Amwest Savings Assn' v. Statewide Capital, Inc.

REVISED, July 23, 1998
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
___________________________
No. 97-20252
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AMWEST SAVINGS ASSOCIATION, a Texas state savings and loan
association, and HSA MORTGAGE COMPANY,
Plaintiffs-Appellants,
VERSUS
STATEWIDE CAPITAL, INC., GAYLE SCHRODER, CLAY STONE,
MELVIN POWERS, JOE LONG, and GORDON BEYERLEIN,
Defendants-Appellees.
___________________________________________________
Appeal from the United States District Court
For the Southern District of Texas
___________________________________________________
July 10, 1998
Before POLITZ, Chief Judge, and DAVIS and DUHÉ, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
Appellants Amwest Savings Association (“Amwest”) and HSA
Mortgage Company (“HSA”) appeal from the district court’s “take
nothing” judgment against them. For the reasons set out below, we
affirm the judgment of the district court.
I.
In 1988, Amwest entered into an agreement to purchase the
assets of eleven failed savings and loan associations from the
Federal Savings and Loan Insurance Corporation (“FSLIC”).1 At that
time, as a result of the failure of numerous savings and loans,
FSLIC’s insurance fund contained insufficient monies to cover
insured deposits. In order to generate revenue, the Federal Home
Loan Bank Board took over the portfolios of insolvent savings and
loans associations and sold those portfolios to larger savings and
loan associations such as Amwest.
In connection with Amwest’s purchase of the assets of the
failed savings and loans, Amwest and FSLIC entered into an
“Assistance Agreement.”2 Under the Assistance Agreement, Amwest
was to liquidate unprofitable assets and manage profitable assets,
sharing revenues with the FDIC. Amwest was also guaranteed to
recover the book value of certain “covered” assets upon the sale of
such assets. Thus, if Amwest sold a “covered” asset for less than
its book value, the FDIC would pay Amwest the difference between
the asset’s purchase price and its book value. If Amwest sold a
“covered” asset for more than its book value, Amwest would split
the profit with the FDIC under a formula set out in the Assistance
Agreement.
BancHome was one of the insolvent institutions whose assets
were purchased by Amwest. HSA, A-1, Inc., and A-1 Mobile Homes,
1
The assets were actually purchased by NuOlney Savings,
which later changed its name to Amwest.
2
FSLIC was dissolved by the Financial Institutions Reform,
Recovery, and Enforcement Act (“FIRREA”) which was passed in August
1989. The Federal Deposit Insurance Corporation (“FDIC”) succeeded
FSLIC as a party to the Assistance Agreement after FIRREA was
passed. For simplicity, this opinion will hereinafter refer to the
federal regulator involved as the FDIC.
2
Inc. (collectively, the “Mobile Home Subsidiaries”) were wholly-
owned subsidiaries of BancHome and were among BancHome’s assets
that were purchased by Amwest. The mobile home assets of the
Mobile Home Subsidiaries were determined to have a book value of
$250 million.
Amwest hired defendant Clay Stone to manage the Mobile Home
Subsidiaries. Between October 1988 and December 1989, Stone
operated the Mobile Home Subsidiaries at a loss. Amwest decided to
liquidate the assets of the Mobile Home Subsidiaries, and the FDIC
approved its decision. In December 1989, Amwest began taking bids
on the mobile home assets, eventually accepting the bid of
defendant Statewide Capital, Inc. (“Statewide”).
The parties agreed that there would be more than one closing
due to the complexity of the transaction. The first closing took
place on June 12, 1990. On that date, the parties signed an asset
purchase agreement. The second closing took place on August 31,
1990. At this closing, a dispute arose concerning $14 million in
loans in HSA’s portfolio that HSA sold in mid-August without
Statewide’s knowledge. Statewide claimed that under the asset
purchase agreement Statewide was to purchase all of the loans in
HSA’s portfolio and demanded a “credit” towards the purchase price
of the remaining loans in the portfolio as some share of the profit
from the sale of the loans. The dispute was resolved when Amwest
offered Statewide a final closing price of $71,239,094 on the
remaining loans, which reflected a $5.6 million credit towards the
original purchase price of those loans. Statewide accepted
3
Amwest’s offer and wired the funds to close the deal. Later,
Amwest discovered that it had made a $2,852,722 math error in
calculating the amount of the credit, and had thereby inadvertently
issued Statewide a $2.8 million “double” credit. Amwest demanded
immediate repayment of $2.8 million, but Statewide refused to
comply. The final closing occurred on September 30, 1990.
On December 19, 1990, Amwest and HSA (collectively, “Amwest”)
filed suit against Statewide, Stone, Gordon Beyerlein, then-general
counsel of HSA, and three principals of Statewide -- Gayle
Schroder, Melvin Powers, and Joe Long, alleging that they had
conspired to manipulate the bidding process in Statewide’s favor
and to ensure that Statewide would obtain the mobile home assets at
less than fair market value. Amwest also alleged that Stone had
engaged in expense account abuse by obtaining reimbursement for
personal expenses. In addition, Amwest sought recovery from
Statewide of the $2.8 million “double” credit.
Prior to the submission of the case to the jury, the court
granted judgment as a matter of law in favor of Statewide on
Amwest’s claim for the recovery of the $2.8 million “double” credit
and in favor of Stone on Amwest’s expense account abuse claim. On
July 6, 1995, after a five-week trial, the jury found in favor of
Amwest on each of its claims. Specifically, the jury found that
Stone and Beyerlein had made several misrepresentations, including
misrepresentations concerning the fair market value of the mobile
home assets, and that Stone and Beyerlein had breached their
respective fiduciary duties to Amwest and HSA. The jury also found
4
that Stone, Beyerlein and the other defendants had conspired to
varying degrees to commit fraud and breach of fiduciary duty.
Finally, the jury found that Statewide had breached the asset
purchase agreement in a number of respects. The upshot of
defendants’ collective wrongdoing was to effectively lower the
purchase price of the mobile home assets, thereby increasing the
amount that the FDIC paid Amwest to make up the difference between
the book value of the assets and the amount that Amwest received
for them.
The jury awarded Amwest approximately $22 million in
compensatory damages and $16.5 million in punitive damages.
Defendants subsequently filed renewed motions for judgment as a
matter of law, or, in the alternative, for a new trial. On April
2, 1996, the district court granted defendants’ renewed motions for
judgment as a matter of law on the ground that Amwest had not
suffered any damages because it had been fully compensated by the
FDIC for the losses it sustained as a result of defendants’
conduct. Nearly a year later, the district court conditionally
granted defendants’ motions for a new trial on grounds that Amwest
had engaged in pre-trial misconduct and that certain jury
instructions were fatally defective. On February 25, 1997, the
court entered a “take nothing” judgment against Amwest.
On appeal, Amwest argues that the district court erred in
granting defendants’ renewed motions for judgment as a matter of
law and in conditionally granting defendants’ motions for a new
trial. Amwest also argues that the district court erred in
5
granting Statewide’s motion for judgment as a matter of law on
Amwest’s claim for recovery of the $2.8 million “double” credit and
on Stone’s motion for judgment as a matter of law on Amwest’s
expense account abuse claim.
II.
The district court granted defendants’ renewed motions for
judgment as a matter of law in favor of defendants on the ground
that Amwest had not suffered any damages. We agree that Amwest
failed to show that it suffered any damages as a result of
defendants’ wrongdoing with respect to the purchase price of the
mobile home assets.3 The book value of the mobile home assets was
$250 million dollars. Although Amwest received less from Statewide
than it would have if not for defendants’ wrongdoing, the FDIC
fully compensated Amwest for its loss when it made up the
difference between the purchase price of the assets and their book
value.4. The district court noted that 5
On appeal, Amwest presents several theories under which it
contends it is entitled to the damages awarded by the jury.
First, Amwest argues that it was obligated under the
Assistance Agreement to pursue claims that would minimize losses to
3
We recognize that defendants maintain that the evidence
is insufficient to support the jury’s verdict.
4
The district court noted that Amwest received
approximately $108 million from Statewide and that the FDIC paid
Amwest approximately $142 million. At oral argument, the parties
stated that Amwest in effect received approximately $115 million
from Statewide. In any event, the FDIC made up the difference
between the amount Amwest received for the assets and their book
value.
6
the FDIC. Although Amwest elicited testimony from an FDIC officer
that Amwest was obligated under the Assistance Agreement to pursue
the type of claims at issue here and tender any recovery to the
FDIC, Amwest fails to cite any provision in this 113-page document
that authorizes Amwest to pursue such claims. Section 7(b) of the
Agreement requires Amwest to pursue “Related Claims” and provides
that sums recovered from such claims shall be credited to Special
Reserve Account I, an account established to effect the provisions
of the Assistance Agreement. “Related Claims” are defined as those
claims which may result in a recovery by Amwest and which are
related to claims for which the FDIC is obligated to indemnify
Amwest under § 7 of the Agreement. Pursuant to § 7 of the
Agreement, the FDIC is required to indemnify Amwest for only two
types of claims: 1) those “based upon a liability, contract or
action or failure to act or a status or capacity of any ACQUIRED
ASSOCIATION . . . which is asserted against [Amwest]”; and 2)
certain actions brought by a party other than Amwest to challenge
or set aside a transaction or the Agreement. Amwest’s “purchase
price” claims are not related to either of these two types of
claims.
Second, Amwest argues that the FDIC ratified this lawsuit in
a July 12, 1991 letter agreement prior to Amwest’s final submission
for reimbursement in February 1992. The July 12, 1991 letter
agreement apparently provides for the parties to share in any
recovery from this action. Even if the FDIC “ratified” this
lawsuit by entering into such an agreement, however, its
7
ratification is meaningless. The fact remains that the FDIC fully
and unconditionally reimbursed Amwest prior to trial and that
Amwest therefore was unable to show damages as to its “purchase
price” claims. Thus, any agreement between the parties as to any
recovery on such claims is of no consequence because Amwest had no
damages to recover.
Third, Amwest argues that it is entitled to the damages
awarded by the jury under the collateral source rule. Under Texas
law, medical insurance, disability insurance, and other forms of
protection purchased by a plaintiff, as well as gifts received by
a plaintiff, are easily identifiable as independent sources subject
to the collateral source rule. See Lee-Wright, Inc. v. Hall, 903
S.W.2d 868, 874 (Tex. Ct. App. 1992). The Restatement (Second) of
Torts also identifies insurance policies, employment benefits,
gratuities, and social legislation benefits as types of benefits as
to which the collateral source rule applies. See Restatement
(Second) of Torts § 920A cmt. c. The rationale underlying the
collateral source rule is that a plaintiff should not be forced to
transfer to a wrongdoer a benefit that the plaintiff has received
either as a gift or as a result of foresight and planning, as by
purchasing insurance or bargaining for employment benefits. See
id. cmt. b.
Amwest has not cited and we are not aware of any controlling
authority that has expanded the collateral source rule to cover
sources other than those enumerated above. Amwest argues, however,
that the Assistance Agreement is analogous to an insurance policy
8
in that it provided protection against the risk that Amwest would
recover less than the book value of the “covered” assets. Although
this argument has some superficial appeal, we are not persuaded.
The FDIC indeed guaranteed Amwest the book value of “covered”
assets upon the sale of such assets; however, the FDIC was also
entitled to split the profit if Amwest sold a “covered” asset for
greater than book value. Amwest points to no evidence that the
consideration for the FDIC’s guarantee was some portion of the
price that Amwest paid for the “covered” assets rather than the
FDIC’s right to participate in any profits realized from Amwest’s
sale of such assets. Because Amwest has not shown that it paid a
“premium” for the FDIC’s guarantee, its insurance policy analogy
fails. Accordingly, we conclude that the FDIC’s reimbursement
under the Assistance Agreement is not a collateral source within
the meaning of the collateral source rule.
Fourth, Amwest argues that it is entitled to the damages
awarded under the doctrine of subrogation. Amwest contends that
upon reimbursement the FDIC became subrogated to Amwest’s “purchase
price” claims and that the FDIC authorized Amwest to pursue those
claims on its behalf. Even if Amwest were correct that the FDIC
became subrogated to its claims, however, Amwest does not cite any
provision in the Assistance Agreement that authorizes Amwest to
pursue any of the FDIC’s claims on its behalf. And contrary to
Amwest’s assertion, there is nothing in the July 12, 1991 letter
agreement that provides such authorization.
Finally, Amwest argues that it is entitled to the damages
9
awarded under FSLIC v. Reeves, 816 F.2d 130 (4th Cir. 1987). In
Reeves, FSLIC entered into an agreement with a savings and loan
association, Metropolitan, to indemnify Metropolitan for all losses
attributable to a merger that FSLIC facilitated between
Metropolitan and another savings and loan association, County
Federal. In exchange, Metropolitan agreed to assign, upon request,
certain claims of County Federal, and to credit to a special
reserve account any recovery on such claims. After obtaining such
an assignment, FSLIC filed suit against the former officers and
directors of County Federal. The defendants argued that FSLIC
lacked standing to pursue the claims against them because
Metropolitan had not suffered any injury and thus had no cause of
action for losses suffered by County Federal prior to the merger.
The court held that FSLIC could pursue the claims at issue
because the only reason Metropolitan had not suffered any injury
was that FSLIC had agreed to indemnify Metropolitan in exchange for
an assignment of the claims at issue. As the court recognized that
Metropolitan had not suffered any injury, however, Reeves provides
no basis for upholding the jury’s damages award in favor of Amwest.
Amwest recites a litany of horrors that will ensue if the
district court’s judgment in favor of defendants is allowed to
stand. We do not agree that affirming the judgment of the district
court will, as Amwest claims, “undermine the interests of taxpaying
citizens,” “reward wrongdoers in every case in which the FDIC
entered into an assistance agreement,” or allow “tortfeasors
against failed banks or their successors . . . [to] wreak havoc
10
upon these institutions without any fear of legal reprisal.” The
FDIC could have sought subrogation of Amwest’s claims or sought an
assignment of such claims to recoup the losses caused by
defendants. For reasons best known to the FDIC, it chose not to do
so.
Having concluded that Amwest did not show that it suffered any
damages and having disposed of Amwest’s arguments that it is
entitled to the damages awarded by the jury,6 we affirm the
district court’s judgment in favor of defendants on Amwest’s
“purchase price” claims.
III.
Prior to the submission of the case to the jury, the district
court granted judgment as a matter of law in favor of Statewide on
Amwest’s claim for the recovery of the $2.8 million “double” credit
it inadvertently issued to Statewide in resolution of the dispute
between the parties concerning Statewide’s purchase of the loans in
HSA’s portfolio.7 The court held that because Statewide was not
involved in the calculation of the credit, Amwest’s math error was
a “unilateral mistake” which did not entitle Amwest to relief.
As the district court recognized, a unilateral mistake is not
a ground for reformation of an agreement. See RGS, Cardox
Recovery, Inc. v. Dorchester Enhanced Recovery Co., 700 S.W.2d 635,
6
Under Texas law, which applies in this case, punitive
damages are not recoverable absent recovery of compensatory
damages. See Federal Express Corp. v. Dutschmann, 846 S.W.2d 282,
284 (Tex. 1993).
7
Apparently, Amwest was not reimbursed by the FDIC for the
$2.8 million “double” credit.
11
640 (Tex. Ct. App. 1985). Amwest does not attempt to challenge the
district court’s conclusion that it committed a unilateral mistake.
Rather, it argues, correctly, that a unilateral mistake accompanied
by fraud by the other party will warrant reformation. See id.
The jury found that Stone fraudulently induced Amwest to issue
a $2.8 million credit and that Statewide conspired with Stone to
fraudulently induce Amwest to do so. Amwest’s $2.8 million math
error was made in connection with the issuance of that credit.
Statewide contends that there is no evidence to support the
jury’s finding that Stone fraudulently induced Amwest to issue the
credit. In its April 2, 1996 ruling, the district court indicated
that it tended to agree. Although Amwest alleges that Stone
misrepresented that Statewide was entitled to the credit, Amwest
does not point to any evidence that shows that Statewide was not
entitled to the credit as some share of the profit from the sale of
the $14 million in loans in HSA’s portfolio that HSA sold without
Statewide’s knowledge and that Statewide believed it had contracted
to purchase. Accordingly, we conclude that Amwest is not entitled
to relief from its unilateral mistake on the ground that it was
accompanied by fraud.
Amwest’s reliance on Community Mutual Ins. Co. v. Owen, 804
S.W.2d 602 (Tex. Ct. App. 1991) to otherwise support its position
that it is entitled to recover the “double” credit is misplaced.
In Owen, an insurance company issued payment for an insured’s
hospital expenses to both the insured and the hospital. The
insured deposited the payment issued to him into his bank account
12
and did not pay the hospital. The court held that the insurance
company was entitled to recovery of the payment to the insured
because the insurance company had made the payment under a mistake
of fact and the insured had not materially changed his position in
reliance on the payment. Id. at 605.
Unlike the double payment in Owen, the double credit in this
case was made pursuant to an agreement between the parties in
resolution of a dispute. The parties disagreed not only as to
whether Statewide was entitled to a credit, but also as to certain
other issues that would affect the amount of the credit. Amwest
eventually relented and agreed to issue Statewide a credit.
Statewide points to evidence that, after Amwest agreed to give
Statewide a credit, Amwest calculated the amount of the credit and
offered Statewide a closing price based on that credit. Statewide
accepted Amwest’s offer and wired the funds to close the deal.
Amwest, on the other hand, does not point to any evidence that the
parties agreed on the methodology for calculating the credit. As
Statewide played no part in the calculation of the credit and
closed the deal once Amwest offered a closing price based on the
credit, it cannot be said that, like the insured in Owen, Statewide
did not materially change its position in reliance on the credit.
Accordingly, we affirm the district court’s judgment in favor of
Statewide.
IV.
The district court also granted Stone’s motion for judgment as
a matter of law on Amwest’s claim that Stone breached his fiduciary
13
duty to HSA by using his expense account to obtain reimbursement
for personal expenses from HSA funds.8 Amwest argues that in
ruling in favor of Stone, the district court erroneously shifted
the burden of proof to Amwest. According to Amwest, when a
fiduciary relationship exists between parties, equity requires that
the fiduciary establish the fairness of a transaction with the
principal. Amwest contends that because Stone failed to discharge
this burden, the district court should have ruled in its favor.
Amwest relies on two Texas cases in support of its argument.
In Texas Bank and Trust Co. v. Moore, 595 S.W.2d 502 (Tex. 1980),
the nephew of an elderly woman caused her to transfer certain
property to him before her death. The court concluded that the
nephew was the aunt’s fiduciary and, as a result, a presumption
arose that any gift from the aunt, the principal, to the nephew,
the fiduciary, was unfair and invalid. Id. at 506.
In Archer v. Griffith, 390 S.W.2d 735 (Tex. 1964), an attorney
obtained a deed to real property from his client as compensation
for representing her in a divorce case. The court held that
because of the fiduciary nature of the attorney-client relationship
in existence at the time of the conveyance, a presumption of
unfairness or invalidity attached to the transaction. Id. at 739.
We do not agree that Moore and Archer support Amwest’s
contention that Stone bore the burden of proof on Amwest’s expense
8
The court orally granted Stone’s motion on July 3, 1995
during a charging conference. Although the court stated that it
would issue a written opinion on the motion, none was forthcoming.
14
account abuse claim. Both cases held that fiduciaries who engaged
in “transactions” with their principals were required to prove the
fairness of those transactions. Neither suggests that anytime a
fiduciary is accused of wrongdoing he or she bears the burden of
proving otherwise. Stone’s alleged reimbursement of personal
expenses was a misappropriation of corporate funds, not a
“transaction” in which he engaged with HSA. Accordingly, Amwest
bore the burden of proof on its expense account abuse claim. See
Lemons v. Davis, 306 S.W.2d 224, 227 (Tex. Ct. App. 1957) (holding
that principal bore burden of establishing fiduciary’s misuse or
waste of funds). We therefore affirm the district court’s ruling
in favor of Stone.
V.
For the reasons set out above, the judgment of the district
court is AFFIRMED.
15