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People's Trust Federal Credit Union v. National Credit Union Administration Board

United States District Court, D. New Mexico

October 29, 2018

PEOPLE'S TRUST FEDERAL CREDIT UNION, Plaintiff/Counterdefendant,
v.
NATIONAL CREDIT UNION ADMINISTRATION BOARD, in its Capacity as Liquidating Agent for Chetco Federal Credit Union, Defendant/Counterclaimant, and ALLIANT CREDIT UNION, Defendant/Intervenor.

          John P. Burton Charles Hughson Rodey, Dickason, Sloan, Akin & Robb, P.A. And Dennis E. Jontz Ryan M. Walters Lewis Roca Rothgerber Christie, LLP Attorneys for Plaintiff/Counterdefendant

          Mark A. Glenn Moses, Dunn, Farmer & Tuthill, P.C. And Simon W. Hendershot, III Christy L. Martin Benjamin L. Hisey Kerr, Hendershot & Cannon, P.C. Attorneys for Defendant/Counterclaimant

          William R. Keleher Tax, Estate & Business Law, Ltd. Attorney for the Intervenor

          MEMORANDUM OPINION [1]

         THIS MATTER comes before the Court on the Plaintiff People's Trust Federal Credit Union's and Defendant National Credit Union Administration Board's Motion. The Court held a hearing on June 26, 2017. The primary issues are: (i) whether the Court should vacate the preliminary injunction hearing set for June 28, 2017, to allow for additional settlement talks; (ii) whether the Court should stay further proceedings in this case through the date of the new preliminary injunction hearing; and (iii) whether the Court should continue the temporary restraining order (“TRO”) issued, see Memorandum Opinion and Order at 26, 2016 WL 4491635, at *12, filed August 8, 2016 (Doc. 26)(“MOO”), until after the Court holds the preliminary injunction hearing. The Court recorded its decision in this matter in the Order. As the Court promised in the Order, the Court now issues a Memorandum Opinion to explain its order. The Court denied the request to extend the stay, because, at the hearing, the intervenor -Alliant Credit Union (“Alliant CU”) -- did not agree to extend the stay, and, under rules 16 and 65 of the Federal Rules of Civil Procedure, Alliant CU has a right to have a preliminary injunction hearing or to refuse to modify a scheduling deadline. Accordingly, the Court did not vacate the scheduled preliminary injunction hearing and also denied the request to continue the TRO for largely the same reasons. The Court thus denied the Motion.

         FACTUAL BACKGROUND

         The Court described the facts leading to this case and the early procedural history in the MOO. See Moo at 2-14, 2-16 WL 4491635, at *1-5. The case involves several financial institutions, loans, and contracts, which the Court described in detail in the MOO. The Court, accordingly, incorporates the “Factual Background” and part of the “Procedural Background” from the MOO below.

         As this case involves numerous financial institutions, the Court will first describe the parties before describing their interactions with each other. It will then explain the loans and contracts over which the parties are litigating. Finally, the Court describes the state foreclosure proceedings that People's Trust now seeks to settle.

         1. The Parties.

         People's Trust is a federally chartered and federally insured credit union with its principal place of business in Houston, Texas. See Complaint for Declaratory Judgment and to Compel Arbitration ¶ 1, at 1, filed June 20, 2016 (Doc. 1)(“Complaint”). Until December 28, 2012, Chetco Federal Credit Union (“Chetco CU”) was a federally chartered and insured credit union with its principal place of business in Brookings, Oregon. See Complaint ¶ 2, at 2. Until December, 2012, Chetco CU owned one-hundred percent of a credit union service organization, Commercial Lending Services, LLC, an Oregon limited liability company. See Complaint ¶ 3, at 2. The National Credit Union Administration (“NCUA”) Board is a federal entity that Congress authorizes pursuant to 12 U.S.C. § 1787(b)(1)(A) to liquidate insolvent credit unions. See Complaint ¶ 4, at 2. Under 12 U.S.C. § 1787, once the NCUA Board declares a credit union insolvent and names itself the liquidating agent, it is vested “with all the right, title, and interest” in the insolvent credit union's operations, and “is placed in the shoes of the board, officials, management, and members.” Defendant's Opposed Motion for Temporary Restraining Order and Preliminary Injunction and Motion to Consolidate Preliminary Injunction Hearing with Trial on the Merits, at 4, filed July 15, 2016 (Doc. 6)(“Motion for TRO”).

         The Saddleback Ranch is real property located near Galisteo, New Mexico. See Complaint ¶ 6, at 2-3. Saddleback Ranch Estates, LLC, is a New Mexico limited liability company that Dan Silvestri, a Texas resident, managed. See Complaint ¶ 6, a 2-3. Alliant CU became the successor in interest to Continental Federal Credit Union (“Continental CU”) when Continental Airlines and United Airlines merged. See Motion for TRO at 3.

         2. The People's Trust Loans.

         On June 17, 2008, People's Trust originated two loans. Saddleback Ranch executed a promissory note, which Silvestri guaranteed, to support the first loan for $12, 406, 250.00, which Saddleback Ranch secured (the “SRE Loan”). Complaint ¶ 6, at 2-3. See Motion for TRO at 2- 3. People's Trust then issued a $3, 600, 000.00 loan for which William P. Verkin executed a promissory note, which the properties located in New Mexico secured (the “Verkin Loan”). Complaint ¶ 7, at 3. See Motion for TRO at 2-3.

         3. The Master Loan Participation Agreement.

         People's Trust sold ninety percent of its interests in the SRE Loan and the Verkin Loan to Commercial Lending, a CU service organization (“CUSO”), which was a wholly owned subsidiary of Chetco CU until December 28, 2012. See Complaint ¶ 8, at 3-4; Motion for TRO ¶ 2, at 3. People's Trust contracted with Commercial Lending to dole out participation shares among interested CUs and service the loans. See Complaint ¶¶ 8-9, at 3-4. This arrangement between Commercial Lending and People's Trust was effectuated through the Master Loan Participation Agreement dated January 28, 2009 (“Master Agreement”). See Complaint ¶¶ 8-9, at 3-4. See Motion for TRO at 3. The Master Agreement contains an arbitration clause under which Commercial Lending and People's Trust agree to submit all disputes to arbitration with the American Arbitration Association ("AAA"). See Complaint ¶ 10, at 4.

         On June 21, 2008, Commercial Lending sold, assigned, and/or transferred its interests in the loans to Chetco CU, but remained the servicer on the loans. See Motion for TRO at 3. On June 24, 2008, Chetco CU sold a 36.27% interest in the SRE Loan to Continental CU. See Complaint ¶ 8, at 3-4; Motion for TRO at 3. As the successor in interest to Continental CU, Alliant CU now holds that 36.27% interest. See Motion for TRO at 3. Chetco CU retains a 53.73% interest in the SRE Loan and a ninety-percent interest in the Verkin Loan, with People's Trust holding a ten-percent interest in both loans. See Complaint ¶ 8, at 3-4; Motion for TRO at 3.

         4. The Insolvency and Foreclosure Proceedings.

         On or around September 23, 2010, the debtor stopped making payments on the SRE Loan. See Motion for TRO at 4. Similarly, on or around November 1, 2010, the debtor ceased payments on the Verkin Loan. See Motion for TRO at 4. On September 23, 2011, the NCUA Board named itself Chetco CU's conservator pursuant to its statutory authority under 12 U.S.C. § § 1783-86. See Motion for TRO at 4.

         After the SRE Loan and the Verkin Loan went into default, People's Trust filed an action on October 11, 2011 in the First Judicial Court, Santa Fe County, New Mexico. No. D-0101-CV-2011-003141 (the “Foreclosure Action”). See Complaint ¶ 11, at 4. People's Trust sought to foreclose its mortgages and to recover its loans. See Complaint ¶ 11, at 4. On December 28, 2012, the NCUA Board named itself Chetco CU's liquidating agent. See Complaint ¶ 4, at 2; Motion for TRO at 4.

         5. The State Court Litigation and the Settlement Agreement.

         The current litigation involves the underlying state court action. Accordingly, the Court will describe the state litigation and the proposed settlement agreement. The Court will then describe the earlier federal litigation involved in this case. Since 2012, both Chetco CU's liquidation and the Foreclosure Action have progressed. In July, 2015, as trial approached in the Foreclosure Action, disagreements arose between the interest holders. Specifically, shortly before the August 17, 2015, trial setting of the Foreclosure Action, People's Trust asked the NCUA Board and Alliant CU to approve the proposed settlement agreement in the underlying foreclosure action between People's Trust and the debtors in the Foreclosure Action (the “Settlement Agreement”). See Complaint ¶¶ 12-13, at 4-5. See Motion for TRO at 4-5. Both the NCUA Board and Alliant CU declined. See Complaint ¶¶ 12-13, at 4-5; Motion for TRO at 4-5. People's Trust asserted that the Settlement Agreement was “subject either to the approval of the other participants in the loans (NCUA Board and Alliant), or a determination, in arbitration, that People's has the right, pursuant to the provisions of the Master Agreement, to settle without the approval of the NCUA Board and Alliant.” Complaint ¶ 12, at 4 (emphasis added). See Motion for TRO at 5 (noting that “the Settlement Agreement stated that it was contingent upon approval of Liquidating Agent and Alliant, or the determination that People's Trust had the authority to enter the agreement and bind Liquidating Agent and Alliant to the Settlement Agreement without their approval” (emphasis in original)).

         6. The AAA and Oregon Proceedings.

         On April 4, 2016, People's Trust filed a demand for arbitration with AAA seeking a declaratory judgment that People's Trust -- without the other interest holders' approval -- has the power and authority to settle the Foreclosure Action and to perform its obligations under the Settlement Agreement. See Complaint ¶ 13, at 5; Motion for TRO at 5-6. People's Trust also sought a declaration that the Settlement Agreement is reasonable. See Motion for TRO at 5-6.

         On April 19, 2016, the NCUA Board filed an objection to the arbitration with the AAA. See Motion for TRO at 6. It objected to the arbitration on the basis that “there is no contract with an arbitration provision by or among all of the parties, none of the relevant contracts provide for an arbitration administered by the AAA Denver, Colorado office, and none set the venue in New Mexico or Arizona.” Motion for TRO at 6-7 (emphasis in original).

         On April 19, 2016, the NCUA Board informed People's Trust that it must submit the dispute regarding the authority to settle the Foreclosure Action for resolution under the administrative claims process pursuant to the Federal Credit Union Act, 12 U.S.C. § § 1751-1795k (“FCUA”), and Financial Institutions Reform, Recovery, and Enforcement Act of 1989, 12 U.S.C. § § 506, 1422a, 1422b, 1441a, 1441a-1, 1441a-2, 1441b, 1462a, 1463, 1468a to 1468c, 1790a to 1790c, 1831e to 1831k, 1833a to 1833c, 1833e, 2906, 3309, 3310, 3331 to 3356; 18 U.S.C. § § 3293, 3322; 31 USCA § 309 (“FIRREA”). In an effort to adjudicate the arbitrability of People's Trust's claims, the NCUA Board filed an action in the United States District Court for the District of Oregon on May 17, 2016. See Complaint ¶ 14, at 5; Motion for TRO at 8. The NCUA Board sought a temporary restraining order and a preliminary injunction preventing People's Trust from arbitrating the dispute. See Complaint ¶ 16, at 6. The Honorable Michael W. Mosman, Chief Judge for the District of Oregon, dismissed the action for lack of personal jurisdiction on June 13, 2016. See Complaint ¶ 14, at 5.

         PROCEDURAL BACKGROUND

         After Judge Mosman dismissed the Oregon case, People's Trust preemptively filed an action in the United States District Court for the District of New Mexico. The Court will summarize the initial filings in this case and leading to the TRO as background for the issues raised in this Memorandum Opinion. The Court will then discuss the Motion and describe the issues before the Court in this matter.

         1. The ...


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