Brady v. Ubs Financial Services, Inc.

• Decision Date: 26 August 2008
• Docket Number: No. 06-5228.,06-5228.
• Citation: 538 F.3d 1319
• Parties: Michael A. BRADY, Plaintiff-Appellant, v. UBS FINANCIAL SERVICES, INC.; Greater Southwest Funding Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

538 F.3d 1319

Michael A. BRADY, Plaintiff-Appellant, v. UBS FINANCIAL SERVICES, INC.; Greater Southwest Funding Corporation, Defendants-Appellees.

No. 06-5228.

United States Court of Appeals, Tenth Circuit.

August 26, 2008.

Laurence L. Pinkerton, Esq., Pinkerton & Finn, P.C., Tulsa, OK, for Plaintiff-Appellant.

Charles A. Gilman, Cahill Gordon & Reindel LLP, New York, N.Y. (Andrew R. Turner and P. Scott Hathaway, Conner & Winters, LLP, Tulsa, OK; George Wailand and Laura C. Fraher, Cahill Gordon & Reindel LLP, New York, NY; and Reuben Davis, Boone, Smith, Davis, Hurst & Dickman, Tulsa OK, with him on the brief), for Defendants-Appellees.

Before KELLY, SEYMOUR, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

Michael Brady brought suit against Greater Southwest Funding Corporation ("GSW") and UBS Financial Services ("UBS"), which Brady contends is GSW's alter ego, for payment on bonds issued by GSW. The district court dismissed Brady's claims as time barred. This court has jurisdiction pursuant to 28 U.S.C. § 1291 and holds that Brady acquired a right to sue on the Stated Maturity of his bond and that remedy is not time barred. Furthermore, Brady's claims are not barred by res judicata. We therefore REVERSE the judgment of the district court.

I. Background

This action arises out of GSW's 1985 sale of bonds to finance the construction of the Mid-Continent Tower in Tulsa, Oklahoma. GSW is a single-purpose entity created to issue and administer the bonds. GSW issued the bonds in two series. The Series A Bonds were sold to several large institutional investors, while the majority of the Series B Bonds were sold to non-institutional investors like Brady. The bonds were issued pursuant to a Collateral Trust Indenture (the "Indenture"), with Shawmut Bank (the "Trustee") acting as the Indenture Trustee.

The Tower was to serve as the headquarters of Reading & Bates Corporation. It was owned by Fourth Street Associates and leased to RMM Corporation. RMM Corporation subleased the Tower to Reading & Bates for a twenty-five year term. GSW loaned the proceeds from the sale of the bonds to Fourth Street Associates to finance the tower. In return for the loan of the bond sale proceeds from GSW, Fourth Street Associates issued Series A and B Mortgage Notes, secured by granting GSW a first mortgage interest in the Tower. The collateral also consisted of the assignment to GSW of Fourth Street Associates' interest in the lease and sublease, including the right to receive payment of rent. As required by the Indenture, GSW assigned the Mortgage Notes the first mortgage interest, the lease, and the sublease to the Trustee as security for the payment of the bonds.

In 1987 Reading & Bates defaulted on its lease obligations. On December 8, 1987, the Trustee provided written notice to all bondholders that an Event of Default¹ had occurred when GSW, which relied on the lease payments to pay the principal and interest on the bonds, defaulted on the payment of principal and interest on the Series A Bonds. Five years later, holders of more than twenty-five percent of the outstanding principal amount of the Series A Bonds notified the Trustee that they were exercising their right under § 9.02 of the Indenture to accelerate all the bonds.²

Section 9.02 of the Indenture governs the acceleration of the bonds. That Section states, in part:

If an Event of Default occurs and is continuing ... the Holders of not less than 25% in principal amount of the Bonds Outstanding of such series may declare the principal of all the Bonds to be due and payable immediately, by a notice in writing to the Company (and to the Trustee, if given by Bondholders), and upon any such declaration such principal, or, in the case of Zero Coupon Bonds, the Compound Accreted Value thereof, shall become immediately due and payable.

On December 24, 1993, the Trustee informed all bondholders that it had received a Notice of Acceleration from more than twenty-five percent of the Series A Bondholders. In the letter the Trustee explained, "[u]nder Section 9.02 of the Indenture, the principal amount of the Series A Bonds and the Compound Accreted Value (as defined in the Indenture) of the Series B Bonds thereby became due and payable on December 8, 1993."

The Trustee filed a foreclosure action in 1994 in Tulsa County District Court (the "Foreclosure Action") against all parties associated with the transaction, including GSW and UBS. The Trustee asserted claims to collect payment on the Mortgage Notes and to foreclose on its lien on the Tower. The Series B Bondholders, represented by plaintiffs John R. Roberson and David B. Magill, were granted class certification and intervenor status in the Foreclosure Action. The Foreclosure Action is unresolved at this time.

The Series B Bondholders' case in intervention involved claims only against the Trustee. In December of 2005, the Series B Bondholders moved to amend their complaint in intervention to add breach of contract claims against GSW and against UBS under an alter ego theory of liability. The Oklahoma district court denied the motion on the basis of undue delay. The court later granted summary judgment to the Trustee on all the Series B Bondholders' claims in intervention. The Series B Bondholders appealed that decision to the Oklahoma Court of Civil Appeals. The Court of Civil Appeals reversed the district court's grant of summary judgment and remanded for trial on the Series B Bondholders' claims against the Trustee. It also held, however, that the district court had not abused its discretion in denying the motion to amend for undue delay.

In 1996, Roberson initiated a separate action in state court against GSW, UBS, and others, claiming breach of contract and fraud (the "Roberson Action"). The Series B Bondholders were denied class status in the Roberson Action, but the litigation remains unresolved. In 1997, another Series B Bondholder, Stephens Property Company, brought an action against GSW and UBS in United States District Court for the Northern District of Oklahoma (the "Stephens Action"). Stephens alleged UBS was liable, under an alter ego theory, for unpaid principal and interest on its Series B Bonds. The district court granted the defendants' summary judgment motion on the grounds that the claim was barred by § 9.11 of the Indenture (the "No-Action Clause"³) and, in the alternative, because the plaintiff could not prevail on the alter ego theory.

Brady brought this suit in the Northern District of Oklahoma on May 31, 2006, for payment on the bonds, alleging the same breach of contract claims as alleged in the Roberson Action, the Stephens Action, and in the Series B Bondholders' motion to amend in the Foreclosure Action. The defendants filed a motion to dismiss, arguing the claims were time barred and also barred by res judicata. The district court dismissed the suit on the grounds that the statute of limitations had run on Brady's breach of contract claims.

II. Discussion

A. Statute of Limitations

Brady claims the terms of the Indenture give him an unconditional right to sue on the fixed date of maturity printed on his bond, regardless of the acceleration of the debt. The defendants maintain that Brady's right to bring suit accrued for statute of limitations purposes when the bonds were declared due and payable in 1993 and has therefore expired. Okla. Stat. Ann. tit. 12, § 95(A)(1). This court reviews de novo the district court order granting the 12(b)(6) motion to dismiss on statute of limitations grounds. Wright v. Sw. Bell Tel. Co., 925 F.2d 1288, 1290 (10th Cir.1991); Nelson v. State Farm Mut. Auto. Ins. Co., 419 F.3d 1117, 1119 (10th Cir.2005) ("Whether a court properly applied a statute of limitations and the date a statute of limitations accrues under undisputed facts are questions of law we review de novo."). Because the district court's jurisdiction was based on diversity of citizenship, Oklahoma substantive law governs the statute of limitations question. See Boyd Rosene & Assocs., Inc. v. Kan. Mut. Gas, 174 F.3d 1115, 1118 (10th Cir. 1999). This court must therefore "ascertain and apply Oklahoma law with the objective that the result obtained in the federal court should be the result that would be reached in an Oklahoma court." Blanke v. Alexander, 152 F.3d 1224, 1228 (10th Cir.1998) (quotation omitted).

Brady provides numerous justifications for his position. Ultimately, however, his case rests on whether the Indenture provides him with a remedy triggered by the fixed date of payment stated on his bonds. The Indenture sets out the remedies available to the bondholders and the Trustee in an Event of Default. The bondholders are provided with three different remedies.⁴ The first of these is the right to accelerate payment of the bonds under § 9.02. Section 9.11, the No-Action Clause, provides a sharply circumscribed remedy to bondholders. Under § 9.11, "[n]o Holder of any Bond shall have the right to institute any proceeding, judicial or otherwise, ... unless" certain procedural steps are completed.⁵ Finally, the Indenture provides a more expansive remedy in § 9.12, which states, in part:

Notwithstanding any other provision in this Indenture, the Holder of any Bond shall have the right which is absolute and unconditional to receive payment of the principal of (and premium, if any) and interest on such Bond on the respective Stated Maturities expressed in such Bond (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.

It is this provision that Brady claims guaranteed him an unconditional right to bring suit after his bonds reached their Stated Maturity⁶ on December 31, 2005.

As a preliminary matter, we agree with the defendants' position that Brady acquired a right to sue, governed by § 9.11, at the time the bonds were declared due and...