737 F.2d 1343 (5th Cir. 1984), 82-1270, Mack v. Newton
|Citation:||737 F.2d 1343|
|Party Name:||Theodore MACK, Receiver, Plaintiff-Appellee-Cross-Appellant, v. Wade NEWTON, et al., Defendants-Third-Party Plaintiffs-Appellants. EQUICO LESSORS, INC., Defendant-Third-Party Plaintiff-Appellant-Cross-Appellee, v. G.J. ROBERTS, Sr., Third-Party Defendant-Appellee, Brazos Enterprises, Inc., Third-Party Defendant-Appellee-Cross-Appellant.|
|Case Date:||August 06, 1984|
|Court:||United States Courts of Appeals, Court of Appeals for the Fifth Circuit|
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Woodburn & Sullivan, G. Dennis Sullivan, Charles B. Hendricks, Dallas, Tex., for Equico Lessors, Inc., and Mesker and Newton.
Law, Snakard, Brown & Gambill, Robert M. Randolph, J. Robert Green, Jr., G. Parker Young, Fort Worth, Tex., for G.J. Roberts, Sr. and Brazos Enterprises, Inc.
Rufus Garrett, Fort Worth, Tex., for Theodore Mack, Receiver.
Appeals from the United States District Court for the Northern District of Texas.
Before RUBIN, GARWOOD, and JOLLY, Circuit Judges.
GARWOOD, Circuit Judge:
In this suit plaintiffs, Brazos Enterprises, Inc., and Theodore Mack, Trustee in Bankruptcy of Dairyland, Inc., sought recovery against defendants, Equico Lessors, Inc., Wade Newton, and Bill Mesker, on the basis of civil conspiracy, conversion, fraudulent conveyances, and usury. Following a jury trial, the trial court rendered judgment for actual and exemplary damages against defendants, but denied any recovery for usury. Defendants appeal, and the Trustee cross-appeals the denial of its usury claim. We affirm the denial of the usury claim and reverse in part and affirm in part as to the remainder of the case, remanding for the entry of judgment consistent with our holdings.
General Nature of Suit
This complex case primarily concerns the financing of the dairy cattle operations of the now bankrupt corporation, Dairyland, Inc. ("Dairyland") and of its acquisition of the Bosque County ranch on which such operations were conducted. Defendant Equico Lessors, Inc. ("Equico") provided part of the financing both for Dairyland's operations and for its acquisition of the ranch from plaintiff Brazos Enterprises, Inc. ("Brazos"), a corporation wholly owned and controlled by G.J. Roberts ("Roberts"). Defendants Wade Newton ("Newton") and Bill Mesker ("Mesker") were principals in Dairyland, and were also owners of a separate business, a partnership known as Dairy Cows. Equico likewise provided financing to Dairy Cows, and Dairy Cows was also partially financed by Misco Leasing ("Misco"), an unrelated concern. The affairs and debts of Dairyland and Dairy Cows became intertwined. Involuntary bankruptcy proceedings were instituted against Dairyland on December 23, 1975, and it filed voluntary proceedings in February 1976. This suit by Dairyland's Trustee in Bankruptcy ("the Trustee") and Brazos generally claimed that Newton and Mesker transferred Dairyland cows mortgaged to Equico without applying the proceeds to the mortgage debt, and that Equico conspired with them and applied Dairyland
assets to discharge unsecured Dairy Cows indebtedness to Equico, to the prejudice of both of Dairyland's general creditors and of Brazos in its capacity as a holder of a lien on the ranch inferior to that of Equico. The Trustee also asserted a usury claim against Equico respecting its loan to Dairyland.
In 1972 Roberts, Newton, and Mesker formed Dairyland. Roberts then owned and controlled Brazos. At the same time, Newton and Mesker were partners in Dairy Cows, a business that involved buying cows and then "leasing" them to dairy farmers who would make assignments of milk to Dairy Cows and make payments on the leases. The "leases" or "cow contracts" were in effect sales with a retention of a security interest or mortgage. Dairy Cows financed its operations by assigning these "lease" contracts to lenders at a discount. Although the partnership borrowed money from Misco (and from Seneca State Bank and First National Bank of Waco), the principal lender with which Dairy Cows did business was Equico. The basic arrangement entered into by Roberts, Newton, and Mesker in the formation of Dairyland was that Roberts, through Brazos, would furnish the land and equipment for the Dairyland operations, and Newton and Mesker would furnish their know-how in the dairy business and their ability to obtain financing. Roberts received fifty percent of the original Dairyland stock, and Newton and Mesker each received twenty-five percent.
As part of the agreement between Roberts, Newton, and Mesker, Brazos sold a some 816 acre ranch it owned in Bosque County to the recently incorporated Dairyland for approximately $1,000,000. The purchase price was payable $200,000 in cash, with a note for $772,050. At the time of this sale John Hancock Life Insurance Company ("Hancock") had a lien on the ranch, and Brazos was indebted to Hancock for approximately $280,000. Dairyland financed the down payment for the ranch with a $200,000 loan from Equico. Dairyland was to have 49 acres free and clear of the Hancock lien. In order to secure the $200,000 loan, Dairyland gave Equico a first lien on the 49-acre tract and a lien second to that of Hancock on the remaining 767 acres. Brazos subordinated its vendor's lien on the entire ranch to the lien in favor of Equico. Brazos also agreed to continue making payments on the Hancock note. Dairyland would pay interest only on its $772,050 note to Brazos for the first eleven years, but in the twelfth year the Hancock note would be paid off and the balance on Dairyland's note to Brazos would become due. The status, then, of the ranch as of May 10, 1972 was that on the 49 acres Equico had a first lien securing its $200,000 purchase price advance and Brazos had a second lien securing its $772,050 note; and on the remaining 767 acres Hancock had a $280,000 first lien, Equico had a second lien, and Brazos had a third lien and the obligation to pay off the Hancock note as it matured.
In order for Dairyland to obtain a dairy herd, the parties structured a transaction in which Dairyland bought 626 Holstein heifers with money borrowed from the First National Bank in Waco, Texas. Dairyland then sold these cows to Dairy Cows, repaying the First National Bank in Waco with the proceeds of this sale, and Dairy Cows in turn "leased" the cows back to Dairyland, and subsequently assigned these leases to Equico, which provided $313,000 to finance the acquisition of these cows. The cow leases assigned to Equico were secured by the deed of trust on the ranch which primarily secured the $200,000 land acquisition debt from Dairyland to Equico, by virtue of the general "other indebtedness" provisions of that deed of trust. Brazos also subordinated its liens on the ranch to the cow debt of Dairyland to Equico. Furthermore, Roberts, Newton, and Mesker individually guaranteed Dairyland's debts to Equico.
In addition to its own herd, Dairyland took in "custom" grazing, allowing cattle owned by third parties to graze on the ranch, for which the owners paid Dairyland a rental fee. Beginning in February 1973,
Dairyland also received, for grazing on the ranch, cattle owned by Dairy Cows. These cattle had been repossessed by Dairy Cows from its defaulting lessees. A number of the leases had been collaterally assigned by Dairy Cows to Misco as security for Dairy Cows' indebtedness to Misco. Dairyland paid the lease payments on these repossessed cattle and in turn kept any milk they produced in addition to a $10 per month rental fee per nonmilk-producing cow that was to be paid by Dairy Cows. There was also evidence that, as between Dairyland and Dairy Cows, Dairyland had the option to assume the lease payments and become the owner of the cows subject to the leases, or to turn the cows back to Dairy Cows without further obligation.
Although Roberts was initially president of Dairyland, as a result of disagreements with Newton and Mesker he eventually resigned as president in July 1973. The Dairyland herd had declined to some 286 by December 3, 1974, and at that time there were also approximately 760 Dairy Cows cows on the ranch, some mortgaged to Equico, some to Misco, and some to others. On December 4, 1974, 356 of the Dairy Cows cows were rebranded by Newton and Mesker as Dairyland cows, bringing the Dairyland total to 632. On January 30 or 31, 1975, Newton and Mesker caused Dairyland to buy out all of Roberts' stock, so Newton and Mesker became the sole Dairyland shareholders, and at the same time they adopted a resolution dispensing with directors' meetings and providing that either alone could act for Dairyland.
This suit was filed in March 1976 by Dairyland's Trustee in Bankruptcy against Newton, Mesker, Equico, and Misco. The Trustee later asserted claims against Roberts and Brazos, as also did Newton and Mesker. Roberts and Brazos also asserted claims against Newton, Mesker, and Equico. In 1978 the Trustee dropped all claims against Misco, and it passed out of the suit. Just prior to trial, the Trustee, Roberts, and Brazos settled all claims between them.
The jury found in relevant substance (interrogatory numbers indicated in parentheses) as follows: 1
(1 & 2) on December 4, 1974 Dairyland was insolvent and Equico then knew, or should have known, that it was;
(3) Newton and Mesker (but not Roberts), in their capacity as officers of Dairyland and with "actual intent to hinder, delay or defraud existing or future creditors" of Dairyland, caused Dairyland to cease doing business as an ongoing concern "on January 31, 1975," and Equico, with like "actual intent," conspired with them to do so;
(4 & 5) "on and after January 31, 1975" Newton and...
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