FDIC v. Byrne, Jr.

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                                     
                                 ____________________
        No. 93-2237

                     FEDERAL DEPOSIT INSURANCE CORPORATION, etc.,

                                 Plaintiff, Appellee,

                                          v.

                        BAY STREET DEVELOPMENT CORP., ET AL.,

                               Defendants, Appellants.

________

                    WILLIAM J. BYRNE, JR., AND JOSEPH F. TIMILTY,

                               Defendants, Appellants.

        No. 93-2238

                     FEDERAL DEPOSIT INSURANCE CORPORATION, etc.

                                 Plaintiff, Appellee,

                                          v.

                             BAY STREET DEVELOPMENT CORP.
                                    AND JOHN RYAN,

                               Defendants, Appellants.

____________________

APPEALS FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                   [Hon. Douglas P. Woodlock, U.S. District Judge]
                                              ___________________

____________________

____________________

Breyer,* Chief Judge,
                                         ___________

                           Cyr and Boudin, Circuit Judges.
                                           ______________

____________________

Frank L. McNamara, Jr., with whom J. Alan Mackay was on brief for
             ______________________            ______________
        Chapter 7 Trustee, et al.
             Jeffrey  M. Lovely,  with  whom Robert  A.  Murphy and  Casner  &
             __________________              __________________      _________
        Edwards were on brief for William Byrne and Joseph Timilty.
        _______
             James W. Stoll, with whom Emanuel Alves and Brown, Rudnick, Freed
             ______________            _____________     _____________________
        & Gesmer, P.C. were on brief for FDIC.
        ______________

____________________

                                   August 26, 1994
                                                     
                                 ____________________

____________________

             *Chief Judge Stephen  Breyer heard oral argument in  this matter,
        but  did not participate in the drafting  or the issuance of the panel
        opinion.   The remaining  two panelists  therefore issue  this opinion
        pursuant to 28 U.S.C.   46(d).

CYR,  Circuit Judge.    The  Federal Deposit  Insurance
                    CYR,  Circuit Judge.
                          _____________

          Corporation  (FDIC),  as  receiver,  obtained   summary  judgment

          against defendants-appellants in an action to recover amounts due

          a failed savings bank  on various loans and loan  guaranties.  On

          appeal, defendants  contend that their defenses  to FDIC's claims

          are not  barred by  D'Oench, Duhme  & Co. v.  FDIC, 315  U.S. 447
                              _____________________     ____

          (1942), and its statutory  counterpart, 12 U.S.C.   1823(e).   We

          affirm the district court judgment.

I
                                          I

                                     BACKGROUND1
                                     BACKGROUND
                                     __________

In March 1987, defendant-appellant Bay  Street Develop-

          ment Corporation (Bay Street) entered  into a Loan Agreement with

          First  Mutual Bank for Savings (FMB) for the purpose of financing

          a condominium construction  project.  The Loan  Agreement set the

          maximum loan  principal at $9  million, with disbursements  to be
          _______

          made over  time subject  to certain  conditions specified in  the

          Loan Agreement.   Contemporaneously,  the Bay  Street principals,

          defendants-appellants John Ryan,2 William  J. Byrne and Joseph F.

          Timilty, jointly and  severally guarantied the construction  loan

          to  the extent of $2.5 million (the Multiple Guaranty).  Pursuant
                              
          ____________________

               1The material facts are related in the  light most favorable
          to  defendants-appellants,  against  whom  summary  judgment  was
          granted.  See  Velez-Gomez v.  SMA Life Assur.  Co., 8 F.3d  873,
                    ___  ___________     ____________________
          874-75 (1st Cir. 1993).

               2J.  Christopher  Robinson,  trustee in  bankruptcy  of  the
          chapter 7 estate of  John Ryan, has been substituted  as a party.
          See Fed. R. App. P. 43.
          ___

                                          3

to a written side agreement, Ryan promised to indemnify Byrne and

          Timilty for  any liability  incurred under the  Multiple Guaranty

          (the Indemnification Agreement).  At the time the Indemnification

          Agreement was executed,  Ryan had  a net worth  of $5.7  million.

          FMB's records contain no  reference to the Indemnification Agree-

          ment.

                    In  June 1987,  Bay  Street failed  to satisfy  certain

          conditions which constituted default events under the Loan Agree-

          ment.  Bay  Street attempted to  negotiate with FMB  to cure  the

          defaults.  Finally,  at a meeting on February 6, 1989 (the Arnone

          meeting),  FMB vice-president Richard  Arnone informed  Ryan that

          FMB  would release  the  undisbursed balance  of  the $9  million

          construction loan, notwithstanding any  past or future Bay Street

          defaults, if Ryan would provide  FMB with an additional  guaranty

          (the  Additional Guaranty).   On  February 23, Ryan  executed the

          Additional Guaranty, which expressly stated that he was guaranty-

          ing an additional $6.5 million in order "to induce  [FMB] to make

          further  loan  advances  pursuant  to  the  [L]oan  [A]greement."
          _______  ____  ________  ________  __  ___  ______  ___________

          (emphasis added).  FMB thereupon advanced Bay Street another $1.5

          million, bringing total  advances under the Loan  Agreement to $6

          million.   By May 1989, Bay  Street had yet to  cure its previous

          defaults under the Loan Agreement.  At  about the same time, Ryan

          notified FMB that he was  repudiating both the Multiple  Guaranty

          and the  Additional Guaranty.   As  Ryan and  Bay Street were  in

          default,  FMB demanded payment in  full pursuant to  the terms of

4

the  Loan  Agreement and  the  loan guaranties.    The defendants

          rejected FMB's demand.

                    In  June  1989, FMB  initiated  the  present action  in

          Massachusetts Superior Court against Bay Street for breach of the

          Loan Agreement (Count 1);  Ryan, Byrne and Timilty for  breach of

          the  Multiple  Guaranty (Count  2); and  Ryan  for breach  of the

          Additional Guaranty (Count 3).   Bay Street and Ryan  filed coun-

          terclaims  for, inter alia, fraud in the inducement and breach of
                          _____ ____

          the  Arnone meeting agreement.  In April 1990, the superior court

          granted summary judgment for FMB on Counts 1 and 2, rejecting the

          defense interposed  by Byrne  and Timilty  that FMB  had released

          them  from  the Multiple  Guaranty  by  accepting the  Additional

          Guaranty, which  effected an unauthorized alteration  of the Loan

          Agreement.  The superior court  denied summary judgment on  Count

          3,  on the ground that  a genuine dispute  remained as to whether

          FMB had induced the Additional Guaranty through fraud.

                    In  June 1991, after  FMB had been  placed in receiver-

          ship, FDIC  removed the  action to  federal district  court, then

          moved for  summary judgment on Count  3 and on the  remaining Bay

          Street and  Ryan counterclaims.   Ryan  and Bay  Street countered

          with a motion for reconsideration of the superior court's summary

          judgment rulings on Counts 1 and 2.  In due  course, the district

          court granted summary judgment for FDIC on Count 3 and on  defen-

5

dants' counterclaims,  and denied the motion  for reconsideration

          on Counts 1 and 2.  This appeal ensued.3

II
                                          II

                                      DISCUSSION
                                      DISCUSSION
                                      __________

A.   Summary Judgment Standard
          A.   Summary Judgment Standard
               _________________________

                    A state court summary judgment order may be modified or

          vacated following removal  of the action, see Hyde Park Partners,
                                                    ___ ___________________

          L.P.  v. Connolly, 839 F.2d  837, 842 (1st  Cir. 1988); 28 U.S.C.
          ____     ________

            1450, upon a determination  that it does not comport  with Fed.

          R. Civ. P. 56, see RTC v. Northpark Joint Venture, 958 F.2d 1313,
                         ___ ___    _______________________

          1316 (5th  Cir. 1992), cert. denied,  113 S. Ct. 963  (1993).  As
                                 _____ ______

          with  any summary  judgment order,  id., we  review the  district
                                              ___

          court ruling  de novo,  employing the identical  summary judgment
                        __ ____

          criteria incumbent upon  the court below, Velez-Gomez,  8 F.3d at
                                                    ___________

          874-75.  Thus,  summary judgment  will be upheld  if the  record,

          viewed in  the  light  most favorable  to  the  nonmoving  party,

          discloses no trialworthy issue of  material fact, and the  moving

____________________

               3Ryan  challenges the  district  court order  insofar as  it
          rejected his  defense to  the Additional Guaranty,  but does  not
          appeal from  the  dismissal  of his  counterclaims.    Byrne  and
          Timilty challenge the rejection of  their defense to the Multiple
          Guaranty.   Bay Street's claims on appeal track Ryan's, save that
          Bay  Street also asserts that the district court erred in finding
          no trialworthy issue relating  to Bay Street's state-law counter-
          claims  charging bad  faith  and unfair  dealing.   These  latter
          claims are deemed waived,  as they are unsupported by  any devel-
          oped  argumentation.  See, e.g., RTC  v. Gold,      F.3d     ,   
                                ___  ____  ___     ____  ____      ____  __
          (1st Cir.  1994) [No. 94-1080, slip  op. at 4 (1st  Cir. July 21,
          1994)].  

                                          6

party has demonstrated its entitlement to judgment as a matter of

          law.  Id.
                ___

7

B.   No. 93-2237:  Bay Street and Ryan4
          B.   No. 93-2237:  Bay Street and Ryan
               _________________________________

                    Bay Street  and Ryan contend  on appeal, as  before the

          district court, that a  material issue of fact remained  on Count

          3,  concerning whether  FMB, through  Arnone, orally  promised to

          release  the entire  undisbursed balance  of its  loan commitment
                       ______

          under  the Loan  Agreement, notwithstanding  any past  and future

          defaults  by Bay  Street.   Bay Street  and  Ryan argue  that the

          following  language in  the  Additional  Guaranty was  ambiguous,

          viz., "Ryan .  . . to induce [FMB] to  make further loan advances
          ____

          pursuant to  the loan  agreement referred to  below . .  . hereby

          unconditionally guarantees  . . .  $6,500,000."  Based  on Ryan's

          affidavit  attesting to the Arnone  meeting, see supra  p. 4, Bay
                                                       ___ _____

          Street and Ryan argue  that a jury reasonably could find that the

          above-quoted language represented a  commitment by FMB to advance

          the  entire  undisbursed  balance ($4.5  million)  it  originally

          agreed to lend under  the Loan Agreement, without regard  to past

          or future defaults by Bay Street.

                    Their defense  is  not sustainable  against  FDIC,  see
                                                                        ___

          D'Oench, Duhme  & Co.  v. FDIC,  315 U.S.  447 (1942);  12 U.S.C.
          _____________________     ____

            1823(e),  absent  a reasonably  explicit  written agreement  in
                                                      _______

          FMB's records to this effect.   See FSLIC v. Two Rivers  Assocs.,
                                          ___ _____    ____________________

          Inc.,  880 F.2d 1267, 1275-76 (11th Cir. 1989) (on similar facts,
          ____

          inquiring whether  writings contained explicit acceptance  of the
                              
          ____________________

               4We  bypass the  jurisdictional question  raised by  FDIC in
          connection  with this appeal.   See Norton v.  Matthews, 427 U.S.
                                          ___ ______     ________
          524, 532 (1976) (jurisdictional question may be passed over where
          ruling  on merits would  lead to same  result).  See  also note 2
                                                           ___  ____
          supra.
          _____

                                          8

obligation to fund the  entire project).  The only  writing argu-

          ably  evidencing an  ambiguous  commitment of  this  type is  the

          Additional Guaranty itself, which merely states that Ryan provid-

          ed  the Additional Guaranty "to  induce FMB to  make further loan

          advances."  Bay  Street and  Ryan implicitly concede  as much  by

          maintaining that "the meaning  and import of the [quoted]  phrase

          is  not clear  from the face  of the  document drawn  by [FMB] in

          which it appears, or  from any other document referred  to there-

          in." 

                    Absent  extrinsic  evidence,  the  Additional  Guaranty

          cannot be read to require FMB to advance all loan funds remaining
                                                   ___

          undisbursed under the  Loan Agreement.   See Sweeney  v. RTC,  16
                                                   ___ _______     ___

          F.3d 1, 5 (1st  Cir. 1994) (per curiam) (contract terms were "far
                                      ___ ______

          too ambiguous, absent extraneous  support, to establish an agree-

          ment  to fund  further construction.   At  most, they  reflect an

          intention to  provide further funds.") (footnote  omitted), peti-
                                                                      _____

          tion for  cert. filed, 62  U.S.L.W. 3775 (U.S. May  2, 1994) (No.
          ____ ___  _____ _____

          93-1782); see also  FDIC v.  Hamilton, 939 F.2d  1225, 1231  (5th
                    ___ ____  ____     ________

          Cir. 1991) (the   1823(e)  mandate    that promises be  "in writ-

          ing"     only permits enforcement  of obligations set  out on the

          face of the instrument).   And, of course, extrinsic  evidence of

          additional  terms is inadmissible against  FDIC.  See Two Rivers,
                                                            ___ __________

          880  F.2d at 1276 ("[O]ne  ambiguous reference to  a further con-

          struction loan  is not sufficient to allow [defendant] to advance

          defenses  against the FSLIC about an agreement to fund the entire

          project.");  RTC v.  Daddona,  9 F.3d  312,  319 (3d  Cir.  1993)
                       ___     _______

9

("[T]he  essential  terms .  . .  [of  an agreement  must] appear

          plainly on the face of that obligation.").5

                    Ryan counters  that his  breach of contract  defense is

          based on the  bilateral nature of  the obligations assumed  under

          the Additional Guaranty.  See Howell v.  Continental Credit Corp,
                                    ___ ______     _______________________

          655 F.2d  743, 746-47 (7th Cir. 1981) (D'Oench inapplicable where
                                                 _______

          face of instrument  whose terms FDIC  seeks to enforce  manifests

          bilateral obligations that form the basis of the opposing party's

          defense).  Howell is inapposite  to the present context, however.
                     ______

The defenses  relied on  in Howell  were in  no respect
                                                ______

          dependent  on parol  agreements,  see id.  at  747, whereas  Ryan
                                            ___ ___

          concedes  that the  language in  the Additional  Guaranty     "to

          induce [FMB] to  make further  loan advances"     could not  have

          afforded  FDIC  explicit  notice of  the  specific  terms  of the
                                                    ________  _____

          alleged  FMB waiver of past and future defaults, absent resort to

          the parol evidence arising out of the Arnone meeting.   See supra
                                                                  ___ _____

          pp. 4,  7.  Thus, reliance  on the so-called  Howell exception is
                                                        ______

          misplaced.  See FDIC v. O'Neil, 809 F.2d 350, 354 (7th Cir. 1987)
                      ___ ____    ______
                              
          ____________________

               5Altogether  apart  from D'Oench,  Duhme, evidence  of prior
                                        _______________
          negotiations is inadmissible under  Massachusetts law to alter or
          contradict the terms of  a written agreement.  See  Boston Edison
                                                         ___  _____________
          Co. v. Federal  Energy Reg. Comm'n, 856  F.2d 361, 365 (1st  Cir.
          ___    ___________________________
          1988)  (Massachusetts  parol  evidence  rule).    The  Additional
          Guaranty expressly  provides that  "[u]pon the occurrence  of any
          event of  Default (as that term is defined in the Loan Agreement)
                             __ ____ ____ __ _______ __ ___ ____ _________
          in  the payment or performance  of any of  [Bay Street's] obliga-
          tions,  [Ryan's]  obligations  and  liabilities  hereunder  shall
          become immediately  due." (emphasis added).   This language would
          appear  to foreclose use of the alleged Arnone meeting promise to
          show that  FMB  waived its  contractual  right to  declare  later
          defaults.  

                                          10

(Howell exception  inapplicable where  bank's obligation  did not
           ______

          appear explicitly  on face of  document FDIC sought  to enforce);

          accord Hamilton, 939 F.2d  at 1231 (Howell exception inapplicable
          ______ ________                     ______

          as  face of  note did  not manifest  bilateral  obligations); Two
                                                                        ___

          Rivers, 880 F.2d at 1275 ("This is not a case like [Howell] where
          ______                                              ______

          the  leases on which the suit was based 'clearly manifest[ed] the

          bilateral nature of the lessee's and  lessor's rights and obliga-

          tions.'").

                    The legislative policy  underlying the D'Oench doctrine
                                                           _______

          corroborates the district court ruling as well.  A primary aim of

          D'Oench is to  enable bank examiners to  rely on bank records  in
          _______                                               _______

          assessing  the value of  bank assets.   See Langley v.  FDIC, 484
                                                  ___ _______     ____

          U.S.  86, 91  (1987).   There is  no indication  that  the Arnone

          meeting was mentioned, let alone memorialized, in any FMB record.

          See Timberland Design,  Inc. v.  First Serv. Bank  for Sav.,  932
          ___ ________________________     __________________________

          F.2d  46, 48 (1st Cir. 1991) (per  curiam) ("D'Oench, Duhme . . .
                                        ___  ______    ______________

          favors  the interests  of depositors  and  creditors of  a failed

          bank, who cannot protect  themselves from secret agreements, over

          the interests of borrowers, who can.") (citations omitted).   The

          district  court did  not err  in awarding  FDIC summary  judgment

          against Bay Street and Ryan.

C.   No. 93-2238:  Byrne and Timilty
          C.   No. 93-2238:  Byrne and Timilty
               _______________________________

                    Appellants  Byrne and  Timilty  challenge  the  summary

          judgment order  on the  ground that  the Additional  Guaranty ac-

          quired by FMB undermined  the terms of the Multiple  Guaranty and

11

the Loan  Agreement without their consent.6   Cf. Provident Co-Op
                                                        ___ _______________

          Bank v. James  Talcott, Inc.,  260 N.E.2d 903,  910 (Mass.  1970)
          ____    ____________________

          ("[A] substantial  change  in  the  conditions to  which  a  bond

          relates, made without  the knowledge and  consent of the  surety,

          discharges  him from  further  liability.") (applying  Mass. law;

          citations omitted); FDIC v.  Manion, 712 F.2d 295, 297  (7th Cir.
                              ____     ______

          1983) (noting general acceptance of this  rule).  Their resource-

          ful  theory is that the Indemnification Agreement, as a practical

          matter, effectively  insulated them from risk  under the Multiple

          Guaranty, see  supra pp. 3-4, because Ryan's  net worth, approxi-
                    ___  _____

          mating $5.7 million at the time the Indemnification Agreement was

          executed, provided ample wherewithal to fund Ryan's commitment to

          indemnify  them for  any  liability incurred  under the  Multiple

          Guaranty.   But  because  the Additional  Guaranty increased  the

          total exposure on Ryan's  personal guaranties to $9 million  (the

          $2.5 million  Multiple Guaranty plus the  $6.5 million Additional

          Guaranty), well  beyond his  total net worth,  Byrne and  Timilty

          insist that  their actual exposure  on the Multiple  Guaranty was
                             ______

          thereby increased from zero  to $2.5 million.  Thus,  they argue,

          FMB materially modified the  Multiple Guaranty to their detriment

          by obtaining the Additional Guaranty from Ryan.  

____________________

               6Byrne  and  Timilty  make  the related  argument  that  FMB
          breached the Multiple Guaranty  provision prohibiting its  alter-
          ation  without the written consent  of all three  guarantors.  As
          this  argument was  never raised,  either in  state court  or the
          district court, we decline to consider it.  See Gold, slip op. at
                                                      ___ ____
          4. 

                                          12

The problem with this appealing argument is that it  is

          premised on a revisionist  view of the Indemnification Agreement;

          hence, it too is precluded under the D'Oench, Duhme doctrine, due
                                               ______________

          to  the absence of any FMB record substantiating an obligation on

          the part of FMB to refrain from undermining the Multiple Guaranty

          in this  manner.  Further,  even Byrne and Timilty  make no claim

          that either  Ryan or FMB was under any contractual or other legal
               ______       __

          obligation  to refrain from increasing Ryan's liability to FMB or

          to obtain the approval of Byrne and Timilty before doing so.  See
                                                                        ___

          D'Oench, Duhme & Co., 315 U.S. at 460.
          ____________________

III
                                         III

                                      CONCLUSION
                                      CONCLUSION
                                      __________

For the foregoing reasons, the district  court judgment

          must be affirmed.

                    Affirmed.
                    Affirmed.
                    ________

13