Eagle Properties, Ltd. v. Scharbauer

Decision Date19 December 1990
Docket NumberNo. C-8203,C-8203
Citation34 Tex. Sup. Ct. J. 463,807 S.W.2d 714
PartiesEAGLE PROPERTIES, LTD. et al., Petitioners, v. Clarence SCHARBAUER, Jr. et al., Respondents
CourtTexas Supreme Court
OPINION

COOK, Justice.

This court's opinion of December 19, 1990, is withdrawn and the following is substituted in its place. Petitioners' and Respondents' motions for rehearing are overruled.

This is a single cause which originated from two related cases. The first case presents us with the question of whether the doctrines of res judicata and collateral estoppel preclude a state action following the settlement of a federal court case that involved different parties but the same subject matter. The second case presents similar questions of res judicata and collateral estoppel but also addresses whether the statute of limitations for causes of action in fraud is two years or four years. We hold that the statute of limitations does not bar the claims for fraud in the second case, that res judicata does not bar the claims in either case, and that collateral estoppel bars only some of the claims presented in both cases. Therefore, we reverse the judgment of the court of appeals in part and affirm in part, 758 S.W.2d 911, and remand this cause to the court of appeals for further consideration of whether Branum's claims other than fraud against TCB, First Republic, and Peat Marwick are barred by the relevant statutes of limitations.

In 1982, First National Bank of Midland (First Midland) was experiencing financial problems due to a large portfolio of energy-related loans. To improve the financial position of First Midland, Eagle Properties, Ltd., was formed to purchase First Midland's twenty-four story office building, ten-story parking garage, and drive-in banking facilities for $75 million. M.W. Branum and Thomas C. Brown were the general partners of Eagle. Charles Fraser, the president and chairman of the board of First Midland, hand-picked the Eagle partners and solicited their participation. The consideration consisted of $25 million in unsecured promissory notes from Eagle and two unfunded letters of credit, each for $25 million, provided by Texas Commerce Bank (TCB) and InterFirst Bank Dallas. Eagle agreed to lease the premises back to First Midland for three years and to allow First Midland to manage the properties.

The financial condition of First Midland continued to deteriorate, and in June 1983 Eagle agreed to the funding of the letters of credit six months before they were scheduled to be funded. On October 14, 1983, First Midland was declared insolvent, and the Federal Deposit Insurance Corporation (FDIC) was appointed receiver. The FDIC accelerated payment on the notes and filed suit in federal court in February 1984 to collect on them. Eagle counterclaimed for declaratory judgment on grounds of common law fraud, violations of the Securities Exchange Act, failure of consideration, violations of the Bank Holding Company Act, and the operation of two subordination agreements. In a non-jury trial, the federal court held for the FDIC. In particular, the federal court held that First Midland did not fraudulently induce Eagle to enter into the transaction, execute the promissory notes, or agree to the early funding of the letters of credit. FDIC v. Eagle Properties, Ltd., 664 F.Supp. 1027 (W.D.Tex.1985).

Eagle filed an appeal to the United States Court of Appeals for the Fifth Circuit. While the case was on appeal, the parties entered into a settlement agreement which explicitly preserved Eagle's right to file claims against the officers and directors of First Midland. The settlement did not call for the judgment of the trial court to be vacated. At one point during the negotiations, however, Eagle offered the FDIC an additional one million dollars in settlement if it would move the Fifth Circuit to reverse or vacate and remand the judgment of the district court for a take-nothing judgment, and if these events in fact occurred. The FDIC declined this offer.

Subsequent to the settlement agreement, two suits were filed in state court. In the first suit, Eagle Properties, Ltd. v. Mays, Eagle and the individual partners sued certain officers and directors of First Midland (the Directors), alleging common law and statutory fraud, violations of the Deceptive Trade Practices Act, and negligence/breach of fiduciary duties. The second suit, Branum v. Scharbauer, was originally filed by M.W. Branum alone, but Eagle and the remaining partners, except Thomas C. Brown, subsequently intervened as additional plaintiffs. This suit was brought against the Directors, TCB, InterFirst Bank Dallas (now First Republic Dallas), and Main Hurdman (now Peat Marwick). The suit alleged common law and statutory fraud and violations of the Deceptive Trade Practices Act against all defendants, breach of contract/promissory estoppel against TCB and InterFirst, and negligence by TCB, InterFirst (hereinafter "First Republic"), and Main Hurdman (hereinafter "Peat Marwick").

Each of the defendants moved for summary judgment in the trial court, with the exception of two of the Directors, Joel T. Mays and John P. Butler. The trial court consolidated the two causes, and severed plaintiffs' claims against Joel T. Mays and John P. Butler, the claims between Thomas C. Brown and the other plaintiffs, and the counterclaims filed by some of the Directors, TCB, and First Republic. These claims were made the subject of a separate action, Eagle Properties, Ltd. v. Fraser. The trial court then entered final judgment with respect to the remaining claims in favor of the Directors, TCB, First Republic, and Peat Marwick. The summary judgment in Mays was based upon res judicata, collateral estoppel, and plaintiffs' lack of standing to bring the negligent mismanagement claims. The summary judgment in Branum was based on res judicata, collateral estoppel, and the relevant statute of limitations.

Eagle Properties and its two general partners, Branum and Brown, appealed from the judgment of the trial court. The court of appeals affirmed the judgment of the trial court.

Petitioners challenge the judgment of the court of appeals and the trial court's granting of both summary judgments. We agree in part with petitioners' contentions, and we reverse the judgment of the court of appeals in part, affirm in part, and remand to the court of appeals for further consideration of whether Branum's claims other than fraud against TCB, First Republic, and Peat Marwick are barred by the relevant statutes of limitations.

Res Judicata

We begin with the issue of res judicata with respect to both Eagle's suit and Branum's suit. Since the first suit, FDIC v. Eagle, was decided in federal court, federal law controls the determination of whether res judicata will bar a later state court proceeding. Aerojet-General Corp. v. Askew, 511 F.2d 710, 715 (5th Cir.), cert. denied, 423 U.S. 908, 96 S.Ct. 210, 46 L.Ed.2d 137 (1975); Jeanes v. Henderson, 688 S.W.2d 100, 103 (Tex.1985). Under federal law, the doctrine of res judicata will apply if: (1) the parties are identical in both suits; 1 (2) the prior judgment is rendered by a court of competent jurisdiction; (3) there is a final judgment on the merits; and (4) the same cause of action is involved in both cases. Nilsen v. City of Moss Point, 701 F.2d 556, 559 (5th Cir.1983). As a general rule, when a cause of action is brought in federal court and there is no jurisdictional obstacle to advancing claims arising from both federal and state law, and only federal claims are asserted, the state claims cannot be brought in a subsequent cause of action in state court. The subsequent action based on the state claims will not be precluded, however, if the federal court did not possess jurisdiction over the omitted state claims or, having jurisdiction, would clearly have declined to exercise that jurisdiction as a matter of discretion. Jeanes, 688 S.W.2d at 104. Restatement (Second) of Judgments § 25, comment (e) (1982).

There is no independent basis of federal jurisdiction over the state court causes of action brought by Eagle and Branum. These claims do not give rise to federal question jurisdiction, and diversity of citizenship did not exist between Eagle's partners and the Directors, TCB, InterFirst and Main Hurdman as required by 28 U.S.C. § 1332(a)(1). 2 Therefore, the federal court in FDIC v. Eagle could have decided the state law claims brought by Eagle and Branum in Mays and Branum only if those claims fell within the court's ancillary or pendent-party jurisdiction. 3

Last year, in Finley v. United States, 490 U.S. 545, 109 S.Ct. 2003, 104 L.Ed.2d 593 (1989), the U.S. Supreme Court enunciated the test for determining the existence of pendent-party jurisdiction, that is, "jurisdiction over parties not named in any claim that is independently cognizable by the federal court." Finley, 109 S.Ct. at 2006. Where such jurisdiction is sought, it is not sufficient that the federal and nonfederal claims "derive from a common nucleus of operative fact" and are such that a plaintiff "would ordinarily be expected to try them in one judicial proceeding," as required for pendent claim jurisdiction under United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966). Finley, 109 S.Ct. at 2006-07. Rather, there must also be "an examination of the posture in which the nonfederal claim is asserted and of the specific statute that confers jurisdiction over the federal claim." Finley, 109 S.Ct. at 2007, quoting Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373, 98 S.Ct. 2396,...

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