Opinion ID: 552196
Heading Depth: 1
Heading Rank: 2

Heading: hutton's causes of action

Text: 27 Using seven legal theories, Hutton maintains that its assent to the Facility Agreement was induced by any one of ten instances of Aubin-party fraudulent conduct. 3 Hutton appeals the district court's summary dismissal of all its fraudulent inducement claims. While we agree with the district court's conclusions regarding most of Hutton's legal theories, some of Hutton's claims under section 12(2) of the 1933 Securities Act merit further consideration on remand.
28 We agree with the district court that uncontroverted evidence determines Hutton's common law fraud, negligent misrepresentation, and Texas statutory fraud 4 claims as a matter of law. Our review of the record confirms that Hutton cannot establish elements common to these three causes of action for any alleged fraudulent conduct. 29
30 To succeed in a common law fraud action, a plaintiff's reliance on the defendant's fraudulent conduct must be justifiable as well as actual. Fredonia Broadcasting Corp. v. RCA Corp., 481 F.2d 781, 795 (5th Cir.1973); Garcia v. Flynt, 574 S.W.2d 587, 589 (Tex.Civ.App.--Houston [14th Dist] 1978), rev'd on other grounds, 587 S.W.2d 109 (Tex.1979); Grumman Allied Industries, Inc. v. Rohr Industries, Inc., 748 F.2d 729, 737 (2d Cir.1984). 31 Justifiable reliance represents a lesser burden on fraud plaintiffs than what reasonable reliance might imply. 5 See generally Dupuy v. Dupuy, 551 F.2d 1005, 1018 (5th Cir.), cert. denied, 434 U.S. 911, 98 S.Ct. 312, 54 L.Ed.2d 197 (1977); Restatement (Second) of Torts, Secs. 545A (1977); Prosser and Keeton on Torts, Sec. 108, at 750 (5th ed. 1984). To determine justifiability, courts inquire whether--given a fraud plaintiff's individual characteristics, abilities, and appreciation of facts and circumstances at or before the time of the alleged fraud--it is extremely unlikely that there is actual reliance on the plaintiff's part. See, e.g., Lone Star Machinery Corp. v. Frankel, 564 S.W.2d 135, 139 (Tex.Civ.App.--Beaumont 1978, no writ) (specifications showed that representations were false as to house's square footage, putting plaintiff on such notice of fraud as to create a duty to make further inquiry); General Motors Corp., Pontiac Motor Div. v. Courtesy Pontiac, Inc., 538 S.W.2d 3, 6 (Tex.Civ.App.--Tyler 1976, no writ) (plaintiff may not justifiably rely on representations which any [person of normal intelligence, experience, and education] would recognize at once as preposterous ... or which are shown by facts within his observation to be so patently and obviously false that he must have closed his eyes to avoid discovery of the truth) (quoting Prosser on Torts, Sec. 103, at 731 (3d ed.)); Grumman Allied Industries, 748 F.2d at 737 (New York courts are particularly disinclined to entertain claims of justifiable reliance when sophisticated plaintiff has access to information that would reveal fraud at a time when harm could be averted). 32 The summary judgment record conclusively establishes that Hutton could not have justifiably relied on the following allegedly fraudulent conduct in assenting to the Facility Agreement. 33 i. Aubin's Ownership Interest in Mercury--Hutton claims that certain Aubin parties--Aubin, Haralson, and Fuqua--hid the fact that Aubin owned a 50% interest in the proceeds from any sale of the S&Ls. Hutton shamelessly contends that it would have sought repayment of Aubin's trading losses from this interest rather than enter into the Facility Agreement had it known that Aubin had such a claim on the S&Ls. 34 But Hutton's Mundy testified in his deposition that he knew from Aubin that Aubin was due even more than 50% of the proceeds from any sale of the S&Ls. Mundy testified that he told Hutton director Sanders this before the Facility Agreement was signed. The Aubin parties even discovered a tape recording of a February 1985 telephone conversation between Sanders and Mundy wherein Mundy stated that Aubin had access to at least 50% of the proceeds from a sale of the S&Ls. 35 Because a corporation operates through individuals, the privity and knowledge of individuals at a certain level of responsibility must be deemed the privity and knowledge of the organization. Continental Oil Co. v. Bonanza Corp., 706 F.2d 1365, 1376 (5th Cir.1983). All Hutton executives who negotiated the Facility Agreement knew that Sanders and Mundy were the Hutton employees who knew Aubin best. If these people failed to ask Mundy what relevant information he had before assenting to the Facility Agreement, they simply did not avail themselves of knowledge which we now impute to their corporation. 36 ii. Aubin's Impecuniosity--Our holding that Hutton knew of Aubin's 50% interest in the S&Ls' sale proceeds also disposes of Hutton's claim that Aubin parties misrepresented Aubin and his companies as impecunious on March 8, 1985. We need not decide, as did the court below, whether general representations about one's personal wealth are actionable. As a matter of law, Hutton knew that Aubin had rights in substantial assets and was not induced into signing the Facility Agreement by any representation otherwise. 37 iii. Aubin's Control of the S&Ls --Although not in its complaint, Hutton contends in its brief that Aubin parties defrauded Hutton by misrepresenting that Haralson controlled the S & Ls when in fact Aubin did. This is a fabricated contention. Yang testified that he believed Aubin had actual control of the S & Ls during all times relevant to this controversy. And Yang communicated this belief to his superiors. 38 iv. Hutton's Rights in the Sale of Milam --Hutton contends in its brief that, while negotiating the Facility Agreement, Aubin said that Hutton would have a superior interest in the sale of Milam, and that Aubin omitted telling Hutton that Aubin had a first lien on Milam's stock. The Facility Agreement obligates Haralson to pledge only Mercury's stock to Hutton. It also obligates him to take all action necessary to assign to Hutton the proceeds of either S&Ls' sale. 39 When the Hutton executives negotiating the Facility Agreement called Yang to get his estimate of the S&Ls' value, Yang urged them to get the stock of both Mercury and Milam as collateral. The deposition of Hutton's outside counsel, Irwin Schneiderman, indicates that Lynch's group listened to Yang. Schneiderman testified that whether Hutton would get a first lien on both Mercury and Milam or only on Mercury was negotiated on March 8, 1985. Hutton obviously lost on the issue given the Facility Agreement's language. Hutton's knowledge that it did not have a first lien on Milam means that it was not defrauded into thinking that it did. 40 v. RBI's Assets--Hutton claims that it was defrauded by Aubin-party representations that RBI had substantial assets when, in fact, RBI had no such assets and was formed two weeks before Haralson and Hutton signed the Facility Agreement. Hutton maintains that by asking for and receiving millions of dollars in loans, RBI's agents represented that RBI had substantial assets to meet its obligations under the Note. But Hutton's executives did not ask Aubin, Fuqua, Haralson, or anyone else about RBI's financial wherewithal before signing the Facility Agreement and lending RBI approximately $48 million. This peculiar laxity by sophisticated parties establishes an extreme unlikelihood that Hutton relied on RBI's financial strength in assenting to the Facility Agreement. Such unjustifiable reliance bars Hutton's common law fraud and negligent misrepresentation claims regarding RBI's assets as a matter of law. 41 Alternatively, we hold that Hutton waived its common law claims for fraudulent inducement based on RBI's lack of assets. In the Participation Agreements of June 7, 1985, Hutton's Lynch agreed that the Facility Agreement and Promissory Note attached thereto dated March 8, 1985 remain in full force and effect. One month earlier, Yang wrote Lynch that, according to Aubin, RBI has no assets. The Participation Agreements constitute Hutton's ratification of the Facility Agreement. Olney Sav. & Loan Ass'n v. Trinity Banc Sav. Ass'n, 885 F.2d 266, 270 (5th Cir.1989) (ratification occurs when a person induced by fraud to enter into an agreement continues to accept benefits under the agreement after he becomes aware of the fraud, or if he conducts himself so as to recognize the agreement as binding) (quoting Johnson v. Smith, 697 S.W.2d 625 (Tex.App.--Houston [14th Dist.] 1985, no writ)). Once a contract has been ratified by the defrauded party ..., the defrauded party waives any right of rescission or damages. Spellman v. American Universal Invest. Co., 687 S.W.2d 27, 29 (Tex.App.--Corpus Christi 1984, writ ref'd n.r.e.) (per curiam, en banc) (quoting Wise v. Pena, 552 S.W.2d 196 (Tex.Civ.App.--Corpus Christi 1977, writ dism'd w.o.j.)); cf. Bisbing v. Sterling Precision Corp., 34 A.D.2d 427, 312 N.Y.S.2d 305, 310 (1970) (a party who knows facts and freely recognizes a contract as existing acquiesces in it and is equitably estopped from impeaching it although it was originally void or voidable). 42 vi. Imminence of Southmark Transaction--Hutton claims that Aubin parties fraudulently induced Hutton's assent to the Facility Agreement by making Hutton believe that Southmark would buy the S&Ls. If Aubin, Haralson, or Fuqua made such representations, we find reliance on them unjustifiable. Yang was involved in the negotiations to sell the S&Ls to Southmark. Yang worked full time on this project for at least ten days from the end of February 1985 to the beginning of March 1985, meeting with Southmark's president in Dallas and Southmark's counsel in New York. Yang knew that Southmark had not conducted the in-depth review of the S&Ls' financial records that is customary in the purchase of financial institutions. The Facility Agreement itself provides only that [a] sale of Haralson's securities of Mercury and Milam is currently in the final stages of negotiation. Five days after signing the Facility Agreement, Haralson signed a sales contract with Southmark, but Southmark retained the right to walk away from the deal if it was dissatisfied after auditing the S&Ls' financial records. The record contains no evidence of Hutton's surprise at Southmark's retention of this right. Hutton did not justifiably rely on a certain Southmark purchase of the S&Ls in entering into the Facility Agreement. 43 Alternatively, we hold that Hutton waived its common law claims for fraudulent inducement based on its expectation that Southmark would purchase the S&Ls. Lynch knew by April 1985 that Southmark had exercised its option to back out of its purchase contract with Haralson. Over one month later, Lynch signed the Participation Agreements on Hutton's behalf. Hutton's only response is that it did not know why Southmark had backed out. But the reasons for Southmark's withdrawal have nothing to do with the misrepresentations and omissions concerning Southmark alleged in Hutton's complaint. By ratifying the Facility Agreement after learning that Southmark would not certainly purchase the S&Ls, Hutton waived its common law fraudulent inducement claims concerning Aubin-party representations otherwise. 44 vii. Texas Savings and Loan Department Supervision--Hutton claims that Aubin parties concealed a formal Supervisory Agreement that Mercury entered into with the TS&LD in September 1984. Indeed, to avoid a cease and desist order, Haralson agreed with then Texas Savings and Loan Commissioner Linton Bowman III to sell the S&Ls within a year, keep Aubin out of the S&Ls' affairs, and comply with other regulatory restrictions, including loan limits and approvals by an on-site TS&LD representative. 45 If Hutton officials did not actually read the Supervisory Agreement before executing the Facility Agreement, the record contains abundant evidence that Hutton knew by then that something was amiss between Haralson and the TS&LD. Yang testified that he knew of some arrangement between the S&Ls and the TS&LD in September 1984. A September 23, 1984 memorandum by Yang reveals that he knew that Texas regulators demanded that the S&Ls be dismantled, that Haralson agreed with them to cease his involvement in the Savings and Loan business, that the state commissioner would possibly take over the S&Ls, and that state personnel were already on site at the S&Ls. A March 8, 1985 memorandum by Yang establishes his awareness that an eleven million dollar loss would cause the TS&LD to close Mercury. Yang testified that before March 8, 1985, he understood that Aubin had moved out of Mercury's office space at the insistence of the Texas regulators. 46 We agree with the district court that Hutton could not have justifiably relied on the absence of regulatory problems at the S&Ls when it entered into the Facility Agreement fully aware of signs that serious problems existed. 6 47 viii. S&L Loan Portfolio Condition--Next, Hutton asserts that Aubin parties concealed significant problems in the S&Ls' loan portfolios. But both Yang and his associate, Lilian Shackleford, knew by February 1985 that another potential purchaser of the S&Ls--DBG, Inc.--was concerned about the S&Ls' acquisition, development, and construction (ADC) loan portfolios. DBG knew that the S&Ls were not revealing important information about their ADC loans, especially the S&Ls' equity participation in some of those loans. DBG pressured Yang to get more information from the S&Ls on these loans and vowed special scrutiny of the ADC loans when it conducted its pre-purchase review of the S&Ls' financial records. 48 Most significant, however, is Yang's clear understanding that the S&Ls were concealing loan portfolio information that was crucial in determining the S&Ls' value. Before Hutton executed the Facility Agreement, Yang acknowledged that anybody considering acquiring Mercury/Milam should watch out for the loan files, particularly the ADC loans. We hold that Hutton may not justifiably claim that it was defrauded by not having been told about the problematic loan portfolios because Hutton knew that Aubin kept this information from Hutton, that this information was of substantial importance, and that other potential purchasers had criticized the portfolios. 49 ix. The Value of Mercury--Next, Hutton claims that Aubin parties misrepresented that Mercury's stock was worth more than Hutton's exposure under the Facility Agreement, which was approximately $60 million. 7 50 The district court held that any Aubin-party representations as to value were opinions and therefore not actionable. See Cravens v. Skinner, 626 S.W.2d 173, 177 (Tex.App.--Ft. Worth 1981, no writ) (absent a confidential relationship, a representation of market value of a commodity is merely an opinion that cannot be made the basis of recovery for fraud). But another Texas court held that statements like the bank is doing very well and it is a good, sound bank and will continue to make money were actionable. Wink Enterprises, Inc. v. Dow, 491 S.W.2d 451, 453 (Tex.Civ.App.--El Paso 1973, writ ref'd n.r.e.). Federal courts have also been reluctant to hold that broad statements concerning value are opinions, and thus not actionable. See Eisenberg v. Gagnon, 766 F.2d 770, 775-76 (3d Cir.), cert. denied, 474 U.S. 946, 106 S.Ct. 342, 88 L.Ed.2d 290 (1985); First Virginia Bankshares v. Benson, 559 F.2d 1307, 1318 (5th Cir.1977), cert. denied, 435 U.S. 952, 98 S.Ct. 1580, 55 L.Ed.2d 802 (1978). Especially given Aubin's superior access to information concerning the S&Ls, we do not agree that his representations as to value must be disregarded as opinion. See Wright v. Carpenter, 579 S.W.2d 575, 580 (Tex.Civ.App.--Corpus Christi 1979, writ ref'd n.r.e.) ([r]epresentations as to matters not equally open to parties are legally statements of fact and not opinions). 51 Even so, we will not ignore Hutton's knowledge of the following facts before assenting to the Facility Agreement: 52 --Aubin and Haralson are reputed swindlers. 53 --Aubin twice got Hutton sued for fraud. 54 --Yang believed that Aubin and Haralson were out to screw Hutton. 55 --Aubin let Hutton believe that he controlled the 1100 Limited trading account that held over $25 million in equity while it was in his interest to do so and only when he owed Hutton money did he explain that Mercury controlled that account. 56 --The S&Ls were under the TS&LD's continuous supervision. 57 --The TS&LD was forcing Haralson to sell the S&Ls and get out of the savings and loan business. 58 --There was a strong possibility that the TS&LD would assume control of the S&Ls. 59 --An $11 million cash loss would cause the TS&LD to close Mercury, a business with over $5 billion in loans outstanding. 60 --The S&Ls held equity interests in several of their ADC loans. 61 --Potential investors were skeptical about the S&Ls' loan portfolios. 62 --Aubin imposed onerous conditions on the S&Ls' sale. 63 --Yang believed that before taking the S&Ls as collateral, Hutton should be careful in examining the S&Ls financial records and should especially watch out for the ADC loan files. 64 We hold that Hutton's knowledge of these facts establishes that Hutton could not have justifiably relied on any Aubin-party representation as to Mercury's value. 65
66 Only representations of material facts are actionable under either common law fraud or negligent misrepresentation theories. Trenholm v. Ratcliff, 646 S.W.2d 927, 931 (Tex.1983) (fraud); Croce v. Croce, 199 Misc. 635, 100 N.Y.S.2d 97, 102-03 (1950); MBank Ft. Worth, N.A. v. Trans Meridian, Inc., 820 F.2d 716, 718 (5th Cir.1987) (negligent misrepresentation). In fraudulent inducement cases, the test for materiality is whether the contract would have been signed by the plaintiff without such misrepresentations having been made. Adickes v. Andreoli, 600 S.W.2d 939, 946 (Tex.Civ.App.--Houston [1st Dist.] 1980, writ dism'd w.o.j.). 67 Haralson's Unencumbered Ownership of Mercury Stock--Hutton's final claim concerns Haralson's misrepresentation in the Facility Agreement that he owned all stock in Mercury free and clear of all liens, charges and encumbrances whatsoever. In fact, Haralson had already pledged his Mercury stock to IBR as collateral for loans totaling at least $5.8 million. On May 3, 1985, IBR assigned four Haralson promissory notes to Aubin's Sigma Capital Corporation. 68 These facts, even if unknown to Hutton, do not support a fraudulent inducement claim because Hutton fails to substantiate their materiality. Hutton agrees that upon receiving the Mercury stock certificates, it had a perfected first lien on Mercury's stock. See Tex.Bus. & Com.Code Ann. Secs. 8.321, 9.305 (Vernon Supp.1991). Because Hutton cannot explain why the absence of subordinate encumbrances was material to its assent to the Facility Agreement, its common law claims based on Haralson's representation that no such encumbrances existed fail as a matter of law. 69 Thus, albeit on different grounds, we affirm the district court's summary dismissal of all of Hutton's common law fraud, negligent misrepresentation, and Texas Business and Commerce Code section 27.01 claims for fraudulent inducement into the Facility Agreement.
70 Hutton also complains of the foregoing ten instances of Aubin-party conduct under various federal and state securities laws: 1) New York General Business Law, Sec. 339-a (McKinney 1988); 2) the Texas Securities Act, Tex.Rev.Civ.Stat.Ann. art. 581-33 A(2) (Vernon Supp.1991); 3) section 12(2) of the 1933 Securities Act, 15 U.S.C. Sec. 771 (2); and 4) the Security and Exchange Commission's Rule 10b-5, 17 C.F.R. Sec. 240.10b-5, promulgated under section 10(b) of the 1934 Securities Exchange Act, 15 U.S.C. Sec. 78j(b). 71 The district court's cryptic holdings regarding Hutton's securities fraud claims employ some erroneous legal principles. We dispose of those claims that can be decided as a matter of law and otherwise explain the legal principles to be applied on remand. We affirm the court's judgment against Hutton on most of its claims. Five Hutton claims under section 12(2) of the 1933 Securities Act, however, merit further consideration on remand. 72
73 We agree with the district court that New York General Business Law Sec. 339-a (McKinney 1988) (making false representation of securities' value a misdemeanor) does not create a private right of action for securities fraud. 74 Decisions by New York's highest court construing a similar statute indicate that New York no longer recognizes a private right of action under section 339-a. See CPC Int'l, Inc. v. McKesson Corp., 70 N.Y.2d 268, 519 N.Y.S.2d 804, 807, 514 N.E.2d 116, 119 (1987) (denying a private right of action under N.Y.Gen.Bus.Law Sec. 352-c which makes fraudulent marketing of securities a misdemeanor); Green v. Santa Fe Industries, Inc., 70 N.Y.2d 244, 519 N.Y.S.2d 793, 798, 514 N.E.2d 105, 110 (1987) (following CPC in dismissing claims under both sections 352-c and 339-a, the former expressly and the latter impliedly). 75 The similar scope and purpose of sections 352-c and 339-a support construing them consistently for purposes of private right of action creation. One New York court has expressly done so. Merrill Lynch Pierce Fenner & Smith, Inc. v. Xanthoudakis, 140 Misc.2d 595, 531 N.Y.S.2d 487, 488 (1988) (no private rights of action under sections 352-c and 339-a). 8 76
77 We agree with the district court that Hutton's [Rule 10b-5] claims fail for the same reason that summary judgment is appropriate on [its common law] fraud claims. Our discussion above concerning the reliance element of common law fraud demonstrates that Hutton did not exercise the diligence due of Rule 10b-5 plaintiffs before signing the Facility Agreement. See Dupuy, 551 F.2d at 1020 (Rule 10b-5 plaintiff may not intentionally refuse to investigate in disregard of a risk known to him or so obvious that he must be taken to have been aware of it, and so great as to make it highly probable that harm would follow). 78 The only Aubin-party conduct on which Hutton could have relied for common law and Rule 10b-5 purposes--Haralson's Facility Agreement representation that he owned all of Mercury's stock free of encumbrances--lacks the materiality required to support a Rule 10b-5 action. Rule 10b-5's materiality standard differs from that under common law fraud. But as explained below, Rule 10b-5 and section 12(2) share the same materiality standard, Simpson v. Southeastern Invest. Trust, 697 F.2d 1257, 1258 (5th Cir.1983), and Hutton's encumbrance claim fails this standard. Therefore, we agree that the district court's summary dismissal of Hutton's Rule 10b-5 claims was proper. 79
80 i. Applicability of Securities Fraud Statutes to Private Offerings of Stock as Security for a Loan--The Supreme Court mandates that a pledge of stock to secure a loan is equivalent to a sale for the purposes of the antifraud provisions of the federal securities laws. Rubin v. United States, 449 U.S. 424, 429-30, 101 S.Ct. 698, 701, 66 L.Ed.2d 633 (1981); see also Marine Bank v. Weaver, 455 U.S. 551, 554 n. 2, 102 S.Ct. 1220, 1222 n. 2, 71 L.Ed.2d 409 (1982). 81 While the district court considered the merits of Hutton's Rule 10b-5 claim after citing Marine Bank, it dismissed Hutton's section 12(2) claim on the ground that section 12(2) applies only to public offerings. Hutton correctly asserts that the law is otherwise. [E]ven if the transactions [are] isolated intrastate contracts made pursuant to private offers, the sales of securities [are] still subject to the anti-fraud provisions of the securities acts. Nor-Tex Agencies, Inc. v. Jones, 482 F.2d 1093, 1099 (5th Cir.1973), cert. denied, 415 U.S. 977, 94 S.Ct. 1563, 39 L.Ed.2d 873 (1974). 82 Rather than remand this case for reconsideration of all of Hutton's section 12(2) claims, we will address the arguments raised by the parties on appeal. In doing so, we state the proper legal standards for the district court to apply on remand and eliminate Hutton's most spurious section 12(2) claims. 83 ii. Reliance--Hutton correctly explains that section 12(2) plaintiffs need not prove that they relied in any way on the alleged misrepresentations or omissions. Hill York Corp. v. American International Franchises, Inc., 448 F.2d 680, 695 (5th Cir.1971); cf. Wood v. Combustion Engineering, Inc., 643 F.2d 339, 345 (5th Cir.1981) (reliance not required in a Texas Securities Act action). To foster a high degree of scrupulousness in the once sordid securities industry, both Congress and the Texas legislature deliberately relieved securities purchasers of the difficult burden of proving subjective reliance. L. Loss, Fundamentals of Securities Regulation, 890 (2d ed.1988); Committee on Securities and Investment Banking of the Section on Corporation, Banking and Business Law of the State Bar of Texas, Comment--1977 Amendment, reprinted following Tex.Rev.Civ.Stat.Ann. art. 581-33 (Vernon Supp.1991). But other subjective elements remain under section 12(2). 84 iii. Actual Knowledge --Section 12(2) and article 581-33 A(2) both bar recovery to a plaintiff who knows of the misstatement or omission upon which the plaintiff's securities fraud claim is based. See note 9, supra. And knowing that a misstatement or omission has been made is not the same as knowing the true fact that was misrepresented or omitted. The statutes preclude recovery whenever a plaintiff actually knows that a representation is false or knows that existing information has been withheld. Woodward v. Wright, 266 F.2d 108, 116 (10th Cir.1959). 10 85 Sufficient evidence exists in the record to dispose of Hutton's section 12(2) claims as to several instances of Aubin-party conduct. We have already held that when Lynch signed the Facility Agreement on Hutton's behalf, Hutton knew that: 1) Aubin owned 50% of the S&Ls' sales proceeds; 2) Aubin had access to substantial assets; 3) Aubin controlled the S&Ls; and 4) Hutton did not get a first lien on Milam under the Facility Agreement. Hutton's section 12(2) claims based on Aubin-party misrepresentations concerning these four subjects are therefore barred. 86 iv. Materiality --There is also a subjective aspect to section 12(2)'s requirement that the facts misrepresented or omitted be material. 87 [A]n omission or misrepresentation of fact was material if, considering its full context, including the subject matter and the relationship of the parties, the misrepresentation or omission was of a fact which, considering [plaintiffs] as reasonable investors, would affect or influence them in determining whether to buy the [security]. 88 Gilbert v. Nixon, 429 F.2d 348, 356 (10th Cir.1970) (emphasis added), cited in Hill York, 448 F.2d at 696. The Supreme Court considers an omitted fact material if there is a 89 substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available. 90 TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976) (emphasis added). In 1988, the Supreme Court adopted its TSC Industries materiality standard for Rule 10b-5 actions. Basic Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 983, 99 L.Ed.2d 194 (1988). 91 Applying this standard to Hutton's fraudulent inducement claim concerning Haralson's representation that his Mercury stock was unencumbered, we hold that no reasonable jury could find a substantial likelihood that a reasonable investor would think it important that Mercury's stock was encumbered with subordinate claims. Therefore, Hutton's section 12(2) and Rule 10b-5 claims based on Haralson's misrepresentation are barred as a matter of law. 92 v. Remaining Hutton Claims --The record contains insufficient evidence for us to decide Hutton's section 12(2) claims concerning RBI's capitalization, the certainty of the Southmark transaction, the existence of a Supervisory Agreement with the TS&LD, the S&Ls' loan portfolios, and Mercury's value. Therefore, we direct the district court to consider these claims on remand. 11 93 That Hutton affirmed the Facility Agreement's validity on June 7, 1985 after knowing much more about the fraudulent nature of certain Aubin-party conduct than it knew before executing the Facility Agreement does not necessarily bar its section 12(2) claims for fraudulent inducement into the original contract. Both federal and Texas laws void express waivers of rights under their securities laws. 15 U.S.C. Sec. 77n; Tex.Civ.Stat.Ann. art. 581-33 L (Vernon Supp.1991). These anti-waiver provisions void waivers of rights by subsequent conduct. Trans Meridian, Inc., 820 F.2d at 726. The only way that Hutton could have waived any rights it had under section 12(2) is if the Participation Agreements are found to operate as a settlement between Hutton and the Aubin parties. See id. ([w]aiver by subsequent conduct that does not take the form of a settlement is against the policy of the securities laws); cf. Meyers v. C & M Petroleum Producers, Inc., 476 F.2d 427, 429-30 (5th Cir.) (recognizing estoppel but not waiver as a defense to a section 12(2) claim), cert. denied, 414 U.S. 829, 94 S.Ct. 56, 38 L.Ed.2d 64 (1973). Therefore, our holdings that Hutton waived several of its common law fraudulent inducement claims by ratifying the Facility Agreement do not necessarily affect Hutton's section 12(2) claims based on the same Aubin-party conduct.
94 Hutton claims that RBI fraudulently transferred assets to Aubin's trading companies in contravention of Texas Business and Commerce Code Sec. 24.03(a) (Vernon 1968). 12 The district court analyzed the Facility Agreement's transfer [of cash] between Hutton and the accounts and held that no fraudulent transfer occurred within the meaning of section 24.03(a). On appeal, Hutton contends that the district court analyzed the wrong transfer. 95 Hutton's claim concerns the secret Release Agreement that Aubin and Haralson executed on March 11, 1985. This contract purports to bind RBI to accept any money that Aubin's Sigma Capital Corporation receives from the S&Ls' sale as its sole and only source of repayment for the funds that Aubin's Accounts received under the Facility Agreement. The Release Agreement effected no transfer of money; but it was intended to extinguish RBI's legal rights against Aubin's companies. Hutton explains that we should apply section 24.03(a) to RBI's forbearance of its legal rights against Aubin and his trading companies. 96 But despite its creativity in dreaming up its own claims, Hutton never explains what legal rights RBI had against Aubin on March 11, 1985 that RBI transferred to Aubin. Thus, even if the district court analyzed the wrong transfer, Hutton presents no evidence of another transfer. We reject Hutton's suggestion that we award a judgment against Aubin based on RBI's fraudulent transfer of unalleged, unproved rights of action, and affirm the district court's summary judgment on Hutton's fraudulent transfer claim.
97 Hutton assembles another litany of theories to contend that the Facility Agreement did not extinguish Aubin's Account debts. 13 We affirm the district court's summary judgment against Hutton on all such theories.
98 The district court held that [t]he facility agreement was a novation rather than an executory accord. We disagree. A novation contract usurps a pre-existing contract's legal effect. And to prove a novation, there must be a 'clear and definite intention on the part of all concerned that such is the purpose of the agreement. Not only must the intention to effect a novation be clearly shown, but a novation [must] never ... be presumed.'  Beck v. Manufacturers Hanover Trust Co., 125 Misc.2d 771, 481 N.Y.S.2d 211, 218 (1984). The facts cited by the district court do not establish such a clear intent as a matter of law. 99 But this is of no consequence to Hutton, because the Aubins, Haralson, and Aubin's trading companies assert the affirmative defense of payment in their motion for summary judgment on Hutton's account debt claims. 14 These Aubin parties claim that, in exchange for the Facility Agreement promises of RBI and Haralson, Hutton Group paid Hutton Company all amounts owing in the Accounts and this payment extinguished Aubin's corporate debts. The parties agree that after the Facility Agreement, Aubin's Accounts at Hutton Company were credited with approximately $48 million from Hutton Group, but they dispute the significance of this transfer. 100 New York looks to the intentions of the payor and the creditor in determining whether a transaction constitutes payment in termination of a debt. De Lanoy, Kipp & Swan, Inc. v. New Amsterdam Casualty Co., 171 Misc. 342, 11 N.Y.S.2d 625, 629 (1939), aff'd, 264 A.D. 713, 34 N.Y.S.2d 829 (1942), aff'd, 289 N.Y. 823, 47 N.E.2d 433 (1943). We hold that the following evidence establishes as a matter of law that Hutton intended that the Facility Agreement extinguish Aubin's Account debts. 101 Hutton Group agreed in the Facility Agreement's first paragraph that there shall be advanced today by [Hutton] Group to [Hutton Company] such amounts as are necessary to satisfy existing deficiencies, if any, and margin requirements relating to [the Accounts] (emphasis added). And [t]he word 'pay' means to satisfy by other means than cash, as well as by cash. Smith v. Treuthart, 130 Misc. 394, 223 N.Y.S. 481, 483 (1927). 102 That Hutton understood satisfaction to be synonymous with extinction is conclusively established by Hutton's conduct after signing the Facility Agreement. Not only did Hutton Group pay Aubin's Account debts with Hutton Company, it also put a $4 million surplus in the Accounts so that Aubin could keep trading. Aubin's commodities gambling paid off. By June 1985, the Accounts held over $20 million in equity. Aubin threatened to sue Hutton for not allowing him to withdraw what he claimed to be his gains. 103 Hutton responded by agreeing with Haralson that in exchange for repayment of its $4 million in seed money, Hutton would release equity in excess of current requirements from the Accounts and make no claim or lien against the Accounts other than standard margin requirements. By September 1985, Hutton Company had released over $49 million in gains to Aubin from the Accounts. Hutton does not explain how these actions could possibly be consistent with an intent to hold Aubin and his trading corporations liable for the pre-March 1985 trading losses. 104 Based on this evidence, we affirm the district court's summary dismissal of Hutton's direct claims on the Account debts. See Laird v. Shell Oil Co., 770 F.2d 508, 511 (5th Cir.1985) (when the judgment of a district court is correct, it may be affirmed for reasons not given by the court and not advanced to it).
105 The district court held that the remedy of equitable rescission of the Facility Agreement is unavailable to Hutton because Hutton has an adequate remedy at law: a breach of contract action against RBI for damages. We agree. 106 An adequate remedy at law defeats a claim for rescission under New York law. See Rudman v. Cowles Communications, Inc., 30 N.Y.2d 1, 330 N.Y.S.2d 33, 43, 280 N.E.2d 867, 874 (1972). The adequacy of the legal remedy for damages does not depend on the collectibility of the claim. American Cities Power & Light Corp. v. Williams, 189 Misc. 829, 69 N.Y.S.2d 197, 203 (1947). Therefore, we affirm the district court's summary judgment against Hutton on its rescission claim. 107 Because the $48 million was placed in the Accounts in exchange for and pursuant to the Facility Agreement and Note, the Accounts' owners were not unjustly enriched by the transfer of funds from Hutton Group to Hutton Company. And absent unjust enrichment, we may not grant Hutton quasi-contractual relief. See Feigen v. Advance Capital Management Corp., 150 A.D.2d 281, 541 N.Y.S.2d 797 (a non-signatory to a contract cannot be held liable [in quasi contract] where there is an express contract covering the same subject matter), appeal dismissed, 74 N.Y.2d 874, 547 N.Y.S.2d 840, 547 N.E.2d 95 (1989). We affirm the district court's summary judgment that the Facility Agreement precludes Hutton's quasi-contractual unjust enrichment claim.
108 Next, Hutton premises several claims on a valid and enforceable Facility Agreement.
109 Haralson promised Hutton that Mercury's and Milam's businesses shall be operated in ordinary course and no debts shall be incurred or other transactions entered into except in the ordinary course of business. Facility Agreement p 2.h. The district court granted Haralson's conclusory motion for summary judgment on Hutton's breach of contract claim, stating that [m]ismanagement was apparently within the S&Ls' ordinary course of business and Hutton knew this when it ratified the facility agreement. 110 But the Participation Agreements only reaffirmed Haralson's obligation to operate the S&Ls in the ordinary course. Even with all that Hutton knew about Aubin and Haralson by June 7, 1985, the record contains no evidence that Hutton encouraged or permitted Aubin and Haralson to lie, cheat, and steal in the ordinary course of their business. Hutton's mere awareness of a possible breach of contract claim and its failure to register disapproval are insufficient to constitute waiver or estoppel. See Union Free School Dist. v. New York State Div. of Human Rights, 43 A.D.2d 31, 349 N.Y.S.2d 757, 762 (1973), appeal dismissed, 33 N.Y.2d 975, 353 N.Y.S.2d 739, 309 N.E.2d 137 (1974). 111 We reject the district court's interpretation of ordinary course, and hold that Haralson obligated himself to operate the S&Ls in accordance with the manner in which honest managers generally operate savings and loan institutions. The parties used ordinary course to protect Hutton's collateral while affording the S&Ls some freedom to make legitimate business mistakes. No other meaning of ordinary course accords with the sense of the remainder of the contract. See Laba v. Carey, 29 N.Y.2d 302, 308, 277 N.E.2d 641, 644, 327 N.Y.S.2d 613, 618 (1971) (as between possible interpretations of an allegedly ambiguous term, that will be chosen which best accords with the sense of the remainder of the contract). Even if Hutton was aware that the S&Ls were mismanaged before March 8, 1985, Haralson agreed to manage with at least the median level of competence thereafter. 112 Whether a transaction is prudent or negligent is not determinative of whether the S&Ls were run in the ordinary course. Especially in present times, commission of one improper or negligent act by a savings and loan employee or agent does not necessarily distinguish the operation of one savings and loan institution from another. However, a pattern of such conduct would distinguish the S&Ls. 113 Hutton contends that the facts found in Haralson v. Federal Home Loan Bank Bd., 721 F.Supp. 1344 (D.D.C.1989) (Haralson's unsuccessful challenge to the FHLBB's takeover of the S&Ls) establish as a matter of law that Haralson did not manage the S&Ls in the ordinary course. Though the record contains abundant evidence of a pattern of unwise, unsound, and negligent transactions, [w]e are fundamentally a court of review, not of first analysis. Isquith v. Middle South Utilities, Inc., 847 F.2d 186, 210 (5th Cir.), cert. denied, 488 U.S. 926, 109 S.Ct. 310, 102 L.Ed.2d 329 (1988). On remand, the district court must consider Hutton's breach of contract claims using our interpretation of ordinary course before we will address the matter. 15
114 Although Aubin may incur no direct liability for breaching the Facility Agreement, as a non-party he could be liable for tortiously interfering with that Agreement. Under Texas common law, the elements of a cause of action for tortious interference with contractual relations are: (1) a contract; (2) an intentional act, calculated to cause damage to the plaintiff, that interferes with the contract; (3) such intentional act proximately causes the plaintiff actual damages; and (4) the lack of any justifiable cause or excuse on the part of the defendant. Gibraltar Sav. v. LDBrinkman Corp., 860 F.2d 1275, 1298 (5th Cir.1988) (footnote omitted), cert. denied, 490 U.S. 1091, 109 S.Ct. 2432, 104 L.Ed.2d 988 (1989); Deauville Corp. v. Federated Dept. Stores, Inc., 756 F.2d 1183, 1194 (5th Cir.1985). 115 The district court dismissed Hutton's tortious interference claim on several grounds, all of which we find improper. First, during summary judgment hearings the court held that, as Haralson's agent, Aubin was privileged to interfere with the Facility Agreement. But an agent is privileged to induce a principal to breach a contract only when the agent acts qua agent. If an agent is motivated by personal animus or greed, then under Texas law, the agent can indeed be held liable for inducing his principal to breach a contract. B. Inc. v. Miller Brewing Co., 663 F.2d 545, 553 (5th Cir.1981). Fact issues are raised on Aubin's inducement of a breach and the role in which he acted. 116 Next, the district court found that Aubin's interest in the S&Ls' sale proceeds gave him the privilege to interfere with the Facility Agreement. Aubin cites us to Sterner v. Marathon Oil Co., 767 S.W.2d 686, 691 (Tex.1989) (one is privileged to interfere with another's contract ... if he has an equal or superior right in the subject matter to that of the other party). Aubin points to his 50% interest in the S&Ls' sale proceeds as evidence of his equal interest in the Facility Agreement's subject matter. But in the March 11, 1985 Release Agreement, Aubin transferred to RBI his interest in the S&Ls' sale proceeds to the extent required to satisfy RBI's obligation to Hutton. That agreement and documents associated with the Southmark negotiations conclusively demonstrate that, according to Aubin, 50% of the S&Ls' sale proceeds amounted to approximately $50 million. These facts considered in light of RBI's obligations under the Facility Agreement mean that Aubin's interest amounted to no more than $2 million. This amount being significantly less than Hutton's, Haralson's, or RBI's interest in the S&Ls, Aubin may not use the equal interest privilege to defeat Hutton's tortious interference claim. 117 Hutton claims that Aubin interfered with the Facility Agreement by keeping Haralson from operating the S&Ls in the ordinary course of business and by imposing conditions on the S&Ls' sale that turned buyers away. During summary judgment hearings, the district court was troubled by the fact that the Facility Agreement does not obligate RBI or Haralson to sell the S&Ls. While this fact is true, 118 [i]nterference embraces within its scope all intentional invasions of contractual relations, including any act injuring or destroying property and so interfering with the performance of the contract itself, regardless of whether breach of contract is induced. 119 State Nat. Bank v. Farah Mfg. Co., 678 S.W.2d 661, 689 (Tex.App.--El Paso 1984, writ dism'd by agr.). By preventing a sale of the S&Ls, Aubin could have intentionally interfered with RBI's ability to pay Hutton. All parties to this lawsuit understood that such prevention would proximately cause RBI to default on the Promissory Note. Therefore, we remand Hutton's claim for Aubin's tortious interference with the Facility Agreement.
120 Caren C. Grant was a director and officer of Mercury, Milam, IBR, and RBI while the Facility Agreement was executory. Hutton asserts a claim against her and Aubin for conspiracy to induce breach of the Facility Agreement. In Texas, the elements of this civil conspiracy variant are: (1) the existence of an enforceable contract; (2) two or more non-parties' agreement to induce a party to breach a contract; (3) a party to the conspiracy commits an overt act in furtherance of the conspiratorial objective; (4) the overt act proximately causes the plaintiff actual damages; and (5) the conspirators lack justifiable excuse or privilege. Schlumberger Well Surveying Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d 854, 856-57 (Tex.1968); MacDonald v. Trammell, 351 S.W.2d 89, 92 (Tex.Civ.App.--Austin 1961), writ dism'd w.o.j., 163 Tex. 352, 356 S.W.2d 143 (1962). 121 We understand the district court to have dismissed Hutton's conspiracy claim because Hutton produced insufficient evidence of collusive intent and conduct on Grant's part. Or, the court dismissed Hutton's claim because, as an agent of RBI and the S&Ls, Grant was privileged to interfere with the Facility Agreement. We believe that a fact issue is presented on this Hutton conspiracy claim. 122 Hutton's evidence of the following raises an issue that Aubin and Grant agreed to induce Haralson and RBI to breach the Facility Agreement: 123 --As an officer and director of Mercury and Milam, Grant had some influence over whether the S&Ls were run in the ordinary course of business from March 8, 1985 to March 14, 1986. 124 --Grant received over $27,000 in gifts from Aubin between the date the Facility Agreement was signed and the date the FHLBB placed the S&Ls in conservatorship. 125 --When the S&Ls were insolvent, Grant voted for the S&Ls to give herself and ten other S&L employees expensive cars. 126 --In April 1985, Grant and other directors approved the renewal of a $1 million note from Aubin's Wichita Land & Cattle Co. The TS&LD complained to Mercury that this renewal violated the Supervisory Agreement. 127 --As an officer of IBR, Grant transferred liens against and stock powers of the S&Ls to Aubin's companies in exchange for loans from Aubin to Haralson. 128 --After a conservator was appointed for the S&Ls, Grant accepted an extremely lucrative position with Aubin's companies. 129 The existence of a conspiracy is usually proved with circumstantial evidence, and our assessment of the record is that Hutton has adduced enough such evidence to survive summary judgment. See Zervas v. Faulkner, 861 F.2d 823, 836-37 (5th Cir.1988). 130 To the extent that the district court's summary judgment was premised on Grant's having agent immunity from Hutton's contract interference claim, we disagree. A jury could find that Grant, like Aubin, acted out of personal greed and therefore receives no immunity. See B., Inc., 663 F.2d at 553. 131 During summary judgment hearings, there was some confusion as to whether it was possible for Grant, an officer and director of RBI, to interfere with RBI's promises under the Facility Agreement. Not finding any contrary authority, we hold that Grant may interfere with RBI's promises while acting in a capacity other than RBI's agent. Thus, Grant's actions as an officer and director of Mercury and Milam could further a conspiracy to induce RBI to breach the Facility Agreement and Note. 132 Grant tries to avoid Hutton's conspiracy claim by explaining that Hutton cannot prove whether Aubin used S&L funds to purchase her gifts. But such expensive gifts to an unrelated party could reasonably signal a quid pro quo regardless of where the money for them originated. Next, Grant explains that RBI could not have been induced to breach the Facility Agreement because there is no evidence that RBI engaged in any transaction other than the Facility Agreement. But actual inducement is not an element of Hutton's conspiracy claim. Grant also cites the testimony of the TS&LD official who continuously monitored the S&Ls' affairs until the FHLBB placed them under conservatorship. While the TS&LD official may not have known of any transgressions by Grant, such ignorance is only evidence in her favor. It does not conclude Hutton's claim as a matter of law. 133 For these reasons, we reverse the district court's summary judgment on Hutton's claim of conspiracy to induce breach of contract and direct the court to reconsider this claim on remand.
134 RBI makes two attempts to avoid the district court's summary judgment on its absolute and unconditional Promissory Note in Hutton's favor for $48,072,882.51 plus interest. 135 First, RBI offers evidence that Hutton's Deputy Controller, Richard Carborne, did not base his affidavit establishing the amount that RBI owes Hutton on personal knowledge. See Fed.R.Civ.P. 56(e). But RBI admitted the amount that it owed Hutton in its trial pleading and the Participation Agreements. 16 Furthermore, Haralson admitted on deposition that Hutton advanced approximately $48 million under the Note. This evidence of the amount due Hutton on the Note supports the district court's summary judgment independent of Carborne's affidavit. 136 Next, RBI invokes the Uniform Commercial Code's Section 9-504 17 to argue that Hutton may not obtain a deficiency judgment against RBI before proving proper disposition of collateral, which in this case was Mercury's stock. But RBI offers no evidence that Hutton has disposed of Mercury's stock. Hutton still has the stock certificates. We reject as frivolous RBI's contention that Hutton destroyed the stock's value by making disparaging statements about Mercury to regulators and therefore disposed of the stock within Section 9.504's meaning. Even if Hutton made such statements, it was Aubin and Haralson's mismanagement of the S&Ls, not Hutton's statements, that caused the FHLBB to place the S&Ls in conservatorship. The district court's summary judgment against RBI is affirmed.