IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________________________
No. 90-2654
____________________________________
BANK ONE, TEXAS, N.A. and FEDERAL
DEPOSIT INSURANCE CORPORATION AS
RECEIVER FOR MBANK HOUSTON, N.A.,
Plaintiffs-Third Party Defendants-Appellants,
versus
SUZAN E. TAYLOR d/b/a
EXPLORATION SERVICES,
Defendant-Third Party Plaintiff-Appellee,
versus
WORTH OPERATING, INC., ET AL.,
Third Party Defendants.
________________________________________________________________
Appeal from the United States District Court for
the Southern District of Texas
_________________________________________________________________
(August 18, 1992)
Before REYNALDO G. GARZA and GARWOOD, Circuit Judges, and MAHON,
District Judge.*
MAHON, District Judge:
This appeal arises out of a lawsuit commenced by MBank
Greens Parkway, N.A., predecessor of MBank Houston, N.A., (MBank)
to recover on three unpaid promissory notes executed by Ms. Suzan
Taylor d/b/a Exploration Services (Taylor). A jury trial
resulted in a verdict of $9.6 million in favor of Taylor based
upon her assertion of various lender liability claims against
MBank. For the reasons stated below, we conclude that the
____________________________
* District Judge of the Northern District of Texas, sitting by
designation.
punitive damage award is unsustainable, but find there is
sufficient evidence to support the remainder of the jury's
verdict.
I. FACTS AND PROCEEDINGS BELOW
The dispute which brought about the present litigation arose
in 1984. Taylor at the time was the sole owner of a company
called Exploration Services, a business which provided geological
and geophysical consulting services for oil and gas companies.
In October 1984, Taylor entered into an agreement with C.I. Oil,
Inc. (CI) in which she acquired an interest in a petroleum
drilling prospect in Louisiana known as the Comite Prospect. In
accordance with their agreement, Taylor deposited $300,000 into
two money market checking accounts at MBank to pay CI for an
interest in the prospect. The agreement provided that once CI
turned over Taylor's interest in the prospect and furnished
Taylor the well log showing the well had been drilled to the
specified depth, Taylor would authorize MBank to release the
$300,000 to CI. CI had no agreement with MBank nor was it a
signatory on either account.
Though Taylor had originally instructed MBank to pay the
deposited funds to CI, she changed those instructions when it
appeared that CI could not or would not transfer all of the
interest to her in accordance with their agreement. On
November 20, 1984, Taylor wrote MBank instructing it to disburse
$220,000 of these funds to CI and $80,000 to Sequoia Resources
1
"in accordance with the . . . [a]greement by and between
Exploration Services and C.I. Oil, Inc. and only upon written
authorization of Suzan E. Taylor." The following day, CI and
Sequoia agreed to this disbursement arrangement.
On December 17, 1984, CI produced the well log described in
the agreement and made written demand upon MBank for the
$220,000, informing the bank that CI would hold MBank liable for
any disbursement of those funds in a "manner contrary to the
distribution instructions of Taylor's letter of November 20."
Because Taylor and CI continued to dispute the amount of lease
interest to be conveyed under their agreement, Taylor refused to
provide MBank written authorization for the release of the
$220,000 to CI. MBank therefore immediately froze the accounts
and demanded that Taylor settle her dispute with CI. Despite
Taylor's repeated requests for MBank to release her funds, MBank
continued the freeze on Taylor's accounts for almost four months,
insisting that CI and Taylor resolve their differences. During
this period, Taylor lost the opportunity to participate in both
the Comite Prospect and another prospect called Santa Paula.
When Taylor made another written demand for the funds on
March 7, 1985, MBank filed a state court interpleader action
against Taylor and CI. Taylor and CI eventually reached a
settlement and gave consistent instructions to MBank as to the
disposition of the account balances on April 12, 1985. MBank,
however, refused to dismiss the state interpleader action or
permit Taylor to have access to the funds until she signed a
2
release absolving MBank from all liability. On April 16, 1985,
MBank, Taylor and CI reached a final settlement of the
interpleader action in which MBank agreed to absorb its
attorney's fees in return for Taylor's agreement to release MBank
from any liability. The interpleader action was later dismissed
on May 8, 1985, on MBank's motion for nonsuit. The next day
Taylor received a letter from MBank demanding that all four of
her outstanding loans be paid in full within five days1 even
though the two secured loans were not past due. Six days later,
MBank repossessed Taylor's Jaguar automobile and commenced
admiralty proceedings in federal court to repossess Taylor's
yacht which was later seized and sold at public auction.
MBank then initiated the present litigation in state court
to recover the indebtedness on the two unsecured loans and
recover the deficiency on the note secured by the Jaguar
automobile. Taylor filed a counterclaim against MBank contending
that the release executed by Taylor in settlement of MBank's
interpleader action was procured by fraud and economic duress and
was invalid for want of consideration. In addition, Taylor
claimed that because MBank had tortiously frozen her accounts,
she lost the opportunity to participate in the Comite and Santa
Paula prospects causing her to suffer damages in excess of $28
1
Taylor had executed the following promissory notes in favor
of MBank: (1) an unsecured loan in the face amount of $90,000;
(2) an unsecured loan in the face amount of $50,000; (3) a loan
in the face amount of $29,062.81, secured by a 1984 Jaguar
automobile; and (4) a loan in the face amount of $106,651.96,
secured by a Sea Ray yacht.
3
million. Taylor also asserted that MBank wrongfully accelerated
the car and yacht loans and had conspired with her former
business partner, Worth Energy Corporation, to her detriment.
The trial of this case lasted seven weeks and produced over
5000 pages of transcript and several volumes of exhibits. At the
conclusion, the jury found MBank liable for engaging in false,
misleading and deceptive practices in violation of the Texas
Deceptive Trade Practices--Consumer Protection Act (DTPA), Tex.
Bus. & Com. Code Ann. §§ 17.41-17.826 (Vernon 1987). The jury
also found MBank had tortiously interfered with Taylor's business
dealings, conspired to harm Taylor's business, and failed to act
in good faith in connection with the "Comite" accounts as well as
the car and yacht loans. The jury found that, while there was no
evidence of fraud in the execution of the settlement agreement,
MBank did coerce Taylor through economic duress to sign the
release and failed to give valid consideration for the release
agreement.
Based upon the jury's answers to the special issues, the
district judge entered final judgment against MBank. In the
judgment, the court deducted from the jury award the past due
principal and accrued interest on two unsecured notes Taylor
concededly owed. In addition, the court entered a take-nothing
judgment on MBank's claim for the deficiency on the third note
secured by Taylor's Jaguar and denied MBank's claim for
attorney's fees and expenses in connection with the two unsecured
loans. The trial court later denied MBank's motion for judgment
4
notwithstanding the verdict, and final judgment was entered in
the amount of $9,639,841.65.2
MBank thereafter filed post-judgment motions for new trial
and to modify, correct, or reform the judgment. Before the state
trial court could rule on MBank's motions, MBank was declared
insolvent, and the Federal Deposit Insurance Corporation (FDIC)
was appointed its receiver. The FDIC, as receiver of MBank,
filed a plea in intervention in the state court action and
adopted MBank's then current pleadings, including its motion for
new trial and motion to modify, correct, or reform the judgment.
Following its intervention, the FDIC removed the action to
federal district court. The FDIC and Bank One, Texas, N.A.,
(Bank One), successor-in-interest to MBank, then filed memorandum
briefs in support of MBank's previously filed motions for new
trial and to alter or amend the judgment. The district court
denied the motions, and the FDIC and Bank One appealed the
judgment to this court. In this appeal, FDIC, as receiver of
MBank, is the proper party to defend against Taylor's
counterclaims, while Bank One, successor-in-interest to MBank, is
the party entitled to pursue collection on the notes on which
MBank originally brought suit.
2
Worth Energy Corporation, Taylor's former business partner
and its principal officers Aaron W. Hees and Jim W. Howard were
held jointly and severally liable with MBank for approximately
$2.4 million of the damages, but did not join in this appeal.
5
II. STANDARD OF REVIEW
In the present appeal, the FDIC broadly contends there was
insufficient evidence presented at trial to support the jury's
findings that Taylor executed the settlement agreement under
duress, that the settlement agreement lacked valid consideration,
and that MBank committed deceptive practices in freezing Taylor's
accounts. We consider the various insufficiency points cited by
appellants as an appeal from the trial court's denial of MBank's
motion for judgment notwithstanding the verdict and apply the
same standards as that of the district court. Melear v. Spears,
862 F.2d 1177, 1182 (5th Cir. 1989); Granberry v. O'Barr, 866
F.2d 112, 113 (5th Cir. 1988).3 We are guided in this task by
the overriding "principle that 'it is the function of the jury as
the traditional finder of fact, and not the Court, to weigh
conflicting evidence . . . .'" Treadaway v. Societe Anonyme
Louis-Dreyfus, 894 F.2d 161, 164 (5th Cir. 1990) (quoting Boeing
Co. v. Shipman, 411 F.2d 365, 375 (5th Cir. 1969) (en banc)).
"Weighing conflicting evidence and the inferences to be drawn
from that evidence, and determining the relative credibility of
the witnesses, are the province of the jury, and its decision
must be accepted if the record contains any competent and
substantial evidence tending fairly to support the verdict."
3
This action was removed post-judgment from the state court
to the federal district court. Accordingly, the scope of our
review in this appeal is governed by federal, rather than state
law, standards. Pagan v. Shoney's Inc., 931 F.2d 334, 337 (5th
Cir. 1991); Garner v. Santoro, 865 F.2d 629, 642 (5th Cir. 1989);
see also Granny Goose Foods, Inc. v. Brotherhood of Teamsters,
415 U.S. 423, 437 (1974).
6
Gibraltar Sav. v. LDBrinkman Corp., 860 F.2d 1275, 1297 (5th Cir.
1988) (citing Dartez v. Fibreboard Corp., 765 F.2d 456 (5th Cir.
1985), cert. denied, 490 U.S. 1091 (1989)). We have defined
substantial evidence as "'evidence of such quality and weight
that reasonable and fair-minded men in the exercise of impartial
judgment might reach different conclusions.'" Transoil (Jersey)
Ltd. v. Belcher Oil Co., 950 F.2d 1115, 1118 (5th Cir. 1992)
(citing Boeing, 411 F.2d at 374-75). In reviewing a denial of a
motion for judgment notwithstanding the verdict, the appellate
court is bound to consider all of the evidence and all reasonable
inferences in the light most favorable to the prevailing party,
Rideau v. Parkem Indus. Servs., Inc., 917 F.2d 892 (5th Cir.
1990), and the jury verdict must be upheld unless "the facts and
inferences point so strongly in favor of one party that the Court
believes that reasonable men could not arrive at a contrary
verdict." Boeing, 411 F.2d at 374. Having set out the
applicable standard of review, we now turn to the appellants'
contentions raised in this appeal.
III. THE RELEASE
At the outset, the FDIC maintains the jury erred in setting
aside the release because there is overwhelming evidence that the
release agreement was supported by valuable consideration. We
disagree. Having carefully reviewed the record before us, we
hold there was substantial evidence to support the jury's
determination that the release was void for lack of
consideration.
7
In Texas, a release is treated as a type of contract,
Jackson v. Fontaine's Clinics, Inc., 499 S.W.2d 87, 92 (Tex.
1973), and like any other contract, must be supported by valuable
consideration. Victoria Bank & Trust Co. v. Brady, 779 S.W.2d
893, 903 (Tex. App.--Corpus Christi 1989), modified, 811 S.W.2d
931 (Tex. 1991); Tobbon v. State Farm Mut. Auto. Ins. Co., 616
S.W.2d 243, 245 (Tex. Civ. App.--San Antonio 1981, writ ref'd
n.r.e.). Consideration for a release "can consist of [either] a
benefit to the promisor or a loss or detriment to the promisee."
Garcia v. Villarreal, 478 S.W.2d 830, 832 (Tex. Civ. App.--Corpus
Christi 1971, no writ); see also Buddy L, Inc. v. General Trailer
Co., 672 S.W.2d 541, 547 (Tex. App.--Dallas 1984, writ ref'd
n.r.e.). If it is determined that a release was executed without
valuable consideration, it may be invalidated. Victoria Bank,
779 S.W.2d at 903; McClellan v. Boehmer, 700 S.W.2d 687, 693
(Tex. App.--Corpus Christi 1985, no writ).
As stated previously, Taylor signed a release in 1985 in
which she agreed to absolve MBank from any and all claims or
causes of action she might have for its handling of the subject
accounts. In return, MBank agreed to forego its right to seek
its attorney's fees in the interpleader action. The question
whether the release was supported by consideration was submitted
as a jury issue, and the jury specifically found that MBank
failed to give valid consideration for the release. The FDIC
argues on appeal that this factual finding was not supported by
substantial evidence because MBank's agreement to absorb its
8
attorney's fees provided ample consideration for the release.
Taylor, on the other hand, contends that the release was
completely lacking in valid consideration and must be set aside
because MBank filed an improper interpleader and therefore
forfeited any right to recover its attorney's fees.
Under Texas law, MBank was entitled to an award of
attorney's fees in the interpleader action only if MBank proved
it was "a disinterested stakeholder who ha[d] reasonable doubts
as to the party entitled to the funds or property in [its]
possession, and who in good faith . . ." filed an interpleader
action against the claimants. United States v. Ray Thomas Gravel
Co., 380 S.W.2d 576, 580 (Tex. 1964); Foreman v. Graham, 693
S.W.2d 774, 778 (Tex. App.--Fort Worth 1985, writ ref'd n.r.e.).
In order to bring an interpleader under Rule 43,4 a stakeholder
is not required to be wholly disinterested in the suit. Rather,
it "need only show that it is or may be exposed to double or
4
Rule 43 of the Texas Rules of Civil Procedure governs the
procedure for initiating an interpleader action in state court.
Rule 43 provides as follows:
Persons having claims against the plaintiff may be
joined as defendants and required to interplead when
their claims are such that the plaintiff is or may be
exposed to double or multiple liability. It is not
ground for objection to the joinder that the claims of
the several claimants or the titles on which their
claims depend do not have a common origin or are not
identical but are adverse to and independent of one
another, or that the plaintiff avers that he is not
liable in whole or in part to any or all of the
claimants. A defendant exposed to similar liability
may obtain such interpleader by way of cross-claim or
counterclaim. The provisions of this rule supplement
and do not in any way limit the joinder of parties
permitted in any other rules.
9
multiple liability as a result of conflicting claims justifying a
reasonable doubt as to which claimant is entitled to the funds."
Sears Sav. & Profit Sharing Fund v. Stubbs, 734 S.W.2d 76, 79
(Tex. App.--Austin 1987, no writ) (citing Davis v. East Texas
Sav. & Loan Assoc., 163 Tex. 361, 354 S.W.2d 926 (1962)); Downing
v. Laws, 419 S.W.2d 217 (Tex. Civ. App.--Austin 1967, writ ref'd
n.r.e.). While the stakeholder's interest in the suit is
irrelevant for purposes of commencing an action under Rule 43, in
order to be entitled to an award for attorney's fees, a
stakeholder must be disinterested as to the outcome of the
controversy. See Ray Thomas Gravel Co., 380 S.W.2d at 580;
Foreman, 693 S.W.2d at 778; Brown v. Getty Reserve Oil, Inc., 626
S.W.2d 810, 815 (Tex. App.--Amarillo 1981, writ dism'd).
Texas courts have articulated a number of specific
requirements for properly instituting an interpleader action. A
petitioner must plead and prove that: (1) he is either subject
to, or has reasonable grounds to anticipate, rival claims to the
same fund or property;5 (2) he has filed the interpleader without
unreasonable delay;6 and (3) he has made an unconditional tender
5
Great American Reserve Ins. Co. v. Sanders, 525 S.W.2d 956,
958 (Tex. 1975); Ray Thomas Gravel Co., 380 S.W.2d at 580; Davis,
354 S.W.2d at 930; Sears Sav. & Profit Sharing Fund, 734 S.W.2d
at 79.
6
Sears Sav. & Profit Sharing Fund, 734 S.W.2d at 79;
National Life & Accident Ins. Co. v. Thompson, 153 S.W.2d 322,
323 (Tex. Civ. App.--Waco 1941, writ ref'd); see also Great
American Reserve Ins. Co. v. Sanders, 525 S.W.2d at 959; see
generally 1 Roy W. McDonald & Frank W. Elliott, Texas Civil
Practice in District and County Courts §§ 3.40, 3.42 (4th ed.
1991); 47 Tex. Jur. 3rd Interpleader § 5 (1986).
10
of the fund into the court.7 If a disinterested stakeholder
fails to meet any one of these three prerequisites for filing an
interpleader, he is not entitled to an award of attorney's fees.
The FDIC insists that MBank met all three requirements and
therefore was justified in filing the interpleader. In deciding
this issue, we first review the deposit agreement between Taylor
and MBank to determine whether MBank had reasonable doubts as to
which party was entitled to the funds.
In November 1984, MBank opened two commercial checking
accounts for Taylor. The standard deposit agreement, which
Taylor signed when MBank opened the accounts, provided in
pertinent part:
The Deposit with MBank Greens Parkway, National
Association, Houston, Texas ("Bank") of any check,
draft, or other instrument ("Item") or cash shall
constitute a contract ("Contract"), between Bank and
the person, firm, association or corporation
("Depositor", whether one or more) to whom credit for
such item and/or cash is given by this Bank. The terms
of such Contract are as follows:
1. Other than as provided by the terms of this
Contract, the Bank acts only as agent for Depositor.
(emphasis added).
In a separate deposit agreement executed in connection with the
opening of the two accounts, it was agreed that:
All funds at any time on deposit in the aforementioned
account shall be subject to withdrawal by . . . Suzan
E. Taylor . . . .
7
Sears Sav. & Profit Sharing Fund, 734 S.W.2d at 79; Cockrum
v. Cal-Zona Corp., 373 S.W.2d 572, 574-75 (Tex. Civ. App.--Dallas
1963, no writ); Bennett v. Smead, 180 S.W.2d 663, 663-64 (Tex.
Civ. App.--Texarkana 1944, no writ); see generally McDonald &
Elliott supra note 6, § 3.42.
11
Bank is authorized to honor any and all such withdrawals
whether or not they are payable to the order of the person
signing, or countersigning, the same, or payable to Bank or
Bank's order, and whether or not such withdrawals are
presented for cash or for credit to the personal account of the
person presenting the same, and Bank need make no inquiries
concerning any such withdrawal.
The terms and conditions of the deposit agreements do not refer
to a third party agreement, nor do they furnish the bank with any
special instructions on how the funds should be applied. Nowhere
is it mentioned that Taylor is restricted from withdrawing any or
all of the account funds on deposit at any time. In addition, CI
was not a signatory on the account and had no control over the
account funds on deposit. Though Taylor maintained the accounts
in the names "'Comite' Escrow Account III" and "'Comite' Escrow
Account IV," the law is clear that a mere deposit of earnest
money into a bank account is not sufficient to create an escrow
contract or create escrow liabilities. Cowman v. Allen
Monuments, Inc., 500 S.W.2d 223, 225-26 (Tex. Civ. App.--
Texarkana 1973, no writ.); cf. La Sara Grain Co. v. First Nat'l
Bank of Mercedes, 673 S.W.2d 558, 564 (Tex. 1984) (deposit
creates implied agreement that bank will disburse funds only at
the direction of depositor). Faced with its own deposit
agreements, MBank could not reasonably have concluded that these
accounts were anything other than commercial checking accounts in
which CI had no valid claim or interest.
The FDIC argues that MBank could have reasonable doubts
because the agreement executed by Taylor and CI prohibited the
bank from releasing the funds contrary to the terms of their
12
agreement. This agreement, however, was a contract only between
CI and Taylor. MBank was neither a party to the contract, nor
does the evidence show that MBank expressly or impliedly
consented to act as the escrow agent for the parties.
Furthermore, there is nothing in the record to suggest that MBank
and CI ever entered into any agreement regarding the disposition
of the account funds. Absent such an agreement, it is elemental
contract law that MBank owed no contractual duty to CI and
therefore was not required to recognize CI's putative claim.8
The fundamental basis of the relationship between a bank and
its customer is the bank's agreement to pay out the customer's
money in accordance with his order. In view of the unequivocal
terms of the deposit agreement, the jury could reasonably have
concluded that MBank did not harbor reasonable doubts as to which
party was entitled to the funds and thus did not meet the first
requirement for instituting a proper interpleader.
Even if MBank had reasonable doubts, it wholly failed to
meet either of the remaining requirements for initiating a proper
action in interpleader. MBank was required to file the
interpleader action without unreasonable delay. The record in
this action indicates that MBank first received a written demand
8
Further, under Texas law a bank is not required to
recognize the claim of a third party to any deposit unless it is
served with process in a lawsuit filed by such third party. See
Tex. Rev. Civ. Stat. Ann. art. 342-704 (Vernon Supp. 1991).
Here, CI merely threatened suit and never instituted a civil
action against MBank. Therefore, even if CI had a valid claim
against the account, MBank was not required to recognize such a
third party claim until suit was filed.
13
for the funds on December 18, 1984. In the demand letter, CI
made clear that it would hold MBank liable for any disbursement
of those funds in a manner inconsistent with the parties'
agreement. Despite CI's threatened legal action, MBank failed to
take any action until March 7, 1985, when Taylor threatened to
sue MBank for wrongful withholding of funds. In the meantime,
MBank kept the funds on deposit and delayed the filing of the
interpleader for almost 12 weeks in the belief that it could
offset the account to reduce Taylor's debt. Instead of acting as
a "disinterested stakeholder," MBank, for its own financial
interests, continued to hold the funds in Taylor's frozen account
for almost three months before commencing the interpleader
action. We believe the jury was entitled to conclude that even
if MBank had reasonable doubts as to which party was entitled to
the funds, it failed to promptly initiate an action in
interpleader and, in so doing, failed to "exercise[] that degree
of diligence and impartiality which the law requires in order to
secure for itself the benefits conferred upon a mere stakeholder
under a proper bill of interpleader." National Life & Accident
Ins. Co. v. Thompson, 153 S.W.2d at 323-24; see also Sears Sav. &
Profit Sharing Fund, 743 S.W.2d at 79.
To fulfill the final requirement for filing a proper
interpleader action, the stakeholder also must tender the funds
into the court. Under Texas procedure, "[i]f the . . . fund is
not actually paid into the registry of the court, it must be
tendered and the tender, in order to be valid, must be
14
unconditional." Cockrum v. Cal-Zona Corp., 373 S.W.2d at 574;
Bennett v. Smead, 180 S.W.2d at 664; see also Security Nat'l Bank
of Lubbock v. Washington Loan & Finance Corp., 570 S.W.2d 40, 43
n.4 (Tex. Civ. App.--Dallas 1978, writ dism'd). Here, the
account funds were neither paid into the registry of the court
nor unconditionally tendered. Instead, MBank kept the funds on
deposit and sought to exercise a purported right of offset. Even
after consistent instructions were given by Taylor and CI as to
the distribution of the funds, MBank refused to make an
unconditional tender, asserting an additional claim for its
attorney's fees.
Thus, even under the most generous reading of the record,
there is little, if any, evidence that shows MBank met even one
of the three essential requirements for filing a proper
interpleader action, let alone that it acted as an innocent
disinterested stakeholder in the interpleader action. Moreover,
by wrongfully withholding the funds until Taylor signed a
complete release of all claims against it, MBank also failed to
exercise good faith in the settlement of the interpleader. See
Bentley v. Grewing, 613 S.W.2d 49, 52 (Tex. Civ. App.--Fort Worth
1981, writ ref'd n.r.e.). For the reasons stated, we find no
grounds upon which MBank could assert a valid claim for
attorney's fees.
The FDIC maintains that MBank's forbearance of its claim for
attorney's fees in the interpleader action is sufficient
15
consideration to support the release agreement.9 In support of
this argument, the FDIC relies upon a long-standing rule of
contracts which states that forbearance to enforce a claim or
right is ample consideration to support a contract even though it
ultimately appears the claim is without merit. See Kennard v.
McCray, 648 S.W.2d 743, 745-46 (Tex. App.--Tyler 1983, writ ref'd
n.r.e.); Iden v. Ackerman, 280 S.W.2d 643, 646-47, (Tex. Civ.
App.--Eastland 1955, writ ref'd); Russell v. Lemons, 205 S.W.2d
629, 632 (Tex. Civ. App.--Amarillo 1947, writ ref'd n.r.e);
Cleburne State Bank v. Ezell, 78 S.W.2d 297, 299 (Tex. Civ. App.-
-Waco 1934, writ dism'd) (citing Hunter v. Lanius, 82 Tex. 677,
18 S.W. 201 (1892)). The FDIC, however, fails to recognize an
important exception to this principle. Forbearance is not
sufficient consideration unless the party asserts the claim in
good faith and has reasonable grounds in believing that he had
such a right. Stewart v. Friona State Bank, 278 S.W.2d 425, 433
(Tex. Civ. App.--Amarillo 1955, writ ref'd n.r.e); Cleburne State
Bank, 78 S.W.2d at 299; Wells v. Timms, 275 S.W. 468, 471 (Tex.
Civ. App.--Fort Worth 1925, writ dism'd) (citing Von Bradenstein
v. Ebensberger, 71 Tex. 267, 9 S.W. 153 (1888); see 14 Tex. Jur.
9
In its reply brief, the FDIC raises for the first time the
argument that Taylor benefitted from the release because MBank
waived its right to offset the accounts and Taylor obtained an
increased share of the Comite prospect from CI. Absent manifest
injustice, "this court will not consider arguments belatedly
raised after appellees have filed their brief." Najarro v. First
Federal Savings and Loan Ass'n of Nacogdoches, Texas, 918 F.2d
513, 516 (5th Cir. 1990). We find no manifest injustice by
declining to address appellants' arguments on these points.
16
3rd Contracts § 120 (1981); Restatement (Second) of Contracts §
74(1) (1979). See generally 3 Samuel Williston and Richard A.
Lord A Treatise on the Law of Contracts § 7:45 (4th ed. 1992); 1
Arthur L. Corbin, Corbin on Contracts § 140 (1963).10
10
Texas intermediate appellate court opinions have
employed a wide variety of language, some of it inconsistent and
much of it dicta, to describe the correct standard in this
respect. For example, in Cleburne State Bank v. Ezell, 78 S.W.2d
297, 299 (Tex. Civ. App.--Waco 1934, writ dism'd), the opinion
initially states that the forbearance is sufficient consideration
"provided he in good faith and upon reasonable grounds believed
that he had such a right," but then, in upholding the jury
verdict in favor of the settlement, speaks only of good faith:
"Whether or not there was an honest assertion of a right to
recover against Ezell and whether or not the officials of the
bank in good faith believed that Ezell was liable to the bank on
the claim asserted were questions of fact to be determined by the
jury." In both Wells v. Timms, 275 S.W. 468, 471 (Tex. Civ.
App.--Fort Worth 1925, writ dism'd), which sustained the
settlement, and Stewart v. Friona State Bank, 278 S.W.2d 425,
432-33 (Tex. Civ. App.--Amarillo 1955, writ ref'd n.r.e.), which
did not, there is language indicating that both reasonable
grounds and good faith are required, but in neither case does the
conjunctive appear to have been material to the decision. Thus,
in Stewart the majority notes that "[t]here is no evidence in
this record of a bona fide dispute of any nature." Id. at 432.
In Wells the court relied in part on a passage from a text
stating, with apparent inconsistency, that "'. . . it is not
necessary in a suit on a promise given in consideration of a
forbearance from suit that it should appear that there was . . .
a fair and reasonable ground of success in the threatened suit. .
. . It is only essential that the claim be doubtful either in law
or equity and asserted in good faith.'" Id. at 471 (quoting Vol.
1 Elliott on Contracts at 407).
In Iden v. Ackerman, 280 S.W.2d 643, 646 (Tex. Civ. App.--
Eastland 1955, writ ref'd), the court quotes with approval the
following language from 15 C.J.S. Compromise and Settlement § 11
p. 732, viz:
To support a compromise it is not essential that the
question in controversy be in fact doubtful in legal
contemplation. It is sufficient that there be an actual
controversy between the parties of which the issue fairly
may be considered by both parties as doubtful and that, at
the time of the compromise they in good faith so consider
it.
See also Goodwin v. Texas Employers' Ins. Ass'n, 73 S.W.2d
660, 663 (Tex. Civ. App.--El Paso 1934, writ dism'd) ("The fact
17
Whether MBank honestly believed it had a right to its
attorney's fees and whether the officials at the bank believed in
good faith that Taylor was liable to the bank on its claim were
questions of fact to be determined by the jury. Cleburne State
Bank, 78 S.W.2d at 299. The record contains considerable
evidence bearing on this issue. First, the evidence clearly
shows that MBank was not subject to, nor had reasonable grounds
to anticipate, rival claims to the account fund. Under the
unambiguous terms of the deposit agreements, MBank owed a
contractual duty only to its depositor, Suzan Taylor, not to CI.
Second, MBank unreasonably delayed filing the interpleader action
in order to secure its own interest in the account proceeds.
that it subsequently developed that the nature, character and
extent of plaintiff's injury and the liability of the defendant
was not in fact doubtful does not invalidate the settlement nor
present any ground for setting the contract aside."); 12 Tex.
Jur. 3rd Compromise and Settlement, § 6 at 269-270. In Murtagh
v. University Computing Company, 490 F.2d 810, 815 (5th Cir.
1974), we stated, applying Texas law, that "[t]he existence of an
antecedent bona fide dispute between the parties concerning the
subject matter of a subsequent settlement agreement is sufficient
legal consideration for creation of an enforceable agreement."
The Texas Supreme Court last spoke authoritatively to this issue
in Hunter v. Lanius, 82 Tex. 677, 18 S.W. 201 (1892). In that
case, the court held that ". . . a note is supported by a
sufficient consideration, if executed to secure the abandonment
of a suit brought to enforce a doubtful right, or in compromise
of a disputed claim made in good faith, though it ultimately
appears that the claim is without merit." Id. at 205. Although
the Texas courts have enunciated divergent opinions on this
issue, we need not decide the controlling standard because there
is sufficient evidence to support the findings that the bank had
neither reasonable grounds to believe its claim was proper nor
good faith in pursuing it, and all authorities agree that in such
a situation there is no consideration.
18
Third, MBank failed to make an unconditional tender of the funds
into the registry of the court and held the funds on deposit so
it could exercise an assumed right of offset. Finally, MBank
failed to make a good faith settlement of the interpleader after
it received consistent instructions from the claimants. In light
of the foregoing, it is hard to imagine how MBank could have had
a reasonable belief in the validity of its claim for attorney's
fees. Indeed, MBank's own lawyers testified that they advised
the bank of their concern the court would be "hard-pressed" to
allow the interpleader action to continue once consistent
instructions were received from Taylor and CI.
As demonstrated above, substantial evidence indicates that
when the release was executed MBank's claim for attorney's fees
was neither doubtful nor asserted in good faith. Bearing in mind
that all reasonable inferences from the evidence must be resolved
in favor of the jury's verdict, we are satisfied there is
substantial evidence from which the jury could conclude that
MBank knew or should have known that it was not entitled to an
award of attorney's fees from the interpleader action and did not
assert such a claim in good faith. We therefore accept the
jury's conclusion that the release was void for lack of
consideration.11
11
Because a release agreement may be declared invalid on any
one of several grounds, we need not reach the issue of whether
the release was executed under duress. Victoria Bank & Trust Co.
v. Brady, 779 S.W.2d at 903.
We also observe that appellants have not asserted on appeal
(and apparently the bank did not assert at trial) that the
dismissal judgment in the interpleader suit had a res judicata or
19
IV. THE ACCOUNT FREEZE
The FDIC contends that even if the release was not
enforceable, the "judgment . . . should be reversed because the
escrow account freeze was legally justified." (Appellants' Br.
at 34). In its argument, the FDIC broadly asserts that the
freezing of the account was fully justified under the
circumstances because the funds were deposited in an "escrow
account" and were only to be disbursed in accordance with the
agreement between Taylor and CI. The FDIC, however, raises this
point of error without challenging any specific factual finding
in the jury's verdict or indicating which of the various issues
submitted was not supported by the evidence. It is established
law that matters which have not been adequately briefed are
precluded from consideration on appeal. In re HECI Exploration
Co., Inc., 862 F.2d 513, 525 (5th Cir. 1988); Morrison v. City of
Baton Rouge, 761 F.2d 242, 244 (5th Cir. 1985). The FDIC's
failure to specify precisely which jury finding was in error,
would, in effect, require this court to consider whether the
verdict taken as a whole was supported by substantial evidence.
Because such a review would be limitless, we consider the FDIC's
arguments on these issues waived and decline to address them.
collateral estoppel effect. See, e.g., Rhoades v. Prudential
Leasing Corporation, 413 S.W.2d 404, 407 (Tex. Civ. App.--Austin,
1967, no writ history) (". . . a judgment of dismissal entered by
agreement of the parties in pursuance of a compromise, or
settlement of a controversy, becomes a judgment on the merits").
Thus, we have no occasion to, and do not, pass on the effect of
the judgment of dismissal in the interpleader suit.
20
See Franceski v. Plaquemines Parish School Bd., 772 F.2d 197, 199
n.1 (5th Cir. 1985); In re Texas Mortgage Services Corp., 761
F.2d 1068, 1073-74 (5th Cir. 1985); Kemlon Products & Development
Co. v. United States, 646 F.2d 223, 224 (5th Cir.), cert. denied,
454 U.S. 863 (1981).
Even if we were to assume that the FDIC's argument was
sufficiently briefed, the evidence is quite clear that MBank had
no right to freeze Taylor's accounts. Taylor opened two
commercial checking accounts with MBank. Under the terms and
conditions of the deposit agreements, MBank and Taylor agreed
that the bank would be the agent for Taylor only and would "honor
any and all withdrawals" from the accounts by the authorized
signatory, Suzan Taylor. Thus, MBank was bound to obey the
orders of Taylor under the express terms of their contract.
Moreover, under Texas law, Taylor's deposit of funds with Mbank
created an implied agreement that the bank would disburse those
funds only in accordance with Taylor's instructions. La Sara
Grain Co. v. First Nat'l Bank of Mercedes, 673 S.W.2d 558, 564
(Tex. 1984), citing Mesquite State Bank v. Professional Invest.
Co., 488 S.W.2d 73, 75 (Tex. 1972). Considering the entire
record of this case, particularly the initial deposit agreements
which created both accounts, we are of the opinion that no
"escrow account" existed and that MBank, in freezing Taylor's
accounts, failed to comply with the express terms of the deposit
contracts in wanton disregard of Taylor's rights.
21
In its next point of appeal, the FDIC argues there is
insufficient evidence to support the jury's finding that the
account freeze was a "producing cause" of Taylor's damages under
the DTPA.12 Section 17.50 of the DTPA authorizes consumers to
hold sellers liable for actual damages where "a false,
misleading, or deceptive act or practice" is "a producing cause"
of those damages.13 In Pope v. Rollins Protective Services Co.,
this court noted that:
One of the primary reasons for the enactment of the
DTPA was to provide consumers with a remedy for
deceptive trade practices without the burdens of proof
and numerous defenses encountered in a common law fraud
or breach of warranty action.14
Emphasizing the broad remedial purposes of the DTPA, Section
17.44 provides:
This subchapter shall be liberally construed and
applied to promote its underlying purposes, which are
to protect consumers against false, misleading, and
deceptive business practices, unconscionable actions,
and breaches of warranty and to provide efficient and
economical procedures to secure such protection.
There is no dispute that Taylor was required to prove that
MBank's action in freezing the accounts was a producing cause of
her damages. The jury was instructed that "'producing cause'
12
In Texas, when a depositor pays service fees and the bank
in return agrees to honor the checks of its depositor, the
depositor is a "consumer" of banking "services" within the
purview of the DTPA. Farmers & Merchants State Bank of Krum v.
Ferguson, 605 S.W.2d 320, 324 (Tex. Civ. App.--Fort Worth 1980),
modified, 617 S.W.2d 918 (Tex. 1981). The FDIC does not dispute
the applicability of the DTPA to this transaction.
13
Tex. Bus. & Com. Code Ann. § 17.50(a)(1).
14
703 F.2d 197 (5th Cir. 1983); see also Smith v. Baldwin,
611 S.W.2d 611, 616 (Tex. 1980).
22
means an efficient, exciting or contributing cause, which, in a
natural and continuous sequence produced the damage or harm
complained of, if any." While the FDIC does not challenge this
jury instruction, it does contend there is insufficient evidence
to support the jury's finding that MBank's actions were a
producing cause of Taylor's damages. According to the FDIC, the
account freeze did not cause Taylor to lose the opportunity to
participate in the Comite and Santa Paula prospects since (1)
payment for both prospects did not come due until after the
freeze was lifted, and (2) Taylor had substantial assets which
could reasonably have been used to pay for or obtain financing
for the prospects during the freeze.
Shortly before drilling activities began on the Comite
prospect, MBank froze Taylor's accounts. The accounts remained
frozen from December 18, 1984 until April 16, 1985. According to
the drilling contract, payment was due as soon as the well was
drilled to a certain depth, not on the completion of a successful
producing well. Thus, when it became apparent that Taylor could
not resolve her dispute with MBank and obtain the needed funds in
time to pay for the drilling, Taylor suspended drilling
operations. The FDIC argues that even if Taylor was required to
cease drilling operations, she could have obtained extensions or
paid delay rentals to keep the Comite lease alive. This
argument, however, ignores the undisputed fact that Taylor never
intended to assume more than a 25% working interest in the Comite
venture and that by the time MBank released the funds, the
23
opportunity to develop this prospect with the same working
interest did not exist. Even if Taylor had wanted to continue to
develop the prospect after the bank released her money, she would
have been required to take a full 100% working interest in the
prospect--a share that would have cost far more than the amount
of funds she had on deposit at MBank.
Taylor also lost the opportunity to participate in the Santa
Paula Prospect because of MBank's wrongful actions. Though
Taylor briefly acquired the Santa Paula lease by assignment in
February of 1985, she essentially lost the opportunity to invest
in the prospect when MBank repeatedly refused payment on a
$100,000 check intended to pay for her share of the lease. By
the time MBank released the funds in April 1985, Taylor no longer
had a co-investor to develop the Santa Paula property and
therefore could not participate in the prospect with the same
working interest. Based upon the evidence adduced at trial, the
jury could reasonably have concluded that the account freeze was
a producing cause of Taylor's loss in the Comite and Santa Paula
Prospects.
The FDIC also maintains that the loss of the prospects could
easily have been avoided had Taylor used her own assets,
including her personal jewelry, geophysical data and cash, to
either pay for or finance the drilling prospects during the
freeze. This argument raises a damage question involving the
doctrine of avoidable consequences. The doctrine of avoidable
consequences is a fundamental rule of damages which requires the
24
injured party to take advantage of reasonable opportunities to
minimize his damages and avoid or prevent loss. Gladden v.
Roach, 864 F.2d 1196, 1200 (5th Cir.), cert. denied, 491 U.S. 907
(1989); Ford Motor Co. v. Dallas Power & Light Co., 499 F.2d 400,
414-15 (5th Cir. 1974); City of San Antonio v. Guidry, 801 S.W.2d
142, 151 (Tex. App.--San Antonio 1990, no writ). Texas courts
have applied this rule for losses arising in actions in tort and
breach of contract, as well as DTPA. Pinson v. Red Arrow Freight
Lines, Inc., 801 S.W.2d 14, 15 (Tex. App.--Austin 1990, no writ);
Pulaski Bank & Trust Co. v. Texas American Bank, 759 S.W.2d 723,
735 (Tex. App.--Dallas 1988, writ denied); see also Ford Motor
Co., 499 F.2d at 415 n.27. Under the doctrine of avoidable
consequences, an injured party with an otherwise valid cause of
action who fails to mitigate his damages may not recover those
damages shown to have resulted from his failure to use reasonable
efforts to avoid or prevent the loss. Ford Motor Co., 499 F.2d
at 415; see Pinson, 801 S.W.2d at 15; Alexander & Alexander of
Texas, Inc. v. Bacchus Industries, Inc., 754 S.W.2d 252, 253
(Tex. App.--El Paso 1988, writ denied).
Although an injured party is required to use reasonable
diligence to minimize his losses, he is not required to "make
unreasonable personal outlays of money," Halliburton Oil Well
Cementing Co. v. Millican, 171 F.2d 426, 430 (5th Cir. 1948), or
to "sacrifice a substantial right of his own." Fidelity &
Deposit Co. of Maryland v. Stool, 607 S.W.2d 17, 25 (Tex. Civ.
App.--Tyler 1980, no writ). Rather, an injured party is required
25
to incur "only slight expense and reasonable effort" in
mitigating his damages. City of San Antonio, 801 S.W.2d at 151
(quoting Pulaski Bank & Trust Co., 759 S.W.2d at 735). One who
claims a failure to mitigate damages has the burden to prove not
only lack of diligence on the part of injured party, but also the
amount by which damages were increased by such failure to
mitigate. Lakeway Land Co. v. Kizer, 796 S.W.2d 820, 824 (Tex.
App.--Austin 1990, writ denied); Geotech Energy Corp. v. Gulf
States Telecommunications & Info. Sys., Inc., 788 S.W.2d 386, 390
(Tex. App.--Houston [14th Dist.] 1990, no writ); Cocke v. White,
697 S.W.2d 739, 744 (Tex. App.--Corpus Christi 1985, writ ref'd
n.r.e.).
We conclude that MBank's proof failed to meet these
requirements. The FDIC asserts that Taylor had substantial sums
readily available to maintain these prospects. The undisputed
testimony at trial, however, makes clear that a substantial
portion of Taylor's money was already committed to pay for her
company's payroll of some fifty employees, office space and
general business expenses. In addition, during the period of
time the Comite drilling operation was shut down because of the
account freeze, Taylor was required to pay sizable day rates to
the drilling contractor while the rig was on standby. As for the
FDIC's contention that Taylor could sell her jewelry or cars to
fund the drilling prospects, we find this completely without
merit. In taking reasonable efforts to minimize her losses,
Taylor was not obligated to sell or encumber her own personal
26
property in order to maintain these drilling prospects during the
freeze. Halliburton, 171 F.2d 426, 430; Pulaski Bank & Trust
Co., 759 S.W.2d at 735; Fidelity & Deposit Co., 607 S.W.2d 17,
25. Because MBank offered no evidence that Taylor failed to make
reasonable efforts to minimize her losses and because MBank
failed to prove the amount by which damages were increased, the
trial court properly refused to instruct the jury on this issue.
The FDIC also challenges the jury instructions because the
state trial court refused to submit to the jury MBank's defensive
issues relating to the release, including ratification, waiver,
estoppel, and accord and satisfaction. A trial court has broad
discretion in composing a charge for the jury so long as the
instructions are fundamentally accurate and not misleading.
Landrum v. Goddard, 921 F.2d 61, 62 (5th Cir. 1991) (citing Gates
v. Northwest Ins. Co., 881 F.2d 215 (5th Cir. 1989)), cert.
denied, 494 U.S. 1017 (1990). "The instructions need not be
perfect in every respect provided that the charge in general
correctly instructs the jury, and any injury resulting from the
erroneous instruction is harmless." Rogers v. Eagle Offshore
Drilling Servs., Inc., 764 F.2d 300, 303 (5th Cir. 1985). In the
present appeal, the FDIC has not cited, nor do we find, evidence
in the record to justify the requested instructions. Even if we
were to assume MBank presented sufficient evidence to warrant the
requested instructions, we conclude that the jury instructions
taken as a whole correctly instructed the jury on controlling law
and were fundamentally accurate and not misleading. Migerobe,
27
Inc. v. Certina USA, Inc., 924 F.2d 1330, 1335 (5th Cir. 1991);
Landrum, 921 F.2d at 62.
V. THE "DEMAND" PROVISIONS
MBank was also found liable for its failure to act in good
faith when it accelerated the Jaguar and yacht loans. It is
undisputed that immediately after the interpleader action was
settled, MBank demanded full payment on all four of Taylor's
outstanding loans even though she was current on both the Jaguar
and yacht notes. At trial, MBank offered no evidence that Taylor
was in default of any provision of these two loan agreements or
that her payments on the secured loans were delinquent or past
due. Instead, MBank argued unsuccessfully that because these
promissory notes were demand notes, that it could demand payment
at any time with or without reason.
The FDIC, on appeal, raises a similar contention and urges
us to reverse the damage award on the basis the trial court
erroneously submitted an instruction on "good faith."15 In
15
This instruction provided as follows:
Special Issue No. 7
Do you find from a preponderance of the evidence
that MBank failed to act in good faith in connection
with its banking transactions with Taylor?
Answer "yes" or "no" to (a) and (b):
(a) Comite accounts: Yes
(b) Acceleration of the Jaguar and boat loans: Yes
You are instructed that "good faith" means honesty in
fact in the conduct or transaction concerned. The test
for good faith is the actual belief of the party in
question and not the reasonableness of that belief.
You are also instructed that in order to find that
MBank breached a duty to act in good faith you must
28
support of this argument, the FDIC relies upon the good faith
provisions of the Tex. Bus. & Com. Code Ann. § 1.208 (Vernon
1968), as interpreted by the Official Comment to that section.
Section 1.208, which governs the application of the "good faith"
requirement to acceleration clauses, states that a term providing
that one party may accelerate payment at will or when he deems
himself insecure "shall be construed to mean that he shall have
the power to do so only if he in good faith believes that the
prospect of payment or performance is impaired." The Official
Comment to section 1.208 notes the following exception:
Obviously this section has no application to demand
instruments or obligations whose very nature permits
call at any time with or without reason.
We begin, therefore, with an examination of the loan
documents to determine whether they clearly gave MBank complete
discretion to demand payment at any time with or without cause.
Taylor executed two promissory notes in favor of MBank for the
purchase of a Jaguar automobile and a Sea Ray yacht. Except for
the installment payment amounts and maturity date, the two
promissory notes contain virtually identical provisions. Each
note contains a monthly payment schedule, an acceleration clause
and a demand clause. The demand clause states that "this
obligation is, as an alternative to the above-recited payment
schedule, due and payable on demand." A similar demand provision
is recited on the reverse side of the note. The notes also
find that the failure or failures to act in good faith,
if any, were the natural, probable and foreseeable
consequences of MBank's actions.
29
contain an acceleration clause. Under the acceleration clause,
the bank is entitled, at its option, to accelerate the unpaid
principal balance and accrued interest "if default occurs in the
punctual payment of any installment of principal or interest,
. . . or upon the occurrence of a default under the terms of any
and all agreements or instruments securing . . . the
indebtedness, or if at any time the [bank] . . . deems itself
insecure." In addition to the default provisions contained in
the acceleration clause, the bank's security agreements and
mortgage securing the debt list various "events of default" which
could result in the bank declaring the entire obligation
immediately due and payable.
The FDIC argues that the demand feature permitted MBank to
demand payment at any time with or without reason. The only
Texas case cited by the FDIC on this point is Conte v. Greater
Houston Bank, 641 S.W.2d 411 (Tex. App.--Houston [14th Dist.]
1982, writ ref'd n.r.e.). In Conte, the court was faced with a
promissory note which provided that payment was due "ON DEMAND,
BUT IF NO DEMAND IS MADE: principal and interest shall be due
and payable in monthly installments . . . ." Id. at 412. The
maker of the note argued that since the bank accepted monthly
installment payments without demanding payment before they were
due, the bank no longer retained the right to make a demand under
the demand clause. The court rejected this argument stating that
"it was proper to construe the note 'payable, at the convenience
of the holder, either on demand or in installments . . . .'" Id.
30
at 418, quoting C & Z, Inc. v. Oklahoma Tax Comm'n, 459 P.2d 601
(Okl. 1969).
Despite some similarity between Conte and the present case,
there are important differences. Unlike the present situation,
there is no indication that the note in Conte contained an
acceleration clause. It also does not appear that the note was
accompanied by an underlying security agreement or included terms
which would modify the right of demand. Here, in contrast, the
existence of explicit conditions of default in the acceleration
clause, as well as the related security agreements, shows a clear
intention that the note be payable on demand only in the event
Taylor failed to meet the installment obligations or the
obligations imposed by the security agreements. In construing a
similar loan agreement, the court in Reid v. Key Bank of Southern
Maine, Inc., 821 F.2d 9, 14 (1st Cir. 1987) noted that:
The presence of such conditions in both documents
indicates that the agreement could not simply be
terminated at the whim of the parties; rather, the
right of termination was subjected to various
limitations. The detailed enumeration of events that
would "render" the note "payable on demand," or which
would put Reid in "default," shows the qualified and
relative nature of any "demand" provision.
As applied to the facts of this case, we find the Reid
decision persuasive. Demand instruments, by definition, are
payable on demand and are considered due immediately when
executed. Leinen v. Buffington's Bayou City Service, Co., 824
S.W.2d 682, 684 (Tex. App.--Houston [14th Dist.] 1992, no writ);
Davis v. Dennis, 448 S.W.2d 495, 497 (Tex. Civ. App.--Tyler 1969,
no writ). If a demand obligation was indeed intended, as
31
suggested by the FDIC, the conditions for acceleration stated in
MBank's agreements with Taylor would be meaningless. The bank
could simply demand payment immediately regardless of whether any
of the specified default conditions occurred. This does not
appear to be the reasonable intent and expectations of the
parties. In fact, the former president of MBank, Ed Evans,
testified at trial that the bank could not simply demand payment
on an "unreasonable basis," but was obligated to consider, in
good faith, all the facts and circumstances before accelerating
the note.
Based upon the testimony and our reading of the loan
documents, we determine that although these notes profess to be
demand instruments, a fair reading of the notes and related
security agreements demonstrates an intention that these
installment notes be payable on demand only in the event of
default. This construction comports with the common expectation
that a promissory note with an installment feature and an
acceleration clause is a time obligation and that the bank does
not have the right to demand payment in absence of default.
For the reasons stated, we find under the facts of this
case that the trial court's instruction on "good faith" was
proper.
VI. THE YACHT FORECLOSURE
The FDIC argues that the pendency of the maritime action in
federal court precluded recovery on Taylor's claim for bad faith
foreclosure because such a claim was a compulsory counterclaim
32
under the Fed. R. Civ. P. Rule 13(a). Taylor, however, plead
this counterclaim in both the federal and state court actions.
Because the state action was tried first, Taylor's counterclaim
was never adjudicated in the federal court action. Therefore,
contrary to the FDIC's assertions, Taylor never waived this
claim, and it was properly considered in the state action. See
Southern Constr. Co., Inc. v. Pickard, 371 U.S. 57, 60-61 (1962).
VII. PUNITIVE DAMAGES
The district court awarded Taylor $5.2 million in punitive
damages and additional damages under section 17.50(b)(1) of the
DTPA.16 The FDIC maintains that because the FDIC is an
instrumentality of the United States, sovereign immunity requires
a reversal of that award. Taylor does not dispute that the FDIC
is immune from suit, but argues that the FDIC, as the receiver of
MBank, should not be permitted to assert new defenses unique to
its status when it intervenes post-judgment.
Before considering the merits of these arguments, we briefly
review the procedural posture in which this issue is presented to
us on appeal. MBank raised the issue of punitive damages for the
first time in its motion for new trial and motion to modify,
correct, or reform the judgment filed within 30 days after
judgment was entered in state court. These motions were later
adopted by the FDIC when it intervened in the state court action,
and presented to the district judge once the case was removed to
16
Treble damages under the DTPA are punitive in nature under
Texas law. Pace v. State, 650 S.W.2d 64, 65 (Tex. 1983).
33
federal court. Following removal, the state court motion to
modify, correct, or reform the judgment was reformed by the
parties to comply with the federal rules and was considered by
the district court as a Rule 59(e) motion to alter or amend
judgment. The district court later denied both the Rule 59(e)
motion and the motion for new trial. We emphasize the fact that
the FDIC raised the punitive damage issue in the district court
while that court still had under consideration the timely filed
motion for new trial and to alter or amend judgment filed by
MBank. Because the motions were filed before the time for filing
a notice of appeal had expired, the issue was raised in the trial
court when there was no final unappealable judgment.17
Turning to the merits of the case, the question we are asked
to decide is whether the FDIC, as a post-judgment intervenor, can
assert sovereign immunity as a defense for the first time in a
Rule 60(b) motion before the judgment in the district court
becomes final and unappealable.18 Sovereign immunity is a
17
A remarkably different situation would have been presented
had the FDIC filed its motions after the judgment had become
final and unappealable. See 12 U.S.C. § 1821(d)(13)(A) ("The
Corporation shall abide by any final unappealable judgment of any
court of competent jurisdiction which was rendered before the
appointment of the Corporation as conservator or receiver").
18
The FDIC's assertion of its immunity defense presented in
its motion to alter or amend judgment is properly treated as a
Rule 60(b) motion for relief from judgment since it was made more
than ten days after the entry of judgment. Laverspere v. Niagara
Mach. & Tool Works, Inc., 910 F.2d 167, 173 (5th Cir. 1990).
Such a motion is addressed to the sound discretion of the trial
court and will not be overturned unless there is a showing of an
abuse of that discretion. Williams v. Brown & Root, Inc., 828
F.2d 325, 328 (5th Cir. 1987); Seven Elves, Inc. v. Eskenazi, 635
F.2d 396, 402 (5th Cir. 1981).
34
jurisdictional bar to those suits "that are prosecuted against
the United States." Cohens v. Virginia, 19 U.S. (6 Wheat) 264,
412 (1821). Even if the United States was not named as a party
in the original action, "'if the judgment sought would expend
itself upon the public treasury or domain, or interfere with
public administration,'. . . or if the effect of the judgment
would be 'to restrain the Government from acting, or to compel it
to act . . . ,'" the suit will be construed as one against the
United States requiring a waiver of sovereign immunity. Dugan v.
Rank, 372 U.S. 609, 620 (1963) (quoting Larson v. Domestic &
Foreign Commerce Corp., 337 U.S. 682, 704 (1949); Land v. Dollar,
330 U.S. 731, 738 (1947)); Van Drasek v. Lehman, 762 F.2d 1065,
1069 (D.C. Cir. 1985); see also Alabama Rural Fire Ins. Co. v.
Naylor, 530 F.2d 1221, 1225 (5th Cir. 1976). "A waiver of
sovereign immunity 'cannot be implied but must be unequivocally
expressed.'" United States v. Mitchell, 445 U.S. at 538 (quoting
Unites States v. King, 395 U.S. 1, 4 (1969)). Where no such
consent exists, sovereign immunity operates as a jurisdictional
bar. United States v. Mitchell, 445 U.S. at 538; Stanley v.
Central Intelligence Agency, 639 F.2d 1146, 1156 (5th Cir. 1981).
It is established law that agencies of the United States
cannot be held liable for punitive fines or assessments absent
express Congressional authorization. Missouri Pac. R.R. v. Ault,
256 U.S. 554, 563-65 (1921); Commerce Federal Sav. Bank v.
Federal Deposit Ins. Corp., 872 F.2d 1240, 1247-48 (6th Cir.
1989); Olney Sav. & Loan Ass'n v. Trinity Banc Sav. Ass'n, 885
35
F.2d 266, 273 (5th Cir. 1989); Painter v. Tennessee Valley
Authority, 476 F.2d 943, 944 (5th Cir. 1973). Taylor does not
dispute that the FDIC is an instrumentality of the United States,
see Commerce Federal Sav. Bank v. Federal Deposit Ins. Corp., 872
F.2d at 1248, nor does she cite any express Congressional
authority permitting the imposition of punitive fines or
penalties against the FDIC. She merely contends that the FDIC
cannot assert its sovereign immunity defense for the first time
when it intervenes after judgment.
In support of her contention, Taylor relies on Olney Sav. &
Loan Ass'n v. Trinity Banc Sav. Ass'n, 885 F.2d 266 (5th Cir.
1989). In Olney, Olney Savings sued Trinity Banc and its related
mortgage company seeking rescission of their agreement to finance
the purchase of certain townhouses. The district court entered
judgment of rescission on the jury's finding of fraud. Trinity
Banc and the mortgage company posted a supersedeas bond to stay
execution of the judgment and perfected their appeal. While the
case was on appeal, FSLIC was appointed conservator of the
insolvent Trinity Banc. Relying on Grubb v. Federal Deposit Ins.
Corp., 833 F.2d 222 (10th Cir. 1987), this court held that when
the bond was posted by Trinity Banc and the mortgage company, the
funds ceased to be assets of the insolvent institutions, and
therefore were not a part of the conservatorship estate. Because
the bond was no longer an asset available to the FSLIC for
distribution, we said "its use as punitive damages does not tax
an agency of the United States nor offend sovereign immunity."
36
Olney, 885 F.2d at 274. In this case, however, no supersedeas
bond was posted from which the punitive damage award could be
satisfied. The punitive damages would therefore be drawn from
assets available for distribution by the receiver and would not
only "interfere with the public administration" of the assets of
the receivership estate, but would likely "expend itself on the
public treasury" by increasing the loss to the insurance fund.
Dugan, 372 U.S. at 620; Federal Deposit Ins. Corp. v. Claycomb,
945 F.2d 853, 861 (5th Cir. 1991). Because Taylor has failed to
indicate how the punitive damage award could be secured without
affecting the receivership estate, we find the Olney decision
inapplicable to the present circumstances.
We likewise reject Taylor's argument that sovereign immunity
cannot be raised by the FDIC post-judgment. Sovereign immunity
is a jurisdictional prerequisite which may be asserted at any
stage of the proceedings, either by the parties or by the court
on its own motion. See, e.g., United States v. Sherwood, 312
U.S. 584, 586-87 (1941); Ramey Constr. Co. v. Apache Tribe of
Mescalero Reserv., 673 F.2d 315, 318 (10th Cir. 1982); California
v. Quechan Tribe of Indians, 595 F.2d 1153, 1154 n.1 (9th Cir.
1979); 14 C. Wright, A. Miller & E. Cooper, Federal Practice and
Procedure § 3654, at 186-90 (1985). Here, the FDIC asserted its
sovereign immunity defense in the district court before a final
unappealable judgment had been taken, and therefore properly
raised and preserved the question of sovereign immunity for the
court's consideration. Inasmuch as the punitive damages would
37
operate against the United States, and there being no express
Congressional waiver of sovereign immunity, we conclude that the
district court abused its discretion in denying the FDIC's motion
for relief from judgment on this issue.
VIII. DUPLICATIVE DAMAGES
Next, the FDIC complains that the judgment should be vacated
to remove duplicative damage awards for the loss of the drilling
prospects as well as the wrongful acceleration of the car and
yacht notes. The jury answered seven special issues submitted on
actual damages. In rendering its verdict, the jury found MBank
liable for (1) $350,000 in actual damages for each of the two
DTPA violations; (2) $300,000 in actual damages for the bank's
failure to act in good faith in reference to the Comite accounts;
(3) $75,000 in actual damages for the bank's failure to act in
good faith in accelerating the Jaguar and yacht loans; (4)
$1,000,000 in actual damages for tortiously interfering in the
business affairs of Taylor; (5) $10,000 in actual damages for
converting Taylor's personal property from the yacht; and (6)
$500,000 in actual damages for conspiracy.
In its brief, the FDIC makes a generalized allegation that
these damage awards amount to a double recovery. While we agree
that a party "cannot recover the same damages twice, even though
the recovery is based on two different theories," Atkinson v.
Anadarko Bank & Trust Co., 808 F.2d 438, 441 (5th Cir.), cert.
denied, 483 U.S. 1032 (1987), the FDIC fails to identify which of
the various damage awards involved amount to identical damage
38
awards or even discuss the pertinent case law concerning this
issue. Instead, the FDIC simply proclaims, without explanation,
that the "judgment for loss of the drilling prospects should be
limited to one award of $300,000 . . . ." (Appellants' Br. at
41). To decide whether the jury erroneously awarded double
damages would require us not only to speculate which damage award
the FDIC claims to be duplicative, but also to determine whether
the jury intended to make separate and distinct findings for each
act or omission and, if not, to elect the recovery which affords
the greater recovery. We decline to address these points without
the benefit of full and complete briefing of the issues and
therefore consider the FDIC's duplicative damage argument waived.
In re HECI Exploration Co., Inc., 862 F.2d at 525; Morrison v.
City of Baton Rouge, 761 F.2d at 244.
IX. NEW TRIAL
The FDIC finally argues that the district court erred in
denying its motion for new trial, alleging that the jury verdict
was against the great weight of the evidence. The decision
whether to grant or deny a motion for new trial is within the
sound discretion of the district court. Treadaway v. Societe
Anonyme Louis-Dreyfus, 894 F.2d 161, 164 (5th Cir. 1990); Hansen
v. Johns-Manville Products Corp., 734 F.2d 1036, 1043 (5th Cir.
1984), cert. denied, 470 U.S. 1051 (1985). As an appellate
court, we review the exercise of that discretion under an abuse
of discretion standard and will overturn a district court's
denial of a motion for new trial only if there is an "'absolute
39
absence of evidence to support the jury's verdict.'" Seidman v.
American Airlines, Inc., 923 F.2d 1134, 1140 (5th Cir. 1991)
(citing Cobb v. Rowan Companies, Inc., 919 F.2d 1089, 1090 (5th
Cir. 1991)). As discussed in the preceding sections of our
opinion, the record clearly contains evidence to support the jury
verdict. We therefore affirm the trial court's denial of the
plaintiff's motion for new trial.
X. ATTORNEY'S FEES
Bank One, successor-in-interest to MBank, claims it is
entitled to recover attorney's fees for MBank's collection of the
$90,000 and $50,000 notes which Taylor admitted she owed. Under
Texas law, a party is permitted to recover attorney's fees only
if they are authorized by contract or by statute. New Amsterdam
Casualty Co. v. Texas Indus., Inc., 414 S.W.2d 914, 915 (Tex.
1967); 4M Linen & Uniform Supply Co., Inc. v. W.P. Ballard & Co.,
Inc., 793 S.W.2d 320, 327 (Tex. App.--Houston [1st Dist.] 1990,
no writ). In its petition, MBank did not plead that it was
entitled to recover attorney's fees under any Texas statute.
Rather, it relied on the contractual language of the promissory
notes as a basis for recovery. At the conclusion of the trial,
the state court denied MBank's requested offset to the judgment
in the amount of $76,748.50, representing MBank's claim for
attorney's fees on the $90,000 and $50,000 notes. Bank One
maintains that the state court's denial of the entirety of
MBank's attorney's fees was in error. Taylor apparently concedes
this point, but argues that since the bank failed to check a box
40
on the face of the $90,000 note allowing for the collection of
attorney's fees, Bank One's claim for attorney's fees should be
properly apportioned between the two notes. We agree.
Ordinarily, where a case involves more than one claim, attorney's
fees can be awarded only for necessary legal expenses incurred in
connection with the claims for which recovery is authorized.
Ralston Oil and Gas Co. v. Gensco, Inc., 706 F.2d 685, 697 (5th
Cir. 1983); International Security Life Ins. Co. v. Finck, 496
S.W.2d 544, 546-47 (Tex. 1973). We therefore remand this claim
to the trial court for hearing to determine the amount of
attorney's fees, if any, recoverable for services rendered to
collect the unpaid balance of the $50,000 promissory note.
CONCLUSION
The jury correctly found that MBank did not give valid
consideration for the release. MBank's claim for attorney's fees
for institution of the interpleader action was not made in good
faith, and MBank knew or should have known that the claim was
without foundation. There is also ample evidence to support the
jury's determination that the account freeze was a producing
cause of Taylor's loss in the two drilling prospects.
With respect to the two promissory notes, we hold that MBank
had the right to demand payment only if the bank believed in good
faith that the prospect of payment or performance was impaired.
Taylor, however, is not entitled to an award of punitive damages
because the FDIC, as an agency of the United States, is immune
from such damages. We, therefore, AFFIRM the judgment of the
41
district court to the extent it upheld the findings of the jury,
but REVERSE the judgment of the district court to the extent it
granted recovery against the FDIC for punitive damages. We
REMAND to the district court for the limited purpose of issuing a
final judgment, including interest and costs, and, if proper,
attorney's fees consistent herewith.
SO ORDERED.
42