J. Skelly WRIGHT, Circuit Judge:
Appellants, Cornelia O'Connor Grey, and her two sons, James Charles and Michael Carter Grey, beneficiaries of the James Charles O'Connor Trust, brought suit against appellee First National Bank in Dallas, Trustee of the O'Connor Trust, in the United States District Court for the Northern District of Texas, alleging First National's complete disregard of its fiduciary duties in fraudulently acquiring trust property for its own use. Appellants sought rescission of a 1960 Partition and Sale Agreement through which the property was acquired. In the alternative, appellants demanded damages, actual and exemplary, based on alleged fraud. The case was submitted to the jury on a special verdict form. On the basis of its findings, judgment was entered dismissing plaintiffs' complaint on the merits. We affirm.
Of crucial importance in this extremely complicated lawsuit are the events preceding the signing of the Partition and Sale Agreement in September 1960 and the circumstances surrounding the Texas state court judgment of November 28, 1960, which approved that transaction, thereby relieving the bank of the restrictions against self-dealing imposed by the Texas Trust Act. Since this appeal presents, inter alia, a claim that the District Court erred in not directing a verdict in plaintiffs' favor and in overruling plaintiffs' motion for judgment notwithstanding the verdict, we shall review the evidence in some detail.
In 1910 James Charles O'Connor created a testamentary trust for the benefit of his wife, three daughters and grandchildren. His will provided that after the death of his wife the income would be divided equally among his daughters, and as each daughter died, the remainder in that daughter's share would go to that daughter's lawful issue in equal shares per stirpes or, in default of such issue, to such person or persons as were designated in that daughter's will. Shortly after his wife's death, one of the daughters died without issue. Her will provided that her third of the trust go in fee simple in equal undivided amounts to her two surviving sisters. The second daughter also died without issue; a settlement arising from a contest of her will provided that almost half of her original interest in the trust go in fee simple to her sole surviving sister, Mrs. Cornelia O'Connor Grey, with the remainder of her interest being placed in a charitable trust — the Morgan Trust. Thus, of the property originally placed in the O'Connor Trust, 20/60ths remains in that trust, 19/60ths is owned by Mrs. Grey in fee simple, and the Morgan Trust owns 21/60ths in fee simple. Mrs. Grey is the sole income beneficiary of the O'Connor Trust and her sons, James and Michael, are her lawful issue and therefore the remaindermen to whom the trust properties will be delivered upon the termination of that trust at Mrs. Grey's death.
The principal assets owned jointly by the O'Connor Trust, the Morgan Trust and Mrs. Grey individually are eight downtown Dallas lots. First National has been the successor trustee of the O'Connor Trust since its merger in 1954 with the prior trustee, Dallas National Bank. In addition, since 1954 First National has been the successor trustee of the Morgan Trust and agent for Mrs.
The trust real estate involved in this litigation is located in City Block 60. This map of Block 60 shows the property therein:
Shortly after the merger, Z. L. Majors, Trustee (now ostensibly acting for the Murchison interests), purchased the lot adjoining Republic Garage on the west (the A'Mell Building). The purchase price of that building was $650,000, the whole amount having been borrowed by Z. L. Majors, Trustee, from First National. When the Murchisons declined to proceed with the transfer and several other potential takers balked, the A'Mell property was offered to Mrs. Grey, the O'Connor Trust and the Morgan Trust in an even trade for their Republic Garage property. First National's trust officer approved the trade and recommended that Mrs. Grey proceed, without telling her that the money used to purchase the property came wholly from First National, that First National's general counsel represented both the O'Connor Trust and Z. L. Majors, Trustee, and that the appraisal submitted to Mrs. Grey (the so-called Dunham appraisal) was $100,000 in excess of Majors' purchase price.
One month after the exchange of properties, Majors offered to sell Republic Garage to First National for cancellation of the $650,000 debt. First National refused. Subsequently a National Bank Examiner criticized the unsecured loan, as did First National's internal examining committee, for although all interest had been paid when due, there had been no repayment of any part of the principal. Finally First National was given a deed of trust for Republic Garage for the amount of Majors' indebtedness.
Meanwhile, Mrs. Grey became dissatisfied with the A'Mell property; contrary to her expectations and representations made by First National's trust officer, the rental income from the building decreased rather than increased. This, together with other grievances she had stemming from First National's handling of her trust properties, prompted Mrs. Grey in March 1958 to give notice to First National of her intention to revoke her agency agreement with respect to those properties in which she held an interest individually and to substitute for First National its leading competitor, Republic National Bank of Dallas.
As early as January 1956, First National had tried to persuade Mrs. Grey to partition the various properties held in undivided interests by the O'Connor Trust, the Morgan Trust and Mrs. Grey individually. It had explained to her that it believed that the Morgan Trust was being disadvantaged by her unwavering decision to retain the real estate in her father's estate
In preparation for such a partition, First National requested the Dallas Real Estate Board to appraise all of the relevant properties. This appraisal was completed by October 1959, but Mrs. Grey was having difficulties deciding how she wanted the properties partitioned. First National made no suggestions or proposals, but continually repeated its desire to have the partition completed as soon as possible. In March 1960 Mrs. Grey made her "final decision" to partition the A'Mell property to the Morgan Trust, since its value, according to the 1959 appraisal, was now only $500,000 and she had neither the time nor the money with which to develop the property.
During the time that the parties were preparing for the partition, First National was considering the advisability of constructing a new bank building. A site study committee was appointed to make an investigation. At an executive committee meeting on March 3, 1960, the results of that investigation were reviewed, but the four plans presented were all rejected. Instead, the consensus was to acquire, if possible, all of City Block 60, in which was situated First National's motor bank and the A'Mell property. Three real estate firms were then engaged to acquire the eastern half of the block and their combined efforts bore fruit shortly thereafter.
Having been advised of the realtors' success, First National's president, Mr. Stewart, notified the bank's trust officer that the pending partition was to be postponed until agreement was reached with respect to the A'Mell property. A meeting was arranged with Mrs. Grey and her attorney, Mr. Leo Dorsey, to take place in New York on April 25, 1960. At that meeting Mr. Stewart informed Mrs. Grey of the bank's interest in the A'Mell property and told her that, because of a potential conflict of interests, First National would resign as trustee of the O'Connor and Morgan Trusts. Mrs. Grey insisted that resignation was not necessary and she adhered to this position even after she was informed that if the bank remained trustee a court proceeding would be required to free First National from the restrictions against self-dealing in the Texas Trust Act. Mrs. Grey stated that the only condition she would impose was that she get a better price than Majors would be getting for Republic Garage. It was also agreed at this time, pursuant to Mr. Dorsey's suggestion, that, prior to the sale, the A'Mell property would be partitioned to Morgan Trust since that Trust was entitled to favorable tax treatment.
On May 10, 1960, the Board of Directors of First National officially approved acquiring all of City Block 60. It was at this time that Majors deeded the Republic Garage to the bank in liquidation of his $650,000 indebtedness. First National offered Mrs. Grey $750,000 for A'Mell
First National's general counsel drafted a Partition and Sale Agreement which provided for the partition of several tracts of property
The Partition and Sale Agreement was presented to Mrs. Grey and James for their signatures, but they left Dallas that evening for New York without signing. Aboard the plane, Dorsey explained the various provisions of the Agreement first to Mrs. Grey and then again to James. The following Monday, September 19, Mr. Stewart flew to New York where Mrs. Grey and James signed the Agreement. Mrs. Grey then flew to Paris, France, where, on October 8, Michael signed his name. Neither James nor Michael was named as a contracting party to the Agreement, but each executed it, stating his approval, ratification and adoption with the same force and effect as if he were a party thereto.
Mrs. Grey neither selected nor retained counsel to represent her or her sons in the Texas court proceedings. She seemed intent on having the deal go through and did not want independent counsel to complicate a relatively simple agreement. First National then suggested that Mr. Philip Kelton represent the O'Connor Trust since his firm had previously done some work for it. Kelton in turn contacted Dorsey, asking if he were also authorized to represent Mrs. Grey and her sons, and Dorsey assured him that he was so authorized. On November 19, 1960, First National initiated suit in a state district court in Dallas County, Texas, with the bank in its individual
The hearing lasted the greater part of the day and was characterized by the presiding judge as "a more than fair disclosure." Judgment was entered on November 28 and became final 30 days thereafter, just a few days before the December 31 deadline. Despite the fact that Mrs. Grey then refused to sign the Partition Deed (and has not signed the Deed to this day), the sale from the Morgan Trust to First National in its individual capacity was consummated. First National subsequently obtained the outstanding properties in City Block 60 and broke ground for its 52-story bank and office building.
In February 1961 Mr. Dorsey presented Mrs. Grey with a bill in the amount of $100,000 for attorney fees in connection with Mrs. Grey's transactions in Dallas. In the spring of that year, she was served in New York with a summons to appear in a lawsuit there against her individually for those fees, now valued at $140,000 plus $256.59 disbursements. Mrs. Grey then sought other New York counsel, present counsel of record, to defend her against Dorsey. An answer was subsequently filed in the New York courts denying liability, and a counterclaim was filed against Dorsey for damages resulting from unskillful and grossly negligent representation of Mrs. Grey. At the same time, counsel wrote First National that he believed the Partition and Sale Agreement was unenforceable and that "in disposing or otherwise dealing with the real property in question * * * you will be acting at your sole risk and peril." Nonetheless, First National proceeded with its plans and by the time this suit was brought in May 1963 its building, occupying the entire City Block 60, was completed.
We turn now to a consideration of appellants' specification of errors. They argue first that the District Court erred in denying their motions for a directed verdict or for judgment n. o. v. because the undisputed evidence conclusively showed, as a matter of law, that First National failed to make the requisite full disclosure to appellants of all facts within its knowledge material to its self-dealing.
The jury's resolution of the disputed facts is quite clear. The jury was asked:
The jury answered "no" as to every party. The jury was also asked:
Again the jury answered "no" as to every party. These questions were all-inclusive: all of appellants' allegations were fully developed at trial and all were resolved against them. The court in charging the jury made it clear that the fraud issue related not only to the execution of the Partition and Sale Agreement, but to the entry of the state court judgment as well. The questions as phrased had the same effect.
Assuming that the evidence was sufficient to take the case to the jury, appellants maintain that the verdict still may not stand because the charge to the jury was both incomplete and misleading. They argue first that the District Court, in effect, refused to advise the jury of their contention that simple failure on the part of the First National, as trustee, to disclose material facts was an issue. Appellants refer specifically to the court's comment:
By using "misrepresented" and "concealed," appellants assert, the court placed an undue burden upon them, since such words not only connote affirmative acts, unlike negative silence in failure to disclose, but in addition may even connote bad faith. We find no merit in this argument. We have repeatedly held that a charge "must be viewed as a whole, in connection with the contentions aired by the parties in the Court below, and it must be viewed from the standpoint of the jury." See, e. g., Garrett v. Campbell, 5 Cir., 360 F.2d 382, 386 (1966). Considered as a whole, we find that the court did charge the jury that an issue was First National's failure to disclose. For example, the court stated that "[i]t is the contention of Plaintiffs that the Bank as Agent and Trustee violated its fiduciary duties * * *" and that "[t]he First National Bank denies that it misrepresented or concealed any material facts, contending on the other hand, that it made a full disclosure of all material facts." (Emphasis added.) The court also charged the jury that "there must be fair dealing and good faith by the Trustee toward the beneficiary" and the "Trustee * * * has a duty to impart to the beneficiary all material facts in dealings between the Trustee and the beneficiary."
Moreover, in examining the record we find that appellants themselves were not
Appellants also object to the court's definition of "material," alleging that it completely disregarded the nature of the confidential relationship between appellants and First National. The court's charge defining "material"
Finally, appellants claim that the court's instruction that Mrs. Grey was bound by the state court judgment and that James and Michael were likewise bound unless the jury found that they had not authorized Kelton to represent them was tantamount to instructing a verdict for First National on the issues of fraud and damage. Again we find no merit in this objection. The court's charge, taken as a whole, shows that the issue of the state court's jurisdiction was completely separate from the issue of whether First National fraudulently obtained that judgment. The distinction is also clear from the special interrogatories: Special Issue No. 1 went to Kelton's authority; Special Issues Nos. 2 and 3 to the alleged concealment or misrepresentation. We therefore see no basis for appellants' contention that the jury might have believed that if it answered "yes" as to Kelton's authority, it was bound to answer "no" as to fraud.
Since we find that the evidence was sufficient to take the case to the jury, that there were no errors requiring reversal in the court's charge, and that the jury's verdict is amply supported by the record, we hold that appellants' motions for a directed verdict,
Appellants also contend in their specification of errors that the District Court should have directed a verdict in favor of James and Michael Grey since the evidence showed that they were denied due process of law with respect to the 1960 state court judgment. Appellants' complaint stated that James and Michael "were never personally or constructively served with process in the aforesaid action, nor did they appear therein either personally or by a duly appointed attorney," and that consequently the state court judgment is void as to them. Appellants acknowledge that the judgment itself stated that "[a]ll persons having any interest in the subject matter of this suit are properly before the Court," but they correctly note that the fact that the judgment recites jurisdiction does not necessarily prevent the court from inquiring into facts disclosed by the complete record. O'Boyle v. Bevil, 5 Cir., 259 F.2d 506, 513 (1958), cert. denied, 359 U.S. 913, 79 S.Ct. 590, 3 L.Ed.2d 576 (1959); Lutcher v. Allen, 43 Tex.Civ.App. 102, 95 S.W. 572 (1906).
Appellants admit that Dorsey told Kelton that Kelton was authorized to represent James and Michael, and that Kelton, in good faith reliance upon that representation, filed an answer on their behalf in the state court proceeding.
Appellants assert that, given this evidence, it was error for the District Court to deny their motion for a directed verdict as to James and/or Michael Grey. We do not agree. As noted above, the party moving for a directed verdict has a heavy load, particularly when he also carries the burden of proof on the issue in question. 2B W. Barron & A. Holtzoff, Federal Practice and Procedure § 1075 at 396 (Wright ed. 1961); 5 J. Moore, Federal Practice ¶ 50.02 (2d ed. 1967).
The issue was phrased as follows:
Nonetheless, appellants would have this court disregard the jury's finding. They claim that it is undisputed that Dorsey authorized Kelton and that therefore the question should have been phrased to ask whether James and Michael authorized Dorsey. As the issue was phrased, they claim, the jury might have thought that so long as Kelton was authorized by anyone, they must answer yes. We see no basis for this contention, since the jury's answer was explicit: "James C. Grey: He was authorized. Michael C. Grey: He was authorized." Moreover, Rule 49 of the Federal Rules of Civil Procedure "clearly leaves the matter of the form of a special verdict and interrogatories to the sound discretion of the trial court." De Eugenio v. Allis-Chalmers Mfg. Co., 3 Cir., 210 F.2d 409, 415 (1954).
Appellants also take exception to the instructions accompanying Special Issue No. 1, whereby the jury was told that authority can be conferred directly or by an agent, that it can be written or oral, and that it can be "express," "implied" or "apparent." Appellants object that there is no evidence to support the instruction as to apparent authority. Considering the evidence as we have already summarized it, we disagree and find that the District Court did not abuse its discretion either in phrasing the question to be answered or in instructing the jury on the applicable standards.
Appellants also allege errors relating specifically to the conduct of the trial in the District Court, or, in the alternative, an abuse of the trial court's discretion in the handling of that trial. We find these allegations to be without merit.
Appellants first object to the trial court's refusal to admit certain documentary evidence which was probative of First National's knowledge, prior to the November 28, 1960 judgment,
Appellants' second objection is directed at the trial court's refusal to answer directly a question sent out by the jury during the course of its deliberations. The question was as follows:
Appellants requested the court to instruct the jury that there was no testimony in the record indicating First National told Mrs. Grey or her attorney about the Majors note or deed of trust. Instead, the court responded: "The Jury is the exclusive judge of the evidence." We believe the court's reply was an appropriate one. In order to answer the question on the merits, the judge would have had to review over 2,000 pages of transcript and 400 exhibits and, in the absence of direct testimony, draw an inference as to the proper answer. This would have been an insurmountable burden. As an alternative, the judge could simply have tried to recall the evidence and evaluate its significance, but in so doing she would have been acting as a 13th juror. Appellants argue that at least the trial judge should have instructed the jury that it had a right to request any portion of the testimony to be read to it in open court by a court reporter. We need not now consider this objection since appellants did not request such an instruction below. 2B W. Barron & A. Holtzoff, Federal Practice and Procedure § 1021 at 310-312 (Wright ed. 1961); 5 J. Moore, Federal Practice ¶ 46.02 (2d ed. 1967).
Appellants' third objection goes to the trial court's limiting of their time for an opening statement and closing arguments to the jury. Appellants assert that the complexity of the case, the length of the trial (three weeks), and the variety of their allegations necessitated their being given more than 30 minutes for their opening statement and one hour and 20 minutes for their closing argument. This limitation, they allege, greatly inhibited their ability properly to present and summarize to the jury their claims and the evidence to support them. However, this is a question so clearly committed to the discretion of the trial judge that we would intervene only where there is an egregious abuse of that discretion. See, e. g., Rosiello v. Sellman, 5 Cir., 354 F.2d 219, 220 (1965). This case simply does not satisfy that criterion and accordingly we reject appellants' allegation.
Lastly, appellants note that the District Court in granting a directed verdict for the Morgan Trust and the state Attorney General at the close of the plaintiffs' case stated:
Appellants correctly note that the trial judge filed no findings of fact and conclusions of law as required by Rule 52, Fed.R.Civ.P., to support this conclusion. But curiously appellants do not request that this case be remanded for such findings and conclusions on the so-called equitable issues in this case. Instead, they ask that this court find that as a matter of law they are entitled to judgment. On the record evidence we are unable to make this finding.
Finally appellants object here to the District Court's allocation of counsel fees,
We begin with the general proposition that a trustee may charge his trust for attorney's fees which the trustee, acting reasonably and in good faith, incurs in defense of litigation charging him with a breach of trust. 2 A. Scott, Trusts § 188.4 (1956). We have stated that the jury found no breach of the bank's fiduciary duties and thus we may assume that First National as trustee of the O'Connor Trust was acting reasonably and in good faith. Appellants, however, object that First National "did not come into a court of equity and say with candor: `I have defended myself successfully against claims of my beneficiaries and am entitled to an allowance for my attorneys, Messrs. Coke & Coke, my general counsel,' and that instead Bank's stratagem was to seek an allowance for the fees of a second set of attorneys on the pretense that the services rendered were in defense of `the trust' * * *." (Emphasis in appellants' brief.) We need only note that the suit was orginally brought by the appellants and that they specifically named the trusts as well as First National in its individual capacity as parties defendant. Appellants should not now be heard to object that the parties they joined have defended themselves.
There is, however, one complication. It appears that the O'Connor Trust, like
Consequently, appellants assert that, when the Morgan Trust sought and was granted a directed verdict at the close of the plaintiffs' case, counsel for the O'Connor Trust should have done likewise. This would have minimized the amount of chargeable time and in turn the amount of fees recoverable from the trust.
Although appellants here raise a valid point, we find no prejudice. It is clear that First National could have charged the O'Connor Trust for all fees and expenses of attorneys representing it in its individual capacity since it was exonerated of a charge of breach of trust initiated by the trust beneficiaries, and it is equally clear that the bank voluntarily paid or will pay all such fees and expenses. Moreover, the allocation of counsel fees is a question of discretion vested in the District Court and we find no abuse of that discretion which would warrant either reversal or remand. American National Bank of Beaumont v. Biggs, Tex.Civ.App., 274 S.W.2d 209 (1954).
Accordingly, the judgment of the District Court is
This case is another vivid illustration of the great utility of the Rule 49(a), Fed. R. Civ. P., general charge and special verdict which this court so often heralds. See, e. g., Weymouth v. Colorado Interstate Gas Company, 5 Cir., 367 F.2d 84, 93, n. 31 (1966); American Oil Company v. Hart, 5 Cir., 356 F.2d 657, 659 and n. 5 (1966). The general charge illumines the verdict questions-answers and vice versa. Every critical fact has been excised against nearly every likely contingency to enable us to analyze the legal contentions against specific, identifiable findings, not just a series of assumed implied findings from an unrevealing general verdict and its enigmatic mysteries. See, e. g., Notes 10, 12 and 13 infra and related text. By this method our inquiries were simplified to determine as to each challenge (a) the formal correctness of the verdict answer and supporting charge, (b) the substantive correctness of the charge and verdict question, and (c) the sufficiency of the evidence to support the answer.
"* * * [T]he relationship of principal and agent is fiduciary in nature and therefore the agent is required to be loyal and to act in good faith. The Agent * * has the duty of imparting to his principal, every material fact relating to a transaction, if in the scope of the agency, on becoming aware of such facts during the course of the transaction.
"The First National Bank, in addition to being the agent of Mrs. Grey, was the Trustee of the O'Connor Trust, of which Mrs. Grey was the beneficiary, and James C. and Michael C. Grey were the Remaindermen-beneficiaries.
* * * * *
"You are instructed that the Trustee of a Trust occupies the position of a fiduciary of the Trust, that is, there must be fair dealing and good faith by the Trustee toward the beneficiary. The Trustee has the duty to act in the best interests of the beneficiary of the Trust, and has a duty to impart to the beneficiary all material facts in dealings between the Trustee and the beneficiary." (Emphasis added.)
The jury answered "no" as to every party. Perhaps of even greater significance is the jury's negative answer to the following:
Therefore, even if the court had erred in not directing a verdict for appellants, appellants would not have been prejudiced thereby.
Appellants also sought exemplary damages, but, according to Texas law, such recovery presumes a showing of malice, Baker v. Moody, 5 Cir., 219 F.2d 368, 371 (1955); Mossop v. Zapp, Tex.Civ.App., 189 S.W. 979, 981 (1916), which the jury was unable to find, as is illustrated by its negative answer to the following:
We need not reach appellees' claim that James and Michael are not beneficiaries within the meaning of this section and therefore not necessary parties to the suit. Instead, since we affirm the finding of the District Court that Kelton was authorized to represent James and Michael, we merely note that under Rule 121 of the Texas Rules of Civil Procedure, an answer constitutes an appearance of the defendant so as to dispense with the necessity for the issuance of service of citation upon him. Moreover, since the notice requirement of the Texas Trust Act is to give notice, we can find no harm to James or Michael, who had each signed the Partition and Sale Agreement which, according to its terms, was conditioned upon the entering of a judgment in such a proceeding to be commenced as soon as possible.