Gibraltar Sav. v. LDBrinkman Corp.
| Decision Date | 02 December 1988 |
| Docket Number | No. 87-5569,87-5569 |
| Citation | 860 F.2d 1275 |
| Parties | GIBRALTAR SAVINGS, Plaintiff-Appellee Cross-Appellant, v. LDBRINKMAN CORP., Defendant-Appellant Cross-Appellee, and Lloyd D. Brinkman, Defendant-Cross Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
A.B. Conant, Jr., Ivan Irwin, Jr., David M. Pruessner, Mark M. Petzinger, Mark R. Randall, Shank, Irwin, Conant, Lipshy and Casterline, Dallas, Tex., John N. McCamish, Jr., Jonathan D. Pauerstein, J. Patrick Deely, McCamish, Ingram, Martin and Brown, San Antonio, Tex., for defendant-appellant cross-appellee.
Bernard William Fischman, Houston, Tex., Franklin D. Houser, San Antonio, Tex., for plaintiff-appellee cross-appellant.
Appeals from the United States District Court for the Western District of Texas.
Before GEE, DAVIS, and SMITH, Circuit Judges.
This appeal challenges $6,000,000 plus interest and attorneys' fees awarded upon jury findings that officers of a holding company fraudulently induced a $5 million loan to a subsidiary and that they thereafter "looted" the named borrower's assets and thus tortiously interfered with its contractual obligations to the lender. The district court also granted judgment notwithstanding the verdict with regard to claims that the individual owner and the holding company were the "alter egos" of the borrower and its guarantors. We affirm in part, reverse in part, and remand for a redetermination of damages.
Gibraltar Savings' $5 million note was defaulted upon by the named borrower, a real estate development corporation, subsidiaries of which participated in multiple limited partnerships. The lender sued the borrower, its director-guarantors, and the borrower's corporate parent (also a guarantor) and its parent corporation (a holding company) and its individual owner. The borrower, its corporate parent, and other related enterprises are now insolvent. The individual director-guarantors have settled with Gibraltar. 1 This case was tried solely against the last links in the chain: entrepreneur Lloyd D. Brinkman and his principal holding company, LDBrinkman Corp. The entity to which Gibraltar made the loan was a real estate development subsidiary of a mobile home manufacturer wholly owned by LDBrinkman Corp., which also was the parent company of most of Brinkman's other ventures. 2
The jury awarded Gibraltar Savings $6 million against the defendants as the borrower's (and its parent-guarantor's) "alter ego," and for both fraud and tortious interference with the borrower's contractual relationships with regard to the loan Gibraltar negotiated for it through the holding However, the verdict on the fraud charge, attacked by LDBrinkman Corp. as clearly erroneous, unproven for failure to establish reliance, and based upon nonactionable opinion statements, was left standing; the district court entered, against the holding company, judgment thereon and upon a finding of tortious interference with contractual relations. The defendants' counterclaim for usury was rejected. The court awarded $332,500 attorneys' fees under a Texas statute allowing such fee-shifting in contractual recoveries; that award of attorneys' fees is also challenged by LDBrinkman Corp. on appeal. Gibraltar's cross-appeal against both LDBrinkman Corp. and Brinkman seeks to reinstate the jury's finding of "alter ego" liability.
company. The trial court granted, in part, the defendants' motion for judgment notwithstanding the verdict, finding the "alter ego" theory unsupported by the evidence; this ruling left no basis of liability against Brinkman personally, and he does not appeal.
Lloyd D. Brinkman now presides over very little of a once-solvent and far-extended Texas business empire that reached throughout the Middle South and Southwest and that once had annual revenues of over a quarter-billion dollars. In addition to a series of unrelated business and financial ventures, Brinkman moved a rather minor floor-covering company into industry prominence, extended it horizontally by the purchase of a manufactured-housing concern, and eventually established a development company to utilize his other businesses' supplies. This corporation, in turn, expanded into property management and limited partnerships for further real estate development. When the oil-backed economy of the Southwest went sour, the bottom fell out of Brinkman's realty ventures.
Ignoring the earliest beginnings of Brinkman's ever-increasing commercial endeavors, the history of the development subsidiaries begins with his buy-out of a modular construction company operated as a sole proprietorship. Ben D. Woody nurtured his mobile home and manufactured-housing business for several years with considerable success. Brinkman acquired all of Woody's stock in the company in 1978, retaining Woody as president and chairman. In order to identify the manufactured-housing business more closely with his other concerns and thus to strengthen the financial appearance of his fledgling empire, Brinkman renamed the company Brinkcraft, Inc. (BI), and placed it under his holding company, LDBrinkman Corp.
In 1982, BI for the first time ventured into real estate development through a series of limited partnerships. These ventures typically had BI and one Delbert G. McDougal as general partners with, respectively, 50 percent and 25 percent ownership, and Woody as limited partner with the remaining 25 percent ownership. These limited partnerships were managed by McDougal and operated by Brinkcraft Development Co. (BDC), which was wholly-owned by the BI subsidiary established to engage in various development ventures: Brinkcraft Development, Inc. (BDI), which was created to develop properties largely through placement of modular units purchased from BI. Brinkman's corporate structure for real estate projects thus was:
* * * * * * * * * *
LDBRINKMAN CORP.
(Kerrville-based holding company)
LDBRINKMAN BRINKCRAFT, INC. (BI) OTHER
CO. COMPANIES
(floor covering) (Wichita Falls manufactured housing
concern under Woody)
BRINKCRAFT DEVELOPMENT, INC. (BDI)
(Lubbock-based modular construction company under
McDougal)
BRINKCRAFT DEVELOPMENT CO. (BDC)
PROPERTY LIMITED PARTNERSHIPS OTHER
MANAGEMENT PROJECTS
(BI--50% owner/gen. p.;
McDougal--25%
owner/gen. p.; and
Woody--25% owner/
limited partner)
* * * * * * * * * * Gibraltar's $5 million loan to BDI (guaranteed by BI, Woody, and McDougal), which occasioned this suit, was intended to fund existing and planned joint ventures by BDC. Though the holding company had no direct relation with BDI or BDC, McDougal was required to obtain LDBrinkman Corp.'s approval (through the holding company's chief financial officer) before commencing any BDC development projects. In large part, Woody's control of BI was similarly circumscribed, though none of LDBrinkman Corp.'s officers occupied any positions at BI, BDI, or BDC.
Ray Hufhines was BI's comptroller and chief financial officer, but testified that he took his orders principally from the holding company's finance personnel. Herb Bradshaw, senior vice president of LDBrinkman Corp., was hired some months before the default on the Gibraltar loan and was one of the prime movers in divesting the holding company of the Brinkcraft subsidiaries (see infra note 47); Gibraltar, indeed, offered proof that he was brought into the company with the thought that he would sell off or otherwise pare back the holding company's marginal operating subsidiaries. Don Bullock was the holding company's treasurer, and Thomas Ratcliffe was its chief financial officer; together they ran most of Brinkman's business operations on a daily basis and were responsible for all but the most important fiscal decisions. Ratcliffe had obtained some $2.5 million for BDI from BancTexas, Dallas (BancTexas), which Brinkman served as a director. (BancTexas had extended to Brinkman sizeable personal and corporate loans and was threatening to call some of these loans during the period in question.)
Ratcliffe desired to have the BancTexas $2.5 million retired through the Gibraltar loan of $5 million; while this was disclosed to the lender, Gibraltar now alleges that other, equally-important, business rationales (of LDBrinkman Corp. and Brinkman, not of the development companies) were undisclosed. CFO Ratcliffe allegedly had enormous input into BDC investment choices and general decisionmaking, and--quite obviously--was involved in the daily operations of both BDI and BDC. (Ratcliffe terminated his employment with LDBrinkman Corp. when the Gibraltar loan went bad, but escaped with a lucrative "consulting" golden parachute.)
Thad Finley, LDBrinkman Corp.'s in-house counsel, sat on the boards of, or was an officer of, most of Brinkman's businesses. His connection with the instant loan will be explored below. Brinkman's long-time friend Ivan Irwin, Jr., acted as the holding company's outside general counsel and also, apparently, actively advised on business decisions. He sat on BI's board and served Brinkman as particular matters required. Homer Kirby, a lawyer and self-styled workout specialist, is associated with outside counsel Irwin's law partners and was the person to whom LDBrinkman Corp. transfered BI's stock; Gibraltar accuses him of plundering the subsidiary's remaining assets before he filed BI's bankruptcy.
Frederic Farlow was a long-time friend of, and financier for, Lloyd D. Brinkman; through Farlow, Brinkman, personally and for his various ventures, had obtained some $5-6,000,000 credit from Farlow's previous employers. Gibraltar Savings' chief loan executive, James Hollingsworth, hired Farlow as a Gibraltar loan production officer, and thereafter approved Farlow's (sometimes ambitious) loan recommendations, including the...
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