State Sav. & Loan Ass'n of Lubbock v. Liberty Trust Co., 88-1106

• Citation: 863 F.2d 423
• Decision Date: 20 January 1989
• Docket Number: No. 88-1106,88-1106
• Parties: 8 UCC Rep.Serv.2d 1088 STATE SAVINGS & LOAN ASSOCIATION OF LUBBOCK, et al., Plaintiffs, State Federal Savings & Loan Association of Lubbock, Plaintiff-Appellee, v. LIBERTY TRUST COMPANY, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 423

863 F.2d 423

8 UCC Rep.Serv.2d 1088

STATE SAVINGS & LOAN ASSOCIATION OF LUBBOCK, et al., Plaintiffs State Federal Savings & Loan Association of Lubbock Plaintiff-Appellee, v. LIBERTY TRUST COMPANY, Defendant-Appellant.

No. 88-1106.

United States Court of Appeals Fifth Circuit.

Jan. 20, 1989.

As Amended on Denial of Rehearing Feb. 22, 1989.

Marc L. Skeen, Neal R. Allen, Jad Davis, Midland, Tex., for defendant-appellant.

Rick G. Strange, Max Edwin Wright, Midland, Tex., John A. Christy, Atlanta, Ga., for plaintiff-appellee.

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

Before GEE, SNEED, ^* and WILLIAMS, Circuit Judges.

SNEED, Circuit Judge:

Liberty Trust Co. ("Liberty Trust") appeals a judgment of a district court holding it liable to State Federal Savings & Loan Association of Lubbock ("State Federal") on a promissory note.

Liberty Trust asserts that the district court erred in permitting State Federal to enforce the note. In the alternative, Liberty Trust asserts that the district court erred in failing to reduce the judgment after State Federal settled with the note's co-makers and that the district court should not have awarded attorney's fees to State Federal. We wholly reject Liberty Trust's initial position. We partially reject Liberty Trust's alternative position. That is, we affirm the district court's refusal to reduce the judgment following State Federal's settlement, but reverse and remand the district court's determination of the amount recoverable as attorney's fees.

I. FACTS AND PROCEEDINGS BELOW

In 1983, Billy C. Taylor and William Michael Furman asked State Savings & Loan Association of Lubbock ("State Savings") for a loan to assist them in developing a real estate project in New Mexico. Taylor and Furman, at the time, owned most or all of the stock of Gold King, Inc. Gold King owned Liberty Trust Co. and Carrizo Lodge, Inc., as subsidiaries; Carrizo Lodge owned the New Mexico property that Taylor and Furman wanted to develop. State Savings agreed to lend them $6.25 million in exchange for a promissory note and a lien on the property. State Federal required Gold King, Liberty Trust, and Carrizo Lodge to sign the note as makers and required Taylor and Furman and their spouses to guarantee the note.

Although the project enjoyed some success, the parties eventually failed to make payments on the note. In 1986, State Federal, asserting that it had acquired the note from State Savings, sued Liberty Trust, Gold King, and the Taylors and the Furmans in a Texas state court. Gold King, which had gone into bankruptcy, removed State Federal's action to the United States district court below. The district court joined Carrizo Lodge as an additional defendant.

Two significant events occurred before trial. First, Liberty Trust, under the control of a bankruptcy trustee, filed an adversary proceeding against State Federal, State Savings, and several of their officers, directors, and attorneys. Liberty Trust asked for rescission of the note and damages for misrepresentation and other allegedly improper conduct. Second, Gold King, Carrizo Lodge, and the Taylors and the Furmans entered into a so-called "settlement agreement" with State Federal.

In this agreement, the debtors conceded liability to State Federal in the full amount of the note and promised not to oppose foreclosure on the New Mexico property. They also agreed to give State Federal claims against their bankruptcy estates for any liability unsatisfied after foreclosure. Although State Federal agreed to follow orderly appraisal and other procedures in satisfying the debt, it did not agree to accept less than a complete satisfaction. The district court approved the settlement on November 2, 1988. Excerpts of Record (E.R.) at 2:273.

In this action against Liberty Trust, State Federal sought to show in the trial that it had acquired ownership of the note from State Savings through a transfer of assets supervised by the Federal Savings and Loan Insurance Corporation (FSLIC). Although the copy of the note that State Federal introduced into evidence contained no indorsements, State Federal's vice president, Mrs. Ellen Hein, testified that State Federal was the "successor in interest to the assignee of the assets of State Savings," which assets included the promissory note. VII R. 2. Mrs. Hein then stated that the note had outstanding $6,299,673.90 in principal and $2,200,894.64 in interest. VII R. 6.

The note required the co-makers "to pay all costs of collection, including but not limited to reasonable attorney's fees." E.R. at 5:2. The note, in addition, stipulated that "reasonable attorney's fees will be not less than 10% of unpaid principal and accrued interest." E.R. at 5:2. Mrs. Hein testified that State Federal incurred necessary "loan expenses" of $272,117.29 and "operating expenses" of $249,815.58; she explained that the loan expenses consisted of attorney's fees and other fees, and that the operating expenses consisted of expenses incurred in running the real estate project. VII R. 16. Mrs. Hein did not address the reasonableness of the fees.

The district court entered a judgment for $9,022,501.54 in favor of State Federal, which (with a minor arithmetic error) represents the sum of the principal, interest, and expenses. E.R. at 2:272. Liberty Trust then moved, first, to amend the pleadings to assert release as a partial defense, I R. 81, 83, and, second, to amend the judgment to reflect the release, E.R. at 4:8. The district court denied the latter motion but never ruled on the former. E.R. at 3. The notice of appeal that Liberty Trust subsequently filed states that it is appealing the district court's denial of the motion to amend the judgment but not its failure to grant the motion to amend the pleadings. I R. 2-3.

II. JURISDICTION

The district court had removal jurisdiction under 28 U.S.C. Sec. 1452(a) (Supp. IV 1986). Although under the provisions of Sec. 157(a) the district court automatically should have referred the case to a bankruptcy court after removal, see 9 Collier on Bankruptcy p 9027.03, at 9027-13 (L. King ed. 15th ed. 1988), the error was harmless. The district court, under 28 U.S.C. Sec. 157(d) (Supp. IV 1986), could have withdrawn the case from the bankruptcy court upon its own motion for cause. This court has jurisdiction over an appeal from the final decision of a district court under Sec. 1291 (1982).

III. STANDARD OF REVIEW

This court accepts a district court's findings of fact unless they are clearly erroneous, see Fed.R.Civ.P. 52(a), but reviews issues of law de novo. See Texas Extrusion Corp. v. Lockheed Corp., (In re Texas Extrusion Corp.), 844 F.2d 1142, 1156-57 (5th Cir.), cert. denied, --- U.S. ----, 109 S.Ct. 311, 102 L.Ed.2d 330 (1988).

IV. STATE FEDERAL'S POWER TO ENFORCE THE NOTE

Liberty Trust argues that the district court erred in allowing State Federal to enforce the note because State Federal was not a holder of the note at the time of State Federal, nevertheless, may enforce the note against Liberty Trust. In Texas the owner of a note may enforce it even if he is not a holder. ¹ See Waters v. Waters, 498 S.W.2d 236, 241 (Tex.Civ.App.--Tyler 1973, writ ref'd n.r.e.). Case law also makes clear that State Federal's ownership of the note was established by introduction of the copy of the note into evidence, without an objection by Liberty Trust, and the uncontested testimony of Mrs. Hein. See Zarges v. Bevan, 652 S.W.2d 368, 369 (Tex.1983) (per curiam) (holding that plaintiff could prove ownership for purposes of summary judgment by attaching a photocopy of note and sworn affidavit asserting ownership); Clark v. Dedina, 658 S.W.2d 293, 295-96 (Tex.App.--Houston [1st Dist.] 1983, writ dism'd) (same). Although Perkins v. Crittenden, 462 S.W.2d 565, 566-67 (Tex.1970); Southwestern Fire & Casualty Co. v. Larue, 367 S.W.2d 162, 166 (Tex.1963); and First State Bank v. Smith, 488 S.W.2d 837, 838 (Tex.Civ.App.--Fort Worth 1972, no writ), indicate that neither mere testimony nor a mere copy of a note can prove ownership, in this case, there were both and a bit more. Therefore, we do not regard these cases as controlling.

                trial.  Texas law defines a holder as "a person who is in possession of ... an instrument ... issued, or indorsed to him or his order or to bearer or in blank."    Tex.Bus. & Com.Code Ann. Sec. 1.201(20) (Vernon Supp.1988).  State Federal does not fall within this definition.  As both parties agree, the co-makers issued the note to State Savings and State Savings never indorsed it.  State Federal, therefore, cannot exercise a holder's rights to sue on the note.  See id. Sec. 3.301 (Vernon 1968) (granting a holder of a note the right to "enforce payment in his own name").
                

V. THE CONSEQUENCES OF THE SETTLEMENT

Liberty Trust next argues that, even if State Federal may enforce the note, State Federal partially discharged Liberty Trust by releasing Carrizo Lodge and Gold King in the settlement agreement. State Federal responds that Liberty Trust failed to plead the issue of release as an affirmative defense but that, in any event, a reduction of the judgment in this case is not required under Texas law. We shall address each of these contentions.

A. Failure to Plead the Release

Liberty Trust could not have raised release as an affirmative defense when it initially filed its answer because it did not learn of the settlement until immediately before trial. Liberty Trust, however, did raise the issue orally at trial and did file a motion to amend the pleadings. I R. 81, 83; VI R. 6. The district court, as noted earlier, never ruled on that motion, but rejected another motion by Liberty Trust to amend the judgment to reflect the release. E.R. at 3. Although Liberty Trust's notice of appeal states only that it is appealing the denial of the motion to amend the judgment, the motion to amend the judgment relates so closely to the motion to...