Castillo v. First City Bancorporation of Texas, Inc.

• Decision Date: 16 September 1994
• Docket Number: No. 93-2447,93-2447
• Citation: 43 F.3d 953
• Parties: Silvia Moroder Leon y CASTILLO; Inigo Coca Moroder; Francisco de Borja Coca Moroder; Alvaro Coca Moroder; Victor Coca Moroder; Otilia Coca Moroder ("Coca Family"); Cia. de Inversionses de Castilla y Leon, S.A. (COINSA); and Agricola Industrial Ganadera, S.A. (AIGSA), Plaintiffs-Appellants, v. FIRST CITY BANCORPORATION OF TEXAS, INC., et al., Defendants, Keck, Mahin & Cate; and Henry S. Landan, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 953

43 F.3d 953

Silvia Moroder Leon y CASTILLO; Inigo Coca Moroder;

Francisco de Borja Coca Moroder; Alvaro Coca Moroder;

Victor Coca Moroder; Otilia Coca Moroder ("Coca Family");

Cia. de Inversionses de Castilla y Leon, S.A. (COINSA); and Agricola Industrial Ganadera, S.A. (AIGSA), Plaintiffs-Appellants, v. FIRST CITY BANCORPORATION OF TEXAS, INC., et al., Defendants, Keck, Mahin & Cate; and Henry S. Landan, Defendants-Appellees.

No. 93-2447.

United States Court of Appeals, Fifth Circuit.

Sept. 16, 1994.

Sidney Powell, Dallas, TX, Graham Kerin Blair, Norton & Blair, Houston, TX, for appellants.

William Key Wilde, Tracie J. Renfroe, Bracewell & Patterson, Houston, TX, for appellees.

Appeal from the United States District Court for the Southern District of Texas.

Before WISDOM and JONES, Circuit Judges, and FITZWATER ^*, District Judge.

EDITH H. JONES, Circuit Judge:

Spanish citizens and their closely held companies appeal a summary judgment on claims asserted against an American lawyer and his law firm. Appellants allege that the lawyer breached various duties in the course of representing the lender and the "administrator" of the appellants' foreign properties pledged as security for a $120 million loan. We affirm in part, reverse in part, and remand.

I. FACTS

Background

According to the summary judgment evidence, the appellants are members of the Coca family and their closely held companies. In July 1989, the Coca family ¹ owned and managed prime real estate and resort properties throughout Spain. Two of the family's companies, the Los Monteros Group and INCOSOL, owed $120 million that had to be refinanced or paid off by 12:01 a.m. July 13, 1989. Otherwise, a guarantor would exercise its option to purchase the real estate assets of the Los Monteros Group for approximately $123 million. The value of these properties was between $180 million and $247 million. Efforts to sell property to avoid heavy losses were unsuccessful.

Around April 1989, the Cocas came into contact with First City Bancorporation of Texas, Inc. and its vice chairman, Frank Cihak. Cihak and others had purchased First City in 1988 with the assistance of the FDIC and were aggressively pursuing new loans and other revenues to finance the acquisition. ² Discussions among First City, its lawyer, and the Coca family led to a June 15, 1989 letter of intent from First City to the Cocas arranging $120 million in refinancing.

The arrangement was unusual in two respects. ³ First, First City did not lend the money directly, but issued an irrevocable letter of credit in favor of the Cocas to a Spanish bank which lent the money. In exchange for the letter of credit facility, the Cocas pledged numerous real estate assets owned by them and their corporations to The central character in this lawsuit is Henry S. Landan, a partner with the law firm of Keck, Mahin & Cate (KMC) in Chicago, whom Cihak had hired as its U.S. legal counsel around May, 1989 to help structure the credit transaction. First City also hired Spanish counsel, but Landan was the key figure in the transaction until the last quarter of 1990. As negotiations with the Cocas progressed, Landan was also retained to advise Pelican in all aspects of the credit transaction. According to Landan, he was hired to represent Pelican at the joint request of Cihak, First City's general counsel, and Kevin Hart. The Cocas were represented in the transaction by English legal counsel.

First City. The second unusual aspect was that First City required the Cocas to turn over administrative control of their mortgaged assets to a "fiduciary" which would also oversee the sale and management of the mortgaged properties. Although First City's final commitment letter to the Cocas ostensibly required the Coca family "to designate a Fiduciary," in reality the Cocas could only choose a fiduciary "selected" by First City. The entity selected by First City for this task was the Pelican Group, Inc., a privately held corporation 100% owned by E. Kevin Hart, its president. First City had hired Pelican in September, 1988, to render real estate consulting services as directed by the bank.

The scope of Landan's and Pelican's activities and representations are crucial to this appeal. More details will be discussed below, but the summary judgment evidence suggests that after the deal closed Landan largely assumed the task of overseeing the administration of the properties and managing and brokering their sale. At some point Landan acquired the title of "assistant secretary" of Pelican and acted as Pelican's attorney-in-fact. The evidence suggests that Landan was intimately involved with all aspects of Pelican's activities with the Coca properties, including soliciting potential buyers for the properties, contracting with outside parties to manage the properties, negotiating and closing sales of mortgaged and nonmortgaged properties, and basically assuming the "sole administrator" role assigned to Pelican.

Landan and Hart do not dispute, on appeal, that Pelican and Landan managed the properties poorly. The Cocas' relationship with First City, Pelican, and Landan allegedly resulted in the imposition of huge liabilities on the family's companies, severe disruptions in their cash flow, large trade debt, strained relationships with their trade unions, overdue tax liabilities, and a greatly diminished valuation of their assets. These circumstances and the failure to sell the bulk of the marketed assets allegedly led the Coca family to default on its loan to the Spanish bank in July, 1990, prompting that bank to call on First City's letter of credit.

As examples of Landan's alleged gross mismanagement, the Cocas highlight three transactions in which Landan was allegedly intimately involved.

The El Palmeral Deal: Before the default, Pelican, through Landan, actively began to market Coca properties to meet interest payments. One of the first deals consummated was the January 1990 sale of property known as El Palmeral for $9 million, allegedly to a major shareholder of First City. Appellees claim that this property was worth $22 million. They further assert that $1 million of the purchase price was diverted to First City via a "secret commission." It is alleged that Landan controlled this transaction; he signed the contractual documents on behalf of the Cocas' companies, First City, ⁴ and Pelican.

The J.T. Lundy Transaction: In February 1990, Landan arranged a sale of $5.2 million of Coca stock and artwork that were not part of First City's loan collateral. The borrower, J.T. Lundy, was allegedly a cohort of First City and Cihak. First City lent the entire $5.2 million of the sale price to Lundy, bypassing Lundy by transferring the money within First City to service the Cocas' debt. The record suggests that Landan was the key figure involved in structuring and closing the transaction.

Whitehall/Western Hemisphere Holdings (WHH): In the summer of 1990, Landan In August, 1990, Landan turned the Coca companies over to Carlos Fonts, who was also allegedly connected with Cihak as well as with Sidi. Kevin Hart, Pelican's president, stated in an affidavit that he expressly objected to Landan's transferring control of the companies to Fonts.

                contracted managerial control of most of the mortgaged assets to a Mr. Freddi Sidi of Western Hemisphere Holdings, another alleged cohort of Cihak.  Landan did this after setting up a deal whereby Sidi could buy the corporations and property for $150 million, again financed by First City.  The Cocas allegedly resisted the transaction, and it appears that officials within First City were also distrustful of Sidi, describing him as "a flake" and his company as a "joke."   Eventually, Landan terminated Sidi's management contract and halted the sale negotiations
                

The Proceedings Below

About sixteen months after the July 1990 default, First City began foreclosure proceedings on the mortgaged properties in the Spanish courts. In April 1992, the Coca plaintiffs filed suit in Texas against First City, Pelican, Landan and his law firm, as well as numerous individuals. The Cocas eventually settled in July, 1992 with all defendants except for Landan and his law firm, KMC. ⁵ The Cocas' amended complaint against Landan and KMC alleged breach of fiduciary duty, breach of contract, fraud and civil conspiracy, duress, negligence, and disregard of Pelican's corporate status.

The magistrate judge denied appellees' motion for summary judgment, ruling that there were genuine issues of material fact concerning whether Landan acted outside of the traditional role of attorney for Pelican and First City; whether Pelican owed the Cocas a fiduciary duty; whether Landan, acting as an officer or attorney-in-fact of Pelican, breached fiduciary duties; whether Landan negligently managed the Coca family properties when he acted as Pelican's officer; whether he breached contractual duties in carrying out his various duties; and finally, whether Landan had made material misrepresentations to the Cocas, including (a) the merits of the proposed financing with First City; (b) the nature of Pelican's role under the agreement; and (c) Landan's personal role as it related to Pelican.

On review, the district judge refused to adopt the recommendations of the magistrate judge. First, he found that there was no genuine issue as to Landan's loyalty because he always represented himself to be an attorney for First City and Pelican. Second, the judge held that under Texas law the Cocas were at best merely third party beneficiaries to First City's and Pelican's contracts with Landan, and therefore, Landan owed the Cocas no special duties for which he could be liable in this case. The judge also ruled that the Cocas had not pled fraud with sufficient particularity to survive dismissal under Fed.R.Civ.P. 9(b), that the Cocas' duress claims were barred by the statute of limitations, and that the Cocas' negligence and breach...