___________

No. 95-1086

No. 95-1088

___________

Steven M. Rayman; Springfield *

Properties Holding, Inc., *

*

Plaintiffs - Appellees/ * Appeals from the United States

Cross-Appellant, * District Court for the

* District of Nebraska.

v. *

*

American Charter Federal *

Savings & Loan Association, *

*

Defendant - Appellant/ *

Cross-Appellee. *

___________

 Submitted: September 11, 1995

 Filed: January 29, 1996

___________

Before WOLLMAN, LOKEN, and MORRIS SHEPPARD ARNOLD, Circuit Judges.

___________

LOKEN, Circuit Judge.

In July 1991, American Charter Federal Savings & Loan

Association ("American Charter") held the first mortgage on an

apartment building in Springfield, Missouri (the "Property").

Steven M. Rayman held the junior, wraparound ("wrap") mortgage on

that building. When American Charter refused Rayman's attempt to

cure the borrower's default, Rayman foreclosed his wrap mortgage,

sold the Property to a third party, paid off American Charter's

first mortgage, and sued American Charter for breach of contract

and illegal tying practices. American Charter now appeals the jury

verdict awarding Rayman $726,180 in general and special damages for

American Charter's breach of contract. Rayman cross-appeals the
 1

Like the parties, we use the term "mortgage" for

simplicity. Both mortgages consisted of deeds of trust, security

agreements, and assignments of leases and rents.

 2As in most wrap mortgage transactions, the wrap loan was

made at a higher interest rate than the first mortgage loan, and

the wrap lender received that higher rate on the total amount

owing on both loans. See generally 3 Richard R. Powell & Patrick

J. Rohan, Powell on Real Property ¶¶ 475.7 - 475.9 (3d ed. 1994). 

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district court's judgment denying treble damages and attorney's

fees for the tying violations found by the jury. We reverse the

judgment on the contract claim, concluding that the district court

erred in construing the contract and in its damage instructions.

We affirm the dismissal of Rayman's anti-tying claims.

I. Background.

On September 26, 1985, Crest Mortgage Corporation, an entity

then owned by Rayman, loaned $1,850,000 to the owners of the

Property. The transaction consisted of two loans, a $1,000,000

loan secured by a first mortgage on the Property, and a $1,850,000

loan secured by a wrap mortgage on the Property.1 The wrap

mortgage required the borrower to make all principal and interest

payments to the holder of the wrap mortgage, who in turn paid

amounts owing to the holder of the first mortgage. In essence, the

wrap mortgage represented a junior lien on $850,000 of the total

$1,850,000 debt.2

The next day, Crest Mortgage sold the $1,000,000 first

mortgage loan to American Charter, a savings and loan association

in Lincoln, Nebraska, pursuant to a written Participation and

Servicing Agreement (the "Participation Agreement"). The

Participation Agreement provided that Crest Savings, a struggling

financial institution also owned by Rayman, would "service" the
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Participation Loan by collecting amounts due under the first

mortgage and remitting them to American Charter. At the same time

but in a separate transaction, Crest Mortgage sold its interest in

the wrap mortgage loan to Palm Beach FSB, another financial

institution controlled by Rayman. Palm Beach later assigned its

interest in the wrap mortgage loan to Rayman, with American

Charter's consent.

In 1988, the borrower sought Chapter 11 bankruptcy protection.

Crest Savings as servicer intervened in the bankruptcy and made

sure that payments to American Charter on the first mortgage loan

remained current. Apparently, American Charter was not even aware

of the bankruptcy until the borrower petitioned for approval of a

third amended plan of reorganization, which was approved by the

bankruptcy court over American Charter's objection in mid-1989.

In May 1990, Crest Savings stopped servicing mortgages and

proposed to American Charter that Rayman take over this function

under the Participation Agreement. American Charter objected that

Rayman was not an authorized substitute servicer under Paragraph 9

of the Participation Agreement: 

In the event . . . Crest [Savings] . . . ceases to

service the Participation Loan, Crest [Savings] agrees

that servicing shall be transferred to either a

subsidiary of [Crest Mortgage] or a financial institution

insured by the FSLIC, or a wholly-owned subsidiary

thereof. The substituted servicing institution, unless

such substituted servicer is a subsidiary of Crest

[Savings] or [Crest Mortgage], shall be acceptable to

both Crest [Savings] and [American Charter] and approved

in writing by [American Charter].

(Emphasis added.) American Charter proposed to service the

Participation Loan. Rayman informally agreed that American Charter

would perform the servicing for a fee of one-eighth of a point. 
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In June 1991, the borrower stopped making payments on both

mortgage loans. When Rayman learned of the default, he tendered

payment of the amount past-due on American Charter's first mortgage

loan and commenced to foreclose the wrap mortgage. On July 25,

1991, American Charter refused this tender and served the borrower

with a notice of default, advising that the first mortgage loan

would be accelerated. Rayman and American Charter then agreed that

American Charter would not foreclose the first mortgage while

Rayman proceeded to foreclose the wrap mortgage. 

In August 1991, Rayman completed foreclosure, acquiring title

to the Property in the name of a corporation formed for that

purpose, plaintiff Springfield Properties Holding, Inc. ("SPH").

SPH then tendered to American Charter all amounts owing under the

first mortgage loan. American Charter again refused the tender.

Fearing that American Charter would now foreclose its first

mortgage, SPH sold the Property in September 1991 for $1,750,000.

It paid American Charter's first mortgage in full, keeping the

balance of approximately $750,000.

SPH and Rayman then commenced this action against American

Charter, seeking damages for breach of contract and for two alleged

violations of the anti-tying provisions of the Home Owners' Loan

Act of 1933 ("HOLA"), 12 U.S.C. § 1464(q). The jury returned a

verdict in favor of SPH on all its claims for the full amount of

contract damages sought, $726,180. The district court denied SPH

treble damages and attorney's fees under HOLA on the ground that

American Charter's violations were not the proximate cause of SPH's

injury. However, the court upheld the jury's verdict on the breach

of contract claims. See Rayman v. American Charter Fed. Sav. &

Loan Ass'n, 866 F. Supp. 1252 (D. Neb. 1994). Both sides appeal.
 3

Almost certainly, this should have been a reference to the

servicer, Crest Savings. One of the problems in construing the

Participation Agreement is that Rayman's drafters repeatedly

confused the roles of Crest Mortgage and Crest Savings. The

obvious inference is that they did a poor job of conforming a

Rayman enterprise form to the facts of this transaction.

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II. Breach of Contract Claims.

Rayman and SPH contend that the wrap mortgage holder had a

right to cure the borrower's defaults and therefore American

Charter breached the Participation Agreement when it rejected

Rayman's pre-foreclosure tender of amounts owing under the first

mortgage loan, and when it rejected SPH's post-foreclosure tender.

In this rather unusual situation, these claims raise difficult

issues regarding contract liability and damages.

A. Did Rayman or SPH Have a Right To Cure?

In the district court's view, the wrap mortgage holder's right

to cure, either before or after foreclosure of the wrap mortgage,

is governed by the default provisions of the Participation

Agreement. There are two relevant paragraphs:

11. Default. In the event of a default under a

Participation Loan, Crest [Savings] shall promptly notify

[American Charter] . . . and Crest [Savings], [American

Charter] and any other participant in the Participation

Loan shall promptly . . . attempt to reach an agreement

as to the remedies or actions to be taken subject to the

rights of the Wrap Mortgage holder as defined hereinafter

in paragraph 23. If all of such participants cannot

agree on a particular action to be taken within a

reasonable time . . . then, if the participants owning

not less than two-thirds (2/3) of the Participation Loan

can agree on an action to be taken, which action shall be

reasonable . . . such majority decision shall be

controlling and [Crest Mortgage] [sic3] shall proceed in

accordance therewith. In the event that agreement as set

forth above cannot be reached, then Crest [Savings] shall

proceed promptly to foreclose . . . . [A]fter acquisition

of the Mortgaged Premises by means of foreclosure . . .
 4

On appeal, Rayman argues that we should affirm because SPH

had a post-foreclosure right to cure under Missouri law of

foreclosure. However, we decline to consider a theory that the

district court did not submit to the jury. 

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Crest [Savings] may, unless otherwise directed by a

majority decision, manage, maintain or dispose of the

Mortgaged Premises . . . . If at any time Crest [Savings]

does not agree with any majority decision, Crest

[Savings] may purchase [American Charter's] interest in

the Participation Loan for the then-current principal

balance plus accrued yield to [American Charter].

Nothing contained herein shall limit [Crest Mortgage]

[sic] from taking or refraining from taking any action it

deems reasonably necessary in the exercise of its

servicing obligations . . . .

* * * * *

23. [American Charter] acknowledges the second lien

position of Palm Beach Federal Savings Bank . . . an

affiliate of Crest [Savings] and [Crest Mortgage], as the

holder of a Wrap Mortgage . . . . [American Charter]

agrees that in the event of default, if Palm Beach or its

affiliate takes title to the property through foreclosure

. . . it shall not be an Event of Default under [American

Charter's] first mortgage loan of $1,000,000, nor shall

a subsequent sale . . . which is acceptable to [American

Charter]. In that event [Crest Mortgage] [sic] shall

continue to service [American Charter's] loan. 

(Emphasis added.) Focusing only on Paragraph 23, the district

court held that the Participation Agreement was ambiguous on the

question whether the wrap mortgage holder had a right to cure

borrower defaults under the first mortgage. The court allowed

extrinsic evidence on this issue to determine the parties' intent,

consisting of testimony outside the jury's presence by Rayman and

American Charter's former employee who negotiated the Participation

Agreement. Relying on this testimony, the court instructed the

jury that Paragraph 23 gave the wrap mortgage holder a right to

cure both before and after foreclosure.4 

Under Nebraska law, which governs the Participation Agreement,

if the terms of a contract are not ambiguous, "the intent of the
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parties must be determined from the contents of the contract, and

the contract must be enforced according to its terms." New Light

Co. v. Wells Fargo Alarm Servs., 525 N.W.2d 25, 31 (Neb. 1994).

Construing an unambiguous contract is a question of law for the

court, and "[t]here is a strong presumption that a written

instrument correctly expresses the intention of the parties to it."

Artex, Inc. v. Omaha Edible Oils, Inc., 436 N.W.2d 146, 150 (Neb.

1989). However, if the contract is ambiguous -- that is, if it may

objectively be understood in more than one sense -- then extrinsic

evidence is admissible, and the parties' intent is a question of

fact for the jury. See Luschen Bldg. Ass'n v. Fleming Cos., 415

N.W.2d 453, 458-59 (Neb. 1987); Lauritzen v. Davis, 335 N.W.2d 520,

527 (Neb. 1983). 

The district court implied a right to cure from Paragraph 23

of the Participation Agreement. That provision unambiguously

granted the wrap mortgage holder one specific right, to foreclose

the wrap mortgage and to sell the Property without triggering an

"Event of Default" under the first mortgage. Paragraph 23 says

nothing about a right to cure, that is, a right of the wrap

mortgage holder to prevent unwanted foreclosure by the first

mortgage holder by keeping first mortgage loan payments current.

Thus, American Charter argues, a right to cure may not be implied

from the silence of Paragraph 23. "That constitutes a void but not

an ambiguity." T.V. Transmission, Inc. v. City of Lincoln, 374

N.W.2d 49, 53 (Neb. 1985). See also Master Labs. v. Chesnut, 59

N.W.2d 571, 575 (Neb. 1953). If the contract documents and the

situation were less complex, we would agree. In our view Paragraph

11 of the Participation Agreement does contain what the Supreme

Court of Nebraska has called a "latent ambiguity." Younker Bros.,

Inc. v. Westroads, Inc., 241 N.W.2d 679, 684 (Neb. 1976). But this

ambiguity is of no help to Rayman.

As Rayman testified, an essential feature of the wrap mortgage

financing device is placing control of loan servicing in the hands
 5

We would expect a benefit as important as the right to cure

to be explicitly granted in wrap mortgage documents drafted by

the junior lender, so it is a close question whether the

Participation Agreement should be construed as unambiguously

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of the wrap mortgage holder. That reduces loan costs for the

senior lender, and it gives the junior lender control over the

process, so that it can act quickly to protect its less secure

investment. Beyond control over servicing, the wrap mortgage

lender may obtain two more safeguards if the first mortgage holder

agrees -- first, the right to prepay the first mortgage loan, and

second, the right, but not the obligation, to cure any borrower

defaults under the first mortgage loan. These safeguards permit

the wrap mortgage holder to protect its position against first

mortgage foreclosure by increasing its stake in the distressed

loan. However, there are corresponding disadvantages for the

senior lienholder -- the right to prepay may prevent the senior

lender from staying in a desirable, well secured loan, whereas the

right to cure allows the wrap mortgage holder to hold the senior

lender in place on a loan that it would prefer to accelerate and

foreclose. See 3 Powell & Rohan ¶¶ 475.9, 475.12. 

The Participation Agreement in this case was drafted by the

Rayman interests and reflects these tensions. A Rayman entity,

Crest Savings, was made the servicer. Paragraph 9 allowed Rayman

to transfer that function to a Crest Savings affiliate without

American Charter's consent. Paragraph 11, the comprehensive

default provision, required attempted cooperation by participating

lenders and gave a dominant remedial role to the servicer,

including the absolute right to prepay the first mortgage loan.

Although Paragraph 11, like Paragraph 23, was silent on the right

to cure, Crest Savings in fact cured earlier defaults during the

borrower's bankruptcy. Thus, it is fair to infer the servicer's

right to cure from the structure and language of Paragraphs 9 and

11, from the parties' prior conduct, and from the trial testimony

of the Participation Agreement negotiators.5 In our view,
contrary to Rayman's contention. See Artex, 436 N.W.2d at 150-

51. On the other hand, the complex default provisions in

Paragraph 11 do not seem workable unless they include the

servicer's right to cure defaults while the lenders decide how to

deal with a troubled borrower. Thus, we are satisfied that the

contract is ambiguous in this regard and that the evidence

establishes the servicer's implied right to cure.

 6Rayman may have lost effective control over the servicing

function before Crest Savings withdrew as servicer, when he sold

his interest in Crest Savings without renegotiating the

successor-servicer provisions of Paragraph 9 of the Participation

Agreement. But if so, that misstep was not American Charter's

fault.

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Paragraph 23 is virtually irrelevant to all this; its limited

function was to answer one important question in the event the wrap

mortgage should be foreclosed during a period in which the servicer

was curing the borrower's failure to make first mortgage loan

payments.

The complexity here arose because Rayman allowed the servicing

function to be taken over by the first mortgage holder, American

Charter.6 This inverted the lenders' normal roles in a wrap

mortgage transaction. There was no written agreement reflecting

this role reversal because Rayman refused to sign a written

servicing agreement drafted by American Charter. In these

circumstances, the question is whether the right to cure first

mortgage loan defaults and the right to prepay the first mortgage

loan -- rights given to the servicer in the Participation Agreement

-- remained with the servicer entity or were transferred to Rayman

when the now-unfriendly lenders agreed to transfer the servicing

function to American Charter in June 1990. Thus, in deciding the

right to cure issue, both plaintiffs and the district court focused

on the wrong agreement. Plaintiffs only claimed a right to cure

arising from the Participation Agreement, an agreement which

granted that right to the servicer. Plaintiffs did not claim that

American Charter agreed to transfer the right to cure to the wrap

mortgage holder when American Charter assumed the role of servicer,
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with Rayman's consent. Thus, it is apparent that neither Rayman

nor SPH had the claimed right to cure, and American Charter is

entitled to judgment as a matter of law dismissing their contract

claims. 

B. Damages for Breach of Contract.

Even if plaintiffs could recover from American Charter on

their contract claims, we would reverse the district court's

judgment in their favor because of two damage instruction errors.

1. Rayman's contract damage theory is that American Charter's

breach of the right to cure forced SPH to sell the Property for

$188,000 less than its fair market value, causing SPH to lose an

additional $359,180 in future income and $179,000 in future

appreciation. The jury awarded the entire amount requested,

$726,180, and the district court upheld this award. American

Charter argues that the court should have applied the principle

that damages for breach of a contract to lend money are limited to

the cost of substitute financing, absent proof of special damages.

We agree.

The district court rejected this contention because "Rayman

and SPH were creditors just like American Charter." That ignores

Rayman's trial testimony:

Q [The Participation Agreement] says that [the wrap

mortgage holder] has to maintain the 10% ownership

interest in the wrap at all times. Is that true?

A That's what it says, yes.

Q And when the wrap disappears [through foreclosure],

can that provision be complied with?

* * * * *
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A Well . . . [w]e wouldn't have the mortgage. We would

be the owner.

Q The first mortgage is still there, isn't it?

A You bet. We would be your borrower.

(Emphasis added.) That testimony simply reflects economic reality.

Once Rayman through SPH bought the Property in foreclosure, SPH

owed American Charter $1,000,000. American Charter wanted out of

the credit, so it rejected SPH's attempt to cure and accelerated

the first mortgage loan. If that action breached the contract,

Rayman could maintain SPH's investment by either investing or

borrowing an additional $1,000,000 to repay American Charter. It

is undisputed that Rayman had the financial ability to do that.

Therefore, SPH's injury is simple to measure -- the fair market

cost of alternative financing. Given Rayman's financial strength

and experience in such transactions, American Charter had no reason

to foresee that any special damages would be incurred. Therefore,

Nebraska law limits SPH's damages to the difference between the

contract interest rate and the increased interest rate and costs of

obtaining alternative financing. Rubin v. Pioneer Fed. Sav. & Loan

Ass'n, 334 N.W.2d 424, 428 (Neb. 1983); Shurtleff v. Occidental

Bldg. & Loan Ass'n, 181 N.W. 374, 375 (Neb. 1921). The district

court erred in failing to instruct the jury accordingly.

2. The district court also erred by allowing the jury to award

not only the difference between the Property's fair market value

and SPH's sale price, but also lost future profit and appreciation.

Fair market value of an income-producing property "by definition

reflect[s] a market estimation of future profits . . . ."

Whitehead Oil Co. v. City of Lincoln, 515 N.W.2d 401, 411 (Neb.

1994), quoting Wheeler v. City of Pleasant Grove, 833 F.2d 267, 271

(11th Cir. 1987). Therefore, if SPH had a right to special damages

for forced sale, those special damages would be limited to

$188,000. 
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III. The Tying Claims.

In 1982, Congress amended HOLA by enacting anti-tying and

antireciprocity restrictions previously imposed on commercial banks

under the Bank Holding Company Act. See Integon Life Ins. Corp. v.

Browning, 989 F.2d 1143, 1149 (11th Cir. 1993). Those provisions

as amended provide in relevant part:

12 U.S.C. § 1464(q) - Tying Arrangements

(1) A savings association may not in any manner extend

credit, lease, or sell property of any kind, or furnish

any service, or fix or vary the consideration for any of

the foregoing, on the condition or requirement--

(A) that the customer shall obtain additional

credit, property, or service from such savings

association, or from any service corporation or affiliate

of such association, other than a loan, discount,

deposit, or trust service;

(B) that the customer provide additional credit,

property, or service to such association, or to any

service corporation or affiliate of such association,

other than those related to and usually provided in

connection with a similar loan, discount, deposit or

trust service . . . .

The statute provides a treble damage remedy. See 12 U.S.C.

§ 1464(q)(3). These are antitrust restraints specific to the field

of commercial banking and therefore must be applied in a manner

consistent with Sherman Act and Clayton Act principles. See Davis

v. First Nat'l Bank of Westville, 868 F.2d 206, 208 (7th Cir.),

cert. denied, 493 U.S. 816 (1989). We construe the anti-tying

restraints as requiring proof that a challenged banking practice

"was unusual in the banking industry; resulted in an anticompetitive tying arrangement; and benefitted the bank." Alpine

Elec. Co. v. Union Bank, 979 F.2d 133, 135 (8th Cir. 1992). 
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In this case, Rayman alleges two anticompetitive tying

practices. First, he contends that American Charter violated

§ 1464(q)(1)(A) when it demanded that Rayman allow American Charter

to service the Participation Loan for a fee after Crest Savings

withdrew from its role as servicer. This contention is without

merit for many reasons. (1) The challenged practice is a "loan

service" expressly excluded from subsection (1)(A). (2) The

challenged practice did not link "two separate product markets," as

required by Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2,

21 (1984). American Charter purchased one product, a participation

loan; who serviced that loan was a term of the transaction, not a

separate product. Cf. Mid-State Fertilizer Co. v. Exchange Nat'l

Bank of Chicago, 877 F.2d 1333, 1338 (7th Cir. 1989) (no separate

market for the "lock box" used in an asset-backed loan). (3)

Because Rayman had voluntarily relinquished an absolute right to

transfer servicing to an entity he controlled, his decision to

accept American Charter as servicer was not the product of the

coercion necessary to prove an unlawful tying arrangement. (4)

Rayman's assault on the fee "extracted" by American Charter for

servicing the Participation Loan is unpersuasive. The initial

agreement provided that Crest Savings would service the first

mortgage loan at no charge to American Charter; obviously, American

Charter would expect to be paid a fee for taking over an obligation

that the wrap mortgage holder customarily performs. 

Second, Rayman alleges that American Charter violated

§ 1464(q)(1)(B) after foreclosure of the wrap mortgage, when it

offered to let SPH assume the first mortgage in exchange for Rayman

releasing all of his claims against American Charter. This theory,

too, is without merit. American Charter's proposal to resolve a

troubled loan did not link two separate product markets. Nor was

there the requisite coercion. Rayman's admitted financial strength

gave him many options: insist on SPH's right to cure, litigating

foreclosure by American Charter if necessary; insist that Paragraph

11 of the Participation Agreement gave him an absolute right to
 7

There was no foundation for the so-called expert opinions

offered at the trial by a Maryland banking consultant. We reject

those opinions as neither credible nor rational.

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prepay the first mortgage, without a release; and, if all else

failed, yield to American Charter's desire to be out of the credit

by refinancing the first mortgage through another lender and then

sue American Charter to recover those costs. Finally, there is no

credible evidence that this proposal was "unusual in the banking

industry."7 To the contrary, a prudent bank can be expected to

want a release when it resolves a complex dispute of this nature.

To recover treble damages under § 1464(q), plaintiff's injury

must be a direct consequence of the illegal tie. See Sundance Land

Corp. v. Community First Fed. Sav. & Loan Ass'n, 840 F.2d 653, 660

(9th Cir. 1988); Campbell v. Wells Fargo Bank, 781 F.2d 440, 443

(5th Cir.), cert. denied, 476 U.S. 1159 (1986). The district court

held that neither anti-tying violation was the proximate cause of

Rayman's damages. Rayman, 866 F. Supp. at 1265-66. We agree. But

in addition, we conclude that it was reversible error to admit

"expert" testimony that American Charter's actions were

anticompetitive and then to submit the anti-tying claims to the

jury, thereby suggesting that American Charter may have been guilty

of a federal statutory tort. This was a legitimate breach-ofcontract case but an illegitimate antitrust case. 

We reverse the judgment of the district court on plaintiffs'

breach of contract claims, affirm the dismissal of plaintiffs'

claims under 12 U.S.C. § 1464(q), and remand with instructions to

enter judgment in favor of American Charter.

A true copy.

Attest:
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 CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.