Federal Land Bank of Spokane v. Stiles
| Decision Date | 01 March 1988 |
| Docket Number | No. CV 86-69-M-CCL.,CV 86-69-M-CCL. |
| Citation | 700 F. Supp. 1060 |
| Parties | The FEDERAL LAND BANK OF SPOKANE, a corporation, Plaintiff, v. Theodore S. STILES and Janice L. Stiles, husband and wife; Theodore S. Stiles, Jr. and Jane Doe Stiles, husband and wife; United States of America, acting through the Farmers Home Administration; Mobil Oil Corporation; Western Montana Production Credit Association, a corporation; Hunt Oil Company; and Federal Land Bank Association of Missoula, a corporation, Defendants. |
| Court | U.S. District Court — District of Montana |
W. Arthur Graham, Graham Law Firm, Missoula, Mont., for plaintiff.
Brian J. Smith, Milodragovich, Dale & Dye, Missoula, Mont., Ronald A. Bender, Martin S. King, Missoula, Mont., R. Alan Wight, Richard A. Edwards, Mark A. Anderson, Portland, Or., for defendants.
Charles Noack, Dallas, Tex., for Hunt Oil Co.
Kris McLean, Asst. U.S. Atty., Butte, Mont., for U.S.
This is an action to foreclose a real estate mortgage executed in 1978 by defendant Theodore S. Stiles and his now-deceased wife, Martha A. Stiles. The defendants are Theodore S. Stiles; his present wife, Janice L. Stiles; his son and daughter-in-law, Theodore S. Stiles, Jr., and Jane Doe Stiles (subsequently identified as Cheryl L. Stiles), who are alleged to reside on the premises; the United States Farmers Home Administration, which is alleged to hold an inferior mortgage; the Western Montana Production Credit Association, which is alleged to hold an inferior mortgage; the Federal Land Bank Association of Missoula, which is alleged to claim some interest in the property; Mobil Oil Corporation, which is alleged to hold an oil and gas lease on the premises; and Hunt Oil Company, which is alleged to hold an oil and gas lease on the premises.
The complaint alleges that Stiles is in default under the terms of the promissory note, and seeks judgment in the amount of $171,179.53, together with accrued interest, and all sums advanced by plaintiff for taxes, insurance, and other costs. Plaintiff further seeks retirement of stock owned by the Federal Land Bank of Missoula and pledged as security for said loan, and foreclosure of the mortgage with right of deficiency judgment.
Defendant Hunt Oil Company filed a disclaimer of interest on March 10, 1986, prior to removal of the case to this court. The default of Mobil Oil was entered October 7, 1986. There has been no appearance by defendant Federal Land Bank Association of Missoula. All other defendants have answered.
Defendants Stiles have filed a counterclaim against plaintiff as well as cross-claims against the Western Montana Production Credit Association (PCA). In turn, the PCA has cross-claimed against Stiles, seeking foreclosure of its mortgage and security interest given by Mr. Stiles, Sr. and Mr. Stiles, Jr., in real and personal property. The matter is before the court on the PCA's motion to dismiss the Stiles cross-claims.
In Count One of the cross-claim against the PCA, Stiles asserts that the PCA is indebted to him for work he performed at PCA's request on a caterpillar tractor owned by Stiles' neighbor which was being sold at a PCA auction.
Count Two of the cross-claim alleges that in 1984, PCA agents inspected Stiles' grain bins and failed to secure adequately the top to the grain bin, causing it to be blown open by wind resulting in moisture damage and spoilage of 2500 bushels of grain.
Count Three alleges that Stiles is the holder and owner of Class B stock required for membership in the PCA. In December 1984, the B stock was frozen. Stiles alleges that PCA has breached a fiduciary obligation by failing to provide adequate information regarding the status of equities in the PCA and by failing to inform Stiles of its impending collapse. He seeks damages for interest, loss of value in capital equities, loss of value of real estate and machinery, and mental distress.
Count Four alleges that the PCA has breached its duty of care owed to Stiles in connection with the advice given and the continual loans made to him throughout the period of his membership in the PCA.
Count Five of the cross-claim alleges that the PCA continued to make loans to Stiles even though it had actual knowledge of his deteriorating financial condition, amounting to negligence on the part of the PCA as a lending institution.
In Count Six, Stiles alleges that the PCA has compromised loans to other members and borrowers, thereby diminishing the value of Class B stock held by Stiles, to his damage.
Count Seven alleges that the PCA owed Stiles a duty to deal with him in good faith, and breached this duty in several particulars, resulting in damage to Stiles.
The cross-claim also contains separate allegations of Theodore S. Stiles, Jr., and his wife. Stiles, Jr., alleges that during the early part of 1984, a meeting was held between he and the PCA, at which time the PCA requested him to remove his name from the PCA documents. The PCA represented that upon receipt of a financial statement showing that Stiles, Jr., had no interest in the subject property, the PCA would remove the names of Stiles, Jr., and Cheryl Stiles from the PCA documents. Stiles, Jr., alleges that although he complied fully with the PCA's request, it failed to remove his name, resulting in his being named a defendant in this action. He alleges that this failure constitutes a breach of duty, with resultant damage.
The PCA moves to dismiss the cross-claims of the Stiles defendants on several grounds.1
Shortly before hearing, it was brought to the court's attention that Stiles, Jr., had filed a petition for relief under Chapter 7 of Title 11, United States Code, with the United States Bankruptcy Court for the District of Montana. The parties were allowed ten days to file supplemental briefs addressing the applicability to this action of the automatic stay provisions of the bankruptcy code. Thereafter, on December 7, 1987, the Bankruptcy Court granted the motion of the Federal Land Bank of Spokane for relief from the automatic stay.
The first issue with which the court is concerned, then, is whether action should be stayed on the cross-claims between the defendants or any of them, including PCA's motion to dismiss Stiles' cross-claims. The Bankruptcy Court's order states that relief from the automatic stay "is granted to allow the FLB to foreclose on any interest of the Debtors in the real property and upon further condition that the cross-claim of the debtors against the PCA shall be severed from the foreclosure action so that the Trustee may determine whether it constitutes property of the Debtors' estate." In re Ted S. Stiles, No. 87-20694 (Bk.Mont. Dec. 7, 1987). Based upon this order, together with the provisions of 11 U.S.C. § 362(a), all proceedings on all cross-claims between the Western Montana PCA and Ted S. Stiles, Jr., and Cheryl L. Stiles (Stiles, Jr.) shall be STAYED pending further order. The parties shall keep the court apprised of developments in the bankruptcy proceedings relevant to this stay order.
The court next addresses the issue whether the stay should be extended to the cross-claims between the PCA and Ted S. Stiles and Janice Stiles (Stiles, Sr.). "In the absence of special circumstances, stays pursuant to section 362(a) are limited to debtors and do not include non-bankrupt co-defendants." Ingersoll-Rand Financial Corp. v. Miller Mining Co., 817 F.2d 1424, 1427 (9th Cir.1987). Such special circumstances do not exist merely because the co-defendant is a guarantor, id., or jointly liable on a debt with the debtor. Teachers Insurance and Annuity Ass'n. of America v. Butler, 803 F.2d 61, 65-66 (2d Cir. 1986). Accord Otoe County National Bank v. W & P Trucking, Inc., 754 F.2d 881, 883 (10th Cir.1985). But see A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, (4th Cir.1986) (). Although 11 U.S.C. § 105(a) has been held to authorize a stay order as to a co-defendant, Ingersoll-Rand, 817 F.2d at 1427, no such order has been entered in the Stiles, Jr., bankruptcy proceedings. Accordingly, the court concludes that proceedings on claims between the PCA and Stiles, Sr., are not subject to stay as a result of the Stiles, Jr., bankruptcy proceedings.
Having so ruled, the court proceeds to the merits of PCA's motion to dismiss the cross-claims of Stiles, Sr.2
The court judges Stiles' cross-claim by the same standards used in determining the sufficiency of a complaint. A complaint will not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him or her to relief. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). In determining the sufficiency of the cross-claims, the court interprets the same in the light most favorable to the Stiles. Russell v. Landrieu, 621 F.2d 1037, 1039 (9th Cir. 1980).
PCA claims that borrowers have no standing to challenge Farm Credit System regulations or to contend that production credit associations were not properly liquidated and stock frozen. PCA asserts that there is no duty under the Farm Credit Act to individual borrowers and that, as shareholders, the borrowers cannot sue to recover the lost value of their stock.
In response, the Stiles claim that their cross-claim does not challenge the Farm Credit Administration's authority to supervise and direct liquidation of a production credit association, nor does it seek to recover the amount invested in Class B stock. Stiles claim that they are not alleging violations of the Farm Credit Act, but are claiming damages for injuries traceable to the wrongful conduct of the PCA in its dealings with them.
There are three requirements the Stiles must satisfy in order to establish standing to raise the cross-claims:
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