5th Circuit Bankruptcy Summary: In re Fish & Fisher, Inc., No. 13-60368 (5th Cir. Feb. 7, 2014)

This case deals with the 12(b)(6) dismissal standard under the Twombly and Iqbal Supreme Court decisions.

M&F alleged that it obtained a perfected security interest in accounts receivable of Fish & Fisher. Fish & Fisher later obtained a significant arbitration award against one of its clients and hired Coxwell to hold the award in trust and to distribute it to creditors. The funds were distributed to various creditors, but none was paid to M&F. M&F and two other creditors later forced F&F into an involuntary bankruptcy. M&F filed an adversary proceeding against Coxwell, arguing violations of constructive trust, negligence and conversion. The basis was that M&F put Coxwell on notice via e-mail that the funds were its collateral prior to the distribution.

The bankruptcy court dismissed the complaint for failure to state a claim. The district court affirmed. The Fifth Circuit analyzed each claim. As to constructive trust, the court held that there could be no such trust under Mississippi law because there was no fraud, duress or abuse of confidence by the commission of a wrong or some unconscionable conduct or where there was unjust enrichment. As to negligence, M&F failed to allege that Coxwell owed it a duty, so there could be no claim for negligence. As to conversion, the claim failed because M&F failed to present any proof that M&F had ownership over the funds. The court held that the few facts offered by M&F did not meet the Twombly/Iqbal standard for showing that the claim was plausible on its face so that it was more than merely conceivable.