Chedick, Marcia v. Nash, Thomas
151 F.3d 1077
D.C. Cir.1998Check Treatment United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 16, 1998 Decided August 7, 1998
No. 97-7096
Marcia Chedick,
Appellee/Cross-Appellant
v.
Thomas Nash and
Capital City Mortgage Corporation,
Appellants/Cross-Appellees
Consolidated with No. 97-7151
---------
Appeals from the United States District Court
for the District of Columbia
(No. 96cv00251)
Eric J. Sanne argued the cause and filed the briefs for
appellants/cross-appellees.
Marcia K. Docter argued the cause and filed the brief for
appellee/cross-appellant.
Before Edwards, Chief Judge, Henderson, Circuit Judge,
and Buckley, Senior Circuit Judge.
Opinion for the court filed by Senior Judge Buckley.
Buckley, Senior Judge: Capital City Mortgage Corpora- tion and its president and sole shareholder, Thomas K. Nash
(collectively "Capital City"), appeal a jury's verdict that they
defrauded Marcia Chedick. Ms. Chedick, in turn, contests
the district court's decision to bar some of her testimony
supporting punitive damages. Both parties contend that the
district court committed error in computing compensatory
damages for fraudulent misrepresentation. We affirm the
judgment but vacate the compensatory damage award and
remand for reconsideration of those damages.
I. Background
A. Facts
On May 24, 1994, Ms. Chedick sought a loan from Capital
City in order to refinance the mortgage on property she
owned at 1013 U Street, N.W., Washington, DC. Ms. Ched- ick had bought the property in exchange for cash and the
assumption of a note. At the time she approached Capital
City, Ms. Chedick was in arrears on the note, and a foreclo- sure sale had been scheduled for May 26.
Both parties agree that Ms. Chedick reviewed Capital
City's loan documents only cursorily before initialing them
and taking them home. Two days later, she received $42,000
from Capital City that she used to retire the note and to pay
back taxes on the property. Prior to settlement, Ms. Chedick
neither read the loan documents nor asked any questions
about them.
Capital City specializes in lending money to high risk
borrowers, on concomitantly onerous terms. In Ms. Ched- ick's case, the interest rate on the five-year mortgage was 20
percent per annum for the first four years and 30 percent for
the final year. If a payment was more than 45 days late, the
mortgage was considered in default and the interest rate
immediately rose to 30 percent, where it stayed for the
remainder of the life of the loan. The note also specified
various fees, including a 15 percent "late charge" on pay- ments more than ten days in arrears, a five percent reinstate- ment fee, and a one percent per month penalty if the proper- ty was uninsured by the owner--regardless of whether it had
been insured by Capital City.
In August 1994, a disagreement arose over the amount that
Ms. Chedick owed on the mortgage, a dispute which remained
unresolved a year later. Capital City concedes that the
amount it then claimed to be due included improper charges.
Ms. Chedick made no payments in the interim, although she
states that she proffered two monthly payments that Capital
City declined to accept on the ground that they were insuffi- cient. In 1995, Ms. Chedick found a buyer for the property
and sought to pay off the entire balance of her outstanding
debt to Capital City from the anticipated proceeds of the sale.
Capital City allegedly demanded payment of $98,000 to retire
the loan, which Ms. Chedick claimed was exorbitant and
refused to pay. As a result, the sale fell through. Ms.
Chedick retains title to the property, subject to Capital City's
lien. B. Procedural Background
Ms. Chedick filed for personal bankruptcy in 1994. During
the course of the Chapter 13 proceeding, she filed a claim
against Capital City alleging breach of contract and fraud.
Ms. Chedick demanded a jury trial, and Capital City objected.
The case thereupon was transferred to the district court. See
28 U.S.C. s 157(e) (requiring parties' consent for bankruptcy
court to conduct jury trial).
After proceedings before a magistrate judge, who memori- alized his decisions in a pretrial order, see Fed. R. Civ. P.
16(e), the case went to trial on Ms. Chedick's claims of fraud,
misrepresentation, and breach of contract. Upon finding that
Capital City had breached its contract with Ms. Chedick and
had defrauded her, the jury awarded her $35,000 for breach
of contract, $123,097.85 for fraud, and $100,000 in punitive
damages. The $35,000 award compensated Ms. Chedick for
her lost profit on the sale of the property and for various
charges that she had incurred in the interim. The amount of
the compensatory award for fraud was exactly the same as
the amount Capital City claimed to be due on May 15, 1996.
The court entered judgment against Capital City for
$258,097.85.
Capital City filed a motion for "partial new trial and/or for
remittitur." In its motion, Capital City claimed that, for
various reasons, the jury's award of compensatory damages
for fraud was improper. The district court held, however,
that Ms. Chedick had presented sufficient evidence to sustain
the jury's finding of fraud and that the damages it awarded
her were supported by the record. The court also offset the
damage award by $42,000, the principal amount of the loan.
Capital City timely appeals the district court's instructions
concerning the elements of fraud, and the sufficiency of the
evidence supporting a finding of fraud. Ms. Chedick cross- appeals the district court's exclusion of evidence concerning
attorneys' fees and emotional damages. She also contests the
district court's $42,000 offset.
The district court had subject matter jurisdiction over this
case under 28 U.S.C. ss 157(a), (e) & 1334, and we exercise
appellate jurisdiction pursuant to 28 U.S.C. s 1331. The
parties are not diverse, and all relevant events occurred in
the District of Columbia. D.C. law therefore governs. See
District of Columbia v. Coleman, 667 A.2d 811 , 816-18 (D.C. 1995).
II. Analysis
A. Capital City Appeal
We address two of Capital City's arguments on appeal:
(1) that the district court erred in instructing the jury that
the breach of an implicit contractual representation may be
tortious and (2) that Ms. Chedick failed to offer any evidence
supporting detrimental reliance on Capital City's misrepre- sentation. Because we uphold the jury's verdict of fraud, we
need not address Capital City's claim that punitive damages
may not be awarded on the basis of a breach of contract
alone.
1. Promissory Misrepresentation
Fraudulent misrepresentation requires proof of "(1) a false
representation (2) made in reference to a material fact,
(3) with knowledge of its falsity, (4) with the intent to deceive,
and (5) an action that is taken in reliance upon the represen- tation." Hercules & Co., Ltd. v. Shama Restaurant Corp.,
613 A.2d 916 , 923 (D.C. 1992). To prevail, the plaintiff must
also have suffered some injury as a consequence of his
reliance on the misrepresentation. See Dresser v. Sunder- land Apartments Tenants Ass'n, Inc., 465 A.2d 835 , 839 (D.C.
1983).
Although an erroneous forecast of an event's future occur- rence is not actionable in tort, where a promisor misrepre- sents his present intent to perform an act in the future, the
promisee may state a claim for tortious misrepresentation.
In Bennett v. Kiggins, 377 A.2d 57 (D.C. 1977), the D.C.
Court of Appeals explained the distinction:
When a person positively states that something is to be
done or is to occur, when he knows the contrary to be
true, the statement will support an action in fraud. On
the other hand, a prophecy or prediction of something
which it is merely hoped or expected will occur in the
future is not actionable upon its nonoccurrence. Id. at 61. Because the alleged tortfeasor must have misrep- resented either his current intent to perform or his existing
knowledge concerning the likelihood that an event would
occur in the future, the tort of promissory misrepresentation
is consistent with the general rule that an erroneous repre- sentation of future events is not tortious. See 37 Am. Jur.
2d, Fraud and Deceit, s 68 (1968) ("The gist of the fraud in
such cases is not the breach of the agreement to perform, but
the fraudulent intent of the promisor, the false representation
of an existing intention to perform where such intent is in fact
nonexistent, and the deception of the obligee by such false
promise."); Restatement (Second) of Torts s 525 (1976)
("One who fraudulently makes a misrepresentation of fact,
opinion, intention or law for the purpose of inducing another
to act or to refrain from action in reliance upon it, is subject
to liability to the other in deceit for pecuniary loss caused to
him by his justifiable reliance upon the misrepresentation.");
see also Fraud, 37 C.J.S. s 15, at 195 (1997).
Ms. Chedick argued at the trial and repeats on appeal that,
consistent with its practice, Capital City intended to prevent
her from repaying her mortgage so that it could foreclose on
her property and that she would not have signed the note had
she known that Capital City would seek to frustrate her
performance. Chedick Complaint at p 46. In support of her
claim, Ms. Chedick relied upon evidence that Capital City
repeatedly miscalculated her monthly obligation, that it
forced her into default by capitalizing costs that should have
been assessed as separate fees, that its conduct was consis- tent with how it had treated other customers (after which it
had foreclosed on them), and that it significantly overestimat- ed the amount required to pay off the mortgage (thereby
scuttling a sale that would have precluded it from obtaining
the property through foreclosure).
At the close of the trial, the court instructed the jury that
[t]he general rule is that an action for fraud can exist
only if there was a misrepresentation of a past or exist-
ing fact, not a promise to do something in the future.
But a promise made with an existing intention not to
perform, that promise can be a fraudulent misrepresen-
tation. In this case, you must find on the first element of
the claim of fraud by a clear and convincing evidence that
Capital City ... entered into the promissory note and
deed of trust with the intent not to perform.
You must find that Capital City ... had this intention
not to perform at the time that the note was entered into
or at the time the promissory [note] was made, and this
was the time that the note was signed. A breach of the
term of the contract which occurred later cannot alone
serve as proof of this intention....
As you know, the plaintiff has tried to show and
produced evidence that the amount of the note and the
amount of the liability and the debt was accelerated so
fast and so high that Capital City ... must have had the
intention not to let her ever pay off the note so they
could take over the property. Similarly, in its order denying a new trial, the district court
held that
[i]f a party enters into a contract with the express
intention not to honor it, his false promise is a fraudulent
misrepresentation which can be actionable as fraud....
... Plaintiff argued to the jury that Capital City ...
never intended to allow plaintiff to abide by the terms of
the agreement, but intended to foreclose on the property
from the beginning. The Court finds that this theory fits
comfortably within the law regarding promissory fraud.
Capital City contends that D.C. law recognizes a cause of
action for promissory misrepresentation only when the prom- ise is neither memorialized as an explicit contract term (e.g.,
an undertaking to provide $42,000 on a date certain) nor
implied by law in the contract (e.g., the obligation to act with
good faith); in other words, the misrepresentation must be a
collateral statement of fact that induced the execution of the
contract. Thus Capital City argues that the district court
misinterpreted D.C. law when it instructed the jury (and
affirmed in its post-trial order) that the breach of an implicit
term of a contract could be tortious. We review the district
court's legal instructions de novo. See Joy v. Bell Helicopter
Textron, Inc., 999 F.2d 549 , 556 (D.C. Cir. 1993).
It is true that no reported D.C. case has held that a mere
intent not to perform a contractual duty can give rise to a
cause of action sounding in tort. Nevertheless, such a hold- ing is not precluded by any of the cases that have recognized
that a misrepresentation of one's intent to perform a collater- al commitment might be tortious. See, e.g., Howard v. Riggs
Nat'l Bank, 432 A.2d 701 , 706-07 (D.C. 1981) (holding that
defendant had not committed tort because its agent's collater- al comment had been made in good faith); see also Shear v.
National Rifle Ass'n, 606 F.2d 1251 , 1253-54, 1259 (D.C. Cir.
1979) (holding that breach of collateral promise was action- able). Some time ago, we observed in a footnote that "[a]
promise or contractual commitment may be actionable as a
misrepresentation if at the time of its making the promisor
had no intention of carrying it out." Day v. Avery, 548 F.2d
1018, 1026 n.39 (D.C. Cir. 1976) (citing William Prosser, Torts
s 109 at 729-30 (4th ed. 1971)). The D.C. courts have neither
adopted nor rejected the rule averred to in Day. Indeed, our
own review of District case law suggests that they have had
no occasion to do either, which is not surprising considering
that the class of cases to which our comment in Day refers is
very narrow. The present case, however, falls within Day's
limited scope. We must therefore decide whether application
of that rule would be consistent with existing D.C. law.
To the extent that D.C. courts have spoken to this issue at
all, they have not rejected the application to contractual
commitments of the general rule that a misrepresentation of
one's intent to perform a duty may give rise to a tort. See
Bennett, 377 A.2d at 61 . Despite Capital City's arguments to
the contrary, it is clear that D.C. law does not distinguish
between a promisor's breach of implicit and explicit contrac- tual representations. See Blake Const. Co., Inc. v. C.J.
Coakley Co., Inc., 431 A.2d 569 , 577 (D.C. 1981) (treating
breach of implicit and explicit contractual obligations in the
same manner). It is equally plain that every party to a
contract necessarily represents that it intends to perform all
its obligations, whether implicit or explicit. See Restatement
(Second) of Contracts s 1 (1979). The narrow issue before
us, therefore, is whether the tort of fraudulent misrepresenta- tion in the District of Columbia includes a cause of action
arising from a party's intent not to perform a contractual
obligation that it is about to undertake.
D.C. courts have distinguished between a failure to perform
such an obligation and a misrepresentation of one's intent to
perform. See, e.g., Urban Invest., Inc. v. Branham, 464 A.2d
93, 98 (D.C. 1983) ("The fact that the repairs were not
performed ... does not support a conclusion that appellants,
in representing that the repairs would be completed, never
intended to carry out the promise."). Similarly, the courts
have recognized that material misrepresentations upon which
a party relies may generate a cause of action sounding in tort.
See, e.g., Howard, 432 A.2d at 706 . We are confident, then,
that if this case were before a D.C. court, it would apply the
rule that we suggested in our footnote in Day; thus it follows
that we find no error in the district court's statement of the
law in its jury instructions and in its post-trial order.
2. Sufficiency of the Evidence Supporting the Elements of
Fraud
A jury's "verdict will stand unless the evidence and all
reasonable inferences that can be drawn therefrom are so
one-sided that reasonable men and women could not disagree
on the verdict. But the evidence must be more than merely
colorable; it must be significantly probative." Smith v.
Washington Sheraton Corp., 135 F.3d 779 , 782 (D.C. Cir.
1998) (internal quotation marks and citations omitted).
Capital City contends that no misrepresentation occurred
here; and even if one did, that Ms. Chedick failed to prove
either that she detrimentally relied on Capital City's implicit
representation that it would act in good faith or that its
alleged misrepresentation caused any ascertainable damage.
Capital City also alleges that there is no contemporaneous
evidence that it intended to breach its duty to act in good
faith.
While Capital City is correct that Ms. Chedick failed to
produce a smoking gun, she did present circumstantial evi- dence that Capital City intended from the outset to ignore its
duty of good faith and fair dealing. By capitalizing closing
fees (rather than charging them to her as ancillary expenses),
Capital City prematurely caused Ms. Chedick's account to go
into default and the interest rate to rise to 30 percent even if
she had made the scheduled monthly payments on time. Ms.
Chedick also presented evidence that Capital City's practice
was to use consistently faulty accounting together with the
harsh terms of its notes to confuse and overburden its
mortgagees, thereby forcing them into default. The jury was
certainly entitled to take this pattern into account in finding
that, from the outset, Capital City did not intend to act in
good faith.
Capital City's remaining arguments derive from the theory
that Ms. Chedick (who still retains title to 1013 U Street)
could not have been defrauded because she was on the verge
of losing the property at the time she entered the loan
agreement and would have lost it if she had not secured the
Capital City loan. Capital City ignores the fact that, in all
likelihood, Ms. Chedick would have been in a better position
financially if she had not secured the mortgage, even though
it permitted her to retain nominal control over the property.
When she sought to sell 1013 U Street and pay off the
Capital City mortgage, the property was valued at $135,000.
Capital City, however, claimed a lien of $98,000, leaving Ms.
Chedick with a net residual value of $37,000. Thus entering
into the mortgage agreement would have harmed Ms. Ched- ick if her equity prior thereto exceeded that amount.
Ms. Chedick testified that she had purchased 1013 U Street
for $100,000 and that in 1994, when she sought the loan from
Capital City, it was worth about $120,000. At that time, Ms.
Chedick had a cash investment in the property of $68,000, but
owed $32,000 on the original note and $10,000 in back taxes.
Thus, if the foreclosure sale had gone through in 1994 and the
property been sold for its estimated value, Ms. Chedick would
have netted $78,000 ($120,000 minus $42,000 for the note and
back taxes), for a profit of $10,000 over her investment. By
contrast, if the 1995 prospective sale had materialized, she
would have suffered a $31,000 loss ($68,000 less the $37,000
she would have netted from it).
We conclude, then, that the record evidence supports both
the jury's finding that Capital City misrepresented its intent
to perform in good faith and its conclusion that Ms. Chedick
suffered injuries as a result of her signing the loan agreement
in reliance on that misrepresentation. The jury was entitled
to find that Capital City's consistent overstatement of the
amount due on Ms. Chedick's mortgage, its improper account- ing, and the resulting frustration of her efforts to pay down
the mortgage breached Capital City's duty to act in good faith
and confirmed its intent to ignore that obligation. B. Ms. Chedick's Cross-Appeal
1. Exclusion of Evidence Concerning Emotional Distress
and Attorneys' Fees
At the trial, the district court prohibited Ms. Chedick from
introducing evidence of either the attorneys' fees she had
incurred or the mental anguish she had suffered as a conse- quence of Capital City's conduct. Ms. Chedick contends that
she should have been allowed to present both types of evi- dence in support of her claim for punitive damages. Capital
City argues that the district court correctly applied the Rules
of Evidence to bar her from introducing such evidence. We
review the district court's decision to exclude evidence for
abuse of discretion. See United States v. Clarke, 24 F.3d 257 ,
267 (D.C. Cir. 1994).
When Ms. Chedick sought to testify about the amount of
her attorneys' fees, Capital City objected on the ground that
she had not "provided any discovery or any exhibits on that."
The court sustained the objection. Because Ms. Chedick
failed to produce documentary evidence in support of her
claim, the court's exclusion of her testimony was not an abuse
of discretion. See Fed. R. Civ. P. 26(a)(1)(C) (mandating
disclosure of "a computation of any category of damages
claimed by the disclosing party"); Fed. R. Evid. 801(a)-(c),
802 (hearsay).
The district court also sustained Capital City's objection to
Ms. Chedick's testifying to her emotional distress. The court
stated:
I'm not going to let you pursue [emotional damages],
then. What I will do is ... if early next week you're
[Ms. Chedick's counsel] going to find something about
emotional damages being recoverable, even though
there's no specific claim in the complaint, a separate
claim in the complaint about it, I may let you reopen with
this plaintiff [Ms. Chedick] to have to go on the witness
stand.... But at the moment, I'm sustaining the objec-
tion. Ms. Chedick did not seek to reopen the court's ruling and
failed to present any legal arguments in support of her right
to present evidence of emotional distress in support of a claim
for punitive damages. In her opening appellate brief, howev- er, she argues that emotional damages may be introduced to
support a claim for punitive damages. By failing to present
those arguments to the district court, Ms. Chedick forfeited
her opportunity to present them on appeal. Singleton v.
Wulff, 428 U.S. 106 , 120 (1976).
In her reply brief, Ms. Chedick attempts to defend her
right to testify concerning her attorneys' fees and emotional
distress by pointing out that these issues were noted in the
magistrate judge's pretrial order. See United States v.
Hougham, 364 U.S. 310 , 315 (1960) ("That pretrial order, as
authorized by Rule 16, conclusively established the issues of
fact and law in the case...."); Smith v. Washington Shera- ton Corp., 135 F.3d 779 , 784 (D.C. Cir. 1998); Johnson v.
Geffen, 294 F.2d 197 , 199-200 (D.C. Cir. 1960). Because she
made this argument for the first time in her reply brief, it is
forfeited. See McBride v. Merrell Dow & Pharmaceuticals,
Inc., 800 F.2d 1208 , 1211 (D.C. Cir. 1986) (holding arguments
first raised in reply brief are forfeited). Under the circum- stances, the district court's exclusion of Ms. Chedick's testi- mony concerning these matters was not an abuse of discre- tion.
2. Damage Award
Both Ms. Chedick and Capital City agree that the district
court erred when it reduced aggregate damages by $42,000,
the amount of the loan, without addressing the value of
Capital City's remaining lien on the property. Ms. Chedick
seeks to have the computation of the lien remanded to the
district court. Capital City claims that no remand is neces- sary but that we should offer Ms. Chedick the choice between
either a judgment of $123,097.85 (which the jury evidently
accepted as the amount due on the note) with the property
subject to a lien in the same amount or an offset of
$123,097.85 against the original jury verdict with the property
free and clear of the lien. Because Capital City did not file a
cross-claim for enforcement of its lien, that remedy is not
properly before us, and we decline to consider that element of
Capital City's argument.
The jury apparently awarded Ms. Chedick $123,097.85 on
the basis of her exhibit XXX, which was a Capital City ledger
statement indicating that she owed that amount on the mort- gage as of May 15, 1996. At the trial, however, Capital City's
attorney claimed that $97,000 was sufficient to cover the
principal and interest due on the note, as well as taxes and
insurance and foreclosure costs. While it is apparent that the
jury intended to award Ms. Chedick the amount then owing
on the note, there appears to be some question as to what
was actually owed. We therefore vacate the award of com- pensatory damages for fraud and remand it to the district
court for a determination of the amount due on the mortgage.
As there is no dispute that Ms. Chedick received $42,000 from
Capital City at the outset, she has had the benefit of that
payment. Therefore, in awarding compensatory damages on
remand, the district court should again subtract $42,000 from
what it finds to have been due.
III. Conclusion
The district court's legal instructions to the jury were
correct, and the jury's verdict is consistent with the evidence
presented at the trial. The verdict is therefore affirmed.
Because the basis for it is uncertain, we vacate the
$123,097.85 award of compensatory damages for fraudulent
misrepresentation and remand to the district court for fur- ther consideration.
So ordered.