Banc One Capital Partners Corp. v. Kneipper

GARZA, Before SMITH and EMILIO M. Judges, BERRIGAN, Circuit District Judge.* GARZA, M. Judge:

EMILIO Circuit group A disgruntled investors filed this suit arising for securities fraud out of the defendants’ failed successfully capi- efforts to FilmDallas, (“FilmDallas”), talize Inc. a Dal- production las-based company. movie After trial, a five-week returned a verdict against investors on their federal claims, and Texas state securities fraud but in favor plaintiffs on their claim of civil conspiracy. The also found that two of pari investors were in delicto with the defendants.

The district disregarded jury’s verdict and entered a “take nothing” judgment in favor of the defen- dants, reasoning that “wrong- there was no doing” upon which a conspira- of civil cy could plaintiffs be based. The appeal from judgment this and from the district grant summary court’s judgment on their professional claims for negligence legal malpractice. appeal The defendants from the district summary court’s denial of their judgment they motion in which asserted the judicata. defense of res part, We reverse in affirm in part and remand for new trial. I Masterson, Crouch, III, W.D. John H. Anderson, Thornton,

Theodore C. Robert M. The defendant Kneipper Richard K. was Kilgore Kilgore, & Byrd, William Michael chairman of the Board of Directors and an Jr., Cohan, Simpson, Wulff, Cowlishaw & officer in private FilmDallas when the offer- L.L.P., Dallas, TX, appellants. for ing of securities FilmDallas was made. partner He was also a in the defendant Claycombe, Brace law Geary, W. Porter & Jones, (“Jones firm Donovan, Day, P.C., Dallas, TX, Pogue Reavis & Kneipper. for Day”), which served as counsel to FilmDallas Sloman, Weinlein, Marvin Craig S. W. offering. Coleman, Jr., Coleman, James E. Carrington, Blumenthal, Dallas, TX, Jones, Sloman & Kneipper Grogg,1 and Sam a film industry Day, Pogue. Reavis & veteran, had formed FilmDallas in 1986 to * Judge District of the Eastern District of Louisi- dismissed him from the suit. While evidence of ana, sitting by designation. Grogg's alleged involvement in the fraudulent Grogg trial, activity presented was named origi- only as defendant in the was two de- complaint, plaintiffs nal voluntarily but the later consenting to a series agreement. After agreement enterprise joint in a participate eventually an extensions, issued Pictures, the investors Inc. Company World New unless they would withdraw ultimatum produc- film World”), independent (“New 18, 1987. offering by March was and New FilmDallas and distributor. er Pic- FilmDallas own would together World conspiracy are fraud and claims of The Pictures”),' (“FilmDallas which tures, Inc. Grogg’s responses to Kneipper and based films and distribute produce and was early during the concerns of the Under by FilmDallas. managed would gist of fraud was The months of 1987. agreement, FilmDallas joint venture to disclose materi- alleged failure defendants’ required to contribute were each World New known time it became at the al information of the venture. capitalization significance of them. The substance seriously disputed at the information Kneipper and the resources Because Instead, when the contribution, trial focused on trial. of the needed Grogg short fell defendants. known information became portion FilmDallas’ to fund they decided misrepresen- claimed offering in FilmDallas. through the private at a time and omissions occurred tations private Day prepared Kneipper and Jones their invest- have withdrawn could the when detailed which offering memorandum ments, the defendants contended while of that According to the terms proposal. date at a later became known the information offering on memorandum, was proposed the duty to disclose. longer owed a they no when of $7.5 if a minimum basis: or none” an “all in deposited es- and raised million was not in- misrepresentation material The first money 15, 1986, all the by December crow a rent failure to disclose volved defendants’ to the investors. be returned would proper- on Dallas agreement Jurick’s escrow net contri- effectively reduced his ty, which first the One was MVenture/Bane $500,000. The sec- by approximately mil- bution a approved $1 its board invest when to made multiple representations ond involved on based in November lion investment agree the in order to induce offering memorandum. private the a draft of offering minimum private $7 lower the al- December, was FilmDallas Pictures By Grogg and example, Kneipper million. For New from on ready up operating loans and World, of enthusi- New out represented that Kneipper and from and contributions World venture, agreed to had joint offering asm private the point, Grogg. At this $500,000 pri- in the FilmDallas up to invest million required $7.5 the had not received con- one-half offering, addition to its in Grogg vate commitment, were Kneipper and and actuali- In Pictures. tribution to FilmDallas the dead- on an extension negotiate forced of them to required the two ty, New World offering memo- private in the line set forth for agreement repurchase sign a personally joint ven- on and an extension randum stock.2 the FilmDallas New World. deadline with ture inves- to the represented Rundell, FilmDallas After C.A. early In million $7 final tors that commitments Johnson, and Bancroft A. R. James William 18, 1987, the as of March reached had been agreed to Tierney also and Luanne Thomas variously it was “pre-closing,” as “closing” or however, FilmDallas, still far was invest. day in a trial, place took to at referred the terms required under of the mark short Day. In of Jones offices meeting at the Kneip- offering memorandum. private Day issued closing, Jones connection investment a million pursuing per $1.2 was FilmDal- stating that all Jurick, opinion letter an investor, Geoffrey who from Swiss had agreements and Dallas, material contracts las’ but building in an office owned all of April On final been disclosed. was still there early March 1987 World stock repurchase the New Grogg to Kneipper and Jones this case are fendants in alleged, how- Plaintiffs May 1987. was dated Day. ever, fact reached agreements in were that these agreement FilmDal- between rent 2. The escrow writings. well in advance writing April, on was finalized in las and Jurick by Kneipper agreement written The signed subscriptions had been purchase received and his FilmDallas securities. Mate- agent finally the escrow released the funds. riality is not determined as of later failed, subsequently date, FilmDallas as, and the such for example, the formal clos- plaintiffs lost entire their investment. ing date. To determine whether a viola- occurred, you

tion are to look at the date or dates when each plaintiff committed II to invest in himself FilmDallas. After The investors contend that date, such disclosure of later-learned infor- charge given to the on the securities required, mation is not because the invest- fraud claims was defective several re ment already decision has been made. spects. We address one contention that This instruction was derived from Radiation dispute is central to the at trial regarding Dynamics, Goldmuntz, 464 F.2d 876 when information became known to Film- (2d Cir.1972).4 The investors contend that Dallas officers. The investors assert that the this instruction is erroneous in the context of by giving district court erred an incorrect an “all none” securities offering because it “materiality” instruction on in the context does acknowledge their “commit- nothing” “all or offering of securities. ment” contingent in nature. great While latitude is shown We previously examined the issue of trial court in fashioning jury instructions, we an ongoing duty to disclose the context of will review them to determine whether contingent commitment. See Stier v. accurately completely state the law. Smith, (5th Cir.1973). 473 F.2d 1205 “[A] trial duty has to instruct plaintiff investor in Stier nego- had made the jurors, fully correctly, applicable tiation his cheek payment tendered for Buhrke, law of the case.” Horton v. contingent the stock on the defendant mak- (5th 456, Cir.1991); F.2d 460 see also EEOC ing a public successful offering. Id. at 1209. Corp., 1089, v. Manville Sales 27 F.3d 1096 plaintiff The claimed the defendant owed a (5th Cir.1994) (upholding charge only if it continuing duty to material disclose informa- mislead, prejudice, does not or jury), confuse concerning tion public the offering until it — denied, -, cert. 1252, U.S. 115 S.Ct. completed. was agreed, We holding that (1995); Wheat, v. FDIC 970 whether or not the sale was finalized with the (5th 124, Cir.1992) F.2d 130 (“Appellate re tender was irrelevant where the sale was view looks to whether the instruction accu subject to the condition public that the offer- rately law, states the and does not mislead ing and occur the defendant plain- knew the jury.”). the tiff relying was on the public success of the The district gave following the in- offering. Id. at 1209-10. struction “materiality” conjunction on in the federal and Texas state fraud securities An “all or offering none” involves a claims: similarly contingent by commitment the in For plaintiff, each the date on which the vestor. If offering the minimum is not materiality of a fact is to be determined is deposited raised and in by given escrow the date when date, that committed to money all the previously “committed” 3. One of the of a elements securities fraud claim a fact whether is material a matter as of law will is a misrepresentation material by on, omission below, also turn as discussed whether the Paine, Webber, Stephenson the defendant. v. duty defendant has a to disclose. Curtis, Inc., (5th Cir.), Jackson & 839 F.2d 1095 denied, 926, 310, 488 102 (" 4. See id. at 890 simple is a 'Commitment' and (1988); State, L.Ed.2d 328 Gant v. way which, designating direct point the in 1991, (Tex.App. writ). 444 aIn Sec — Austin the classical contractual sense there 10(b) claim, was a meet- tion "[A]n omitted fact is material if ing parties; of the minds of the there it marks is a substantial likelihood that a reasonable point parties at which the obligated shareholder would ciding important consider it themselves in de Industries, perform they how to agreed perform to what vote.” TSC had to even Inc., 438, Northway, performance if 96 agreement formal their is 766 time.”). lapse issue of to be after a FilmDallas, by court’s materi- type ing district This the investors.5 to will be returned given on and state ality charge inves the federal designed protect to offering was all-or-nothing ways. “The claims was securities erroneous. in a number of tor only not to ensure serves provision error, however, not re This does complete funds to sufficient issuing firm has record, if, quire based on the entire retrial give investors some also to project, but its have af challenged instruction not could paying that are indication reasonable v. outcome of the case. FDIC fected the their investment.” price for fair market Cir.1994). Mijalis, F.3d (D.C.Cir. SEC, F.2d Svalberg v. charge appropriate whenever Reversal 1989). require cannot avoid the The sellers leaves us with substantial “as a whole fraudulently creat provision of this ments jury has been doubt whether the ineradicable has the minimum impression that ing the in Bend properly guided its deliberations.” SEC, Carlson, Inc. C.E. been met. See (5th Cir.1993); Brumley, er v. (“Once (10th Cir.1988) F.2d Drilling Corp., 929 v. Penrod Bommarito been representation has part or none (5th Cir.1991); Treadaway F.2d made, trans may be circumvented it Louis-Dreyfus, 894 F.2d Anonyme Societe ap designed to create the primarily actions (5th Cir.1990). 161, 167-68 offering in to order of a successful pearance offering.”).6 case, of the materiality the refund feature avoid In this the erroneous argue to charge the defendants allowed Stier, Therefore, we hold relying their “commitments had made investors offering none” does an “all or the seller closing prior to the date purchase” well duty inform continuing have a example, the breaking of escrow. For after contingent events facts which affect that MVen have had to conclude would Stier, invest. See initial commitment their pur made its commitment One (investors ture/Banc should been 473 F.2d at the invest approved board chase when the part of corporation using informed Therefore, because ment in November pur offering” to “public proceeds of the instruction, jury believed even if the shares); Na also see SEC chase its own misrepresentations allegations of Corp., F.Supp. Marketing tional Student early regarding whether (“It omissions (D.D.C.1978) magi is not some reached, they offering minimum had been that sets ‘commitment’ cal incantation of disregard this forced would been to longer man is no point at which disclosure According to the as immaterial. evidence dated, nature of the commit rather the but ongoing had no ment.”). jury charge, the defendants offer- the all or none applied As to sold, unless 10b-9(a) of the securities are Ex- or some the Securities and under 5. Rule offering security part or distribu- is of an the change provides: Act a being that all or made on the tion condition (a) manipulative or de- a It shall constitute paid part for specified of the consideration contrivance, section ception as used in device or security promptly to the will be refunded such Act, 10(b) directly any person, or the for (i) specified number of purchaser unless a or sale indirectly, with the offer in connection specified security at a the are units of price sold any representation: any security, to make time, (ii) specified the total and within a being (1) security is that the To the effect by him to the seller is received due amount basis, an "all or or on none” offered sold specified date. a offering part security or is 240.10b-9(a). unless the § 17 C.F.R. being that made on the condition distribution specified 1020, of the Coven, a amount consideration all or 1028-29 SEC F.2d See also promptly security refund- paid will be 1978) comply for such (2d (holding failure to Cir. (i) purchaser closing all of securi- the agreement ed to the unless the of escrow with terms specified price being at a are sold num ties offered minimum prior fide sale of the the bona to time, (ii) upon the total specified plainly operated as a fraud within a of shares ber SEC, by him 556 F.2d is received Co. v. public); due to the seller A.J. White & (1st Cir.) amount date; 619, fraud (holding it was specified or a 622-23 security being was raised (2) minimum ulent amount where To effect than bona whereby through rather all bank loans any short-term on other basis offered or sold 969, denied, investors), to paid such fide part sales of the consideration or 516, purchaser if all security to the will be refunded duty Cir.1993); to inform the investors once made F.2d Massey v. Arm Co., purchase.” (Tex.1983); their “commitment to For these co Steel 652 S.W.2d reasons, Loan, we that there is a believe substantial see also Bernstein v. Portland Sav. & and ineradicable doubt whether the has 850 S.W.2d (Tex.App. Corpus — properly guided writ); been in its Christi no deliberations. Times Herald Print ing it could v. A.H. Corp., Because have affected the outcome of Belo 820 S.W.2d case, (Tex.App. we new trial.7 remand for [14th Dist.] — Houston writ). Ill law, conspiracy Under Texas is defined as a combination of two or more The investors also contend that the district persons accomplish to purpose an unlawful by disregarding jury’s court erred ver- accomplish purpose by a lawful unlawful dict in favor the claim of civil Dawkins, Fenslage means. conspiracy findings because of the in favor of (5th Cir.1980); Triplex Communica the defendants on the “substantive” federal tions, Riley, and state securities claims. The investors (Tex.1995); Great National Insurance Life assert that the district court erred as a mat- (Tex.1964). Chapa, Co. v. law, ter of as there was substantial evidence attach, In liability order for “there must support jury’s finding on the civil unlawful, be an overt act furtherance of conspiracy claim. conspiracy.” Massey, 652 S.W.2d at 934 charged The district court on civil (holding did not state cause of conspiracy as follows: conspiracy action for civil where none of the Plaintiffs’ next claim is that the defen- unlawful); alleged overt acts were Interna conspired dants plain- violate the law at tional Holloway, Bankers Ins. v. Life expense. In tiffs’ order to find that (Tex.1963) (civil S.W.2d conspiracy engaged defendants conspiracy a civil “consists of acts which would have been ac respect surrounding to conduct against conspirators tionable individual FilmDallas, Inc. offering, securities ly’). prove by Plaintiff preponderance must In Judgment, the evidence that: its Final the district court entered a nothing” judgment8 “take (1) two or persons; more against the grounds investors on the that: (2) object had an accomplished; to be [I]n order for a of civil (3) that meeting there was a properly to be supported, a defendant subject action; minds on the or course of must have been found liable for an unlaw (4) that there was one or more unlawful ful separate act independent from a acts; and conspiracy. jury specifically found (5) that the Plaintiff damaged was as a Jones, that Day neither nor Richard K. proximate result thereof. Kneipper committed securities fraud under recognized These elements have been this either the federal or state securities laws. Supreme Court and the Texas Court. See There was therefore no “unlawful act” that Jaynes, Meineke Discount support could conspiracy, of civil Muffler allege 7. The investors two during additional by jury claims of If party fully a trial has been They error. contend that the district court com- heard legally on an issue and there is no suffi- plain jury charge by mitted a inserting error in its evidentiary jury cient basis for a reasonable requirement privity into the claim of aider issue, party find for that may on that the court liability They and abetter contend that under Texas law. also against party determine the issue may that and omitting the court erred their grant judgment a motion for aas matter of law requested person liability. instruction on control against party respect that to a claim or already Because we have determined that the controlling defense that cannot under the law ''materiality” requires erroneous instruction on be maintained or defeated without a favorable that we remand the securities fraud claims for a finding on that issue. trial, new we do not need to reach these issues. 50(a). Fed.R.Civ.P. 50(a) 8. Rule states: simply no in the claims.11 There is evidence entitled to are therefore and defendants any that other unlawful acts were record judgment.... Therefore, if pleaded proven and at trial. judgment court’s as the district Inasmuch jury properly charged with the had been finding of civil that a may a belief reflect claims, the district securities fraud court separate dependent on a conspiracy is find concluding have been correct would count, the liability on a ing substantive sustaining no basis for the civil there was conspir finding of civil A was in error. light jury’s of the conspiracy verdict in find- however, plaintiff acy require, does ing against the investors on these claims. “one or more and plead prove able to However, have determined that because we of the furtherance wrongful, overt acts” in “materiality” jury instruction on was er- been actionable conspiracy that would have roneous, the investors’ civil we also remand individually. Mas conspirators against the properly If on 934; conspiracy claim. instructed Kelly v. Diocese sey, (Tex. retrial, Christi, upon fraud claims the securities S.W.2d Corpus may writ dism’d a securities law find that there was Christi App. Corpus— Therefore, plaintiff necessary if does w.o.j.).9 thereby provide even violation and action for the separate bring a cause sustaining conspiracy a new civil basis for conduct, must be wrongful he underlying verdict. wrongful of the prove the elements able (civil at 95 Selig, 832 S.W.2d See conduct. addition, In we believe precluded where conspiracy claim conspiracy on civil was defective instruction relitigating from collaterally estopped

were overly general jury “[A] it is because broad. testimony); Kale v. of false central issue [only] long as it valid so was [is] verdict Palmer, (Tex.App.— of the legally supportable on one submitted denied) (holding that writ Beaumont States, 502 U.S. grounds.” v. United Griffin plain where conspiracy claim not lie did 466, 469, 46, 49, damages as plead special had failed tiffs added). Thus, (1991) (emphasis we re in an action for required Texas law under trial when granted a new versed statements).10 on oral based defamation issue,”12 present critical charge [a] “failed to law,13 applicable al incorrectly explained the ease, only “unlawful acts” In this findings on issues jury to lowed the make jury’s consideration were submitted order pretrial on which outside those securities fraud and Texas the federal state denied) Sebek, (Tex.App. Corpus writ Christi Metzger S.W.2d 9. See also — (civil denied) conspiracy where judgment reversed "nei (Tex.App. Dist.] writ [1st — Houston any alleged agreement party took ther to the (directed proper against plaintiff where verdict unlawful, causing plaintiff] against unlawful, [the acts overt acts overt does not reflect record result”). proximate damages as a conspiracy). furtherance requested Although the instructions 11. plead prove requirement 10. The fraud, statutory law neither and common unlawful, acts also follows overt or more one jury. to the these issues submitted gist that "the of a civil the fact from resulting damage commission of from Co., Turnage 953 F.2d another, Elec. General injures wrong and not the con which Cir.1992); Disposal see also Barton’s 212 Serv., Surveying Schlumberger Well spiracy itself." Tiger Corp., 1436-37 Corp., 435 S.W.2d Corp. Oil & Gas v. Nortex (5th 1989) (reversing charge not that did Cir. (Tex.1968); Arkwright Mutual accord 856 Ross jury, the even present of fact to critical issue 119, Co., (Tex.App S.W.2d 132 892 Ins. . —Hous implied legally alternate though sufficient verdict 1994, writ); Nautical Land [14th Dist.] no ton findings). 293, Nat'l, 299-300 ings 791 S.W.2d Marina v. First (T 1990, de ex.App.— Corpus Christi writ 755, East, Horton, (reversing charge nied); Weakly at 461 926 F.2d see also 13. See 1995, writ) ("A recovery); Bode theories (Tex.App. Corpus Christi that confused several 759 — 669, Inc., overt, Airways, 786 F.2d World conspiracy requires or more v. Pan Am. ... one 1986) (5th (reversing charge that "did of the Cir. in furtherance 672 acts committed unlawful [pertinent jury adequately of the damages.”); Adolph not inform conspiracy in which results law”). 477, state] Rodriguez, 487 Coors Co. v. 1196

charge proof,14 jury or failed to resolve ineradicable doubt whether the allowed has been ” underlying question properly guided of fact.15 In each critical in its deliberations’ on this eases, charge Mijalis, of these we concluded that the issue as well. F.D.I.C. v. 15 F.3d (5th 1314, Cir.1994) to (quoting as a whole was “insufficient resolve 1318 Bender v. (5th remaining 271, Cir.1993)); Brumley, factual issues.” Tex-Goober Co. v. 1 F.3d 276-77 House, Inc., 1358, Angeles 803 Drilling Los Nut F.2d accord Corp., Bommarito v. Penrod (5th Cir.1986). (5th Cir.1991). 186, 929 F.2d This case suffers the same flaws for IV granted which we have reversed and new trials. The civil instruction fails The investors One and MVenture/Banc solely jury to limit challenge sufficiency “unlawful acts” Rundell of the evi pleaded, proven jury’s and submitted —the federal dence finding to sustain the pari and state securities violations. Other than were in delicto17 with the defendants. violations, Inc., defining charge Hoffman-LaRoche, the securities Thomas v. 949 F.2d (5th any Cir.), denied, 956, failed to define other unlawful acts. Ac cert. cordingly, jury 2304, (1992); was left without a defini Boeing (5th Cir.1969) may tion of acts” and Shipman, “unlawful have based Co. v. 411 F.2d 365 (en bane) conspiracy finding their civil on acts with (applying a substantial evidence test). they disagreed, which whether jury “yes” Question unlawful or answered not. if Even we were to conclude that proved by the No. “Have the defendants preponderance evidence is sufficient to sustain a correct plain the evidence that the fraud, charge appellate of securities as tiffs [MVenture/Banc One and Rundell] were supply missing jury pari we cannot find delicto in alleged connection with ings reasons, on these claims.16 For these wrongdoing for which seek dam “ we believe that there ages?” ‘substantial and Corp., 14. See Gibraltar Sav. v. LDBrinkman on that issue. See MBank Fort Worth v. Trans (5th Cir.1988) Meridian, Inc., (rejecting (5th F.2d 1299-1300 820 F.2d 723-24 Cir. request uphold logical 1987) verdict if it was “a (allowing court to make under submitted," probable 49(a) decision on the only issue as jury Rule if submission of issue to not say Clements, requested); because court could not "that the 781 F.2d Taherzadeh misled"), denied, clearly (5th Cir.1986) (“If 490 U.S. objection is made (1989); issue, 109 S.Ct. 104 L.Ed.2d 988 see also judge for failure to submit an the district Orleans, In re Air Crash at New authority Disaster 795 F.2d express finding has no to make an (5th Cir.1986) 49(a) (reversing charge 1235-36 issue.”). concerning under Rule that same per that "masked” extent to which made impermissible findings). missible or 17. This common law defense “derives from the Latin, pari potior delicto est conditio defenden House, Inc., Angeles 15. Tex-GooberCo. v. Los Nut equal tis: 'In a case of or mutual fault ... (5th Cir.1986). 803 F.2d position [defending] party of the ... is the better " Eichler, Richards, one.' Bateman Hill Inc. v. judges "We afford trial wide latitude in fash Berner, 299, 306, 2622, 2626, ioning jury ignore instructions and technical im (1985) (quoting Black’s Law Dic perfections,” Brumley, Bender v. 1 F.3d (5th 1979)). tionary 711 ed. (5th Cir.1993); Contractors, accord P & L Co., American Norit 137-38 gave following 18. The district court instruc- Cir.1993), and, court, appellate as an we review pari tion on the in delicto defense: charge the effectiveness trial court’s Serv., only. 1435; Disposal abuse discretion Barton’s pari equal “In delicto" means “in fault.” A Inc., Contractors, at F.2d where, plaintiff pari cf. P & L is in delicto as a direct Inc., ("The 5 F.3d at 138 district court is in the actions, result of his own bears at position analyze jury's best intentions and substantially equal responsibility least instance, charged, thus is in the first with the wrongdoing damages. for which he now seeks obligation giving effect to those intentions in party pari A is also in delicto where he is an (em light surrounding circumstances." participant active deceptive in a fraudulent or added)). phasis illegal scheme or an contract. Indeed, objected objected because the defendants to the The investors to this instruction trial grounds overbreadth of the require instruction for its failure to on the that it did not acts,” plaintiff define “unlawful participated even the district have in the frauds about may authority finding not have they complained. had the to make a which (Tex.Civ.App. writ refd held that the in Supreme has Court — Houston n.r.e.). may operate as bar delicto defense pari damages under of action for private causes record, Upon we can review the Ei laws. Bateman the federal securities evidence, that the if not conclude viewed Richards, Berner, chler, 472 U.S. Hill defendants, fight most favorable to the (1985). 105 S.Ct. would be insufficient as a matter of law to “may be that an action The Court held jury finding pari sustain a of in delicto. grounds of the own barred on the Nevertheless, because we find the dis (1) only where as a direct result culpability jury charge trict court’s erroneous on the actions, at least plaintiff bears his own substantive counts of securities fraud and substantially equal responsibility for the vio mandates that we remand (2) redress, preclusion he seeks to and lations retrial, these we must also remand issues significantly interfere with of suit would not the issue of whether One MVenture/Banc of the securities effective enforcement pari and were in delicto with the Rundell investing public.” protection of the laws defendants in this case. The defense of in 310-11, at 2629. The Bate Id. at pari clearly requires jury delicto be requires that the man Eichler test properly scope un instructed on of the active, voluntary participant in the “be an derlying illegal being alleged it actions before subject activity that is the unlawful can the two investors determine whether 636, 108 Dahl, suit.” Pinter substantially equal responsibil “at bear least 2063, 2072, L.Ed.2d 658 actions, ity” illegal or whether the for the prove can the cause of action with investors determining Texas law for The test under having prove illegal own out also their applies pari delicto defense whether the in enough jury not to con acts. It is contrary. Lewis v. appear to be See does partici clude that the investors were active (1947) Davis, 145 Tex. 199 S.W.2d wrongdoing defend pants in some with the application is a matter (stating that the rule’s Rather, wrongdoing must be ants.19 by Tex public policy). One test relied on wrongdoing for which the investors the same plaintiff requires courts “is whether the as Therefore, seeking damages. are to recover illegal transaction to estab aid from the jury on this issue as whole instructions 151; Id. 199 see lish his case.” S.W.2d jury in adequately guide the their failed to Paddock, also Plumlee See, e.g., v. Marathon deliberations. Stine denied) (Tex.App. writ Worth — Fort Cir.1992) Co., 976 F.2d Oil (“[ required parties who C]ourts (reversing remanding for new trial illegal prove on an contract wish to recover instructions). proper ille case without reliance on their own their act.”). determining plain whether gal “[I]n V illegal transaction requires tiff aid from the case,” Finally, appeals from two “necessary we must address it is to bear to establish his summary judgment. separate motions for party if a can show a in mind the rule that court’s appeal the district being without The investors complete cause of action act, summary judgment in favor of de- although grant of prove illegal obliged to his own Day on the incidentally Kneipper and Jones illegal may appear fendants said act legal negligence and explanation professional issue of may important of other appeal dis- case, malpractice. The defendants may Norman facts in the he recover.” Co., motion for sum- denial of their 177- trict court’s B.V. & Christie participated in the sale of inter- in this case the two 19. We also believe that there is risk percentages when part of FilmDallas im notes and was misled the last knowledge allegedly they fraudu- had about pari instruction: "A district court’s in delicto subsequent activity. activities Unless these party pari where he is an active lent is also in delicto underlying illegal activity, part deceptive participant were a in a fraudulent or scheme proof, necessary part of the two investors' illegal were a On the basis of this or an instruction, contract.” pari to a of in improperly were not relevant jury may have con- offering subsequent delicto. to the sidered evidence 1198 of a

mary asserting the defense of res the investors must show existence judgment judicata. duty by Day owed to them Jones and/or Kneipper, duty, that a breach of and dam summary reviews This court ages arising v. from the breach. Yaklin U.S., v. 44 judgment de novo. Alexander 380, Glusing, Sharpe Krueger, 875 & S.W.2d (5th Cir.1995); 328, Ackerman v. F.3d 330 1994, (Tex.App. Corpus 383 Christi — (5th Cir.1992). F.D.I.C., 1221, 973 F.2d 1223 writ). law, Under Texas there is no attor grant court’s of sum We review district ney-client relationship showing absent a mary judgment by applying the same stan contract, privity attorney and an owes no by ruling court in employed the district dard professional duty party to a third or non- Alexander, 330; 44 F.3d at on the motion. Carnahan, 151, 772 client. Parker v. S.W.2d Dallas, City 940 F.2d 937 Samaad v. (Tex.App. writ 156 de (5th Cir.1991). summary judgment ap — Texarkana A nied); Leasing Corp. v. First Mun. Blanken propriate genuine issue of material when no Potts, Aikman, Stewart, ship, Hagin and 648 moving party fact is entitled to exists and (Tex.App. writ S.W.2d judgment as a matter of law. Fed.R.Civ.P. — Dallas n.r.e.); Howse, F.Supp. v. Catrett, ref'd F.D.I.C. 56; Corp. Celotex (S.D.Tex.1992). 2552-54, attorney- 323-25, The (1986). determining genu relationship In whether a client is viewed as a contractual exists, relationship attorney agrees ine issue of material fact the evidence in which the light and inferences be viewed in the must professional render services on behalf of the nonmoving party. Yaklin, Parker, most favorable to the 383; at client. Taylor Gregg, Cir. attorney-client 772 S.W.2d at 156. The rela 1994). dispute about a material fact is tionship explicit agreement can be formed “genuine” if the evidence could lead a reason may parties by implication or arise nonmoving party. able to find for the Yaklin, parties’ from the actions. Inc., Liberty Lobby, Anderson v. Parker, 383; S.W.2d at 772 S.W.2d at 156. 242, 248, 106 2505, 2510, case, present In the the investors argue Day Kneipper first that Jones and/or A manifested their intent to create a limited general The investors make two assertions attorney-client relationship by voluntarily is support professional negligence of their suing opinion letter in connection legal malpractice against Kneip- claims offering. Although the FilmDallas securities First, per Day. and Jones the investors attorney-client relationship im can be argue Day, Kneipper as a Jones readily plied, impute courts will not the con firm, partner of the law into a “limit- entered relationship tractual absent a sufficient show attorney-client relationship in- ed” with the Parker, ing of intent. See S.W.2d by agreeing represent them for vestors (holding attorneys that husband’s did not purpose issuing opinion letter in attorney-client relationship with wife connection with the FilmDallas securities of- though attorneys even wife met with Alternatively, fering. the investors claim offices).20 signed documents in their We do Day duty Kneipper that Jones had a and/or opinion not believe that the letter issued to advise them that their interests were not Day Kneipper an in Jones evidences and/or being represented in a situation where attorney-client tention to form an relation reasonably were led to believe otherwise. ship. Leasing Corp., Mun. First Cf. liability (concluding In S.W.2d at 413 law firm order to establish professional negligence legal malpractice, opinion regarding which issued letter Jansen, Howse, Dickey privity); F.Supp. 20. See also to lack of F.D.I.C. v. (Tex.App. (finding privity prevented [1st writ at 1563 that a lack of Dist.] — Houston n.r.e.) (concluding testamentary obtaining indemnity ref'd benefi bank directors from from ciaries could not maintain a cause of action the law firm which had handled the bank’s af- fairs). against attorney negligently who drafted will due person being repre- that she was duty to a third- to believe validity a contract owed of privity). by attorneys.”). reviewing lack of After due to sented the corporation party record, in this the we find evidence that the final argue next The investors a case is also insufficient as matter of law to that opinion letter indicated paragraph Day Kneipper establish that Jones and/or rendering professional ser- Day was Jones Moreover, “duty a even if had to disclose.” directly investors: to the individual vices exist, duty a we believe that the such did us, by counsel as opinion is furnished This opinion in the letter was sufficient disclaimer solely your you, for company, to to alert the investors the fact that their to benefit, hereby assuming not and we are being represented by interests were not any other responsibility professional Day Kneipper. Jones and/or person whatsoever. however, arguments,21 Despite the investors’ Day to name Jones paragraph this

we read B solely, disclaiming counsel for FilmDallas as any other responsibility for any professional Kneipper Day appeal and Jones Although including investors. persons, the from the district court’s denial of their mo drafted, unartfully opinion letter does not summary judgment, tion for which asserted attorney- an create an MVenture) manifest intent (except plaintiffs that for contrary, the dis- relationship. client To estopped asserting any claims were from attempt to avoid an is an claimer obvious against defendants a release contained relationship. creation such inadvertent of plan reorganization in Film- of entered bankruptcy that a reason Dallas’s The investors ar as a matter of law case. We hold parties gue find that could not that defendants waived the defense able attorney- an judicata by failing plead an intent to create it affirmative manifested res Therefore, relationship. the investors’ ly required by client as We Fed.R.Civ.P. 8(c). a cause of ac argument cannot sustain first agree. legal mal professional negligence or tion for 156; Parker, at 772 S.W.2d practice. See judicata an de Res is affirmative Corp., at Leasing

First Mun. spe if which is considered waived fense 413. cifically pleaded in or an amend the answer permitted answer under Fed.R.Civ.P. ed claim that Jones The investors also 15(a). Mozingo Mfg. Corp., 752 Correct duty Kneipper to inform Day had and/or (5th Cir.1985); Morgan Guar F.2d being represented were not them Blum, anty New York v. Trust Co. would have led the circumstances because (5th Cir.1981); Henry v. F.2d 344-45 to believe otherwise. reasonable investors Clarksdale, F.2d Nat’l Bank First certain circum courts have held that Texas denied, (5th Cir.1979), “duty may give to a to disclose.” stances rise (1980). (Tex. Kelly, 791 S.W.2d Kotzur v. summary for their motion Concurrent with writ) (“[A]n 1990, no App. Corpus Christi — filed a motion judgment, the defendants fails attorney may negligent held when he answer, which the dis to amend their leave representing party that he is not to advise a A district court has trict court also denied. when the circumstances lead them on case amendment to “to allow late some discretion attorney party to believe that prejudice would press a when no them.”); Parker, defense representing party, and the ends of (“This to the other result if the duty to so would arise advise Mozingo, F.2d at justice require.” so attorneys factfinder determined court’s denial of We review the district have been aware were aware should of discretion. Mor- a motion for abuse led a reasonable such conduct would have their supplies any additional believe that it argue dis- and do not that this case is 21. The investors also attorney-client opinion rela- tinguishable showing letter was ad- because of intent to form directly We to the individual investors. tionship. dressed distinction, significance in this find no however. York, gan Guaranty Trust Co. New only The record reflects that fraud F.2d at 345. subjected claimed out, point the defendants As the proof supports at trial still attempt to amend their answer until did not conspiracy though even it occurred at a time after the deadline approximately ten months which would have it made “immaterial” for in to amend the securities fraud case and purposes jury of the erroneous securities years bankruptcy plan almost three after the charge. Moreover, bankruptcy confirmed. was majority acknowledges The that the ver- something release was not the defendants conspiracy jury dict on civil derived from a earli could not discovered asserted widely approved. instruction which has been Pope er. See v. MCI Telecommunications jury by charge cannot be misled which (5th Cir.1991) (affirming Corp., 937 F.2d 258 accurately ju- prevailing so summarizes the claim denial of leave to amend where could risprudence. conspiracy Because civil is a earlier), years have been asserted cert. de claim require distinct which does not materi- nied, ality, was able to “un- consider the (1992). Therefore, L.Ed.2d 558 we conclude lawful acts” which were the entire focus of that the district court followed the law and necessary the five-week trial. The retrial of in denying did not abuse its discretion defen the securities claims should not mandate re- dants’ motions. trial conspiracy of the civil claim. With the conspiracy undisturbed, civil claim left VI jury’s pari finding in delicto would also be reasons, foregoing For the we AFFIRM maintained. rulings the district court’s on the two mo- summary judgment;

tions for we REVERSE judgment in of the district court favor of defendants, for a REMAND new

trial on the federal and Texas state securities TANKERS, INC., In re conspiracy fraud claims and on the civil CLEVELAND as operator owner and “JUPI claim. M/V TER,” for exoneration from or limita BERRIGAN, Judge, concurring liability. District in tion of part dissenting part: in NEW BANK CONNECTICUT & join majority affirming I in grant TRUST, al., Plaintiffs, et summary judgment professional on the negligence affirming in claim and the denial al., MUSSA, Appellees, Abdul et summary judgment estoppel on the issue. join majority I also Tankers, Incorporated; Cleveland given an erroneous instruction re- Petroleum, Incorporated, Total garding “materiality” as to the securities Defendants-Appellees, claims, necessitating fraud a new trial on Steamship Company, American disagree majority these claims. I with the Defendant-Appellant. respect. jury’s one I think that the verdict No. 93-1925. up- claim should be held. Appeals, United States Court of evidentiary upon

“If there is an Sixth Circuit. basis supported, which can the verdict Argued April 1995. jury’s determinations will be left undis Decided Oct. 1995. turbed, even where there is substantial con Rehearing Denied Nov. tradictory sup evidence that could have ported opposite verdict.” Gibraltar Sav

ings Corp., v. LDBrinkman (5th Cir.1988), denied,

Case Details

Case Name: Banc One Capital Partners Corp. v. Kneipper

Court Name: Court of Appeals for the Fifth Circuit

Date Published: Nov 3, 1995

Citation: 67 F.3d 1187

Docket Number: 93-01423

Court Abbreviation: 5th Cir.