Heller Financial, Inc. v. Grammco Computer Sales, Inc., 94-50043
| Decision Date | 04 January 1996 |
| Docket Number | No. 94-50043,94-50043 |
| Citation | 71 F.3d 518 |
| Parties | RICO Bus.Disp.Guide 8957 HELLER FINANCIAL, INC., Plaintiff-Appellee, v. GRAMMCO COMPUTER SALES, INC. and Donald B. Grammer, d/b/a DBG Leasing, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
W. Wendell Hall, Fulbright & Jaworski, San Antonio, TX, Layne Kruse, Fulbright & Jaworski, Houston, TX, for appellants.
Rene A. Torrado, Jr., William C. Glynn, Vedder, Price, Kaufman & Kammholz, Chicago, IL, Emerson, Banack, Jr., Roger D. Kirstein, Foster, Lewis, Langley, Gardner & Banack, Inc., San Antonio, TX, for appellee.
Appeal from the United States District Court for the Western District of Texas.
Before POLITZ, Chief Judge, and REAVLEY and BARKSDALE, Circuit Judges.
Donald Grammer and Grammco Computer Sales, Inc. appeal a judgment in favor of Heller Financial, Inc. on its civil RICO, fraud, and contract claims. We affirm in part and reverse in part.
In 1979 Grammer left his position as a computer sales representative with IBM, Inc. to start Grammco Computer Sales, Inc., a company specializing in the marketing and leasing of computer equipment. Shortly after organizing Grammco, Grammer solicited the business of the Santa Rosa Medical Center in San Antonio, Texas which, through its director of information systems, Joseph Dixon, began leasing computer equipment exclusively from Grammco. No competitive bids were solicited. This exclusive relationship continued for the next eight years and, by 1986, resulted in a total of 54 Grammco leases at a monthly cost of $124,000.
In 1987 Santa Rosa reexamined its lease obligations with a view to reducing costs. Grammer proposed consolidating the existing leases into a single 36-month lease with a monthly payment of $84,841, thereby reducing Santa Rosa's monthly payments by approximately $40,000. This proposal included an option which allowed Santa Rosa to purchase the equipment at the end of the lease term for a nominal sum. Santa Rosa accepted the proposal and, on May 20, consolidated its leases into a single lease denominated L3177. Grammer, d/b/a DBG Leasing, then purchased this lease and all rights Grammco held in the leased equipment for 1.2 million dollars.
Grammer obtained financing for this transaction through Heller Financial, Inc., a company with which Grammco had financed lease transactions in the past. Prior to the formation of the new consolidated lease, Heller informed Grammer that it could not extend a loan secured by a lease containing a purchase option in its terms without substantial modification of the loan documents. Grammer represented that the new lease would not contain a purchase option and that modification of the documents would not be necessary. With this understanding, Heller agreed to extend Grammer a 2.65 million dollar loan on a non-recourse basis, taking a security interest in Grammer's rights to the leased equipment and the lease income stream. Grammco agreed to guarantee the loan to Grammer.
As part of the loan closing process, Grammer provided Heller with an "original" of lease L3177; this "original," however, did not include the purchase option that had been included in the lease signed by Grammco and Santa Rosa. Grammer also entered a Master Security Agreement pledging the leased equipment and lease income stream as security for the loan. In this agreement, Grammer warranted that he: (1) had good title to the leased equipment; (2) had provided Heller with all documents related to L3177; (3) had granted Heller a first, prior, and perfected security interest in all collateral; and (4) would not modify the terms of the lease without the express approval of Heller. After reviewing the lease provided by Grammer and the Master Security Agreement, Heller formally approved the loan, closing the loan on June 15 and releasing the funds to Grammer on June 26. Heller received the income from the lease as payment on the loan for the next four months.
In the summer of 1987 a change in management at Santa Rosa prompted a review of computer equipment expenditures. The review revealed that Santa Rosa was paying well-above market rates on its computer lease with Grammco. Because the lease contained a purchase option, Santa Rosa viewed L3177 as an installment sales contract rather than a true lease; moreover, it concluded that the high rates on the lease were usurious and violated Texas usury laws. Santa Rosa stopped making payments on the lease to Heller, arranged to dismiss Joseph Dixon, 1 and filed suit against Grammer d/b/a DBG Leasing, Grammco, and Heller alleging that L3177 was a usurious installment sales contract.
During the ensuing litigation in Texas state court, 2 Heller and Santa Rosa uncovered monthly payments from Grammer to Dixon starting in September of 1983 and continuing until Dixon's departure from Santa Rosa in October of 1987. Grammer maintained that these payments compensated Dixon for computer programming services he performed for Grammco. Those services, however, were later valued at approximately $15,000 while the payments totaled $171,804. Heller and Santa Rosa also uncovered Dixon's participation in a series of lease transactions with Grammer that provided significant tax benefits to Dixon at no cost and Dixon's receipt of $14,900 in royalties from Grammer for sales of computer shelving equipment that Dixon had designed. On the basis of this information, Santa Rosa amended its complaint to include a claim of commercial bribery against Grammer, Grammco, and Dixon.
Heller also discovered that lease L3177 contained a purchase option and that ICS Cybernetics, another computer vendor, owned the central processing unit of the computer equipment leased to Santa Rosa. Thus, Heller realized that despite Grammer's warranties to the contrary, Grammer did not have title to the leased equipment. Heller, codefendant with Grammer and Grammco on the usury claim, filed a cross-claim against Grammer and Grammco for breach of contract and a counter-claim against Santa Rosa for recovery of sums due under the lease.
To avoid actions that could be construed as illegal "charging" of usurious interest, Heller nonsuited its counter-claim against Santa Rosa; Heller then received summary judgment on Santa Rosa's usury claim against it. As the remaining claims headed to trial, Heller nonsuited its cross-claim against Grammer and Grammco. Subsequently, Santa Rosa, Grammer, Grammco, and Dixon reached a settlement whereby Santa Rosa received title to all of the lease equipment, 1.7 million dollars from Grammco, $7,500 from Dixon, and entry of a judgment stating that Santa Rosa had satisfied the terms of the lease and that the lease was terminated.
After final judgment in the Santa Rosa litigation, Heller filed the instant action in federal court against Grammer and Grammco alleging breaches of the warranties found in the Master Security Agreement, breach of contract on the loan guarantee, fraud in inducing Heller to make the loan, and violations of the Racketeering Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Sec. 1962(a) and (c). By consent of the parties, the district court referred the case to a magistrate judge for a jury trial. 3
Prior to trial the court issued an order prohibiting Grammer and Grammco from introducing evidence at trial regarding Heller's failure to mitigate damages, impairment of collateral, and waiver of claims. At the close of the defendants' case, the court instructed a verdict in Heller's favor on one of the breach of warranty claims. The jury returned a series of special verdicts for Heller on the fraud, contract, and civil RICO claims. The court rendered judgment for Heller against Grammer d/b/a DBG Leasing in the amount of $14,665,866.63 plus costs and attorneys' fees for violating RICO Sec. 1962(a). The judgment outlined three alternative awards against Grammer: 1) $1,950,446.01 plus costs and attorneys' fees for violating RICO Sec. 1962(c); 2) $1,650,148.67 with prejudgment interest on that amount from September 13, 1987 at the rate of 10% per annum and $2,000,000 in punitive damages plus costs for fraud; and 3) $4,888,622.21 plus costs and attorneys' fees for breach of warranty. The court rendered judgment against Grammco for $4,888,622.21 plus costs and attorneys' fees for breach of the guarantee of Grammer's loan.
Grammer and Grammco timely appealed.
Grammer and Grammco first seek to dispose of all of Heller's claims on the ground that Heller could have asserted these claims in the earlier Santa Rosa litigation and that principles of res judicata therefore now bar Heller's assertion of these claims. We disagree. Under Texas res judicata principles, 4 a prior judgment precludes a claim only if the parties are identical, the prior judgment was rendered by a court of competent jurisdiction and was a final judgment on the merits, and the challenged claim arises out of the same subject matter litigated in the first suit. 5
Grammer and Grammco maintain that all prerequisites for res judicata have been met although they acknowledge that codefendants in an action, as were Heller and Grammer and Grammco in the Santa Rosa litigation, are not considered adverse parties for purposes of res judicata. 6 Grammer and Grammco would avoid this bar by contending that once Heller asserted its cross-claim it became an adverse party. We agree that the filing of the cross-claim made Heller an adverse party, 7 but Heller's subsequent nonsuit of the cross-claim returned the parties to the same position as if the claim had never been filed. 8 Therefore, Heller was not adverse to Grammer and Grammco when the agreed judgment was entered and res judicata does not operate to bar Heller's claims in this action.
Grammer next contends that Heller failed to establish that Grammer's alleged acts of commercial bribery and mail and wire fraud amount to a "pattern of racketeering...
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