CIOS Foundation v. MS Insurance Svc Inc ( 2003 )

United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
For the Fifth Circuit March 21, 2002
Charles R. Fulbruge III
Clerk
No. 01-60713
Summary Calendar
C.I.O.S. FOUNDATION,
Plaintiff-Appellant,
VERSUS
MISSISSIPPI INSURANCE SERVICES, INC.;
ALBERT J. KOSSMAN, JR.,
Defendants-Appellees.
Appeal from the United States District Court
For the Northern District of Mississippi, Greenville Division
(4:00-CV-1-D-A)
Before DeMOSS, PARKER, and DENNIS, Circuit Judges.
PER CURIAM:*
This diversity case involves a failed loan from the Christ is
Our Salvation Foundation (C.I.O.S.) to Naguchi Trading Company,
Inc. (NTC). C.I.O.S. lent $650,000 to NTC in part because another
*
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opinion should not be published and is not precedent except under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.
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company, Berkston Insurance (Berkston), agreed to guaranty the loan
on NTC’s behalf. Al Kossman, an insurance agent with Mississippi
Insurance Services, Inc. (MIS), helped NTC obtain the loan from
C.I.O.S. and the guaranty from Berkston. But when NTC defaulted on
the loan, Berkston failed to make good on its guaranty. C.I.O.S.
sued Kossman and MIS for its damages associated with the failed
loan, arguing that Kossman violated his responsibilities to
C.I.O.S. and that he misrepresented Berkston’s financial viability.
The district court granted Kossman and MIS’s motions for summary
judgment on the ground that C.I.O.S. had no formal agency
relationship with Kossman or MIS. On appeal, C.I.O.S. argues that
it is entitled to recovery under the alternative theories of
gratuitous agency and equitable estoppel. We affirm.
I.
George W. Hood, Jr. formed NTC to distribute the seafood
processed by another one of his companies, Procesadora Del Mar
(PDM). Both NTC and PDM had been in business for approximately two
years before C.I.O.S. lent money to NTC. In late 1996, Hood began
to seek outside funding for his seafood businesses. At around this
time he met Al Kossman. Hood had several conversations with
Kossman, and on one of those occasions Hood discussed his need for
capital. Kossman suggested that Hood contact David Stokes, a man
that Kossman believed “front[ed] for a trust” that made business
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loans.
Hood took Kossman’s suggestion and met with Stokes to discuss
a possible loan for NTC. Stokes informed Hood that he occasionally
procured loans from C.I.O.S., a charitable religious foundation.
At this stage in the negotiations, however, Stokes told Hood that
C.I.O.S. was not interested in extending him a loan because his
companies were heavily leveraged. Hood then asked Kossman to serve
as his agent for the purposes of securing insurance and putting
together a project prospectus that would make NTC a more attractive
loan applicant. Kossman agreed to work on Hood’s behalf and turned
to Berkston Insurance in an attempt to procure a guaranty bond.
Meanwhile, Hood drafted a “proforma” containing estimates of NTC’s
projected performance.
Once Stokes reviewed NTC’s proforma and learned that Kossman
was working to secure a guaranty bond, he became more receptive to
the idea of C.I.O.S. lending money to NTC. Stokes referred Kossman
and Hood to Kent Reynolds, the financial controller for C.I.O.S.
During their negotiations, Reynolds requested that Kossman research
the viability of Berkston Insurance; Kossman told Reynolds that he
would get something in writing. On December 31, 1996, Kossman
faxed Reynolds the Best Rating Guide’s insurance ratings for
Berkston’s reinsurers, but not the ratings for Berkston itself.
After receiving these documents, C.I.O.S. decided to loan NTC
$650,000; the loan was scheduled to close on January 8, 1997.
There is no evidence that Reynolds requested any additional
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information from Kossman before closing.
On January 7, 1997, the day before closing, Hood’s attorney
provided Reynolds with various documents, including additional
copies of the Best Rating Guide’s rating for Berkston’s reinsurers.
At the closing, Hood provided additional information obtained by
Kossman relating to NTC’s ability to obtain insurance. Based on
this information and Berkston’s guaranty bond, C.I.O.S. closed the
loan for NTC. Two days after Reynolds signed the loan, but before
C.I.O.S. transferred the money to NTC, Hood’s attorney faxed to
Reynolds instructions for wiring the loan proceeds and Berkston’s
financial statement. Reynolds did not review the financial
statements before he wired the money to NTC.
NTC defaulted on the loan after making only one payment. In
April 1997, C.I.O.S. extended the term of the loan and Berkston
reaffirmed its guaranty. NTC, however, continued to miss payments
and, when it defaulted on this extended loan, Berkston refused to
honor its guaranty. C.I.O.S. sued NTC, Berkston, and Hood, and
obtained default judgments against all three. While C.I.O.S. was
suing Berkston to collect on the guaranty, it learned that Berkston
was not a financially viable company and that it was under FBI
investigation. As a result of this information, C.I.O.S. made no
attempt to collect on the its default judgment against Berkston.
Instead, C.I.O.S. sued Kossman and his firm, MIS, alleging that
Kossman knew or should have known that Berkston was not financially
viable.
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Kossman and MIS filed motoins for summary judgment arguing
that there is no evidence (1) that Kossman knew Berkston to be
insolvent, (2) that Kossman breached a duty to C.I.O.S. to
determine Berkston’s solvency, or (3) that C.I.O.S. suffered any
damages as a result of Kossman’s actions. The district court
granted the motions for summary judgment on the grounds that there
is no proof that Kossman knew that Berkston was insolvent or that
Kossman was an agent for C.I.O.S. C.I.O.S. appeals arguing that
the district court erroneously failed to address whether it can
recover under Mississippi’s gratuitous agency and equitable
estoppel doctrines.
II.
“We review a district court’s ruling on motion for summary
judgment de novo, applying the same standards as those that govern
the district court’s determination.” McKee v. Brimmer, 39 F.3d 94(5th Cir. 1994). Summary judgment must be granted if the court
determines that there is no genuine issue as to any material fact
and that the moving party is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(c). To ascertain whether there are
genuine issues of material fact in this Mississippi-based diversity
action, we look to the substantive law of Mississippi. Lavespere
v. Niagara Mach. & Tool Works, Inc., 910 F.2d 167, 177-78 (5th Cir.
1990). We must view the evidence in the light most favorable to
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C.I.O.S., the nonmoving party. Barhonovich v. Amer. Nat. Ins. Co.,
947 F.2d 775 (5th Cir.1991).
III.
C.I.O.S. argues that Kossman breached his duty to C.I.O.S.
under the doctrine of gratuitous agency when he failed to provide
C.I.O.S. with Berkston’s Best Rating Guide’s insurance ratings. In
Mississippi, a person becomes a gratuitous agent when he “makes a
promise or engages in other conduct which (1) ‘he should realize
will cause another reasonably to rely upon the performance of
definite acts of service by him as the other’s agent,’ and (2)
‘which causes the other to refrain from having such acts done by
other available means.’” Lee Hawkins Realty, Inc. v. Moss, 724
So.2d 1116, 1119 (Miss. Ct. App. 1998) (quoting the Restatement
(Second) of Agency § 348 (1957)). Even if Kossman became
C.I.O.S.’s gratuitous agent, he can only be liable if he breached
his limited duty of providing C.I.O.S. with Berkston’s Best rating
and his negligence caused C.I.O.S. to make the loan. See id. at
1120.
C.I.O.S. has not presented competent summary judgment evidence
that Kossman was its gratuitous agent because there is no evidence
that Kossman promised to provide C.I.O.S. with Berkston’s Best
rating or that he should have realized that Reynolds was relying on
him to provide that service. At all times during the negotiations,
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Kossman was acting as Hood’s formal agent. To the extent that he
provided information to C.I.O.S., it was in furtherance of Hood’s
interest in obtaining the loan. After Kossman provided Reynolds
with the Best ratings for Berkston’s reinsurers, Reynolds never
asked for any additional financial information on Berkston.
Furthermore, C.I.O.S. has presented no evidence that Kossman’s
failure to provide it with Berkston’s Best rating caused it to sign
the loan. First, C.I.O.S. has not indicated whether Berkston’s
Best ratings would have exposed its insolvency. Second, the
undisputed evidence shows that Reynolds signed the loan on behalf
of C.I.O.S. without seeing Berkston’s Best rating or its financial
statements. As stated above, after Kossman provided him with the
Best ratings for Berkston’s reinsurers, Reynolds never asked for
any additional financial information on Berkston. Although Hood’s
lawyer provided Reynolds with Berkston’s financial statements
before he transferred any money to NTC, Reynolds admits that he did
not review the financial documents until after he wired the money
to NTC.
IV.
C.I.O.S. also argues that it is entitled to recover under the
doctrine of equitable estoppel. To make a claim for equitable
estoppel under Mississippi law, C.I.O.S. must show that (1) Kossman
misrepresented or concealed material facts, (2) with knowledge or
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imputed knowledge of such facts, and (3) with the intent that
C.I.O.S. rely upon his misrepresentation or concealment of facts.
Turner v. Terry, 799 So.2d 25, 37 (Miss. 2001). C.I.O.S. must also
show that (4) it was ignorant of the misrepresented or concealed
facts and (5) that it actually relied upon the misrepresentation to
its detriment. Id. “The doctrine of equitable estoppel is not
favored and should only be applied when equity clearly requires
it.” Id. at 37-38.
C.I.O.S. has not submitted competent summary judgment evidence
to state a claim for equitable estoppel. There is no evidence that
Kossman knew about Berkston’s financial problems and there is no
basis for imputing knowledge of Berkston’s insolvency to Kossman.
There is also no evidence that Kossman concealed anything from
C.I.O.S. Kossman submits that he had no idea that Berkston was
insolvent and that he provided C.I.O.S. with all of the financial
information on Berkston that he had. Hood’s deposition testimony
corroborates Kossman’s version of the facts. Hood stated that
Kossman seemed genuinely surprised when he learned that Berkston
was insolvent and that he told Hood that Berkston had “duped” him.
C.I.O.S. points to no contravening evidence in the record. In its
response to the appellants’ motions for summary judgment, C.I.O.S.
states only that it “feels that Kossman should have known of
Berkston’s financial problems, because he was representing himself
to be a reputable insurance agent.” (ROA at 198) (emphasis added).
Furthermore, C.I.O.S.’s original brief does not even allege that
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Kossman knew or should have known of Berkston’s poor financial
situation. C.I.O.S. builds its equitable estoppel argument around
superseded cases that did not require the defendant to have
knowledge of the facts that he misrepresents. (Appellant’s Br. at
10.) (citing Covington v. Page, 456 So.2d 739, 741 (Miss. 1984),
PMZ Oil Co. v. Lucroy, 449 So.2d 201, 206 (Miss. 1984), and
Resolute Ins. Co. v. State, 290 So.2d 599, 602 (Miss. 1974)). As
stated above, the Mississippi Supreme Court has since made the
defendant’s knowledge of the misrepresentation or concealment an
element of equitable estoppel. See Turner, 799 So.2d at 37.
In its reply brief, C.I.O.S. asks us to infer that Kossman
knew about Berkston’s financial situation because he allegedly had
access to Berkston’s Best rating. This argument is waived because
C.I.O.S. did not raise it in its original brief. Webb v.
Investacorp, Inc., 89 F.3d 252, 257 n.2 (5th Cir. 1996) (“An
appellant abandons all issues not raised and argued in its initial
brief on appeal.”) (quoting Cinel v. Connick, 15 F.3d 1338, 1345
(5th Cir. 1994)). But even assuming that Kossman had access to
Berkston’s Best rating, there still is no evidence that he knew or
should have known that Berkston was insolvent. C.I.O.S. provides
no evidence that Kossman actually read the Best rating, and even
assuming that he did, there is no indication in the record that the
Best rating exposed Berkston’s insolvency. We therefore find
insufficient summary judgment evidence to support C.I.O.S.’s claim
for equitable estoppel.
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V.
Viewing the evidence in the light most favorable to C.I.O.S.,
we find no material issues of fact regarding C.I.O.S.’s right to
recover under the doctrines of gratuitous agency or equitable
estoppel. We therefore AFFIRM the district court’s ruling.
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