Federal Deposit Ins. Corp. v. Palermo

• Citation: 815 F.2d 1329
• Decision Date: 03 April 1987
• Docket Number: No. 85-1733,85-1733
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Penn Square Bank, N.A., Plaintiff-Appellant, v. Myron J. PALERMO, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 1329

815 F.2d 1329

55 USLW 2582

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Penn

Square Bank, N.A., Plaintiff-Appellant, v. Myron J. PALERMO, Defendant-Appellee.

No. 85-1733.

United States Court of Appeals,

Tenth Circuit.

April 3, 1987.

Theodore Q. Eliot of Gable & Gotwals, Tulsa, Okl., for plaintiff-appellant.

Terry W. Tippens and Barbara J. Geyer of Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Okl., for defendant-appellee.

Before BARRETT, LOGAN, and MOORE, Circuit Judges.

LOGAN, Circuit Judge.

After examining the briefs and the appellate record, this three-judge panel has determined unanimously that oral argument would not be of material assistance in the determination of this appeal. See Fed.R.App.P. 34(a); Tenth Cir.R. 34.1.8(c) and 27.1.2. The cause is therefore ordered submitted without oral argument.

The Federal Deposit Insurance Corporation (FDIC), as receiver of the insolvent Penn Square Bank, sued Myron Palermo for the balance of a promissory note Palermo signed in connection with his purchase of an interest in Oklahoma oil wells through the bank. Admitting the correctness of the note balance, Palermo defended on the ground that he had been fraudulently induced to make the purchase and sign the note. He also counterclaimed, seeking both rescission and damages. The FDIC has appealed from a jury verdict favoring Palermo.

On appeal the FDIC contends that the district court erred in (1) allowing the case to be tried to a jury; (2) denying the FDIC's motions for directed verdict and judgment notwithstanding the verdict; (3) denying the FDIC's motions for mistrial and new trial; (4) instructing or refusing to instruct the jury; (5) allowing Palermo to pursue a fraud claim for both rescission and damages; and (6) allowing Palermo to seek an affirmative recovery against the FDIC despite the Oklahoma statute of limitations.

The only nondocumentary evidence produced at the trial was one witness for the FDIC to prove the existence of and default on the promissory note, and one witness, Palermo, for the defense. Palermo admitted the default on the note. Palermo testified that he was involved in the business of oil and gas exploration and production. In October 1980 he received a call from an acquaintance, Billy Underwood, who told him that Penn Square Bank was arranging the sale of a 1/32 interest in five Oklahoma oil wells with problem loans. A Penn Square loan officer, Clark Long, later phoned Palermo. Palermo testified that Long told him that the wells were "making 150 barrels a day," and that "it looks like a pretty good deal." R. IV, 74. Long told Palermo that the bank could not take less than $130,000 for the interest because "that's what the man owes the bank for it." Id. at 75.

When Palermo and Underwood went to the bank to close the deal, Long there repeated his assurances, telling Palermo that the interest would pay back "about $150,000 in three years," id. at 76, and that the operator of the wells, Great Plains Oil and Gas, was a valued customer of the bank and a good operator. Long gave Palermo a detailed reserve report on the wells, with notations added in Long's writing stating "$150,000 in 36 months" and "actual production of 150 Bbl/day." R. II, Ex. 5; R. IV, 76-77. Without further investigation, Palermo and Underwood each signed a note borrowing $65,000 from Penn Square, wrote checks payable to Roy Oliver, the owner, and turned the checks over to Long with the understanding that the bank would give this money to Oliver. Oliver assigned Palermo one-half of the offered interest. Palermo testified at trial that he had relied completely on Long in this transaction and that he had not made any independent investigations.

Production on the wells was lower than Palermo had expected. He testified that in the first three or four months following his purchase, the wells "were probably producing somewhere around 20 or 30 barrels a day." R. IV, 82. Palermo testified that "about two months" after signing the note he was sued by various service companies to whom Great Plains owed money and that it then became apparent to him that the purchased interest would not produce the hoped for $150,000 income over three years. Great Plains later went bankrupt. Palermo testified that he had paid "$25,000 or so" in attorneys' fees to defend suits stemming from Great Plains' difficulties and another $25,000 in operating expenses for the wells. R. IV, 83. By October 1981, Palermo had also paid Penn Square $22,840.94 on the note. On October 28, 1981, Palermo advised the bank that he would make no further payments.

Palermo did not dispute the FDIC's evidence that $55,358.75 in principal remained unpaid on the promissory note. He did not challenge the reserve report, but maintained that all of Clark Long's representations were fraudulent. In addition to evidence of Great Plains' difficulties and the disappointing production from the wells, there was documentary evidence that the bank had actually loaned only $50,000, not $130,000, to Roy Oliver.

The court submitted the case to a jury. By special verdict the jury found that Palermo "proved his claim of fraud," and "is entitled to recover actual damages in the amount ... of $22,840.94," R. I, 133, the exact amount Palermo had paid on the note.

We consider in Part I the FDIC's contentions of error relating primarily to Palermo's claim that he was defrauded. In Part II we consider the contentions of error relating primarily to the allowable damages.

I

A

The FDIC argues that Palermo waived his right to a jury trial by failing to make a timely request, and that the district court should not have allowed a jury to hear this case. Fed.R.Civ.P. 38(b) requires a demand for a jury trial on an issue triable of right by a jury to be made within ten days of the last pleading directed to such issue. Under Fed.R.Civ.P. 38(d), failure to so demand constitutes a waiver of trial by jury, but a trial court retains discretion upon motion under Fed.R.Civ.P. 39(b) to order a jury trial when one was not properly demanded under Rule 38. See, e.g., Paramount Pictures Corp. v. Thompson Theaters, Inc., 621 F.2d 1088, 1090 (10th Cir.1980).

Although Rule 39 provides for the court's discretion to be invoked by motion, "some similar manifestation of the desire of a party to have a jury trial" will suffice. 9 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2334 at 112 (1971); see also Swofford v. B & W, Inc., 336 F.2d 406, 408-09 (5th Cir.1964) (untimely demand for jury trial under Rule 38(b) has the effect of a motion for jury trial under Rule 39(b)), cert. denied, 379 U.S. 962, 85 S.Ct. 653, 13 L.Ed.2d 557 (1965). When the request for a jury trial is made in a manner sufficient to bring it to the attention of the court and the other parties, as it was here in a pretrial memorandum many months before trial, the failure to file the request as a "motion" should not be deemed fatal. We hold that Palermo made a sufficient request for a jury trial to invoke the trial court's discretion under Rule 39(b).

We will reverse the trial court's decision to allow trial to a jury under Rule 39(b) only if it appears from all of the facts and circumstances that the court abused its discretion. Paramount Pictures, 621 F.2d at 1090. The FDIC contends the decision here was such an abuse because Palermo's counterclaim was primarily an equitable action for rescission. We have concluded, however, that Palermo could not seek rescission because of his failure to act promptly, but could only claim damages on the contract. See II A, infra. An action for damages on the contract is an action at law for which Palermo could have demanded a jury trial of right. 9 C. Wright & A. Miller, Federal Practice and Procedure Sec. 2311 (1971). We therefore find that the district court acted within its discretion under Rule 39(b).

B

The FDIC argues that the district court erred in denying its motions for directed verdict and judgment n.o.v. because Palermo failed to prove the necessary elements of fraud.

Federal law controls the rights and liabilities of the FDIC in its capacity as receiver of a national bank. 12 U.S.C. Sec. 1819 ("All suits of a civil nature at common law or in equity to which the [FDIC] shall be a party shall be deemed to arise under the laws of the United States...."); see Argonaut Savings & Loan Assoc. v. FDIC, 392 F.2d 195, 197 (9th Cir.), cert. denied, 393 U.S. 839, 89 S.Ct. 116, 21 L.Ed.2d 110 (1968); 1A J. Moore, Moore's Federal Practice p 0.323 [2.-1] (1985). In the absence of a controlling federal statute, the federal courts must devise their own governing principles in conformity with the policies underlying the National Bank Act, 12 U.S.C. Sec. 21 et seq. See American Surety Co. v. Bethlehem National Bank, 314 U.S. 314, 316, 62 S.Ct. 226, 227, 86 L.Ed. 241 (1941) (Congress chose to achieve equitable distribution of insolvent banks' assets "through the operation of familiar equitable doctrines evolved by the courts"); accord FDIC v. Mademoiselle of California, 379 F.2d 660, 662-63 (9th Cir.1967) (recognizing depositor's right of set-off).

In fashioning the federal common law in this area we may look for guidance to the law of the state having the closest connection to the transaction at issue when to do so would not conflict with the need for uniform rules governing bank liquidations. See D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 474, 62 S.Ct. 676, 687, 86 L.Ed. 956 (1942) (Jackson, J., concurring) ("No doubt many questions as to the liability of parties to commercial paper which comes into the hands of the [FDIC] will best be solved by applying the local law with reference to which the makers and the insured bank presumably contracted."); American National Bank v. FDIC, 710 F.2d 1528, 1534 n. 7 (11th Cir.1983) (escrow agreement executed on behalf of FDIC interpreted with reference to Florida law); FDIC v. Meo, 505 F.2d 790, 793 n. 4 (9th Cir.1974...