Bay Colony, Ltd. v. Trendmaker, Inc.

• Decision Date: 17 September 1997
• Docket Number: No. 96-20297.,96-20297.
• Citation: 121 F.3d 998
• Parties: BAY COLONY, LTD., Plaintiff-Appellant, v. TRENDMAKER, INC., Midlands Associates, & Weyerhaeuser Real Estate Company, Defendants-Appellees, and Federal Deposit Insurance Corporation, as Receiver for Commonwealth Federal Savings Association, Intervenor Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

121 F.3d 998

BAY COLONY, LTD., Plaintiff-Appellant, v. TRENDMAKER, INC., Midlands Associates, & Weyerhaeuser Real Estate Company, Defendants-Appellees and Federal Deposit Insurance Corporation, as Receiver for Commonwealth Federal Savings Association, Intervenor Defendant-Appellee.

No. 96-20297.

United States Court of Appeals, Fifth Circuit.

September 17, 1997.

COPYRIGHT MATERIAL OMITTED

Norman J. Riedmueller, Michael A. Pullara, Houston, TX, for Plaintiff-Appellant.

Brendan D. Cook, Lori Ann Hood, Verner, Liipfert, Bernhard, McPherson & Hand, Houston, TX, for Trendmaker, Inc., Defendant-Appellee.

M.H. Cersonsky, Rachel Rodriguez Rosen, Alonso & Cersonsky, Houston, TX, for Midlands Associates, Defendant-Appelee.

John E. O'Neill, Paula Diane Feiler, Clements, O'Neill, Pierce & Nickens, Houston, TX, for Weyerhauser Real Estate Co., Defendant-Appellee.

Ferdinand P. Cribbs, Jr., Houston, TX, for Federal Deposit Ins. Corp., as Receiver for Commonwealth Federal Savings Ass'n, Intervenor Defendant-Appellee.

Before KING and PARKER, Circuit Judges, and ROSENTHAL^*, District Judge.

PER CURIAM:

The Appellant, Bay Colony, Ltd. appeals from the district court's grant of judgment as a matter of law for the Appellees, Trendmaker, Inc., Midlands Associates, and Weyerhaeuser Real Estate Company, following the jury's verdict for Bay Colony. Finding no error, we affirm.

FACTUAL BACKGROUND

Bay Colony, Ltd. ("Bay Colony") was formed in 1985 as a limited partnership by Robert Brackman ("Brackman") for the purpose of purchasing certain real estate which forms the basis of this suit. Brackman is an attorney and an experienced real estate investor who had organized and served as general partner for several Texas real estate partnerships.

Trendmaker, Inc. ("Trendmaker") was an entity involved in real estate development. Weyerhaeuser Real Estate Company ("WRECO") was the parent company of Trendmaker. In March 1985, Trendmaker and Commonwealth Realty Development, Inc. ("Commonwealth Realty") formed Midlands Associates ("Midlands"), a Texas joint venture. Commonwealth Realty is a wholly-owned subsidiary of Commonwealth Federal Savings Association ("Commonwealth Savings") which is in receivership with the Resolution Trust Corporation.

On March 25, 1985, Midlands purchased approximately 883 acres of property located in Galveston County, Texas. The property, known as the Bay Colony Property, was purchased for the purpose of developing a master planned community. The idea was that Commonwealth Savings would provide the financing and Trendmaker would contribute its real estate expertise toward development of the property. Midlands purchased the raw land for a total price of over $13 million, partially financed by the sellers. Midlands borrowed another $25.3 million from Commonwealth Savings which funded the construction obligations undertaken on the residential areas as well as the commercial reserves.¹ These loans were secured by the property and the guarantees of Trendmaker, Commonwealth Realty, and Midlands.

In the summer of 1985, Brackman was approached by two real estate brokers about investing in the Bay Colony master-planned community which was in the initial stages of development. Brackman met with Trendmaker officials several times during that summer concerning the project and his interest in purchasing the commercial reserves of the planned community.

According to Brackman, Trendmaker's representatives stated that they were a subsidiary of WRECO, a six-billion dollar corporation, and that Trendmaker was committed to the project and was going to fully develop the master-planned community. Brackman also stated that Trendmaker's representatives told him that Trendmaker would be there from start to finish, "cradle to grave," and that if there were any problems in development Trendmaker would be the builder if necessary, and finally that WRECO was committed to the deal. There are no written documents corroborating Brackman's testimony. Although Brackman dealt with representatives of Trendmaker, he understood that the transaction would be made through Midlands.

In October, 1985, Bay Colony (acting through Mr. Brackman, its general partner) and Midlands executed an earnest money contract for the purchase of thirteen tracts (consisting of 74 acres) of commercial reserves in the master-planned community. The earnest money contract gave Brackman a 90-day "Feasibility Study" time period in which Brackman could evaluate the deal, terminate the deal and demand the return of his earnest money. The earnest money contract also contained an entirety clause, which stated, "This Contract is the entire Contract between the Seller and Purchaser ... and no modification hereof or subsequent agreement ... shall be binding on either party unless reduced to writing and signed by both parties." On December 13, 1985, Bay Colony and Midlands closed the transaction. Bay Colony made a cash payment of over one million dollars and executed thirteen separate promissory notes and Deeds of Trust for the balance of the purchase price which was slightly over four million dollars.

As part of the transaction, Midlands agreed to perform various "construction obligations" on the thirteen tracts of land purchased by Bay Colony. Pursuant to these construction obligations, Midlands agreed to substantially complete certain streets, landscaping and irrigation, install pump lines for storm sewer and surface drainage, and remove any of the thirteen tracts which were in the flood plain from the flood plain. Three contracts contained these construction obligations: (1) the earnest money contract; (2) the escrow agreement; (3) the thirteen Deeds of Trust. Both the escrow agreement and the earnest money contract afforded Bay Colony limited options if Midlands failed to perform the construction obligations.

Brackman testified that he had no quarrel with the efforts Trendmaker was putting into the master-planned community during 1986. Trendmaker was performing the construction obligations on the commercial reserves, it was installing sewer and water lines, underground utilities, detention ditches, streets, and other grading and landscaping for the proposed residential tracts. By the end of 1987, Midlands had an outstanding debt of over $37 million with Commonwealth Savings.

However, during 1986, several disasters occurred. In January 1986, the space shuttle Challenger exploded (the Bay Colony project was located near NASA's Johnson Space Center). The price of oil fell by over 50%, and the Tax Reform Act of 1986 severely restricted the use of real estate tax shelters, thus drying up investment money. Moreover, with the crash of the real estate market, financial troubles developed on both sides. Bay Colony failed to make its first payment on the notes as scheduled, on December 13, 1986. On December 19, 1986, Bay Colony made a payment of $379,745.55, and the parties modified the due dates of the 1986 and 1987 payments and certain performance dates of Midlands. According to the amended agreement, the 1988 payments were to be made as provided in the original notes. Subsequently, Bay Colony failed to make its next set of payments due on June 13, 1987. Trendmaker/Midlands did not give notice of the default because they were behind schedule on their construction obligations, and they were waiting to see if Brackman's group would pay the arrears on the contract before completing additional work pursuant to the construction obligations.

With financial difficulties on both sides, the parties entered into further negotiations to modify the note and liens. On March 11, 1988, the parties executed the Second Modification of Real Estate Note and Liens, which was to be effective retroactive to June 13, 1987, the date the payment was first due. On this date, Bay Colony also paid $420,465.32 to Midlands for the June 13, 1987 and the December 13, 1987 payments on the Notes. The March 1988 payment was the last payment Bay Colony made on its contractual obligation.

Brackman testified that soon after making the payment on March 11, 1988 to Midlands, he heard a rumor that Trendmaker might be withdrawing from the Bay Colony development project. Brackman stated that he contacted Mr. William Dalton, Jr., Vice President of Trendmaker, and was told that Trendmaker had not withdrawn from the project, but if it did withdraw, Trendmaker would be replaced in the joint venture by a developer which was at least the equal of Trendmaker.

However, the relationship between the joint venturers of Midlands was deteriorating. Commonwealth Savings was in severe financial difficulty, and Trendmaker had become unhappy dealing with the "decision by committee" management style of its joint venturer Commonwealth Realty. Thus, on December 29, 1987, Trendmaker proposed that it and Commonwealth Realty split up the two joint ventures in which they were involved and go their separate ways. Commonwealth Realty failed to respond to this proposal until March 18, 1988, one week after Brackman had paid the June and December, 1987 contract installments. Discussions ensued between Trendmaker and Commonwealth Realty on dividing up their holdings. Brackman was not involved in, or informed of, these discussions. On May 18, 1988, Trendmaker transferred all of its interest in the Bay Colony master-planned community to Commonwealth Realty in exchange for Commonwealth Realty's interest in another project. Trendmaker remained on-site at the Bay Colony development as the contract manager until June, 1989.

Bay Colony failed to make its December 1988 payment. Although Brackman had not raised the entire amount due under the contract, he testified that he did not make the payment because he became aware between March and December 1988, that Commonwealth Realty and its parent Commonwealth Savings were in a precarious financial condition, and that Commonwealth Savings could not loan additional monies to the development. Midlands...