Armstrong v. Republic Realty Mortg. Corp.
| Decision Date | 18 September 1980 |
| Docket Number | 78-1536,Nos. 78-1501,s. 78-1501 |
| Citation | 631 F.2d 1344 |
| Parties | William H. ARMSTRONG, Jr., Appellant/Appellee, v. REPUBLIC REALTY MORTGAGE CORPORATION, Appellee/Appellant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
John J. Cole, Theodore H. Hellmuth, Armstrong, Teasdale, Kramer & Vaughan, St. Louis, Mo., for appellant/appellee and cross-appellant.
W. David Wells, James W. Erwin, Thompson & Mitchell, St. Louis, Mo., for appellee/appellant and cross-appellee Republic Realty Mortgage Corp.
Before ROSS and HENLEY, Circuit Judges, and PORTER, District Judge. *
On appeal in this diversity case tried by jury (78-1501), Republic urges that, as a matter of law, (1) it was not plaintiff's agent; (2) if it was, it did not breach any duty owed plaintiff; (3) if it did, plaintiff was not thereby damaged; (4) punitive damages should not have been allowed; and (5) the punitive damages awarded ($125,000), are, in any event, excessive.
Armstrong cross-appeals, (78-1536), contending that the evidence supports the jury verdict awarding Armstrong $75,000 compensatory damages against Republic, for breach of fiduciary duty as agent of Armstrong, and that the trial court therefore erred in reducing the award to $14,000 by judgment n. o. v.
We affirm the judgment of the trial court 1 awarding Armstrong $14,000 compensatory and $125,000 punitive damages against Republic.
In 1973, a Missouri general partnership, Fortune-Tampa Co., (Fortune) was organized to own and build on a 6.5 acre tract in Tampa, Florida, office and warehouse space for lease. Plaintiff was a partner during the 1973-75 period relevant to this suit. 2
Defendant Republic Realty Mortgage Corporation (Republic) operates branch offices in St. Louis, Atlanta, Milwaukee, and Kansas City, and a home office in Chicago. Republic's principal business is to act as a mortgage broker in real estate mortgage transactions. It has since 1949 acted as a loan correspondent for defendant Continental Assurance Company, (CAC), and currently is correspondent for various other insurers. Where Republic submits a loan application to any such insurer, if the insurer commits to make the loan on conditions agreeable to the borrower, borrower pays a fee to Republic for placing the loan. If the loan is made, Republic receives a fee from the insurer for collecting and remitting payments by the borrower and for other services.
To start the Florida project, Fortune borrowed $425,000 in connection with the land purchase, and took out a construction loan of $1,500,000. Seeking long-term financing for the project, Armstrong and his main partner, Bakewell, then contacted Terry Dunaway, a senior vice president of Republic, and officer in charge of its St. Louis office. After consulting with Armstrong and Bakewell, and then with CAC, Dunaway drafted a first mortgage loan application by Fortune to CAC, which Fortune executed March 2, 1973. The same date, Fortune paid Republic a fee of $14,000, the fee to be returned if the loan application were not approved by CAC. On April 26, CAC issued a written loan commitment which Fortune accepted in writing on May 4, 1973.
The loan commitment from CAC called for a floor loan of $900,000 to be closed by August 1, 1974, a second level loan of $225,000 to be closed when tenant leases reached a certain annual dollar total, and a third level loan of $360,000 if tenant leases reached a specified additional annual dollar total. February 1, 1975, was the deadline for closing the second and third level loans, and the second and third level loan commitment expired then if borrower had not met the leasing requirements. The loan commitment called for a first mortgage loan at 85/8 percent interest, repayable in monthly installments with final payment due in twenty years. Prepayment for ten years was prohibited and, beginning the eleventh year, was allowed only with a five percent penalty, with the penalty reducing one-half of one percent each year thereafter.
Construction on the 6.5 acre site in Tampa began the summer of 1973, but material shortages and labor problems delayed the project six months so that rental space was not available for occupancy until April, 1974. Because of the delay, Fortune realized it would probably need more time to secure sufficient tenant leases to qualify for second and third level funding. Thus, it needed an extension of the February 1, 1975, second and third level loan closing date.
From the beginning, Republic discouraged direct contact by Fortune with CAC. Thus, the frequent letters and reports from Fortune regarding its efforts to qualify for second and third level funding under the CAC loan commitment were sent to Dunaway of Republic, rather than to CAC. In June, 1974, Fortune requested Dunaway to seek from CAC at least a three month extension of the second and third level loan closing date. Dunaway secured a three month extension and in July, 1974, wrote Fortune the good news, stating in his letter that, "We made an extensive effort in your behalf to obtain this extension . . ."
The floor loan of $900,000, was closed November 4, 1974, and the note and first mortgage on the 6.5 acre Tampa tract were delivered to CAC. During the time until the second and third level loans were to close, (May 1, 1975) Fortune continued to seek tenant leases (CAC required a minimum three year lease term) for the rental space remaining at the Tampa site, so that the annual rental would meet the leasing requirement in the loan commitment for full funding of the $1,485,000 loan.
Fortune forwarded to Dunaway of Republic each lease as obtained. Pursuant to a CAC request, the leases were held at Republic's Chicago office until required by CAC in connection with the second and third level loan. Fortune, up to May 1, 1975, remained in close contact with Dunaway (rather than with CAC) by correspondence, by telephone, and by personal conferences, concerning Fortune's continuing leasing efforts to qualify for full funding of $1,485,000 by the May 1, 1975, loan closing deadline.
On April 28, 1975, CAC advised Dunaway that it would fund only the second level ($225,000) of Fortune's loan. Dunaway immediately advised Fortune by telephone. Fortune concluded CAC's refusal to fully fund required it (Fortune) to seek the permission of CAC to prepay the floor loan. In no other way could the CAC first mortgage be released so that Fortune could seek other first mortgage long-term financing. Fortune needed the full third level funding from CAC to pay off short-term loan commitments connected with the project and could not feasibly use expensive second mortgage money on a long-term basis to go with the total CAC first mortgage funding of $900,000 floor loan plus the second level of $225,000.
Fortune turned to Dunaway later on April 28 asking him to contact CAC to request that either the loan be fully funded or, if CAC refused, that CAC permit prepayment of the existing mortgage without penalty. Dunaway telephoned CAC, who advised him they would permit prepayment for a one percent penalty fee ($9,000). In the same long distance call between Dunaway in St. Louis and CAC in Chicago, Dunaway reminded CAC that the mortgage was already closed against prepayment for ten years, and that Fortune had agreed to that, and had agreed to pay a five percent prepayment penalty in the eleventh year. Dunaway then suggested that CAC charge a prepayment penalty of four percent ($36,000) because that would be less than Fortune had agreed upon in the mortgage. The CAC executive then said, "All right, you negotiate whatever you can on behalf of us, and whatever you get over the one percent that I want for my company, we'll split."
Dunaway then reported back to Fortune by telephone that CAC would permit a prepayment for a penalty of four percent ($36,000). Thereafter, on April 28 or 29, a Fortune executive and Fortune's attorney telephoned CAC in Chicago to once again request full funding and, failing that, prepayment without penalty. CAC refused to fund beyond the second level, but agreed to allow prepayment if paid a four percent penalty ($36,000). Fortune offered $10,000, and CAC responded with $18,000, which Fortune accepted, concluding the telephone conference.
On May 1, 1975, using a short term loan, Fortune prepaid to CAC the $900,000 floor loan plus accrued interest and a prepayment penalty of $18,000. One-half of the penalty was paid to Republic by CAC. Neither Dunaway nor any other agent of Republic ever advised Fortune that Republic was sharing in the prepayment penalty Fortune paid to CAC. Plaintiff did not know of the payment to Republic. Of the $9,000 Republic received, Republic paid $2,000 to Dunaway.
On September 5, 1975, the National Life and Accident Insurance Co. made a first mortgage loan commitment to plaintiff to loan Fortune $1,715,000 with interest at ten percent for twenty-five years, amortized over the life of the loan.
After a jury trial, the jury returned a verdict that CAC had violated its loan commitment by refusing to fund the third level loan on May 1, 1975; the jury also found that Republic had violated its fiduciary duty as an agent of Fortune. The jury awarded compensatory damages of $251,815 against CAC, and $75,000 against Republic. The jury also awarded punitive damages of $125,000 against Republic.
After judgment, the trial court granted a partial judgment n. o. v. in favor of Republic, reducing the compensatory damages awarded against Republic from $75,000 to $14,000. The trial court refused to alter the punitive damage award. 3
While on appeal to this court, CAC settled its judgment by paying Fortune $175,000, whereupon the Fortune judgment against CAC was remanded to the trial court, and vacated.
Plaintiff contends that Republic was Fortune's Agent from March 2, 1973, (when Fortune executed the loan...
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