Phenix Federal Sav. & Loan Ass'n, F.A. v. Shearson Loeb Rhoades, Inc., HANSEN-FRIEDRICHSE
| Decision Date | 09 September 1988 |
| Docket Number | HANSEN-FRIEDRICHSE,Nos. 86-1407,INC,s. 86-1407 |
| Citation | 856 F.2d 1125 |
| Parties | , 12 Fed.R.Serv.3d 692, RICO Bus.Disp.Guide 6890 PHENIX FEDERAL SAVINGS & LOAN ASSOCIATION, F.A., Appellant, v. SHEARSON LOEB RHOADES, INC., k/n/a Shearson/American Express, Inc., Appellee.; Dallas County Alcohol; Jerry Hansen; Yvonne Hansen; Haupert Livestock, Inc.; and Donald E. and Eloise Haupert, Appellants, v. SHEARSON LOEB RHOADES, INC., k/n/a Shearson/American Express, Inc., Appellee. SHEARSON LOEB RHOADES, INC., k/n/a Shearson/American Express, Inc., Appellant, v. PHENIX FEDERAL SAVINGS & LOAN ASSOCIATION, F.A.; Hansen-Friedrichsen, Inc.; Dallas County Alcohol; Jerry Hansen; Yvonne Hansen; Haupert Livestock, Inc.; and Donald E. and Eloise Haupert, Appellees. to 86-1409. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Robert T. Haar, St. Louis Mo., for appellant.
Stephen Greiner, New York City, for appellee.
Before McMILLIAN, ARNOLD and BOWMAN, Circuit Judges.
This case developed from a complex series of financing deals for three ethanol plants in Iowa. The trial was bifurcated, the liability phase being tried first. The jury found that Shearson Loeb Rhoades, Inc., negligently misrepresented to the owners of the plants, Leonard Conrad, Jerry Hansen, and Donald E. and Eloise Haupert, and their related companies, that it would secure permanent financing of the plants by underwriting industrial development bonds. Shearson was also found to have broken a contract to provide this financing. In addition, the jury found that Shearson had negligently misrepresented to Phenix Federal Savings & Loan Association, which had provided interim construction financing for the plants, that it would "take out" Phenix by providing permanent financing. Finally, the jury found Shearson liable to Phenix for failing to secure permanent financing on the theory of promissory estoppel.
After the jury had assessed the plaintiffs' damages in the damages trial, the District Court 1 ruled on Shearson's motion for judgment n.o.v., granting it in part and denying it in part. Only part of that ruling is at issue here. Conrad and his related companies have settled with Shearson and dismissed their appeal. In addition, after oral argument Shearson and the Hauperts settled their part of the case, so it is no longer before us. The Hansen plaintiffs (whom we shall call "Hansen" for convenience) claim that the Court erred in granting judgment n.o.v. on their verdicts for breach of contract and in dismissing (before trial) their civil RICO claims, and Hansen argues further that the Court erred in granting judgment n.o.v. on his damages award for loss of credit reputation. Phenix argues that the Court erred in offsetting its damages against the proceeds of a subsequent bond issue that it had helped to arrange as a vehicle for permanent financing of the ethanol plants. As a defensive manuever, Shearson argues in its cross-appeal that, in the event we reverse any part of the judgment favorable to it, the District Court erred in denying its motion for judgment n.o.v. on other grounds it raised. Shearson also urges on cross-appeal that the judgment in favor of Hansen should be reversed or reduced for various reasons.
We affirm in all respects.
We turn first to the appeals of Hansen. As we noted, the jury found Shearson liable to him for breach of contract and negligent misrepresentation. Hansen and Hansen-Friedrichsen, Inc., together were awarded $3,801,105.95 on the contract claim, and $2,801,105.95 (the same damages, less $1 million for loss of credit reputation) on the tort claim. Since the jury had found that these plaintiffs were in part responsible for their damages because of their own negligence, the Court reduced the awards for negligent misrepresentation by the percentage of their fault. No one complains about this reduction.
Despite this reduction of the negligent-misrepresentation verdict, the full damages awards would still have been recoverable for breach of contract. But the Court granted judgment n.o.v. on the contract verdict, and this action prompted Hansen's appeal. Review of this ruling requires a brief discussion of the facts. Leonard Conrad was the "point man" for the three in their search for permanent financing. Through the fall of 1980, he negotiated with an officer of Shearson, and in December of that year the discussion culminated in a letter agreement between Shearson and Conrad Industries, Inc., a company Conrad had formed to build the ethanol plants, that Shearson would finance one of the plants, Van Buren County Alcohol. (Shearson also agreed to finance the other two plants, which would be owned by Hansen and Haupert, but those plants were never built, and Shearson's promise therefore never ripened into a duty to provide financing.) Conrad signed the agreement in his capacity as president of Conrad Industries.
This was the only agreement on which the jury could have based the contract verdict in favor of Hansen. But since he was not a party to the agreement, he had to search for other theories on which to base his claim. The Hansen plaintiffs found two; they alleged that they were third-party beneficiaries of the agreement to finance Van Buren County Alcohol and also that they were undisclosed principals whose agent, Conrad, had negotiated that agreement on their behalf. Plaintiffs put on evidence to support these theories, and the Court put the issues to the jury on special interrogatories asking (1) whether they had proved that Conrad, acting on their behalf, signed the letter as their agent, and (2) if not, then (and only then) whether they had proved that they were intended third-party beneficiaries of the agreement to finance Van Bureau County Alcohol. The jury found for Hansen and Haupert on the agency theory, so it did not reach the third-party beneficiary theory.
In granting judgment n.o.v., the Court held the evidence insufficient, as a matter of law, to prove that Conrad acted as an agent in signing the letter agreement. It ruled further that it was unnecessary to have a new trial to present the third-party beneficiary claim to a jury because the evidence on that issue was also legally insufficient. We find no error in these rulings. The December letter on its face shows that Conrad accepted the agreement as an officer of Conrad Industries. J.A. 533. Hansen's and Haupert's evidence of the alleged agency consisted primarily of the longstanding business and personal relationships they had had with Conrad over the years. But friends and business associates are not ipso facto legal agents for one another; though they may have deep trust and confidence in one another, they are not automatically invested with the (legally) greater power to bind each other to contracts.
Nor did the Court err in taking the third-party beneficiary issue from the jury. As Hansen acknowledges, under Iowa law "[t]he real test is ... whether the contracting parties intended that a third person should receive a benefit which might be enforced in the courts." Bailey v. Iowa Beef Processors, Inc., 213 N.W.2d 642, 645 (Iowa 1973), cert. denied, 419 U.S. 830, 95 S.Ct. 52, 42 L.Ed.2d 55 (1974). The nearest that the evidence comes to showing this is the natural inference that Conrad, as the friend of Hansen and Haupert, hoped that they would profit by building the ethanol plants. But this falls short of the legal standard. There was no evidence to support a reasonable inference that Shearson intended that they benefit from the agreement with Conrad Industries to finance the Van Buren plant. Viewing these rulings with the degree of deference that they deserve (since they are applications of state law by a district judge sitting in that state), we find no error.
We also hold the Court was correct to dismiss the RICO counts that Hansen alleged. Our decisions require that a RICO plaintiff prove at least two separate schemes in order to demonstrate that a plaintiff has engaged in a "pattern" of racketeering activity within the meaning of the RICO statute. See, e.g., Holmberg v. Morrisette, 800 F.2d 205 (8th Cir.1986), cert. denied, --- U.S. ----, 107 S.Ct. 1953, 95 L.Ed.2d 526 (1987); Superior Oil Co. v. Fulmer, 785 F.2d 252 (8th Cir.1986). The allegation here, that Shearson engaged in a course of fraudulent conduct relating to the financing of ethanol plants, amounts at most to an allegation of a single "scheme" under our cases, and therefore fails to state a claim.
Finally, we affirm the Court's grant of judgment n.o.v. on Hansen's $1 million jury verdict for loss of credit reputation. The Court stated, as a ground for this ruling, that "it is doubtful whether the Iowa Supreme Court would recognize loss of credit reputation as an element of damage in the absence of proof of malice or reckless disregard." Conrad Industries, Inc. v. Shearson Loeb Rhoades, Inc., Civil No. 82-383-A (S.D.Iowa Jan. 16, 1986), slip op. at 8. Hansen expends considerable energy arguing that this was an erroneous ruling of Iowa law. But we need not reach that issue, for the jury awarded Hansen loss-of-credit-reputation damages only on the breach-of-contract action; it expressly found that he suffered no loss of credit reputation as a result of Shearson's negligent misrepresentation. J.A. 286. As the Court ruled, without the contract verdict, there is no basis in fact for Hansen to recover that element of damages.
We turn now to Shearson's cross-appeal in the Hansen case. To the extent that this cross-appeal simply asserts an additional ground for upholding the judgment in Shearson's favor on the contract claim, we need not decide it. We have already upheld this judgment, for reasons given in Part I of this opinion. But Shearson's cross-appeal also challenges the judgment in favor of the Hansens for negligent misrepresentation, and that challenge has independent significance and must be addressed....
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