Revised February 22, 1999
UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 98-50117
SMS FINANCIAL, LIMITED LIABILITY COMPANY,
Plaintiff - Appellant,
VERSUS
ABCO HOMES, INC.; ABBOTT CONSOLIDATED INDUSTRIES, INC.;
ABBOTT DEVELOPMENT COMPANY; H. EUGENE ABBOTT; RICHARD E ABBOTT,
Defendants - Appellees.
Appeal from the United States District Court
for the Western District of Texas
February 18, 1999
Before SMITH, DUHÉ, AND WIENER, Circuit Judges
JOHN M. DUHÉ, JR., Circuit Judge:
SMS Financial L.L.C. (“SMS”), sued to recover on a promissory
note issued by ABCO Homes, Inc. (“ABCO”), Abbott Consolidated
Industries, Inc. (“ACI”), Abbott Development Co. (“ADCO”), H. Eugene
Abbott, and Richard E. Abbott (collectively, “Defendants”). SMS
appeals on the following grounds the district court’s grant of
summary judgment for the Defendants: (1) it is the holder and owner
of the note; (2) equitable estoppel; (3) limitations; (4)
commercially unreasonable disposition of collateral; and (5) no
relation back of SMS’s amended complaint. Because we hold that SMS
is the holder of the note and find that genuine issues of material
fact exist concerning the remaining issues raised by the Defendants,
we reverse and remand to the district court for further proceedings.
I. Background
This appeal involves a promissory note made by the Defendants
payable to the FDIC. ADCO was the maker of a previous note owed to
Western State Bank of Midland. The FDIC took over that bank’s
operations when the bank failed. When ADCO defaulted on that note,
the FDIC allowed the Defendants to refinance the debt through the
note payable to the FDIC.1 In 1993 the FDIC sold its note to SMS in
a bulk sale of notes. The FDIC endorsed its note to SMS, but did
not physically deliver it to SMS. Subsequently, SMS requested a
refund of the purchase price for this note as provided for under the
terms of their contract. The FDIC issued a refund check to SMS and
requested return of the endorsed note.2 Of course, SMS did not have
possession of the note, and therefore could not return it. In 1997,
the FDIC sent the note to SMS “in a box” with other documents.3
1
All of the Defendants were co-makers of this note.
2
In 1994, the FDIC sent SMS a letter containing a check for
$2,752.10, the amount SMS paid for the note, and the request for
return of the note.
3
There is no other explanation provided by the parties for the
return of the note “in a box” except that it was inadvertently
done.
2
SMS sued the Defendants on the note shortly after receiving it.
The district court granted the Defendants’ Motion For Summary
Judgment as to all Defendants on the grounds that SMS was not the
owner or holder of the note, as to ABCO on the additional ground of
a settlement with the FDIC, and as to ADCO on the additional ground
that the debt was discharged in bankruptcy.4
II. Discussion
A. Is SMS the holder or owner of the note?
SMS argues the district court erred in granting the Defendants’
Motion for Summary Judgment because a fact issue exists concerning
whether SMS is the owner or holder of the note. We hold SMS is the
holder of the note.
This court reviews the district court’s determination de novo.
See La. Bricklayers & Trowel Trades Pension & Welfare Fund v.
Alfred Miller Gen. Masonry Contracting Co., 157 F.3d 404, 407 (5th
Cir. 1998); see also Willis v. Roche Biomedical Lab., Inc., 21 F.3d
1368, 1370 (5th Cir. 1994). We must determine whether the pleadings
and summary judgment evidence demonstrate there is no genuine issue
as to any material fact, and whether the Defendants are entitled to
judgment as a matter of law. Id. at 1371.
SMS argues it became the note’s owner and holder through the
FDIC’s negotiation of the note in 1997 by delivery of the endorsed
4
SMS does not appeal ABCO and ADCO’s dismissal on summary
judgment.
3
note to SMS. Alternatively, SMS contends it is the owner and holder
of the note because the Defendants failed to prove the FDIC
reacquired the note from SMS through the refund check in 1994.5
SMS asserts the FDIC did not reacquire the note because the FDIC did
not strike out the endorsement to SMS even though the FDIC had
possession of and had paid for the note.6
The Defendants contend SMS is not the holder or owner of the
note because the FDIC reacquired the note through the letter and
check dated 1994 discussed above. The Defendants also assert that
SMS judicially admitted the FDIC’s reacquisition of the note in 1994
and the FDIC’s status as holder and owner of the note in 1996 when
SMS conceded the correctness of the district court’s grant of
summary judgment to ABCO.7 The Defendants argue if the FDIC
settled with ABCO in 1996 in a dispute concerning the note, then the
FDIC must have owned the note in 1996. Finally, the Defendants
5
The Plaintiff also relies on the affidavit of a loan
specialist with the FDIC, Cynthia Wilkins, in which she opined
that the FDIC has not reacquired or obtained delivery or possession
of the note since the FDIC endorsed the note to the Plaintiff. Her
affidavit conflicts with the evidence that the FDIC repurchased the
note from SMS through the refund check and letter dated February
16, 1994.
6
SMS’s reliance on Tex. Bus. & Com. Code § 3.207 (Vernon Supp.
1999), which provides how a note is reacquired, is misplaced. The
issue is not whether the FDIC reacquired the note, but whether SMS
is the holder of the note therefore entitling it to enforce the
instrument through this lawsuit.
7
The district court held ABCO should be dismissed from this
lawsuit due to its settlement with the FDIC in a 1996 lawsuit over
the note.
4
claim the Plaintiff misstated the FDIC’s position through Cynthia
Wilkins’ affidavit because her affidavit does not constitute the
official position of the FDIC.
To recover on a promissory note, the plaintiff must prove: (1)
the existence of the note in question; (2) that the party sued
signed the note; (3) that the plaintiff is the owner or holder of
the note; and (4) that a certain balance is due and owing on the
note. Bean v. Bluebonnet Savings Bank FSB, 884 S.W.2d 520, 522
(Tex.App.--Dallas 1994, no writ). “‘Negotiation’ means a transfer
of possession, whether voluntary or involuntary, of an instrument
by a person other than the issuer to a person who thereby becomes
its holder.” Tex. Bus. & Com. Code § 3.201(a) (Vernon Supp. 1999).
“[I]f an instrument is payable to an identified person, negotiation
requires transfer of possession of the instrument and its
indorsement by the holder.” Id. § 3.201(b). When an instrument
is payable to an identifiable person, the “holder” is the person in
possession if he is that identified person. See Tex. Bus. & Com.
Code § 1.201(20) (Vernon Supp. 1999). When a holder indorses an
instrument, whether the instrument is payable to an identified
person or payable to bearer, and “the indorsement identifies a
person to whom it makes the instrument payable,” it is a “special
indorsement”. Tex. Bus & Com. Code § 3.205 (Vernon Supp. 1999).
“When specially indorsed, an instrument becomes payable to the
identified person and may be negotiated only by the indorsement of
5
that person.” Id. (emphasis added). A “person entitled to enforce”
an instrument includes the holder of an instrument. See Tex. Bus.
& Com. Code § 3.301 (Vernon Supp. 1999).
The district court did not recognize the distinction between
the status of holder and owner under the Uniform Commercial Code.
The district court relied on an outdated version of the Texas
Business and Commerce Code.8 SMS is a holder of the note as defined
in § 3.201 because it is in possession of a note which is payable
to itself. SMS became a holder when the FDIC negotiated the note
to it through the endorsement and delivery of the note in 1997. See
Tex. Bus. & Com. Code § 3.201 (Vernon Supp. 1999). SMS is the
holder of the note even if the FDIC’s delivery of the note was
inadvertent. As holder of the note, SMS is also a person entitled
to enforce the instrument under § 3.301. See Tex. Bus. & Com. Code
§ 3.301 (Vernon Supp. 1999). Whether SMS is the owner of the note
is a separate question which does not affect whether it is the
holder of the note. Whether the FDIC reacquired the ownership of
the note by refunding the purchase price of the note to SMS is
8
The Texas Business and Commerce Code contains Texas’ version
of the U.C.C. This statute was amended in 1995 to conform to the
Uniform Commercial Code. Prior to this amendment, the definition
of “negotiate” did not include an involuntary transfer of an
instrument, which is likely what occurred in this case. The
effective date of this amendment was January 1, 1996. The
Historical and Statutory Notes provide that the Act does not apply
to a right accrued before its effective date. The Plaintiff
obtained possession of the indorsed note from the FDIC in 1997.
Therefore, the Plaintiff’s right as a holder did not accrue until
1997, long after the effective date of the Act.
6
irrelevant to the issue of whether SMS is the holder of the note.
B. The Defendants’ alternative grounds for summary judgment.
The Defendants contend we could also affirm the district
court’s grant of their Motion For Summary Judgment on these
alternative grounds: (1) equitable estoppel; (2) limitations; (3)
commercially unreasonable disposition of collateral; and (4) no
relation back of SMS’s amended complaint.
1. Equitable Estoppel
The Defendants argue the FDIC falsely represented to them
during settlement negotiations in a 1996 lawsuit that it did not own
the note and that they relied to their detriment on that false
statement because they would have asked for a release from the note
in the settlement had they known the truth. The Plaintiff did not
address the Defendants’ promissory estoppel theory on appeal.9
We find a genuine issue of material fact exists concerning
whether the FDIC falsely represented that it did not own the note
in these negotiations. See Edwin M. Jones Oil Co. v. Pend Oreille
Oil & Gas Co., 794 S.W.2d 442, 447(Tex.App.-Corpus Christi 1990,
writ denied) (false representation is an element of the defense of
estoppel). The Defendants’ argument that the FDIC’s representation
was false is apparently based on their belief that the FDIC
9
In 1996, the FDIC and ABCO entered into a settlement
agreement concerning a lawsuit brought by ABCO against AmWest
alleging conversion and other causes of action inolving the
wrongful seizure and sale of collateral ABCO gave to secure another
note.
7
reacquired the note through the letter and refund check sent by the
FDIC to SMS in 1994. SMS argued in its Response to Defendants’
Motion for Summary Judgment that the FDIC’s statement was not false
because the FDIC sold the note to SMS in 1993. There is conflicting
evidence in the record concerning the ownership of the note.10
Because we find a genuine issue of material fact exists concerning
this issue, we cannot affirm on this ground.
2. Limitations
The Defendants argue limitations also bars the Plaintiff’s
suit. The note matured on February 15, 1991. In April and May of
1991, Fairmont Park Lanes Bowling Center made two payments on the
note. At that time, ABCO operated the bowling alley and owned the
bowling alley’s equipment but leased the land and building where the
bowling alley was located from ADCO. On July 30, 1991, H. Eugene
Abbott sent a letter to the FDIC requesting an extension of time on
the note, offering a reduced monthly payment, and assuring that
“they” anticipated “their” cash flow would soon increase enabling
“them” to retire “their” debt with the FDIC. SMS sued on the note
on April 9, 1997.
Both 28 U.S.C.A. § 2415(a) and 12 U.S.C.A. 1821(d)(14) on their
face apply to this action. Section 2415 provides the limitations
10
The Defendants introduced copies of the FDIC’s 1994 letter
and refund check. The Plaintiff introduced the affidavit of
Cynthia Wilkins in which she averred that at no time since the FDIC
indorsed the note to the Plaintiff has the FDIC reacquired or
obtained delivery or possession of the note.
8
period for actions on contracts brought by the United States or its
agencies. See 28 U.S.C.A. § 2415(a) (West 1994). Section 1821 was
enacted as part of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (“FIRREA”) and provides the limitations
period for contractual claims held by the FDIC when appointed as a
receiver or conservator of a failed bank. See 12 U.S.C.A. §
1821(d)(14) (West 1989 & West Supp. 1998). Both statutes provide
a six year limitations period. However, § 2415 contains a tolling
provision while § 1821 does not.11
Assignees of the FDIC, such as SMS, are entitled to the same
six year period of limitations under § 2415(a) and § 1821(d)(14).
See FDIC v. Bledsoe, 989 F.2d 805, 811 (5th Cir. 1993).
Additionally, § 1821 applies to the FDIC’s action even when the FDIC
sues in its corporate capacity, rather than as a receiver or a
conservator of a failed bank.12 See 12 U.S.C.A. 1823(d)(3)(A) (West
1989)(giving FDIC, in its corporate capacity, the same rights,
powers and privileges as FDIC acting as receiver); see also FDIC v.
Bates, 838 F.Supp. 1216, 1217 (N.D. Ohio 1993); FDIC v. Thayer Ins.
Agency, Inc., 780 F.Supp. 745, 749 (D. Kan. 1991); FDIC v. Howse,
11
Section 2415(a)’s tolling provision provides that “in the
event of later partial payment or written acknowledgment of debt,
the right of action shall be deemed to accrue again at the time of
each such payment or acknowledgment.” 28 U.S.C.A. 2415(a) (West
1994).
12
Because the FDIC was the original payee of the note, SMS is
the assignee of the FDIC in its corporate capacity rather than the
FDIC as a receiver or conservator of a failed bank.
9
736 F. Supp. 1437, 1445 (S.D. Tex. 1990).
If we determine that § 2415 applies, a genuine issue of
material fact will exist concerning whether the Defendants tolled
the statute of limitations period through the partial payments or
the letter.13 If we determine that only § 1821 applies, the
Plaintiff’s case will be time barred, and we could affirm the
district court’s grant of summary judgment on this alternative
ground.
a. case law
SMS relies on the only case addressing this issue, Midstates
Resources Corp. v. Farmers Aerial Spraying Service, Inc., 914
F.Supp. 1424, 1426-27 (N.D. Tex. 1996), in arguing that the two
statutes should be construed together resulting in the tolling of
§ 1821's period. SMS also argues the two payments from Fairmont
Lanes tolled the period because the bowling alley was the
Defendants’ agent authorized to make payments on the loan. SMS
claims this agency relationship resulted from the Defendants’
practice of making payments through the bowling alley throughout the
life of the note. Finally, SMS contends that H. Eugene Abbott’s
June 30, 1991 letter constituted an acknowledgment which was also
sufficient to toll the limitations period.
13
SMS alleged a payment made by one of the Defendants tolled
the statute of limitation under §2415 for all of the Defendants
because that Defendant was acting as an agent for the others. If
we determine that § 2415 applies, the fact issue will be whether
the payments or the June 30, 1991 letter were made by an agent of
the Defendants therefore tolling the limitations period for all.
10
The Defendants repeatedly mischaracterize cited cases, arguing
that only § 1821 should apply, therefore time barring SMS’s suit.14
They argue that even assuming § 2415's tolling does apply, they did
not toll the limitations period. The Defendants argue that no
agency relationship existed between the bowling alley and the
Defendants, and that H. Eugene Abbott clearly signed the June 30,
1991 letter to the FDIC as a representative of ABCO and not in his
individual capacity.15 Additionally, the Defendants argue that SMS
cannot raise the agency theory for the first time on appeal.16
In Midstates, the court held § 2415's tolling provision should
apply because it does not conflict with one of § 1821’s
provisions.17 The court relied on Resolution Trust Corp. v. Seale,
13 F.3d 850, 854 (5th Cir. 1994) in stating that “section 1821
controls only when one of its specific statutory ‘rules’ conflicts
with one of section 2415's general statutory rules.” Midstates, 914
14
The Defendants often attribute legal conclusions in their
brief to cases which clearly did not decide the issue they claim it
did. Their brief does more to obscure the issue than elucidate the
correct course of the law in this area.
15
Nothing in the letter evidences that H. Eugene Abbott signed
it in his representative rather than individual capacity.
16
SMS did not raise this issue for the first time on appeal.
SMS alleged in its complaint that the partial payments and letter
tolled the limitations period.
17
In further support of its position, Midstates relied on cases
which stated that § 1821 was meant to “clarify” the earlier law of
§ 2415. See Midstates, 914 F.Supp. at 1427 (citing Jackson v.
Thweatt, 883 S.W.2d 171, 177 (Tex. 1994)); see also FDIC v.
Schoenberger, 781 F. Supp. 1155, 1158 (E.D. La. 1992); see also
FDIC v. Howse, 736 F.Supp. 1437, 1446 (S.D. Tex 1990).
11
F.Supp. at 1426. A closer examination reveals that Midstates
misconstrued Seale.
Seale involved whether the later enacted § 1821 could revive
claims previously barred by a state statute of limitations. After
exploring the legislative history of § 1821, the court determined
it should not revive the previously barred claims. In an effort to
bolster its position, the court briefly addressed whether § 2415(b)
revived the same claims. The court held that § 2415(b) did not
revive the previously barred claims, but the court was indecisive
concerning whether § 2415(b) should apply at all. The court first
stated that “[a] general statutory rule usually does not govern if
a more specific rule covers the case” and, therefore § 1821, as the
more specific rule, should apply rather than § 2415(b).18 Then the
court noted that we gave effect to both § 2415 and § 1821 in FDIC
v. Belli, 981 F.2d 838, 842 (5th Cir. 1993). Midstates used the
first language to prove the opposite conclusion when it held that
the tolling provision of § 2415(a), as the more specific rule,
should prevail over the more general rule, i.e. no tolling
provision, of § 1821.
In Belli, the court assumed both § 2415 and § 1821 applied to
an action brought by the FDIC. Belli involved a suit by the FDIC
on notes that were executed before Congress enacted FIRREA. First,
the court decided that a cause of action “accrues” for the purposes
18
This is the language Midstates relied on in applying the
tolling provision of 2415(a).
12
of § 2415(a) when the debtor defaults and not when the FDIC acquires
the right to sue on the note by being appointed receiver or
conservator of the bank. See Belli, 981 F.2d at 840. After
determining that the FDIC’s suit was barred under § 2415(a), the
court applied § 1821 retroactively to the action. Id. at 842. The
court held § 1821 also barred the FDIC’s suit because §2415(a)’s
time period for the action expired before § 1821 became effective.
Section 1821's time period does not revive claims that expired
before its effective date. Id. In determining that § 1821 barred
the FDIC’s suit, the court assumed that both § 1821 and § 2415
applied.
b. legislative history
Before the enactment of FIRREA, § 2415 governed the limitations
period when the FDIC sued on a contract.19 A split in the circuits
developed concerning when a cause of action “accrued” under §
2415.20 Congress resolved this split of authority by providing in
19
See J. Michael Dorman & James E. Essig, Annotation, Special
Commentary: Limitation of Actions Under § 2(d)(14) of Federal
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA)
(12 U.S.C.A. § 1821(d)(14)) in Actions Brought by Federal Deposit
Insurance Corporation as Receiver, 126 A.L.R. Fed. 1 (1995)
20
One line of cases held the cause of action accrued when the
debtor defaulted. See FDIC v. Peterson, 770 F.2d 141 (10th Cir.
1985); see also FDIC v. Ashley, 754 F.Supp. 179 (D.C. Kan. 1990).
Another line of cases held the cause of action accrued when the
FDIC acquired the right to sue by being appointed receiver of the
bank. See FDIC v. Former Officers & Directors of Metropolitan
Bank, 884 F.2d 1304 (9th Cir. 1989); see also FDIC v. Hinkson, 848
F.2d 432 (3rd Cir. 1988).
13
FIRREA that a cause of action accrues either when the FDIC acquires
the claim by assignment or receivership, or when the cause of action
accrues under state law, whichever is later. See 12 U.S.C.A.
1821(d)(14) (West 1989 & West Supp. 1998).
The little amount of legislative history concerning this
section evidences Congress’ intent to broaden the FDIC’s powers.
Congress’ brief analysis in debate indicates it intended to extend
the limitations period through this section.21 Additionally, one of
Congress’ stated purposes in enacting FIRREA was to “strengthen the
enforcement powers of Federal regulators of depository
institutions.” Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, Pub.L. No. 101-73, 103 Stat. 183, 187.
Applying the tolling provision of § 2415 in connection with § 1821
would fulfill Congress’ stated goals in FIRREA.
Because we hold that § 2415's tolling provision should be
21
Extending these limitations periods will
significantly increase the amount of money
that can be recovered by the Federal
Government through litigation, and help ensure
the accountability of the persons responsible
for the massive losses the Government has
suffered through the failures of insured
institutions. The provisions should be
construed to maximize potential recoveries by
the Federal Government by preserving to the
greatest extent permissible by law claims that
would otherwise have been lost due to the
expiration of hitherto applicable limitations
periods.
135 Cong. Rec. S10182-01 (1989)
14
construed with § 1821's limitations period, a genuine issue of
material fact exists concerning whether the bowling alley’s partial
payments or H. Eugene Abbott’s June 30, 1991 letter tolled the
limitations period for all of the Defendants. As a result, we
cannot affirm the district court’s grant of summary judgment on this
ground.
3. Commercially unreasonable disposition of collateral; notice.
The Defendants contend that we could also affirm the district
court on the grounds that the FDIC did not provide the Defendants
with sufficient notice of the lease of their collateral, the FDIC
did not dispose of the Defendants’ collateral in a commercially
reasonable manner, and the FDIC violated Tex. Bus. & Com. Code §
9.504(c) by effectively selling the collateral to itself in a
private sale. Because we hold the Defendants received adequate
notice and genuine issues of material fact exist concerning the
other grounds, the Defendants’ arguments fail.
a. Notice
On July 17, 1991, the FDIC sent to each Defendant a notice of
intent to foreclose on the collateral securing the note.22 On
December 17, 1991, the FDIC sent a second notice of intent to
foreclose on the collateral to H. Eugene Abbott and ABCO. The FDIC
leased the collateral to Amwest Savings on January 21, 1992, and
22
The collateral at issue is the bowling alley’s equipment.
15
ultimately sold it to Amwest on September 3, 1992.23
When disposing of collateral securing a debt, a creditor must
“give reasonable notification of the time and place of any public
sale or reasonable notification of the time after which any private
sale or other intended disposition is to be made.” Tex. Bus. & Com.
Code § 9.504(c) (Vernon 1991). “The purpose of this notification
is to give the debtor an opportunity to discharge the debt, arrange
for a friendly purchaser, or to oversee that it is conducted in a
commercially reasonable manner.” FDIC v. Lanier, 926 F.2d 462, 464
(5th Cir. 1991) (citing 2 J. White & R. Summers, Uniform Commercial
Code § 27-12 at 598-99 (3d ed. 1988)).
The Defendants argue the two letters sent by the FDIC were
insufficient notice because the first did not mention a lease, and
the second letter, although mentioning the possibility of a lease,
was sent only to H. Eugene Abbott and ABCO after the lease began.
The July 17, 1991 letter provided,
[d]emand is made upon you to pay such indebtedness in
full on or before the 16th day of August, 1991. In the
event you do not pay this sum to the FDIC by such date,
the FDIC will exercise its legal rights and remedies to
collect such indebtedness, including, but not limited to,
foreclosure of the Deed of Trust and sale of the property
covered thereby in accordance with the terms of such Deed
of Trust.
This letter notified the Defendants that the FDIC would dispose of
23
Because Amwest had already foreclosed on the bowling alley
building and land as a result of ADCO’s default on another note,
Amwest took possession of the collateral on December 3, 1991. The
January 21, 1992 lease was retroactive to December 3, 1991.
16
their collateral if they did not pay by August 16, 1991. The letter
was adequate to “inform reasonable business persons” that their
property would be sold after that date. Siboney Corp. v. Chicago
Pneumatic Tool Co., 572 S.W.2d 4, 6 (Tex. Civ. App.-Houston [1st
Dist.] 1978, writ ref’d n.r.e.). While the letter does not state
whether the disposition will be by public or private sale, “the
notice is not defective simply because it does not specifically
state that the goods would be sold privately.”24 Lanier, 926 F.2d
at 465; see Hall v. Crocker Equip. Leasing Inc., 737 S.W.2d 1, 3
(Tex. App.-Houston [14th Dist.] 1987, writ denied). Because the
notice to the Defendants was adequate, we cannot affirm the district
court’s grant of summary judgment on this ground.
b. commercially reasonable manner
The Defendants also argue SMS should be precluded from
obtaining a deficiency judgment because the FDIC did not dispose of
the collateral in a commercially reasonable manner as required by
§ 9.504(c). They claim the FDIC’s disposition was commercially
unreasonable because the FDIC sold the collateral for a price
substantially below its value, and the FDIC only offered to sell the
collateral to one person.
Section 9.504(c) allows the disposition of collateral “as a
unit or in parcels and at any time and place and on any terms”, but
24
Because the sale was ultimately private, the FDIC was only
required to provide the date after which the collateral would be
sold, rather than the time and place of any public sale. See Tex.
Bus. & Com. Code § 9.504(c) (Vernon 1991).
17
“every aspect of the disposition including the method, manner, time,
place and terms must be commercially reasonable.” Tex. Bus. & Com.
Code § 9.504(c) (Vernon 1991). In Texas, the creditor must allege
in his complaint either specifically that he disposed of the
collateral in a commercially reasonable manner, or generally that
he satisfied all conditions precedent to his right of recovery. See
Greathouse v. Charter National Bank-Southwest, 851 S.W.2d 173, 176-
77 (Tex. 1992). If pleaded generally, the creditor must prove that
the disposition of the collateral was commercially reasonable only
if the debtor specifically denies it in his answer. Id. at 177.
If pleaded specifically, the creditor must prove the allegation to
recover on the debt. Id. Here, SMS alleged generally that it
satisfied all conditions precedent to its right to recover on the
note, and the Defendants denied that allegation. Therefore, it was
SMS’s burden to produce evidence that the FDIC disposed of the
collateral in a commercially reasonable manner.
SMS contends the sale was commercially reasonable because it
sold the equipment for a reasonable price. The Defendants argue
it was commercially unreasonable because the price was substantially
below the equipment’s actual value, and the FDIC only offered to
sell the equipment to one person, Amwest.25
The price of the equipment is not dispositive of this issue.
25
The parties dispute whether various appraisals valued the
bowling alley equipment in place or removed from the premises. The
Defendants argue the value of the equipment in place was
substantially higher than if removed.
18
Section 9.507(b) provides that “the fact that a better price could
have been obtained by a sale at a different time or different method
from that selected by the secured party is not of itself sufficient
to establish that the sale was not made in a commercially reasonable
manner.” Tex. Bus. & Com. Code § 9.507(b) (Vernon 1991). Section
9.507(b) also provides:
[i]f the secured party either sells the collateral in the
usual manner in any recognized market therefor or if he
sells at the price current in such market at the time of
his sale or if he has otherwise sold in conformity with
reasonable commercial practices among dealers in the type
of property sold he has sold in a commercially reasonable
manner.
Tex. Bus. & Com. Code § 9.507(b) (Vernon 1991). Because there is
no evidence that a “recognized market” exists for used bowling alley
equipment, that part of the section is inapplicable. The answer
turns on whether the FDIC sold the equipment in conformity with
reasonable commercial practices amongst dealers of used bowling
alley equipment.
The district court correctly found that a genuine issue of
material fact existed concerning this issue, and we agree. While
the Defendants assert that the FDIC made only one attempt to sell
the equipment, the record reflects that at least one other inquiry
was made to Don Tucker of Tulia, Texas.26 The Defendants point to
no other procedural irregularities in the sale indicating that it
was conducted in a commercially unreasonable manner. Because a
26
Don Tucker was described in the record as the “largest
wholesaler of bowling equipment in the United States.”
19
genuine issue of material fact exists concerning whether the FDIC
disposed of the collateral in a commercially reasonable manner, this
alternative ground for summary judgment fails.
c. creditor as the buyer at a private sale
The Defendants also argue as an alternative ground that the
FDIC violated § 9.504(c)’s prohibition against the creditor buying
collateral at a private sale.27 Section 9.504(c) provides that
“[t]he secured party may buy at any public sale and if the
collateral is of a type customarily sold in a recognized market or
is of a type which is the subject of widely distributed standard
price quotations he may buy at a private sale.” Tex. Bus. & Com.
Code § 9.504(c) (Vernon 1991).
The Defendants’ argument rests on its conclusion that Amwest
was the agent of the FDIC when the equipment was sold. They argue
because Amwest was the FDIC’s agent, the sale of the collateral to
Amwest violated § 9.504(c).28 The Defendants point to an
“assistance agreement” between the FDIC and Amwest briefly mentioned
in a settlement agreement between those parties and in the affidavit
of H. Eugene Abbott. The Defendants neglected to include this
agreement in the record, and did not explain the nature of this
27
SMS did not address this argument in its brief.
28
The district court recognized that there is no recognized
market for bowling alley equipment and that the equipment is not
the subject of widely distributed price quotations. Therefore,
neither of the exceptions in § 9.504(c) allowing the creditor to
buy collateral at a private operate in this instance.
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agreement. Because there is insufficient evidence in the record
supporting the existence of an agency relationship between the FDIC
and Amwest, we cannot affirm the district court’s grant of summary
judgment on this ground.
4. Relation back
Finally, the Defendants argue we should affirm the district
court’s grant of summary judgment on the ground that the Plaintiff’s
amended complaint did not relate back to its original complaint.
SMS’s claim will be time barred if its amended complaint does not
relate back, because the amendment occurred more than six years
after any of the alleged tolling events occurred. Because we hold
the Plaintiff’s amended complaint relates back to the filing of the
original, the Defendants’ argument fails.
The Plaintiff mistakenly identified itself as SMS Financial II,
L.L.C. in its original complaint. As a result, the Plaintiff
amended its complaint with its correct name, SMS Financial, L.L.C.
The complaints are identical with the exception of the deletion of
a roman numeral.
Fed. R. Civ. P. 15(c)(3) allows an amended pleading to relate
back when: (1) it changes the party or the naming of the party ; (2)
the claim arose out of the conduct, transaction, or occurrence in
the original pleading; (3) the party brought in by the amendment
has received notice so that the party will not be prejudiced in
maintaining a defense on the merits; and (4) the party knew or
21
should have known that, but for a mistake concerning the identity
of the proper party, the action would have been brought against the
party. Fed. R. Civ. P. 15(c)(3). While Rule 15(c) as written only
applies to amendments adding defendants to an action, the Advisory
Committee Notes for the 1966 Amendment to Rule 15 indicate that the
rule also applies to amendments changing a plaintiff.29
Additionally, we have consistently applied Rule 15(c) criteria to
amendments changing plaintiffs. See Flores v. Cameron County,
Texas, 92 F.3d 258, 272-73 (5th Cir. 1998); see also FDIC v. Conner,
20 F.3d 1376, 1385-86 (5th Cir. 1994).
SMS’s amendment corrected an insignificant error in its name.
The claim asserted in the amended complaint is identical to the
original complaint, and the Defendants do not claim that they were
prejudiced in any way. Because SMS’s amended complaint relates back
to the filing date of the original complaint, we cannot affirm the
district court’s grant of summary judgment on this ground.
29
The relation back of amendments changing
plaintiffs is not expressly treated in revised
Rule 15(c) since the problem is generally
easier. Again the chief consideration of
policy is that of the statute of limitations,
and the attitude taken in revised Rule 15(c)
toward change of defendants extends by analogy
to amendments changing plaintiffs.
Fed. R. Civ. P. Rule 15(c) advisory committee’s note, 1966
amendment.
22
CONCLUSION
For the foregoing reasons, we reverse the district court’s
grant of summary judgment and remand this case to the district court
for further proceedings.
REVERSED AND REMANDED.
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