Filed: Jul. 12, 1993
Latest Update: Mar. 02, 2020
Summary: United States Court of Appeals, Fifth Circuit. No. 92-2394. Robert L. RANDOLPH, et al., Plaintiff-Counter Defendants Appellants, v. RESOLUTION TRUST CORPORATION, As Receiver for First South Savings Association, Defendant-Counter Plaintiff Cross Plaintiff Third Party Plaintiff Appellant-Appellee, v. PHILLIPS, KING & SMITH, Attorneys at Law, et al., Defendants Cross Defendants Appellees, v. E. ASHLEY SMITH, P.C., et al. Third Party Defendants Appellees. July 19, 1993. Appeal from the United States
Summary: United States Court of Appeals, Fifth Circuit. No. 92-2394. Robert L. RANDOLPH, et al., Plaintiff-Counter Defendants Appellants, v. RESOLUTION TRUST CORPORATION, As Receiver for First South Savings Association, Defendant-Counter Plaintiff Cross Plaintiff Third Party Plaintiff Appellant-Appellee, v. PHILLIPS, KING & SMITH, Attorneys at Law, et al., Defendants Cross Defendants Appellees, v. E. ASHLEY SMITH, P.C., et al. Third Party Defendants Appellees. July 19, 1993. Appeal from the United States ..
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United States Court of Appeals,
Fifth Circuit.
No. 92-2394.
Robert L. RANDOLPH, et al., Plaintiff-Counter Defendants Appellants,
v.
RESOLUTION TRUST CORPORATION, As Receiver for First South Savings Association,
Defendant-Counter Plaintiff Cross Plaintiff Third Party Plaintiff Appellant-Appellee,
v.
PHILLIPS, KING & SMITH, Attorneys at Law, et al., Defendants Cross Defendants Appellees,
v.
E. ASHLEY SMITH, P.C., et al. Third Party Defendants Appellees.
July 19, 1993.
Appeal from the United States District Court for the Southern District of Texas.
Before WISDOM, DAVIS, and SMITH, Circuit Judges.
PER CURIAM:
I.
A.
In 1984, John Beeson entered into an agreement with two other individuals to purchase a
controlling interest in Lincoln Savings & Lo an ("Lincoln") in Miami, Florida. As counsel, the
investors chose the firm of Phillips, King & Smith (the "Firm"). The Federal Home Loan Bank Board
("FHLBB") objected to the part icipation of the two individuals, and they withdrew. Beeson then
collected a group of other investors, including five of the appellants here (the Five Investors), and
completed the transaction with the help of the Firm.
During this period, the Firm learned that the FHLBB might raise questions about potential
acting-in-concert violations involving the purchase of Lincoln. "Acting in concert" refers to the
aggregation of voting power when one or more persons, purporting to act independently, are actually
acting as a group. The Firm's alleged knowledge of these potential problems was a central issue in
the district court.
On January 5, 1985, First South loaned Beeson and the other investors over $5.4 million for
the purchase of Lincoln. As security, Beeson pledged shares of common stock of Lincoln as well as
7.6382 acres of Texas real estate. On January 7, 1985, Beeson, the Five Investors, and several other
investors purchased a controlling interest in Lincoln, with the aid of the Firm.
In August 1985, the FHLBB began to investigate Lincoln, and the FHLBB examiner raised
the acting-in-concert problem. Beeson consulted with the Firm regarding the issue, and the Firm
decided that Beeson should buy out some of the other investors to attempt to solve the problem. On
September 30, 1986, Beeson obtained from First South an extension and renewal of his earlier loan
for $2,576,000 and a new loan for $689,295.50. As security, Beeson pledged 237,120 shares of
Lincoln stock and his interest in two additional pieces of real estate.
In 1987, the FHLBB required Beeson and the Five Investors to withdraw from participation
in Lincoln and placed Beeson's stock in trust.1 In June 1988, First South notified Beeson that it was
accelerating his $2,576,000 note for failure to make payments on time. First South sent notices of
default to Beeson on August 4, 1988, and to the other investors on January 19, 1989.
B.
On January 31, 1989, First South initiated separate lawsuits against the Five Investors in the
state district court. Beeson joined with the Five Investors in a separate suit against First South and
the Firm on February 2, 1989, charging that the Firm and First South had fraudulently induced them
to enter into the loan transactions that gave rise to the notes without disclosing their knowledge of
potential regulatory problems that would arise in the stock transactions for which the funds were
being borrowed. Beeson and the Five Investors (collectively, the "Plaintiffs") further contend that
the fraudulent conduct caused the FHLBB to remove them from control of Lincoln, thus preventing
them from infusing additional capital into Lincoln and using their expertise to save Lincoln.
On March 15, 1989, the FHLBB appointed the FSLIC conservator of First South pursuant
to the Home Owners' Loan Act of 1933 and the Housing Act. Acting on behalf of the FSLIC, the
1
Lincoln was taken over by the Federal Savings and Loan Insurance Corporation ("FSLIC") in
1989 and later placed under the conservatorship of the Resolution Trust Corporation ("RTC").
Its stock is worthless.
Federal Deposit Insurance Corporation ("FDIC") removed all of the state court actions to federal
court on April 14, 1989. With the enactment, on August 9, 1989, of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989, the Resolution Trust Corporation ("RTC")
replaced the FSLIC as conservator of First South. The district court consolidated the actions on
August 15, 1989. The RTC later was appointed receiver of First South and now litigates in that
capacity. On April 27, 1992, the district court granted several motions for summary judgment; this
appeal followed.
The district court held that Beeson and the Five Investors could not succeed on their
fraudulent inducement theory, as it was barred by the D'Oench, Duhme doctrine. See D'Oench,
Duhme & Co. v. FDIC, 315 U.S. 447,
62 S. Ct. 676,
86 L. Ed. 956 (1942). The district court also
held that the legal malpractice actions of Beeson and the RTC were barred by the statute of
limitations, while the malpractice action of the Five Investors was barred because there was no privity
of contract.
II.
First, the Plaintiffs argue that the district court erred in holding that their defense of fraudulent
inducement was barred by the doctrine of D'Oench, Duhme. While this appeal was pending, the RTC
sold the promissory notes of appellants Johnson, Randolph, Ranzau, and Altman. As to these notes,
this appeal is moot. The RTC still retains three notes, however, thus requiring us t address t he
o
merits of the Plaintiffs' argument.
A.
Plaintiffs allege that their promissory notes are not negotiable because they employ a variable
interest rate based upon a prime rate that is not ascertainable from the face of the note. In Amberboy
v. Societe de Banque Privee, 831 S.W.2d 793 (Tex.1992), the court held that promissory notes based
upon the prime rate of an identified bank satisfied the "sum certain' requirement, thereby preserving
negotiability. The court thus carved an exception to the "four corners' rule that requires the "sum
certain' to be calculable from the instrument itself without reference to an outside source. See
TEX.BUS. & COM.CODE ANN. § 3.106, comment 1 (Vernon 1968). The Amberboy decision,
however, limits this narrow exception to situations where the prime rate is published or readily
ascertainable by any interested
person. 831 S.W.2d at 796.
Here, the Plaintiffs assert that the interest rates for the various notes are not ascertainable
from the face of the notes, thereby making them nonnegotiable. We find it unnecessary to decide
whether these notes are negotiable, as the D'Oench, Duhme doctrine may defeat Plaintiffs defenses
to collection regardless of negotiability. See RTC v. Montross, 944 F.2d 227, 228 (5th Cir.1991) (per
curiam) (en banc); Park Club, Inc. v. RTC,
967 F.2d 1053, 1055 (5th Cir.1992). Although holder
in due course status affects the types of defenses available against the RTC, these defenses still must
be ascertainable from the records of the bank at the time the RTC takes control of the bank.
B.
The plaintiffs argue that First South fraudulently induced them to sign the promissory notes.
In Kilpatrick v. Riddle, 907 F.2d 1523 (5th Cir.1990), cert. denied,
498 U.S. 1083,
111 S. Ct. 954,
112 L. Ed. 2d 1042 (1991), we held that claims of fraudulent inducement were barred by D'Oench,
Duhme even if the FDIC had prior knowledge of the fraud. We find no meaningful distinction
between the present case and Kilpatrick.
C.
Plaintiffs argue that because they had filed suit prior to the failure of First South, the FDIC
had knowledge of the fraud because the pleadings in the Plaintiffs' suit were among the "records of
the bank' when the FDIC took over. We reject this argument. Past precedent indicates that the term
"records of the bank' refers to the note itself or related loan documents. See Langley v. FDIC, 484
U.S. 86, 91-92,
108 S. Ct. 396, 401,
98 L. Ed. 2d 340 (1987). We hold that pleadings of a lawsuit do
not constitute "records of the bank' for the purpose of applying D'Oench, Duhme.
As the Court stated in Langley, the D'Oench, Duhme doctrine "allow[s] federal and state bank
examiners to rely on a bank's records in evaluating the worth of the bank's assets ... [and] ensure[s]
mature consideration of unusual loan transactions ... [thereby] preventing fraudulent insertion of new
terms, with the collusion of bank employees, when a bank appears headed for failure." 484 U.S. at
91-92, 108 S.Ct. at 401. Thi s passage suggests that the defense to payment of the note must be
based upon evidence in the bank's records; it is not sufficient that the bank's records give notice of
the defense.
Here, the defense is barred because, although the FDIC may have been put on notice of
plaintiffs' defense, the defense itself cannot be supported by records of the bank. Were we to hold
otherwise, federal and state banking authorities would be required to speculate as to the outcome of
various lawsuits pending against the bank where such outcomes depend on oral testimony of bank
officials. Such uncertainty is precisely what D'Oench, Duhme seeks to avoid. We affirm the district
court's holding on this issue.2
III.
Second, the Five Investors contend that the district court erred in granting summary judgment
on their legal malpractice claim against the Firm. The district court held that no attorney-client
relationship existed between the Five Investors and the Firm, thus barring a legal malpractice claim,
as the parties were not in privity of contract. In reviewing the judgment, we view the facts in a light
most favorable to the Five Investors and engage in a de novo application of the law to these facts.
In Texas, an attorney-client relationship may be implied from the conduct of the parties.
Kotzur v. Kelly, 791 S.W.2d 254, 257-58 (Tex.App.—Corpus Christi 1990, no writ). An attorney
may be held negligent when he fails to advise a party that he is not representing that party, when
circumstances lead the party to believe that the attorney is representing him.
Id. Because each case
presents unique circumstances, we must be cautious to avoid grant ing summary judgment
prematurely.
In Kotzur, a son bought a piece of property from his father. The father hired Kelly to prepare
the documents for the transaction, and Kelly represented to the parties at the closing that the property
had no liens on it, other than those shown on the deed. The son later had to pay off a lien that Kelly
had missed, and he sued Kelly for malpractice. In reversing a summary judgment in favor of Kelly
2
Beeson also raises an issue as to the failure of delivery as to one note. Because Beeson
accepted the loan proceeds, any defect was cured. See Texas Reserve Life Ins. Co. v. Security
Title Co., 352 S.W.2d 347 (Tex.Civ.App.—San Antonio 1961, writ ref'd n.r.e.) (express
ratification of a defective delivery renders it a good delivery).
on the privity issue, the court stressed several facts. First, Kelly knew the son did not have a separate
attorney, and he admitted that he had prepared the documents on a "family-type" basis. Second, the
son testified that it was his impression that Kelly was handling the documents and that he thought
Kelly was representing him. Third, the son noted that Kelly never had told him that he was not
representing the son or that the son should retain a separate lawyer. Finally, the closing statement
reflected a charge to the son for attorneys' fees.
We find this case similar enough to Kotzur that we vacate the judgment of the district court
and remand. The Five Investors instructed Beeson to arrange for legal representation for himself and
the other investors in connection with the Lincoln purchase. Interpreting the facts most favorably to
the Five Investors, Beeson acted as their agent.
None of the Five Investors had any legal representation other than from the Firm, either in
connection with the purchase of Lincoln or with the investigation by the FHLBB. When First South
made the loans, some of the loan proceeds intended for the Five Investors were paid to the Firm for
legal fees. The Firm requested and obtained conflict of interest waivers from three of the Five
Invest ors as well as from Beeson and the other original investors. The Firm also prepared option
agreements to allow two of the initial investors to purchase a portion of Beeson's stock.
This evidence is sufficient to reverse the summary judgment. The Firm relies upon the Five
Investors' answer to interrogatories 5 and 10, which inquired as to when each person retained the law
firm and what he consulted the firm about. The answers were as follows:
5. I have never directly consulted the "defendant-attorney' ... rather the "defendant-attorney'
was retained by John S. Beeson, one of the Plaintiffs herein, for legal representation and
advice in connection with the purchase by Plaintiffs and others of Lincoln Savings
Association.
10. As stated above, the "defendant attorney' was retained by the Plaintiff John S. Beeson to
represent all purchasers of Lincoln Savings Association.
Because this evidence shows that none of the Five Investors ever dealt directly with any
attorney of the Firm, the Firm argues that this proves that no attorney-client relationship existed. We
disagree. As we noted above, the Five Investors contend that Beeson retained the Firm for himself
and as agent for the Five Investors. Viewing the evidence most favorably to the Five Investors, this
evidence is consistent with the Five Investors' theory.3
We also reject the Five Investors' argument that they may sue for legal malpractice even if
there was no attorney-client relationship because the Firm knew that Beeson would supply the Five
Investors with information. This argument has no merit. Texas courts repeatedly have held that only
one in privity of contract with an attorney may maintain a legal malpractice action against him. E.g.,
Dickey v. Jansen, 731 S.W.2d 581 (Tex.App.—Houston [1st Dist.] 1987, writ ref'd n.r.e.).
Given our resolution of this issue, we reverse summary judgment on the Five Investors' legal
malpractice claim. A material issue of fact exists as to the question of whether an attorney-client
relationship existed between the Five Investors and the Firm, but only because the Five Investors have
asserted that Beeson act ed as their agent in retaining the Firm. As a result, when we consider
whether the legal malpractice claims are barred by the limitations, Beeson's knowledge as agent must
be imputed to the Five Investors. With this background in mind, we now turn to the statute of
limitations issue.
IV.
Third, Beeson and the Five Investors contend that the di strict court erred in granting
summary judgment in favor of the Firm on the ground that their legal malpractice claims were barred
by Texas's two-year statute of limitations for legal malpractice claims, TEX.CIV.PRAC. & REM.CODE
§ 16.003. Plaintiffs filed their lawsuit on February 8, 1989, making the critical date for accrual
February 8, 1987.
A.
As the Texas Supreme Court has observed,
The general rule is that a cause of action sounding in tort accrues, in the absence of a statute
to the contrary or fraudulent concealment, when the tort is committed. This rule obtains
notwithstanding the fact that the damages, or their extent, are not ascertainable until a later
date.... A legal injury must be sustained, of course, before a cause of action accrues.
3
We reject the Firm's argument that the Five Investors did not plead that the Firm never told
them the Firm was not representing them. The Five Investors pled that the Firm represented
them; that allegation met the requirements of FED.R.CIV.P. 8. After properly pleading this
allegation, the Five Investors were free to offer any evidence supporting it. The district court
erred by holding that the Five Investors had to plead this fact, as such a standard would be plainly
inconsistent with rule 8.
Atkins v. Crosland, 417 S.W.2d 150, 153 (Tex.1967). See also McClung v. Johnson,
620
S.W.2d 644, 646 (Tex.Civ.App.—Dallas 1981, writ ref'd n.r.e.) (cause of action sounding in tort
accrues when the tort is completed, that is, the act committed and damage suffered).4 In other words,
Texas law imposes two requirements for the accrual of a legal malpractice cause of action: (1) the
commission of a tortious act and (2) the suffering of a legal injury.
B.
We understand the district court to have granted summary judgment based upon its findings
regarding the "tortious act" requirement. The district court's order does not discuss the "legal injury"
requirement.
We agree with the district court that no issue of material fact exists as to the first element.
Beeson knew about the acting-in-concert problems long before the critical date. He even had
negotiated with the FHLBB in an attempt to rectify the problem. If the Five Investors successfully
prove that Beeson acted as their agent in establishing an attorney-client relationship, then Beeson's
knowledge of the acting-in-concert problem also must be imputed to the Five Investors.
C.
1.
The second requirement, that legal injury must have occurred, presents a more difficult
problem.5 The Firm identifies three possible legal injuries that the plaintiffs allegedly suffered prior
4
Texas courts have also held that the traditional discovery rule applies in legal malpractice
cases. Willis v. Maverick, 760 S.W.2d 642, 646 (Tex.1988).
5
The Firm argues that Beeson and the Five Investors are seeking to employ the discovery rule
without pleading it. The parties disagree over who has the burden of pleading the discovery rule
and whether the rule applies in this case. Although the discovery rule must be pled in state court,
see Woods v. William M. Mercer, Inc., 769 S.W.2d 515, 517 (Tex.1988), the same is not true in
federal court, see Wellborn v. Sears, Roebuck & Co.,
970 F.2d 1420, 1425 (5th Cir.1992).
Although the discovery rule still can be urged, it does not appear to apply in this
case. Beeson's main argument is that he did not suffer legal injury until after the critical
date. The discovery rule prevents a cause of action from accruing after the tortious act
has been committed, and legal injury suffered, when the plaintiff has not discovered either
the act or the injury. Here, Beeson knew about the alleged tortious act and about the
events that the Firm alleges constitute legal injury. He can prevail only if he proves that
these events do not constitute a legal injury, thereby making the discovery rule irrelevant.
to the critical date. First, it notes that the FHLBB began investigating Lincoln in mid-1985 regarding
the acting-in-concert problem. In October 1985, the FHLBB issued its preliminary report, which
concludes that Beeson and the others acted in concert. We do not think the issuance of a preliminary
report constitutes a legal injury, however, as the Firm does not cite any authority indicating that a
preliminary report would allow the government to take any coercive action.
At best, the filing of the preliminary report indicated that some legal injury was inevitable,
but in Texas, even inevitable injury will not result in the accrual of a cause of action for limitations
purposes in Texas. In Atkins v. Crosland, 417 S.W.2d 150, 153 (Tex.1967), an accountant made
errors on the plaintiff's tax return in 1958 and 1960. The last tortious act occurred no later than
December 31, 1960. The critical date for limitations purposes was September 30, 1961, so the
two-year statute would have run by December 31, 1962; suit was not filed until September 30, 1963.
On October 20, 1961, the Internal Revenue Service ("IRS") assessed a deficiency. The court held
that no legal injury occurred until the IRS assessed the deficiency, quoting 54 C.J.S. Limitation of
Actions § 168, at 122-23, for the following test of when a cause of action accrues:
The test to determine when the statute of limitations begins to run against an action sounding
in tort is whether the act causing the damage does or do es not of itself constitute a legal
injury, that is, an injury giving rise to a cause of action because it is an invasion of some right
of plaintiff. If the act is of itself not unlawful in this sense, and plaintiff sues to recover
damages subsequently accruing from, and consequent on, the act, the cause of action accrues,
and the statute begins to run, when, and only when, the damages are sustained; and this is
true although at the time the act is done it is apparent that injury will inevitably result.
417 S.W.2d at 153.
Applying Atkins to this case, we conclude that a mere investigation and preliminary report of
the FHLBB does not constitute a legal injury, as the FHLBB had not yet taken any action that
invaded a right of the plaintiffs. In Atkins, the cause of action accrued when the deficiency was
assessed, not when the audit proceeding began. The Atkins court also cited to a case involving the
question of when a cause of action accrues for negligent failure of an insurance company to settle a
lawsuit. The court concluded that the cause does not accrue until final judgment is reached, as the
tort was not completed until that time, for no right had been invaded by the failure to accept
settlement offers. 417 S.W.2d at 153-54. Similarly, here, a preliminary report in no way invades any
right of the plaintiffs as, at that point, Beeson and the Five Investors might have successfully
challenged the findings in the preliminary report.
2.
We find merit in the Firm's second argument. In response to the investigation by the FHLBB,
Beeson attempted to rectify the situation by buying out two of the other investors. To accomplish
this buyout, Beeson had to take out further loans from First South. Beeson argues that buying the
other stock cannot be equated with damage to him, because if it had not been for the Firm's
malpractice, the stock purchase may well have been advantageous to him. This may be true, but
Beeson went further into debt and purchased stock in an attempt to rectify a problem allegedly caused
by the Firm's malpractice. Although it was Beeson's choice to attempt to rectify the situation in this
manner, he entered into the transaction because of the acting-in-concert problem. We believe that
this constituted a legal injury. We therefore affirm as to Beeson.
3.
Beeson's buyout, however, did not cause further expense to the Five Investors. As a result,
we must consider the third alleged legal injury. The Firm argues that plaintiffs were damaged when
the FHLBB issued its final exam report in February 1986 and sent Beeson two proposed cease and
desist orders on July 8, 1986.
We asked the parties to submit supplemental briefing on the effect of these proposed orders.
Unfortunately, we cannot adequately determine, from the present state of the record, exactly what
effect those orders had on the legal rights of the Five Investors. If the proposed orders affected the
Five Investors, they may well have suffered legal injury.
Because the proposed orders do not appear in t he record, the district court is in a better
position to resolve the issue as to whether legal injury occurred. We therefore vacate the summary
judgment as to the Five Investors and remand for a determination of whether a material issue of fact
exists as to whether they suffered any legal injury prior to the critical date. In making this
determination, the district court should carefully consider the holding in Atkins. There, the cause of
action did not accrue until the IRS issued a deficiency. The time at which the IRS began investigating
Atkins apparently was irrelevant and is not mentioned in the opinion. Here, the Final Exam report
may do nothing more than warn the plaintiffs that future coercive action is inevitable. But, inevitable
injury does not constitute sufficient injury to begin the running of the statute of limitations under
Atkins.
V.
The RTC argues that the district court erred in granting summary judgment on its legal
malpractice claim as time-barred because principals at First South were aware of the possible
acting-in-concert problems more than two years prior to the time the RTC filed its complaint. Again,
the district court does not appear to have made a finding as to when First South suffered legal injury.
In the district court, the RTC apparently argued that FIRREA revives an otherwise stale claim under
12 U.S.C. § 1821(d)(14). The district court rejected this argument, and we since have ruled that
FIRREA does not revive stale claims. See FDIC v. Belli, 981 F.2d 838, 842-43 (5th Cir.1993).
Accordingly, the relevant statute of limitations is 28 U.S.C. § 2415, which denotes a
three-year period for tort actions brought by the government.6 Under this statute, our inquiry is
whether the cause of action accrued prior to April 24, 1986—three years before the suit was filed.
Of course, this would be the critical date only if the claim was not stale under the state statute of
limitations when First South failed.
We previously have noted that neither section 2415 nor section 1821(d)(14) revives claims
barred under state law where the FDIC takes over after the claim has prescribed. See Belli, 981 F.2d
at 842 (section 1821(d)(14)); FDIC v. Wheat,
970 F.2d 124, 128 n. 7 (5th Cir.1992) (citing United
States v. Sellers,
487 F.2d 1268, 1269 (5th Cir.1973)) (section 2415)). The FSLIC took over First
South on March 15, 1989. Because the FSLIC filed the relevant claims against the Firm one month
later, the relevant question becomes whether the claims were barred under Texas law on March 15,
1989; if the cause of action accrued before March 15, 1987, it is barred by the state statute of
6
The RTC's attempt to recharacterize a legal malpractice action as a contract action rather than
a tort action is unpersuasive. Under Texas law, a legal malpractice action sounds in tort. Willis v.
Maverick, 760 S.W.2d 642, 644 (Tex.1988). Although we are interpreting a federal statute of
limitations, we think it proper to rely upon state characterizations of state causes of action for
limitations purposes.
limitations and may not be revived by federal law.
Assuming that the claim is not barred under Texas law, it is timely under federal law, as the
FSLIC filed it within the three-year federal limitations period, because a finding in favor of the RTC
on the state law issue means that the claim must have accrued after April 24, 1986. Because the
critical date under federal law is April 24, 1986, nearly one year earlier than the critical date under
state law, the only relevant inquiry is whether the claim has prescribed under Texas law.7
The RTC first argues that a cause of action does not "accrue,' under the meaning of that term
in section 2415, until the governmental entity acquires the claim in question. We rejected that reading
in Belli, 981 F.2d at 840-42. Although in Belli we interpreted section 2415(a), our rati onale is
equally applicable to the provision at issue here, section 2415(b). The former provision deals with
contract actions, while the latter addresses tort actions. The relevant language is identical. As a
result, we reject the RTC's first argument.
The RTC next argues, as did Beeson and the Five Investors, that it did not sustain damages
as a result of the breach of duty before the critical date. As we noted above, the cause of action does
not accrue until the breach of duty causes a legal injury. The RTC argues that it did not sustain any
such injury until it was forced to look to the collateral for payment on the notes. The RTC asserts
that the Firm produced no evidence in the summary judgment record to establish when First South
sustained damages as a result of the alleged breach of duty.
Because the district court failed to make findings as to when First South suffered legal injury,
we vacate the judgment as to the RTC's malpractice claim and remand for further proceedings.8 The
7
In other words, legal malpractice claims brought by the RTC on behalf of a financial
institution involve two different critical dates for limitations purposes. First, the government must
take over the institution before the cause of action has gone stale under state law, in this case
meaning that the time between accrual of the cause of action and the government takeover of the
institution must be less than two years. Second, even if the government takes over the failed
institution before the claim has gone stale under state law, the government must file the action
within three years of the accrual of the claim. A court ordinarily will have to decide only one of
the two issues, because the answer to one will dictate the result of the second.
8
The RTC's second amended complaint alleges that the Firm's malpractice caused the FHLBB
to attack the borrowers' change of control application, which caused the borrowers' stock in
Lincoln to become worthless, which, in turn, left first South's loans to the borrowers inadequately
secured. Assuming these well pleaded facts are true, it is not evident why the FHLBB's February
district court is better situated to decide whether a material issue of fact exists as to when First South
suffered a legal injury. The record is sufficiently opaque that we cannot determine with certainty that
a material issue of fact does not exist on this issue.9
VI.
In summary, we AFFIRM the grant of summary judgment in favor of the RTC on the
promissory notes as to Beeson and Foster and DISMISS the appeals of Johnson, Randolph, Ranzau,
and Altman on this issue as moot. We AFFIRM the grant of summary judgment against Beeson on
his malpractice claim and VACATE the summary judgment against Foster, Johnson, Randolph,
Ranzau, and Altman on their malpractice claims and REMAND for further proceedings. We
VACATE the summary judgment against the RTC on its legal malpractice claim and REMAND for
further proceedings.
1986 final examination report and proposed cease and desist orders did not cause an immediate
reduction in the value of the borrowers' stock in Lincoln. It is even less plain why the reduction in
the value of the stock did not reduce the value of the promissory notes secured by the stock, and,
therefore, constitute injury to First South. Nevertheless, the parties did not flesh out these
arguments well in their briefs, and we leave them to the district court for its determination.
9
Charles Phillips was the Chairman of First South and a partner of the Firm. The RTC argues
that Phillips's knowledge should not be imputed to First South for the purpose of applying the
discovery rule. Although this assertion has merit, the summary judgment record contains ample
evidence to indicate that other officers of First South knew of the acting-in-concert problems and
the Firm's involvement with the Lincoln transaction well before the critical date. As a result, we
agree with the district court that First South had notice of the alleged breach of duty prior to the
critical date. The RTC also raises the "adverse domination theory" on appeal. Because the RTC
did not raise this argument in the district court, however, we elect not to address it for the time on
appeal. See Boddie v. City of Columbus, 989 F.2d 745, 752 (5th Cir.1993).
