MBank Fort Worth, N.A. v. Trans Meridian, Inc.

• Citation: 820 F.2d 716
• Decision Date: 02 July 1987
• Docket Number: No. 86-1044,86-1044
• Parties: RICO Bus.Disp.Guide 6679 MBANK FORT WORTH, N.A. (formerly Continental National Bank of Fort Worth), Plaintiff-Appellant, Cross-Appellee, v. TRANS MERIDIAN, INC., Defendant-Appellee, Cross-Appellant. TRANS MERIDIAN, INC., Robert G. Tunnell, Gale Tunnell, Itaf Daod, Ghaleb A. Hamadeh, Mary Hamadeh, Charles R. Ward, Barbara Ward, H.J. Van Praag, and Laiping F. Van Praag, Counterclaim Plaintiffs-Appellees Cross-Appellants, v. MBANK FORT WORTH, N.A. (formerly Continental National Bank of Fort Worth), Counterclaim Defendant-Appellant Cross-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 716

820 F.2d 716

RICO Bus.Disp.Guide 6679

MBANK FORT WORTH, N.A. (formerly Continental National Bank

of Fort Worth), Plaintiff-Appellant, Cross-Appellee, v. TRANS MERIDIAN, INC., Defendant-Appellee, Cross-Appellant.

TRANS MERIDIAN, INC., Robert G. Tunnell, Gale Tunnell, Itaf

Daod, Ghaleb A. Hamadeh, Mary Hamadeh, Charles R. Ward, Barbara Ward, H.J. Van Praag, and Laiping F. Van Praag, Counterclaim Plaintiffs-Appellees Cross-Appellants, v. MBANK FORT WORTH, N.A. (formerly Continental National Bank

of Fort Worth), Counterclaim Defendant-Appellant

Cross-Appellee.

No. 86-1044.

United States Court of Appeals, Fifth Circuit.

July 2, 1987.

McDonald, Sanders, Ginsburg, Maddox, Newkirk & Day, John H. Cayce, Jr., Sam J. Day, Constance R. Heiland, Fort Worth, Tex., for MBank.

Chappell & Handy, David F. Chappell, Kathleen J. Miller, Fort Worth, Tex., for Trans Meridian, Inc., et al.

Appeals from the United States District Court for the Northern District of Texas.

Before CLARK, Chief Judge, BROWN and JOLLY, Circuit Judges.

CLARK, Chief Judge:

MBank-Fort Worth ("MBank") appeals the district court's entry of a take-nothing judgment on its claim against Trans Meridian, Inc. and several individual defendants (collectively known as "TMI") for the balance due on two promissory notes. TMI cross-appeals the entry of a take-nothing judgment on its counterclaims against MBank and Sabre Exploration Corporation ("Sabre") under federal and state securities laws, common law fraud, the Texas Deceptive Trade Practices Act ("DTPA") and the Racketeer Influenced and Corrupt Organizations Act ("RICO"). We affirm in part but reverse that part of the district court's judgment holding that TMI did not waive its right to assert the DTPA as a defense to MBank's recovery on the notes and reverse and remand for a new trial that part of the district court's judgment denying relief on TMI's counterclaim under the Texas Securities Act.

I. Background

This case arose from TMI's investment in an oil and gas drilling venture conducted by Sabre. TMI and Sabre executed a Drilling and Participating Agreement on August 1, 1980. The Agreement obligated TMI to finance the drilling operations in exchange for a share of the proceeds and an interest in oil and gas leases in the South Hamel field in Colorado County, Texas. At the time the agreement was executed, Sabre was already indebted to MBank. MBank released its first lien on Sabre's interests in the South Hamel field so that TMI could obtain unencumbered interests.

In December 1980 MBank loaned TMI $500,000, and made a second $500,000 loan to TMI in July 1981. TMI pledged its interest in the South Hamel field as security for the loans. TMI defaulted on the loans and MBank filed suit in December 1982 to collect the unpaid balances and foreclose on the oil and gas properties securing the loans.

TMI removed the suit to federal court and then brought counterclaims against MBank and Sabre asserting they had induced TMI to invest in the project by fraudulent misrepresentations and omissions. The counterclaims included: 1) common law fraud; 2) statutory fraud under Texas law; 3) negligent misrepresentation; 4) the federal Securities Acts of 1933 and 1934; 5) the Texas Securities Act; 6) breach of contract; 7) the Texas Deceptive Trade Practices Act; and 8) RICO. MBank and Sabre asserted that the DTPA did not apply to this case; the statute of limitations barred the counterclaims; TMI was contributorily negligent; TMI concealed material facts; and TMI waived any right to complain of MBank and Sabre's conduct.

The jury was given fifty-four pages of instructions by the court and the verdict consisted of eighty special interrogatories. The interrogatories were grouped according to each counterclaim and each defense.

The jury found that MBank negligently misrepresented material facts but that TMI was 90% contributorily negligent. The jury also found that both MBank and Sabre violated the DTPA and that Sabre violated the Securities Act of 1933. The jury found that TMI waived its right to complain of the conduct of Sabre and MBank and that TMI failed to exercise due diligence to discover the misrepresentations or omissions. The jury nonetheless awarded actual damages to each member of the TMI group and assessed punitive damages against Sabre.

The district court held that the defenses of waiver and failure to exercise due diligence barred TMI from recovery on its claims of negligent misrepresentation and of violations of the Securities Act of 1933. The district court held that the statute of limitations barred TMI from an affirmative recovery on its DTPA claim but did not bar use of the DTPA as a defense to MBank's recovery on the loans. The district court reconciled these verdicts by rendering a take-nothing judgment against all parties.

MBank filed a motion to alter or amend the judgment or for a new trial. In response, the district court amended its original judgment to expressly reflect that waiver did not apply to the DTPA defense. TMI filed a motion for judgment notwithstanding the verdict or a new trial on its RICO, Texas Securities Act and statutory fraud claims. The district court denied the motion. MBank and TMI appealed. Sabre did not participate in the appeal.

II. Application of the Texas Deceptive Trade Practices Act

The first issue we must resolve is whether the DTPA applies to the facts in this case. The DTPA applies to "goods," defined as "tangible chattels or real property purchased or leased for use," ¹ and to "services," defined as "work, labor, or service purchased or leased for use." ² MBank asserts the DTPA does not apply to this case because TMI's investment was a security transaction, and the Texas courts have held that securities are not "goods" under the DTPA. See, e.g., Portland Savings & Loan Assoc. v. Bevill, Bresler & Shulman Government Securities, Inc., 619 S.W.2d 241, 245 (Tex.Civ.App.--Corpus Christi 1981). MBank asserts that the agreement must be a security transaction under the DTPA because the district court held it was a security transaction for the purposes of the federal and state securities laws.

The transaction in this case can qualify as a security transaction under the securities laws, and as a transaction in goods or services under the DTPA. See Vick v. George, 671 S.W.2d 541 (Tex.App.--San Antonio 1983), rev'd on other grounds, George v. Vick, 686 S.W.2d 99 (Tex.1984) (per curiam) (allowing claims arising from the sale of oil and gas leases to be brought under both the securities laws and the DTPA). TMI acquired an interest in real property when it acquired interests in the oil and gas leases. Cherokee Water Co. v. Forderhause, 641 S.W.2d 522, 525 (Tex.1982). Therefore, the transaction is covered by the DTPA.

MBank then asserts that it is not subject to the DTPA because it was not the seller of the "goods," rather it was only the lender of money used for their purchase. The Texas Supreme Court has held that a lender is liable under the DTPA if the borrower's objective for the loan is the purchase of goods or services. La Sara Grain v. First Nat. Bank of Mercedes, 673 S.W.2d 558, 566 (Tex.1984). In Flenniken v. Longview Bank & Trust Co., 661 S.W.2d 705 (Tex.1983), the lender was liable under the DTPA because the borrower's purpose in obtaining the loan was the purchase of a house. Clearly this rule brings MBank within the coverage of the DTPA. The principal objective of TMI in borrowing the money from MBank was to buy a "good," i.e., interest in an oil and gas lease. ³

The jury in this case found that MBank failed to disclose Sabre's poor loan history with MBank and that the information was material and was relied upon by TMI. The evidence shows that MBank's information regarding Sabre was an integral part of the loan transaction and indeed was a significant factor in the sale of a "good" that brings MBank within the coverage of DTPA.

III. Statute of Limitations

The district court held that TMI's DTPA counterclaim was barred by the statute of limitations. ⁴ The jury found that TMI did discover or should have discovered MBank's deceptive acts on or before January 9, 1981. TMI's first Answer, which did not contain the DTPA counterclaim, was filed January 10, 1983. It was, therefore, one day late under the DTPA's two year statute of limitations. TMI's Amended Answer, which included the DTPA claim, was filed January 10, 1984.

TMI correctly asserts that Texas Civil Practice and Remedies Code Sec. 16.068 ⁵ would permit the amended answer to relate back if the original answer were timely. ⁶ TMI asserts that the original answer should be considered timely under Texas Civil Practice & Remedies Code Sec. 16.069, ⁷ which allows a counterclaim that would otherwise be barred by limitations to be filed "not later than the 30th day after the date on which the party's answer is required." ⁸ Under TMI's analysis, the statute of limitations would be extended to make the original answer timely and the amended answer would then relate back under Sec. 16.068.

The effect of this analysis is to give TMI an additional year to file its counterclaim, rather than an additional 30 days. This cannot be a correct interpretation of Texas law. The DTPA was amended in 1979 to include the two year statute of limitations. Although the Texas courts have applied Sec. 16.068 to allow the inclusion of DTPA claims in amended pleadings when the original pleading was timely, see e.g., Aetna Casualty & Surety Co. v. Martin Surgical Supply Co., 689 S.W.2d 263, 272 (Tex.App. 1 Dist.1985), no Texas court has applied Sec. 16.069 to a DTPA counterclaim, let alone allowed a party to piggy-back the two provisions to effectively extend the limitations period for a year.

Section 16.069 was clearly designed to prevent plaintiffs from waiting to file their claims until the statute of limitations had run on the defendant's potential counterclaims. Fluor Engineers & Constructors, Inc. v. Southern...