Letterman Bros. Energy Securities Litigation, In re
| Decision Date | 12 September 1986 |
| Docket Number | No. 85-1446,85-1446 |
| Citation | 799 F.2d 967 |
| Parties | Fed. Sec. L. Rep. P 92,912 In re LETTERMAN BROTHERS ENERGY SECURITIES LITIGATION. Donald A. DRAKE, et al., Plaintiffs, v. LETTERMAN TRANSACTION SERVICES, et al., Defendants. LETTERMAN BROTHERS ENERGY PROGRAM, et al., Plaintiffs-Appellants, v. BANCTEXAS DALLAS, N.A., et al., Defendants-Appellees. Richard J. STUART, et al., Plaintiffs, v. LETTERMAN BROTHERS ENERGY, et al., Defendants-Third Party, Plaintiffs-Appellants, v. BANCTEXAS DALLAS, N.A., et al., Third Party Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
William A. Wineberg, Broad, Schulz, Larson & Wineberg, Michael R. Simmonds, San Francisco, Cal., Cullum & DeYoung, Edwin R. DeYoung, Dallas, Tex., for Letterman, etc.
W. Ted Minick, Winstead, McGuire, Sechrest & Minick, David C. Mattka, Ivan M. Scott, Jr., Dallas, Tex., for BancTexas Dallas, N.A. (Formerly NBC).
Appeal from the United States District Court for the Northern District of Texas.
Before GOLDBERG, WILLIAMS and DAVIS, Circuit Judges.
Appellants Letterman Brothers Energy Programs ("Energy Programs"), Letterman Brothers (a California partnership), Bryce L. Letterman, Scott M. Letterman, and Letterman Transaction Services, Inc. (a California corporation) suffered substantial financial losses as a result of investments in oil and gas leases that they entered into with Wells-Battelstein Oil & Gas, Inc. Appellants thereafter brought claims against appellee BancTexas and against Walter D. Wells, Jr. and Barry L. Battelstein, the principal stockholders of Wells-Battelstein, a Texas corporation that operated the leases purchased by appellants. The suit was brought under the federal securities laws and under Texas law. Proceedings against Wells and Battelstein, however, were subsequently stayed after these two defendants petitioned for relief in bankruptcy court.
The district court directed a verdict in favor of BancTexas on the federal securities claim. The remaining issues of negligent misrepresentation and breach of fiduciary duty were then presented to the jury which found in favor of appellants. Upon BancTexas' motion, however, the district court then ordered judgment for BancTexas notwithstanding these verdicts. Appellants now urge us to reverse these rulings.
The Energy Programs comprise eleven California limited partnerships. Letterman Brothers, a general partnership consisting of Bryce L. Letterman and Scott M. Letterman, is the general partner of each of these limited partnerships. The Lettermans attracted various private investors to participate in the Energy Programs as limited partners. The Lettermans began participating in oil and gas ventures in 1978. They had formed and operated several limited partnerships of this kind before they entered into the transactions at issue in this case.
In the spring of 1980, Bryce Letterman was approached by Wells-Battelstein about investing in certain oil and gas leases located in Kansas and operated by Wells-Battelstein. At that time, Wells-Battelstein was a new entity created through the merger of two companies previously involved in oil and gas ventures. Wells-Battelstein had approached BancTexas about a loan on or about October, 1979. At the time it approached BancTexas, Wells-Battelstein had a net worth of about $2,500,000. BancTexas agreed to established a $1,000,000 line of credit for Wells-Battelstein and advanced $400,000 to it based upon an appraisal of leases it held. Wells-Battelstein's credit line was increased by BancTexas to $2,500,000 on or about June, 1980.
After this initial contact, Bryce Letterman apparently became interested in investing in these leases. Soon thereafter he met with Barry Battelstein in Houston. Letterman also visited various Wells-Battelstein facilities over the next day and a half following his meeting with Battelstein. Letterman talked to various Wells-Battelstein suppliers, a geologist, and a banker at Interfirst Houston. Letterman also received a financial statement and a drilling history of Wells-Battelstein.
Letterman then contacted the head of the energy department at a bank in Ohio that had financed previous Letterman projects. This bank, however, informed Letterman that Kansas was outside of the geographical area in which it did business. At that point, Wells-Battelstein referred Letterman to BancTexas and specifically to Terry Stuart, Wells-Battelstein's loan officer there. Bryce Letterman talked to Stuart regarding financing for these ventures and regarding Wells-Battelstein's reputation with BancTexas.
Letterman testified at trial that Stuart had told him that Wells-Battelstein was one of the bank's most successful customers, that it was a creditworthy company of very high integrity, and that the bank thought a great deal of Wells-Battelstein as a customer. Eventually, it was agreed that BancTexas would provide loans to eight of the eleven Energy Programs that would enter into oil and gas ventures with Wells-Battelstein. The other three Energy Programs borrowed the money they needed from Interfirst Bank Houston.
Each of the oil and gas agreements between Energy Programs and Wells-Battelstein provided for payments to be made by Energy Programs to Wells-Battelstein for the acquisition of certain oil and gas leases, the turnkey price for drilling wells at the sites specified in the leases, and various other estimated costs incurred in starting production on these lease sites. Operating expenses were to be billed to the Energy Programs separately as they were incurred.
These ventures proved to be far less successful than the participants had hoped because oil and gas production turned out to be lower than had been anticipated. As a result, Energy Programs received revenue well below that needed to pay their debts. Consequently, the Energy Programs suffered large financial losses. Some limited partner investors sued various Letterman entities in two separate actions to recover their investments. One of these suits was brought by a group of investors in the United States District Court for the Northern District of Texas against certain Letterman entities not appellants in this case. The other suit was filed in California federal court against four of the Energy Programs and other Letterman entities.
In January, 1983, appellants together brought suit against BancTexas complaining of violations of Sec. 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, as well as claims of negligent misrepresentation and breach of fiduciary duty under Texas law. 1 This action was consolidated with the investors' suit filed in the Northern District of Texas previously. In the meanwhile, the Energy Programs sued in California had brought a third-party action against BancTexas seeking contribution and indemnity. This third-party action was subsequently severed from the California suit, transferred to the Northern District of Texas, and consolidated with the present action.
On March 19, 1984, the consolidated actions were brought to trial before a jury. At the close of appellants' evidence, the bank moved for a directed verdict. After all the parties had rested, the district court granted the bank's motion for a directed verdict with respect to the federal securities claims only, finding that the appellants had not met their burden of proof in establishing the value of the oil and gas leases as of the date appellants entered into their contracts.
Appellants' remaining claims, including those of the investors directed against the Letterman entities, were then submitted to the jury. The jury found against the investors, deciding that the Letterman entities had committed no fraud nor negligent misrepresentation in inducing participation in the Energy Programs. The jury, however, returned verdicts in favor of appellants against the bank on both the negligent misrepresentation and breach of fiduciary duty claims. The jury awarded appellants damages in the amount of $10,980,149.50.
Under Fed.R.Civ.P. 50, the bank then moved for judgment notwithstanding the verdict. The district court granted the bank's motion, finding on the negligent misrepresentation claim that the appellants had failed, as they had on the securities claim, to establish damages. On the fiduciary duty claim the court granted the motion j.n.o.v. because bank owed the appellants no fiduciary duty. The district court also conditionally ruled upon the bank's motion for a new trial pursuant to Rule 50(c)(1), finding that no grounds for granting a new trial existed.
On August 20, 1984, the district court entered judgment in favor of the bank on all claims and also on the third-party action transferred from California. On August 30, 1984, appellants moved for reconsideration of entry of judgment notwithstanding the verdict and for a new trial. Appellants also moved to alter or amend the judgment. On June 20, 1985, the district court denied appellants' motions and entered an amended final judgment in favor of the bank and also entered judgment in favor of the Letterman entities against the investors. Appellants filed timely notice of appeal. 2
In summary, appellants now urge us to reverse the decision of the district court in favor of BancTexas directing the verdict on the federal law claims and awarding judgment notwithstanding the verdict on the state law claims. Additionally, they ask us to reverse the district court's order denying their motion to amend the judgment with regard to their third-party action against the bank for contribution and indemnity.
We review the directed verdict and the judgment notwithstanding the verdict under the standard set out in Boeing Co. v. Shipman, 411 F.2d 365 (5th Cir.1969) (en banc):
On motions for directed verdict and for judgment notwithstanding the verdict the Court should consider all of the evidence--not just that evidence which supports the non-mover's case--but...
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