Colonial Refrigerated Transportation, Inc. v. Mitchell

• Decision Date: 12 December 1968
• Docket Number: No. 25158.,25158.
• Citation: 403 F.2d 541
• Parties: COLONIAL REFRIGERATED TRANSPORTATION, INC., et al., Appellants, v. George P. MITCHELL et al., Appellees. George P. MITCHELL et al., Appellees, v. COLONIAL REFRIGERATED TRANSPORTATION, INC., et al., Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

403 F.2d 541 (1968)

COLONIAL REFRIGERATED TRANSPORTATION, INC., et al., Appellants, v. George P. MITCHELL et al., Appellees.

George P. MITCHELL et al., Appellees, v. COLONIAL REFRIGERATED TRANSPORTATION, INC., et al., Appellants.

No. 25158.

United States Court of Appeals Fifth Circuit.

October 29, 1968.

Rehearing Denied December 12, 1968.

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L. Keith Simmer, Fred M. Lange, Houston, Tex., Maurice F. Bishop, Birmingham, Ala., for appellants, Colonial Refrigerated Transportation, Inc., and others; Fullbright, Crooker, Freeman, Bates & Jaworski, Houston, Tex., of counsel.

William Emerson Wright, Houston, Tex., for cross-appellants, George P. Mitchell and others; Butler, Binion, Rice, Cook & Knapp, Houston, Tex., of counsel.

Before COLEMAN and GODBOLD, Circuit Judges, and RUBIN, District Judge.

RUBIN, District Judge:

The plaintiffs filed suit in a Texas state court contending that the defendants had fraudulently deceived them. Following removal of the case to federal court and a lengthy trial, the jury found for the plaintiffs. The defendants seek a new trial, complaining that the trial court made two errors in ruling on the admissibility of evidence. The plaintiffs, in turn, cross appeal, complaining of the trial court's refusal to award them pre-judgment interest.

The appellants have not convinced us that the trial court was in error in any material respect with regard to Texas law, which is, of course, controlling, and the jury's verdict is therefore affirmed. The cross-appellants have persuaded us that pre-judgment interest is due them. Having set forth our conclusions briefly, we now elaborate on our reasons for them.

I. THE FACTS

In 1959, Lowery and Willmott, who are not parties to the suit, learned that the defendants wanted to lease tractors and trailers to use in common carrier service. They conferred with one of the defendants, McBride, who was an officer of the corporate co-defendants.

Since Lowery and Willmott did not have enough capital to finance the purchase of the equipment, Lowery approached one of the plaintiffs, Johnny Mitchell, to interest him in financing the venture as an investor. There was evidence from which the jury could have found that McBride represented to Lowery and Willmott that the leased trucks and trailers would be used as a fleet on a fixed route between Memphis, Tennessee and Los Angeles, California, as common carriers, hauling meat products or other freight that would produce a relatively high freight rate; that he knew that Lowery and Willmott would meet with the proposed investors and convey these representations to them; and that the investment would be predicated on the likely profitability of the operation. Lowery and Willmott then met with three of the plaintiffs, George Mitchell, Johnny Mitchell and Christie. These three later invited the remaining plaintiffs, Zinn and Madden, to join in the undertaking. These five had previously engaged in various joint investments.

Madden, who had some experience in truck operation, went to Birmingham to investigate the economic feasibility of the proposal and to talk to McBride. Based on correspondence from McBride presented to the five plaintiffs by Lowery and Willmott and on the representations made to Madden by McBride and other employees of the defendant companies in Birmingham, Madden concluded that McBride had a firm arrangement to haul meat from a packing plant in Memphis to the West Coast. There was evidence sufficient to justify the jury in finding that the defendants presented information regarding the potential revenue from this operation designed to make Madden believe that the venture would be profitable to the equipment lessors. Accordingly, upon his return to Texas, he recommended the investment to his associates on the basis that the plaintiffs buy ten tractors and trailers and lease them to the defendants, together with two vehicles already owned by Lowery and Willmott, for 75% of the gross revenues. They would in turn make a profit sharing arrangement with Lowery and Willmott.

The plaintiffs decided to make the investment jointly on May 29, 1959. They thought that it would be desirable to use a corporate entity as an operating unit. Since Madden owned all of the stock of an inactive corporation named Gear, Inc., an empty corporate shell without assets, the plaintiffs decided to use it instead of forming a new corporation. This eliminated both the expense and time required to form a new corporation. Gear was therefore capitalized for $3,000 and the rest of its funds were borrowed. Gear purchased the tractors on credit, but, because it had no assets, it was necessary for the plaintiffs to endorse its notes. The trailers were also purchased on credit but the trailer notes were not endorsed.

Gear met with financial problems from the start of the new business. The defendants used the leased trucks on an individual truck dispatch basis to haul cargo on relatively short, low income trips. These were unprofitable, and the business operated at a substantial loss. The trailers were delivered late, and, when they arrived, they were defective. Eventually (after the plaintiffs were no longer stockholders), Gear sued the manufacturer of the trailers for damages, including lost profits.

The plaintiffs decided to cut their losses and to sell all of their Gear stock to Willmott. However, Gear's operations remained unprofitable. The plaintiffs were therefore called upon to honor their personal guarantees of the tractor notes. The bank that held the notes foreclosed on its mortgage on the tractors, and delivered them to the plaintiffs who eventually sold them in 1961.

This suit, filed in May, 1961, charged that Colonial Refrigerated Transport ("Colonial"), Colonial Pacific Frigidways ("C & P"), and McBride fraudulently misrepresented that the leased equipment would be used as a fleet to haul high return commodities on a regular route from Memphis to Los Angeles when in fact they intended to and did use the equipment on irregular short runs at relatively low freight rates. Plaintiffs claimed that in reliance on the defendants' representations they (1) activated and capitalized Gear, (2) caused Gear to purchase equipment and endorsed its notes, (3) caused Gear to lease the equipment to the defendants, and (4) executed personal guarantees for notes for additional capital for Gear.

The plaintiffs urged the trial judge to instruct the jury that reliance on McBride's statements by one of them would constitute reliance by all since they were engaged in a joint enterprise. He refused to give this charge. He also refused to give the defendants' requested instruction that each of the plaintiffs would have to show reliance by himself personally in order to recover. Instead he instructed the jury that the plaintiffs were engaged in a joint enterprise, and "a communication to one of the plaintiffs would, in law, constitute a communication to each of the other plaintiffs concerning matters within the scope of the joint enterprise. Therefore * * * if you find from a preponderance of the credible evidence that a representation was made by defendants to plaintiffs which contained each and all of the elements of a fraudulent representation * * * then your verdict will be for plaintiffs."

II. JOINT ENTERPRISE

The defendants urge that the district judge's finding that the plaintiffs were engaged in a joint venture was contrary to the evidence, or that it was at least a fact issue that should have been submitted to the jury.

This suit is founded in tort.¹ The plaintiffs' complaint is that they were fraudulently misled. The evidence was uncontroverted that the plaintiffs finally decided to make their investment on May 29, 1959. The defendants' representations were made before then, at a time when Gear was an empty shell, and none of the plaintiffs except Madden had any interest in it.

The material issue then is whether, when the defendants' representations were made, the relationship among the plaintiffs was such that communication of the representations to one of them constituted communication to all. This would not, of course, be the case if they were a group of individuals acting separately. On the other hand, a representation to one might be a representation to all if the plaintiffs were partners or joint adventurers.

The writers agree that the joint venture is a type of partnership, not a separate kind of business unit,² but the concept of joint venture, or as the trial court chose to call it, joint enterprise,³ was created by the American courts⁴ to meet the need they felt for a special term to describe an enterprise undertaken jointly by several participants that lacked some of the characteristics usually found in a partnership.⁵ Like other American courts, Texas courts recognize the joint venture concept.⁶ In Texas, as in other states, whether a joint venture exists depends upon the intention of the parties who compose it.⁷ Texas considers a joint adventure "in the nature of a partnership engaged in the joint prosecution of a particular transaction for mutual profit." Brown v. Cole, 1956, 155 Tex. 624, 291 S.W.2d 704, 709, 59 A.L.R.2d 1011. See also Holcombe v. Lorino, 1935, 124 Tex. 446, 79 S.W.2d 307.⁸

The evidence with respect to the plaintiffs' intention and agreement before Gear was revived was uncontroverted. The inferences to be drawn from this evidence all point the same way. When the defendants' representations were made, the plaintiffs had a joint interest in seeking an investment. Before they breathed life into Gear, they had an agreement to share profits and losses; they were to have joint control of the investment although day-to-day management was to be committed to one of their group who had previously assumed such responsibility for other investments made jointly by the group. That their relationship among themselves was fiduciary and that they had a...