Ginsberg 1985 Real Estate Partnership v. Cadle Co.

• Decision Date: 23 November 1994
• Docket Number: No. 93-5470,93-5470
• Citation: 39 F.3d 528
• Parties: GINSBERG 1985 REAL ESTATE PARTNERSHIP, Plaintiff-Counter Defendant-Appellant, Statewide Insurance Agency, Inc., et al., Counter-Defendants-Appellants. v. The CADLE COMPANY, Defendant-Counter Claimant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 528

39 F.3d 528

GINSBERG 1985 REAL ESTATE PARTNERSHIP, Plaintiff-Counter Defendant-Appellant, Statewide Insurance Agency, Inc., et al., Counter-Defendants-Appellants. v. The CADLE COMPANY, Defendant-Counter Claimant-Appellee.

No. 93-5470.

United States Court of Appeals, Fifth Circuit.

Nov. 23, 1994.

John B. White, Wilson, Miller, Spivey, Sheehy & Knowles, Tyler, TX, for appellant.

Michael L. Jones, Caolo, Meier & Jones, Dallas, TX, for appellee.

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

Before KING, JOLLY and STEWART, Circuit Judges.

KING, Circuit Judge:

Appellants Ginsberg 1985 Real Estate Partnership, Fred Ginsberg, Sidney Ginsberg, Joe Ginsberg, and Statewide Insurance Agency, Inc., appeal from the district court's grant of summary judgment for The Cadle Company on a promissory note dispute. We vacate and remand that portion of the district court's judgment that determines the amount of The Cadle Company's recovery, but we affirm the judgment in all other respects.

I. FACTUAL AND PROCEDURAL BACKGROUND

On June 3, 1985, Ginsberg 1985 Real Estate Partnership ("Ginsberg 1985") executed a $250,000 promissory note ("Note") payable to the order of RepublicBank Tyler. The Note specified that the interest rate to be applied was the prime interest rate charged by RepublicBank Dallas, plus one percent. Payment of the Note was guaranteed by Statewide Insurance Agency, Inc. ("Statewide"), and individual guaranties were also provided by the partners of Ginsberg 1985--Joe Ginsberg, Sidney Ginsberg, Ted Ginsberg, and Fred Ginsberg.

On July 29, 1988, First RepublicBank Dallas--the successor to RepublicBank Dallas--was declared insolvent and was placed into receivership. First RepublicBank Tyler--the successor to RepublicBank Tyler--also failed and was placed into receivership. ¹ Numerous assets of both failed banks, including the Note and guaranties at issue, were sold to JRB Bank, N.A. ("JRB"). JRB subsequently changed its name to NCNB Texas National Bank ("NCNB"), and NCNB later changed its name to NationsBank of Texas, N.A. ("NationsBank").

Sometime prior to March of 1991, a dispute arose between NCNB and Ginsberg 1985 over the allocation of payments on the Note between principal and interest, and NCNB allegedly advised Ginsberg 1985 to cease making payments on the Note until the dispute could be resolved. Ginsberg 1985's last payment was made on March 1, 1991. NCNB subsequently transferred the Note and the related guaranties to the FDIC on November 30, 1991, and the FDIC then sold the Note and the guaranties to The Cadle Company ("Cadle") on June 22, 1992. Cadle requested payment on the Note and made demand upon the guarantors because of the cessation of payments.

In response, Ginsberg 1985 filed suit against Cadle in state court, seeking damages for usury, negligence, gross negligence, and breach of contract, as well as a judgment declaring the rights between the parties. Cadle removed the lawsuit to federal court on diversity grounds and filed a counterclaim against Ginsberg 1985 for the amount due under the Note. Cadle also asserted claims against Statewide and the individual guarantors on the basis of their guaranty agreements.

In district court, Cadle filed a motion for summary judgment, offering the affidavit of its account executive in support of the motion. In light of First RepublicBank Dallas's failure, the affidavit calculated the amount of past due interest using two different measures; first, the rate after default of 18% (the highest rate permitted by law), and second, the "continuing" rate derived by periodically substituting the prime rate of NationsBank and its predecessors. On August 4, 1993, the district court, without analysis, granted Cadle's motion in a "final judgment," and awarded Cadle the outstanding principal amount of the Note ($189,248.22), together with accrued interest at the default rate of 18%. The court ordered that Cadle was entitled to recover jointly and severally from Ginsberg 1985, Statewide, Joe Ginsberg, Sidney Ginsberg, and Fred Ginsberg. ² The court also denied all of Ginsberg 1985's claims against Cadle. After unsuccessfully urging a motion for new trial or to amend the judgment, Ginsberg 1985, Fred Ginsberg, Sidney Ginsberg, Joe Ginsberg, and Statewide filed a notice of appeal.

II. STANDARD OF REVIEW

We review a summary judgment de novo, applying the same criteria employed by the district court in the first instance. See Conkling v. Turner, 18 F.3d 1285, 1295 (5th Cir.1994); FDIC v. Dawson, 4 F.3d 1303, 1306 (5th Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 2673, 129 L.Ed.2d 809 (1994). Summary judgment is proper if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). After the movant has presented a properly supported motion for summary judgment, the burden shifts to the non-moving party to show with "significant probative evidence" that there exists a genuine issue of material fact. See Conkling, 18 F.3d at 1295. A fact is "material" if its resolution in favor of one party might affect the outcome of the lawsuit under governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). An issue is "genuine" if the evidence is sufficient for a reasonable jury to return a verdict for the non-moving party. See id.

III. ANALYSIS AND DISCUSSION

A. Interest Rate Selection

The primary issue in this appeal involves the interest rate to be applied after the failure of First RepublicBank Dallas. As mentioned, the Note pegged the interest rate to the prime rate of First RepublicBank Dallas, ³ plus one percent. Appellants contend that "[u]pon its failure, the First RepublicBank Dallas prime interest rate ceased to exist. As a result, since July 29, 1988, the [N]ote has failed to specify an interest rate that is agreed upon by the parties." According to the appellants, the Texas legislature has mandated a 6% rate of interest in the absence of a specified rate. ⁴ Thus, because Cadle has charged greater than 6% interest since the failure of First RepublicBank Dallas, appellants assert that Cadle has "committed usury" and is liable to Ginsberg 1985 for statutory usury penalties.

In response, Cadle contends that it was entitled to substitute an analogous prime interest rate for the prime interest rate of the failed First RepublicBank Dallas. Cadle not only calculated accrued interest at the 18% default rate, but it also calculated the amount of interest by referring periodically to the prime rate in effect at the banks that assumed many of First RepublicBank Dallas's assets and operations (i.e., NCNB and NationsBank).

Cadle's "substitution" approach, or its application of a "continuing" interest rate, is supported by Texas law and precedents in this circuit. In FDIC v. Blanton, 918 F.2d 524 (5th Cir.1990), the contract between the parties specified a prematurity interest rate equal to the prime rate of First National Bank of Midland ("FNB-Midland"), plus one percent. FNB-Midland failed, and Blanton argued "that the applicable post maturity rate should be one percent because the contract specifies a prematurity rate equal to FNB-Midland Prime plus one percent, and upon FNB-Midland's insolvency, FNB-Midland Prime evaporated, leaving one percent." Id. at 532.

We disagreed with Blanton's construction, initially noting that:

[e]ven assuming the absence of a specific agreement as to postmaturity interest, settled Texas law permits the implication that the specified prematurity rate continues after postmaturity. Petroscience Corp. v. Diamond Geophysical, Inc., 684 S.W.2d 668, 668-69 (Tex.1984) (per curiam). Such an implication favors continuity in the rate of interest rather than elimination of interest upon the unforeseeable insolvency of the bank supplying the prime rate reference.

Id. (emphasis added). Blanton, however, also denied the existence of any agreement on postmaturity interest; instead, like the appellants in this case, he urged the statutory rate of six percent applicable in the absence of an agreement between the parties. We rejected this contention as well, finding the six percent rate of article 5069-1.03 to be inapplicable. As the court stated, "[w]e conclude either that the parties did agree on a specific postmaturity rate, or that the evidence was such that the district court could properly fix the interest without reference to article 5069-1.03." Id.

Perhaps most importantly, we explicitly noted in Blanton that "[t]he trial judge could have applied an analogous prime rate as consistent with the intent of the parties," even though, as in the instant case, the contract between the parties pegged the interest rate to a specific banking institution that subsequently failed. Id. The district court in Blanton calculated prejudgment interest at ten percent based upon an implicit finding that the parties agreed to that rate. See id. at 532-33. In dicta, however, we approved an alternative interest calculation based upon the application of an analogous prime rate. As we noted:

Counsel for FDIC indicated that the district court had not in fact applied a uniform 10% rate, but instead applied a fluctuating rate borrowed from the prime rate of Republicbank, the assuming bank of FNB-Midland.... Application of the fluctuating rate would merely indicate that the trial judge had not accepted the ten percent postmaturity interest agreement, and had instead applied a prime rate borrowed from larger Texas banks upon which FNB-Midland had based its own prime rate. The Florida bankruptcy court presiding over the Gihls Properties proceedings did precisely that, and...