Introduction. A party can be held liable for conspiracy to commit fraud and theft, even if the party did not commit all of the underlying bad acts. Bates Energy Oil & Gas, L.L.C. v. Complete Oil Field Servs., L.L.C., No. 20-50952, 2021 WL 4840961, at *1 (5th Cir. Oct. 15, 2021). In this case, the 5th Circuit Court of Appeals affirmed the trial court’s judgment finding that David Bravo and his company, Unlimited Frac Sand, were vicariously liable for $652,146.22 in damages and $227,614.77 in attorney fees, based upon conspiracy to commit fraud and theft.

Factual & Procedural Background. Bates Energy Oil & Gas, LLC (“Bates Energy”) and its principal, Stanley Bates (“Bates”), agreed to obtain frac sand for Complete Oil Field Services (“COFS”). The COO of Bates Energy was David Bravo (“Bravo”). He later formed and managed a new  company, Unlimited Frac Sand, LLC d/b/a Frac Sand Unlimited (“FSU”). FSU listed Bates as Vice President and Member, and FSU listed Bates’ girlfriend as a Manager.

Bates Energy and COFS agreed to place $1,000,000 in an escrow account to be used by Bates Energy to purchase the frac sand for COFS. However, the escrow funds could only be withdrawn with the approval of COFS. A proof of escrow funds confirmation letter was later sent to Bravo.

Little did COFS know, the principal of the escrow account, Dewayne Neumann (“Neumann”), was a close associate of Bates. Over several months, Bates, Bravo, and Neumann coordinated the withdrawal of escrow funds, without the approval of COFS. They ultimately misappropriated $652,146.22 of the escrow funds and delivered no sand to COFS.

“This fraud and theft occurred in two ways; Bravo played a key role in both. First, the group executed a series of unauthorized disbursements of COFS’s money from the escrow account to Bates and his associates. This included David Bravo, who was listed as an intended recipient and received $47,500 through accounts held in his wife’s name. Each of the disbursement authorizations stated: “electronic signature  added under authorization by Frac Sand Unlimited, LLC.” For one round of disbursements, the authorizations were signed by Bates but indicated in the “by” section that they were made by “David Bravo, CEO.” Despite the clear terms of the escrow agreement, each of these disbursements was made without the knowledge or approval of COFS.”

Id at *1.

Second, the group defrauded COFS by using the escrow funds to purchase frac sand from Tier 1. Bates and FSU arranged to use the escrow funds to pay for this frac sand. One of the disbursement authorizations was signed by Bravo as CEO of FSU. He even admitted at trial that he was aware that the funds were used to purchase the sand. Rather than deliver the sand to COFS, it was sold to a third party.

The trial court found David Bravo and FSU liable for conspiracy to commit fraud and theft. As a result, the court held that they were jointly and severally liable for $652,146.22 in damages and $227,614.77 in attorney fees. Bravo and FSU appealed to the 5th Circuit.

5th Circuit’s Decision. On appeal, the 5th Circuit stated:

““In Texas, a civil conspiracy is a combination by two or more persons to accomplish an unlawful purpose or to accomplish a lawful purpose by unlawful means.” Firestone Steel Prods. Co. v. Barajas, 927 S.W.2d 608, 614 (Tex. 1996). “The essential elements are: (1) two or more persons; (2) an object to be accomplished; (3) a meeting of minds on the object or course of action; (4) one or more unlawful, overt acts; and (5) damages as the proximate result.” Massey v. Armco Steel Co., 652 S.W.2d 932, 9234 (Tex. 1983) (citations omitted).”

Id at *3.

The 5th Circuit then stated that a party can be liable for conspiracy even if the party “did not commit the underlying bad acts.” Id at *3.

Conclusion. The 5th Circuit went on to find that there was ample evidence that Bates, Bates Energy, and other parties hatched a scheme to defraud COFS. Further, there was ample evidence that Bravo was a co-conspirator in that scheme, and that Bravo and FSU were members of the conspiracy. This same evidence supported the claims by COFS for theft and conspiracy to commit theft. Thus, the 5th Circuit affirmed the trial court’s judgment on both counts.