First Trust National Association v. First National Bank

• Decision Date: 31 May 2000
• Docket Number: No. 99-60431,99-60431
• Citation: 220 F.3d 331
• Parties: (5th Cir. 2000) FIRST TRUST NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE, Plaintiff-Appellant, v. FIRST NATIONAL BANK OF COMMERCE, Defendant-Appellee
• Court: U.S. Court of Appeals — Fifth Circuit

Page 331

220 F.3d 331 (5th Cir. 2000)

FIRST TRUST NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE, Plaintiff-Appellant, v. FIRST NATIONAL BANK OF COMMERCE, Defendant-Appellee.

No. 99-60431

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

May 31, 2000

Michael Brian Fisco, Anne F Larsen, Oppenheimer, Wolff & Donnelly, Minneapolis, MN.

Philip K Jones, Jr, John Charles Anjier, Liskow & Lewis, New Orleans, LA. Robert C Galloway, Butler, Snow, O'Mara, Stevens & Cannada, Jackson, MS.

Appeal from the United States District Court for the Southern District of Mississippi.

Before REAVLEY, SMITH AND EMILIO M. GARZA, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

First Trust National Association ("First Trust") is indenture trustee for a trust the assets of which are proceeds of notes sold by Belle Casinos, Inc. ("BCI"), and Biloxi Casino Belle, Inc. ("BCBI"). Those assets were placed by BCI/BCBI into two escrow accounts to be employed in building two casinos. The casinos ran over budget, and BCI/BCBI filed for bankruptcy. First National Bank of Commerce ("FNBC"), the agent for these escrow funds, failed to obtain necessary documentation, guaranteeing the cost of construction, from various sources, therefore contributing to the cost overruns and the bankruptcy. Before the bankruptcy, First Trust became aware of cost overruns and of its failure to receive from FNBC copies of all necessary documentation.

First Trust sued FNBC, claiming breach of various contractual and fiduciary obligations to the noteholders whom First Trust represents as indenture trustee. FNBC challenged First Trust's suit on grounds of standing and the statute of limitations. The district court found for FNBC on summary judgment on both grounds. First Trust appeals. Agreeing with the district court that limitations bars this action, we affirm.

1.

Mississippi Riverboat Amusements, Ltd. ("MRA"), which owned and operated the Biloxi Belle Casino in Biloxi, Mississippi, decided in 1993 to expand its existing casino (the "Biloxi Project") and to open a new casino in Tunica County (the "Tunica Project"). To facilitate this expansion, MRA established two subsidiary corporations: BCI, a Delaware corporation, and BCBI, a Mississippi corporation. To finance the construction and expansion of the projects, certain notes were sold under an offering put together by Bear, Sterns & Co., Inc., in the name of BCI. The notes were sold to investors (the "noteholders" or "Holders") pursuant to an Indenture under which First Trust served as indenture trustee, thereby agreeing to perform certain acts on behalf of the Holders and in relation to the notes, which were sold in October 1993.

Upon sale of the notes, FNBC was selected as Disbursing Agent for the proceeds, and its obligations were defined by the Disbursement and Escrow Agreement ("Disbursement Agreement"). The proceeds from the notes were placed into two escrow accounts administered by FNBC, which agreed to distribute the funds from those accounts only on the occurrence of certain conditions listed in the Disbursement Agreement. Simultaneously, BCI loaned the net proceeds of the notes to BCBI, which executed a Disbursement and Escrow Account Security Agreement ("Disbursement Security Agreement") to BCI in the principal amount of $ 75 million. BCBI was to use the net proceeds of the offering to finance the construction and expansion of the projects and thereafter operate the casinos.

After a draw at closing to pay off the interim loans and closing costs, BCBI deposited almost $ 60 million into two escrow accounts at FNBC. Finally, an Assignment Agreement was executed between BCI as assignor and First Trust as assignee, whereby BCI assigned all of BCI's rights as Lender to First Trust, including its rights under the Disbursement Agreement. Moreover, BCI assigned its rights, title, and interest in the escrow accounts to First Trust.

According to article III of the Disbursement Agreement, FNBC and First Trust were to receive certain documents (the "initial documents") as a precondition to disbursing money from the escrow accounts. After the note sale, FNBC received Contractor's and Architect's Certificates (the "Disbursement Certificates" or "certificates") as contemplated by article VI of the Disbursement Agreement, and in particular section 6.08. FNBC, however, was to use the Disbursement Certificates to make disbursements only if both First Trust and FNBC had first secured the initial documents.

Neither First Trust nor FNBC received those documents. FNBC, though, disbursed the requested funds on the strength of the Disbursement Certificates alone.

FNBC first distributed money from the escrow accounts on October 14, 1993, and continued to disburse until May 13, 1994. On or about April 14, 1994, the Holders were first notified by BCI that there were construction-cost overruns. At a meeting between Bear, Stearns and the Holders on May 5, 1994, the Holders received a financial report indicating that the projects had greatly overrun their budgets.

The Holders hired attorneys to negotiate further with BCI and to investigate defaults under the Indenture and Disbursement Agreements. On May 19, 1994, the noteholders' attorney informed Scott Strodthoff, First Trust's vice president, of the overruns and that a review of the Disbursement Agreement indicated that a potential default had occurred, and faxed Strodthoff a copy of the Disbursement Agreement.

On or about May 19, 1994, Strodthoff examined First Trust's file and discovered that only Disbursement Certificates numbered 3, 4, and 5 were in the file. First Trust then hired its own counsel on May 26, 1994, to "review documents regarding construction disbursements." The construction budget in the Disbursement Agreement limited the Biloxi and Tunica Projects to about $ 30 million each. Accordingly, BCBI could not exceed the budgets by more than $ 1.2 million without First Trust's permission. There is no evidence that First Trust ever consented to any increase in the budgets.

First Trust declared default on July 12, 1994, and instructed FNBC to transfer the remaining escrowed funds to First Trust; BCI and BCBI filed for bankruptcy on August 31, 1994. First Trust claims that it first discovered FNBC's failure to obtain the initial documents in July 1996, when its attorneys examined FNBC's files.

II.

First Trust sued in its capacity as indenture trustee on behalf of the Holders on June 10, 1997, claiming breach of the Disbursement Agreement, alleging that FNBC disbursed funds from the escrow accounts without having first received the initial documents. It claimed breach of contract and of fiduciary duty and sought damages in an amount equal to the funds wrongfully disbursed.

In response, FNBC filed a third-party complaint against various third-party defendants, claiming that they were at least partly responsible for FNBC's alleged mishandling of the proceeds. FNBC also filed a motion for summary judgment, arguing that First Trust's action was time-barred and that First Trust lacked standing under the Indenture to bring its claims. The district court found for FNBC on both counts, granting summary judgment and attorney's fees under the Indenture.

III.

All agree that the applicable statute of limitations is Mississippi's catch-all statute, which requires that

(1) All actions for which no other period of limitation is prescribed shall be commenced within three (3) years next after the cause of such action accrued, and not after.

(2) In actions for which no other period of limitation is prescribed and which involve latent injury or disease, the cause of action does not accrue until the plaintiff has discovered, or by reasonable diligence should have discovered, the injury.

MISS. CODE ANN. 15-1-49 (1999).

First Trust sued on June 10, 1997. Under subsection (1), therefore, its action is barred if it accrued before June 10, 1994. First Trust claims, however, that the "discovery rule" should apply to toll the statute until July 1996, when it first discovered that FNBC had never sent it the initial documents, or, if the discovery rule does not apply, that its claim was still timely, because its cause of action did not accrue until BCI and BCBI declared bankruptcy--after June 10, 1994.

The district court and FNBC reason, to the contrary, that First Trust's claim accrued on the day of the first disbursement of funds, that the discovery rule does not apply, and that even if it did, the tolling pursuant to that rule would have ended at the very latest on June 10, 1994, when First Trust's attorneys explained to First Trust that breach had probably occurred and that the relevant documents should be reviewed. We agree.

A.

In Mississippi, a breach of contract claim accrues at the time of the breach regardless of when damages resulting from the breach occur. See Young v. Southern Farm Bureau Life Ins. Co., 592 So. 2d 103, 107 (Miss. 1991); Johnson v. Crisler, 156 Miss. 266, 125 So. 724, 724-25 (Miss. 1930). The breach First Trust complains of is FNBC's disbursement of money without having received and transmitted to First Trust the appropriate documents. Disbursements began on October 14, 1993, and continued until May 13, 1994. First Trust's cause of action therefore emerged at the earliest on the first of those dates and, most generously, on the last.

First Trust claims that its cause of action could not arise until BCI and BCBI filed for bankruptcy, because "First Trust's claims against FNBC were contingent on whether BCI paid the amounts due and owing under the Notes. Only when it became clear that BCI was unable to satisfy its obligations under the Notes was First Trust able to seek recovery of principal and interest from other sources." First Trust argues that the district court's earlier denial of summary judgment to the third-party defendants (regarding the claims brought by FNBC) on limitations grounds should, under the law-of-the-case doctrine,...