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Thomas v. N.A. Chase Manhattan Bank

decided: June 22, 1993.


Appeal from the United States District Court for the Southern District of Texas. D.C. DOCKET NUMBER CA-H-89-0953. JUDGE Lynn N. Hughes

Before Politz, Chief Judge, Reavley, and Barksdale, Circuit Judges.

Author: Barksdale

BARKSDALE, Circuit Judge:

James C. Thomas appeals the summary judgment awarded N.A. Chase Manhattan Bank in his action for fraud, arising from Chase's referral of an investment partner. Addressing only the standing issue for the present, we AFFIRM in part, REMAND for further findings, and defer ruling on the remaining issues pending remand.


As provided in the summary judgment record,*fn1 Thomas, in partnership with a Thomas family trust and the Cha family trust (the Cha-Thomas partnership), purchased a Texas private banking franchise in 1980 (the franchise).*fn2 The Cha-Thomas partnership operated the franchise as the Church & Thomas Bank (Unincorporated) (the bank) in Galveston, Texas, with Thomas as its compensated manager. From February 1981 to November 1983, the principal activity of the Cha-Thomas partnership, through the bank, was "to provide financial support to ventures involving the acquisition of companies" (the Acquisition Ventures). Chase was the exclusive lender to the Acquisition Ventures, and both Chase and the Cha-Thomas partnership profited from the enterprise.

In 1981, Thomas and Chase became involved in the formation of an investment enterprise known as Columbia Investors (the project), which was to offer $100 million in shares and limited partnership units to investors in management buyout opportunities. Two Chase entities and the Church & Thomas Bank were to serve as placement agents for the offering; and Stanhope Associates, Inc., was retained as its manager. Thomas was one of four shareholders in Stanhope, and was to serve as one of its officers during Stanhope's management contract with Columbia Investors. Chase was to serve as financial consultant to Columbia Investors. Chase could withdraw from or suspend Columbia Investors at any time, in which case the project could not go forward.

Chase began marketing Columbia Investors in May 1982, but shortly thereafter suspended the project, assertedly only temporarily. Pursuant to the suspension, Chase made Stanhope a $490,000 loan in July 1982. The loan was guaranteed by Thomas Construction Company, a Thomas family corporation, for which Thomas was a director. According to Thomas, Columbia Investors agreed to reimburse Stanhope for the loan. Although the project had not yet resumed, Chase later renewed the Stanhope loan through 1984.

Meanwhile, in 1983, the Chas decided to sell their interest in the franchise. Aware of this, Robert Lichten, Chase's executive vice president and the officer in charge of the Columbia Investors project, suggested Newcomb Securities Company, which he represented to be a long-time, highly valued Chase customer, as a potential new partner for Thomas in the franchise.*fn3 Lichten told Thomas that Newcomb had enlisted Chase to help it purchase a bank. At a luncheon in New York organized by Chase, Thomas met E. Lawrence Price (Price) and others, whom Chase introduced as partners in Newcomb.

Ultimately, in November 1983, the SLT Trust #1 (SLT) (a Thomas family trust of which Thomas was trustee) and the Elaine Price Trust (a Price family trust of which Price was trustee) formed a partnership (the Price-Thomas partnership), which purchased the franchise from the Cha-Thomas partnership. As provided in the stipulation of facts in this case, the Cha-Thomas partnership obtained a fair price. The Price-Thomas partnership formation also included collateral agreements: Price Family Holdings, Ltd., and Newcomb agreed to indemnify Thomas Construction Company for 50 percent of its guaranty obligations on the Stanhope loan; and the Price-Thomas partnership executed a management contract with Thomas for him to continue to manage the bank.

In October 1983, prior to the formation of the Price-Thomas partnership, Lichten approached Thomas to solicit a $250,000 fee for Chase, which had been promised by Price and Newcomb, for services rendered by Chase in the organization of the Price-Thomas partnership. Thomas resisted the request as excessive, but agreed to pay $37,750 through the Price-Thomas partnership following its formation, assertedly in fear of damaging future relations with Chase regarding Columbia Investors. Following the transaction, the Price-Thomas partnership paid the agreed fee to Chase.

Pursuant to the sale, an agent of the Chas, William Wu, investigated Newcomb and Price to determine their creditworthiness to close the sale. Based on "sketchy and incomplete information" which he described as second-hand rumors, Wu heard about, and advised Thomas of, "a banking problem" involving Newcomb in Chicago. Wu would not disclose the source of his information, but agreed that Thomas should contact Chase for an explanation. Thomas did so, and was advised by Chase vice president Mary Small that Chase had thoroughly reviewed all aspects of the Chicago incident and that it was just "unpleasantness" -- "simply a routine banking relationship that didn't work out". Small assured Thomas that he could rely on Chase's superior knowledge resulting from its extensive due diligence on Price and Newcomb. Small reconfirmed that Newcomb was a long-time, highly valued Chase client and that Chase was acting as sponsor for Price, and advised Thomas not to pursue or listen to rumors. Based upon these assurances, the Price-Thomas partnership was formed and the franchise sale consummated.

In the years following the sale, however, Price breached the indemnity agreements on the Stanhope loan, ousted Thomas from the bank in breach of his management contract and the partnership agreement, and then used the bank to conduct a massive government securities tax fraud, which ultimately drove it into insolvency. In 1985, Chase informed Thomas that it was abandoning Columbia Investors and Acquisition Ventures, citing as its reasons Newcomb's default on the Stanhope indemnity agreements and the resulting disputes. Through discovery, Thomas assertedly learned that Chase subsequently transferred the Acquisition Ventures and Columbia Investors projects to other entities, which have profited greatly. Thomas later learned that Price had conducted the same type of fraud in Chicago prior to the franchise sale, for which he suffered a Tax Court judgment in April 1987. Additionally, after being required to move his accounts out of a Chicago bank in late 1979, Price allegedly transferred his operations to Chase's government securities clearing department, conducting the fraud there through an entity known as Bankers Discount. Pursuant to an investigation of the Bankers Discount fraud, Chase allegedly fired several employees. Chase ultimately sued Bankers Discount in another action, but the record does not indicate its Disposition. Thomas also learned that Chase had terminated its credit relationship with Newcomb in August 1983, before the Price-Thomas partnership was formed.

In May 1989, Thomas sued Price in federal court, alleging various claims, and obtained a judgment in that action for breach of his management contract. See Thomas v. Price , 975 F.2d 231 (5th Cir. 1992). During that litigation, Thomas learned that Chase, allegedly contrary to banking regulations, had destroyed all ...

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