# Petition for Writ of Certiorari — Air Florida System, Inc. v. Federal Deposit Insurance

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1988
- **Citation:** 485 U.S. 987

## Text

FILED

DEC 19 wer
In the Supreme Cour gp siosrr seatuoy, |

OF THE

United States
OCTOBER TERM, 1987

87 1049) (meee

AIR FLORIDA SYSTEM, INC.,
INTERFIRST BANK, DALLAS, N.A.,
Petitioners

VS.

FEDERAL DEPOSIT INSURANCE CORPORATION,
Respondent.

PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

HOWARD J. PRIVETT
Counsel of Record
RALPH ZAREFSKY
Mary E. TARDUNO
McCUTCHEN, BLACK, VERLEGER &
SHEA
600 Wilshire Boulevard
Los Angeles, CA 90017
(213) 624-2400

PaTRICK C. SHEA,
Professiona] Corporation
LILLICK, MCHosE & CHARLES
101 West Broadway, Suite 1800
San Diego, CA 92101
(619) 544-3177
Attorneys for Petitioners

——

Bowne of Los Angeles, Inc.. Law Printers (213) 742-6600

QUESTIONS PRESENTED

1. When the District Court, in supervising a bank-
ruptey estate and liquidation of a national bank, plays a
role in the negotiation, approval and interpretation of a
contract, may the Court of Appeals disregard the District
Court’s findings and interpretation by using a de novo
standard of review?

2. When a party to a civil action has induced the
District Court to accept an evidentiary record, may the
Court of Appeals conclude that the acceptance of evi-
dence constituted error, and review the matter de novo?

li
PARTIES

The parties to this action are those listed in the caption.
Petitioner InterFirst Bank Dallas, N.A. is the assignee of
certain rights received from petitioner Air Florida Sys-
tem, Ine. arising in connection with this case. Corporate
subsidiaries and affiliated corporations are numerous and
therefore are set forth in Appendix C.

iii

TABLE OF CONTENTS

Page
QUESTIONS PRESENTED. ................... i
I Sa a 6 oa nes sé es 6cu cues ii
Sr iii
TABLE OF AUTHORITIES CITED............ iv
ee. ead bees secsesecs 1
JURISDICTION ........... De udhewncs Cb ens 2
SE EDESW EEED ccs ccccccccccccccccecs 2
pe uy | i ge i 00) \ | Sa 2
Cit aes ec csescececs 2
II. THE FACTUAL BACKGROUND ............. 5
III. THE PROCEEDINGS BELOW .............. 10
REASONS FOR GRANTING THE WRIT....... 12

I. THE DECISION BELOW PREVENTS PARTIES

FROM” RELYING ON CONTRACTS APPROVED

BY DistTrRicT CouRTS, THEREBY THREATEN-

ING THE CORE OF THE DISTRICT COURT'S
SUPBRVIGORY FUNCTION .........0ccc000- 12

A. The Decision Jeopardizes Court-Approved
Ee cca b idee eceaceasece 12
1. Liquidation of National Banks ....... 13
Re MEY MOGIOD occ ccc ccc cc ccccce 16

B. The Decision Threatens The Authority Of
the District Court to Operate in Any
Supervisory Capacity ................. 19

II. THE DECISION BELOW ENCOURAGES PAR-
TIES TO ABANDON EVIDENTIARY RECORDS
THEY THEMSELVES HAVE CREATED, By URG-

ING REVERSAL BASED ON ERROR THEY
re oe ci des ekeetueseceeee 25

eee 28

iv
TABLE OF AUTHORITIES CITED

Cases
Page
Anderson v. City of Bessemer City, 470 U.S. 564
CREE 6:0.0000k0 be cca pee eae adeneeteseae 3, 22

Brotherhood of Railroad Trainmen v. Chicago, Mil-
waukee, St. Paul & Pacific Railroad Co., 380 F.2d
605 (D.C. Cir.), cert. denied, 389 U.S. 928 (1967) 26

CADA Investments, Inc., In Re, 664 F.2d 1158 (9th

CE BED ausccséivesnsasenecbeh dase essen 17
Chung King, Inc., In Re, 753 F.2d 547 (7th Cir.
SD ance cud adc iesnen eens. 16

Commissioner v. Duberstein, 363 U.S. 278 (1960) 21

Computer Systems Engineering Inc. v. Qantel Corp.,
oS F Fi es S| rere rere 25, 26

Conservatorship of Wellsville National Bank, 407
F.2d 223 (3d Cir.), cert. denied sub nom Miller v.

Camas, SEG OE. GEE COBO) ccccccssccscscwcce 14
Crockett v. Uniroyal, Inc., 772 F.2d 1524 (11th Cir.

PEE hab 0 kd Ne she chexd bees teens 26
Dayton Board of Education v. Brinkman, 443 US.

I Gi a ake 5 cca wae eae ace 21
Deland v. Old Republic Life Insurance Co., 758 F.2d

Se Ge EE nc So knedcebsaguaushsiees 26

Director General of the India Supply Mission v. 8.8.
Maru, 459 F.2d 1370 (2d Cir. 1972), cert. denied,

Gy Ss ee OED vo ds cuttedsegeutade

5

If allowed to stand, the Ninth Circuit’s decision will
establish dangerous precedents: it will eliminate the re-
quired integrity of sales which are negotiated, reviewed,
modified and approved by federal judges; and it will
encourage parties to build an evidentiary record, then on
appeal abandon the record and urge that the acceptance
of the evidence constituted error. Inevitably, District
Courts will lose their traditional authority, while bank
liquidators and bankruptcy trustees will lose their ability
to wind up the affairs of failed banks and bankruptcy
estates.

Il. THE FACTUAL BACKGROUND

This case grows out of the collapse of San Diego
financier C. Arnholt Smith’s financial empire. In 1973
U.S. National Bank, controlled by Smith, failed. The
Comptroller of the Currency appointed the Federal De-
posit Insurance Corporation as receiver, whereupon the
FDIC commenced liquidation proceedings before District
Judge Leland C. Nielsen. Subsequently various entities
under the name Westgate-California Corporation, also
controlled by Smith, filed five actions for reorganization
under Chapter X of the Bankruptcy Act. For various
reasons, including the size and complexity of the case, the
bankruptey proceeding was administered by the United
States District Court. The five actions were consolidated
and Judge Nielsen presided over them as well. Smith’s
Westgate-California Corporation had been a shareholder
and creditor of Smith’s U.S. National Bank. Because U.S.
National Bank in turn had loaned millions of dollars to
Westgate, the FDIC as successor to U.S. National Bank
became the largest claimholder against the Westgate
estate.

6

By 1980, most of the Westgate estate’s assets had been
liquidated by the Court-appointed trustee and the only
viable remaining operating asset was Air California, a
successful regional airline. Following airline deregula-
tion, Air Florida approached the FDIC about purchasing
the FDIC’s position in the Westgate estate. The FDIC’s
interest would become a dominant stockholder position in
the anticipated “reorganization” of Westgate, and
thereby give Air Florida, as purchaser, a West Coast
presence.

In October 1980, the FDIC and Air Florida entered
into an agreement for the sale of the FDIC’s position,
subject to Judge Nielsen’s approval. The Court, however,
rejected the initial agreement because it felt the price was
too low, and ordered competitive bidding instead. On
November 14, 1980 bidding took place in open court.

Ultimately, Air Florida was the snecessful bidder, as
the Court found that Air Florida’s bid was the highest
and best offer. As approved by the Court, the agreement
for sale required Air Florida to pay the FDIC $15,432,000
in cash, or approximately $18 per common share and
$17.22 per preferred share.” At the time of the Agreement
the only limited trading of Westgate common stock had
taken place in the $9 per share range. The Agreement also
provided for a general publie offer for the remaining
shares at the minimum price paid the FDIC. The Court
required the parties to alter their initial agreement to
read that this contemplated public offer was for the
benefit of these minority tender offerees.

*The total price was subject to later adjustment depending upon
revenue received by Westgate from the anticipated sale of certain
seafood processing assets.

.

7

The provisions for an offer to other shareholders were
included in the Agreement not to provide additional
compensation to the FDIC, but rather to protect the
FDIC, and the bankruptcy trustee and estate, from law-
suits by the minority shareholders arising from sale of the
FDIC’s majority position. Under Perlman v. Feldmann,
219 F.2d 173, 178 (2d Cir.), cert. denied, 349 U.S. 952
(1955), and Jones v. H.F. Ahmanson & Co., 1 Cal.3d 93,
117, 460 P.2d 464, 478, 81 Cal.Rptr. 592, 606 (1969), sale
of a majority interest includes a premium for control of
the company; the premium must be shared equally with all
shareholders. Therefore, a general public offer for other
shares at the minimum price paid the FDIC, as the
Agreement provided, would protect the FDIC and the
estate against lawsuits from the minority. Trial testimony
disclosed that the word “minimum” in the Agreement
denoted Air Florida’s obligation to make the offer to
minority interest holders at least at the same price paid to
the FDIC, but reserved to Air Florida the right to make
an offer at a higher price.

The Agreement did provide for contingencies under
which the FDIC could receive additional compensation.
Under applicable tax and accounting rules, a corporation
which owned 80% of the stock of another corporation
enjoyed certain economic benefits, including the ability to
file consolidated tax returns. Under the Agreement, there-
fore, the FDIC could receive additional compensation if,
but only if: (1) a general public offer was made at a price
exceeding the price paid to the FDIC; and (2) Air
Florida actually acquired 80% of the total interest in
Westgate. At trial, the FDIC stipulated that it had no
right to receive additional compensation unless both of
these contingencies occurred.

8

After Air Florida had purchased the FDIC’s shares
with District Court approval, but before consummation of
the Reorganization Plan, the Westgate trustee unexpect-
edly decided to sell Air California at auction to the
highest bidder. The trustee did so, he stated in a 10-K
report filed with the SEC, because he anticipated that
such a sale would produce a greater return to the minor-
ity interest holders than an Air Florida tender offer at the
same price paid to the FDIC. Neither the FDIC nor any
other party objected to the sale on the basis that the
trustee’s understanding of the price at which Air Florida
had committed to make the tender offer was erroneous.

Again, Judge Nielsen supervised bidding on the asset.
Ultimately he approved the sale of Air California to an
independent entity for the surprisingly large sum of
$61.5 million. Air Florida participated in the auction, but
this time was outbid.

With the sale of its only operating asset, Westgate
became essentially a bundle of cash. Therefore, common
stock interests in Westgate became easy to value and
began to trade, opening at $21 per share but never going
below that point or anywhere near the $18 per share price
paid to the FDIC. Since Westgate had no operating entity
left, the trustee decided to liquidate rather than reorgan-
ize and issue stock, and paid a liquidating dividend of
$28.25 per share. Thus, minority shareholders received
not only as much as the FDIC had from Air Florida, but
more.

Since at all times after the unexpected sale of Air
California minority shareholders could have received, and
did receive, more for their shares than the FDIC, Air
Florida did not make a general public offer at the mini-
mum price referred to in the Agreement. It would have
been idle, and perhaps misleading, for Air Florida to have

9

done so. As a result of the unusually successful sale price
of Air California, the FDIC and the trustee were pro-
tected against lawsuits from the minority because the
minority received more than it would have from an Air
Florida tender offer at the price paid to the FDIC.

The FDIC, too, profited from the deal. Originally bur-
dened with a majority stake in a bankrupt company, and
faced with an obligation to liquidate its position because
it was a receiver of a national bank, the FDIC received
double the value of its interest at the time it began
negotiations with Air Florida, received its money in cash,
and received its cash a full year and a half before the sale
of Air California (and without any risk of decline in Air
California’s value) — before the minority shareholders
received anything. Without the transaction as approved
by the District Court, in which the FDIC received $18 per
share, the FDIC would have continued to hold an interest
it had been willing to sell for $10 per share.

Without the transaction as approved by the District
Court, the minority shareholders too would have re-
mained just that: minority shareholders, in a reorganized
company with an uncertain future. Instead, the District
Court’s supervision and approval of the FDIC/Air Flor-
ida transaction set in motion the events which led to the
sale of Air California and the liquidation of Westgate.
The result was dramatic, if not unprecedented: the minor-
ity shareholders recovered all their money. None of this
would have happened had not the District Court, in its
supervisory capacity, approved the contract on specific
terms.

As liquidation of Westgate commenced, therefore, it
appeared that everyone had benefitted from the Air Flor-
ida transaction. Soon, however, the FDIC would take

10

action in an effort to unwind the transaction and to
demand even more for itself.

III. THE PROCEEDINGS BELOW

In 1982, nearly two years after Judge Nielsen had
approved the Air Florida/FDIC Sale, the FDIC sued Air
Florida for recission of the Agreement. Later it amended
its complaint also to assert fraud. The FDIC’s complaint
charged that Air Florida had materiatly breached the
Agreement by not making a tender offer. Although not
entitled to additional compensation because the contin-
gencies for such compensation had not arisen, the FDIC
experienced “seller’s remorse” that it sold its interest,
then, through unforeseen circumstances, the minority
shareholders ultimately received a higher price for their
interests than had the FDIC. Judge Nielsen tried the
FDIC’s lawsuit. In presiding over the bank liquidation
and sitting as the Bankruptcy Court in the Westgate
proceeding, it was he who had substantively addressed
the issue of the public offer requirement, and then had
reviewed and approved the terms of the contract.

At trial, fifteen witnesses testified, orally or through
deposition, and 69 exhibits were received. In large part
this occurred because the FDIC urged that the contract
was ambiguous, stating: “It is apparent that the tender
offer provision is ambiguous, and that the contract is
reasonably susceptible to the interpretation advanced by
the FDIC. Accordingly, parol evidence should be admit-
ted to assist the Court in ascertaining the intent of the
parties.” (FDIC Trial Brief, i6:17-21). In response,
Judge Nielsen received and considered parol evidence but
ruled against the FDIC and in Air Florida’s favor. Judge
Nielsen found that Air Florida made a commitment to
make a general public offer at the minimum price paid to

11

the FDIC, but was relieved from doing so given that
minority interest holders always could have received and
did receive more than the minimum price. He also specifi-
eally found that the FDIC sustained no damage by Air
Florida’s failure to make the general public offer; that Air
Florida did not promise to cause either of the two contin-
gencies to occur, both of which were necessary for the
FDIC to receive additional compensation under the
Agreement; that there was no material failure of consider-
ation; and that the extrinsic evidence confirmed the
Court’s interpretation of the Agreement. Judge Nielsen
also ruled that Air Florida did not commit fraud, a ruling
which the FDIC did not appeal.

Thirteen months after oral argument on appeal — and
nearly seven years after the sale had been confirmed —
the Court of Appeals for the Ninth Circuit reversed.
Despite the fact that at trial extrinsic evidence had been
received at the insistence not of Air Florida but of the
FDIC, the Court of Appeals adopted the FDIC’s new and
different argument, contrived for appeal, that the Court
need look only at the written instrument itself. In an
opinion dated July 17, 1987, the Ninth Cireuit disagreed
with the findings of Judge Nielsen, who had both ap-
proved and interpreted the contract, ruling instead that
the intent of the parties was for Air Florida to make a
tender offer for the remaining shares of Westgate, no
matter what price was necessary to acquire them. The
Court of Appeals did not rule that Judge Nielsen had
been clearly erroneous, but instead ruled that he had
misread the contract he himself had supervised and ap-
proved. The Ninth Circuit directed that the District Court
either order the transaction rescinded, or direct Air
Florida to pay damages.

12

Following Air Florida’s Petition for Rehearing, in
which Air Florida argued that the District Court’s find-
ings deserved deference under Fed. R. Civ. P. 52(a), the
Court of Appeals amended its opinion. Notwithstanding
that the FDIC had asserted at trial that the contract was
ambiguous, the appellate court inserted a footnote stating
that the contract was unambiguous, and that therefore the
Court reviewed the matter de novo. See Appendix A-5. It
changed the opinion from “(the extrinsic evidence] does
not support Air Florida’s interpretation” to “[the extrin-
sic evidence] does nothing to contradict the plain mean-
ing of the agreement or render it ambiguous.” Jd. After so
amending its opinion, the Court of Appeals declined to
grant a rehearing, and rejected a suggestion for rehearing
en banc.

REASONS FOR GRANTING THE WRIT

I. THE DECISION BELOW PREVENTS PARTIES FROM ReE-
LYING ON CONTRACTS APPROVED BY DISTRICT
Courts, THEREBY THREATENING THE CORE OF THE
District CouRT’S SUPERVISORY FUNCTION

A. The Decision Jeopardizes Court-Approved
Sales.

If the decision is allowed to stand, important contracts
for sale reviewed, modified and approved by the District
Court will have no degree of certainty or finality —a
result which will eliminate such sales in the future,
wreaking havoc on bank liquidations and court-supervised
bankruptcy proceedings. Moreover, the decision will have
nullified a statutory requirement that Court approval be
obtained before assets of a failed national bank can be

sold.

13

1. Liquidation of National Banks

The National Bank Acts provide in pertinent part as
follows:

[A] receiver [of a national banking association]
under the direction of the comptroller shall take
possession of the books, records and assets of every
description of such association, collect all debts,
dues, and claims belonging to it, and upon the order
of a vourt of record of competent jurisdiction, may sell
or compound all bad or doubtful debts and, on a like
order, may sell all the real and personal property of
such association, on such terms as the court shall
direct.

12 U.S.C. §192 (West Supp. 1987) (emphasis
added).

This statute originated in the National Bank Act, which
established the Office of the Comptroller of the Currency,
and authorized the Comptroller to appoint receivers to
take charge of insolvent banks. The requirement of court
approval before a receiver may liquidate assets is de-
signed to provide a check on the receiver by insuring that
he obtains the highest amount for sale of the assets.
Griggs v. Baumer, 130 F.2d 899, 901 (3d Cir. 1942),
quoting For v. Young, 145 Pa. Super. 111, 113, 20 A.2d
835, 836 (1941); Roth v. Hood, 106 F.2d 616, 618 (6th Cir.
1939).

The Congressional requirement of Court approval, how-
ever, becomes meaningless if the receiver’s interpretation
of the contract of sale overrides the Court’s interpreta-
tion. If the receiver’s interpretation of “such terms as the

"Since passage of the National Bank Act, Congress has enacted the
Federal Deposit Insurance Act, codified in 12 U.S.C. § 1811 ef seq.
Under that statute, the Comptroller is required to name the FDIC as
the receiver of banks he declares insolvent. 12 U.S.C. § 1821(c).

14

court shall direct” stands paramount, then the receiver,
not the Court, effectively has given approval. Yet Con-
gress clearly placed that obligation on the Court: the
lower courts make clear that a sale cannot oceur without
court approval (Baumer, supra, 130 F.2d at 902; Hood,
supra, 106 F.2d at 617; Edson Realty Co. v. Commercial
National Bank, 29 F.Supp. 22, 27 (D. La. 1939) ), and once
approved, a sale cannot be set aside unless fraudulent (Jn
Re Conservatorship of Wellsville National Bank, 407 F.2d
223, 228 (3d Cir.), cert. denied sub nom Miller v. Camp,
396 U.S. 832 (1969); Michelsen v. Penney, 135 F.2d 409,
431 n. 9 (2d Cir. 1943); Bawmer, supra; Edson, supra).

Court approval of a receiver's decision to sell assets
does not constitute judicial action in the usual sense of
the word. Rather, it constitutes administrative action,
whereby the approving court becomes a “superior and
advisory agent in the administrative field.” Roth v. Hood,
106 F.2d 616, 618 (6th Cir. 1939). Accordingly, the
approving court must have broad discretion “in fixing the
terms and conditions of sales,” and the Court’s decision
will not be upset absent abuse of discretion. Jd. Overrid-
ing the interpretation of the approving Court as to the
_ terms of the sale — especially on de novo review — simply
takes away the protection Congress enacted.

This case illustrates the reason Congress required
Court approval. The receiver struck a deal for sale of the
bank’s assets at a price of $10 per share. Because Court
approval was required, however, the receiver was not
allowed to consummate that deal. The requirement of
court approval produced an increase in the price to $18
per share, thereby protecting the shareholders and credi-
tors of the failed bank.

Here, as always, the terms of the transaction were
integral to the Court’s decision to approve it. The District

15

Court could not have approved it without an understand-
ing of those terms. If an appellate court can second-guess
the District Court’s understanding of the terms, then it
ean second-guess the decision to approve, and prevent the
sale from being a final sale upon which parties can rely.
Yet lower courts which have addressed the issue have
ruled emphatically that parties can rely on Court ap-
proval. As stated in Griggs v. Baumer, supra:

Once...an order [confirming a sale] is signed, the
purchaser named therein is entitled to rely upon it,
and the court cannot, in the absence of fraud or
mistake, rescind that order, even for the laudable
purpose of securing for the creditors and stockhold-
ers of the bank a substantial increase in the price of
the assets sold.

130 F.2d at 902 (emphasis added).

If the appellate courts are free to re-examine the contract
of sale and on de novo review reach their own conclusion
as to its meaning, parties will be left with uncertainty,
and will not participate in sales.

This case illustrates the dangers. Respondent FDIC
deliberately availed itself of Court approval for the sale of
its interests in Westgate. The contractual agreement was
modified in several respects in response to the Court's
concerns. Then all parties relied on the Court’s approval
of the Agreement: Air Florida, by borrowing $17 million;
Air Florida’s bank, by financing the sale; the FDIC, by
selling its interest free from the likelihood of lawsuits;
and the Westgate trustee by determining that, since Air
Florida was obligated to make a tender offer only at the
minimum price, he should sell Air California and thereby
obtain a greater benefit for the estate. Had the parties
known that the Ninth Circuit, 6% years after the fact,

16

based solely on its own reading of the contract without
knowing the circumstances behind the District Court’s
approval of the sale in the first place, would conduct an
out-of-context review, none would have relied on approval
in the first place.

Accordingly, the District Court’s interpretation of the
contract he approved must receive deference, unless the
District Judge has abused his discretion or has been
clearly erroneous in his interpretation. That becomes even
more apparent when, as here, the District Court is
charged with supervising a related bankruptcy estate as
well.

s. Bankruptcy Sales

It has long been recognized that court-approved bank-
ruptey sales must be final — otherwise, parties have no
reason to participate in them. As explained in In Re
Chung King, Inc., 753 F.2d 547, 550, 554 (7th Cir. 1985):

“TI]f parties are to be encouraged to bid at judi-
cial sales there must be stability in such sales and a
time must come when a fair bid is accepted and the
proceedings are ended.” In re Webcor, 392 F.2d at
899. |

¥ * *

... [I]£ every error in the judicial sale process
causing some inequity allowed the setting aside of
confirmed sales, the principle of finality of judicial
sales would be seriously undermined.... Parties
must be encouraged to make their highest bids at
judicial sales. [Citation omitted.] In the long run
this policy benefits creditors as well as the bank-
ruptey estate by ensuring that the highest bids al-
ways are made in a timely fashion and are properly
considered by the bankruptcy court.

17

See also, In Re Transcontinental Energy Corp., 683 F.2d
326, 328 (9th Cir. 1982); In Re CADA Investments, Inc.,
664 F.2d 1158, 1161-62 (9th Cir. 1981); In Re Webcor,
Inc., 392 F.2d 893, 899 (7th Cir.), cert. denied sub nom
Silver, Inc. v. Webcor, 393 U.S. 837 (1968); 1 Collier
BANKRUPTCY MANUAL, § 3.03[8] (3d ed. 1987).

To ensure that a time will come “when a fair bid is
accepted and the proceedings are ended”, the Bankruptcy
Code prescribes a limited period of time within which
appeal may be taken from an order confirming a sale (see
11 U.S.C. §158(¢e) (West Supp. 1987); Bankr. Rule
8002); and specifies that unless a bankruptcy court-con-
firmed sale is stayed, a bona fide purchaser shall not be
affected by the reversal or modification of the order on
appeal, whether or not the purchaser knows of the pen-
dency of the appeal (11 U.S.C. § 363 (m) (West Supp.
1987); see also Bankr. Rule 805). Moreover, under Bank-
ruptecy Rule 9024, final sales cannot be vacated absent
compelling circumstances such as fraud or mistake and
this rule cannot be circumvented by collateral attack (see
Inndsey v. Ipock, 732 F.2d 619, 622 (8th Cir.), cert. denied
sub nom Cryts v. French, 469 U.S. 881 (1984); In Re Matter
of Garfinkle, 672 F.2d 1340, 1348 (11th Cir. 1982); Slocum
v. Edwards, 168 F.2d 627, 631 (2d Cir. 1948)).

The standards in the present code and rules are similar
to provisions of the prior Bankruptcy Act and Rules. See
In Re Whitney-Forbes Inc., 770 F.2d 692, 696-97 (7th Cir.
1985) (discussing former Bankr. R. 924 and case law
thereunder); In Re Suchy, 786 F.2d 900, 901-02 (9th Cir.
1985) (discussing former Bankr. R. 805); In Re Vetter
Corp., 724 F.2d 52, 54-55 (9th Cir. 1983) (discussing
former Bankr. R. 805 and 11 U.S.C. § 363(m)). All share
a commitment to the efficient operation of the bankruptcy
system. This Court too has noted Congress’ support for

18

the authority of the bankruptcy system to function
promptly and effectively. E.g., NLRB v. Bildisco &
Bildisco, 465 U.S. 513 (1984).

Indeed, if the finality of court-approved bankruptcy
sales is not protected, those who did choose to participate
in such sales would run the risk of suffering serious
prejudice — by having transactions in which they had
invested substantial sums vacated years after the fact,
quite possibly solely because,as here, the sellers had
become dissatisfied with the deals. Not surprisingly, this
Court and others have stated that sales on which persons
have relied should not be set aside. See, e.g., Wayne United
Gas Co. v. Owens-Illinois Gas Co., 300 U.S. 131, 137
(1937); In Re Whitney-Forbes, supra, 770 F.2d at 697-98.

In the scheme of protecting confirmed sales, Bank-
ruptey Court judges play a critical role. They not only
supervise transactions; they virtually become a party to
the deal. The Bankruptcy Judge knows what the transac-
tions encompass, whose rights will be affected, and how
they will be affected. The Bankruptcy Judge evaluates
and approves the transactions in order to protect the
estate, the creditors, and the debtors. As one commenta-
tor has noted:

Since a bankruptcy sale is a judicial sale, one of
the parties thereto is the bankruptcy court itself.
Although title vests in the trustee, not in the court,
and although the trustee acts as a formal party and
as an instrumentality of the court, the true vendor is
the court. [Footnote omitted.|- This characteristic
feature of a judicial sale accounts for certain pecu-
liarities and deviations from an ordinary sale, gov-
erned by the familiar rules of offer and acceptance.

4B COLLIER ON BANKRUPTCY § 70.98[16] (14th
ed. 1978).

~—- ee ee en ee

19

A Bankruptcy Court judge cannot perform his function
of protecting the finality of orders if his decisions can be
second-guessed on de novo review by the Court of Ap-
peals. Such second-guessing leads to all the harms which
the bankruptcy statutes and decisions are designed to
avoid: the discouragement of participation in bankruptcy
sales, the creation of prejudice by the unwinding of
transactions years after the fact, and the frustration of
the Congressional intent to allow for quick and efficient
bankruptcy reorganizations and liquidations.

If it is to have any force, the principle that court-
approved sales will not be disturbed must prohibit collat-
eral attacks which have the effect of rewriting the sales
eontract. Damages based on a different reading of the
sales contract than that which the Court adopted have the
same effect as an order of recission. They create the same
prejudice and discourage participation in sales. They are
as much an unwinding of the transaction as is an order of
rescission.

The Ninth Cireuit’s opinion below sanctions appellate
second-guessing. Certiorari thus should be granted in this
ease — for only in this manner can the integrity of the
bankruptcy system be upheld.

B. The Decision Threatens The Authority Of the
District Court to Operate in Any Supervisory

Capacity.

The precedent established by the decision below ex-
tends beyond the immediate context of this case, under-
mining all situations in which the District Court functions
in a supervisory capacity. This includes, for example,
federal equity receiverships, often used in securities

20

cases, where the Court appoints a receiver to operate a
company in trouble. See 12 C. Wright & A. Miller, Frp-
ERAL PRACTICE AND PROCEDURE § 2981 (1973). As in the
bankruptcy context, the receiver operates as an arm of the
court, and the District Court must evaluate and approve
contracts. As in the bankruptcy context, the appellate
court must review the District Court’s decisions on such
contracts. Yet the cases demonstrate that, in order to
protect the ability of the District Court to exercise its
supervisory powers, appellate courts will not upset the
District Court’s determinations except for an abuse of
discretion.

The per curiam opinion in Securities and Exchange
Commission v. Arkansas Loan & Thrift Corp., 427 F.2d
1171 (8th Cir. 1980) makes this point directly. There the
District Court, supervising a receiver, interpreted the
terms of a fidelity bond. When the appellant challenged
the interpretation, the Court of Appeals upheld the Dis-
trict Court because the court had not abused its
discretion:

Any action by a trial court in supervising an equity
receiver is committed to his sound discretion and will
not be disturbed unless there is a clear showing of
abuse. [Citations omitted.] Under this rule, we need
not pass on the merits of the trial court’s interpreta-
tion of the bond beyond a finding that there has been
no abuse of discretion. We have reviewed the record
in this case and find no abuse of discretion in the
approval of the receiver’s settlement.

Id, at 1172.

A panel of the Ninth Circuit also recently has held that
in reviewing decisions of the District Court involving
supervision of a receivership, the standard is abuse of

——S— (C(CS;CSSY DC on

discretion. Securities and Exchange Commission v. Hardy,
803 F.2d 1034, 1037 (9th Cir. 1986). In language applica-
ble here, the court ruled:

“[T]his court should not place itself in the position
of second guessing a district court judge who had an
opportunity to acquire substantial knowledge of the
facts and to evaluate the various legal positions after
hearing their merits put forth by the various parties,
particularly when there appears to be no clear abuse
of discretion.”

Id. at 1037, quoting SEC v. Lincoln Thrift Assn.,
577 F.2d 600, 609 (9th Cir. 1978).

Cf. Hudson v. Grand Deposit Mining Co., 458 F.2d 1202,
1205 (9th Cir. 1972). The decisions of these lower courts
uphold the District Court’s authority because otherwise
District Courts cannot supervise. If their decisions are to
be second-guessed, the receivership, like the bankruptcy
trusteeship, would not be able to perform its functions.

The decisions of these lower courts mandate deference
to a District Court’s interpretation of a contract approved
in a supervisory capacity. One reason reinforcing the need
for such deference is that the intent of the parties may be
at issue and, as this Court has ruled in several contexts,
intent is a factual matter:

Treating issues of intent as factual matters for the
trier of fact is commonplace. In- Dayton Board of
Education v. Brinkman, 443 U. S. 526, 534 (1979),
the principal question was whether the defendants
had intentionally maintained a racially segregated
school system at a specified time in the past. We
recognized that issue as essentially factual, subject
to the clearly-erroneous rule. In Commissioner v.
Duberstein, 363 U. S. 278 (1960), the Court held that

22

the principal criterion for identifying a gift under the
applicable provision of the Internal Revenue Code
was the intent or motive of the donor — “one that
inquires what the basic reason for his conduct was in
fact.” Id., at 286. Resolution of that issue determined
the ultimate issue of whether a gift had been made.
Both issues were held to be questions of fact subject
to the clearly-erroneous rule. In United States v.
Yellow Cab Co., 338 U. S. 338, 341 (1949), an anti-
trust case, the Court referred to “[f]indings as to the
design, motive, and intent with which men act” as
peculiarly factual issues for the trier of fact and
therefore subject to appellate review under Rule 52.

Pullman-Standard v. Swint, 456 U.S. 273, 288
(1982) (holding that intent to discriminate is
issue of fact).

Contractual intent, especially for contracts approved
by a supervising court, is no different. Like all factual
matters, it is for the District Court to decide, subject to
reversal only if clearly erroneous under Fed. R. Civ. P.
52(a). In Anderson v. City of Bessemer City, 470 U.S. 564
(1985), this Court explicated the clearly erroneous stan-
dard. The rationale for the standard was stated as
follows:

The rationale for deference to the original finder of
fact is not limited to the superiority of the trial
judge’s position to make determinations of eredibil-
ity. The trial judge’s major role is the determination
of fact, and with- experience in fulfilling that role
comes expertise. Duplication of the trial judge’s
efforts in the court of appeals would very likely
contribute only negligibly to the accuracy of fact
determination at a huge cost in diversion of judicial
resources. In addition, the parties to a case on appeal

23

have already been forced to concentrate their ener-
gies and resources on persuading the trial judge that
their account of the facts is the correct one; requiring
them to persuade three more judges at the appellate
level is requiring too much. As the Court has stated
in a different context, the trial on the merits should
be “the ‘main event’... rather than a tryout on the
road.”

Id. at 574-75.

This applies with special force to contracts approved by a
supervising court.*

Again, this case illustrates the danger. Based on the
parties’ stipulation at trial, on other evidence, and on the
District Court’s intimate familiarity with the context in
which the contract had been approved, the District Court
found as a fact that the parties had not intended that the
public offer commitment provide additional compensation
to the FDIC:

The FDIC bargained for and received under the
Agreement an option to obtain an equivalent amount
of consideration which Air Florida paid to other
shareholders pursuant to its general public offering
only if both of two contingencies occured.... The
FDIC neither bargained for nor received any under-
taking on the part of Air Florida to cause either of
such contingencies to occur, and the Agreement im-
posed no duty on Air Florida to either offer a price

‘Adoption of the appellate decision in this case makes every
contract decision reviewable de novo, thereby making trial meaning-
less. The importance of the issue cannot be overstated. Contract cases
represent nearly 35% of all civil actions. Annual Report of the
Director of the Administrative Office of the United States Courts at
175 (1986).

24

higher than that payable to the FDIC or to attempt
to acquire 80% or more of the common stock of
reorganized Westgate.

Finding of Fact No. 11.
The Court of Appeals, however, ruled just the opposite:

Air Florida’s promise to make a tender offer served
as partial consideration. The FDIC took the risk that
it would get nothing more if the price of Westgate
shares declined or remained the same, but it con-
tracted for additional compensation if the price went

up.
Order and Amended Opinion at 12.°

If the Court of Appeals was not satisfied with the
District Court’s findings on intent, it at least could have
remanded for further findings on that issue. This court
has stated that to be the preferred course. Pullman-

*The first portion of the paragraph from which the quotation comes
graphically shows the dangers of appellate fact-finding:

Furthermore, the bargain price that Air Florida paid the
FDIC for the Westgate stock supports the conclusion that the
parties contemplated that the tender offer price might be higher
than the price paid to the FDIC. Air Florida agreed to pay $15.4
million for stock with an estimated value in excess of $17 million.

Id.

To petitioners’ knowledge, this is a fact not to be found in the record.
On the Petition for Rehearing, petitioners brought to the attention of
the Court of Appeals the fact that the price had been set by
competitive bidding, which assured that the price paid was the
highest price anyone would pay — surely the best indication of the
estimated value. Petitioners do not know the evidence upon which the
Court of Appeals found that the stock Air Florida was purchasing
had an estimated value of $17 million, or that Air Florida paid a
bargain price.

25

Standard v. Swint, supra, 456 U.S. at 291-92. Instead, the
Court of Appeals showed no deference to the trial court,
and left the trial court with no fact-finding function, and
no power to effectively operate in a supervisory capacity.

II. THE DECISION BELOW ENCOURAGES PARTIES TO
ABANDON EVIDENTIARY RECORDS THEY THEM-
SELVES HAVE CREATED, By URGING REVERSAL
BASED ON ERROR THEY INVITED.

Certiorari also should be granted to insure that an
appellant not be allowed to build an evidentiary record,
lose the case, then urge admission of the evidence as
reversible error. To allow a party strategically to abandon
a record which it specifically created offends traditional
notions of fairness and makes a mockery of trial court
proceedings. Yet, this is precisely what the Ninth Circuit
did. It allowed the FDIC to urge at trial that the contract
was ambiguous, then abandon the record which supported
the trial court’s findings against the FDIC —on the
grounds that the contract was not ambiguous.

The Ninth Cireuit’s ruling in this case conflicts with
decisions of this Court, every ‘circuit of the Court of
Appeals, and at least one panel of its own circuit, all of
which hold that an appellant may not take advantage of
its own invited error. It directly conflicts with Computer
Systems Engineering Inc. v. Qantel Corp., 740 F.2d 59 (1st
Cir. 1984). There the appellant had urged that the trial
court accept parol evidence and that the trier of fact
interpret the contract based on that evidence. On appeal,
the appellant then reversed its position, arguing that it
was error for the jury to have interpreted the contract.
The First Circuit rejected this argument:

Qantel requested the court to instruct the jury that it
was for them to interpret disputed contract language

26

and that in interpreting such language, “the intent of
the parties may be determined by their acts and
express understandings, particularly where they
have acted under the contract for a period of time.”
... Qantel was required, at the very least, not to
“invite error” by requesting jury instructions based
on a statement of law it would subsequently seek to
make a basis for reversal on appeal.

Id. at 64.

See also, Law v. United States, 266 U.S. 494, 496 (1925);
Mazwell Land-Grant Co. v. Dawson, 151 U.S. 586, 606
(1894); Schools v. Risley, 77 U.S. 91, 114 (1870); Director
General of the India Supply Mission v. 8.8.Maru, 459 F.2d
1370, 1377 (2d Cir. 1972), cert. denied, 409 U.S. 1115
(1973); Herman v. Hess Oil Virgin Islands Corp., 524 F.2d
767, 772 (3d Cir. 1975); Havee v. Belk, 775 F.2d 1209,
1216-17 (4th Cir. 1985); First National Bank v. Small
Business Administration, 429 F.2d 280, 284 (5th Cir.
1970); Garza v. Indiana & Michigan Electric Co., 338 F.2d
623, 624-25 (6th Cir. 1964); Weise v. United States, 724
F.2d 587, 590-91 (7th Cir. 1984); Mach v. Abbott Co., 136
F.2d 7, 10 (8th Cir.), cert. denied, 320 U.S. 773 (1943);
Deland v. Old Republic Life Insurance Co., 758 F.2d 1331,
1336-37 (9th Cir. 1985); Gundy v. United States, 728 F.2d
484, 488 (10th Cir. 1984); Crockett v. Uniroyal, Inc., 772
F.2d 1524, 1530 n. 4 (llth Cir. 1985); Sector Refining, Inc.
v. Enterprise Refining Co., 771 F.2d 496, 504-05 (Em.App.
1985); Brotherhood of Railroad Trainmen v. Chicago, Mil-
waukee, St. Paul & Pacific Railroad Co., 380 F.2d 605, 609
(D.C. Cir.), cert. denied, 389 U.S. 928 (1967).

This Court’s review of the Ninth Cireuit’s decision in
this case is needed to establish that, except in extraordi-
nary circumstances, Courts of Appeals may not re-weigh
evidence or challenge conclusions of law where the appel-

27

lant has invited the error. Otherwise, the Ninth Circuit,
and the judicial system as a whole, will be left with
precedent for allowing a party to create a record, see if he
likes it, and then, if he does not, abandon it on appeal.
Surely, such a result does not forward the principles of
fairness and economy which are essential to proper func-
tioning of the federal judicial system.

28

CONCLUSION

Viewed from many perspectives, the decision below
emasculates District Court authority. It vitiates the re-
quirement that assets of a failed bank cannot be sold
without the approval of the Court on such terms as the
Court shall direct. It invades traditional District Court
areas — supervision of trusteeships and District Court
finding of facts. It authorizes reversal of District Court
decisions even when those decisions are made in reliance
on error invited by the appellant. Unless corrected by this
Court, it sends a dangerous instruction to the District
Courts that their authority has been taken away. These
reasons amply justify a grant of certiorari.

Dated: December 19, 1987.
Respectfully submitted,
HOWARD J. PRIVETT
Counsel of Record
RALPH ZAREFSKY
Mary E. TARDUNO
McCuTCHEN, BLACK, VERLEGER &
SHEA
600 Wilshire Boulevard
Los Angeles, CA 90017
(213) 624-2400

PaTRICK C. SHEA,

Professional Corporation

LILLICK, MCHosE & CHARLES
101 West Broadway, Suite 1800
San Diego, CA 92101
(619) 544-3177

Attorneys For Petitioners

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A-1
APPENDIX A

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

FEDERAL DEPOSIT INSURANCE CORPORATION,
as a receiver of United States National Bank,
Plaintiff-Appellant,

Vs.

AIR FLORIDA SYSTEM, INC.,

a Delaware Corporation,
Defendant-Appellee.

No. 84-6280
D.C. No. CV-82-0525-LCN

AIR FLORIDA SYSTEM, INC.,
Counter-Claimant,

vs.

FEDERAL DEPOSIT INSURANCE CORP.,
Counter-Defendant.

FEDERAL DEPOSIT INSURANCE CORPORATION,
as a receiver of United States National Bank,
Plaintiff-Appellant,

/ VS.

AIR FLORIDA SYSTEM, INC.,
a Delaware Corporation, et al.,
Defendants-Appellees.

No. 85-6327
D.C. No. CV-82-0525-LCN

ORDER AND AMENDED OPINION

Argued and Submitted
June 5, 1986 — Pasadena, California

A-2

Filed July 17, 1987
Amended September 22, 1987

Before: Alfred T. Goodwin, Thomas Tang and
Betty B. Fletcher, Circuit Judges.

Per Curiam

Appeal from the United States District Court
for the Southern District of California
Leland C. Nielsen, District Judge, Presiding

SUMMARY
CONTRACTS

Appeal from a judgment refusing to rescind a contract
and enforcing an arbitration award. Reversed in part,
vacated in part, and remanded.

Appellant Federal Deposit Insurance Corporation
(FDIC) became a major creditor of the Westgate-Califor-
nia Corporation (Westgate), and was entitled to West-
gate stock once a bankruptcy reorganization was
complete. The FDIC sold its Westgate interests to Air
Florida System, Ine. (Air Florida) for $15.4 million, and
an agreement to make a general public offer for outstand-
ing Westgate common shares at no less than the price
paid the FDIC. Air Florida purchased the stock in West-
gate to acquire its subsidiary, Air California, but this
property had already been sold to a third party at a price
which increased the value of Westgate common stock. Air
Florida informed the FDIC it had decided not to make a
tender offer, and Westgate was liquidated by its direc-
tors. The FDIC brought suit against Air Florida seeking
rescission and restitution because Air Florida had failed
to make the tender offer. Air Florida denied it had a duty
to make the offer at a price exceeding the price paid to the
FDIC and argued that the rise in Westgate’s market price

A-3

excused its tender offer obligation. Air Florida counter-
claimed for $2 million it alleged was owing under a
provision in the contract requiring adjustment of the
purchase price of the stock on sale of a cannery owned by
Westgate. After a bench trial, the court held that Air
Florida had not breached its agreement with the FDIC,
and that the agreement (including the cannery adjust-
ment provision) remained in effect. The court left the
amount of the adjustment open for arbitration, where a
$1.5 million adjustment in favor of Air Florida was
ordered. The court entered the arbitration award.

[1] A straightforward reading of the agreement be-
tween the parties requires a finding that Air Florida had a
duty to make a tender offer. [2] When it concluded that
Air Florida’s duty was limited to a tender offer at the
minimum price, the court misread the agreement. A
tender offer is made in aid of a bona fide attempt to
acquire control of a company. An offer of only the mini-
mum price, in the face of a higher market price, would not
be a bona fide tender offer. [3] The bargain price Air
Florida paid the FDIC for the stock supports the conclu-
sion that the parties contemplated that the tender offer
price might be higher than the price paid the FDIC. [4]
The plain language of the agreement imposed a duty on
Air Florida to make a tender offer at a price reasonably
calculated to obtain outstanding shares of Westgate. [5]
Even assuming that certain extrinsic Air Florida evidence
is admissible because it is relevant to prove a meaning to
which the language of the agreement is reasonably sus-
ceptible, the evidence does not support Air Florida’s
interpretation, [6] as nothing in the proffered extrinsic
evidence contradicts the plain meaning of the agreement.
[7] Air Florida’s refusal to perform its tender-offer obli-
gation constitutes a failure of consideration, but a partial
failure of consideration justifies rescission only if the
failure is material or goes to the essence of the contract.

A-4

[8] Because a breach was found, the case is remanded to
the district court to determine whether the breach was
material. [9] If the breach was material, the FDIC is
entitled to rescind. [10] If the court determines that the
agreement cannot be rescinded, it may grant any party
any other relief to which he may be entitled under the
circumstances.

[11] If the court determines that the FDIC can re-
scind the agreement, the FDIC is relieved of its obliga-
tion to make further payments pursuant to the cannery
adjustment and the legality of the arbitration procedures
will be moot. If Air Florida’s breach is not material the
FDIC’s obligation to provide additional consideration
pursuant to the cannery adjustment would be excused
only if that obligation was dependent upon Air Florida’s
obligation to make a tender offer. California courts in-
dulge a strong presumption against construing contrac-
tual obligations as dependent. [12] If the agreement is
not rescinded, FDIC’s obligation to compensate Air Flor-
ida for the cannery adjustment has not been discharged.
[13] The arbitration award will not be vacated due to the
arbitrator’s refusal to hold an oral hearing on the issue of
contractual intent. [14] The arbitration award vested on
the date of the arbitrator’s decision, and was not delayed
by an agreement to keep the district court proceeding
open until the court was able to enter a single final
judgment.

COUNSEL

David L. Sandborg and Elliot L. Bien, San Francisco,
California, for the plaintiff-appellant.

Ralph Zarefsky, Los Angeles, California, and Patrick C.
Shea, San Diego, California, for the defendants-appellees.

ORDER

The opinion filed July 17, 1987 is amended as follows:

On page 7 (slip op.) add new footnote 2 to the heading
“1. The Tender Offer.” (“1. The Tender Offer.””) Text of
the footnote shall read: “The meaning of a contractual
term and the determination whether such a term is ambig-
uous are both questions of law subject to de novo review.
United States v City of Twin Falls, 806 F.2d 862, 869 (9th
Cir. 1986). If ambiguity exists and the district court
makes factual findings as to the parties’ intent, the
court’s findings will not be disturbed unless clearly erro-
neous. Jd. Here, because we find no ambiguity, see infra at
—, our review is de novo.” Renumber subsequent foot-
notes accordingly.

At page 12, delete “not support Air Florida’s interpre-
tation.” from the end of the first full paragraph and insert
“nothing to contradict the plain meaning of the agree-
ment or render it ambiguous.”

On page 20 (slip op.) delete footnote 8. Insert a new
footnote that shall read: “The FDIC argues also that it
had a due process right to an oral hearing. The arbitration
involved here was private, not state, action; it was con-
ducted pursuant to contract by a private arbitrator. Al-
though Congress, in the exercise of its commerce power,
has provided for some governmental regulation of private
arbitration agreements, we do not find in private arbitra-
tion proceedings the state action requisite for a constitu-
tional due process claim.”

With these changes, the panel as constituted in the
above case has voted to deny the petition for rehearing.

The full court has been advised of the suggestion for
rehearing en banc, and no judge of the court has re-
quested a vote on the suggestion for rehearing en banc.
Fed. R. App. P. 35(b).

A-6

The petition for rehearing is denied and the suggestion
for rehearing en banc is rejected.

OPINION

PER CURIAM:

The FDIC appeals a judgment refusing to rescind its
contract with Air Florida and enforcing an arbitration
award in Air Florida’s favor. We reverse in part, vacate in
part, and remand.

BACKGROUND

In its capacity as receiver of the United States National
Bank, the FDIC became a major creditor of the Westgate-
California Corporation (“Westgate”). As such, the FDIC
was entitled to a large block of Westgate stock once
Westgate’s reorganization in bankruptcy was completed.
In 1980, the FDIC sold its Westgate interests to Air
Florida for $15.4 million. As part of the agreement, Air
Florida promised to make a general public offer for
outstanding Westgate common shares at no less than the
price it paid the FDIC. If Air Florida acquired more than
80% of Westgate’s common stock, and if it paid more per
share to tender-offerees than the FDIC received, the
FDIC was entitled to additional compensation to afford it
the same price per share paid the tender-offerees.

Air Florida purchased the Westgate stock in order to
acquire Air California, a Westgate controlled corporation.
After Air Florida purchased the FDIC’s interest in West-
gate, however, Westgate’s bankruptcy trustees arranged,
and the district court approved, the sale of Air California
to a third party for $61.5 million. The sale caused a
substantial increase in the trading price of outstanding
shares of Westgate common stock. Air Florida had paid

A-7

approximately $18 per share for the stock, but after Air
California’s sale, Westgate shares traded between $21
and $26.50 per share.

In February 1982, Air Florida informed the FDIC that
it had decided not to make a tender offer. On April 1,
1982, Westgate’s directors announced that Westgate
would be liquidated with shareholders receiving $28.25
per share of common stock.’ On April 30, the FDIC
brought suit against Air Florida seeking rescission and
restitution because Air Florida had failed to make the
tender offer. In defense, Air Florida denied that it had a
contractual duty to make an offer at a price exceeding the
price paid to the FDIC and argued that the rise in
Westgate’s market price excused its tender offer obliga-
tion. The FDIC asserted that Air Florida was required to
make an offer reasonably calculated to acquire the shares,
no matter what the market price.

Air Florida counterclaimed for $2 million it alleged was
owing under a separate provision in the contract that
required adjustment of the purchase price of the stock
upon sale of a cannery owned by Westgate. After a bench
trial, the district court adopted Air Florida’s interpreta-
tion of the contract, holding that Air Florida had not
breached its agreement with FDIC. FDIC v. Air Florida
Sys., Inc. No. 85-0525-N(H) (S.D.Cal. Jan. 6,
1983) (Findings of Fact and Conclusions of Law). Having
rejected the FDIC’s rescission claim, the district court
held that the contract, including the cannery adjustment
provision, remained in effect. The amount of the adjust-
ment was left open until “determined by the parties, the
parties’ designated accountants or an independent ac-

‘The liquidating dividend was paid on May 3, 1982. Air Florida
realized a gain of more than $10 per share over the price paid to the
FDIC, a $3.86 million profit on its Westgate common shares.

ci
a

ee ae

A-8

countant pursuant to the arbitration procedures set forth
in... the [purchase] Agreement.” Id. at 9.

When neither the parties nor their accountants could
reach an agreement on the cannery adjustment, the con-
tractual arbitration process was invoked. Following the
arbitration, which resulted in a $1,486,000 adjustment in
favor of Air Florida, the FDIC moved to vacate the award
because of the arbitrator’s failure to hold an oral hearing.
The district court held that “the arbitrator’s election to
resolve the question... based on written submissions
alone, did not deny the FDIC a fundamentally fair hear-
ing.” FDIC v. Air Florida, No. 82-0525-N(I) (C.D.Cal.
July 10, 1984) (unpublished order). The court granted Air
Florida’s cross-motion to enter the arbitration award as
part of the judgment and allowed prejudgment interest
on the award.

DISCUSSION
1. The Tender Offer’

The Written Agreement

Air Florida’s obligation to make a tender offer is
governed by the Purchase and Sale Agreement (the
Agreement) comprised of a November 14, 1980 agreement
(November Agreement), and an earlier agreement en-
tered into on October 27, 1980 (October Agreement)

*The meaning of a contractual term and the determination whether
such a term is ambiguous are both questions of law subject to de novo
review. United States v. City of Twin Falls, 806 F.2d 862, 869 (9th Cir.
1986). If ambiguity exists and the district court makes factual
findings as to the parties’ intent, the court’s findings will not be
disturbed unless clearly erroneous. Jd. Here, because we find no
ambiguity, see infra at __, our review is de novo.

A-9

incorporated by reference into the Agreement.’ Para-
graph 6.01 of the October Agreement provides:

Air Florida, at its own expense, agrees to make a
general public offer to the holders of the Com-
mon Stock of [Westgate] to acquire the shares
of Common Stock owned by such holders
(‘Shareholders’) no later than 425 days after the
date of Consummation (‘Offer’).

Conditions precedent to Air Florida’s duty to make the
tender offer are set out in paragraph 6.04 of the October
Agreement:

The obligation of Air Florida to make the Offer
shall be subject to (i) compliance with all appli-
cable laws and regulations regulating tender or
exchange offers and any other applicable laws
and regulations; (ii) Consummation [of the
Westgate reorganization]; and (iii) completion
of the transfer [of title to the FDIC securities to
Air Florida].
Under paragraph 6.03 of the October Agreement, “([t]he
minimum price for a share of Common Stock pursuant to
the Offer” was to be the price actually paid by Air Florida
to the FDIC.

Paragraph 12 of the November Agreement, “Right to
Benefits of Tender Offer,” in part provides:

[Air Florida] has agreed to make an offer to all
the holders of the Common Stock of [Westgate]
(“Offer”). If [Air Florida] is successful in ac-
quiring 80% of the Common Stock... of [West-
gate] pursuant to the Offer, this Agreement and

*We refer to the “October Agreement” and the “November Agree-
ment” only to facilitate citation to particular clauses. Together, the
two documents constitute the Agreement.

A-10

as a result of any previously acquired Common
Stock, then FDIC shall have the option to obtain
an equivalent amount of consideration which
[Air Florida] offers for each share of Common
Stock of [Westgate] pursuant to the Offer.

The FDIC argues that Air Florida had an obligation to
make a bona fide tender offer at a price adequate to
attract offerees subject only to the conditions of para-
graph 6.04 of the October Agreement, all of which were
satisfied. Air Florida asserts that its only duty was to
make the tender offer at the price that it paid the FDIC.
Air Florida argues that the sole purpose of the tender
offer provision was to protect the FDIC from shareholder
lawsuits that might allege that the FDIC had improperly
exacted a premium for its block of stock. According to Air
Florida, the provision was simply to ensure that other
shareholders got at least as much as the FDIC.

Paragraph 15.4 of the October Agreement states that
the “Agreement shall be construed, governed and en-
forced in accordance with the laws of the State of Califor-
nia.” Under California law, the paramount principle
informing contract interpretation is to give effect to the
intention of the parties. Healy Tibbitts Constr. Co. v.
Employers’ Surplus Lines Ins. Co., 140 Cal. Rptr. 375, 379
(Cal. App. 1977). The court should ascertain the intention
of the parties from the writing alone, if possible. Cal. Civ.
Code § 1638; Healy Tibbitts Constr. Co., 140 Cal. Rptr. at
379. The words are to be understood in their ordinary
sense unless a special meaning is given by usage. Cal. Civ.

Code § 1644.

[1] A straightforward reading of the Agreement re-
quires that we find that Air Florida had a duty to make a

A-1l

“tender offer” within 425 days of consummation.’ The
district court’s findings are in accord, but it found that
the duty was limited to an offer at the “minimum price”
defined in the contract as the price per share paid to the
FDIC. Because Westgate stock always traded above the
minimum price during the 425 day period, an offer at the
minimum price would have been a futile act. Accordingly,
the district court held that Air Florida’s obligation was
excused.

[2] The district court misread the Agreement when it
concluded that Air Florida’s duty was limited to a tender
offer at the minimum price.” A tender offer has certain
characteristics that set it apart from other market trans-
actions. We have previously articulated some of those
characteristics:

(1) aetive and widespread solicitation of
public shareholders for the shares of an

‘The Agreement uses the term “general public offer” and “tender

offer” interchangeably. See October Agreement § 6.01 (“Air Florida -

agrees to make a general public offer”); November Agreement { 12
(entitled “Rights to Benefits of Tender Offer”).

Air Florida also agreed to make an offer for Westgate preferred
stock. That agreement was limited to the price that Air Florida paid
the FDIC for its preferred stock. Paragraph 14 of the November
Agreement provides:

Subject to the provisions of Section 6.04, [see supra at
___.,] Air Florida agrees to make a general public offer to
the holders of the Class A Preferred Stock of [Westgate] to
acquire the shares of Preferred Stock owned by such hold-
ers (“Holders”) no later than 425 days after the date of
Consummation (“Offer’’) on the same terms and conditions,
and for the same price, as paid to FDIC for its Preferred
Stock.

Of course, this commitment ran to shareholders other than FDIC.
Unlike paragraph 14, the provisions dealing with the offer for com-

A-12

issuer; (2) solicitation made for a substantial
percentage of the issuer’s stock; (3) offer to
purchase made at a premium over the pre-
vailing market price; (4) terms of the offer
are firm rather than negotiable; (5) offer
contingent on the tender of a fixed number
of shares, often subject to a fixed maximum
number to be purchased; (6) offer open only
a limited period of time; (7) offeree sub-
jected to pressure to sell his stock.

Polinsky v. MCA, Inc., 680 F.2d 1286, 1291 (9th Cir. 1982)
(quoting Wellman v. Dickinson, 475 F.Supp. 783, 823-24
(S.D.N.Y. 1979)) (emphasis added). In other words, a
“tender offer” is made in aid of a bona fide attempt to
acquire control of a company. At the very least, it is an
offer reasonably calculated to persuade shareholders to
sell their stock. Air Florida’s interpretation differs from
the ordinary meaning of the term “tender offer.” An offer
of only the minimum price, in the face of a higher market
price, in our view would not be a bona fide tender offer.

[3] Furthermore, the bargain price that Air Florida
paid the FDIC for the Westgate stock supports the
conclusion that the parties contemplated that the tender
offer price might be higher than the price paid to the
FDIC. Air Florida agreed to pay $15.4 million for stock
with an estimated value in excess of $17 million. Air
Fiorida’s promise to make a tender offer served as partial
consideration. The FDIC took the risk that it would get
nothing more if the price of Westgate shares declined or
remained the same, but it contracted for additional com-

mon stock do not state that the offer shall be at a particular price, but
rather that it shall not be below a particular price. See supra at __
(€€ 6.01 & 6.03). The difference between Air Florida’s obligations
with respect to the common stock and the preferred stock supports
FDIC's interpretation of the contract.

A-13

pensation if the price went up. Air Florida’s interpreta-
tion would render its promise illusory and give it a
windfall at the FDIC’s expense.

Air Florida contends that certain provisions of the
Agreement belie a finding that it was required to make a
bona fide tender offer for the FDIC’s benefit. First, it
cites paragraph 6.02, which states that “(t]he Offer, at
the option of Air Florida, may . . . contain such terms and
conditions as are generally customary in tender or ex-
change offers, as the case may be.” This paragraph, as we
read it, simply leaves the peripheral terms of the offer to
the discretion of Air Florida but does not speak to price
and does nothing to diminish Air Florida’s obligation to
make the offer required by other sections of the

Agreement.

Second, Air Florida attaches significance to the fact
that it had the option of adjusting the tender offer price
downward, under paragraph 6.03, if Westgate’s cannery
had not been sold at the time of the offer, in order to
“adjust for an estimated Cannery Adjustment.” However,
this provision simply recognizes that the minimum offer
price was not fixed when the agreement was signed
because the price Air Florida was to pay to the FDIC, was
subject to the cannery adjustment. See supra at The
uncertainty as to the minimum price does not support an
argument that the minimum price was the only price at
which Air Florida was required to make its offer.

Finally, Air Florida claims that paragraph 13 of the
November Agreement entitled “Third Party Beneficiary,”
which states that the tender offer provisions “are for the
benefit of the proposed tender offerees,” is an explicit
statement that the offer was not intended to benefit the
FDIC. We disagree. Creating legal rights under the
contract for persons who would otherwise not have such
rights does not diminish the rights of the parties to the

A-14

contract. Paragraph 13 replaced paragraph 6.05 of the
October agreement, under which there were no rights for
third-parties; it does not derogate from Air Florida’s
obligations to the FDIC.

[4] We conclude that the plain language of the Agree-
ment imposed a duty on Air Florida to make a tender
offer at a price reasonably calculated to obtain outstand-
ing shares of Westgate. Nothing in the contract supports
Air Florida’s contention that the minimum price that it
was required to offer was also the maximum price.

Extrinsic Evidence

[5] Air Florida would have us look to the cireum-
stances surrounding the sale of the FDIC’s interest in
Westgate to support its interpretation of the contract.
Even were we to assume that Air Florida’s extrinsic
evidence is admissible because it “is relevant to prove a
meaning to which the language of the [Agreement] is
reasonably susceptible,” Pacific Gas & Elec. Co. v. G.W.
Thomas Drayage & Rigging Co., 442 P.2d 641, 644 (Cal.
1968), the proffered evidence does nothing to contradict
the plain meaning of the agreement or render it
ambiguous.

First, Air Florida points to the resolution of the
FDIC’s Board of Directors approving the sale to Air
Florida. It states that the FDIC “is hereby authorized to
sell its interest in [Westgate] ... for the total considera-
tion of approximately $15,432,000,” without mentioning
the possibility of additional compensation flowing from
the tender offer. The resolution, however, contained at
most only a cursory summary of the proposed Agreement,
without any reference to the contingencies contained in
the Agreement. The resolution does not mention the
anticipated cannery adjustment or the fact that addi-
tional compensation would be due if a successful tender

A-15

offer at over $18 per share were made. Simply put, all
contract provisions that could affect the price were not
incorporated in the FDIC board resolution approving the
sale of Westgate. Thus, the omission of reference to the
tender offer in the resolution is not helpful one way or the
other in determining the parties’ intent.

Second, Air Florida asserts that a letter from the
FDIC’s counsel to the attorney representing Westgate
shareholders demonstrates that the FDIC understood Air
Florida’s obligation to require a tender offer only at the
minimum price. The relevant part of the letter states: “In
our telephone conversation, we also discussed the fact
that the final price of the tender offer may be subject to
adjustment. We specifically discussed a potential cannery
adjustment....I can give you no additional enlighten-
ment on what price... will be realized for the cannery.”
The letter makes no mention of an adjustment necessi-
tated by increases in the price of Westgate stock. It
appears, however, that the FDIC’s counsel was respond-
ing to an expressed concern that the final price might be
decreased based on the cannery adjustment; he was not
otherwise addressing the terms of the Agreement.

Third, Air Florida claims that various filings it made
with the Securities and Exchange Commission demon-
strate that its commitment was at the minimum price. Air
Florida cites the schedule 13D filed the day after the
October Agreement was executed. This document, how-
ever, supports FDIC’s position. In relevant part, the
Schedule 13D states: “The minimum price pursuant to the
tender or exchange offer must be at least equivalent to the
final price per share of Common Stock paid to the FDIC.”
It does not say “the price,” it says “the minimum price”
and clearly contemplates the possibility of a higher price.
Air Florida also points to its Schedule 14D-1 (tender
offer statement). This document estimates that the

A-16

purchase price per share of Westgate common stock will
be $18. However, the 14D-1’s estimate was accurate when
filed because current market price was well below $18 per
share. The 14D-1 also states that “[s]ignificant contin-
gencies exist with respect to the final purchase price... .”
Moreover, the section of the 14D-1 that describes Air
Florida’s contractual obligations tracks the language
used in the Agreement. It states: “Air Florida has agreed
that the minimum price offered pursuant to such tender
and exchange offer must be at least equivalent to the final
price per share... paid by Air Florida to the FDIC... .”
Thus, we find no support for Air Florida’s interpretation
of the agreement in its SEC filings.

Finally, Air Florida-claims that the decision of West-
gate’s trustee to sell Air California and the FDIC’s
objections to the sale support its interpretation of the
agreement. The trustee, in determining whether to make
the sale, compared the value to Westgate’s creditors of
Air Florida’s tender offer with that of the purchase offer
made by the successful buyer, Air California Investments.
The trustee considered the value per share of the tender
offer to be the price paid to the FDIC — that is, the
minimum price provided for in the Agreement. This is
understandable since the calculation was made at a time
when stock in the reorganized Westgate had not yet been
issued and the only reasonably firm figure available to the
trustee was the minimum price. For the same reason, the
FDIC’s objections filed to the sale of Air California do
not contain an argument that the value of Air Florida’s
tender offer had been understated. We doubt that a court
comparing a firm cash offer to the potential rise in price of
unissued stock would rely on that potential to reject the
sale. Thus, the FDIC’s failure to make such an argument
cannot be taken as proof that it understood the minimum
price to Be the only price Air Florida was obligated to
offer.

SW PRE — ne i en he en ale mee ae ai ih Mi co cas ees SLE te

A-17

[6] In sum, we find nothing in Air Florida’s proffered
extrinsic evidence® that contradicts the plain meaning of
the Agreement. Air Florida had a duty to make a tender
offer at a price reasonably calculated to induce sharehold-
ers to tender their shares. Air Florida’s failure to make
such an offer breached its Agreement with the FDIC.

The Remedy

The FDIC claims that Air Florida’s failure to make the
agreed-upon tender offer constituted a failure of consider-
ation entitling the FDIC to rescind the Agreement.’ The
remedy the FDIC requests is at least a partial restitution
of Air Florida’s profits and a discharge from its obliga-
tion to pay Air Florida the money owing for the cannery
adjustment. In support of its right to rescind, the FDIC
relies on California Civil Code Section 1689, which, in
relevant part, provides:

(b) A party to a contract may rescind the con-
tract in the following cases:

s* 2 *

(2) If the consideration for the obligation of the
rescinding party fails, in whole or in part,

Air Florida presents its extrinsic evidence by way of a selective
chronological statement of facts and events surrounding the making
of the Agreement with the FDIC. That we may not have specifically
addressed every element in that chronology does not mean that we
have not considered every element.

"In its First Amended Complaint, the FDIC also claimed that it
was entitled to rescind based on California Corporations Code
§ 25401 (untrue statements and omissions) as well as on section 10b
of the Securities and Exchange Act of 1934, 15 U.S.C. § 78}, and Rule
10b-5 of the Securities and Exchange Commission, 17 C.F.R.
§ 240.10b-5, (false statements). The FDIC does not appeal from the
district court’s denial of these claims.

A-18

through the fault of the party as to whom he
recinds.
2 zs *

(4) If the consideration for the obligation of the
rescinding party, before it is rendered to him,
fails in a material respect from any cause.

[7] Air Florida’s refusal to perform its tender-offer
—obligation constitutes a failure of consideration. See Tal-
iaferro v. Davis, 31 Cal. Rptr. 164, 172 (Cal. App. 1963).
Although Air Florida paid the FDIC over fifteen million
dollars in consideration, “[t]he right to rescind for a
partial failure of consideration may be exercised although
there has been a partial performance by the party against
whom the right is exercised.” Coleman v. Mora, 69 Cal.
Rptr. 166, 173 (Cal. App. 1968). However, a partial
failure of consideration justifies rescission only if the
failure is “ ‘material,’ or go[es] to the ‘essence’ of the
contract.” Wyler v. Feuer, 149 Cal.Rptr. 626, 633 (Cal.
App. 1978); see also Pennel v. Pond Union School Dist., 105
Cal. Rptr. 817, 821 (Cal. App. 1973) (breach must be
material); Taliaferro, 31 Cal. Rptr. at 172 (failure to
perform must constitute a breach in an “essential particu-
lar’). But see Crowfoot Lumber v. Thompson, 329 P.2d 302,
308 (Cal. App. 1958) (indicating that breach must go to
the “essence” of the contract only if there has been no
repudiation). Thus, the right to rescind a particular
contract “depends upon the gravity of the breach” relied
on to justify the rescission. Crowfoot Lumber, 329 P.2d at
308, quoted in Taliaferro, 31 Cal. Rptr. at 172.

[8] Whether a breach constitutes a failure of consider-
ation sufficient to be deemed material and thus to warrant
rescission of a contract is a question of fact properly
determined by the trial court. Calabrese v. Rexall Drug &
Chem. Co., 32 Cal. Rptr. 665, 670 (Cal. App. 1963). Cf.
Bonadelle Constr. Co. v. Hernandez, 337 P.2d 85, 87 (Cal.

A-19

App. 1959) (substantial performance is a question to be
determined case-by-case, based on the particular facts
and circumstances). In the instant case, because the
district court concluded that there had been no breach of
the Agreement, it found that there had been no material
failure of consideration and accordingly that the FDIC
was not entitled to rescind the agreement. Because we
find a breach, we remand to the district court to deter-
mine whether the breach was material.

[9] If the district court finds that Air Florida’s failure
to make the tender offer constituted a material breach,
the FDIC is entitled to rescind, thus extinguishing the
Agreement.’ Cal. Civ. Code § 1688. If rescission of the
Agreement is warranted, the FDIC’s further obligations
under the contract — in particular, those relating to the
cannery adjustment — are discharged, and it may be
entitled to a restitutionary remedy. Crowfoot Lumber, 329
P.2d at 308 (quoting Corbin on Contracts § 1104). Cali-
fornia Civil Code section 1692, entitled “Relief Based on
Rescission,” states that “[t]he aggrieved party shall be
awarded complete relief, including restitution of benefits,
if any, conferred by him as a result of the transaction and
any consequential damages to which he is entitled... .”
Under section 1692, the court may also require the re-
scinding party “to make any compensation to the other
which justice may require and may otherwise in its judg-
ment adjust the equities between the parties.”

[10] If, on the other hand, the district court deter-
mines that the Agreement cannot be rescinded, it never-
theless “may grant any party to the action any other relief
to which he may be entitled under the circumstances.”
Cal. Civ. Code § 1692. In other words, a breach insuffi-

*Air Florida is entitled to raise the several affirmative defenses
that the district court declined to pass on earlier.

A-20

ciently material to form the basis for rescission may
entitle the aggrieved party to a restitutionary remedy or
damages. Clearly Air Florida’s breach entitles FDIC to
either an équitable restitutionary remedy or a legal dam-
ages remedy. The appropriate remedy and its scope are
matters properly to be determined by the district court on
remand.

2. The Cannery Adjustment

The FDIC challenges the cannery adjustment arbitra-
tion award entered in favor of Air Florida, first, on the
ground that its performance has been excused, and, sec-
ond, on the ground that it was entitled to, and did not
receive, an oral hearing before the arbitrator. The FDIC
also claims that the district court erred in granting
prejudgment interest on the award.

Excuse of Performance

[11] If the district court determines that the FDIC
can rescind the Agreement, the FDIC is relieved of its
obligation to make further payments pursuant to the
cannery adjustment, and the legality of the arbitration
procedures will be moot. If, on the other hand; Air
Florida’s breach was not material, FDIC’s obligation to
provide additional consideration pursuant to the cannery
adjustment would be excused only if that obligation was
dependent upon Air Florida’s obligation to make a tender
offer. Verdier v. Verdier, 284 P.2d 94, 100 (Cal. App.
1955) (holding that if “covenants are independent, breach
of one does not excuse the performance of the other’).
The California courts indulge a strong presumption, how-

A-21

ever, against construing contractual obligations as
dependent:

To construe covenants as dependent is to
work a forfeiture as to one party, and no obliga-
tion of a contract is to be regarded as a condi-
tion precedent unless made so by express terms
or necessary implication. Where a breach is
partial and is “capable of being fully compen-
sated,” the strong tendency is to regard it as
insufficient to constitute a defense.

Id. (quoting Redpath v. Evening Express Co., 88 P. 287,
289 (Cal. App. 1906) ); see Rubin v. Fuchs, 459 P.2d 925,
928 (Cal. 1969).

[12] The Agreement does not say that the tender offer
was a condition precedent to the cannery adjustment. Nor
do we find a “necessary implication” that the obligations
were dependent. Because it was entirely possible that the
FDIC’s obligation to provide further compensation under
the cannery adjustment provision could have matured
before the period in which Air Florida was required to
make its tender offer, the tender offer could not be a
condition precedent to the cannery adjustment. Thus, if
the Agreement is not rescinded, FDIC’s obligation to
compensate Air Florida for the cannery adjustment has
not been discharged.

Right to an Oral Hearing

FDIC asserts that the arbitrator’s refusal to hold an
oral hearing on the issue of contractual intent violated its
rights and rendered the arbitration unenforceable. The
arbitrator, who was an accountant, did meet with the
FDIC and Air Florida accountants, but he then refused
the FDIC’s request to hold a further evidentiary hearing.
Rather, he requested the parties to submit in written form
the materials they wished to have considered. In support

A-22

of its interpretation of the cannery adjustment provision,
FDIC submitted the affidavit of the attorney who negoti-
ated the Agreement for the FDIC. The FDIC concedes
that it could have submitted additional written documen-
tation had it chosen to do so.

There is no disagreement that the federal Arbitration
Act, 9 U.S.C. §$§ 1-14 governs this dispute. Where the Act
applies, it “provides the exclusive grounds for challenging
an arbitration award within its purview.” Lafarge Conseils
et Etudes, S.A. v. Kaiser Cement & Gypsum Corp., 791 F.2d
1334, 1888 (9th Cir. 1986). Section 10 of the Act sets
forth the cireumstances under which a district court may
vacate an arbitration award. 9 U.S.C. §10. The FDIC
relies on section 10(c) to support its claim of procedural
deficiency. Section 10(c) permits vacation of an award

{[w]here the arbitrators were guilty of miscon-
duct in refusing to postpone the hearing, upon
sufficient cause shown, or in refusing to hear
evidence pertinent and material to the contro-
versy; or of any other misbehavior by which the
rights of any party have been prejudiced.

9 U.S.C. $ 10(¢).

[13] While section 10(c) assumes that the parties to an
arbitration will be afforded a hearing, neither in this
section nor anywhere else in the Act are hearing proce-
dures, much less oral hearing procedures, explicitly pro-
vided for. Certainly the parties may agree upon
appropriate procedures by contract, but, where they do
not, procedural matters “become part of the bundle of
issues committed to decisions by the arbitrator.” Sheet
Metal Workers Int'l Ass’n, Local 420 v. Kinney Air Condi-
tioning Co., 756 F.2d 742, 744 (9th Cir. 1985). An arbitra-
tion award should not be vacated on procedural grounds
unless the procedure employed was a “sham, substantially

5 PS. hale MaMa, Fe Ea, Ad clin Sc edad ea athe as aR in, ie ain kein nib adhe en ay oll aabig MAST Sgt ng aR sc il

A-23

inadequate or substantially unavailable.” Harris v. Chemi-
cal Leaman Tank Lines, 437 F.2d 167, 171 (5th Cir. 1971),
quoted in Dogherra v. Safeway Stores, Inc., 679 F.2d 1293,
1296 (9th Cir.), cert. denied, 459 U.S. 990 (1982). So long
as the hearing provided is “full and fair,” a procedural
attack must fail. Coast Trading Co. v. Pacific Molasses Co.,
681 F.2d 1195, 1198 (9th Cir. 1982). Applying section
10(¢)}, a hearing is full and fair unless the arbitrator (1)
despite a showing of cause, refuses a postponement; (2)
refuses to hear pertinent and material evidence; or (3)
engages in misbehavior that prejudices the rights of a
party. 9 U.S.C. §10(¢c). The FDIC did not request a
postponement and there is no allegation that the arbitra-
tor refused to consider evidence the FDIC submitted.
Finally, the failure to hold an oral hearing cannot be
deemed misbehavior that prejudiced the FDIC’s rights
because the FDIC has not shown that its evidence was not
amenable to preséntation in written form. Admittedly, a
“paper hearing” often will be an inadequate means to
determine the facts upon which an arbitration decision
must rely. In this case, however, the nature of the decision
to be made leads us to conclude that the “paper hearing”’
was adequate.” As the district court noted:

[W]hat the parties bargained for was not a
quasi-judicial proceeding conducted by lawyers,
but [rather] the professional opinion of an inde-
pendent accountant on an accounting issue —
the value of a business. Accountants derive their

*The FDIC argues also that it had a due process right to an oral
hearing. The arbitration involved here was private, not state, action;
it was conducted pursuant to contract by a private arbitrator. Al-
though Congress, in the exercise of its commerce power, has provided
for some governmental regulation of private arbitration agreements,
we do not find in private arbitration proceedings the state action
requisite for a constitutional due process claim.

A-24

calculations not from evidentiary hearings, but
from working papers and discussions with other
accountants. Thus, it was predictable that the
instant arbitrator would base his decision on
this information. Nothing in the parties’ contrac-
tual sequential valuation process manifests an
intent to require an oral evidentiary hearing.
Had the parties intended the arbitration to re-
solve primarily legal issues through evidentiary
hearings, they surely would have agreed to use a
lawyer, not an accountant, as the arbitrator, or
declared arbitration rules as governing. Instead
the parties instructed an accountant to resolve
the dispute..., leaving the procedure to the
arbitrator’s sound discretion.

FDIC v. Air Florida, No. 82-0525-N(I) at 8-9 (July 10,
1984) (unpublished order).

Prejyudgment Interest

The district court granted Air Florida interest on the
arbitration award from the date of the arbitrator’s deci-
sion. California law provides that

[e]very person who is entitled to recover dam-
ages certain, or capable of being made certain by
calculation, and the right to recover which is
vested in him upon a particular day, is entitled
also to recover interest thereon from that day

Cal. Civ. Code §3287(a). The Agreement between the
FDIC and Air Florida states that the arbitrator’s deter-
mination would be final and binding on the parties. As the
FDIC concedes, under the terms of the Agreement, Air
Florida was entitled to interest from the date of the
award. The FDIC contends, however, that a stipulation in

TST ee eee ee ee ———— Se ee ee ee ee ae eee ee a ee

A-25

the pretrial order changed this result. The stipulation

reads:
The parties have agreed that all issues with
respect to the Cannery Adjustment will be deter-
mined by the Court, with the exception of the
calculation of Net Cannery Cash Recovery and
the resulting Cannery Adjustment under the
Agreement. These calculations will be deter-
mined by... an independent accountant pursu-
ant to the procedures...of the Agreement...
The parties further have agreed that the judg-
ment in this proceeding will remain open until
said calculations have been performed and the
Court is able to enter a single final judgment.

[14] The district court determined all issues relating to
the cannery adjustment, with the exception of the adjust-
ment calculation, before the date of the arbitration deci-
sion.” Thus, the question is whether the agreement to
keep the district court proceeding open until the court
was “able to enter a single final judgment” meant that Air
Florida’s right to recover under the cannery adjustment
did not vest until the entry of the final judgment. See Cal.
Civ. Code § 3287(a). We think that the answer is not.
Although Air Florida may have agreed to await receipt of
the proceeds from the cannery adjustment until the entry
of a final judgment, it did not stipulate away its contract
right to recovery on the date of the arbitration decision.
Cf. French v. Merill Lynch, Pierce, Fenner & Smith, Inc.,
784 F.2d 902, 907 (9th Cir. 1986) (holding that, under
section 3287 (a), right to recover arbitration award vested

The pretrial order stated that two issues of law relating to the
cannery adjustment remained to be determined. The district court
resolved both issues in its Findings of Fact and Conclusions of Law
of January 6, 1983, over a year before the arbitrator rendered his
decision.

A-26

when plaintiff filed suit which resulted in the court com-
pelling the disputed arbitration, and that damages are not
made uncertain by the fact that liability is contested).
The stipulation served to facilitate any set-offs that may
have been required once the various claims and cross-
claims in the litigation had been resolved, not to amend
the original arbitration clause of the Agreement.

CONCLUSION

We hold that Air Florida’s failure to make a tender
offer breached its Agreement with FDIC. We remand to
the district court to determine whether the breach consti-
tuted a material failure of consideration. If the failure of
consideration was material, the FDIC was entitled to
rescind the Agreement. If the Agreement is rescinded, the
FDIC’s obligation under the cannery adjustment provi-
sion of the Agreement is discharged and the FDIC is
entitled to a restitutionary remedy to adjust the equities
between the parties.

If the Agreement was not rescinded, the cannery ad-
justment provision remains in effect, and Air Florida is
entitled to the arbitration award, with interest from the
date of the arbitrator’s decision. This amount, however,
must be set off against an award of damages to the FDIC
as compensation for Air Florida’s breach of its obligation
to make a tender offer.

The judgment dismissing the claim of the FDIC is
REVERSED. The judgment enforcing the arbitration
award with prejudgment interest is VACATED. The judg-
ment granting attorneys’ fees is VACATED. The cause is
REMANDED to the district for proceedings consistent
with this opinion.

REVERSED in part, VACATED in part, and
REMANDED.

Seen

C
ie

tat

ah PES.

B-1
APPENDIX B

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA

FEDERAL DEPOSIT INSURANCE CORPORATION,
as receiver of United States National Bank,
Plaintiff,

, A

AIR FLORIDA SYSTEM, INC.,

a Delaware corporation,
Defendant.

AIR FLORIDA SysTEM, INC.,
a Delaware corporation,
Counter-claimant,

V.

FEDERA!. DEPOSIT INSURANCE CORPORATION,
as receiver of United States National Bank,
Counter-defendant.

NO. 82-0525-N (H)

FINDINGS OF FACT
AND CONCLUSIONS OF LAW

The above-entitled case came on regularly for trial on
September 8, 1982, before the Honorable Leland C. Niel-
sen, United States District Judge, sitting without a jury.
Gary L. Hultquist of Bronson, Bronson & McKinnon and
E. Whitney Drake appeared as counsel for plaintiff, Fed-
eral Deposit Insurance Corporation. Howard J. Privett,
Ralph Zarefsky and Lisa C. Woods of McCutchen, Black,
Verleger & Shea appeared as counsel for defendant Air
Florida System, Ine. The Court having heard and ex-
amined the evidence offered by the respective parties and
having read and considered the briefs filed on their

B-2

behalf; the cause having been submitted for decision after
oral agrument by counsel; and the Court having hereto-
fore made and announced its decision, and being fully
advised in the premises, makes its findings of fact and
conclusions of law as follows:

FINDINGS OF FACT

1. Plaintiff Federal Deposit Insurance Corporation
(“FDIC”) is a corporation organized and existing under
and by virtue of the laws of the United States, and
appears here as receiver of the failed United States
National Bank, a national banking association which was
located in San Diego, California.

2. Defendant Air Florida System, Ine. (“Air Flor-
ida”) is a corporation incorporated under the laws of the
State of Delaware, with its principal place of business in
the State of Florida.

38. The amount in controversy exceeds $10,000.00, ex-
elusive of interest and costs.

4. In February of 1974, Westgate-California Corpora-
tion, a Nevada corporation (‘““Westgate”) filed for reor-
ganization under Chapter X of the Federal Bankruptcy
Act, Case Nos. 74-413, 74-414, 74-1079, 74-1246 and 74-
2271 (S.D. Cal.) (“Westgate Reorganization Proceed-
ings”). As receiver of the failed United States National
Bank, the FDIC filed certain proofs of claims against
various Westgate entities, which claims subsequently
were approved and allowed. The FDIC was the largest
single creditor in the Westgate Reorganization Proceed-
ings and was, entitled to receive a substantial percentage
of the common stock and substantially larger percentages
of Class A and B preferred stock to be issued by the
Reorganized Westgate.

5. On March 25, 1980, the Court in the Westgate
Reorganization Proceedings entered an order confirming
the Plan of Reorganization.

6. Commencing in August of 1980 and continuing
until November 14, 1980, representatives of Air Florida
and the FDIC negotiated the purchase by Air Florida of
the FDIC’s interest in Westgate. Both parties were repre-
sented by experienced counsel in the course of these
negotiations.

7. At the conclusion of their negotiations, the agree-
ment of the parties was fully and accurately reduced to
writing. Under date of October 20, 1980, the FDIC and
Air Florida executed a “Purchase Agreement” prepared
by their counsel as the complete and exclusive statement
of the terms agreed upon between the parties. After
subsequent competitive bidding as to the price of the
FDIC’s interest in Westgate between Air Florida and
another party in open court on November 14, 1980, the
parties executed a further writing, an “Agreement for
Purchase and Sale” (hereinafter “Agreement’’) which
modified and otherwise incorporated the October 20, 1980
Purehase Agreement. The Agreement was approved by
the Court in the United States National Bank Liquidation
Proceedings (Case No. 73-445-N, S.D. Cal.).

8. On April 21, 1981, Air Florida and FDIC executed

an Amendment to the Agreement, which was approved by

the Court in the United States National Bank Liquidation
Proceedings. On May 7, 1981, Air Florida waived its right
of rescission, and on May 11, 1981, the FDIC executed an
Assignment of Claims by which the FDIC assigned its
claims in Westgate as Receiver to Air Florida ‘free and
clear of any and all liens, encumbrances, charges, offsets,
defenses or counterclaims of any kind or nature
whatsoever.”

B-4

9. The parol evidence regarding the Agreement of-
fered by the parties at trial was received in evidence and
fully considered. The parol evidence strongly supports
the ordinary meaning to be given to the words used by the
parties to express their intent in the Agreement and Air
Florida’s contentions as to the intent of the parties at the
time they entered into the Agreement. The Court’s find-
ings regarding the Agreement are the same whether
based solely on the writings executed by the parties as
their Agreement or based also upon the extensive parol
evidence offered by the parties.

10. The Agreement imposed a duty upon Air Florida
to make a general public offer for the common and
common equivalent stock of reorganized Westgate at a
price (referred to as the “minimum price’’) at least equal
to the price payable to the FDIC for its common and
common equivalent stock of reorganized Westgate within
425 days following consummation of the Plan of Reorgan-
ization. Air Florida had no duty under the Agreement to
make such offer at any price higher than the minimum
price although it had the right to offer any price higher
than the minimum price it deemed appropriate.

11. The FDIC bargained for and received under the
Agreement an option to obtain an equivalent amount of
consideration which Air Florida paid to other sharehold-
ers pursuant to its general public offering only if both of
two contingencies occured: first, that the general public
offer was made at a price greater than the price payable to
the FDIC, and second, that Air Florida acquired 80% or
more of the common stock of reorganized Westgate. The

FDIC neither bargained for nor received any undertaking |

on the part of Air Florida to cause either of such contin-
gencies to occur, and the Agreement imposed no duty on
Air Florida to either offer a price higher than that payable

ET Oe NE RAR RPM E TETRA TERE ION CT NEN ir PS IE TN TNT OR I TE LRT LO SE Te ee ee PTTL ST

B-5

to the FDIC or to attempt to acquire 80% or more of the
common stock of reorganized Westgate.

12. On or about May 13, 1981, the Court in the West-
gate Reorganization Proceedings entered an order ap-
proving the Plan of Liquidation for Westgate, which
provided that the corporation could be liquidated within
one year. On May 26, 1981, the Court in the Westgate
Reorganization Proceedings entered orders (1) authoriz-
ing distribution of Westgate-California Corporation stock
and (2) declaring the Westgate Plan of Reorganization to
be “substantially consummated.”

13. Following such declaration of the consummation of
the Plan of Reorganization, the reorganized Westgate
issued its stock pursuant to the Plan. At all times after
issuance, which occurred after June 1, 1981, the common
stock traded at a price in excess of the $18.00 per share
price paid to the FDIC by Air Florida.

14. Following consummation of the Plan of Reorgani-
zation, Air Florida proceeded in good faith with prepara-
tions for a tender offer for all Westgate common and
common equivalent stock and continued to evaluate the
prospects for such offer. By early 1982 the high cash
liquidation value of Westgate common stock and the low
market price of Air Florida stock made it clear that an
offer at the price paid to the FDIC would not be success-
ful, and Air Florida concluded in good faith that a tender
offer at a price that was reasonable for it to offer would
not be successful.

15. A tender offer by Air Florida during the 425 day
period following consummation of the Plan of Reorgani-
zation at the price paid to the FDIC would have been an
idle and futile act, and could have been confusing or
misleading to the holders of reorganized Westgate com-
mon and common equivalent stock. Accordingly, Air Flor-

B-6

ida properly did not make the general offer it had a duty
to make under the Agreement.

16. The FDIC sustained no damage or loss by reason
of the fact Air Florida did not make the general public
offer it was committed to make pursuant to the
Agreement.

17. The liquidation of Westgate-California Corpora-
tion occurred on May 3, 1982 when the common stock of
Westgate was cancelled in liquidation of the corporation,
and a partial distribution of $28.25 per share in cash was
made to all shareholders of record.

18. The FDIC failed to sustain its burden of establish-
ing a material failure of consideration or breach of the
Agreement by Air Florida.

19. Air Florida did nct make any material misstate-
ments of fact and did not omit to state any material facts
in the course of negotiating, drafting or executing the
tender offer provisions of the Agreement.

20. FDIC failed to sustain its burden of establishing
grounds for rescission of the Agreement or that the FDIC
is entitled to a set-off or to any other relief from the
cannery adjustment provisions of the Agreement.

21. The foregoing findings make it unnecessary for the
Court to decide the issues raised by Air Florida’s affirma-
tive defenses of laches, equitable estoppel or waiver.

22. Any conclusion of law hereafter determined to be a
finding of fact is hereby found as a fact.

CONCLUSIONS OF LAW

1. Any finding of fact hereafter determined to be a
conclusion of law is hereby made a conclusion of law.

2. The contract which is the subject of this action was
executed in the State of California and provides that it
“shall be construed, governed and enforced in accordance
with the laws of the State of California.” The contract was
approved by the Court in the United States National
Bank Liquidation Proceedings (No. 73-445-N, S.D. Cal.).

3. The Court has jurisdiction over the parties and of
the subject matter of this action.

4. The parol evidence offered by the parties at trial is
admitted into evidence. However, the Court’s determina-
tion of this matter is the same whether the Court consid-
ers the admitted parol evidence or interprets the
Agreement as a matter of law without the aid of parol
evidence.

5. The Agreement imposed a duty on Air Florida to
make an offer for the outstanding common and common
equivalent stock of Westgate only at a price at least equal
to the price payable to the FDIC (referred to as the
“minimum price”’).

6. The Agreement did not impose a duty on Air Flor-
ida to make an offer at a price greater than the minimum
price, nor did it impose a duty to attempt to acquire 80%
of the Westgate common and common equivalent stock.

7. The Agreement provided Air Florida the right to
make an offer at any price greater than the minimum
price.

8. A tender offer at the minimum price would have
been an idle and futile act. The law does not require idle
acts, and accordingly, Air Florida was relieved of its duty
to make an offer for the outstanding common and common
equivalent stock at the minimum price.

B-8

9. The FDIC failed to establish that it sustained any
damage or loss by reason of Air Florida’s failure to make
a tender offer.

10. Air Florida’s failure to make a tender offer did not
constitute a breach of the Agreement.

11. There was no material failure of consideration, and
the FDIC is not entitled to rescind the Agreement.

12. The Agreement remains in full force and effect,
and the parties remain subject to the terms thereof,.
except that Air Florida is relieved of its duty to make a
general public offer to the shareholders of reorganized
Westgate.

13. Air Florida did not violate California Corporations
Code § 25401.

14. Air Florida did not violate Section 10b of the
Securities and Exchange Act of 1934, 15 U.S.C. § 78), or
Rule 10b-5 of the SEC, 17 CFR § 240.10b-5.

15. Air Florida is entitled to judgment in its favor on
Plaintiff's First Amended Complaint.

16. Air Florida is entitled to judgment on its First
Counterclaim, and is entitled to a declaration that Air
Florida is relieved of its duty to make an offer for the
common and common equivalent stock, that otherwise the
Agreement remains in full force and effect, and that the
parties remain subject to all of the duties and entitled to
all of the rights provided by the terms of the Agreement.

17. The affirmative defenses raised by the FDIC with
respect to Air Florida’s Second Counterclaim for recov-
ery of any cannery adjustment owing under the Agree-
ment are without merit and do not afford any basis for a
change in the cannery adjustment or a set-off in favor of
the FDIC. In accordance wiii the stipulation of the
parties approved by this Court in the Pretrial Order, the

SRT PLT SPL ERA TAS TS PS PI SO I PD IEEE IT TIE TC OEE

B-9

amount of the net cannery cash recovery and the resulting
cannery adjustment shall be determined by the parties,
the parties’ designated accountants or an independent
accountant pursuant to the arbitration procedures set
forth in Paragraph 7(b) of the Agreement, and the
amount thereof shall be inserted in the final judgment
entered in this case.

18. Pursuant to the Agreement and California Code of
Civil Procedure § 490.020, Air Florida is entitled to re-
cover from the FDIC reasonable attorney fees and dis-
bursements incurred by Air Florida in this action. Failing
agreement of the parties as to the proper amount thereof,
the court will fix the same on motion of either party. Said
amount shall be inserted in the final judgment entered in
this case.

19. Air Florida is entitled to recover its costs of suit
herein.

Let judgment be entered accordingly.

DATED: January 6, 1983
LELAND C. NIELSEN
United States District Judge

B-10

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA

FEDERAL DEPOSIT INSURANCE CORPORATION,
as Receiver of United States National Bank,
Plaintiff,

Vv.

AIR FLORIDA SysTEMs, INC.,
a Delaware corporation,

Defendant.

AIR FLORIDA SYSTEMS, INC.,

a Delaware Corporation; and
INTERFIRST BANK DALLAS, N.A.,
Real Party in Interest
as Assignee of Benefits of
Air Florida Systems’ Interests in
Westgate Liquidating Trust,
Counter-claimants,

, #

FEDERAL DEPOSIT INSURANCE CORPORATION,
as Receiver of
United States National Bank,
Counter-defendant.

Case No. 82-0525-N (I)
AMENDED JUDGMENT

The above-entitled case came on regularly for trial on
September 8, 1982, before the Honorable Leland C. Niel-
sen, United States District Judge, sitting without a jury.
Gary L. Hultquist of Bronson, Bronson & McKinnon and
E. Whitney Drake appeared as counsel for plaintiff, Fed-
eral Deposit Insurance Corporation as receiver of the
failed U.S. National Bank (hereafter “FDIC’’). Howard

EO ST TEE ee a IN Ee ee Ee EOL LET PI TL eo ae Ry

B-11

J. Privett, Ralph Zarefsky and Lisa C. Woods of Me-
Cutchen, Black, Verleger & Shea appeared as counsel for
defendant Air Florida Systems, Inc. (hereafter “Air Flor-
ida”). The Court having heard and examined the evidence
offered by the respective parties and having read and
considered the briefs filed on their behalf; the cause
having been submitted for decision after oral argument by
counsel; the Court having heretofore made and filed its
findings of fact and conclusions of law; and the Court
having entered its order re intervention, finding In-
terFirst Bank Dallas, N.A. (“InterFirst Bank Dallas’’)
as a real party in interest and assignee of Air Florida,

It is therefore ORDERED, ADJUDGED AND DE-
CLARED THAT:

1. Plaintiff FDIC have and take nothing by its First
Amended Complaint against Air Florida and that the
same be and hereby is dismissed on the merits;

2. Air Florida was relieved of its duty to make a
general public offer for the common and common
equivalent stock of the Westgate-California corporation.
In all other respects, the Agreement for Purchase and
Sale dated November 14, 1980, between the parties (the
“Agreement”) remains in full force and effect, and the
parties remain subject to all of the duties and entitled to
all of the rights provided by the terms of the Agreement.

3. InterFirst Bank Dallas, as assignee of Air Florida
under that certain “Bill of Sale and Assignment” dated
August 18, 1983, between and among Air Florida, Inc.,
Air Florida Systems, Inc. and InterFirst Bank Dallas,
N.A., shall have and recover on the Second Counterclaim
from the FDIC the sum of $1,486,000.00 in respect of the
Cannery Adjustment as defined in the Agreement, to-
gether with prejudgment interest thereon at 7% per an-

B-12

num from and after February 27, 1984 in the total amount
of $167,574.12.

4. Air Florida shall have and recover attorneys’ fees in
the amount of $322,000.00, plus its costs of suit in the
amount of $6,503.41 from the FDIC.

5. The Right to Attach Order, dated April 30, 1982,
shall be and is hereby set aside, and the Writ of Attach-
ment, dated April 30, 1982, shall be and is hereby
quashed.

Dated: 10-7-85

LELAND C. NIELSEN

Leland C. Nielsen
United States District Judge

C-1

APPENDIX C

The following represents the parents, affiliates, and
subsidiaries of the Petitioners.
Air Florida System, Inc.
Jet Florida System, Inc.
Air Florida, Ine.
Airport Systems, Inc.
Jet Florida, Ince.

Petitioner Air Florida System, Inc. no longer exists
under that name. On July 3, 1984 it filed for reorganiza-
tion under Chapter 11 of the Bankruptey Act. Through
the reorganization all affiliates, parents and subsidiaries
have been merged into a new entity, Jet Florida, Inc. On
June 28, 1985 the Bankruptcy Court lifted the automatic
stay in order to permit this litigation to proceed through

appeal.
InterFirst Bank Dallas, N.A. a

Petitioner InterFirst Bank Dallas, N.A. recently has
changed its name to First RepublicBank Dallas, N.A. Its
parent, subsidiaries and affiliate corporations are:

First RepublicBank Corporation

First RepublicBank Dallas, N.A.

Republic International Company

Republic International Dallas Do Brazil Limitada
Republic Overseas Corporation

Republic International Finance (ASIA) Ltd.
Republic Dallas Ltd.

Inverfin

Republic National Corporation

Medipark, Inc.

Livingston, Inc.

Republic Computer Corporation

Republic Loan Company of Oklahoma, Inc.
Republic Venture Group, Inc.

C-2

Pine Island Oil Corporation

United Petroleum Company

Prairie Land Co.

Republic National Leasing Corporation
Republic Commercial Finance Corporation
R.P.L., Ine.

D.P.C., Ine.

Republic Energy Group Denver, Inc.
First RepublicBank Mortgage Corporation
InterFirst Venture Corporation

Buslease, Inc.

Central Airlines Ltd.
Communications Partners
Contemporary Enterprises —
Empire Central Commerce Ltd.

Europa Bakers

Gardiner Communications

Hoker Broadcasting

Houston Wire and Cable International, Inc.

Luna-Royal, Ltd.

Monarch Paint

Stemmons-Carrollton, Ltd.

Universal Cable Holdings

Young Distribution Companies, Inc.

The Corners, Ltd.

CSM, Ine.

InterFirst Leasing, Ine. - — —

First National in Dallas ia y Limitada
MESBIC Financial Corporation of Dallas, Inc.

Plaza Premises Corporation

InterFirst Capital Corporation

InterFirst L.P.O. Corporation

InterFirst Condominium, Inc.

Intercon Management Co., Inc.

First RepublicBank International Corporation (formerly
InterFirst International Corporation)

a ee ee ee ee 2d nee Cee ee ee Se te ee ee ee ee ee ee i ee ee pr a
=“ . Si Baie F

C-3

InterFirst (Leasing) Limited
InterFirst Condominium Association
LF. Land, Ine.

First RepublicBank Houston, N.A.
Republic Energy Group Louisiana, Inc.
APL, Ine.

Nineteen Hundred Main Corporation
1100 Louisiana Ine.

1100 Smith Ine.

First RepublicBank Braes Bayou, N.A.
First RepublicBank Henderson, N.A.
First RepublicBank Lufkin

First RepublicBank Brownwood, N.A.
First RepublicBank Dallas East, N.A.
First RepublicBank Garland, N.A.

First RepublicBank Grand Prairie, N.A.
First RepublicBank Carrollton

First RepublicBank Ridglea

Ridglea Building Company

First RepublicBank Greenville Avenue
First RepublicBank San Antonio, N.A.
First RepublicBank Mineral Wells, N.A.
Brazos Valley Computer Center, Inc.
First RepublicBank Fort Worth East, N.A.
First RepublicBank Austin

Austin National Realty Corporation
First RepublicBank Plano, N.A.

First RepublicBank A & M

First RepublicBank NW San Antonio, N.A.
First RepublicBank Las Colinas

First RepublicBank Oak Cliff

First RepublicBank South Austin
National Bank of Fort Sam Houston
First RepublicBank Northern Hills
First RepublicBank Richmond, N.A.
First RepublicBank Spring Branch

oo
,

C-4

First RepublicBank Post Oak

First RepublicBank Kingwood, N.A.

First RepublicBank Northwest Austin, N.A.
First RepublicBank Westlake, N.A.

First RepublicBank North Dallas, N.A.
First RepublicBank Lubbock, N.A.

Askew & Brown, Inc.

First RepublicBank Waco, N.A.

Central Texas Small Business Investment Company
First RepublicBank Tyler, N.A.

First RepublicBank Midland, N.A.

First RepublicBank Eldridge, N.A.

First RepublicBank Countryside, N.A.
First RepublicBank Richardson

First RepublicBank Preston North, N.A.
RepublicBank Delaware

Republic National Company

Republic of Texas Company — Subsidiary of Republic
of Texas Corporation

First RepublicBank Trust Company
RepublicBank Insurance Agency, Inc.

First State Corporation of Lufkin

Republic Investment Advisory Services, Inc.
Republic Investment Company, Inc.

Fort Sam Life Insurance Company
Republic Money Orders, Inc.

Republic National Bank Building Company
Republic of Texas Properties, Inc.

Republic National Bancorporation, Inc.
RepublicBank Leasing Company

Republic of Texas Corporation

Republic Venture Capital Corporation
RepublicBank Trading Company

IFRB Corporation

First RepublicBank Dallas, N.A.

First RepublicBank Houston, N.A.

C-5

First RepublicBank San Antonio, N.A.
First RepublicBank Austin, N.A.

First RepublicBank Carrollton

First RepublicBank Corsicana, N.A.
Diamond Properties, Inc.

First RepublicBank Denison, N.A.
First RepublicBank DFW Freeport, N.A.
First RepublicBank Ennis, N.A.

First RepublicBank Forney

First RepublicBank North Dallas, N.A.
First RepublicBank Greenville, N.A.
First RepublicBank Hutchins

First RepublicBank Irving

First RepublicBank Las Colinas

First RepublicBank Malakoff

First RepublicBank Mt. Pleasant, N.A.
First RepublicBank Oak Cliff

First RepublicBank Paris

First RepublicBank Park Cities

First RepublicBank Pleasant Grove
First RepublicBank Tyler, N.A.

First RepublicBank Baytown

First RepublicBank Jefferson County
First RepublicBank Conroe, N.A.
First RepublicBank Fannin

First RepublicBank Galveston, N.A.
First RepublicBank Greenspoint

First RepublicBank Harlingen, N.A.
First RepublicBank East Houston
First RepublicBank SW Houston, N.A.
First RepublicBank Nassau Bay, N.A.
First RepublicBank Pasadena

First RepublicBank Post Oak

First RepublicBank San Felipe, N.A.
First RepublicBank Tomball

First RepublicBank Victoria

C-6

First RepublicBank Alamo Heights, N.A.
First RepublicBank Clifton

First RepublicBank Hillsboro

First RepublicBank North Austin, N.A.
First RepublicBank Williamson County, N.A.
First RepubliecBank NW San Antonio, N.A.
First RepublicBank Oak Hill, N.A.

First RepublicBank Temple, N.A.

First RepublicBank Westlake, N.A.

First RepublicBank Abilene, N.A.

SORA, Ine.

First RepublicBank Arlington, N.A.

First RepublicBank Cleburne, N.A.

First RepublicBank El] Paso, N.A.

First RepublicBank Gateway, N.A.

First RepublicBank Odessa, N.A.

First RepublicBank Richland, N.A.

First RepublicBank River Oaks

First RepublicBank South Fort Worth
First RepublicBank Stephenville, N.A.
First RepublicBank SW Arlington, N.A.
First RepublicBank University Drive
Manhattan Development Corporation

First RepublicBank Waco, N.A.

First RepublicBank Wichita Falls, N.A.
InterFirst Garage, Inc.

InterFirst Bank Delaware

First United Bancorporation, Inc.

First RepublicBank Fort Worth, N.A.
InterFirst Finance Company

InterFirst Financial Corporation
InterFirst Funding Corporation

InterFirst Insurance Company

First RepublicBank Asset Management Company (for-
merly InterFirst Investment Management, Inc.)
InterFirst Lending Corporation

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C-7

InterFirst Life Insurance Company

InterFirst Park Cities Realty, Inc.

InterFirst Properties, Inc.

First RepublicBank Securities Company
InterFirst Securities Company in Dallas
InterFirst Services Corporation

InterFirst Services Corporation in Houston
InterFirst Services Corp. in Fort Worth
InterFirst Texas Finance N. V.

First RepublicBank Trade, Ine.

First International Bancshares Corporation (a Dela-
ware corporation)

First International Nevada Corporation

MBY, Ine.

The Peoples Company

InterFirst Corporation (an Arkansas corporation)
InterFirst Corporation (a Colorado corporation)
InterFirst Corporation (a Louisiana corporation)
InterFirst Corporation (a New Mexico corporation)
InterFirst Corporation (a New York corporation)
InterFirst Corporation (an Oklahoma corporation)
InterFirst Services Corporation (an Arkansas
corporation)

InterFirst Services Corporation (a Colorado
corporation)

InterFirst Services Corporation (a Louisiana
corporation)

InterFirst Services Corporation (a New Mexico
corporation)

InterFirst Services Corporation (an Oklahoma
corporation)

First Dallas Financial Corporation

FNB Financial Company

First International Realty Services, Inc.

First International Mortgage Company

First International Leasing Corporation

ee
aged

C-8

First International Management Services, Inc.

First International Bancshares Corporation (a Texas
corporation)

First National Finance Company

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D-1
APPENDIX D

12 U.S.C. § 192:
§ 192. Default in payment of circulating notes

On becoming satisfied, as specified in sections 131 and
132 of this title, that any association has refused to pay
its circulating notes as therein mentioned, and is in
default, the Comptroller of the Currency may forthwith
appoint a receiver, and require of him such bond and
security as he deems proper. Such receiver, under the
direction of the comptroller, shall take possession of the
books, records, and assets of every description of such
association, collect all debts, dues, and claims belonging
to it, and, upon the order of a court of record of compe-
tent jurisdiction, may sell or compound all bad or doubt-
ful debts, and, on a like order, may sell all the real and
personal property of such association, on such terms as
the court shall direct. Such receiver shall pay over all
moneys so made to the Treasurer of the United States,
subject to the order of the comptroller, and also make
report to the comptroller of all his acts and proceedings.

FED R. CIV. P. 52(a):
Rule 52. Findings by the Court

(a) Effect. In all actions tried upon the facts without
a jury or with an advisory jury, the court shall find the
facts specially and state separately its conclusions of law
thereon, and judgment shall be entered pursuant to Rule
58; and in granting or refusing interlocutory injunctions
the court shall similarly set forth the findings of fact and
conclusions of law which constitute the grounds of its
action. Requests for findings are not necessary for pur-
poses of review. Findings of fact, whether based on oral
or documentary evidence, shall not be set aside unless

a a ae

D-2

clearly erroneous, and due regard shall be given to the
opportunity of the trial court to judge of the credibility of
the witnesses. The findings of a master, to the extent that
the court adopts them, shall be considered as the findings
of the court. It will be sufficient if the findings of fact and
conclusions of law are stated orally and recorded in open
court following the close of the evidence or appear in an
opinion or memorandum of decision filed by the court.
Findings of fact and conclusions of law are unnecessary
on decisions of motions under Rules 12 or 56 or any other
motion except as provided in Rule 41(b).

PROOF OF SERVICE BY MAIL

I am a citizen of the United States and a resident of the
City and County of Los Angeles; I am over the age of
eighteen years and not a party to the within action; my
business address is: 1706 Maple Avenue, Los Angeles,
California.

On December 18, 1987, I served the within Petition for a
Writ of Certiorari in re: “Air Florida System, Inc.; In-
terFirst Bank, Dallas, N.A. vs. Federal Deposit Insur-
ance Corporation” in the Supreme Court of the United
States, October Term 1987, No. ........ :

On the Parties in said action, by placing Three copies
thereof enclosed in a sealed envelope with postage fully
prepaid, in the United States post office mail box at Los
Angeles, California, addressed as follows:

David L. Sanborg, Esquire
Elliot L. Bien, Esquire
Bronson, Bronson & McKinnon
555 California Street

San Francisco, California 94104

John Murphy, General Counsel

E. Whitney Drake, Special Counsel
Office of the General Counsel

Federal Deposit Insurance Corporation
Washington, D.C. 20429

All Parties to be served have been served.

I certify (or declare), under penalty of perjury, that the
foregoing is true and correct.

Executed on December 18, 1987, at Los Angeles,
California.

J. GORDON HOOPER

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385019_0602%3A1. Public record. Not legal advice.