Lindsey v. F.D.I.C. ( 1992 )

United States Court of Appeals,
Fifth Circuit.
No. 91–5641
Summary Calendar.
Jesse M. LINDSEY and Louise O. Lindsey, Plaintiffs–Appellants,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver of MBank Alamo, N.A. and
Ricky Preston, Defendants–Appellees.
May 15, 1992.
Appeal from the United States District Court for the Western District of Texas.
Before JOLLY, DAVIS, and SMITH, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
This appeal is over peanuts.
The Lindseys brought suit in state court against MBank Alamo seeking a declaratory
judgment that they are the owners of a peanut allotment. The FDIC was appointed receiver of
MBank and removed the case to federal district court. The district court granted the FDIC's motion
for summary judgment on the grounds that ownership of the allotment passed to MBank when
MBank foreclosed on the land upon which the allotment was in effect. The district court also held
that the Lindseys' claim that they reserved ownership of the allotment was barred by D'Oench, Duhme
& Co. v. FDIC, 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956 (1942), and 12 U.S.C. 1823(e).
We agree that ownership of the allotment did pass to MBank upon foreclosure of the entire
parcel of land upon which the allotment was in effect. We further hold that the Lindseys' unilateral
oral reservation of ownership at the time of foreclosure is insufficient: they did not prove that MBank
agreed to any reservation, either upon execution of the mortgage or upon foreclosure.1 We therefore
1
The Lindseys would argue that, because they owned the allotment as well as the land, they
could unilaterally reserve the allotment when granting a deed of trust on the land. We agree they
affirm the order of the district court granting the FDIC's motion for summary judgment.
I
Jesse and Louis Lindsey originally brought this action against MBank in state court. MBank
was declared insolvent and the FDIC was appointed receiver of MBank's assets. The FDIC removed
the case to federal district court and moved for summary judgment. The Lindseys responded and the
FDIC replied. Thereafter, a pretrial conference was held and summary judgment was granted in favor
of the FDIC.
II
Jesse Lindsey is a peanut farmer. In 1980, the Lindseys signed a $345,000 promissory note
in favor of San Antonio Bank and Trust. The note was secured by a deed of trust to approximately
516 acres of cropland. The deed of trust did not refer to the peanut allotment on the land; nor did
the Lindseys in any other manner, either orally or in writing, reserve ownership in the allotment at the
time of their granting this security interest in their croplands. Sometime later, San Antonio Bank and
Trust transferred its interest in the note and the deed of trust to MBank.
The Lindseys defaulted on the note and filed for bankruptcy protection to prevent foreclosure
on the land. In January 1986, the Lindseys and MBank entered into a letter agreement—the Lindseys
agreed to a lift of the automatic stay so that MBank could foreclose on the land and the bank agreed
to lease the property back to the Lindseys for the following crop year. Neither the letter agreement
nor the order lifting the stay mentions the peanut allotment. The Lindseys contend, however, that
at this time they orally made clear their intention to retain ownership of the allotment.
certainly could propose reserving it, but upon such a timely proposal, the bank would have the
opportunity to refuse to loan the money under such a condition. As we discuss later in this
opinion, once the mortgage was granted, however, the Lindseys could not then diminish the
bank's security by unilaterally reserving the allotment from foreclosure without the bank's
agreement. Moreover, the transferability of the allotment from the land on which it is granted
depends also on government approval.
In 1987, after the lease expired, MBank, presumably with permission of the government,
transferred part of the peanut allotment to two other people and the rest of the allotment was used
by Ricky Preston.
III
On appeal, the Lindseys argue that the district court erred in granting summary judgment in
favor of the FDIC because, they contend, the peanut allotment is intangible personal property, and
consequently the title was not passed to MBank when the farmland was conveyed. Therefore, the
allotment was not an asset to which the FDIC acquired a right. They further argue that, assuming
that the allotment was attached to the land, their oral reservation was sufficient to retain ownership
apart from the land. They also argue that their claim to the allotment based on that oral reservation
is not barred by D'Oench, Duhme or 12 U.S.C. § 1823(e) because the title to the allotment was never
conveyed to MBank in the first place.2 Alternatively, the Lindseys argue that even if the allotment
did pass to MBank, MBank knew the Lindseys did not intend to convey the allotment. Therefore,
they argue that MBank committed real fraud, or fraud in the factum, a defense not barred by
D'Oench, Duhme or § 1823(e).
2
In D'Oench, Duhme, the Supreme Court held that a borrower cannot assert defenses against
the FDIC that are based on unrecorded agreements with a failed bank. D'Oench, Duhme, 315
U.S. at 459–60, 62 S.Ct. at 680–81. 12 U.S.C. § 1823(e) provides in pertinent part:
No agreement which tends to diminish or defeat the interest of the [FDIC]
in any asset acquired by it ... shall be valid against the [FDIC] unless such
agreement—
(1) is in writing,
(2) was executed by the depository institution and any person claiming an adverse
interest thereunder, including the obligor, contemporaneously with the acquisition
of the asset by the depository institution,
(3) was approved by the board of directors of the depository institution or its loan
committee, which approval shall be reflected in the minutes of said board or
committee, and
(4) has been, continuously, from the time of its execution, an official record of the
depository institution.
The FDIC argues that the district court correctly found that the peanut allotment passed to
MBank upon foreclosure because the Lindseys failed to make an express written reservation. The
FDIC further argues that the district court correctly found that the Lindseys' argument that they made
an oral reservation of the allotment is barred by D'Oench, Duhme and § 1823(e).
IV
Summary judgment is appropriate if the moving party establishes that there is no genuine
issue of material fact and that it is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c);
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986).
The granting of a summary judgment motion is reviewed by this court de novo. Walker v. Sears,
Roebuck & Co., 853 F.2d 355, 358 (5th Cir.1988).
V
The Agricultural Adjustment Act of 19383 controls the price of peanuts through a national
program that limits the amount of peanuts available on the market. Pursuant to the Act, individual
farms are assigned an annual allotment under which the farmers are allowed to grow an annual quota
of peanuts. The peanuts grown on the allotted acres, "quota peanuts," are more valuable because
they can be used in food products, whereas "non-quota peanuts" can be used only for export or
domestic peanut oil. Federal Land Bank v. Shepard, 646 F. Supp. 1145, 1146 (M.D.Ga.1986).
The Lindseys argue that MBank did not become the owner of the allotment upon foreclosure
of the land for two reasons. First, they argue that Combustion Engineering does not govern the
instant case because the Lindseys did not sell their entire farm. Second, the Lindseys contend that
they made an oral express reservation of the allotment.
In concluding that the peanut allotment passed to MBank, the district court relied on
3
7 U.S.C. §§ 1281–1393.
Combustion Engineering, Inc. v. Norris, 246 Ga. 413, 271 S.E.2d 813 (1980). There, the court held
that the general rule is:
"If there is a transfer of ownership ... (and) a transferee ... acquires an entire farm, he
necessarily receives the farm's allotments, and if he acquires only part of the farm, the running
of the allotments is generally controlled by law rather than by the intent of the parties."
[citation omitted] Based on this rule, if an entire farm is sold, the acreage allotments pass with
the farm; unless such allotments are specifically reserved by the seller.
Id. at 815. In its pleading, the FDIC alleged that MBank foreclosed on the entire 516 acres on which
the peanut allotment was in effect, and that under Combustion Engineering, as transferee of the entire
516 acres, it acquired the peanut allotment with the farmland. We agree.
Because the allotment runs with the land when a transfer involves the entire parcel upon which
the allotment is in effect, and because MBank took a security interest in the 516 acres of cropland
upon which the allotment was in effect, it follows that MBank's security interest includes the
allotment. Although there are various regulations, some complex, that allows the allotments to be
temporarily or permanently shifted to other parcels of farmland, such allotment transfers can only be
accomplished after receiving approval by the government. Here, at the time that the Lindseys gave
a security interest in the farmland to the bank, the allotment was attached the farmland and had not
been transferred; neither did the Lindseys reserve the allotment from the deed of trust. Thus, the
allotment gave substantial value to the farmland and consequently to the security interest to which
the bank and the Lindseys agreed. To subsequently withdraw t he allotment without the bank's
agreement would impermissibly impair the bank's secured interest; indeed any disposition of the
allotment by the Lindseys without the bank's agreement would be akin to the unlawful conversion or
sale of a mortgaged property. This conclusion is supported by a provision in the Act that requires
a mortgagee's or lienholder's written permission before a peanut allotment on the mortgaged land may
be transferred to another farm. 7 U.S.C. § 1358a(b)(2); 7 C.F.R. § 729.351. This provision is
obviously designed to protect the mortgagee's or lienholder's security interest in the allotment. When
MBank foreclosed on the land, it became owner in fee simple of the land and we conclude, it also
became owner of the allotment that was necessarily included in the deed of trust.
The Lindseys argue that MBank did not become the owner of the allotment upon foreclosure
because they did not sell their entire farm as required by Combustion Engineering.4 The rule
established by Combustion Engineering, however, is not that the allotment runs with the land only
when the farmer transfers or sells all of his farmland; it is that the allotment runs with the land when
a farmer transfers or sells all of the land "upon which an agricultural allotment is in effect." Id. The
Lindseys did not argue below and do not argue on appeal that the 516 acres is not the entire parcel
of land upon which the allotment is in effect. Therefore, the Lindseys' argument that Combustion
Engineering is inapplicable to this case because they did not sell all of their land has no merit.
The Lindseys also argue that MBank did not acquire the allotment upon foreclosure because
they made an oral reservation of the allotment. As evidence of the reservation, the Lindseys
submitted affidavit testimony of Mr. Lindsey and Mr. Barham, their attorney, that the Lindseys
announced their intention to retain ownership of the allotment at a conference after the bankruptcy
court hearing regarding the automatic stay. In their affidavits, both Lindsey and Barham state that
a paragraph in the lease agreement evidences the Bank's acquiescence to the Lindseys' intention to
retain ownership of the allotment. The paragraph provides that "the lessee shall provide, without cost
to the Lessor, the necessary "quota pounds' for marketing lessor's share of the peanuts."5 They argue
that this provision would have been unnecessary if the allotment had passed to MBank upon
foreclosure. We cannot agree. The provision in the lease is not evidence that MBank had agreed that
the Lindseys retain permanent ownership of the allotment at the foreclosure. Instead, to us it
4
When the "entire farm" is not sold or transferred, the allotment does not automatically run
with the land, because questions arise as to how to assign portions of the allotment to the parcel
of the farm that is sold or transferred.
5
As payment for leasing the cropland back from MBank, the Lindseys were obligated to give
MBank a percentage of the peanuts. Apparently, the quoted lease provision provides that the
Lindseys would provide MBank with enough quota pounds so that it could sell its peanuts at the
higher price.
indicates only that the bank associated the allotment to the land it had leased to the Lindseys.
Because MBank had a security interest in the allotment, the Lindseys must prove more than
that they asserted their intention, upon foreclosure, to retain ownership of the allotment; they must
prove that MBank agreed to surrender its security interest in the allotment and allow them to retain
ownership it. They have failed to do so. The district court, therefore, correctly held that upon
foreclosure, MBank became owner of the land and the allotment.6
VI
Alternatively, the Lindseys argue that even if title did pass to MBank upon foreclosure,
MBank was aware that the Lindseys did not intend to convey the allotment, and therefore, MBank
committed real fraud, or fraud in the factum. The Lindseys did not raise this claim below. This Court
will not address an issue raised for the first time on appeal unless it is a purely legal issue and our
refusal to consider it would result in a miscarriage of justice. Aguirre v. Armstrong World Industries,
Inc., 901 F.2d 1256, 1258 (5th Cir.1990); Matter of HECI Exploration Co., 862 F.2d 513, 518 n.
7 (5th Cir.1988).
VII
In conclusion, we hold that ownership of the allotment did pass to MBank when it foreclosed
on the entire parcel of land upon which the allotment was in effect. The Lindseys presented no
evidence that MBank agreed to let them retain ownership of the allotment upon foreclosure.
Therefore, the district court's order granting the FDIC's summary judgment motion is
AFFIRMED.
6
MBank's argument that the Lindseys did not make a written reservation of the allotment raises
the question whether the Texas Statute of Frauds applies to the reservation of allotments.
Because we decide that MBank never agreed to any reservation, we do not reach the question of
whether the reservation must be writing.