Youngblood Group v. Lufkin Federal Sav. and Loan Ass'n

• Decision Date: 03 June 1996
• Docket Number: No. 9:95-CV-163.,9:95-CV-163.
• Citation: 932 F. Supp. 859
• Parties: YOUNGBLOOD GROUP v. LUFKIN FEDERAL SAVINGS AND LOAN ASSOCIATION.
• Court: U.S. District Court — Eastern District of Texas

932 F. Supp. 859

YOUNGBLOOD GROUP v. LUFKIN FEDERAL SAVINGS AND LOAN ASSOCIATION.

No. 9:95-CV-163.

United States District Court, E.D. Texas, Lufkin Division.

June 3, 1996.

COPYRIGHT MATERIAL OMITTED

Roger S. McCabe, Mehaffy & Weber, Beaumont, TX, for Youngblood Group.

Kenzy Donovan Hallmark, Zeleskey Cornelius Hallmark Roper & Hicks, Lufkin, TX, for Lufkin Federal Savings & Loan Association.

MEMORANDUM OPINION OVERRULING THE PARTIES' OBJECTIONS AND ADOPTING THE REPORT OF THE UNITED STATES MAGISTRATE JUDGE

HEARTFIELD, District Judge.

Pending is defendant's motion to dismiss for failure to state a claim upon which relief may be granted.

This motion was referred to United States Magistrate Judge Earl S. Hines pursuant to Title 28 U.S.C. § 636 for findings of fact, conclusions of law, and recommendations for disposition of the case. The magistrate judge on March 4, 1996 submitted a report recommending that defendant's motion to dismiss be denied as to plaintiffs claim under 12 U.S.C. § 1464(q)(1).

This court has received and considered the Report and Recommendation of the United States Magistrate Judge, along with the record, pleadings and all available evidence. Defendant filed objections to the report and recommendation on March 13, 1996. Plaintiff filed objections to the report and recommendation on March 18, 1996. This requires a de novo review of the specific portions of the report to which objections have been made. FED.R.CIV.P. 72(b).

I. Jurisdiction and Claims

Plaintiff invokes federal question jurisdiction by asserting a federal statutory tort claim based upon anti-tying provisions of the Thrift Institutions Restructuring Act. See 12 U.S.C. § 1464(q)(1). Invoking the court's supplemental jurisdiction, plaintiff asserts a cause of action for breach of contract under Texas common law, together with a Texas statutory tort claim under the Deceptive Trade Practices — Consumer Protection Act. See TEX.BUS. & COM.CODE ANN. §§ 17.41-.63 (Vernon 1987) (hereinafter "DTPA").

The alleged facts giving rise to these causes of action are recited in the report of the magistrate judge. Report and Recommendation Regarding Defendant's Motion to Dismiss Pursuant to Rule 12(b)(6) at 871-72. Neither party objects to the magistrate judge's recitation of the nature of the suit.

II. Defendant's Motion to Dismiss

Defendant asserted three grounds for dismissal of the federal claim: (1) the complaint failed to allege an "additional service" was required of plaintiff; (2) the complaint made no prima facie showing that the agreement between plaintiff and defendant was "unusual"; and (3) the complaint failed to allege that defendant sought to stifle competition.

Defendant asserted a single ground for dismissal of the DTPA claim: no cause of action is stated because plaintiff does not meet the definition of a "consumer."

Defendant did not seek dismissal of the common law breach of contract claim.

III. Proceedings and Report of the Magistrate Judge

The magistrate judge heard oral arguments of counsel for the parties at a hearing convened on October 23, 1995. At the hearing, the magistrate judge raised the question as to whether plaintiff's federal claim was barred by waiver or estoppel. The magistrate judge's concern stemmed from the fact that the allegedly offending provisions were embodied in a bankruptcy reorganization plan, jointly agreed by the parties, and jointly submitted to the bankruptcy court for approval.

After considering the motions, briefs and arguments of the parties, the magistrate judge submitted a written report recommending that the motion to dismiss be granted in part and denied in part. Specifically, the magistrate judge concluded and recommended:

1. The complaint alleged that defendant required an additional service by demanding the right to market property surrendered to satisfy plaintiff's indebtedness. Thus, the motion should be denied insofar as it asserted that the complaint failed to allege an "additional service;"

2. There is no allegation that plaintiff provided some unusual property, credit, or service to defendant in exchange for cancellation of the indebtedness. Thus, the motion should be granted as to the claim based on 12 U.S.C. § 1464(q)(1)(B). However the motion should be denied as to the claim based on 12 U.S.C. § 1464(q)(1)(A) because there is no requirement for an allegation of unusualness under that provision; and

3. No allegation of anti-competitive motion is required to state a claim under 12 U.S.C. § 1464(q)(1)(A). Thus, the motion should be denied on this ground.

The magistrate judge again mentioned potential defenses of waiver and estoppel, as well as res judicata. Further, the magistrate judge noted that it is permissible for a court to raise such issues sua sponte. However, the magistrate judge concluded that sua sponte dismissal was not within the scope of the reference order, and further was a distinct prerogative of the judge to whom the case is assigned. Therefore, the magistrate judge made no findings, conclusions or recommendations on these grounds.

Finally, the magistrate judge made no findings, conclusions or recommendations regarding defendant's motion to dismiss the Texas DTPA claim. The magistrate judge determined it would be more appropriate to await decision of the district judge on the federal claim because if the federal claim were dismissed, the court might decline to exercise supplemental jurisdiction over the remaining state law claims.

IV. Objections

A. Plaintiff

Apart from its objection to the magistrate judge's decision to defer consideration of plaintiff's Deceptive Trade Practices-Consumer Protection Act (DTPA) claim pending final determination of the motion to dismiss the federal tying claim, plaintiff has four basic objections. First, Youngblood disagrees with the magistrate judge's finding that Youngblood failed to allege it was required to furnish credit, property, or service to Lufkin in connection with the settlement of its debt with Lufkin other than the type of credit, property, or service usually provided in connection with such loan services. The magistrate judge then recommended that plaintiffs claims asserted under 12 U.S.C. § 1464(q)(1)(B) be dismissed. Report and Recommendation Regarding Defendant's Motion to Dismiss Pursuant to Rule 12(b)(6) at 11 n. 17.

The next three objections revolve around several matters that were raised but not decided in the magistrate judge's report. Specifically, Youngblood objects to the magistrate judge's comments regarding the potential applicability of the doctrine of res judicata, claiming that no right to bring suit pursuant to 12 U.S.C. § 1464(q)(1) existed at the time the bankruptcy court confirmed the parties' plan because no damage had yet been suffered. Youngblood also argues that judicial estoppel is inapplicable to bar the instant tying claim because the tying issue was not before the bankruptcy court. Finally, Youngblood, seemingly confusing the breach of contract claim with the tying claim, argues the doctrine of waiver is unavailable to bar the tying claim because "Plaintiff did not waive the right to complain if Defendant did not perform its duties under the plan merely by agreeing to the plan." Plaintiff's Objections to the Report and Recommendation of the United States Magistrate Judge at 2.

B. Defendant

Like Youngblood, Lufkin objects to the decision to defer recommendation on the DTPA claim. Lufkin's other objections are listed as three separate objections, although in essence they form a single objection. Lufkin argues that it did not extend credit to Youngblood in agreeing to take title to the properties in lieu of foreclosure or proceeding before the bankruptcy judge. Lufkin argues that although several cases have stated that forbearance on the collection of a debt can be considered the "extension of credit" within the meaning of the federal antitying statutes, all cases in which this rule has been articulated are distinguishable because they involved situations in which "the lender made or offered a new loan to the borrower to refinance the loan previously made." Defendant's Objections to the Report and Recommendation of the United States Magistrate Judge at 3.

V. Discussion

Although both parties take the opportunity to formally object to the magistrate judge's decision to defer filing a recommendation on the DTPA claim, no specific legal basis for objecting is argued by either party. Rather, the parties simply reurge in summary form theories previously briefed on the DTPA claim. Because both judicial economy concerns and concerns of comity with state courts potentially existed in the posture in which the case stood before the magistrate judge, there is no valid objection to the decision to defer recommendation on the DTPA claim.

A. Plaintiffs Objections

Plaintiff claims that it "alleged that it was to provide ... unusual property, credit or service in exchange for cancellation of its indebtedness ... by showing that it was required to deed land to the Defendant as a payment of the debt, instead of the property being foreclosed upon." Plaintiff's Objections to the Report and Recommendation of the United States Magistrate Judge at 2. "Usual" is not defined in the Thrift Institutions Restructuring Act. Courts give the traditional banking practices exemption a broad reading. See Flags I, Inc. v. Boston Five Cents Sav. Bank, 831 F.Supp. 928, 935 (D.N.H.1993) ("The three exemptions which are now collectively known as the traditional banking practice exemption were intended to be construed to permit legitimate banking practices that have no anti-competitive effect."). As discussed in the magistrate judge's report, it is not unusual for a commercial real estate lender to accept a deed in lieu of foreclosure. As several academic commentators have noted, this practice is becoming increasingly common due to the expense, delay, and negative publicity associated with...