Federal Deposit Ins. Corp. v. Castle

Decision Date03 February 1986
Docket NumberNo. 84-1972,84-1972
Citation781 F.2d 1101
PartiesFEDERAL DEPOSIT INSURANCE CORPORATION in its corporate capacity as insurer of First National Bank of Midland, Plaintiff-Appellant Cross-Appellee, v. John B. CASTLE, Nolan H. Brunson, Jr., and Kenneth R. Marsh, Defendants-Appellees Cross-Appellants.
CourtU.S. Court of Appeals — Fifth Circuit

Jenkens & Gilchrist, T. Ray Guy, Karl G. Dial, Dallas, Tex., James P. Boldrick, Midland, Tex., for plaintiff-appellant, cross-appellee.

Robert W. Blair, Fort Worth, Tex., for defendants-appellees, cross-appellants.

Appeals from the United States District Court for the Western District of Texas.

Before GEE and JOHNSON, Circuit Judges, and MENTZ, Jr. * , District Judge.

JOHNSON, Circuit Judge:

This appeal arises out of a suit brought by the Federal Deposit Insurance Corporation ("FDIC") as receiver for First National Bank of Midland ("FNB") to recover on guaranties signed by defendants John B. Castle, Nolan H. Brunson, Jr., and Kenneth R. Marsh. The guaranties, as completed, reflected that the defendants ensured payment for the full amount of indebtedness for U.S. Drilling Company and its successor, Rigco, Inc. Defendants, however, contended at trial that they had agreed orally with FNB president Charles D. Fraser to guarantee collectively only twenty-five percent of U.S. Drilling's (and, subsequently, Rigco's) indebtedness, to FNB. Based on responses to special interrogatories, the jury held for the defendants. The district court granted judgment that the defendants collectively should pay twenty-five percent of Rigco's outstanding indebtedness. Both the FDIC and the defendants appeal. This Court reverses and renders judgment for the FDIC.

I. BACKGROUND

U.S. Drilling Company ("U.S. Drilling") was formed in January 1981 to engage in contract oil and gas drilling. Defendants John B. Castle, Noland H. Brunson, Jr., and Kenneth R. Marsh were the sole owners of U.S. Drilling. On March 31, 1981, U.S. Drilling executed a promissory note in which it borrowed $5.5 million from FNB. As part of the original loan agreement, the three defendant-owners (i.e., Castle, Brunson, and Marsh) were each to sign a guaranty. According to their own testimony, the defendants Castle, Brunson, and Marsh reached an accord with Charles Fraser, the FNB's president and chief executive officer, to collectively guarantee only twenty-five percent of U.S. Drilling's indebtedness to the FNB. Prior to leaving the FNB on the occasion in question, Castle, Brunson, and Marsh testified that they each signed forms of personal guaranty with the amount to be guaranteed left blank. The three defendants further testified that, unknown to them until after the instant suit was filed, the FNB completed the guaranty agreements to reflect that the defendants had each guaranteed the entire indebtedness of U.S. Drilling to the FNB (i.e., $5.5 million). Former FNB president Fraser countered the defendants' testimony and testified that the defendants had agreed to guarantee all of U.S. Drilling's indebtedness, and that the completed forms of guaranty therefore reflected the parties' agreement.

In mid-1981, U.S. Drilling changed its name to Rigco. On March 12, 1982, the three defendants again met with Fraser and were asked to sign a new promissory note and forms of guaranty for Rigco. Defendant Brunson executed the promissory note on behalf of Rigco in the original principal amount of $5.48 million. Defendants Castle, Brunson, and Marsh executed additional forms of guaranty in favor of FNB. The percentage to be guaranteed by the defendants was not discussed on this occasion, but the defendants testified that they assumed that the original agreement with Fraser of a collective twenty-five percent guaranty was still in effect.

In March or April of 1982, Rigco decided to cease active drilling operations. On November 8, 1982, the FNB made demand upon Rigco and the original guarantors for payment on the promissory note. On the same day, Rigco filed for protection under Chapter 11 of the United States Bankruptcy Code.

On January 19, 1983, suit was filed in Texas state court by the FNB to enforce the guaranty agreements. On April 8, 1983, in connection with the Rigco Chapter 11 proceedings, the FNB and Rigco entered into a settlement agreement under the terms of which Rigco's liability was reduced to $2.75 million, with Castle, Brunson, and Marsh receiving the benefit of this reduction against the liability, if any, on their personal guaranties.

On October 14, 1983, FNB was declared insolvent by the Comptroller of the Currency. The FDIC was appointed as receiver. In the FNB's files, the FDIC found the guaranties executed by the defendants Castle, Brunson, and Marsh. These guaranties on their face indicated that the three defendants had guaranteed the full indebtedness of U.S. Drilling and its successor in interest, Rigco. The FDIC, as receiver of FNB, sold to the FDIC, in its corporate capacity, the Rigco loan and all documents concerning such loan, including the guaranties of defendants Castle, Brunson, and Marsh. The FDIC was substituted as the party plaintiff in the state court proceedings; the state court suit was then removed to the United States District Court for the Western District of Texas.

The case was tried to a jury on September 6 and 7, 1984. The central issue at trial was whether FNB President Fraser and the three defendants had indeed agreed to limit the defendants' guaranty to twenty-five percent. In response to special interrogatories the jury found that the oral agreement between the defendants and Fraser had been to collectively guarantee only twenty-five percent of the indebtedness. Judgment was thereafter entered that the defendants pay twenty-five percent of Rigco's remaining indebtedness to the FDIC (i.e., one-fourth of $2.75 million or $687,500.00).

A series of post-judgment motions followed. The most significant of these motions was that filed by the FDIC which urged reconsideration and relief from the judgment, pursuant to Fed.R.Civ.P. 60(b). The FDIC asserted such relief was warranted on the basis that protections accorded the FDIC by federal statutory and common law prohibited the defendants from asserting an unwritten agreement between the bank and the defendants against the FDIC to vary the written terms of the guaranties. See 12 U.S.C. Sec. 1823(e). While the FDIC had urged such protections in its pleadings and listed the application of section 1823(e) as a contested issue of law in the pre-trial order in the district court, the FDIC's post-judgment motion marked the first time that it had pressed its contention before the trial court. On November 12, 1984, this motion was denied, and the appeal to this Court followed. 1

II. THE MERITS

The central issue on this appeal is whether this Court may consider the application of the FDIC's federal statutory and common law protections to a guarantor's defense that forms executed in blank were completed in an unauthorized manner. The FDIC admits that it did not pursue the question of the applicability of its federal statutory and common law protections before the trial court. The FDIC contends, however, that either the district court in a post-judgment motion or this Court on appeal should consider the applicability of the FDIC's federal statutory or common law protections since only a question of law is involved and since recent authority clearly establishes that these protections apply to the instant case. The defendants do not contest that these protections may well have applied if they had been timely asserted; instead, the defendants argue that the failure to timely pursue such theories bars their consideration. We first examine the procedural context.

A. The Procedural Context

The FDIC asserts that the district court abused its discretion in denying its Rule 60(b) motion for reconsideration of the judgment in light of the FDIC's statutory and common law protections. Alternatively, the FDIC contends that the applicability of its protections is a pure question of law which may be considered by this Court for the first time on appeal.

Fed.R.Civ.P. 60(b) provides that a district court "may relieve a party ... from a final judgment ... for ... (1) mistake, inadvertence, surprise, or excusable neglect, ... (6) any other reason justifying relief from the operation of the judgment." This Court has noted, "The law of this circuit permits a trial judge, in his discretion, to reopen a judgment on the basis of an error of law." Fackelman v. Bell, 564 F.2d 734, 736 (5th Cir.1977). Exercise of the trial court's discretion requires "a delicate adjustment between the desirability of finality and the prevention of injustice." In re Casco Chemical Co., 335 F.2d 645, 651 (5th Cir.1964). While finality of judgments is an important consideration, the goal of finality "must yield, in appropriate circumstances, to the equities of the particular case in order that the judgment might reflect the true merits of the cause." Seven Elves, Inc. v. Eskenazi, 635 F.2d 396, 401 (5th Cir.1981). "In this light, it is often stated that the rule should be liberally construed in order to do substantial justice." Id. To guide the district court's consideration of a Rule 60(b) motion, the Court in Seven Elves prescribed certain factors for consideration:

(1) That final judgments should not lightly be disturbed; (2) that the Rule 60(b) motion is not to be used as a substitute for appeal; (3) that the rule should be liberally construed in order to achieve substantial justice; (4) whether the motion was made within a reasonable time; (5) [relevant only to default judgments]; (6) whether--if the judgment was rendered after a trial on the merits--the movant had a fair opportunity to present his claim or defense; (7) whether there are intervening equities that would make it inequitable to grant relief; and (8) any other factors relevant to the justice of...

To continue reading

Request your trial
52 cases
  • Meyerland Co., Matter of
    • United States
    • U.S. Court of Appeals — Fifth Circuit
    • 13 Mayo 1992
    ... ... Adkinson, Debtors ... FEDERAL DEPOSIT INSURANCE CORP. as Manager of the FSLIC ... Castle, 781 F.2d 1101, 1106 (5th Cir.1986) (FDIC allowed to first ... Federal Deposit Ins. Corp. v. Yancey Camp Development Co., 889 F.2d 647 (5th ... ...
  • Federal Deposit Ins. Corp. v. Percival
    • United States
    • U.S. District Court — District of Nebraska
    • 31 Agosto 1990
    ... ... In all of the other cited cases, FDIC v. Venture Contractors, 825 F.2d 143, 150 (7th Cir.1987); Public Loan Co. v. FDIC, 803 F.2d 82, 84-85 (3rd Cir.1986); FDIC v. Castle, 781 F.2d 1101, 1108 (5th Cir.1986); FDIC v. Waldron, 630 F.2d 239, 241 (4th Cir.1980), the courts held only that § 1823(e) defeated the asserted defenses of oral side agreements limiting liability. Indeed, in Firstsouth itself, the Eighth Circuit did not base its conclusion on holder in due ... ...
  • In re Smith
    • United States
    • U.S. District Court — Northern District of Texas
    • 5 Diciembre 1991
    ... ... In re James W. SMITH, II, Debtor ... FEDERAL DEPOSIT INSURANCE CORPORATION, as Manager of the FSLIC ... See Osterberger v. Relocation Realty Serv. Corp., 921 F.2d 72, 73 (5th Cir.1991). This is because an order ... Castle, 781 F.2d 1101 (5th Cir. 1986) (same) ... ...
  • Gray v. F.D.I.C.
    • United States
    • Texas Court of Appeals
    • 29 Octubre 1992
    ...Bank v. First Nat'l Bank, 928 F.2d 153 (5th Cir.1991); Union Federal Bank v. Minyard, 919 F.2d 335 (5th Cir.1990); FDIC v. Castle, 781 F.2d 1101 (5th Cir.1986); FDIC v. Merchants Nat'l Bank, 725 F.2d 634 (11th Cir.), cert. denied, 469 U.S. 829, 105 S.Ct. 114, 83 L.Ed.2d 57 (1984); FDIC v. P......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT