F.D.I.C. v. UMIC, Inc., s. 96-6089

• Decision Date: 18 February 1998
• Docket Number: 96-6123,Nos. 96-6089,s. 96-6089
• Citation: 136 F.3d 1375
• Parties: Comm. Fut. L. Rep. P 27,232, 98 CJ C.A.R. 930 FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff--Appellee and Cross--Appellant, v. UMIC, INC, a Tennessee corporation; Charles Alex Denney, Defendants--Appellants and Cross--Appellees, and Arthur A. Wallace; Bryan F. Green, Defendants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1375

136 F.3d 1375

Comm. Fut. L. Rep. P 27,232, 98 CJ C.A.R. 930

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff--Appellee and Cross--Appellant, v. UMIC, INC, a Tennessee corporation; Charles Alex Denney Defendants--Appellants and Cross--Appellees and Arthur A. Wallace; Bryan F. Green, Defendants.

Nos. 96-6089, 96-6123.

United States Court of Appeals Tenth Circuit.

Feb. 18, 1998.

Robert A. McLean, Wolff Ardis, P.C., Memphis, TN (George Dahnke, Abowitz & Rhodes, Oklahoma City, OK, and James W. McDonnell, Jr., Wyatt, Tarrant & Combs, Memphis, TN, with him on the briefs), for Defendants-Appellants-Cross-Appellees.

Jaclyn C. Taner, Counsel (Ann S. DuRoss, Assistant General Counsel, Colleen B. Bombardier, Senior Counsel, and Lawrence E. Richmond, Counsel, with her on the briefs), Federal Deposit Insurance Corporation, Washington, DC, for Plaintiff-Appellee-Cross-Appellant.

Before PORFILIO, ANDERSON, and TACHA, Circuit Judges.

TACHA, Circuit Judge.

The Federal Deposit Insurance Corporation (FDIC) brought this case to recover losses sustained by Universal Savings Association, F.A. (Universal), in trading financial futures and options between 1984 and 1986. The FDIC, as successor to the Federal Savings and Loan Insurance Corporation (FSLIC), Universal's receiver, filed suit against a number of parties, including the brokers who executed trades on Universal's behalf. One of the broker defendants settled but the FDIC's case against the remaining defendants went to trial on theories of violations of the Commodities Exchange Act (CEA), common law fraud, and breach of fiduciary duty. The jury returned verdicts against the introducing broker, UMIC, and its sales representative, Alex Charles Denney, for breach of fiduciary duty, and against Denney for violating the CEA. The jury found in favor of the defendants on all other counts. Denney and UMIC now appeal the verdicts against them. The FDIC cross-appeals to recover prejudgment interest. We affirm in part and reverse in part.

I. BACKGROUND

Universal was a savings and loan located in Chickasha, Oklahoma. In early 1987, the Federal Home Loan Bank Board closed Universal and appointed the FSLIC as receiver. Subsequently, the FSLIC, which had acquired rights to all known and unknown claims against Universal's officers and directors and against persons who performed services on Universal's behalf, transferred those rights to the FDIC in its corporate capacity as manager of the FSLIC Resolution Fund. See 12 U.S.C. § 1821a(a) (requiring this transfer).

The conduct that is the basis for this action occurred several years earlier, beginning in March, 1984. At that time, Universal held a large quantity of Treasury bonds that were declining in value as a result of rising interest rates. Alex Charles Denney, an employee of UMIC, a full-service brokerage firm located in Memphis, Tennessee, made a presentation to Universal's board of directors on the use of futures and options to hedge against the risk of further interest rate increases.

Employing a hedging strategy is not unlike buying an insurance policy. For example, by purchasing long-term put options on Treasury bonds, an investor can hedge against potential losses in his bond portfolio. As interest rates rise, the value of the investor's bonds fall. A put option permits the investor to sell a commodity, in this case a bond, at a fixed price within a stated period. The investor pays a small fee to the person who agrees to accept the bond if it is offered at the fixed price. If interest rates rise, the market price of the bond falls, and the investor exercises his option, delivering the bond (i.e., the put) at a profit. This profit offsets at least some of the losses that the investor incurs in his bond portfolio because of the interest rate increase. On the other hand, if interest rates fall, the price of the bond rises, and the investor does not exercise the option; the investor has paid a relatively small price for security against an interest rate increase.

After Denney's presentation, the Universal board voted to institute the hedging program and opened a commodities account with Geldermann, the firm that executed the trade orders, and with UMIC, the "introducing broker." Universal signed a customer agreement specifying that the account was to be used only for hedging. UMIC policy also restricted the accounts of financial institutions to hedging. Furthermore, Denney and UMIC were aware that Universal was subject to federal regulations limiting speculative trading by insured institutions. Universal's board authorized Bryan Green to manage the hedging program. Green reported directly to Universal's president Arthur Wallace, among others. He worked closely with Denney and UMIC, relying on them for trading advice. Green eventually moved to Memphis, the location of UMIC's offices, in order to work even more closely with Denney and UMIC.

While Universal's account was open, however, trading in it was not limited to hedging. In an attempt to improve its cash position, Universal, at Green's direction, began to use its futures and options program to speculate. Rather than buying contracts to counterbalance its bond holdings, Universal bought contracts that increased its exposure to interest rate fluctuations. Speculative trading increased steadily during the two years the account was open. In the end, only one-fifth of the 73,000 commodities contracts traded in Universal's account were hedge trades. The speculative trading in Universal's account resulted in losses of $6.2 million, over $3.4 million of which constituted commissions to Denney, UMIC, and Geldermann.

The FDIC instituted this action to recover those losses from Denney, UMIC, Geldermann Wallace, Green, and Gregg Crosby, a former officer of a Universal subsidiary. Prior to trial, the FDIC dismissed all claims against Crosby and its breach of fiduciary duty claims against Geldermann. On the first day of trial, Geldermann settled for $600,000 on the FDIC's remaining claim against it. At the conclusion of the trial, the jury awarded the FDIC damages of $288,000 against Denney for violating the CEA, $288,000 against Denney for breach of fiduciary duty, and $624,000 against UMIC for breach of fiduciary duty. In a post-trial motion, UMIC and Denney sought to reduce the judgment against them by the amount already paid to the FDIC in related settlements: $600,000 from the Geldermann settlement and $725,000 from a settlement in a prior FDIC action against Universal's board of directors for their conduct in managing Universal. The district court denied that motion. The FDIC then moved for prejudgment interest on the damages award under 12 U.S.C. § 1821(l), but the district court denied that motion also.

II. DISCUSSION

Denney and UMIC appeal the judgments against them. They raise five issues on appeal, arguing that: (1) they are entitled to credits for the two previous settlements; (2) the FDIC's claims were barred by the statute of limitations; (3) the district court should have considered the defenses of ratification, waiver, and estoppel; (4) no fiduciary duty was ever established between Universal and its brokers; and (5) the FDIC's CEA claims against UMIC and Denney fail as a matter of law. The FDIC cross-appeals to recover prejudgment interest.

A. Credit for Prior Settlements

The defendants assert that the Geldermann settlement with the FDIC and the Universal directors' settlement with the FDIC must be applied as credits against the jury awards against Denney and UMIC. The defendants base their argument on the "one-satisfaction rule." See U.S. Industries, Inc. v. Touche Ross & Co., 854 F.2d 1223, 1236 (10th Cir.1988). Because a party is entitled to only one satisfaction, "[w]hen a plaintiff receives an amount from a settling defendant, ... it is normally applied as a credit against the amount recovered by the plaintiff from a non-settling defendant, provided both the settlement and the judgment represent common damages." Id. The one-satisfaction rule "applies only where the defendants' conduct resulted in a single injury." Touche Ross, 854 F.2d at 1236.

The jury's award and the two earlier settlements do not represent common damages for a single injury. Rather, we conclude that the jury awarded damages against Denney and UMIC only for the injuries that they caused. In making this determination, we examine the instructions that the district court gave the jury. Instruction number 40 is particularly relevant. That instruction read:

Consider Each Defendant Separately

As the plaintiff sues several defendants in this case and claims that each is liable to it in damages, the jury is instructed that it must consider separately the liability of each defendant to the plaintiff under the evidence and the Court's instructions as to the law of the case. The fact that one defendant may be found liable to the plaintiff should not control your verdict with respect to the other defendant unless the jury finds, under the evidence and these instructions, that the plaintiff has also proven its case against the other defendant.

Appellant's App. at 295. Universal allegedly sustained losses of $6.2 million from its venture into the futures and options market. More than half of those losses were paid in commissions to Geldermann, UMIC, and Denney. The remainder of the losses represent a decrease in the value of Universal's futures and options account with UMIC. Presented with this information, including the specific amount of commissions each defendant received, the jury returned its verdict after "consider[ing] separately the liability of each defendant." Id.

The verdict forms that the jury returned demonstrate that it understood its task. See Appellant's App. at 393-403. On the last page of "Verdict Form III: Commodity Exchange Act Claims," in the space for fixing the dollar amount of compensatory damages, the jury wrote, "$288,000.00 against Charles Denney." On...