Levan v. Capital Cities/ABC Inc.

• Decision Date: 29 September 1999
• Docket Number: No. 97-5380,97-5380
• Citation: 190 F.3d 1230
• Parties: (11th Cir. 1999) ALAN B. LEVAN, an individual plaintiff, BANKATLANTIC FINANCIAL CORPORATION, a Florida corporation, Plaintiffs-Appellees-Cross-Appellants, v. CAPITAL CITIES/ABC, INC., a New York corporation, WILLIAM H. WILLSON, an individual, Defendants-Appellants-Cross-Appellees
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1230

190 F.3d 1230 (11th Cir. 1999)

ALAN B. LEVAN, an individual plaintiff, BANKATLANTIC FINANCIAL CORPORATION, a Florida corporation Plaintiffs-Appellees-Cross-Appellants, v. CAPITAL CITIES/ABC, INC., a New York corporation WILLIAM H. WILLSON, an individual Defendants-Appellants-Cross-Appellees.

No. 97-5380

IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

Sept. 29, 1999

[Copyrighted Material Omitted] Appeals from the United States District Court for the Southern District of Florida D.C. Docket No. 92-325-CIV-CCA

Before TJOFLAT, BLACK and CARNES, Circuit Judges.

TJOFLAT, Circuit Judge:

Appellees BFC Financial Corporation ("BFC"),¹ and its President, Chief Executive Officer, and controlling shareholder, Alan Levan, brought this action for defamation against Capital Cities/ABC, Inc. ("ABC") and one of its producers, Bill Willson. Their cause of action arose from a segment aired on ABC's television program "20/20" that portrayed BFC and Levan as unfairly taking advantage of investors in real estate related limited partnerships, by inducing them to participate in transactions known as "rollups." Appellees claimed that in its broadcast ABC made numerous false or misleading statements with actual malice, and that ABC and Willson therefore were liable for injuries that appellees suffered as a result of the story. After the jury returned a verdict in favor of appellees, awarding them significant compensatory damages, ABC and Willson renewed their motion for judgment as a matter of law made at the close of evidence.² The district court denied their motion and entered judgment pursuant to thejury's verdict.

ABC and Willson appeal the district court's denial of their motion for judgment as a matter of law; appellees cross-appeal the district court's refusal to instruct the jury on their claim for punitive damages. We conclude that ABC and Willson are entitled to judgment as a matter of law. The evidence, taken as a whole, was insufficient to establish one of the elements of appellees' claim: that ABC and Willson broadcast the story with actual malice. We therefore vacate the district court's judgment in favor of appellees and instruct the district court to enter judgment for appellants. Given this disposition of the main appeal, we need not consider appellees' cross-appeal.

I.

During the early 1980s, Alan Levan and his company, BFC, were engaged in the business of organizing and managing commercial real estate limited partnerships. The idea behind these partnerships was that small investors, who individually could not raise the millions of dollars needed to invest in commercial real estate, could invest small amounts of money in these limited partnerships (averaging between $5,000 to $20,000 dollars per investor) which would then pool the investors' money and purchase commercial properties. It was anticipated that the partnerships would hold onto the properties for a period of time ranging from between four to nine years and then sell the properties and distribute the proceeds among the investors. In each limited partnership, a wholly-owned subsidiary of BFC served as the managing general partner, and Alan Levan, as well as several other individuals associated with BFC, served as individual general partners.

In the mid-1980s, however, there was a severe nationwide decline in the value of real estate. The properties held by Levan's limited partnerships were no exception, and consequently, the value of the limited partners' interests plummeted. In response to this downturn in the real estate market, Levan and BFC offered their limited partners the two exchanges that are at the center of this dispute. The two transactions, which were completed in 1989 and 1991, respectively, were of a type referred to in the industry as a "rollup." In essence, each transaction was an exchange: the limited partners gave BFC their partnership interests (that is, their real estate interests and any other assets held by the partnership), and in return the limited partners received debentures issued by BFC.³ The two rollups were nearly identical in form; we therefore discuss only the 1989 transaction in detail.

The 1989 exchange involved three limited partnerships (the "1989 Partnerships"). At the time of the exchange, these partnerships held properties with an aggregate appraised value of $44 million.⁴ The partnerships also held approximately $2 million in cash. Thus, BFC acquired a total of $46 million in assets from the 1989 Partnerships in the exchange.⁵ In return, BFC gave the limited partners debentures that had a face value of $30 million. These debentures were unsecured and subordinated, which meant that if BFC went bankrupt, the debenture holders would be the last creditors in line to be paid from BFC's assets. The debentures were to mature in 20 years (July 1, 2009). Until maturity, the debentures were to bear interest (paid quarterly) at 8% for the first year, 9% for the second year, and 10% thereafter. If BFC's management determined that payment of interest during any quarter would "impair the operations of [BFC]," then BFC had the right to defer interest payments for that quarter. Deferred interest was due on maturity of the debentures; such interest would accrue interest at the current interest rate of the debentures until it was paid. Further, if BFC deferred interest for a total of eight quarters, then the interest on the debentures increased to 12% until maturity. After a one-month consent period, the limited partners approved the transaction by a two to one ratio.⁶

ABC began looking into the BFC rollups in the summer of 1990. Many other limited partnerships across the nation were engaging in rollup transactions at that time, and a large number of these transactions were criticized by experts (in real estate and financial matters) as being unfair to the limited partners. After ABC received a letter from one angry investor (who had participated in a rollup unrelated to the two that BFC consummated) complaining about these exchanges, it decided to investigate and air a story about rollups on its "20/20" news program. John Stossel, a 20/20 on-air-correspondent, and appellant Bill Willson, a producer, were assigned to work on the story. As its investigation unfolded, ABC decided to focus its story on the BFC rollups.

In the course of its investigation, ABC turned to a wide variety of sources, including congressional staff members, limited partnership experts, and securities analysts. ABC attended a hearing before the Securities and Exchange Commission, as well as numerous congressional hearings, including one hearing specifically dedicated to investigating the BFC rollups.⁷ These sources almost uniformly criticized the rollups as being grossly unfair to the limited partners.⁸

First, ABC's expert sources criticized the value of the debentures that the limited partners received. Although BFC acquired $46 million in properties and cash from the 1989 Partnerships, it exchanged those assets for only $30 million in debentures.⁹ The experts condemned this reduction in the value of the limited partners' interest (which amounted to 34.7% of the net value of the partnerships' assets) as unjustified. Further, these experts pointed out, not only was the face value of the debentures too low, but the actual market value of the debentures was even lower. The market value of a debenture depends primarily on the market's perception of the financial stability of the issuing company - that is, the bonds are not highly valued if there is a significant risk that the issuer will not be able to pay the interest or the principal. In BFC's case, the market perceived BFC's debentures as a poor investment. During 1988 and 1989, BFC suffered losses of $4.4 million and $6.9 million, respectively. These losses were due to the weak financial condition of its primary asset, a savings and loan called BankAtlantic.¹⁰ Between 1988 and 1990, BankAtlantic sustained aggregate losses of $17.8 million. As a result of BFC's and BankAtlantic's financial woes, there was almost no market for the debentures.¹¹ When buyers could be found, the debentures traded for as low as 21% of their face value. Thus, the limited partners, who gave up $46 million in assets, ended up with debentures that had a market value of only about $6 million.

In light of the high risk that BFC would be unable to pay either the interest or the principle on the debentures, experts uniformly agreed that the debentures were "junk bonds" - in fact many experts characterized the debentures as worse than junk bonds. Junks bonds are bonds that have a high risk of nonpayment and therefore yield a high interest rate. Many experts opined to ABC that in light of BFC's shaky financial condition, the debentures should have carried a much higher rate of interest. The interest rate for the debentures issued in the 1989 transaction was 8% for the first year, 9% for the second year, and 10% thereafter. This rate was lower than the Prime Rate (the rate that banks charge to their most creditworthy customers), which was 11% on the day that BFC issued its prospectus for the 1989 transaction.¹²

When compared to what the limited partners received, namely, debentures that the market valued at about $6 million, ABC's expert sources pointed out, BFC fared quite well in the 1989 exchange. Of the fourteen properties that BFC gained in the exchange, by 1991 BFC had sold ten of the properties for a net gain of $16 million. Thus, adding in the approximately $2 million in cash that BFC acquired from the partnerships, BFC gained $18 million in cash as well as the four remaining unsold properties.

The low value of the debentures was hardly the only criticism that the experts leveled at the transactions. A second criticism was that there were serious negative tax implications for the limited partners arising from the exchanges. For instance, some limited partners may have realized a taxable...