FDIC v. Realty Trust

• Court: Court of Appeals for the First Circuit
• Decided: March 18, 1993
• Docket: 92-1770
• Status: Published

Opinion

USCA1 Opinion

March 18, 1993    UNITED STATES COURT OF APPEALS
                                For The First Circuit
                                 ____________________

          No. 92-1770

                        FEDERAL DEPOSIT INSURANCE CORPORATION,

                                 Plaintiff, Appellee,

                                          v.

                           LONGLEY I REALTY TRUST, ET AL.,

                                Defendants, Appellees,

                                 ____________________

                              ANGELINE A. KOPKA, ET AL.,

                               Defendants, Appellants.

                                 ____________________

                                     ERRATA SHEET

The  opinion  of this  Court issued  on  March 10,  1993, is
          amended as follows:

               Page  9, Line  8,  should read:  "district  court's .  .  ."
          instead of "district court . . . "

March 10, 1993    UNITED STATES COURT OF APPEALS
                                For The First Circuit
                                 ____________________

          No. 92-1770

                        FEDERAL DEPOSIT INSURANCE CORPORATION,

                                 Plaintiff, Appellee,

                                          v.

                           LONGLEY I REALTY TRUST, ET AL.,

                                Defendants, Appellees,

                                 ____________________

                              ANGELINE A. KOPKA, ET AL.,

                               Defendants, Appellants.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF NEW HAMPSHIRE

                [Hon. Martin F. Loughlin, Senior U.S. District Judge]
                                          __________________________

                                 ____________________

                                        Before

                              Torruella, Circuit Judge,
                                         _____________

                            Coffin, Senior Circuit Judge,
                                    ____________________

                               and Cyr, Circuit Judge.
                                        _____________

                                _____________________

               William E. Aivalikles for appellants.
               _____________________
               E. Whitney Drake, Special Counsel,  with whom Ann S. DuRoss,
               ________________                              _____________
          Assistant General  Counsel, and Richard J.  Osterman, Jr., Senior
                                          _________________________
          Counsel, Federal Deposit Insurance Corporation, were on brief for
          appellee Federal Deposit Insurance Corporation.
                                 ____________________
                                    March 10, 1993
                                 ____________________

TORRUELLA,   Circuit  Judge.     The   Federal  Deposit
                                 ______________

          Insurance Corporation ("FDIC"), as receiver of First Service Bank

          ("Bank"),  sued appellants,  Angeline Kopka  and David  Beach, to

          collect on promissory  notes made  out to the  Bank.   Appellants

          responded that they  did not owe the FDIC the  amount promised in

          the  notes because  they had  entered settlement  agreements over

          these notes  with the Bank before the FDIC took over as receiver.

          The district court granted summary judgment in favor of the FDIC,

          finding  that the doctrine established in D'Oench, Duhme & Co. v.
                                                    ____________________

          FDIC,  315 U.S.  447  (1942), and  12  U.S.C.    1823(e)  (1989),
          ____

          forbids the assertion of this alleged agreement against the FDIC.

          In addition,  the district court  granted attorney's fees  to the

          FDIC  pursuant  to provisions  of  appellants' promissory  notes.

          Because  we agree that    1823(e) protects the  FDIC in this case

          and that  the district court granted a reasonable attorney's fees

          award, we affirm the district court's judgment.

                                      BACKGROUND
                                      BACKGROUND
                                      __________

                    Appellants  borrowed money from  the Bank  and executed

          promissory notes in  the amount of the loans.   The notes matured

          in May  and June of 1989.  Appellants contend that they reached a

          settlement  of these loans on March 15, 19891 which required them

          to  convey to  the  Bank  the  real  estate  that  secured  their

          promissory notes, free of all liens.

____________________

          1  Although appellants name December 21, 1988 as their settlement
          date,  they  maintain  that  the  Bank  refused  to  fulfill  the
          agreement,  forcing them to bring suit in the Hillsborough County
          Superior Court, which the court dismissed without prejudice on an
          unrelated ground.   Consequently, they argue, they  entered a new
          settlement agreement on March 15, 1989.

On March 31,  1989, the Commissioner  of Banks for  the

          Commonwealth  of Massachusetts  declared the  Bank insolvent  and

          appointed  the FDIC as receiver.2  As receiver, the FDIC demanded

          payment of all debts owed  to the Bank when the Bank  failed.  No

          evidence of appellants' alleged settlement agreement was found in

          the Bank's  records.  As such,  on March 3, 1991, as  part of its

          debt  collection  campaign,  the  FDIC  sued  appellants  on  the

          promissory  notes.    Appellants  argued  that  their  settlement

          agreement with the Bank binds the FDIC as receiver and  that they

          therefore do not owe the FDIC the amount claimed.   The FDIC then

          moved for summary  judgment, arguing that under  D'Oench, Duhme &
                                                           ________________

          Co.  and 12 U.S.C.   1823(e), any  unwritten agreement alleged by
          ___

          appellants cannot bind  the FDIC.   The district court  initially

          denied the motion but granted it upon reconsideration.

                                      DISCUSSION
                                      DISCUSSION
                                      __________

          I.  SUMMARY JUDGMENT
          I.  SUMMARY JUDGMENT

                    Summary judgments receive  plenary review  in which  we

          read  the record  and indulge  all inferences  in the  light most

          favorable to  the non-moving party.   E.H. Ashley & Co.  v. Wells
                                                _________________     _____

          Fargo Alarm Services, 907 F.2d 1274, 1277 (1st Cir. 1990).
          ____________________

          II.  THE D'OENCH DOCTRINE AND 12 U.S.C.   1823(e) (1989)
          II.  THE D'OENCH DOCTRINE AND 12 U.S.C.   1823(e) (1989)
                   _______

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

          may not  defend against a claim  by the FDIC for  collection on a

          promissory note based on an agreement that is not memorialized in
                              
          ____________________

          2   Massachusetts uses the  term "liquidating  agent" instead  of
          receiver.   According to 12 U.S.C.   1813(j) (1989), however, the
          term "receiver" includes liquidating agents.

                                         -3-

some  fashion in the failed bank's records.3  The parties' reason

          for failing to  exhibit the  agreement in the  bank's records  is

          irrelevant,  as is the FDIC's actual  knowledge of the agreement.

          Timberland  Design, Inc. v. First  Serv. Bank for  Sav., 932 F.2d
          ________________________    ___________________________

          46, 48-50 (1st Cir. 1991).

                    Congress embraced  the D'Oench  doctrine  in 12  U.S.C.
                                           _______

            1823(e).  Bateman v. FDIC,  970 F.2d 924, 926 (1st  Cir. 1992).
                      _______    ____

          Section 1823(e)  requires any  agreement that would  diminish the

          FDIC's interest in an asset acquired as receiver to be in writing

          and executed by the failed bank.4

____________________

          3   Although  D'Oench, Duhme  & Co.  dealt with  the FDIC  in its
                        _____________________
          corporate capacity, the D'Oench doctrine equally applies in cases
                                  _______
          involving the FDIC as  receiver.  See Timberland Design,  Inc. v.
                                            ___ ________________________
          First Serv. Bank for Sav., 932 F.2d 46, 48-49 (1st Cir. 1991).
          _________________________

          4  Section 1823(e) provides:

                    No  agreement  which  tends  to  diminish  or
                    defeat  the interest  of  the  [FDIC] in  any
                    asset  acquired by  it . . .  as  receiver of
                    any insured depository institution,  shall be
                    valid   against   the   [FDIC]  unless   such
                    agreement -

                      (1) is in writing,

                      (2)  was  executed   by  the   depository
                      institution  and  any person  claiming an
                      adverse  interest  thereunder,  including
                      the  obligor, contemporaneously  with the
                      acquisition   of   the   asset   by   the
                      depository institution,

                      (3)   was  approved   by  the   board  of
                      directors  of the  depository institution
                      or its loan committee . . ., and

                      (4) has been, continuously, from the time
                      of  its execution, an  official record of
                      the depository institution.

                                         -4-

Appellants concede that no writing executed by the Bank

          exists.  Appellants argue, however, that   1823(e) does not apply

          to  this case for two  reasons.  First,  when Congress originally

          enacted    1823(e), the section applied  to the FDIC  only in its

          corporate  capacity.    It was  not  until  August  of 1989  that

          Congress  amended    1823(e), through the  Financial Institutions

          Reform,  Recovery,   and  Enforcement  Act  ("FIRREA"),  to  make

            1823(e)  directly  applicable  to  the  FDIC  in  its  receiver

          capacity.  Appellants argue that  since they reached a settlement

          with the Bank on March 15, 1989,   1823(e) does not apply to this

          case.

                    Second,  appellants argue  that  even if    1823(e), as

          amended by FIRREA, applied to cases prior to August 1989, it does

          not  reach the present case because the FDIC acquired no interest

          in the promissory  notes as  required by   1823(e).   We  address

          these arguments in turn.

                    A.  Retroactivity of FIRREA
                    A.  Retroactivity of FIRREA

                    In  general, district  courts apply  the law  in effect

          when they  render their decisions, "unless doing  so would result

          in  manifest  injustice  or   there  is  statutory  direction  or

          legislative  history to the contrary."   Bradley v. Richmond Sch.
                                                   _______    _____________

          Bd., 416 U.S.  696, 711  (1974).5   Since the  FDIC brought  this
          ___
                              
          ____________________

          5   In Kaiser Aluminum &  Chem. Corp. v. Bonjorno,  494 U.S. 827,
                 ______________________________    ________
          836 (1990), the Supreme Court noted a tension between Bradley and
                                                                _______
          Bowen  v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988), which
          _____     ______________________
          stated a  presumption against retroactivity.   However, the Court
          declined  to reconcile the cases.  Kaiser Aluminum & Chem. Corp.,
                                             _____________________________
          494 U.S. at 854.

-5-

action on March 3,  1991, almost two years after  the application

          of    1823(e) to  the FDIC  as receiver,    1823(e) presumptively

          applies to this case.

                    Thus,  we examine  the  two exceptions  to the  general

          rule.   First,  the statute  itself and  the legislative  history

          offer little  guidance as  to Congress'  intent  with respect  to

          retroactivity.   Under  Bradley, this  lack of  guidance supports
                                  _______

          retroactive application.   Bradley,  416 U.S. at  715-16 (stating
                                     _______

          that  when legislative  history  is  inconclusive, courts  should

          apply the statute retroactively).

                    Second, to determine whether a manifest  injustice will

          result from  the retroactive application  of a  statute, we  must

          balance  the  disappointment of  private  expectations caused  by

          retroactive   application   against   the   public   interest  in

          enforcement of the statute.  Demars v. First Serv. Bank for Sav.,
                                       ______    _________________________

          907  F.2d 1237,  1240  (1st Cir.  1990).   In  the present  case,

          appellants' disappointed expectations are small.   Appellants had

          notice  that their agreement had  to meet certain  criteria to be

          valid  against   the  FDIC.    The  D'Oench   doctrine  was  well
                                              _______

____________________

             The Seventh  and Eight  circuits have expressly  addressed the
          issue of retroactivity with respect to the substantive provisions
          of FIRREA.   Both of these circuits applied FIRREA retroactively.
          See FDIC v. Wright, 942 F.2d 1089, 1095-97 (7th  Cir. 1991); FDIC
          ___ ____    ______                                           ____
          v. Kasal, 913 F.2d 487, 493 (8th Cir. 1990), cert. denied, 111 S.
             _____                                     ____________
          Ct. 1072 (1991).

             In light  of the muddled  state of  the law in  this area,  we
          apply  Bradley  which  is  well-established  precedent   in  this
                 _______
          circuit.   We  find  no  prejudice in  this  application  because
          Bradley permits  retroactive application only  where no  manifest
          _______
          injustice will result.  See FDIC v. Wright, 942 F.2d at 1095 n.6.
                                  ___ ____    ______

                                         -6-

established  when  appellants  were negotiating  with  the  Bank.

          Although  D'Oench,  Duhme &  Co.  did  not explicitly  require  a
                    ______________________

          writing executed by the  Bank, it did require that  any agreement

          be clearly documented in  the Bank's records to be  valid against

          the FDIC.

                    In  addition, even  if  D'Oench, Duhme  &  Co. did  not
                                            ______________________

          provide  appellants  with  sufficient  notice  of  the  statute's

          requirements, appellants' failure to  meet these requirements did

          not result from reasonable reliance on the D'Oench doctrine.  See
                                                     _______            ___

          Van Dorn Plastic  Machinery Co. v. NLRB,  939 F.2d 402,  404 (6th
          _______________________________    ____

          Cir.  1991)  (manifest  injustice  requires  parties'  reasonable

          reliance on preexisting law).   Appellants did all they  could to

          advance settlement of the debt.  In fact, they sent the necessary

          documents, with their signatures, to the Bank for execution.  The

          Bank,  however,   refused  to  sign  the   papers.    Appellants,

          therefore, could have  done nothing  more to  satisfy either  the

          D'Oench or the statutory requirements.
          _______

                    Finally, there is no  evidence that appellants made any

          attempt to  perform under  this  agreement during  the two  years

          between the time that appellants allegedly entered this agreement

          and the  time the FDIC filed  suit.  As such,  we cannot conclude

          that appellants reasonably expected this agreement to shield them

          from liability on their notes.

                    On the other hand,    1823(e) promotes important public

          policies.   Congress amended    1823(e), through FIRREA,  to "aid

          the  FDIC  in  its  immediate responsibilities  of  dealing  with

-7-

mounting bank failures  in this  country."  FDIC  v. Wright,  942
                                                      ____     ______

          F.2d 1089, 1096 (7th  Cir. 1991).  The FDIC cannot protect public

          funds held  in  failed banks  unless it  can rely  on the  bank's

          records.  FDIC v. McCullough, 911 F.2d 593, 600 (11th Cir. 1990),
                    ____    __________

          cert. denied,  111 S. Ct. 2235  (1991).  Accordingly, we  find no
          ____________

          manifest injustice, and we apply   1823(e), as amended by FIRREA,

          to the present case.

                    B.  Acquisition of the promissory notes 
                    B.  Acquisition of the promissory notes 

                    In  order to  receive protection  under    1823(e), the

          FDIC must first  acquire the  asset in question  from the  failed

          bank.  In FDIC v. Nemecek, 641 F. Supp. 740, 743 (D. Kan.  1986),
                    ____    _______

          the district court found that the FDIC acquired no interest in  a

          bank's promissory note  because the parties reached an accord and

          satisfaction  of  the  note  prior to  the  FDIC's  receivership.

          Consequently, the  court found that   1823(e) did not protect the

          FDIC  against   the  asserted  accord  and   satisfaction.    Id.
                                                                        __

          Appellants argue  that  in the  present  case, their  notes  were

          similarly  extinguished by their  settlement agreement before the

          Bank failed.

                    Even assuming  that we  agree with the  Kansas district

          court's interpretation  of    1823(e), however, Nemecek  does not
                                                          _______

          assist appellants.   In Nemecek, the bank authorized its attorney
                                  _______

          to  enter into an accord and satisfaction with the promisors; the

          bank's attorney had already received the promisors' consideration

          before the bank failed; and the bank and the promisors considered

          the case settled.

-8-

In  the present  case,  nothing in  the bank's  records

          indicated that  the bank  authorized its  attorney to  accept the

          settlement, and no consideration changed hands.  It  would render

            1823(e) a  nullity to hold unwritten  agreements, without more,

          valid against the FDIC as long as the parties reach the agreement

          before the FDIC  takes over.  Banks and debtors  would be able to

          defraud the FDIC through secret agreements simply by reaching the

          agreement  before  the FDIC  took over.    This is  precisely the

          situation that D'Oench and   1823(e) were intended to prevent.
                         _______

                    Section 1823(e) precludes  appellants from binding  the

          FDIC to  their alleged  settlement.   Accordingly, we  affirm the

          district  courts judgment with respect to the FDIC's claim on the

          promissory notes.6 

          III.  ATTORNEYS FEES
          III.  ATTORNEYS FEES

                    We  review   the  district  court's   determination  of

          attorney's  fees  only  for  abuse  of   discretion.    Nydam  v.
                                                                  _____

          Lennerton,  948  F.2d 808,  812 (1st  Cir.  1991).   The district
          _________

          court's order exhibits a careful review of the fees and expenses.

          Indeed, the  judge rejected  $5,182  of the  claimed expenses  as

          unreasonable.   In addition,  the fees amounted  to approximately

          two percent  of the total judgment.   We cannot find  an abuse of

          discretion in this award.

                    Affirmed.
                    ________

____________________

          6  Because we find  that   1823(e) applies in this case,  we need
          not reach  the issue of  whether D'Oench Duhme  & Co. would  have
                                           ____________________
          protected the FDIC in this situation on its own.

                                         -9-