NCNB Texas Nat. Bank v. Cowden

• Citation: 895 F.2d 1488
• Decision Date: 26 February 1990
• Docket Number: No. 89-1439,89-1439
• Parties: NCNB TEXAS NATIONAL BANK, et al., Plaintiffs-Appellees, v. Candice Beth COWDEN and Billi Terresa Cowden, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1488

895 F.2d 1488

58 USLW 2618

NCNB TEXAS NATIONAL BANK, et al., Plaintiffs-Appellees, v. Candice Beth COWDEN and Billi Terresa Cowden, Defendants-Appellants.

No. 89-1439.

United States Court of Appeals Fifth Circuit.

Feb. 26, 1990.

Marc L. Skeen, Stubbeman, McRae, Sealy, Laughlin & Browder, Inc., Midland, Tex., for defendants-appellants.

Paul R. Aiello, Baker & Botts, Michael L. Graham, Dallas, Tex., Stanley M. Johanson, Vinson & Elkins, Austin, Tex., Stephen Gillham Tipps, Baker & Botts, Houston, Tex., for NCNB Texas Nat. Bank.

William Franklin Carroll, John M. Nevins, Mark J. Zimmermann, Bruce L. Collins, III, Baker, Mills & Glast, R.J. Hobby, Dallas, Tex., for Federal Deposit Ins. Corp., et al.

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

Before REAVLEY, SMITH and DUHE, Circuit Judges.

REAVLEY, Circuit Judge:

In this case we must determine whether the Federal Deposit Insurance Corporation (FDIC), in its capacity as receiver of an insolvent banking institution, had authority in 1988 ¹ to transfer the fiduciary appointments held by the insolvent bank to a federally created bridge bank. The district court ruled that federal law authorized FDIC to make such a transfer and that, to the extent it conflicted with FDIC's authority, Texas law relating to transfer of fiduciary appointments was pre-empted. We affirm.

I.

On July 29, 1988, the Office of the Comptroller of the Currency (OCC) and the Texas Banking Commissioner declared the forty national and state banks in Texas that were directly or indirectly owned by First RepublicBank Corporation (FRBC) insolvent and appointed FDIC to act as receiver of each of these institutions. In its capacity as receiver, FDIC on the same day entered into forty purchase and assumption agreements with JRB Bank, National Association ("JRB Bank"), a bridge bank chartered by FDIC pursuant to 12 U.S.C. section 1821(i) (current version at 12 U.S.C. section 1821(n)). ² These agreements required FDIC to transfer certain deposits, assets, liabilities, and obligations of the closed banks to JRB Bank. Also on July 29, 1988, the Federal Reserve Board approved the application of NCNB Corporation, a bank holding company, to acquire control of JRB Bank, and JRB Bank was renamed NCNB Texas National Bank ("NCNB Texas"). ³ The record does not reflect whether NCNB Texas is a continuation of the bridge bank under a different name or a new banking entity that took over JRB Bank following its short existence. The parties have treated NCNB Texas as a continuation of the bridge bank, and our analysis is based on that understanding. Although we refer to both JRB Bank and NCNB Texas, for all important purposes they are one entity and enjoy equivalent rights.

First RepublicBank Midland ("FRB-Midland") was one of the banks affected by the insolvency declarations. At the close of business on July 29, 1988, FRB-Midland was serving as executor or administrator of approximately eighteen estates and as trustee of over nine hundred trusts created by various trust instruments. ⁴ One set of obligations FDIC sought to transfer to NCNB Texas through the transactions described above was these fiduciary appointments previously held by FRB-Midland. Section 4.7 of the purchase and assumption agreement relating to FRB-Midland ("P & A Agreement") provided:

Agreement With Respect to Trust Business. The trust business of the Failed Bank [FRB-Midland] is hereby transferred to the Assuming Bank [JRB Bank] effective as of Bank Closing.

(a) The Assuming Bank shall, without further transfer, substitution, act or deed, to the full extent permitted by law, succeed to the rights, obligations, properties, assets, investments, deposits, agreements and trusts of the Failed Bank under (i) trusts, executorships, administrations, guardianships, agencies and (ii) other fiduciary or representative capacities, all to the same extent as though the Assuming Bank had originally assumed the same; provided, that any liability based on the malfeasance or nonfeasance of the Failed Bank, its directors, officers, employees or agents with respect to the trust business of the Bank is not assumed hereunder.

(b) The Assuming Bank shall, to the full extent permitted by law, succeed to, and shall be entitled to take and execute, the appointment to all executorships, trusteeships, guardianships and other fiduciary or representative capacities to which the Failed Bank is or may be named in wills, whenever probated, or to which the Failed Bank is or may be named or appointed by any other instrument.

(c) In the event additional proceedings of any kind are necessary to accomplish the transfer of such trust business (including the appointment by any court of the Assuming Bank as successor to the Failed Bank in any fiduciary or representative capacities), the Assuming Bank, at its own expense, agrees that it will take whatever action is necessary to accomplish such transfer. The Receiver agrees to use its reasonable best efforts to assist the Assuming Bank in accomplishing such transfer.

OCC approved the terms of the P & A Agreement. FDIC, acting as receiver, also sought and obtained an order approving the transaction from the United States District Court for the Western District of Texas. See In re Receivership of First RepublicBank Midland, No. 7-88-173, slip op. (W.D.Tex. July 29, 1988). That order provided in part that "the Assuming Bank be and hereby is, appointed as successor to all rights, obligations, assets, deposits, agreements and trusts held by the Bank as trustee, or in any other fiduciary or representative capacities, as provided in the Purchase and Assumption Agreement." Id. at 4. Thus, to the extent FDIC had authority to transfer fiduciary appointments, NCNB Texas succeeded to the fiduciary positions previously held by FRB-Midland.

Up until the time it was declared insolvent, FRB-Midland had been serving as the independent executor of the Estate of Billy Tom Cowden ("B.T. Cowden Estate"), which was being administered in accordance with the Last Will and Testament of Billy Tom Cowden ("B.T. Cowden Will"). FRB-Midland also was serving as trustee of the following trusts:

1. B.T. Cowden Trust. Pursuant to the Beneficiaries Agreement dated May 16, 1975, this trust was divided into two trust accounts.

a. Trust No. 1251 for the benefit of Candice Beth Cowden. Under the terms of the Trust Agreement, Candice became eligible to withdraw the entire principal from this trust on March 30, 1987.

b. Trust No. 1252 for the benefit of Billi Terresa Cowden. Under the terms of the Trust Agreement, Billi became eligible to withdraw the entire principal from this trust on November 30, 1988.

2. Candice Beth Cowden Trust, Trust No. 1090. The Trust Agreement provided that Candice could terminate the trust in whole or in part at any time.

3. Billi Terresa Cowden Trust, Trust No. 1244. The Trust Agreement provided that Billi could terminate the trust in whole or in part at any time.

4. Testamentary Trust created by the B.T. Cowden Will and funded by the residuary estate of Billy Tom Cowden.

The instruments creating the trusts did not provide for replacement of a trustee that becomes insolvent. Each trust instrument, however, established a procedure through which a trustee could resign and a successor trustee could be appointed. The B.T. Cowden Will did not provide for the selection of an alternate or successor independent executor.

On June 7, 1988, Candice had executed instruments purporting to withdraw the principal balance from Trust No. 1251 and to terminate Trust No. 1090. On June 15, 1988, Billi had executed an instrument purporting to terminate Trust No. 1244. FRB-Midland had made no distributions of the assets subject to these trusts prior to being declared insolvent. NCNB Texas subsequently offered to make the requested distributions, including transfer by warranty deed of all real property. The Cowdens, however, denied the validity of NCNB Texas' succession to the FRB-Midland fiduciary appointments and thus challenged its authority to make the distributions. By letter dated November 2, 1988, counsel for the Cowdens asserted that NCNB Texas had "not been appointed a successor fiduciary by any Court of competent jurisdiction" and that it could not "be a successor fiduciary without such an appointment." By letter dated November 30, 1988, counsel for the Cowdens, after reviewing "general principles of Texas law as to the personal nature of the position of trustee" and "the nature of the proceedings pursuant to which" FRB-Midland's fiduciary responsibilities were transferred to NCNB Texas, preliminarily concluded "that NCNB ... is not automatically the trustee of all trusts wherein a First RepublicBank institution had previously served as trustee, but that such may be true where there is special wording accomplishing that result in a particular trust instrument."

On November 30, 1988, NCNB Texas and FDIC brought this action in the United States District Court for the Western District of Texas seeking a judgment declaring that NCNB Texas was the valid successor to FRB-Midland's fiduciary appointments and enjoining the Cowdens from taking any action challenging NCNB Texas' exercise of its responsibilities pursuant to those appointments. The complaint alleged that the transfer of FRB-Midland's fiduciary appointments to NCNB Texas was authorized by federal banking laws and federal common law, which pre-empted any conflicting Texas estate and trust laws regulating the transfer of such appointments. In their Answer and Counterclaim, the Cowdens alleged that "FDIC Receiver was [not] empowered to effect a transfer of the fiduciary appointments held by First RepublicBank Midland incident to the Cowden Trusts" and that NCNB Texas could not "convey them good and marketable title to their trust assets." The parties submitted an Agreed Statement of Facts and each moved for summary judgment.

The district court...