F.D.I.C. v. Knostman, 91-2792
| Decision Date | 23 October 1992 |
| Docket Number | No. 91-2792,91-2792 |
| Citation | 966 F.2d 1133 |
| Parties | FEDERAL DEPOSIT INSURANCE CORPORATION, Successor to Federal Savings and Loan Insurance Corporation, as Receiver for Manning Savings and Loan Association, Plaintiff-Appellee, v. Gary J. KNOSTMAN, Trustee for the Chapter 7 Estate of Itex Energy Corporation, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Glen H. Kanwit, William J. McKenna, Jr., John P. Ratnaswamy (argued), Robert W. Patterson, John L. Rogers, Hopkins & Sutter, Chicago, Ill., for plaintiff-appellee.
David A. Furlow, Rhett G. Campbell (argued), John R. Knight, Morris & Campbell, Houston, Tex., for defendant-appellant.
Before FLAUM and KANNE, Circuit Judges, and SHABAZ, District Judge. *
The following principal issues are pursued in this appeal: (i) whether the district court abused its discretion in granting the plaintiff Federal Deposit Insurance Corporation ("FDIC") leave to amend its June 10, 1983 complaint on April 9, 1991; (ii) whether the district court erred in granting summary judgment in favor of plaintiff FDIC declaring that it, as the sole Receiver for Manning Savings and Loan Association ("Manning Savings"), was entitled to the proceeds of certain escrowed funds pursuant to contracts between Itex Energy Corporation ("Itex") and Manning Production Inc. ("Manning Production"), a wholly-owned subsidiary of Manning Savings; (iii) whether the district court abused its discretion in dismissing plaintiff FDIC's other claims without prejudice. We answer all of these questions in the negative and affirm the judgments.
Manning Savings was an Illinois-chartered savings and loan association whose accounts were insured by the Federal Savings and Loan Insurance Corporation ("FSLIC"). Manning Production was a wholly-owned subsidiary of Manning Savings. Itex was a corporation organized under Texas law, which was in the business of developing and selling oil and gas properties in Texas.
On January 28, 1983 Manning Production agreed to purchase sixteen oil and gas wells from Itex in Texas ("Itex Contract"). Contemporaneously Manning Production contracted with Itex, Jack W. Smith and William R. Coleman to purchase all outstanding capital stock of the Covoil Corporation ("Covoil"), a Texas corporation ("Covoil Contract"). Covoil's assets consisted of eighteen oil and gas wells.
Both contracts contained escrow provisions. The Itex Contract stated in relevant part:
21) At the closing called for herein, [Itex] agrees that out of the cash consideration due and payable by [Manning Production] to [Itex], [Manning Production] will escrow with Western Bank ... the sum of One Hundred Sixty-Two Thousand Five Hundred Dollars ($162,500.00), under an Escrow Agreement mutually acceptable to [Manning Production], [Itex] and Western Bank. It is agreed that such funds will be escrowed with Western Bank in the form of a Certificate of Deposit for a period of one (1) year from the date of closing. At the end of such 1-year period, accountants for [Itex] shall audit the books and records of [Manning Production], as they relate to the Subject Interests, to determine the cash flow realized from the Subject Interests for such period of time. In the event the cash flow for Subject Interests for the twelve (12) months after the date of closing, determined in accordance with generally accepted accounting principles applied on a basis consistent with those used by [Itex] in the fiscal year immediately preceding the date of closing, is not at least the sum of Nine Hundred Fifty Thousand Dollars ($950,000.00), then, in such event, the Escrow Agent will be directed, according to the terms of the Escrow Agreement, to forthwith pay to [Manning Production] from the escrowed funds a sufficient sum of money which, when added to the actual cash flow from Subject Interests for this period of time, totals the cash flow as guaranteed pursuant to this paragraph. In the event any funds are remaining after the payment to [Manning Production], such funds shall be immediately forwarded to [Itex] and the Escrow Agreement shall terminate. In the event sufficient funds are not available from the funds so escrowed and any interest earned thereon, [Itex] agrees to pay to [Manning Production] ... the balance of the funds necessary to comply with the guarantee contained herein.
The Covoil Contract included a similar escrow provision. Specifically, the Covoil Contract required that $100,000 be escrowed with Western Bank to be paid to Manning Production if the cash flow from the purchased oil and gas properties did not equal at least $550,000 twelve months after the contract's closing date. Also the Covoil Contract included a choice of law provision which stated that Texas law should govern the validity and interpretation of the agreement.
On about February 1, 1983 Manning Production wired $4.5 million, the amount due at the closing of the Itex and Covoil Contracts, to the trust account of attorney Larry W. Bass. Bass received these funds as the attorney for Itex, Covoil, Jack Smith and William Coleman. As directed by the parties to the contracts, Bass disbursed the majority of these funds. However, in accordance with the escrow provisions in the two contracts, Bass retained the required sums in his trust account. None of the parties to the two contracts ever requested Bass to prepare the escrow agreements. The funds were never deposited into Western Bank, but remained in Bass' possession, together with the accrued interest, either in his trust account or in other bank accounts in Houston, Texas or with Merrill Lynch or Paine Webber.
On February 3, 1983 the FSLIC was appointed the sole Receiver of all assets of Manning Savings. Thereafter the FSLIC incorporated MSC Holdings, Inc. ("MSC Holdings") and MPC Holdings, Inc. ("MPC Holdings") in Illinois. Manning Production was merged into MPC Holdings on February 15, 1983. MSC Holdings was the parent corporation of MPC Holdings. MPC Holdings was dissolved for failure to file an annual report and pay annual franchise taxes on July 1, 1988. Apparently MSC Holdings has also been dissolved.
On June 10, 1983 the FSLIC, in its corporate capacity and as the sole Receiver for Manning Savings, filed a complaint against Itex, Larry Bass, Jack Smith, William Coleman and others. On behalf of Manning Savings, the FSLIC sought to recover damages from a series of oil and gas transactions on the basis of fraud. The causes of action included: conspiracy to defraud; violation of the Racketeer Influenced and Corrupt Organizations Act; securities fraud; and rescission of the Itex and Covoil Contracts. On June 28, 1983 FSLIC filed an amended complaint.
Itex filed for bankruptcy on March 18, 1985 in the United States Bankruptcy Court for the Southern District of Texas, Houston Division. In re Itex Energy Corporation, Case No. 85-01729. The action against Itex was automatically stayed due to the filing of the bankruptcy petition.
The FSLIC entered into a settlement agreement with Larry Bass and the district court granted the FSLIC's motion to dismiss its claim against Bass on January 31, 1989.
On August 9, 1989 Congress dissolved the FSLIC and the FDIC succeeded the FSLIC as the sole Receiver for Manning Savings.
By order dated October 11, 1990 the bankruptcy court granted the motion of plaintiff FDIC to lift the automatic stay to allow it to exercise its rights under the Itex and Covoil contracts and prosecute this action before the district court. In re Itex Energy Corporation, Case No. 85-01729-H5-7. Shortly thereafter plaintiff FDIC filed a motion for summary judgment seeking to recover the escrowed funds by enforcing the terms of the Itex and Covoil Contracts. Gary J. Knostman, Trustee of the Chapter 7 Estate of Itex, ("Itex Trustee") filed a cross-motion for summary judgment. 1
By memorandum opinion and minute order dated April 9, 1991, the district court granted plaintiff FDIC's motion for summary judgment declaring that the FDIC is entitled to the escrow funds held by Larry Bass. The district court granted plaintiff FDIC leave to file an amended complaint to conform to the relief sought in its motion for summary judgment and to add Manning Production, the subsidiary of Manning Savings, as a party plaintiff.
Plaintiff FDIC filed a motion for leave to file an amended complaint which the district court granted on May 15, 1991. The district court held that the amendment related back to the complaint's original filing date. The district court also denied the motion of the Itex Trustee to file an answer and counterclaim. On the same day the district court entered judgment declaring that the plaintiff FDIC was entitled to the escrowed amounts held by Larry Bass in his trust account. Specifically, these amounts include the $162,500 under the Itex Contract and the $100,000 under the Covoil Contract together with any accrued interest. The district court found it had jurisdiction over Bass and ordered him to relinquish the funds to the plaintiff FDIC.
The defendant Itex Trustee moved the district court to either schedule the case for trial to dispose of all remaining claims or parties or, alternatively, to enter final judgment pursuant to Rule 54(b) of the Federal Rules of Civil Procedure. The plaintiff FDIC moved for an order dismissing all claims not previously settled or ruled upon by the district court without prejudice and without costs to any party under Rule 41(a)(2) of the Federal Rules of Civil Procedure. On July 2, 1991 the district court granted plaintiff FDIC's motion and denied the motion of the defendant Itex Trustee.
The Itex Trustee filed his Notice of Appeal on July 30, 1991. He appeals from the following: the July 2, 1991 minute order; the May 15, 1991 orders; the April 9, 1991 minute order; and the minute order, dated January 9, 1984...
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