Hester v. New Amsterdam Casualty Company

Decision Date19 June 1968
Docket NumberCiv. A. No. 8747.
Citation287 F. Supp. 957
PartiesGlenn B. HESTER and J. B. Fuqua, Plaintiffs, v. NEW AMSTERDAM CASUALTY COMPANY, Keith T. Jones, Estelle J. Jones, and Edward F. Egan, Defendants.
CourtU.S. District Court — District of South Carolina

COPYRIGHT MATERIAL OMITTED

Wm. J. Cooney, Thurmond, Hester, Jolles & McElmurray, Augusta, Ga., James P. Mozingo, III, and D. Kenneth Baker, of Darlington, S. C., for plaintiffs.

P. H. McEachin, of McEachin, Townsend & Zeigler, Florence, S. C., for defendants Keith T. Jones and Estelle J. Jones.

Hugh L. Willcox, of Willcox, Hardee, Houck, Palmer & O'Farrell, Florence, S. C., for New Amsterdam Cas. Co.

HEMPHILL, District Judge.

This action charges conspiracy to defraud and fraud against the plaintiffs by the corporate defendant New Amsterdam Casualty Company and the three named defendants Keith Jones, his wife, Estelle Jones, and one Edward F. Egan. Defendant Egan is sued individually and as an agent of New Amsterdam Casualty Company, however, he resides without the jurisdiction of this court and he has not been served. The court lacks jurisdiction to render judgment against Egan individually.

Jurisdiction, as alleged in the complaint, is based on diversity and a controversy in excess of $10,000. The complaint alleges further that the plaintiffs, on or about July 31, 1964, were induced to purchase a 5,600 acre tract of land owned by the defendants Jones; the plaintiffs were lured into purchase of this land for $850,000 as a result of the fraud and conspiracy of all the named defendants.

Plaintiff alleges that groundwork for the conspiracy was begun on December 17, 1963 when New Amsterdam, through its then acknowledged agent Edward Egan, issued a guaranty bond assuring the performance by Valdosta Plywoods, Incorporated, of a timber agreement. The bond guaranteed the performance of a $960,000 timber cutting contract over a ten year period. Named as obligee under the bond were defendants Keith and Estelle Jones. New Amsterdam was the surety named on the bond. The bond was lodged with Liberty National Bank of Savannah, Geogia, to enable Keith and Estelle Jones to borrow money to buy the island on which the timber was situate, and the bank was made co-obligee under the bond as added security for the loan. The plaintiffs allege that defendants Egan and New Amsterdam, for obtaining the original bond and participation in the negotiations leading to the same, received fairly large sums of money. Plaintiffs claim that, aside from the bond, the defendants entered into a secret and covert agreement whereby defendants Jones as obligees on the bond in question signed a personal indemnification agreement by which defendant Jones promised to save harmless defendant New Amsterdam from any payments it would be required to make in case of default by Valdosta on the timber cutting contracts. This, the plaintiff alleges, rendered the bond a nullity, especially to those privy to this secret agreement.

The alleged conspiracy took form on or after June 16, 1964, when plaintiffs and defendants entered an agreement wherein plaintiffs agreed to purchase the 5,600 acres. It is undisputed in the record that plaintiffs refused to close the contract to purchase without an assignment, to plaintiffs, of the Jones' rights under the New Amsterdam bond. They insist that defendant Egan, as agent of defendant New Amsterdam, represented that the bond was valid and in effect. The defendants Jones, it is further alleged, also represented that the bonds were valid and operative. As part of the agreement, defendants Jones promised to assign the timber lease bonds and their rights thereunder. Defendants Jones and Egan represented that defendant New Amsterdam had agreed to the assignment. Again undisputed is the fact that, during negotiations between plaintiffs and defendants, no mention of the indemnity agreement flowing from the Joneses to New Amsterdam was ever disclosed.

The complaint alleges that all of this was done in order to defraud prospective purchasers including the plaintiffs. As a result of representations made to plaintiffs by all of the defendants, plaintiffs agreed to pay $850,000 for the 5,600 acres and to give an assignment of the lease and bond. At no time, it is alleged, was the indemnity agreement disclosed to plaintiffs, nor did they have means of obtaining such information absent a disclosure by defendants. Defendant New Amsterdam, after the sale was consummated on July 31, 1964, sought to have defendants Jones refuse to deliver the bonds in question in breach of the agreement with the plaintiffs by cancelling the bond and releasing the Jones' rights thereunder. The plaintiffs therefore ask for judgment in the amount of $5,000,000 actual and punitive damages.

Defendant New Amsterdam sets up a general denial in its Answer to the allegations of conspiracy to defraud, and fraud. New Amsterdam admits the issuance of the bonds but alleges that they could be assigned only with the written consent of defendant New Amsterdam. New Amsterdam sets up as an affirmative defense that the entire amount of the yearly premium of the bond had not been paid by defendants Jones, that plaintiffs have not paid any amount on the bond, and that therefore there is a lack of consideration, and that there is a lack of privity between plaintiffs and defendant New Amsterdam.

Defendants Jones, in a joint Answer, admit the sale of the land and the use of the bond and indemnity agreement in order to procure a loan from Liberty National Bank of Savannah, Georgia. However, they deny any conspiracy to defraud, fraud, or any wrongdoing on their part. They allege further that premiums for one year had been paid through defendant Egan. They allege that they were required to sign the indemnity agreement in order to comply with New Amsterdam's terms for issuance of the bond and that they were under no duty to disclose this arrangement.

The issues were tried by the court without a jury on October 23rd and 24th, 1967, at Florence, South Carolina, and in accordance with Rule 52(a), of the Federal Rules of Civil Procedure, the court separately makes the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

(1) Plaintiffs are residents of the State of Georgia. The defendant New Amsterdam is a corporation, with its principal place of business in one of the states other than Georgia. Defendants Jones are residents of the State of South Carolina. Defendant Egan is a resident of the District of Columbia. The amount in controversy, exclusive of interest and costs, exceeds the sum of $10,000.

(2) Defendant Egan has not been served in this action and is not before the court for a determination of his liability.

(3) During the late fall and early winter of 1963 the defendants Jones had an option to purchase a 5,600 acre tract of timber land in the State of Florida. On December 16, 1963, the original option expired and an extension was obtained. Under the option, Jones was to pay $550,000 for the land. Defendant Jones sought to negotiate a loan with Liberty National Bank of Savannah, Georgia in order to purchase the property. The bank, however, was restricted in the amount it could loan on unimproved property. To circumvent this situation defendant Jones entered into a timber lease agreement with Valdosta Plywoods, Inc., a Georgia Corporation. Under the timber cutting agreement defendants Jones would have been paid $60,000 the first year and $100,000 each year for the succeeding nine years or a total of $960,000. In order to make this attractive to the bank defendants Jones sought to have the timber cutting contract bonded. Bonding of the contract was necessary primarily because Valdosta Plywoods, Inc. showed net worth of only $375,920.19, and presumably could not financially stand behind a contract of $960,000.

(4) Prior to this transaction defendant Keith Jones had done some construction and supervision of construction for the Berens Real Estate Investment Trust. During this transaction he became acquainted with Howard DeFranceaux. Mr. DeFranceaux is Executive Vice-President of F. W. Berens Insurance Service, Inc. This insurance company was engaged in accepting applications for insurance and bonds for the various companies which it represented. Defendant Keith Jones confronted Howard DeFranceaux with his problem of financing the purchase of 5,600 acres of land and the need for bonding the Valdosta timber cutting contract. Egan was also confronted with this situation as he was Vice-President of the Insurance Department of the Berens Company in charge of bonds. It is uncertain whether defendant Keith Jones had sought to have the timber cutting bonded prior to his confrontation with defendant Egan and Howard DeFranceaux but this is not important to this controversy. Defendant Egan attempted to place the bond with Aetna Insurance Company, a Connecticut corporation. Aetna was agreeable provided that the president of Valdosta Plywoods, Inc., signed an indemnification agreement, that both defendants Keith Jones and his wife, Mrs. Estelle Jones, signed specific indemnity agreements along with a letter showing that they derived substantial benefits from the bond due to the financing, and that the bond term should not exceed two years. The Peerless Insurance Company, a New Hampshire corporation, consented to a five (5) year suretyship also requiring a personal indemnification of the obligees, defendants Keith Jones and Mrs. Estelle Jones. Neither of these agreements were suitable to defendants Keith Jones and Mrs. Estelle Jones because it was necessary to have a full ten year coverage to correspond with the ten year term of the cutting contract.

(5) On December 16, 1963, Howard DeFranceaux called Carl W. Schmidt, Vice-President of defendant New Amsterdam, at the New Amsterdam offices in Baltimore, Maryland. At all times hereinafter...

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