                                                     United States Court of Appeals
                                                              Fifth Circuit
                                                           F I L E D
                                                            March 8, 2004
                    In the
                                                       Charles R. Fulbruge III
United States Court of Appeals                                 Clerk
          for the Fifth Circuit
              _______________

                m 03-40200
              _______________




               DENNIS JOSLIN,

                                   Plaintiff-Third Party Plaintiff-
                                   Appellee-Cross Appellant,

                   VERSUS

      PERSONAL INVESTMENTS, INC.,

                                   Defendant-
                                   Cross-Appellee,

              BASHER AHMAD,
     ALSO KNOWN AS ROBERT HELMAND,
 DOING BUSINESS AS PACIFIC LAND EXCHANGE,

                                   Third Party Defendant-
                                   Appellant-Cross-Appellee.



        _________________________

  Appeal from the United States District Court
      for the Southern District of Texas
               m C-00-CV-324
       _________________________
Before KING, Chief Judge, JONES AND SMITH,                 to an accompanying security interest.
  Circuit Judges.
                                                              In 1994, Helmand placed the highest bid on
                                   *
JERRY E. SMITH, Circuit Judge:                             a package of loans that included a loan (the
                                                           “Nix loan”) originally taken out by Jimmy Nix,
   We consider here the validity of a verdict              a real estate developer. The Nix loan was se-
awarding plaintiff, an investor in delinquent              cured by a deed of trust in a subdivision that
loan packages, $50,000 for losses he suffered              Nix was developing (the “Nix deed”). Soon af-
in reliance on misleading information that                 ter acquiring this interest, Helmand foreclosed
could have been debunked through a simple                  on the Nix deed of trust and purchased the lots
investigation, and that he was told not to rely            at his own foreclosure sale. Instead of paying
on. The common law action for negligent mis-               cash for this interest, Helmand credited the Nix
representation is not an insurance policy entit-           loan $250,000.
ling unwary investors to a refund whenever
they are injured by their failure to investigate              A title search revealed, much to Helmand’s
dubious information.                                       disappointment, that the interest so acquired
                                                           was junior to several other encumbrances.
   To prevail in such an action, the plaintiff             These were collectively valued at a price higher
must demonstrate that he was justified in rely-            than the appraised value of the property,
ing on the misrepresentation. Concluding that              making Helmand’s interest effect ively
the evidence and reasonable inferences drawn               worthless.
therefrom overwhelmingly favor a finding that
plaintiff’s reliance was not justified, we reverse            Helmand contacted the federal agency from
and render a take-nothing judgment.                        which he had purchased the package, seeking a
                                                           refund for the Nix loan. Ultimately, that agen-
                       I.                                  cy’s successor in interest, the Federal Deposit
   This case involves the market for delinquent            Insurance Corporation (“FDIC”), agreed to
loan pools sold at government auctions. The                refund the purchase price in exchange for an
defendants are Basher Ahmad, also known as                 assignment of the original deed of trust.2
Robert Helmand, and his wholly owned close
corporation, Personal Investments (“PI”).                     Helmand claims to have protested at length
Like plaintiff Dennis Joslin, Helmand and PI               that he could not assign the extinguished inter-
are in the business of purchasing packages of              est represented by the Nix deed, and offered
delinquent loans at government auctions.                   instead to convey his substitute trustee’s deed.
Because the obligors on these loans are                    As he tells the story, however, the FDIC was
unlikely to make any further payments, the                 not interested and insisted that a refund would
investment is valuable only to the extent that             be available only if Helmand assigned that
foreclosure affords an opportunity to gain title           which he no longer had. Helmand ultimate-


   *                                                          2
     Pursuant to 5TH CIR. R. 47.5, the court has                 The Nix deed had more value to the FDIC than
determined that this opinion should not be pub-            it did to Helmand, because the FDIC already owned
lished and is not precedent except under the limited       the other encumberances on the land and could pool
circumstances set forth in 5TH CIR. R. 47.5.4.             all the interests together for sale to a single party.

                                                       2
lySSand again as he tells it, reluctant-               at a tax auction, where PI purchased it for a net
lySSrelented to the FDIC’s demand and, in              investment of $60,000.
March 1996, assigned to the FDIC the now-
extinguished Nix deed in exchange for a                    In 1996, Joslin participated in an FDIC auc-
$177,000 refund. Naturally, he kept his own            tion at which he successfully bid on a package
recorded interest in the property.                     of loans that included the Nix loan and the now
                                                       worthless Nix deed. To formulate his bid,
   The documents assigning the Nix deed did            Joslin was given access to a loan file containing
not indicate that it had been foreclosed. An           documentation for many, if not all, the loans in
accompanying ledger card should haveSSbut              his pool. He arrived at a bid value by
did notSSreflect the $250,000 credit Helmand           examining the documents in the loan file and,
had placed on the loan at foreclosure.                 without performing any outside investigation,
Although that document contained a notation            sharply discounting their paper value to reflect
saying “Send to Foreclosure,” there was no             the inherent risk in purchasing distressed assets.
written indication on the ledger card or the Nix       In this manner, he ultimately placed a value of
deed to indicate that the interest had been            $34,483 on the Nix loan and Nix deed as part
foreclosed on and sold at auction. Helmand             of a total bid of more than $1.2 million.
knew, at this time, that the FDIC was re-
acquiring the deed assignment and the ledger              When, in 1999, Joslin discovered that Hel-
card so they could be used as supporting docu-         mand had stripped the Nix loan of its collateral
ments in a subsequent auction of the Nix loan.         before selling it back to the FDIC, Joslin’s
                                                       attorney contacted PI and asserted a claim over
    In February 1997SSalmost a year after Hel-         the property. PI sued Joslin in state court,
mand received his full refundSShis lawyer, Jim         seeking to quiet title to the lot.
Balis, sent a letter to the FDIC declaring that
Helmand recently had discovered that the                   Joslin removed the case to federal court, as-
foreclosure in 1994 preceded the assignment            serting diversity jurisdiction, and filed a coun-
to the FDIC in 1996 and that, as an                    ter-claim against PI and a third-party complaint
unfortunate result, FDIC had paid $177,000             against Helmand, alleging fraud, negligent
for a worthless interest in real property. Hel-        misrepresentation, constructive fraud, and
mand’s disclosure to the FDIC would be a               conspiracy. The district court re-aligned the
tautology, however, if he indeed had been              parties to make Joslin the plaintiff, dismissed all
telling the agency all along that he had               the claims against PI, and entered judgment as
foreclosed on the loan and had taken title to          a matter of law (“j.m.l.”) in favor of Helmand
the collateral.                                        on the constructive fraud and conspiracy
                                                       claims.
    Nevertheless, Balis’s letter offered to ten-
der Helmand’s deed to the FDIC, but                       The jury found Helmand liable for negligent
explained that there was a pending tax suit            misrepresentation, but not fraud, and awarded
filed against the property by Nueces County,           damages of $50,000. Helmand appeals the
Texas. The FDIC did not respond to this                verdict against him, and Joslin cross-appeals the
letter or to Helmand’s two attempts to mail it         j.m.l. and the calculation of prejudgment
a deed. The property was sold by the county            interest.


                                                   3
                        II.                                 foreclosure, and a ledger card failing to reflect
   We review a verdict only to determine                    the $250,000 credit Helmand had used to
whether there is a legally sufficient evidentiary           purchase the foreclosed property. The record
basis for the jury to find as it did. Morante v.            shows that Helmand had substantial experience
Am. Gen. Fin. Ctr., 157 F.3d 1006, 1009 (5th                in this business and intended the documents to
Cir. 1998). We draw all reasonable inferences               be used in future FDIC auctions. That evidence
in favor of the non-moving party, without                   adequately supports a finding that the
weighing the evidence or assessing the                      statements contained false information, were
credibility of witnesses. Serna v. City of San              made in the course of Helmand’s business, and
Antonio, 244 F.3d 479, 482 (5th Cir. 2001).                 were (at least) negligently given.
“There is no legally sufficient evidentiary basis
when the facts and inferences point so strongly                 We reverse the judgment that is based on the
and overwhelmingly in favor of one party that               verdict, however, because the record does not
the Court believes that reasonable men could                support a finding of justifiable reliance on the
not arri ve at a contrary verdict.” Wallace v.              part of Joslin. Leaving aside the scant evidence
Methodist Hosp. Sys., 271 F.3d 212, 219 (5th                of actual reliance (Joslin’s testimony regarding
Cir. 2001).                                                 his habits minimally establishes that he probably
                                                            relied on the documents in preparing his bid.),
    Texas courts follow the common law defi-                it was unreasonable for Joslin to formulate his
nition of negligent misrepresentation embodied              bid in reliance on the accuracy of documents in
in the Restatement (Second) of Torts § 552.                 the loan file.
Fed. Land Bank Ass’n v. Sloane, 825 S.W.2d
439, 442 (Tex. 1991). The elements of the                       Under Texas law, a plaintiff must prove rea-
tort are that                                               sonable reliance. Clardy Mfg. Co. v. Marine
                                                            Midland Bus. Loans Inc., 88 F.3d 347, 358
      (1) the representation is made by a                   (5th Cir. 1996). The reasonableness of reliance
      defendant in the course of his business, or           is measured in light of the plaintiff’s intelligence
      in a transaction in which he has a pecuniary          and experience. Id. Moreover, the context in
      interest; (2) the defendant supplies ‘false in-       which information is given will affect the con-
      formation’ for the guidance of others in              clusion whether a party was justified in relying
      their business; (3) the defendant did not ex-         thereon.3 Reliance is unjustified where the act
      ercise reasonable care or competence in ob-           of reliance is itself an act of negligence by the
      taining or communicating the information;             plaintiff. Scottish Heritable Trust, PLC v. Peat
      and (4) the plaintiff suffers pecuniary loss          Marwick Main & Co., 81 F.3d 606, 615 (5th
      by justifiably relying on the representation.         Cir. 1996).

Id.

   There are sufficient facts on which a jury                  3
                                                                 See, e.g., McCamish, Martin, Brown & Loeff-
could determine that the first three elements of            ler v. F.E. Appling Interests, 991 S.W.2d 787, 794
this test are met. The representations were the             (Tex. 1999) (finding unreasonable the reliance on an
transfers of a deed of trust failing to reflect             attorney’s representations in an adversarial context);
that its value had been eviscerated by                      Lesikar v. Rappeport, 33 S.W.3d 282, 319 (Tex.
                                                            App.SSTexarkana 2000, pet. denied) (same).

                                                        4
   Joslin had between two and five weeks in                      Joslin argues that a reasonable jury could
which to formulate his bid and perform the                    find his reliance justified, because the nature of
necessary due diligence. The FDIC’s loan sale                 the market for delinquent loans requires him to
agreement warned Joslin and other investors                   assume that the documents contain some
not to rely on any documents provided by the                  minimal semblance of accuracy. He points out
FDIC, and urged that the investor perform                     that the loans are auctioned off in large pools,
whatever investigations he “deems to be                       each containing too many parts to allow for
warranted.”                                                   detailed due diligence.

   Joslin used his time to review the doc-                        Although acknowledging he takes a risk that
uments in the various loan files to arrive at a               any individual loan will turn out to be
bid price, but he did not run title searches on               worthless, Joslin argues that he did not take a
the properties listed as security. Instead, it                corresponding risk “that one of his fellow bid-
was his custom to enter numerous bids,                        ders would rig the auction by stripping the asset
discounting the value of the assets to account                of its collateral,” causing buyers to place
for the likelihood that some loans in a pool                  unrealistic bids on completely worthless proper-
would be worthless. By discounting in this                    ty. Joslin reasons that by injecting deliberately
manner, Joslin, in his bid, valued the Nix loan               false information into the marketplace, Hel-
at only $34,483, or around one-tenth of the                   mand distorted the normal balance of risks and
land’s appraised value of $346,000.                           rewards on which Joslin and others relied in
                                                              formulating their bids.
   It was only after he placed a winning bid at
auction that Joslin assigned his employees the                   This explanation is unavailing. Joslin was
task of investigating his interest in the                     unable to persuade the jury, by a preponderance
collateral he had purchased. As a result, it was              of the evidence, that there was fraud. As a re-
not until 1999 that Joslin discovered the Nix                 sult, the reasonableness of Joslin’s reliance can-
deed had been extinguished by the                             not be established by an argument that no
foreclosure.4                                                 reasonable investor should be punished for hav-
                                                              ing failed to anticipate fraud. Indeed, had
                                                              actual fraud been shown, Joslin would not have
   4
     Consequently, his negligent misrepresentation            needed to prove the reasonableness of his reli-
claim would have been barred by the statute of                ance.5
limitations, had that been raised. See Milestone
Props., Inc. v. Federated Metals Corp., 867
S.W.2d 113, 119 (Tex. App.SSAustin, 1993, no                     4
                                                                 (...continued)
writ) (two-year limitations period applies to negli-          ground, because Helmand did not argue the point, as
gent misrepresentation claims); Heci Exploration              was his burden to do. Woods v. William M. Mer-
Co. v. Neel, 982 S.W. 2d 881, 886-87 (Tex. 1998)              cer, Inc., 769 S.W.2d 515, 517 (Tex. 1988).
(discovery rule does not toll two-year limitations
                                                                 5
period where misrepresentation was discoverable in                 The elements of common law fraudulent mis-
the title records). Federal courts sitting in diversity       representation in Texas are that (1) the defendant
apply state statutes of limitations. Vaught v.                made a material representation to the plaintiff;
Showa Denko K.K., 107 F.3d 1137, 1145 (5th Cir.               (2) the representation was false; (3) the defendant
1997). But, we do not decide the case on this                 knew of the representation’s falsity when it was
                                        (continued...)                                              (continued...)

                                                          5
    Measured by the jury’s decision to absolve                 the risks that panned out with tort judgments
Helmand of responsibility for the alleged inten-               for the risks that did not. The verdict and dam-
tional actSSa finding Joslin does not challenge                age award are vacated.6
as being erroneousSSHelmand’s statements are
nothing more than an inadvertent mistake,                                             III.
negligently made. In this respect, nothing                        Joslin cross-appeals the j.m.l. on his claims
distinguishes those statements from the bevy                   of constructive fraud and conspiracy, and the
of other inaccurate documents in the loan files,               court’s partial failure to award prejudgment
many of which place an unrealistic paper value                 interest. There is no error.
on the assets to which they correspond.
                                                                   In Texas, constructive fraud lies where a
   Joslin took the same risk with respect to                   party breaches a “legal or equitable duty which,
each of those documents: He chose to invest                    irrespective of moral guilt, the law declares
without investigating the accuracy of any of                   fraudulent because o f its tendency to deceive
the statements contained therein, hoping that                  others, to violate confidence, or to injure public
his profit from the accurate documents out-                    interests.” Archer v. Griffith, 390 S.W.2d 735,
weighed his losses on the inaccurate ones.                     740 (Tex. 1965). State appellate courts
                                                               frequently intimate that this occurs only where
   The evidence, viewed in the light most fa-                  there is a fiduciary relationship between the
vorable to Joslin, fails to demonstrate a legally              parties,7 and a “decision by an intermediate
sufficient justification for his reliance on the               appellate state court is a datum for ascertaining
documents in the loan files. He was expressly                  state law which is not to be disregarded by a
warned not to rely on any statements found in                  federal court unless it is convinced by other
the files, and he easily could have dispelled any              persuasive data that the highest court of the
lingering doubt over the accuracy of the                       state would decide otherwise.” First Nat’l
statements by performing a simple title search.                Bank v. Trans Terra Corp. Int’l, 142 F.3d 802,
He chose instead to apply a discount factor to
the value represented in the loan files, and it is
unreasonable for him now to fault the                             6
                                                                    As a result, we do not reach Helmand’s argu-
negligence of another for his losses from the                  ment that, under Trans-Gulf Corp. v. Performance
investment.                                                    Aircraft Servs., Inc., 82 S.W.3d 691 (Tex.
                                                               App.SSEastland 2002, no pet.), Joslin lacks stand-
   Reliance under those circumstances is itself                ing to sue Helmand for negligent misrepresentation.
an act of negligence, insufficient to support a                   7
verdict. See Clardy Mfg., 88 F.3d at 358.                           See, e.g., Jean v. Tyson-Jean, 118 S.W.3d 1, 9
Joslin cannot now supplement his profits from                  (Tex. App.SSHouston 2003, pet. filed) (“Construc-
                                                               tive fraud is the breach of a legal or equitable duty
                                                               which the law declares fraudulent because it violates
                                                               a fiduciary relationship.”); Connell v. Connell, 889
   5
    (...continued)                                             S.W.2d 534, 542 (Tex. App.SSSan Antonio 1994,
made; (4) the defendant made the representation                writ denied) (“To prove constructive fraud
with the intention that the plaintiff act on it; and (5)       appellants must introduce evidence that Alvin
the plaintiff detrimentally relied on the mis-                 breached a legal or equitable duty, which the law
representation. See T.O. Stanley Boot Co. v. Bank              declares fraudulent because it violated a fiduciary
of El Paso, 847 S.W.2d 218, 222 (Tex. 1992).                   relationship.”).

                                                           6
809 (5th Cir. 1998).                                     RENDER a take-nothing judgment against
                                                         Joslin.
    Joslin does not dispute that there is no evi-
dence of such a relationship here, but instead
relies on dictum in Vickery v. Vickery, 999
S.W.2d 342 (Tex. 1999), for the proposition
that a fiduciary relationship is not necessary.
His argument has no merit. In Vickery, id. at
378, the court indicated that constructive fraud
is “most frequently” found only in cases where
such a relationship exists, but it did not cite a
single instance where a fiduciary relationship
was not present and the tort was nevertheless
found to lie.

   Joslin does not cite any such cases either,
nor has our research revealed any. In any
event, Joslin fails to point to anything that
would qualify as a commensurate “legal or
equitable duty,” Archer, 390 S.W.2d at 740,
that would justify excusing his inability to
prove an intent to deceive on Helmand’s part.
The district court properly granted j.m.l. on
this ground.

    Joslin concedes that the above stated
analysis also forecloses his claim of conspiracy
to commit constructive fraud, because the
alleged conspiracy would have, as its object,
the commission of a non-tortious act. More-
over, there can be no conspiracy here, because
Joslin asserts nothing more than that Helmand
directed his wholly-owned close corporation
to act for his benefit, and there is, accordingly,
no allegation of a meeting of two independent
minds. See Elliott v. Tilton, 89 F.3d 260, 265
(5th Cir. 1996). The district court properly
granted j.m.l. on this ground, as well.

   Inasmuch as we reverse all damages award-
ed to Joslin, the question of prejudgment inter-
est is moot. The judgment is REVERSED in
part and AFFIRMED in part, and we


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