Court Opinion

ID: 33302
Source: CourtListenerOpinion
Date Created: 2010-04-25 19:03:26+00
Date Added: 2024-06-11T16:49:51.355507
License: Public Domain

United States Court of Appeals
                                                                Fifth Circuit
                                                             F I L E D
                                                            November 17, 2003
               IN THE UNITED STATES COURT OF APPEALS
                                                         Charles R. Fulbruge III
                        FOR THE FIFTH CIRCUIT                    Clerk

                        _____________________

                            No. 03-20013
                        _____________________

     In The Matter Of: ADOBE ENERGY INC

                                     Debtor

     ----------------------

     CENTURY RESOURCES LAND LLC

                                     Appellant

          v.

     ADOBE ENERGY INC

                                     Appellee

_________________________________________________________________

           Appeal from the United States District Court
                for the Southern District of Texas
                         No. H-02-CV-1333
_________________________________________________________________

Before KING, Chief Judge, DENNIS, Circuit Judge, and LYNN,
District Judge.*

KING, Chief Judge:**

     *
        District Judge of the Northern District of Texas,
sitting by designation.
     **
        Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR. R.
47.5.4.
     A creditor of a Chapter 11 debtor filed a proof of claim in

the bankruptcy court, asserting breach of a confidentiality

agreement and seeking imposition of a constructive trust upon

part of the debtor’s property.   On the debtor’s objection to the

proof of claim, the bankruptcy court held a trial and then

disallowed the creditor’s claim.       The district court affirmed the

bankruptcy court’s order.   For the following reasons, we also

AFFIRM.

              I. FACTUAL AND PROCEDURAL BACKGROUND

     This appeal concerns whether the bankruptcy court erred in

refusing to impose a constructive trust upon an oil and gas lease

held by bankrupt debtor Adobe Energy, Inc. (“Adobe”).      The

creditor seeking to impose the constructive trust is the lease’s

previous holder, Century Resources Land, L.L.C. (“Century”).

     The subject lease covers land in Hardin County, Texas, in an

area referred to as the Pine Island Prospect.      In 1994, a

geologist presented Edward DeStefano, an investor, with an

opportunity for oil and gas exploration in this area.      In a

series of letter agreements, DeStefano promised to find a third-

party investor to finance the development of a shallow formation

identified by the geologist.   The development of this formation

was to be known as the East Sour Lake Field Redevelopment Project

(“the Project”).

                                   2
     DeStefano later presented the Project to Sheldon Solow,

another investor.   Solow agreed to invest in the Project through

the vehicle of a limited liability company, and so he and

DeStefano formed Century in September 1995.   Solow owned a 55%

stake in Century, and the remaining 45% interest was held by a

company wholly owned by DeStefano.   Century was managed by

DeStefano and Steven Cherniak, Solow’s designee.   DeStefano bore

the primary responsibility for acquiring the mineral leases

needed to assemble the Project, and he also agreed to market the

Project to third parties.

     From 1995 to 1997, DeStefano accumulated a number of oil and

gas leases for use in the Project.   These included a lease over a

certain 401-acre tract held by the Choice Thompson Family Trust

(“the Thompson Lease”).   The acquisition of the Thompson Lease

required Century to obtain a release from the oil companies that

had previously completed a successful well on the tract.    In

securing this release, an effort that began before the formation

of Century, DeStefano used the services of E. David Philley, an

attorney who had previously assisted DeStefano in connection with

another Project-related lease in 1995.   Century eventually

succeeded in acquiring the Thompson Lease in an instrument dated

July 23, 1996.   All sides agree that Philley worked as

DeStefano’s attorney at various times both before and after the

formation of Century, but the parties disagree over whether

Philley was also Century’s attorney.

                                 3
     Century began to market the Project in September 1997.    As

part of that effort, Century put together a brochure that

included geological data and analyses, as well as documents

setting forth the rules and terms governing the offer.   These

terms stated, among other things, that prospective partners must

possess minimum financial and technical qualifications; Century

included these requirements because it planned to retain an

interest in the Project, once developed.   The rules also required

prospective partners to sign a confidentiality/non-competition

agreement before they would be given a presentation about the

Project.

     On October 14, 1997, Century’s representatives presented the

Project to Adobe.   The primary dispute at trial centered upon

what happened at this meeting.   Century contends that Adobe’s

representatives signed the confidentiality/non-competition

agreement, or at least orally agreed to its terms.   Adobe’s

representatives testified that they neither signed nor orally

assented to any agreement.   The bankruptcy court found that Adobe

had orally agreed to generalized terms of confidentiality and

non-circumvention, but the court also found that the oral

agreement did not include the specific details set forth in the

written document that was included in the Project brochure.

     Philley happened to be at Adobe’s offices on another matter

at the time of the October 14 meeting, and he apparently entered

the meeting as it was breaking up.   After the meeting, he spoke

                                 4
with Adobe’s president, Michael McMahon, whom he knew from

previous dealings.    The two apparently agreed on a scheme

according to which Adobe would purchase the Project and then

immediately re-sell it to a third party, TransTexas, at a

substantial profit.    In support of this plan, Philley would

produce a sham letter in which Century would offer to sell the

Project to Adobe for $1200 per acre, a figure substantially

higher than that actually contemplated.       McMahon would then show

the letter to TransTexas, using the bogus $1200 figure to garner

a similar price from TransTexas.       The difference between what

Adobe would actually pay to Century and the inflated price

received from TransTexas would then be split between Philley and

Adobe.   Century’s representatives did not know of this plan, much

less authorize it.

     Century had for some time been suffering from an internal

conflict over how to manage the company and market the Project.

The court documents submitted by Century as part of its proof of

claim show that Solow obtained an injunction against DeStefano’s

marketing efforts shortly after the Project was presented to

Adobe.   (Indeed, matters would later deteriorate further: Solow

and Century sued DeStefano in 1999 in New York, alleging that

DeStefano had mismanaged the business and conspired with Adobe to

induce Century to accept Adobe’s offer.)

     Despite this internal dissension, negotiations with Adobe

continued.   On October 21, 1997, Adobe sent a letter to Century

                                   5
offering to buy an interest in the Project for $700 per acre.

Adobe then raised the offer to $800 on October 30, and the

parties continued to negotiate after that date.   During the

course of negotiations Adobe apparently misrepresented its

technical and financial ability to develop the Project.   On May

20, 1998, there was a meeting between DeStefano, Solow, and

McMahon, after which Adobe made yet another offer to Century.     On

June 1, Adobe communicated to Century, through DeStefano, a June

4 deadline for acceptance of the latest offer.    Solow replied on

June 4, not to accept Adobe’s offer but to inform Adobe that

DeStefano had been removed from his position as one of Century’s

managers.   Negotiations continued for a time, with Cherniak now

acting as Century’s primary representative.   But Century again

rejected Adobe’s overtures, having formed a suspicion that Adobe

was an unsuitable partner.

     Events then took an unfortunate turn for Century.    On July

24, 1998, Century received notice that the Thompson Lease had

expired because Cherniak had mistakenly failed to pay a delay

rental.   Century’s loss became Adobe’s gain when Philley, who had

learned of the termination notice from DeStefano, told McMahon

and another Adobe executive about the opportunity to acquire the

now-expired Thompson Lease.   The record contains a faxed message

from Philley, addressed to his “compadres” at Adobe, urging that

they immediately contact the Thompson family’s representative.

Despite Century’s efforts to tender the late rental payment, the

                                 6
Thompson family cancelled Century’s lease and, on August 31,

1998, agreed to a new lease with Adobe.

     After acquiring the Thompson Lease, Adobe began to drill,

using the geological information learned from Century’s

presentation to locate its wells.    Little came of the wells,

however, because Adobe damaged the production zone by improperly

cementing its pipes.   In addition, Adobe experienced cash flow

problems traceable to its depletion and overproduction of

previously drilled wells.

     Adobe filed a voluntary petition under Chapter 11 of the

Bankruptcy Code on September 10, 1999.    On January 12, 2000,

Century filed a proof of claim based upon pending actions against

Adobe in the Texas and New York state courts.    Adobe objected to

the claim, and the bankruptcy court held a trial.    Century’s case

was based on two contentions: (1) Adobe had breached the October

14 confidentiality/non-competition agreement and (2) Adobe would

be unjustly enriched unless a constructive trust were imposed on

the Thompson Lease and its proceeds.    After several days of

trial, the bankruptcy court set forth findings of fact and

conclusions of law in a memorandum opinion.    The bankruptcy court

concluded that Century had not satisfied the requisites for a

constructive trust under Texas law, and it disallowed Century’s

claim for breach of the confidentiality/non-competition agreement

because Century had offered no evidence of damages.    Abandoning

its claim for damages, Century appealed the constructive trust

                                 7
decision to the district court.   In a lengthy opinion, the

district court affirmed the bankruptcy court, concluding that

Century had not satisfied two of the three requisites for a

constructive trust under Texas law.   Specifically, the district

court held first that Century had not shown that Adobe committed

fraud (either actual or constructive); second, because of the

accidental lapse of Century’s lease over the Thompson property,

the district court held that Adobe’s later lease was not a

traceable res upon which to impose the trust.   In addition, the

district court suggested, sua sponte, that Century should have

initiated a formal adversary proceeding rather than using the

proof of claim process.

     Century now appeals to this court.

                      II. STANDARD OF REVIEW

     We review the bankruptcy court’s findings of fact for clear

error and its conclusions of law de novo.   Killebrew v. Brewer

(In re Killebrew), 888 F.2d 1516, 1519 (5th Cir. 1989).   Under

the clear error standard, the bankruptcy court’s factual findings

will be set aside “only if, on the entire evidence, we are left

with the definite and firm conviction that a mistake has been

made.”   Allison v. Roberts (In re Allison), 960 F.2d 481, 483

(5th Cir. 1992).   The ultimate decision whether or not to impose

the equitable remedy of a constructive trust is committed to the

sound discretion of the trial court, the exercise of which we

                                  8
review for abuse.   Burkhart Grob Luft und Raumfahrt GmbH & Co. KG

v. E-Systems, Inc., 257 F.3d 461, 469 (5th Cir. 2001).      The trial

court necessarily abuses its discretion if it bases its decision

on an error of law or on clearly erroneous factual findings.

Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990).

                            III. DISCUSSION

     The Bankruptcy Code defines the bankruptcy estate broadly,

encompassing most of the property held by the bankrupt debtor.

See 11 U.S.C. § 541 (2000).    However, the bankruptcy estate does

not include any property to which the debtor holds only legal,

but not equitable, title.     Id. § 541(d).   The bankruptcy estate

therefore generally does not embrace property that the debtor

holds in trust for another, nor does it include property subject

to a constructive trust.    A constructive trust is therefore an

attractive option for a disappointed creditor, for it gives the

creditor the sole claim on property that would otherwise be

distributed pro rata among all creditors.      See Haber Oil Co. v.

Swinehart (In re Haber Oil Co.), 12 F.3d 426, 435-36 (5th Cir.

1994).1

     1
          In its briefs on appeal to the district court, Century
offered to subordinate its constructive trust so that it would
not interfere with the priorities established by the bankruptcy
court’s reorganization plan. We are not sure that Century’s
latter-day concession, made on appeal, is relevant to the
question of whether the bankruptcy court abused its discretion.
In any event, our decision rests squarely on the requisites for a
constructive trust under Texas law, not on the Bankruptcy Code’s
overarching policy of ratable distribution among creditors.

                                   9
     Under Texas law, a constructive trust is an equitable remedy

that the courts may impose when “the person holding the title to

property would profit by a wrong or would be unjustly enriched if

he were permitted to keep the property.”   Omohundro v. Matthews,

341 S.W.2d 401, 405 (1960).   Imposition of a constructive trust

is appropriate when the plaintiff proves: (1) the defendant has

committed actual fraud or has committed constructive fraud

through the breach of a preexisting fiduciary or confidential

relationship, (2) the defendant would be unjustly enriched by

retaining the proceeds of the wrong, and (3) there is a traceable

res upon which to impress the trust.   See Haber Oil, 12 F.3d at

437; Monnig’s Dep’t Stores, Inc. v. Azad Oriental Rugs (In re

Monnig’s Dep’t Stores, Inc.), 929 F.2d 197, 201 (5th Cir. 1991);

Meadows v. Bierschwale, 516 S.W.2d 125, 128-29 (Tex. 1974).     The

courts below identified two deficiencies in Century’s request for

a constructive trust: Century had not shown that Adobe committed

fraud or breached a confidential relationship, and Adobe’s

subsequent lease on the Thompson tract was not a traceable res

upon which to impose the trust.

     On appeal, Century argues forcefully that the equitable

remedy of constructive trust is flexible enough to pierce through

the lapse of Century’s lease and attach to Adobe’s subsequent

lease, thereby satisfying the traceable res requirement.

Happily, we need not decide that question, for we hold that

Century has failed to satisfy the first requisite for imposition

                                  10
of a constructive trust: fraud or breach of a confidential

relationship.   We discuss each of those alternatives in turn.

A.    Actual Fraud

      Assuming that the other requirements are satisfied, a

plaintiff can show entitlement to a constructive trust by proving

that the defendant committed fraud.   Meadows, 516 S.W.2d at 128-

29.   Under Texas law, a plaintiff asserting fraud must prove

that: (1) a material representation was made, (2) the

representation was false, (3) the speaker made the representation

knowing it was false, or made it recklessly without any knowledge

of its truth and as a positive assertion, (4) the speaker made

the representation with the intent that the plaintiff should rely

on it, (5) the plaintiff acted in reliance on the representation,

and (6) the plaintiff thereby suffered injury.   Eagle Props.,

Ltd. v. Scharbauer, 807 S.W.2d 714, 723 (Tex. 1990).    While

Century has persuaded us that various of these elements might be

present in different parts of the events underlying this case, we

must agree with the courts below that nowhere do the elements

come together so as to constitute a fraud that would entitle

Century to a constructive trust over the Thompson Lease.

      Century has pointed to a number of misrepresentations made

by Adobe during the course of the parties’ dealings.    It appears,

for example, that Adobe misrepresented its financial and

technical ability to carry out the proposed project, intending to

                                11
induce Century to transact business with a company that——if the

true facts were revealed——failed to meet Century’s minimum terms.

The principal impediment to founding an action upon these

misrepresentations, however, is that Century and Adobe never

consummated their deal; Century did not sell the Project leases

to Adobe.   While the misrepresentations may have induced Century

to extend the negotiations unnecessarily, Century has not

explained how the mere continuation of negotiations might have

injured Century or unjustly enriched Adobe.   Century has not, for

instance, contended that its negotiations with Adobe cost it an

opportunity to market the Project to a more suitable partner——

those types of injuries have never been the basis of Century’s

claims.   Instead, the relevant harm has been the loss of the

Thompson Lease (or the ability to profit from it) to Adobe.     That

loss, however, bears no connection to Adobe’s wrongful

continuation of negotiations.

     Century makes a stronger case for fraud when it argues that

Adobe wrongfully induced Century to reveal its geological secrets

at the October 14 meeting, which revelation was made in reliance

upon Adobe’s promise of confidentiality and non-circumvention.

Although Adobe’s representatives apparently did not sign

Century’s proffered written agreement at the October 14, 1997,

meeting, the bankruptcy court found that the parties reached a

vague oral agreement to protect Century’s confidential

proprietary information.   The bankruptcy court further found that

                                12
Adobe later breached that agreement by using Century’s

information to target its drilling efforts once it acquired the

Thompson lease.

     Adobe’s breach of the oral confidentiality agreement would

at first blush appear to sound in breach of contract, and it is

well-settled that the mere failure to keep a promise is not

itself fraudulent.2   Nonetheless, the Texas courts also recognize

that “[a] promise to do an act in the future is actionable fraud

when made with the intention, design and purpose of deceiving,

and with no intention of performing the act.”    Spoljaric v.

Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex. 1986).      The

crucial question, therefore, is whether Adobe’s representatives

lacked any intention, at the time of the oral agreement, of

honoring their promise to keep Century’s information secret.

Like other issues of intent, this is generally a question of

fact.    Coffel v. Stryker Corp., 284 F.3d 625, 634 (5th Cir.

2002); Spoljaric, 708 S.W.2d at 434.

     Century has pointed to a number of circumstances that, in

its view, lead to an inference that Adobe’s representatives never

had any intention of maintaining confidentiality.   These

circumstances include the fact that Adobe later denied that any

     2
          Indeed, as remarked earlier, Century had originally
asserted a claim for breach of the agreement, but the bankruptcy
court disallowed it because there was no evidence on damages. A
constructive trust, on the other hand, generally does not require
proof of damages. See Kinzbach Tool Co. v. Corbett-Wallace
Corp., 160 S.W.2d 509, 514 (Tex. 1942).

                                 13
confidentiality agreement had ever existed, as well as the speed

with which McMahon and Philley hatched their secret scheme to

sell the Project to TransTexas at an inflated price——which

transaction would likely involve revealing Century’s information,

though it is unclear whether that in fact happened.    Later events

are, of course, admissible evidence on the question of earlier

intent.3   The bankruptcy court, which had the advantage of

listening to the witnesses, concluded that Adobe’s

representatives did not harbor a contemporaneous fraudulent

intent.    On appeal, the district court’s opinion provided a

detailed consideration of each of the various circumstances that

Century would use to infer fraudulent intent.    As the district

court’s careful opinion explains, Century’s evidence of later

circumstances is susceptible of more than one reasonable

interpretation.    For example, if Adobe’s representatives never

intended to keep Century’s information confidential, but promised

to do so only to induce Century to reveal its data, then there

would have been little reason for them to continue with months of

negotiations.    In the end, it is unclear to us whether Adobe’s

     3
          The Texas courts have held that later circumstances of
the sort identified by Century can raise an inference that a
promisor never intended to keep an agreement. See, e.g., T.O.
Stanley Boot Co. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex.
1992) (“Denying that a promise has been made is a factor showing
no intent to perform when the promise was made.”); Spoljaric, 708
S.W.2d at 435 (stating that the failure to engage in any pretense
of performance is a factor tending to prove the lack of an
earlier intent to perform).

                                 14
representatives intended to misuse Century’s secrets from the

start.   Therefore, in assessing the bankruptcy court’s findings

on this point, we cannot say that “we are left with the definite

and firm conviction that a mistake has been made,”    Allison, 960
F.2d at 483.

B.   Breach of Confidential Relationship

     As an alternative to proving that the defendant committed

actual fraud, a plaintiff may be entitled to a constructive trust

upon showing that the defendant committed constructive fraud by

exploiting a preexisting confidential relationship.    See Monnig’s

Dep’t Stores, 929 F.2d at 201-02; Meadows, 516 S.W.2d at 128.

Summarizing Texas law on this point, we have said the following:

     In recognizing a constructive trust, the critical
     requirement . . . is that the parties have a confidential
     or fiduciary relationship prior to and apart from the
     transaction in question.      This relationship may be
     established through prior joint business ventures, family
     relationships, or other types of close, confidence-
     inducing relationships. It need not arise from a strict,
     formal fiduciary relationship. However, mere subjective
     confidence among business associates or the like is
     insufficient to support a constructive trust.

Harris v. Sentry Title Co., 715 F.2d 941, 946 (5th Cir. 1983)

(citations omitted), modified on other grounds, 727 F.2d 1368

(5th Cir. 1984).

     We do not take Century to assert that it shared a

preexisting confidential relationship with Adobe.    Rather,

Century’s argument focuses on Philley’s role.   All sides agree

that Philley had acted at times as DeStefano’s lawyer.    According

                                15
to Century, Philley had also acted as the company’s lawyer.

Philley thus owed duties of loyalty to Century, duties that he

breached (says Century) when he told Adobe of the chance to

acquire the Thompson Lease.    Adobe induced (or at least knowingly

accepted the benefits of) Philley’s breach of that fiduciary

duty.    Century therefore asks the court to disgorge from Adobe

the ill-gotten proceeds of Philley’s evident betrayal.    This

argument appears to be a viable theory under Texas law.     See

Ginther v. Taub, 675 S.W.2d 724, 728 (Tex. 1984) (allowing a

constructive trust to be imposed against the beneficiary of an

attorney’s breach of fiduciary duties to his client); Kinzbach

Tool Co., 160 S.W.2d at 514 (“It is settled as the law of this

State that where a third party knowingly participates in the

breach of duty of a fiduciary, such third party becomes a joint

tortfeasor with the fiduciary and is liable as such.”).    We shall

therefore assume that Century would be entitled to a constructive

trust upon the Thompson Lease (or its proceeds), if Adobe

acquired it through Philley’s breach of a confidential

relationship with Century.

     While Century has made this theory of constructive fraud one

of its main arguments on appeal, it was not so prominent at

trial.    The main issues at trial were whether the parties had

entered into a binding confidentiality agreement at the October

14 meeting and whether Adobe had committed actual fraud.    To the

extent that Century’s post-trial brief discussed the legal

                                 16
requisites for a constructive trust, its argument focused on

actual fraud, though it did also state that a breach of a

preexisting confidential relationship would likewise support a

constructive trust.       The brief asserted that Philley was

Century’s lawyer, but it did not cite authority that would help

the bankruptcy judge assess whether such a relationship existed;

nor did the brief cite authorities, such as those noted in the

previous paragraph, that would show that a constructive trust

could be imposed against Adobe as the beneficiary of Philley’s

apparent misconduct.       In its opinion, the bankruptcy court did

not address this legal theory of recovery in any detail, but it

did not need to do so, for it concluded that Century’s claim for

a constructive trust failed due to the absence of a traceable

res.       It may be that the bankruptcy court fully understood

Century’s argument regarding constructive fraud but simply chose

to dispose of Century’s claims by focusing on the res

requirement, a choice that it is certainly entitled to make.4

Another explanation, however, is that Century’s oblique

presentation of the issue did not suffice to properly put the

theory before the trial court.       As we have warned in the past,

“the litigant must press and not merely intimate the argument

during the proceedings before the [trial] court.       If an argument

       4
          We note that we are permitted to affirm the bankruptcy
court’s judgment on grounds other than those on which it relied.
See Besing v. Hawthorne (In re Besing), 981 F.2d 1488, 1494 (5th
Cir. 1993).

                                    17
is not raised to such a degree that the [trial] court has an

opportunity to rule on it, we will not address it on appeal.”

FDIC v. Mijalis, 15 F.3d 1314, 1327 (5th Cir. 1994).      We believe

that Century’s constructive fraud argument presents a close

question under that rule.   To avoid the harshness of a

forfeiture, we will address the merits of Century’s constructive

fraud argument.

     Century’s argument is predicated upon the contention that

the bankruptcy court found as a matter of fact that Philley had

acted as Century’s lawyer; having made that factual finding,

Century’s argument continues, the court then erred as a matter of

law by failing to impose the constructive trust needed to

disgorge from Adobe the proceeds of Philley’s breach.     We reject

the first step of Century’s argument, however, for we do not

share Century’s view of the bankruptcy court’s findings.     In a

portion of its opinion discussing background facts related to the

accumulation of leases needed for the Project, the bankruptcy

court stated that Philley negotiated with the Thompson family on

Century’s behalf.   Yet this does not necessarily mean that an

attorney-client relationship existed between Philley and Century.

Under Texas law, there is no attorney-client relationship absent

privity of contract; the fact that an attorney undertakes

services for the benefit of an entity does not mean that the

entity is the attorney’s client.     See First Nat’l Bank of Durant

v. Trans Terra Corp. Int’l, 142 F.3d 802, 806-08 (5th Cir. 1998);

                                18
Banc One Capital Partners Corp. v. Kneipper, 67 F.3d 1187, 1198-

99 (5th Cir. 1995); Barcelo v. Elliott, 923 S.W.2d 575, 578-79

(Tex. 1996).5

     Alternatively, if we accept Century’s position that the

subject statement was indeed a finding that Philley was Century’s

attorney, then the finding would not be supportable.   The

attorney-client relationship “results from the mutual agreement

and understanding of the parties concerned.”   Parker v. Carnahan,

772 S.W.2d 151, 156 (Tex. App.—Texarkana 1989, writ denied).

There is no evidence of an express contract between Philley and

Century.   On the contrary, Philley testified that his client was

DeStefano, and Cherniak did not contradict that testimony.

     It is true that an attorney-client relationship may also be

formed by implied contract; that is, an agreement may be implied

from actions that reveal the parties’ intent to establish the

relationship.   Id.; see also Yaklin v. Glusing, Sharpe & Krueger,

875 S.W.2d 380, 383 (Tex. App.—Corpus Christi 1994, no writ).

But “[a]lthough the attorney-client relationship can be implied,

     5
          Century argues in its reply brief that the strict Texas
privity rule applies only in the context of attorney malpractice
cases. The reason that the privity rule is applied in
malpractice cases, however, is precisely because malpractice
liability runs only in favor of one who is the attorney’s client.
See First Nat’l Bank of Durant, 142 F.3d at 806 (“Texas law is
clear that a legal malpractice claim requires proof of an
attorney-client relationship between the plaintiff and the
defendant attorney.”); see also Barcelo, 923 S.W.2d at 578-79.
The question here is whether Philley breached professional duties
owed to his client, so the privity rule applies.

                                19
courts will not readily impute the contractual relationship

absent a sufficient showing of intent.”    Banc One, 67 F.3d at

1198.    The district court explained at some length, and very

persuasively, that the record does not support the existence of

any such intent.    Philley testified that he worked for DeStefano,

and this was the only testimony as to the various actors’

intentions.    Significantly, Philley’s work for DeStefano on

Project-related leases began before the formation of Century,

and this relationship did not appear to change once the company

was formed.    Moreover, Philley did not look to the company for

payment when DeStefano was unable to pay Philley’s legal fees.

     This is certainly not a case in which the interests of

DeStefano were simply the same as those of Century, such that his

personal attorney would automatically represent Century as well.

The documents forming Century, as well as the letter agreement

between DeStefano’s wholly owned company and Solow, give the two

owners distinct interests and responsibilities with respect to

Century.    As we noted earlier, DeStefano’s company held only a

minority interest in Century.    On Century’s own view of the case,

DeStefano was very much pursuing his own interests in his

management of Century.

     As a manager of Century, DeStefano may well have had the

authority to hire attorneys to work for the company.6   But that

     6
          Even in the absence of a specific authorization from
the principal, an agent’s authority to hire subagents and engage

                                 20
does not mean, as Century seems to believe, that any attorney

hired by DeStefano would be the company’s attorney.   Century did

not produce evidence that would establish the necessary intent to

form such a relationship between Philley and Century——or rather

to transform DeStefano’s relationship with Philley into a

relationship between Philley and Century.   Absent such intent,

the fact that Philley’s services benefitted Century fails as a

matter of law to establish an attorney-client relationship.     See

First Nat’l Bank of Durant, 142 F.3d at 806-08.

     We note that Century also argues on appeal that other types

of fiduciary or confidential relationships apart from an

attorney-client relationship might have existed between Philley

and Century, such as that Philley was Century’s agent or that

there was at least an informal relationship of confidence between

the two.    Century did not argue these theories in its pre-trial

statement and post-trial briefs submitted to the bankruptcy

court; insofar as constructive fraud was an issue in the

bankruptcy court, the suggestion was that Philley was Century’s

attorney.   To the extent that these new theories are separable

from the claim that an attorney-client relationship existed, we

contractors can often be inferred. See Stowe v. Wooten, 37
S.W.2d 1055, 1057 (Tex. Civ. App.—Eastland 1931), aff’d, 62
S.W.2d 67 (Tex. Comm’n App. 1933, judgm’t adopted); RESTATEMENT
(SECOND) OF AGENCY § 80 (1958). In this case, however, the
documents creating Century appear to impose significant
restrictions on DeStefano’s power to bind the company. For
purposes of our decision, we may assume that DeStefano would have
had the power to engage Philley as Century’s lawyer.

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do not consider them on appeal because they were not raised in

the bankruptcy court.   See Clyde Bergemann, Inc. v. The Babcock &

Wilcox Co. (In re The Babcock & Wilcox Co.), 250 F.3d 955, 961-62

(5th Cir. 2001).

     Century has been roughly treated in this matter——by Adobe,

by Philley, and perhaps by its own manager, DeStefano.

Understandably, Century has sought redress, and its able counsel

have advanced several theories through which its losses might be

recouped, including the device of a constructive trust.    Yet

while the constructive trust is a flexible equitable tool, “it

cannot correct every injustice.”     Pope v. Garrett, 211 S.W.2d
559, 562 (Tex. 1948).   The court’s discretion to impose a

constructive trust is confined by certain rules, and Century has

not satisfied them.7

                          IV. CONCLUSION

     For the foregoing reasons, the district court’s judgment

affirming the bankruptcy court’s disallowance of Century’s proof

of claim is AFFIRMED.

     7
          Given our disposition of the case, we need not consider
the possibility, suggested by the district court, that Century’s
claim is procedurally faulty in that it was conducted through
proof of claim proceedings rather than through a full-fledged
adversary proceeding. See generally Haber Oil, 12 F.3d at 437-40
(explaining when a formal adversary proceeding is required).

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