SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 3, 1995
DUNES HOTELS AND CASINOS INC.
(Exact name of registrant as specified in charter)
NEW YORK
(State or other jurisdiction of incorporation)
1-4385 11-1687244
(Commission File Number) (IRS Employer Identification No.)
4045 South Spencer, Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (702) 732-7474
Not Applicable
(Former name or former address, if changed since last report)
Item 5. OTHER EVENTS
As previously reported on November 28, 1994, the Resolution
Trust Corporation (RTC) recorded a notice of default and election
to sell under a deed of trust securing certain real property
located in San Diego, California, pledged by a subsidiary of the
Company as collateral for amounts owing to San Antonio Savings
Association, F.A. (SASA), alleged to be $19,613,288.77 as of
September 22, 1994. Pursuant to California law, the RTC may
commence advertising the sale of the property three months after
the recording date of the notice, with a sale date at least 20
days after commencement of advertising. The Company has a legal
right to cure the default until 5 business days prior to the date
set for the sale of the property.
On February 2, 1995, the Company, along with two of its
subsidiaries, filed a complaint in the United States District
Court, Southern District of California, Case No. 950139R (RBB),
against the RTC and SASA. The complaint alleges that the RTC and
SASA have (i) breached their duties under the Settlement
Agreement, as amended, (ii) breached their duty of good faith and
fair dealing to the Company, and (iii) breached their fiduciary
duties to the Company. Among other things, the Company, and its
subsidiaries, seek relief against the RTC and SASA, as follows:
(i) for an injunction enjoining the RTC and SASA from foreclosing
on, and selling the San Diego real property; (ii) for damages in
excess of $50,000; and (iii) for an accounting by the RTC and
SASA.
On April 3, 1995, the United States District Court, Southern
District of California denied the Company's Motion for Preliminary Injunction
(The Order). The Company intends to appeal the Order to the Ninth Circuit
Court of Appeals.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
99.01 Order Denying Plaintiffs' Motion For
Preliminary Injunction filed April 3, 1995.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
DUNES HOTELS AND CASINOS INC.
(Registrant)
Dated: April 13, 1995 By: /s/James H. Dale
James H. Dale, Treasurer
FILED
Apr -3 1995
Clerk, U.S. District Court
Southern District of California
By Deputy
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
DUNES HOTELS & CASINOS, INC., )
a New York corporation; )
CONTINENTAL CALIFORNIA )
CORPORATION, a California )
corporation; and M & R )
INVESTMENT COMPANY, INC., a )
Nevada corporation, )
)
Plaintiffs, )
)
v. )
)
RESOLUTION TRUST CORP., as )
receiver for San Antonio )
Savings Association F.A.; )
SAN ANTONIO SAVINGS )
ASSOCIATION, a Texas )
Chartered Mutual Savings and )
Loan, )
)
Defendants. )
______________________________)
This matter comes before the Court on Plaintiff's motion for
preliminary injunction. Plaintiffs seek a court order prohibiting
Defendant Resolution Trust Corporation (the "RTC") from foreclosing
on a piece of property owned by Plaintiff Continental California
Corporation ("Continental"). Since this Court lacks subject matter
jurisdiction to issue the injunction sought by Plaintiffs,
Plaintiffs' motion for preliminary injunction is denied.
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I. Background
Plaintiff Dunes Hotels & Casinos Inc. ("Dunes") first started
doing business with San Antonio Savings Association ("SASA") in
1983. On July 27, 1983, Dunes executed a written guaranty (the
"Guaranty") of a loan made by SASA to Dunes Hotel & Casino of
Atlantic City Joint Venture (the "Joint Venture"). The Joint
Venture planned to develop a hotel and casino in Atlantic City, New
Jersey. SASA made the loan, in the amount of $15,000,000 (the
"Loan") on the same day, July 27, 1983. The loan was secured by a
deed of trust on the Joint Venture's New Jersey property (the "New
Jersey Property"). The New Jersey Property included land in
Atlantic City, New Jersey and Egg Harbor Township, New Jersey.
The Joint Venture did not provide to be successful. It filed
for bankruptcy under Chapter 11 on August 9, 1985. SASA filed suit
against Dunes on the Guaranty on January 8, 1986. SASA won a
judgment against Dunes on May 26, 1988.
Shortly after the entry of the May 26, 1988 judgment, Dunes,
SASA, and M & R Investment Co. ("MRI") entered into a settlement
agreement (the "Settlement Agreement"). Under the terms of the
Settlement Agreement, Dunes agreed to secure its obligations under
the Settlement Agreement by encumbering real property in San Diego,
owned by Continental (the "San Diego Property"). Continental, as
trustor, executed a deed of trust to Ticor Title Insurance Company
of California, as trustee, with SASA as the beneficiary. The
parties recorded the trust deed on December 14, 1989 as Instrument
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No. 89-676300 in the Official Records of San Diego County,
California (the "Continental Deed of Trust").
On February 28, 1989, the Federal Home Loan Bank Board
("FHLBB") determined that SASA was insolvent and appointed the
Federal Savings and Loan Insurance Corporation ("FSLIC") as
conservator. FHLBB later appointed FSLIC as receiver for SASA. As
receiver, FSLIC took possession of SASA's assets and inherited all
of SASA's rights, titles, powers, and privileges. FHLBB directed
FSLIC to liquidate SASA.
Approximately four months later, the FHLBB created San Antonio
Savings Association, F.A. ("New SASA"). FSLIC liquidated SASA by
transferring its assets to New SASA. FSLIC served as conservator
for New SASA.
The Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 ("FIRREA:), Pub. L. No. 101-73, 103 Stat. 183 (1989),
abolished the FSLIC and created the RTC. The RTC succeeded the
FSLIC as receiver for SASA and as conservator for New SASA.(1)
In anticipation of a ruling by the Bankruptcy Court on a
motion to transfer property from the Joint Venture to SASA, Dunes,
Plaintiff M & R Insurance Company ("MRI"), and the RTC acting as
conservator for New SASA amended the Settlement Agreement by way of
a "First Amendment to Settlement Agreement" dated December 5, 1989
(the "First Amendment").
(1) The RTC later became, and still is, receiver for New SASA. The
RTC currently is charged with liquidating New SASA's assets.
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The First Amendment required New SASA or the RTC as its
conservator to fix the fair market value of the New Jersey Property
on July 1, 1991. If the property had not been sold by that date,
SASA or the RTC was to deduct the appraised value of the land from
the indebtedness of Dunes to SASA (the "Fair Market Value Credit").
On December 5, 1989, the Bankruptcy Court presiding over the
Joint Venture's Chapter 11 proceedings ordered the New Jersey
Property transferred to SASA "free and clear of all liens, except
for real estate taxes and other municipal liens" and "in
satisfaction of SASA's lien claims totaling $26,196,000."
Dunes argues that the transfer to SASA of the New Jersey
Property satisfied Dunes' obligations under the Settlement
Agreement and the First Amendment. As a result, Dunes argues,
Dunes cannot be in default under the terms of the Settlement
Agreement and First Amendment.
Dunes also alleges that a genuine factual dispute exists as to
the amount of Dunes' monetary obligation under the Settlement
Agreement and the First Amendment. According to Plaintiffs,
"Absent agreement or judicial determination of the Fair Market
Value Credit, there can be no determination of the settlement
obligation, if any, of Dunes and hence, no determination of the
RTC's entitlement to foreclose on the [Continental] Deed of Trust."
(Pls.' Compl. Paragraph 22.)
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On November 28, 1994, the RTC caused to be recorded a "Notice
of Default and Election to Sell Under Deed of Trust" regarding the
San Diego Property. Recordation of the Notice commenced a
nonjudicial foreclosure of the San Diego Property pursuant to the
power of sale in the Continental Deed of Trust. The Notice of
Default states that the unpaid principal balance of the Settlement
Agreement and the First Amendment is $15,110,063.71. Dunes
disputes the $15,110,063.71 figure, and points to two demand
letters it received from the RTC indicating that Dunes' obligations
under the Settlement Agreement and the First Amendment were
substantially less. (Pls. Compl. Paragraph 26.) Indeed, Dunes
points to a number of appraisals of the New Jersey Property that
suggest that its Fair Market Value eclipsed or nearly eclipsed
Dunes' obligations to the RTC and New SASA.
In a letter dated January 10, 1995 addressed to the attorneys
for the RTC, Continental requested a written itemization of the
entire amount claimed to be due by the beneficiary of the
Continental Deed of Trust. According to James H. Dale, the
Treasurer and Chief Financial Officer of Continental, Continental
never received the information it requested.
On February 2, 1995, Plaintiffs filed a Complaint listing
eight causes of action.(2) Plaintiffs filed their motion for
preliminary injunction the same day, February 2, 1995.
(2) Plaintiffs' causes of action include: breach of contract;
restitution; breach of implied covenant of good faith and fair
dealing; breach of fiduciary duty; declaratory relief; injunctive
relief; accounting; and quiet title.
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II. Discussion
A. Jurisdiction
The RTC argues that this Court lacks jurisdiction to enjoin it
from proceeding with a nonjudicial foreclosure sale. According to
the RTC, 12 U.S.C. Section 1821(j) prohibits federal courts from
granting equitable relief against the RTC. Section 1821(j), titled
"Limitation on court action," states:
Except as provided in this section, no court may take any
action, except at the request of the Board if Directors
by regulation or order, to restrain or affect the
exercise of powers or functions of the [RTC] as a
conservator or receiver.
Defendants cite to a number of cases from circuits other than
the Ninth Circuit in which the courts have found that Section
1821(j)'s bar on injunctions against the RTC is absolute or nearly
absolute. (SEE Defs.' Opp. at 4-7 (citing cases)). The case cited
most prominently by Defendants is 281-300 JOINT VENTURE V. ONION,
938 F.2d 35 (5th Cir. 1991), CERT. DENIED, 112 S. Ct. 933 (1992).
In ONION, a borrower sought an injunction against the RTC--acting
as conservator for New SASA--to prevent the RTC from foreclosing on
a mortgage. The ONION court found that "the courts lack the
ability to enjoin nonjudicial foreclosures that are within the
statutory powers of the RTC as conservator or receiver." ID. at
39. The court then determined that FIRREA granted the RTC the
power to foreclose on the property of a debtor. In light of the
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statutory power conferred by Congress on the RTC to "'collect all
obligations and money due the [failed] institution,'" the ONION
court concluded that Section 1821(j) prohibited the federal courts
from interfering in any way with actions take by the RTC to
foreclose on property. ID. at 39 (quoting 12 U.S.C. Section
1821(d)(2)(B)(ii)).
Defendants have pointed to decisions in at least four other
circuits in which the courts have interpreted Section 1821(j) to
deprive the federal courts of jurisdiction to issue ANY injunctions
interfering with the RTC's powers to conduct foreclosure sales.
SEE, E.G., TILLMAN V. RTC, 37 F.3d 1032, 1035 (4th Cir. 1994)
(finding that under Section 1821(j) courts could not interfere with
RTC's foreclosure on residential property); SUNSHINE DEVELOPMENT,
INC. V. FDIC, 33 F.3d 106, 112 (1st Cir. 1992) ("[I]n a run-of-the-
mill case, a district court lacks the authority to enjoin the FDIC,
acting lawfully as a receiver, from foreclosing on security that it
holds."); TELEMATICS INT'L, INC. V. NEMLC LEASING CORP., 967 F.2d
703, 706-07 (1st Cir. 1992) (affirming district court's decision
that Section 1821(j) prohibited it from issuing injunction against
the RTC's foreclosure upon a certificate of deposit pledged by a
guarantor in support of an equipment lease); SEE ALSO NATIONAL
TRUST FOR HISTORIC PRESERVATION V. FDIC, 21 F.3d 469 (D.C. Cir.
1994) (court lacked jurisdiction to enjoin sale by RTC of historic
Dr. Pepper building even though sale arguably violated the National
Historic Preservation Act); GROSS V. BELL SAV. BANK PASA, 974 F>2d
403, 404 (3d Fir. 1992) ("[W]here the RTC performs functions
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assigned to it under [FIRREA], injunctive relief will be denied
even where the RTC acts in violation of other statutory schemes.").
Plaintiffs respond by directing this Court's attention to a
1991 Ninth Circuit case, ABBOTT BUILDING CORP. V. UNITED STATES,
951 F.2d 191 (9th Cir. 1991).(3) Although ABBOTT contains language
that at first blush suggests that this Court has jurisdiction to
enjoin a foreclosure, a closer analysis shows that the case does
not support Plaintiffs' position. Examples of the ABBOTT court's
sweeping language include the following:
[I]t can hardly be gainsaid that if a FSLIC receivership
wishes to collect upon an alleged claim, it cannot simply
seize assets of an alleged debtor, but must resort to an
action at law. As the numerous collections actions
demonstrate, FSLIC has regularly found it necessary to
resort to the courts in order to establish and enforce
its demands against third parties.... It has never been
though that FLSIC's inability to simply directly enforce
its claim against recalcitrant debtors somehow restrained
or affected it in the use of its receivership powers.
ID. at 194 (citations omitted). The court added that federal
courts have jurisdiction to determine "whether property was
foreclosed upon in the manner permitted by law." ID. at 194.
Finally, the court explained that "when FSLIC purports to have
acquired the property of another through a foreclosure under the
(3) Although the ABBOTT court did not consider Section 1821(j), the
court's analysis of 12 U.S.C. Section 1464(d)(6)(C), is equally
applicable to Section 1821(j). The two statutes have similar
language, and the legislative history to FIRREA shows that Congress
intended Section 1821(j) to have the same effect as Section
1464(d)(6)(C). SEE ROSA V. RTC, 938 F.2d 383, 399 n.20 (3d Cir.
1991) (citing H.Rep. No. 101-54(I, 101st Cong., 1st Sess. 334,
REPRINTED IN 1989 U.S. Code Cong. & Admin. News 86, 130); SEE ALSO
ABBOTT, 951 F.2d at 194 n.4 (noting the similarity between Section
1821(j) and Section 1464(d)(6)(C)).
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provisions of state law, the courts have jurisdiction to decide
whether that law was indeed followed." ID. at 195.
ABBOTT, however, arose out of a set of unusual facts. In
ABBOTT, a trustee under a deed of trust conducted a nonjudicial
foreclosure sale. The FLSIC, then acting as receiver for the
beneficiary of the deed of trust, purchased the property with a
credit bid of $124,193.05. Plaintiff, the original grantor of the
deed of trust, brought suit to set aside the foreclosure sale on
the grounds that the trustee had not complied with state law. The
Ninth Circuit found that it had jurisdiction to consider the narrow
question of whether assets belonging to another, i.e. the grantor,
had been deeded to the receivership by someone without any right to
do so, i.e. the trustee. ID. at 195. The court stated that such
an inquiry did not affect the receiver's own powers; it "simply
leaves the determination of third party rights in the hands of
others." ID. As the District of Columbia Circuit explained, "The
[ABBOTT] court limited its holding to situations in which the
FSLIC, acting as a receiver, had acquired property in an invalid
foreclosure sale." NATIONAL TRUST, 21 F.3d at 471 n.1.
In other words, ABBOTT does not suggest that this Court has
jurisdiction to grant the relief sought by Plaintiffs. Plaintiffs
ask this Court to issue an injunction, prohibiting the RTC from
conducting a foreclosure sale. Yet in every case cited to this
Court by the parties, the courts have concluded that federal courts
lack jurisdiction to enjoin the RTC, acting as conservator or
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receiver, from conducting foreclosure sales. Despite its broad
language, ABBOTT merely permits courts to review foreclosure sales
conducted by third parties, not to prohibit the RTC from exercising
its statutory powers.
In their Reply brief, Plaintiffs argue that their due process
rights will be violated if this Court applies Section 1821(j) in
the manner suggested by Defendants.(4) According to Plaintiffs,
denial of an injunction will deprive them of their only opportunity
for a predeprivation hearing. In addition, Plaintiffs argue that
they will have no opportunity for meaningful postdeprivation review
because New SASA has no assets to satisfy a future award of
damages.
Plaintiffs' due process claims are without merit. None of the
cases on which Plaintiffs' rely requires this Court to grant an
injunction despite FIRREA's anti-injunction provision. Plaintiffs,
for example, cite to UNITED STATES V. JAMES DANIEL GOOD REAL
PROPERTY, 114 S. Ct. 492 (1993). In JAMES DANIEL GOOD, the Supreme
Court held: "Unless exigent circumstances are present, the Due
Process Clause requires the Government to afford notice and a
meaningful opportunity to be heard before seizing real property
subject to civil forfeiture." ID. at 505. In the case at hand,
exigent circumstances are present, removing the premium on a
(4) Plaintiffs also allege that the RTC's foreclosure will
constitute a "taking" without just compensation in violation of the
Fifth Amendment. Plaintiffs, however, cite no authority for their
takings argument and do not explain whether a takings analysis
could apply where the property to be "taken" secures a guaranty.
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predeprivation hearing. Congress enacted FIRREA as an emergency
measure to enable the RTC "to resolve and liquidate expeditiously
the hundreds of failed financial institutions throughout the
country." TILLMAN, 37 F.3d at 1035; SUNSHINE DEVELOPMENT, 33 F.3d
at 111. In order to hasten the process of resolution and
liquidation, Congress included the anti-injunction provision
discussed above. TILLMAN, 37 F.3d at 1035-36.
Plaintiffs also rely on SOUTH CAROLINA V. REGAN, 465 U.S. 367
(1984), and dictum from BOB JONES UNIVERSITY V. SIMON, 416 U.S. 725
(1974) In BOB JONES, the Court resisted a challenge to the Anti-
Injunction Act of the Internal Revenue Code, 26 U.S.C. Section
7421(a). The Court refused to find that the anti-injunction
provision violated the plaintiff's due process rights. The Court
explained, "This is not a case in which an aggrieved party has no
access at all to judicial review. Were that true, our conclusion
might well be different." ID. at 746. The Court's conclusion WAS
different when it considered REGAN ten years later. The REGAN
court held that the anti-injunction remedy could not preclude
injunctive relief when Congress provided no alternate remedy. 465
U.S. at 378.
In the case at hand, Congress has devised an elaborate
remedial scheme which contemplates administrative and judicial
review. The TELEMATICS INT'L court explains that "as the statute
provides for expedited administrative review of claims presented to
the FDIC, and for judicial review of the resulting administrative
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determination, precluded injunctions of the type sought here does
not leave parties such as Telematics without recourse." 967 F.2d
703, 706 (1st Cir. 1992). "The statutory scheme of FIRREA ...
provides a dispute resolution structure that allows the RTC
initially to collect assets, determine rights, and resolve claims
before disputes over such matters can be heard in court." TILLMAN,
37 F.3d at 1036.
Plaintiffs argue that the opportunities for postdeprivation
administrative and judicial review cannot save Section 1821(j)
because any postdeprivation review would be meaningless in the case
at hand. Plaintiffs cite to ONION in support of their argument
that the RTC, as receiver for New SASA, could not satisfy any
future award of damages. According to Plaintiffs, "ONION makes
clear that unsecured creditors, such as plaintiffs, will never
recover damages if they prevail against the RTC." (Pls. Reply at
3 n. 4) Plaintiffs, however, cite to a portion of the ONION
decision finding that general creditor claims against the
receivership had little or no value. SEE ONION, 938 F.2d at 38.
Under 12 C.F.R. Section 360.3(a), general creditor claims arising
before the establishment of the receivership are assigned sixth
priority in the payment hierarchy. The receiver may not pay any
sixth-level claims until it pays claims from levels one through
five, or establishes that it will be able to pay all of the claims
from levels one through five of the hierarchy. Section 360.3(d).
In ONION, the Court merely held that sixth level claims against the
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New SASA receivership were virtually worthless. The ONION court
did not make any findings with respect to higher-numbered claims.
At oral argument and in their reply to Plaintiffs' pocket
brief, Defendants have suggested, without committing themselves,
that Plaintiffs postforeclosure claim against the RTC and New SASA
would be a priority one claim, as an administrative expense of the
receiver. (Defs.' Reply to Pocket Brief at 5-6 (citing Section
360.3(a)(1).) Defendants explain in their Reply to the Pocket
Brief,
Administrative creditors are defined as those who have
postreceivership claims against the RTC as receiver.
These claims are not subject to the original "bar date"
set by the RTC as receiver. Administrative claims must
be paid in full. If necessary, the claims are paid
directly by the RTC in its corporate capacity.
(Defs.' Reply to Pocket Brief at 6.) Here, Plaintiff's '
postforeclosure claims would arise after the establishment of the
receivership and would be against the RTC. As a result, Plaintiffs
likely would be entitled to file administrative expense claims
against the RTC and to receive payment in full for any loss
incurred as a result of the foreclosure sale. Since Plaintiffs
have not shown that they would not be entitled to file an
administrative expense claim, they have not established that
postdeprivation review would be meaningless.
Finally, Plaintiffs argue that California's nonjudicial
foreclosure statute teeters on the brink of unconstitutionality and
has been found valid only because it provides for predeprivation
review. In support of this argument, Plaintiffs cite LEHNER V.
UNITED STATES, 685 F.2d 1187, 1190 & n.4 (9th Cir. 1982). The
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LEHNER court held that HUD's reliance on California's nonjudicial
foreclosure statute did not violate the plaintiff's due process
rights because the statute gives property owners the right to go to
file and have a hearing on legal or equitable claims prior to
foreclosure. ID.
According to Plaintiffs, the absence of a right to seek
meaningful predeprivation relief in the case at hand would make the
applicaiton of the statute constitutionally unsound. This Court is
not persuaded. First, the ONION court specifically rejected
constitutional challenges to the application of Texas' nonjudicial
foreclosure statute to land involved in that case. ONION, 938 F.2d
at 39. Second, the LEHNER court did not contemplate the
circumstances in the case at hand. Congress has indicated in
FIRREA that the savings and loan crisis has created exceptional
circumstances, warranting changes in the minimum procedures
required by the Due Process Clause. Third, as explained above,
Congress has not left Plaintiffs without any remedy. As a result,
this Court finds that the language in LEHNER does not control this
case.
Congress has determined that postdeprivation review is
adequate to satisfy due process. This Court agrees. The
provisions for expedited review in Section 1821(d)(8) provide an
adequate alternative to predeprivation hearings, which Congress has
found to be impracticable in connection with resolution and
liquidation of failed savings and loans. Plaintiffs have not shown
that Section 1821(j) is unconstitutional PER SE or as applied to
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them. As a result, this Court finds that Section 1821(j) prohibits
this Court from granting Plaintiffs' motion for preliminary
injunction.
B. Venue and the Merits of Plaintiffs' Motion
Since this Court has determined that it does not have subject
matter jurisdiction to grant Plaintiffs' motion for preliminary
injunction, this Court need not consider at this time whether venue
is proper in this district and whether Plaintiffs have satisfied
the requirements for injunctive relief.
III. Conclusion
For the reasons given above, Plaintiffs' motion for
preliminary injunction is DENIED.
IT IS SO ORDERED:
Date: 4/3/95
/s/ John S. Rhoades, Sr.
John S. Rhoades, Sr.
United States District Judge
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Copies to:
Kristina Pickering
Morris, Brignone & Pickering
1203 Bank of America Plaza
300 South Fourth Street
Las Vegas, NV 89101
Richard C. Goodman
Stradling, Yocca, Carlson & Rauth
660 Newport Center Dr., Suite 1600
Newport Beach, CA 92660-6441
Peter L. Duncan
Pyle Sims Duncan & Stevenson
401 "B" St., Ste. 1500
San Diego, CA 92101
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