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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
m 99-60431
_______________
FIRST TRUST NATIONAL ASSOCIATION,
AS INDENTURE TRUSTEE,
Plaintiff-Appellant,
VERSUS
FIRST NATIONAL BANK OF COMMERCE,
Defendant-Appellee.
_________________________
Appeal from the United States District Court
for the Southern District of Mississippi
_________________________
May 31, 2000
Before REAVLEY, SMITH, and
Belle, Inc. ("BCBI"). Those assets were
EMILIO M.GARZA, Circuit Judges.
placed by BCI/BCBI into two escrow
accounts to be employed in building two
JERRY E. SMITH, Circuit Judge:
casinos. The casinos ran over budget, and
BCI/BCBI filed for bankruptcy. First National
First Trust National Association ("First
Bank of Commerce ("FNBC"), the agent for
Trust") is indenture trustee for a trust the
these escrow funds, failed to obtain necessary
assets of which are proceeds of notes sold by
documentation, guaranteeing the cost of
Belle Casinos, Inc. ("BCI"), and Biloxi Casino
construction, from various sources, therefore

contributing to the cost overruns and the
were placed into two escrow accounts
bankruptcy. Before the bankruptcy, First
administered by FNBC, which agreed to
Trust became aware of cost overruns and of its
distribute the funds from those accounts only
failure to receive from FNBC copies of all
on the occurrence of certain conditions listed
necessary documentation.
in the Disbursement Agreement.
Simultaneously, BCI loaned the net proceeds
First Trust sued FNBC, claiming breach of
of the notes to BCBI, which executed a
various contractual and fiduciary obligations to
Disbursement and Escrow Account Security
the noteholders whom First Trust represents as
Agreement ("Disbursement Security
indenture trustee. FNBC challenged First
Agreement") to BCI in the principal amount of
Trust's suit on grounds of standing and the
$75 million. BCBI was to use the net
statute of limitations. The district court found
proceeds of the offering to finance the
for FNBC on summary judgment on both
construction and expansion of the projects and
grounds. First Trust appeals. Agreeing with
thereafter operate the casinos.
the district court that limitations bars this ac-
tion, we affirm.
After a draw at closing to pay off the
interim loans and closing costs, BCBI
I.
deposited almost $60 million into two escrow
Mississippi Riverboat Amusements, Ltd.
accounts at FNBC. Finally, an Assignment
("MRA"), which owned and operated the
Agreement was executed between BCI as
Biloxi Belle Casino in Biloxi, Mississippi,
assignor and First Trust as assignee, whereby
decided in 1993 to expand its existing casino
BCI assigned all of BCI's rights as Lender to
(the "Biloxi Project") and to open a new
First Trust, including its rights under the
casino in Tunica County (the "Tunica
Disbursement Agreement. Moreover, BCI
Project"). To facilitate this expansion, MRA
assigned its rights, title, and interest in the
established two subsidiary corporations: BCI,
escrow accounts to First Trust.
a Delaware corporation, and BCBI, a
Mississippi corporation. To finance the
According to article III of the Disbursement
construction and expansion of the projects,
Agreement, FNBC and First Trust were to re-
certain notes were sold under an offering put
ceive certain documents (the "initial
together by Bear, Sterns & Co., Inc., in the
documents") as a precondition to disbursing
name of BCI. The notes were sold to
money from the escrow accounts. After the
investors (the "noteholders" or "Holders")
note sale, FNBC received Contractor's and
pursuant to an Indenture under which First
Architect's Certificates (the "Disbursement
Trust served as indenture trustee, thereby
Certificates" or "certificates") as contemplated
agreeing to perform certain acts on behalf of
by article VI of the Disbursement Agreement,
the Holders and in relation to the notes, which
and in particular section 6.08. FNBC,
were sold in October 1993.
however, was to use the Disbursement
Certificates to make disbursements only if both
Upon sale of the notes, FNBC was selected
First Trust and FNBC had first secured the
as Disbursing Agent for the proceeds, and its
initial documents.
obligations were defined by the Disbursement
and Escrow Agreement ("Disbursement
Neither First Trust nor FNBC received
Agreement"). The proceeds from the notes
those documents. FNBC, though, disbursed
2

the requested funds on the strength of the Dis-
1994. First Trust claims that it first discovered
bursement Certificates alone.
FNBC's failure to obtain the initial documents
in July 1996, when its attorneys examined
FNBC first distributed money from the es-
FNBC's files.
crow accounts on October 14, 1993, and
continued to disburse until May 13, 1994. On
II.
or about April 14, 1994, the Holders were first
First Trust sued in its capacity as indenture
notified by BCI that there were construction-
trustee on behalf of the Holders on June 10,
cost overruns. At a meeting between Bear,
1997, claiming breach of the Disbursement
Stearns and the Holders on May 5, 1994, the
Agreement, alleging that FNBC disbursed
Holders received a financial report indicating
funds from the escrow accounts without
that the projects had greatly overrun their
having first received the initial documents. It
budgets.
claimed breach of contract and of fiduciary
duty and sought damages in an amount equal
The Holders hired attorneys to negotiate
to the funds wrongfully disbursed.
further with BCI and to investigate defaults
under the Indenture and Disbursement
In response, FNBC filed a third-party
Agreements. On May 19, 1994, the
complaint against various third-party
noteholders' attorney informed Scott Strod-
defendants, claiming that they were at least
thoff, First Trust's vice president, of the
partly responsible for FNBC's alleged
overruns and that a review of the
mishandling of the proceeds. FNBC also filed
Disbursement Agreement indicated that a po-
a motion for summary judgment, arguing that
tential default had occurred, and faxed Strod-
First Trust's action was time-barred and that
thoff a copy of the Disbursement Agreement.
First Trust lacked standing under the Indenture
to bring its claims. The district court found for
On or about May 19, 1994, Strodthoff ex-
FNBC on both counts, granting summary
amined First Trust's file and discovered that
judgment and attorney's fees under the
only Disbursement Certificates numbered 3, 4,
Indenture.
and 5 were in the file. First Trust then hired its
own counsel on May 26, 1994, to "review
III.
documents regarding construction
All agree that the applicable statute of lim-
disbursements." The construction budget in
itations is Mississippi's catch-all statute, which
the Disbursement Agreement limited the Biloxi
requires that
and Tunica Projects to about $30 million each.
Accordingly, BCBI could not exceed the bud-
(1) All actions for which no other period
gets by more than $1.2 million without First
of limitation is prescribed shall be
Trust's permission. There is no evidence that
commenced within three (3) years next
First Trust ever consented to any increase in
after the cause of such action accrued,
the budgets.
and not after.
First Trust declared default on July 12,
(2) In actions for which no other period
1994, and instructed FNBC to transfer the re-
of limitation is prescribed and which in-
maining escrowed funds to First Trust; BCI
volve latent injury or disease, the cause
and BCBI filed for bankruptcy on August 31,
of action does not accrue until the
3

plaintiff has discovered, or by reasonable
most generously, on the last.
diligence should have discovered, the
injury.
First Trust claims that its cause of action
could not arise until BCI and BCBI filed for
MISS. CODE ANN. � 15-1-49 (1999).
bankruptcy, because "First Trust's claims
against FNBC were contingent on whether
First Trust sued on June 10, 1997. Under
BCI paid the amounts due and owing under
subsection (1), therefore, its action is barred if
the Notes. Only when it became clear that
it accrued before June 10, 1994. First Trust
BCI was unable to satisfy its obligations under
claims, however, that the "discovery rule"
the Notes was First Trust able to seek
should apply to toll the statute until July 1996,
recovery of principal and interest from other
when it first discovered that FNBC had never
sources." First Trust argues that the district
sent it the initial documents, or, if the
court's earlier denial of summary judgment to
discovery rule does not apply, that its claim
the third-party defendants (regarding the
was still timely, because its cause of action did
claims brought by FNBC) on limitations
not accrue until BCI and BCBI declared bank-
grounds should, under the law-of-the-case
ruptcySSafter June 10, 1994.
doctrine, protect First Trust from FNBC's
summary judgment motion as well.
The district court and FNBC reason, to the
contrary, that First Trust's claim accrued on
First Trust errs in comparing its cause of
the day of the first disbursement of funds, that
action to FNBC's. As we will explain, First
the discovery rule does not apply, and that
Trust's viable, independent action against
even if it did, the tolling pursuant to that rule
FNBC sounds in contract, while FNBC's ac-
would have ended at the very latest on June
tion sounds in tortSSrecovery as a result of
10, 1994, when First Trust's attorneys
fraud. The district court's refusal to find the
explained to First Trust that breach had
third-party defendants dismissed on limitations
probably occurred and that the relevant
grounds is based on when tort actions, not
documents should be reviewed. We agree.
contract actions, accrue. As we have said,
contract actions accrue when the breach, not
A.
the injury, accrues. While it might have been
In Mississippi, a breach of contract claim
the case that First Trust's injuries became final
accrues at the time of the breach regardless of
when BCI/BCBI filed for bankruptcy, formal
when damages resulting from the breach oc-
breach had occurred long before.
cur. See Young v. Southern Farm Bureau Life
Ins. Co., 592 So. 2d 103, 107 (Miss. 1991);
Moreover, First Trust errs in its assertion
Johnson v. Crisler, 125 So. 724, 724-25
that it enjoyed no option of action before
(Miss. 1930). The breach First Trust com-
bankruptcy ensued because it could prove no
plains of is FNBC's disbursement of money
damages. The Disbursement Agreement
without having received and transmitted to
provides that, "[u]pon the occurrence of any
First Trust the appropriate documents.
Event of Default, Lender may, in its sole
Disbursements began on October 14, 1993,
discretion and without notice to or demand on
and continued until May 13, 1994. First
Borrower, and in addition to all rights and
Trust's cause of action therefore emerged at
remedies available to Lender under the
the earliest on the first of those dates and,
Collateral Documents, demand the return of
4

any funds in the Escrow Account," and take
First Trust's fiduciary-duty claims against
various actions against the borrower. First
FNBC arise from the same source and the
Trust then, immediately upon disbursement of
same incidents as do its breach of contract
the first funds, could have recognized that it
claimsSSthe relationship between the parties
had not been sent copies of the initial docu-
created by FNBC's contract and the failure to
ments, demanded them from FNBC, found
get and deliver the initial documents to First
that FNBC lacked them as well, declared
Trust. No basis independent of the contract
breach, and seized the escrow accounts.
exists for finding a fiduciary duty. The district
These actions would have ensured, as
concretely as did BCI's and BCBI's
(...continued)
bankruptcy, that expenditures from the
aff'd, 71 F.3d 875 (5th Cir. 1995); Smith v. Orkin
account would cease until the documentary
Exterminating Co., Inc., 791 F. Supp. 1137, 1143-
deficiencies were resolvedSSeither through
44 (S.D. Miss. 1990), aff'd, 943 F.2d 1314 (5th
proper provision of the documentation
Cir. 1991) (noting that the "mere failure to perform
(thereby protecting the Holders) or through
a contract obligationSSor non-actionSSgives rise to
FNBC's discovery of fraud by various third
no claim in tort"); see also Carter Equip. Co. v.
parties and recovery against them (thereby
John Deere Indus. Equip. Co., 681 F.2d 386, 390
recompensating the Holders). In short, First
(5th Cir. 1982) (opining that "[o]rdinarily, courts
Trust's claim that its cause of action did not
do not impose fiduciary duties upon parties to
materialize until BCI and BCBI declared
contractual agreements"). In Palmer, the court
bankruptcy cannot stand; it accrued on
explained that
disbursement of the funds.
[i]t is axiomatic that a single act or course
B.
of conduct may constitute not only a breach
First Trust argues that the analysis above
of contract but an independent tort as well,
ignores the fact that its claim against FNBC
if in addition to violating a contract
obligation it also violates a duty owed to
for breach of fiduciary duty is an independent
plaintiff independent of the contract to
tort that could have emerged at a different,
avoid harming him. Such independent harm
later, time, because tort claims generally arise
may be found because of the relationship
only when damages therefrom occur.1 As the
between the parties, or because of
district court noted, however, an independent
defendant's calling or because of the nature
tort does not arise in circumstances in which
of the harm. However, not all breaches of
the tort claim is based solely on a breach of a
contract are also independent torts: where
contractual duty.2
defendant's negligence ends merely in
nonperformance of the contract and where
defendant is not under any recognized duty
to act apart from contract, the courts
1 See Williams v. Kilgore, 618 So. 2d 51, 54
generally still see no duty to act
(Miss. 1992) (citing Owens-Illinois, Inc. v.
affirmatively except the duty based onSSand
Edwards, 573 So. 2d 704, 706-07) (Miss. 1990)).
limited bySSdefendant's consent.
2 See Palmer v. Orkin Exterminating Co.,
Palmer, 871 F. Supp. at 914-15 (citations, quotation
871 F. Supp. 912, 914-15 (S.D. Miss. 1994),
marks and ellipses omitted; emphases added).
(continued...)
5

court therefore decided that the fiduciary duty
First Trust does nothing to defeat the dis-
claim was parasitic of the breach on contract
trict court's reasoning; it merely reasserts that
claim, and thus accrued as the contract claim
FNBC owed it a contract-based fiduciary duty.
accrued.
Even were it able to convince us that the
court erred in finding that First Trust's tort
claim is entirely derivative of its contract
claim, however, First Trust would gain no
ground on the limitations front, because, for
reasons we will explain, First Trust was or
should have been aware, more than three years
before it brought the instant action, that it had
been actionably damage.
C.
We agree with the district court that First
Trust's fiduciary duty claim is derivative of its
contract claim. Because First Trust insists that
a fiduciary relationship existed between it and
FNBC, however, and because the bare
existence of a fiduciary relationship is, in
Mississippi, a question of fact for the jury,3 we
will analyze First Trust's contention that the
discovery rule should apply in this case under
the assumption that FNBC was, pursuant to its
contractual relationship, a fiduciary of First
Trust's.
First Trust argues that the discovery rule
should apply in this context because FNBC's
errors were latent and undiscoverable,
especially because FNBC stood in the position
of fiduciary to First Trust, responsible to
3 See Carter Equip., 681 F.2d at 390. As
discussed, we have recognized that any fiduciary
duty owed First Trust by FNBC would have arisen
as a result of the agreements discussed herein, and
thus cannot create an independent tort action. We
have not held thereby that FNBC did in fact owe
First Trust a fiduciary duty for any purposes, be-
cause such a conclusion is reserved to the jury. We
conduct the following analysis to demonstrate the
irrelevance of such a finding, whatever the answer,
to this case.
6

report all of its errors to First Trust at every
know with precision each detail of breach,
opportunity. FNBC responds by noting that
causation, and damages, but merely enough to
the discovery rule has never been applied in
make a plain statement of the case backed by
Mississippi to a contract claim, and urges us to
evidence sufficient to survive a summary
construe the discovery rule as inapplicable to
judgment motion.6
the contract setting. These facts, however, do
not require us to make that determination of
First Trust argues that FNBC's breaches
Mississippi law.
were inherently undiscoverable, because
FNBC "actively concealed its breaches" by
Even the assumption, arguendo, that the
"represent[ing] to First Trust, as its fiduciary
discovery rule should apply in a contract set-
. . . that it was not aware of any evidence
ting such as this does First Trust no material
supporting an Event of Default." First Trust
good. When applying the discovery rule,
makes a gross overstatement to suggest that
"[t]he focus is upon the time that [First Trust]
FNBC "actively concealed" breach. First
discovers, or should have discovered by the
Trust provides no evidence of active
exercise of reasonable diligence, that [it]
concealment by FNBC. In fact, the only
probably has an actionable injury."4 The
evidence First Trust supplies in purported
would-be plaintiff need not have become abso-
support of its position is a letter dated July 13,
lutely certain that he had a cause of action; he
1994, in which FNBC explained to First Trust,
need merely be on noticeSSor should beSSthat
in relevant part, that
he should carefully investigate the materials
that suggest that a cause probably or
[a]fter reviewing the documentation, we
potentially exists.5 Neither need the plaintiff
have reached the conclusion that we
cannot comply with your request that
we deliver funds directly to you under
the Escrow Agreement or the Security
4 Smith v. Sanders, 485 So. 2d 1051, 1052
Agreement.
(Miss. 1986) (emphases added); see also In re
Catfish Antitrust Litig., 826 F. Supp. 1019, 1031
Under the terms of the Escrow
(N.D. Miss. 1993). The court explained that
The plaintiffs need not have actual
knowledge of the facts before the duty of
(...continued)
due diligence arises; rather, knowledge of
summary judgment record shows that the discovery
certain facts which are "calculated to excite
rule would otherwise have applied under the
inquiry" give rise to the duty to inquire. The
circumstances, because the plaintiff either knew or
statute of limitations begins to run once
should have known that an action had accrued, and
plaintiffs are on inquiry that a potential
it was not therefore latent. See Robinson v.
claim exists.
Singing Riv. Hosp. Sys., 732 So. 2d 204, 208
(Miss. 1999); Womble v. Singing Riv. Hosp., 618
So. 2d 1252, 1266 (Miss. 1993); cf. Chamberlin v.
Id. (citations omitted; emphasis added).
City of Hernando, 716 So. 2d 596, 601 (Miss.
1998).
5 Mississippi courts have upheld summary
judgments on limitations grounds even where the
6 See Robinson, 732 So. 2d at 208; FED. R.
(continued...)
CIV. P. 8, 56.
7

Agreement, an event of default must
should begin a review of its records to
exist before we, as escrow agent, can
document and act on that default.
W h i l e
deliver the funds to the trustee.
fiduciary relationships do often obscure
Although we do not have concrete
misfeasance on the fiduciary's part and thus
evidence of the existence of an event of
trigger the discovery rule, the principal of a fi-
default, we would be willing to rely
duciary is not thereby permitted permanently
upon your representation to that effect,
and willfully to ignore patent evidence of the
provided that you indemnified us for any
fiduciary's breach so as to delay indefinitely
loss we sustained and costs and
the accrual of an action against the fiduciary.7
expenses incurred in connection with the
Statutes of limitations exist to protect the
transfer of such funds to you. . . .
courts from indolent claimants as well as
defendants from stale claims.
In the alternative, under the Security
Agreement, you could seize the account.
In defense of its position, First Trust points
The seizure of the account should be a
to Merchants & Marine Bank v. Douglas-
relatively simple matter. . . . Finally, . . .
Guardian Warehouse Corp., 801 F.2d 742
[w]e can invoke a concursus [interplead-
(5th Cir. 1986). There, a bank hired Douglas-
er] proceeding and deposit funds into
Guardian to keep track of the inventory of a
the registry of the court.
debtor. Because of the debtor's misfeasance,
Douglas-Guardian submitted incorrect reports
This letter hardly indicates active concealment
to Merchants & Marine Bank, badly
on FNBC's part. Rather, it demonstrates a
overstating the value of the debtor's inventory.
bank wishing to serve the interests of all
Douglas-Guardian did, however, provide all
relevant parties to the best of its
reports to the bank as scheduled, and left the
capacitySSeven providing legal advice about
bank with no way of discerning the
how best a threatening party might achieve its
incorrectness of the reports. See id. at 744-45.
desired ends.
The court held that, under those
circumstances, the bank's action against
First Trust also argues that the fiduciary re-
Douglas-Guardian for contract breach did not
lationship between it and FNBC rendered it
accrue until the bank discovered the error in
"entitled to rely" on its conclusion that FNBC
had collected and provided to First Trust all of
the necessary and appropriate forms, and on
7 For its proposition, First Trust relies on Smith
FNBC's representation that it lacked concrete
v. Sneed, 638 So. 2d 1252, 1258 (Miss. 1994),
proof of an Event of Default. First Trust
holding that the discovery rule would work against
apparently thought this entitlement survived
a lawyer in a malpractice suit in part because of
even in the face of mounting evidence of seri-
"the inability of the layman to detect [legal]
misapplication; the client may not recognize the
ous cost overruns, of Holders who had
negligence of the professional when he sees it." Id.
demanded an accounting, of evidence from its
(citations omitted). Here, of course, First Trust
own files that FNBC had actually defaulted by
does not merit "lay" status; it is, after all, a trust
failing to file with First Trust most of the nec-
company, and therefore must be charged with the
essary documentation related to the
duty of knowing how to read a trust indenture,
disbursements, and of lawyers who told it that
being aware of the rights and duties therein, and
a default had probably occurred and that it
being able to protect those rights and duties.
8

the reports.8
The district court chronicled the events that
occurred before June 10, 1994:
Merchants & Marine's facts are inapposite
here. As the Disbursement Agreement
The record indicates that First Trust was
signifies, "[a]gent's obligation to disburse any
first informed of the cost overruns on
portion of the funds in the Escrow Account to
April 29, 1994. After taking over the
Borrower . . . is subject to Agent and Trus-
account [a First Trust executive] was
tee having received the . . . Collateral
notified of the cost overruns on May 16,
Documents." (Emphasis added). First Trust,
1994, when he received a call from a
by its own admission, never received these
Holder. As previously stated, [another
documents. This failure to receive docu-
party] also called [him] on May 19,
mentsSSeven without notice of cost over-
1994 and discussed the Holders'
runsSSconstituted the relevant "event of
concerns about potential defaults under
default."
the Disbursement Agreement and the
Indenture. [He] reviewed the
It was always within First Trust's power,
Disbursement Agreement on or about
upon knowledge that disbursements were
May 19, 1994, and discovered that
being made, simply to review its records, note
Disbursement Certificates numbers 3, 4,
the lack of documentation, demand the
and 5 were the only documentation in
documents, and order that FNBC cease
First Trust's file. . . . First Trust hired
disbursements and return the remaining escrow
its own counsel on May 26, 1994, to
money to First Trust upon failure to comply
review all documents pertaining to the
with the demand. Unlike Merchants & Marine
construction of the projects. First Trust
Bank, First Trust did not regularly, and in
also sent letters to FNBC on May 26
conformance with its contract, receive
and June 3, 1994, acknowledging that
documents that were false. Instead, it failed to
disbursements had been made by FNBC
receive documents that it knew, or should
have known, it should have been receiving.
First Trust, therefore, did not suffer a latent or
(...continued)
hidden breach; the breach was always, or
the general policies underlying th[e] statute
should always have been, patently obvious to
of limitations will not be thwarted by
a reasonably diligent party.9
adoption of the discovery rule in that
limited class of . . . cases in which, because
of the secretive or inherently
8 See also Smith, 638 So. 2d at 1257 (holding
undiscoverable nature of the [act] the
that the statute will not run against a fiduciary
plaintiff did not know, or with reasonable
"until the client discovers, or should discover, the
diligence could not have discovered, that
material facts in issue" because such tolling "vin-
he had been [injured]. In such rare
dicates the fiduciary duty of full disclosure")
instances, we do not believe that a plaintiff
(citation omitted)).
can be accused of sleeping on his rights.

9 First Trust again points the panel to Smith,
Id. (citations omitted; emphasis added). Again,
638 So. 2d at 1257, wherein the court instructed
this is inapposite, because even minimal diligence
that
by First Trust would have brought discovery of the
(continued...)
agent's breaches.
9

and requesting Disbursement Cer-
reasonable." Because we affirm the judgment
tificates that it had not received as
rendering FNBC the prevailing party, we
required by section 6.08 of the
affirm too on the issue of attorney's fees.
Disbursement Agreement.
Neither side challenges the amount of fees
awarded.
None of these facts comports with the picture
of an entity's remaining blissfully unaware that
AFFIRMED.
a cause of action had "probably" or "potential-
ly" arisen. Rather, they are events indicating
that First Trust not only should have
recognized but actually recognized that its
rights had been jeopardized, and that it needed
to take forceful and perhaps litigious action to
defend them.
What follows these actions, though, is a
long pauseSSuntil June 1996 according to First
TrustSSin which First Trust took no action
against FNBC.10 The district court was fully
justified in concluding that First Trust knew or
should have known that breach probably had
occurred before June 10, 1994. Applying the
discovery rule, then, cannot save First Trust's
cause of action.
IV.
The question of attorney's fees is parasitic
here. Section 10.14 of the Disbursement
Agreement reads, "[i]f any action or
proceeding is brought by any party against any
other party under this Agreement, the
prevailing party shall be entitled to recover
such cost s and attorneys' fees as the court in
such action or proceeding may adjudge
10 First Trust claims in July 1996 to have
learned for the first time that FNBC had not re-
ceived any initial documents (even though it knew
or should have known that it had also never
received such documents, as required), and realized
that FNBC was a relevant target of litigation.
Even then, First Trust still waited another 11
months, until June 1997, to sue FNBC.
10