Capital Concepts Properties 85-1 v. Mutual First, Inc.

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
__________________
No. 91-1965
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CAPITAL CONCEPTS PROPERTIES 85-1,
a California limited partnership,
on its own behalf and as liquidating
trustee for CORPORATE I, LTD., ET AL.,
Plaintiffs-Appellants,
versus
MUTUAL FIRST, INC., RESOLUTION TRUST
CORPORATION, as Receiver for Sunbelt
Savings, FSB and the FEDERAL DEPOSIT
INSURANCE CORPORATION, Receiver for
Sunbelt Savings Association of Texas,
Defendants-Appellees.
______________________________________________
Appeal from the United States District Court for the
Northern District of Texas
______________________________________________
( September 30, 1994 )
Before GARWOOD and BARKSDALE, Circuit Judges, and WALTER,* District
Judge.
GARWOOD, Circuit Judge:
Plaintiffs-appellants Capital Concepts Properties 85-1 (CapCon
85-1) and Capital Concepts Properties 85-1D (CapCon 85-1D)
(collectively referred to as "CapCon") appeal the district court's
*
District Judge of the Western District of Louisiana, sitting
by designation.
grant of summary judgment to defendants-appellees Mutual First,
Inc. (Mutual First) and the Federal Deposit Insurance Corporation
(FDIC), as Receiver for Sunbelt Savings Association of Texas and as
Manager of the FSLIC Resolution Fund. We affirm.
Facts and Proceedings Below
On December 26, 1984, CapCon became the sole limited partner
of Corporate I, a Texas limited partnership organized to construct
the building that came to be known as Corporate I Plaza in Dallas,
Texas (the Plaza). CapCon's investment in Corporate I consisted of
a $1 million cash capital contribution and a capital contribution
in the form of its $9 million promissory note payable to Corporate
I and secured by CapCon's 90,000 shares of stock in Sunbelt Savings
Association of Texas (Old Sunbelt).1 Old Sunbelt was the sole
general partner of Corporate I. One month prior to CapCon's
involvement in Corporate I, Corporate I obtained from San Jacinto
Savings Association (San Jacinto) a $76 million loan to construct
the Plaza and an agreement from San Jacinto to provide permanent
financing. In exchange for the loan, Corporate I gave San Jacinto
a promissory note secured by a deed of trust listing the Plaza as
collateral (the San Jacinto Note).
In the fall of 1987, CapCon and Old Sunbelt learned that the
Plaza would not be ready for occupancy and that Corporate I would
not be able to pay off the San Jacinto Note when it matured on
1
Capcon never paid off its obligation to Corporate I under
the note. Instead, prior to placing Corporate I into bankruptcy,
Capcon, acting as the liquidating trustee for Corporate I,
foreclosed upon the worthless stock of Old Sunbelt and forgave
itself its $9 million obligation on the note.
2
November 29, 1987. San Jacinto refused to extend the loan or fund
its permanent loan commitment. Consequently, CapCon and Old
Sunbelt entered into negotiations with each other regarding a
possible restructure of Corporate I. These negotiations, in which
the parties were represented by their respective counsel, lasted
from September 1987 until November 25, 1987. During the
negotiations, CapCon asserted that the Corporate I partnership
agreement required Old Sunbelt to make a capital contribution to
satisfy Corporate I's operating deficit, including payment of the
San Jacinto Note. Old Sunbelt disagreed with CapCon's
interpretation of the partnership agreement and represented that it
would not and could not make such a contribution because of its
supervisory agreement with the FSLIC.2
In spite of its contention that Old Sunbelt's refusal to make
the capital contribution was a breach of the partnership agreement,
CapCon did not sue Old Sunbelt for specific performance or breach
of contract. Instead, on November 25, 1987, CapCon executed a
letter agreement in which CapCon (1) consented to the purchase of
the San Jacinto Note by Old Sunbelt or one of its subsidiaries and
(2) agreed not to interfere with any attempt by Old Sunbelt or one
of its subsidiaries to foreclose on the Plaza after February 28,
1988. The agreement also provided that CapCon and Old Sunbelt
would negotiate for certain modifications in the partnership
agreement but that, in the event agreement could not be reached,
2
Under the supervisory agreement, Old Sunbelt had no
authority to make a capital contribution to Corporate I to pay
off the San Jacinto note.
3
Old Sunbelt would have the same rights on the note possessed by the
previous lender, San Jacinto. Additionally, CapCon agreed that if
Old Sunbelt exercised its rights as lender, CapCon would not assert
that Old Sunbelt was not entitled to those rights or that Old
Sunbelt had breached any duty owed to CapCon as general partner of
Corporate I.
On November 29, 1987, with the consent of the FSLIC, Mutual
First, a wholly owned subsidiary of Old Sunbelt, purchased the San
Jacinto Note for $60 million. Mutual First borrowed from Old
Sunbelt the funds used to purchase the San Jacinto Note. After
Mutual First acquired the San Jacinto Note, Corporate I completed
construction of the Plaza and obtained a certificate of occupancy,
but was unable to lease the building.
On August 19, 1988, the Federal Home Loan Bank Board (FHLBB)
declared Old Sunbelt insolvent and appointed the FSLIC as Receiver
of the institution.3 On the same day that the FHLBB declared Old
Sunbelt insolvent, Sunbelt Savings, FSB (New Sunbelt), a mutual
savings bank, acquired all assets of Old Sunbelt pursuant to a
purchase and assumption agreement between New Sunbelt and the
FSLIC.
As part of the purchase agreement, New Sunbelt acquired all of
the stock of Mutual First as well as the obligation owed by Mutual
First to Old Sunbelt for the $60 million loan used to purchase the
3
Under the terms of the partnership agreement, Corporate I
dissolved upon Old Sunbelt's insolvency, and has been placed into
bankruptcy. Corporate I's bankruptcy proceeding has been stayed
pending the resolution of this action. CapCon is the liquidating
trustee for Corporate I.
4
San Jacinto Note. On December 29, 1988, Mutual First executed a
promissory note to New Sunbelt evidencing the $60 million
obligation (the Mutual First Note). On December 30, 1988, New
Sunbelt sold the Mutual First Note to FSLIC-Corporate. The Mutual
First Note is now owned and held by the FDIC, as manager of the
FSLIC Resolution Trust Fund, the statutory successor to FSLIC-
Corporate.
Mutual First continues to hold the San Jacinto Note. Because
Mutual First's second parent, New Sunbelt, recently has been placed
into receivership, Mutual First is now owned by the RTC as receiver
for New Sunbelt.
No payments have been made on the San Jacinto Note, and on
August 5, 1989, Mutual First initiated an action to foreclose on
the deed of trust. In response, on August 31, 1989, CapCon
initiated an action in Texas state court against Mutual First, the
FDIC, and the RTC. The Texas court granted CapCon a temporary
restraining order enjoining a foreclosure sale scheduled for
September 5, 1989. Thereafter, the FDIC removed the case to
federal court.
In their action against the defendants, CapCon sought a
declaratory judgment that the $60 million Old Sunbelt loaned to
Mutual First was a capital contribution to Corporate I which
extinguished the underlying deed of trust and Mutual First's right
to foreclose. Alternatively, CapCon requested that Corporate I's
debt to Mutual First be set off against Mutual First's debt to Old
Sunbelt, or that the defendants' claims against Corporate I be
equitably subordinated to CapCon's claim for return of its capital
5
contribution.4 CapCon based its equitable subordination claim upon
its assertion that, during the negotiations leading up to CapCon's
execution of the letter agreement, Old Sunbelt fraudulently
concealed a "secret agreement" between Old Sunbelt and San Jacinto
for certain additional collateral pledged to secure the San Jacinto
Note. After discovery, the FDIC, Mutual First, and CapCon moved
for summary judgment.
On August 7, 1991, the district court granted summary judgment
in favor of the FDIC and Mutual First and denied CapCon's motion
for summary judgment. The court held, inter alia, that (1)
CapCon's claim that the loan from Old Sunbelt to Mutual First was
a capital contribution to Corporate I is barred by the explicit
terms of the letter agreement as well as the D'Oench, Duhme
doctrine; (2) CapCon is not entitled to force setoff of the
promissory notes to which it is not a party and, even if it were so
entitled, the parties to the two debts had no mutuality of
obligation; and (3) CapCon is not entitled to equitable
subordination of any claims against Corporate I because CapCon
offered no competent summary judgment evidence that the letter
agreement was induced by fraud, and because any such allegation
would be barred by the D'Oench, Duhme doctrine. CapCon now appeals
the district court's decision.
4
Capcon also asserted various claims for breach of fiduciary
duty and conspiracy. CapCon, however, does not appeal the
district court's denial of these claims.
6
Discussion
Standard Of Review
This case comes to us from a grant of summary judgment against
the party with the burden of proof at trial. Summary judgment is
proper after adequate time for discovery and upon appropriate
motion against a party which fails to make a showing sufficient to
establish the existence of an element essential to that party's
case, and on which that party will bear the burden of proof at
trial. FED. R. CIV. P. 56(C). If the nonmoving party bears the
burden of proof on the issue at trial, "the burden on the moving
party may be discharged by 'showing'SQthat is, pointing out to the
district courtSQthat there is an absence of evidence to support the
nonmoving party's case." Celotex Corp. v. Catrett, 106 S. Ct. 2548,
2554 (1986).
Once the movant has pointed out that the nonmoving party's
case is deficient, the nonmoving party has the burden of
establishing the existence of material factual issues. In its
assessment of the motion, the court is not required to contain its
review of the record to those portions to which the moving party
refers. Indeed, a "[summary judgment] motion may, and should, be
granted so long as whatever is before the district court
demonstrates that the standard for the entry of summary judgment,
as set forth in Rule 56(c), is satisfied." Id. at 2553.
In reviewing the summary judgment, we review the record de
novo, Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert.
denied, 113 S. Ct. 82 (1992), and we apply the same standard of
review as did the district court. Waltman v. International Paper
7
Co., 875 F.2d 468, 474 (5th Cir. 1989). In reviewing the record we
must "review the facts drawing all inferences most favorable to the
party opposing the motion." Reid v. State Farm Mut. Auto. Ins.
Co., 784 F.2d 577, 578 (5th Cir. 1986) (citation omitted). If the
record taken as a whole could not lead a rational jury to find for
the nonmoving party, there is no genuine issue for trial. Boeing
Co. v. Shipman, 411 F.2d 365, 374-75 (5th Cir. 1969) (en banc).
Moreover, "[s]uch a finding may be supported by the absence of
evidence to establish an essential element of the nonmoving party's
case." Hibernia Nat'l Bank v. Carner, 997 F.2d 94, 98 (5th Cir.
1993) (citations omitted).
I. Setoff
CapCon's first point of error on appeal is that the district
court improperly concluded that the defendants were entitled to
summary judgment on CapCon's claim for setoff. The district court
granted summary judgment against CapCon for its setoff claim for
two independent and dispositive reasons. First, CapCon is not a
party to the debts it seeks to set off. Second, there is no
mutuality of obligation between the two debts.
CapCon disagrees with the district court's conclusions.
CapCon argues that because Old Sunbelt lent Mutual First the funds
used to purchase the San Jacinto Note, and because Old Sunbelt was
severally liable under the San Jacinto Note as general partner of
Corporate I, the obligation of Mutual First to Old Sunbelt under
the Mutual First Note should be set off against the obligation of
Corporate I to Mutual First under the San Jacinto Note. CapCon
contends that an identity existed between Corporate I and Old
8
Sunbelt, which created the mutuality required to establish the
right of setoff between the parties.
Our analysis of CapCon's claim for setoff is guided by Texas
law. InterFirst Bank Abilene v. FDIC, 777 F.2d 1092 (5th Cir.
1985). Setoff is a form of equitable counterclaim which brings
together obligations of parties opposing each other and, by
judicial action, makes each obligation extinguish the other. See
67 Tex. Jur. 3d § 3 Setoffs, Counterclaims, and Cross Actions
(1989). The object of equitable setoff is "to adjust the demands
between the parties and allow a recovery of only the balance that
is due." Anderson v. Vinson Exploration, Inc., 832 S.W.2d 657, 666
(Tex. App.SQEl Paso 1992, writ denied) (citing CPS Int'l, Inc. v.
Harris & Westmoreland, 784 S.W.2d 538, 544 (Tex. App.SQTexarkana
1990, no writ)). "In order for one demand to be set off against
another, both demands must mutually exist between the same
parties." Dallas/Fort Worth Airport Bank v. Dallas Bank & Trust
Co., 667 S.W.2d 572, 575 (Tex. App.SQDallas 1984, no writ) (citing
Western Shoe Co. v. Amarillo Nat'l Bank, 94 S.W.2d. 125, 128 (Tex.
Comm'n App. 1936, opinion adopted)). Indeed, setoff "is proper
only where demands are mutual, between the same parties, and in the
same capacity or right." Brook Mays Organ Co., Inc. v Sondock, 551
S.W.2d 160, 166 (Tex. Civ. App.SQBeaumont 1977, writ ref'd n.r.e.).
The demands CapCon seeks to set off are not strictly mutual,
and the parties involved in the transactions are not identical.
The demand evidenced by the San Jacinto Note involves a debt
Corporate I owed to San Jacinto and now owes to Mutual First; the
demand evidenced by the Mutual First Note involves a debt Mutual
9
First owed to Old Sunbelt and then to New Sunbelt and now owes to
the FDIC as manager of the FSLIC Resolution Trust Fund. Contrary
to CapCon's argument, Old Sunbelt's secondary liability (as general
partner of Corporate I) on the San Jacinto Note does not appear to
create a sufficient identity between Old Sunbelt and Corporate I
for the purpose of establishing mutuality. CapCon's premise that
the debt owed to a partnership creditor (Mutual First) may be set
off against the claim of an individual partner (Old Sunbelt)
against the partnership creditor does not find any clear support in
the decided cases.5 CapCon relies on four cases, but they, at
best, support CapCon's position only by analogy. Moreover, all the
cases cited in this respect by CapCon, save one, are pre-1940
decisions, and none of them are from either Texas or this Circuit.6
Even if a sufficient identity existed between Old Sunbelt and
Corporate I, however, Old Sunbelt was not acting in the same
capacity with respect to the two debts, and they arose from
separate transactions. In lending funds to Mutual First for the
purchase of the San Jacinto Note, Old Sunbelt was acting in its
capacity as a lending institution. In contrast, any obligation Old
Sunbelt had under the San Jacinto Note was incurred three years
earlier in a separate transaction and in its capacity as general
5
This assertion is especially suspect when, as here, the
partner with the claim against the partnership creditor is not
asserting the right of setoff.
6
The cases CapCon cites are: Davis v. Bessemer City Cotton
Mills, 178 F. 784 (4th Cir. 1910); Wisdom v. Guess Dry Cleaning
Co., 5 F. Supp. 762 (S.D. Miss. 1934); Boeger & Buchanan v. Hagen,
215 N.W. 597 (Iowa 1927); and Garringer v. Hurn, 462 P.2d 556
(Wash. App. 1969).
10
partner in a real estate development partnership.7 Hence, it
appears CapCon cannot establish the reciprocity of obligation
required to assert the equitable counterclaim of setoff.
Moreover, in these circumstances we should not stretch to find
mutuality or reciprocity because in any event it would be
inequitable to allow CapCon to assert setoff. CapCon raised its
claims for setoff over one year after Old Sunbelt was declared
insolvent and all of Old Sunbelt's assets, including Mutual First
and the Mutual First Note, were acquired by New Sunbelt, which
thereafter sold the Mutual First Note to FSLIC-Corporate. We see
no equity in allowing CapCon to assert a defense against the
exercise of Mutual First's rights under the San Jacinto Note, and
extinguish the Mutual First Note, long after New Sunbelt purchased
Mutual First for consideration and likewise long after FSLIC-
Corporate (now FDIC as manager of the FSLIC Resolution Trust Fund)
purchased for consideration the Mutual First Note from New Sunbelt.
II. Equitable Subordination
CapCon's second point of error is that the district court
improperly concluded that the D'Oench, Duhme doctrine barred
CapCon's request for equitable subordination of Mutual First's
claims against Corporate I. CapCon's equitable subordination claim
is based upon an alleged fraudulent omission by Old Sunbelt
regarding a "secret agreement" between Old Sunbelt and San Jacinto
for certain additional collateral pledged to secure the San Jacinto
7
Old Sunbelt's liability on the note, however, would be
triggered only if and to the extent the collateral securing the
San Jacinto Note is insufficient to satisfy payment of the Note.
11
Note. In dismissing CapCon's request for equitable subordination
of Mutual First's claims, however, the district court did not rely
solely on D'Oench, Duhme.8 Indeed, the primary reason given by the
court for dismissing the equitable subordination claim is that
"[CapCon has] not offered competent summary judgment evidence to
support a finding that Mutual First or [Old] Sunbelt fraudulently
induced CapCon to sign the letter agreement." The court then noted
that, even if CapCon had produced evidence to overcome summary
judgment on its assertion of fraud, "any such allegations would be
barred by the D'Oench, Duhme doctrine."
Because the district court based its decision to grant summary
judgment on CapCon's equitable subordination claim on a ground
separate from and independent of the D'Oench, Duhme doctrine, and
because CapCon has failed to challenge on appeal the court's
conclusion that CapCon did not offer competent summary judgment
evidence of Old Sunbelt's fraud, even if we were to find that the
district court erred in its application of D'Oench, Duhme to the
instant case, the district court's judgment would still stand.9
8
CapCon does not appeal the district court's dismissal of its
equitable subordination claim against the FDIC. The court
dismissed CapCon's equitable subordination claim against the FDIC
because, as the court noted, "[n]either FDIC Receiver nor FDIC
Manager has asserted any claims with respect to the San Jacinto
Note, the Plaza, or Corporate I."
9
CapCon contends, inter alia, that although D'Oench, Duhme
applies to affirmative misrepresentations, the doctrine should
not apply to so-called "passive fraud"; i.e., fraud through
nondisclosure. We note, however, that this argument does not
take into account the purpose of the D'Oench, Duhme doctrine,
which protects the FDIC from having to defend against claims
based on secret agreements between a party and a federally
insured bank that later fails, and "ensure[s] that FDIC examiners
can accurately assess the condition of a bank based on its
12
See Matter of Texas Mortgage Servs. Corp., 761 F.2d 1068, 1073 (5th
Cir. 1985) (noting that issues not raised on appeal in the brief of
the appellant may be considered waived, and thus cannot be noticed
or entertained by the Court of Appeals). Therefore, we need not
reach the merits of CapCon's second point of error, and the
decision of the district court on CapCon's equitable subordination
claim is affirmed.
Conclusion
For the reasons stated above, the judgment of the district
court is
AFFIRMED.
books." Bowen v. Federal Deposit Ins. Co., 915 F.2d 1013, 1016
(5th Cir. 1990).
13