Chedick v. Nash

• Decision Date: 22 September 1998
• Docket Number: Nos. 97-7096 and 97-7151,s. 97-7096 and 97-7151
• Citation: 151 F.3d 1077
• Parties: Marcia CHEDICK, Appellee/Cross-Appellant, v. Thomas NASH and Capital City Mortgage Corporation, Appellants/Cross-Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1077

151 F.3d 1077

331 U.S.App.D.C. 403

Marcia CHEDICK, Appellee/Cross-Appellant, v. Thomas NASH and Capital City Mortgage Corporation,

Appellants/Cross-Appellees.

Nos. 97-7096 and 97-7151.

United States Court of Appeals, District of Columbia Circuit.

Argued April 16, 1998.

Decided Aug. 7, 1998.

Rehearing Denied Sept. 22, 1998.

Appeals from the United States District Court for the District of Columbia (No. 96cv00251).

Eric J. Sanne argued the cause and filed the briefs for appellants/cross-appellees.

Marcia K. Docter argued the cause and filed the brief for appellee/cross-appellant.

Before EDWARDS, Chief Judge, HENDERSON, Circuit Judge, and BUCKLEY, Senior Circuit Judge.

BUCKLEY, Senior Judge:

Capital City Mortgage Corporation and its president and sole shareholder, Thomas K. Nash (collectively "Capital City"), appeal a jury's verdict that they defrauded Marcia Chedick. Ms. Chedick, in turn, contests the district court's decision to bar some of her testimony supporting punitive damages. Both parties contend that the district court committed error in computing compensatory damages for fraudulent misrepresentation. We affirm the judgment but vacate the compensatory damage award and remand for reconsideration of those damages.

I. BACKGROUND

A. Facts

On May 24, 1994, Ms. Chedick sought a loan from Capital City in order to refinance the mortgage on property she owned at 1013 U Street, N.W., Washington, DC. Ms. Chedick had bought the property in exchange for cash and the assumption of a note. At the time she approached Capital City, Ms. Chedick was in arrears on the note, and a foreclosure sale had been scheduled for May 26.

Both parties agree that Ms. Chedick reviewed Capital City's loan documents only cursorily before initialing them and taking them home. Two days later, she received $42,000 from Capital City that she used to retire the note and to pay back taxes on the property. Prior to settlement, Ms. Chedick neither read the loan documents nor asked any questions about them.

Capital City specializes in lending money to high risk borrowers, on concomitantly onerous terms. In Ms. Chedick's case, the interest rate on the five-year mortgage was 20 percent per annum for the first four years and 30 percent for the final year. If a payment was more than 45 days late, the mortgage was considered in default and the interest rate immediately rose to 30 percent, where it stayed for the remainder of the life of the loan. The note also specified various fees, including a 15 percent "late charge" on payments more than ten days in arrears, a five percent reinstatement fee, and a one percent per month penalty if the property was uninsured by the owner--regardless of whether it had been insured by Capital City.

In August 1994, a disagreement arose over the amount that Ms. Chedick owed on the mortgage, a dispute which remained unresolved a year later. Capital City concedes that the amount it then claimed to be due included improper charges. Ms. Chedick made no payments in the interim, although she states that she proffered two monthly payments that Capital City declined to accept on the ground that they were insufficient. In 1995, Ms. Chedick found a buyer for the property and sought to pay off the entire balance of her outstanding debt to Capital City from the anticipated proceeds of the sale. Capital City allegedly demanded payment of $98,000 to retire the loan, which Ms. Chedick claimed was exorbitant and refused to pay. As a result, the sale fell through. Ms. Chedick retains title to the property, subject to Capital City's lien.

B. Procedural Background

Ms. Chedick filed for personal bankruptcy in 1994. During the course of the Chapter 13 proceeding, she filed a claim against Capital City alleging breach of contract and fraud. Ms. Chedick demanded a jury trial, and Capital City objected. The case thereupon was transferred to the district court. See 28 U.S.C. § 157(e) (requiring parties' consent for bankruptcy court to conduct jury trial).

After proceedings before a magistrate judge, who memorialized his decisions in a pretrial order, see Fed.R.Civ.P. 16(e), the case went to trial on Ms. Chedick's claims of fraud, misrepresentation, and breach of contract. Upon finding that Capital City had breached its contract with Ms. Chedick and had defrauded her, the jury awarded her $35,000 for breach of contract, $123,097.85 for fraud, and $100,000 in punitive damages. The $35,000 award compensated Ms. Chedick for her lost profit on the sale of the property and for various charges that she had incurred in the interim. The amount of the compensatory award for fraud was exactly the same as the amount Capital City claimed to be due on May 15, 1996. The court entered judgment against Capital City for $258,097.85.

Capital City filed a motion for "partial new trial and/or for remittitur." In its motion, Capital City claimed that, for various reasons, the jury's award of compensatory damages for fraud was improper. The district court held, however, that Ms. Chedick had presented sufficient evidence to sustain the jury's finding of fraud and that the damages it awarded her were supported by the record. The court also offset the damage award by $42,000, the principal amount of the loan.

Capital City timely appeals the district court's instructions concerning the elements of fraud, and the sufficiency of the evidence supporting a finding of fraud. Ms. Chedick cross-appeals the district court's exclusion of evidence concerning attorneys' fees and emotional damages. She also contests the district court's $42,000 offset.

The district court had subject matter jurisdiction over this case under 28 U.S.C. §§ 157(a), (e) & 1334, and we exercise appellate jurisdiction pursuant to 28 U.S.C. § 1331. The parties are not diverse, and all relevant events occurred in the District of Columbia. D.C. law therefore governs. See District of Columbia v. Coleman, 667 A.2d 811, 816-18 (D.C.1995).

II. ANALYSIS

A. Capital City Appeal

We address two of Capital City's arguments on appeal: (1) that the district court erred in instructing the jury that the breach of an implicit contractual representation may be tortious and (2) that Ms. Chedick failed to offer any evidence supporting detrimental reliance on Capital City's misrepresentation. Because we uphold the jury's verdict of fraud, we need not address Capital City's claim that punitive damages may not be awarded on the basis of a breach of contract alone.

1. Promissory Misrepresentation

Fraudulent misrepresentation requires proof of "(1) a false representation (2) made in reference to a material fact, (3) with knowledge of its falsity, (4) with the intent to deceive, and (5) an action that is taken in reliance upon the representation." Hercules & Co., Ltd. v. Shama Restaurant Corp., 613 A.2d 916, 923 (D.C.1992). To prevail, the plaintiff must also have suffered some injury as a consequence of his reliance on the misrepresentation. See Dresser v. Sunderland Apartments Tenants Ass'n, Inc., 465 A.2d 835, 839 (D.C.1983).

Although an erroneous forecast of an event's future occurrence is not actionable in tort, where a promisor misrepresents his present intent to perform an act in the future, the promisee may state a claim for tortious misrepresentation. In Bennett v. Kiggins, 377 A.2d 57 (D.C.1977), the D.C. Court of Appeals explained the distinction:

When a person positively states that something is to be done or is to occur, when he knows the contrary to be true, the statement will support an action in fraud. On the other hand, a prophecy or prediction of something which it is merely hoped or expected will occur in the future is not actionable upon its nonoccurrence.

Id. at 61. Because the alleged tortfeasor must have misrepresented either his current intent to perform or his existing knowledge concerning the likelihood that an event would occur in the future, the tort of promissory misrepresentation is consistent with the general rule that an erroneous representation of future events is not tortious. See 37 Am.Jur.2d, Fraud and Deceit, § 68 (1968) ("The gist of the fraud in such cases is not the breach of the agreement to perform, but the fraudulent intent of the promisor, the false representation of an existing intention to perform where such intent is in fact nonexistent, and the deception of the obligee by such false promise."); Restatement (Second) of Torts § 525 (1976) ("One who fraudulently makes a misrepresentation of fact, opinion, intention or law for the purpose of inducing another to act or to refrain from action in reliance upon it, is subject to liability to the other in deceit for pecuniary loss caused to him by his justifiable reliance upon the misrepresentation."); see also Fraud, 37 C.J.S. § 15, at 195 (1997).

Ms. Chedick argued at the trial and repeats on appeal that, consistent with its practice, Capital City intended to prevent her from repaying her mortgage so that it could foreclose on her property and that she would not have signed the note had she known that Capital City would seek to frustrate her performance. Chedick Complaint at p 46. In support of her claim, Ms. Chedick relied upon evidence that Capital City repeatedly miscalculated her monthly obligation, that it forced her into default by capitalizing costs that should have been assessed as separate fees, that its conduct was consistent with how it had treated other customers (after which it had foreclosed on them), and that it significantly overestimated the amount required to pay off the mortgage (thereby scuttling a sale that would have precluded it from obtaining the property through foreclosure).

At the close of the trial, the court instructed the jury that [t]he general rule is that an action for fraud can exist only if there was a misrepresentation of a past or existing fact, not a promise to do something in the future. But a promise made with an existing intention not to perform, that...