Federal Sav. and Loan Ins. Corp. v. Locke

• Decision Date: 14 June 1989
• Docket Number: Civ. No. A-88-CA-781.
• Citation: 718 F. Supp. 573
• Parties: FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, Acting in its Corporate Capacity, Plaintiff, v. Larry V. LOCKE, Defendant. Larry V. LOCKE, Counter-Plaintiff, v. FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, as Receiver for State Federal Savings and Loan Association of Lubbock, Counter-Defendant.
• Court: U.S. District Court — Western District of Texas

718 F. Supp. 573

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, Acting in its Corporate Capacity, Plaintiff, v. Larry V. LOCKE, Defendant.

Larry V. LOCKE, Counter-Plaintiff, v. FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, as Receiver for State Federal Savings and Loan Association of Lubbock, Counter-Defendant.

Civ. No. A-88-CA-781.

United States District Court, W.D. Texas, Austin Division.

June 14, 1989.

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Steven L. Hoard, John M. Brown, Amarillo, Tex., for plaintiff and counter-defendant.

Waggoner Carr, Austin, Tex., for defendant and counter-plaintiff.

MEMORANDUM OPINION AND ORDER

WALTER S. SMITH, Jr., District Judge.

In this case, the Federal Savings and Loan Insurance Corporation, acting in its Corporate Capacity ("FSLIC Corporate"), seeks to recover on four promissory notes signed by defendant, Larry V. Locke ("Locke"). The four notes at issue here were purchased by FSLIC Corporate from an insolvent thrift. Locke asserts as affirmative defenses and as the basis for counterclaims, wrongful foreclosure, bad faith, breach of fiduciary duty, violations of the Texas Deceptive Trade Practices — Consumer Protection Act ("DTPA"), usury, breach of contract, and common law and statutory fraud. The Federal Savings and Loan Insurance Corporation, acting as Receiver for State Federal Savings and Loan Association of Lubbock, Lubbock, Texas ("FSLIC Receiver"), is defending Locke's counterclaims.

FSLIC Corporate asserts that (1) Locke's affirmative defenses based on fraud, bad faith, breach of fiduciary duty, violations of the DTPA, and usury are invalid as a matter of federal law; (2) Locke's claims of wrongful foreclosure and breach of contract do not constitute an affirmative defense to the notes, and must be asserted against FSLIC Receiver; and (3) FSLIC Corporate is entitled to summary judgment on the notes as a matter of law. FSLIC Receiver asserts that, as a matter of federal statutory and common law, it is not liable for any of Locke's claims, other than his breach of contract and inadequacy of notice of foreclosure claims. As to those claims, FSLIC Receiver urges dismissal on the grounds of mootness.

Prior to trial, the Court granted the motion in limine of FSLIC Corporate and FSLIC Receiver which limited introduction of evidence on the issues of fraud, violations of the DTPA, bad faith, breach of fiduciary duty, usury, and insufficiency of the bid prices at the foreclosure sales of Locke's properties.

This case came before the Court for jury trial with FSLIC Corporate's motion for summary judgment on the notes pending. Upon consideration of the parties' respective positions, the Court finds that the case should be disposed of without a trial.

The Court finds that as a matter of law none of Locke's claims constitutes a valid affirmative defense to FSLIC Corporate's recovery on the Locke Notes, and FSLIC Corporate's summary judgment on the notes is granted. The Court further finds that FSLIC Receiver as a matter of federal law is not liable for any of the relief sought by Locke, except for the breach of contract and wrongful foreclosure claims. Therefore, the Court treats the joint motion in limine of FSLIC Corporate and FSLIC Receiver as a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, and grants this motion as to Locke's counterclaims and affirmative defenses based on fraud, violation of the DTPA, bad faith, breach of fiduciary duty, usury, and insufficient bid prices. Even if Locke were to prevail at trial on either or both of his claims for breach of contract or wrongful foreclosure, any amount he might recover would be an unsecured claim against the receivership estate, which the Federal Home Loan Bank Board has already determined to be worthless. Because any such recovery by Locke would be worthless, the Court finds that these claims should be dismissed as moot. Fed.R.Civ.P. 12(b)(1).

I. Factual Background

With one major exception noted below, the facts of this case are essentially not in dispute.

In 1983, Locke was a real estate investor operating in Austin, Texas. At that time, Locke had established a banking relationship with State Savings and Loan Association of Lubbock, Lubbock, Texas ("State Savings") to assist Locke in the purchase of undeveloped real property for subsequent development. On December 2, 1983, Locke borrowed $1,500,000 from State Savings to purchase an 11.84 acre tract of undeveloped real estate in Austin, Texas. Locke signed a note in that amount, together with a deed of trust in favor of State Savings to secure payment of the obligation. In addition, Locke assigned to State Savings a fifty percent net profits interest in the property. On April 30, 1985, the December 2, 1983 loan was modified, renewed, and increased to $2,200,000. A renewal note and deed of trust were signed by Locke on that date.

Locke borrowed $225,000 from State Savings to purchase a 2.42 acre tract of undeveloped real estate in Austin on December 15, 1983. Locke signed a note for that amount and executed a deed of trust on the property. In addition, Locke assigned to State Savings a fifty percent net profits interest in the property.

On December 29, 1983, Locke borrowed $1,670,000 from State Savings in connection with a 15.04 acre tract of undeveloped land in Austin. Locke already owned this tract, subject to a first lien that the State Savings loan wrapped. Locke signed a note in that amount and executed a deed of trust on the 15.04 acre tract. He also assigned to State Savings a fifty percent net profits interest in the property. On July 23, 1985, this note was renewed, modified, and increased to $1,960,000. Locke signed a renewal note for that amount and a modified deed of trust to secure the obligation on July 23, 1985.

Locke borrowed $100,000 from State Savings for operating expenses on March 21, 1985. On that date, Locke executed a note in that amount and executed a second-lien deed of trust on a 49.8079 acre tract in Austin to secure performance of the obligation. The April 30, 1985 renewal note, the December 15, 1983 note, the July 23, 1985 renewal note, and the March 21, 1985 note are hereinafter collectively referred to as the "Locke Notes."

On December 19, 1985, the Federal Home Loan Bank Board ("Bank Board"), acting pursuant to 12 U.S.C. Section 1729(c)(1)(B) (1982), declared State Savings to be insolvent and appointed the Federal Savings and Loan Insurance Corporation as receiver. Pursuant to 12 U.S.C. Section 1729(a) (1978) the Bank Board authorized the Federal Savings and Loan Insurance Corporation to create a new federal mutual savings and loan association known as State Federal Savings and Loan Association of Lubbock, Lubbock, Texas ("State Federal"). On December 20, 1985, the Federal Savings and Loan Insurance Corporation, as receiver of State Savings, sold substantially all the assets of State Savings that the receiver owned or would thereafter acquire to State Federal. Included were the Locke Notes, the net profits agreements relating thereto, and State Savings' interest in the collateral securing the Locke Notes.

During the spring of 1986, Locke experienced difficulty in meeting his payment obligations under the terms of the Locke Notes. At this time, Locke entered into negotiations with State Federal for additional financing and to modify and renew the Locke Notes.

On June 26, 1986, Locke signed a note, renewal deeds of trust, and loan documents providing for the renewal and modification of the Locke Notes and for additional advances to Locke by State Federal. State Federal recorded the renewal deeds of trust, but no new funds were ever advanced by State Federal to Locke. At this point, the parties disagree over the facts.

Locke claims that the renewal and modification transaction was completed and that State Federal wrongfully failed to advance the additional funds as it had promised. The parties acknowledge that as part of the renewal and modification transaction, Locke agreed to provide State Federal with additional collateral in the form of a second lien on a 145 acre tract of property near Austin. FSLIC Receiver asserts that, as a condition precedent to the renewal and modification agreement, Locke was required to provide State Federal with an estoppel agreement consenting to State Federal's second lien from the first lienholder on on the 145 acre tract. FSLIC Receiver claims that Locke never provided the required estoppel agreement and therefore the renewal of the Locke Notes was never completed.

State Federal made demand on Locke to pay the Locke Notes, which he failed to do. On October 14, 1986, State Federal caused to be posted for sale at nonjudicial foreclosure the 11.84 acre tract, the 2.42 acre tract, the 15.04 acre tract, and the 49.8079 acre tract in accordance with the terms of the deeds of trust. State Federal agreed to postpone the foreclosure sale of these properties, and the properties were again posted for foreclosure on December 16, 1986. On January 6, 1987, the four tracts were sold at a nonjudicial foreclosure sale. State Federal bid in a portion of the unpaid balance on each of the Locke Notes, was the highest bidder at the sale, and thus acquired the four tracts. The deficiencies remaining on the Locke Notes following the foreclosure totalled $1,271,119.97.

Thereafter, State Federal filed suit against Locke in state court to collect the deficiencies on the Locke Notes on April 7, 1989.

On August 25, 1988, FSLIC Corporate purchased three of the Locke Notes with deficiency balances. On August 26, 1988, the Bank Board, acting pursuant to 12 U.S.C. Sections 1464(d)(6)(A) (1982) and 1729(b)(1)(A) (1982), declared State Federal insolvent and appointed the Federal Savings and Loan Insurance Corporation as receiver of the institution ("FSLIC Receiver"). On August 26, 1988, FSLIC Receiver...