Background
82 Glenwood Avenue, L.L.C. helped finance a real-estate transaction involving property in Austin, Texas. On behalf of the purchasing entity, 601 Rio LLC, it wired $3 million in earnest money to Evan Lipp, an escrow agent employed by Kane Title, L.L.C. Before the transfer, Lipp exchanged emails with transaction participants about a draft contract and stated his opinion that the $3 million would be released when the feasibility period ended or if the contract was canceled.
Within approximately 30 minutes after receiving the money, Kane Title wired the funds—less a $75,000 fee—to Nolan Schutze after he privately requested their return. When 82 Glenwood later requested the money, Lipp sent an email implying that he would not release funds until he understood the purchasing entity’s membership and signing authority. After discovering the earlier transfer, 82 Glenwood sued Schutze, his company, Lipp, David Kane, Kane Title, and others. It settled with Schutze and his company, while the district court dismissed its claims against Lipp, Kane, and Kane Title under Rule 12(b)(6).
The Court’s Holding
The Fifth Circuit affirmed. Applying Texas law, the court held that 82 Glenwood did not plausibly allege mutual assent to an express or implied contract requiring Lipp to return the funds only to 82 Glenwood. The emails did not identify 82 Glenwood or communicate that its purported agent represented it, and they reflected only the participants’ discussion of a draft contract. The derivative contract claim against Kane Title therefore also failed, while the complaint contained no factual allegations supporting claims against Kane individually.
The court also held that the negligence and fiduciary-duty claims failed for lack of proximate cause. Nothing alleged that Lipp or Kane Title participated in Schutze’s deception or had reason to foresee that one participant described as a partner would steal money supplied by another partner. Finally, Lipp’s stated opinion about how the draft contract operated was not a promise supporting promissory estoppel. Even if it were a promise, the complaint did not adequately allege that reliance was foreseeable because the discussion concerned a draft subject to possible revision.
Key Takeaways
- An escrow-related contract claim requires allegations showing mutual assent to the specific obligation asserted, including the identity of the party entitled to receive returned funds.
- An escrow agent’s transfer of funds at one transaction participant’s request did not establish proximate cause where the complaint alleged no facts making that participant’s theft foreseeable.
- An escrow agent’s qualified opinion interpreting a draft contract is not necessarily an enforceable promise for purposes of promissory estoppel.
Why It Matters
The decision emphasizes that supplying escrow funds does not, by itself, establish an agreement requiring the escrow agent to return them only to the supplier. Parties seeking that protection should clearly identify the depositor, the authorized recipients, and the conditions for disbursement in binding instructions communicated to the escrow agent.
It also illustrates the limits of tort and estoppel theories when an intermediary is allegedly deceived by a transaction participant. Without facts showing that the misconduct was reasonably foreseeable or that the intermediary made a definite promise, those claims may be dismissed at the pleading stage.