In re Scott, Bankruptcy No. 91-51178C

CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Western District of Texas
Writing for the CourtLEIF M. CLARK
Citation157 BR 297
Decision Date25 July 1993
Docket NumberBankruptcy No. 91-51178C,Adv. No. 91-05168C.
PartiesIn re Steven Rollins SCOTT, d/b/a Steve R. Scott & Assoc., f/d/b/a Tempo Centre, 811 Barton, Debtor. Steven Rollins SCOTT, d/b/a Steve R. Scott & Assoc., f/d/b/a Tempo Centre, 811 Barton, Plaintiff, v. RESOLUTION TRUST CORPORATION as Receiver of Southwest Federal Savings Association, Defendant.

157 B.R. 297 (1993)

In re Steven Rollins SCOTT, d/b/a Steve R. Scott & Assoc., f/d/b/a Tempo Centre, 811 Barton, Debtor.
Steven Rollins SCOTT, d/b/a Steve R. Scott & Assoc., f/d/b/a Tempo Centre, 811 Barton, Plaintiff,
RESOLUTION TRUST CORPORATION as Receiver of Southwest Federal Savings Association, Defendant.

Bankruptcy No. 91-51178C, Adv. No. 91-05168C.

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

July 25, 1993.

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Barbara M. Barron, Manuel H. Newburger, Barron & Newburger, P.C., Austin, TX, for debtor/plaintiff

J. Matthew Dow, Michael V. Baumer, Small, Craig & Werkenthin, Austin, TX, Warren D. Campbell, Donohoe, Jameson & Carroll, LLP, Dallas, TX, for defendant RTC.


LEIF M. CLARK, Bankruptcy Judge.

CAME ON, for consideration, the Motion of the Defendant, the Resolution Trust Corporation (the "RTC"), to Dismiss, or, in the Alternative, for Summary Judgment. The RTC asserts, inter alia, that this court lacks subject matter jurisdiction over this adversary proceeding, and that the Debtor-in-Possession ("DIP") is not entitled to affirmative recovery against the RTC as a matter of law. The court denied the Motion to Dismiss as untimely, but entertained the Motion for Summary Judgment since lack of subject matter jurisdiction can be raised at any time.1 Upon consideration thereof, the court concludes that the RTC's Motion for Summary Judgment should be granted, in part, and denied, in part.


The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b), 157(a), and 11 U.S.C. §§ 105, 544(a)(1), 544(a)(3) and 543. This is a core proceeding pursuant to 28 U.S.C. § 157(b). The RTC contests this court's subject matter jurisdiction, arguing that 12 U.S.C. § 1821(d)(13)(D) deprives this court of jurisdiction notwithstanding 11 U.S.C. § 1334(b).


On July 12, 1985, Steven Rollins Scott ("Scott") and Lamar Savings Association ("Lamar") entered into a construction loan agreement for the development and construction of an office building at 811 Barton Springs Road, Austin, Texas (the "Property"). Scott signed a promissory note for $18,400,000 ("Note") in favor of Lamar. The Note was secured by a properly filed Deed of Trust. In March 1987, the Note was extended and secured by a

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Renewal Deed of Trust and Security Agreement

The Property is composed of two adjacent tracts of land, Tract I and Tract II. The parties of course intended that the Note be secured by both tracts, but only the legal description of Tract I was actually inserted into the Deed of Trust. The mistake went unnoticed by Scott and Lamar, and as a result, the planned office building was constructed, using the development loan. The building of course spanned both tracts of the Property. Most of the building sits on the much larger Tract I, with about 9.23% of the net rentable space sitting on Tract II, along with a part of the building's mechanical room, as well as the building's only fire lane.

Subsequent to the maturity date of the Note as extended, Scott fell into default. On April 5, 1988, Lamar foreclosed. Of course, only Tract I was covered by the Renewal Deed of Trust and Security Agreement, and only Tract I was described in the foreclosure papers, including the Substitute Trustee's Deed delivered to the purchaser after the foreclosure. Lamar was the successful bidder, bidding in a portion of its Note. Still unaware that Tract I did not encompass all the building at 811 Barton Springs, Lamar innocently assumed control over the entire building, and began collecting rents and managing the property. Lamar also repossessed the personalty used in connection with the Property, claiming that this personalty had been pledged to Lamar in the Addendum to the Deed of Trust and in the Renewal Deed of Trust and Security Agreement. Lamar asserted the balance of the Note (that part not already used to bid in at the foreclosure sale) as a deficiency claim against Scott.

The very next month, May 1988, Lamar was declared insolvent, and the Federal Savings and Loan Insurance Corporation ("FSLIC") was appointed as Receiver. FSLIC then transferred certain Lamar assets, including the Note and Lamar's interest in the Property, to Southwest Savings.

Some eighteen months later, the mistake in the Deed of Trust was discovered. Scott sued Southwest Savings to recover Tract II, and Southwest responded, filing its own lawsuit for reformation of the Note, Deed of Trust and Substitute Trustee's Deed of Trust to include Tract II. Significantly, a lis pendens regarding this litigation was never filed by Southwest or by any of its successors in interest.

Six months later, Southwest Savings was itself in financial trouble and the RTC was appointed as its conservator. The reformation suit was subsequently removed to federal court in Dallas, Texas. Just two days later, on June 15, 1990, Southwest Savings was formally declared insolvent by the Office of Thrift Supervision, and the RTC2 was appointed Receiver. The RTC then organized Southwest Federal Savings, into which it transferred some of the assets of Southwest Savings, including the Note and Southwest Savings' interest in the Property.

Around March 1, 1991, Southwest Federal filed a Motion for Summary Judgment in the reformation litigation. Before that Motion could be ruled on, however, Scott filed this Chapter 11 case (on April 2, 1991, the "Petition Date"), calling into existence the Debtor-in-Possession who is now the plaintiff in this adversary proceeding. See 11 U.S.C. §§ 1101, 1107; see also H.R.REP. No. 595, 95th Cong., 1st. Sess. 404 (1977) ("this section places a debtor in possession in the shoes of a trustee in every way. The debtor is given the rights and powers of . . . is to perform the functions and duties of . . . and is also subject to any limitations on a chapter 11 trustee").3 In June

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of that year, Southwest Federal sought relief from the automatic stay to pursue the reformation litigation then thought pending in Federal District Court, but the federal case had been administratively closed as a result of the bankruptcy filing, so there was no longer a case pending there to pursue. A month later, in July 1991, Southwest Federal was itself declared insolvent, and the RTC was again appointed Receiver

The next month, on August 12, 1991 the DIP filed this adversary proceeding against the RTC, seeking declaratory relief, turnover of assets, and monetary damages, all arising out of the peculiar circumstances surrounding Tract II. On February 28, 1992, this court granted Plaintiff's Motion For Partial Summary Judgment, concluding that title to Tract II had of course never been conveyed to Lamar in the foreclosure (because it had never been conveyed to the trustee in the Deed of Trust), that legal title to Tract II remained with Scott, becoming property of the bankruptcy estate upon the filing of his bankruptcy petition, that, because the DIP enjoyed a bona fide purchaser status under the Bankruptcy Code, the RTC could not seek reformation of the Renewal Deed of Trust and the Security Agreement against the DIP, and that, therefore, the RTC had to surrender control of Tract II to the DIP and not act in any manner inconsistent with the estate's exclusive interest in Tract II and the improvements and fixtures thereon. All this meant that the RTC could no longer have tenants occupying that portion of the building sitting on Tract II, could no longer collect rents from those tenants, and could not have access to most of the mechanical room, which sat on Tract II. It also meant that the remaining portion of the building on Tract I no longer had a fire lane and so was in violation of City of Austin fire regulations.

The RTC, incredulous at this turn of events,4 adopted a "make me" hardline stance and refused to budge. It refused to move out of that part of the building sitting on Tract II, and continued to operate the 811 Barton Springs Road as though nothing had happened. It also refused to pay any rent to the DIP. Indeed, the RTC for a time actually denied the DIP access to that portion of the building sitting on Tract II. The RTC of course never surrendered possession and control of Tract II to the DIP, nor were the parties able to reach any settlement of their differences, despite repeated attempts. Eventually, the DIP sought and obtained an enforcement order from this court, setting a monthly charge for the RTC's continued wrongful use of Tract II. It took a threat of contempt to force the RTC to honor this order and pay the DIP.

At this last stage of the proceeding, the DIP now seeks, inter alia, judgment for (a) post-foreclosure income stream, (b) future investment value of the building and/or future income stream, (c) lost profits resulting from the RTC's negligence in marketing the building, (d) value of personalty converted, (e) emotional distress, (f) interest as damages, (g) exemplary damages, and (h) attorneys' fees. On the eve of trial, the RTC filed this Motion for Summary Judgment, claiming for the first time that this court lacks subject matter jurisdiction pursuant to 12 U.S.C. § 1821(d)(6)(A), and that Scott may not recover affirmative, monetary relief against the RTC as a matter of law. The court proceeded to trial, in the interests of judicial economy,5 reserving ruling on the summary judgment motion, now the subject of this decision.

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The standard for deciding requests for summary judgment is well settled: summary judgment is proper if the party moving for such a judgment establishes that there is...

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