Federal Sav. and Loan Ins. Corp. v. Haralson

• Decision Date: 30 March 1987
• Docket Number: No. 86-7203,86-7203
• Citation: 813 F.2d 370
• Court: U.S. Court of Appeals — Eleventh Circuit
• Parties: FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, as Receiver for Savannah Savings & Loan Association, Plaintiff-Appellant, v. Virginia B. HARALSON, Daniel B. Haralson, C. Whit Walter, Jr., & SouthTrust Bank of Alabama, N.A., Defendants-Appellees.

Page 370

813 F.2d 370

7 Fed.R.Serv.3d 1321

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, as Receiver for Savannah Savings & Loan Association, Plaintiff-Appellant, v. Virginia B. HARALSON, Daniel B. Haralson, C. Whit Walter Jr., & SouthTrust Bank of Alabama, N.A. Defendants-Appellees.

No. 86-7203.

United States Court of Appeals Eleventh Circuit.

March 30, 1987.

Marvin H. Campbell, Montgomery, Ala. John R. Parker, Rollins, Parker, Happell & DeWayne, Nashville, Tenn., for plaintiff-appellant.

Richard D. Greer, Najjar, Denaburg, Schoel, Meyerson, Ogle & Zaraur, Birmingham, Ala. for Haralson (Dan) & Walter & V. Haralson.

J. David Dresher, Jere F. White, Bradley, Arant, Rose & White, Birmingham, Ala., for SouthTrust.

Richard F. Ogle, Schoel, Ogle & Benton, Birmingham, Ala., for Virginia Haralson, Daniel Haralson, C. Whit Walter, Jr.

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

Before RONEY, Chief Judge, JOHNSON, Circuit Judge, and ESCHBACH ^*, Senior Circuit Judge.

JOHNSON, Circuit Judge:

Appellant, Federal Savings and Loan Insurance Corporation ("FSLIC"), appeals the grant of a motion for summary judgment in favor of Appellees, Virginia B. Haralson, Daniel B. Haralson, and C. Whit Walter, Jr. ("Haralson Appellees"), and SouthTrust Bank of Alabama, N.A. ("SouthTrust"), defendants below in this diversity action arising out of a misrepresentation contained in a financial statement. We affirm in part and reverse in part.

I. BACKGROUND

FSLIC is the successor in interest of Savannah Savings & Loan Association, a Tennessee corporation ("Savannah"). On December 20, 1982, Savannah made an $840,000 loan to Capital Equities, Inc., which was co-signed by Virginia Haralson, the actual signature being that of her attorney and son-in-law, Appellee Walter, as her attorney in fact. The loan with Savannah was negotiated by Steve Snowden, president of Capital Equities. As a condition of making the loan, Savannah required that a person of substantial net worth approved by Savannah co-sign the note. Savannah's attorney, William Castleman, rejected the first co-signor proposed by Snowden based on his financial statement, but accepted Ms. Haralson after review of her financial statement and a discussion with her certified public accountant.

Ms. Haralson's financial statement showed $1,440,000 in cash on hand and unrestricted in banks. Notes to the financial statement stated that the financial statement was composed primarily of two trusts and that $1,400,000 of the amount listed as cash on hand and unrestricted was a trust held by Birmingham Trust National Bank ("BTNB"), predecessor of SouthTrust. ¹ The financial statement was prepared by Don Luna, president of LHC and Associates, which was one of the stockholders in Capital Equities, from financial information supplied by Daniel Haralson, Ms. Haralson's husband.

Savannah asked Castleman to determine if the BTNB trust was properly shown as an asset of Ms. Haralson and was unrestricted and accessible to Savannah in the event of a default. Castleman contacted Herb Rayburn, the Haralsons' certified public accountant. According to Castleman's affidavit, filed in opposition to Appellees' motions for summary judgment, Castleman concluded on the basis of his conversation with Rayburn that the trust was properly listed as Ms. Haralson's asset, that trust funds would be available to pay the indebtedness in the event of a default and that Ms. Haralson was a person of substantial net worth. Castleman then advised Savannah that Ms. Haralson would be a suitable co-signor. After a subsequent default in payment by Capital Equities and an action against Ms. Haralson to collect on the note, Savannah filed a garnishment action against SouthTrust to garnish the trust and SouthTrust responded that the trust was not subject to garnishment because it was a discretionary trust not subject to attachment by Ms. Haralson's creditors under Alabama law. ²

Savannah filed the present action on November 6, 1984. Counts One, Two and Three of Savannah's complaint alleged, respectively, fraudulent inducement, misrepresentation, and conspiracy to defraud, and sought money damages against Mr. Haralson and Walter because of the misrepresentation in Ms. Haralson's financial statement SouthTrust and the Haralson Appellees filed motions for summary judgment and FSLIC filed a motion for partial summary judgment. FSLIC also filed a motion for leave to amend the complaint to allege facts relating to the fraud and the discovery of the fraud. On February 18, 1986, the district court granted Appellees' motions for summary judgment and denied the FSLIC's motion for partial summary judgment. With regard to the fraud claims, the district court found that Savannah had not reasonably relied on the representation as to the nature of the trust as a matter of law. With regard to FSLIC's other claims, the district court found that there was no fraudulent conveyance as a matter of law because Ms. Haralson had no property interest in the trust out of which FSLIC could realize its claims and FSLIC had failed to show any fraudulent intent on the part of SouthTrust. The district court also found that the BTNB trust had been established validly as a spendthrift trust under Alabama law. On February 19, 1986, the district court denied FSLIC's motion for leave to amend as moot. FSLIC then filed this appeal.

regarding the unrestricted nature of the BTNB trust. Counts Four through Seven asserted various equitable theories that allegedly entitled FSLIC to reach the BTNB trust assets because of the misrepresentation: estoppel of the Haralsons to receive disbursements from the trust and to deny payment of the note from the trust assets, equitable assignment to FSLIC of the right to receive disbursements from the trust, a constructive trust on the principle and income of the trust, and entitlement to have the prohibition on payment contained in the trust instrument declared invalid with regard to Savannah. Counts Eight and Nine sought a declaration that the BTNB trust was subject to attachment because it had not been administered as a discretionary trust, but rather had been disbursed at Mr. Haralson's direction for the purpose of defrauding and hindering creditors of Ms. Haralson. Count Ten sought to set aside as fraudulent the conveyance of a security interest in the trust assets to SouthTrust in return for a $150,000 loan, which was used to release the Haralsons' home from Savannah's judgment. On March 29, 1985, FSLIC was substituted as party plaintiff.

II. DISCUSSION

Initially, we find it necessary to delineate the issues before us on this appeal. Although FSLIC filed a general notice of appeal, the only issues briefed and argued by FSLIC relate to whether the district court erred in granting summary judgment on FSLIC's fraud claims based on its finding that FSLIC had failed to show Savannah's reasonable reliance on the misrepresentation in the financial statement as a matter of law. FSLIC thus has abandoned any challenge to the grant of summary judgment with regard to the counts of its complaint based on theories other than the misrepresentation in the financial statement and summary judgment with regard to those counts is therefore affirmed. Further, counsel for FSLIC stated during oral argument that FSLIC no longer asserts any claims against SouthTrust in its corporate capacity and only seeks relief against SouthTrust in its capacity as trustee of the BTNB trust. Therefore, we affirm the grant of summary judgment in favor of SouthTrust with regard to all claims asserted against it in its corporate capacity. ³

A. Standard of Review

This Court reviews the grant of a motion for summary judgment pursuant to the same standards applied by the district court. Warrior Tombigbee Transportation Co. v. M/V Nan Fung, 695 F.2d 1294, 1296 (11th Cir.1983). Summary judgment is appropriate only if, viewing the facts and inferences drawn from the facts in the light most favorable to the nonmoving party, " 'there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law.' " Id. (quoting Fed.R.Civ.P. 56(c)).

B. Reasonable Reliance

The elements of an action for fraudulent misrepresentation under Alabama law ⁴ are (1) a false representation; (2) concerning a material existing fact; (3) which is relied upon by the plaintiff; and (4) damage to the plaintiff as a proximate result of the false representation. Dickinson v. Moore, 468 So.2d 136, 137-38 (Ala.1985). In addition, Alabama law requires that the plaintiff establish that his reliance was reasonable under the circumstances. Id. at 138. If in the exercise of reasonable care, the plaintiff would have discovered the facts or would have had reason to doubt the truth of the representation, then his reliance is not reasonable and if he has "knowledge or notice of certain facts which would excite inquiry" or the "surrounding circumstances ... would have aroused suspicion in the mind of a reasonable person", he cannot be said to have relied on the misrepresentation. Id. At the same time, contributory negligence is not a defense to an action for intentional misrepresentation: "[i]f the false statement is made by one who may be fairly assumed to know what he is talking about, it may be accepted as true, without question and without inquiry, although the means of correct information are easily within reach." King v. Livingston Mfg. Co., 180 Ala. 118, 60 So. 143, 145 (1912). This right to rely on a statement that is assumed to be within the knowledge of the person making it, however, exists Whether the plaintiff reasonably relied on a misrepresentation ⁵ is generally a question of fact for the jury. Mid-State Homes, Inc. v. Holt, 52 Ala.Civ.App. 415, 293 So.2d 476, 481 (1974). The district court found in this case, however, that reliance was not reasonable as a matter of law. It concluded that the...