FDIC v. Chisholm

Court of Appeals for the First Circuit·Decided March 29, 1994·No. 93-2080·Published

Opinion

USCA1 Opinion

March 29, 1994 [NOT FOR PUBLICATION]

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

____________________

No. 93-2080

FEDERAL DEPOSIT INSURANCE CORPORATION,
AS RECEIVER OF BANK OF NEW ENGLAND, N.A.,

Plaintiff, Appellee,

v.

PAUL J. CHISHOLM,

Defendant, Appellant.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Edward F. Harrington, U.S. District Judge]
___________________

____________________

Before

Breyer, Chief Judge,
___________
Torruella and Boudin, Circuit Judges.
______________

____________________

Michael F. Gaffny on brief for Paul J. Chisholm.
_________________
David C. Aisenberg, Williams & Grainger, Margaret A. Burnham,
__________________ ___________________ ___________________
Kathleen C. Engel, and Burnham & Hines on brief for Federal Deposit
_________________ _______________
Insurance Corporation.

____________________

____________________

Per Curiam. Paul Chisholm appeals the district
___________

court's denial of his Rule 60(b) motion for relief from a

default judgment entered against him. We find that the

district court did not abuse its discretion in denying

Chisholm's motion. We therefore affirm its judgment.

I

On February 4, 1987, Chisholm signed a personal

guaranty of all present and future obligations of his

company, Sanborn Wood Products, to Guaranty Bank and Trust

Co. Guaranty later ceased operation, and Bank of New

England (BNE) assumed all of its rights and obligations. On

February 5, 1988, Sanborn took out a $500,000 loan from BNE,

which was repayable "On Demand." The note stated that the

loan was "secured by Loan and Security Agreements dated

March 5, 1987 and February 4, 1987 naming payee as secured

party under its former name, Guaranty Bank & Trust Company."

Chisholm signed the note on behalf of Sanborn.

On June 7, 1990, BNE demanded that Sanborn pay the

outstanding balance of the loan in full. Six days later,

BNE filed suit against Sanborn and Chisholm in Massachusetts

state court. While the action was pending, BNE failed, and

the FDIC became its receiver. FDIC was therefore

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2

substituted as plaintiff in the state court action, and it

removed the action to federal court.

The district court scheduled a trial date for

October 14, 1992, and rescheduled for July 6, 1993, at the

parties' request. Although the FDIC filed an "Assented To

Motion to Continue Trial," which requested another

continuance until September, the district court never ruled

on the motion. Accordingly, trial commenced on July 6,

1993. Chisholm did not appear, apparently in the mistaken

belief that the district court had rescheduled the trial for

September, and the court entered a default judgment against

him for the full amount claimed. In a margin order, the

district court denied Chisholm's later request for relief

from judgment. Chisholm now appeals that denial.

II

To obtain relief from a default judgment, Chisholm

must show "both a good reason for the default and the
____ ___

existence of a meritorious defense." United States v.
_____________

Proceeds of Sale of 3,888 Pounds Atlantic Sea Scallops, 857
_______________________________________________________

F.2d 46, 48 (1st Cir. 1988) (emphasis added). Chisholm has

suggested two possible "meritorious defenses" that, he says,

warrant relief from the default judgment. First, he says

that the note was "orally modified" so that it was no longer

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3

payable "On Demand." Second, he says that his personal

guaranty applied only to obligations owed directly to
____

Guaranty Bank and Trust, not to any successor in interest

such as BNE or the FDIC. We find that neither defense has

merit, and therefore that the default judgment need not be

set aside.

"Agreements" which tend to "diminish or defeat"

the FDIC's "interest" in "assets" acquired by it from failed

banking institutions are not enforceable against the FDIC,

unless those agreements are, among other things, "in

writing." 12 U.S.C. 1823(e)(1). This rule, along with

the common law doctrine of D'Oench, Duhme & Co. v. FDIC, 315
____________________ ____

U.S. 447 (1942), protects the FDIC against "secret

agreements" which might lead it to err in evaluating the

worth of assets it acquires from failed banking

institutions. See, e.g., Langley v. FDIC, 484 U.S. 86
___ ____ _______ ____

(1987); Timberland Design v. First Service Bank for Savings,
_________________ ______________________________

932 F.2d 46 (1st Cir. 1991). Because the alleged "oral

agreement" modifying the note's payment terms obviously does

not meet the statute's requirements, it cannot be enforced

against the FDIC, so it does not provide a "meritorious

defense" to the FDIC's action.

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USCA1 Opinion



March 29, 1994          [NOT FOR PUBLICATION]

                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT

____________________

No. 93-2080

                        FEDERAL DEPOSIT INSURANCE CORPORATION,
                      AS RECEIVER OF BANK OF NEW ENGLAND, N.A.,

                                 Plaintiff, Appellee,

                                          v.

                                  PAUL J. CHISHOLM,

                                Defendant, Appellant.

____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                   [Hon. Edward F. Harrington, U.S. District Judge]
                                               ___________________

                                 ____________________

                                        Before

                                 Breyer, Chief Judge,
                                         ___________
                        Torruella and Boudin, Circuit Judges.
                                              ______________

                                 ____________________

            Michael F. Gaffny on brief for Paul J. Chisholm.
            _________________
            David C. Aisenberg, Williams & Grainger, Margaret A. Burnham, 
            __________________  ___________________  ___________________
        Kathleen C. Engel, and Burnham & Hines on brief for Federal Deposit
        _________________      _______________
        Insurance Corporation.

____________________

____________________

Per  Curiam.   Paul Chisholm appeals  the district
                       ___________

             court's  denial of his Rule  60(b) motion for  relief from a

             default  judgment entered  against him.   We  find that  the

             district  court  did not  abuse  its  discretion in  denying

             Chisholm's motion.  We therefore affirm its judgment.

                                          I

                       On February  4, 1987, Chisholm  signed a  personal

             guaranty  of  all  present  and future  obligations  of  his

             company, Sanborn  Wood Products, to Guaranty  Bank and Trust

             Co.    Guaranty  later ceased  operation,  and  Bank of  New

             England (BNE) assumed all of its rights and obligations.  On

             February 5, 1988, Sanborn took out a $500,000 loan from BNE,

             which was repayable "On  Demand."  The note stated  that the

             loan  was "secured  by  Loan and  Security Agreements  dated

             March 5, 1987 and  February 4, 1987 naming payee  as secured

             party under its former name, Guaranty Bank & Trust Company."

             Chisholm signed the note on behalf of Sanborn.

                       On June 7, 1990, BNE demanded that Sanborn pay the

             outstanding  balance of the loan  in full.   Six days later,

             BNE filed suit against Sanborn and Chisholm in Massachusetts

             state  court.  While the action was pending, BNE failed, and

             the  FDIC   became  its   receiver.    FDIC   was  therefore

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                                          2

substituted as plaintiff in  the state court action,  and it

             removed the action to federal court.

                       The  district court  scheduled  a  trial date  for

             October 14, 1992, and  rescheduled for July 6, 1993,  at the

             parties' request.   Although the FDIC filed  an "Assented To

             Motion   to  Continue   Trial,"   which  requested   another

             continuance until September, the district court never  ruled

             on the  motion.   Accordingly,  trial commenced  on July  6,

             1993.  Chisholm did  not appear, apparently in the  mistaken

             belief that the district court had rescheduled the trial for

             September, and the court  entered a default judgment against

             him for  the full amount  claimed.   In a margin  order, the

             district  court denied Chisholm's  later request  for relief

             from judgment.  Chisholm now appeals that denial.

                                          II

                       To obtain relief from a default judgment, Chisholm

             must  show "both  a  good reason  for  the default  and  the
                         ____                                    ___

             existence  of  a meritorious  defense."    United States  v.
                                                        _____________

             Proceeds of Sale of 3,888 Pounds  Atlantic Sea Scallops, 857
             _______________________________________________________

             F.2d  46, 48 (1st Cir. 1988) (emphasis added).  Chisholm has

             suggested two possible "meritorious defenses" that, he says,

             warrant relief from  the default judgment.   First, he  says

             that the note was "orally modified" so that it was no longer

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                                          3

payable  "On  Demand."   Second, he  says that  his personal

             guaranty  applied  only  to  obligations  owed  directly  to
                                ____

             Guaranty Bank  and Trust, not  to any successor  in interest

             such  as BNE or the FDIC.   We find that neither defense has

             merit, and therefore  that the default judgment  need not be

             set aside.

                       "Agreements"  which tend  to "diminish  or defeat"

             the FDIC's "interest" in "assets" acquired by it from failed

             banking institutions are not  enforceable against the  FDIC,

             unless  those  agreements  are,   among  other  things,  "in

             writing."   12 U.S.C.    1823(e)(1).  This  rule, along with

             the common law doctrine of D'Oench, Duhme & Co. v. FDIC, 315
                                        ____________________    ____

             U.S.   447  (1942),  protects   the  FDIC   against  "secret

             agreements" which  might lead  it to  err in  evaluating the

             worth  of   assets   it   acquires   from   failed   banking

             institutions.    See, e.g.,  Langley  v. FDIC,  484  U.S. 86
                              ___  ____   _______     ____

             (1987); Timberland Design v. First Service Bank for Savings,
                     _________________    ______________________________

             932  F.2d 46  (1st Cir.  1991).   Because the  alleged "oral

             agreement" modifying the note's payment terms obviously does

             not meet  the statute's requirements, it  cannot be enforced

             against  the FDIC,  so it  does not  provide a  "meritorious

             defense" to the FDIC's action.

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                                          4

Chisholm's   second   argument   focuses  on   the

             guaranty's   language.     The   guaranty   says   that   it

             "guarantee[s]  to   you  [Guaranty   Bank  &   Trust],  your

             successors and assigns, full  and prompt payment at maturity

             of all  present and  future obligations  of the  Borrower to

             you,  including  all  renewals  and  extensions  thereof  or

             substitutions therefor."  Chisholm argues that the  guaranty

             applies only to obligations which originally ran to Guaranty
                     ____

             Bank  &  Trust itself,  because  the  words "successors  and
                            ______

             assigns" appear in  the "guarantees to  you" clause but  not

             the "obligations of the  Borrower to you" clause.   That is,

             he argues that because the loan at issue here came from BNE,

             not from Guaranty Bank  & Trust (which no longer  existed at

             the time), the guaranty does not apply.

                       We  do not think this is a sensible reading of the

             language.   The obvious reading  of the guaranty  is that it

             applies  to  all  present  and future  obligations  owed  by

             Sanborn to Guaranty or to Guaranty's successors and assigns.

             The fact that  the BNE note  (signed by Chisholm)  expressly

             incorporated the  guaranty,  and described  the guaranty  as

             running  to  "payee  [BNE] .  .  .  under  its former  name,

             Guaranty Bank  &  Trust  Company,"  supports  this  reading.

             Chisholm has not pointed us to any authority for reading the

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                                          5

guaranty in the hypertechnical  manner he suggests, nor have

             we  found any.   Moreover,  Chisholm  has suggested  no good

             reason  why he  would  be willing  to  secure his  company's

             obligations to a particular bank, but would be unwilling  to

             secure obligations to that  bank's successor in interest; at

             the  very least,  if  such a  distinction were  intended, we

             should  expect to  find language  that explicitly  made that

             distinction,  rather   than   boilerplate  language   in   a

             preprinted  guaranty form,  the  natural  reading  of  which

             suggests the opposite.  We therefore  find that Chisholm has

             failed  to present a "meritorious defense."  That failure is

             sufficient  to   preclude  us  from  finding   an  abuse  of

             discretion in  the district court's refusal  to grant relief

             from the default.   3,888 Pounds Atlantic  Sea Scallops, 857
                                 ___________________________________

             F.2d at 48-49.

                       Affirmed.
                       _________

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                                          6

FDIC v. Chisholm, (1st Cir. 1994).

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FDIC v. Chisholm (FDIC v. Chisholm) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

Langley v. Federal Deposit Insurance

484 U.S. 86 (Supreme Court, 1987)

Timberland Design, Inc. And William C. Barnsley v. First Service Bank for Savings

932 F.2d 46 (First Circuit, 1991)

Opinion

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