Arthur Pew Const. Co., Inc. v. Lipscomb

• Citation: 965 F.2d 1559
• Decision Date: 15 July 1992
• Docket Number: No. 90-8008,90-8008
• Parties: ARTHUR PEW CONSTRUCTION COMPANY, INC., Plaintiff-Appellant, v. Lurton E. LIPSCOMB, Defendant, First National Bank of Atlanta, Defendant-Appellee, William L. Cooney, L. Patrick Claiborne, Defendants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1559

965 F.2d 1559

23 Fed.R.Serv.3d 445

ARTHUR PEW CONSTRUCTION COMPANY, INC., Plaintiff-Appellant, v. Lurton E. LIPSCOMB, Defendant, First National Bank of Atlanta, Defendant-Appellee, William L. Cooney, L. Patrick Claiborne, Defendants.

No. 90-8008.

United States Court of Appeals, Eleventh Circuit.

July 15, 1992.

William Cyrus Lanham, Clark H. McGehee, Lanham & McGehee, Atlanta, Ga., for plaintiff-appellant.

Beverly B. Bates, Bates, Baum & Landey, Atlanta, Ga., for defendant-appellee.

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

Before TJOFLAT, Chief Judge, KRAVITCH, Circuit Judge, and GODBOLD, Senior Circuit Judge.

GODBOLD, Senior Circuit Judge:

Arthur Pew Construction Company, Inc. filed this action against the First National Bank of Atlanta ^BA and others, asserting liability under several legal theories. ¹ The district court granted summary judgment to all defendants. On appeal we reversed the summary judgment in favor of FNBA and remanded with respect to two claims against FNBA for promissory estoppel and negligence. See Arthur Pew Constr. Co. v. First Nat. Bank, 827 F.2d 1488 (11th Cir.1987) (per curiam) (Pew I ). After a trial the jury returned a verdict in favor of Pew on the negligence claim and in favor of FNBA on the promissory estoppel claim. FNBA then moved for judgment n.o.v. pursuant to Fed.R.Civ.P. 50(b). The district court granted the motion and entered judgment for FNBA on all claims. Pew then filed a motion for new trial under Rule 50(c)(2). ² This was denied and Pew appealed. We reverse the judgment for FNBA and direct that the verdict for Pew be reinstated, with the exception of the damage award for interest at prime rate.

The order granting judgment n.o.v. adopted arguments made by FNBA and entered these findings and conclusions: (1) The evidence, and the jury verdict for FNBA on the promissory estoppel claim, "negatived" the existence of any duty owed by the bank to Pew. ³ (2) "Probably" the jury returned a verdict for Pew on the negligence claim because it was not called on to determine separately the existence of a duty as an element of that claim. (3) In returning a verdict for the bank on the promissory estoppel claim the jury "appeared" to have agreed with the bank that if the bank made a commitment to Pew (out of which a duty could arise) the results of its violating that commitment were not foreseeable. (4) If a commitment was made it was "likely" that the jury determined that it was not reasonable for the plaintiff to rely on it. (5) The damages awarded for negligence were only remotely related to the alleged negligence. (6) Pew's evidence of lost profits was speculative.

To review the order granting judgment n.o.v. we must examine the evidence of duty owed by the bank to Pew and of foreseeability and of reliance. The court's examination of the evidence went beyond what would have been a usual inquiry into sufficiency, i.e., whether the evidence was sufficient to submit to the jury on the issue of duty. See Boeing v. Shipman, 411 F.2d 365 (5th Cir.1969). Instead, the court went much further and held that the evidence "negatived" the existence of a duty, which we take to mean that the evidence affirmatively established that there was no duty. We have examined the evidence in the light most favorable to Pew, as set out below. It clearly reveals that the court erred in finding that the evidence "negatived" the existence of a duty. Having reached that conclusion, we move to the traditional issue of sufficiency--though the court did not address the matter in that form--and hold that the evidence that tended to show a duty was sufficient to submit that issue to the jury. Also, the evidence of foreseeability and reliance was sufficient.

Having examined the evidence and found it sufficient, we turn to the holdings of the court drawn from the jury verdict in favor of the bank on the promissory estoppel claim. We hold that these holdings too were erroneous.

Finally, on the damages issues, we hold that the court erred in finding Pew's damages for lost profits, legal fees to recover lost funds, travel and telephone expenses to recover lost funds, and payments made on surety bonds remote and speculative. The court did not err in finding that the damages for interest were too remote.

Thus, Pew is entitled to have its jury verdict reinstated, with the exception of the award for interest.

I. The evidence

This case revolves around a business arrangement between Pew and Fenwick Associates, Inc. The Small Business Administration, through its § 8(a) program, enters into contracts with federal agencies and subcontracts the performance of these federal contracts to "socially and economically disadvantaged small business concerns." Pub.L.No. 95-507, § 202, 92 Stat. 1757, 1761 (1978) (codified as amended at 15 U.S.C. § 637(a) (1988)). ⁴ The SBA had determined that Fenwick, a minority-owned general contractor, was a socially and economically disadvantaged small business concern; accordingly, under the § 8(a) program, Fenwick secured several federal contracts. Fenwick mismanaged these contracts and jeopardized its ability to fulfill its obligations.

In 1982 Fenwick, through Lurton Lipscomb its president and sole stockholder, entered into an agreement with Pew, a general contractor that was not a socially and economically disadvantaged small business concern. The agreement was made in an emergency. Fenwick was about to lose several contracts within days because it had neither employees nor funds to begin work. Pew agreed to provide working capital and performance and payment bonds for Fenwick's projects, to advance Fenwick the funds it needed to bring its accounts payable current, and to manage the construction projects. All proceeds from jobs were to be deposited in Fenwick's bank account, from which all project expenses would be paid. Fenwick was to remain in control of all projects and was to be the point of control with the government. All employees were to be on Fenwick's payroll, and all debts were to be incurred in the name of Fenwick. Pew was to receive its expenses plus 40% of the profits generated by the contracts. ⁵ The agreement also provided that Pew would receive interest at the prime rate on advances made to Fenwick.

Payment and performance bonds on the Fenwick projects were made in Pew's name and paid for by Pew. These bonds made Pew responsible for completing the projects even though the contracts were let to Fenwick. Hearn, president of Pew, explained at trial that Pew was obligated to the surety on these bonds for any losses the surety might sustain, a possible liability that ran into millions of dollars. This large exposure caused Pew to "hang on" with Fenwick and attempt to get the Fenwick jobs completed despite misrepresentations and improprieties committed by Lipscomb and discussed below.

Pew had done business with FNBA for more than 30 years and had been a profitable and highly regarded customer. Pew asked FNBA to lend $75,000 to Fenwick. The bank declined, so Pew borrowed $75,000 from the bank and had it put in the Fenwick account. Subsequently Pew borrowed more from the bank and eventually advanced to the Fenwick account $300,000 borrowed from the bank. Pew secured this borrowing with its equipment, notes, and accounts receivable, including the income to be generated from the Fenwick projects. ⁶

Under the arrangement between Fenwick and Pew, Fenwick would pick up from the disbursing officer checks for work on its jobs and would turn them over to Pew for disbursement. Soon, however, Lipscomb, in violation of the agreement, deposited into his own bank account some $90,000 of checks payable to Fenwick. Fenwick eventually disgorged $13,000; the balance never got to Pew for disbursement.

In their original negotiations Lipscomb told Hearn that Fenwick owed IRS some $50,000 for withholding and Social Security tax. Hearn worked with IRS to arrange monthly payments on this liability, to be paid out of funds from the Fenwick projects. IRS agreed to release tax liens on Fenwick's bank accounts. Fenwick had, however, misrepresented to Hearn the amounts that had to be paid, which exceeded $100,000. Lipscomb also concealed from Pew that previously, to secure a debt of some $80,000, Fenwick had assigned to a Tennessee bank the proceeds on one of the jobs included in the arrangements with Pew. Payments to this bank had to be made.

In February 1983, as a consequence of Lipscomb's diversion of the $90,000 of job proceeds, described above, Pew and Fenwick amended their agreement to eliminate the possibility of future diversions. They agreed that an account would be opened by Fenwick at the Buckhead (Atlanta) branch of FNBA, in which payments to Fenwick would be deposited and from which funds could be disbursed only on joint signatures of a Fenwick representative and a Pew representative. Hearn obtained from the government its form for assignment of contract proceeds, a simple one-page document that stated assignment was made pursuant to the Assignment of Claims Act. Fenwick and a bank officer signed one of these forms for each Fenwick contract, stating that Fenwick assigned to FNBA all of its right, title and interest in the particular contract and all funds due or to become due under the contract. Each form directed the Corps of Engineers to make all payments due under the contract directly to the bank. Fenwick could not have continued in business without Pew's help, and Pew would not continue to work with Fenwick without the assignments.

The bank sent each assignment document to the disbursing officer of the Corps of Engineers, accompanied by a letter from the bank giving notice of assignment. Each letter said:

This contract is assigned to The First National Bank of Atlanta, Buckhead branch, 3040 Peachtree Road NW, Atlanta, Georgia, 30305, account # 14 389 368.

The numbered account was the Fenwick account. Each letter also...