U.S. v. Texarkana Trawlers

• Citation: 846 F.2d 297
• Decision Date: 06 June 1988
• Docket Number: No. 87-2508,87-2508
• Parties: UNITED STATES of America, Plaintiff-Appellant, v. TEXARKANA TRAWLERS, a Partnership, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 297

846 F.2d 297

1989 A.M.C. 304

UNITED STATES of America, Plaintiff-Appellant, v. TEXARKANA TRAWLERS, a Partnership, et al., Defendants-Appellees.

No. 87-2508.

United States Court of Appeals, Fifth Circuit.

June 6, 1988.

Susan M. Sleater, Civil Div., Leonard Schaitman, U.S. Dept. of Justice, Mee Lon Lam, Trial Atty., Civ. Div., Torts Branch, Washington, D.C., for plaintiff-appellant.

A. Paul Miller, Hubbard, Patton, Peek, Haltom & Roberts, James N. Haltom, Texarkana, Tex., for all defendants-appellees except Blackmon.

Appeal from the United States District Court for the Eastern District of Texas.

Before GARZA, HIGGINBOTHAM and SMITH, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

The United States, through the National Marine Fisheries Service (the "Service") of the Department of Commerce, sued Texarkana Trawlers ("Trawlers") for breach of contract, seeking to recover money the Service lost when Trawlers defaulted on certain fishing boat loans. Under some of the subject contracts, Trawlers agreed to reimburse the Service for any default on loans which the Service had guaranteed and paid off. Under the remaining contracts, the Service had lent money directly to Trawlers' predecessor.

Trawlers defended by alleging that it had been wrongfully induced ¹ to accept the refinancing contracts upon which the government sues. Trawlers, based upon its affirmative defense of wrongful inducement, sought rescission of the refinancing deal, forgiveness for the refinanced debt it had incurred, and damages equal to the value of boats Trawlers says it lost because of the government's misrepresentations. The district court, after a bench trial, awarded Trawlers all the relief it sought. 661 F.Supp. 25. The government, citing its interpretations of the Federal Tort Claims Act ("FTCA") and federal common law of contracts, appealed. We now reverse.

I.

The government, through the Service, operates several direct loan and loan guaranty programs under Title XI of the Merchant Marine Act of 1936, 46 U.S.C. Secs. 1271-79c, and section 4 of the Fish & Wildlife Act of 1956, 16 U.S.C. Sec. 742c. These loan programs exist, in part, to promote the American fishing industry. Trawlers, a member of that industry, assumed over $1,350,000 in pre-existing loans under these programs when Trawlers bought seven shrimping trawlers in June 1982. ²

The terms of the loans assumed by Trawlers, which included loans the government had made and others it had guaranteed, were complex. Each of Trawlers' boats was individually mortgaged, and each loan which Trawlers assumed was individually secured by one of Trawlers' boats. Each of the guaranteed loans was particularly intricate, since each of Trawlers' partners and the government had guaranteed each of these loans. The maze of terms these guaranteed loans created is central to Trawlers' defense. Consequently, we now describe the government loan guaranty program in more detail.

The Service administers the program under Title XI of the Merchant Marine Act. When the Service guarantees a loan under Title XI, it requires the debtor to guarantee that same loan to the Service. The Service also investigates the financial condition of the fishing concern receiving the loan, and refuses to guarantee loans if the debtor is financially unable to pay off the loan. Through these arrangements, the Service can protect its position, since it can attempt to recover from the debtor any amounts which it is called upon to pay the bank pursuant to the government guaranty. Consequently, Title XI creates a "triangular" system of contractual relationships: The debtor exchanges its guaranty for the government's guaranty to the bank, and the bank exchanges its money for the debtor's promissory note, a security interest in the debtor's vessels, and the government's guaranty.

With their finances thus arranged, Trawlers set their boats to the business of fishing. Trawlers, however, did not itself operate the boats, but leased them to others to operate. Trawlers eventually leased six ³ of its vessels to Henry Singleton, a shrimp fisherman who operated a fishing fleet of twenty to twenty-five shrimpers, including the Trawlers' ships. Singleton owned some of these craft himself and leased others.

Unfortunately, Singleton was not a successful fisherman. His fleet first ran into economic difficulty in American waters. Trying to change his luck, he moved the fleet, without notifying Trawlers, ⁴ to Brazil. Fishing Brazilian waters did not prove economically feasible either, and most of the owners of the Singleton vessels--including Trawlers--defaulted on their loans in 1983. Default, however, did not destroy Singleton's operations.

Sometime in 1983, Singleton began negotiating a refinancing package with the Service's agent, Thomas Allen. ⁵ Allen and Singleton ultimately agreed to seek refinancing for the Title XI loans from a single lending institution for at least seventeen of the fleet's ships, including all of Trawlers' vessels. The more shrimpers Singleton and Allen could "package" together, the lower the risk a single lending institution would assume for refinancing the craft. The lower the risk assumed, Allen and Singleton reasoned, the lower the interest rate they could secure to refinance the fleet.

To refinance that many ships, however, Allen needed to secure the assent of all the owners. Since six of the seventeen vessels which Allen and Singleton wanted to refinance belonged to Trawlers, Allen contacted Trawlers' managing partner, Edward Page Oliver. Oliver, it turned out, was not inclined to refinance Trawlers' boats. Singleton had not informed Oliver or any other Trawlers partners that Singleton had sailed to Brazil. Oliver apparently thought that fishing in South American waters was risky, ⁶ and he did not trust Singleton to protect Trawlers' vessels from that additional risk. For such protection, Oliver preferred to recall the ships to the United States, resell them, ⁷ and pay off Trawlers' debt. Oliver claims that he opposed refinancing plans until after his conversations with Allen in March 1984.

Oliver was impressed with what Allen had to say, and Allen succeeded in convincing Oliver that a refinancing package deal was the best chance Trawlers had of rebounding from default. Allen told Oliver that he could work out a "package deal" with a single bank and that the interest rates on the loans would be lower than Trawlers could otherwise obtain. Allen also told Oliver that the deal for all the owners would be under the same terms and conditions.

Oliver interpreted Allen's statements to mean that all the terms and conditions of the security agreements would be the same. But Allen apparently meant only that all of the terms and conditions (such as the interest rates, amounts of payments, and frequency of payments) of the loan agreements would be the same. ⁸ Oliver, believing that all the boats were secured on identical terms and conditions, agreed to refinancing. On April 17, 1984, all of the owners convened in Houston and closed the deal.

The refinancing arrangement, however, did not secure all loans equally. Each of the loans was secured by a boat, by a government guaranty, and by a guaranty from the owner of the boat secured. ⁹ Owner and fisherman Singleton, however, also guaranteed all the loans, except Trawlers' loans, secured by boats he did not own. ¹⁰ Consequently, Singleton could protect himself from foreclosure only if those vessels could be resold. Singleton therefore had a powerful economic incentive to prefer to preserve non-Trawlers boats if he ever had to decide which part of the fleet to save.

Subsequent events served only to worsen Trawlers' position. In July 1984, Singleton stopped lease payments to Trawlers, and Trawlers stopped paying on its loans. In August 1984, Oliver first discovered that the other ships in the fleet were better secured than Trawlers' boats. Eventually, Singleton folded his fishing operations, and all the craft, except Trawlers', returned to the United States. The bank defaulted Trawlers on its loans and enforced the government's guaranties. The government in turn foreclosed its security agreements with Trawlers. Trawlers, which could not rely upon the equity in its shrimpers to satisfy the government's demands, ¹¹ refused to honor its guaranties to the government.

The government sued Trawlers for breach of Trawlers' guaranty contracts and for defaulting on the loans the Service had made directly to Trawlers. ¹² Trawlers alleged, as an affirmative defense, that it should not have to reimburse the government because the government had wrongfully induced Trawlers to enter into the refinancing contracts. The district court ruled for Trawlers, ¹³ and the government appeals.

II.

The government urges us to consider several issues raised under the FTCA ¹⁴ and the federal common law of contracts. ¹⁵ Having carefully considered the government's arguments and Trawlers' responses, we have concluded that this case turns on two of those issues: First, did Trawlers have the legal right to rely upon Allen's characterizations of the "package deal," or did Trawlers instead have a duty to investigate further the terms of the security agreements? ¹⁶ Second, can rescission return the parties to the status quo ante after the United States has performed fully its guaranties and paid off Trawlers' loans? A negative answer to either question requires reversal of the judgment below. ¹⁷

On the first issue, the district court accepted Trawlers' argument that it relied justifiably upon Allen's statements, but the court apparently did not consider the level of ambiguity inherent in the Allen/Oliver phone calls. ¹⁸ In light of that ambiguity, a reasonable person could easily doubt Trawlers' characterization of the phone calls, in which the terms used were simply too broad and imprecise to serve as anything more than an invitation to deal with the government. We question whether, when...