Resolution Trust Corp. ex rel. Occidental Nebraska Savings Bank, F.S.B. v. Titan Financial Corp.

Citations: 22 F.3d 923; 1994 WL 143231Docket: Nos. 92-15419, 92-16194

Court: Court of Appeals for the Ninth Circuit; April 25, 1994; Federal Appellate Court

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Gilbert Sellan, as a personal guarantor of a promissory note secured by a deed of trust, faced a lawsuit from the Resolution Trust Corporation (RTC) seeking a deficiency judgment after the principal debtor defaulted and the property was foreclosed in a nonjudicial sale. The district court ruled in favor of Sellan, granting him summary judgment, which the RTC appealed. The appellate court affirmed this judgment, referencing the precedents set in *Union Bank v. Gradsky* and *Cathay Bank v. Lee*. 

In *Gradsky*, it was established that a lender is barred from seeking a deficiency judgment against a guarantor if the lender opts for a nonjudicial sale, as this undermines the guarantor's subrogation rights against the principal debtor. *Cathay Bank* further clarified that while a guarantor can waive this defense, any such waiver must be explicit. The appellate court determined that the waiver language in Sellan's guaranty did not adequately inform him that nonjudicial foreclosure would extinguish his subrogation rights and grant him immunity from deficiency judgments, as required by *Cathay Bank*. Both Sellan's and the guarantor's waivers did not sufficiently convey that the choice of nonjudicial foreclosure would negate subrogation rights and the associated Gradsky defense. As a result, the appellate court concluded that *Cathay Bank* was directly applicable and upheld the lower court’s ruling in favor of Sellan.

Sellan's guaranty includes a provision requiring Guarantors to pay reasonable attorney's fees and related costs incurred by the Bank in enforcing the guaranty. Under Cal. Civ. Code 1717, the district court awarded Sellan attorney's fees as the prevailing party and also granted court costs per Fed. R. Civ. P. 54(d). The RTC contested the district court's jurisdiction to award these fees and costs, claiming Sellan failed to exhaust the administrative claims process outlined in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). FIRREA mandates that claims against the RTC as a receiver must first be submitted to the RTC before a court can exercise jurisdiction. It is acknowledged that Sellan did not submit a FIRREA claim for these fees or costs.

The RTC contends that the award qualifies as a claim under FIRREA, which prohibits jurisdiction over such payments unless submitted to the RTC. Sellan counters that FIRREA does not define "claim" and did not intend for it to cover costs awarded under federal rules or state statutes. The court referenced its decision in RTC v. Midwest Federal Savings, which established that a defendant's claim arising from RTC litigation is not subject to FIRREA's exhaustion requirement if the defendant was not a creditor of the RTC prior to the litigation and had no independent claim basis against it. Applying this principle, the court determined it had jurisdiction to award Sellan attorney's fees and costs since he was not a creditor of the failed bank or RTC before being sued and had no independent claim against them.

In contrast, the RTC cited FDIC v. Shain, Schaffer, Rafanello, where the court affirmed the necessity for the bank's counsel to file a FIRREA claim for unpaid fees incurred before receivership, arguing that attorney’s fees should not receive special treatment. The holding in Shain aligns with the principles established in Midwest Federal.

The case centers on the distinction between Shain and Sellan regarding claims against the RTC. In Shain, the bank's counsel was a creditor of the failed bank and had a valid claim for unpaid legal fees. Conversely, Sellan was not a creditor before the RTC's suit and lacked an independent basis for filing a claim. The court criticized the RTC's interpretation of FIRREA’s exhaustion requirement, noting that it could lead to complex, piecemeal litigation. Should the RTC deny Sellan's claim, he would be forced to seek judicial review in either the District of Columbia or Nebraska, despite having been dragged into federal court in Nevada, resulting in an impractical and inequitable process. Consequently, the district court’s summary judgment in favor of Sellan and the award of attorney’s fees were upheld. The opinion, amended for publication, denied petitions for rehearing in both appeals and rejected suggestions for en banc rehearing. The case involves two appeals: appeal No. 92-15419 relates to Sellan's entitlement to summary judgment on the RTC’s deficiency judgment suit, while appeal No. 92-16194 concerns the district court's jurisdiction to award attorney's fees to Sellan. The excerpt also references the effect of California law on guarantor rights following a creditor's election to foreclose, emphasizing that specific language in guarantor agreements may not adequately waive the Gradsky defense.

The RTC claims that the court made an error by accepting Cathay Bank as the controlling authority without a thorough evaluation of how the California Supreme Court might rule on the matter. However, the RTC fails to present compelling evidence that the California Supreme Court would reject the Cathay Bank decision. In contractual actions, if a contract stipulates that attorney's fees and costs incurred for enforcement are to be awarded, the prevailing party—regardless of whether they are the specified party in the contract—has the right to reasonable attorney's fees in addition to other costs. Generally, prevailing parties are entitled to recover costs unless an exception is explicitly stated in federal statutes or rules. Jurisdiction over claims for payment from the assets of a depository institution under RTC receivership is limited, with judicial review permitted only in specific circumstances: when a claim is disallowed by the RTC or not acted upon within 180 days, or when a claimant seeks administrative review, which allows for judicial review under the Administrative Procedures Act. The RTC does not identify any explicit provision in FIRREA or the Federal Rules of Civil Procedure that would create an exception to the rule that costs are awarded to the prevailing party. Furthermore, attorney's fees awarded under California Civil Code § 1717 should be considered part of court costs, as historically, they are recognized as costs awarded to the prevailing party, and the court is responsible for determining reasonable fees, which are included in the overall costs of the suit.