Kaye v. Pawnee Const. Co., Inc.

• Decision Date: 22 July 1982
• Docket Number: No. 81-7304,81-7304
• Citation: 680 F.2d 1360
• Parties: William S. KAYE, as Receiver for Barterline, Ltd., Plaintiff-Appellant, v. PAWNEE CONSTRUCTION COMPANY, INC., et al., Defendants, Birmingham Trust National Bank, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1360

680 F.2d 1360

William S. KAYE, as Receiver for Barterline, Ltd., Plaintiff-Appellant, v. PAWNEE CONSTRUCTION COMPANY, INC., et al., Defendants Birmingham Trust National Bank, Defendant-Appellee.

No. 81-7304.

United States Court of Appeals Eleventh Circuit.

July 22, 1982.

James L. Shores, Jr., Birmingham, Ala., for plaintiff-appellant.

George M. Taylor, III, William C. Knight, Jr., William F. Murray, Jr., Birmingham, Ala., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Alabama.

Before GODBOLD, Chief Judge, MERRITT ^* and HENDERSON, Circuit Judges.

GODBOLD, Chief Judge:

Appellant Kaye, as receiver for Barterline, Ltd., filed a six-count complaint against numerous defendants alleging violations of the Securities Act of 1933, the Securities Exchange Act of 1934, the Securities Act of Alabama, and three Alabama fraud statutes. At the conclusion of appellant's case the court directed a verdict on all counts for defendant Birmingham Trust National Bank. The case proceeded to final judgment with respect to the remaining defendants, and no party has appealed therefrom. In this appeal Kaye only raises the correctness of the directed verdict for Birmingham Trust. We affirm.

I. The standard for directed verdicts

The Fifth Circuit en banc in Boeing Company v. Shipman, 411 F.2d 365 (5th Cir. 1969), ¹ enunciated the standard to determine whether there is sufficient evidence to submit a case to the jury following a motion for a directed verdict in a federal court trial. The district court should consider all evidence and not just evidence supporting the nonmover's case. The evidence must be considered in the light and with all reasonable inferences most favorable to the party opposed to the motion. If the facts and inferences point so strongly and overwhelmingly in favor of one party that reasonable persons could not reach a different conclusion, the court should direct a verdict. On the other hand, if there is substantial evidence of such quality and weight that reasonable persons in the exercise of impartial judgment might reach different conclusions, the court should deny the motion for a directed verdict and submit the case to the jury. A mere scintilla of evidence is insufficient to present a question for the jury; there must be a conflict in substantial evidence to create a jury question. Boeing, 411 F.2d at 373-76 & nn.13-16.

II. The facts

Appellee Birmingham Trust loaned Pawnee Mining and Coal Sales (Pawnee) $2.2 million in 1975. As security the bank took a chattel mortgage on substantially all of Pawnee's equipment and an assignment of three coal leases. Lamar Hawkins, president of Pawnee, personally guaranteed the loan, and three Chicago investors guaranteed the loan up to $700,000. Pawnee Construction, a related corporation, signed the note as co-maker. In 1976 the bank loaned Pawnee an additional $750,000 to provide working capital, to bring current the arrearage on the first loan and to pay for the equipment and construction costs of a cleaning plant. As collateral the bank took a security interest in the cleaning plant and the lease of the real estate on which the plant was located, as well as mortgages on realty in Winston and Marion Counties, Alabama.

In early 1977 Pawnee became delinquent in its payments. The bank said it would foreclose on the collateral unless all delinquent payments on the indebtedness were made on or before March 10, 1977. In early March Pawnee contacted Barterline, which had expressed an interest in acquiring mining companies. Barterline and Pawnee met in New York. Barterline was told that Birmingham Trust intended to foreclose if the debt was not brought current by March 10, and it telephoned Birmingham Trust to request an extension of time. The bank refused, saying it was fully collateralized. Undaunted, Barterline went to Birmingham that evening with expectations of personally persuading the bank to extend the deadline.

Before meeting the bank officials Barterline spent two days examining records, equipment, and mining sites and meeting with Pawnee. On March 10 Barterline and Pawnee went to the bank. Birmingham Trust refused to extend the deadline. The bank assured Barterline it would collect its money because it was fully collateralized. It had inspected the equipment recently and found all of it in working order except some that was in the shop. Nardone, president of Barterline, recalls the bank saying the collateral had a value "in excess of three to one" to the debt and that the bank had an assignment of all the mining leases owned by Pawnee Mining. The bank never wavered. It had "been down the road with Mr. Hawkins (Pawnee) many times before" and was going to foreclose unless the bank received $183,586.94 by three o'clock that afternoon. On leaving the bank Barterline decided there was not enough time to investigate the purchase and decided against it.

During lunch Barterline and Pawnee representatives sat a few tables apart at a restaurant. Simner (of Pawnee) talked to Barterline about the proposed sale. Simner asked if Barterline would buy Pawnee if Barterline obtained an assignment of the bank's collateral position. Interest was rekindled and negotiations continued. Reports and lists were compiled, a contract was drawn up, and papers concluding the sale of Pawnee to Barterline were signed around six o'clock that evening.

A one-page letter agreement signed by Barterline, Birmingham Trust, and Pawnee allowed Barterline to assume the bank's collateral position. It recited the principal of the two notes and the amount required to bring them current. It explained that Barterline was willing to pay the $183,586.94 provided Birmingham Trust agreed it would assign the promissory notes to Barterline "if (Barterline) pay(s) the remaining unpaid principal balance and all unpaid interest thereon at any time in the future. Provided that the Borrower consents to this arrangement, we (Birmingham Trust) agree that upon payment in full to the bank of all indebtedness to this bank by you, we will transfer, setover, and assign to you without representation, warranty, or recourse our interest in the promissory notes evidencing the indebtedness and all security agreements and other security securing these obligations." Barterline paid the $183,586.94 but never paid the bank the remainder of the debt, and Birmingham Trust never transferred the collateral to Barterline.

Pawnee went into receivership in July 1977. Barterline is also in receivership. Barterline brought suit against numerous defendants, including Birmingham Trust. At the close of Barterline's case defendants moved for a directed verdict. The district judge granted Birmingham Trust's motion for directed verdict, explaining why he dismissed the securities acts claims but not why he dismissed the fraud claims. The case continued against the remaining defendants. None of the remaining defendants, including Pawnee, is a party to this appeal.

III. The securities acts

The district court correctly directed a verdict for Birmingham Trust on the claims under §§ 12(2), 15 and 17 of the Securities Act of 1933, §§ 10 and 20 of the Securities Exchange Act of 1934, and the Alabama Securities Act because the note and collateral were not securities within the meaning of the federal and state securities laws. In oral argument before this court appellant acknowledged that there was no federal or state securities act violation. ² There was no error in directing the verdict for Birmingham Trust on the three securities laws claims.

IV. The pendent Alabama fraud claims

The district court also directed a verdict in favor of Birmingham Trust on three Alabama fraud claims: innocent misrepresentation, Ala.Code § 6-5-101; suppression of material facts, Ala.Code § 6-5-102; and willful misrepresentation, Ala.Code § 6-5-103. This ruling was correct, for reasons discussed as follows. ³

(A) Innocent misrepresentation

§ 6-5-101 same (Fraud)-Misrepresentations of material facts.

Misrepresentation of material fact made willfully to deceive, or recklessly without knowledge, and acted on by the opposite party, or if made by mistake and innocently and acted on by the opposite party, constitute legal fraud.

In actions for misrepresentation of material facts under § 6-5-101 there must be a false representation, the false representation must concern a material existing fact, and the plaintiff must be damaged as a proximate result. Earnest v. Pritchett-Moore, Inc., 401 So.2d 752, 754 (Ala.1981); Pugh v. Kaiser Aluminum & Chemical Sales, Inc., 369 So.2d 796, 797 (Ala.1979); International Resorts, Inc. v. Lambert, 350 So.2d 391, 394 (Ala.1977). The listed factors have particularized meanings. For example, misrepresentation requires an affirmative statement or misrepresentation. Mann v. Adams Realty Co., 556 F.2d 288, 296 (5th Cir. 1977). The good faith of the party making the statement is immaterial, Maring-Crawford Motor Co. v. Smith, 285 Ala. 477, 480, 233 So.2d 484, 487 (1970). No employment or contractual relationship need exist, Standard Oil Company v. Johnson, 276 Ala. 578, 580-581, 165 So.2d 361, 363-64 (1964), and an intent to deceive is not essential, Hall Motor Co. v. Furman, 285 Ala. 499, 502, 234 So.2d 37, 40 (Ala.1970); but an intent that the fact be relied on as an inducement to act or not to act is essential. Id. 40; Cartwright v. Braly, 218 Ala. 49, 52, 117 So. 477, 479-80 (1928); St. Paul Fire & Marine Insurance Co. v. Anderson, 358 So.2d 151, 155 (Ala.Civ.App.1977), rev'd on another issue, 358 So.2d 167 (Ala.1978) (concurring opinion stressing that the intent of the speaker to induce the plaintiff to act is an essential element in innocent misrepresentation when the context is of a casual nature or where reasonableness of plaintiff's reliance is an issue). The representation normally must be of a present fact not a future fact, Sly v. First National Bank, 387 So.2d 198 (Ala...