United States Court of Appeals,
Fifth Circuit.
No. 91–2746.
FIRST INDIANA FEDERAL SAVINGS BANK, Plaintiff–Appellant,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver for United Savings
Association of Texas, and United Savings Association of Texas, FSB, Defendants–Appellees.
July 1, 1992.
Appeals from the United States District Court for the Southern District of Texas.
Before KING and WIENER, Circuit Judges, and LAKE, District Judge*:
WIENER, Circuit Judge:
Plaintiff–Appellant First Indiana Federal Savings Bank (First Indiana) appeals an adverse
judgment rendered in its suit on a loan participation contract (the participation agreement) that its
predecessor had entered into with the predecessor of United Savings Association of Texas (Old
United).1 The district court judgment favored the Defendants–Appellees: the FDIC, as receiver for
Old United, and United Savings Association of Texas, FSB (New United). Following a trial in which
the jury responded to specific interrogatories only, but before judgment was rendered by the district
court, Old United became insolvent and was taken over by the FSLIC, which in turn was followed
by the FDIC, as receiver. Some three years after the jury's special verdicts were handed down, the
district court held that when New United (as transferee of the FSLIC in its then capacity of receiver
for Old United) became the owner of many of the assets formerly belonging to Old United—including
its interest in the participation agreement—New United nevertheless did not become responsible for
Old United's unsecured obligations that had arisen under the participation agreement. New United
did acquire all subsisting rights of action of Old United under the participation agreement as well as
all benefits and obligations Old United accruing under the participation agreement from and after New
*
District Judge for the Southern District of Texas, sitting by designation.
1
Even though the agreement was actually between the predecessors of Old United and First
Indiana, we refer to these two institutions for the sake of simplicity and clarity.
United's acquisition of Old United's interests. Finding no reversible error, we affirm.
I.
FACTS AND PROCEEDINGS
Old United is the successor to the original seller and First Indiana is the successor to the
original buyer under the participation agreement. It covered the development of four apartment
complexes in Houston. First Indiana acquired various interests in the participations (totalling about
$5.5 million), and Old United retained ten percent of each together with management responsibilities
and the right to compensation for managerial services it rendered.
Among its provisions, the participation agreement contained a repurchase option or "put" that
would become exercisable at the election of First Indiana if Old United violated "any of the terms,
covenants, warrant ies and conditions" of the participation agreement and failed to cure any such
violation within 30 days after notice.2 The parties also agreed that Old United would (1) be held to
a standard of ordinary care in its management of the loans; (2) notify First Indiana of any default on
any of the loans or "any fact s which are likely to give rise to any default or any impairment of
security"; and (3) pay First Indiana certain transfer fees.3
Three of the four apartment complexes began experiencing problems. The loans then became
delinquent and were eventually foreclosed. First Indiana claims that Old United violated the terms
of the participation agreement in failing to notify First Indiana of the problems with the loans and
potential defaults. First Indiana sent a letter to Old United notifying it of that default under the
participation agreement and demanding immediate repurchase. The letter did not give Old United
30 days to cure.
2
The agreement also contained a repurchase option in favor of Old United, not at issue in this
case.
3
These fees are not adequately explained in the briefs, but they apparently have something to
do with the fact three of the four properties were foreclosed.
First Indiana eventually filed suit against Old United seeking specific performance of
repurchase of the participations pursuant to the participation agreement. Old United counterclaimed
to force First Indiana to purchase Old United's share of the loans, and also seeking a money judgment
for fees related to Old United's management of the foreclosed properties. After two attempts at
summary judgment, the case was tried before a jury. Responding to special verdict interrogatories,
the jury found against Old United on several issues: that it had failed to give prompt notice of facts
that were likely to result in a default, that it had failed to exercise ordinary care, and that its violations
were not curable. The jury also found against First Indiana on several issues: that the breaches of
the participation agreement by Old United were not material, that First Indiana's notice to Old United
was inadequate, and that First Indiana had waived its claims.
Following the jury verdict almost three years elapsed before the district court entered its
judgment. In the meantime, Old United was declared insolvent and the FSLIC formed New United.4
Pursuant to an acquisition agreement, the FSLIC sold many of the assets of Old United to New
United. Thereafter, New United intervened in the instant suit to counterclaim and to reassert Old
United's claims against First Indiana.
First Indiana then filed another motion for summary judgment, arguing that Old United's
insolvency was ano ther event of default that terminated the participation agreement and triggered
repurchase. The court, however, entered judgment against First Indiana on its repurchase claim,
awarding a money judgment to New United for $77,403 in unpaid fees and expenses plus interest,
and dismissing First Indiana's claims against the FDIC. First Indiana timely appealed.
II.
ANALYSIS
Primarily at issue is Section 3 of the acquisition agreement between FSLIC and New United.
4
First the FSLIC and then the FDIC were substituted for Old United in this action.
It states in pertinent part:
[New United] hereby expressly assumes and agrees to pay, perform and discharge ... (b) [Old
United's] liabilities that are secured by assets purchased by [New United] pursuant to Section
25 of this Agreement to the extent of the value of the security ... except as expressly set forth
in this Section 3, [New United] will not assume any of the claims, debts, obligations or
liabilities (including without limitation, known or unknown, contingent or unasserted claims,
demands, causes of action or judgments; or debts, obligations or liabilities; or commitments
to loan or obligations to make future fundings or advances under existing loans or other
obligations even if such loans or other obligations are acquired by [New United] ) of [Old
United]....6
First Indiana characterizes Old United's obligations under the participation agreement as
"liabilities that are secured by assets purchased" by New United. We do not agree. From the outset,
the participation agreement never created anything more than unsecured personal obligations between
the parties. Nothing contained in that agreement purported to secure the obligations of one party to
another with any encumbrance of the interests purchased or conveyed therein. To the extent that
First Indiana had any valid claims against Old United, they were not secured claims, so clearly they
did not survive the transfer of assets under the acquisition agreement between the FSLIC and New
United.
After it declared Old United insolvent, the Federal Ho me Loan Bank Board (FHLBB)
determined that the aggregate value of the assets of Old United were less than its total secured and
depositor liabilities, and that there were no assets available to pay unsecured creditors.7 Under the
5
Section 2 governs the transfer of all of Old United's assets to New United.
6
Emphasis added.
7
The FHLBB's regulations required it to follow the Texas depositor preference statute,
Tex.Rev.Civ.Stat. Art. 852a § 8.09(g) in determining priority for payment of creditors. See 12
C.F.R. § 569c.11(a)(6) (1989), redesignated to 12 C.F.R. 389.11 (1990) 54 Fed.Reg. 42801
(Oct. 18, 1989). The Texas depositor preference statute mandates that depositors claims be paid
in full before those of general creditors.
The FHLBB's worthlessness determination not only established the value of First
Indiana's unsecured claims, it also binds the courts hearing actions on those claims.
281–300 Joint Venture v. Onion, 938 F.2d 35, 38 (5th Cir.1991), cert. denied, ––– U.S.
––––, 112 S.Ct. 933, 117 L.Ed.2d 105 (1992); Gulley v. Sunbelt Savings, F.S.B., 902
F.2d 348, 351 (5th Cir.1990), cert. denied, ––– U.S. ––––, 111 S.Ct. 673, 112 L.Ed.2d
acquisition agreement, the FSLIC transferred to New United substantially all of the assets8 of Old
United but only the secured, deposit, and certain tax liabilities. The unsecured liabilities of Old
United, accrued as of the date of the transfer, were neither assigned to nor assumed by New United.
The FSLIC retained all claims, demands, and causes of action of general unsecured creditors of Old
United.
Because New United did not acquire any unsecured liabilities under the acquisition agreement,
First Indiana's only recourse was to seek relief against the FDIC as receiver for Old United. It made
little difference, however, whether the claims of First Indiana against Old United were valid, because
the liabilities of Old United exceeded its assets to such an extent that there were no assets for the
receiver to distribute to general creditors such as First Indiana.
In enacting FIRREA, Congress unequivocally expressed its intent to limit the maximum
liability of the FDIC to the amount the claimant would have received in a liquidation under federal
priority regulations.9 In this instance, First Indiana would not have received anything had Old United
been liquidated.
Congressional policy requires that creditors of failed institutions look only to the assets of the
institution for recovery of their losses, and not to the taxpayers.10 If First Indiana were to obtain a
judgment in its favor, that judgment could not exceed the amount it would have received in a
liquidation—in this case, nothing. Therefore, the district court could not legally enter a judgment
665 (1991). First Indiana did not challenge the worthlessness determination, therefore, it
is conclusive as to First Indiana's claims.
8
Those assets not transferred to New United were transferred to FSLIC in consideration of
FSLIC's agreement to provide financial assistance to New United.
9
See 12 U.S.C. § 1821(i)(2).
10
See Village South Joint Venture v. FDIC, 733 F.Supp. 50, 52 (N.D.Tex.1990).
against the FDIC in favor of First Indiana, and was correct in dismissing the FDIC.11
Another reason that First Indiana cannot reco ver in this case is that its claims are not
susceptible of redress by any court. As adjudication of the claims would be futile, First Indiana's
claims are moot. A moot case exists when the court cannot grant relief that would affect the parties
and redress the plaintiff's alleged wrongs.12 Even if First Indiana's claims constitute a "case or
controversy" under Article III of the Constitution, those claims should be dismissed for prudential
reasons because there is no practical purpose in requiring their adjudication on the merits.13
Irrespective of the abstract validity of any of First Indiana's claims against Old United, there
are no set of circumstances under which First Indiana can recover any money or property as a result
of those claims.14 It follows that litigating such claims would require a significant dedication of
resources by First Indiana, the FDIC, and the district court. Because this expenditure of time and
money will never result in First Indiana's obtaining the relief it seeks, a trial on the merits would be
a completely hollow act. Consequently, the district court's dismissal of First Indiana's claims against
the FDIC and that court's judgment in favor of New United and against First Indiana were proper on
grounds of prudential mootness.
We find it noteworthy here that among the assets transferred by the FSLIC from Old United
to New United is Old United's interest as seller under the participation agreement. Our decision today
affects only those claims made by First Indiana with respect to the actions of Old United. As a
successor in interest to Old United under the participation agreement, New United succeeds to all of
11
FDIC v. Browning, 757 F.Supp. 772, 773 (N.D.Tex.1989).
12
Iron Arrow Honor Soc. v. Heckler, 464 U.S. 67, 70, 104 S.Ct. 373, 374, 78 L.Ed.2d 58
(1983) (per curiam).
13
See Franks v. Bowman Transportation Co., 424 U.S. 747, 756 n. 8, 96 S.Ct. 1251, 1260 n.
8, 47 L.Ed.2d 444 (1976).
14
See FSLIC v. Locke, 718 F.Supp. 573, 585–88 (W.D.Tex.1989).
Old United's rights—past, present and future—arising under that agreement. Similarly, New United
is responsible for the performance of all obligations of the seller under the agreement, but only those
accruing from and after the transfer by the FSLIC to New United. Therefore, it is only to the extent
that New United should fail to live up to its responsibilities under the participation agreement after
its transfer from the FSLIC that First Indiana would have a right of action against New United.
Finally, First Indiana argues that in the event we affirm the district court's decision, it is
entitled to offset against the judgment the $15,257.43 in transfer fees allegedly due from Old United.
We must again disagree. For the reasons discussed above, this sum represents an unsecured
obligation of Old United that neither survived Old United's insolvency nor was transferred under the
acquisition agreement. Therefore, First Indiana has no right to assert its claim for such amounts
against New United whether by offset or otherwise. As far as obligations of the seller under the
participation agreement are concerned, New United got a "fresh start" as of the time it acquired the
interest of Old United by transfer from the FSLIC. As far as rights and benefits of the seller under
the participation agreement are concerned, New United stepped into the shoes of Old United
irrespective of the date that any such rights and benefits may have accrued or in the future may
accrue.
III.
CONCLUSION
Regardless of the validity of First Indiana's unsecured claims, First Indiana can recover
nothing from New United because liability for First Indiana's claims were not transferred to or
assumed by New United. Furthermore, First Indiana is precluded from recovering from Old United
or the FDIC because First Indiana would have received nothing in a liquidation of Old United and the
FDIC is immune. On appeal, First Indiana does not dispute the judgment entered in favor of New
United for First Indiana's share of expenses in the management of the loans. Therefore, the district
court did not err in granting the money judgment in favor of New United and dismissing all claims
against the FDIC. The judgment of the district court is
AFFIRMED.