F.D.I.C. v. Shearson-American Exp., Inc.

• Decision Date: 06 November 1992
• Docket Number: SHEARSON-AMERICAN,Nos. 92-1651,92-1652,s. 92-1651
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, Cross-Plaintiff, Appellee, v.EXPRESS, INC., et al., Cross-Defendants, Banco Cooperativo De Puerto Rico, Intervenor, Appellant. FEDERAL DEPOSIT INSURANCE CORPORATION, Cross-Plaintiff, Appellee, v.EXPRESS, INC., et al., Cross-Defendants, Prudential Bache Securities, Inc., Intervenor, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 493

996 F.2d 493

FEDERAL DEPOSIT INSURANCE CORPORATION, Cross-Plaintiff, Appellee, v. SHEARSON-AMERICAN EXPRESS, INC., et al., Cross-Defendants, Banco Cooperativo De Puerto Rico, Intervenor, Appellant.

FEDERAL DEPOSIT INSURANCE CORPORATION, Cross-Plaintiff, Appellee, v. SHEARSON-AMERICAN EXPRESS, INC., et al., Cross-Defendants, Prudential Bache Securities, Inc., Intervenor, Appellant.

Nos. 92-1651, 92-1652.

United States Court of Appeals First Circuit.

Heard Nov. 6, 1992.

Decided June 24, 1993.

Manuel Fernandez-Bared and Ramon Coto-Ojeda with whom Nestor M. Mendez-Gomez and McConnell Valdes Kelley Sifre Griggs & Ruiz-Suria, were on brief, for intervenor, appellant Prudential Bache Securities, Inc.

Plinio Perez Marrero, for intervenor, appellant Banco Cooperativo De Puerto Rico.

Enrique Peral with whom Munoz Boneta Gonzalez Arbona Benitez & Peral, Ann S. Duross, Gen. Counsel, Colleen B. Bombardier, Sr. Counsel, Jaclyn C. Taner, and Richard Schwartz, were on brief for cross-plaintiff, appellee.

Before STAHL, Circuit Judge, CAMPBELL, Senior Circuit Judge, and SKINNER, ^* Senior District Judge.

LEVIN H. CAMPBELL, Senior Circuit Judge.

In these appeals, two creditors challenge appellee's rights to the assets of the mastermind of a multimillion dollar fraud, each creditor claiming that it has a superior claim to the money.

Miguel Serrano Arreche ("Serrano"), a former Puerto Rico stockbroker, was indicted and convicted in 1985 of wire fraud, mail fraud, and other violations of federal criminal statutes. Serrano's misdeeds have been extensively chronicled elsewhere. See, e.g., United States v. Serrano, 870 F.2d 1, 3-5 (1st Cir.1989). ¹ The primary victim of Serrano's fraud was Home Federal Savings and Loan Association ("Home Federal"), a Puerto Rico bank which collapsed partly from losses caused by Serrano. United States v. Serrano, 870 F.2d at 4. The Federal Savings and Loan Insurance Corporation ("FSLIC") took control in 1985 and, thereafter, the appellee Federal Deposit Insurance Corporation ("FDIC") became Home Federal's successor in interest pursuant to the Financial Institutions Recovery, Reform, and Enforcement Act of 1989. See 12 U.S.C. § 1821a et seq.

The present action was brought in 1984 in the United States District Court for the District of Puerto Rico by the Municipality of Ponce, against defendants that included Home Federal, Serrano, Shearson Lehman Brothers, Inc., and Shearson Lehman Brothers, Inc. (Puerto Rico) (collectively "Shearson"). Home Federal filed cross-claims against Serrano, Shearson, and others. Both the Municipality of Ponce and Shearson settled and left the case. On October 16, 1989, the district court entered a default judgment for the FDIC (now representing Home Federal) on its cross-claims against Serrano, finding Serrano liable to the FDIC for $44,265,241. Thereafter, on May 17, 1990, the FDIC secured from the district court an order attaching Serrano's assets to enforce the foregoing judgment.

This appeal stems from efforts by two other creditors, appellants Prudential-Bache Securities, Inc. ("Prudential") and Banco Cooperativo ("Banco"), to intervene in the same district court action after certain of Serrano's assets were transferred to the district court pursuant to the FDIC's attachment. Prudential and Banco asked the district court to withdraw its order authorizing disbursement of Serrano's funds to the FDIC, and are appealing from its refusal to do so.

To understand the present dispute, it is necessary to realize that in September 1987, Serrano had petitioned for bankruptcy in the United States Bankruptcy Court for the District of Puerto Rico, triggering the automatic stay of 11 U.S.C. § 362. The FSLIC sought and received partial relief from the stay on January 13, 1989, permitting the instant action to continue in the district court until entry of judgment. Serrano's only significant assets were 32,400 shares of Bayamon Federal Savings Bank stock, which at one time had been held in a trading account at Prudential. ² By order of the bankruptcy court, the stock was sold for approximately $700,000 in April 1989 and the proceeds were deposited with the bankruptcy court as property of the estate. On November 17, 1988, Prudential filed its own claim in the bankruptcy proceeding. On October 16, 1989, as we have said, the district court entered a judgment for the FDIC in its cross-claims against Serrano.

On May 16, 1990, the bankruptcy court issued an order dismissing Serrano's bankruptcy case, but expressly retaining jurisdiction to decide how to dispose of all funds held for Serrano. The bankruptcy court gave all creditors, which included Prudential, eleven days to express their positions as to the disposal of these funds, indicating that unless otherwise ordered, they would be returned to Serrano. See 11 U.S.C. § 349(b)(3). That same day, after entry of the bankruptcy petition dismissal, the FDIC moved in the district court for a writ of attachment and execution, to be served upon the bankruptcy court and any custodian of Serrano's funds in that court, attaching Serrano's funds after payment of administrative expenses and directing their transfer to the district court for application to the FDIC's judgment. The district court allowed the motion on May 17, 1990, ordering the bankruptcy court within twenty days to deliver to the district court clerk the remaining funds belonging to Serrano subsequent to the payment of the administrative expenses, and directing that Serrano refrain from collecting the funds. A copy of this attachment was shown to Prudential's counsel on May 18, 1990, at a meeting of creditors called by Prudential at its offices to discuss disposition of the bankruptcy funds. Prudential made no effort in the bankruptcy court to challenge the validity of the attachment nor to argue that its own claim should be paid from the bankruptcy funds in preference to the FDIC's claim.

On June 27, 1990, the bankruptcy court issued its order disposing of all the assets in Serrano's case. The bankruptcy court clerk, after paying various fees, expenses and a child support claim, was directed by the bankruptcy court to deliver the remainder to the district court clerk in compliance with the attachment, said funds to remain subject to any liens as per the bankruptcy court's previous order of sale of the stock. Pursuant to this order, the bankruptcy clerk paid over more than $560,000 to the clerk of the district court. On August 10, 1990, the district court ordered the funds disbursed to the FDIC.

Five days after the district court had entered its disbursement order, Prudential made its first appearance in this action. On August 15, 1990, Prudential moved the district court to allow it to intervene in the instant action and stay the scheduled disbursement to the FDIC, alleging that it had a lien on the attached funds that had priority over the FDIC's attachment. See Fed.R.Civ.P. 24. ³ The district court stayed the disbursement pending ruling on Prudential's motion to intervene. On August 20, 1990, Banco Cooperativo, which also had never before been a party to this action, moved to intervene, asserting that it had a priority claim to the attached funds. ⁴

On March 11, 1992, the district court, after considering the parties' motions and exhibits submitted in support of their claims (and without specifically indicating whether it was ruling on the motions to intervene or on the merits), denied Prudential's and Banco's claims and lifted the stay of the disbursement of the funds to the FDIC. Prudential and Banco appealed separately from the district court's final order. We consolidated their appeals, and now affirm. ⁵

I. No. 92-1652--Prudential

Appellant Prudential raises three issues on appeal. The first, discussed in Section A below, concerns the validity of the FDIC's attachment, an issue implicitly decided by the bankruptcy court's order to release Serrano's funds in compliance with the attachment. We hold, infra, that res judicata bars Prudential from raising the issue anew.

The other two issues raised by Prudential, discussed in Sections B and C below, concern the priority of its alleged lien relative to the FDIC's attachment. The questions of priority among liens on Serrano's property and of the validity of Prudential's lien--unlike the validity of the FDIC's attachment--formed no part of the bankruptcy court's decision and so are not barred from being raised now. The bankruptcy court, when it ordered the funds to be turned over in compliance with the FDIC's attachment, made clear that "said funds remain subject to any liens as per our order of sale." The bankruptcy court's order of sale, dated April 27, 1989, approved the liquidation of the stock shares "provided the proceeds from the surrender of the shares are to be deposited with the Clerk of the United States Bankruptcy Court for the District of Puerto Rico, in an interest bearing account with liens, if any, attaching to said proceeds...." (emphasis added). The court dismissed the bankruptcy petition before ever adjudging the validity of Prudential's alleged secured claim on the proceeds and without deciding whether the FDIC's attachment took priority over other liens on the proceeds. Res judicata, therefore, does not bar Prudential from now raising those questions, and we address them on their merits.

A. Validity of FDIC's Attachment

Prudential's first argument is that the district court should have declared the FDIC's attachment null and void because it was obtained in violation of the automatic stay allegedly still in effect in Serrano's bankruptcy case. See 11 U.S.C. § 362. It is Prudential's theory that Fed.R.Civ.P. 62(a), applying by force of Bankruptcy Rules 7062 and 9014, extended the automatic stay of 11 U.S.C. § 362 for ten days after the bankruptcy court had dismissed Serrano's bankruptcy petition. This argument has met with little success in other cases involving similar...