845 F.3d 634
5th Cir.2017Background
- In 2012 Woodbridge Baric made a $24,000 pre-settlement loan (an "advance") to Jarrod Burrle under contracts that forgave repayment if Burrle recovered nothing, but required indemnification if Burrle's representations about his claim were false.
- Burrle refilled Deepwater Horizon claims with the Court-Supervised Settlement Program; in 2013 one commercial-fishing claim was paid $50,015.87.
- Burrle’s attorneys paid Woodbridge Baric $20,000 of that payment as partial repayment of the advance.
- A court-appointed special master later found Burrle’s claim fraudulent and moved to claw back funds paid on that claim; the district court ordered Burrle, his attorneys, and Woodbridge Baric to repay funds, entering a $20,000 judgment against Woodbridge Baric.
- Woodbridge Baric appealed, arguing it was a bona fide payee that received funds in partial satisfaction of a valid debt and had no knowledge of fraud; the Fifth Circuit reversed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Woodbridge Baric must make restitution for $20,000 paid from a fraudulent claim | Special master: equity requires restitution because initial payment was procured by fraud; Woodbridge Baric should not be unjustly enriched | Woodbridge Baric: it received payment in good faith to satisfy an existing debt and had contractual indemnity for false representations | Reversed: Woodbridge Baric is not liable in restitution because payment discharged an unconditional, bona fide obligation and it accepted funds in good faith |
| Whether bona fide payee rule bars restitution against a third-party creditor who received payment in satisfaction of a debt | Special master: exception for contingent-fee recipients (and analogs) can apply | Woodbridge Baric: bona fide payee who received payment in partial satisfaction of valid loan; had no knowledge of fraud | Court: bona fide-payee principle applies; third party not liable when payment discharged an unconditional, bona fide obligation |
| Whether the contingency-fee exception (treating payee as standing in plaintiff's shoes) applies to non-attorneys like Woodbridge Baric | Special master: exception could extend beyond attorneys to entities that condition payment on claim success | Woodbridge Baric: its repayment claim was not purely contingent because of express indemnity for fraudulent representations | Court: even if exception could extend beyond attorneys, it does not apply here because Woodbridge Baric had an independent, unconditional contractual right to repayment (indemnity) |
| Standard of review for district court's restitution order | Special master: Rule 60(b) relief reviewed for abuse of discretion | Woodbridge Baric: characterization as summary judgment reviewed de novo | Court: need not decide; legal questions reviewed de novo and decided as matters of law in favor of Woodbridge Baric |
Key Cases Cited
- Mohamed v. Kerr, 91 F.3d 1124 (8th Cir. 1996) (discusses bona fide payee rule and contingency-fee exception to restitution)
- Equilease Corp. v. Hentz, 634 F.2d 850 (5th Cir. 1981) (third-party good-faith payee generally not liable to repay used funds)
- United States v. Morgan, 307 U.S. 183 (Sup. Ct.) (equitable power of courts to order restitution when judgments are reversed)
- Atlantic Coast Line R. Co. v. Florida, 295 U.S. 301 (Sup. Ct.) (restitution is equitable relief when prior judgment is invalidated)
- Baltimore & Ohio R. Co. v. United States, 279 U.S. 781 (Sup. Ct.) (court’s inherent equitable power to enforce restitution after reversal)