LSR Joint Venture No. 2 v. Callewart

• Decision Date: 07 August 1992
• Docket Number: No. 05-90-00797-CV,05-90-00797-CV
• Parties: LSR JOINT VENTURE NO. 2, Morris Robinowitz, Raymond S. Lambert and the Federal Deposit Insurance Corporation, Receiver for Security Bank, Appellants, v. Dr. Robert A. CALLEWART, Appellee.
• Court: Texas Court of Appeals

Page 693

837 S.W.2d 693

LSR JOINT VENTURE NO. 2, Morris Robinowitz, Raymond S.

Lambert and the Federal Deposit Insurance

Corporation, Receiver for Security Bank, Appellants, v. Dr. Robert A. CALLEWART, Appellee.

No. 05-90-00797-CV.

Court of Appeals of Texas,

Dallas.

Aug. 7, 1992.

Rehearing Denied Oct. 1, 1992.

Joe Bailey Hyden, Howard F. Carter, Jr., Lawrence F. Maxwell, Jr., Anne Smith Crowe, Gary E. Smith and Hubert A. Crouch, III, Dallas, for appellants.

Charles V. Serafino and Bruce W. Bowman, Jr., Dallas, for appellee.

Before STEWART, OVARD and BURNETT, JJ.

OPINION

OVARD, Justice.

We overrule both LSR's and Callewart's motions for rehearing. We withdraw our opinion of January 16, 1992, and vacate our judgment of that date. This is now the Court's opinion.

This is a fraud and Deceptive Trade Practices-Consumer Protection Act (DTPA) case concerning the purchase of a building. Dr. Robert A. Callewart originally sued Thomas C. Brandenburg, Peter A. Lusk, LSR Joint Venture No. 2, Raymond S. Lambert, Morris Robinowitz, Forecast Consultants, Inc., Mel Stein, RepublicBank Dallas, N.A., Henry S. Miller, and John S. Robertson, claiming misrepresentations and omissions during the sale of a building he purchased from them. The FDIC intervened claiming an interest in the proceeds of a note executed by Callewart during the purchase. After a jury trial, the trial court entered judgment in favor of Callewart and awarded him $1,231,915.60 in damages. The trial court denied the FDIC's claims.

In twenty-eight points of error LSR, Robinowitz, and Lambert argue that the trial court erred in failing to credit the amounts contained in settlement agreements against the judgment; awarding damages based on an erroneous definition of "out of pocket" expenses; excluding evidence of the dollar amount of tax benefits; and awarding exemplary damages. They also contend that certain trial court rulings during trial were in error.

The FDIC appeals, claiming that the trial court erred in failing to grant judgment in its favor against Callewart under (1) the federal common-law holder-in-due-course doctrine, and (2) the D'Oench, Duhme ¹ doctrine and its statutory codification.

Because we hold that the trial court erred in (1) excluding evidence of the dollar amount of tax benefits Callewart received from the Sigma Property purchase and (2) awarding damages based on an incorrect definition of "out of pocket," we reverse the judgment and remand the cause for a new trial. Our decision to reverse the cause on the two points above sends the entire case back for new trial, and we decline to address LSR's remaining points, as determination of them would result in advisory opinions on those matters. Because the FDIC did not assert its claims and defenses at the trial level, we hold the FDIC did not preserve error for review. We affirm the trial court's judgment regarding the FDIC's claims.

FACTS PERTINENT TO OUR HOLDING

The Fraud

In December 1984, Callewart purchased a building known as the Sigma Property from LSR, a joint venture composed of Lambert, Stein, and Robinowitz. Callewart agreed to pay over $5,570,000 for the property, including a down payment of about $575,000 and a $475,000 promissory note (the Callewart note, which Callewart executed in favor of LSR). LSR in turn pledged the Callewart note to Security Bank to secure a $147,795 note it had made payable to Security Bank (the LSR note).

Within a month of the closing, Callewart's investment experienced problems. Contrary to assurances made by LSR, three of the five Sigma property tenants failed to pay their rent, and nonpaying tenants moved out. Callewart could not find replacement tenants. Callewart financed the venture for eighteen months, but eventually allowed foreclosure on the building in June 1986. Before foreclosure, in September 1985, Callewart sued (1) LSR, Robinowitz, and Lambert for common-law fraud and DTPA violations; (2) tenant B & L for delinquent rental payments; (3) real estate broker Miller Co. for failing to uncover LSR's fraud; and (4) tenants Stein and Forecast for participation in LSR's fraud and for failure to pay rent. LSR counterclaimed against Callewart alleging nonpayment of the Callewart note. All of these actions were consolidated into one suit.

The LSR/Security Bank Settlement Agreement

On May 11, 1988, LSR and Security Bank entered into a settlement agreement in which LSR agreed that following trial, the court could enter judgment in favor of Security Bank for $157,412.10, the amount of the LSR note plus interest, costs of court, and Security Bank's reasonable attorney's fees. In November 1988, the FDIC, as receiver of Security Bank, intervened in the suit claiming a security interest in the $475,000 Callewart note, which was used to secure the LSR note executed to Security Bank. In its plea in intervention, the FDIC claimed that as receiver of the bank, it had succeeded to Security Bank's interest in the LSR and Callewart notes. None of the parties filed a response to the FDIC's plea in intervention. The FDIC was present and observed the entire trial, but it did not present any evidence.

The Miller and B & L Settlement Agreements

In August 1989, the case went to trial. On the morning of trial, about an hour before voir dire, Callewart notified all the parties that he had negotiated to settle with Miller and B & L the day before and that the settlement terms were to be finalized that morning. Although all of the terms of the settlements were not disclosed prior to trial, LSR was informed early in the trial as to the amounts of the settlements and a provision in the Miller settlement indemnifying Callewart. Callewart settled with Miller for approximately $530,000, and with B & L for $300,000. During the fourth week of trial, the court ordered full disclosure of the Miller settlement. LSR, however, failed to request or obtain full disclosure of the B & L settlement until after trial.

The Tax Benefits

During trial, LSR presented evidence regarding the tax benefits Callewart received from his purchase of the Sigma property. Although the trial court allowed LSR to present general information about the benefits Callewart was allegedly receiving from the Sigma purchase, it would not let LSR disclose the actual dollar amount of those benefits. LSR objected to the trial court's ruling, complaining that such specific information was relevant to its theories of rescission, damages, ratification, and waiver.

The Outcome

Prior to the close of the evidence, LSR dismissed a cross-claim it had filed against Miller Company and Robertson and released them from the suit. In October 1989, the jury returned a verdict in favor of Callewart and against LSR, Robinowitz, and Lambert jointly and severally for over $1,230,000. Additionally, the trial court denied the FDIC's claims to the LSR and Callewart notes. Both LSR and the FDIC appeal the judgment.

LSR'S APPEAL

THE TAX BENEFITS

In its seventh point of error, LSR complains that the trial court erred in excluding evidence of the dollar amount Callewart received in tax benefits from the purchase of the Sigma Property. The trial court allowed LSR to comment generally about Callewart's tax benefits. The court did not allow LSR to introduce evidence of the actual dollar amount of those benefits. LSR contends that the actual dollar amount of tax benefits was (1) relevant and crucial to prove that Callewart ratified or waived the alleged fraud and (2) required to show Callewart's true damages.

Citing Randall v. Loftsgaarden, 478 U.S. 647, 662-64, 106 S.Ct. 3143, 3152-53, 92 L.Ed.2d 525 (1986), ² Callewart argues that the trial court was correct in denying admission of the actual dollar amount of Callewart's benefits because "a party's recovery is not offset by tax benefits." (emphasis added). While we agree that Randall prevents a jury from offsetting damages with tax benefits, we do not believe that it prevents a fact-finder from considering tax benefits about the issues of ratification and waiver. We conclude that the trial court erred in preventing LSR from introducing evidence of the specific dollar amount of Callewart's tax benefits for the limited purpose of proving ratification and waiver.

Facts Pertinent to the Tax Benefits Issue

The Motion in Limine

Before trial, the trial court granted Callewart's motion in limine preventing LSR from introducing Callewart's tax returns as evidence of the tax benefits Callewart received from the Sigma Property purchase. The court instructed the parties to approach the bench before "getting into" evidence of Callewart's tax benefits and stated that it would "consider it at that time."

Testimony at Trial

During trial, the court allowed LSR to introduce evidence that Callewart anticipated and received tax benefits from his purchase of the Sigma Property. Callewart testified that the tax savings he received from the purchase of the property were critical to his decision to purchase the Sigma property. He said that it was very likely that he would not have bought the building if he were not going to receive some tax savings from it. Callewart said that he did receive substantial tax benefits from the property. He explained that one of his motivations for purchasing the Sigma Property was to set up a shelter for his medical-practice income.

The trial court would not allow LSR to introduce the actual dollar amount of tax benefits Callewart received. During a series of bench conferences, outside the presence of the jury, LSR's counsel urged the introduction of Callewart's 1984 through 1987 tax returns. LSR's counsel argued that the dollar amount of Callewart's tax benefits was relevant on the issues of (1) reliance and inducement, (2) damages, and (3) ratification. He insisted that the jury needed to know the "magnitude" of the benefits, stating "it makes a lot of difference whether one dollar or five hundred thousand dollars, and that's something the tryer [sic] of fact...