F.D.I.C. v. Massingill

• Decision Date: 06 July 1994
• Docket Number: No. 93-1258,93-1258
• Citation: 24 F.3d 768
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate Capacity, Plaintiff-Appellee, v. Billy D. MASSINGILL, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 768

24 F.3d 768

29 Fed.R.Serv.3d 1024

FEDERAL DEPOSIT INSURANCE CORPORATION, in its Corporate Capacity, Plaintiff-Appellee, v. Billy D. MASSINGILL, Defendant-Appellant.

No. 93-1258.

United States Court of Appeals Fifth Circuit.

July 6, 1994.

Floyd D. Holder, Jr., Richard D. Ladd, John Simpson, Splawn & Simpson, Lubbock, TX, for appellant.

S. Alyssa Roberts, FDIC, Washington, DC, Harold H. Pigg, Lubbock, TX, for appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before HIGGINBOTHAM and WIENER, Circuit Judges, and KAUFMAN, ^* District Judge.

FRANK A. KAUFMAN, District Judge:

This case arises from an action brought by the Federal Deposit Insurance Corporation ("FDIC") against Billy D. Massingill for the amounts owed upon two promissory notes ("Notes") issued by Massingill and another individual to a now-defunct New Mexico bank. United States District Judge Sam R. Cummings, in a partial summary judgment order issued pursuant to Fed.R.Civ.P. 56(d) and upon the conclusion of a bench trial, entered judgment for the FDIC in the full amounts requested by that agency in connection with both Notes. For the reasons set forth infra, we affirm the judgment of the district court.

I.

Billy D. Massingill and Charles S. Christopher, both residents of Texas, executed two promissory notes in favor of Moncor Bank, N.A., ("Moncor" or "Bank"), located in Hobbs, New Mexico. Note 1, in the amount of $360,000, was secured by 20,000 shares of stock in Fiberflex Products, Inc. ("Fiberflex"), a Texas corporation. ¹ Massingill and Christopher signed that Note as co-makers on March 22, 1984, in order to acquire those shares of Fiberflex. Massingill was a founding shareholder and director of Fiberflex, but he sold his shares to Christopher later in 1984. Note 1 was payable in four semi-annual installments of $40,000, plus interest, on September 25, 1984; March 25, 1985; September 25, 1985; and March 26, 1986; with the balance, along with remaining interest, due on September 25, 1986. According to the face of Note 1, the interest rate was to be "[a] variable rate equal to 1/2% per year above Bank's Base Lending Rate. Base Lending Rate is the rate set from time to time by Bank, below which loans will not usually be made."

Christopher and Massingill, again as co-makers, executed another promissory note, referred to herein as Note 2, in favor of Moncor, in the amount of $125,500, in December 1984. The first installment on Note 2 apparently was due in late March 1985. The payment was not made, and Massingill seemingly refused either to renew or repay the Note in default. As a result, pursuant to insecurity clauses ² in the defaulted Note 2 and in Note 1, the executive vice president of Moncor sent Christopher a letter dated May 23, 1985, with a copy to Massingill, which stated in pertinent part:

Since [the defaulted] note is now 66 days past due and it does not appear that Billy Massingill is willing to sign a renewal note, we are hereby placing you both on notice that both notes [the defaulted note and Note 1] are immediately due and payable.

If the entire balance plus accrued interest is not paid within 10 days from the date of this letter, we will proceed with legal action to collect our interest in the Fiberflex, Inc., stock which was assigned to MONCOR Bank, and we will pursue collection of any deficiency from both makers of said notes.

In that letter, Moncor also delineated the precise amounts due and the daily sums by which the outstanding balance would accrue. Although Note 1, in and of itself, technically was not in default, Moncor demanded payment upon that Note as well, in accordance with the insecurity provision in that Note.

The defaulted Note 2 eventually was renewed. That renewed note will be referred to as Renewed Note 2. Renewed Note 2, payable to Moncor Bank, was a promissory note in the amount of $125,150, and was secured in part by 21,500 shares of Fiberflex stock and in part by the assignment to Moncor of a life insurance policy belonging to Christopher. Renewed Note 2 provided for payment in two installments. The first installment, of $60,000 plus interest, was due on September 25, 1985, with the balance, including interest, payable on March 25, 1986. Renewed Note 2 carried an interest rate of 2% above Moncor's Base Lending Rate. It was dated March 18, 1985, although Massingill maintains that it was executed on June 11, 1985. Massingill also contends that he signed Renewed Note 2 only as a surety to accommodate Christopher, despite the fact that the Note itself indicates that both he and Christopher signed the Note as "Borrowers."

Note 1 itself was never in default because of failure to make installment payments, or for any reason; however, it was subject to acceleration under the terms of the insecurity clause in Note 1 and Note 2. On August 30, 1985, the Comptroller of the Currency declared Moncor Bank to be insolvent, and the appellee Federal Deposit Insurance Corporation ("FDIC") was appointed as receiver. United Bank of Lea County, New Mexico, acquired both Note 1 and Renewed Note 2, along with other loans which had been made by Moncor and which were considered non-delinquent or non-classified, ³ with the understanding that, within 90 days of acquisition, United Bank could return to the FDIC those loans which United Bank did not wish to retain. Both Note 1 and Renewed Note 2 apparently were listed in Moncor's records as current. On October 9, 1985, during the time that those Notes were held by United Bank, that bank received and accepted the September 25, 1985, installment payments with respect to both Notes. In determining the amounts of the installment payments owed with regard to those two Notes, United Bank substituted its prime rate of interest for Moncor's Base Lending Rate, which was the rate designated in those Notes as the benchmark from which interest due would be calculated. Shortly thereafter, in December 1985, FDIC re-purchased those Notes and their attendant files from United Bank. At that time, the outstanding amount owed upon Note 1 was $240,000 principal, plus interest, and, upon Renewed Note 2, $65,000 plus interest. The FDIC, upon reacquiring the Notes, continued to rely upon the prime rate of United Bank in order to compute the accruing interest.

No payments were made upon either Note at the time in which the March 25, 1986, installments became due. ⁴ Those were the first payments missed in connection with either Note since the execution of Renewed Note 2. Upon that default in connection with Note 1 and Renewed Note 2, the FDIC demanded payment and filed suit on March 23, 1992, against Massingill for the outstanding balances due upon both Notes. The FDIC brought its action in federal district court pursuant to 12 U.S.C.A. Sec. 1819(b)(2) (West 1989). ⁵

The FDIC filed a motion for summary judgment, seeking to recover upon both Notes by arguing that 12 U.S.C.A. Sec. 1823(e) (West 1989) ⁶ and the federal common-law doctrines enunciated in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), and its progeny, barred Massingill's claims and defenses. The district court denied the FDIC's motion for summary judgment and, pursuant to Fed.R.Civ.P. 56(d), issued an order stating that the applicable limitations period with regard to Note 1 prescribed by the applicable statute had expired before the FDIC brought suit, thereby barring the agency's claim in connection with that Note. ⁷ The court also precluded Massingill from asserting an affirmative defense that the FDIC unjustifiably had impaired the collateral securing Renewed Note 2 by ruling that Massingill signed that Note as a co-maker. Under Texas law, which the district court applied, a maker of a note may not assert that defense. The court determined that the only issues remaining for trial concerned whether the FDIC was owner and holder of Renewed Note 2, the amount of accrued interest owed upon the remaining balance of Renewed Note 2, and the amount of attorney fees, if any, to which the FDIC was entitled.

On February 18, 1993, upon the parties' waiver of jury trial, ⁸ a bench trial before Judge Cummings commenced. During the course of the trial, the FDIC demonstrated that it was the owner and holder of both Note 1 and Renewal Note 2. ⁹ Upon the conclusion of the presentation of evidence, Judge Cummings indicated that he would reconsider his Rule 56(d) order in connection with the limitations bar as to Note 1 and requested that the parties submit memoranda and authorities with regard to Note 1, along with proposed findings of fact and conclusions of law dealing with all of the issues in the case. The court also asked the parties further to brief the question of the applicable rate of interest in connection with the Note 1 and Renewal Note 2. At no time after learning of the district court's decision to reconsider its earlier order did Massingill request a jury trial or seek to introduce any further evidence with regard to any reopened issue. After reviewing the memoranda supplied by the parties, on March 2, 1993, the district court reversed its earlier determination and entered judgment in favor of the FDIC with regard to both Note 1 and Renewal Note 2. It awarded the FDIC the outstanding principal remaining upon those Notes; interest calculated in accordance with the prime rate of United Bank, as the assuming bank which briefly possessed the Notes upon Moncor's closure; and attorney fees. The district court applied Texas law in the course of concluding that the May 23, 1985, letter from Moncor to Christopher and Massingill was not an effective acceleration, thereby leaving both Notes current until their default on March 25, 1986. Consequently, the district court decided that the FDIC had timely filed its action with regard to both Notes and was entitled to recovery.

In the within appeal, Massingill contends that the district court wrongly reversed its...