Opposition Brief — 281-300 Joint Venture v. Robert Onion, The Resolution Trust Corporation as Receiver for San Antonio Savings Association, The Resolution Trust Corporation as Conservator for San Antonio Savings Association, F.A.

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In the Supreme Court of the United States

OCTOBER TERM, 1991

281-300 JOINT VENTURE, PETITIONER

Vv.

ROBERT ONION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

KENNETH W. STARR

- Solicitor General

- Department of Justice

GERALD L. JACOBS Washington, D.C. 20530

General Counsel (202) 514-2217

DorRoTHY L. NICHOLS

Associate General Counsel

ANN S. DUROSS

Assistant General Counsel

COLLEEN B. BOMBARDIER

THOMAS L. HINDES

P. MATTHEW SUTKO

CHRISTOPHER J. BELLOTTO

Attorneys

Resolution Trust Corporation

Washington, D.C. 20429

QUESTIONS PRESENTED

1. Whether Section 212(j) of the Financial Insti-

tutions Reform, Recovery, and Enforcement Act of

1989 deprived the district court of power to enjoin

the Resolution Trust Corporation, acting as conserva-

tor for a savings and loan association, from conduct-

ing a non-judicial foreclosure.

2. Whether the court of appeals erred in affirming

the district court’s dismissal of petitioner’s remaining

claims as moot.

TABLE OF CONTENTS

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TABLE OF AUTHORITIES

Cases:

Coit Independence Joint Venture v. FSLIC, 489

I sainicvecvesedeencovsicapiin

Gulley v. Sunbelt Savings, F.S.B., 902 F.2d 348

(5th Cir. 1990), cert. denied, 111 S. Ct. 673

eth ai Si ae Se ae eR

ee evenubinen diene cerebineaiay

Rosa v. RTC, 988 F.2d 399 (3d Cir. 1991), cert.

denied, No. 91-298 (Dec. 2, 1991) ........................

Triland Holdings & Co. v. Sunbelt Service Corp.,

BSG P.Be Soe CEG CIP. TGSD) .........20000cccceccccenes......-

Statutes:

Financial Institutions Reform, Recovery and En-

forcement Act of 1989, Pub. L. No. 101-73, 103

Oc dreituuaietes

12 U.S.C. 1821(d) (2) (B) (Supp. 11989) -.......

12 U.S.C. 1821 (d) (2) (B) (i) (Supp. 11989) ...

12 U.S.C. 1821 (d) (2) (B) (ii) (Supp. 1 1989)...

12 U.S.C. 1821(d) (2) (B) (iv) (Supp. I 1989) ..

12 U.S.C. 1821(d) (2) (D) (Supp. 11989) -.......

12 U.S.C. 1821 (d) (2) (D) (i) (Supp. 11989) ..

12 U.S.C. 1821(d) (2) (G) (i) (II) (Supp. I

IIE stirs: onaceiiubasbnaaetesoteeeeapadinnerendaareakentoes

12 U.S.C. 1821 (d) (2) (1) (i) (Supp. 11989) -...

12 U.S.C. 1821(j) (Supp. 11989) (§ 212(j) ).. 4, 5, 6,

7, 8,9, 10

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Statutes—Continued : Page

Tex. Rev. Civ. Stat. Ann. art. 852a (Vernon Supp.

1991):

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12 C.F.R. 569c.11 (a) (6) (1989) ..............................

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Iu the Siywrene Court of the United States

OCTOBER TERM, 1991

No. 91-652

281-300 JOINT VENTURE, PETITIONER

Vv.

ROBERT ONION, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App.

1-10) is reported at 938 F.2d 35. The opinion of the

district court (Pet. App. 14-17) is unreported.

JURISDICTION

The judgment of the court of appeals was entered

on June 12, 1991, and a petition for rehearing was

denied on July 15, 1991. The petition for a writ of

certiorari was filed on October 15, 1991 (a Tuesday

following a Monday holiday). The jurisdiction of

this Court is invoked under 28 U.S.C. 1254(1).

(1)

STATEMENT

1. On December 28, 1987, petitioner 281-300 Joint

Venture obtained an $8,100,000 wrap-around loan

from San Antonio Savings Association (SASA) for

the development of 296 acres of land in Bexar County,

Texas. The loan was evidenced by a loan agreement,

note, and deed of trust providing that SASA could

foreclose on the land if petitioner failed to make pay-

ments. The land was encumbered by two superior

liens. Under the loan agreement, SASA would ad-

vance sums to petitioner to pay the senior obligations

and a pertion of the interest on the SASA note. A

portion of the interest on the SASA note, however,

was to be paid from funds other than those advanced

by SASA. Beginning in January of 1989, petitioner

failed to make interest payments to SASA. Pet. App.

2-3.

On February 28, 1989, the Federal Home Loan

Bank Board (FHLBB) declared SASA insolvent and

appointed the Federal Savings and Loan Insurance

Corporation (FSLIC) as conservator. The FHLBB

subsequently determined that if SASA’s assets were

converted to cash, with cash distributions made to se-

cured creditors, there would be insufficient assets to

pay depositors in full. On July 12, 1989, the FHLBB

appointed the FSLIC as receiver. The FHLBB di-

rected the FSLIC to liquidate all claims against SASA

in accordance with applicable federal regulations.

Those regulations and Texas law provide that if, as

here, the failed institution’s assets are insufficient to

pay depositors in full, lower priority classes of credi-

tors, including general unsecured creditors, are en-

titled to receive no payment on their claims. See 12

C.F.R. 569¢.11(a)(6) (1989); Tex. Rev. Civ. Stat.

Ann. art. 852a, § 8.09(g¢) (2), (3) and (4) (Vernon

Supp. 1991). Pet. App. 3-4.

The FSLIC took possession of SASA’s assets and,

in accordance with the FHLBB’s receivership regula-

tions, succeeded to all of SASA’s rights, titles, powers,

and privileges. To facilitate the liquidation of SASA,

the FHLBB authorized the creation of a new associa-

tion, San Antonio Savings Association, F.A. (New

SASA), and immediately appointed the FSLIC to act

as its conservator. The FSLIC, as conservator for

New SASA and receiver for SASA, entered into an

acquisition agreement whereby New SASA acquired

substantially all of SASA’s assets. New SASA alsg

assumed certain of SASA’s liabilities, but not in-

cluding any of SASA’s liabilities on general unsecured

claims. Accordingly, New SASA acquired the peti-

tioner’s loan agreement, note, and deed of trust, along

with the right to collection and foreclosure, but New

SASA assumed no liability for petitioner’s claims

against SASA. On August 9, 1989, the Financial In-

stitutions Reform, Recovery, and Enforcement Act

of 1989 (FIRREA), Pub. L. No. 101-73, 103 Stat.

183, abolished the FSLIC, and the Resolution Trust

Corporation (RTC) succeeded the FSLIC as conser-

vator for New SASA and as receiver for SASA. Pet.

Arp. 4.

2. Petitioner commenced this lawsuit in state court

seeking a temporary restraining order and perma-

nent injunction barring the conservator for New

SASA and its substitute trustee, Robert F. Onion,

from foreclosing on the 296 acres of land that served

as security for petitioner’s loan. The case was re-

moved to the United States District Court for the

Western District of Texas. The RTC posted the prop-

erty for foreclosure, but no sale took place because

petitioner went into bankruptcy. On October 31, 1989,

on a motion by the RTC, the bankruptcy court lifted

its stay, leaving no impediment to a foreclosure sale.

On November 13, 1989, the RTC again posted the

property for foreclosure. Pet. App. 5.

On November 17, 1989, petitioner filed a motion

for a preliminary injunction in the district court.

The district court denied that motion. It relied on

Section 212(j) of the Financial Institutions Reform,

Recovery, and Enforcement Act (FIRREA), which

provides :

Except as provided in this section, no court

may take any action, except at the request of the

Board of Directors by regulation or order, to

restrain or affect the exercise of powers or func-

tions of the Corporation as a conservator or a

receiver.

12 U.S.C. 1821(j) (Supp. I 1989). The district court

concluded that “[t]he nonjudicial foreclosure sched-

uled for December 5, 1989, constitutes an exercise of

power of the RTC as a conservator” for New SASA

and that federal law “thus prohibits this Court from

restraining the scheduled foreclosure.” Pet. App.

16-17.

The RTC, as conservator for New SASA, fore-

closed on December 5, 1989. On June 27, 1990, the

RTC as receiver for SASA filed a motion to dismiss

petitioner’s remaining claims, which sought damages

from SASA and a declaration of the rights of the

parties under the loan agreement. Pet. App. 5.

The RTC argued that petitioner’s claims against

SASA were moot in light of the FHLBB’s prior de-

termination that if SASA’s assets were converted to

cash, they would be insufficient to pay depositors in

full. Petitioner failed to respond to that submission.

Pet. App. 5, 14. On July 31, 1990, the district court

ruled that SASA would never have sufficient assets

from which to satisfy a judgment and, relying on

Triland Holdings & Co. v. Sunbelt Service Corp., 884

F.2d 205 (5th Cir. 1989), accordingly dismissed pe-

titioner’s claims against SASA and the trustee. Pet.

App. 5, 14-15.

3. The court of appeals affirmed. The court re-

jected petitioner’s contention that Section 212(j)

does not give the RTC any broader protection from

suit than the failed institution would have. It ruled,

in accordance with this Court’s decision in Coit In-

dependence Joint Venture v. FSLIC, 489 U.S. 561

(1989), that Section 212(j) bars injunctive relief

unless the power or function sought to be enjoined is

beyond the powers granted to the RTC by statute.

The court of appeals found that RTC’s exercise of

nonjudicial foreclosure rights under petitioner’s deed

of trust clearly fell within the scope of: (1) 12 U.S.C.

1821(d) (2) (B) (ii) (Supp. I 1989), which authorizes

the RTC to “collect all obligations and money due the

[failed] institution”; (2) 12 U.S.C. 1821(d) (2) (B)

(iv) (Supp. I 1989), which authorizes the RTC to

“preserve and conserve the assets and property of

[the failed] institutione”; and (3) 12 U.S.C. 1821

(d) (2) (D) (i) (Supp. I 1989), which authorizes the

RTC to put the institution “in a sound and solvent

condition.” Pet. App. 6-9. The court of appeals re-

jected petitioner’s constitutional challenges to the dis-

trict court’s refusal to grant the injunction, finding

those claims to be “meritless.” Pet. App. 10.

The court of appeals also rejected petitioner’s argu-

ment that the district court erred in dismissing peti-

tioner’s request for other relief. Petitioner had as-

serted that the receiver for SASA had offered no evi-

dence of the value of SASA’s assets and therefore the

district court could not rule that petitioner would

never be able to collect on a judgment for monetary

damages. The court of appeals concluded, however,

that the FHLBB’s determination that SASA’s assets

would be insufficient to pay depositors and secured

creditors constituted sufficient evidence of SASA’s

worthlessness. Pet. App. 6. Relying on its prior de-

cision in Gulley v. Sunbelt Savings, F.S.B., 902 F.2d

348, 351 (5th Cir. 1990), cert. denied, 111 8S. Ct. 673

(1991), the court of appeals ruled that the district

court had properly rejected petitioner’s attempt to

collaterally attack the FHLBB’s determination, be-

cause petitioner had never sought judicial review of

the FHLBB’s worthlessness determination. The court

found no reason to grant equitable relief or a declara-

tion regarding the rights of the parties. It held that

petitioner had no right to any of SASA’s assets be-

cause of the FHLBB’s worthlessness finding, and it

had no right to any of New SASA’s assets because

New SASA had assumed no liabilities from SASA re-

lating to the loan agreement with petitioner. Pet.

App. 6-7.

ARGUMENT

The court of appeals’ decision is correct and does

not conflict with any decision of this Court or any

other court of appeals. Further review, accordingly,

is unwarranted.

1. The court of appeals correctly affirmed the dis-

trict court’s determination that it lacked authority

to enjoin the RTC, as conservator for New SASA,

from foreclosing on the subject property. Those

courts properly relied on the explicit language of

Section 212(j) of FIRREA, which states that ‘no

court may take any action * * * to restrain or affect

the exercise of powers or functions of the Corpora-

tion [RTC] as a conservator or a receiver.” 12

U.S.C. 1821(j) (Supp. I 1989). As those courts rec-

ognized, the RTC plainly has the power and function,

as conservator for New SASA, to “collect all obliga-

tions and money due the institution.” 12 U.S.C.

1821(d) (2) (B) (Supp. I 1989). The RTC’s exercise

of the right of nonjudicial foreclosure set forth in the

deed of trust between SASA and petitioner falls

squarely within that power. Thus, Section 212(j) of

FIRREA prevents petitioner from bringing a col-

lateral judicial action to enjoin the foreclosure pro-

ceeding. See Pet. App. 8-9.

The court of appeals’ ruling is consistent with this

Court’s decision in Coit Independence Joint Venture

v. FSLIC, supra, which discussed the meaning of Sec-

tion 212(j)’s predecessor, 12 U.S.C. 1464(d) (6) (C).*

The Court explained that Section 1464(d) (6) (C)

prohibits ‘collateral attacks attempting to restrain

the receiver from carrying out its basic functions.”

489 U.S. at 575. The same purpose is evident in

Section 212(j). The RTC’s attempts, as conservator,

to “collect all obligations and money due the institu-

tion,’ 12 U.S.C. 1821(d)(2)(B) (Supp. I 1989),

through nonjudicial foreclosure or otherwise, is

plainly one of the conservator’s “basic functions.”

Section 212(j) renders that function exempt from

“collateral attacks.” See Rosa v. RTC, 938 F.2d 383,

399 (3d Cir. 1991), cert. denied, No. 91-298 (Dec. 2,

1991).

Petitioner argues that the RTC, as conservator for

an institution, should have no broader immunity from

collateral judicial attacks than the institution or its

officers would have in the absence of the conservator-

ship. Pet. 15-16. But that is not what Congress has

provided. Congress has given the RTC, as conserva-

tor, ‘‘all of the powers of the members or shareholders,

‘ Section 1464 (d) (6) (C) stated in relevant part:

Except as otherwise provided in this subsection, no court

may take any action for or toward the removal of any

conservator or receiver, or, except at the instance of the

Board, restrain or affect the exercise of powers or func-

tions of a conservator or receiver.

the directors, and the officers” of the institution

placed under its control. 12 U.S.C. 1821(d) (2) (B)

(i) (Supp. I 1989). It has also given the RTC spe-

cific conservatorship powers, including the power,

described above, to “collect all obligations and money

due the institution.” 12 U.S.C. 1821(d) (2) (B) (ii)

(Supp. I 1989).° Congress has then additionally pro-

vided, in Section 212(j), that no court may “restrain

or affect the exercise of powers or functions of the

Corporation as conservator or receiver.” 12 U.S.C.

1821(j) (Supp. I 1989). Thus, Congress has plainly

given the RTC an immunity from collateral judicial

attack that the institution or its officers lack, and

petitioner’s extended discussion concerning the pro-

priety of a preliminary injunction if the institution

were not in conservatorship (Pet. 18-25) is simply

beside the point.*

* The FTC, as conservator, is also empowered to “preserve

and conserve the assets and property of such institution,” 12

U.S.C. 1821(d) (2) (B) (iv) (Supp. I 1989), and may take

such action as may be—

(i) necessary to put the insured depository institution in

a sound and solvent condition; and

(ii) appropriate to carry on the business of the institu-

tion amd=preserve and conserve the assets and property of

the institution.

12 U.S.C. 1821(d) (2) (D) (Supp. 1 1989). With respect to its

powers to dispose of assets, the FTC as conservator may

“transfer any asset or liability of the [failed] institution.” 12

U.S.C. 1821(d) (2) (G) (i) (II) (Supp. I 1989). In addition to

the specific powers granted under the statute, the RTC may

also “exercise * * * such incidental powers as shall be neces-

sary to carry out such powers.” 12 U.S.C. 1821(d) (2) (1) (i)

(Supp. I 1989).

3 The court of appeals correctly rejected petitioner’s cursory

constitutional objections (Pet. 24-25) as ‘‘meritless.” Pet.

App. 10. The courts have upheld the constitutionality of Sec-

2. Petitioner also contends (Pet. 8-14) that the

court of appeals erred in upholding the dismissal of

petitioner’s claims on prudential mootness grounds.

Petitioner no longer contests, as it did in the court

of appeals, the viability of the doctrine of prudential

mootness and its applicability where, as here, the

FHLBB by resolution has determined that SASA

will never have sufficient assets to satisfy its secured

and deposit liabilities and therefore no amount will

remain for payment of general creditors, such as pe-

titioner. Pet. 8-14. See generally Gulley v. Sunbelt

Savings, F.S.B., 902 F.2d 348, 351 (5th Cir. 1990),

cert. denied, 111 S. Ct. 673 (1991); Triland Hold-

ings & Co. v. Sunbelt Service Corp., 884 F.2d 205

(5th Cir. 1989). Instead, petitioner now contends

that the dismissal was in error because it was not

seeking monetary relief. Pet. 14.

Petitioner’s argument refiects its confusion as to

the distinction between the conservatorship for New

SASA and the receivership for SASA. To the extent

that petitioner sought to have the foreclosure sale en-

joined or set aside, its action was against the con-

servator for New SASA, which held petitioner’s

defaulted note and was legally entitled to foreclose

on the security. The court of appeals properly con-

cluded that Section 212(j) precluded injunctive re-

lief that would restrain or affect the exercise of the

powers or functions of the RTC as New SASA’s con-

servator.. To the extent that petitioner brought

tion 212(j)’s almost identical statutory predecessor, 12 U.S.C.

1464(d) (6) (C). See Haralson v. FHLBB, 837 F.2d 1123,

1125-1127 (D.C. Cir. 1988).

* Petitioner’s request for an injunction restraining the con-

servator for New SASA from foreclosing, once barred by

claims for damages arising out of the loan agree-

ment, such claims must be directed to the RTC as

receiver for SASA. The receiver for SASA, however,

cannot pay such damages because SASA lacked suf-

ficient assets (even prior to the New SASA acquisi-

tion agreement) to pay general unsecured claims.

Thus, as the court of appeals held, the district court

properly dismissed the petitioner’s remaining claims.

See Gulley, 902 F.2d at 351.°

Section 212(j), cannot be converted into a “nonmonetary”

cause of action (7.e., an order setting aside the foreclosure

sale) against SASA’s receiver. Pet. 13. SASA’s receiver has

no power to take action of any sort regarding the foreclosure

sale, because the note and property were assets transferred

to New SASA pursuant to the acquisition agreement. Peti-

tioner’s effort “to have the foreclosure sale set aside” (Pet.

14) is an action that can be directed solely against New

SASA’s conservator, but is barred under Section 212(j) be-

cause it would impermissibly restrain or affect the conserva-

tor’s statutory power and duty to collect money owed to the

institution.

5 As the court of appeals observed (Pet. App. 6), petitioner

cannot look to New SASA’s conservator as a source of recov-

ery on its damages claim. As petitioner itself recognizes,

“Tt]he wrong complained of by 281-300 Joint Venture was

that SASA breached the loan agreement by failing to make

the payment due to the superior lien holder.” Pet. 13. Peti-

tioner’s complaint asserted no such claims against the con-

servator of New SASA, and, even if it had, New SASA would

not be liable because it did not assume SASA’s potential lia-

bilities to unsecured creditors of SASA.

CONCLUSION

The petition for a writ of certiorari should be

denied.

Respectfully submitted.

KENNETH W. STARR

Solicitor General

GERALD L. JACOBS

General Counsel

DorRoTHY L. NICHOLS

Associate General Counsel

ANN S. DuROSS