Art Midwest Inc. v. Atlantic Ltd. Partnership XII
2014 U.S. App. LEXIS 2057
| 5th Cir. | 2014Background
- In 1998 ART entities agreed to buy eight apartment complexes from Clapper entities via a partnership (ART Midwest LP) as nominal buyer; the agreement allowed termination for title/survey problems and treated ART’s defaults as Partnership defaults enabling Clapper to terminate.
- ART discovered alleged title/zoning issues on remaining properties, expedited two closings, then sent a March 22, 1999 letter purporting to terminate the deal and demanding Clapper repurchase the two transferred properties; Clapper refused.
- ART sued claiming fraud (Clapper misrepresented title) and declaratory relief that termination was proper; Clapper counterclaimed for breach. A jury found ART properly terminated but found no fraud by Clapper.
- Clapper appealed; this court held the zoning issue did not render title unmarketable and remanded for liability and damages to be decided anew. ART did not cross-appeal the jury’s adverse fraud verdict.
- On remand the district court granted partial summary judgment that ART had defaulted by the March 1999 letter, held ART owed capital contributions under §4.02(d), and tried remaining issues; a jury found ART breached fiduciary duties and owed $7.4M (as of 2/1/01) and $10.6M (as of 2/1/02); the court combined them and awarded ~ $34.4M plus other damages (total > $50M).
- On appeal, the Fifth Circuit affirmed except it held ART was barred from re-litigating fraud because ART failed to cross-appeal the earlier adverse fraud verdict, and it vacated the double-counted combined contribution award and remanded to determine the correct (non-overlapping) contribution measure.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ART could relitigate fraud claims on remand after losing fraud at first trial and not cross-appealing | ART: No need to cross-appeal fraud because they prevailed on breach claims and remand order to decide liability/damages "anew" allowed fraud to be tried again | Clapper: ART waived fraud on remand by not cross-appealing initial adverse fraud verdict; protective cross-appeal required to preserve the issue | Held: ART barred from reasserting same fraud claims; failure to cross-appeal precluded relitigation; mandate and cross-appeal rules control |
| Whether district court erred by combining $7.4M (2001) and $10.6M (2002) contribution findings | ART: The 2002 amount includes the 2001 amount; combining double counts damages | Clapper: Amounts were presented separately; court can sort overlap | Held: Amounts overlap; court erred in combining; vacated combined award and remanded to select appropriate measure and recalculate interest |
| Whether ART waived challenge to guarantee of deposit notes (who guaranteed) | ART: They argue Partnership (not ART entities) guaranteed notes | Clapper: ART entities guaranteed notes; ART previously acknowledged guarantee | Held: ART waived this argument by failing to raise it below and previously admitting guarantee in earlier briefing |
| Whether Partnership dissolution date was March 22, 1999 or May 20, 2002 | ART: Dissolution occurred March 22, 1999 (their termination letter / certificate filed with Secretary of State) | Clapper: Dissolution occurred 90 days after disposition of substantially all assets (foreclosure decree Feb 19, 2002 → May 20, 2002) | Held: Agreement language controls; assets were disposed by Feb 19, 2002 foreclosure; dissolution date is May 20, 2002; certificate of cancellation ineffective and equitable-mootness inapplicable |
Key Cases Cited
- Art Midwest, Inc. v. Clapper, [citation="242 F. App'x 130"] (5th Cir. 2007) (panel held zoning nonconformity did not render title unmarketable and remanded liability/damages)
- Greenlaw v. United States, 554 U.S. 237 (2008) (cross-appeal rule and limits on enlarging appellee rights absent cross-appeal)
- United States v. Lee, 358 F.3d 315 (5th Cir. 2004) (mandate rule bars relitigation of issues foregone on appeal or waived)
- Gen. Universal Sys., Inc. v. HAL, Inc., 500 F.3d 444 (5th Cir. 2007) (district court on remand must effect the appellate mandate and nothing more)
- Nw. Ind. Tel. Co. v. F.C.C., 872 F.2d 465 (D.C. Cir. 1989) (argument that could have been raised on initial appeal generally cannot be considered on second appeal after remand)
- Cook v. Rockwell Int'l Corp., 618 F.3d 1127 (10th Cir. 2010) (protective/conditional cross-appeals preserve issues for appellees who prevailed below)