Grenada Ready-Mix Concrete, Inc. v. Watkins

• Decision Date: 19 July 1978
• Docket Number: No. WC 76-128-K.,WC 76-128-K.
• Citation: 453 F. Supp. 1298
• Parties: GRENADA READY-MIX CONCRETE, INC, Plaintiff, v. Charlie WATKINS et al., Defendants.
• Court: U.S. District Court — Northern District of Mississippi

453 F. Supp. 1298

GRENADA READY-MIX CONCRETE, INC, Plaintiff, v. Charlie WATKINS et al., Defendants.

No. WC 76-128-K.

United States District Court, N. D. Mississippi, W. D.

July 19, 1978.

Grady F. Tollison, Jr., Oxford, Miss., for plaintiff.

Will A. Hickman and S. T. Rayburn, Oxford, Miss., for Travis.

Richard M. Edmonson, Jackson Miss., for Hart-Freeland-Roberts.

Scott Welch, III, Jackson, Miss., for Guaranty.

Marshall W. Criss, Memphis, Tenn., for Watkins.

MEMORANDUM OPINION

KEADY, Chief Judge.

In this Mississippi-based diversity action filed December 23, 1976, Grenada Ready-Mix, Inc. (Grenada), plaintiff, brought suit against Guaranty Mortgage Company of Nashville (Guaranty), Randall Travis, individually and as trustee (Travis), Hart-Freeland-Roberts, Inc. (architect-engineers), Charlie Watkins (Watkins), and Sevenprop Associates (Sevenprop). The complaint contained three counts. Count I charged that defendants, jointly and severally, were guilty of tortious conduct which resulted in a void foreclosure of a deed of trust upon Grenada's real property in the vicinity of the City of Grenada, Mississippi, asserting that the foreclosure sale should be set aside; Count II alleged that Guaranty, Travis and Watkins were, jointly and severally, guilty of fraud and gross negligence toward Grenada, for which it sought to recover substantial compensatory and punitive damages; and Count III averred that Watkins, Travis, the architect-engineers, and Guaranty, jointly and severally, were liable for tortious conduct for which substantial actual and punitive damages were claimed. Thus, the total relief sought against all parties defendant involved not only invalidation of the foreclosure sale on Grenada's real property but an award of $1,250,000 as actual damages and $1,000,000 as punitive damages, with reasonable attorney fees and costs.

On February 21, 1978, Watkins, on motion of Grenada, was dismissed as a party defendant without prejudice.¹ Separate answers denying liability on behalf of all of the remaining defendants were timely filed. On April 5, 1978, Sevenprop, the innocent purchaser for value from Guaranty, who was the successful bidder at the foreclosure sale of the deed of trust against Grenada's property, was granted summary judgment and finally dismissed from the case. These actions left as defendants Guaranty, a mortgage banking company doing business at Nashville, Tennessee, Randall Travis, Guaranty's vice-president in charge of commercial loans, sued individually and as trustee in Guaranty's deed of trust against Grenada's real property, and Hart-Freeland-Roberts, Inc., a firm of architects and engineers, whose participation in the case was through its draftsman-agent, Don Petty. The court conducted a four-day evidentiary hearing commencing June 19, at which time all parties offered oral and documentary evidence. Counsel have supplied the court with pretrial briefs and have been afforded oral arguments, making the case ripe for final decision on the merits.

I. FACTS

Grenada, a Mississippi corporation, was in 1973 the owner of a 10-acre parcel of vacant, unimproved land which fronted U.S. Highway 8, and was located west of Grenada's city limits near the intersection of Highway 8 with Interstate 55. This property, regarded as a prime location for commercial development, had been owned by Grenada for a number of years. Grenada was, in 1973, a wholly-owned corporation, of which Grady Green was president and his wife, Frances B. Green, secretary; together they owned all of the corporate stock. Green, then 60 years of age, had personally been extensively engaged in construction work of all kinds, commencing in the ready-mix concrete business after World War II. For the ensuing 32 years, his firm was continuously engaged in erecting various buildings as well as supplying concrete to the public. Among other structures, Green developed the Grady Green Shopping Center on old Highway 51 south of Grenada, and had built a shopping center at Kosciusko, composed of several free-standing units. Since 1973 Green has engaged in the development of still another shopping center adjoining the one in issue, which was proposed to be erected by Watkins, an individual who first did business as a corporation under the name of Watkins Investment Company and later as a partnership under the same name. Mrs. Green, a college graduate, kept Grenada's business records and her husband's other business operations under the supervision of an auditor. She routinely prepared financial statements and also served as an advisory member on the Board of Directors of the Grenada Bank. Mrs. Green was aware of, and participated in, most major decisions which were largely conceived and developed by her husband relative to the business carried on by their company.

(a) Nature of Project.

In the spring months of 1973, Green was approached by Watkins' representatives, Joe Byrd and David Martindale, regarding the possibility of the development of Grenada's 10-acre unimproved parcel as a commercial shopping center. Martindale conducted the initial negotiations on behalf of Watkins and advised Green that the Watkins' organization was prepared to offer a ground lease of $25,000 annually for a 25-year term, with three optional extensions of five years each, subsequent to their acceptance of which Watkins would erect a shopping center with Magic Mart and a major grocery chain (later identified as Big Star) as the two principal or "anchor" tenants, leaving large and small mall spaces for speculative purposes. Martindale and Byrd represented that the shopping center improvements, estimated to contain approximately 96,000 square feet, would be erected at a cost of $1,125,000. They represented that Grenada, as a condition for the lease, would be required to join in the construction loan to be secured from a lender, without personal liability upon Grenada or the Greens, but subjecting the latter's fee simple title to a first mortgage lien required by the lender.

After Green manifested interest in this proposal, Watkins personally met Green in July 1973. Watkins confirmed what his agent had told Green; Green and his wife were agreeable to entering into the proposal. The parties went to the offices of Grenada attorney William B. Fedric, Green's legal counsel, who drafted the lease instrument. On July 9, Grenada entered into a 25-year lease agreement beginning July 1, 1973, with Watkins.²

The document provided that rent would be payable during the primary term at the rate of $2,083.34 per month, with the first month's rent commencing "upon the completion of the first building to be constructed on the above described property by the lessee (Watkins) or on January 1, 1974, in the event the first building had not been completed by that time." It was further provided that upon the request of Watkins, Grenada would execute "the necessary instrument or instruments subordinating its lien on the leased property to the lien of the security instrument to be executed by Watkins for temporary construction money to construct improvements on the above described property and also the lien of the security instrument to be executed by Watkins for permanent financing of the entire project when construction is completed." It was agreed that the lease would be a "net lease" with Watkins paying all ad valorem taxes becoming due upon the leased premises during the primary term and any effective optional period. The lease further recited that in consideration for its execution, Watkins agreed that all the improvements placed upon the leased property would become the property of Grenada upon the termination of the lease. The lease contained other provisions not here relevant except that the parties agreed to execute a short-form lease to be used for recording purposes in lieu of recordation of the long-form lease. Simultaneously, a short-form lease was executed between Grenada and Watkins, and promptly filed for public record.

(b) Watkins, the Commercial Developer.

Watkins, then a resident of Jackson, Tennessee, had for a number of years been in the commercial development and construction business; he, or his organization, had built a number of shopping centers in the states of Tennessee, Kentucky, Arkansas, and also in Mississippi, where they had erected three at Jackson and one at Oxford. In 1973, Watkins had under way the construction of fifteen commercial projects, at least twelve or thirteen of which were commercial shopping centers similar to the one which he contemplated at Grenada, Mississippi. A person of reputedly large net worth, having an income exceeding $500,000 annually, Watkins regularly obtained financing from four different mortgage companies. In 1970, he commenced doing business with Guaranty, a mortgage banking firm with offices at Nashville and Jackson, Tennessee. Watkins was obtained by Travis as a customer for Guaranty; in time he became one of the three largest borrowing customers on Guaranty's books. From 1970 to 1973, prior to the Grenada transaction, Guaranty had made loans to Watkins aggregating in excess of $30,000,000. During that period of time, Watkins had always met his obligations regularly; all materialmen and labor expenses on his various construction jobs had been paid; and Guaranty had encountered no difficulty in servicing his construction loans and obtaining permanent financing with life insurance companies or other institutional lenders on Watkins' completed projects. Watkins submitted periodic audited financial reports.

As regards the Grenada development, Watkins submitted to Guaranty a pro forma income analysis on which it projected lease revenues from Magic Mart for a 44,000 square foot store at an annual rental of $66,000, from a Big Star supermarket (originally projected as a Liberty store) for 20,000 square feet at an annual rental of $39,000, from a drug store of 12,000 square feet for $23,500 annually, and a speculative...