Park Club, Inc. v. Resolution Trust Corp. ( 1992 )

  •                                   United States Court of Appeals,
                                               Fifth Circuit.
                                               No. 90–2975.
          PARK CLUB, INC., Park Club Ltd., and A. Dalton Smith, Jr., Plaintiffs–Appellants,
      RESOLUTION TRUST CORP., In Its Corporate Capacity and as Conservator for MeritBanc
    Savings Association, Defendant–Appellee.
                                               Aug. 7, 1992.
    Appeals from the United States District Court for the Southern District of Texas.
    Before KING, SMITH, and WIENER, Circuit Judges.
           JERRY E. SMITH, Circuit Judge:
           This suit, removed from state court, was brought by two borrowers and a guarantor against
    a lending financial institution and the Federal Savings and Loan Insurance Corporation (FSLIC),
    asserting that the lender had failed to abide by its agreement to make a permanent loan and that the
    FSLIC had interfered with a contractual relationship, and seeking a declaration that the guaranty is
    unenforceable. The district court granted summary judgment in favor of the defendants. 
    742 F. Supp. 395
    . Concluding that summary judgment was inappropriate because of the existence of a factual
    issue, we reverse and remand.
           With the exception of whether a certain letter agreement was approved by the bank's board
    of directors, the facts are undisputed. MeritBanc Savings and Loan Association ("MeritBanc"), then
    known as Hardin Savings and Loan Association ("Hardin"), loaned plaintiff Park Club, Inc. ("PCI"),
    $8,250,000 for acquisition of a tract of land and construction thereon of apartments and a child care
    facility. This was an interim construction loan evidenced by a promissory note for the same amount
    and a deed of trust on the property, both executed by PCI, and an assignment of rents.
           Plaintiff A. Dalton Smith, Jr., executed a guaranty of the loan. Contemporaneously,
    MeritBanc and PCI entered into a letter agreement by which MeritBanc appeared to commit to make
    PCI a permanent loan to pay off the interim loan. The disputed issue of fact is whether that letter
    agreement was approved by MeritBanc's board of directors.
            MeritBanc subsequently placed itself under the supervisory control of the Texas Savings and
    Loan Commissioner. Shortly thereafter, t he note matured and was not paid, and Smith made no
    payment on the guaranty. The Texas Savings and Loan Commissioner then placed MeritBanc in
    conservatorship; the Federal Home Loan Bank Board then appointed the FSLIC as MeritBanc's
            In April 1989, PCI, Park Club, Ltd. ("PCL"), and Smith brought suit in state court against
    MeritBanc for breach of contract and against the FSLIC for interfering with MeritBanc's contractual
    relationship between and among MeritBanc, PCI, and PCL, and seeking a declaratory judgment that
    Smith's guaranty was void and unenforceable. The defendants removed the matter to federal court.
    The Resolution Trust Corporation ("RTC") was substituted for the FSLIC as conservator, and the
    RTC in its corporate capacity was substituted for the FSLIC in its corporate capacity as defendant.
            The plaintiffs alleged that MeritBanc had breached the letter agreement by failing to fund the
    permanent loan, that MeritBanc had agreed orally to provide either PCI or PCL interim construction
    financing to construct additional phases of t he apartments, and that the FSLIC had tortiously
            The RTC, as conservator, counterclaimed against PCI for the principal, interest, and attorneys'
    fees due under the note and against Smith pursuant to the guaranty. PCI and Smith answered by
    asserting their claims for affirmative relief as affirmative defenses.
           The RTC, as conservator and in its corporate capacity, moved for summary judgment, which
    the district court granted. The court denied PCL's claim for affirmative relief as unenforceable under
    the D'Oench, Duhme doctrine. See D'Oench, Duhme & Co. v. FDIC, 
    315 U.S. 447
    62 S. Ct. 676
    86 L. Ed. 956
     (1942). On the same basis, the court denied PCI's claim for affirmative relief and its
    affirmative defense to liability under the note and Smith's affirmative defense on the guaranty, holding
    the letter agreement unenforceable under the D'Oench, Duhme doctri ne. The court denied the
    plaintiff's tortious interference claims on the ground that they had not met the requirements of the
    Federal Tort Claims Act. Subsequent to the entry of final judgment, the Office of Thrift Supervision
    closed MeritBanc and appointed the RTC as its receiver.
           On appeal, the plaintiffs argue that the district court erred in granting summary judgment and
    assert that they are not estopped to assert their defenses because the note, providing for a variable
    rate of interest, was non-negotiable. The plaintiffs aver that the requirements of D'Oench, Duhme
    and its companion statute, 12 U.S.C. § 1823(e), have been met. Additionally, the plaintiffs contend
    that their jury demand was struck improperly and that the district court was in error in establishing
    a receivership over PCI.
           The RTC answers that summary judgment was correct in that no rational trier of fact could
    conclude that MeritBanc's board had approved the letter agreement and that, as D'Oench, Duhme
    requires such agreements to be recorded and board approval is evidence of recordation, D'Oench,
    Duhme has not been satisfied. In the alternative, the RTC argues that section 8.08(g) of the Texas
    Savings and Loan Act, TEX.REV.CIV.STAT.ANN. art. 852a, § 8.08(g), requires board approval. The
    RTC also contends that the jury demand was untimely and that the receivership was justified.
           Recently we reiterated that "[t]he personal defenses to which the maker is entitled must, of
    course, be based on documents of the savings institution at the time of its insolvency and not upon
    secret agreements unenforceable under D'Oench, Duhme...." RTC v. Montross, 
    944 F.2d 227
    228–29 (5th Cir.1991) (en banc) (per curiam). This requirement applies irrespective of whether the
    note is negotiable. Id. Under D'Oench Duhme, agreements, to be enforceable, must be recorded.
    FDIC v. Hamilton, 
    939 F.2d 1225
    , 1228 (5th Cir.1991). Section 1823(e)(3) specifies that no such
    agreement is valid against the RTC unless it 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...."
           Section 8.08(g)(3) of the Texas Savings and Loan Act, similarly, provides that during a
    conservatorship, a prior agreement is unenforceable against a lending institution unless the agreement
    was approved by the board of directors. Thus, the RTC's defense based upon that section likewise
    depends upon whether MeritBanc's board approved the letter agreement.
            The critical issue, then, as we have said, is whether the letter agreement promising permanent
    financing was approved by MeritBanc's board of directors. In the posture of this case, the question
    of law before us is whether the plaintiffs presented sufficient summary judgment evidence to create
    an issue of fact so as to defeat the motion for summary judgment.
           The plaintiffs rely in part upon the deposition testimony of Douglas Gwin, a former employee
    of MeritBanc who was in charge of coordinating the documentation for the loan, based upon the loan
    committee's instructions. He testified that "[t]here was a permanent loan commitment of some sort"
    and that James Cauley, MeritBanc's Executive Vice President, had drafted and signed it. He stated
    that he did not know whether the letter agreement had been approved by the board or whether it was
    part of the loan package that was presented to the board for approval.
           The plaintiffs place more reliance upon Cauley's deposition testimony. Cauley was a member
    of the loan committee. He stated that meetings of the loan committee were both formal and informal
    and that loans were approved by the signature of three committee members. Once the loan
    committee had recommended or approved a loan, the board "basically ratified at the monthly meetings
    the action of the loan committee." He described this as ratifying or approving the loans "in
    retrospect." He testified further that there was not a separate system of appro ving a commitment
    associated with a loan but that the board would have been informed of the existence of the
    commitment at the time the construction loan was made.
           Thus, the practice was to inform the board, when the construction loan was to be considered,
    that a permanent loan commitment had been issued in connection therewith. So, in the ordinary
    manner of handling loans at MeritBanc, the approval of the construction loan would have
    encompassed both the construction loan and the permanent loan commitment.
           Thus, Cauley concluded, the board's approval of the interim loan included approval of the
    permanent loan commitment. His reasoning was that, as a matter of common sense, before the board
    would have approved such a sizable loan, it would have required knowledge of how the loan was to
    be taken off the asso ciation's books when construction was completed; therefore, in the ordinary
    course of business, when the construction loan was considered and approved, the permanent loan
    would have been considered and approved, as well. Cauley added that no new funds were required
    to close the permanent loan commitment and that closing the permanent loan would have required
    nothing more than preparing new documents in the form of a permanent loan and checking for any
    new liens.
           The minutes of MeritBanc's executive committee, dated January 23, 1989, approximately one
    month after the loan matured, show the following:
                   ... Mr. Cauley advised the Park Club package is being prepared to send to the Federal
           Home Loan Bank, [sic] this commitment expired December 31, 1988; however, we received
           a request in November to either fund the permanent loan or provide additional construction
           financing. The Association is to obtain a legal opinion that the permanent loan is a bonafide
           [sic] commitment.
                    Mr. Cauley advised that Park Club, Inc., $1.8 million loan, is saying there is a
           commitment outstanding for the permanent loan. He added that the commitment for the
           permanent loan included language which put the commitment contingent on regulatory
    The commitment referred to is in the form of a letter on Hardin's stationery, dated June 30, 1987,
    addressed to Smith of Park Club and signed by Cauley, stating that "[t]his letter evidences the
    commitment of Hardin ... to make a loan to Park Club, Inc. ... for a permanent first lien mortgage
    loan in the amount of $8,250,000.00 to refinance the construction loan on Park Club Community
    Apartments." On October 14, 1988, Smith wrote Cauley requesting the closing of the permanent
    loan. On November 3, 1988, Cauley wrote an attorney, asking for preparation of permanent loan
    documents and stating, "MeritBanc Savings Association is prepared to fund a first lien mortgage in
    the form described below...."
           As we might expect, the RTC relies upon other evidence in the summary judgment record.
    It observes that the minutes of the August 19, 1987, board meeting, under "Details of Loans Closed,"
    show the terms of the Park Club interim loan but make no mention of the permanent loan or
    permanent loan commitment. The RTC notes that Cauley testified in deposition that he could not
    recall the letter agreement's having been discussed at that meeting and never testified that the board
    in fact had approved that agreement. Moreover, on the same page reflecting the Park Club
    construction loan, the minutes list other permanent loans closed, without mention of the Park Club
            "Where the record taken as a whole could not lead a rational trier of fact to find for the
    non-moving party, there is no "genuine issue for trial.' " Matsushita Elec. Indus. Co. v. Zenith Radio
    475 U.S. 574
    , 587, 
    106 S. Ct. 1348
    , 1356, 
    89 L. Ed. 2d 538
     (1986) (citing First Nat'l Bank v.
    Cities Serv. Co., 
    391 U.S. 253
    , 289, 
    88 S. Ct. 1575
    , 1592–93, 
    20 L. Ed. 2d 569
     (1968)). As this is a
    matter of law, we do not defer to the district court but apply the same standard to the summary
    judgment record as did the district court. See Hamilton, 939 F.2d at 1228.
            The district court appears to have based its conclusion, i.e., that the board never approved
    the permanent loan co mmitment, primarily upon an evaluation of whether Cauley's testimony
    sufficiently establishes the board's custom and routine practice. The court concluded that there was
    no showing of systematic conduct and that "[e]ven if the Board had a practice of specifically not
    approving loans based on their categorization, the evidence before this Court indicates that on the
    date in question, the Board departed from the routine" of "specifically not approving loans based on
    their categorization" by listing approved loans as either interim or permanent.
            All this shows, however, is that there is a disput e as to what the normal procedures of the
    board were and whether, on the occasion in question, those procedures were followed. We agree that
    on the basis of the evidence heretofore presented, the RTC appears to have the better side of the case:
    On their face and standing alone, the board minutes are compelling, and their plain meaning appears
    to indicate that no permanent commitment was approved. Cauley's testimony calls that into question,
    albeit just barely.
            Although it is a close question, we cannot say that, under the Matsushita standard, a rational
    trier of fact could not find that the permanent financing was approved. We also are mindful that at
    trial presumably there would be other evidence, subject to the credibility determinations of the
    factfinder, that would bear on this issue. The plaintiffs have presented enough evidence on summary
    judgment to afford them that opportunity at trial.
            Because we remand for trial on the question of board approval, we now must address the
    question of whether the district court erred in striking plaintiff's jury demand. The plaintiffs made no
    jury demand in state court and filed their demand in federal court almost ten months after removal,
    long after the ten days permitted by FED.R.CIV.P. 81(c). The RTC concedes that the demand was
    timely as to its counterclaim but argues that the jury should be empaneled only as to the issues raised
    in the counterclaim.
            The parties agree that the test for determining whether a request for a jury on the
    counterclaim entitles a party to a jury on the complaint is whether the counterclaim is compulsory,
    i.e., "arises out of the subject matter of plaintiff's legal claim." 5 James W. Moore et al., MOORE'S
    FEDERAL PRACTICE ¶ 38.39[2], at 38–367 (2d ed. 1992). The parties also agree that the test for
    whether a counterclaim is compulsory is set forth in Plant v. Blazer Finan. Servs., 
    598 F.2d 1357
    1360 (5t h Cir.1979): (1) whether the issues of fact and law raised by the claim and counterclaim
    largely are the same; (2) whether res judicata would bar a subsequent suit on defendant's claim
    absent the compulsory counterclaim rule; (3) whether substantially the same evidence will support
    or refute plaintiff's claim as well as defendant's counterclaim; and (4) whether there is any logical
    relationship between the claim and the counterclaim. "An affirmative answer to any of the four
    questions indicates the counterclaim is compulsory." Id. at 1360–61. This standard is taken from
    FED.R.CIV.P. 13(a), which pro vides t hat a counterclaim is compulsory if it "arises out of the
    transaction or occurrence that is the subject matter of the opposing party's claim."
            We have little difficulty in concluding that the instant counterclaim satisfies at least the first
    and fourth tests. The issues of fact and law greatly overlap, and certainly there is a "logical
    relationship" between the claim and counterclaim.           Both regard the same instruments and
    transactions, and a jury would hear substantially the same facts in regard to both. Accordingly, the
    district court was in error in striking plaintiff's demand for a jury.
            The plaintiffs complain that the district court appointed an interim receiver to collect and
    disburse rents until entry of final judgment, after Smith was unable to explain how the apartments and
    child care center were able to generate a profit but were unable to pay property taxes or debt service.
    No person ever was appointed as receiver, however, and plaintiffs have not alleged any particular
    harm from the order that was entered. Thus, to the extent that there is st ill a live controversy
    regarding this matter, we affirm the order of the district court, as there appear to have been sufficient
    grounds for appointment of a receiver.
            The district court should not have left the matter in an uncertain status, however.
    Accordingly, we instruct that on remand, the court should either go forward with appointment of a
    receiver or vacate its prior order appointing one.
            In summary, this matter is not appropriate for summary judgment, as any disputed issues of
    fact must be determined by a jury. The judgment of the district court is AFFIRMED in part,
    REVERSED in part, and REMANDED.