Resolution Trust Corp. v. Cruce

• Decision Date: 17 August 1992
• Docket Number: No. 92-3050,D,No. 1,1,92-3050
• Citation: 972 F.2d 1195
• Parties: RESOLUTION TRUST CORPORATION, as Receiver for Peoples Heritage Savings, and Peoples Heritage Federal Savings and Loan Association of Salina, Kansas, and Sandia Federal Savings and Loan of Albuquerque, New Mexico, Plaintiff-Appellee, v. James R. CRUCE; Thomas A. Burger; Thomas D. Dunn, Jr.; Catherine Elizabeth Allin-Cruce; Dorothy M. Cruce; Rebecca M. McCloskey, formerly known as Rebecca M. Cruce; Robert L. Stinson, as Trustee of the Shana Marie Dunn Trust and as Trustee of the Thomas Arthur Dunn Trust; Mary Colette Burger; Walid Qaddoumi; Peoples Federal Bancshares Inc., Defendants, and Lou Ann Dunn, Individually and as Trustee of the Thomas D. Dunn, Jr. Trustefendant-Appellant. Honorable J. Milton Sullivant, Trustee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1195

972 F.2d 1195

RESOLUTION TRUST CORPORATION, as Receiver for Peoples Heritage Savings, and Peoples Heritage Federal Savings and Loan Association of Salina, Kansas, and Sandia Federal Savings and Loan of Albuquerque, New Mexico, Plaintiff-Appellee, v. James R. CRUCE; Thomas A. Burger; Thomas D. Dunn, Jr. Catherine Elizabeth Allin-Cruce; Dorothy M. Cruce; Rebecca M. McCloskey, formerly known as Rebecca M. Cruce; Robert L Stinson, as Trustee of the Shana Marie Dunn Trust and as Trustee of the Thomas Arthur Dunn Trust; Mary Colette Burger; Walid Qaddoumi; Peoples Federal Bancshares Inc., Defendants and Lou Ann Dunn, Individually and as Trustee of the Thomas D Dunn, Jr. Trust No. 1, Defendant-Appellant. Honorable J. Milton Sullivant, Trustee.

No. 92-3050.

United States Court of Appeals, Tenth Circuit.

Aug. 17, 1992.

David R. Fontaine (R. Stan Mortenson, of Miller, Cassidy, Larroca & Lewin, Washington, D.C., and Gary D. McCallister, of Davis, Wright, Unrein, Hummer & McCallister, Topeka, Kan., were with him on the briefs), of Miller, Cassidy, Larroca & Lewin, Washington, D.C., for Defendant-Appellant.

David Mullin (Brad A. Chapman, of Mullin, Hoard & Brown, Amarillo, Tex., and Mira N. Marshall, of counsel, Legal Div., Professional Liability Section, Resolution Trust Corp., Washington, D.C., were with him on the brief), of Mullin, Hoard & Brown, Amarillo, Tex., for plaintiff-appellee.

Before MOORE, ENGEL, ^* and TACHA, Circuit Judges.

TACHA, Circuit Judge.

Defendant-appellant Lou Ann Dunn appeals from two district court orders granting a preliminary injunction freezing certain of her assets and appointing a trustee to take custody and control of those assets during the pendency of this action for restitution. Resolution Trust Corp. v. Cruce, 783 F.Supp. 1309 (D.Kan.1992) (order granting preliminary injunction); Resolution Trust Corp. v. Cruce, No. 91-4295-S, 1992 WL 21396 (D.Kan. Feb. 5, 1992) (order creating trust, selecting trustee, and identifying properties subject to the freeze). Appellant contends that the preliminary injunctive orders impermissibly freeze property that cannot be reached to satisfy a final judgment and that the district court abused its discretion in granting the preliminary injunction. We exercise jurisdiction under 28 U.S.C. § 1292(a)(1) and affirm.

BACKGROUND

This case arises from the failure of Peoples Heritage Federal Savings and Loan Association of Salina, Kansas ("Peoples Heritage") and the subsequent convictions of three of its principal directors and officers: James R. Cruce, Thomas D. Dunn, Jr., and Thomas A. Burger. Appellant Lou Ann Dunn is married to Thomas D. Dunn, Jr. On December 31, 1991, the Resolution Trust Corporation ("RTC"), as receiver for Peoples Heritage, filed suit to collect a restitution judgment from Cruce, Dunn, Burger and numerous other defendants--including appellant Lou Ann Dunn--to whom Cruce, Dunn and Burger allegedly have fraudulently conveyed assets. In a series of orders, the district court granted the RTC's motion to freeze assets of the defendants and to appoint a trustee to control the assets during the pendency of the suit.

In an order entered on February 5, 1992, the district court subjected the following assets and properties of Lou Ann Dunn to the freeze order: six real properties and their improvements located on Bluemont On October 10, 1986, Thomas Dunn, Jr. and Lou Ann Dunn entered into an Asset Division Agreement by which they allegedly divided their assets equally. Between December 22, 1986 and September 14, 1988, Thomas Dunn transferred to Lou Ann Dunn his interest in each of the properties that are subject to the freeze order. Prior to execution of the agreement, Lou Ann Dunn owned a one-half interest in some of these properties. In its original complaint, in addition to seeking restitution from Thomas Dunn, the RTC requested a full accounting from Thomas Dunn and Lou Ann Dunn for all monies Thomas Dunn received from Peoples Heritage through his fraudulent activities. The RTC also sought to set aside Thomas Dunn's fraudulent conveyance of assets and properties to Lou Ann Dunn and to trusts for his children. In seeking the freeze of Lou Ann Dunn's assets, the RTC alleged that each of the property transfers from Thomas Dunn to Lou Ann Dunn mentioned above were fraudulent under the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act of 1990, Pub.L. No. 101-647, § 2528, 104 Stat. 4859, 4863 (codified at 12 U.S.C. § 1821(d)(17)) ("Taxpayer Recovery Act"), the Federal Debt Collection Procedures Act, Pub.L. No. 101-647, § 3611, 104 Stat. 4933, 4933-64 (codified at 28 U.S.C. §§ 3001-3308), federal common law, and Kansas state law.

                Avenue in Manhattan, Kansas (including an Arby's restaurant, a convenience store, a liquor store, and a gas station);  real property and improvements located at 6th Street and Jackson Street in Junction City, Kansas (a Wendy's restaurant);  real property and improvements located at 522 North Ohio in Salina, Kansas (a warehouse);  real property and improvements located at 10009 East Mentor in Salina, Kansas (a farm property);  real property and improvements located at 921 Shalimar in Salina, Kansas (an office building);  real property and improvements located at 649 South Broadway in Salina, Kansas (La Hacienda Mexican Food Restaurant);  shares of La Hacienda Compania, Inc., the operating entity for the restaurant;  real property and improvements located at No. 8 Crestview in Salina, Kansas (current residence of Lou Ann Dunn and her children);  and the Benton and Sandzen art collection located at the Dunns' residence.   The district court placed these properties in a trust and empowered the trustee to collect all income generated from these properties and to use the income to pay reasonable expenditures for the management, maintenance, and preservation of the trust assets
                

DISCUSSION

I. Legal Standard for Issuance of a Preliminary Injunction

Dunn asserts that the district court erred in granting the RTC's request for a preliminary injunction and freezing certain assets and properties. The primary function of a preliminary injunction "is to preserve the status quo pending a final determination of the rights of the parties," Lundgrin v. Claytor, 619 F.2d 61, 63 (10th Cir.1980), in order "to preserve the power to render a meaningful decision on the merits," Tri-State Generation & Transmission Ass'n, Inc. v. Shoshone River Power, Inc., 805 F.2d 351, 355 (10th Cir.1986). When deciding whether to issue a preliminary injunction, a district court almost always faces an abbreviated set of facts and must hypothesize the probable outcome of a case and the probable harm to the parties. Therefore, we leave "[t]he issuance ... of a preliminary injunction [to] ... the sound discretion of the trial court and ... set [the injunction] aside only if it is based on an error of law or constitutes an abuse of discretion." Id. at 354.

To obtain a preliminary injunction, the moving party must establish that

(1) the moving party will suffer irreparable injury unless the injunction issues; (2) the threatened injury to the moving party outweighs whatever damage the proposed injunction may cause the opposing party; (3) the injunction, if issued, would not be adverse to the public interest; and (4) there is a substantial likelihood that the moving party will eventually prevail on the merits.

Id. at 355. When a party seeking a preliminary injunction satisfies the first three requirements, the standard for meeting the fourth "probability of success" prerequisite becomes more lenient. The movant need only show "questions going to the merits so serious, substantial, difficult and doubtful, as to make them a fair ground for litigation." Id. at 358 (quoting Otero Savings & Loan Ass'n v. Federal Reserve Bank, 665 F.2d 275, 278 (10th Cir.1981)).

As part of the Taxpayer Recovery Act, 12 U.S.C. § 1821, Congress altered the showing the RTC must make to obtain preliminary injunctive relief. Congress stated that

Rule 65 of the Federal Rules of Civil Procedure shall apply with respect to any proceeding under paragraph (18) ¹ without regard to the requirement of such rule that the applicant show that the injury, loss, or damage is irreparable and immediate.

12 U.S.C. § 1821(d)(19). Instead of applying § 1821(d)(19), the district court found that the RTC adequately showed that it would suffer irreparable injury. After finding that the RTC also met the second and third prerequisites for a preliminary injunction, the district court then applied the more lenient "fair ground for litigation" standard in place of the normal "substantial likelihood of success" standard as the fourth prerequisite for preliminary injunctive relief.

On appeal, Dunn argues that the district court abused its discretion in finding that the RTC demonstrated that irreparable injury would occur absent an injunction. The RTC, on the other hand, asserts two alternate reasons to support the district court's holding. First, the RTC contends that the district court correctly found that the RTC satisfied each of the first three prerequisites for a preliminary injunction--including irreparable injury--and, therefore, properly applied the "fair ground for litigation" test. Second, the RTC contends that, based on 12 U.S.C. § 1821(d)(19), the "fair ground for litigation" standard should apply even when the RTC does not show irreparable injury. Neither our circuit nor other circuits adopting the more liberal "fair ground for litigation" standard have addressed the application of that standard in conjunction with § 1821(d)(19). Therefore, we must first address what standard the RTC must meet to be entitled to a preliminary injunction under Fed.R.Civ.P. 65.

We begin our analysis by looking to the language of the statute. The text of § 1821(d)(17)-(19) evidences Congress' clear intent to augment the RTC's ability to avoid fraudulent conveyances or to freeze...