Davis v. Parker ( 1998 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
__________________________
No. 96-30929
__________________________
WILLIAM C. DAVIS,
Plaintiff-Appellee
Cross-Appellant
versus
ERNEST L. PARKER,
Defendant-Appellant
Cross-Appellee
___________________________________________________
Appeal from the United States District Court
For the Western District of Louisiana
(Nos. 91-CV-2493, 93-CV-759)
___________________________________________________
May 12, 1998
Before REYNALDO G. GARZA, SMITH, and WIENER, Circuit Judges.
WIENER, Circuit Judge:*
Defendant-Appellant-Cross-Appellee, Ernest L. Parker, Esq.,
appeals a jury verdict in favor of Plaintiff-Appellee-Cross-
Appellant, William C. Davis, whose claims had their genesis in a
written asset transfer agreement between the two parties. Davis,
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
a long-time Louisiana resident who had moved to Texas, brought suit
in federal district court in Louisiana on diversity jurisdiction
after Parker refused to return to Davis the assets in question ——
capital stock in a closely-held Louisiana corporation —— that he
had transferred to Parker in accordance with that agreement. The
case was tried to a jury, which found that —— notwithstanding the
fact that the asset transfer agreement contained no express
stipulation obligating Parker to return Davis’s stock —— Davis had
retained ownership of his stock vis-à-vis Parker, as well as the
right to recover it, by virtue of Parker’s oral promise to hold the
stock other than as owner and return it to Davis on request. The
jury awarded Davis monetary damages consisting of (1) $175,000 for
emotional distress, anguish, or inconvenience that he experienced
as a result of Parker’s refusal to return the stock; (2) attorneys’
fees as provided in Davis’s contingent fee agreement with his
attorneys; and (3) $1,026,951.50 for loss of the benefits that he
would have received had he held the Campbell Wells stock or for
benefits that Parker wrongfully received as a result of his refusal
to return Davis’s stock. In keeping with the jury’s verdict, the
district court rendered judgment for Davis, replicating the
particulars of the verdict and declaring Davis to be the owner of
the stock in question or its value as of the close of business on
the last business day before trial commenced. The district court
also assessed costs against Parker, purported to include expert
2
witness fees.
Parker appeals the district court’s denial of his post-trial
motion for judgment as a matter of law (j.m.l.) or, alternatively,
a new trial. Parker urged his motion on grounds that, inter alia,
(1) the evidence conclusively established that Davis entered into
the asset transfer agreement for the illicit purpose of defrauding
his creditors, so that, as a matter of law, Davis cannot recover
from Parker; (2) the jury’s finding that a contract existed between
Davis and Parker, whereby Parker agreed to hold and return Campbell
Wells stock to Davis, is erroneous as a matter of law, as such an
agreement must be in writing to be enforceable; (3) Davis’s claims,
as tried, were time-barred under Louisiana’s prescriptive period
for legal malpractice actions; (4) the district court erroneously
permitted Davis to call two of Parker’s former clients to testify
in rebuttal; and (5) the jury’s awards of (a) nonpecuniary damages,
(b) attorneys’ fees, and (c) “excess distributions” were without
legal foundation or sufficient evidentiary basis. Parker also
contends that the trial court erred in its assessment of costs
against him and in its valuation of Davis’s Campbell Wells stock.
Davis cross-appeals the court’s denial of his motion to alter or
amend the judgment.
Finding no reversible error in the denial of Parker’s motions
or in the court’s assessment of Davis’s costs and the valuation of
his stock, we affirm except to the limited extent that we
(1) reverse the award of emotional damages, (2) modify the award of
3
attorneys’ fees to reflect the effect of our reversal of the
emotional damages award, and (3) vacate the award of costs to the
extent, if any, that expert witness fees were included and remand
this issue for further consideration by the district court. As for
Davis’s cross-appeal, we make a minor adjustment in the judgment of
the district court but otherwise affirm, thereby denying the cross-
appeal. In sum, the judgment of the district court is reversed in
part, vacated in part, modified in part, and —— as modified ——
affirmed and remanded for further proceedings consistent with this
opinion and, ultimately, for entry of a revised judgment for Davis
reflecting the dispositions we make today.
I
FACTS AND PROCEEDINGS
Davis and Parker were longtime personal friends and business
associates when Parker offered Davis an interest in Campbell Wells
Corp. (“Campbell Wells”) —— a company that operated an oil field
waste disposal facility. Parker, who was also Davis’s attorney,
had previously invested in several business ventures with Davis.
Campbell Wells had come to Parker’s attention when he was
approached by Logan Nichols, also an attorney and a law school
classmate of Parker’s. Nichols sought Parker’s aid in finding a
buyer or buyers on behalf of the Campbells, who owned and operated
the facility. The Campbells had offered Nichols a substantial
finder’s fee if he could locate a buyer, which fee Nichols proposed
sharing with Parker as consideration for his assistance.
4
Parker in turn enlisted the help of Richard Barnett, a client
of his and a petroleum engineer with connections in the oil patch.
Barnett knew several potential investors but wanted to learn more
about the facility and assess its value before making any
recommendations. After visiting the disposal facility, Barnett
became convinced that Campbell Wells represented an attractive
investment opportunity and suggested to Parker and Nichols that the
three of them buy the business themselves rather than brokering it.
Presumably with the assent of Nichols and Barnett, Parker invited
Davis to join the threesome as an equal partner in the purchase of
Campbell Wells.
The four men bought all issued and outstanding stock of the
corporation in September 1985. They also formed a partnership,
CAMPCO—1985, to acquire the immovable property on which the waste
disposal facility was located. Their acquisitions were funded by
a million dollar loan from Guaranty Bank & Trust Co. of Lafayette
(“Guaranty Bank”) and by promissory notes totaling $1,052,000,
payable to the Campbells. An additional $500,000 was borrowed from
the bank to cover start-up costs. As security for its loans,
Guaranty Bank took a collateral first mortgage on the immovable
property and a pledge of the capital stock in Campbell Wells; the
Campbells’ promissory notes were secured by a subordinated
mortgage. In addition, each of the four purchasers signed personal
guaranties to Guaranty Bank and to the Campbells.
Although Campbell Wells continued to prosper, Davis began to
5
experience financial difficulties with some of his other business
ventures and by early 1986 was on the brink of bankruptcy. Parker
represented Davis in an attempted work-out with his creditors, and
also advised Davis as his friend and business partner. Parker
warned Davis that his creditors might seize his interest in
Campbell Wells and suggested that Davis transfer his interest to
Parker. On February 3, 1986, by a written Act of Cash Sale &
Assumption —— prepared by Parker —— Davis transferred stock
representing his twenty-five percent ownership interest in Campbell
Wells to Parker. The instrument specified that Parker was assuming
Davis’s debt and paying Davis $1000. Davis testified that he was
neither given a copy of the document by Parker nor advised by him
to consult another attorney before signing it.
This is the point at which the antagonists’ respective
versions of the saga start to diverge. Davis testified that Parker
agreed to hold the Campbell Wells stock “in trust” until Davis
resolved his financial problems, orally committing to return the
stock to Davis on request. According to Davis, Parker proposed the
arrangement as a means of ensuring the satisfaction of their
substantial mutual debt: With Davis’s interest in Parker’s hands,
they could avoid outside interference in the Campbell Wells venture
by preventing a “race to the courthouse” by Davis’s creditors.
More importantly, in avoiding seizure by one anxious creditor, cash
flow from the investment could be used to pay off more debt. In
6
stark contrast, Parker testified that he acquired full ownership of
Davis’s stock as consideration for assuming the debt that Davis had
incurred in his acquisition of Campbell Wells stock.
Davis was eventually successful in working out of his
financial straits and avoiding bankruptcy. Meanwhile, Campbell
Wells continued to thrive, and in June 1990, the remaining
shareholders of record —— Parker and Nichols —— agreed to merge
Campbell Wells with Sanifill, Inc. (“Sanifill”).1 Pursuant to the
merger agreement, Parker surrendered all outstanding stock in
Campbell Wells in exchange for Sanifill stock.2
Davis testified that he had become concerned about Parker’s
control over the transferred shares as early as 1988, well before
the Sanifill merger. Davis mentioned the arrangement to an
attorney representing him on unrelated matters, who advised Davis
to discuss his Campbell Wells interest with Parker. Some time
later, Davis broached the subject with Parker during a meeting in
Lafayette, asking for Parker’s reassurance that their arrangement
would be honored. According to Davis’s testimony, Parker was
initially very angry at him for having discussed the matter with
another attorney, but Parker assured Davis the following day that
his stock would eventually be returned.
1
Coincidentally, the fourth partner, Barnett, had transferred
his interest in Campbell Wells to Parker, also in February 1986.
2
See infra note 106.
7
Davis testified that he had several subsequent discussions
with Parker concerning the state of Campbell Wells’ affairs, each
discussion characterized by Davis as having included Parker’s
reassurance that the business was going well and that Davis could
count on recovering his interest. In September 1990, following the
Sanifill merger, Parker contacted Davis at his home in Austin and
scheduled a visit. Davis assumed that Parker had arranged the
meeting to conclude their business under the asset transfer
agreement, but Parker frustrated Davis’s expectations by avoiding
any discussion of Campbell Wells. When Davis eventually broached
the subject, Parker announced that he intended to keep Davis’s
proportionate share of the Sanifill stock acquired in the merger,
and a heated argument ensued.
This lawsuit was filed in November 1991. In it, Davis
asserted claims for breach of contract, rescission, detrimental
reliance, and nullity, and sought to enforce the written-and-oral
agreement or to rescind it with an accounting. Alternatively,
Davis sought to annul the written agreement under which his
interest in Campbell Wells had been transferred. Parker moved for
summary judgment on the ground that Davis’s claims were time-barred
under Louisiana’s prescriptive period for legal malpractice
actions. The district court granted Parker’s motion and dismissed
Davis’s suit with prejudice. On appeal from that dismissal, we
reversed and remanded (Parker I), holding that the prescriptive
period for legal malpractice actions was not applicable to Davis’s
8
claims.3
On remand, the case was tried to a jury. A number of mid-
trial motions by Parker were denied and, following the close of the
evidence, each party made a motion for j.m.l., both of which the
court denied. The jury returned a verdict in favor of Davis on all
causes of action submitted,4 and judgment was entered by the
district court on May 31, 1996, in accordance with the verdict.
Parker filed post-trial motions under Federal Rules of Civil
Procedure (F.R.C.P.) 50 and 59, which the trial court denied. Davis
filed a F.R.C.P. Rule 59 motion seeking to amend some aspects of
the judgment, but the court denied this motion as well. Parker
timely appealed, and Davis timely cross-appealed.
II
ANALYSIS
A. STANDARD OF REVIEW
We review the denial of a motion for j.m.l. de novo, viewing
all evidence in the light most favorable to the non-moving party.5
We will conclude that the motion should have been granted only when
“the evidence at trial points so strongly and overwhelmingly in the
3
Davis v. Parker, 58 F.3d 183, 189-90 (5th Cir. 1995).
4
Davis apparently amended his pleadings on remand, adding a
claim for fraud. The jury did not reach Davis’s detrimental
reliance claim as it found that a valid oral retransfer agreement
existed and was breached.
5
Burroughs v. FPP Operating Partners, L.P., 28 F.3d 543, 546
(5th Cir. 1994).
9
movant’s favor that reasonable jurors could not reach a contrary
conclusion.”6 The “decision to grant [a j.m.l.] . . . is not a
matter of discretion, but a conclusion of law based upon a finding
that there is insufficient evidence to create a fact question for
the jury.”7
We review the denial of a Rule 59(e) motion to alter or amend
for abuse of discretion.8 We also review the denial of a motion
for new trial for abuse of discretion; new trials should not be
granted on evidentiary grounds unless, at a minimum, the verdict is
against the great weight of the evidence.9 And we review
evidentiary rulings for abuse of discretion, but even then we will
reverse only if the erroneous ruling affects a substantial right of
a party.10 Finally, we review an award of attorneys’ fees and costs
for abuse of discretion.11
B. UNLAWFUL, ILLICIT, OR IMMORAL PURPOSE
Parker argues that, in light of the jury’s determination that
6
Omnitech Int’l v. Clorox Co., 11 F.3d 1316, 1323 (5th Cir.),
cert. denied, 513 U.S. 815, 115 S. Ct. 71, 130 L. Ed. 2d 26 (1994).
7
Id. (quoting In re Letterman Bros. Energy Sec. Litig., 799
F.2d 967, 972 (5th Cir. 1986), cert. denied, 480 U.S. 918, 107
S. Ct. 1373, 94 L. Ed. 2d 689 (1987)).
8
Martinez v. Johnson, 104 F.3d 769, 771 (5th Cir.), cert.
denied, 118 S. Ct. 195, 139 L. Ed. 2d 133 (1997).
9
Dawson v. Wal-Mart Stores, Inc. 978 F.2d 205, 208 (5th Cir.
1992).
10
Marcel v. Placid Oil Co., 11 F.3d 563, 566 (5th Cir. 1994).
11
Nickel v. Estate of Estes, 122 F.3d 294, 301 (5th Cir. 1997).
10
Davis actually continued to own the Campbell Wells stock
transferred under the Act of Cash Sale & Assumption by virtue of
Parker’s oral promise to return Davis’s stock on request, the
evidence at trial conclusively established that the agreement was
executed to place Davis’s interest in Campbell Wells beyond the
reach of his creditors. As such, urges Parker, the purported
written-and-oral agreement, found by the jury to exist, cannot be
enforced because it was entered into for the illicit purpose of
defrauding Davis’s creditors. Thus, concludes Parker, Davis can
recover nothing under the agreement and the jury verdict cannot be
permitted to stand.
In support of his argument, Parker invites our attention to
several Louisiana cases from the nineteenth century that stand for
the proposition that contracts executed for the purpose of
defrauding creditors are unenforceable.12 These cases were decided
12
See Meyer v. Farmer, 36 La. Ann. 785 (1884); Bernard v.
Auguste, 1 La. Ann. 69 (1846) (dismissing plaintiff’s rescission
action —— brought on ground that defendant’s failure to give
consideration for transfer of plaintiff’s property rendered sale a
simulation —— based on evidence that plaintiff was only titleholder
of property, true owner having purchased property in plaintiff’s
name to screen it from creditors); Puckett v. Clarke, 3 Rob. 81(1842) (holding that plaintiff could not recover property from
defendant when the two had arranged defendant’s purchase of
property at a sham sheriff’s sale with understanding that defendant
would return property to plaintiff after danger of seizure by
plaintiff’s creditors had subsided); Gravier’s Curator v. Carraby’s
Ex’or, 17 La. 118, 127 (1841) (refusing to enforce agreement and
denying plaintiff’s recovery of property conveyed to defendant as
security for defendant’s loans where parties held out conveyance as
transfer of title for purpose of concealing property from
plaintiff’s judgment creditors).
11
under the rationale that courts of law will not give effect to
contracts having an unlawful or immoral purpose.13 As courts will
not mediate disputes “between joint venturers in iniquity,”14 the
parties to such contracts have no recourse at law against one
another. Under the Roman Law maxim, “In pari causa turpitudinem
potior est conditio possidentis”15 —— in case of equal wrongdoing,
the one in possession is in a better position —— courts will “leave
[the] property where the dishonest acts of the parties have placed
it.”16
Parker argued to the district court that this line of cases
bars recovery under the well-known “unclean hands” canon which
devolved from English equity: “One who has unclean hands or is
13
Boatner v. Yarborough, 12 La. Ann. 249, 251 (1857) (“The law,
whose mission is to right the innocent and to enforce the
performance of licit obligations only, leaves parties who traffic
in forbidden things and then break faith with [one another], to
such mutual redress as their own standard of honor may award.”);
Bernard, 1 La. Ann. at 70 (“[C]ontracts prohibited by law, or
contrary to good morals or public order, can have no effect.”);
Gravier’s Curator, 17 La. at 127 (“[A]n obligation without a cause
or with a false or unlawful one can have no effect.”).
14
Boatner, 12 La. Ann. at 251; see also Gravier’s Curator,
17 La. at 131 (“[C]ourts of justice are not reduced to the
humiliation of adjusting among dishonest men the results of their
unholy speculations or of protecting one party against another
while engaged in a common purpose, at war with the best interest of
society and subversive of public order.”).
15
LA. CIV. CODE ANN. art. 2033, cmt. (c) (West 1987); see also
Gravier’s Curator, 17 La. at 127 (“[W]here both parties are charged
with the same turpitude[,] the law gives no action [and,] . . .
[i]n such cases[,] the maxim is ‘Impari causa turpitudinus potior
est causa possidentis.’”).
16
Bernard, 1 La. Ann. at 71.
12
himself a wrongdoer should not be able to benefit from the
concurrent wrongdoing of another.”17 Although a rudimentary version
of the Anglo-American concept of unclean hands (which became a
common law doctrine as a result of the merger of law and equity)
appears to have seeped interstitially into Louisiana’s Civil Law
system,18 at least nominally so, the extent to which it has been
embraced as a substantive maxim of Civil Law is uncertain at best.19
And, to the extent that the courts of Louisiana have conflated the
Anglo-American unclean hands canon with the Civil Law notion that
neither party to an unlawful or immoral agreement may seek
17
Vidrine v. Michigan Millers Mut. Ins. Co., 268 So. 2d 233,
239 (La. 1972).
18
See Thomason v. Thomason, 355 So. 2d 908, 910 (La. 1978)
(noting that the doctrine of recrimination —— barring recovery by
either party to a domestic dispute when both parties are equally at
fault —— is “based on the equitable idea that he who comes into
court with unclean hands cannot obtain relief”); Rhodes v. Miller,
179 So. 2d 430, 431 (La. 1938) (“[C]ourts will not relieve a
litigant who appeals for relief with unclean hands.”); Coker v.
Supreme Indus. Life Ins. Co., Inc., 43 So. 2d 556, 559 (La. Ct.
App. 1950) (“It is axiomatic in our jurisprudence that equity will
not aid one who comes into court with unclean hands. The line of
decisions confirming this maxim is unbroken and too well known to
need citation here.”).
19
See Poole v. Guste, 262 So. 2d 339, 345 (La. 1972) (noting
that “limitations to the remedy of equity recognized in common-law
jurisdictions . . . are not necessarily applicable to Louisiana,
with its different civilian procedural background” and rejecting
defendants’ argument that plaintiffs’ unclean hands barred
injunctive relief); Bramblett v. Wilson, 413 So. 2d 600, 602 (La.
Ct. App. 1982) (“It is questionable that the so-called ‘clean
hands’ doctrine, an equitable common law theory, has any
application in our civilian jurisdiction.”).
13
enforcement in a court of law,20 the doctrine occupies a unique
niche in Louisiana as a defense to actions ex contractu: It bars
legal recovery.21
However this hybrid doctrine is characterized, though, it is
now firmly ensconced in Article 2033 of Louisiana’s Civil Code,
which provides, in pertinent part:
[A] performance rendered under a contract that
is absolutely null because its object or its
cause is illicit or immoral may not be
recovered by a party who knew or should have
known of the defect that makes the contract
null. The performance may be recovered,
however, when that party invokes the nullity
to withdraw from the contract before its
purpose is achieved and also in exceptional
situations when, in the discretion of the
court, that recovery would further the
interest of justice.22
20
See Spearman v. Willson, 99 So. 2d 31, 33 (La. 1958)
(likening the principle of law under which neither party to an
agreement designed to hide property from creditors to prevent its
seizure can seek judicial relief to “leaving the parties in the
same position [the court] found them on the theory that both
plaintiff and defendants have unclean hands”) (emphasis added);
Bernard, 1 La. Ann. at 71 (“[W]e leave the property where the
dishonest acts of the party have placed it. Whoever claims it
hereafter, must come before us with clean hands.”) (emphasis
added).
21
See Poole, 262 So. 2d at 345 (noting that the defense of
unclean hands is a “[limitation] to the remedy of equity recognized
in common-law jurisdictions, based on the historical use in them of
injunctions by the chancery court where the damage-remedy in the
regular courts was inadequate”); Terrebonne Parish Police Jury v.
Kelly, 428 So. 2d 1092, 1093 (La. Ct. App. 1983) (“The doctrine of
‘clean hands’ is an equity principle that requires that ‘he who
comes into a court of equity must come with clean hands.’”)
(quoting City of New Orleans v. Levy, 98 So. 2d 210, 218
(La. 1957)).
22
LA. CIV. CODE ANN. art. 2033 (West 1987).
14
Inasmuch as simulated transfers designed to defraud creditors are
absolute nullities,23 Article 2033 codifies the line of cases relied
on by Parker for his “unclean hands” defense.24
Davis attacks the applicability of Article 2033 here on the
ground that simulated transfers are not, in fact, absolute
nullities. He argues that Parker may not avail himself of
Louisiana’s extant version of the unclean hands doctrine because
agreements in fraud of creditors produce only relative nullities.25
Davis maintains that, as a matter of statutory construction,
transactions that prejudice creditors by transferring assets to
third persons cannot be “absolutely null” because the Civil Code
provides defrauded creditors with specific remedies —— the
revocatory action for cases of actual transfers to third parties;
23
See LA. CIV. CODE ANN. art. 2030 (West 1987) (“A contract is
absolutely null when it violates a rule of public order, as when
the object of a contract is illicit or immoral.”); Succession of
Webre, 172 So. 2d 285, 288 (La. 1965) (“Since the property has
never left the patrimony of the ostensible seller, a simulated sale
is an absolute nullity.”); Spearman, 99 So. 2d at 33 (noting that
agreements designed to hide property from creditors to prevent its
seizure are contra bonos mores and unenforceable); Gast v. Gast, 19
So. 2d 138, 140 (La. 1944) (“[A fraudulent simulation] is not in
reality a contract; it is a mere pretense, a sham, a disguise, the
purpose of which is to defeat the rights of creditors with respect
to the debtor’s property; it is an absolute nullity.”).
24
See LA. CIV. CODE ANN. art. 2033, cmt. (a) (West 1987).
25
See LA. CIV. CODE ANN. art. 2031 (West 1987) (“A contract is
relatively null when it violates a rule intended for the
protection of private parties, as when a party lacked capacity or
did not give free consent at the time the contract was made.”).
15
the action to declare a simulation for cases of feigned transfers.26
The Code’s specific provision of a remedy for feigned transfers
would be mere surplusage, argues Davis, if fraudulent transactions
produced absolute nullities: Any creditor would already have
standing —— by virtue of such transaction’s absolute nullity27 ——
to have the court declare the transaction null.
Davis’s argument would appear unmeritorious in light of the
pronouncements of the Supreme Court of Louisiana in Gast v. Gast.28
We need not, however, decide whether the interplay among some
modern provisions of the Code affects the enforceability of
26
See LA. CIV. CODE ANN. arts. 2025, 2036 (West 1987).
27
See LA. CIV. CODE ANN. art. 2033 (West 1987) (“Absolute nullity
may be invoked by any person. . . .”).
28
The Gast court noted that feigned transfers in fraud of
creditors are absolute nullities, notwithstanding the co-existence
of the declaration of simulation remedy:
[T]here is a vast and clear distinction
between a fraudulent simulation and a real
contract made in fraud of creditors. The
former is not in reality a contract; it is a
mere pretense, a sham, a disguise, the purpose
of which is to defeat the rights of creditors
with respect to the debtor’s property; it is
an absolute nullity. The creditor may
disregard the fraudulent simulation entirely
and seize the affected property under
execution, or he may resort to the action en
declaration de simulation. But a real
contract, although fraudulently entered into,
cannot be so disregarded by the creditors. No
matter how fraudulent, it must be set aside by
a judgment; and for this purpose the
revocatory action is provided.
Gast, 19 So. 2d at 140 (emphasis added) (citations omitted).
16
simulated transfers as between the parties to such agreements, for
we conclude that Parker’s unclean hands defense fails on other
Article 2033 grounds.
By its terms, Article 2033 does not bar recovery unless —— in
addition to the absolute nullity prerequisite —— (1) the party
seeking enforcement entered into the agreement with knowledge of
its improper nature, and (2) the parties achieved their improper
objective.29 In its verdict, the jury found that Davis did not
enter into the asset transfer agreement for an unlawful, immoral or
illicit purpose. We cannot say that, in its denial of Parker’s
alternative motion for j.m.l. or new trial, the district court’s
implicit determination that the jury’s conclusion is not against
the great weight of the evidence constitutes an abuse of
discretion, which would require reversal and the grant of a new
trial. Neither can we say that the evidence points so strongly in
favor of a scienter finding against Davis that reasonable jurors
29
See supra note 22 and accompanying text. Contrary to
Parker’s assertions otherwise, Article 2033 does not appear to have
altered the Civil Law’s pre-codification treatment of unlawful
contracts; scienter and successful attainment existed as
prerequisites to barring recovery before Article 2033 was enacted.
See LA. CIV. CODE ANN. art. 2033, cmts. (a), (d) & (e) (West 1987);
Gravier’s Curator, 17 La. at 127 (“By the Roman law right to
recover back what had been paid on an illicit contract depended
upon the question which of the parties was dishonest or whether
both were chargeable with the same turpitude. If the party who had
received were alone dishonest the sum paid could be recovered back
even though the purpose for which it was given had been
accomplished.”) (emphasis added); Id. at 127-128 (“These principles
apply in cases where the corrupt or reprobated contract has had its
effect . . . .”) (emphasis added).
17
would have to conclude that he knew of the illicit purpose of the
transfer, which would require reversal and the grant of a j.m.l.
As evidence that Davis’s motive for executing the asset
transfer agreement was to hide his Campbell Wells interest from his
creditors, Parker relies on Davis’s intentional failure to (1) list
his Campbell Wells interests on financial statements submitted to
creditors, including the IRS, the FDIC, and Guaranty Bank; (2)
report his beneficial interest in Campbell Wells on his 1986-1994
tax returns;30 and (3) disclose his Campbell Wells interests during
debt reduction negotiations with a number of his creditors.31
The district court, however, found sufficient support for the
jury’s verdict in the evidence that Parker initiated the asset
transfer scheme, inducing Davis to divest his interests in Campbell
Wells based on the Parker-generated specter of a potential judgment
creditor’s attempting to seize that interest. According to Davis’s
testimony, Parker, in his capacity as attorney for Davis,
accompanied him to a meeting called by the general partner of
Preferred Properties, a real estate development company in which
30
Davis reported substantially diminished or negative taxable
income on these returns, as well as creditor forgiveness of
substantial debt obligations that he was unable to meet. Parker
contends that had Davis disclosed his Campbell Wells interest in
the insolvency calculations he used to avoid the payment of taxes
on phantom income from the forgiveness of debt, his tax liability
would have been different.
31
This nondisclosure, urges Parker, gave Davis greater leverage
with which to negotiate favorable settlements and enabled him to
persuade the FDIC to abandon the prosecution of a $3 million
collection suit.
18
Davis had invested. Preferred Properties had borrowed heavily to
finance one of its projects, but the project failed to produce
enough cash flow to service its debt obligations. At the meeting,
investors were asked to make supplemental contributions sufficient
to service the loan that was secured by a mortgage on the company’s
property. Several partners announced that they were filing for
bankruptcy and thus would not be able to make any contributions
toward the partnership’s obligations. When Davis —— whose own
financial situation was deteriorating —— indicated that he too
would be unable to contribute, one of the partners became upset and
openly hostile towards the other members of the investment group
and Davis in particular.
Davis testified that after the meeting Parker advised him that
the disgruntled partner could try to seize Davis’s assets,
depriving him of resources with which to pay his other creditors.
At the time, Davis’s interests in Campbell Wells was the only one
of his business holdings that had a significant value; the company
was netting approximately $100,000 per month. Davis averred that
Parker offered to take title to Davis’s stock and apply Davis’s
share of the company’s revenues towards their substantial mutual
debt.32 In this way, rather than losing his sole income-generating
asset to one anxious creditor, Davis would retain the possibility
32
Parker and Davis, as business partners, owed —— in addition
to their Campbell Wells indebtedness —— some 2.6 million dollars in
joint indebtednesses on various investments.
19
of recovering from his financial straits by satisfying most, if not
all, of his creditors. As such, stated Davis, his purpose in
entering the asset transfer agreement was to pay his creditors, not
to defraud them. The jury obviously believed him; whether we or
the trial judge would have is of no moment.
Parker admitted at trial, via impeachment, that the asset
transfer agreement was discussed in these terms, but denied that
the agreement was ultimately confected for the purpose of
preserving the stock’s income-generating potential for Davis.
Instead, testified Parker, the two settled on an outright exchange
—— Davis transferred his interests to Parker in full ownership, and
Parker assumed Davis’s proportionate share of the debts incurred in
the Campbell Wells acquisition. Parker would not deny, however,
that he originally approached Davis with the asset transfer
proposal, not vice versa; and conceded that both parties understood
that any proceeds from the transferred assets were to be applied to
their joint debt.
Davis posits that Parker’s version of the nature of their
agreement is implausible because Davis was never concerned that he
might be called on to meet his own obligations as guarantor on the
loans with which the Campbell Wells acquisition had been financed:
The company was making more money than it needed to service its
notes, so Davis had no incentive to trade his interests for the
assumption of his share of the company’s debt by Parker. It
appeared quite likely to all concerned that those debts would be
20
timely and fully satisfied out of the company’s earnings, and
unlikely that, even if there were a default, a foreclosure sale
would not produce sufficient proceeds to cover the debts and thus
make unnecessary the payment of deficiencies by the shareholders
under their personal guaranties. Indeed, Davis saw the venture’s
profitability as a means of satisfying the debts he had incurred on
other ventures as well.33
In addition to the evidence of Parker’s inducement, the
district court, in refusing to render a j.m.l., relied on the fact
that Parker had represented Davis in a legal capacity throughout
the attempted work-out of Davis’s debts. His ex-wife, Jeanne
Davis, apparently handled all the paper work associated with her
husband’s finances. She testified that in connection with the
work-out of Davis’s bank debt,34 Guaranty Bank had given her a blank
form to use in furnishing information on Davis’s financial
33
Parker contested Davis’s characterization of his Campbell
Wells stock. At trial, Parker referred to the investment as a
“touch and go” concern, the success of which was far from certain.
The jury was presented with ample evidence to the contrary: The
financial statements for Campbell Wells indicated that, prior to
its acquisition, the company had approximately $500,000 in accounts
receivable and cash, and was netting approximately $90,000 per
month in earnings; Parker responded affirmatively when asked
whether the company was well on its way to success when the
Campbell Wells deal was closed; six weeks after the purchase, the
financial statements reflected shareholder equity in the amount of
$1,101,554; the pro forma submitted to Guaranty Bank in conjunction
with the loan application projected $2,390,000 in profit for the
first full year of operation following the company’s purchase; and
its five-year projection totaled $21,511,000 in profit.
34
Davis had obtained loans from the bank to finance several
ventures that ultimately failed.
21
condition. She further testified that when she asked Parker
whether the Campbell Wells interest should be included on the
bank’s financial statement form under the heading “assets held in
trust,” Parker instructed her to discard the bank’s form and gave
her an alternative form that did not contain a similar entry space.
She stated that Parker advised her that Davis’s Campbell Wells
interests need not be included on the substituted form as the stock
was not in Davis’s name and there “was nothing in writing.”
Ms. Davis also testified that she considered Parker’s
instruction to be legal advice, and that she felt safe in assuming
that Parker would give her sound advice inasmuch as he was also an
attorney for Guaranty Bank —— the institution to which the
financial statement was to be submitted. Mr. Davis testified that
he ratified the decision to omit his interests from the statement
for the same reasons.
Based on the testimony adduced at trial, the jury could
reasonably have concluded that Davis relied on Parker’s counsel ——
legal, business, and personal —— for the legitimacy of their mutual
actions. In the light most favorable to the verdict, the evidence
supports the conclusion that Parker’s advice was born out of his
own self-interest —— keeping outsiders from becoming involved in
the Campbell Wells venture, if nothing else —— and that he
manipulated Davis to further that self-interest.35 In
35
According to Davis’s testimony, Parker took advantage of
their mutual trust in dictating the nature of and circumstances
22
surrounding their transaction:
Q: What confidence did you have in Mr. Parker as your attorney
when you transferred your Campbell Wells interest to him on
February 3rd, 1986?
* * *
A: I had complete confidence in Mr. Parker.
Q: And how was that confidence built over the years?
A: It was built through trust, through business relationships,
through conversations, through social activities, through things we
did together and through practices that —— things that we
discussed, and I think that Mr. Parker, as far as I was concerned
at the time, was an extremely competent attorney.
* * *
Q: Okay. What discussions did you have with Mr. Parker about
having a writing in the side so that you could show later on that
he was holding the shares for you to be returned?
A: Are you talking about a counter letter?
Q: A counter letter.
A: Well, I asked Mr. Parker about that, and he says, no, there’s
no way that we can do a counter letter.
* * *
Q: The [Act of Cash Sale & Assumption] says that Mr. Parker
assumed your obligations at Guaranty Bank, is that right?
A: Yes, sir.
Q: And you said earlier that there was no discussion about a
release of yourself from the Guaranty Bank obligation pertaining to
Campbell Wells. What discussion was ever had that he was going to
assume your obligations at the bank?
A: No discussion of that at all.
Q: And would you state whether you ever read from the document?
23
A: No, sir. I trusted Mr. Parker. I went in, I signed the
document and I left.
Q: And would you state whether Mr. Parker ever sent you a copy of
that document until this lawsuit was filed?
A: No, sir, he did not.
Q: Okay. Would you state why you didn’t read the document?
A: Well, because Mr. Parker, I thought, was looking out for my
best interest. I had a lot of confidence in him, and we had made
this agreement on what we were going to do, and I just didn’t feel
like it was necessary that I had to read it.
Q: Reference is made in that document to a thousand dollar cash
payment. Would you state whether any amount of money was paid to
you?
A: Did he pay me anything?
Q: Yes.
A: No, absolutely not.
Q: What conversations, if any, did Mr. Parker ever make as to
what the contents of that document were?
A: Nothing. We never discussed it.
Q: Okay. What comments did Mr. Parker make to you regarding any
adverse interest or conflict of interest that he would have
preparing this as your attorney and asking you to sign it?
A: He never discussed that with me at all.
Q: What conversation did Mr. Parker have with you about the
disadvantage or any consequences that might result if you signed
this document without a counter letter?
A: We never discussed that situation at all.
Q: What statements, if any, did he make to you, and I’m speaking
of Mr. Parker, that it might not be in your best interest to sign
this document?
A: He never informed me anything like that.
24
addition, the jury was presented with evidence that, during the
time that his Campbell Wells stock was held in Parker’s name, Davis
paid off some of his debts with assets that were exempt from
seizure.36 From the fact that Davis took measures beyond those
mandated by the law to resolve his indebtednesses, the jury could
Q: What advice did Mr. Parker give you that you should hire
another attorney to review this document before you signed it?
A: Mr. Parker never advised me that I should even think about
getting another attorney or get another attorney, and if he had
been advising me to get another attorney, then I would not probably
have signed this document at all.
In addition, circumstantial evidence of Parker’s true motive
is found in the actions he took following the execution of the Act
of Cash Sale & Assumption. Under the written agreement, Parker
only assumed Davis’s proportionate share of the Campbell Wells
debt; i.e., Davis remained personally liable to Guaranty Bank and
the Campbells but, by virtue of the assumption, Parker became
liable to Davis for any creditor judgment against him on the notes.
Shortly after the assumption, however, Parker —— who was also
Guaranty Bank’s attorney —— acted within the bank to have Davis
released from his liability on the Campbell Wells loan. Davis
testified that Parker never discussed the possibility of obtaining
a release with him, and that he only mentioned it in passing after
the fact.
This move is telling in light of the fact that Guaranty Bank
included a cross-collateralization provision in its loan
instruments. Under that provision, the bank was entitled to
execute on the collateral put up for any loan that the debtor had
with the bank should the debtor default on a given loan. The jury
reasonably could have inferred from Parker’s actions that his true
concern was with preventing creditors from seizing Davis’s Campbell
Wells interest and interfering with the venture inasmuch as
(a) Davis had multiple loans with Guaranty Bank that were in danger
of going into default, and (b) Parker took no comparable action
with respect to Davis’s liability on the Campbells’ promissory
note.
36
Ms. Davis testified that she and her husband paid creditors
with the equity (approximately $200,000) in their retirement fund
and life insurance policies. Davis also sold his home in Texas to
satisfy a tax lien that the IRS had placed on the house.
25
reasonably have inferred that he did not enter the asset transfer
agreement with the intent to defraud creditors. It follows that
the district court did not err reversibly in refusing to grant
Parker a j.m.l. on the basis of his unclean hands defense.
C. ENFORCEMENT OF ORAL AGREEMENT
In its answer to the first interrogatory, the jury found that
the Act of Cash Sale & Assumption in and of itself was not a valid
contract expressing the true intent of the parties; rather, it was
a simulation. The jury further determined that Davis was operating
under an error about the nature and terms of that contract and
would not have entered it had he been aware of his error; and that
Parker induced Davis to enter that contract through fraud. The
jury concluded nonetheless that a contract (written transfer of
title combined with oral obligation to retransfer) did exist
between the parties —— a contract whereby Parker agreed to hold and
return Davis’s Campbell Wells stock —— which Parker breached when
he refused to return the stock to Davis.
In addition to his claim of unenforceability grounded in the
unclean hands doctrine, Parker contends that even if such an oral
retransfer agreement existed, it is not enforceable under Louisiana
law because it is vague.37 Also, Parker insinuates that admitting
37
Parker relies on Conkling v. Turner, 18 F.3d 1285, 1301-03
(5th Cir. 1994)(alleged oral contract for stock redemption failed
for lack of a definite price), in making this contention. He
insists that the alleged agreement is vague in that Davis provided
no testimony about the details of this purported agreement and did
not specify whether Parker was entitled to any compensation for
26
oral testimony to prove the retransfer provision violated
Louisiana’s specific statute of frauds for sales of securities as
it stood at all pertinent times.38
Regarding vagueness, Parker urges that an agreement under
which he would simply “hold” the stock “in trust” for an
unspecified time and return it to Davis on request is too vague to
be enforceable. Regarding enforcement of an oral agreement to sell
allegedly “holding” the stock. Parker further comments that there
was no agreement as to the payment of taxes, distribution of
dividends, liability for debts, or the consequences of bankruptcy,
should it occur.
38
See LA. REV. STAT. ANN. § 10:8-319 (West 1993)(stating that a
contract for the sale of securities is not enforceable unless there
is some signed writing), repealed by Acts 1995, No. 884, § 1, eff.
Jan. 1, 1996; see also Levinson v. Charbonnet, 977 F.2d 930 (5th
Cir. 1992)(refusing to enforce oral agreement to sell stock);
Morris v. People’s Bank & Trust Co. of Natchitoches, 580 So. 2d
1037 (La. Ct. App. 1991)(applying statute of frauds to private
agreement to buy bank stock). As a preliminary matter, we observe
that this court has applied section 8-319 to oral agreements to
sell stock. Charbonnet, 977 F.2d at 932-33. In that case, we
commented that there appeared to be some “confusion in the
Louisiana case law concerning whether R.S. 10:8-319 modifies or
restricts the Louisiana Civil Code provisions that provide for the
enforceability of oral agreements to buy and sell corporeal and
incorporeal moveables,” as three Louisiana courts of appeal
decisions, relying on the Civil Code, had validated oral agreements
for the sale of securities. As those cases failed to mention
section 8-319, we determined that they did not intend to undermine
its validity. We further noted that another Louisiana court of
appeal affirmed the validity of section 8-319 and reconciled any
apparent conflicts between the Civil Code and that provision. We
concluded that the Louisiana Supreme Court would uphold the
validity of section 8-319, were it presented with the Charbonnet
case. Id. We observe in passing that section 8-319 has been
repealed and a sale or purchase of securities no longer requires a
writing in the traditional sense. Section 8-113 now provides: “A
contract or modification of a contract for the sale or purchase of
a security is enforceable whether or not there is a writing signed
. . . .” LA. REV. STAT. ANN. § 10:8-113 (West Supp. 1998).
27
stock, Parker argues —— in anticipation of Davis’s contention that
the contract was not a “sale” and therefore does not fall within
the coverage of the statute of frauds —— that the contract cannot
stand as anything other than a sale. In any event, continues
Parker, if it was not a sale, it had to be either a gratuitous
donation or a trust. In either case, contends Parker, the district
court erred when it entered judgment on the jury’s verdict, as the
agreement was neither in authentic form as required for a valid
gratuitous donation,39 nor in a form required by the applicable
provisions of the Louisiana Trust Code for the creation of a
trust.40
As Parker anticipated, Davis countered that the statute of
frauds for securities is inapplicable, as it proscribes oral
agreements to sell securities, not oral agreements to hold and
return them. Davis maintains that the jury rejected Parker’s
contention that the transaction was intended to be a sale, finding
instead that a contract existed “whereby Parker agreed to hold and
return Campbell Wells stock to Davis.” Davis insists that, as the
39
See LA. CIV. CODE ANN. arts. 1523, 1536 (West 1987). See also
LA. CIV. CODE ANN. art. 1539 (stating that manual gifts are not
subject to any formalities). Although the authentic act is not
required for gratuitous transfers of corporeal movables, shares of
stock have been held to be incorporeal movables and thus
insusceptible of being donated manually. See, e.g., Primeaux v.
Libersat, 322 So. 2d 147 (La. 1988) (citing Succession of McGuire,
151 La. 514, 92 So. 40 (La. 1922), and Succession of Sinnot v.
Hibernia Nat’l Bank, 105 La. 205, 30 So. 233 (La. 1901)).
40
See LA. REV. STAT. ANN. § 9:1752 (West 1991).
28
transaction was not a sale, it was an “innominate contract” in
which, for the consideration of Parker’s attempting to discharge a
joint indebtedness, Davis agreed to place the stock in Parker’s
name for his use in discharging debt, after which Parker would
return the stock to Davis. Moreover, continues Davis, as no price
was contemplated in either of the two steps of the transaction, it
could not be a sale.
Davis continues by arguing that the agreement is neither a
gratuitous donation nor a trust. He concedes that in his testimony
he used the phrase “in trust” to describe the nature of Parker’s
precarious possession, but explains that he used those words in the
non-technical sense and that it was never his contention that
either a formal or constructive trust relationship had been
created. Davis acknowledges that the stock was placed in Parker’s
name intentionally, but insists that the stock thus transferred
remained subject to Parker’s obligation to return it to Davis at a
future date. Neither was the agreement a gratuitous donation,
continues Davis, as it transferred the stock to Parker for the
purpose of facilitating his management of Davis’s affairs with his
creditors and to prevent Davis’s stock from finding its way into
the hands of third parties who might interfere with the original
foursome’s unfettered control of Campbell Wells. And, of course,
Davis disputes Parker’s contention that the oral agreement was too
vague to be enforceable.
29
Finally, Davis advances that even if the statute of frauds
were applicable to prevent enforcement of the oral retransfer
aspect of the agreement, any error with regard to the jury’s
finding of breach of contract is harmless and does not require that
the judgment in Davis’s favor be reversed. This is so, he posits,
because his case was submitted to the jury on multiple alternative
theories of recovery —— breach of contract, breach of fiduciary
duty, detrimental reliance, and fraud41 —— each of which was
addressed in special interrogatories. With the exception of
detrimental reliance, the jury found for Davis on each alternative
theory submitted. (The jury failed to reach detrimental reliance
because its affirmative finding on the existence of a contract
mooted the detrimental reliance issue.)
We conclude that the jury’s determination that the written
asset transfer agreement was a simulation —— a contract which, by
mutual agreement, does not express the true intent of the parties
inter se —— is supported by the evidence apparently credited by the
41
In instructing the jury on the law applicable to the case,
the court stated that “the plaintiff, William Davis, has asserted
four separate causes of action against the defendant, Ernest
Parker; breach of contract, breach of fiduciary duty, detrimental
reliance and fraud.” In addressing the breach of contract claim,
the court explained that “[c]onsent may be invalidated by error,
fraud or duress.” The court continued, “Davis asserts error
existed as to the principal cause of the contract in this case . .
. .” Later, when addressing the fraud claim, the court noted that
“[c]onsent to a contract can also be destroyed by fraud or
misrepresentation.”
30
jury.42 This is the legal and factual essence of Davis’s position,
regardless of whether he has advanced it crisply or artfully, when
he continually insists that the agreement he entered into with
Parker was not a sale but rather an arrangement whereby Parker was
to hold and later return the stock to him. Davis maintains, quite
simply, that he remained the true owner of the stock despite the
transfer of legal title pursuant to the written agreement confected
between the parties to the contrary.
“[A] transaction will not be set aside as a simulation if any
consideration supports the transaction because the reality of the
transference is thus established.”43 In his appellate brief, Davis
asserts that “no sale was contemplated, but a transfer, the
consideration for which was not a price but the management of the
42
See LA. CIV. CODE ANN. art. 2025 (West 1987); Fritscher v.
Justice, 472 So. 2d 105, 107 (La. Ct. App. 1985) (“A simulation is
a feigned or pretended sale clothed with the formalities of a valid
sale.”); see also Thompson v. Woods, 525 So. 2d 174, 178 (La. Ct.
App. 1988) (“In order to determine whether or not a sale is
simulated the court must determine whether the parties acted in
good faith, whether there was an actual intention to transfer
property, and whether any consideration was given for the
transfer.”); Peacock v. Peacock, 674 So. 2d 1030, 1033-34 (La. Ct.
App. 1996) (“Two legal presumptions, one codal and one
jurisprudential, apply in situations where a party seeks to prove
a simulation . . . . The jurisprudential presumption of simulation
applies where the evidence establishes the existence of facts and
circumstances which create a highly reasonable doubt as to the
reality of the putative sale . . . . When either codal or
jurisprudential presumption exist, the burden of proof shifts to
the other party to the sale who may rebut the presumption by
establishing a good faith transaction, resulting in a true
alienation of ownership for consideration.”).
43
Trident Oil & Gas v. John O. Clay Expl. Inc., 622 So. 2d
1191, 1193 (La. Ct. App. 1993).
31
asset for the benefit of the joint creditors of the parties.” What
Davis may have thought of subjectively as consideration does not
matter; the issue is whether consideration was present as a matter
of law. We conclude that it was not.
Neither the release of Davis from the Campbell Wells
obligation at the Guaranty Bank nor the stipulation in the asset
transfer agreement providing for a $1000 payment to Davis alters
our view. Davis testified that he and Parker had no discussions
before or at the time of the transfer regarding any wish by Davis
to be released from the Guaranty Bank note.44 Parker’s testimony
did not refute this; indeed, as he testified, the document itself
does not call for him to obtain Davis’s release from either the
Guaranty Bank debt or the Campbell debt, much less expressly bind
Parker to have Davis released. Parker further testified that
(1) he did not think that Davis would have a right to force him to
have Davis released from those debts; (2) he never told Davis that
the document was tantamount to a release on the two debts; and
(3) he had never stated to anyone else that Davis wanted to be
released from the debt at Guaranty Bank. The fact is that Davis
remained liable on the obligation to the Campbells until the
Sanifill merger and never complained.45
44
Davis also testified that he and Parker had no discussions
regarding Parker’s “assuming” Davis’s obligations at Guaranty Bank,
as provided for in the agreement.
45
Parker does take the position, however, that he had “assumed”
responsibility for the loan, and as such, Davis had rights against
32
As for the $1000, Davis testified that he was not paid any
money. Parker himself testified that the $1000 was “not what the
deal was about;” rather, “it was put in there . . . so there’s not
a property title question on the face of the document.”46 On cross
examination, one of Davis’s trial attorneys inquired “let’s get
back to the case at hand that we’re in court on . . . . [A]nd that
is, the thousand dollars was not paid for the --.” Parker
responded, “It may not have been. I don’t -- probably not.”
Clearly, between the parties neither release from debt nor payment
of the cash consideration was ever contemplated. This is wholly
consistent with simulation.
In opposing enforcement of the agreement to retransfer the
stock, Parker implicitly challenges the propriety of allowing Davis
to introduce parol evidence and thereby vary the terms of the
written Act of Cash Sale & Assumption. Louisiana Civil Code
Article 1848 provides:
Testimonial or other evidence may not be admitted to
negate or vary the contents of an authentic act or an act
under private signature. Nevertheless, in the interest
of justice, that evidence may be admitted to prove such
circumstances as a vice of consent, or a simulation, or
to prove that the written act was modified by a
him.
46
A curious explanation for a Louisiana lawyer —— presumably
referring to anachronistic jurisprudence on “serious consideration”
—— given that the immovable property in question was at all
relevant times owned by either the corporation or the partnership
and was never the object of a direct sale from Davis to Parker; and
movable property is not subject to the laws of registry.
33
subsequent and valid oral agreement.47
The nature of the simulation —— absolute or relative —— may
determine whether the parties to the simulated act, or only third
parties, may introduce such evidence.48 A simulation is absolute
when the parties intend for their act to produce no effects
whatsoever between them;49 it is relative when the parties intend
for their act to produce some effects between them, even though
such effects are not identical to those recited in their act.50 A
relative simulation produces the effects that the parties intend if
all requirements for those effects have been met.51 In the case of
an absolute simulation, however, “the apparent transferor may not
succeed in attacking [it] in the absence of a [written]
counterletter.”52
47
LA. CIV. CODE ANN. art. 1848 (West 1987).
48
Id. cmt. (c).
49
LA. CIV. CODE ANN. art. 2026 (West 1987).
50
LA. CIV. CODE ANN. art. 2027 (West 1987).
51
Id.52
LA. CIV. CODE ANN. art. 2026 cmt. b (citing Thomas B. Lemann,
Some Aspects of Simulation in France and Louisiana, 29 TUL. L. REV.
22, 30-31 (1954)); see also SAÚL LITVINOFF, 5 LOUISIANA CIVIL LAW TREATISE,
THE LAW OF OBLIGATIONS § 12.97, at 399-400 (West 1992)(“[R]egarding the
use of testimonial proof as evidence of a simulation, the
restrictions that remain concern only the parties to the
simulation, as third persons may avail themselves of that kind of
evidence to prove a simulation adverse to their interest.”) (citing
Hampton v. Rubicon Chems., Inc., 436 So. 2d 1254 (La. Ct. App.
1983), rev’d and remanded on other grounds, 458 So. 2d 1260 (La.
1984)) and In re Hacket, 4 Rob. 290 (La. 1843)). The court in
Hampton stated that “the parol evidence rule applies only to
34
Clearly, if the written agreement between Davis and Parker was
a simulation it was relative. They intended for their act to
produce some effects between them, and it did: The Campbell Wells
stock theretofore registered to Davis was re-issued to Parker.53
As such, it cannot be said that they intended that their written
act have “no effect.” But the jury credited Davis’s contention
that the transfer of the stock was only the first of two steps in
this transaction, not the sole step. The second step was to be the
return of the stock to Davis, reversing the effect of the first
step, yet still not producing a “no effect” agreement. The
district court, then, did not abuse its discretion in allowing
Davis to introduce parol evidence to prove that the asset transfer
agreement was indeed a simulation.54
But even if this were not the case, the parol evidence at
actions between the parties to the contract and their privies, not
to actions between parties and third persons.” Id. at 1260.
53
Davis states in his appellate brief that he never contended
that Parker’s acquisition of the stock was not real or that the
transaction was a mere sham; rather, Davis advances that Parker did
acquire the stock, but subject to the obligation to reconvey it to
Davis in the future. Moreover, Davis testified that “we discussed
that a little bit . . . that he [Parker] would have the controlling
interest in the company and access to some resources . . . if this
is a worst comes to worst situation, he could pay him and I’s notes
with.” Davis also testified that Parker said, “Bill, you can have
it [Campbell Wells stock] back any time you want. I’ll give it
back to you.”
54
See LITVINOFF, supra, § 12.97, at 398 (“When the act contained
in a written instrument is a relative simulation, that is, when the
parties intend that their act shall produce between them effects
different from those recited in the instrument, testimonial proof
is admissible to prove their true intent.”).
35
issue would be admissible, as Davis also sought rescission of the
agreement based on two vices of consent —— error and fraud.55 Civil
Code Article 1848 makes clear that testimonial evidence is properly
admissible on questions of vice of consent.56
In the instant case, simulation and consent to permanent
ownership by Parker are opposite sides of the same coin. The
effect that the simulated transfer was to produce is not critical.
Had it been intended to produce a trust, technical problems would
have arisen, as Louisiana does not recognize a constructive trust,57
and the written agreement clearly did not establish an express
trust. In like manner, the relationship intended by the parties
may have been correctly characterized as mandate, with Parker
acting as Davis’s agent or mandatary, as the district court appears
55
See LA. CIV. CODE ANN. art. 1948 (West 1987)(“Consent may be
vitiated by error, fraud, or duress.”).
56
LA. CIV. CODE ANN. art. 1848 (West 1987); see also Sonnier v.
Boudreaux, 673 So. 2d 713, 718 (La. Ct. App. 1996)(“Although parol
evidence is generally not admissible to vary or contradict the
clear and unambiguous terms of an authentic act or written
instrument, in the interest of justice, it may be admitted to prove
a vice of consent.”); Smith v. Remodeling Serv., Inc., 648 So. 2d
995 (La. Ct. App. 1994)(“[A] party to an authentic act who alleges
that the act was executed through fraud, error or mistake may be
permitted to introduce parol evidence to support such
allegations.”)(citing Mitchell v. Clark, 448 So. 2d 681 (La. 1984)
and Billingsley v. Bach Energy Co., 588 So. 2d 786 (La. Ct. App.
1991)).
57
Matter of Oxford Management, Inc., 4 F.3d 1329, 1336 (5th
Cir. 1993); Marple v. Kurzweg, 902 F.2d 397, 399 (5th Cir. 1990).
36
to have construed it.58 Alternatively, Davis’s delivery of his
stock to Parker might properly be characterized as a deposit.59 Or
together, the written-and-oral agreement might have created an
innominate relationship that provided for Davis to “park” his stock
with Parker for an indefinite —— but not permanent —— period and to
reacquire it later.
Our exhaustive (and exhausting) review of the extensive trial
record does not yield a single, precise Civil Law label for the
relationship created between Davis and Parker. Plainly, however,
the jury credited Davis’s evidence, which supports the existence of
58
A mandate is “an act by which one person gives power to
another to transact for him and in his name . . . .” LA. CIV. CODE
ANN. art. 2985 (West 1994), revised by Acts 1997, No. 261, § 1, eff.
Jan. 1, 1998. La. Civ. Code Article 2989 now provides that “[a]
mandate is a contract by which a person, the principal, confers
authority on another person, the mandatary, to transact one or more
affairs for the principal.” LA. CIV. CODE ANN. art. 2989 (West Supp.
1998). Significantly, a mandate (1) may be established by an oral
or written agreement between the parties; (2) is gratuitous in
nature, unless there is a contrary agreement; (3) may be revoked by
the principal whenever he thinks it proper; and (4) binds the
mandatary “to restore to his principal whatever he has received by
virtue of his procuration.” LA. CIV. CODE ANN. arts. 2991, 2992,
3005, 3028 (West 1994) (revised 1997). In denying Parker’s motion
to dismiss and/or motion for summary judgment on the breach of
contract claim, the district court addressed the possibility of a
mandate. Record on Appeal, vol. 31, pgs. 12-29.
59
“A deposit, in general, is an act by which a person receives
the property of another, binding himself to preserve it and return
it in kind.” LA. CIV. CODE ANN. art. 2926 (West 1994). Deposit is
essentially a gratuitous contract, involving the delivery of
movable property, which is created by the parties’ mutual consent,
whether actual or implied. See LA. CIV. CODE ANN. arts. 2928, 2929,
2930, 2932, 2933 (West 1994). Finally, “[t]he deposit must be
restored to the depositor as soon as he demands it . . . .” LA.
CIV. CODE ANN. art. 2955 (West 1994).
37
a relative simulation consisting of an oral stipulation sufficient
to vary the terms of the written agreement and prohibit full
ownership of the stock from ever passing from Davis to Parker.
Irrespective of the name by which this “rose” is called, though,
the jury was convinced that it included an obligation by Parker to
return the stock to Davis. Moreover, as the jury also found,
Parker’s failure to return the stock constituted a breach of that
obligation. We conclude that the jury’s findings regarding the
existence of an oral covenant to retransfer the stock was neither
unreasonable nor against the great weight of the evidence.
The written agreement could correctly be viewed as a
simulation, with the true relationship involving a return of the
stock, as the jury viewed it. Davis thus properly brings this
action for breach of contract, seeking the return of his stock.
This is truly no different in effect than seeking rescission of the
written contract, either because of the simulation or because error
or fraud vitiated Davis’s consent. Stated differently, it is
immaterial whether the relationship confected was a mandate, a
deposit, or an innominate contract, for the result is the same:
Each of these roads lead to Rome. Accordingly, the arrangement is
not unenforceable so the district court did not commit reversible
error in admitting the parol evidence or in denying Parker’s motion
for j.m.l. or new trial on this issue.
D. PRESCRIPTION
38
This case came before us in Parker I as an appeal from a grant
of summary judgment in favor of Parker: The district court had
dismissed Davis’s suit as time-barred under Louisiana’s one-year
prescriptive period for legal malpractice actions.60 In reversing
and remanding, we held that (1) Davis’s claims for rescission,
breach of contract, and detrimental reliance do not come within the
ambit of section 5605(A)’s provisions because they are not actions
predicated on traditional legal malpractice, i.e., they do not
concern the quality of legal representation; and (2) although, in
a sense Davis’s nullity claim does concern the quality of legal
representation, it is not covered by the statute as the language of
section 5605(A) limits the prescriptive period’s application to
“action[s] for damages” and the objective of a nullity action is
ordinarily restoration in kind.61
Parker entreats us to revisit the prescription issue. He
argues that, as a result of the manner in which Davis tried his
case against Parker on remand, we are not bound by the law of the
case doctrine.62 Parker notes that Davis escaped dismissal in
60
LA. REV. STAT. ANN. § 9:5605 (West 1990). This is the version
of section 5605 in effect at the time Davis filed his suit against
Parker. The statute has subsequently been amended. See
LA. REV. STAT. ANN. § 9:5605 (West 1998).
61
Parker I, 58 F.3d at 188-90.
62
Reid v. Rolling Fork Pub. Util. Dist., 979 F.2d 1084, 1086
(5th Cir. 1992) (“The decision of a legal issue by an appellate
court establishes the ‘law of the case’ and must be followed in all
subsequent proceedings in the same case at both the trial and
appellate levels unless the evidence at a subsequent trial was
39
Parker I by drawing a “fine distinction” between Parker’s status as
a businessman and his status as a lawyer. In other words, Davis
represented that his claims for breach of contract, rescission, and
detrimental reliance turned on Parker’s actions in his capacity as
Davis’s business associate, not as his lawyer. This
representation, urges Parker, led us to conclude in Parker I that
Davis’s claims had not prescribed because they are not traditional
legal malpractice claims. But, contends Parker, having fashioned
his case one way to avoid prescription, Davis proceeded on remand
to paint an entirely different picture for the jury —— in essence,
putting Parker’s status and actions as an attorney on trial. In
support of his argument, Parker cites a number of instances
throughout the trial in which Davis purportedly placed improper
emphasis on Parker’s role as an attorney.
Although he is correct that Parker I hinged on the fact that
Davis’s claims had nothing to do with the quality of legal services
rendered,63 Parker misconstrues that decision insofar as he
substantially different, the controlling authority has since made
a contrary decision of law applicable to such issues, or the
decision was clearly erroneous and would work a manifest
injustice.”) (citing Schexnider v. McDermott Int'l Inc., 868 F.2d
717, 718-19 (5th Cir.), cert. denied, 493 U.S. 851, 110 S. Ct. 150,
107 L. Ed. 2d 108 (1989)).
63
As we stated in Parker I:
Although Parker’s legal advice may have
contributed to Davis’ decision to transfer the
stock to Parker, the stock could have been
transferred to a non-lawyer and the same
actions could have been brought against that
40
interprets it as a general gag order with respect to the subject of
Parker’s legal representation or his status as a lawyer in general
and Davis’s long-time lawyer in particular. The relevance of
Parker’s status as an attorney has never been questioned. The fact
that Parker was Davis’s attorney, as well as his business associate
and trusted friend, was offered to explain how the asset transfer
agreement came into being, and was essential to Davis’s nullity
action: It established the fiduciary duty on which the claim was
predicated.64 The gravamen of Parker’s contention lies in the
ostensibly improper manner in which Davis repeatedly presented
party. That an attorney happens to be the
transferee does not grant him the benefit of a
one-year prescriptive period when a non-lawyer
entering into the same agreement would be
subject to a ten-year prescriptive period.
Davis’ fundamental complaint against Parker on
[his breach of contract, rescission, and
detrimental reliance claims] does not concern
the quality of Parker’s legal services;
rather, Davis complains that Parker reneged on
his promise to retransfer the Campbell Wells
stock to Davis.
Parker I, 58 F.3d at 189.
64
Davis argued at trial that the asset transfer agreement was
entered into in violation of former Disciplinary Rule 5—104(A) of
the Louisiana Code of Professional Responsibility, which provides:
“A lawyer shall not enter into a business transaction with a client
if they have differing interests therein and if the client expects
the lawyer to exercise his professional judgment therein for the
protection of the client, unless the client has consented after
full disclosure.” The Code’s provision applied, notwithstanding
its replacement with the Rules of Professional Conduct, because the
conduct at issue occurred before the Rules’ adoption. See
Louisiana State Bar Ass’n v. Alker, 530 So. 2d 1138, 1139 n.2
(La. 1988).
41
evidence of Parker’s profession, keeping that fact foremost in the
jurors’ minds at all times.
If Parker wished to complain that he was unfairly prejudiced
by the emphasis placed on his status as an attorney, however, it
was incumbent on him to object and request a limiting instruction,65
which he never did. When viewed in context of the jury trial as a
whole, though, Parker’s lament rings hollow. Even though lawyers
as litigants may labor under the disability imposed by the lawyer-
bashing vogue of the times, the fact remains that subjective
qualities of the parties litigant —— age, education,
sophistication, occupation, cultural background, and the like ——
are frequently relevant to the issues of the case. And that is
certainly true of the instant litigation and the kinds of issues
that it presents. We are bound by the law of the case, and we
remain unconvinced that Davis’s claims sound in malpractice.66
65
Fruge v. Penrod Drilling Co., 918 F.2d 1163, 1168 (5th. Cir.
1990) (noting that “[w]here evidence is admissible for one purpose
but not another, the burden is on the objecting party to request a
proper limiting instruction” and that the issue is waived if no
objection is made) (citing FED. R. EVID. 105).
66
Parker also urges us to reconsider section 5605(A)’s
application to Davis’s nullity claim, arguing that the claim was a
facade, given that restoration in kind was never a viable
possibility. This argument was disposed of in Parker I, 58 F.3d at
191 (“Moreover, even if the court ultimately determines that
damages are the only feasible remedy in this case, we are not
persuaded that the Louisiana courts would adopt one prescriptive
period in a nullity action for which restoration in kind is
feasible and a different prescriptive period for a nullity action
for which the court determines that restoration in kind is
impossible.”).
42
E. REBUTTAL TESTIMONY
Parker urged his motion for j.m.l. or new trial, on the
additional ground that the district court reversibly erred in
permitting Davis to call two of Parker’s former clients —— Kathleen
Howard and Kenneth Guilbeau —— as rebuttal witnesses. Howard and
Guilbeau testified to specific actions taken by Parker in the
course of representing them professionally.67 Parker insists that
67
Guilbeau testified that Parker represented him in the
negotiation of the terms under which replacement tenants were to
assume Guilbeau’s then-current tenants’ obligations under a
commercial lease. In the drafting of the new lease, Parker omitted
certain material terms but nonetheless obtained the parties’
signatures by assuring everyone that he would complete the
agreement later.
Howard testified that Parker represented her in divorce
proceedings against her then-husband. According to Howard, she
retained Parker in April 1983, after Randy Prather and “Red”
Dumesnil recommended him. Prather was a loan officer with Guaranty
Bank and Dumesnil was its president. Prather and Dumesnil
requested a meeting with Howard after discovering that she had
filed for legal separation. Her husband was delinquent on a note
that he had given the bank in conjunction with a large loan.
Howard testified that Prather and Dumesnil expressed concern over
how her separation would affect the loan, giving her the impression
that she was responsible for half of her husband’s note. They
arranged for her to meet with Parker even though she already had an
attorney. They did not disclose the fact that Parker also did
legal work for Guaranty Bank.
On Parker’s advice, Howard enlisted her daughter to obtain a
power of attorney from her father so that Howard could pay off her
husband’s debts. Even though the husband’s note contained a cross-
collateralization provision, the bank could not levy on the other
funds that he had on deposit because they were not in his name ——
they were in a corporate account. After obtaining her father’s
power of attorney, Howard’s daughter, under her mother’s direction,
withdrew the funds from the corporate account —— over $1,000,000 ——
and put them in a CD in her father’s name. The bank then offset
those funds against the note, pursuant to its cross-
collateralization agreement. Yet Parker never explained to Howard
that she was under no legal obligation to pay off the note, and
that by transferring the funds to a personal CD, she would be
43
their testimony was offered for the improper purpose of
demonstrating his bad character via his alleged prior misconduct.
As such, says Parker, their testimony constitutes “other acts”
evidence that is inadmissible under Federal Rule of Evidence
(F.R.E.) 404(b).68
Davis counters that the testimony of Howard and Guilbeau did
not trigger F.R.E. 404(b), as it was offered for impeachment
purposes pursuant to F.R.E. 608(b) and not as substantive evidence:
Guilbeau contradicted Parker’s testimony that he had never asked a
client to sign an incomplete instrument on the assurance that he
would fill in the details later; and Howard contradicted Parker’s
and Prather’s testimony concerning the nature and extent of their
relationships with one another and with Guaranty Bank.69
diminishing the value of the corporation in which she had a
community property interest.
When Parker returned her file, she discovered —— attached to
a letter from her husband complaining to Dumesnil about what had
happened —— a handwritten note from Prather to Parker which read:
“Ernie [Parker], what can I say? Another satisfied customer. Red
was ticked off because Bobby [Howard’s husband] didn’t spell
‘Dumesnil’ correctly after all these years. s/Randy Prather.”
68
See FED. R. EVID. 404(b)("Evidence of other crimes, wrongs, or
acts is not admissible to prove the character of a person in order
to show that he acted in conformity therewith.”).
69
Prather was a loan officer in Guaranty Bank’s commercial
lending department; he reviewed the loan application for the
Campbell Wells acquisition and is now president of Premier Bank ——
Guaranty Bank’s successor. Parker portrayed himself —— in his own
testimony and through Prather’s testimony —— as having a detached
and strictly professional relationship with Guaranty Bank: He
denied that he was acting in the capacity of the Bank’s attorney
when the Campbell Wells loan application was made, and Prather
testified that, although Parker did some work for Guaranty Bank,
44
Parker nevertheless emphasizes that the rebuttal testimony
cannot find shelter under F.R.E. 608(b), as that rule limits
impeachment on collateral matters to cross-examination of the
witness.70 He contends that the Howard and Guilbeau testimony about
their previous legal representations by Parker concerned collateral
matters; as a result, he urges, it was inadmissible extrinsic
evidence.
Parker’s argument misses the mark with respect to Howard’s
testimony. That testimony suggests that Parker worked
intimately —— even collusively —— with Prather and Guaranty Bank
long before the Campbell Wells deal. As such, it contradicts
Parker’s portrayal of the relationships among himself, Prather, and
Guaranty Bank,71 which relationships are not collateral matters in
Jimmy Bean (Parker’s partner) was the bank’s true attorney; Parker
testified that he was uncertain whether or not, prior to the
Campbell Wells deal (September 1985), he had any direct business
dealings with Prather; and both Parker and Prather denied that they
were friends, claiming that their relationship was strictly
professional in nature. According to Davis, Parker sought to
mischaracterize Guaranty Bank’s inner workings and Parker’s role
therein in an effort to portray the bank as the hapless victim of
Davis’s unclean hands.
70
“Specific instances of the conduct of a witness, for the
purpose of attacking or supporting the witness’ credibility, other
than conviction of crime as provided in rule 609, may not be proved
by extrinsic evidence.” FED. R. EVID. 608(b); United States v.
Herzberg, 558 F.2d 1219, 1223 (5th Cir.), cert. denied, 434 U.S.
930, 98 S. Ct. 417, 54 L. Ed. 2d 290 (1977).
71
See supra note 69.
45
this case.72 Moreover, her testimony casts doubt on Prather’s
objectivity by demonstrating a bias in favor of Parker; and witness
bias is never immaterial.73
Parker’s F.R.E. 608(b) contention does have arguable merit,
however, with respect to Guilbeau’s testimony. Parker’s alleged
practice of having his clients execute incomplete instruments on
the assurance that he would complete them later is not material to
Davis’s claims.74 As such, Guilbeau’s testimony contradicting
Parker would be admissible only if Parker had placed the alleged
practice in issue on direct examination.75 Parker’s testimony on
72
See Head v. Halliburton Oilwell Cementing Co., 370 F.2d 545,
546 (5th Cir. 1967) (“The test for determining what is a collateral
matter . . . [has been phrased]: ‘Could the fact as to which error
is predicated have been shown in evidence for any purpose
independently of the contradiction?’”) (citations omitted).
73
See United Stated v. Abel, 469 U.S. 45, 56, 105 S. Ct. 465,
471, 83 L. Ed. 2d 450 (1984); United States v. Martinez, 962 F.2d
1161, 1165 (5th Cir. 1992) (noting that F.R.E. 608(b) does not
prohibit the use of extraneous evidence “if it tends to show bias
in favor or against a party”) Parker further argues that the
probative value of Howard’s testimony in demonstrating bias is
substantially outweighed by its prejudicial effect on the jurors.
We cannot say, however, that the district court abused its
discretion in admitting the testimony.
74
Davis argues for materiality on the ground that “one of the
issues central to Parker’s defense was his contention that the [Act
of Cash Sale & Assumption] signed by Davis should have been taken
at face value, when the truth is that Parker sometimes told his
clients, such as Guilbeau, that documents as signed do not always
mean what they say.” We find Davis’s argument unconvincing.
75
See Jones v. Southern Pac. R.R., 962 F.2d 447, 450 (5th cir.
1992)(noting that “[l]itigants are . . . entitled to introduce
extrinsic evidence to contradict a witness’ testimony on matters
that are material to the merits of the case” and that “if the
opposing party places a matter in issue on direct examination,
46
the matter was elicited by Davis’s counsel on cross-examination
during Davis’s case in chief, not by Parker’s counsel. Thus,
Guilbeau’s testimony —— extrinsic evidence —— could not have been
properly used to impeach Parker on the question whether it was his
practice to obtain signatures on incomplete instruments —— at best
a collateral issue. Even so, any error resulting from the
admission of Guilbeau’s testimony was harmless. The plethora of
other probative evidence adduced at trial militates against a
finding of prejudicial effect.76 We discern no reversible error in
the district court’s admission of this rebuttal testimony.
F. NONPECUNIARY DAMAGES: EMOTIONAL DISTRESS
The jury found by a preponderance of the evidence that Davis
“suffered emotional distress, anguish or inconvenience which Parker
intended to occur as a result of his refusal to return Davis’s
Campbell Wells stock.” For this the jury awarded Davis $175,000,
and the district court included this award in its judgment on the
verdict. In his motion for j.m.l. or new trial, Parker challenged
this jury finding as well, contending that there was no evidence to
support nonpecuniary damages for emotional distress. The district
fairness mandates that the other party can offer contradictory
evidence even if the matter is collateral” but that “a party cannot
delve into collateral matters on its own initiative and then claim
a right to impeach that testimony with contradictory evidence”).
76
See F.D.I.C. v. Mijalis, 15 F.3d 1314, 1318-19 (5th Cir.
1994) (“We will not reverse a district court’s evidentiary rulings
unless they are erroneous and substantial prejudice results. The
burden of proving substantial prejudice lies with the party
asserting error.”).
47
court disagreed, stating broadly —— and, we must note,
conclusionally —— that “there is an adequate amount, and in some
cases overwhelming amount, of evidence to support all of the jury’s
findings . . . .”
Louisiana Civil Code Article 1998 permits recovery of damages
for non-pecuniary loss associated with a breach of contract under
only two, narrowly restrictive circumstances: (1) “When the
contract . . . is intended to gratify a non-pecuniary interest and
. . . the obligor knew, or should have known, that his failure to
perform would cause that kind of loss”77 and (2) “[r]egardless of
the nature of the contract[,] . . . when the obligor intended,
through his failure, to aggrieve the feelings of the obligee.”78
Parker offers two reasons why the district court erred in
allowing the jury’s emotional distress award to stand. First,
regarding Civil Code Article 1998(i), he observes that the nature
of the contract at issue was not to gratify a nonpecuniary interest
and that there was no showing that he knew or should have known
that Davis was susceptible to such an injury for breach of the
agreement —— if indeed he was. Parker points to two cases which he
reads as holding that stock transfer agreements lack any intent to
gratify a non-pecuniary interest.79 Second, Parker urges that there
77
LA. CIV. CODE ANN. art. 1998 (West 1987).
78
Id.79
Parker first invokes our decision in Stephenson v. Paine
Webber Jackson & Curtis, Inc., 839 F.2d 1095 (5th Cir.), cert.
48
is inadequate evidence in the record that Davis in fact experienced
any emotional distress. Parker observes that the only modicum of
evidence supporting mental distress is the bare, conclusional
testimony of Davis that “[t]his is very traumatic for me, I promise
you that.” Moreover, there was no confirmation by Davis’s former
wife that he suffered such distress, continues Parker, and no
record of Davis’s having consulted with a mental health
professional about emotional problems.
Davis counters that, for nonpecuniary damages to be
recoverable, the obligee’s nonpecuniary interest need only be a
denied, 488 U.S. 926, 109 S. Ct. 310, 102 L. Ed. 2d 328 (1988). In
Stephenson, an investor brought suit against a brokerage house and
its individual broker for trading securities on his behalf without
authorization. The district court “dismissed [investor’s] claim
for emotional distress on the grounds that Louisiana law requires
a nonpecuniary interest as the cause for emotional distress, and no
such interest was present in [that] case.” Id. at 1101. On
appeal, we deferred to the district court’s determination of
Louisiana law, noting that (1) “a district court is in a better
position than we are to ascertain the law of the state in which it
sits” (but Stephenson was decided before the Supreme Court, in
Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S. Ct.
1217, 1221, 113 L. Ed. 2d 190 (1991) abolished such deference) and
(2) the investor had not demonstrated that any trades were
“unauthorized” as that term is legally identified. Id. The second
case relied on by Parker, Abu-Kiskh v. Vintage Petroleum, Inc., 764
F. Supp. 76 (W.D. La. 1990), does not address stock transfer
agreements. In that case, the parties entered the contract to
(1) compensate plaintiff for the oil company’s previous use of her
property as a disposal site, and (2) lease the property for such
use in the future. Id. at 77. When the company ceased paying
minimum monthly rent, the plaintiff filed suit for breach of
contract seeking, inter alia, damages for mental suffering. The
district court rejected this claim, concluding that “[t]he contract
in question has as its primary object the recovery of past
compensation and future income —— purely pecuniary objects.”). Id.
at 80.
49
significant object or cause of the contract, which is a question of
fact.80 The jury could reasonably have concluded, continues Davis,
that the contract had as a significant object or cause some
nonpecuniary interest —— the trusting bond of friendship and
brotherhood shared by Parker and Davis, for example. Davis insists
that Parker was his “attorney and best friend,” someone whom he
trusted to guide him through the tough times. Furthermore, Davis
urges, the jury could have found that Parker acted with an overt
intention to cause Davis emotional distress, the second ground for
awarding such damages under Article 1988.
Davis insists that the record demonstrates beyond question
that he indeed suffered emotional distress, pointing to his
testimony that the experience has been very traumatic. He contends
that his anguish included not only that which he experienced from
learning of the betrayal of trust and from his humiliation at being
“taken,” but also the trauma of having to sell his home to satisfy
creditors and the reduction in his assets.81 Relying on Quealy v.
80
Stonecipher v. Mitchell, 655 So. 2d 1381, 1385 (La. Ct. App.
1995)(emphasis added)(“[W]e understand the current law to be that
the obligee’s nonpecuniary interest need only be a ‘significant’
object or cause of the contract in order for nonpecuniary damages
to be recoverable.”)(citing Young v. Ford Motor Co., Inc., 595 So.
2d 1123 (La. 1992)).
81
Davis notes that he was “reduced to assets consisting of 4
lots in Picayune, Mississippi, two payments left from a note
receivable, household furnishings, and about $8,000 in the bank.”
50
Paine Webber, Jackson & Curtis, Inc.,82 Davis argues that such
evidence is more than sufficient to support the jury’s award for
mental anguish.
We agree with Parker on this point. The nature of the
contract at issue was not to gratify any nonpecuniary interest of
Davis’s. Our review of the entire record reveals nothing of this
nature. Moreover, our record review turns up little if any
evidence (beyond Davis’s one bare statement of the affair’s being
traumatic) of emotional distress. We conclude that no reasonable
jury could find that Davis suffered an actionable type of emotional
distress from Parker’s breach of contract. Thus, the award of
damages for emotional distress cannot stand.
G. ATTORNEYS’ FEES
The district court correctly instructed the jury that a party
against whom rescission is granted on grounds of fraud is entitled
to damages and attorneys’ fees. The court explained that in
determining the amount of attorneys’ fees, the jury must consider
those factors provided in Louisiana’s Rules of Professional
Conduct:
82
475 So. 2d 756 (La. 1985)(upholding damages for mental
anguish, humiliation and inconvenience in action against broker and
issuer based on unauthorized sale of stock (conversion), when
(1) dividends from converted stock constituted plaintiff’s main
source of income (except for a small disability pension);
(2) plaintiff’s living conditions were drastically impaired by the
loss of those dividends; (3) plaintiff was physically unable to
work; and (4) as of the date of trial, plaintiff had been without
the dividend income for six years).
51
[One,] [t]he time and labor required, the novelty and
difficulty of the questions involved[,] and the skill
requisite to perform the legal service properly; [two,]
[t]he likelihood, if apparent to the client, that the
acceptance of the particular employment will preclude
other employment by the lawyer; [three,] [t]he fee
customarily charged in the locality for similar services;
[four,] [t]he amount involved and the result[s] obtained;
[five,] [t]he time limitations imposed by the client or
by the circumstances; [six,] [t]he nature and length of
the professional relationship with the client; [seven,]
[t]he experience, reputation and ability of the lawyer or
lawyers performing the service[s]; and [eight,] [w]hether
the fee is fixed or contingent.83
The jury concluded by a preponderance of the evidence that
Parker induced Davis to enter the written agreement through fraud.
Having thus answered affirmatively regarding fraud in the
inducement, the jury dutifully turned to a subsequent
interrogatory, i.e., “[D]o you find that the plaintiff’s attorneys
are allowed to recover their attorney fees as provided in the
contingency fee agreement?” The jury again responded in the
affirmative. Had the answer been “no” —— rejecting the contingent
fee arrangement —— the jury would have proceeded to consider next
what amount of attorneys’ fees the plaintiff’s attorneys were
entitled to recover; but that interrogatory was mooted by the
jury’s approbation of the contingent fee arrangement. The district
court entered judgment against Parker in the sum of $3,200,278.60,
83
Articles of Incorporation of the Louisiana State Bar
Association, LA. REV. STAT. ANN., Title 37, ch. 4 app., art. 16 (West
1988) (Rules of Professional Conduct, Rule 1.5(a)) (articulating
the factors considered in determining the reasonableness of an
attorney’s fee). Rule 1.5 is the embodiment of former Disciplinary
Rule 2-106 of the Code of Professional Responsibility.
52
representing attorneys’ fees under the contingent fee contract,
plus legal interest from the date of the jury verdict.
When, in August 1996, it denied Parker’s alternative motion
for j.m.l. or new trial, the court rejected Parker’s claim that
there was insufficient evidence to support the one-third contingent
fee award, noting that “the jury was presented with a copy of the
attorney fee agreement and was instructed by [the] court regarding
the appropriate factors to be considered in assessing the
reasonableness of an award for attorney fees.” The court reasoned
that, “[a]lthough the plaintiff did not present any evidence
regarding actual time expended upon the trial, the jury was
certainly in a position to determine whether the contingency fee
agreement that was presented was reasonable in light of the amount
of documents presented, complexity of these issues, and any other
factors which the jury could observe through trial.” “Had the jury
found that the contingency fee agreement was not reasonable,”
continued the court, “the plaintiff was willing to accept ‘zero’
attorney fees due to the fact that there was no other evidence of
attorney time submitted.”
In a diversity case, state law governs the award of attorneys’
fees.84 Under Louisiana Civil Code Article 1958, “[t]he party
against whom rescission is granted because of fraud is liable for
84
Texas Commerce Bank v. Capital Bancshares, Inc., 907 F.2d
1571, 1575 (5th Cir. 1990).
53
damages and attorney fees.”85 “Fraud is a misrepresentation or a
suppression of the truth made with the intention either to obtain
an unjust advantage for one party or to cause a loss or
inconvenience to the other. Fraud may also result from silence or
inaction.”86 “To find fraud from silence or suppression of the
truth, there must exist a duty to speak or to disclose
information.”87 This duty can arise by statute or by a special
relationship between the parties, such as a fiduciary
relationship.88 Given the jury’s verdict on the merits, an award
of attorneys’ fees to Davis is appropriate.
An attorney’s fee must be reasonable; however, a court is not
bound by the terms of a contingent fee agreement in determining the
reasonableness of a fee award.89 “[C]ontingency fee contracts, like
all other attorney fee contracts, are subject to review and control
85
LA. CIV. CODE ANN. art. 1958 (West 1987).
86
LA. CIV. CODE ANN. art. 1953 (West 1987).
87
Greene v. Gulf Coast Bank, 593 So. 2d 630, 632 (La. 1992).
88
America’s Favorite Chicken Co. v. Cajun Enters., Inc., 130
F.3d 180, 186 (5th Cir. 1997)(citing Greene, 593 So. 2d at 633).
89
See, e.g., Adams v. Franchise Fin. Corp. of Am., 689 So. 2d
572, 577 (La. Ct. App.)(concluding that the award of the contingent
fee was not excessive nor an abuse of discretion), writ denied, 692
So. 2d 456 (La. 1997); see also Southern Pac. Transp. Co. v.
Chaubert, 973 F.2d 441, 449 (5th Cir. 1992)(“That a fee is
contingent may be considered, but the court is not bound by this
consideration alone.”), cert. denied, 507 U.S 987, 113 S. Ct. 1585,
123 L. Ed. 2d 152 (1993).
54
by the courts —— most notably for reasonableness.”90 The quantum
of an award of attorneys’ fees is a question of fact and thus
appropriately a jury issue.91
Parker argues that the record fails to show that Louisiana law
was followed in the award of attorneys’ fees. He advances that
attorneys’ fees may not be recovered except when authorized by
statute or contract,92 and insists that no statutes authorize
recovery in this case. Specifically, Parker contends that
attorneys’ fees are not available under Article 1997 of the Civil
Code, which governs damages awardable for a bad faith breach of
contract. Furthermore, he maintains that Article 1958, which makes
attorneys’ fees available when rescission is based on fraud, is not
applicable in this case, as Davis’s claim of fraud was legally
insufficient and should not have been considered by the jury; he
asserts that “fraud cannot be imputed from alleged
misrepresentation(s) alone but, rather, must be based solely on a
person’s intent not to perform.”93 Thus, concludes Parker, the
award of attorneys’ fees on the basis of fraud is inappropriate.
90
O’Rourke v. Cairns, 683 So. 2d 697, 701 (La. 1996).
91
Francis v. Travelers Ins. Co., 581 So. 2d 1036, 1044-45 (La.
Ct. App.), writ denied, 588 So. 2d 1114 (La.) and 588 So. 2d 1121(La. 1991).
92
State, Dep’t of Transp. and Dev. v. Williamson, 597 So. 2d
439, 441 (La. 1992).
93
Automatic Coin Enters., Inc. v. Vend-Tronics, Inc., 433 So.
2d 766, 767-68 (La. Ct. App.), writ denied, 440 So. 2d 756 (La.
1983).
55
Parker argues in the alternative that, even if attorneys’ fees
were properly awarded, the amount of the instant award cannot be
justified. He observes that (1) although the jury instructions
recited the factors that determine the reasonableness of a fee, the
interrogatory on the issue covered only one of these —— whether the
fee is fixed or contingent —— when it asks whether Davis’s
attorneys were allowed to recover “attorney fees as provided in the
contingency fee agreement”; and (2) there was no evidence on which
the jury could determine the reasonableness of the fee awarded.
Parker insists that Davis should have introduced contemporary time
records or testimony of time spent.
Davis responds first that, in light of the court’s charge to
the jury that fraud can be committed by a failure to disclose that
of which there is a duty to speak,94 the finding of fraud is legally
sufficient. Davis urges that Parker, as his attorney, had a duty
to disclose all relevant and material information, including his
true motivation for inducing Davis to enter the contract, his
94
The court stated, in part, “[c]onsent to a contract can also
be destroyed by fraud or misrepresentation. Fraud is a
misrepresentation or suppression of the truth made with the
intention either to obtain an unjust advantage for one party or to
cause a loss or inconvenience to the other. Fraud may also result
from silence or inaction.” The court also explained that “[w]hen
an attorney enters into a business transaction with a client, the
attorney has a fiduciary obligation to either fully disclose the
relevant information to the client . . . or advise the client to
seek outside counsel before completing the transaction. Failure to
do so may constitute a breach of fiduciary duty by an attorney if
an attorney/client relationship exists, regardless of whether the
attorney entered the particular transaction as a businessman.”
56
conflict of interest, and his conviction that the stock was worth
more than he was leading Davis to believe. Davis notes that Parker
admitted that he failed to disclose the relevant details of the
transaction.95 This, combined with the fact that Parker secured the
release of the Guaranty Bank debt within a few days following the
stock transfer but did not even attempt to procure a release of the
debt to the Campbells, maintains Davis, was sufficient to support
the jury’s conclusion that Parker “was planning something from the
very date of the initial transfer.”
Responding next to Parker’s argument that the amount of the
award cannot be justified, Davis insists that the district court’s
rejection of this position in Parker’s post-trial motions was
entirely proper. Davis correctly notes that proof of the value of
an attorney’s services is not necessary if the services are evident
from the record,96 and insists that —— contrary to Parker’s
assertions —— the record does indeed support the jury’s award of
95
Parker testified that he did not tell Davis that (1) he
should consult another attorney before entering the transaction,
and (2) he (Parker) was acting as a businessman —— not as Davis’s
attorney —— in the transaction. Parker complains that Davis’s
argument is inconsistent inasmuch as when Davis needs Parker to be
an attorney (to establish a duty to disclose information so that
fraud can be argued and attorney’s fees awarded), he is
“conveniently” an attorney; however, when Davis needs Parker to be
a businessman (to avoid prescription or preemption), he is just a
businessman.
96
Hebert v. State Farm Ins. Co., 588 So. 2d 1150, 1153 (La. Ct.
App. 1991)(“[P]roof of the value of an attorney’s services is not
necessary if the services are evident from the record or were
rendered under the supervision of the court.”).
57
attorneys’ fees. Davis bases his argument on the opinion of a
Louisiana court of appeal in Adams v. Franchise Finance Corp. of
America.97 In Adams, the trial court awarded a one-third contingent
fee. The court of appeal acknowledged that “[n]o independent
evidence was presented by Adams on this issue, other than what the
trial court could observe from the record and an affidavit by Adams
showing that he had signed a contingency fee contract with his
counsel . . . ,”98 but affirmed the award of the contingent fee
nonetheless. The Adams court took into account, inter alia,
(1) “the considerable actions taken by Adams’ counsel as well as
other members of his firm that have been involved with this
litigation since its inception in 1991”; (2) “[the attorney’s] high
degree of skill and ability as evidenced by the pleading, briefs,
and oral arguments”; (3) “[the] considerable amount of money in
dispute and [that] plaintiff made a full recovery in the trial
court which was upheld by this court herein”; and (4) that
“[c]ounsel for the plaintiff provided substantial legal services
which consisted of numerous filings, considerable discovery, and
the filing and opposing of the motion for summary judgment together
with supporting memoranda and exhibits.”99
Davis argues that the information before the jury in this
97
689 So. 2d 572 (La. Ct. App.), writ denied, 692 So. 2d 456(1997).
98
Id. at 577.
99
Id.58
case, like that in Adams, is sufficient to support the contingent
fee award. The jury was presented with the contingent fee
agreement and asked to determine whether Davis’s counsel were
entitled to recover that amount. In further parallel with the
situation in Adams, Davis’s counsel did not present independent
evidence on the issue: They presented no records of hours
expended, hourly rates, priority of service, complexity of the
litigation, special expertise, or the like. Nonetheless, Davis
insists, the jury was aware of (1) his difficulty in securing an
attorney; (2) how hard and bitterly Parker opposed Davis’s claim;
(3) how long it took to bring the case to trial; (4) the extensive
effort expended, in light of the appeal from the summary judgment
in Parker I on prescription and the remand for additional
proceedings; (5) the massive expenditures on voluminous exhibits
and the quantity of testimony; and (6) the time-consuming and
lengthy nature of the trial.
Finally, Davis contends that Parker was content to risk all-
or-nothing when the interrogatories were submitted to the jury. As
such, he should not be heard to complain now that he finds himself
on the losing end of that bet.100
In the context of attorneys’ fees, Parker’s argument regarding
the absence of fraud is nothing more than sophistry. Given the
100
As to his alleged contentment with the interrogatory, Parker
notes that he objected to the interrogatory, and the objection was
overruled.
59
substantive instructions to the jury, its finding of fraud in the
inducement, and our statements in Parker I, Parker cannot avoid
Davis’s entitlement to attorneys’ fees by denying the presence of
fraud.101 There was sufficient evidence for the jury to have
concluded that Parker committed fraud, both passively, in failing
to disclose the relevant information and not advising Davis to seek
independent legal counsel, and actively, in misleading Davis by
orally committing to retransfer the stock while having no intention
of doing so. As for the reasonableness of the fee awarded, when we
consider that, as Parker states, (1) we must follow Louisiana law
in this diversity case, and (2) under Louisiana law this was
appropriately a question for the jury, we conclude that no
reversible error was committed by the district court in rendering
judgment on the basis of the jury’s award of attorneys’ fees.
Inasmuch as we have reversed the award of $175,000 for emotional
distress, the award of attorneys’ fees must be reduced by an amount
equal to one-third of the disallowed recovery, i.e., by $58,333.
H. COSTS
The same cannot be said of the court’s assessment of costs,
specifically the quantum of expert witness fees. The state of the
record and the court’s disposition of the matter are such that we
101
Parker I, 58 F.3d at 190 (noting that attorney’s failure
fully to disclose relevant information regarding business
transaction with client or to advise client to seek outside counsel
before completing transaction may constitute breach of fiduciary
duty if attorney/client relationship exists, regardless of whether
attorney entered the transaction as businessman).
60
simply have no basis for an appropriate appellate review.
Regrettably, the record is confused, contradictory, and incomplete
on this issue.
Parker insists that federal law governs, adding that the trial
judge appears to have had no intention of awarding expert witness
fees as costs.102 In stark contrast, Davis responds that (1) there
is no order in the record taxing costs, and (2) as Parker failed to
oppose the Bill of Costs submitted by Davis, as required by the
Uniform Local Rules of the United States District Courts for the
Eastern, Middle, and Western Districts of Louisiana, he may not
raise the issue for the first time on appeal. Parker counters that
(1) if the expert witness fees were never taxed, they are not
collectible, and (2) as he was never served with a copy of the Bill
of Costs, he could not be expected to have objected to them.
Try as we may, we cannot sort out, from the record on appeal,
just what was or was not ruled on by the court or what was or was
not preserved for appeal by the parties. As there is thus no way
for us to make an informed and intelligent decision on the issue of
expert witness fees and other costs at the trial level, we must
remand this issue for further consideration and determination by
the district court.
I. STOCK VALUATION
102
After discussing our opinion in Cates v. Sears, Roebuck &
Co., 928 F.2d 679 (5th Cir. 1991), the district court stated, “I’m
just going to continue to deny the fee bills for the expert
witnesses now until you come up with something different.”
61
In keeping with the jury’s verdict, the district court
declared Davis to be the owner of 201,775 of the shares of common
stock of Sanifill that Parker acquired in the merger between
Sanifill and Campbell Wells in June 1990, or its value as of the
close of business on April 19, 1996 —— the last business day before
trial commenced —— with interest from the date of judgment. The
court ordered Parker to return those shares or their aggregate
dollar equivalent to Davis. Finally, the court entered judgment
against Parker in the amount of $1,201,951.50, plus legal interest
from the date of demand until paid, which included the amount of
damages —— $1,026,951.50 —— that the jury found “necessary to
compensate Davis for the loss of any benefits that he would have
received had he owned the Campbell Wells stock, or for benefits
that Parker wrongfully received as a result of his refusal to
return Davis’s stock.”
Parker contends that the award of the value of the Sanifill
stock as of April 19, 1996 cannot be supported under Louisiana law.
Davis originally demanded the return of the Campbell Wells stock
transferred on February 3, 1986, but Parker insists that he no
longer owns either that stock or the Sanifill stock received in the
merger. When Campbell Wells merged with Sanifill in June 1990,
Parker surrendered all the Campbell Wells stock in his name in
exchange for Sanifill stock. Parker maintains that this prevents
restoration in-kind from being an available remedy; that Davis’s
remedy must be in money damages only. Parker urges, however, that
62
measuring those damages by the value of Sanifill stock almost six
years after the merger is neither fair nor lawful.
To the contrary, maintains Parker, Davis may recover only a
limited damage award. Parker asserts that if Davis is entitled to
annul the agreement, he is entitled to be restored to his pre-
contract status only; but if the contract is valid and was
breached, Davis is entitled to the value of the Campbell Wells
stock as of the date the breach occurred, not at some later, higher
value. Parker complains that awarding Davis the value of the stock
of a multinational corporation as it stood in 1996 gives Davis a
windfall, as the shares that he now claims to own were exchanged
for that stock in 1990, with no evidence that he would have
retained the stock throughout that six-year period had he owned it.
Davis responds that he is entitled to receive the value of the
Sanifill stock as of April 19, 1996, and that he can be awarded the
stock in-kind, disagreeing with Parker’s contention that damages
are the only remedy.103 Davis correctly points out that the
traditional measure of damages for conversion —— the return of the
property itself or, if the property cannot be returned, the value
103
See Parker I, 58 F.3d at 190 (“Neither party has
demonstrated that Davis could not be awarded restoration in kind
even though the Campbell Wells stock no longer exists. At least
one Louisiana court has suggested in a similar factual setting
(involving a fiduciary relationship between business partners) that
restoration in kind is possible where the shares of the original
partnership had been exchanged for shares in a different
partnership.”) (citing W.A. McMichael Constr. Co. v. D & W
Properties, Inc., 356 So. 2d 1115, 124-25 (La. Ct. App.), writ
denied, 359 So. 2d 198 (La. 1978)).
63
of the property as of the time of conversion —— will not always
afford an adequate remedy in cases involving equity securities.104
Davis relies on the Louisiana Supreme Court’s decision in Quealy,
in which the plaintiff was awarded the market value of his lost
stock as of the day before trial, not the value of the shares on
the date they were wrongfully converted. In so holding, that court
stated:
In the case of stock, which fluctuates in value, applying
the general rule of damages will not always accomplish
the goal of making the victim whole. Such is the case
here. In order for Paine Webber to fully repair the
damage caused, it must reimburse Quealy in an amount
sufficient to enable him to repurchase exactly what was
lost: 1,500 shares of NEGEA stock. La.Civ.Code arts.
2315 and 1995. The trial judge thus properly awarded
Quealy an amount commensurate with the value of 1,500
shares of NEGEA stock as of the day before trial.105
We conclude that the district court did not err in awarding
Davis recovery of either the Sanifill stock in-kind or its value as
of the last business day before trial commenced. Parker exercised
total dominion over Davis’s property either through fraud or as a
bad faith mandatary or depositary (or possibly even a negotiorum
gestor). The proper measure of damages is the value of the
converted stock when Davis obtains a final, executory judgment and
is free to proceed with execution. Here, the shares of stock
actually converted no longer exist, having been exchanged for other
104
Trahan v. First Nat’l Bank of Ruston, 690 F.2d 466, 467-68
(5th Cir. 1982); Quealy, 475 So. 2d at 761-62.
105
Quealy, 475 So. 2d at 762.
64
stock in a subsequent merger. Accordingly, Davis cannot obtain the
return of his original Campbell Wells shares. Further, it now
appears that the stock of the acquiring company, Sanifill, is no
longer in the hands of Parker and, indeed, has been exchanged in a
second merger. Nevertheless, Davis is entitled to judgment for the
value of the Campbell Wells shares as converted into Sanifill
shares (or shares resulting from their subsequent merger) if they
are still in the hands of Parker.106 In essence, even though the
original Campbell Wells stock no longer exists because of the
Sanifill merger, its conversion equivalent in Sanifill stock was
held and later disposed of by Parker, and Davis is entitled to the
equivalent number of shares or their value. Because Parker
wrongfully kept the stock, depriving its true owner of the
discretion to retain or dispose of it, in whole or in part, at such
times as he (not Parker) might select, it is Parker (not Davis) who
must bear the risks of its management. Additionally, as Parker
unilaterally elected to manage the property of Davis in bad faith
he cannot retain any profit that was made. The district court
correctly determined that Parker owes Davis the value of the
106
Although neither party bothered to inform the court, we have
determined that Sanifill was acquired by USA Waste Services, Inc.
(“USA Waste”) in September 1996. We note that Sanifill’s merger
partner is publicly traded and the information on the share ratio
is public knowledge. Consequently, conversion of Sanifill shares
to USA Waste shares can be calculated by means of simple
arithmetic. If Parker is to satisfy the judgment with stock, in-
kind, he must obtain the requisite number of shares —— albeit USA
Waste shares, as a result of the 1996 merger —— and deliver them to
Davis.
65
property at the time that the judgment is satisfied, but in no case
less than its value at the time of Parker’s illicit acquisition.107
J. EXCESS DISTRIBUTIONS
Parker contends that there is no basis in law or fact for the
jury’s conclusion that the parties intended for any “excess
distributions” to belong to Davis, and submits that the award is
inconsistent with Davis’s testimony regarding his purpose for
entering the transaction —— to pay off creditors. Moreover, Parker
urges, even if the distributions alleged by Davis —— dividends,
salary, travel, and entertainment —— were made, Davis is not the
proper party to assert such claims. Instead, insists Parker, such
claims belong to the corporation —— not its shareholders —— and
especially not to a putative shareholder such as Davis.
Davis counters that the award for excess distributions was
entirely proper, as it represents payments received by Parker after
he no longer had any lawful right to hold Davis’s shares. This
entitlement to the payments derived from ownership of the stock
does not stem from any contractual arrangement between the parties,
107
If Parker still had the Campbell Wells stock, Davis could
receive its return in kind. Were it worth less now than when
converted, Davis would be entitled to its return plus money for its
diminution in value. The victim of fraud must never recover less
than the value of the stock on the date of conversion. See Atkins
v. Garrett, 270 F. 939 (5th Cir. 1921)(in action for conversion of
stock by a seller, brought after his refusal to make delivery on
tender of the agreed price, the measure of recovery is the value of
the stock at the time of conversion, and defendant cannot then
avoid liability by a tender of the stock, which had declined in
value).
66
continues Davis; neither is it contrary to his testimony regarding
how cash flow was supposed to be used during the time Parker held
the shares with Davis’s consent. Moreover, insists Davis, he is
the proper party to assert the claim for excess distributions, as
Louisiana courts consistently recognize that shareholders possess
a right of action to recover for injury suffered by them ——
“personal losses” —— as a consequence of a defendant’s interference
with their ownership of corporate stock.108
We perceive no reversible error by the district court in
rendering judgment based on the jury’s award of these damages. The
jury found that Davis never stopped being the beneficial owner of
the Campbell Wells stock. Consequently, Parker is not entitled to
retain these sums; rather, such monies should be returned to Davis,
the beneficial owner of the stock, ab initio. We also reject
Parker’s argument that Davis is not the proper party to bring such
108
See Wilson v. H.J. Wilson Co., Inc., 430 So. 2d 1227, 1234
(La. Ct. App.), writ denied, 437 So. 2d 1166 (1983). In holding
that a minority shareholder could maintain a breach of fiduciary
action against a corporation’s majority shareholder based on its
allegedly fraudulent transfer of the minority shareholder’s shares
to the majority shareholder, the court declared:
It is established that where the breach of fiduciary duty
causes loss to a corporation itself, the suit must be
brought as a derivative or secondary action. However,
that is not the case where the breach of a fiduciary duty
causes loss to a shareholder personally. In case of
personal loss, the shareholder may sue individually to
recover his loss.
Id. (citing Junker v. Crory, 650 F.2d 1349 (5th Cir. 1981)); Noe v.
Roussel, 310 So. 2d 806 (La. 1975); 29 LA. L. REV. 691 (1969)).
67
a claim, as this is plainly an action for personal loss, and not
one for the devaluation of corporate shares.109 The claim asserted
by Davis is not that the disbursements were improper or excessive,
only that they rightfully belong to him and not Parker, whether as
preferential dividends or perquisites of ownership. Finally, we
note that, as Parker’s argument rests solely on the propriety of
the award and never questions its quantum, we need not address
whether the amount is excessive, inadequate, or “just right.” We
treat Parker’s failure to address the quantum of the award, or even
provide record citations to discussions of quantum, as a waiver of
this facet of the issue. Neither do we consider what portion of
these “excess distributions,” if any, Parker might have been
entitled to receive as an owner of Campbell Wells stock in his own
109
Whalen v. Carter, 954 F.2d 1087, 1092 (5th Cir. 1992).
(“Under Louisiana law, damage claims predicated upon the depletion
of corporate assets belong to the entity, not to individual
investors. . . . Minority shareholders, therefore, do not have a
right of action against the officers and directors of their
corporation for the devaluation of corporate shares.”). In
Palowsky v. Premier Bancorp, Inc., 597 So. 2d 543 (La. Ct. App.
1992), the Louisiana First Circuit Court of Appeal construed the
holding in Wilson to mean that
if a shareholder suffers only an indirect loss in the
form of a decline in the value of his stock resulting
from a loss sustained by the corporation due to
mismanagement and/or breaches of fiduciary duty, that
shareholder may only bring a derivative action on behalf
of the corporation. However, if the breach of fiduciary
duty causes a direct loss to the shareholder, as was the
case in Wilson where the shareholder, but not the
corporation, suffered a loss, that shareholder may have
a right to sue individually.
Id. at 545 (distinguishing Wilson, 430 So. 2d 1227).
68
right, as this argument has not been raised on appeal.
K. CROSS-APPEAL
Davis filed a motion to alter or amend judgment, pursuant to
F.R.C.P. Rule 59(e), requesting that the district court modify its
judgment to declare him to be the owner of, and order Parker to
return, 201,775 shares of common stock of Sanifill or, at Davis’s
option, their dollar value calculated at the rate of $41 5/8 per
share ($8,398,884), with interest from the date of judgment.
Davis’s motion requested, in the alternative, that the district
court amend its judgment to declare that he was the owner of, and
Parker was required to return, the same number of shares of common
stock of Sanifill or, in the event that the value of the shares on
the date of their return is less than $41 5/8 per share, their
total dollar value calculated at that amount. Finally, Davis
requested that the district court add to its decree a provision
reserving to him the right to claim damages resulting from any
decline in value of the Sanifill stock from the highest price the
stock might attain between the dates of the entry of judgment and
the stock’s return.
The district court denied Davis’s motion. In its June 21,
1996 minute entry, the court “ordered the parties to prepare an
order to transfer two hundred one thousand, seven hundred seventy-
five (201,775) shares of common stock of Sanifill, Inc. to the
United States Marshal to hold as receiver, or, in the alternative,
the cash value of such stock as of Friday, April 19, 1996, to the
69
Clerk of Court.” The court further ordered that “[t]he stock shall
be transferred to the Marshal or the cash shall be placed with the
Clerk no later than Friday, June 28, 1996.” Then, in its
memorandum ruling and order of June 26, 1996, filed on June 27th,
the district court stayed its judgment pending disposition of
Parker’s post-trial motions, but conditioned the stay on Parker’s
delivery of the shares to the United States Marshal or his deposit
of $8,398,884.30 in cash with the Clerk of Court by June 28, 1996.
Davis contends that the district court abused its discretion
by not either (1) giving Davis, rather than Parker, the option to
choose between being paid or recovering the stock in-kind, or
(2) allowing Parker to pay the value of the stock in lieu of
returning it in-kind only in the event that the stock’s value on
the day before trial shall have been greater than on the date of
return. Davis essentially argues that Parker must not be able to
use this appeal to speculate in the stock and profit from a delay
in his satisfaction of the judgment; rather, Davis advances, “the
risk must borne by the one who has wrongfully held the stock,”
i.e., Parker. Davis further urges that any increase in the market
value of the stock belongs to him, but any decline in market value
during the time the stock was unlawfully held by Parker must be
absorbed by Parker. Finally, Davis asserts that the judgment
should have been amended to reserve his right to bring a separate
action for any damages that he might suffer as a result of Parker’s
delay in satisfaction of the judgment, again insisting that Parker
70
must bear any risk of loss attendant on such a delay.
Parker responds that Davis’s argument is flawed in two
respects: First, as Parker no longer owns the stock, he is not in
a position to speculate with it by returning it only if it is in
his financial interest to do so; and second, if the stock cannot be
returned, Davis’s remedy is damages which, Parker maintains, were
fixed by the court at the most favorable point Davis could have
imagined. Any effort to receive the value of the stock beyond that
remedy, insists Parker, would be an action for damages, not for
stock return, thereby making this case exactly what Davis contended
it was not on the first appeal to escape the legal malpractice
prescription.110
We conclude that the district court did not abuse its
discretion in giving Parker the option of delivering the stock or
its value. We agree with Davis, however, that Parker should not be
able to profit from any appreciation in the value of the stock
during the pendency of this appeal. Accordingly, if Parker has
failed timely to (1) file a supersedeas bond, (2) pay the money to
the Clerk of Court, or (3) transfer the stock to the United States
110
Davis responds that, in an action for rescission based on
nullity, “[t]he restoration of the parties to the situation that
existed before the contract that is called for by this Article
[Article 2033] includes restoration of the fruits and revenues, as
any unjust enrichment of the parties must be prevented.” LA. CIV.
CODE. ANN. art. 2033, cmt. b (West 1987). As such, Davis insists
that his demand that Parker not be permitted to profit by
speculation from this appeal is part and parcel of his rescission
remedy.
71
Marshal, as ordered, such that the judgment remains unsatisfied,
then reason, equity, and justice require a supplemental provision
to the district court’s judgment. For, if Parker thus elected to
take an appeal but to do nothing about paying the judgment into the
registry of the court, delivering the stock to the Marshal, or
posting a supersedeas bond, he must bear any risk of downward
fluctuation, and Davis must recover the benefit of any upward
fluctuation, in the value of the stock. Therefore, if, in lieu of
delivering the stock, Parker elects to pay the value of the stock,
then any appreciation in its value from June 28, 1996 must be added
to the amount of the judgment, $8,398,884.30; but if the value of
the stock has never been that high since June 28, 1996, Parker may
not thereby benefit by electing to deliver the shares of stock ——
unless he supplements such delivery with remittance of funds (or
additional shares of stock) so as to bring the value of the
delivery up to full judgment value as of the time of delivery.
Parker should, of course, receive credit for any funds that Davis
may have acquired or may hereafter acquire in executing on the
judgment.111
111
As noted in note 106 supra, Sanifill was acquired by USA
Waste in September 1996. This fact, however, does not alter our
disposition as to this issue. Assuming that Parker has neither
deposited the money nor an equivalent number of shares in Sanifill,
or its successor USA Waste, the judgment must be amended, but only
to the extent required to allow for fluctuations in the stock price
during the time between the date originally specified for delivery
(June 28, 1996) and the date on which Davis finally recovers the
money, if that is what he recovers in lieu of the equivalent shares
of stock in the appropriate successor entity. In this regard, we
72
III
CONCLUSION
For the foregoing reasons, the judgment of the district court
in favor of Davis is affirmed, subject to the following:
A. The award to Davis of nonpecuniary damages for
emotional distress is reversed, and the award
to Davis of attorneys’ fees is reduced by
$58,333 to reflect the effect of disallowing
such nonpecuniary damages.
B. To the extent, if any, that the award of costs
to Davis may include expert witness fees, such
award is vacated and the issue of such fees is
remanded to the district court for further
proceedings consistent with this opinion.
C. The award to Davis of 201,775 shares of the
common stock of Sanifill, Inc., in-kind, is
modified to permit the substitution of shares
of the common stock of USA Waste Services,
Inc., with the number of such shares to be the
same as were received for 201,775 shares of
Sanifill, Inc. stock in the merger of those
corporations in September 1996, adjusted to
reiterate that Davis will be entitled to recover the highest value
of the stock between the day delivery was ordered and the date of
actual recovery.
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account for any subsequent stock splits, stock
dividends, and the like.
D. The alternative monetary award to Davis in the
amount of $8,398,884.30, being the value of
201,775 shares of Sanifill, Inc. common stock
on the day before the commencement date of the
trial of this case, is modified by adding the
proviso that, in the event that Parker should
satisfy the judgment of the district court by
paying money in lieu of delivery of capital
stock in-kind, the sum of money that he must
pay shall be the greater of (1) $8,398,884, or
(2) an amount calculated by multiplying
201,775 by the highest price for a share of
Sanifill, Inc. common stock (or, after its
merger with USA Waste Services, Inc., the
number of shares or fractional shares of that
corporation obtained for one (1) share of
Sanifill, Inc. common stock in that merger,
adjusted for stock splits, stock dividends,
and the like) as quoted by any exchange on
which such stock was or is traded, between
June 28, 1996, and the date on which final
payment in full is made in satisfaction of the
judgment in this case.
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We remand this case to the district court to revisit the issue
of expert witness fees and to enter a revised judgment reflecting
the foregoing modifications.
REVERSED in part; VACATED and REMANDED in part; MODIFIED in part;
and, as modified, AFFIRMED in part.
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