Ventana Investments v. 909 Corporation, et

UNITED STATES COURT OF APPEALS
For the Fifth Circuit

No. 95-40004

VENTANA INVESTMENTS, A Texas General Partnership;
PRIDE HOUSE CARE CORPORATION; BRITWILL COMPANY;
BRUCE H. WHITEHEAD, individually

Plaintiffs-Appellants,
and

ALL PLAINTIFFS

Plaintiff,

VERSUS

909 CORPORATION, formerly known as Underwood Neuhaus;
KEMPER FINANCIAL COMPANIES, INC.; LOVETT MITCHELL
WEBB & GARRISON, INC.; FRANKLIN FINANCIAL SERVICES, INC.;
WILLIAM SORENSON;

Defendants-Appellees,

RESOLUTION TRUST CORPORATION,
as Receiver for Franklin Federal
Savings Association,

Intervenor-Defendant-Appellee.

Appeal from the United States District Court
for the Eastern District of Texas
September 13, 1995

Before POLITZ, Chief Judge, HILL,1 and DeMOSS, Circuit Judges.

1
Circuit Judge of the Eleventh Circuit, sitting by
designation.
DeMOSS, Circuit Judge:

This is an appeal from a grant of summary judgment against

plaintiff-appellant Ventana Investments,2 and in favor of

defendant-appellees Underwood Neuhaus ("Underwood"), Franklin

Financial Services, Inc. ("Franklin Financial")3 and intervenor-

defendant-appellee the Resolution Trust Corporation ("RTC").

This case was originally filed in the 172nd Judicial District

of Jefferson County, Texas, but was removed by the RTC to the

United States District Court for the Eastern District of Texas.

Ventana asserted that removal by the RTC was untimely and moved to

remand the case back to Texas district court. That motion was

denied. In addition to appealing the summary judgment, Ventana

appeals the denial of the motion to remand. Finding that the RTC's

removal was untimely, we VACATE the district court's decision and

REMAND to the federal district court with instructions to remand to

the 172nd Judicial District of Jefferson County, Texas.

FACTS

In 1989, Ventana agreed to purchase 85 nursing homes in Iowa

and Arkansas from Beverly Enterprises. Ventana was to then resell

the nursing homes to Mercy Health Initiatives and Pride House.4

2
All of the appellants (Ventana Investments, Pride House Care
Corporation, Britwill Company, and Bruce H. Whitehead) will be
referred to collectively as "Ventana."
3
There are three other defendants, Kemper Financial Companies,
Inc., Lovett Mitchell Webb & Garrison, Inc. and William Sorenson.
Discussion of these defendants is not important to our resolution
of this case.
4
The Iowa and Arkansas deals were separate. The Iowa nursing
homes were sold to Mercy Health Initiatives, while the Arkansas
Each of the deals was to be financed with approximately $85,000,000

in tax-exempt bonds and Underwood agreed to render investment

banking services to help Ventana finance the deal. The tax-exempt

bonds were issued by the Iowa Finance Authority and the Arkansas

Development Finance Authority ("ADFA"), respectively.

Ventana issued two notes to Underwood. The first, for

$100,000, was due and payable at the close of the Iowa deal. The

second, for $700,000, was due and payable in full on June 1, 1990,

or at the close of the Arkansas deal, whichever came first.

The Iowa deal closed in August 1989. Shortly after the

closing, Ventana became concerned about Underwood's ability to meet

its financial obligations, because of changes in Underwood's

management. Ventana asked to substitute Donaldson, Lufkin, and

Jenrette ("DLJ") as the underwriter for the Arkansas deal.

Underwood refused to allow the substitution.

On September 21, 1989, ADFA approved the Arkansas deal with

Underwood as the underwriter. The deal still required the final

approval of ADFA, as well as the approval of then Governor Bill

Clinton. Underwood withdrew as underwriter on September 25, 1989,

and within one day DLJ was hired as its replacement. Underwood's

withdrawal required that the deal be resubmitted to ADFA, with DLJ

listed as the new underwriter. Ventana alleges that the bonds

would have issued soon after the September 21 approval had

Underwood not withdrawn.

nursing homes were to be sold to Pride House.

3
 In early October 1989, the proposed Arkansas deal became a

tumultuous political issue, with many individuals alleging it was

an example of outsiders trying to exploit the people of Arkansas

for their own gain. Eventually, Governor Clinton entered the fray

and announced that he would not sign the proposal even if it was

approved by ADFA. At that point the deal was dead and Ventana

never gained ADFA approval.

Because the Arkansas deal did not close, the second note of

$700,000 was due and payable by its terms on June 1, 1990. Ventana

did not make the payment and instead filed suit.

PROCEDURAL HISTORY

Ventana sued Underwood in Texas district court on June 1,

1990, alleging, inter alia, (1) breach of contract; (2) breach of

fiduciary duty; (3) estoppel; (4) violation of the Texas Deceptive

Trade Practices Act ("DTPA"), TEX. BUS. & COM. CODE ANN. § 17.41 et

seq.; (5) fraud and negligent misrepresentation; (6) tortious

interference; and (7) mutual mistake and reformation.

On January 13, 1993, Ventana added Franklin Financial

Services, Inc. ("Franklin Financial"), Underwood's parent company,

as a defendant in the lawsuit. On the same day, the Texas district

court entered a temporary restraining order ("TRO") prohibiting

Underwood and Franklin Financial from transferring Underwood's

assets.5 On January 22, 1993, Underwood and Franklin Financial

5
Franklin Financial is a wholly-owned subsidiary of Franklin
Federal Savings Association (Franklin Savings), for which the
Resolution Trust Corporation ("RTC") was the receiver and
conservator. 909 Corp, formerly known as Underwood, Neuhaus &
Company, was a wholly-owned subsidiary of Franklin Financial that

4
removed this case to the United States District Court for the

Eastern District of Texas, asserting removal jurisdiction under 12

U.S.C. § 1441a(l)(3), because Franklin Savings was under the

conservatorship and receivership of the RTC. After removal, the

TRO expired by its own terms. In April 1993, the federal district

court remanded to the Texas district court in a one sentence order,

without explanation.

On September 3, 1993, Ventana obtained a second TRO

restraining Underwood and Franklin Financial from transferring

Underwood's assets. On October 1, 1993, the RTC intervened as of

right in the Texas district court action and removed the case to

the United States District Court for the Eastern District of Texas,

pursuant to 12 U.S.C. 1441a(l)(3). On October 12, 1993, Ventana

filed a motion to remand, which was denied on January 20, 1995.6

In January 1994, Underwood filed a motion for summary judgment

and in April 1994 Ventana cross-moved for summary judgment. The

federal district court granted summary judgment in favor of

Underwood and denied Ventana's motion. Ventana filed a timely

notice of appeal.

dissolved on July 31, 1992.
6
The motion to remand was timely filed, as it was filed within
30 days of removal. 28 U.S.C. § 1447(c).

5
 REMOVAL

The Financial Institutions Reform, Recovery, and Enforcement

Act of 1989 ("FIRREA") provides that federal courts have original

jurisdiction over any action to which the Resolution Trust

Corporation ("RTC") is a party.7 12 U.S.C. § 1441a(l)(1). FIRREA

allows the RTC to remove to federal court any state court action

involving an institution of which the RTC is the conservator or

receiver. 12 U.S.C. § 1441a(l)(3)(A). The RTC may remove the case

within 90 days after it is substituted as a party. 12 U.S.C. §

1441a(l)(3)(A)(i). The RTC is substituted as a party "upon the

filing of a copy of the order appointing the [RTC] as conservator

or receiver for that party or the filing of such other pleading

informing the court that the [RTC] has been appointed conservator

or receiver for such party." 12 U.S.C. § 1441a(l)(3)(B).

When FIRREA was originally passed, it said, as it does today,

that the removal clock begins to run when the RTC is substituted as

a party. However, "substituted" was not defined in the statute,

and a circuit split quickly arose regarding the meaning of that

term. JAMES W. MOORE, 1A MOORE'S FEDERAL PRACTICE ¶ 0.167[13] (1995).

Several circuits were of the opinion that the time period began

7
After Ventana appealed, they moved for dismissal of the case
due to lack of subject matter jurisdiction, and a motions panel of
this Court denied the motion. However, the dispositive issue in
this appeal is not a lack of subject matter jurisdiction, but
rather a procedural defect in removal. Barnes v. Westinghouse
Elec. Corp., 962 F.2d 513, 516 (5th Cir.), cert. denied, 113 S. Ct.
600 (1992) (untimely removal is a procedural defect and does not go
to subject matter jurisdiction). In any event, an oral argument
panel is not bound by a motions panel's denial of a motion to
dismiss. E.E.O.C. v. Neches Butane Products Co., 704 F.2d 144, 147
(5th Cir. 1983).

6
when the RTC was appointed as conservator or receiver. Other

circuits, ours included, held that the time period did not begin

until the RTC appeared in the state court matter.8

Because of this confusion, Congress amended FIRREA in December

1991. Effective February 1, 1992, a definition of "substituted"

was added ("1992 Amendment"). The statute, as amended, which is

still in effect, provides that the RTC is substituted as a party

"upon the filing of a copy of the order appointing the [RTC] as

conservator or receiver for that party or the filing of such other

pleading informing the court that the [RTC] has been appointed

conservator or receiver for such party." 12 U.S.C. §

1441a(l)(3)(B).9

Underwood removed the case to federal court on January 22,

1993. On January 26, 1993, Underwood filed, in Texas district

court, a notice of filing notice of removal. Attached to the

notice was the notice of removal, which included the Office of

Thrift Supervision orders appointing the RTC as conservator and

receiver of Franklin Savings. This was clearly "the filing of a

copy of the order appointing the [RTC] as conservator or receiver"

8
Our circuit has applied a parallel rule with regard to FDIC
removal, holding that under 12 U.S.C. § 1819(b)(2)(B), which
governs removal by the FDIC, the clock does not begin running until
the FDIC appears in the state court proceeding. FDIC v. Loyd, 955
F.2d 316, 327 (5th Cir. 1992).
9
Many of the cases cited by the RTC are pre-1992 Amendment or
relate to the FDIC statute. Those cases are, therefore,
inapposite. Given the change made by the 1992 Amendment and the
current differences between the RTC and FDIC removal statutes,
parties should be careful to cite the Court to appropriate
controlling law.

7
for Franklin Savings, and, therefore, the RTC was substituted as a

party in the case.10 Thus, the removal clock began running on

January 26, 1993.11

However, in April 1993, the federal district court remanded

the case back to the state district court. The RTC chose not to

appeal this decision, even though it had the right to do so. 12

U.S.C. § 1441a(l)(3)(C). Instead, the RTC chose to ignore the

litigation until September 1993, when the Texas district court

issued a second temporary restraining order. The RTC then

intervened in the case and on October 1, 1993, removed the case to

federal court.

Generally, when a case is remanded to state court, the

removing party does not have a right to appeal. However, Congress

has generously provided the RTC with the right to appeal remand

orders. If the RTC thought the remand was incorrect, it had a

remedy: appeal. What the RTC did not have the right to do was sit

back, monitor the state court action, and then intervene and remove

when it saw fit. Allowing this result would render meaningless §

1441a's timetable. Congress provided that even though the RTC is

not formally a party, it will be deemed one by being "substituted."

Substitution starts the running of the removal clock. Neither

10
The RTC need not be the party who actually files the papers
informing the court of the conservatorship or receivership. The
statute only requires that they be filed with the state court.
Spring Garden Assn. v. RTC, 26 F.2d 412, 417 (3d Cir. 1994).
11
There is nothing in the record to indicate that the RTC
lacked notice of this filing and the RTC does not claim a lack of
notice.
opin\95-40004
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logic nor the plain language of the statute leads to the conclusion

that, after being substituted as a party, the RTC is free to remove

at any time simply because the case has been remanded.

Because the removal clock began running on January 26, 1993

and the second removal of the case did not occur until October 1,

1993, over 90 days passed from the date the RTC was substituted as

a party. Therefore, the second removal was not timely. Even

assuming, arguendo, that the 90-day period was tolled while the

case was in federal court the first time, over 90 days elapsed

between the April 12 remand and the October 1 removal. Therefore,

the district court erred in denying Ventana's motion for remand.

CONCLUSION

The RTC's removal of this case was not timely and, therefore,

the federal district court erred in failing to remand to state

court. Accordingly, the district court's judgment is VACATED and

the case is REMANDED to the federal district court with

instructions to remand to the 172nd Judicial District of Jefferson

County, Texas.

opin\95-40004
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