City of Arlington, Tex. v. F.D.I.C.

• Decision Date: 17 June 1992
• Docket Number: No. 90-7090,90-7090
• Parties: CITY OF ARLINGTON, TEXAS, a Municipal Corporation, Plaintiff-Appellee, v. FEDERAL DEPOSIT INSURANCE CORPORATION, etc., Defendants, First Gibraltar Bank, FSB, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 79

963 F.2d 79

CITY OF ARLINGTON, TEXAS, a Municipal Corporation, Plaintiff-Appellee, v. FEDERAL DEPOSIT INSURANCE CORPORATION, etc., Defendants First Gibraltar Bank, FSB, Defendant-Appellant.

No. 90-7090.

United States Court of Appeals Fifth Circuit.

June 17, 1992.

Rehearing Denied July 15, 1992.

C. Michael Moore, Elizabeth E. Mack, Locke, Purnell, Rain & Harrell, Dallas, Tex., for defendant-appellant.

Timothy S. Durst, Kirk K. Van Tine, Baker & Botts, Christopher J. Bellotto, F.D.I.C., Washington, D.C., for amicus F.D.I.C.

Alan Wilson, Simon, Anisman, Doby, Wilson & Skillern, Lee F. Christie, Jon M. Kelly, Pope, Hardwicke, Christie, Harrell & Kelly, Fort Worth, Tex., for plaintiff-appellee.

Appeals from the United States District Court For the Northern District of Texas.

Before POLITZ, Chief Judge, BROWN, Circuit Judge, and FELDMAN, ^* District Judge.

POLITZ, Chief Judge:

First Gibraltar Bank, NSB, appeals a summary judgment ordering it to establish and fund an account in the amount of $2,100,000 plus interest in favor of the City of Arlington, Texas. Gibraltar also appeals the denial of its motion for summary judgment. For the reasons stated herein we reverse the summary judgment against Gibraltar and render summary judgment in its favor.

Background

In 1985 First Texas Savings Association, a state chartered savings and loan association, entered into a loan agreement with Shady Valley West Joint Venture, ¹ agreeing to loan the venture up to $29,620,000 for acquisition and improvement of certain real property located in Arlington, Texas. First Texas required Shady Valley to post an irrevocable letter of credit in the amount of $4,100,000 to assure the availability of sufficient funds to construct Green Oaks Boulevard on the property. In June 1986 Shady Valley and First Texas entered into a letter agreement which modified the terms of the loan agreement to provide, inter alia, that First Texas would hold the sum of $2,300,000 "for the construction costs relating to Green Oaks Boulevard."

By agreement First Texas then made a $2,697,993.70 draw on the letter of credit. First Texas deposited that sum into an account styled "FTSA Tr for Shady Valley J.V." ² (the "Account"). In September 1986 First Texas and Shady Valley modified the terms of the Account agreement to permit the withdrawal of all sums in excess of $2,100,000 on the condition that the remaining Account funds would secure payment of the loan. The modification agreement acknowledged that the amount remaining in the Account is "currently held by [First Texas] ... as security." The modification agreement provided that if no default occurred under any of the loan documents, then the remaining amounts in the Account would be utilized to construct Green Oaks Boulevard. At or about the same time Shady Valley, First Texas, and Arlington entered into an escrow agreement which set forth the obligations with respect to the construction of Green Oaks Boulevard. This agreement was signed a few days after the execution of the modification agreement between Shady Valley and First Texas. ³ First Texas maintained the escrow agreement in its real estate loan files, not in its deposit records.

The instant controversy arises out of the provisions of the escrow agreement which provided, in relevant part, that (1) upon execution of the escrow agreement First Texas would place the sum of $2,100,000 in a separate interest-bearing account designated as "Escrow Account-Arlington" to be used to complete the Green Oaks Boulevard project, and (2) if Shady Valley failed to commence construction of the project within one month, or failed to complete the project within 180 working days, Arlington had the option to hire a contractor to complete the project. After the escrow agreement was signed, a First Texas officer told the Arlington city attorney that the Arlington escrow account had been established, although in fact it had not been. Subsequently, Shady Valley defaulted on its loan obligations and in April 1987 First Texas closed the Account after offsetting its balance against Shady Valley's loan. When Arlington discovered the offset the following month, it demanded that First Texas reinstate the Account. When First Texas refused, Arlington filed suit in state court alleging tort and breach of contract claims.

In December 1988, 20 months after the Account offset, the Federal Home Loan Bank Board declared First Texas to be insolvent and appointed the FSLIC as receiver. Thereafter, Gibraltar executed a purchase and assumption agreement with the FSLIC in which Gibraltar assumed certain First Texas assets and liabilities including liabilities to secured creditors, taxing authorities, and depositors. Gibraltar expressly assumed and agreed to pay, perform, and discharge all First Texas depositor liabilities as defined in the purchase and assumption agreement.

In January 1989 the FSLIC, in its capacity as receiver, intervened and removed the suit to federal court. In May 1989 Arlington added Gibraltar and the FSLIC, in its corporate capacity, as defendants. In May 1990 Gibraltar moved for summary judgment, urging that as a matter of law it had no liability to Arlington. In September, Arlington moved for summary judgment on the basis that Gibraltar had assumed the First Texas depositor liability to Arlington. The FDIC, in its receiver capacity and statutory successor to the FSLIC and Manager of the FSLIC Resolution Fund, likewise moved for summary judgment. Simultaneously the FDIC in its corporate capacity, as Manager of the FSLIC Resolution Fund and statutory successor to the FSLIC in its corporate capacity, also moved for summary judgment. The district court dismissed the FDIC-receiver with prejudice, granted summary judgment for Arlington, and denied summary judgment for Gibraltar. ⁴ The judgment, in part, ordered that Gibraltar establish and fund an account in the amount of $2,100,000 plus interest in favor of Arlington. The district court then dismissed the FDIC/Manager-Fund with prejudice and Gibraltar filed a timely notice of appeal. The FDIC participates in this appeal as an amicus curiae.

Analysis

The standard of review for a summary judgment is well settled: We review the record de novo to ascertain whether any genuine issue exists as to any material fact and, if none exists, determine whether the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Miles v. American Tel. & Tel. Co., 703 F.2d 193 (5th Cir.1983). Without weighing the evidence, assessing its probative value, or resolving any factual disputes, we search the record for resolution-determinative factual disputes and apply the law to the facts if no material disputes are found. Kennett-Murray Corp. v. Bone, 622 F.2d 887 (5th Cir.1980). We review de novo district court conclusions of state law. Salve Regina College v. Russell, --- U.S. ----, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991).

We must first determine whether Arlington was a depositor of First Texas whose liability Gibraltar subsequently assumed. The district court answered this question in the affirmative. In this the district court erred. The district court found that because First Texas had actual knowledge that the Account would be used by Arlington to pay the costs of the construction of Green Oaks Boulevard it had no right to offset the Account. National Indemnity Co. v. Spring Branch State Bank, 162 Tex. 521, 348 S.W.2d 528 (1961), and South Central Livestock Dealers, Inc. v. Security State Bank of Hedley, 551 F.2d 1346 (5th Cir.1977), interpreting Texas law, are advanced in support of the trial court's decision. The district court concluded that "the bookkeeping offset of the Account [by First Texas] was a nullity as to City of Arlington."

National Indemnity and South Central Livestock stand for the proposition that if a bank offsets an account, the proceeds of which belong to a third person, whether the bank has knowledge of the third party ownership or not, the injured person has a cause of action in equity for wrongful offset and, in some cases, a cause of action for tortious interference with contract. The court did not order the bank to "recreate and refund" the alleged wrongfully offset account in either of these cases, nor did either court suggest that such a remedy existed. These cases merely recognized the plaintiff's right to pursue an equitable remedy. In South Central Livestock we noted that a "Texas bank's power to offset is equitable in nature, and it may be overborne by superior equities.... If this causes some inconvenience, it would still seem to us preferable to a rule which would require one man to pay the debts of another without receiving any value therefor." South Central Livestock, 551 F.2d at 1351 (citation and internal punctuation omitted). The judgment before us turns the Texas equity principle on its head, occasioning the very result which equity abhors--one person [Gibraltar] is paying the debts of another [First Texas] without having received any value whatever. ⁵ We therefore conclude that these two cases provide no predicate for declaring Arlington a "depositor" of First Texas. ⁶

The district court hedged its Texas law analysis with a string cite to four depression-era federal cases which purportedly stand for the proposition that a successor institution cannot avoid FDIC insurance liability when the predecessor institution's alleged wrongful acts caused the record of the depositor's account to be questioned. Federal Deposit Ins. Corp. v. Barton, 106 F.2d 737 (10th Cir.1939); Federal Deposit Ins. Corp. v. Deaton, 105 F.2d 677 (10th Cir.1939); Federal Deposit Ins. Corp. v. Records, 34 F.Supp. 600 (W.D.Mo.1940); and Jones v. Federal Deposit Ins. Corp., 24 F.Supp. 985 (W.D.Okla.1938). These cases are inapposite. Each involves a suit against the FDIC for insurance payments and turn on factual circumstances in which an actual deposit of money was made to an account ⁷ and both...