FDIC v. Klinck CV-91-614-B 08/20/93
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
Federal Deposit Insurance Corporation, as Receiver for BankEast
v. Civil No. 91-614-B
Christopher Klinck, et al.
O R D E R
The Federal Deposit Insurance Corporation ("FDIC")a receiver
for the failed BankEast, has brought claims against Mary
Constance Waller and Christopher Klinck to recover for non
payment on a line of credit extended to them by BankEast ("the
Bank"). Waller has asserted various defenses to the FDIC's
claims and has filed a counterclaim against the FDIC.1 The FDIC
has moved for summary judgment against both Klinck and Waller.
Klinck has assented to entry of judgment against him on the
FDIC's motion. Waller, however, objects. On January 25, 1993,
Magistrate Judge Arenas recommended that the FDIC be granted
summary judgment on its claims against both Klinck and Waller and
1 Waller and Klinck have also asserted cross-claims against each other. on Waller's counter-claim against the FDIC. I affirm the
Magistrate Judge's recommendation.
FACTS2
Mary Constance Waller and Christopher Klinck lived together
from 1978-1989. On December 9, 1986, they received a $50,000
line of credit from the Bank, mortgaging Waller's home as
security. The demand note states: "for value received
Christopher Klinck and Mary Constance Waller with a principal
place of residence located in Starksboro, VT promise[] to pay on
demand to the order of the Bank . . . the principal sum of fifty-
thousand dollars or so much thereof as has been advanced, plus
interest . . . ." Without the knowledge or permission of
Waller, Klinck reguested an advance of $46,000. The Bank's
records contain a copy of a notice addressed to both co
defendants informing them of the disbursal of funds under the
note. Waller claims that she never received this notice, nor did
she receive the benefit of the advance. In 1989, Waller and
Klinck dissolved their relationship and signed a contract which
2 The facts are stated in the light most favorable to Waller.
2 divided their property and left Waller in possession of the house
which they had mortgaged to secure the line of credit. When she
agreed to the property settlement. Waller did not know of the
Bank's advance to Klinck. Instead, she learned of the advance
when the Bank notified her of Klinck's default and sought to
foreclose on her residence.
The Bank commenced this action in state court. The matter
was removed to federal court after the FDIC was appointed to act
as the Bank's receiver.
DISCUSSION
As defenses to the FDIC's collection effort. Waller asserts
that (1) the Bank breached its obligations under the contract by
disbursing funds to Klinck without her knowledge or consent; (2)
she is not jointly and severally liable on the note; and (3) the
Bank breached its duty of good faith and fair dealing by
disbursing funds to Klinck without her knowledge or consent.3
3 On August 2, 1993, without moving to amend her counterclaim. Waller filed a supplemental memorandum of law arguing that the FDIC violated the Federal Truth in Lending Act. This new claim is untimely and raises new legal issues never addressed by Waller in the three and one-half year litigation of this case. Consideration of the memorandum this late in the day would be patently unfair to the opposing party. Accordingly, I
3 She also asserts a counter-claim alleging that the Bank's
disbursement of funds to Klinck without her knowledge or consent
was unfair and deceptive, in violation of the Consumer Protection
Act, N.H. Rev. Stat. Ann. ("RSA") 358-A. The FDIC, however,
argues that summary judgment is appropriate with respect to these
claims because: (1) certain of Waller's claims are barred by the
D 'Oench Doctrine;4 and (2) no reasonable finder of fact could
find for Waller on the merits of her contentions. For the
reasons that follow, I find that Waller's claims are not barred
by D 'Oench, but that summary judgment is appropriate because no
reasonable finder of fact could conclude that the Bank breached
its obligations as to Waller based on the evidence provided.
A. Breach of Contract
Waller argues that she is not liable for disbursements made
to Klinck because the Bank breached its contractual duty to
deny Defendant Waller's Motion to Allow Filing of a Supplemental Memorandum of Law (document no. 27) and will not consider the Memorandum.
4 D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942) and its progeny bar affirmative claims as well as defenses asserted against the FDIC when they are premised upon oral agreements and written agreements which fail to meet the standards set forth in the codification of the doctrine, 12 U.S.C.A. 1823(e)(West 1989). Timberland Design, Inc. v. First Serv. Bank for Sav., 932 F.2d 46, 49 (1st Cir. 1991) .
4 obtain her consent before making such disbursements. The terms
of the note, however, do not condition the Bank's right to
advance funds on Waller's approval. Nor does it reguire that
Waller receive notice of a disbursement. Further, Waller has
failed to identify any other document that creates a contractual
obligation on the part of the Bank to notify her or obtain her
consent before making disbursements to Klinck. Merely asserting
that the disbursements were unlawful will not sustain Waller's
burden under the summary judgment standard. Munoz v. R.J.
Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990). Moreover,
although she now states that she intended that the contract would
reguire notice and approval before disbursement could be made, I
will not go beyond the unambiguous language of the contract
documents to discern the parties' intent based on Waller's
"unmanifested state[] of mind." See Tentindo v. Locke Lake
Colony A s s 'n , 120 N.H. 593, 599 (1980); Kilroe v. Troast, 117
N.H. 598, 601 (1977).
B. Joint and Several Liability
Waller also argues that there is a material fact in dispute
precluding the entry of summary judgment because the note is
ambiguous concerning whether Waller and Klinck are to be held
jointly and severally liable for sums advanced under the note.
5 This argument is unavailing because Waller and Klinck both signed
the note as makers. Under these circumstances. Waller and Klinck
are jointly and severally liable for obligations under the note
as a matter of law. See FDIC v. Blanton, 918 F.2d 524, 534 (5th
Cir. 1990); Jett v. Phillips & Assoc., 439 F.2d 987, 990 (10th
Cir. 1991); Clark v. Dedina, 658 S.W.2d 293, 298 (Tex. Ap p .
1983) .
C. Good Faith and Fair Dealing Defense and Consumer Protection Act Claims
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FDIC v. Klinck CV-91-614-B 08/20/93
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
Federal Deposit Insurance Corporation, as Receiver for BankEast
v. Civil No. 91-614-B
Christopher Klinck, et al.
O R D E R
The Federal Deposit Insurance Corporation ("FDIC")a receiver
for the failed BankEast, has brought claims against Mary
Constance Waller and Christopher Klinck to recover for non
payment on a line of credit extended to them by BankEast ("the
Bank"). Waller has asserted various defenses to the FDIC's
claims and has filed a counterclaim against the FDIC.1 The FDIC
has moved for summary judgment against both Klinck and Waller.
Klinck has assented to entry of judgment against him on the
FDIC's motion. Waller, however, objects. On January 25, 1993,
Magistrate Judge Arenas recommended that the FDIC be granted
summary judgment on its claims against both Klinck and Waller and
1 Waller and Klinck have also asserted cross-claims against each other. on Waller's counter-claim against the FDIC. I affirm the
Magistrate Judge's recommendation.
FACTS2
Mary Constance Waller and Christopher Klinck lived together
from 1978-1989. On December 9, 1986, they received a $50,000
line of credit from the Bank, mortgaging Waller's home as
security. The demand note states: "for value received
Christopher Klinck and Mary Constance Waller with a principal
place of residence located in Starksboro, VT promise[] to pay on
demand to the order of the Bank . . . the principal sum of fifty-
thousand dollars or so much thereof as has been advanced, plus
interest . . . ." Without the knowledge or permission of
Waller, Klinck reguested an advance of $46,000. The Bank's
records contain a copy of a notice addressed to both co
defendants informing them of the disbursal of funds under the
note. Waller claims that she never received this notice, nor did
she receive the benefit of the advance. In 1989, Waller and
Klinck dissolved their relationship and signed a contract which
2 The facts are stated in the light most favorable to Waller.
2 divided their property and left Waller in possession of the house
which they had mortgaged to secure the line of credit. When she
agreed to the property settlement. Waller did not know of the
Bank's advance to Klinck. Instead, she learned of the advance
when the Bank notified her of Klinck's default and sought to
foreclose on her residence.
The Bank commenced this action in state court. The matter
was removed to federal court after the FDIC was appointed to act
as the Bank's receiver.
DISCUSSION
As defenses to the FDIC's collection effort. Waller asserts
that (1) the Bank breached its obligations under the contract by
disbursing funds to Klinck without her knowledge or consent; (2)
she is not jointly and severally liable on the note; and (3) the
Bank breached its duty of good faith and fair dealing by
disbursing funds to Klinck without her knowledge or consent.3
3 On August 2, 1993, without moving to amend her counterclaim. Waller filed a supplemental memorandum of law arguing that the FDIC violated the Federal Truth in Lending Act. This new claim is untimely and raises new legal issues never addressed by Waller in the three and one-half year litigation of this case. Consideration of the memorandum this late in the day would be patently unfair to the opposing party. Accordingly, I
3 She also asserts a counter-claim alleging that the Bank's
disbursement of funds to Klinck without her knowledge or consent
was unfair and deceptive, in violation of the Consumer Protection
Act, N.H. Rev. Stat. Ann. ("RSA") 358-A. The FDIC, however,
argues that summary judgment is appropriate with respect to these
claims because: (1) certain of Waller's claims are barred by the
D 'Oench Doctrine;4 and (2) no reasonable finder of fact could
find for Waller on the merits of her contentions. For the
reasons that follow, I find that Waller's claims are not barred
by D 'Oench, but that summary judgment is appropriate because no
reasonable finder of fact could conclude that the Bank breached
its obligations as to Waller based on the evidence provided.
A. Breach of Contract
Waller argues that she is not liable for disbursements made
to Klinck because the Bank breached its contractual duty to
deny Defendant Waller's Motion to Allow Filing of a Supplemental Memorandum of Law (document no. 27) and will not consider the Memorandum.
4 D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942) and its progeny bar affirmative claims as well as defenses asserted against the FDIC when they are premised upon oral agreements and written agreements which fail to meet the standards set forth in the codification of the doctrine, 12 U.S.C.A. 1823(e)(West 1989). Timberland Design, Inc. v. First Serv. Bank for Sav., 932 F.2d 46, 49 (1st Cir. 1991) .
4 obtain her consent before making such disbursements. The terms
of the note, however, do not condition the Bank's right to
advance funds on Waller's approval. Nor does it reguire that
Waller receive notice of a disbursement. Further, Waller has
failed to identify any other document that creates a contractual
obligation on the part of the Bank to notify her or obtain her
consent before making disbursements to Klinck. Merely asserting
that the disbursements were unlawful will not sustain Waller's
burden under the summary judgment standard. Munoz v. R.J.
Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990). Moreover,
although she now states that she intended that the contract would
reguire notice and approval before disbursement could be made, I
will not go beyond the unambiguous language of the contract
documents to discern the parties' intent based on Waller's
"unmanifested state[] of mind." See Tentindo v. Locke Lake
Colony A s s 'n , 120 N.H. 593, 599 (1980); Kilroe v. Troast, 117
N.H. 598, 601 (1977).
B. Joint and Several Liability
Waller also argues that there is a material fact in dispute
precluding the entry of summary judgment because the note is
ambiguous concerning whether Waller and Klinck are to be held
jointly and severally liable for sums advanced under the note.
5 This argument is unavailing because Waller and Klinck both signed
the note as makers. Under these circumstances. Waller and Klinck
are jointly and severally liable for obligations under the note
as a matter of law. See FDIC v. Blanton, 918 F.2d 524, 534 (5th
Cir. 1990); Jett v. Phillips & Assoc., 439 F.2d 987, 990 (10th
Cir. 1991); Clark v. Dedina, 658 S.W.2d 293, 298 (Tex. Ap p .
1983) .
C. Good Faith and Fair Dealing Defense and Consumer Protection Act Claims
The FDIC argues that Waller's good faith and fair dealing
defense and her Consumer Protection Act counter-claim are barred
by the D 'Oench Doctrine. I disagree. While it is true that many
claims for breach of good faith and fair dealing and some
Consumer Protection Act claims will be barred if brought against
the FDIC, some claims are not. See, e.g., FDIC v. Nenni
Builders, No. 91-626-B, slip op. at 16 (D.N.H. Mar. 12,
1993)(good faith and fair dealing claim not barred because Bank's
alleged bad faith in exercising discretion delegated to Bank
under contract does not depend upon oral agreement); Vitale v.
FDIC, No. 91-460-JD slip op. at 20 (D.N.H. 1993)(claims under
Consumer Protection Act barred only to the extent that they rest
on an unrecorded agreement).
6 In Centronics Corp. v. Genicom Corp., 132 N.H. 133, 139
(1989), the New Hampshire Supreme Court identified three
categories of good faith and fair dealing claims, two of which
are freguently the subject of litigation in FDIC cases. The
first category of claims deal with contract formation. Id. Such
claims are based upon unrecorded representations that are clearly
barred by D 'Oench. See Timberland Design, Inc., 932 F.2d at 48.
The second category concerns claims that are based upon an
allegation that a party has abused discretion that was delegated
to it under a contract. Centronics, 132 N.H. at 139. To the
extent such claims are based upon evidence of unrecorded
communications, they too are barred by D 'Oench. See Timberland,
932 F.2d at 48. However, if a bank's alleged abuse of discretion
can be established without reference to unrecorded agreements
among the parties, a good faith and fair dealing claim based upon
an alleged abuse of discretion is not barred by D 'Oench. See id.
Similarly, Consumer Protection Act claims will be barred by
D 'Oench only if they are based upon unrecorded agreements between
the parties. See Vitale, slip op. at 20.
Since Waller has not attempted to support either her good
faith and fair dealing defense or her Consumer Protection Act
claim by citing unrecorded communications among the parties, her
7 claims are not barred by D 'Oench. Nevertheless, summary judgment
is warranted here because Waller has failed to produce any
evidence to support her claim that the Bank acted improperly by
disbursing funds to Klinck without her notice and consent. Thus,
even though the note vested the Bank with discretion concerning
the matters of notice and consent. Waller has produced
insufficient evidence in opposition to the FDIC's motion for
summary judgment to justify a finding by a rational finder of
fact that the Bank either breached its duty of good faith and
fair dealing or violated its obligations to Waller under the
Consumer Protection Act.5
5 The function of summary judgment is to pierce through the formal allegations of facts in the pleadings and determine whether a trial is necessary. See Hahn v. Sargent, 523 F.2d 461, 464 (1st Cir. 1975), cert, denied, 425 U.S. 904 (1976); Rule 56 Fed. R. Civ. P. Advisory Committee's Note to the 1963 Amendment. It is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The burden is upon the moving party to establish the lack of a genuine, material, factual issue, Finn v. Consolidated Rail Corp., 732 F.2d 13, 15 (1st Cir. 1986), and the court must view the record in the light most favorable to the non-movant, according the non-movant all beneficial inferences discernable from the evidence, Oliver v. Digital Equipment Corp., 846 F.2d 103, 105 (1st Cir. 1988). If a motion for summary judgment is properly supported, the burden of proof shifts to the non-movant to show that a genuine issue exists. Donovan v. Aqnew, 712 F.2d 1509, 1516 (1st Cir. 1983). CONCLUSION
I affirm the Magistrate Judge's January 25, 1993 Report and
Recommendation (document no. 17) granting the FDIC's Motions for
Summary Judgment (document nos. 8 and 9). Waller's Motion to
Allow Filing of a Supplemental Memorandum of Law (document no.
27) is denied, and the FDIC's Motion to Strike (document no. 26)
is moot. Since the only matters remaining are the cross-claims
between Klinck and Waller which raise only guestions of state
law, these claims are remanded to state court. Carnegie-Me11on
University v. Cohill, 484 U.S 343, 350 (1988); Newman v Burgin,
930 F .2d 955, 963 (1st Cir. 1991).
The Clerk is directed to enter judgment for the FDIC with
respect to its claims against Waller and Klinck and with respect
to Waller's counter-claim against the FDIC. The cross-claims
between Waller and Klinck are remanded to state court.
SO ORDERED.
Paul Barbadoro United States District Judge
August 20, 1993
cc: Thomas J. Donovan, Esg. William B. Parnell, Esg. James P. Bassett, Esg.