Opinion ID: 2617682
Heading Depth: 1
Heading Rank: 3

Heading: Was the defendant entitled to an offset against plaintiff's damages?

Text: Black contends that the $17.5 million loss should have been offset by the $10.1 million increase in the value of the mortgage portfolio found by the auditor. Black does not cite any legal authority for this argument except for one case in his reply brief. Pittman testified and the trial court found that there was never a market valuation of the loans purportedly hedged. The court also found, Any appreciation in value of plaintiff's loan portfolio was not caused by defendant's acts, but appreciated because of market conditions. Although the market value of the mortgage portfolio may have risen due to market conditions during February through June 1985, there was no actual increase in the value to Wichita Federal because Wichita Federal had no intent to sell the mortgages. Richard O. Nelson, a certified public accountant, testified that short positions in financial futures which are taken for hedging purposes should be accounted for as accounts receivable from the broker until the positions are closed. He testified that any offsetting credit on the books would come out of cash. When asked about the $10,189,000 figure he had reached, Nelson said, We used that number to determine whether or not that loss will correlate to the increase in value of the fixed-rate mortgages that were hedgable. Robert Ball, a certified public accountant, testified that, while the accounting treatment of this transaction gives the impression that the mortgages have increased in value, the mortgages still have the same value they previously had. The loss is added to the value of the mortgages but is amortized over the life of the mortgages. Ball testified, You replaced a good asset, cash, with something called `deferred loss,' which is amortized for future periods. A good analysis of the theory of offsetting benefits as argued by Black is made in Macon-Bibb, Etc. v. Tuttle/White Constructors, Inc., 530 F. Supp. 1048, 1055 (M.D. Ga. 1981): Basically where the defendant's tortious misconduct or breach of contract causes damages, but also operates directly to confer some benefit upon the plaintiff, the plaintiff's claim for damages may be diminished by the amount of the benefit received. [Citations omitted.] The offset theory can only be utilized `when the benefits accruing to the plaintiff are sufficiently proximate to the contract to warrant reducing the plaintiff's damages and the failure to do so would permit the plaintiff to obtain unreasonable damages.' Black cites Minpeco, S.A. v. Conticommodity Services, Inc., 676 F. Supp. 486 (S.D.N.Y. 1987), a case which arose out of trading in silver futures. Minpeco had sold silver futures short as a hedge of its holdings in physical silver. The defendants argued that whatever losses Minpeco incurred on its futures contracts were offset by the increase in value of is holdings in physical silver. The court said, Under most circumstances, it is clear that a plaintiff both injured and enriched by illegal activity cannot choose to recover for his injuries yet retain his windfall. 676 F. Supp. at 488. The court concluded that Minpeco's damages should be offset by the increase in value of its actual silver holdings. Minpeco can be distinguished from the case at bar in two respects. First, Minpeco had actual possession of the silver that it was seeking to hedge through selling short the futures contracts. Black does not contend that Wichita Federal ever owned the treasury bonds underlying the futures contracts he sold short. Second, Minpeco arose out of the manipulation of the silver market by the Hunt brothers in the early 1980s and the Hunts were the defendants in the litigation who raised the issue of offset. It was clear that the Hunts' manipulation of the market caused both Minpeco's loss in the futures contracts and its gain in its physical silver holdings. In the case at bar, any gain in the market value of the mortgage portfolio would have occurred regardless of Black's transactions in financial futures. Despite the fact that Wichita Federal was able to defer $10.1 million of its losses, the $10.1 million is still a loss that will have to be taken over the next 15 to 20 years. Black's contention that it should offset the award of damages in this case has no merit.