NCNB Texas Natl Bnk v. Perry Brothers, Inc

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________
No. 98-40237
____________________
NCNB TEXAS NATIONAL BANK,
Plaintiff-Appellant/Cross-Appellee,
versus
PERRY BROTHERS, INC.,
Defendant-Appellee/Cross-Appellant.
_________________________________________________________________
Appeals from the United States District Court
for the Eastern District of Texas
(9:91-CV-181)
_________________________________________________________________
June 17, 1999
Before REYNALDO G. GARZA, POLITZ, and BARKSDALE, Circuit Judges.
PER CURIAM:1
Chiefly at issue in this second appeal for an action involving
NationsBank’s loan to Perry Brothers and its counterclaims are the
relationship of a fraud claim to the parol evidence rule; whether
the loan was executed under duress; and the availability under
Texas law of prejudgment interest for future economic damages. We
AFFIRM.2
1
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this opinion should not be published and is not precedent except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.
2
Although we have considered all of the numerous issues
presented, we discuss only the most colorable. In sum, the post-
remand findings of fact are not clearly erroneous; nor do we find
reversible error in the conclusions of law.
I.
The following facts are distilled from the exhaustive, post-
remand district court opinion. In addition, they are tailored to
our court’s opinion for the first appeal. See NationsBank v. Perry
Brothers, Inc., No. 97-40630 (5th Cir. Aug. 24, 1995)(unpublished).
First RepublicBank (40 separate banks in Texas, including the
one at issue at Lufkin) was declared insolvent at the end of July
1988. The Federal Deposit Insurance Corporation was appointed
receiver, transferred to NationsBank most of First RepublicBank’s
assets and all its deposit liabilities, and agreed to provide
financial assistance to NationsBank to the extent that those
liabilities exceeded the value of the assets. In this regard,
NationsBank was required to purchase all of First RepublicBank’s
loans, and to administer them and seek repayment to the greatest
extent possible, in order to minimize the financial assistance from
the FDIC.
One of the acquired loans was with Perry Brothers, which owned
and operated approximately 160 retail stores in Texas and three
adjoining States. Perry Brothers was an established and valued
customer of First RepublicBank Lufkin. At the time that bank
failed, it and Perry Brothers were working on restructuring Perry
Brothers’ line of credit (loan), to include reducing the amount of
available credit. In late August 1988, Perry Brothers paid a
substantial portion of its loan and entered into a $3 million
revolving line of credit with NationsBank (1988 Loan). Renewal of
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the 1988 Loan, scheduled to mature on 31 July 1989, was in
NationsBank’s discretion.
Unknown to Perry Brothers, the subsequent NationsBank/FDIC
November 1988 contract allowed NationsBank to transfer back to the
FDIC loans assumed before 28 August 1988 (thus protecting
NationsBank against risk), but only if NationsBank sufficiently
altered the terms at renewal. Accordingly, NationsBank had an
incentive to modify the terms of the 1988 Loan when it matured in
July 1989.
In March 1989, an internal NationsBank “Scheduled Asset
Report” reclassified Perry Brothers as a “decrease” debtor (one of
four NationsBank strategies, besides “increase the line”,
“maintain”, and “out”) and reclassified the loan as a “watch”
credit (the type loan which “would rarely be accepted as a new
customer”). The Report recommended adopting several changes, such
as requiring Perry Brothers’ inventory as collateral, when the loan
matured.
The next month, in April 1989, Perry Brothers and NationsBank
met to discuss a violation of the net worth requirements for the
1988 Loan. NationsBank was represented by branch senior vice-
president Mark Reily. In addition to waiving the net worth
requirement, NationsBank (through Reily) discouraged Perry
Brothers, which had inquired specifically about the bank’s
continuing comfort level with the loan, from seeking or
investigating alternative credit. Reassured, Perry Brothers did
not seek an alternative loan.
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An April 1989 memo from Reily to higher NationsBank management
memorialized NationsBank’s discouragement of Perry Brothers from
alternative financing:
Mr. Baldwin [Perry Brothers’ chairman and CEO]
has indicated that several months ago First
City was willing to offer a $5 [million]
commitment on a secured basis. He has also
indicated that if NCNB Lufkin is uncomfortable
with its present position, he can solicit an
offer for financing from them again. NCNB
Lufkin has requested that Mr. Baldwin not
attempt [to] secure alternative financing at
this time, preferring that the company and the
bank wait until the maturity date in July to
assess the situation at that time.
(Emphasis added.)
Higher NationsBank officials approved both the March 1989
Scheduled Asset Report and the April 1989 waiver, but did not
advise Perry Brothers of NationsBank’s plans.
For the renewal in 1989, as was done in 1988, Perry Brothers
and NationsBank did not begin renewal discussions until subsequent
to the maturity date (31 July 1989). In August 1989, NationsBank
Lufkin officers recommended renewing Perry Brothers’ loan on
“basically ... the same terms” as the 1988 Loan. Higher
NationsBank management rejected this recommendation. Perry
Brothers first learned that renewal was not imminent when
NationsBank refused its mid-August 1989 request for an advance.
An August 1989 internal NationsBank memorandum noted that
Perry Brothers could have obtained alternative financing based on
its balance sheet and that “limited (if any)” loss exposure existed
for NationsBank. On 18 September 1989, however, during renewal
negotiations, NationsBank’s Credit Review Committee reclassified
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Perry Brothers’ loan as “substandard”, a credit grade implying a
debtor unable to maintain orderly debt service and the need for
intense effort to protect against loss. Such a precipitous drop
required a “Vulnerable Borrower” status under the NationsBank/FDIC
contract. Perry Brothers would be required to report this
reclassification to any prospective creditors. Perry Brothers
tried, but failed, to obtain alternative credit.
In September 1989, during the 1989 Loan negotiations, Perry
Brothers learned for the first time of the NationsBank/FDIC
November 1988 contract and the incentive it created to modify the
loan.
Although Perry Brothers protested unfairness, it and
NationsBank agreed in September 1989 on a new line of credit. For
this 1989 Loan, the principal was reduced from $3 to $2.5 million;
the maturity was shortened to six months; it was “non-readvancing”
rather than revolving (i.e., limited to borrowing a cumulative $2.5
million rather than setting, as did the 1988 Loan, a limit on the
total balance of indebtedness at any one time); and it was secured
by Perry Brothers’ otherwise-unencumbered inventory, several times
the size of the loan.
The 1989 Loan, back-dated to be effective as of 31 July 1989,
matured on 31 January 1990. Shortly before maturity, Perry
Brothers drew down the balance; but at maturity, it repaid only the
interest. Workout negotiations began.
In March 1990, NationsBank transferred the 1989 Loan to the
“Special Asset Bank”, a designation created by the FDIC/NationsBank
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November 1988 contract, which allowed NationsBank to receive fees
from the FDIC for managing a risky asset and to “put” the loan back
to the FDIC. Following the transfer to the Special Asset Bank,
NationsBank also refused to provide credit information to Perry
Brothers’ vendors, a change from previous practice.
In November 1990, as workout negotiations faltered, and
despite an oral contract not to do so, as well as there being no
written agreement permitting it to do so (at trial, the bank
claimed it was proceeding under its common law right of setoff),
NationsBank setoff over $1.3 million from Perry Brothers’ accounts
with NationsBank; blocked access for 30 days to several other
accounts, with assets totaling several million dollars; and
returned for insufficient funds checks totaling approximately
$134,000. Needless to say, Perry Brothers’ holiday season
operations were dramatically impaired.
As a cumulative result of the changed credit terms and setoff,
Perry Brothers delayed for several years final implementation of a
computerized point-of-sale system (which allows retail stores to
better determine what merchandise is selling at which locations),
installing anti-theft devices, and expanding its number of stores.
The acquisition of systems of such size was also hindered by terms
of the 1989 Loan limiting capital expenditure.
NationsBank was aware in 1989 of Perry Brothers’ capital
improvement plans’ dependence on steadily available credit. And,
NationsBank internal documents indicate that it knew a setoff, just
before the Christmas holidays, would disastrously affect Perry
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Brothers, and would therefore be a good way to get Perry Brothers’
attention.
In late 1990, shortly after the setoff, NationsBank sued Perry
Brothers in Texas state court on the 1989 Loan balance. Perry
Brothers counterclaimed in mid-1991 regarding the failure to renew
the 1988 Loan, the change in its credit status, and the setoff.
Later in 1991, the 1989 Loan was transferred to the FDIC, which was
substituted as plaintiff. NationsBank remained a counterclaim
defendant. The case was removed to federal court.
In December 1993, following a five-day bench trial, the
district court rendered lengthy findings of fact and conclusions of
law, amended in June 1994 to reflect the findings of a magistrate
judge regarding default-prejudment-interest-rate differential,
attorneys’ fees, and costs. The FDIC was awarded against Perry
Brothers the 1989 Loan balance (approximately $1.2 million),
approximately $400,000 for a default-prejudgment-interest-rate
differential, and $250,000 for attorneys’ fees and costs.
On the other hand, the district court found NationsBank liable
to Perry Brothers on a variety of legal theories regarding the
nonrenewal of the 1988 Loan, the November 1990 setoff, and the
September 1989/March 1990 credit downgrade; damages were fixed at
$6 million. Also finding the 1989 Loan made under duress, the
district court ordered NationsBank to reimburse Perry Brothers the
above referenced default-prejudgment-interest-rate differential,
fees, and costs owed the FDIC by Perry Brothers. And, the court
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awarded approximately $555,000 for Perry Brothers’ attorneys’ fees
and costs.
The FDIC and NationsBank appealed. Perry Brothers satisfied
its liability to the FDIC in November 1994; its appeal was
dismissed.
In August 1995, our court affirmed in part, reversed in part,
vacated in part, and remanded. Regarding the 1989 nonrenewal, our
court found no liability under the oral contract, promissory
estoppel, and duty of good faith and fair dealing claims; but, for
the fraud claim, it vacated and remanded for more specific findings
on liability and what damages were caused.
Regarding the November 1990 setoff, our court affirmed
liability, but remanded for more specific findings on what damages
were caused, including those due to business disparagement related
to the dishonored checks.
Finally, regarding the business-disparagement liability for
the September 1989/March 1990 credit downgrade, our court vacated
and remanded for more specific findings on liability and what
damages were caused.
On remand, neither party desired to present additional
evidence. The district court in July 1997 issued an 85-page
opinion, including much more detailed record citations than had its
first opinion. It found fraud liability for NationsBank’s April
1989 reassurances of comfort to Perry Brothers and discouragement
of alternative financing; added detail regarding fraud by
NationsBank leading to the November 1990 setoff; assessed $3.125
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million damages for the delay to the point-of-sale and theft-
control systems and expansion of stores, cumulatively caused by the
setoff and nonrenewal; again found the 1989 Loan executed under
duress, caused by NationsBank’s wrongful actions hindering Perry
Brothers’ ability to secure an alternative loan, and as a remedy
again ordered NationsBank to reimburse Perry Brothers for the
interest-rate differential and attorneys’ fees and costs it had
paid to the FDIC; found NationsBank liable for business
disparagement related to the September 1989/March 1990 credit
downgrade and dishonored checks, assessing $180,000 damages; and
again awarded Perry Brothers’ attorneys’ fees and costs.
The amount of Perry Brothers’ requested attorneys’ fees,
however, was divided by three to reflect only the effort spent
pursuing the wrongful setoff claim, the only remaining breach of
contract claim.
Finally, the district court assessed no prejudgment interest;
it denied Perry Brothers’ motion for reconsideration on this point.
II.
Our well-known standard of review for a bench trial hardly
needs repeating: findings of fact are reviewed for clear error;
conclusions of law, de novo. E.g., Baldwin v. Stalder, 137 F.3d
836, 839 (5th Cir. 1998). A finding is not clearly erroneous when
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“plausible in the light of the record read as a whole”.3 United
States v. Cluck, 143 F.3d 174, 180 (5th Cir. 1998).
As noted, on remand, the parties elected not to present new
evidence. And, contrary to NationsBank’s contention, the district
court did not go outside the quite broad remand mandate on the
first appeal.
A.
Fraud, under Texas law, requires (1) a material
misrepresentation; (2) that was false; (3) that the speaker made
knowing of its falsity or made recklessly, without knowledge of its
truth; (4) that the speaker intended the plaintiff to act upon; (5)
that the plaintiff relied upon; and (6) that injured the plaintiff.
E.g., DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 688 (Tex. 1990),
cert. denied, 498 U.S. 1048 (1991). NationsBank asserts, first, no
single officer had the requisite scienter to commit fraud; second,
the April 1989 statements were true; third, Perry Brothers could
not have justifiably relied on Reily’s statements and was not
3
NationsBank urges even more careful review because the
district court’s findings mirror those proposed post-remand by
Perry Brothers. See, e.g., FDIC v. Texarkana National Bank, 874
F.2d 264, 267 (5th Cir. 1989), cert denied, 493 U.S. 1043 (1990)
(this court considers district court’s “lack of personal attention”
to factual findings in applying clearly erroneous rule). But,
there is more than abundant evidence of the requisite “personal
attention” by the district court, particularly in the addition of
record citations to the proposed findings, reflecting great
familiarity with, and consideration of, the details of the trial.
Moreover, many of Perry Brothers’ proposed findings and conclusions
drew upon the district court’s first opinion, and could be expected
to be likely to be accepted again. More specific fact finding,
which was translated into particularity regarding record citations,
was the district court’s chief task on remand; we detect no
improper delegation of that task.
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injured by them; fourth, such liability violates the parol evidence
rule; and fifth, by accepting the 1989 Loan, Perry Brothers waived
any fraud claim.
1.
In claiming that none of its officials had both the requisite
scienter and conduct, NationsBank points particularly to Reily, who
reassured Perry Brothers that renewal was likely, that the bank was
comfortable, and that outside credit would not be necessary.
NationsBank stresses his lack of knowledge of the falsity of such
reassurances.
We need not reach Reily’s culpability vel non, because we find
no clear error in the district court’s finding the requisite
knowledge by higher NationsBank officials. Restated, even if Reily
was unwitting, NationsBank is culpable for not correcting the known
material misunderstanding Reily caused on its behalf. “Knowingly
failing to disclose material information necessary to prevent a
statement from being misleading is actionable as fraud under Texas
law.” Rubinstein v. Collins, 20 F.3d 160, 172 n.53 (5th Cir.
1994). NationsBank knew of Reily’s statements on its behalf, knew
that they were incompatible with its overall strategy, and intended
that Perry Brothers not seek outside financing. Yet, it left the
statements uncorrected.
2.
The 1989 Loan was not a renewal of the 1988 Loan. We find no
clear error in the findings that the 1989 Loan was dramatically
different from what Perry Brothers had been led in April 1989 to
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expect, and in a way which NationsBank fully anticipated at that
time. The 1989 Loan had different terms: it had a lower balance,
was non-readvancing rather than revolving, and had collateral
several times the size of the loan.
3.
Likewise, we find no clear error in finding reliance and
injury: Perry Brothers justifiably regarded Reily as authorized to
communicate NationsBank’s comfort level and justifiably put off
alternative plans as a result. Reily’s own internal memorandum
characterizes the dissuasion from alternate credit as NationsBank’s
official act.
4.
Liability for the April 1989 fraud does not violate the parol
evidence rule. As noted, on this basis, our court reversed the
district court’s initial breach of contract and promissory estoppel
rulings, and remanded for more specific findings and conclusions
regarding fraud. However, unlike the claims reversed on the first
appeal, NationsBank’s fraud liability is not for the
August/September 1989 refusal to renew, but for fraud in April 1989
regarding willingness to renew.
The parol evidence rule, of course, is a device of substantive
state law (i.e., not a rule of evidence) which bars certain claims
based on prior or contemporaneous representations contrary to
contractual language. E.g., FDIC v. Wallace, 975 F.2d 227, 230 (5th
Cir. 1992). Because any August 1988 promise by NationsBank of
its likelihood to renew the 1988 Loan would contradict the 1988
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Loan’s disclaimer of any such promise, our court on the first
appeal held this precluded the breach of contract and promissory
estoppel claims. However, because the April 1989 reassurances were
neither prior to, nor contemporaneous with the 1988 Loan, but
obviously subsequent to it, the parol evidence rule does not bar a
fraud claim based upon such reassurances.
Likewise, a fraud claim regarding the April 1989 discussions
simply does not contradict the terms of the 1989 Loan. NationsBank
highlights language of the 1989 Loan which, like the 1988 Loan,
disclaimed renewal obligation. The 1989 Loan disclaimer referred
to the lack of a subsequent obligation (on maturity in January
1990) to renew the 1989 Loan. But, that disclaimer did not
disclaim, waive, or satisfy any claim which might have existed
regarding renewal of the 1988 Loan.
5.
Nor did Perry Brothers waive or abandon its fraud claim by
accepting or ratifying the 1989 Loan. Because, as noted, the 1989
Loan does not contradict April 1989 reassurance regarding the
lending relationship and discouragement of other financing, its
ratification is irrelevant to fraud liability.
B.
As noted, on the prior appeal, our court affirmed liability
resulting from the setoff, and remanded regarding what damages were
caused. NationsBank urges that fraud liability for the setoff is
outside the scope of the mandate. However, in affirming liability
arising out of the breach of an oral contract not to setoff the
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funds, our court found it “unnecessary to consider” other theories
supporting liability. Accordingly, it was not necessary on remand
for the district court to address fraud regarding the setoff;
liability for the setoff, on another basis, was already affirmed.
C.
NationsBank maintains that the district court’s remedy for
duress is, first, unsupported by sufficient evidence; second,
outside the remand mandate; and third, waived because outside the
pretrial order.
1.
Duress exists under Texas law when an actor (1) threatens an
act he has no right to perform; and (2) performs some illegal
exaction or some fraud or deception, through (3) imminent restraint
destroying another’s free agency without present means of
protection. E.g., Simpson v. MBank Dallas, N.A., 724 S.W.2d 102,
109 (Tex. App. 1987).
NationsBank claims that it made no wrongful threats during the
negotiation of the 1989 Loan. Those negotiations were conducted in
August and September 1989. However, NationsBank’s improper
reclassification of the Perry Brothers loan that September (during
the negotiations) as “substandard” — implicitly published to any
bank from whom Perry Brothers might seek alternative credit — was
an ongoing wrongful act. NationsBank does not dispute the finding
that this reclassification was performed in bad faith. By
threatening to continue this action (and, of course, continuing
it), NationsBank prevented Perry Brothers from obtaining the
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outside financing from which NationsBank had dissuaded Perry
Brothers in April 1989. Moreover, Perry Brothers could not protect
itself against this wrongful act. The district court did not
clearly err in finding that Perry Brothers negotiated under duress
in September 1989.
NationsBank also claims subsequent ratification of the 1989
Loan by Perry Brothers. However, removal of duress conditions is
required for such ratification. E.g., Green v. Hopper, 278 S.W.
286, 287 (Tex. Civ. App. 1925). Among other things, the credit
downgrade was never reversed.
2.
As noted, the September 1989 duress flows from the business
disparagement involved in NationsBank’s downgrade of Perry
Brothers’ credit; accordingly, it was within the remand mandate for
more specific findings and conclusions regarding business
disparagement. Reading our court’s opinion in the light of the
first district court opinion makes plain that court’s reference to
liability for the credit downgrade encompasses the duress
predicated upon it. Duress is the only aspect of the district
court’s first opinion not otherwise addressed in some way in our
court’s opinion. Moreover, read any differently than we do here,
the opinion incomprehensibly omits any rationale for ever vacating
the duress findings.
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3.
Generally, claims not listed in the pretrial order are deemed
waived. E.g., Southern Constructors Group, Inc. v. Dynalectric
Co., 2 F.3d 606, 610 (5th Cir. 1993).
The pretrial order includes an extensive discussion of the
duress issue and the associated remedies. While the penalties due
to the FDIC as such were not requested from NationsBank, the
elimination of such penalties is a subset of the standard remedy
for duress, to eliminate obligation entirely. See, e.g., State
Nat’l. Bank of El Paso v. Farah Mfg. Co., 678 S.W.2d 661, 683 (Tex.
App. 1984). Of the 29 contested fact issues in the pretrial order,
six related only to the elements of duress. It asks regarding the
FDIC’s claims: “If Perry Brothers executed the Note and related
agreements under duress, what is the appropriate remedy?” This
obviously proposes that, if duress is established, neither the FDIC
nor Perry Brothers (the parties to the transferred Loan) should
bear the burden of these obligations. The obvious inference is
that, if duress were proved, NationsBank should be required to pay
the penalties.
D.
NationsBank terms the damages awarded by the district court
insufficiently specific; at odds with economic reality; and, for
attorneys’ fees, waived because outside the pretrial order and
outside our mandate. (Concerning the district court’s post-remand
methodology in awarding economic damages of $3.125 million, instead
of the requested $6 million, see part II.E.2.)
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1.
Regarding the claim that the damages findings are not
supported by sufficiently specific evidence, it goes without saying
that damages need not be proven with mathematical precision, but
must only be based on the best available evidence. E.g., Patterson
v. A.L. Poss & Sons, Inc., 705 S.W.2d 301, 303 (Tex. App. 1986).
a.
NationsBank challenges Perry Brothers’ experts regarding the
profitability of its new stores, noting that several had been
closed, and one new store had operated at a loss. We find no clear
error; such closings show only the economically reasonable
practice of closing less profitable stores during an overall
expansion. And, we find no clear error in the finding that
expansion would be profitable for Perry Brothers.
b.
NationsBank contends that the experts’ opinions on the delay
to the computerized point-of-sale and theft control systems and
such systems’ helpfulness to Perry Brothers, as well as the terms
and availability of alternative financing, are too general and
speculative. Again, we find no clear error. While better evidence
of the systems’ value would exist had, for instance, NationsBank
not hindered their installation, and regarding alternative credit,
had NationsBank not prevented it, we find no clear error in the
assessment of the experts’ opinions as the best available evidence.
c.
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NationsBank complains that the district court failed to
apportion economic damages between the fraud and the wrongful
setoff. Such apportionment was unnecessary. There is liability on
both claims; therefore, at issue is only what would have happened
had NationsBank not been at fault.
2.
NationsBank claims that its actions could not have delayed the
Perry Brothers’ planned expansion and installation of point-of-sale
and theft-control systems, because, as its experts testified, a
temporary credit line by its nature cannot free up money for
capital expansion. We find no clear error by the district court in
rejecting this approach to temporary lines of credit and in
believing other experts, according to whom the availability of
seasonal credit is an extremely valuable device, obviating the need
to divert capital from long-term projects.
3.
NationsBank contests the method used to compute business
disparagement damages based on the credit downgrade and the
dishonored checks. One of Perry Brothers’ experts used a
percentage of annual revenues, or annual “gross profits”, to
calculate these damages, assuming that the damage to a firm’s
business reputation by a credit downgrade and dishonored checks
tends to reflect a set fraction of its revenues. NationsBank
misinterprets “gross profits” to refer to the company’s net profit,
and asserts that this figure is actually a loss. We find no clear
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error by the district court in accepting Perry Brothers’ expert’s
assessment.
4.
NationsBank challenges the award of attorneys’ fees regarding
the setoff as, first, outside the pleadings, pretrial order, and
mandate; and second, based on a speculative fraction of total
attorneys’ fees.
a.
Failure to plead attorneys’ fees and pretrial-order waiver
were necessarily rejected on the first appeal; therefore, this
point is unchallengable as law of the case. “[T]he law of the case
doctrine comprehends things decided by necessary implication as
well as those decided explicitly.” Conkling v. Turner, 138 F.3d
577, 587 (5th Cir. 1998) (quotation and internal quotation marks
omitted).
Despite NationsBank’s contention that the attorneys’ fees
should never have been assessed, because the issue was not in the
pretrial order, our court held that “causation and damages,
including the damages awarded pursuant to the recommendation of the
magistrate judge, must be specifically linked to the predicate for
liability” (emphasis added). The prior panel characterizes such
findings on causation as a sufficient condition for these damages,
but if pretrial-order waiver were still a live issue, this would
not be so. That the panel implicitly rejected the contention
comports with its remand instructions; the district court correctly
dealt only with the questions presented for resolution on remand,
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ignoring NationsBank’s reiterated pleas of waiver and the
inadequacy of pleadings.4
b.
Concerning the fraction of attorneys’ fees attributable to the
wrongful setoff, we find no clear error. The fraud and setoff
claims were too tangled for any better measure of attorneys’ fees
than to estimate reasonably the ratio of work spent on the setoff.
Work on the extent of damages, for instance, would be relevant to
both predicates of liability.
E.
Perry Brothers cross-appeals the denial of prejudgment
interest on its economic damages. Such interest was denied in the
district court’s first opinion, which Perry Brothers did not cross-
appeal. Without an intervening change, the issue is waived.
Brooks v. U.S., 757 F.2d 734, 739 (5th Cir. 1985). However, Perry
Brothers urges, first, Texas law has changed; second, elapsed time
had rendered all damages past.
Of course, we apply state prejudgment interest law, because it
substantively defines litigants’ rights rather than procedurally
enforcing them. E.g., Harris v. Mickel, 15 F.3d 428, 429 (5th Cir.
1994).
Ordinarily, we review denial of prejudgment interest for abuse
of discretion. E.g., Probo II London v. Isla Santay MV, 92 F.3d
4
The same quoted language from the prior panel, of course,
encompasses attorneys’ fees within the remand, and sets as law of
the case the propriety of the referral to the magistrate judge,
which NationsBank has also questioned again.
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361, 363 (5th Cir. 1996). However, because Perry Brothers’ claim
of intervening change in Texas law was not presented to the
district court, as explained infra, we review it only for plain
error.
1.
We first address an ambiguity in Texas law. Needless to say,
where state law is unsettled, a federal court must make an “Erie
guess” how the State’s supreme court would decide the issue, as per
Erie R. Co. v. Tompkins, 304 U.S. 64 (1938). E.g., H.E. Butt
Grocery Co. v. National Union Fire Ins. Co. of Pittsburgh, PA., 150
F.3d 526, 530 (5th Cir. 1998).
Until recently, Texas prejudgment interest law was judge-made,
governed by the rule of Cavnar v. Quality Control Parking, Inc.,
696 S.W.2d 549 (Tex. 1985). Cavnar allows prejudgment interest
only for damages which have accrued by the time of the judgment,
not for damages either entirely future or unsegregated between
accrued and future damages. 696 S.W.2d at 556. Cavnar applies to
economic damages in a business setting. E.g., Perry Roofing Co. v.
Olcott, 744 S.W.2d 929, 930 (Tex. 1988).
In 1987, a Texas statute, initially codified at TEX. REV. CIV.
STAT. ART. 5069-1.05, since 1997 codified at TEX. FIN. CODE 304.103-
.104, modified the prejudgment interest rule in wrongful death,
personal injury, and property damage cases. For such cases, that
statute changed the date from which prejudgment interest runs,
allowed prejudgment interest for still-future damages, and made
several other changes.
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On 16 January 1998, after the district court on remand denied
prejudgment interest, and less than two weeks before it denied
reconsideration, Johnson & Higgins of Texas, Inc. v. Kenneco
Energy, Inc., 962 S.W.2d 507 (Tex. 1998), held that, although the
statute applied only to wrongful death, personal injury, and
property damage cases, the statutory date for the running of
prejudgment interest would inform the broader common law applying
to economic damages, modifying Cavnar in this respect. It held
that its rule would apply to judgments issued after 11 December
1997 and any other case in which the issue was preserved. 962
S.W.2d at 533.
Neither Johnson & Higgins, nor any other contention that
future damages are entitled to prejudgment interest, was brought to
the attention of the district court on remand. Perry Brothers
conceded at oral argument that this omission was, at least in part,
its strategic decision not to burden the district court with
another issue in an already complicated case. Accordingly, we
review only for plain error. E.g., Whitehead v. Food Max of
Mississippi, Inc., 163 F.3d 265, 272 (5th Cir. 1998).
Concerning Cavnar’s expansion of prejudgment interest, Johnson
& Higgins notes that “[i]n Cavnar, this Court overruled
eighty-eight years of judicial precedent”, 962 S.W.2d at 528, and
uses the statute to limit the prejudgment interest allowed by
Cavnar, commenting that under the statute, “the time period during
which prejudgment interest accrues is shorter than under Cavnar”,
962 S.W.2d at 529. Accordingly, we cannot infer that the Johnson
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& Higgins court would use the same statute to overrule Cavnar to
greatly expand the availability of prejudgment interest. The
desired inference is neither clear nor obvious; therefore, there
was no plain error. E.g., U.S. v. Ulloa, 94 F.3d 949, 952 (5th
Cir. 1996) (plain error must, inter alia, be clear or obvious).
2.
Alternatively, Perry Brothers urges that its damages are now
entirely accrued; that, therefore, even under Cavnar it is entitled
to prejudgment interest.
As noted, economic damages were based on an estimate of
profits which would have resulted from the growth and systems
installation delayed by NationsBank. Perry Brothers’ experts
apportioned the damage over several years, including 1999. Based
on its consideration of the evidence, but without explanation, the
district court reduced the experts’ estimate from nearly $6 million
to $3.125 million. Perry Brothers suggests that, in so reducing
the damages, the district court was confining them to their early
years, rather than expressing doubt regarding their size.
But, at least one reasonable interpretation of the economic
damage award is that it covers the same time frame as the expert
opinions, but pursuant to the district court’s considered judgment,
assesses less damage in each year. This interpretation is
confirmed, of course, by the district court’s order denying
prejudgment interest in the face of the contention that it
represents entirely past damages.
III.
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Accordingly, the post-remand judgment is
AFFIRMED.
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