Marcus, Stowell & Beye Government Securities, Inc. v. Jefferson Inv. Corp., 85-2491

• Decision Date: 18 August 1986
• Docket Number: No. 85-2491,85-2491
• Citation: 797 F.2d 227
• Parties: MARCUS, STOWELL & BEYE GOVERNMENT SECURITIES, INC., Plaintiff-Appellee Cross-Appellant, v. JEFFERSON INVESTMENT CORPORATION, et al., Defendants, Daniel M. Andreola and the Andreola Companies, Inc., Defendants-Appellants Cross-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 227

797 F.2d 227

MARCUS, STOWELL & BEYE GOVERNMENT SECURITIES, INC. Plaintiff-Appellee Cross-Appellant, v. JEFFERSON INVESTMENT CORPORATION, et al., Defendants Daniel M. Andreola and the Andreola Companies, Inc. Defendants-Appellants Cross-Appellees.

No. 85-2491.

United States Court of Appeals, Fifth Circuit.

Aug. 18, 1986.

Michael D. Farris and Gerald R. Powell, Dallas, Tex., and Fulbright & Jaworski, Murray Fogler, Houston, Tex., for defendants-appellees cross-appellants.

Gregory A. Bolzle and Ralph A. Midkiff, Porter & Clements, Houston, Tex., for plaintiff-appellant cross-appellee.

Appeals from the United States District Court for the Southern District of Texas.

Before RUBIN, POLITZ and JOHNSON, Circuit Judges.

JOHNSON, Circuit Judge:

In this Texas tortious interference with contract action, the jury returned a verdict in favor of the plaintiff, Marcus, Stowell & Beye Government Securities, Inc. ("MSB"), and awarded $119,000.00 in actual damages as well as $150,000.00 in punitive damages. The district court deducted from MSB's recovery $65,000.00 that MSB had received in an earlier settlement agreement with a third party. The district court also refused to award MSB attorney's fees. MSB appeals from these damage determinations and also challenges the measure of recovery used by the district court. The defendants, Daniel Andreola and The Andreola Companies (collectively referred to herein as "Andreola"), have cross-appealed challenging both the imposition of liability for tortious interference and the award of punitive damages. Finding the contentions of MSB on appeal as well as those of Andreola on cross-appeal unpersuasive, we affirm the judgment of the district court.

I. BACKGROUND

Jefferson Investment Corporation, a wholly owned subsidiary of Jefferson Savings & Loan Association (collectively referred to herein as "Jefferson"), was engaged in selling whole loans in the secondary mortgage market. In June of 1982, MSB agreed to act as broker for Jefferson's prospective sale of a portion of its mortgage portfolio. On August 9, 1982, MSB completed a written brokerage agreement with Jefferson which authorized MSB to represent Jefferson "as a loan broker" and provided that MSB would receive a one-half percent commission upon the completion of a sale. MSB located a purchaser, Commercial Federal Savings and Loan of Nebraska ("Commercial Savings"), who offered to purchase $18,149,311.00 in mortgages from Jefferson. In August of 1982, however, the proposed sale fell through when Commercial Savings discovered numerous irregularities in the Jefferson mortgage portfolio.

After the unsuccessful August sale, Jefferson revised and reorganized its mortgage portfolio to correct the irregularities which had prevented closing the sale to Commercial Savings. Jefferson again agreed to use MSB as loan broker and on October 26, 1982, executed another brokerage agreement. Unlike MSB's original brokerage agreement with Jefferson, however, the October 26 agreement authorized MSB to act as "exclusive loan broker" for Jefferson's reorganized mortgage portfolio. The agreement, which was to expire on December 17, 1982, provided that MSB would earn a one-half percent commission once it produced a purchaser and once the parties to the sale executed a commitment letter.

In November of 1982, MSB located Pacific First Federal Savings and Loan Association ("Pacific") as a prospective purchaser of Jefferson mortgages. ¹ Pacific and Jefferson subsequently executed and exchanged a commitment letter which constituted Pacific's written promise to buy and Jefferson's written promise to sell approximately $15,000,000 in mortgages. However, Jefferson eventually backed out of the proposed sale to Pacific for reasons which are unclear from the record.

In the meantime and during the term of MSB's exclusive brokerage agreement, Andreola began actively soliciting purchasers for Jefferson's reorganized mortgage portfolio. ² This solicitation was initially without written authorization from Jefferson. On December 8, 1982, however, over a week before MSB's exclusive brokerage agreement expired, Jefferson granted Andreola written authority "to solicit an offer to purchase a portion of [Jefferson's] mortgage loan portfolio." Andreola's brokerage agreement provided that Andreola would receive a one percent commission upon completion of a sale.

Prior to the expiration of the MSB/Jefferson exclusive brokerage agreement, Andreola successfully located two purchasers. Jefferson eventually completed mortgage sale transactions with both Andreola purchasers shortly after the MSB/Jefferson exclusive brokerage agreement had expired on December 17, 1982. ³ As a result, Jefferson paid Andreola a commission of $238,552.00.

MSB, disturbed by what it viewed as a violation of its exclusive brokerage agreement, filed the instant suit against both Jefferson and Andreola. MSB alleged that Jefferson had breached MSB's brokerage agreement by failing to pay MSB a commission for arranging the Pacific transaction and by dealing with Andreola in violation of MSB's exclusive brokerage authorization. MSB also alleged that Andreola had tortiously interfered with MSB's exclusive brokerage agreement with Jefferson and had breached a contract with Jefferson to pay MSB a portion of Andreola's commission, of which contract MSB was a third-party beneficiary.

Before trial, MSB and Jefferson settled their dispute and MSB dismissed its claims against Jefferson. Pursuant to the settlement, Jefferson paid MSB $65,000.00. Jefferson allocated $50,000.00 of the total $65,000.00 settlement to MSB's claim against Jefferson for failing to pay MSB a commission for locating Pacific as a buyer.

At trial the jury returned a verdict in favor of MSB on both its breach of contract and tortious interference claims against Andreola. The jury awarded MSB $119,000.00 for Andreola's tortious interference. This award was based on a finding of MSB's damages rather than a finding of Andreola's profits. The district court had refused a request by MSB that the jury be instructed to award damages based on Andreola's profits rather than MSB's damages. The jury also found that Andreola's interference was malicious and thus awarded punitive damages of $150,000.00. The jury further found that Andreola had promised Jefferson to share ten percent of its commission with MSB ($23,855.20), which promise Andreola subsequently breached.

The district court required MSB to elect recovery on either its tortious interference claim, or on its breach of contract claim. MSB elected recovery of the $119,000.00 in actual damages awarded by the jury for Andreola's tortious interference. The district court, over MSB's objection, then deducted from MSB's award the entire $65,000.00 Andreola had received in settlement from the Jefferson Company. The district court also denied MSB's request for an award of its attorney's fees. MSB filed timely notice of appeal and Daniel Andreola and The Andreola Companies cross-appealed. ⁴

II. MSB'S CONTENTIONS ON APPEAL

On appeal, MSB contends that the district court erred in (1) failing to instruct the jury as to an unjust enrichment measure of recovery for tortious interference; (2) deducting MSB's $65,000.00 settlement with Jefferson from MSB's recovery; and (3) refusing to award attorney's fees to MSB.

A. Measure of Damages for Tortious Interference

MSB first contends that it was entitled to recover the profits made by Andreola as a result of the tortious interference. Because Andreola received twice the commission that MSB would have received, Andreola's profits exceeded the damages suffered by MSB. The district court refused, however, to instruct the jury to award MSB those profits received by Andreola from the transaction. Instead, the district court instructed the jury to award damages based on MSB's loss. MSB contends that awarding damages based on MSB's loss was erroneous because to do so permitted the tortfeasor, Andreola, to retain a portion of the profits incurred as a result of its tortious conduct.

MSB's contention is not without some merit. Texas courts have refused in other contexts to permit a wrongdoer to profit from its wrongful conduct. See, e.g., Schwing v. Bluebonnet Express, Inc., 489 S.W.2d 279, 281 (Tex.1973) ("A beneficiary whose negligence contributed to cause the decedent's death will not be permitted to profit by his own wrong."); Kothmann v. Boley, 308 S.W.2d 1, 4 (Tex.1958) (lessors who wrongfully repudiate lessees' title will not be allowed to profit by their own wrong). Depriving a tortfeasor of its profits serves the policy of discouraging future wrongdoing while at the same time preventing the "unjust enrichment" of a wrongdoer. Recognizing the importance of these policies, several courts outside of Texas have approved, in particular circumstances, an award for tortious interference based on the defendant's profits. See National Merchandising Corp. v. Leyden, 348 N.E.2d 771 (Mass.1976). ⁵ See also Certified Laboratories of Texas, Inc. v. Rubinson, 303 F.Supp. 1014 (E.D.Pa.1969); Federal Sugar Refining Co. v. United States Sugar Equalization Board, Inc., 268 F. 575 (D.C.N.Y.1920).

Nevertheless, we conclude that under Texas law the district court properly measured MSB's recovery by the amount of actual loss suffered by MSB. Texas courts have observed that the aim of awarding damages for tortious interference is the same as that of awarding damages for breach of contract--that is, to place the injured party in the same economic position it would have been in had the contract not been breached. In Armendariz v. Mora, 553 S.W.2d 400, 406 (Tex.Civ.App.--El Paso 1977, writ ref'd n.r.e.), the Texas Court of Civil Appeals stated that:

The measure of damages for tortious interference with contract is the same as for breach of contract, the Court attempting to put the Plaintiff in the same economic position he would have been in had the contract...