Century Centre Partners Ltd., In re, 91-55439
| Decision Date | 05 November 1992 |
| Docket Number | No. 91-55439,91-55439 |
| Citation | 969 F.2d 835 |
| Parties | In re CENTURY CENTRE PARTNERS LIMITED, Debtor, CENTURY CENTRE PARTNERS LIMITED, Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Patrick F. McManemin, McManemin & Smith, Dallas, Tex., for plaintiff-appellant.
Kathleen M. White, Tron & White, Pasadena, Cal., for defendant-appellee.
Appeal from the United States District Court for the Central District of California.
Before: GOODWIN, NORRIS and NOONAN, Circuit Judges.
Century Centre Partners, Ltd. ("Century Centre"), a Chapter 11 debtor, brought suit against the Federal Deposit Insurance Corporation ("FDIC") in the bankruptcy court for the Central District of California. Century Centre objected to the FDIC's secured claims and requested that they be reclassified as equity interests (First Claim); sought equitable subordination of the FDIC claims and requested transfer of the FDIC's liens to the debtor's estate (Second Claim); sought turnover of payments by Century Centre to the FDIC as a secured creditor (Third Claim); and alleged breach of the covenant of good faith and fair dealing and of fiduciary duty by FDIC in disapproving a proposed settlement (Fourth Claim).
The bankruptcy court granted summary judgment to the FDIC on the First, Second and Third Claims, declining to do so on the Fourth Claim because material facts remained in dispute. The district court affirmed the judgment of the bankruptcy court. We now affirm the district court.
For purposes of this appeal, and for no other purpose in this litigation, we accept the following facts as true. They are taken from the declaration filed March 25, 1990 by Aron B. Katz, president of the general partner of Century Centre:
In the latter part of 1984 Sunbelt Savings Association of Texas ("Old Sunbelt"), a Texas savings and loan association, entered into negotiations with C-D Investment Co., by which Old Sunbelt acquired the Centroplex Project located on 11.2 acres on the northwest corner of Century Boulevard and Balanca Avenue, Los Angeles, California ("the Properties"). The acquisition by Old Sunbelt was done through its wholly-owned subsidiary, Sun Cal, Inc., whose principal officers, Stanley Castleton and William Dobrowlski, had been employees of Old Sunbelt.
Old Sunbelt was later advised by its independent auditors that continued ownership of the Properties through its subsidiary would result in Old Sunbelt being treated as undercapitalized for regulatory purposes. Old Sunbelt, therefore, arranged a transaction divesting itself of apparent control of the Properties while retaining actual control, as follows: Old Sunbelt sold the stock of Sun Cal to May Cal, Inc., a California corporation wholly owned and controlled by Castleton and Dobrowlski. The financing for May Cal's purchase of all of Sun Cal's stock was furnished by Old Sunbelt and was secured by the stock of May Cal so that Old Sunbelt could continue to control the properties through its control of Castleton and Dobrowlski.
This transaction did not satisfy the criticism of Old Sunbelt's independent auditors and in order "to divest itself of ownership and control" of the Properties, Old Sunbelt arranged for the formation of Century Centre, a Texas partnership, and the transfer of the properties to Century Centre. Century Centre was wholly owned by Sun Cal, Castleton and Dobrowlski. In return for the Properties, Century Centre executed a promissory note and deed of trust to Old Sunbelt.
Even this transaction did not satisfy the criticism of the independent auditors, who foresaw a continuation of the regulatory problems of Old Sunbelt. Consequently, Old Sunbelt concluded that the only solution was "a transfer of a substantial interest" in Century Centre "to a new independent entity." This conclusion was reached some time in the first half of 1986. To carry out this new plan Old Sunbelt approached American Residential Properties ("ARP") with a proposal that ARP purchase a controlling interest in Century Centre. ARP thereupon organized a partnership, Century Centre Associates Limited, a Texas limited partnership ("Associates"). Associates, in turn, acquired an equity interest On August 29, 1986 ARP, Sun Cal and Century Centre entered into an Agreement for the reorganization and recapitalization of Century Centre. Simultaneously, ARP Century Centre and Old Sunbelt entered into a Restructured Debt Agreement. These transactions were approved by Old Sunbelt's independent auditors as the new agreement would allow the auditors "to treat the Centroplex Properties and the related transactions as a loan by Old Sunbelt rather [than as] an equity investment by Old Sunbelt." At the same time, according to Katz, Old Sunbelt intended to retain total control over the Properties.
in Century Centre. At the same time ARP organized ARP Century Centre, Inc., a corporation that became the new general partner of Century Centre. Katz was president of ARP and became president of ARP Century Centre, Inc
As part of the transactions on August 29, 1986, Century Centre executed a note in the sum of $242,742,175 to Old Sunbelt; a second note in the sum of $25,357,235 to Old Sunbelt; and a third note in the sum of $10,000,000 payable to Old Sunbelt ("the Notes"). Century Centre also made certain related pledges to Old Sunbelt and made or amended certain loan agreements with Old Sunbelt. ARP Centruy Centre became Century Centre's general partner. Simultaneously Associates made a cash contribution to Century Centre and also executed a note for $28 million in favor of Century Centre. This note was pledged by Century Centre to Old Sunbelt. The note was secured by pledges of Associates' limited partnership interest in Century Centre and a pledge of the general partner's interest in Century Centre.
Through control over the pledged note of Associates and the pledges for this note and through control of Castleton and Dobrowlski, Katz alleges, Old Sunbelt "continued exercising dominance, decision-making control, authority, and final approval of all decisions and issues with respect to the transaction contemplated by the reorganization agreement and related loan documents." Old Sunbelt was "the de facto co-owner" of Century Centre.
In obtaining agreement to the transaction of August 29, 1986, Old Sunbelt had made various misrepresentations to ARP and Associates as to the income and expenses of the Properties. As a consequence, Century Centre found itself unable to service the secured debt and remained in the control of Old Sunbelt because of its inability to service the debt. Day-to-day decisions relating to Century Centre were made at the bidding of Old Sunbelt without consultation with Century Centre or its general partner, ARP Century Centre, Inc.
Late in 1987, despite Old Sunbelt's alleged dominance, Century Centre informed Old Sunbelt that it believed that Old Sunbelt had perpetrated a fraud upon it, ARP, ARP Century Centre, and Associates and advised Old Sunbelt that the parties intended to sue Old Sunbelt. Negotiations ensued, leading to a proposed settlement. Old Sunbelt was unsuccessful in meeting one condition of the settlement, namely the acquisition of all liens on the properties. Ultimately, Century Centre was required to file for Chapter 11 protection to avoid foreclosure by a principal lienholder, Security Pacific Bank.
On August 29, 1988 the Federal Home Loan Bank Board placed Old Sunbelt under the control of the Federal Savings Loan Insurance Corporation (FSLIC) as receiver. FSLIC transferred Old Sunbelt's assets to a new entity, Sunbelt Savings (New Sunbelt). New Sunbelt then transferred the assets to FSLIC Corporate, which assigned them for management to the FDIC in its corporate capacity by reason of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), Pub.L. No. 101-73, 103 Stat. 183, 253 (1989).
As of the date of Century Centre's entry into Chapter 11, Century Centre owed $160 million on the Notes executed on August 29, 1986.
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