Grey v. First National Bank in Dallas

• Decision Date: 14 June 1968
• Docket Number: No. 22988.,22988.
• Citation: 393 F.2d 371
• Parties: Cornelia O'Connor GREY, James Charles Grey and Michael Carter Grey, Appellants, v. FIRST NATIONAL BANK IN DALLAS et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

393 F.2d 371 (1968)

Cornelia O'Connor GREY, James Charles Grey and Michael Carter Grey, Appellants, v. FIRST NATIONAL BANK IN DALLAS et al., Appellees.

No. 22988.

United States Court of Appeals Fifth Circuit.

March 21, 1968.

Rehearing Denied June 14, 1968.

COPYRIGHT MATERIAL OMITTED

Charles L. Stephens, John C. Andrews, Fort Worth, Tex., Neil A. Pollio, Leon Alexandroff, New York City, J. A. Gooch, Fort Worth, Tex., for appellants.

E. Taylor Armstrong, Storey, Armstrong & Steger, Dallas, Tex., for appellee, First Nat. Bank in Dallas, Successor Trustee of Ivor Elizabeth O'Connor Morgan Trust.

H. W. Strasburger, Royal H. Brin, Jr., Dallas, Tex., for appellee, First Nat. Bank in Dallas, Successor Trustee of James Charles O'Connor Trust, Strasburger, Price, Kelton, Martin & Unis, Dallas, Tex., of counsel.

J. Edwin Fleming, John N. Jackson, Ernest E. Figari, Jr., Henry C. Coke, Jr., Dallas, Tex., for appellee, First Nat. Bank in Dallas, Coke & Coke, Dallas, Tex., of counsel.

Marvin F. Sentell, Z. T. Fortescue, III, Asst. Attys. Gen., Crawford C. Martin, Atty. Gen. of State of Texas, Austin, Tex.

Before BROWN, Chief Judge, and GEWIN and WRIGHT,^* Circuit Judges.

J. Skelly WRIGHT, Circuit Judge:

Appellants, Cornelia O'Connor Grey, and her two sons, James Charles and Michael Carter Grey, beneficiaries of the James Charles O'Connor Trust, brought suit against appellee First National Bank in Dallas, Trustee of the O'Connor Trust, in the United States District Court for the Northern District of Texas, alleging First National's complete disregard of its fiduciary duties in fraudulently acquiring trust property for its own use. Appellants sought rescission of a 1960 Partition and Sale Agreement through which the property was acquired. In the alternative, appellants demanded damages, actual and exemplary, based on alleged fraud. The case was submitted to the jury on a special verdict form. On the basis of its findings, judgment was entered dismissing plaintiffs' complaint on the merits. We affirm.

Of crucial importance in this extremely complicated lawsuit are the events preceding the signing of the Partition and Sale Agreement in September 1960 and the circumstances surrounding the Texas state court judgment of November 28, 1960, which approved that transaction, thereby relieving the bank of the restrictions against self-dealing imposed by the Texas Trust Act. Since this appeal presents, inter alia, a claim that the District Court erred in not directing a verdict in plaintiffs' favor and in overruling plaintiffs' motion for judgment notwithstanding the verdict, we shall review the evidence in some detail.

I.

In 1910 James Charles O'Connor created a testamentary trust for the benefit of his wife, three daughters and grandchildren. His will provided that after the death of his wife the income would be divided equally among his daughters, and as each daughter died, the remainder in that daughter's share would go to that daughter's lawful issue in equal shares per stirpes or, in default of such issue, to such person or persons as were designated in that daughter's will. Shortly after his wife's death, one of the daughters died without issue. Her will provided that her third of the trust go in fee simple in equal undivided amounts to her two surviving sisters. The second daughter also died without issue; a settlement arising from a contest of her will provided that almost half of her original interest in the trust go in fee simple to her sole surviving sister, Mrs. Cornelia O'Connor Grey, with the remainder of her interest being placed in a charitable trust — the Morgan Trust. Thus, of the property originally placed in the O'Connor Trust, 20/60ths remains in that trust, 19/60ths is owned by Mrs. Grey in fee simple, and the Morgan Trust owns 21/60ths in fee simple. Mrs. Grey is the sole income beneficiary of the O'Connor Trust and her sons, James and Michael, are her lawful issue and therefore the remaindermen to whom the trust properties will be delivered upon the termination of that trust at Mrs. Grey's death.

The principal assets owned jointly by the O'Connor Trust, the Morgan Trust and Mrs. Grey individually are eight downtown Dallas lots. First National has been the successor trustee of the O'Connor Trust since its merger in 1954 with the prior trustee, Dallas National Bank. In addition, since 1954 First National has been the successor trustee of the Morgan Trust and agent for Mrs. Grey under a written agency agreement for the management of her 19/60ths interest in the jointly owned Dallas property.

The trust real estate involved in this litigation is located in City Block 60. This map of Block 60 shows the property therein:

Prior to the merger of First National and Dallas National Bank, Mrs. Grey, the O'Connor Trust and the Morgan Trust owned Tract 8 (Republic Garage Building) which is west of the center of the block, extending from Pacific Street on the north through to Elm Street on the south, with a frontage on both streets of over 50 feet. First National considered acquiring this property for a proposed motor bank and in 1950 approached Dallas National Bank, Trustee, not directly but through Z. L. Majors, agent for undisclosed principal. The attempted acquisition was unsuccessful, but First National obtained a long term lease on the property immediately adjoining Republic Garage to the east, and began constructing the motor bank and underground passage to connect the motor bank with its main office directly south across Elm Street. Early in 1954, still prior to its merger with Dallas National Bank, First National again considered acquiring a long term lease of the Republic Garage Building, again using Majors, but this time disclosing the previously undisclosed principal. However, further steps were abandoned since the proposed merger was soon to be effected.

Shortly after the merger, Z. L. Majors, Trustee (now ostensibly acting for the Murchison interests), purchased the lot adjoining Republic Garage on the west (the A'Mell Building). The purchase price of that building was $650,000, the whole amount having been borrowed by Z. L. Majors, Trustee, from First National. When the Murchisons declined to proceed with the transfer and several other potential takers balked, the A'Mell property was offered to Mrs. Grey, the O'Connor Trust and the Morgan Trust in an even trade for their Republic Garage property. First National's trust officer approved the trade and recommended that Mrs. Grey proceed, without telling her that the money used to purchase the property came wholly from First National, that First National's general counsel represented both the O'Connor Trust and Z. L. Majors, Trustee, and that the appraisal submitted to Mrs. Grey (the so-called Dunham appraisal) was $100,000 in excess of Majors' purchase price.

One month after the exchange of properties, Majors offered to sell Republic Garage to First National for cancellation of the $650,000 debt. First National refused. Subsequently a National Bank Examiner criticized the unsecured loan, as did First National's internal examining committee, for although all interest had been paid when due, there had been no repayment of any part of the principal. Finally First National was given a deed of trust for Republic Garage for the amount of Majors' indebtedness.

Meanwhile, Mrs. Grey became dissatisfied with the A'Mell property; contrary to her expectations and representations made by First National's trust officer, the rental income from the building decreased rather than increased. This, together with other grievances she had stemming from First National's handling of her trust properties, prompted Mrs. Grey in March 1958 to give notice to First National of her intention to revoke her agency agreement with respect to those properties in which she held an interest individually and to substitute for First National its leading competitor, Republic National Bank of Dallas.

As early as January 1956, First National had tried to persuade Mrs. Grey to partition the various properties held in undivided interests by the O'Connor Trust, the Morgan Trust and Mrs. Grey individually. It had explained to her that it believed that the Morgan Trust was being disadvantaged by her unwavering decision to retain the real estate in her father's estate¹ and that such a partition would enable First National to perform more effectively its fiduciary duties to all parties concerned. When, in 1958, Mrs. Grey indicated her intention to revoke First National's agency agreement, First National again asserted its desire to partition. Mrs. Grey then temporarily withdrew her threatened revocation, but First National continued to press for partition.

In preparation for such a partition, First National requested the Dallas Real Estate Board to appraise all of the relevant properties. This appraisal was completed by October 1959, but Mrs. Grey was having difficulties deciding how she wanted the properties partitioned. First National made no suggestions or proposals, but continually repeated its desire to have the partition completed as soon as possible. In March 1960 Mrs. Grey made her "final decision" to partition the A'Mell property to the Morgan Trust, since its value, according to the 1959 appraisal, was now only $500,000 and she had neither the time nor the money with which to develop the property.

During the time that the parties were preparing for the partition, First National was considering the advisability of constructing a new bank building. A site study committee was appointed to make an investigation. At an executive committee meeting on March 3, 1960, the results of that investigation were reviewed, but the four plans presented were all rejected. Instead, the consensus was to acquire, if possible, all of City Block 60, in which was situated First National's motor bank and the A'Mell property. Three real estate firms were then engaged to acquire the eastern half of the...