Rayman v. American Charter Federal Sav. & Loan Ass'n, s. 95-1086
| Decision Date | 29 January 1996 |
| Docket Number | Nos. 95-1086,95-1088,s. 95-1086 |
| Citation | 75 F.3d 349 |
| Parties | Steven M. RAYMAN; Springfield Properties Holding, Inc., Plaintiffs-Appellees/Cross-Appellant, v. AMERICAN CHARTER FEDERAL SAVINGS & LOAN ASSOCIATION, Defendant-Appellant/Cross-Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Michael James Wahoska, Minneapolis, MN, argued (David Y. Trevor, Robert T. Grimit and Stephanie F. Stacy, on the brief), for appellant.
H. Edward Hales, Jr., Atlanta, GA, argued (S. Perry Thomas, Jr., Robert J. Neis and Barry R. Goldman, on the brief), for appellee.
Before WOLLMAN, LOKEN, and MORRIS SHEPPARD ARNOLD, Circuit Judges.
In July 1991, American Charter Federal Savings & Loan Association ("American Charter") held the first mortgage on an apartment building in Springfield, Missouri (the "Property"). Steven M. Rayman held the junior, wraparound ("wrap") mortgage on that building. When American Charter refused Rayman's attempt to cure the borrower's default, Rayman foreclosed his wrap mortgage, sold the Property to a third party, paid off American Charter's first mortgage, and sued American Charter for breach of contract and illegal tying practices. American Charter now appeals the jury verdict awarding Rayman $726,180 in general and special damages for American Charter's breach of contract. Rayman cross-appeals the district court's judgment denying treble damages and attorney's fees for the tying violations found by the jury. We reverse the judgment on the contract claim, concluding that the district court erred in construing the contract and in its damage instructions. We affirm the dismissal of Rayman's anti-tying claims.
On September 26, 1985, Crest Mortgage Corporation, an entity then owned by Rayman, loaned $1,850,000 to the owners of the Property. The transaction consisted of two loans, a $1,000,000 loan secured by a first mortgage on the Property, and a $1,850,000 loan secured by a wrap mortgage on the Property. 1 The wrap mortgage required the borrower to make all principal and interest payments to the holder of the wrap mortgage, who in turn paid amounts owing to the holder of the first mortgage. In essence, the wrap mortgage represented a junior lien on $850,000 of the total $1,850,000 debt. 2
The next day, Crest Mortgage sold the $1,000,000 first mortgage loan to American Charter, a savings and loan association in Lincoln, Nebraska, pursuant to a written Participation and Servicing Agreement (the "Participation Agreement"). The Participation Agreement provided that Crest Savings, a struggling financial institution also owned by Rayman, would "service" the Participation Loan by collecting amounts due under the first mortgage and remitting them to American Charter. At the same time but in a separate transaction, Crest Mortgage sold its interest in the wrap mortgage loan to Palm Beach FSB, another financial institution controlled by Rayman. Palm Beach later assigned its interest in the wrap mortgage loan to Rayman, with American Charter's consent.
In 1988, the borrower sought Chapter 11 bankruptcy protection. Crest Savings as servicer intervened in the bankruptcy and made sure that payments to American Charter on the first mortgage loan remained current. Apparently, American Charter was not even aware of the bankruptcy until the borrower petitioned for approval of a third amended plan of reorganization, which was approved by the bankruptcy court over American Charter's objection in mid-1989.
In May 1990, Crest Savings stopped servicing mortgages and proposed to American Charter that Rayman take over this function under the Participation Agreement. American Charter objected that Rayman was not an authorized substitute servicer under Paragraph 9 of the Participation Agreement:
In the event ... Crest [Savings] ... ceases to service the Participation Loan, Crest [Savings] agrees that servicing shall be transferred to either a subsidiary of [Crest Mortgage] or a financial institution insured by the FSLIC, or a wholly-owned subsidiary thereof. The substituted servicing institution, unless such substituted servicer is a subsidiary of Crest [Savings] or [Crest Mortgage], shall be acceptable to both Crest [Savings] and [American Charter] and approved in writing by [American Charter].
(Emphasis added.) American Charter proposed to service the Participation Loan. Rayman informally agreed that American Charter would perform the servicing for a fee of one-eighth of a point.
In June 1991, the borrower stopped making payments on both mortgage loans. When Rayman learned of the default, he tendered payment of the amount past-due on American Charter's first mortgage loan and commenced to foreclose the wrap mortgage. On July 25, 1991, American Charter refused this tender and served the borrower with a notice of default, advising that the first mortgage loan would be accelerated. Rayman and American Charter then agreed that American Charter would not foreclose the first mortgage while Rayman proceeded to foreclose the wrap mortgage.
In August 1991, Rayman completed foreclosure, acquiring title to the Property in the name of a corporation formed for that purpose, plaintiff Springfield Properties Holding, Inc. ("SPH"). SPH then tendered to American Charter all amounts owing under the first mortgage loan. American Charter again refused the tender. Fearing that American Charter would now foreclose its first mortgage, SPH sold the Property in September 1991 for $1,750,000. It paid American Charter's first mortgage in full, keeping the balance of approximately $750,000.
SPH and Rayman then commenced this action against American Charter, seeking damages for breach of contract and for two alleged violations of the anti-tying provisions of the Home Owners' Loan Act of 1933 ("HOLA"), 12 U.S.C. § 1464(q). The jury returned a verdict in favor of SPH on all its claims for the full amount of contract damages sought, $726,180. The district court denied SPH treble damages and attorney's fees under HOLA on the ground that American Charter's violations were not the proximate cause of SPH's injury. However, the court upheld the jury's verdict on the breach of contract claims. See Rayman v. American Charter Fed. Sav. & Loan Ass'n, 866 F.Supp. 1252 (D.Neb.1994). Both sides appeal.
Rayman and SPH contend that the wrap mortgage holder had a right to cure the borrower's defaults and therefore American Charter breached the Participation Agreement when it rejected Rayman's pre-foreclosure tender of amounts owing under the first mortgage loan, and when it rejected SPH's post-foreclosure tender. In this rather unusual situation, these claims raise difficult issues regarding contract liability and damages.
In the district court's view, the wrap mortgage holder's right to cure, either before or after foreclosure of the wrap mortgage, is governed by the default provisions of the Participation Agreement. There are two relevant paragraphs:
11. Default. In the event of a default under a Participation Loan, Crest [Savings] shall promptly notify [American Charter] ... and Crest [Savings], [American Charter] and any other participant in the Participation Loan shall promptly ... attempt to reach an agreement as to the remedies or actions to be taken subject to the rights of the Wrap Mortgage holder as defined hereinafter in paragraph 23. If all of such participants cannot agree on a particular action to be taken within a reasonable time ... then, if the participants owning not less than two-thirds ( 2/3) of the Participation Loan can agree on an action to be taken, which action shall be reasonable ... such majority decision shall be controlling and [Crest Mortgage] [sic 3] shall proceed in accordance therewith. In the event that agreement as set forth above cannot be reached, then Crest [Savings] shall proceed promptly to foreclose.... [A]fter acquisition of the Mortgaged Premises by means of foreclosure ... Crest [Savings] may, unless otherwise directed by a majority decision, manage, maintain or dispose of the Mortgaged Premises.... If at any time Crest [Savings] does not agree with any majority decision, Crest [Savings] may purchase [American Charter's] interest in the Participation Loan for the then-current principal balance plus accrued yield to [American Charter]. Nothing contained herein shall limit [Crest Mortgage] [sic] from taking or refraining from taking any action it deems reasonably necessary in the exercise of its servicing obligations....
* * * * * *
23. [American Charter] acknowledges the second lien position of Palm Beach Federal Savings Bank ... an affiliate of Crest [Savings] and [Crest Mortgage], as the holder of a Wrap Mortgage.... [American Charter] agrees that in the event of default, if Palm Beach or its affiliate takes title to the property through foreclosure ... it shall not be an Event of Default under [American Charter's] first mortgage loan of $1,000,000, nor shall a subsequent sale ... which is acceptable to [American Charter]. In that event [Crest Mortgage] [sic] shall continue to service [American Charter's] loan.
(Emphasis added.) Focusing only on Paragraph 23, the district court held that the Participation Agreement was ambiguous on the question whether the wrap mortgage holder had a right to cure borrower defaults under the first mortgage. The court allowed extrinsic evidence on this issue to determine the parties' intent, consisting of testimony outside the jury's presence by Rayman and American Charter's former employee who negotiated the Participation Agreement. Relying on this testimony, the court instructed the jury that Paragraph 23 gave the wrap mortgage holder a right to cure both before and after foreclosure. 4
Under Nebraska law, which governs the Participation Agreement, if the terms of a contract are not ambiguous, "the intent of the parties...
To continue reading
Request your trial
-
Bray v. Bank of Am.
...for standing."); Rayman v. Am. Charter Fed. Sav. & Loan Ass'n, 866 F. Supp. 1252, 1262 (D. Neb. 1994) rev'd on other grounds, 75 F.3d 349 (8th Cir. 1996) (explaining that "so long as the plaintiff is a 'customer' of the bank, there is no reason to limit the anti-tying statute to illegal 'ti......
-
Nebraska Public Power Dist. v. MidAmerican Energy Co
...is, if it may objectively be understood in more than one sense-then extrinsic evidence is admissible." Rayman v. American Charter Fed. Sav. & Loan Ass'n, 75 F.3d 349, 354 (8th Cir. 1996). Finally, that each party asserts the PSC unambiguously supports its position does not preclude us from ......
-
Poppen v. Residential Mortg. Services, Inc.
...N.W.2d 424 (1983); Shurtleff v. Occidental B. & L. Ass'n., 105 Neb. 557, 181 N.W. 374 (1921). See, also, Rayman v. American Charter Federal Sav. & Loan Ass'n, 75 F.3d 349 (8th Cir.1996). "The measure of damages in such event would be the difference between that amount which the plaintiff wo......
-
ABC Electric, Inc. v. Nebraska Beef
...-- then extrinsic evidence is admissible, and the parties' intent is a question of fact for the jury." Rayman v. American Charter Fed. Sav. & Loan Ass'n, 75 F.3d 349, 354 (8th Cir. 1996). Here, in the Order on Final Pretrial Conference, both parties listed as a disputed issue whether the sc......