Court Opinion

ID: 6671
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:19:56+00
Date Added: 2024-06-11T16:46:12.166947
License: Public Domain

UNITED STATES COURT OF APPEALS

                         FOR THE FIFTH CIRCUIT

                          __________________

                              No. 91-1965
                          __________________

     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