Opposition Brief — Lively v. Federal Deposit Insurance

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Gupreme Court, U.S. 7

FiLED

29 882

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No. 91-1894

In the Supreme Court of the Cinited :

OCTOBER TERM, 1992

TrRuITT V. LIVELY, PETITIONER

vU.

FEDERAL DEPOSIT INSURANCE CORPORATION,

AS RECEIVER FOR UNITEDBANK — HOUSTON

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

KENNETH W. STARR

Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 514-2217

ALFRED J.T. BYRNE

General Counsel

DOROTHY L. NICHOLS

Associate General Counsel

ANN S. DURosS

Assistant General Counsel

RICHARD J. OSTERMAN, JR.

MICHAEL H. KRIMMINGER

Counsel

Federal Deposit Insurance Corporation

Washington, D.C. 20429

QUESTIONS PRESENTED

1. 12 U.S.C. 1821(d)(2)(A) (Supp. IIT 1990) provides that,

in its capacity as receiver of an insolvent financial

institution, the Federal Deposit Insurance Corporation

(FDIC) succeeds to the institution’s “rights, titles, pow-

ers, and privileges”; under 12 U.S.C. 1821(d)(2)(B) (Supp.

I] 1990), the FDIC may “collect all obligations and

money due the institution.” The question presented is

whether, pursuant to these provisions, the FDIC suc-

ceeed to an institution’s rights under a guaranty.

2. Whether petitioner raised a genuine issue of mate-

rial fact in challenging the validity of a foreclosure sale

under Texas law.

TABLE OF CONTENTS

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TABLE OF AUTHORITIES

Cases:

American Sav. & Loan Ass’n v. Musick, 531 S.W.2d 581

red aa Las diac ada phaaenncenbapeedéesanheabeneoainrensncus

Diversified Developers, Inc. v. Texas First Mortgage

REIT, 592-S.W.2d 43 (Tex. Civ. App. 1979) .................

Goodman v. Lukens Steel Co., 482 U.S. 656 (1987)..

Hausmann v. Texas Sav. & Loan Ass’n, 585 S.W.2d 796

(Tex. Civ. App. 1979), writ refused n.r.e. (Jan. 23,

AMA RS a ate nae Sie eal aah nd bbs atnchadethiekigvesbusdavnsninéonets

Hutson v. Sadler, 501 S.W.2d 728 (Tex. Civ. App. 1978)..

Jasper Fed. Sav. & Loan Ass'n v. Reddell, 730 S.W.2d

oo 6S ss sai au schamacbasapncisinabsionansses

Nautical Landings Marina, Inc. v. First Nat'l Bank in

Port Lavaca, 791 S.W.2d 293 (Tex. Ct. App. 1990), writ

a a aaneppasnnaeadononsenese

Savers Fed. Sav. & Loan Ass’n v. Reetz, 888 F.2d 1497

er ole aks sacenhudpuneuadnndskersnianandiivewiy

University Sav. Ass'n v. Springwoods Shopping Center,

es OM RD cic answanncennsandsneceneaseanieeuanse

Worcester, In re, 811 F.2d 1224 (9th -Cir. 1987) .........

Statute and regulations: -

Financial Institutions Reform, Recovery and Enforce-

ment Act of 1989, Pub. L. No. 101-73, § 209(b), 103 Stat.

12 U.S.C. 1821(d)(2) (Supp. IT 1990) ..ccccsccccseseeeeeeeeseeees

12 U.S.C. 1821(d(2A) (Supp. IT 1990)...................0cc000.

(IIT)

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Regulations—Continued:

12 U.S.C. 1821(d)(2)(A)G) (Supp. IT 1990

12 U.S.C. 1821(d)(2)(B) (Supp. If 1990)

Tex. Prop. Code § 51.002 (Vernon 1987)

Jn the Supreme Court of the Cited States

OCTOBER TERM, 1992

No. 91-1894

TRUITT V. LIVELY, PETITIONER

FEDERAL DEPOSIT INSURANCE CORPORATION,

AS RECEIVER FOR UNITEDBANK -- HOUSTON

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1-8) is

unreported, but the judgment is noted at 952 F.2d 400

(Table). The opinion of the district court (Pet. App. 13-

18) is reported at 760 F. Supp. 115.

JURISDICTION

The judgment of the court of appeals was entered on

January 9, 1992. A petition for rehearing was denied on

February 27, 1992. Pet. App. 9-10. The petition for a writ

of certiorari was filed on May 27, 1992. The jurisdiction

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

(1)

STATEMENT

1. Petitioner was the president of the Gettysburg

Corporation. In September 1985, acting on behalf of Get-

tysburg, petitioner executed and delivered to United-

Bank-Houston a promissory note for $926,926.56 and a

deed of trust on real property owned by Gettysburg. Pet.

App. 2. Petitioner also executed and delivered a personal

guaranty of all debts owed by Gettysburg to United

Bank-Houston. Jbid.

On April 30, 1987, the Texas Banking Commissioner

declared UnitedBank-Houston insolvent and appointed

the Federal Deposit Insurance Corporation (FDIC) the

federal receiver for the bank. Pet. App. 2. As receiver,

the FDIC sueceeded to all of the rights, titles, powers,

and privileges of the bank. 12 U.S.C. 1821(d)(2)(A) (Supp.

I] 1990).

Gettysburg and petitioner subsequently defaulted on

the note and the personal guaranty. Pet. App. 2-3. The

FDIC proceeded with foreclosure under the deed of

trust. It provided notice of the foreclosure sale on

September 15, 1987. 7d. at 38. On October 6, 1987, the

property was sold at foreclosure for $170,000. /bid. After

the proceeds of the sale were applied to reduce the

balance due on the note, a deficiency of $794,691.15 re-

mained. /bid.

2. In November 1988, the FDIC filed its original pe-

tition against petitioner and Gettysburg in Texas state

court, seeking to recover the deficiency. Pet. App. 3. In

September 1989, the FDIC removed the action to the

United States District Court for the Southern District

of Texas, as permitted under the then-recently enacted

Financial Institutions Reform, Recovery and Enforce-

ment Act of 1989, Pub. L. 101-73, § 209(b), 108 Stat. 216.

Pet. App. 3. The FDIC subsequently moved for summary

judgment in its favor on all claims.

The district court granted summary judgment in favor

of the FDIC. It held, in relevant part, that the FDIC was

the proper party to enforce petitioner’s obligations under

the guaranty. It also held that petitioner had not estab-

lished any material irregularities in the foreclosure

sale. Pet. App. 15-17.

3. The Fifth Circuit affirmed in an unpublished, per

curiam opinion. Pet. App. 1-8.

ARGUMENT

The decision of the court of appeals is correct and does

not conflict with any decision of this Court or any other

court of appeals. Further review is therefore not war-

ranted.

1. Petitioner first claims (Pet. 6-9) that his guaranty

ran only to UnitedBank-Houston’s corporate successors

or assigns and that the FDIC did not qualify as either.

Therefore, he argues, the FDIC could not enforce the

guaranty. The court of appeals correctly rejected that

argument. Pet. App. 7.

The FDIC was the successor to “all rights, titles,

powers and privileges” of United-Bank Houston, pur-

suant to 12 U.S.C. 1821(d)(2)(A)(i) (Supp. Il 1990). Under

12 U.S.C. 1821(d)(2)(B) (Supp. IT 1990), the FDIC was en-

titled to “collect all obligations and money due the insti-

tution,” as well as to “preserve and conserve [its] assets

and property.” These two provisions plainly empowered

the FDIC to enforce petitioner’s guaranty to United

Bank-Houston. The guaranty conferred “rights” (12

U.S.C. 1821(d)(2)(A (i) (Supp. IT 1990)) upon United Bank-

Houston as against petitioner, to which the FDIC suc-

ceeded when it was appointed receiver for the bank.

Those rights ineluded the right to “collect * * *

money due [UnitedBank-Houston]” (12 U.S.C. 1821(d)(2)

(B) (Supp. IL 1990)) from petitioner as a result of his de-

faulting on the guaranty of Gettysburg’s debt to the

bank.

Contrary to petitioner’s contention (Pet. 7), the court

of appeals did not create a “new” category of successors

who may enforce a guaranty. Instead, the court merely

yave effect to statutory provisions that authorize the

FDIC to enforce the debts due to the failed institution

and thereby maximize the assets of the institution avail-

able for payment of creditors. Petitioner nevertheless

argues that the guarantor of a debt has no obligation to

the successor of the debt-holder if the succession occurs

by operation of federal statute rather than by private

agreement. Petitioner thus seeks to release personal

guarantors of debts to financial institutions from any

obligation to make good on their promise when the FDIC

is appointed receiver. Petitioner does not explain, how-

ever, Why such a windfall should be available to personal

guarantors, alone among the obligors of the institution.

Petitioner’s position is squarely at odds with the plain

purpose of 12 U.S.C. 1821(d)(2) (Supp. IL 1990).

2. Petitioner also argues (Pet. 9-12) that the court of

appeals erred in concluding that the foreclosure sale was

proper under Texas law. In an effort to cast this argu-

ment as one appropriate for this Court’s review, petition-

er asserts that the court of appeals’ interpretation of

Texas law conflicts with the Ninth Circuit’s interpreta-

tion of California law in Jn re Worcester, 811 F.2d 1224

(1987). Pet. 10. This effort is obviously unavailing; the

two decisions apply the laws of different States to differ-

ent sets of facts. Petitioner thus fails to establish a fed-

eral issue warranting further review. In any event, the

courts below correctly determined that petitioner’s

state-law challenge to the foreclosure sale did not raise a

triable fact.

Under Texas law, a foreclosure sale cannot be set

aside unless the party challenging the sale can prove

both that the property was sold for a grossly inadequate

price and that there was a material irregularity in the

sale procedure. See, e.g., Savers Fed. Sav. & Loan Ass’n

v. Reetz, 888 F.2d 1497, 1503 (5th Cir. 1989); American

Sav. & Loan Ass’n v. Musick, 531 S.W.2d 581, 587 (Tex.

1975); Nautical Landings Marina, Inc. v. First Nat’l

Bank in Port Lavaca, 791 S.W.2d 293, 298 (Tex. Ct. App.

1990), writ denied (Dec. 19, 1990). Petitioner did not make

either showing.

First, petitioner failed to show that the property was

sold for a grossly inadequate price. The district court

found that the price for which the property sold was “not

deficient,” observing that the property was sold for “over

85% of the appraised value.” Pet. App. 15. The court of

appeals summarily affirmed on this issue. Jd. at 7.

Although petitioner disputes this finding, he provides no

reason why this Court should depart from its practice of

declining to review factual findings concurred in by both

courts below. See, e.g., Goodman v. Lukens Steel Co.,

482 U.S. 656, 665 (1987). Under Texas law, petitioner’s

failure to establish that the sale price was grossly inad-

equate, standing alone, defeated his challenge to the sale.

Moreover, none of the aspects of the sale cited by peti-

tioner had a material effect on the sale. Petitioner first

asserts that an error in the notice of foreclosure sale

“could have caused a chilling [effect on] the bidding.”

Pet. 10. Petitioner did not, however, present any evi-

dence that the error—which consisted of the listing on

the notice of a lot that was not subject to UnitedBank-

Houston’s lien—actually affected the sale. In the ab-

sence of evidence of actual prejudice, petitioner’s mere

speculation of a “chilling” effect was inadequate as a

matter of law to set aside the sale. See Diversified De-

velopers, Inc. v. Texas First Mortgage REIT, 592 S.W.2d

43,44 (Tex. Civ. App. 1979).

a eceieidait iil

Petitioner next asserts that the FDIC did not provide

21 days’ notice of the sale, as required by law. Pet. 11.

That assertion is incorrect. Notice of the scheduled

foreclosure sale was mailed to petitioner Gettysburg on

September 15, 1987; the sale occurred on October 6, 1987.

Pet. App. A38. Counting the day of the sale, as is per-

mitted under Texas law, 21 days elapsed. Hausmann v.

Tevas Sav. & Loan Ass’n, 585 S.W.2d 796, 801 (Tex. Civ.

App. 1979), writ refused n.r.e. (Jan 23, 1980); Hutson v.

Sadler, 501 S.W.2d 728 (Tex. Civ. App. 1973).

linally, petitioner observes that the deed of trust con-

tained a scrivener’s error setting the time of sale as be-

tween 10:00 P.M. and 4:00 P.M., rather than between

10:00 A.M. and 4:00 P.M. Pet. 11. The time of the sale

was accurately reported, however, in the notice of sale,

as required by Texas Prop. Code § 51.002 (Vernon 1987),

and the sale was actually held at 2:30 P.M. on October 6,

1987. FDIC C.A. Br. 31-82. In the absence of evidence of

actual prejudice, errors of this sort do not suffice under

Texas law to set aside a foreclosure sale. See Nautical

Landings Marina, 791 S.W.2d at 299; Jasper Fed. Sav. &

Loan Ass’n v. Reddell, 730 S.W.2d 672, 674-675 (Tex.

1987); University Sav. Ass’n v. Springwoods Shopping

Center, 644 S.W.2d 705, 706 (Tex. 1982).

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.