Martinez Tapia v. Chase Manhattan Bank, N.A.

• Decision Date: 19 August 1998
• Docket Number: No. 97-50439,97-50439
• Citation: 149 F.3d 404
• Parties: Roberto MARTINEZ TAPIA, et al., Plaintiffs, Roberto Martinez Tapia, individually and as a shareholder of Tellas Limited; Roberto J. Martinez Rocha, individually and as a shareholder of Tellas Limited; Rosa De Lourdes R. De Martinez, individually and as a shareholder of Tellas Limited; Tellas Limited, Plaintiffs-Appellants, v. THE CHASE MANHATTAN BANK, N.A.; Chase Bank & Trust Company (C.I.) Limited; The Chase Manhattan Private Bank; The Chase Manhattan Trust Corporation Limited; The Chase Manhattan Unit Trust; The Chase Manhattan Real Estate Fund, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 404

149 F.3d 404

Roberto MARTINEZ TAPIA, et al., Plaintiffs Roberto Martinez Tapia, individually and as a shareholder of Tellas Limited; Roberto J. Martinez Rocha, individually and as a shareholder of Tellas Limited; Rosa De Lourdes R. De Martinez, individually and as a shareholder of Tellas Limited; Tellas Limited, Plaintiffs-Appellants, v. THE CHASE MANHATTAN BANK, N.A.; Chase Bank & Trust Company (C.I.) Limited; The Chase Manhattan Private Bank; The Chase Manhattan Trust Corporation Limited; The Chase Manhattan Unit Trust; The Chase Manhattan Real Estate Fund Defendants-Appellees.

No. 97-50439.

United States Court of Appeals Fifth Circuit.

Aug. 19, 1998.

Rehearing Denied Sept. 18, 1998.

Roy R. Brandys, Peticolas & Shapleigh, Roger Claud Davie, El Paso, TX, Richard Burges Perrenot, Mayfield, Perrenot, Davie & Dennis, El Paso, TX, for Plaintiffs-Appellants.

Joseph L. Hood, Jr., George William Finger, Scott, Hulse, Marshall, Feville, Finger & Thurmond, El Paso, TX, for Defendants-Appellees.

Appeal from the United States District Court for the Western District of Texas.

Before POLITZ, Chief Judge, and DAVIS and DUHE, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Plaintiffs, Roberto Martinez Tapia et al., appeal the district court's grant of summary judgment to Defendants, The Chase Manhattan Bank, N.A. et al., dismissing Plaintiffs' suit arising out of their investment losses in a real estate unit fund. We find no error and affirm.

I.

Roberto Martinez Tapia is a successful Mexican businessman who lives in Durango, Mexico. From 1986 to 1992, Martinez Tapia served as the Secretary of Finance for the State of Durango, Mexico. Martinez Tapia's net worth was nearly $1 billion dollars. His assets included hotels located in both Mexico and the United States, hardware stores located in Mexico, various other real estate holdings, and stock in several companies.

In the early 1980s, Martinez Tapia began a financial relationship with Defendant Chase Manhattan Bank, N.A. ("Chase Bank"). Martinez Tapia initially sought advice from Antonio Moreno ("Moreno"), a Chase Bank Vice President in the Private Banking International Division. Over the next several years, Martinez Tapia invested conservatively in items such as certificates of deposit. Eventually, Moreno persuaded Martinez Tapia to diversify his investments to obtain higher returns. In order to facilitate these investments, Martinez Tapia agreed to obtain a private investment company. Moreno arranged for Martinez Tapia to take over a dormant Chase-owned private investment company, Tellas Limited ("Tellas"). Tellas had been organized under the laws of Jersey in the Channel Islands, and had previously been owned by Chase Bank & Trust Company (C.I.) Limited ("Chase Jersey"), a Chase Bank subsidiary.

In February of 1986, Martinez Tapia and his family executed a Company Management Services Agreement. Under the terms of this agreement, Chase Jersey provided nominal shareholders who held the Tellas stock in trust for Martinez Tapia, his wife, and his son. Chase Jersey agreed to provide management and administrative services that Martinez Tapia might require, including maintenance of corporate and financial records. More importantly, Chase Jersey agreed to invest Tellas's funds as directed by Martinez Tapia. Martinez Tapia did not authorize Chase Jersey to invest Tellas funds without his authorization.

In April of 1987, Martinez Tapia told Moreno he was disappointed in the return his investments had earned. Moreno and Martinez Tapia agreed to meet in El Paso, Texas on April 13, 1987 to discuss other investment opportunities. Manuel Martinez ("Martinez"), another Chase Bank employee, accompanied Moreno to the El Paso meeting. At this meeting, Moreno and Martinez told Martinez Tapia that he could obtain a better return by diversifying into more aggressive investments such as the Chase Manhattan Unit Trust ("Unit Trust"), and, more specifically, the Chase Manhattan Real Estate Fund ("Real Estate Fund" or "Fund").

During these discussions, Moreno and Martinez gave Martinez Tapia general information about the Real Estate Fund. Moreno and Martinez told Martinez Tapia that investment in the Fund was subject to a three-year minimum holding period and required Martinez Tapia to give one year's advance notice to redeem the investment. Moreno and Martinez provided Martinez Tapia with a sales brochure for the Real Estate Fund. This sales brochure provided that "[t]he offering is made only by the Offering Circular, which can be obtained only from Chase offices...." Both parties concede that Martinez Tapia neither requested nor read either the Offering Circular or the Subscription Agreement. However, language in both documents is important to this appeal because the district court concluded that knowledge of this language should be imputed to Martinez Tapia.

The Offering Circular limited each fundholder's right to redeem the units that the fundholder had purchased as follows:

Units may not be redeemed at the option of the Unitholders for a period of three years from their date of issuance. Thereafter, Units may be redeemed without charge upon twelve months' notice at the net asset value on the scheduled redemption date, which date shall be the first redemption date following the expiration of such notice period, unless postponed.... In order to safeguard the remaining Unitholders against the adverse effects of a hasty disposition of Fund assets, the Fund may postpone the scheduled redemption date for up to twelve months after the scheduled redemption date to complete the redemption of Units .... Management may suspend redemptions during any period when in its judgment conditions unduly interfere with the business or properties of the Fund or the equitable determination of net asset value. There will be no redemption fee or charge.

Thus, the Offering Circular expressly granted the manager of the Fund, Chase Manhattan Trust Corporation, Ltd. ("Chase Trust"), the authority to suspend redemptions indefinitely. The Offering Circular also discussed the restrictions on Unit redemption in a section entitled "Risk Factors."

After several hours of discussion with Moreno and Martinez, Martinez Tapia agreed to purchase $1.6 million dollars of Units in the Real Estate Fund. Martinez prepared a letter signed by Martinez Tapia confirming his purchase of the Real Estate Fund Units. The letter directed that all correspondence relating to the investment be sent to Moreno and Martinez in New York.

After returning to New York, Moreno arranged the purchase of the Units. Following the instructions in Martinez Tapia's letter, Chase Jersey executed a subscription agreement for $1.6 million dollars in Fund Units. The officers of Chase Jersey who executed the transaction read the Offering Circular and were aware of the rights vested in the manager to suspend or postpone redemption rights. During the next several months, Moreno and Martinez advised Martinez Tapia that his investments were performing well. In the fall of 1987, Martinez Tapia agreed to purchase an additional $1 million dollars in Fund Units. This purchase was executed in the same manner as Martinez Tapia's initial purchase.

In January of 1988, Martinez left Chase Bank and went to work with American Express International Bank ("American Express") in Miami, Florida. Martinez Tapia moved his accounts to American Express to continue dealing with Martinez. In March of 1988, American Express, on behalf of Martinez Tapia, began writing letters to Chase Bank and Chase Jersey directing that Martinez Tapia's investments be liquidated. In June of 1988, Chase Jersey informed Martinez Tapia that all of Tellas's investments had been liquidated, except for his investment in the Real Estate Fund. In response to Chase Jersey's letter, Martinez Tapia requested that all correspondence relating to Tellas and the investment in the Real Estate Fund be directed to American Express in Miami.

In July of 1989, Martinez Tapia requested that Tellas's Board of Directors redeem the Units in the Real Estate Fund and that the Board consider this request the one year advance notice required by the Offering Circular. Racquel Brookins, Martinez's assistant at American Express, wrote to Chase Jersey seeking confirmation that Martinez Tapia's Units would be sold in 1990 and that the proceeds would be transferred to American Express. Chase Jersey confirmed receipt of Martinez Tapia's instructions and advised American Express that the Tellas Units would be sold in October of 1990.

On July 5, 1990, Martinez sent a letter signed by Martinez Tapia to Chase Jersey inquiring about the status of the Real Estate Fund and the requested redemption. One day earlier, Chase Jersey had written American Express a letter advising American Express that redemptions of Units in the Real Estate Fund had been suspended, and therefore, that it could not honor Martinez Tapia's request to redeem Tellas's Units in the Real Estate Fund. Martinez Tapia concedes that some time in 1990, American Express advised him of Chase Jersey's letter and that redemptions in the Fund had been suspended.

On July 23, 1990, Chase Trust issued letters to all investors in the Real Estate Fund confirming that as of April 23, 1990, it had suspended all redemptions of Units in the Real Estate Fund. Chase Trust cited the declining American real estate market as the reason for the suspension. Following the suspension of redemptions, Chase Trust formulated a proposal to reorganize the Real Estate Fund. Chase Trust sent this proposal to each Unitholder along with proxy ballots. Martinez Tapia voted against the plan.

In October of 1990, Chase Trust notified all Unitholders that the plan of reorganization had been approved. The plan provided for no new subscriptions and a queue system to honor redemptions in the order that they had been requested. From December of 1990 to March of 1991, American Express...