Rayman v. American Charter Federal Sav. & Loan Ass'n

• Decision Date: 09 November 1994
• Docket Number: No. 4:CV91-3319.,4:CV91-3319.
• Citation: 866 F. Supp. 1252
• Court: U.S. District Court — District of Nebraska
• Parties: Steven M. RAYMAN and Springfield Properties Holding, Inc., Plaintiffs, v. The AMERICAN CHARTER FEDERAL SAVINGS & LOAN ASSOCIATION, now known as Metropolitan Federal Bank, FSB, Defendant.

866 F. Supp. 1252

Steven M. RAYMAN and Springfield Properties Holding, Inc., Plaintiffs, v. The AMERICAN CHARTER FEDERAL SAVINGS & LOAN ASSOCIATION, now known as Metropolitan Federal Bank, FSB, Defendant.

No. 4:CV91-3319.

United States District Court, D. Nebraska.

November 9, 1994.

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Rodney M. Confer, Knudsen, Berkheimer, Richardson & Endacott, Lincoln, NE, for plaintiffs.

Robert T. Grimit & Stephanie F. Stacy, Baylor, Evnen, Curtiss, Grimit & Witt, Lincoln, NE, for defendant.

MEMORANDUM AND ORDER

KOPF, District Judge.

Two postjudgment motions have been presented to me.

First is the motion of the defendant (American Charter) for judgment as a matter of law, or to alter or amend the judgment, or for new trial (Filing 162). I shall grant the motion in part and deny it in part.

I shall grant the defendant's motion for judgment as a matter of law under Federal Rule of Civil Procedure 50, and alter and amend the judgment regarding the so-called "anti-tying" claims under Federal Rule of Civil Procedure 59, finding that the evidence, when viewed in the light most favorable to the jury verdict, provides no legally sufficient evidentiary basis for concluding that the anti-tying violations proximately caused the claimed damages. I shall deny the balance of the motion.

The result of this action is to let stand the jury's verdict on the contract claims and the related award of $726,180 in damages, (Filing 153, ¶¶ I, II), but overturn the jury's award of $726,180 in damages for the anti-tying claims. (Id., ¶¶ III, IV.) In turn, granting the motion regarding the anti-tying violations requires me to set aside my prior decision to treble the damages and award attorney fees, which actions were solely predicated upon the jury verdict on the anti-tying claims. (Filing 160).

The second motion (Filing 174) is submitted by one of the plaintiffs, Springfield Properties Holding, Inc. (SPH), seeking review of the refusal of the Clerk of the United States District Court for the District of Nebraska to tax court-reporter fees of $804.75 for a trial transcript. I shall grant this motion and award SPH $804.75 in additional costs.

I.

Briefly summarized for the sake of clarity, the facts of this very complex case,¹ viewed most favorably to the jury verdict, are:

A.

Steven M. Rayman (Rayman) was a sophisticated developer of apartment complexes. He was also very experienced in lending and borrowing money. At various times he owned substantial interests in savings and loan associations. He had a lot of experience with so-called "WRAP" mortgages, which will be discussed more fully later. He is and was worth a good deal of money. Rayman owned all of SPH.

American Charter is a federally chartered savings and loan association. It is and was a relatively large financial institution by Nebraska standards. It did not, however, have much experience with WRAP mortgages.

In September, 1985, Crest Mortgage Corporation (Crest) made two loans to an entity known as Springfield Partners (Partners). Partners was unrelated to any of the parties in this suit.

The two loans from Crest totaled $1,850,000. One of the loans, in the sum of $1,000,000, was collateralized by a "first mortgage"² on an apartment complex in Springfield, Missouri (the Project). The other loan was collateralized by a "second mortgage" on the Project.

The second mortgage was also a "WRAP" mortgage — it "wrapped around" the first mortgage. The amount secured by the WRAP mortgage was $1,850,000, with $850,000 being "new money," or money in addition to the $1,000,000 from the first-mortgage loan. Under the terms of the WRAP mortgage, Partners was obligated to make payments of $1,850,000, plus interest, to the holder of the WRAP mortgage, who, in turn, was required to remit part of the payments to the holder of the first mortgage. The borrower also remained obligated to make the payments on the first mortgage in accordance with the terms of that mortgage. Thus, at a given point in time, Partners owed Crest $1,850,000, secured by two mortgages on the Project, the second mortgage being a "WRAP" mortgage.

The benefit of this type of WRAP arrangement to a junior lien holder is that if the documents so provide, the WRAP holder has the opportunity, but not the obligation, to cure the defaults of the borrower. This right of "cure" saves the junior lien holder from being "foreclosed out" should the senior debt holder choose to foreclose its mortgage and sell the property in the event of default by the borrower. Thus, if the junior lien holder is satisfied that there is "equity" to protect (the debt to the senior lien holder is worth less than the value of the property to the junior lien holder), the junior lien holder can cure the default of the borrower, foreclose the WRAP mortgage and take possession of the property from the borrower, while forcing the senior lienholder to "stay in place."

The senior debt holder may or may not find such a WRAP arrangement acceptable given a variety of economic considerations. If, for example, the senior debt holder is well secured (the property is clearly worth more than the debt owed the senior lien holder), the senior lien holder may view the WRAP structure as simply another avenue of payment for its debt (recognizing that the junior lien holder has the right, but not the obligation, to cure defaults). From the viewpoint of the senior lien holder, one "down side" to this WRAP structure is that the junior lien holder can force the senior lien holder to stay in the credit, despite default by the borrower, by curing the default of the borrower.

As long as both mortgages were held by Crest, there was no possibility of disagreement about which creditor had what rights because Crest held both the senior and junior debt and was receiving the mortgage payments directly. Later, however, both mortgages were sold by Crest. The first mortgage loan was sold to American Charter. Rayman later acquired ownership of the WRAP mortgage loan, which he subsequently transferred to SPH.

These matters were complicated by the fact that for a time Crest also serviced the first and second mortgages — that is, for a fee, Crest received payments from Partners on both mortgages and remitted the payments to the proper party. Rayman had a servicing agreement with Crest, and so did American Charter.

In an inter-creditor agreement, (Ex. 7), executed by American Charter and Crest, American Charter agreed, pursuant to paragraph 23, that it would not be an event of default under the first mortgage if the holder of the WRAP mortgage took title to the Project through foreclosure. The agreement did not, however, require American Charter to make a new loan to the WRAP holder. Nor did paragraph 23 require the WRAP holder to refinance the debt owed American Charter on the first mortgage in order to cure any defaults on the first mortgage.

The agreement, (Ex. 7), was entered into at time when Palm Beach Federal Savings Bank (Palm Beach), which was related to Crest, was the holder of the WRAP. Paragraph 23 of the inter-creditor agreement specifically stated that American Charter acknowledged the second-lien position of the WRAP mortgage then held by Palm Beach.

As noted, American Charter specifically agreed pursuant to paragraph 23 that if Palm Beach or an "affiliate"³ took title to the property through foreclosure, such would not be an event of default under the first mortgage. Paragraph 19 of this agreement made the inter-creditor agreement binding upon the successors and assigns of the parties.

Palm Beach later assigned to Rayman all of its rights "given to evidence or secure, or otherwise relating to, the indebtedness or the transactions described in the above-referenced Wrap-Around Promissory Note and other documents." (Ex. 23, ¶ 4.) American Charter specifically acknowledged and agreed to the assignment of Palm Beach's interests to Rayman. (Ex. 9.) Thus, Rayman, and later SPH, stood in the shoes of Crest and Palm Beach and had whatever rights those entities would have had pursuant to paragraph 23 of the inter-creditor agreement.

I found the inter-creditor agreement ambiguous as to whether paragraph 23 permitted the WRAP holder to cure a default by the borrower on the first mortgage, although the agreement seemed to suggest as much since it provided that foreclosure of the WRAP mortgage would not be an event of default on the first mortgage. In light of this ambiguity, I admitted parol evidence to construe paragraph 23.

The assistant vice president of American Charter who signed the inter-creditor agreement agreed with the plaintiffs that it was the intention of the parties to allow a cure by the WRAP holder. Accordingly, since there was no factual dispute as to what American Charter intended by the provisions of paragraph 23 of Exhibit 7, there was nothing to submit to the jury as a matter of fact regarding the meaning of the agreement. The plaintiffs wholeheartedly agreed with the interpretation given the agreement by the American Charter vice president who signed it.

Consequently, I instructed the jury, (see, e.g., Filing 149, Instruction 7, at 2), that the holder of the WRAP mortgage (read in light of the inter-creditor agreement and the first mortgage) was contractually entitled to cure a monetary default on the first mortgage and American Charter was contractually bound to accept the cure — provided that the cure was timely — before acceleration of the entire amount due on the first mortgage.

In late May, 1990, Crest notified Rayman and American Charter that it was terminating its servicing agreements. It is at that point that Rayman (and later his holding company, SPH) and American Charter became real adversaries.

B.

The plaintiffs' first theory of recovery was for a breach of the "anti-tying" provisions of the Home Owners' Loan Act (HOLA). 12 U.S.C. § 1464(q). See also 12 U.S.C. § 1971, et seq.

Rayman...