United States Court of Appeals,
Fifth Circuit.
No. 93-2172.
RESOLUTION TRUST CORPORATION, As Receiver for Commonwealth
Federal Savings Association, Plaintiff-Appellee,
v.
Jerry L. STARKEY, et al., Defendants,
George D. Thomas, Jr., and George D. Thomas, III, Defendants-
Appellants.
Jan. 9, 1995.
Appeal from the United States District Court for the Southern
District of Texas.
Before POLITZ, Chief Judge, GOLDBERG and DUHÉ, Circuit Judges.
GOLDBERG, Circuit Judge:
The Resolution Trust Corporation ("RTC") brought suit against
defendants George D. Thomas, Jr. (Thomas Jr.), George Thomas III
(Thomas III), and Jerry L. Starkey, to enforce guaranties on two
promissory notes. The defendants did not oppose the RTC's motion
for summary judgment, and the district court granted summary
judgment in favor of the RTC. Defendants Thomas Jr. and Thomas
III1 (hereinafter referred to collectively as "appellants") appeal
from the district court's judgment. The appellants assert that the
RTC did not properly serve process on them. In addition, the
appellants argue that the RTC failed to demonstrate its ownership
of the promissory notes. We reverse with respect to Thomas III and
affirm with respect to Thomas Jr.
1
Starkey is not a party to this appeal.
1
I
The RTC brought this suit in its capacity as Conservator of
Commonwealth Federal Savings Association ("Commonwealth Federal"),
a federally chartered savings and loan association with its
principal place of business in Houston, Texas. The RTC filed this
suit to collect the deficiency balance remaining on two promissory
notes the defendants had guarantied.
Some background on the origin and ownership of the notes at
issue in this case is required. The defendants borrowed $1,191,168
from Commonwealth Savings Association ("Commonwealth Savings"). To
obtain these funds the defendants signed two promissory notes.
These notes were secured by real estate owned by the defendants.
In addition, the defendants made personal guaranties on these
notes.
In the summer of 1988 both notes matured. When the notes went
unsatisfied, Commonwealth Savings foreclosed on the properties
securing the notes, and sold the properties at auction. The sale
of these properties yielded $536,618, leaving a deficiency of
$654,550.
On March 8, 1989, pursuant to a resolution by the Federal Home
Loan Bank Board ("FHLBB"), Commonwealth Savings was placed into the
conservatorship of the Federal Savings and Loan Insurance
Corporation ("FSLIC"). On May 23, 1989, the FHLBB created
Commonwealth Federal and named the FSLIC conservator for
Commonwealth Federal. On that same day, all of the notes and
guaranties at issue in this case were assigned to the FSLIC as
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Conservator for Commonwealth Federal.
On August 9, 1989, the Financial Institutions Reform,
Recovery, and Enforcement Act ("FIRREA") became law. FIRREA
created the RTC and provided that the RTC would succeed to the
interests of all FSLIC receiverships or conservatorships created
from January 1, 1989 through August 9, 1989. The Commonwealth
Federal conservatorship fell into this category, and the RTC became
conservator of Commonwealth Federal.
Upon becoming conservator of Commonwealth Federal, the RTC
sent the defendants letters demanding payment. These letters went
unheeded, and on October 3, 1990 the RTC filed suit to recover the
deficiency owing on the notes. However, the RTC failed to serve
any of the defendants within 120 days of filing its complaint.
On February 4, 1991, the RTC filed a motion to retain the case
on the docket. This motion requested that the district court not
dismiss the RTC's complaint pursuant to Federal Rule of Civil
Procedure 4(j) for failure to serve the parties within the relevant
time period. On February 8, 1991, the district court granted the
RTC's motion and issued a retention order permitting the RTC "...
30 days from [that] Order to serve one or more of the defendants."
The RTC effected service upon Starkey on March 9, 1991.
Thomas Jr. was not served until March 19, 1991, and Thomas III was
not served until April 9, 1991. Thomas III raised the defense of
insufficient service of process in his answer, but Thomas Jr. did
not. By order dated July 3, 1991, the district court denied Thomas
III's motion to dismiss. On September 1, 1992, the RTC filed a
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motion for summary judgment. Thomas III filed no response to the
summary judgment motion. Thomas Jr. did not respond to the RTC's
summary judgment motion either, but instead moved for leave to file
a motion to dismiss. The district court dismissed the appellants'
motions, and granted summary judgment in favor of the RTC on
January 8, 1993.
II
Thomas Jr. appeals from the district court's denial of his
motion for leave to file a motion to dismiss. Thomas III appeals
the district court's denial of his motion to dismiss. Each
appellant's issue is addressed in turn.
A. Propriety of Service of Process upon Thomas Jr.
Thomas Jr. failed to raise the insufficiency of process in
his answer. Accordingly, he has waived any objection to service.
Fed.R.Civ.P. 12(h)(1)(B). Thomas Jr. argues that the mandatory
language of Rule 4(j) (i.e., "an action shall be dismissed" if
service is not made within a specified time period) exempts defects
in service from the waiver provisions of Rule 12. The law is
clear, however, that objections to service are waived if not raised
in the answer or pre-answer motion. Kersh v. Derozier, 851 F.2d
1509, 1511-12 (5th Cir.1988). Accordingly, the district court
properly denied Thomas Jr.'s motion for leave to file a motion to
dismiss.
B. Propriety of Service of Process upon Thomas III
Thomas III's argument deserves greater reflection since he
did raise his objection to service in a timely manner. Thomas III
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filed a motion to dismiss based on, inter alia, the deficiency of
service. The district court denied Thomas III's motion to dismiss
without comment. We hold that in doing so, the district court
erred.
Thomas III argues that the district court erred in granting
the RTC extensions, both after the original 120 days expired and
after the expiration of the 30-day extension. Conversely, the RTC
argues that the district court has discretion to freely grant
extensions upon a showing of good cause. The question before us is
whether good cause existed for the RTC's delayed service of process
as to Thomas III. The district court's finding of good cause is
reviewed under an abuse of discretion standard. McDonald v. United
States, 898 F.2d 466, 468 (5th Cir.1990).
The RTC's motion to retain the case on the docket consisted of
a few lines of text alleging that it was diligently attempting to
serve the defendants, that numerous attempts at service had been
unsuccessful, and that more time was needed. We need not decide
whether the district court abused its discretion in granting the
RTC's motion to retain the case on the docket. This is so because
the RTC was wholly unjustified in not serving Thomas III within the
30-day extension granted by the district court. Assuming,
arguendo, that the RTC showed good cause for failing to serve
Thomas III within the 120 following the filing of their suit, the
record is bereft of any evidence of good cause for the RTC's
failure to serve process within the 30 day extension granted by the
district court.
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In its response to Thomas III's motion to dismiss, the RTC
claims to have made diligent efforts at serving Thomas III, but was
unable to do so because it had an incorrect address for Thomas III,
and because Thomas III's common name prevented him from being
located. It must be assumed that these allegations refer to the
difficulties the RTC encountered in finding Thomas III during the
120 days following the filing of the complaint, since they are the
same reasons the RTC provided in its motion to retain the case on
the docket. Next, the RTC alleged that it was unable to serve
Thomas III within the 30-day extension granted by the district
court because a postal forwarding order for Thomas III had expired.
Apart from this frustrated attempt to mail service to Thomas III,
the RTC does not enumerate any other attempt to serve or find
Thomas III. After the 30-day extension had expired, the RTC
discovered, through some unknown source, that Thomas III was an
attorney, and obtained his address from the State Bar. Thereafter,
the RTC was able to effect service upon Thomas III at that address.
We conclude that the RTC failed to demonstrate good cause
existed for its failure to serve Thomas III within the 30 day
extension granted by the district court. The RTC made no showing
to support its claim that good cause existed for failing to serve
Thomas III. The RTC claims that at all times, it diligently sought
to serve Thomas III, yet the RTC did not discover that the address
it had for Thomas III was invalid until after 120 days had lapsed.
Also, there is evidence that Thomas III could have been located if
reasonable efforts had been expended. Thomas III was a practicing
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attorney in the Dallas area, and his telephone number and address
were listed in the Southwestern Bell Telephone Directory. The RTC
failed to explain why it took over five months to discover that
Thomas III was an attorney, or why it did not avail itself of the
reasonable alternative means of serving process.
The RTC contends that despite the paucity of evidence of good
cause, their service on Thomas III is still valid since there was
no "sinister motive" on its part in the delay. This argument is
based on a strained reading of Carimi v. Royal Caribbean Cruise
Line, 959 F.2d 1344 (5th Cir.1992). In Carimi, this court found
good cause to exist for late service where the plaintiff "at all
times acted in good faith, and without sinister motivation." Id.
at 1349. From this language the RTC urges us to sanction its
service on Thomas III since there is no evidence that the delay was
occasioned by any maleficent intentions. However, the requirement
of Carimi is good faith and no sinister motive. It is not enough
that the RTC meant no harm in failing to serve Thomas III within
the time prescribed—the fact that it was careless is sufficient to
militate against the showing of good faith required for shelter
under Carimi. In short, one is required to be diligent in serving
process, as well as pure of heart, before good cause will be found.
III
Neither of the appellants opposed the RTC's motion for
summary judgment. This alone is an insufficient basis for a grant
of summary judgment, since the RTC still must establish the absence
of a genuine issue of material fact before it can prevail on a
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summary judgment motion. Hibernia Nat'l. Bank v. Administracion
Central Sociedad Anonima, 776 F.2d 1277, 1279 (5th Cir.1985); John
v. Louisiana (Bd. of Trustees), 757 F.2d 698, 709 (5th Cir.1985).
Ordinarily, suits on promissory notes provide "fit grist for
the summary judgment mill." FDIC v. Cardinal Oil Well Servicing
Co., 837 F.2d 1369, 1371 (5th Cir.1988). In order to prevail in
its summary judgment motion, the RTC "need not prove all essential
elements of a breach of contract, but only must establish the note
in question, that [the non-movant] signed the note, that the [RTC]
was the legal owner and holder thereof, and that a certain balance
was due and owing on the note." Clark v. Dedina, 658 S.W.2d 293,
295 (Tex.App. 1 Dist.1983).
A photocopy of a note, attached to a sworn affidavit
declaring that the photocopy is a true and correct copy of the
original, is considered valid summary judgment evidence in Texas.
Life Insurance Co. v. Gar-dal, Inc., 570 S.W.2d 378, 380
(Tex.1978). If the execution of the promissory note has not been
denied under oath, a prima facie case is made by an affidavit
attesting that the movant is the owner and holder of the note, and
that there is a balance due on that note. Clark, at 296.
In its motion for summary judgment, the RTC submitted the
verified affidavit of Don Barber, the RTC site manager responsible
for managing the business records of Commonwealth Federal. In
Barber's affidavit, he describes the date of execution, maker,
payee, principal amount, balance due, amount of accrued interest
owed, and the date of default for each of the two promissory notes.
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Photocopies of the promissory notes were attached to his affidavit.
Since nothing in the record negated the existence of these
notes, and the defendants did not deny that they executed the
notes, the district court found that no genuine issue of material
fact remained as to the existence and validity of the promissory
notes. Furthermore, the district court found that the summary
judgment evidence presented by the RTC presented a prima facie case
of default on the notes, and that none of the affirmative defenses
the defendants plead were valid.
We hold that the district court applied the correct legal
standard in ruling on the summary judgment motion and that the RTC
met its burden in demonstrating an absence of a genuine issue of
material fact.
On appeal, the appellants argue that the district court made
two errors in granting summary judgment. First, the appellants
argue that the RTC failed to demonstrate the transfer of ownership
of the notes from Commonwealth Savings to Commonwealth Federal.
The notes are payable by their terms to the order of Commonwealth
Savings. In order to establish its ownership of the notes the RTC
had to demonstrate the transfer of ownership from Commonwealth
Savings to Commonwealth Federal. This transfer may be proven by an
indorsement of the notes in favor of Commonwealth Federal. In the
absence of an indorsement, there is no presumption that the
transferee of a note is its owner, and possession must then be
demonstrated by proving the transaction whereby the note was
acquired. Jernigan v. Bank One, Texas, N.A., 803 S.W.2d 774, 776-
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77 (Tex.App. 14 Dist.1991).
In the affidavit accompanying the RTC's summary judgment
motion, the photocopy of the promissory notes appended thereto do
not have the indorsement from Commonwealth Savings to Commonwealth
Federal. In its complaint, though, the RTC submitted photocopies
of the promissory notes being sued on, and these facsimiles did
contain the indorsement of Commonwealth Savings in favor of
Commonwealth Federal. The appellants argue that since the
photocopies appended to the summary judgment motion did not have
the indorsements, the RTC has not proven ownership of the
promissory notes, and therefore summary judgment was improperly
granted. However, this argument takes an unduly restrictive view
of what may serve as valid summary judgment evidence.
In ruling on the RTC's motion for summary judgment the
district court considered the entire case file to determine whether
a genuine issue of material fact existed. Keiser v. Coliseum
Properties, Inc., 614 F.2d 406, 410 (5th Cir.1980). A verified
complaint can be considered as summary judgment evidence. King v.
Dogan, 31 F.3d 344, 346 (5th Cir.1994). As such, the indorsed
promissory notes accompanying the RTC's complaint is valid summary
judgment evidence, and establishes Commonwealth Federal's ownership
of the notes.
Finally, the appellants argue that the affidavit of Don
Barber is invalid because the signature page is not the original.
The appellants cite no cases in making this argument. The
admissibility of summary judgment evidence is subject to the same
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rules of admissibility applicable to a trial. Munoz v.
International Alliance of Theatrical Stage Employees etc., 563 F.2d
205, 297 n. 1 (5th Cir.1977). Federal Rule of Evidence 1003
provides that a duplicate is admissible to the same extent as an
original unless there is a genuine question of authenticity or if
it would be unfair under the circumstances. Since the appellants
have not contested the authenticity of the Barber affidavit, and
have not alleged any prejudice owing to the use of a facsimile
signature, the Barber affidavit is admissible to prove the elements
of the RTC's ownership of the notes.
In sum, we hold that the district court is REVERSED in respect
to its denial of Thomas III's motion to dismiss, and is AFFIRMED in
all other respects.
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