Midland West Corp. v. Federal Deposit Ins. Corp.

• Decision Date: 19 September 1990
• Docket Number: No. 89-1725,89-1725
• Citation: 911 F.2d 1141
• Parties: MIDLAND WEST CORPORATION, Plaintiff-Appellee, v. FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, and Richard E. Anderson, as substitute trustee, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1141

911 F.2d 1141

17 Fed.R.Serv.3d 868

MIDLAND WEST CORPORATION, Plaintiff-Appellee, v. FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity and Richard E. Anderson, as substitute trustee, Defendants-Appellants.

No. 89-1725.

United States Court of Appeals Fifth Circuit.

Sept. 19, 1990.

Rehearing Denied Oct. 18, 1990.

Stephen F. Fox, T. Ray Guy, David Ford Hunt, Jenkens & Gilchrist, Dallas, Tex., for defendants-appellants.

E. Link Beck, Steven C. James, Beck & James, El Paso, Tex., for plaintiff-appellee.

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

Before GOLDBERG, GEE and WILLIAMS, Circuit Judges.

GEE, Circuit Judge:

The Federal Deposit Insurance Corporation (FDIC), as the successor in interest to the now defunct First National Bank of Midland (First National), appeals from a district court order denying its motion to reform an Order of Agreed Judgment forged between the FDIC, the Midland West Corporation, and L. Frank Mullins. We conclude that the motion to reform the judgment was timely filed and because the judgment did not reflect the express, mutual intent of the parties to the settlement, we hold that the district court should have granted the motion to reform; therefore, we reverse the order and remand to the district court to allow the parties to reform the judgment.

Facts

In 1982, plaintiff-appellee Midland West Corporation executed and delivered two promissory notes payable to First National, one in the principal amount of $8,946,311 and the other in the amount of $3,100,000. The notes were due and payable on December 15, 1983. Midland West used the proceeds from the larger loan to develop a parcel of real estate known as the Green Tree Property. The smaller note furnished funds for various oil and gas programs. Concurrently with the execution of these notes, L. Frank Mullins and Edmund R. Rigatti each executed separate guaranty agreements and delivered the agreements to First National. Mr. Mullins guaranteed payment of the lesser of $8,431,252 or 69% of Midland West's outstanding debt and Mr. Rigatti guaranteed the lesser of $2,812,682 or 28% of the same debt. In addition, First National secured the note with five deeds of trust executed by Midland West covering various properties held by Midland West, including the Green Tree property.

As was the case with other oil and gas and Texas real estate investors, 1983 proved to be a disastrous year for Midland West and First National. Midland West was unable to repay the notes on their December 15th due date. First National was declared insolvent, and the FDIC was appointed receiver. In its role as receiver, the FDIC conveyed various First National assets to itself in its corporate capacity, including the two promissory notes, the two guarantees and the five deeds of trust arising from the Midland West transaction. Under a subsequent workout agreement, the FDIC extended the maturity dates of the notes to August 29, 1986; but on arrival of that date Midland West once again failed to pay the notes. On September 30, 1987, the FDIC demanded payment from Midland West and called on each guarantor to honor his guarantee. Midland West, Mr. Mullins, and Mr. Rigatti refused.

In July 1988, the FDIC filed suit in federal court against the guarantors and posted the Green Tree properties for non-judicial foreclosure. Midland West filed suit against the FDIC in state court to prevent the foreclosure and obtained relief in the form of a temporary restraining order. The FDIC removed the state court suit to federal court, and the district court consolidated the two cases.

During the pendency of the consolidated lawsuit, the FDIC, Midland West and Mr. Mullins settled their dispute. Similar efforts to settle with Mr. Rigatti were unsuccessful and, as a result, the district court severed the FDIC's suit against Mr. Rigatti in order to allow the FDIC to complete its negotiations with Midland West and Mr. Mullins.

On May 11, 1989, the FDIC, Midland West and Mr. Mullins entered into a compromise settlement agreement. The FDIC maintains, and Midland West and Mr. Mullins do not dispute, that the parties intended the agreement to provide for (1) the FDIC to receive all of Midland West's current assets of value; and (2) for Mr. Mullins to pay the FDIC an amount in excess of what the FDIC could have recovered from him by way of a judgment. In the settlement agreement, Midland West concedes that the promissory notes were due and payable and relinquishes all claims against the FDIC, both in its corporate capacity and as receiver. The agreement further provides that Midland West and Mr. Mullins release all claims against the FDIC. In return, the FDIC released its claims against Mr. Mullins. The agreement explicitly states, however, that it is not a release of claims that the FDIC has against Midland West, but merely a covenant not to sue upon them--except for any necessary judicial foreclosures. The specific language in the settlement agreement explains: "This covenant not to sue Midland West Corporation is not and shall not be interpreted as an extinguishment, settlement, or release of the debts represented by the notes or of any debts secured by any collateral pledged to the FDIC by or on account of Midland West."

The agreement further required that the parties file an Order of Agreed Judgment with the district court, reflecting the essential terms of the settlement agreement and dismissing the suit with prejudice. Accordingly, the parties filed the order, and it was granted by the district court on May 26, 1989.

The settlement agreement also contained a late-hour addition to its wording, providing: "The FDIC agrees that the judicial foreclosure of its Deed of Trust lien, and any other foreclosure and/or conveyance provided for herein, will be in full satisfaction of the money judgment set forth in the Agreed final judgment." This sentence was proposed by counsel for Midland West to alleviate the company's concerns that the FDIC could attach future acquired assets and capital pursuant to the agreement and its accompanying judicial decree.

Five days after the district court entered the Order of Agreed Judgment, the court granted a motion for summary judgment filed by Mr. Rigatti in his severed suit against the FDIC. The disposition by our Court of this companion case is set forth in Federal Deposit Insurance Corp. v. Rigatti, 911 F.2d 1145 (5th Cir.1990). Although the district court did not state the ground on which the summary judgment was granted, the FDIC interpreted the order to mean that the "full satisfaction" language added at the last minute to the settlement agreement with Midland West and Mr. Mullins unintentionally served also to discharge Mr. Rigatti from liability on his guarantee. Thus, on June 6, 1989, the FDIC moved for a reformation of the settlement agreement in order to amend it to reflect the true intention of the parties. The district court denied the FDIC's motion and the FDIC appeals this denial to our court.

I.

Before deciding whether the FDIC's motion to reform the judgment was properly denied, we must determine whether the notice of appeal in this case was timely filed. We conclude that it was. Midland West contends that our court lacks jurisdiction over this appeal because the FDIC...