Walters v. First Tennessee Bank, N.A. Memphis
| Decision Date | 14 October 1988 |
| Docket Number | Nos. 86-6031,s. 86-6031 |
| Citation | 855 F.2d 267 |
| Parties | Bankr. L. Rep. P 72,439, RICO Bus.Disp.Guide 7015 William S. WALTERS, Jr., Plaintiff-Appellant, v. FIRST TENNESSEE BANK, N.A. MEMPHIS, et al., Defendants-Appellees. to 86-6033. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Larry E. Parrish, Parrish & Shaw, Hal Gerber (argued), Gerber, Gerber and Agee, Memphis, Tenn., Lewie R. Polk, III, for plaintiff-appellant.
Leo Bearman (argued), Robert Mark Glover, Frank Glankler, Memphis, Tenn., for defendants-appellees.
Before NELSON and NORRIS, Circuit Judges, and PECK, Senior Circuit Judge.
This is an appeal from actions brought by appellant William Walters, Jr., individually and for himself and the other shareholder of Ten Tex Marine, Inc. ("Ten Tex") against appellee First Tennessee Bank ("the Bank") in connection with loans extended by the Bank to Walters personally and to Ten Tex, in which Walters was a 50% shareholder. The actions alleged usury, breach of contract, and fraudulent conduct in violation of federal racketeering (RICO) statutes. After various pre-trial orders and a directed verdict, only Walters' usury claim was considered by the jury. Although the jury found in Walters' favor, the district court entered a judgment notwithstanding the verdict for the Bank. For the reasons stated below, we affirm the judgment of the district court.
Inasmuch as the factual background of this litigation is lengthy and complex, a relatively brief summary follows. More specific facts are detailed in the course of the discussion of the individual issues on appeal.
In May 1979 Walters obtained a personal loan for $475,000.00 from the Bank evidenced by a promissory note which provided that the interest would be at a floating rate pegged to 130% of the Bank's prime rate. The loan was secured by a promissory note from Fischer Lime & Cement Co. ("Fischer"), of which Walters was the payee. When Walters later defaulted, the Bank asserted its right under the security agreement to receive payments from Fischer.
In 1979 Walters also negotiated with the Bank for loans to capitalize Ten Tex and to construct a port facility on the Mississippi River in Tennessee. Initially the Bank made several loans to Ten Tex, totalling $1,521,000.00, the principal loan being for $1,341,000.00 and containing interest rate provisions identical to that of Walters' personal loan. Two subsequent loans for $100,000.00 and $80,000.00 were made at 15% and 16% interest respectively. An agreement was also reached between Ten Tex and the Bank to finance the port facility project through the issuance of industrial revenue bonds.
In November 1979 the Industrial Revenue Bond Board of Shelby County, Tennessee issued $1,425,000.00 in bonds. When the bond issue closed in December 1979, Walters executed an industrial revenue bond indenture which transferred all of the assets of Ten Tex to the Industrial Revenue Bond Board. The Bank was appointed trustee to hold Ten Tex assets and to receive payments under a lease by which Ten Tex leased back the port facilities. The Bank purchased all of the bonds.
At the time the bond indenture was signed, the Bank advised Walters that certain pieces of marine equipment could not be financed under the bond issue until preferred ship mortgages could be executed on the equipment. Walters alleges that he was told that the needed documentation could be accomplished in a matter of a few weeks and that the marine equipment could then be financed through the bond issue. In order to complete Ten Tex's capitalization pending the financing of all assets under the bonds, a $376,000.00 note (hereinafter "the side note") was executed by Ten Tex. The note was secured by marine equipment and was subject to the same interest rate provisions as the $1,341,000.00 note. The principal amounts on the $1,341,000.00, $100,000.00 loan, and $80,000.00 loan were retired with proceeds from the bond issue. The proceeds of the sale of certain items of marine equipment upon which preferred ship mortgages had been executed were applied to interest remaining on those loans.
In September 1980 Ten Tex was unable to make its lease payment of $152,166.66. The Bank terminated the lease and, as trustee, declared its intent to repossess the premises. The Bank also accelerated payment on the side note and Ten Tex declared bankruptcy. Ten Tex has alleged that on September 15, 1980, the Bank, as trustee, held more than $185,000.00 in bond issue funds which it could release, but did not release, to Ten Tex, a factor that heavily contributed to its bankruptcy.
In May 1982 Walters filed an action on his own behalf against the Bank under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Sec. 1961, et seq., and under the National Bank Act, 12 U.S.C. Secs. 85, 86. He also alleged pendent state claims for misrepresentation, breach of contract, and common law fraud. The gravamen of the complaint was that the Bank committed "prime rate fraud" by charging excessive and usurious interest on the $475,000.00 loan. In November 1982 Walters also filed a shareholder derivative action on his own behalf and that of Ten Tex's other 50% shareholder. This action raised essentially the same claims with regard to the $1,341,000.00 loan, side note, and bond issue. An interpleader action was filed by Fischer in October 1982 in an effort to protect itself from multiple liability due to conflicting demands for payment by Walters and the Bank. Fischer's note payments were thereafter paid into the registry of the court.
In August 1984 the district court consolidated the three actions for trial. On September 20, 1984, the district court granted summary judgment in favor of the Bank on certain issues. The court ruled that the interest due on the $1,341,000.00 loan was paid on November 2, 1979, and thus any usury claim on that loan was barred by the two year statute of limitations set forth in 12 U.S.C. Sec. 86. The bond issue was alleged to have been "tainted" because Walters claimed that Ten Tex paid not only the 9% bond rate of interest but also the underlying 15% and 16% interest on two of the notes during the period from November 1 to December 5, 1979; however, the court ruled that the undisputed affidavit of the trust officer of the Bank indicated that the 9% interest due on the bond issue was paid by the Bank, and thus no double interest was paid by Ten Tex. As for the claims concerning the $346,000.00 side note, the district court ruled that the statute of limitations had not run. The court determined, however, that that note was subject to a preferred ship mortgage; under the Preferred Ship Mortgage Act, such a mortgage "may bear such rate of interest as is agreed by the parties thereto." 46 U.S.C.App. Sec. 926. The court ruled that the Preferred Ship Mortgage Act superceded the National Bank Act because
[Section] 926 was intended to be the exclusive word on loans subject to preferred ship mortgages. The policy behind the P.S.M.A. was to encourage investment by lending concerns in a unique commercial area fraught with risk. A contrary holding, as urged by plaintiff, would contravene congressional policy and make lenders susceptible to a double interest penalty heretofore thought inapplicable.
The court also reasoned that in any event there could be no substantive usury violation of 12 U.S.C. Sec. 86 because the essential element of intent was missing.
At jury trial in September 1985, the district court granted a directed verdict for the Bank on the RICO and fraud claims alleged in both lawsuits. The only remaining issue presented to the jury was whether the Bank knowingly charged Walters usurious interest on the $475,000.00 note. As noted above, the jury found in Walters' favor, but the district court entered judgment NOV for the Bank. The district court's decision was based on its finding that Walters failed to prove that the excess interest charge was knowingly assessed. The only testimony on the issue was from the Bank's witness, Charles Dudley, who admitted two periods of overcharges, but who testified that they (as well as certain undercharges) were inadvertent errors due to manual computer programming oversights. Walters presented no contradictory evidence tending to show that the overcharges were anything but the result of negligence.
Walters, on behalf of himself and as a shareholder of Ten Tex, timely appealed. Walters has raised numerous issues on appeal, which we will address seriatim.
Walters argues that the district court erred in dismissing the usury claim filed on behalf of Ten Tex in the derivative action. He urges that, contrary to the district court's conclusion, the usury claim on the $1,341,000.00 note was not barred by the two-year statute of limitations in 12 U.S.C. Sec. 86 which governs such claims. Walters maintains that Ten Tex's filing of a Chapter 11 petition on September 30, 1980, triggered the automatic stay provision of 11 U.S.C. Sec. 362 1 before the statute of limitations had run. He theorizes that since Ten Tex, the debtor, was a named party defendant in the derivative action, the automatic stay provision would have prohibited initiation of the derivative action until disposition of the bankruptcy case, which had not occurred as of November 1982. We reject Walters' contention. First, Walters did not raise this point before the district court. It is well established that where a plaintiff fails to assert in district court that the statute of limitations has been tolled, he cannot raise it for the first time on appeal. Roberts v. Berry, 541 F.2d 607, 610 (6th Cir.1976). Even if we were to reach the merits of the issue, we would determine that this is not "an action against the debtor" stayed by 11 U.S.C. Sec. 362. As noted by the Bank, Ten Tex is merely a nominal defendant in the derivative...
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