Kissell Co. v. Gressley

• Decision Date: 25 January 1979
• Docket Number: No. 76-3039,76-3039
• Citation: 591 F.2d 47
• Parties: The KISSELL COMPANY, Defendant-Appellant, v. Forrest GRESSLEY and Emily Gressley, husband and wife, and Mountain View Garden Apartments, Plaintiffs-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 47

591 F.2d 47

The KISSELL COMPANY, Defendant-Appellant, v. Forrest GRESSLEY and Emily Gressley, husband and wife, and Mountain View Garden Apartments, Plaintiffs-Appellees.

No. 76-3039.

United States Court of Appeals, Ninth Circuit.

Jan. 25, 1979.

Rehearing Denied March 2, 1979.

Burton M. Apker (argued), Neville, Laliss & Tanner, Evans, Kitchel & Jenckes, Phoenix, Ariz., for defendant-appellant.

John P. Otto (argued), Philip Gerard (argued), Phoenix, Ariz., for plaintiffs-appellees.

Appeal from the United States District Court for the District of Arizona.

Before ELY and CARTER, Circuit Judges, and GORDON THOMPSON, Jr., District Judge. ^*

JAMES M. CARTER, Circuit Judge:

In this diversity case, Kissell, a mortgage banking company, appeals from judgment rendered against it for having wrongfully retained a mortgage on a piece of property after a description of that property was erroneously inserted into a mortgage to which Kissell was entitled as security for certain loans. The Gressleys and Mountain View Garden Apartments (hereinafter referred to collectively as Gressley) recovered $119,785.93 in actual and punitive damages on this count. Kissell also appeals from a determination that it charged a usurious rate of interest on the loans. Under Arizona law, a usurer must return to the borrower all interest paid on a usurious loan. Under this count, Gressley recovered an additional $27,850.00.

The facts show that Gressley, a housing developer in Arizona, signed loan agreements totalling $690,000 with Kissell in 1972. Of that amount, $52,000 was used to purchase the land, $73,000 was to be used to develop the land, and $565,000 was to be used to construct apartment dwellings on the land.

The loan agreements called for interest rates ranging between 73/4% And 81/2%, or 2% Over the prime rate at specified New York banks, adjusted according to which rate was higher. Kissell also charged loan fees of $1,040 on the land purchase loan, $1,460 on the land development loan, and $5,650 for the construction loan. Finally, Gressley signed an agreement which obligated him to pay to Kissell $203 for each of the 37 units in the eventual development for which the permanent buyer did not obtain permanent financing from Kissell. This was apparently intended to motivate Gressley to persuade permanent buyers to finance through Kissell. Gressley gave Kissell, in advance, a note for $7,511 ($203 X 37) and was to be reimbursed pro tanto for each unit Kissell financed. It is the character of this money which determines whether the charges Gressley paid were usurious.

The property in question consisted of a parcel divided into 37 lots and a contiguous piece known as "tract A". Although both parcels were paid for with the $52,000 land purchase loan money, the trial court found that only the 37 lots were intended to serve as security for the loans. Kissell does not dispute that finding here. After Gressley executed mortgage documents on the 37 lots, they were given to Kissell, who then inserted tract A into the description of the property and recorded the mortgage. Later, when Gressley attempted to obtain separate financing to develop tract A, the cloud on his title was discovered and the other lender refused to go ahead. Kissell held tract A hostage, claiming it was always intended to secure the loans, and demanded payment for its release. Kissell does not dispute the trial court's holding that this retention of the mortgage on tract A was wrongful.

Apparently as a result of Kissell's refusal to release tract A, Gressley was unable to continue with either project. He sold his interest in them to another developer for $187,000 and paid off Kissell. Count I of Gressley's complaint below was for recovery of the value of tract A and other damages arising out of Kissell's refusal to release it.

Of the $690,000 originally committed, Kissell actually disbursed only $165,201.89 before the project went sour and the controversy discussed above arose. Gressley paid a total of $29,684.01 in charges and fees for that money, and Count II of his complaint below sought recovery of those charges and fees under Arizona usury laws.

The trial court awarded Gressley damages under Count I in the following amounts:

$40,000.00 as the value of tract A,

$73,200.00 as lost profits on the project(s), and

$15,000.00 as punitive damages.

This was reduced by $8,414.07, which was that portion of the profits on the sale of the entire project attributable to tract A. As to Count II the court found that, of the money paid as charges and fees, $27,850.88 constituted interest, and because it was usurious, Gressley was entitled to recover it. Thus, his total recovery amounted to $147,636.81.

I. ISSUES

A. Damages

1. Were the lost profits Gressley expected to earn on the project so speculative as to preclude their inclusion in the damage award?

2. Did the damages award include any duplicate recovery?

B. Usury

1. Did the individual charges which Gressley paid constitute interest on the funds received so as to make the loan usurious?

2. May Kissell avoid usury on these facts by means of a savings clause which purports to negate usurious intent and provides for a reduction in the interest rate if it exceeds the rate allowed by law?

II. DISCUSSION

A. Damages

1. Were lost profits too speculative ?

Kissell admits liability for its wrongful refusal to release the mortgage on tract A, but it challenges the size of the award. It argues that, in light of the depressed housing market in Maricopa County where the development was located, Gressley should not have recovered any lost future profits because they were too speculative. Kissell cites United States Fidelity & Guaranty Co. v. Davis, 3 Ariz.App. 259, 413 P.2d 590 (1966) for the proposition that where the fact of damages is not proved, there can be no recovery, and it contends that its concession on the issue of liability for damages is not enough to prove the fact of lost future profits as part of those damages.

Gressley's evidence showing expected profits consisted of his own testimony on past experience with similar projects. This was supported by exhibits accepted into evidence which gave substance to his claims. Kissell chose not to rebut that evidence. ¹ Under Nelson v. Cail, 120 Ariz. 64, 583 P.2d 1384, 1387 (1978) such evidence is sufficient as prima facie proof of loss of expected profits. Once the Fact of loss is thus proven, courts will not quibble over the numbers involved, but will use a lenient approach to measurement of those damages. See, e. g., Id.; L.H. Bell & Associates, Inc., v. Granger, 112 Ariz. 440, 543 P.2d 428 (1975); Isenberg v. Lemon, 84 Ariz. 340, 327 P.2d 1016 (1958). In light of Gressley's unrebutted testimony on the profits he expected to earn on the project, we can not say that such profits were so uncertain, contingent, conjectural, or speculative as to preclude their recovery. See Fireman's Fund Insurance Co. v. Shawcross, 84 Nev. 446, 442 P.2d 907 (1968). Compare Schuldes v. National Surety Corp., 27 Ariz.App. 611, 557 P.2d 543 (1976); United States Fidelity & Guaranty Co. v. Davis, supra.

2. Duplicate recovery ?

As noted above, part of Gressley's award included $40,000, which the trial court found to be the full value of tract A at the time Gressley was forced to sell it. Kissell contended at oral argument that this represented to some unspecified extent a double recovery, because the sale price of the entire project ($187,000) included recovery of some of the value of tract A. Gressley, on the other hand, argued that the sale price of the project included only the value of the 37 lots, plus improvements thereon, and that, in effect, he was forced to relinquish his interest in tract A without compensation. Although the record is not entirely clear on the matter, we are of the opinion that there probably was duplicate recovery, and we remand for a factual determination of the amount.

There are two reasons for our conclusion. First, Mr. Gressley's testimony at trial indicates that his interest in tract A was given up for value. When asked on direct examination about the sale of his interest in the project, Mr. Gressley testified as follows:

"I found a buyer and I endeavored to sell just the project lots 1 through 37 and retain Tract A. My buyers knew what had happened and knew what was going on and they would not buy it without buying the whole thing, and they paid me $187,000 for the project." Transcript A at 62.

Later, on cross-examination, the following exchange took place between Mr. Gressley and counsel for Kissell:

"Q: To whom did you ultimately sell Mountain View?

"A: P & K Development.

"Q: What was the sale price?

"A: $187,000.

"Q: And that included what?

"A: The loan payoff to the Kissell Company and the balance to me.

"Q: What did P & K get from you for its money?

"A: It got all of Tract A and the 1 through 37 lots and the houses in the stage of construction that they were, the four units." Transcript A at 97.

The foregoing suggests to us that the sale price of the entire project included some payment for release of Gressley's interest in tract A.

Second, the trial court itself gave tacit recognition of Gressley's having been compensated to some extent for tract A when it reduced his damages by $8,414.07 and designated this amount as profits attributable to tract A which were realized upon the sale. We do not understand how Gressley could have profited from the sale of tract A if he did not recover at least what he paid for it. ²

Double recovery is disfavored. See generally Adams v. Dion, 109 Ariz. 308, 509 P.2d 201 (1973); Ball Corp. v. George, 27 Ariz.App. 540, 556 P.2d 1143 (1976). It should be particularly avoided where, as here, punitive as well as compensatory damages were assessed. See Erie Basin Metal Products v. United States, 150 F.Supp. 561, 138 Ct.Cl. 150 (1957). We therefore remand, and direct the trial court to reduce Gressley's judgment by an...