“In this way, a coconspirator incurs tort liability co-equal

with    the    immediate      tortfeasors.”   Id.       Like    Virginia   law,

California law requires that “a conspiracy . . . be activated by

the commission of an actual tort,” and that the “civil wrong”

have “result[ed] in damage.” Id. A plaintiff alleging conspiracy

“must show that each member of the conspiracy acted in concert

and came to a mutual understanding to accomplish a common and

unlawful plan, and that one or more of them committed an overt

act to further it.” Choate v. County of Orange, 103 Cal. Rptr.

2d 339, 353 (Cal. Ct. App. 2000).

       We discern no conflict between Virginia and California law

on the elements of a properly pled civil conspiracy claim as

applied to the facts here, and the parties have not pointed to

one. Thus, we need not resolve this choice-of-law question, and

we proceed to explain why the Exchangers have failed to state a

claim for civil conspiracy under either Virginia or California

law.

                                      29
       As noted, the Exchangers’ complaint, fairly read, alleges

two underlying torts: breach of fiduciary duty and fraud. 11 To

the    extent      the     alleged   underlying      tort   was    LES’s   breach     of

fiduciary         duty,    the   district    court    dismissed     the    conspiracy

claim upon concluding that LES was not a fiduciary. See Terry

II, 2011 WL 2444805, at *6. We agree that, because LES did not

owe    the     Exchangers        a   fiduciary    duty,     that    theory    of     the

Exchangers’ conspiracy claim did not allege an “unlawful act,”

and thus was properly dismissed.

       As    to    the    Exchangers’    conspiracy-to-defraud        theory,      they

allege      that    SunTrust     engaged     in   concerted   action       with    LES’s

officers to conceal LES’s imminent collapse from the Exchangers,

with     the      common     purpose    of    deceiving     the    Exchangers      into

entering Exchange Agreements that they otherwise would not have

entered. The district court concluded that the complaint “does

not contain sufficient factual matter to move the Customers’

conspiracy claim from the conceivable to the plausible.” Terry

I, 716 F. Supp. 2d at 428. 12 That is also the basis on which

       11
        The conspiracy count also alleges that an object of the
conspiracy was to “operate an unlawful Ponzi scheme.” J.A. 812.
Because the “unlawful act” element requires an allegation of an
underlying tort, we read this as a further allegation of either
a breach of fiduciary duty or fraud.
       12
         The  district  court   reached  that  conclusion  upon
dismissing the Exchangers’ first amended complaint, before they
filed the second amended complaint. Because upon dismissing the
(Continued)
                                             30
SunTrust     argues   we    should    affirm    the    dismissal    of    the   fraud

component of the Exchangers’ conspiracy claim. See Appellee’s

Br. at 49-50 (arguing the claim was properly dismissed because

the    Exchangers     “failed    to    plead     anything      beyond    conclusory

allegations of the existence of the conspiracy” and “failed to

adequately allege the existence of an underlying tort”).

       Because this component of the Exchangers’ conspiracy claim

alleges fraud, the Exchangers’ complaint must comply not only

with Rule 12(b)(6) but also with Federal Rule of Civil Procedure

9(b), which requires that plaintiffs alleging fraud plead “with

particularity      the     circumstances      constituting      fraud.”       Fed.   R.

Civ.    P.   9(b).    The    “circumstances”       that      must   be   pled    with

particularity are “the time, place, and contents of the false

representations, as well as the identity of the person making

the misrepresentation and what he obtained thereby.” Harrison v.

Westinghouse Savannah River Co., 176 F.3d 776, 784 (4th Cir.

1999)   (quoting      5   Charles     Alan    Wright   and    Arthur     R.   Miller,

Federal Practice and Procedure: Civil § 1297, at 590 (2d ed.

1990)). The defendant’s “knowledge as to the true facts” and

latter the district court stated that it “maintain[ed] its
previous finding” that the Exchangers had failed to sufficiently
plead a civil conspiracy cause of action, Terry II, 2011 WL
2444805, at *6, we assume the court’s rationale for dismissing
the fraud component of the conspiracy claim was that the factual
allegations were insufficient.

                                         31
“intent to deceive” may be pled “generally,” Fed. R. Civ. P.

9(b),    but    a    complaint       must       nonetheless       “show[],”       that   the

defendants’ knowledge and/or intent, where relevant, plausibly

entitles the plaintiff to relief. Fed. Rule Civ. P. 8(a)(2);

Iqbal,    556    U.S.      at     678,    686-87.      Upon     reviewing    the   factual

allegations         in    the     Exchangers’         complaint     and     the    attached

exhibits, we agree that the Exchangers have not shown that their

factual allegations “plausibly give rise to an entitlement to

relief” for conspiracy. Iqbal, 556 U.S. at 679.

     The second amended complaint alleges that by mid-2008, LES

and its officers knew LES was insolvent, as nearly all of its

assets were tied up in frozen ARS, leaving just $28 million to

cover    pending         exchanges       of   over    $290    million,     and    by   early

November 2008, LES and LFG were preparing to declare bankruptcy.

(SAC ¶118.) Throughout this time, the Exchangers allege, the

individual defendants, along with LES, LFG and SunTrust, had

“actual knowledge of material adverse facts that any and all

potential Exchange clients would irrefutably consider material,”

including that LES’s “financial status” was “dire” and “that LES

was operating a Ponzi scheme and applying their Funds to prior

obligations.” (SAC ¶221.)

     Despite this knowledge, the Exchangers allege, and “with

intent   to     deceive      so    that       the    Exchange    Clients    continued     to

deposit Funds with LES,” the individual defendants intentionally

                                                32
breached their duty “to disclose to the Exchange Clients all

material    facts     concerning       the     Exchange      transactions.”          (SAC

¶222.) Moreover, as part of the fraudulent scheme, they allege,

two of the individual defendants, Ronald Ramos and Devon Jones,

arranged    for     LFG   to    transfer      funds       from    LFG   as     “lulling

payments.” (SAC ¶145.) These payments, which temporarily allowed

LES to continue meeting some prior exchange obligations, further

served to fraudulently conceal LES’s “insolvency and imminent

failure . . . from prospective Exchange clients whose Funds were

needed to keep LES going in the short term.” (Id.) Thus, the

Exchangers allege, by intentionally failing to disclose to the

Exchangers that, if the ARS market were to remain frozen, LES

would be unable to comply with its obligation to purchase the

Exchangers’      replacement        properties,     the    individual        defendants

committed fraud.

        Those factual allegations, which must be taken as true at

this stage, satisfy the “unlawful act” element of a conspiracy

claim   under     Virginia     or    California     law.    The    Exchangers        also

clearly    and    plausibly     allege       that   they    were    harmed      by   the

failure of LES and the individual defendants to disclose the

above facts. The remaining question is whether the Exchangers

have    plausibly     and      non-conclusorily       alleged       that       SunTrust

“combin[ed]” with LES to engage in “concerted action” to commit

that fraud, as required by Virginia law, see Hechler Chevrolet,

                                         33
337 S.E.2d at 748, and “acted in concert and came to a mutual

understanding” with the individual defendants “to accomplish a

common and unlawful plan,” as required by California law, see

Choate, 103 Cal. Rptr. 2d at 353. For the following reasons, we

conclude the Exchangers’ allegations are insufficient.

       The     Exchangers       do   plausibly        allege     that,    at     least    by

October       2008     and    probably      before,      SunTrust      representatives,

including Brian Edwards (its Deputy General Counsel and Senior

Vice     President),         were    aware        that   LES    was     facing     “severe

liquidity problems that threatened its continued viability” and

that LES was using Exchange Funds “to pay prior commitments on

older Exchange Transactions.” (SAC ¶94.) Indeed, LES provided

detailed disclosures directly to SunTrust, in part because LES

was    “imploring            SunTrust       for     financial       assistance       which

necessarily included disclosing to SunTrust all of the financial

constraints both LFG and LES were operating under.” (SAC ¶111.)

For example, LES provided to SunTrust the “Executive Summary”

described above, which disclosed to SunTrust that “the credit

crisis caused a portion ($290.5 [million]) of the underlying,

liquid investments of our exchange customers to become illiquid

at a time when we were holding approximately $700 million of

client       funds.”    J.A.     847.      The     document     also    explained     that

“during      the     height    of    the    credit       crisis,    outflows      exceeded

inflows       by     nearly     $400       million,”      and    that    although        LES

                                              34
“expect[s] the balance in the investment portfolio to be under

less pressure,” “it is likely that during the 4th quarter there

will    be    a     timing    difference      between       inflows       and    outflows,

requiring      liquidity      on   a   portion       of    the     $290.5       million    in

auction      rate    securities.”      Id.    In    the    words    of    LES’s       general

counsel, Michelle Gluck, LES desired SunTrust to be “involve[d]”

in   LES’s    “liquidity      plan,”    and       thus    sought    to    keep    SunTrust

apprised of its efforts. J.A. 836. Indeed, on October 23, 2008,

Gluck   expressed       her    “appreciate[ion]”           that     Edwards       and    Bill

Mayfield, who was also in SunTrust’s general counsel’s office,

were “remaining in the loop.” Id.

       The    fact     that    SunTrust      allegedly       knew        all    the     above

information does not amount to a plausible allegation that it

“conspired with agents and representatives of LES . . . and

engaged in concerted action for the united purpose of . . .

defrauding the Exchangers out of their Exchange Funds,” J.A.

812. To state a claim that SunTrust conspired to commit fraud,

the Exchangers would have to allege that SunTrust not only knew

about what LES was doing and failed to stop it; they would have

to allege that SunTrust took concerted action with agents or

representatives of LES “in furtherance” of a common purpose of

defrauding the Exchangers, with a “mutual understanding” of that

purpose. The allegations do not rise to this level.

                                             35
      The   principal   allegations     of    SunTrust’s   actions    are   the

following. First, the Exchangers allege that even after SunTrust

learned that LES was facing major liquidity problems, SunTrust

“continue[d] to service the 3318 account and accept deposits

received from unsuspecting Exchangers thereby assisting LES in

processing    purchases   of   replacement      property   for   LES’s   prior

exchangers with new exchangers’ money.” (SAC ¶95.) SunTrust was

LES’s bank; the 3318 account was at SunTrust’s Richmond branch.

The fact that SunTrust allowed LES to continue to make deposits

into and withdrawals from the 3318 account is a far cry from the

concerted action necessary to evince a decision to conspire in

the defrauding of the Exchangers.

      Second, the Exchangers allege that on November 29, 2007,

SunTrust agreed to amend SunTrust’s Revolving Credit Agreement

to “reduc[e] certain financial covenants which LFG could not

satisfy” so that LES and LFG would not need to disclose its

inability to meet LES’s credit obligations. (SAC ¶104.) The ARS

market did not freeze until April 2008, however -- five months

after the renegotiation of the line of credit. There simply is

no   correlation   in   that   regard      plausibly   supporting    concerted

action with an intent to defraud.

      Third, the Exchangers allege that SunTrust “assisted LES

between November 21, 2008 and November 25, 2008, on the eve of

bankruptcy cleaning out . . . the 3318 account of all but $1,”

                                      36
processing “seven transfers totaling $46 million to [an account]

at Smith Barney.” (SAC ¶125.) The Exchangers immediately then

concede, however, that the $46 million remained available to

satisfy    LES’s      creditors,    and    indeed    was    the   subject      of   the

dispute in bankruptcy over whether Exchange Funds were or were

not part of LES’s estate. (Id.)

      Fourth,      the    Exchangers      allege    that    in     June    2008,     in

negotiating     an    amendment     to    LFG’s    revolving      line    of   credit,

SunTrust, despite knowing that LFG was “financially impaired,”

“avoided declaring LFG in default, which assisted LES to stay in

the   business     to    continue   to    solicit     new   Exchange      Funds     and

perpetuate      the      known   Ponzi     scheme.”     (SAC      ¶107.)       As   the

Exchangers acknowledge, however, SunTrust had decided to reduce

the amount it would allow LFG to borrow on its existing line of

credit. 13 SunTrust’s decision not to also declare LFG in default

      13
        This also rendered SunTrust’s role distinguishable from
certain creditors’ alleged role in perpetuating Edward Okun’s
fraudulent scheme involving § 1031 exchange funds. In the
district court the Exchangers argued SunTrust’s role was
analogous to the alleged role of certain defendants in Hunter v.
Citibank, N.A., No. C 09–02079 JW, 2011 WL 7462143 (N.D. Cal.
May 5, 2011), which the court found sufficient to state a claim
of conspiracy to commit fraud and conversion. See id. at *6.
There, however, the creditor defendants decided to lend Okun
“millions of dollars” knowing “that the monies were being used
to perpetuate Okun’s Ponzi scheme” by “enabl[ing] him to
continue [his] misconduct through lulling payments.” Id.; see
also United States v. Okun, 453 F. App’x 364 (4th Cir. 2011)
(affirming 1,200-month sentence for Okun’s fraud). There is no
(Continued)
                                          37
falls short of concerted action with the purpose of defrauding

the Exchangers required under Virginia and California law.

      Thus, the Exchangers have not alleged that SunTrust engaged

in   concerted     action    with     the    individual        defendants,        with    a

mutual understanding of a common purpose to defraud, required by

Virginia    and    California    law.       Indeed,      the    allegations       in    the

complaint    and    the     hundreds       of    pages    of     emails     and    other

documents attached to the complaint belie concerted action to

defraud. SunTrust repeatedly expressed its concern to LES that,

by using funds in LES’s “safekeeping account” to purchase ARS,

LES “may have violated its fiduciary duty and/or otherwise acted

improperly    with     respect        to     these       customers.”      J.A.         837.

Furthermore, as noted, by June 30, 2008, SunTrust had reduced

its loan commitment to LFG.

      For   these   reasons,     we    conclude       the      Exchangers    have       not

stated a claim for conspiracy to commit fraud, and affirm the

dismissal of the Exchangers’ conspiracy claim.

allegation here that SunTrust lent additional funds to LES once
SunTrust knew of LES’s liquidity problems.

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                              III.

     For the foregoing reasons, the judgment of the district

court dismissing the Exchangers’ claims against SunTrust is

                                                        AFFIRMED.

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