First Interstate Bank of Billings, N.A. v. United States

27 Fed. Cl. 348, 1992 U.S. Claims LEXIS 169, 1992 WL 379679
CourtUnited States Court of Federal Claims
DecidedDecember 18, 1992
DocketNo. 90-572 C
StatusPublished
Cited by3 cases

This text of 27 Fed. Cl. 348 (First Interstate Bank of Billings, N.A. v. United States) is published on Counsel Stack Legal Research, covering United States Court of Federal Claims primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
First Interstate Bank of Billings, N.A. v. United States, 27 Fed. Cl. 348, 1992 U.S. Claims LEXIS 169, 1992 WL 379679 (uscfc 1992).

Opinion

OPINION AND ORDER

TURNER, Judge.

First Interstate Bank of Billings, N.A., brought this action to collect on a Farmers Home Administration (FmHA) Loan Note Guarantee issued to insure 90 percent of a $400,000 loan made by the bank to the DeJaegher Ranch Corporation.1 The FmHA had refused payment on the guaranty, claiming that a material misrepresentation by a bank officer at the signing of the guaranty contract caused it to be void. Defendant maintains that same defense here and also asserts four counterclaims, one contending that plaintiff’s request for payment under an invalid guaranty is actionable under the False Claims Act, 31 U.S.C. § 3729 (1988), and three based on a separate emergency loan made by FmHA directly to the ranch corporation.

This opinion addresses plaintiff’s renewed motion filed April 6, 1992 for summary judgment. Defendant argues that summary judgment is inappropriate because there exist significant factual disputes concerning plaintiff’s knowledge of reversals in the DeJaegher Ranch’s business fortunes at the time the guaranty was signed.

I

Plaintiff bank, on August 26, 1986, obtained from FmHA a Conditional Commitment for Guarantee. A Conditional Commitment is a promise to issue a final Loan Note Guarantee upon the meeting of certain conditions.

The occasion for the FmHA’s final guaranty was the restructuring of $400,000 in preexisting indebtedness owed by the ranch to the bank. The restructuring agreement was consummated by the ranch and the bank on November 3, 1986, more than six weeks before the final Loan Note Guarantee insuring 90 percent of the $400,-000 debt was signed on December 16, 1986.

A condition precedent to the final guaranty was that the bank certify that there had been no “adverse changes in the borrower’s financial condition nor any other adverse change(s) in the borrower during the period of time from FmHA’s issuance of the Conditional Commitment for Guarantee to issuance of the Loan Note Guarantee” (Def.App. at 100).

The DeJaegher Ranch failed some time after the guaranty was executed. The ranch corporation defaulted on its loan from First Interstate. (The record does not specifically indicate whether the DeJaeghers also defaulted on their individual obligations; however, it is not disputed that [350]*350the loan from the bank to the ranch corporation is in default (Answer, H 7)). Thus, if the guaranty is valid, it is payable.

In February 1987, the bank first sought payment from the FmHA under the guaranty. The FmHA refused, asserting that the Loan Note Guarantee was “null and void” (FmHA letter of May 28, 1987, Def. App. at 113), because the bank had known of a material adverse change in the ranch corporation’s business condition prior to the Guarantee closing and had not shared this information with the FmHA. Specifically, the FmHA charged that Scott Johnson, a First Interstate vice-president, knew at the time of the guaranty closing that Oppenheimer Industries had removed its cattle from the DeJaegher land. Since 1982, the DeJaegher Ranch had relied on an annual cattle lease arrangement with Oppenheimer for a significant portion of its income.

The cattle had been removed on November 21, 1986. The FmHA, basing its conclusion on a March 9,1987 letter it received in response to a request for information from Tom DeJaegher, formed the belief that Johnson knew about the cattle removal on December 10,1986. Johnson disputes this and has maintained throughout extensive discovery in a prior district court proceeding (dealing with a claim on an emergency loan made directly to the DeJaegher Ranch Corporation by the FmHA) that he did not know of the cattle removal when the guaranty closed on December 16, 1986. Though Johnson has never acknowledged knowing of the removal as early as December 16, 1986, he has at various times claimed different dates for his knowledge. In deposition testimony subsequent to his March 9,1987 letter, DeJaegher stated that he is not sure exactly when he told Johnson of the cattle removal, and that the letter to the FmHA used the language “I think” and “on or about Dec. 10” to highlight this uncertainty (Affidavit of DeJaegher, Def. App. at 134).

Before the Loan Note Guarantee was issued, FmHA officials had independently heard rumors that Oppenheimer Industries might be rearranging its cattle leasing operations in the area. The FmHA, like the bank, also knew that the Oppenheimer lease had on its face expired in October 1986. This did not cause concern at either the bank or the FmHA, as the typical course of dealing between Oppenheimer and the DeJaeghers had been to conclude during January an annual lease running from the previous October to the next October.

DeJaegher maintains that he had been told by Oppenheimer Industries of a possible impending change in the leasing arrangement, that he relayed this to Johnson in August or September of 1986 and that he had at that time mentioned to Johnson the possibility that the cattle might be removed. Johnson recalls only that DeJaegher told him the cattle lease might be restructured, but not that there was a risk of the cattle’s removal.

II

In the summary judgment motion at bar, the bank asserts that the sole issue before the court on the main claim is whether Johnson had actual knowledge of the removal of the cattle on December 16, 1986. Plaintiff argues that if defendant cannot prove Johnson’s actual knowledge of the cattle removal on that date, then plaintiff must prevail.

Defendant asserts that the bank did have actual knowledge of the cattle removal on December 16, 1986. Defendant urges alternatively that actual knowledge of adverse changes is not necessary under the guaranty to render it void, but rather that negligent misrepresentation is sufficient. Defendant further maintains that plaintiff’s alleged knowledge in advance of signing the guaranty of the possibility of the cattle’s removal is enough to void the guaranty, since failure to relay such information to FmHA constituted a material misrepresentation.

Count I of the government’s counterclaim seeks damages for the bank’s alleged violation of the False Claims Act, 31 U.S.C. § 3729(a)(1)-(2) (1988), resulting from an improper claim for payment under the guaranty. Defendant, as in the main [351]*351claim, asserts that proof of negligence is sufficient to support a False Claims Act suit and that a showing of actual knowledge is not required. Defendant also takes issue with each of the bank’s three legal defenses, to wit, (1) that the guaranty contract is valid, and that no request for payment under a valid contract can be actionable as a false claim; 2) that the False Claims Act only applies where the United States has suffered financial loss, an impossibility in this case unless the guaranty is valid; and 3) that a fraudulent application for a guaranty cannot alone support False Claims Act liability, since the eventual claim for payment (rather than the initial application) is what must be proved false.

Counterclaim Counts II, III and IV are based on an emergency loan made by the FmHA directly to the DeJaegher Ranch Corporation. The bank maintains that these counts are precluded due to an earlier district court final order based on a settlement between the bank and the government concerning the same loan.

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Cite This Page — Counsel Stack

Bluebook (online)
27 Fed. Cl. 348, 1992 U.S. Claims LEXIS 169, 1992 WL 379679, Counsel Stack Legal Research, https://law.counselstack.com/opinion/first-interstate-bank-of-billings-na-v-united-states-uscfc-1992.