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Bankers Trust Company, Cross-Appellee v. Lee Keeling & Associates, Inc., and Lee A. Keeling, 20 F.3d 1092, 10th Cir. (1994)
Bankers Trust Company, Cross-Appellee v. Lee Keeling & Associates, Inc., and Lee A. Keeling, 20 F.3d 1092, 10th Cir. (1994)
3d 1092
Steven M. Harris, Doyle & Harris, Tulsa, OK (Laura B. Hoguet, White &
Case, New York City, with him on the briefs), for appellant/crossappellee.
James L. Kincaid (Jeffrey T. Hills with him on the briefs), Crowe &
Dunlevy, Tulsa, OK, for appellees/cross-appellants.
Before ANDERSON and BALDOCK, Circuit Judges, and KANE,*
District Judge.
STEPHEN H. ANDERSON, Circuit Judge.
Plaintiff and appellant Bankers Trust Company ("BTC") appeals from the grant
of defendant Lee Keeling's ("Keeling") Fed.R.Civ.P. 50(b) motion for judgment
as a matter of law on BTC's claim of negligence and negligent
misrepresentation in the preparation of certain oil and gas reserve reports, and
from the grant of summary judgment for Keeling on BTC's "alter ego" claim
against him. Keeling and codefendant Lee Keeling & Associates, Inc. ("LKA"),
a firm of oil and gas engineering consultants, cross appeal, arguing the district
court erred in ruling that New York law applied to this diversity case and in
refusing to reduce BTC's judgment against LKA and Keeling by amounts which
were paid to BTC by other entities. For the following reasons, we affirm.
BACKGROUND
BTC is a banking corporation organized under the laws of New York and with
its principal place of business in New York. Keeling is a petroleum engineer
and an officer, director, shareholder and employee of LKA, a firm of petroleum
consultants organized under the laws of Oklahoma and with its principal place
of business in Tulsa, Oklahoma. Scandrill, Inc. is a Texas-based oil and gas
company which, in the spring of 1982, sought a "reserve-based" energy loan to
expand its operations. Its corporate parents, at the time of the events relevant to
this lawsuit, were Scanoil, Inc., Scandinavian Trading Company ("STC"), and
Volvo AB ("Volvo").
In September 1982, BTC loan officers Robert Turner and Drew Axtell, who
worked in BTC's Energy Division in Houston, Texas, met in Tulsa with Keeling
and Erhan Ozey, a petroleum engineer and employee of LKA, to discuss the
June 1982 Report and to examine the data, maps, and other materials upon
which the Report was based. Satisfied that the appraised reserves qualified
under its formula for reserve-based loans, BTC agreed to lend $105,000,000 to
Scandrill, secured solely by the properties appraised by LKA in the June 1982
Report. In a letter dated November 5, 1982, signed by Keeling, LKA
authorized BTC to rely on the June 1982 Report as if the Report had been
originally addressed to the Bank, not to Scandrill.
BTC and Scandrill thereafter closed the loan in New York on November 9,
1982. In accordance with the loan documentation, LKA furnished semi-annual
reports to BTC providing updated information on the oil and gas reserves which
served as the collateral for the loan. In March 1984, some sixteen months after
the loan was made, Scandrill defaulted. Approximately a year later, BTC
discovered that the June 1982 Report, as well as three subsequent reports
prepared by LKA, dated December 1982, June 1983 and December 1983, all
overstated the value of Scandrill's reserves. Evidence at trial suggested that the
June 1982 Report overstated the value of those reserves by more than
$100,000,000. In 1984 BTC acquired all of Scandrill's stock, in connection with
a settlement agreement between BTC, Scandrill, and Scandrill's corporate
parents, pursuant to which BTC released any claim it might have against
Scandrill and others, but specifically reserved its right to sue LKA and Keeling.
6
BTC commenced this diversity action in the southern district of New York
against Keeling and LKA, claiming ordinary and gross negligence, negligent
misrepresentation, breach of contract, breach of third party beneficiary contract
and, against Keeling alone, liability as the alter ego of certain family business
entities: Savannah Investment Co. ("Savannah"), an Oklahoma limited
partnership; Columbia Development Corporation ("Columbia"), an Oklahoma
corporation; and Palmco Management Company ("Palmco"), another
Oklahoma corporation.1 BTC alleged it lost approximately $51,000,000 from
the Scandrill loan transaction. On defendants' motion, the case was transferred
to the northern district of Oklahoma.
The trial court granted Keeling's motion for summary judgment on BTC's
breach of contract and breach of third party beneficiary claims against Keeling,
and bifurcated the alter ego claim to await a determination of Keeling's
liability.
The remaining claims were tried to a jury. The court determined that New York
provided the substantive applicable law. At the close of BTC's case, and again
after presentation of all evidence, Keeling moved for judgment as a matter of
law under Rule 50(a). The court denied both motions. The jury subsequently
returned a verdict for BTC and against Keeling and LKA for $18,000,000 on
the negligence and negligent misrepresentation claims. It found for LKA on the
contract and third party beneficiary contract claims. The district court reduced
the judgment to $7,200,000 in reliance on New York's comparative negligence
statute and the jury's finding that Keeling and LKA were 40% negligent and
BTC was 60% negligent. After adding pre-verdict and pre-judgment interest,
the court entered judgment in favor of BTC in the amount of $12,409,441.25.
After entry of judgment, Keeling filed a motion for judgment as a matter of law
under Rule 50(b), asserting there was insufficient evidence supporting the
negligence and negligent misrepresentation verdicts against him individually.
The district court abated consideration of the motion until the bifurcated "alter
ego" claim was tried. Keeling and LKA both filed a Motion for Order
Amending the Court's Prior Ruling on Choice of Law and Amendment of
Judgment to Incorporate Application of Oklahoma Law, and a Motion for
Settlement Reduction. Keeling also filed a motion for summary judgment on
the alter ego claim. The court granted his alter ego summary judgment motion,
as well as his Rule 50(b) motion, concluding that there was "insufficient
probative evidence" of Keeling's negligence or negligent misrepresentations
concerning the reserve reports. The court denied Keeling's and LKA's motions
regarding choice of law and settlement reduction. This appeal and cross appeal
followed.
10
BTC argues that the district court erred in (1) granting Keeling's Rule 50(b)
motion, because there was sufficient evidence from which the jury could
conclude that Lee Keeling was personally involved in negligent acts; and (2)
granting Keeling's motion for summary judgment on the alter ego claim.
Keeling and LKA cross appeal, asserting that the court erred in applying New
York law to the case and in refusing to reduce BTC's judgment by amounts paid
to BTC by other entities.
DISCUSSION
I. Choice of Law
11
We consider first whether the district court erred in applying New York law to
this case. In an interlocutory order dated January 23, 1992, the district court
held that New York supplied the substantive applicable law. On November 2 it
denied LKA's and Keeling's motion to reconsider that interlocutory order. All
parties agree that New York's choice of law rules apply to resolve any conflict
of laws issues in this case. See Van Dusen v. Barrack, 376 U.S. 612, 639, 84
S.Ct. 805, 820-21, 11 L.Ed.2d 945 (1964). They disagree on the application of
New York's choice of law rules to the facts of this case.
12
We begin by rejecting BTC's many arguments that LKA and Keeling have
failed to properly preserve the choice of law issue for appellate review. The
district court issued its choice of law decision in an interlocutory order. That
order falls under "[t]he general rule ... that interlocutory rulings merge into the
final judgment of the court and become appealable only once a final judgment
has been entered." Mock v. T.G. & Y. Stores, 971 F.2d 522, 527 (10th
Cir.1992). We therefore address the merits of the district court's conclusion that
New York's choice of law rules require the application of New York law to this
case. We review that conclusion de novo, Shearson Lehman Bros. v. M & L
Invs., 10 F.3d 1510, 1514 (10th Cir.1993), applying the clearly erroneous
standard to underlying factual findings. Mitchell v. State Farm Fire & Cas. Co.,
902 F.2d 790, 792 (10th Cir.1990).
13
To resolve choice of law issues in tort cases, New York employs an "interest
analysis" so that "the law of the jurisdiction having the greatest interest in
resolving the particular issue" applies to the case. Cooney v. Osgood Mach.,
Inc., 81 N.Y.2d 66, 595 N.Y.S.2d 919, 922, 612 N.E.2d 277, 280 (1993);
Schultz v. Boy Scouts of Am., 65 N.Y.2d 189, 491 N.Y.S.2d 90, 95-96, 480
N.E.2d 679, 684 (1985); Babcock v. Jackson, 12 N.Y.2d 473, 240 N.Y.S.2d
743, 751-52, 191 N.E.2d 279, 285 (1963); see also AroChem Int'l, Inc. v.
Buirkle, 968 F.2d 266, 270 (2d Cir.1992). "Under this formulation, the
significant contacts are, almost exclusively, the parties' domiciles and the locus
of the tort." Schultz, 491 N.Y.S.2d at 95-96, 480 N.E.2d at 684; see also
AroChem Int'l, Inc., 968 F.2d at 270; Gray v. Busch Entertainment Corp., 886
F.2d 14, 15 (2d Cir.1989) (per curiam) ("[W]hen the domiciles of the parties
differ, the location of the injury determines the governing substantive law
absent special circumstances."); Flores v. Union Pacific R.R., No. 92 Civ. 6378,
1994 WL 22991, at * 3-4, 1994 U.S.Dist. LEXIS 647, at * 11 (S.D.N.Y. Jan.
26, 1994); Mascarella v. Brown, 813 F.Supp. 1015, 1018 (S.D.N.Y.1993).2
14
New York distinguishes, for purposes of choice of law, between "laws that
regulate primary conduct (such as standards of care) and those that allocate
losses after the tort occurs (such as vicarious liability rules)." Cooney, 595
N.Y.S.2d at 922, 612 N.E.2d at 280. The laws in conflict in this case are
Oklahoma's and New York's respective laws relating to damages allocations
when there is contributory negligence. Laws relating to comparative negligence
are loss-allocating. Pascente v. Pascente, No. 91 Civ. 8104, 1993 WL 43502, at
* 1, 1993 U.S.Dist. LEXIS 1779, at * 2 (S.D.N.Y. Feb. 16, 1993); Murphy v.
Acme Mkts., Inc., 650 F.Supp. 51, 53 (E.D.N.Y.1986); Cain v. Greater New
York Council of the Boy Scouts of Am., 133 A.D.2d 243, 519 N.Y.S.2d 43, 44
(1987); see also Diehl v. Ogorewac, 836 F.Supp. 88, 92 (E.D.N.Y.1993)
(availability of complete or partial defense to liability based on plaintiff's
conduct is loss-allocating rule).3
15
16
The first Neumeier rule governs cases where plaintiff and defendant share a
common domicile and is therefore inapplicable to this case. The second and
third Neumeier rules address "true conflicts" where the parties are domiciled in
different states. The second Neumeier rule applies where the local state law
favors its own domiciliary, and, to resolve that conflict, essentially "adopts a
'place of injury' test." Cooney, 595 N.Y.S.2d at 923, 612 N.E.2d at 281. The
third Neumeier rule applies to all other split-domicile cases, and also "generally
uses the place of injury, or locus, as the determining factor." Id. The law of the
place where the injury occurred will only be displaced if " 'displacing that
normally applicable rule will advance the relevant substantive law purposes
without impairing the smooth working of the multistate system or producing
great uncertainty for litigants.' " Id. (quoting Neumeier, 335 N.Y.S.2d at 71,
286 N.E.2d at 458).
17
Thus, in order to apply either the second or third Neumeier rules, we must first
determine the place of the injury. "Under traditional rules, the law of the place
of the wrong governs all substantive issues in the action, but when the
defendant's negligent conduct occurs in one jurisdiction and the plaintiff's
injuries are suffered in another, the place of the wrong is considered to be the
place where the last event necessary to make the actor liable occurred."
Schultz, 491 N.Y.S.2d at 93-95, 480 N.E.2d at 682-83 (citations omitted). The
parties hotly contest this issue--Keeling and LKA argue that Oklahoma law
applies because the reports containing the misrepresentations were prepared
there, whereas BTC argues New York law applies because the "last events
necessary to make" LKA and Keeling liable occurred in New York (the final
decision to make the loan, the execution and closing of the loan, the
disbursements pursuant to the loan, and the recording of the loss). We hold that
the "place of the wrong" is New York.
18
The parties do not cite, nor does our research reveal, a New York case
addressing the situation before us--i.e., where the tort is negligent
misrepresentation allegedly committed by an Oklahoma domiciliary against a
New York domiciliary. In particular, no New York cases clearly dictate where
the wrong occurs in such a case, nor where the injury is suffered.
19
However, several federal district courts addressing similar problems guide us.
In Benjamin Sheridan Corp. v. Benjamin Air Rifle Co., 827 F.Supp. 171
(W.D.N.Y.1993), the court observed that "New York courts uniformly hold that
the situs of a nonphysical, commercial injury is 'where the critical events
associated with the dispute took place.' " Id. at 178 (quoting United Bank of
Kuwait v. James M. Bridges, Ltd., 766 F.Supp. 113, 116 (S.D.N.Y.1991)
(quoting American Eutectic Welding Alloy Sales Co. v. Dytron Alloy Corp.,
439 F.2d 428, 433 (2d Cir.1971))). The Benjamin court went on to hold that the
" 'situs of the injury is the location of the original event which caused the
injury, not the location where the resultant damages are subsequently felt by
the plaintiff.' " Id. (quoting Mareno v. Rowe, 910 F.2d 1043, 1046 (2d
Cir.1990), cert. denied, 498 U.S. 1028, 111 S.Ct. 681, 112 L.Ed.2d 673
(1991)).
20
21
22
We believe that the cases which have attached the most significance to the
place where the plaintiff has relied on the alleged misrepresentations and
suffered resultant damages are most faithful to the Schultz "last event
necessary" test, which the New York courts appear to still follow. Thus,
although the reports themselves were prepared in Oklahoma, they were sent to
BTC in New York and it was in New York that the final decision was made to
issue the loan, in reliance on the reserve estimates in the reports. Further,
despite arguments relating to where losses from the loan were placed for BTC's
internal bookkeeping purposes, it seems self-evident that the loss was suffered
by BTC in New York, its place of principal business and its headquarters, and
under whose laws it was incorporated and is regulated.
24
Having determined the domiciles of the parties and the locus of the tort, we
determine which Neumeier rule applies. We hold that the second Neumeier rule
applies, because BTC was injured in the state of its own domicile, whose law-New York law--would permit recovery despite BTC's contributory negligence,
and Keeling and LKA seek to interpose the law of their domicile--Oklahoma-which would shield them from liability. The second Neumeier rule prevents
Keeling and LKA from using Oklahoma law as a shield "in the absence of
special circumstances," Neumeier, 335 N.Y.S.2d at 70-71, 286 N.E.2d at 458,
and mandates the application of New York law. See Mascarella, 813 F.Supp. at
1020. Keeling and LKA do not argue, nor can we discern, any "special
circumstances" suggesting we should not apply New York law. Accordingly,
New York law governs this case.
25
26
Section 15-108 of New York's General Obligations Laws governs the situation
where one of several tortfeasors settles with the plaintiff and obtains a release
from liability. Specifically, the section does not release non-settling tortfeasors
from liability, but it reduces the amount which the plaintiff may recover from
them by the greater of: (1) the amount stipulated in the settlement; (2) the
amount of consideration paid for the settlement; or (3) the released tortfeasor's
equitable share of the damages. N.Y.Gen.Oblig. Sec. 15-108(a). Additionally,
the settling tortfeasor is "relieve[d] ... from liability to any other person for
contribution" but is also prohibited from seeking contribution from any other
tortfeasor. N.Y.Gen.Oblig. Sec. 15-108(b), (c). The statute thus "establishes a
quid pro quo arrangement: the settlor limits its liability but in exchange forfeits
any right to contribution." Gonzales v. Armac Indus., 81 N.Y.2d 1, 595
N.Y.S.2d 360, 362, 611 N.E.2d 261, 263 (1993); see also Orsini v. Kugel, 9
F.3d 1042, 1046 (2d Cir.1993).4 The statute applies to "concurrent, successive,
independent, alternative, and even intentional tortfeasors." Board of Educ. v.
Sargent, Webster, Crenshaw & Folley, 71 N.Y.2d 21, 523 N.Y.S.2d 475, 47879, 517 N.E.2d 1360, 1364 (1987).
27
Keeling and LKA argue they are entitled to a reduction of the judgment against
them by an amount equal to the "amount stipulated" or the "consideration paid"
to BTC by Scandrill and the other parties (Scandrill's corporate parents) to the
settlement. This would result in no damages for BTC. The district court refused
to order a settlement reduction, on the ground that Scandrill, Scanoil, STC, and
Volvo were not joint tortfeasors along with LKA and Keeling. The court further
observed that there was no danger of double recovery by BTC in the absence of
a settlement reduction, because BTC had restricted its claim to the amount it
lost pursuant to the Scandrill loan minus the amount it received pursuant to the
settlement.
28
We agree with the district court and BTC that LKA and Keeling are not entitled
to a reduction under section 15-108. "General Obligations Law Sec. 15-108
applies only to contribution claims in tort actions." Gonzales, 595 N.Y.S.2d at
363, 611 N.E.2d at 264; see also Sargent, 523 N.Y.S.2d at 477-78, 517 N.E.2d
at 1363. Indeed, by its terms, it applies to joint "tortfeasors"--"persons liable or
claimed to be liable in tort" for an injury. BTC and Scandrill had a contract,
which Scandrill breached, and with respect to which BTC, Scandrill, and
Scandrill's corporate parents reached a settlement. BTC has never brought a tort
action against Scandrill or the other parties to the settlement, nor has LKA or
Keeling ever attempted to implead them in the tort action between BTC and
LKA and Keeling. Thus, they simply are not joint tortfeasors within the
meaning of the statute.
29
Moreover, we agree with the district court that the jury was specifically
instructed that any award of compensatory damages to BTC from Keeling and
LKA could only be for damages for which BTC had not already been
compensated. The jury heard testimony and received evidence relating to the
settlement agreement and its terms. "Because the jury's compensatory award
did not take into account plaintiff's injuries attributable to the settling
codefendants, [nonsettling defendants] may not invoke Sec. 15-108 to decrease
their liability for compensatory damages by virtue of these settlements." Getty
Petroleum Corp. v. Island Transp. Corp., 862 F.2d 10, 16 (2d Cir.1988), cert.
denied, 490 U.S. 1006, 109 S.Ct. 1642, 104 L.Ed.2d 157 (1989).
III. Grant of Keeling's Rule 50(b) Motion
30
BTC argues that the district court erred in granting Keeling's Rule 50(b) motion
on the ground that there was insufficient evidence supporting the jury's finding
that Keeling individually had been negligent or made any negligent
misrepresentations to BTC. We affirm.
31
32
As we have previously indicated, the district court applied New York law
concerning negligence and negligent misrepresentation, and no one disputes the
propriety of that application.5 Business Corporations Law Sec. 1505 provides
that a "shareholder, employee or agent of a professional service corporation
shall be personally and fully liable ... for any negligent ... act ... committed by
him or by any person under his direct supervision and control." N.Y.Bus.Corp.
Sec. 1505. We agree with the district court that there is insufficient evidence to
support the jury's finding that Keeling acted negligently or made any negligent
misrepresentation concerning the reserve reports.
33
As indicated, LKA prepared four reserve reports. BTC stipulated in the pretrial
order that Keeling did not himself prepare or supervise the preparation of the
first report--the June 1982 Report--the Report upon which BTC relied in
deciding to make the loan to Scandrill: "The June 30, 1982 LKA Report on
Scandrill reserves was prepared by Erhan Ozey under the supervision of
Kenneth Renberg." Joint Pretrial Order p 11; Appellant's App. Vol. I at 64.
Testimony at the trial supported the conclusion that Keeling did not himself
prepare or supervise that preparation of the June 1982 Report.6 Additionally,
several internal BTC memoranda, introduced into evidence at trial, refer to
Erhan Ozey as the LKA engineer for the Scandrill account. Appellees'
Supplemental App. Vol. I at 63, 126. That testimony and evidence indicates
that the June 1982 Report was prepared by Ozey, under Renberg's supervision,
and that both Keeling and Ozey were present at the meeting with BTC loan
officers at which the Report was discussed and reviewed. There is no evidence
that Keeling made any particular representations or misrepresentations at that
meeting. 7 In short, the jury's finding that Keeling was negligent in connection
with the June 1982 Report's preparation, or made negligent misrepresentations
respecting that Report to BTC, could only have been based on speculation and
conjecture, an impermissible ground upon which to base its verdict. See Lucas
v. Dover Corp., 857 F.2d 1397, 1401 (10th Cir.1988) (affirming grant of
judgment n.o.v., court stated it is " 'not required to evaluate every conceivable
inference which can be drawn from evidentiary matter, but only reasonable
ones.' ") (quoting Matthews v. Allis-Chalmers, 769 F.2d 1215, 1218 (7th
Cir.1985) (per curiam)).
34
The evidence is similarly lacking with respect to the other three reports.
Renberg's testimony clearly indicates that Keeling was involved in the
preparation of the December 1983 Report, but not in the previous three reports.
And while the jury was instructed it could consider all four reports in
connection with the negligence and negligent misrepresentation claims, the
record contains no specific evidence of negligence or negligent
misrepresentations by Keeling regarding the December 1983 Report, nor
evidence that BTC relied on the report to its detriment.8
35
We therefore affirm the district court's grant of Keeling's Rule 50(b) motion for
judgment as a matter of law on the claims of individual liability for negligence
and negligent misrepresentation. Because we affirm that ruling, we need not
address the alter ego claim, which requires a predicate finding of personal
liability by Keeling. We deny BTC's motion to supplement the record on
appeal.
36
For the foregoing reasons, we AFFIRM the judgment of the district court.
John L. Kane, Jr., Senior District Judge, United States District Court for the
District of Colorado, sitting by designation
As explained more fully infra, BTC's alter ego claim against Keeling was not
the typical alter ego claim. BTC essentially argued that Keeling used these
family business entities to shield his assets from BTC's claims against him.
Thus, BTC claimed it should be able to satisfy any judgment against Keeling
with assets from those family entities, none of which were named defendants in
this case
This case also involved contract claims--BTC's breach of contract and breach of
third party beneficiary claims, on which the jury found for LKA and the district
court granted Keeling's motion for summary judgment. New York applies a
"center of gravity" or "grouping of contacts" analysis to choice of law disputes
in contract cases. In re Arbitration Between Allstate Ins. Co. and Stolarz, 81
N.Y.2d 219, 597 N.Y.S.2d 904, 907, 613 N.E.2d 936, 939 (1993). Neither party
alleges any conflict between New York and Oklahoma law with respect to the
contract claims
Were we to conclude that comparative negligence rules were conductregulating, New York law would apply, as the New York courts have
consistently held that the locus of the tort provides the applicable law when
conduct-regulating laws conflict, and we hold, infra, that New York is the locus
of the tort
Keeling and LKA erroneously charge the district court with placing "undue
emphasis on contribution." Appellees' Br. at 27. Sections (b) and (c) of section
15-108 play an integral role in the statute's scheme: " 'Sec. 15-108 was enacted
as one unit and cannot logically be construed to permit one but not others of its
subdivisions to apply in a given case.' " Orsini, 9 F.3d at 1046 (quoting Cover
v. Cohen, 113 A.D.2d 502, 497 N.Y.S.2d 382, 388 (1985))
The parties have argued that a conflict existed between New York's and
Oklahoma's contributory negligence loss-allocating rules, and we have held that
New York law applies. The parties have not argued that any conflict exists
between New York and Oklahoma law on the substantive elements of
negligence or negligent misrepresentation, and they do not challenge the district
court's application of New York law
While BTC attaches great significance to the fact that Turner and Axtell were
given a work sheet prepared by LKA at the meeting, in order to facilitate their
review of the Report, there is no evidence that Keeling himself had anything to
do with the preparation of the work sheet, or that he made any specific
representations concerning it
BTC argues that Keeling has waived any argument relating to negligent
preparation of the December 1983 Report, because he failed to make a Rule 50
motion on the sufficiency of the evidence regarding that Report, and he failed
to object to the jury instruction permitting the jury to consider all four reports.
However, Keeling's Rule 50(b) motion for judgment as a matter of law, made
after the jury returned its verdict, specifically argues that there was no evidence
that he had committed negligence with respect to any report. Keeling's earlier
motion for judgment as a matter of law similarly asserted that there was no