Court Opinion

ID: 15112
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:41:51+00
Date Added: 2024-06-11T16:46:37.887198
License: Public Domain

REVISED, July 23, 1998

                  UNITED STATES COURT OF APPEALS
                       FOR THE FIFTH CIRCUIT

                    ___________________________

                            No. 97-20252
                    ___________________________

   AMWEST SAVINGS ASSOCIATION, a Texas state savings and loan
association, and HSA MORTGAGE COMPANY,

                                Plaintiffs-Appellants,

                                VERSUS

      STATEWIDE CAPITAL, INC., GAYLE SCHRODER, CLAY STONE,
         MELVIN POWERS, JOE LONG, and GORDON BEYERLEIN,

                                Defendants-Appellees.

       ___________________________________________________

           Appeal from the United States District Court
                For the Southern District of Texas
       ___________________________________________________
                           July 10, 1998

Before POLITZ, Chief Judge, and DAVIS and DUHÉ, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

     Appellants   Amwest   Savings    Association   (“Amwest”)   and   HSA

Mortgage Company (“HSA”) appeal from the district court’s “take

nothing” judgment against them.       For the reasons set out below, we

affirm the judgment of the district court.

                                 I.

     In 1988, Amwest entered into an agreement to purchase the

assets of eleven failed savings and loan associations from the
Federal Savings and Loan Insurance Corporation (“FSLIC”).1            At that

time, as a result of the failure of numerous savings and loans,

FSLIC’s insurance fund contained insufficient monies to cover

insured deposits.      In order to generate revenue, the Federal Home

Loan Bank Board took over the portfolios of insolvent savings and

loans associations and sold those portfolios to larger savings and

loan associations such as Amwest.

       In connection with Amwest’s purchase of the assets of the

failed     savings   and   loans,    Amwest   and   FSLIC   entered   into   an

“Assistance Agreement.”2       Under the Assistance Agreement, Amwest

was to liquidate unprofitable assets and manage profitable assets,

sharing revenues with the FDIC.             Amwest was also guaranteed to

recover the book value of certain “covered” assets upon the sale of

such assets.    Thus, if    Amwest sold a “covered” asset for less than

its book value, the FDIC would pay Amwest the difference between

the asset’s purchase price and its book value.              If Amwest sold a

“covered” asset for more than its book value, Amwest would split

the profit with the FDIC under a formula set out in the Assistance

Agreement.

       BancHome was one of the insolvent institutions whose assets

were purchased by Amwest.           HSA, A-1, Inc., and A-1 Mobile Homes,

       1
          The assets were actually purchased by NuOlney Savings,
which later changed its name to Amwest.
   2
          FSLIC was dissolved by the Financial Institutions Reform,
Recovery, and Enforcement Act (“FIRREA”) which was passed in August
1989. The Federal Deposit Insurance Corporation (“FDIC”) succeeded
FSLIC as a party to the Assistance Agreement after FIRREA was
passed. For simplicity, this opinion will hereinafter refer to the
federal regulator involved as the FDIC.

                                        2
Inc. (collectively, the “Mobile Home Subsidiaries”) were wholly-

owned subsidiaries of BancHome and were among BancHome’s assets

that were purchased by Amwest.               The mobile home assets of the

Mobile Home Subsidiaries were determined to have a book value of

$250 million.

      Amwest hired defendant Clay Stone to manage the Mobile Home

Subsidiaries.        Between October 1988 and December 1989, Stone

operated the Mobile Home Subsidiaries at a loss.             Amwest decided to

liquidate the assets of the Mobile Home Subsidiaries, and the FDIC

approved its decision.        In December 1989, Amwest began taking bids

on   the    mobile   home   assets,    eventually    accepting    the    bid   of

defendant Statewide Capital, Inc. (“Statewide”).

      The parties agreed that there would be more than one closing

due to the complexity of the transaction.               The first closing took

place on June 12, 1990.         On that date, the parties signed an asset

purchase agreement.         The second closing took place on August 31,

1990.      At this closing, a dispute arose concerning $14 million in

loans in HSA’s portfolio that HSA sold in mid-August without

Statewide’s knowledge.          Statewide claimed that under the asset

purchase agreement Statewide was to purchase all of the loans in

HSA’s portfolio and demanded a “credit” towards the purchase price

of the remaining loans in the portfolio as some share of the profit

from the sale of the loans.           The dispute was resolved when Amwest

offered Statewide a final closing price of $71,239,094 on the

remaining loans, which reflected a $5.6 million credit towards the

original     purchase   price    of   those    loans.      Statewide    accepted

                                         3
Amwest’s offer and wired the funds to close the deal.                   Later,

Amwest discovered that it had made a $2,852,722 math error in

calculating the amount of the credit, and had thereby inadvertently

issued Statewide a $2.8 million “double” credit.           Amwest demanded

immediate repayment of $2.8 million, but Statewide refused to

comply.   The final closing occurred on September 30, 1990.

     On December 19, 1990, Amwest and HSA (collectively, “Amwest”)

filed suit against Statewide, Stone, Gordon Beyerlein, then-general

counsel   of   HSA,   and    three   principals   of   Statewide   --    Gayle

Schroder, Melvin Powers, and Joe Long, alleging that they had

conspired to manipulate the bidding process in Statewide’s favor

and to ensure that Statewide would obtain the mobile home assets at

less than fair market value.         Amwest also alleged that Stone had

engaged in expense account abuse by obtaining reimbursement for

personal expenses.          In addition, Amwest sought recovery from

Statewide of the $2.8 million “double” credit.

     Prior to the submission of the case to the jury, the court

granted judgment as a matter of law in favor of Statewide on

Amwest’s claim for the recovery of the $2.8 million “double” credit

and in favor of Stone on Amwest’s expense account abuse claim.              On

July 6, 1995, after a five-week trial, the jury found in favor of

Amwest on each of its claims.         Specifically, the jury found that

Stone and Beyerlein had made several misrepresentations, including

misrepresentations concerning the fair market value of the mobile

home assets, and that Stone and Beyerlein had breached their

respective fiduciary duties to Amwest and HSA. The jury also found

                                       4
that Stone, Beyerlein and the other defendants had conspired to

varying degrees to commit fraud and breach of fiduciary duty.

Finally, the jury found that Statewide had breached the asset

purchase    agreement    in    a    number      of   respects.        The    upshot    of

defendants’ collective wrongdoing was to effectively lower the

purchase price of the mobile home assets, thereby increasing the

amount that the FDIC paid Amwest to make up the difference between

the book value of the assets and the amount that Amwest received

for them.

      The   jury     awarded       Amwest       approximately    $22        million    in

compensatory    damages       and    $16.5      million   in    punitive       damages.

Defendants subsequently filed renewed motions for judgment as a

matter of law, or, in the alternative, for a new trial.                        On April

2, 1996, the district court granted defendants’ renewed motions for

judgment as a matter of law on the ground that Amwest had not

suffered any damages because it had been fully compensated by the

FDIC for the losses it sustained as a result of defendants’

conduct.     Nearly a year later, the district court conditionally

granted defendants’ motions for a new trial on grounds that Amwest

had   engaged   in    pre-trial       misconduct       and     that    certain        jury

instructions were fatally defective.                 On February 25, 1997, the

court entered a “take nothing” judgment against Amwest.

      On appeal, Amwest argues that the district court erred in

granting defendants’ renewed motions for judgment as a matter of

law and in conditionally granting defendants’ motions for a new

trial.      Amwest also argues that the district court erred in

                                            5
granting Statewide’s motion for judgment as a matter of law on

Amwest’s claim for recovery of the $2.8 million “double” credit and

on Stone’s motion for judgment as a matter of law on Amwest’s

expense account abuse claim.

                                        II.

     The district court granted defendants’ renewed motions for

judgment as a matter of law in favor of defendants on the ground

that Amwest had not suffered any damages.                   We agree that Amwest

failed to show that it suffered any damages as a result of

defendants’ wrongdoing with respect to the purchase price of the

mobile home assets.3      The book value of the mobile home assets was

$250 million dollars. Although Amwest received less from Statewide

than it would have if not for defendants’ wrongdoing, the FDIC

fully    compensated    Amwest    for    its    loss       when   it   made   up   the

difference between the purchase price of the assets and their book

value.4.    The district court noted that              5

     On appeal, Amwest presents several theories under which it

contends it is entitled to the damages awarded by the jury.

     First,    Amwest    argues    that       it   was      obligated    under     the

Assistance Agreement to pursue claims that would minimize losses to

     3
          We recognize that defendants maintain that the evidence
is insufficient to support the jury’s verdict.
     4
            The district court noted that Amwest received

approximately $108 million from Statewide and that the FDIC paid
Amwest approximately $142 million. At oral argument, the parties
stated that Amwest in effect received approximately $115 million
from Statewide.   In any event, the FDIC made up the difference
between the amount Amwest received for the assets and their book
value.

                                         6
the FDIC.    Although Amwest elicited testimony from an FDIC officer

that Amwest was obligated under the Assistance Agreement to pursue

the type of claims at issue here and tender any recovery to the

FDIC, Amwest fails to cite any provision in this 113-page document

that authorizes Amwest to pursue such claims.        Section 7(b) of the

Agreement requires Amwest to pursue “Related Claims” and provides

that sums recovered from such claims shall be credited to Special

Reserve Account I, an account established to effect the provisions

of the Assistance Agreement. “Related Claims” are defined as those

claims which may result in a recovery by Amwest and which are

related to claims for which the FDIC is obligated to indemnify

Amwest under § 7 of the Agreement.             Pursuant to § 7 of the

Agreement, the FDIC is required to indemnify Amwest for only two

types of claims:      1) those “based upon a liability, contract or

action or failure to act or a status or capacity of any ACQUIRED

ASSOCIATION . . . which is asserted against [Amwest]”; and 2)

certain actions brought by a party other than Amwest to challenge

or set aside a transaction or the Agreement.          Amwest’s “purchase

price” claims are not related to either of these two types of

claims.

     Second, Amwest argues that the FDIC ratified this lawsuit in

a July 12, 1991 letter agreement prior to Amwest’s final submission

for reimbursement in February 1992.            The July 12, 1991 letter

agreement apparently provides for the parties to share in any

recovery from this action.          Even if the FDIC “ratified” this

lawsuit     by   entering   into   such   an   agreement,   however,   its

                                     7
ratification is meaningless.   The fact remains that the FDIC fully

and unconditionally reimbursed Amwest prior to trial and that

Amwest therefore was unable to show damages as to its “purchase

price” claims.   Thus, any agreement between the parties as to any

recovery on such claims is of no consequence because Amwest had no

damages to recover.

     Third, Amwest argues that it is entitled to the damages

awarded by the jury under the collateral source rule.   Under Texas

law, medical insurance, disability insurance, and other forms of

protection purchased by a plaintiff, as well as gifts received by

a plaintiff, are easily identifiable as independent sources subject

to the collateral source rule.   See Lee-Wright, Inc. v. Hall, 903
S.W.2d 868, 874 (Tex. Ct. App. 1992).   The Restatement (Second) of

Torts also identifies insurance policies, employment benefits,

gratuities, and social legislation benefits as types of benefits as

to which the collateral source rule applies.       See Restatement

(Second) of Torts § 920A cmt. c.     The rationale underlying the

collateral source rule is that a plaintiff should not be forced to

transfer to a wrongdoer a benefit that the plaintiff has received

either as a gift or as a result of foresight and planning, as by

purchasing insurance or bargaining for employment benefits.     See

id. cmt. b.

     Amwest has not cited and we are not aware of any controlling

authority that has expanded the collateral source rule to cover

sources other than those enumerated above. Amwest argues, however,

that the Assistance Agreement is analogous to an insurance policy

                                 8
in that it provided protection against the risk that Amwest would

recover less than the book value of the “covered” assets. Although

this argument has some superficial appeal, we are not persuaded.

The FDIC indeed guaranteed Amwest the book value of “covered”

assets upon the sale of such assets; however, the FDIC was also

entitled to split the profit if Amwest sold a “covered” asset for

greater than book value.    Amwest points to no evidence that the

consideration for the FDIC’s guarantee was some portion of the

price that Amwest paid for the “covered” assets rather than the

FDIC’s right to participate in any profits realized from Amwest’s

sale of such assets.    Because Amwest has not shown that it paid a

“premium” for the FDIC’s guarantee, its insurance policy analogy

fails.   Accordingly, we conclude that the FDIC’s reimbursement

under the Assistance Agreement is not a collateral source within

the meaning of the collateral source rule.

     Fourth, Amwest argues that it is entitled to the damages

awarded under the doctrine of subrogation.    Amwest contends that

upon reimbursement the FDIC became subrogated to Amwest’s “purchase

price” claims and that the FDIC authorized Amwest to pursue those

claims on its behalf.    Even if Amwest were correct that the FDIC

became subrogated to its claims, however, Amwest does not cite any

provision in the Assistance Agreement that authorizes Amwest to

pursue any of the FDIC’s claims on its behalf.     And contrary to

Amwest’s assertion, there is nothing in the July 12, 1991 letter

agreement that provides such authorization.

     Finally, Amwest argues that it is entitled to the damages

                                  9
awarded under FSLIC v. Reeves, 816 F.2d 130 (4th Cir. 1987).                  In

Reeves, FSLIC entered into an agreement with a savings and loan

association, Metropolitan, to indemnify Metropolitan for all losses

attributable     to   a    merger   that     FSLIC    facilitated         between

Metropolitan and another savings and loan association, County

Federal. In exchange, Metropolitan agreed to assign, upon request,

certain claims of County Federal, and to credit to a special

reserve account any recovery on such claims.              After obtaining such

an assignment, FSLIC filed suit against the former officers and

directors of County Federal.         The defendants argued that FSLIC

lacked    standing    to   pursue   the    claims    against       them   because

Metropolitan had not suffered any injury and thus had no cause of

action for losses suffered by County Federal prior to the merger.

     The court held that FSLIC could pursue the claims at issue

because the only reason Metropolitan had not suffered any injury

was that FSLIC had agreed to indemnify Metropolitan in exchange for

an assignment of the claims at issue.        As the court recognized that

Metropolitan had not suffered any injury, however, Reeves provides

no basis for upholding the jury’s damages award in favor of Amwest.

     Amwest recites a litany of horrors that will ensue if the

district court’s judgment in favor of defendants is allowed to

stand. We do not agree that affirming the judgment of the district

court will, as Amwest claims, “undermine the interests of taxpaying

citizens,” “reward wrongdoers in every case in which the FDIC

entered   into   an   assistance    agreement,”      or    allow   “tortfeasors

against failed banks or their successors . . . [to] wreak havoc

                                     10
upon these institutions without any fear of legal reprisal.”                     The

FDIC could have sought subrogation of Amwest’s claims or sought an

assignment       of   such   claims      to    recoup   the   losses    caused    by

defendants.      For reasons best known to the FDIC, it chose not to do

so.

          Having concluded that Amwest did not show that it suffered any

damages and having disposed of Amwest’s arguments that it is

entitled to the damages awarded by the jury,6 we affirm the

district court’s judgment in favor of defendants on Amwest’s

“purchase price” claims.

                                         III.

          Prior to the submission of the case to the jury, the district

court granted judgment as a matter of law in favor of Statewide on

Amwest’s claim for the recovery of the $2.8 million “double” credit

it inadvertently issued to Statewide in resolution of the dispute

between the parties concerning Statewide’s purchase of the loans in

HSA’s portfolio.7        The court held that because Statewide was not

involved in the calculation of the credit, Amwest’s math error was

a “unilateral mistake” which did not entitle Amwest to relief.

          As the district court recognized, a unilateral mistake is not

a   ground     for    reformation   of    an    agreement.     See     RGS,   Cardox

Recovery, Inc. v. Dorchester Enhanced Recovery Co., 700 S.W.2d 635,

          6
          Under Texas law, which applies in this case, punitive
damages are not recoverable absent recovery of compensatory
damages. See Federal Express Corp. v. Dutschmann, 846 S.W.2d 282,
284 (Tex. 1993).
      7
          Apparently, Amwest was not reimbursed by the FDIC for the
$2.8 million “double” credit.

                                          11
640 (Tex. Ct. App. 1985).   Amwest does not attempt to challenge the

district court’s conclusion that it committed a unilateral mistake.

Rather, it argues, correctly, that a unilateral mistake accompanied

by fraud by the other party will warrant reformation.    See id.

     The jury found that Stone fraudulently induced Amwest to issue

a $2.8 million credit and that Statewide conspired with Stone to

fraudulently induce Amwest to do so.     Amwest’s $2.8 million math

error was made in connection with the issuance of that credit.

     Statewide contends that there is no evidence to support the

jury’s finding that Stone fraudulently induced Amwest to issue the

credit.   In its April 2, 1996 ruling, the district court indicated

that it tended to agree.       Although Amwest alleges that Stone

misrepresented that Statewide was entitled to the credit, Amwest

does not point to any evidence that shows that Statewide was not

entitled to the credit as some share of the profit from the sale of

the $14 million in loans in HSA’s portfolio that HSA sold without

Statewide’s knowledge and that Statewide believed it had contracted

to purchase.   Accordingly, we conclude that Amwest is not entitled

to relief from its unilateral mistake on the ground that it was

accompanied by fraud.

     Amwest’s reliance on Community Mutual Ins. Co. v. Owen, 804
S.W.2d 602 (Tex. Ct. App. 1991) to otherwise support its position

that it is entitled to recover the “double” credit is misplaced.

In Owen, an insurance company issued payment for an insured’s

hospital expenses to both the insured and the hospital.          The

insured deposited the payment issued to him into his bank account

                                 12
and did not pay the hospital.      The court held that the insurance

company was entitled to recovery of the payment to the insured

because the insurance company had made the payment under a mistake

of fact and the insured had not materially changed his position in

reliance on the payment.      Id. at 605.

     Unlike the double payment in Owen, the double credit in this

case was made pursuant to an agreement between the parties in

resolution of a dispute.       The parties disagreed not only as to

whether Statewide was entitled to a credit, but also as to certain

other issues that would affect the amount of the credit.              Amwest

eventually   relented   and   agreed    to   issue   Statewide   a   credit.

Statewide points to evidence that, after Amwest agreed to give

Statewide a credit, Amwest calculated the amount of the credit and

offered Statewide a closing price based on that credit.          Statewide

accepted Amwest’s offer and wired the funds to close the deal.

Amwest, on the other hand, does not point to any evidence that the

parties agreed on the methodology for calculating the credit.             As

Statewide played no part in the calculation of the credit and

closed the deal once Amwest offered a closing price based on the

credit, it cannot be said that, like the insured in Owen, Statewide

did not materially change its position in reliance on the credit.

Accordingly, we affirm the district court’s judgment in favor of

Statewide.

                                   IV.

     The district court also granted Stone’s motion for judgment as

a matter of law on Amwest’s claim that Stone breached his fiduciary

                                   13
duty to HSA by using his expense account to obtain reimbursement

for personal expenses from HSA funds.8              Amwest argues that in

ruling in favor of Stone, the district court erroneously shifted

the burden of proof to Amwest.              According to Amwest, when a

fiduciary relationship exists between parties, equity requires that

the fiduciary establish the fairness of a transaction with the

principal.     Amwest contends that because Stone failed to discharge

this burden, the district court should have ruled in its favor.

     Amwest relies on two Texas cases in support of its argument.

In Texas Bank and Trust Co. v. Moore, 595 S.W.2d 502 (Tex. 1980),

the nephew of an elderly woman caused her to transfer certain

property to him before her death.           The court concluded that the

nephew was the aunt’s fiduciary and, as a result, a presumption

arose that any gift from the aunt, the principal, to the nephew,

the fiduciary, was unfair and invalid.            Id. at 506.

     In Archer v. Griffith, 390 S.W.2d 735 (Tex. 1964), an attorney

obtained a deed to real property from his client as compensation

for representing her in a divorce case.               The court held that

because of the fiduciary nature of the attorney-client relationship

in existence at the time of the conveyance, a presumption of

unfairness or invalidity attached to the transaction.           Id. at 739.

     We   do   not   agree   that   Moore   and   Archer   support   Amwest’s

contention that Stone bore the burden of proof on Amwest’s expense

     8
          The court orally granted Stone’s motion on July 3, 1995
during a charging conference. Although the court stated that it
would issue a written opinion on the motion, none was forthcoming.

                                      14
account abuse claim.    Both cases held that fiduciaries who engaged

in “transactions” with their principals were required to prove the

fairness of those transactions.        Neither suggests that anytime a

fiduciary is accused of wrongdoing he or she bears the burden of

proving otherwise.      Stone’s alleged reimbursement of personal

expenses   was   a   misappropriation    of   corporate   funds,   not   a

“transaction” in which he engaged with HSA.        Accordingly, Amwest

bore the burden of proof on its expense account abuse claim.          See

Lemons v. Davis, 306 S.W.2d 224, 227 (Tex. Ct. App. 1957) (holding

that principal bore burden of establishing fiduciary’s misuse or

waste of funds).     We therefore affirm the district court’s ruling

in favor of Stone.

                                  V.

     For the reasons set out above, the judgment of the district

court is AFFIRMED.

                                  15