650 F.2d 1040 (9th Cir. 1981), 78-2392, Westgate-California Corp. v. First Nat. Finance Corp.

Docket Nº:78-2392.
Citation:650 F.2d 1040
Party Name:WESTGATE-CALIFORNIA CORPORATION, et al., Debtors and Appellees, v. FIRST NATIONAL FINANCE CORPORATION, Claimant and Appellant.
Case Date:July 13, 1981
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 1040

650 F.2d 1040 (9th Cir. 1981)

WESTGATE-CALIFORNIA CORPORATION, et al., Debtors and Appellees,



No. 78-2392.

United States Court of Appeals, Ninth Circuit

July 13, 1981

Argued and Submitted Oct. 21, 1981.

LeRoy A. Abelson, O'Neill & Huxtable, Los Angeles, Cal., for claimant and appellant.

Alan D. Croll, Los Angeles, Cal., argued for debtors and appellees; Jeffrey L. Levine, Los Angeles, Cal., on brief.

On Appeal from the United States District Court for the Southern District of California.

Page 1041

Before BROWNING, Chief Judge, POOLE, Circuit Judge, SOLOMON, [*] District Judge.

POOLE, Circuit Judge.

First National Finance Corporation F appeals the judgment of the United States District Court for the Southern District of California granting the motion for summary judgment brought by the trustees in bankruptcy for Westgate-California Corporation. The order disallowed FNF's claims numbered 73 and 203, and subordinated all of FNF's related claims against and equity interests in the debtor.

FNF is entirely owned by J. A. Smith. Smith is the brother of C. Arnholt Smith, who formerly controlled Westgate and its numerous subsidiaries, and who was convicted of fraud in connection with his operation of those companies. FNF had many business dealings with Westgate and with C. Arnholt Smith's now defunct United States National Bank (USNB). Claims 73 and 203 arise out of this close relationship.


Claim 73 is based on a note from Westgate to FNF in the amount of $2,550,000. It is undisputed that Westgate never received this money and never made any payments on the note. The district court found that a loan from FNF to Westgate was negotiated but never consummated, and that Westgate never received "valid, legally enforceable consideration for its note, and it is therefore unenforceable." That judgment would be appropriate in view of the above facts unless FNF could come forward with a specific showing that there remained as a genuine issue for trial whether Westgate received some other form of consideration for its note. Fed.R.Civ.P. 56(e).

FNF sought to establish that Westgate's note was made as part of a complicated "accommodation loan" arrangement, and that although Westgate itself received no actual funds in return, the note was supported by other consideration. FNF's theory is as follows: C. Arnholt Smith approached his brother with the proposition that FNF assist him in improving the financial outlook of USNB by assuming, at least on paper, some of the debts owed to USNB by Westgate's troubled subsidiary, Yellow Cab Company. When J. A. Smith expressed some doubt as to the wisdom of such an arrangement, his brother represented that FNF would never be called upon to make payments on its notes to USNB because Yellow Cab would repay them. As a guarantee of that promise, C. Arnholt Smith offered to give Westgate's note for the amount involved. J. A. Smith then acquiesced, and the desired result was achieved through a series of transactions: (1) on October 10, Westgate made its note for $2,550,000 to FNF; (2) that same day, FNF made two notes to USNB for $1,400,000 and $1,150,000, in return for cash from USNB; (3) somehow, that cash found its way into the USNB account of United Oil Well Supply Company (UOWSC), a subsidiary of FNF; (4) on October, 16, UOWSC wrote three checks to Yellow Cab in amounts totalling $1,400,000; (5) on October 24, UOWSC wrote...

To continue reading