Rivercity v. American Can Co.

• Citation: 600 F. Supp. 908
• Decision Date: 12 April 1984
• Docket Number: Civ. A. No. 78-1014.
• Parties: RIVERCITY v. AMERICAN CAN COMPANY.
• Court: U.S. District Court — Eastern District of Louisiana

600 F. Supp. 908

RIVERCITY v. AMERICAN CAN COMPANY.

Civ. A. No. 78-1014.

United States District Court, E.D. Louisiana.

April 12, 1984.

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Sidney W. Provensal, Jr., New Orleans, La., for plaintiff and The French Eighth.

Monroe & Lemann, Jerry A. Brown, A. Justin Ourso, III, New Orleans, La., for American Can Company.

Milling, Benson, Woodward, Hillyer & Pierson, John C. Christian, James K. Irvin, W. Richard House, Jr., New Orleans, La., for Whitney National Bank of New Orleans.

OPINION

ARCENEAUX, District Judge.

Plaintiff, Rivercity, a Louisiana ordinary partnership, instituted this removed diversity-based suit against American Can Company ("American"), a New Jersey corporation, with its principal place of business in a state other than Louisiana, seeking damages for alleged breach of contract.

Rivercity claims to have lost $2,777,128.44 as a result of American's failure to honor an option on certain real property in New Orleans on which the Jackson Brewery, owned originally by Jackson Brewing Company ("Jax"), was located. American subsequently filed a third party complaint against French Eighth, a Louisiana ordinary partnership, for indemnity and contribution.¹ A further exposition of the facts is set forth In the Matter of Jackson Brewing Co., 567 F.2d 618 (5th Cir.1978). This litigation is no stranger to the courts of this district.

A trial before the Court without a jury commenced on June 27, 1983. The Court deferred ruling on defendant's motion for involuntary dismissal under Fed.R.Civ.P. 41(b), and, at the close of all evidence, took the entire matter under submission. Having throroughly reviewed the evidence, the transcript, the memoranda of counsel and the applicable law, the Court now rules that:

1. American's motion for involuntary dismissal is denied; and

2. Judgment will be entered in favor of defendant and against plaintiff, for reasons hereinafter set forth;

3. American's third-party claims against French Eighth partnership are dismissed as moot.

FACTS²

Prior to December 9, 1970, the Jackson Brewing Company had been essentially a family business, owned and operated by the Fabacher family of New Orleans. Its principal product was a widely consumed beer bearing the brand name "Jax". On December 9, 1970 the Fabacher family sold all of the outstanding brewery stock to JBC Inc., a corporation whose stock was wholly owned by a Mr. and Mrs. James Howard. Shortly thereafter, allegedly on January 1, 1971, Jax granted an option to Rivercity to purchase a certain parcel of real property located on the riverside of Decatur Street in the French Quarter, then owned by Jax. The recited consideration for the option was $1,000 (Exh. RC 1). The option could only be exercised during the period January 1, 1975 — January 31, 1975. The stated purchase price in the option was stated to be $2,777,128.44. The Rivercity partnership was comprised of Thomas C. Farrell, Jr., Paul A. Nalty, Margaret A. Perez³ and JBC, Inc. Farrell and Nalty were designated managing partners of Rivercity. They were also members of the Board of Directors of Jax at the time the option was granted. Nalty, an attorney, held partnership status in a New Orleans law firm which was counsel for Jax, Rivercity and JBC, Inc. and French Eighth. (Tr. 140-144).

The relationship between American and Jax at the time the option was allegedly granted was that of supplier and customer; American supplied containers to Jax into which Jax placed its beer. In fact, Jax was a major customer of American in the New Orleans area. Therefore, when in early 1970 Jax began to have financial problems, American allowed it to defer payments. Later, when Jax needed to borrow over $5 million to pay the National Bank of Commerce which had financed the JBC, Inc. acquisition of the brewery's stock, American "introduced" Jax to the Whitney National Bank (Whitney).⁴ Thereafter, on September 8, 1971, the Whitney loaned $5.2 million to Jax. This loan, was secured by pledges of the Jax stock, and security interests in both the movable and immovable property owned by Jax. In making the loan to Jax, the Whitney asked for and received a "take-out" commitment from American which in effect provided that should the Whitney become "uncomfortable" with the Jax loan, American would "take-out" the Whitney. (Exh. RC 23).

Also on September 8, 1971, certain letters were exchanged between the Whitney and Rivercity (Exhs. RC 13 and 14). These letters represent the basis of plaintiff's claim.

Plaintiff maintains that these letters, which contain identical language regarding Rivercity's right to purchase "real property" owned by Jax, contractually obligated American to honor the option granted by Jax to Rivercity.

In May of 1974 the Whitney expressed its lack of comfort with the Jax loan, and requested that American fulfill its take-out promise. American promptly complied, became substituted by assignment from the Whitney as the Jax creditor, and thereby acquired the bank's first lien position as to the collateral securing the loan. By June 3, 1974, the financial condition of Jax had further deteriorated. American called the loan and proceeded against the Jax stock, pledged as collateral. American subsequently acquired all of that stock as the only bidder at a public foreclosure sale of the stock, and thereby became the sole stockholder of Jax.

On November 13, 1974, Jax was adjudicated a bankrupt. On January 31, 1975 the trustee in bankruptcy was notified in writing that Rivercity was exercising its rights under the option. The trustee rejected the option as a burdensome, executory contract. That rejection was upheld. In the Matter of Jackson Brewing Co., supra.

Thereafter, on May 2, 1978, American bought the property in question from the trustee in bankruptcy for $5.5 million in debt receipts. On February 6, 1982, American sold the property to a third party for $5.55 million.

Plaintiff sued American in state court on March 2, 1978; the case was removed to this court on March 29, 1978.

Rivercity's complaint alleges that American breached obligations originally undertaken by the Whitney in connection with the above referenced loan; Rivercity claims that the Jax-Whitney loan was at all times, essentially a Jax-American loan, because the Whitney was American's agent, thus binding American under applicable principles of Louisiana agency law.

American denies any agency relationship with the Whitney, but alternatively asserts that even if there were, the so called option agreement was null and void from the beginning.

The Court turns first to the agency claims.

NO AGENCY—NO CONTRACT

A letter of September 8, 1971 from the Whitney⁵ to Rivercity contains the following language: (Exh. RC 13)

"Whitney and Jackson specifically take cognizance of the fact that the rights of Rivercity to purchase "real property" as described in the option are now and shall remain at all times hereafter superior to and shall prime any and all rights of Whitney under the Act of Collateral Mortgage, and the Note paraphed for identification therewith, and the Act of Subordination.

Plaintiff maintains that the Whitney was the agent of American and that therefore American is bound by the obligation expressed in the letter.⁶

Though there is clearly no reference to American in this document, Rivercity maintains that it was generally acknowledged among all parties, including American, that the agreement was to bind all of them. Rivercity acknowledges that there was no express mandate establishing an agency relationship between American and the Whitney, but it nevertheless maintains that such a relationship did, in fact, exist and can be established through application of other jurisprudentially recognized principles—namely implied agency, apparent agency and ratification. Plaintiff has correctly identified phraseology which has meaning within Louisiana agency law, or more properly, the Louisiana law of mandate—but for simplicity herein, referred to as "agency". However the use of these phrases is, at best confused.

Under Louisiana law, an agent is one who acts for or in the place of another by virtue of authority from the latter. Intercontinental Engineering Mfg. v. C.F. Bean, 647 F.2d 621, 628 (5th Cir., 1981). Craft v. Trahan, 351 So.2d 277, 281 (La. App. 3rd Cir.1977). Generally, agency law is applied where an actual agency relationship is in existence, that is, when there has been a meeting of the minds between agent and principal regarding the creation and scope of the agency. Agency may be either express or implied but it nevertheless is actual and binds both parties. Busby v. Walker, 84 So.2d 304, 307 (La.App. 2nd Cir.1955), writ denied. Broadway v. All-Star Insurance Company, 285 So.2d 536 (La.1973).

In the instant case plaintiff concedes that there is no evidence of an express or formal establishment of agency between the Whitney and American. Plaintiff maintains, however, that there was an implied agency in existence, that is, an actual agency, created by the circumstances. It bases that claim on the testimony of Ed Jackson, local credit manager for American, and on correspondence between Jackson and counsel for American.⁷

At trial, Jackson testified that he had no recollection of seeing either the original option agreement or the September 8 letter from the Whitney to Rivercity nor could he recall ever being asked to ratify the September 8 letter. (Tr. 345-346). Under cross-examination he admitted signing a document marked "Receipt", dated May 22, 1974, (Exh. RC 44) wherein American acknowledged receiving the promissory notes of Jax from the Whitney as a result of the American "take out". This receipt document itemizes the various notes and agreements affecting the original loan to Jax. One of the items listed was the letter of September 8, from the Whitney to Rivercity. Jackson also stated that he doubted he had seen the original loan agreement...