JSC Neftegas-Impex v. Citibank, N.A.
2011 Tex. App. LEXIS 960
Tex. App.2011Background
- Old Neftegas founded in 1991; ownership and control shifted to New Neftegas after bankruptcy, with JSCNI as the Neftegas entity party to this suit.
- TPS, a Houston company, sought to finance a Siberian mini-refinery project through a multi-phase financing structure involving Citibank; Citibank knew TPS was seeking project financing for Old/New Neftegas.
- Phase III contracts made JSCNI the lessee, TPS the equipment’s borrower and Citibank’s borrower under a revolving facility; Phase III sought up to $40 million with full-cash collateral and a $550,000 initial deposit from JSCNI treated as security, not a grant of funds.
- November 1997 Commitment Letter conditioned funding on several contingencies and required at least $550,000 initial funding in an Investment Account; JSCNI advanced $550,000 (via Sunflower in some accounts), some of which was spent on TPS/Citibank expenses and Santos’ reimbursements.
- Citibank revoked the initial funding in December 1997; Avanti’s financing never closed, and TPS reimbursed JSCNI only $100,000 of the $550,000; trial resulted in a jury finding of fraud and breach of fiduciary duty against TPS and fraud, knowing participation, and conspiracy against Citibank; Citibank’s JNOV motions were granted in part and denied in part, with the appeals court modifying the judgment as to liability for certain claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fraud by misrepresentation of use of the $550,000 security deposit | JSCNI relied on Citibank's representations that funds would be treated as a standard security deposit and would be used for Phase III purposes consistent with the Phase III contracts. | Citibank argues no evidence shows improper use or intent to defraud; Phase III contracts permitted TPS to use deposits for various obligations, and there was no direct duty to disclose to JSCNI. | Legally sufficient evidence supported fraud by misrepresentation of the use of the $550,000. |
| Oral statements that the transaction was complete constituted fraud via justifiable reliance | Kermath stated the transaction was complete and funding would follow; JSCNI relied on those statements to deliver funds. | Reliance was not justifiable because the Commitment Letter described contingencies and the Phase III contracts did not guarantee completion; post-closing statements were contradicted by written terms. | The theory failed: no justifiable reliance was shown; JSCNI could not rely on oral assurances that the transaction was complete. |
| Failure to disclose material information related to the $550,000 | Citibank had a duty to disclose the true nature and intended use of the funds and the related contingencies to JSCNI as the non-client third party. | Citibank disclosed the Commitment Letter to TPS, which was JSCNI’s agent for communications; there was no duty to disclose directly to JSCNI absent a fiduciary or confidential relationship. | Citibank had no direct duty to disclose to JSCNI; TPS was the agent, and the partial disclosure did not give rise to a duty to correct for JSCNI. |
| Citibank knowingly participated in TPS's breach of fiduciary duty | Citibank aided TPS’s unfair and inequitable structuring and failed to disclose information to JSCNI as part of a fiduciary betrayal. | TPS was the fiduciary to JSCNI; Citibank’s role was as lender/advisor within a structured transaction; there was no proof of knowledge of a breach or intentional facilitation by Citibank. | JNOV affirmed: Citibank did not knowingly participate in TPS’s breach of fiduciary duty. |
| Civil conspiracy between Citibank and TPS | Citibank and TPS conspired to acquire the $550,000 for use contrary to representations and to structure the deal to benefit themselves at JSCNI’s expense. | No meeting of the minds proven; the conspiracy claim rests on the same evidence as the failed fraud theories and lacks proof of an unlawful objective and coordination. | Conspiracy judgment reversed in part: affirmed as to TPS’s breach of fiduciary duty, but reversed to the extent it rested on fraud-based conspiracy; judgment modified to hold Citibank jointly and severally liable for related damages and prejudgment interest. |
Key Cases Cited
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (legal-sufficiency review requires considering all evidence in the light most favorable to the verdict)
- Merrell Dow Pharm., Inc. v. Havner, 953 S.W.2d 706 (Tex. 1997) (evidence standards for expert testimony and reliability; no-evidence standards)
- Lozano v. Lozano, 52 S.W.3d 141 (Tex. 2001) (circumstantial-evidence standard; equal-inference rule in noevidence context)
- Ford Motor Co. v. Ridgway, 135 S.W.3d 598 (Tex. 2004) (more-than-a-scintilla standard; circumstantial evidence may support multiple inferences)