First City, Texas-Beaumont, NA v. Treece

• Decision Date: 24 February 1994
• Docket Number: Civ. No. 1:92-CV-495.
• Citation: 848 F. Supp. 727
• Parties: FIRST CITY, TEXAS — BEAUMONT, N.A. and Collecting Bank, National Association v. Jimmie D. TREECE, As Community Survivor of the Estate of Carl E. Treece, Deceased, Billy I. Ramsey, and John H. Kennamer, Jr.
• Court: U.S. District Court — Eastern District of Texas

848 F. Supp. 727

FIRST CITY, TEXAS — BEAUMONT, N.A. and Collecting Bank, National Association v. Jimmie D. TREECE, As Community Survivor of the Estate of Carl E. Treece, Deceased, Billy I. Ramsey, and John H. Kennamer, Jr.

Civ. No. 1:92-CV-495.

United States District Court, E.D. Texas, Beaumont Division.

February 24, 1994.

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Lee Ann DeMonbreum, F.D.I.C. Legal Div., Dallas, TX, for plaintiff, F.D.I.C.

Kenneth D. McConnico, Kenneth D. McConnico, P.C., Webster, TX, for defendant, John H. Kennamer, Jr.

MEMORANDUM AND ORDER

JOE J. FISHER, District Judge.

Pending before the court are cross motions for summary judgment filed by the plaintiff, the Federal Deposit Insurance Corporation, and the defendant, John H. Kennamer, Jr. For the reasons set forth in detail below, the court grants the Federal Deposit Insurance Corporation's Motion for Summary Judgment and denies John H. Kennamer, Jr.'s Motion for Summary Judgment.

FACTS

This litigation began in a Texas state court some four years ago. When the case began it was simple enough. The plaintiff bank sought to enforce guaranty agreements against several defendants to collect the deficiencies on a series of notes. Over time, the composition and complexity of the case changed considerably. The plaintiff bank went into receivership, one defendant declared bankruptcy, another failed to answer, another was dismissed and the case was eventually removed to federal court. The pertinent facts are as follows.

The defendant, John H. Kennamer, Jr. ("Kennamer"), was a stockholder and member of the board of directors of Farmer's Discount Supply, Inc. ("Farmer's"), a farm supply store in Winnie, Texas. Carl Treece was Farmer's president, majority stockholder and the person responsible for the day-to-day operation of the store. On April 3, 1987, Carl Treece died unexpectedly. Shortly after his death, the board of directors, including Kennamer, agreed to allow Carl Treece's widow, Jimmie Treece ("Treece"), to continue operating the store in place of her late husband. Kennamer denies, however, that Treece was ever elected to the board, appointed president or given the authority to obligate Farmer's on any additional debt.

Almost immediately, Treece began to refinance Farmer's debt with First City National Bank of Beaumont ("First City"). Between May 6 and June 18, 1987, Treece executed three notes with First City which she signed as "Jimmie Treece, President." The total indebtedness was $78,858.¹ The notes were secured by Farmer's inventory and accounts receivable. A security agreement bearing Treece's signature and dated March 20, 1987,² is among the summary judgment evidence submitted by the parties.

In addition to the security agreement, the notes were backed up by guaranty agreements executed by each of Farmer's directors, including Kennamer. Prior to Carl Treece's death, Kennamer executed a guaranty agreement with First City which required him to personally guarantee Farmer's debt for up to $120,000.³ The guaranty agreement stated that Kennamer would be personally liable for Farmer's debt even if the debt was executed by someone who lacked the necessary authority.

Not long after Treece refinanced the debt, Farmer's ran into financial problems. Sometime around June, 1987, Farmer's defaulted on the notes held by First City. Finally, on July 14, 1987, Farmer's closed its business and surrendered the collateral to First City. First City sold the collateral and applied the proceeds of the sale against the unpaid balance on the notes. After applying the proceeds, a deficiency remained on all three notes. Through February 18, 1994, the total amount of the deficiency, including unpaid interest, was $135,254.24.⁴

Meanwhile, First City, like so many Texas banks in recent times, was experiencing financial difficulties of its own. On April 19, 1988, First City entered into an Assistance Transaction with the Federal Deposit Insurance Corporation ("FDIC"). The purpose of the Assistance Transaction was to reorganize First City by forming a new bank holding company, First City Bancorporation of Texas, Inc., and various subsidiaries. First City, Texas — Beaumont ("New First City") was the subsidiary which assumed operations of the Beaumont branch.

To effectuate the Assistance Transaction, First City was essentially split in two. A new subsidiary, Collecting Bank, N.A. ("Collecting Bank"), was formed to handle First City's bad debts. Certain non-performing assets and delinquent loans were transferred to Collecting Bank pursuant to an Assignment and Participation Agreement. The Farmer's notes were among the assets transferred to Collecting Bank. After the transfer, New First City remained the holder of the notes while Collecting Bank became the beneficial owner.

Predictably, litigation over the notes and guaranties ensued. New First City and Collecting Bank filed suit in a Texas state court on January 31, 1990, seeking to recover the amount of the deficiency. Kennamer counterclaimed, alleging that First City had engaged in a fraudulent scheme to obligate the directors on debts they would not otherwise have agreed to assume. Specifically, Kennamer alleges First City pressured Treece to refinance the debt at a time when she was vulnerable to outside influence due to her husband's death. Kennamer's counterclaim seeks approximately $1.7 million for damage to his credit and business.

Unfortunately, efforts to rejuvenate New First City were not successful. On October 30, 1992, the Comptroller of the Currency declared New First City and Collecting Bank insolvent and appointed the FDIC as receiver. The FDIC entered into a Purchase and Assumption Transaction with Texas Commerce Bank for the purchase of New First City. Obviously, there was no buyer for Collecting Bank. The FDIC began liquidating Collecting Bank in its capacity as receiver for the failed institution. Among the liquidation assets of Collecting Bank were the Farmer's notes and guaranties.

Upon New First City and Collecting Bank's insolvency, the FDIC assumed control of this litigation.⁵ On November 5, 1992, the FDIC intervened in the state court proceeding as plaintiff. The next day, the FDIC removed the case to federal court pursuant to 12 U.S.C. 1819(b)(2). Following the mandatory 90 day stay of proceedings under 12 U.S.C. § 1821(d)(12), the FDIC moved for summary judgment alleging that Kennamer's affirmative defenses were barred as a matter of law.⁶ Kennamer responded to the FDIC's motion and then filed his own motion for summary judgment arguing that under Texas law, his obligation to guaranty the Farmer's notes was discharged because of the forged security agreement.

DISCUSSION

The FDIC advances three basic arguments in support of its Motion for Summary Judgment. First, the FDIC argues it has established all the essential elements of its claim against Kennamer and therefore, it is entitled to judgment for the total amount of the deficiencies on the notes. Second, the FDIC contends that Kennamer's affirmative defenses are barred by the D'Oench, Duhme doctrine, 12 U.S.C. § 1823(e) and the federal holder in due course doctrine. Finally, the FDIC argues that Kennamer's counterclaim is barred because he did not comply with the administrative procedures for determining claims. As a collateral matter, the FDIC maintains that it is entitled to attorney's fees as provided for in the guaranty agreement.

Kennamer's arguments, on the other hand, center on the conduct of First City. Kennamer asserts that First City fraudulently induced Treece to execute the notes, and he implies that Treece refinanced the debt solely as a result of duress. Kennamer also alleges that First City forged Treece's signature on the security agreement, amounting to fraud in the factum, and that such conduct operates as an exception to the D'Oench, Duhme doctrine. Kennamer then carries this argument one step further and contends the forged signature on the security agreement invalidated not only First City's security interest, but also his obligation under the guaranty agreement. With respect to his counterclaim, Kennamer argues he was not required to follow the administrative procedures for presentation of claims because he was asserting it in a lawsuit against First City at the time the FDIC was appointed receiver. This, argues Kennamer, was sufficient to provide the FDIC with notice of his claim. The court will take up each of these arguments in turn.

A. Summary Judgment in the Federal Courts

In the federal courts, a party is entitled to summary judgment if it can demonstrate there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The purpose of a summary judgment motion is to "pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Fontenot v. Upjohn Co., 780 F.2d 1190, 1196 (citing Advisory Committee Note to 1963 Amendment of Fed.R.Civ.P. 56(e), 28 U.S.C.App., p. 626). Summary judgment is not a "disfavored procedural shortcut, but rather ... an integral part of the Federal Rules as a whole, which are designed `to secure the just, speedy and inexpensive determination of every action.'" Celotex, 477 U.S. at 327, 106 S.Ct. at 2554 (quoting Fed. R.Civ.P. 1). See also Gagne v. City of Galveston, 671 F.Supp. 1130, 1132 (S.D.Tex.1987) (summary judgment is not a disfavored procedure), aff'd, 851 F.2d 359 (5th Cir.1988).

The standard for granting a summary judgment motion is the same standard used for granting a directed verdict under Rule 50(a). Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). Accordingly, summary judgment should be granted when the evidence would require a directed verdict for the movant. Anderson, 477 U.S. at 251, 106 S.Ct. at 2511. The only...