Federal Deposit Ins. Corp. v. Munn

• Decision Date: 25 November 1986
• Docket Number: No. 85-1178,85-1178
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. Hugh MUNN, Defendant. Hugh MUNN, Plaintiff-Appellee-Appellant, v. SOUTHWEST BANK OF SAN ANGELO, Defendant-Appellant, and E. Ray Jones and William Golden, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 860

804 F.2d 860

FEDERAL DEPOSIT INSURANCE CORPORATION, Plaintiff, v. Hugh MUNN, Defendant.

Hugh MUNN, Plaintiff-Appellee-Appellant, v. SOUTHWEST BANK OF SAN ANGELO, Defendant-Appellant, and E. Ray Jones and William Golden, Defendants-Appellees.

No. 85-1178.

United States Court of Appeals Fifth Circuit.

Nov. 25, 1986.

Opinion on rehearing Jan. 12, 1987.

Rod Phelan, Dallas, Tex., Shannon, Porter, Johnson, Sutton & Greendyke, Craig Porter, William Greendyke, San Angelo, Tex., Hughes & Luce, M. David Bryant, Jr., David C. Godbey, Dallas, Tex., for Southwest Bank.

James V. Hammett, Jr., Stubbeman, McRae, Laughlin & Browder, Inc., Deborah Essig Taylor, Houston, Tex., for Munn.

Larry Daves, Daves, McCabe & Hahn, Tyler, Tex., for Golden.

Ralph Dreyer, San Angelo, Tex., for Jones.

Mitzi Turner, El Paso, Tex. (other interested party), for FDIC.

Appeals from the United States District Court for the Western District of Texas.

Before GEE, GARZA, and HIGGINBOTHAM, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

We are asked to decide whether the guarantor of a loan to finance the purchase of stock in a corporation indebted to the lender is a "consumer" of bank services under the Texas Deceptive Trade Practices Act. We conclude that the district court erred in not submitting to the jury the question whether the alleged services purchased were objectives of the plaintiff's transaction. We also hold that the jury's answers to the special verdict were so contradictory that a new trial is required.

I

A

Trans-Intercontinental Drilling Corporation (TIDCO) was one of many companies involved in the West Texas oil boom at the beginning of this decade. During 1981 TIDCO's financial condition worsened, and two of TIDCO's principal shareholders, E. Ray Jones and Charles W. Harle, decided to restructure TIDCO's finances. Jones and Harle sought capital to buy out two of the company's shareholders, Poyner and Kelly, and to refinance TIDCO's debt, part of which was held by the defendant, Southwest Bank of San Angelo.

About that time, plaintiff Hugh Munn became interested in acquiring TIDCO stock. In early July 1981, Munn met with Jones, Harle, and their accountant, William Golden, to discuss the financial reorganization of TIDCO. At that meeting, Munn offered to buy Poyner's and Kelly's stock for $60,000.00.

Before Munn could buy the stock, however, Jones and Harle negotiated a "settlement agreement" with Poyner and Kelly, under which Jones and Harle would themselves purchase the stock. The agreement was contingent upon Southwest Bank's granting a new loan to TIDCO. The agreement also provided for Southwest Bank to hold the Poyner and Kelly stock, disburse loan funds in a certain manner, and secure the release of certain liens and liabilities. Because the $1.6 million loan exceeded After the settlement agreement was arranged, Golden organized a meeting at Southwest Bank on July 27, 1981, with Munn, Jones, Harle, and Southwest's president, David Drake. Golden informed Munn before the meeting that Jones and Harle had already acquired the stock. Although Munn testified that he thought this meant that he was no longer needed, Golden nonetheless convinced him to attend the meeting.

Southwest Bank's lending limits, the bank sought the participation of First National Bank of Midland. First National was reluctant to participate unless additional, financially sound parties were involved.

At the meeting, Munn signed a guaranty for all of TIDCO's indebtedness to Southwest Bank. The parties disputed at trial the other events of the meeting. Munn admitted that he did not read the guaranty document, but testified that he thought he was co-signing a $1.4 million "note" rather than a guaranty. Munn believed that by signing the document he would be able to control fifty percent of the TIDCO stock. Munn also said that, when he questioned the ability of Jones and Harle to handle the pending loan, Drake expressed confidence in Jones and Harle, Drake told him that the bank would supervise TIDCO's credit, and Drake assured him that his credit would not be "abused."

Southwest Bank contends that Drake understood the meeting as simply a closing for a deal that the other parties had already arranged. Moreover, Drake testified that he did not recall promising to do anything for Munn.

In any event, the loan was made and the company was reorganized. But within eight months of the meeting, TIDCO collapsed in involuntary bankruptcy, and this dispute ensued.

B

Southwest Bank sued Munn to recover on the guaranty the approximately $2.8 million TIDCO owed the bank, and Munn sued seeking rescission of the guaranty agreement, both in state court. First National Bank of Midland intervened in Southwest Bank's suit against Munn to protect its participation interest in the loans to TIDCO. Later, First National Bank of Midland became insolvent and the Federal Deposit Insurance Corporation, as receiver, replaced it in the suit. The FDIC also intervened in Munn's suit against Southwest Bank and removed both cases to the United States District Court for the Northern District of Texas, basing federal jurisdiction on 12 U.S.C. Sec. 1819. Both cases were transferred to the Western District of Texas and consolidated for trial. The trial judge realigned the parties, designating Munn as the plaintiff and Southwest Bank, the FDIC, Jones, and Golden as defendants. Munn had also sued Harle, but the action was dismissed because Harle had already been adjudicated a bankrupt.

Munn sued the various defendants on a number of grounds: common law fraud; conspiracy; breach of fiduciary duties; securities law violations; failure of the creditor to disclose information to a surety; and deceptive trade practices under the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA), Tex.Bus. & Comm.Code Ann. Secs. 17.41-17.63 (Vernon Supp.1986).

After the issues were narrowed and a trial was held, Southwest Bank requested a jury instruction that, for Munn to be a consumer under the DTPA, the jury must find "the existence of an agreement ... that Southwest Bank would render services to Hugh Munn individually and in addition to the actual extension of credit to TIDCO and/or Hugh Munn." The judge denied the request, effectively ruling as a matter of law that Munn was a DTPA consumer.

The jury returned with special verdicts absolving Southwest Bank of fraud and conspiracy, but finding that Southwest Bank violated the DTPA by (1) knowingly employing false, misleading, or deceptive acts in dealing with Munn, and (2) un- knowingly acting "unconscionably" toward Munn. The jury specified $700,000.00 in damages for the knowing violation of the Southwest Bank appeals the judgment against it, while Munn appeals the court's failure to award damages against Golden and Jones.

DTPA and nothing for the unknowing unconscionability. The jury also found Golden and Jones guilty of fraud and conspiracy for inducing Munn to sign the guaranty, and awarded $1,580,000.00 in damages against the two. In addition, the jury concluded that Munn had suffered $265,000.00 in damages as a result of Jones' material misrepresentation in offering TIDCO stock for sale. Finally, the jury awarded $388,300.00 in punitive damages against unspecified defendants. The district judge, however, noting that no evidence of damages had been presented at trial, confined the remedy to rescission of the guaranty and awarded attorneys' fees against Southwest Bank.

II

Southwest Bank argues that Munn cannot recover under the DTPA because he is not a "consumer," which is a statutory prerequisite to his stating a DTPA claim. See Riverside National Bank v. Lewis, 603 S.W.2d 169, 173 (Tex.1980). Southwest Bank also argues that a dispute over a fact material to DTPA consumer status--whether an agreement existed for services collateral to the extension of credit--should have been submitted to the jury instead of being decided by the judge.

Ordinarily, the plaintiff's status as a consumer is a question of law for the trial court to determine from the evidence. Ridco, Inc. v. Sexton, 623 S.W.2d 792, 795 (Tex.Civ.App.--Fort Worth 1981, no writ). However, "if some of the basic ingredients of the question of consumer [status] are in dispute, those questions should be submitted to the jury." Id. Thus, if the existence of an agreement for services collateral to a credit extension is a "basic ingredient" of DTPA consumer status, the question should have been submitted to the jury.

The DTPA defines "consumer" as one "who seeks or acquires by purchase or lease, any goods or services." Tex.Bus. & Comm.Code Ann. Sec. 17.45(4). In addition, a person is a "consumer" only if the purchased goods or services form the basis of his complaint. See Cameron v. Terrell & Garrett, Inc., 618 S.W.2d 535, 539 (Tex.1981).

"Goods" has a fairly certain meaning under Texas law. The DTPA defines "goods" as "tangible chattels or real property purchased or leased for use." Tex.Bus. & Comm.Code Ann. Sec. 17.45(1). "Goods" does not include intangible chattels such as stocks, see Portland Savings & Loan Association v. Bevill, Bresler & Schulman Government Securities, Inc., 619 S.W.2d 241, 245 (Tex.Civ.App.--Corpus Christi 1981, no writ), money, see Riverside, 603 S.W.2d at 174, or loans, id. Since the TIDCO stock and the bank loan are not goods, Munn must establish that he purchased "services" to qualify as a consumer.

"Services" has a less certain meaning under Texas law. The DTPA defines "services" as "work, labor or service purchased or leased for use, including services furnished in connection with the sale or repair of goods." Tex.Bus & Comm.Code Ann. Sec. 17.45(2). "Services" does not include intangible chattels such as stocks, Portland Savings, 619 S.W.2d at 245, or loans, Riverside, 603 S.W.2d at 174-75. The plain language of the statute indicates that labor, work or service that is the sole purpose of a contract is a "service" within the...