                                                                          F I L E D
                                                                   United States Court of Appeals
                                                                           Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                          AUG 26 1999
                            FOR THE TENTH CIRCUIT
                                                                      PATRICK FISHER
                                                                               Clerk

    PALO DURO PRODUCTION
    COMPANY,

                Plaintiff-Appellant,
                                                          No. 98-6410
    v.                                              (D.C. No. CV-95-391-T)
                                                          (W.D. Okla.)
    FEDERAL DEPOSIT INSURANCE
    CORPORATION, in its corporate
    capacity,

                Defendant-Appellee.




                            ORDER AND JUDGMENT            *




Before TACHA , McKAY , and MURPHY , Circuit Judges.




         After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist the determination




*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
of this appeal.   See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is

therefore ordered submitted without oral argument.

       Palo Duro Production Company brought this action alleging that the FDIC

breached a contract by which the FDIC sold certain notes and their collateral to

Palo Duro. Specifically, Palo Duro alleged that the FDIC breached the contract’s

cooperation clause by opposing Palo Duro’s attempt to foreclose on collateral that

Palo Duro contends the FDIC sold to it through the contract, collateral that an

Oklahoma state court found the FDIC had conveyed to Palo Duro. The district

court granted summary judgment in favor of the FDIC, and Palo Duro appeals.

We conclude that the state court resolved the critical issue against the FDIC:

what collateral did the FDIC sell to Palo Duro. This determination should be

given collateral estoppel or issue preclusive effect.   1
                                                            We therefore reverse.

       The subject matter of the Palo Duro-FDIC contract originated in the early

1980s, when First National Bank and Trust of Oklahoma loaned money to

Rambler Oil Company. Rambler secured its debt by giving the bank mortgages on

interests it owned in various oil and gas wells. By August 1985, Rambler owed



1
       Although the parties and the district court used the term “collateral
estoppel,” we note that Oklahoma law governs application of this doctrine here,
and Oklahoma state courts have generally switched to the more modern term
“issue preclusion.” See, e.g. , National Diversified Bus. Servs., Inc. v. Corporate
Fin. Opportunities, Inc. , 946 P.2d 662, 666-67 (Okla. 1997). We therefore use
the term “issue preclusion” in this decision.

                                             -2-
approximately $4.2 million plus interest and was in default. Rambler and the

bank agreed to restructure the debt by entering into the “Transfer and Loan

Agreement” (TLA). The TLA divided Rambler’s debt into three parts. One part

($1.3 million) was paid off. The second part ($1.4 million) was released in

exchange for the absolute conveyance to the bank of 80% of Rambler’s interests

in the wells. These interests are referred to as the “80% deed in lieu properties.”

The third part of Rambler’s debt ($1.3 million) was restructured into three new

notes--Rambler Renewal Note I, Rambler Renewal Note II, and the Senco Note.

The TLA did not extinguish the mortgages Rambler had given the bank to secure

the original debt, specifically leaving the portion of the mortgages securing the

80% properties in full force to preserve their priority with respect to third parties.

       In October 1985, the bank sold the 80% deed in lieu properties to Unit

Petroleum Corporation. In November 1985, the bank and Unit executed a

“Nominee Agreement” through which the bank assigned to Unit an undivided

interest in the Rambler mortgages to the extent they encumbered the 80% deed in

lieu properties. It is the ownership of this interest that is the critical issue in this

litigation. Pursuant to the Nominee Agreement, the bank was to retain record title

to the mortgages on the 80% properties for the benefit of Unit for two years or

until Unit wanted title transferred to itself. Therefore, one critical effect of the

agreement was that there would be no immediate recorded release of the


                                            -3-
mortgages to Unit. Unfortunately for Unit and eventually for the FDIC, the bank

failed in July 1986, before the 80% mortgages were ever released to Unit, and the

nominee agreement was not in the bank’s files when the FDIC took over the bank

as receiver.   2



       The FDIC in its receiver capacity subsequently assigned certain assets

including the Rambler Renewal and Senco notes to itself in its corporate capacity,

and it hired Consolidated Asset Management Company to sell these assets. Palo

Duro, led by Joseph Vaughn, who had previously been a Rambler vice-president

and had signed the TLA on Rambler’s behalf, initiated negotiations to purchase

the Rambler Renewal and Senco notes. These negotiations resulted in the Note

Purchase and Participation Agreement (NPPA), dated August 1, 1988, by which

the FDIC sold the three notes and their collateral to Palo Duro.   3
                                                                       Section 11.13 of

the NPPA, which the parties refer to as the “cooperation clause,” stated as

follows:



2
        In Palo Duro’s state court foreclosure action, the court found that Palo
Duro was not entitled to the benefit of the doctrine stated in  D’Oench, Duhme &
Co. v. FDIC , 315 U.S. 447 (1942), or its statutory codification, 12 U.S.C. § 1823,
which prohibits claims based on agreements not reflected in the official records of
a failed bank, see FDIC v. Noel , 177 F.3d 911, 914 (10th Cir. 1999). In its
summary judgment order, the district court did not mention the     D’Oench, Duhme
doctrine, nor have the parties raised it on appeal. We therefore do not address it.
3
     Actually, FDIC sold only an 87.5% participation interest in Rambler
Renewal Note II. It also sold other assets not relevant to our discussion.

                                            -4-
       [The FDIC] shall not take any action, or omit to take any action,
       which will impair the ability of [Palo Duro] to collect on the Senco
       Note, Senco Collateral, Rambler Renewal Note I, Rambler Renewal
       Note I Collateral, Rambler Renewal Note II, Rambler Renewal Note
       II Collateral, Drilling Program Note, and Drilling Program Note
       Collateral. [The FDIC] shall be liable if it takes such action in breach
       of this Agreement.

Appellant’s App. at 375.

       On January 12, 1989, after the Rambler Renewal and Senco notes were in

default, Palo Duro and the FDIC filed a joint petition in the state district court of

Blaine County, Oklahoma, against Rambler, Unit, and a number of other

defendants seeking to foreclose on the mortgage interests securing the notes that

were located in Blaine County. Sometime after jointly filing the petition,     4
                                                                                   the

FDIC realigned itself as a defendant on Palo Duro’s claim regarding the

mortgages securing the 80% deed in lieu properties. Palo Duro then filed a cross-

claim against the FDIC for breach of the NPPA’s cooperation clause, i.e., the

same claim it asserts in this case. After the state trial court bifurcated the cross-

claim and set it for trial two months after the foreclosure action, Palo Duro

voluntarily dismissed the cross-claim.   5
                                             Ultimately, the state trial court found that



4
       That is, after learning from Unit about the Nominee Agreement.
5
      Presumably, the state court dismissed the cross-claim without prejudice.
See Okla. Stat. tit. 12, § 683. In any event, FDIC has not contended that Palo
Duro was precluded from reasserting this claim in federal court because of its
voluntary dismissal of the cross-claim in state court.

                                             -5-
the FDIC had conveyed the portion of the mortgages securing the 80% deed in

lieu properties to Palo Duro, that Palo Duro’s claim to those mortgages was

superior to Unit’s, and that Palo Duro had the right to foreclose on them. Unit

and the FDIC appealed, and the Oklahoma Court of Appeals affirmed in an

unpublished decision.

      In March 1995, two years after the appellate court’s affirmance, Palo Duro

filed this breach-of-contract action in the district court. Palo Duro contends that

the FDIC breached the cooperation clause by opposing its effort to foreclose on

the mortgages securing the 80% deed in lieu properties. Following discovery and

other pretrial proceedings that the district court described as hostile and full of

animosity, the parties filed cross motions for summary judgment. Rejecting Palo

Duro’s primary argument that the state courts had already resolved the dispositive

issue of what collateral FDIC conveyed to Palo Duro and relying on extrinsic

evidence, the district court determined that the parties did not intend that the

mortgages on the 80% properties be conveyed to Palo Duro through the NPPA.

The court therefore granted summary judgment in the FDIC’s favor.

      We review the district court’s grant of summary judgment de novo,

applying the same standard as the district court does under Fed. R. Civ. P. 56.

See Wolf v. Prudential Ins. Co. , 50 F.3d 793, 796 (10th Cir. 1995). On appeal,

Palo Duro reasserts its issue preclusion argument, along with a variety of others.


                                          -6-
Because we conclude the district court incorrectly rejected that argument, and

therefore improperly granted summary judgment to the FDIC, we need address

only that issue.

       “[F]ederal courts must give the same preclusive effect to state court

judgments that those judgments would be given in the courts of the state in which

the judgments were rendered.”     Comanche Indian Tribe v. Hovis    , 53 F.3d 298,

302 (10th Cir. 1995). “Under the doctrine of issue preclusion (formerly known

as collateral estoppel), once a court has decided an issue of fact or law necessary

to its judgment, the same parties or their privies may not relitigate that issue in a

suit brought upon a different claim.”   National Diversified Bus. Servs.   , 946 P.2d

at 666 (footnote omitted);   see also Comanche Indian Tribe , 53 F.3d at 303

(applying Oklahoma law). “The purpose of issue preclusion is to relieve the

parties of the cost and vexation of multiple lawsuits, conserve judicial resources,

and by preventing inconsistent decisions, encourage reliance on adjudication.”

Miller v. Miller , 956 P.2d 887, 897 (Okla. 1998) (quotation omitted).

       Critical to note at the outset of our analysis is an undisputed point: the

parties agree that the cooperation clause applies to whatever collateral the FDIC

conveyed to Palo Duro through the NPPA.         See Appellant’s Br. at 8; Appellee’s

Br. at 2. Thus, the preliminary issue pivotal to the validity of Palo Duro’s breach-




                                          -7-
of-contract claim is whether the NPPA conveyed the mortgages on the 80%

properties to Palo Duro.

       We conclude the state trial court resolved that issue in Palo Duro’s favor

and that the resolution was necessary to its decision. Although the state trial

court did not specifically refer to the NPPA in its written “journal entry of

judgment,” it is clear from the Oklahoma Court of Appeals decision that the trial

court based its determination on the NPPA. The court of appeals explained that

“FDIC in its corporate capacity . . . sold the notes to Palo Duro,” and that “[t]he

essential issue at trial was what interests or collateral secured the notes.”

Appellant’s App. at 1223. It further explained that FDIC’s position on appeal

was “that the 80% deed in lieu properties secured the released portion [of the

debt], but not the renewed portion and that [Palo Duro] only bought the renewed

portion.” Id. It noted that as propositions of error, FDIC asserted, inter alia, that

“[Palo Duro] was not a bona fide purchaser for value . . . .”   Id. at 1226.

Addressing the merits of the FDIC’s (and Unit’s) contentions, the court stated:

             The parties agree that the threshold question is whether the
       paper bought by [Palo Duro] was secured by the 80% deed in lieu
       properties which Unit had acquired in 1985. Having reviewed the
       record, we cannot say that the trial court’s judgment, on this issue,
       was against the clear weight of the evidence or erroneous as a matter
       of law or equity.

               The documentary and testimonial evidence, properly admitted
       at trial, clearly show that the renewal notes bought by [Palo Duro]
       from the FDIC, in its corporate capacity, were renewals and

                                             -8-
      extensions of RAMBLER’S prior indebtedness. [Palo Duro] was a
      bona fide purchaser for value. The nominee agreement was not filed.
      Securing the notes and their renewals were many prior mortgages and
      other instruments, all properly filed and not released. Among the
      security is the 80% interest at issue here. Unit acquired its interest in
      the 80% properties after [Palo Duro]. The court properly found
      Unit’s interest inferior to that of [Palo Duro]. The evidence shows
      the court properly interpreted the contracts. The court’s findings
      relating to the facts of this threshold question are not against the
      clear weight of the evidence. The court did not commit an error of
      law or equity.

Appellant’s App. at 1227.

      The FDIC contends that the state court decision is not entitled to issue

preclusive effect because that decision “only decided whose claims to the 80%

interests had priority under Oklahoma land records.” Appellee’s Br. at 17. The

FDIC further argues that Palo Duro’s issue preclusion argument ignores two

distinct elements to this case: “(1) what the NPPA’s terms covered and thus what

the FDIC was contractually obligated     to convey and cooperate on (the breach of

contract issue); and (2) whether Palo Duro could foreclose on the mortgages it

actually obtained (the foreclosure issue).”         Id. at 21 (footnote omitted). We do

not see these as “distinct elements.” Resolution of Palo Duro’s foreclosure rights

and the priority issue necessarily had to be preceded by the determination that,

through the NPPA, the FDIC sold the mortgages on the 80% properties to Palo

Duro. Almost in passing, the FDIC also contends that “interpretation of the

assignment documents was critical to the court’s findings with respect to the


                                              -9-
property interests conveyed.” Appellee’s Br. at 21-22. While the state court may

well have considered the assignments, that does not detract from its ultimate

determination of what interests the FDIC sold to Palo Duro through the NPPA.

      The district court recognized that the state court had held that the NPPA

conveyed the 80% mortgages to Palo Duro. However, it rejected Palo Duro’s

issue preclusion argument because the state court had not resolved the precise

claim Palo Duro was asserting:

      Clearly, the parties litigated in state court the issue of whether Palo
      Duro was entitled to foreclose on all properties, not whether the
      FDIC breached the NPPA. Although the state court found that Palo
      Duro received its right to the collateral in the NPPA    , it did not find
      that NPPA obligated the FDIC to support Palo Duro’s claims
      concerning the 80% properties. The court did not adjudicate the
      issue of an alleged breach of the NPPA or the intent of the parties
      when the NPPA was executed. What role the FDIC should have
      taken in accordance with its obligations to Palo Duro under the
      NPPA was initially placed at issue but was never adjudicated.
      Instead, Palo Duro dismissed its cross claim and filed this action.
      Hence, Palo Duro’s collateral estoppel and res judicata issues are
      inapplicable.

Appellant’s App. at 1650-51 (District court’s September 29, 1998 order at 5-6)

(emphasis added). This is too narrow a view of what the first court must decide

for its decision to preclude further consideration of an issue. Issue preclusion

applies to issues, not entire claims, that were necessarily decided in prior

litigation. Thus, as noted earlier, “once a court has decided an issue of fact or

law necessary to its judgment, the same parties or their privies may not relitigate


                                          -10-
that issue in a suit brought upon a different claim   .” National Diversified Bus.

Servs. , 946 P.2d at 666 (emphasis added). That is what the FDIC has tried to do

here: relitigate the issue of what collateral the NPPA conveyed. Because the

state court already decided that issue, the FDIC is precluded from relitigating it.

       The parties’ admissions and the prior litigation thus establish that the FDIC

was obligated to cooperate on whatever the NPPA conveyed to Palo Duro, and

that the NPPA conveyed the mortgage interests on the 80% properties. Summary

judgment in the FDIC’s favor at this point was therefore improper. The key

remaining issue is whether the FDIC’s opposition to Palo Duro’s foreclosure

action on the 80% mortgages constituted a breach of the cooperation clause, an

issue the district court will need to resolve on remand.

       Therefore, the judgment in favor of the FDIC is REVERSED, and the case

is REMANDED to the district court for further proceedings consistent with this

order and judgment.



                                                       Entered for the Court



                                                       Michael R. Murphy
                                                       Circuit Judge




                                           -11-
