In re Phillips, Bankruptcy No. 90-51042-C

• Decision Date: 15 January 1991
• Docket Number: Adv. No. 90-5245-C.,Bankruptcy No. 90-51042-C
• Citation: 124 BR 712
• Parties: In re Andrew Bass PHILLIPS, Debtor. Andrew Bass PHILLIPS, Plaintiff, v. The FEDERAL DEPOSIT INSURANCE CORPORATION in its Limited Capacity as Receiver for Charles Schreiner Bank, N.A., Defendant.
• Court: U.S. Bankruptcy Court — Western District of Texas

124 B.R. 712 (1991)

In re Andrew Bass PHILLIPS, Debtor Andrew Bass PHILLIPS, Plaintiff, v. The FEDERAL DEPOSIT INSURANCE CORPORATION in its Limited Capacity as Receiver for Charles Schreiner Bank, N.A., Defendant.

Bankruptcy No. 90-51042-C, Adv. No. 90-5245-C.

United States Bankruptcy Court, W.D. Texas, San Antonio Division.

January 15, 1991.

COPYRIGHT MATERIAL OMITTED

Harry Perrin, Houston, Tex., for debtor and plaintiff.

Nancy Reyes, F.D.I.C., San Antonio, Tex., for defendant.

DECISION AND ORDER

LEIF M. CLARK, Bankruptcy Judge.

CAME ON for hearing the Rule 12(b)(6) motion of the Federal Deposit Insurance Corporation, in its corporate capacity liquidating Charles Schreiner Bank, N.A. to dismiss the complaint for failure to state a claim upon which relief can be granted. Subsequent to the hearing, the parties submitted briefs. Upon consideration thereof, the court makes the following findings and conclusions.

FACTUAL BACKGROUND

Andrew Bass Phillips ("Phillips") for many years has been engaged in the real estate brokerage and development business near Kerr County, Texas. Charles Schreiner Bank, N.A. ("CSB") financed many of Phillips' real estate projects. The adversary complaint contains a detailed list of loans made by CSB to Phillips, Phillips' guaranties of loans made by CSB to third parties and loans made by CSB to entities to which Phillips had a direct and primary liability to CSB as a general partner or joint venturer.

A number of disputes arose between Phillips and CSB regarding their lending relationship. Consequently, in January of 1989, Phillips sued CSB in United States District Court alleging (i) violations of 18 U.S.C. § 1961 et seq. ("RICO"), (ii) violations of 12 U.S.C. § 1972 et seq. (the "Bank Tying Act"), (iii) violations of Texas usury law, and (iv) other claims grounded in state statutory and common law. CSB acknowledged that the alleged RICO, Bank Tying Act and usury causes of action arose out of the lending relationship between Phillips and CSB. Subsumed within the lending relationship were those promissory notes, guaranties and Phillips' direct liabilities to CSB as a partner or joint venturer as more particularly described in the adversary complaint.

During this case, the parties became embroiled in a discovery battle. See Phillips v. Chas. Schreiner Bank, 894 F.2d 127, 129 (5th Cir.1990). In preparation for defending foreclosure proceedings believed to be initiated by CSB, Phillips moved for expedited discovery. See id. On March 7, 1989, the district court granted Phillips' motion and set stringent discovery deadlines. See id. On March 13, CSB moved for reconsideration of the March 7 order and assured the court that it would seek only judicial foreclosure.¹ See id. When the court did not act on this motion, CSB again moved to extend the discovery deadlines. On May 3, Phillips moved for an expedited trial setting because of CSB's initiation of foreclosure proceedings,² and moved the court to compel the production of certain documents. See id. On May 5, the court granted Phillips' motion to compel production but extended the discovery deadlines per CSB's request.³ See id.

In July 1989, CSB moved for summary judgment on the RICO, Bank Tying Act and usury causes of action and requested the district court to dismiss the remaining pendent state law claims for lack of subject matter jurisdiction. The district court granted CSB's motion on January 25, 1990, effectively entering judgment on the merits against Phillips on the RICO, Bank Tying Act and usury claims and dismissing the remaining state law causes. Prior to the entry of the district court's judgment, CSB did not counterclaim against Phillips on the notes, guaranties and other direct liabilities of Phillips.⁴ Neither CSB nor Phillips appealed the district court's judgment, and the time within which to perfect an appeal has passed.

Outline of Arguments

Phillips filed its voluntary Chapter 11 petition on April 3, 1990,⁵ and on August 2, 1990, pursuant to the R.Bankr.P. 3007 and 7001, Phillips filed this adversary complaint requesting a declaration that the claims held by the FDIC in its limited capacity as receiver for CSB, together with liens securing such claims, if any, are void and unenforceable against the debtor and the bankruptcy estate under applicable federal law.⁶ Phillips' complaint is premised on Federal Rule of Civil Procedure 13(a) which states that a counterclaim is compulsory in a federal court action if it arises out of the same transaction or occurrence as the subject matter of the opposing party's claim. Phillips maintains that because CSB admitted that the RICO, Bank Tying Act and usury claims arose out of the same lending relationship between CSB and Phillips and because any claims which CSB had against Phillips as a result of that lending relationship were not asserted as counterclaims in the first district court action, the FDIC, as receiver for CSB, is now precluded from asserting such claims.

Subsequently, the FDIC filed this motion to dismiss the complaint for failure to state a claim upon which relief can be granted asserting that the compulsory counterclaim rule does not require a lender to counterclaim to collect a debt. The FDIC further contends that the previous district court action has no res judicata effect on CSB or the FDIC and does not bar the FDIC's claims against Phillips. Alternatively, the FDIC argues that if the claims were compulsory and were waived by not being asserted in the lender liability action, such a waiver is not binding against the FDIC because the FDIC is entitled to the protection of a holder in due course under federal common law. Finally, the FDIC maintains that any agreement or representation made by CSB that it would forebear from nonjudicial foreclosure is not binding on the FDIC under D'Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942), its progeny and 12 U.S.C. § 1823(e).

In response, Phillips counters that the exemption to the compulsory counterclaim rule set forth under Texas law does not apply to the FDIC in this case and that the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), which Act binds the FDIC to abide by final judgments of the district court, effectively overrides the FDIC's D'Oench, Duhme and § 1823(e) arguments, thus barring the FDIC's claims.

At the hearing the court queried the application of the doctrine of judicial estoppel. Subsequently, the parties briefed that issue as well as the application of the election of remedies doctrine.⁷

DISCUSSION

Federal Rule of Civil Procedure 13(a) (the compulsory counterclaim rule) provides that a pleading must state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction. Fed. R.Civ.P. 13(a). Any counterclaim which is compulsory and is not brought in the pending action prior to judgment, is barred from being asserted in a subsequent action. Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 469 n. 1, 94 S.Ct. 2504, 2506 n. 1, 41 L.Ed.2d 243 (1974). Phillips' RICO, Bank Tying Act and usury causes of action arose directly out of the customer-lender relationship between Phillips and CSB, and those claims directly attacked the notes that Phillips executed in CSB's favor. See Howe v. Vaughan (Matter of Howe), 913 F.2d 1138, 1144-45 (5th Cir.1990). Thus, CSB was required to bring suit on those notes in the district court action prior to entry of final judgment or be forever barred from pursuing those claims. Baker v. Gold Seal Liquors, Inc., 417 U.S. at 469 n. 1, 94 S.Ct. at 2506 n. 1. However, the FDIC presents several arguments why the compulsory counterclaim rule does not bar these claims.⁸

I. Exception to Compulsory Counterclaim Rule

The Federal Rules of Civil Procedure are procedural in nature and are not meant to govern or grant substantive rights. "Procedure" is the "judicial process for enforcing rights and duties recognized by substantive law and for justly administering remedy and redress for disregard or infraction of them." Hanna v. Plumer, 380 U.S. 460, 464, 85 S.Ct. 1136, 1140, 14 L.Ed.2d 8 (1965) (citing Sibbach v. Wilson & Co., 312 U.S. 1, 14, 61 S.Ct. 422, 426, 85 L.Ed. 479 (1941)). Although the compulsory counterclaim rule is procedural in nature, the case law has carved out at several "exceptions"⁹ to the rule, only one of which is applicable in this case.¹⁰

Under Texas law, a borrower cannot force a lender to elect from the remedies available to it under the transaction or to waive any of its remedies by merely filing a lawsuit attacking the collectability of the debt. See Thurman v. Federal Deposit Ins. Corp., 889 F.2d 1441, 1444 (5th Cir. 1989).¹¹Thurman stated that "under Texas law when a borrower files an action attacking the collectability of a secured debt, the compulsory counterclaim rule does not require the secured party to counterclaim to collect on the debt if he has chosen to exercise his bargained for right to pursue extra-judicial foreclosure." Thurman, 889 F.2d at 1444 (emphasis added). Thurman recognized that a lender has various remedies available to it under a note and adopted the reasoning of a Texas case, Kaspar v. Keller, which precluded a borrower from compelling the lender to pursue a judicial foreclosure remedy through a counterclaim by merely filing an action to cancel the note. See Thurman, 889 F.2d at 1445 (citing Kaspar v. Keller, 466 S.W.2d 326, 329 (Tex.Civ.App.-Waco 1971, writ ref'd n.r.e.)). Kaspar stated that:

the mortgagor should not be permitted to destroy or impair the mortgagee\'s contractual right to foreclose under the power of sale by the simple expedient of instituting a suit, whether

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