Tri-State Hotels, Inc. v. F.D.I.C.

• Decision Date: 21 March 1996
• Docket Number: TRI-STATE,No. 94-3780,94-3780
• Parties: HOTELS, INC.; Davcor Motor Inns, Inc.; Elite Hotel Associates, Inc.; Turnpike Motor Inns, Inc.; HMS Property Management Group, Inc.; Commerce Hotels, Inc.; Toledo Motor Inns, Inc.; Ottawa Motor Inns, Inc.; Amarillo Hotel Associates, Inc.; Economy Lodging Systems, Inc.; W. David Temel; Frank Leonetti, Jr., Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Merchants Bank Inc., and Metro North State Bank, Inc.; The Merchants Bank, Inc.; Metro North State Bank, Inc., Appellees, Eugene J. Pereira; Bradley W. Kreiger; Kirsten H. Mills; Marilyn J. Feingold, Co-Executor of the Estate and Last Will and Testament of Frank S. Morgan; Mark Morgan, Co-Executor of the Estate and Last Will and Testament of Frank S. Morgan; Thomas S. Morgan, Co-Executor of the Estate and Last Will and Testament of Frank S. Morgan; Jeff Johnson; David B. Feingold, Defendants, American Hotel Management Associates, Inc., Receiver, Richard K. Rousch; Nassau Communications, Inc., Proposed Parties.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 707

79 F.3d 707

TRI-STATE HOTELS, INC.; Davcor Motor Inns, Inc.; Elite

Hotel Associates, Inc.; Turnpike Motor Inns, Inc.; HMS

Property Management Group, Inc.; Commerce Hotels, Inc.;

Toledo Motor Inns, Inc.; Ottawa Motor Inns, Inc.; Amarillo

Hotel Associates, Inc.; Economy Lodging Systems, Inc.; W.

David Temel; Frank Leonetti, Jr., Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for

Merchants Bank Inc., and Metro North State Bank,

Inc.; The Merchants Bank, Inc.; Metro

North State Bank, Inc., Appellees,

Eugene J. Pereira; Bradley W. Kreiger; Kirsten H. Mills;

Marilyn J. Feingold, Co-Executor of the Estate and Last Will

and Testament of Frank S. Morgan; Mark Morgan, Co-Executor

of the Estate and Last Will and Testament of Frank S.

Morgan; Thomas S. Morgan, Co-Executor of the Estate and Last

Will and Testament of Frank S. Morgan; Jeff Johnson; David

B. Feingold, Defendants,

American Hotel Management Associates, Inc., Receiver,

Richard K. Rousch; Nassau Communications, Inc., Proposed Parties.

No. 94-3780.

United States Court of Appeals,

Eighth Circuit.

Submitted Dec. 15, 1995.

Decided March 21, 1996.

Appeal from the United States District Court for the Western District of Missouri; Hon. Dean Whipple, Judge.

Donald G. Stubbs, Kansas City, MO, David B. Webster, William W. Jacobs, Kaufman & Cumberland, Cleveland, OH, for Plaintiffs-Appellants Tri-State Hotels, Inc., Davcor Motor Inns, Inc., Elite Hotel Associates, Inc., Turnpike Motor Inns, Inc., HMS Property Management Group, Commerce Hotels, Inc., Toledo Motor Inns, Inc., Ottawa Motor Inns, Inc., Amarillo Hotel Associates, Inc., Economy Lodging Systems, Inc., W. David Temel, Frank Leonetti, Jr.

Jerome A. Madden, Barbara Sarshik, Federal Deposit Insurance Corporation, Washington, DC, David C. Tryon, David A. Bell, Porter & Wright, Cleveland, OH, for Defendant-Appellee Federal Deposit Insurance Corporation.

David C. Tryon, David A. Bell, Porter & Wright, Cleveland, OH, for Defendants-Appellees Merchants Bank, Inc., Metro North State Bank, Inc., Thomas S. Morgan.

Before MAGILL, BRIGHT, and MURPHY, Circuit Judges.

MAGILL, Circuit Judge.

Tri-State Hotels and other appellants (collectively, Tri-State) appeal the district court's ¹ dismissal of defendant Federal Deposit Insurance Corporation (FDIC), as receiver for two failed banks, for lack of subject matter jurisdiction due to Tri-State's failure to exhaust administrative remedies. Because prior administrative review of claims against the FDIC is a prerequisite to judicial review of such claims, see the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), codified in relevant part at 12 U.S.C. § 1821(d)(3)-(13) (1994), we affirm.

I.

During the period from 1988 to 1992, Tri-State entered into various agreements with Merchants Bank (Merchants) and Metro North State Bank (Metro North) to purchase and finance certain distressed motel and hotel properties. As part of the agreement, Merchants and Metro North assured Tri-State that they would provide additional refinancing to Tri-State when requested, and they agreed to limit Tri-State's liability in the event of default on any loans made in connection with the properties.

Merchants consolidated the loans, and in June 1992, it agreed to invest an additional $1 million in equity in the arrangement and to refinance $1.3 million of the loans. Merchants breached the agreement during the summer of 1992 by failing to complete the refinancing and failing to provide the promised funding, but it continued to assure Tri-State that it would perform all of its obligations. Despite these assurances, Merchants never fulfilled its obligations, and on December 2, 1992, Tri-State mailed notice to Merchants that it was revoking the refinancing agreement due to Merchants' breach of the agreement.

Merchants went into receivership on November 20, 1992, and the FDIC was appointed receiver. ² In December, January, and February, the FDIC published notice in the Kansas City Star newspaper that creditors had until March 16, 1993, to present to the FDIC any claims they had against Merchants. The FDIC also mailed notice of the receivership to all creditors of Merchants; however, because Tri-State is a debtor of Merchants, notice was not mailed to Tri-State. Although Tri-State had actual knowledge of the receivership, it did not file a timely claim with the FDIC for the breach of contract by Merchants.

In August 1993, Tri-State and the FDIC began a review of Tri-State's obligations under the agreements between Tri-State and Merchants. This review consisted of face-to-face meetings and numerous phone calls and correspondence between Tri-State and the FDIC. On February 17, 1994, the FDIC finished its review and analysis of the agreements and concluded that the loan agreements were enforceable. At no time did the FDIC inform Tri-State that it must present its claims to the FDIC under a formal administrative review process.

On February 18, 1994, Tri-State filed a complaint in the Western District of Missouri against the FDIC, Merchants, Metro North, and several officers of the banks (the Tri-State lawsuit). Tri-State sought three different forms of relief: (1) declaratory relief adjudicating the respective rights and obligations of the parties under the purchase agreements and loan documents; (2) rescission of the purchase agreements and loan documents; and (3) damages for breach of contract, breach of the duty of good faith, breach of fiduciary obligations, and fraud.

On July 13, 1994, the district court dismissed the FDIC, Merchants, and Metro North for lack of subject matter jurisdiction. The court noted that under FIRREA, a claimant must exhaust the administrative review process before a court has jurisdiction to hear the claims. 12 U.S.C. § 1821(d)(6)(A), (d)(13)(D). Because Tri-State did not present its claims to the FDIC for administrative review during the ninety-day period ending March 16, 1993, dismissal was appropriate.

On September 20, 1994, the FDIC filed suit in the Western District of Missouri, FDIC v. Knights Lodging, Inc. (the KLI lawsuit), against certain appellants, asserting a claim for failure to repay the debt obligations and alleging that appellants had fraudulently transferred funds to avoid paying the FDIC.

The district court consolidated the KLI lawsuit and the Tri-State lawsuit on September 23, 1994. On October 18, 1994, the district court dismissed the remaining defendants in the original Tri-State lawsuit. ³ On November 9, 1994, Tri-State appealed the July 13 dismissal of the FDIC. ⁴ It is this appeal that is presently before the Court.

II.

The FDIC argues that this Court lacks jurisdiction to hear this appeal under 28 U.S.C. § 1291 because the July 13 order dismissing the FDIC as a defendant was not an appealable final order when appeal was taken on November 9. The FDIC notes that the KLI lawsuit, which had been consolidated with the Tri-State lawsuit, was still pending before the district court when appeal was taken in the Tri-State lawsuit. The FDIC contends that an open question in the consolidated suit still existed, precluding appeal in the absence of Rule 54(b) certification.

We disagree with the FDIC. Only when "two actions [are] really consolidated and merged into one," Mendel v. Production Credit Ass'n of the Midlands, 862 F.2d 180, 182 (8th Cir.1988), does the presence of an open question in one of the formerly separate suits preclude appeal on any issue in the consolidated suit. Id.; see also Soo Line R.R. v. Escanaba & Lake Superior R.R., 840 F.2d 546, 548 (7th Cir.1988). However, when "technical consolidation into a single action [does] not occur, but rather [the consolidation is] an arrangement for joint proceedings and hearings, for convenience," Mendel, 862 F.2d at 182, then each suit retains its individual nature, and appeal in one suit is not precluded solely because the other suit is still pending before the district court. Id.; see also Soo Line, 840 F.2d at 548.

Although the district court did not clearly state whether the two lawsuits were formally merged for all purposes, it appears that they were merged for the purposes of convenience only and were not formally merged. ⁵ While the district court grouped both suits under a single docket number, this grouping appears to have been only to "simplify the filing process." Order of Consolidation at 3 (reprinted in Appellee's Addendum at 8). Further, the district court referred to future filings "in these two suits," and it noted that consolidation "will best use scarce judicial resources" and was to "accommodate the convenience of the parties." Id. ⁶ Finally, in dismissing the remaining defendants in the Tri-State lawsuit on October 18, 1994, the district court stated that there was "still other related litigation pending with this same case number." Order of Dismissal at 1 n.1 (reprinted in Appellee's Addendum at 9) (emphasis added). That the district court termed the KLI lawsuit "related litigation" rather than "other matters in this case" indicates that the two lawsuits, while consolidated, were never merged for all purposes and they retained their individual identity.

Because the two lawsuits were merged for the sake of convenience, the Tri-State lawsuit was immediately appealable on October 18, 1994, when the remaining defendants in that suit were dismissed. Accordingly, we have jurisdiction under 28 U.S.C. § 1291 to hear this appeal.

III.

Under FIRREA, Congress established a comprehensive claims review process for claims against the assets of failed banks held by the FDIC as receiver. See 12 U.S.C. § 1821(d)(3)-(13). Claimants must initially submit their claims to the FDIC for review, ⁷ thus "enabl[ing] the FDIC to dispose of the bulk of claims against failed financial institutions expeditiously and fairly ... without unduly burdening the District Courts." H.R.Rep. No. 101-54(I), 101st Cong., 1st Sess., at 418-19, reprinted in 1989...