Tschira v. Willingham

• Decision Date: 03 February 1998
• Docket Number: No. 96-5537,96-5537
• Citation: 135 F.3d 1077
• Parties: 48 Fed. R. Evid. Serv. 981 Klaus TSCHIRA and Gerda Tschira, Plaintiffs-Appellees, v. Ben H. WILLINGHAM, Jr. and Corim, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1077

135 F.3d 1077

48 Fed. R. Evid. Serv. 981

Klaus TSCHIRA and Gerda Tschira, Plaintiffs-Appellees, v. Ben H. WILLINGHAM, Jr. and Corim, Inc., Defendants-Appellants.

No. 96-5537.

United States Court of Appeals, Sixth Circuit.

Argued April 24, 1997.

Decided Feb. 3, 1998.

Grant Smith (argued and briefed), John A. Ascione (briefed), Smith & Ascione, Nashville, TN, for Defendants-Appellants.

Paul E. Summit (argued and briefed), Graham & James, New York City, Barbara J. Moss (briefed), Gullett, Sanford, Robinson & Martin, Nashville, TN, for Plaintiffs-Appellees.

Before: MERRITT, RYAN, and FLOYD R. GIBSON, ^* Circuit Judges.

OPINION

FLOYD R. GIBSON, Circuit Judge.

In this case, a jury found that Appellants, Corim, Inc. a real estate investment firm, and its President, Ben H. Willingham, Jr., ¹ breached a fiduciary duty and committed fraudulent misrepresentation during the course of a real estate transaction between Appellants and Appellees, Klaus and Gerda Tschira, ² citizens and residents of Germany. Appellants contend that the district court made the following errors: (1) incorrectly instructed the jury that a fiduciary relationship existed between Willingham and the Tschiras; (2) improperly allowed the Tschiras to introduce into evidence bank statements tending to show Corim's deception of other investors; (3) incorrectly refused to direct a verdict in appellants' favor on the issue of intentional misrepresentation; and (4) improperly refused to answer several questions posed by the jury during deliberations; and (5) improperly refused to grant Appellants' post-trial motion to interrogate the jury. Because we conclude that the district court ³ ruled correctly on each of these issues, we affirm.

In 1988, Klaus Tschira benefitted financially when the company he helped to create, SAP AG ("SAP"), went public in Germany. In search of investment opportunities, Klaus learned through a German real estate broker, Claus Schenk, that Appellants were soliciting investors for commercial property in the southeastern United States. Intrigued by this information, Klaus, who was joined by other SAP founders, attended a meeting in Walldorf, Germany at which Willingham, who speaks fluent German, made a presentation. According to trial testimony, Willingham explained that Corim proposed to obtain buildings for purchase by investors at a "fair market price"; Corim then intended to enter into management contracts with the new owners. By the terms of the management contracts, Corim and Willingham would lease the buildings from the investors and, in return, would then pay the investors a contractually established rent amounting to approximately eight percent annually of the purchase price of the building. Klaus testified that he inquired as to how Willingham and Corim would earn a profit, and Willingham responded that Corim would receive revenue via the difference between the rents Corim would charge for its subleases and the rent Corim itself paid the investors.

The Tschiras found the investment attractive and initially agreed to buy four buildings in various southern cities and lease those properties back to Corim. The Tschiras did not procure independent American counsel for these transactions, as they claim to have regarded Willingham as their trusted agent. Indeed, whether Willingham was or was not the Tschiras' agent is a disputed issue in this case. The controversy centers around a Letter (the "Letter") which was originally drafted by Berthold Wipfler, the Tschiras' tax advisor, and which the parties used in each of their transactions. The Letter, transcribed in German, was expressly designed to confirm in detail "all rights, obligations agreements, etc. concerning" the property purchase at issue. J.A. at 181. At one point, the Letter clarifies that the "auftragsverhaltnis" between Willingham and the Tschiras would be governed by German law, but that American law would control all other aspects of the deal. The meaning of "auftragsverhaltnis" is at the heart of this appeal. The Tschiras contend that the parties intended for the term to create a German law "mandate relationship," similar to an agency relationship in the United States, with all of its concomitant fiduciary duties, between the persons involved. Willingham, on the other hand, strenuously asserts that the term was solely meant to convey that the parties stood in the position of buyer and seller and that the "auftragsverhaltnis" actually means "contractual relationship."

In late 1990, Schenk brought Klaus a Corim brochure about One Church Street, a Nashville, Tennessee property. The brochure advertised One Church Street as a five story commercial building erected in 1872, available for $1,985,000. The pamphlet described the property as having "a special architectural character" and said the building had been "recently renovated with substantial effort and expense." J.A. at 358. Corim guaranteed rent payments of $158,000 the first two years of the lease back, $165,000 the third and fourth years, and $171,000 the fifth year. The Tschiras expressed interest, and soon thereafter they received the Letter from Willingham. The document guaranteed that the building would be "insured sufficiently, so that it can be restored from the proceeds of the insurance in the event of destruction or damage." J.A. at 182. The final paragraph of the letter states that "[t]he powers of attorney given to us will only be used according to the forthcoming agreement." Id. Willingham had signed the copy of the Letter he mailed to the Tschiras. After reviewing the available materials, the Tschiras decided to invest in the property. They did not, however, secure independent counsel for the deal, visit One Church Street prior to the purchase, or obtain an appraisal from any source other than Corim.

The Tschiras and Corim subsequently entered into a Purchase Agreement for the Nashville property. They simultaneously executed a Management Agreement for the building. As arranged by the signatories, the Tschiras' funds for the purchase were to flow through a fiduciary account maintained at First Federal Bank in Brunswick, Georgia. The Tschiras sent a letter to First Federal authorizing the bank to release the funds only upon presentation of, among other things, documents showing a transfer of the property to the Tschiras by warranty deed, confirmed by a title insurance binder. In the Tschiras' absence, Willingham orchestrated the property's closing on December 14, 1990.

Several years later, the Tschiras discovered other details surrounding the sale of the Nashville building. Namely, they learned that two closings occurred on December 14, 1990. In the first, One Church Street, Inc., a shell corporation owned by Corim and Willingham, purchased the property from its owner, First Atlanta Services Corporation. The selling price in this deal was $774,000. In the second transaction, One Church Street, Inc. sold the building to the Tschiras for $1,985,000. Schenk, the German national who referred the Tschiras to Corim, received a $79,400 commission from Corim for his part in the sale. Willingham admitted at trial that the Tschiras were never advised that the shell company purchased the property and then resold it for an instant profit of $1,211,000. When the Tschiras became aware of these facts in the Spring of 1992, they canceled the Management Agreement with Corim and brought the instant lawsuit. In 1995, the Tschiras sold One Church Street for $665,000.

In their Complaint, the Tschiras claimed that Corim and Willingham breached a fiduciary duty they owed to them pursuant to the "mandate relationship." In a separate count, they asserted that the Appellants committed the tort of intentional misrepresentation. Two key pieces of evidence at trial were the title and liability insurance policies issued for One Church Street. The title insurance policy Willingham forwarded to the Tschiras indicated that the Ticor Title Insurance Company had provided protection up to $1,985,000. In actuality, Lisa Wilson, the local branch manager of Ticor, testified that the policy the company extended for the property was for only $774,000. Evidence also suggested that the liability insurance policy the Tschiras received, which purported to originate from Palmer Cay/Carswell and indicated coverage in the amount of $1,985,000, only provided protection up to $774,000.

Over Willingham's objection, the Tschiras also introduced evidence of a scheme perpetrated on other SAP co-founders who invested with Corim. The artifice involved the payments Corim "guaranteed" to investors who leased back to the commercial real estate company. For a period of time, Corim failed to make these payments to certain property owners. To conceal this fact, Corim, which managed the investors' bank accounts within the United States, falsified bank statements before transferring them to the owners. For example, a genuine bank statement for one investor dated January 27, 1990, shows a balance of $3,063; the falsified statement is identical in all respects except that it reports a balance of $136,136.16. The Tschiras were not victimized by this practice, but the scheme was the subject of a separate lawsuit against Corim. Willingham claims that he took no part in the deception, but that it was instead undertaken by a renegade employee acting outside the scope of her authority. However, the practice continued for some months, until Willingham had the funds to cover the unpaid rents.

Following a week long trial, during which the district court decided as a matter of law that the term "auftragsverhaltniss" as used by the parties created a mandate, or fiduciary, relationship between Willingham and the Tschiras, a jury returned a verdict against Corim and Willingham on both causes of action. The jury awarded $1,420,000 in compensatory damages against Corim and Willingham, as well as $1,000,000 in punitive damages against Corim and $750,000...