Court Opinion

ID: 27696
Source: CourtListenerOpinion
Date Created: 2010-04-25 09:11:18+00
Date Added: 2024-06-11T11:49:58.024304
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                        FOR THE FIFTH CIRCUIT

                     __________________________

                            No. 01-50715
                     __________________________

IN THE MATTER OF: INTERLOGIC TRACE, INC.,
                                                               Debtor.

LOIS ESFORMES, ROBERT SACHS, NIBCO NEVADA, INC., KAREN SACHS,
CLAUDIA SACHS, HOWARD YONET, JOSEPH CORDA, TOMA CORDA, ELIZABETH
J. SAMPSON & ASSOCIATES, YONY PROPERTIES, INC., HENRI YONET, PAUL
YONET, LARRY WAYNE, ANNE WAYNE, NOAM SCHWARTZ, MARION BLACKBURN,
MARY ANN McCAIN, STAN COHEN, CAROL SEIDEN, SACHS LIVING TRUST,
HERBERT H. EVELOFF, M.D., PETER KALTMAN, NEO CONSTRUCTION, INC.,
HERBERT H. EVELOFF, M.D., IRA, FAYE EVELOFF, GARY AUSTIN, GARY
POLLACK, KAY F. GERHARD, and L.F.I. RETIREMENT TRUST,
                                                      Appellants,

versus

ASHER B. EDELMAN and INTELOGIC TRACE, INC.,
                                                         Appellees.

         ___________________________________________________

             Appeal from the United States District Court
                   For the Western District of Texas
                            (SA-01-CV-82-OG)
         ___________________________________________________
                              May 13, 2002

Before DUHÉ, DeMOSS, and CLEMENT, Circuit Judges.

PER CURIAM:*

     Intelogic Trace (“Intelogic”) was a New York corporation with

     *
      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this opinion should not be published and is not precedent except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.

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its principal place of business in San Antonio, Texas.            Appellants

held a small percentage of subordinated debentures issued by

Intelogic.    The twenty-nine appellants, which include individual

and institutional bondholders, reside in California, New York,

Nevada, Arizona, and Oregon.

     Intelogic first filed for Chapter 11 bankruptcy on August 5,

1994.     On November 28, 1994, a reorganization plan was confirmed

that instituted a new board of directors, which did not include co-

appellee Asher B. Edelman.      Intelogic filed a second petition for

Chapter 11 bankruptcy in March 1995.           The examiner found that

Intelogic had perpetrated fraud on neither the bankruptcy court nor

its creditors.      In a December 1995 order, the bankruptcy court

converted    the   second   bankruptcy    petition    to   Chapter    7.   In

September 1999, Intelogic became a liquidated entity that has

ceased conducting business and has no officers, directors, or

employees.

     After     Intelogic    filed   the    first     bankruptcy      petition,

plaintiffs filed their first amended complaint in October 1994.

The first amended complaint alleged six claims against Intelogic

and the board of directors as individuals.         The claims, all arising

out of the debenture offering, were breach of contract, negligence,

common law fraud, and three state and federal securities fraud

claims.    The bankruptcy court granted appellees’ motion to dismiss

all of the claims and to deny plaintiffs leave to amend.                   The

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district court affirmed the bankruptcy court’s rulings in October

1997.     This Court affirmed the grant of the motion to dismiss but

reversed and remanded the leave to amend, with directions for the

lower court to allow plaintiffs to file an amended complaint

alleging a claim based on Intelogic’s failure to make interest

payments required by the indenture agreement.

      On January 31, 2000, the plaintiffs filed a second amended

complaint claiming against Intelogic: (1) breach of contract and

(2) breach of an implied covenant of good faith and fair dealing;

and against Intelogic and Edelman, as an investment advisor to

Intelogic: (3) conspiracy to breach an implied covenant of good

faith and fair dealing.        The appellees filed a motion to dismiss

the second and third claims on the grounds that they (1) exceed the

scope of this Court’s opinion reversing and remanding and (2) are

not recognized under Texas or New York law.            The bankruptcy court

granted the motion, and the district court affirmed.               Appellants

appeal the affirmation.1       There are no disputed factual findings.

      The district court reviewed the following bankruptcy court

rulings: (1) that appellants’ good faith and fair dealing causes of

action did not exceed the scope of this Court’s previous opinion;

      1
The bankruptcy court’s order dismissing the plaintiff’s second and third claims
was interlocutory because the plaintiff’s breach of contract claim remained
unresolved. On November 1, 2000, the bankruptcy court resolved this remaining
breach of contract claim by entering default judgment on this claim in the
plaintiff’s favor. The defendants have not appealed this default judgment here.
However, the court’s November 1, 2000, order resolving this last remaining issue
rendered the court’s resolution of all three issues final and appealable.

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and (2) that there was no implied covenant of good faith and fair

dealing. The district court found that no implied covenant of good

faith and fair dealing existed between the parties, and thus did

not reach the first issue.        The good faith and fair dealing

determinations relating to choice of law and the existence of such

a covenant are legal determinations that we review de novo. Lowrey

v. Texas A & M Univ. Sys., 117 F.3d 242, 246 (5th Cir. 1997).              We

review the denial of leave to amend for abuse of discretion.              Id.

at 245.

     Under   Texas   choice-of-law       rules,   which   apply   the   “most

significant relationship” test in this instance, Texas law applies

to appellants’ claims.     See Gutierrez v. Collins, 583 S.W.2d 312,

318 (Tex. 1979).     Texas law requires a special relationship for a

duty of good faith and fair dealing to exist.               See English v.

Fischer, 660 S.W.2d 521, 524 (Tex. 1983).         No special relationship

existed between the parties that would support the existence of a

duty of good faith and fair dealing.

     Having carefully reviewed the record and read the briefs, we

AFFIRM the district court’s dismissal of the covenant of good faith

and fair dealing claims and its denial of leave to amend for

essentially the reasons stated in that court’s opinion.

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