Beighley v. Federal Deposit Ins. Corp.
| Decision Date | 29 March 1989 |
| Docket Number | No. 88-1257,88-1257 |
| Citation | 868 F.2d 776 |
| Parties | Harold V. BEIGHLEY, et al., Plaintiffs-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Etc., et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Thomas W. George, D.J. Powers, Austin, Tex., Johnny Roy Phillips, Seminole, Tex., for plaintiffs-appellants.
Harold H. Pigg, Scott W. Sharp, Brock, Morton & Pigg, Lubbock, Tex., for defendants-appellees.
Appeal from the United States District Court for the Northern District of Texas.
Before KING, WILLIAMS and SMITH, Circuit Judges.
The obligor on a promissory note, Harold V. Beighley, appeals a summary judgment in favor of the Federal Deposit Insurance Corporation (FDIC). The district court determined that, as a matter of law, the obligor could not assert claims against the FDIC arising from the alleged breach of an unwritten, collateral agreement between the obligor and the lender, an insolvent bank. The FDIC had substituted in the lawsuit as the receiver of the failed institution. The court also ruled in favor of the FDIC, as holder of the promissory note, on its counterclaim to enforce the obligation. We affirm.
Appellants Dr. and Mrs. Harold V. Beighley and El Rancho Pinoso, Inc., a closely held corporation controlled by the Beighleys, were long standing customers of Moncor Bank, N.A., of Hobbs, New Mexico ("Moncor" or "the bank"). 1 In January, 1984, Dr. Beighley signed a $932,000 renewal note of El Rancho Pinoso's indebtedness, assuming the obligation in his individual capacity. The note was secured by various real estate holdings, including a second mortgage on a ranch in Tucumcari, New Mexico (the Tucumcari property) and a deed of trust on a farm in Gaines County, Texas (the Gaines County property). 2
The renewal note was executed pursuant to a plan to consolidate and reduce Beighley's total indebtedness. In a letter agreement which was accepted and approved by the bank, Beighley stated that "in connection with the retirement of a portion of my personal indebtedness to you, I have agreed to initiate efforts to liquidate certain assets owned by the corporation." This letter made specific reference to the Tucumcari and Gaines County properties. The agreement to sell this collateral property and use the proceeds to retire the debt was reflected in the bank's records and was approved by the bank's Compliance Committee. 3
Beighley contends that the bank also agreed to finance a third party purchase of the collateral property once Beighley had located a creditworthy buyer. The bank's alleged breach of an agreement to fund the purchase of the collateral property is the cornerstone of this litigation.
It is clear that Moncor encouraged Beighley to sell the collateral property and cooperated with him to achieve this goal. The bank was involved in negotiations with buyers for both the Tucumcari and Gaines County tracts. Indeed, the bank issued written loan commitments to prospective purchasers of both properties. The record indicates that the bank's attorney had drafted all of the documents necessary for a closing on the Gaines County property, which was scheduled for August 23, 1985. On the day before the closing, Moncor informed the parties that the deal would not go through. 4
On August 30, 1985, one week after the scheduled closing, Beighley filed suit against Moncor Bank in state court in Gaines County, Texas, alleging causes of action for breach of contract, breach of fiduciary duty, promissory estoppel, and fraud, arising from Moncor's alleged breach of an agreement to finance the purchase of the collateral property. Moncor was served in New Mexico within an hour after the suit was filed. Two hours later, the bank was declared insolvent and was taken over by the FDIC as receiver.
On September 20, 1985, Beighley filed an amended petition in the state court. The amended petition made no reference to the fact that Moncor Bank had been declared insolvent and was taken over by the FDIC on the same date that the original petition was filed. The certificate of service stated that a copy of the amended petition was sent to the bank by certified mail, but no proof of service appears in the record. It is undisputed that the FDIC was not served with either the original or amended petition.
On September 25, the Texas state court entered a default judgment against Moncor because the bank had failed to file a timely answer. The state court heard no evidence in the case, and was completely unaware that the FDIC, which had never been served, was acting as a receiver for the failed bank. 5
One month after the default judgment was entered, the FDIC filed a notice of substitution of parties, and entered the lawsuit in place of the failed bank. The FDIC also filed a motion to vacate the state court judgment and a motion for new trial. Although a hearing on these motions was scheduled, the state court never ruled on them because the FDIC removed the action to the United States District Court for the Northern District of Texas before the hearing date. 6 Beighley moved for remand on the grounds that the petition for removal was untimely and the FDIC had waived its right to remove. The motion was denied by the federal district court.
On July 30, 1986, the federal district court set aside the state court default judgment pursuant to the FDIC's motion for relief from judgment under Fed.R.Civ.P. 60(b). The court determined that the FDIC, as receiver of the failed bank, was an indispensable party to the suit. Failure to make it a party or serve it with pleadings was alone sufficient to set aside the state court default judgment. The court also concluded that "the 106th Judicial District of Gaines County, Texas was without any jurisdiction of the parties or the subject matter under the facts and record in this case, and the default judgment must be set aside."
The FDIC, acting in its corporate capacity as holder of the note, raised Beighley's obligation on the promissory note as a counterclaim in federal court. 7 On December 30, 1987, the district court directed Beighley to submit documents that complied with the statutory requirements for establishing an agreement that would allow him to recover from the FDIC or suffer adverse summary judgment. Beighley v. Fed. Deposit Ins. Corp. (Beighley I), 676 F.Supp. 130 (N.D.Tex.1987). Beighley submitted evidence that the court found insufficient. The court then entered summary judgment in favor of the FDIC. Beighley v. Fed. Deposit Ins. Corp. (Beighley II), 679 F.Supp. 625 (N.D.Tex.1988). The judgment was subsequently amended to provide for attorney's fees. Beighley appeals this adverse summary judgment.
As a threshold matter, we must determine whether the circumstances surrounding the removal of Beighley's suit to federal district court deprived that court of jurisdiction. Beighley contends that the district court lacked jurisdiction, and the case should therefore be dismissed or remanded to state court. We disagree, concluding that the case was properly removed and the federal district court had the authority to vacate the state court default judgment.
Beighley seizes on the federal district court's conclusion that the state court "was without any jurisdiction of the parties or the subject matter under the facts and record of this case" to argue that the federal district court lacked jurisdiction under the derivative jurisdiction rule. Under this common law doctrine, if a state court lacks jurisdiction, the federal court can acquire none upon removal. This is true even if the federal court would have jurisdiction if the suit had originated there. Arizona v. Manypenny, 451 U.S. 232, 242 n. 17, 101 S.Ct. 1657, 1665, 68 L.Ed.2d 58 (1981); Lambert Run Coal Co. v. Baltimore & O.R. Co., 258 U.S. 377, 382, 42 S.Ct. 349, 351, 66 L.Ed. 671 (1922). 8
The answer to Beighley's argument lies in examining the relevant time frame of the district court's decision. The district court determined that the state court did not have jurisdiction at the time the state court entered default judgment. In contrast, the removal jurisdiction of the federal court is determined by examining the record as it stands at the time the petition for removal was filed. In re Carter, 618 F.2d 1093, 1101 (5th Cir.1980), cert. denied sub nom. Sheet Metal Workers' Int'l Assoc. v. Carter, 450 U.S. 949, 101 S.Ct. 1410, 67 L.Ed.2d 378 (1981). See also, 14A C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure Sec. 3721 at 209 (2nd ed. 1985).
We offer no opinion as to whether the district court correctly determined that the Texas court lacked jurisdiction when it entered a default judgment in favor of Beighley. In short, the court's conclusion is simply irrelevant to our concern about the jurisdiction of the state court at the time the petition for removal was filed. 9 When the FDIC appeared in state court after the entry of the default judgment and petitioned to have that judgment set aside, the prior defects that concerned the district court were corrected. By substituting itself into the lawsuit and filing a motion for new trial, the FDIC brought itself within the jurisdiction of the Texas court. See Tex.R.Civ.P. 120a. Moreover, there can be no question that the state court had jurisdiction to set aside its own default judgment up until the time that the petition for removal was filed. Murray v. Ford Motor Co., 770 F.2d 461, 463 (5th Cir.1985); Tex.R.Civ.P. 329b(d). So we conclude that the state court did have jurisdiction at the time the petition for removal was filed. Thus, the derivative jurisdiction rule does not apply.
Beighley also contends that a district court cannot acquire jurisdiction over a proceeding removed to federal court...
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