75 F.3d 349 (8th Cir. 1996), 95-1086, Rayman v. American Charter Federal Sav. & Loan Ass'n

Docket Nº:95-1086, 95-1088.
Citation:75 F.3d 349
Party Name:Steven M. RAYMAN; Springfield Properties Holding, Inc., Plaintiffs-Appellees/Cross-Appellant, v. AMERICAN CHARTER FEDERAL SAVINGS & LOAN ASSOCIATION, Defendant-Appellant/Cross-Appellee.
Case Date:January 29, 1996
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

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75 F.3d 349 (8th Cir. 1996)

Steven M. RAYMAN; Springfield Properties Holding, Inc.,





Nos. 95-1086, 95-1088.

United States Court of Appeals, Eighth Circuit

January 29, 1996

Submitted Sept. 11, 1995.

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[Copyrighted Material Omitted]

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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.


LOKEN, Circuit Judge.

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.

I. Background.

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

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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.

II. Breach of Contract Claims.

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

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when it rejected Rayman's...

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