Neeley v. Bankers Trust Co. of Texas

• Decision Date: 15 April 1985
• Docket Number: Nos. 1 and 2,Nos. 83-1809,Nos. 1,84-1356 and 84-1357,s. 1,s. 1 and 2,s. 83-1809
• Citation: 757 F.2d 621
• Parties: Stanley L. NEELEY, Individually and T/N SN Associates, Plaintiff-Appellee Cross-Appellant, v. BANKERS TRUST COMPANY OF TEXAS, etc., et al., Defendants-Appellants Cross-Appellees. Stanley L. NEELEY, Plaintiff-Appellant, v. BANKERS TRUST COMPANY OF TEXAS, Clint W. Murchison, and TeCe Corporation, A Nevada corporation, Defendants-Appellees. Stanley L. NEELEY, Individually and T/A SN Associates, Plaintiffs-Appellees, v. BANKERS TRUST COMPANY OF TEXAS as Successor Trustee of Henry Gilchrist, Original Trustee of Murchison Children Trusts (Truststhrough 4) and Robert Trust and Marco Trusts (Trustsand 2), et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 621

757 F.2d 621

Stanley L. NEELEY, Individually and T/N SN Associates, Plaintiff-Appellee Cross-Appellant, v. BANKERS TRUST COMPANY OF TEXAS, etc., et al.,

Defendants-Appellants Cross-Appellees.

Stanley L. NEELEY, Plaintiff-Appellant, v. BANKERS TRUST COMPANY OF TEXAS, Clint W. Murchison, and TeCe

Corporation, A Nevada corporation, Defendants-Appellees.

Stanley L. NEELEY, Individually and T/A SN Associates, Plaintiffs-Appellees, v. BANKERS TRUST COMPANY OF TEXAS as Successor Trustee of Henry

Gilchrist, Original Trustee of Murchison Children Trusts

(Trusts Nos. 1 through 4) and Robert Trust and Marco Trusts

(Trusts Nos. 1 and 2), et al., Defendants-Appellants.

Nos. 83-1809, 84-1356 and 84-1357.

United States Court of Appeals Fifth Circuit.

April 15, 1985.

Jenkens & Gilchrist, William D. Sims, Jr., Brian H. Hurst, Dallas, Tex., for plaintiffs.

Michael F. Pezzulli, Dallas, Tex., Peter J. Messitte, Susan L. Launer, Chevy Chase, Md., for defendants.

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

Before GOLDBERG, POLITZ and WILLIAMS, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

This diversity case teaches anew the importance of getting it in writing. Although the parties did not observe that aphorism, a jury found that appellee Stanley L. Neeley and appellant Clint W. Murchison, Jr., had entered into a contract entitling Neeley to a number of benefits associated with his employment by Optimum Services, Inc. (OSI), a company that Murchison and his family controlled. The jury also determined that Murchison fraudulently induced Neeley into making the agreement. The district court entered judgment for Neeley largely in accordance with the jury's findings, but it overruled part of the verdict by finding

two terms of the contract too indefinite for enforcement and by disallowing fraud damages that it found duplicated the contract award. We hold that the vagueness of some of the terms of the putative agreement vitiated the whole. We further hold, however, that Murchison remains liable for the fraud he practiced upon Neeley. We also modify the judgment to the extent our holding makes the changes necessary. Accordingly, we reverse in part, affirm in part, and remand for further proceedings.

FACTS

Neeley's association with OSI eventually brought him into contact with Murchison. A California corporation with headquarters in Santa Clara, OSI provided computer services to other companies and to government agencies. Neeley joined OSI in 1968, and from 1974 until his resignation in June 1979 he served as its president. Throughout Neeley's presidency, Murchison functioned as chairman of the OSI board of directors. The Murchison family controlled OSI through holdings of common stock and indirectly through the stock holdings of trusts that Murchison and his brother had set up for the benefit of their children.

In 1974 and 1976, Neeley bought almost 800,000 shares of OSI common stock through an OSI executive incentive plan. He financed the 1976 purchase by executing seven promissory notes totalling some $50,000 payable to the children's trusts. Neeley simultaneously signed an option agreement entitling him to sell his stock to the trusts either at a floor price or at a price that varied according to the profitability of OSI during its 1977 fiscal year. ¹ Under this 1976 "put" agreement, Neeley could exercise his option to sell only during the period from July 31, 1977, through the sixtieth day after OSI's independent auditors "certified" the financial statements of the company.

Neeley did exercise his put option, and his action generated the series of transactions underlying this suit. A few days before OSI's independent auditors certified the financial statements of the company, on March 3, 1978, Neeley duly notified the trusts of his intention to put his stock to them under the terms of the 1976 agreement. Two or three days later, Murchison called from his Dallas office to ask Neeley to reconsider his action. Neeley agreed to come to Dallas from his office in Washington, D.C., to discuss the matter. A few weeks later, in late March or early April of 1978, Neeley met in Dallas with Murchison and William R. Roach, another OSI officer who had given notice of his intention to exercise a virtually identical put option.

The discussions among Neeley, Murchison, and Roach produced an oral agreement. Neeley and Roach agreed to withdraw their puts and to waive their rights under the 1976 agreement. Murchison's part of the bargain comprised five promises. He undertook, first, to negotiate a new put option contract, the value of which would rise or fall with the fortunes of OSI over a five to ten year period. ² The second promise assured Neeley and Roach that they would receive, upon exercising the new put option, at least the amount to which the 1976 agreement entitled them. Murchison agreed, third, to arrange immediate loans of $350,000 each to Neeley and Roach from OSI. Fourth, Murchison would secure an increase in their OSI salaries in an amount sufficient to offset their interest payments on the loans. Finally, Murchison promised to review their salary and bonus packages. Neeley left the negotiations with the understanding that he, Murchison, and Roach would later work out the details of the new agreement.

This 1978 oral agreement bore little fruit. Murchison arranged the two $350,000 loans as part of a credit package to OSI from a Neeley fulfilled his part of the bargain. The bank's refusal to provide the credit without the personal guaranty of Murchison's brother had supplied the impetus for Neeley's waiver of his old put option. The brother had demanded that Neeley and Roach execute waivers before he would make the guaranty, and Murchison used that demand to induce Neeley and Roach to withdraw their puts and waive their rights despite Murchison's failure to reduce his new agreement with them to writing. Neeley thus executed a waiver on June 21, 1978. In all other respects, the 1978 agreement failed; Murchison did not deliver on his other promises.

                California bank.  The company extended the loan shortly before the bank approved the credit, and Neeley executed a demand, non-recourse note for $350,000 to OSI on May 11, 1978. 3   Neeley's stock provided the only security for the loan;  the non-recourse provision in the note absolved him of personal liability for repayment
                

For Neeley, the failure did not attain finality until after his 1979 resignation from OSI. He continued to pursue the matter with Murchison. On each occasion, Murchison assured him that he (Murchison) would soon complete a draft contract. Neeley received such a draft in March 1979, but it bore little resemblance to the terms the parties had negotiated a year earlier. The draft established a floor value for Neeley's stock, but it did not set out a formula for increasing the value according to the profitability of OSI, and it contained a clause that would bar Neeley from competing with OSI for business should he leave OSI's employ. No one had mentioned before such a restrictive provision.

Further discussions proved unavailing both before and after Neeley's resignation in June 1979, and the parties eventually resorted to litigation. Murchison started the court proceedings by suing Neeley and Roach in federal court in the Northern District of Texas. Neeley had that action dismissed as to him because the court lacked personal jurisdiction. He then returned the favor, suing Murchison on his home ground, the federal district court for the District of Columbia. That court had no personal jurisdiction over Murchison, and it accordingly dismissed Neeley's action. Neeley then brought this suit on February 19, 1982, seeking specific performance of the 1978 agreement, damages for Murchison's breach of that contract and for his fraud in inducing Neeley to enter into it, as well as exemplary damages.

After the parties had presented their evidence at trial, the district court submitted twenty interrogatories to the jury. The jury's answers found in favor of Neeley in all material respects. The response to Question No. 5 constituted a finding that Murchison and Neeley entered into a contract in 1978. The answers to Questions 6 through 10 represented findings that the agreement consisted of four promises on Murchison's part and that Murchison's breach of the contract damaged Neeley in the amount of $2,263,420.30. In responding to Questions 11 through 16, the jury found that Murchison had made the promises to Neeley with fraudulent intent and awarded compensatory damages of $300,156.00. The jury also awarded Neeley $750,000.00 in exemplary damages, bringing the total to $3,313,576.30.

The district court entered judgment only partially in accordance with the jury's findings. The court first held that under Texas law, which governs in this diversity case, Neeley produced sufficient documentation of the agreement to satisfy the statute of frauds. It also found, however, that Murchison's promises to negotiate a higher put option value and to review Neeley's salary and bonus package lacked sufficient definiteness for enforcement. Holding that the "basic purpose of the contract was to insure that Neeley receive[ ] at least $683,932.00 for his stock at some time in the future," the court nonetheless upheld the remainder of the agreement, entering judgment on the breach claim for $1,488,233.00 less than the jury had awarded. The court Neeley later petitioned the district court for prejudgment interest pursuant to Tex.Rev.Civ.Stat.Ann. art. 5069-1.03 (Vernon Supp.1985), and for attorney fees pursuant to Tex.Rev.Civ.Stat.Ann. art. 2226 (Vernon Supp.1985). The court denied the prejudgment interest request, finding that Neeley had failed "to show a definite date on which his loss or injury occurred" and that "the amount of [Neeley's] damages was not definitely ascertainable" as of such a date. The court also denied part of...