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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

AMARILLO DIVISION

 

RABO AGRIFINANCE, a Delaware

Corporation, as Successor in Interest to

RABO AGSERVICES, INC.,

 Plaintiff,

v.

VEIGEL FARM PARTNERS, a general

partnership d/b/a VEIGEL PARTNERS,

VEIGEL FARMS, INC., TERRA XXI,

LTD., GRAIN CENTRAL STATION, INC.

d/b/a VEIGEL GRAIN COMPANY,

VEIGEL-KIRK, INC., BOB VEIGEL,

INC., BOB VEIGEL (a/k/a ROBERT

WAYNE VEIGEL), STEVE VEIGEL,

INC., STEVE VEIGEL, Individually,

VICKI VEIGEL, INC., and VEIGEL

CATTLE COMPANY.

 Defendants.

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CIVIL NO. 2:05-CV-243-J

MEMORANDUM OPINION

Plaintiff Rabo AgriFinance filed this federal suit seeking a deficiency judgment against

Defendants after foreclosure of a deed of trust. Before the Court is the Defendants’ Motion for

Abstention, asserting that the issues in this case are the same as those in a prior pending state

court action wherein the Defendants in this federal action are plaintiffs challenging the validity

of the foreclosure and wherein Plaintiff Rabo AgriFinance is defendant.

BACKGROUND

 

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This case arises out of a series of loans made between Defendants. (collectively “the

Veigel/Terra XXI entities”) as either debtors or guarantors, and AgServices of America, Inc.,

predecessor in interest to Plaintiff Rabo AgServices, now Rabo AgriFinance (“Rabo”), which

were obtained for conducting farming operations. Between 1997 and 1999, through a series of

four loans, AgServices of America, Inc. (“AgServices”) provided funds to the Veigel/Terra XXI

entities in exchange for promissory notes secured by deeds of trust on “approximately ten

sections of land” in Deaf Smith County, held for the benefit of Ag Acceptance Corporation (“Ag

Acceptance”), an AgServices-related financing company. This land had already been

encumbered by a previous security interest owned by First Ag Credit Corporation. After

execution of the promissory notes, the Deeds of Trust were properly recorded in the Deed of

Records of Deaf Smith County, Texas, and the funds advanced to the Veigel/Terra XXI entities.

 In August of 2000, the Defendants Veigel Farm Partners and Terra XXI Ltd, filed

separately for Chapter 11 Bankruptcy protection. Both eventually emerged from bankruptcy,

filing Reorganization Plans. The plans preserved the liens on the property as fully secured and

added a second lien as an amendment to one of the loans. 

During the course of the bankruptcy, the Veigel/Terra XXI entities, debtors in the

bankruptcy, filed adversary claims against AgServices, seeking, inter alia, declaratory judgment

establishing a superior right of title to the land. Settlement of these adversary claims was

reached. The bankruptcy court dismissed all of the claims with prejudice. Under the terms of

the Settlement Agreement, the loan principal was restated from that in the Reorganization Plan. 

Rabo also agreed in the Settlement Agreement to advance the sum of $138,283.46, convey an

interest in a separate parcel of land to Terra XXI, Ltd., and also dismiss another suit then

 

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pending in Deaf Smith County. In all other respects, the terms of the Reorganization Plans were

maintained.

Thereafter, AgServices sent a Notice of Default to Vegel Farm Partners and Terra XXI,

stating AgServices’ intent to foreclose on the “second lien position” through a non-judicial

proceeding and gave Veigel Farm Partners and Terra XXI 30 days to cure their default. 

A foreclosure sale was conducted in which Ag Acceptance was the sole bidder. Ag

Acceptance foreclosed on AgServices’ second lien position. Soon after, on February 4, 2004, 

Ag Acceptance filed suit in the Justice Court of Deaf Smith County, Texas, seeking forcible

entry and detainer against Terra XXI, Ltd., Veigel Farm Partners, Veigel Farms, Inc., and Grain

Central Station, Inc. d/b/a Veigel Cattle Company. Ag Acceptance brought the proceedings to

enforce its sole claim to the land as a result of the deed of trust it had obtained through the

foreclosure. The Veigel/Terra XXI entities answered that suit, challenged the validity of Ag

Acceptance’s Original and Substitute Deeds of Trust, as being fraudulently induced and subject

to the Veigels’ homestead claims. Thus began a complex and protracted set of court

proceedings. 

The Present State Court Action

After the forcible entry and detainer action was filed, the Veigel/Terra XXI entities

brought suit in Deaf Smith County District Court. In essence, the state court suit challenged

Rabo’s title to the property foreclosed upon. The Veigel/Terra XXI entities challenged the

validity of Ag Acceptance’s deeds of trust as being fraudulently induced and subject to the

Veigels’ homestead claims. They sought to enjoin the proceedings in the justice court, claiming

 

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that the district court had exclusive jurisdiction to consider the title issues they had raised. In

addition to Ag Acceptance, they brought claims against AgServices and Rabo Agservices, Inc.,

as well as the trustee who issued the deeds, Marc Harmon. In this state district court suit, the

Veigel/Terra XXI entities brought the same claims they had asserted as defenses in the justice

court. They also challenged the foreclosure as being for inadequate consideration and for

improper notice. Further, they claimed that the original deed of trust did not survive bankruptcy

because they were extinguished through the Reorganization Plan, and that a substitute deed of

trust allowing non-judicial foreclosure was nowhere authorized in the bankruptcy. They asserted

claims for negligence, predatory lending, and interference with government contracts, as well as

claims under the Bank Holding Company Act, and the Texas Anti-Trust Act. Lastly, the

Veigel/Terra XXI entities also claimed a multitude of fraudulent and wrongful conduct by the

Rabo entities. Although a number of these claims had already been raised and subsequently

dismissed as a result of the Settlement Agreement in the bankruptcy proceedings, the

Veigel/Terra XXI entities asserted the right to raise them anew because they alleged that the

Rabo entities had breached the Settlement Agreement by failing to convey the interest in Deaf

Smith County land owned by AgServices and to dismiss the other Deaf Smith County lawsuit;

obligations they had taken on in the agreement. 

The Present Federal Action

 

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While the state court action was still pending, Rabo filed the present suit as a separate

action in federal district court against the Veigel/Terra XXI entities. In this federal court, Rabo

seeks to collect on the deficiency remaining after the funds from the trustee’s foreclosure sale

were applied against the restated amount of the original AgServices loan. Rabo claims that

diversity of citizenship exists because Marc Harmon, the only non-diverse party in the state

action, is not present in this federal case. The Veigel/Terra XXI entities answered as

Defendants, raising defenses and cross-claims that are virtually identical to the claims that they

asserted in the state action in which they challenged the foreclosure and Rabo’s title.

The State Court’s Summary Judgment

After this federal action was filed, the state court issued partial summary judgment in

favor of Rabo. In its order, the state court decided the following as a matter of law: (1) the deeds

of trust of Rabo and notes were not extinguished by the Veigel/Terra XXI entities’ bankruptcy;

(2) the Veigel/Terra XXI entities could not maintain a claim for wrongful foreclosure; and (3)

the Veigel/Terra XXI entities’ claims for fraud, economic duress, negligence, DTPA, breach of

contract, violations of the Bank Holding Company Act, and fraud in the inducement (of the

initial loans) were barred by res judicata because these issues had already been dismissed with

prejudice in the bankruptcy court.

No party contends that the state court’s summary judgment order is determinative of the

motion for abstention before this Court, because at least two claims remain in the state action

after summary judgment. Under both Texas and Fifth Circuit law, a partial summary judgment is

not a final judgment and has no res judicata or collateral estoppel effect. United States v.

 

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Horton, 622 F.2d 144, 149 (5th Cir. 1980); Mower v. Boyer, 811 S.W. 2d 560, 562 (Tex. 1991).

ANALYSIS

The Veigel/Terra XXI entities, defendants in this federal action, now move the Court to

abstain from this federal proceeding in favor of the proceeding in state court. They claim that

the parties and issues involved here are identical to those that have been asserted in the state

district court. Rabo opposes abstention, as asserting that the deficiency action they have now

brought has not yet been brought in the state court proceedings, and is therefore not currently

part of the state controversy, and that some of the factual issues and parties in this action are not

the same as those in the state action. 

The doctrine of abstention provides that a court may, at its discretion, decline to exercise

its jurisdiction over a matter when “principles of federalism and comity” dictate that the action

should be left to a previously filed state action. Webb v. B.C. Rogers Poultry, Inc., 174 F.3d 697,

704 (1999) (quoting Quackenbush. v. Allstate Ins. Co., 517 U.S. 706, 728 (1996)). Abstention is

an “extraordinary and narrow exception” to the “virtually unflagging obligation of the federal

courts to exercise the jurisdiction given them. Colorado River Water Conservation Dist. v.

United States, 424 U.S. 800, 813 (1976). As a consequence, the balance in deciding a motion to

abstain is heavily weighted toward the exercise of jurisdiction. Black Sea Inv., Ltd. v. United

Heritage Corp., 204 F.3d 647, 650 (5th Cir. 2000). 

Under the abstention standard developed in Colorado River Water Conservation Dist. v.

United States, courts have discretion to dismiss only under “exceptional circumstances” where

refraining in favor of parallel state proceedings serves an important countervailing interest, such

 

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as consideration of “proper constitutional adjudication, regard for federal state relations, or wise

judicial administration.” Colorado River, 424 U.S. at 813-14; Diamond Offshore, 302 F.3d 531;

Stewart v. Western Heritage Ins. Co., 438 F.3d 488, 492 (2006).

In deciding whether “exceptional circumstances” exist to abstain under Colorado River,

the Court is to analyze six different factors: (1) assumption by either court of jurisdiction over a

res; (2) relative inconvenience of the forums; (3) avoidance of piecemeal litigation; (4) the order

in which jurisdiction was obtained by the concurrent forums; (5) to what extent federal law

provides the rules of decision on the merits; and (6) the adequacy of the state proceedings in

protecting the party invoking federal jurisdiction. See Stewart, 438 F.3d at 492 (citing Kelly

Inv., Inc. v. Continental Common Corp., 315 F.3d 494, 497(5th Cir. 2002)). These factors are

not to be applied mechanically, but through careful balancing with the balance weighted in favor

of the exercise of jurisdiction. Moses H. Cone Mem’l Hosp. v. Mercury Contr. Corp., 460 U.S.

1, 16 (1983).

In Texas, an action to try title is considered an action quasi in rem. Hardy v. Beaty, 84

Tex. 562, 568-69 (Tex. 1892); see also Leblanc v. Epstein, No. Civ. A. H-03-0592, 2003 WL

24196892 *5 (S.D. Tex. 2003) (citing Green Oaks Apts., Ltd. v. Cannan, 696 S.W.2d 415, 418

(Tex. App.SAustin 1999, no. pet.)). The issue of title was therefore raised at the outset of the

state action, when the Veigel/Terra XXI entities, plaintiffs in the state action, raised their claim

to quiet title to the Deaf Smith County Properties. The state court then assumed jurisdiction over

the res itself at that time, and that jurisdiction continues, because although the issues touching on

title, including wrongful foreclosure, fraud in the inducement, and the validity of Rabo’s deeds

of trust, have been addressed by the partial summary judgment, the state court has not finally

 

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disposed of the case. See Martinez v. Humble Sand & Gravel, Inc., 875 S.W.2d 311, 312 (Tex.

1994). And although Rabo moved to have these issues severed from the action under Texas Rule

of Civil Procedure 41, which would have made the judgment final, the state court declined to do

so. See Martinez, 875 S.W.2d at 312-13.

It is a principle of long standing that if a state court has first taken jurisdiction of a res or

property, a federal court must decline jurisdiction. See PPG Industries, 478 F.2d at 677;

Colorado River, 424 U.S. 800, 819 (“[T]he court first assuming jurisdiction over property may

exercise that jurisdiction to the exclusion of other courts.”); Firstsouth Commercial v. First Nat.

Bank of Jefferson, No. Civ. A. 92-3679, 1993 WL 8312, *2 (E.D. La. Jan. 11, 1993). The federal

court must yield in such cases because principles of comity prevent it from defeating or

impairing the state’s exercise of its own jurisdiction. See Kline v. Burke Constr. Co., 260 U.S.

226, 229 (1922); See also Key v. Wise, 629 F.2d 1049, 1059 (5th Cir. 1980); Leblanc, 2003 WL

24196892 at *5 (noting that the Second and Ninth Circuits have found this factor dispositive in

the Colorado River abstention analysis). Once a court assumes jurisdiction over a res, its control

over the property continues unabated until “it has finally and disposed of the matter” by final

judgment, or even afterwards if necessary to fully dispose of the res. Rosenberger v.

Rosenburger, 95 F.2d 349, 350 (D.C. Cir. 1938); Baltimore & O.R. Co. v. Wabash R. Co., 119 F.

678, 679 (7th Cir. 1902); Wabash R. Co. v. Adelbert College of Western Reserve University, 208

U.S. 38 (1908). However, jurisdiction is exclusive only insofar as is necessary, and therefore a

court can adjudicate any rights in property of another court “not in conflict with that court’s

authority to decide questions within its jurisdiction and to make effective such decisions by its

control of the property.” United States v. Klein, 303 U.S. 276 (1938); Albuquerque Nat. Bank v.

 

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Citizens Nat. Bank in Abeline, 212 F.2d 943, 949 (1954) (quoting Penn General Casualty Co. v.

Pennsylvania, 294 U.S. 189, 198 (1935)).

A judgment for deficiency is an in personam action, and both federal courts and those of

Texas can consider title issues in an action in personam. Fisher v. Britton, 125 Tex. 505 (1935)

(describing deficiency action as in personam); Hartman v. Sirgo Operating, Inc., 863 S.W.2d

764, 766 (Tex. App.-El Paso 1993, writ denied) (holding that a Texas court may enforce an in

personam obligation by ordering a party to convey land); see also, e.g., Mandeville v.

Canterbury, 318 U.S. 47 (1943); Miller v. Miller, 423 F.2d 145 (10th Cir. 1970). Federal

personam actions, even those that consider issues of title, need not fatally conflict with a state

court’s hold over a res in an in rem action. See Markham v. Allen, 326 U.S. 490, 494 (1946);

Kline v. Burke Constr., 260 U.S. 226, 227 (1922); Signal Properties Inc. v. Farha, 482 F.2d

1136, 1137 (5th Cir. 1973). Nevertheless, the fact that the state court exerts a hold on the res

counsels abstention, because, the Colorado River abstention principles rest on principles of

comity and restraint rather than purely on jurisdictional grounds. Thus, the presence of the res in

the control of the state court weighs in favor of abstention here.

SUMMARY AND CONCLUSION

Weighing in the balance the presence of the res in the state court, the danger of piecemeal

litigation, the fact that the state court has already ruled on questions that would be considered

again in this Court, and the protracted proceedings in state court as opposed to the comparative

lack of activity in this Court, this Court concludes that it should abstain. The motion to abstain

is therefore GRANTED.

 

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It is SO ORDERED.

Signed this 5th day of June, 2006.

/s/ Mary Lou Robinson 

MARY LOU ROBINSON

UNITED STATES DISTRICT JUDGE

 

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