Grande v. Bank of New England

Opinion

USCA1 Opinion

June 1, 1994          [NOT FOR PUBLICATION]
                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT

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          No. 93-2049

                                   VINCENT GRANDE,

                                Plaintiff - Appellant,

                                          v.

                         BANK OF NEW ENGLAND OLD COLONY, N.A.
                      AND FEDERAL DEPOSIT INSURANCE CORPORATION,

                               Defendants - Appellees.

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                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                     [Hon. Robert E. Keeton, U.S. District Judge]
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                                        Before

                              Torruella, Circuit Judge,
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                           Campbell, Senior Circuit Judge,
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                               and Cyr, Circuit Judge.
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               Robert S. Wolfe, with whom Wolfe Associates, Alan R. Hoffman
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          and Lynch, Brewer, Hoffman & Sands, were on brief for appellant.
              ______________________________
               Claire  L.  McGuire,  Counsel,  Federal   Deposit  Insurance
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          Corporation, with whom Ann  S. DuRoss, Assistant General Counsel,
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          Colleen B. Bombardier, Senior Counsel, Federal Deposit  Insurance
          _____________________
          Corporation, Paul  R.  Devin, Allan  N. David,  Sandra P.  Criss,
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          Peabody & Arnold, Richard E. Gentilli and Kaye, Fialkow, Richmond
          ________________  ___________________     _______________________
          & Rothstein, were on brief for appellees.
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Per  Curiam.   In this  action, the  plaintiff, Vincent
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          Grande,  as Trustee of R. D. Realty Trust, asserts several claims

          against  the  Federal Deposit  Insurance Corporation  ("FDIC") as

          receiver  for the Bank of  New England ("BNE").   As the district

          court noted, the form of Grande's claims  is substantively driven

          by  his desperate attempt to avoid  the reach of D'Oench, Duhme &
                                                           ________________

          Co. v.  Federal Deposit Ins. Corp., 315 U.S. 447, 457 (1942), and
          ___     __________________________

          its statutory cognate, 12 U.S.C.   1823(e).  After a bench trial,

          the district  court found  that Grande's  attempts fell  short of

          overcoming  the  nearly insurmountable  hurdle  that  the D'Oench
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          Duhme doctrine presents,  and found in favor  of the FDIC on  all
          _____

          counts.  We affirm.

                                      BACKGROUND
                                      BACKGROUND
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                    BNE held a first mortgage on a condominium development.

          Manchester  Properties  Limited   Partnership  ("MPLP")  was  the

          mortgagor.    Grande  held a  second  mortgage  on the  property.

          Eventually,  the BNE  loan went  into  default, the  mortgage was

          foreclosed, and the property was sold at a deficiency.

                    Grande makes several claims  to attempt to recover some

          of the foreclosure  proceeds despite BNE's priority  in its first

          mortgage over  Grande's second  mortgage.  First,  Grande asserts

          that BNE agreed to allow him and MPLP to exchange Grande's second

          mortgage  for the first  condominium unit built.   Second, Grande

          claims that even if  D'Oench, Duhme or 12  U.S.C.   1823(e)  bars
                               ______________

          direct claims based  on the purported  agreement between BNE  and

          MPLP to allow an exchange (between MPLP and Grande) of the second

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mortgage  for  a  condominium  unit,  BNE's  mortgage  should  be

          equitably subordinated to Grande's  claims.  Third, Grande points

          to  language in the first mortgage that Grande contends should be

          read as permitting him to receive a portion of the  proceeds of a

          foreclosure  sale,  before  the  first  mortgage  is   satisfied.

          Fourth, Grande claims that he is entitled to recovery because BNE

          negligently supervised construction  at the condominium  project,

          and this  caused a  loss of approximately  $200,000 which  harmed

          Grande.1

                                   GRANDE'S CLAIMS
                                   GRANDE'S CLAIMS
                                   _______________

                    With respect  to  Grande's first  contention, we  agree

          with the district court that Grande's claim is barred by D'Oench,
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          Duhme and 18 U.S.C.   1823(e).2  We will not  rehash the district
          _____
                              
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          1  Grande has raised other subsidiary contentions on appeal.   We
          have reviewed these issues and believe that they are meritless.

          2  12 U.S.C.   1823(e) expressly provides:

                    No  agreement  which  tends  to  diminish  or
                    defeat  the  interest  of [the  FDIC]  in any
                    asset  acquired by it  under this  section or
                    section   1821  of  this   title,  either  as
                    security  for a  loan  or by  purchase or  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

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court's thorough discussion of the barriers D'Oench, Duhme and 12
                                                      ______________

          U.S.C.    1823(e) present  to claims  against the  FDIC, and  the

          expansive  reach of the D'Oench,  Duhme doctrine.   See Grande v.
                                  _______________             ___ ______

          Federal Deposit Insurance  Corp., No. 91-10080,  slip op. at  3-6
          ________________________________

          (D.  Mass. September 7, 1993).  Rather, we conclude that Grande's

          claim  that BNE agreed to an exchange of Grande's second mortgage

          for  a condominium unit does not comport with the requirements of

          D'Oench,  Duhme and  12  U.S.C.   1823(e),  and therefore  Grande
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          cannot rely on this agreement as a basis for recovery against the

          FDIC.    Under D'Oench,  Duhme, bank borrowers  or guarantors are
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          prohibited  from using  secret or  unrecorded side  agreements to

          defend against efforts by the FDIC to collect on promissory notes

          that it has acquired from a failed bank.  See D'Oench, Duhme, 315
                                                    ___ ______________

          U.S.  at  460.  Similarly,  12  U.S.C.    1823(e)  codifies  this

          principle and requires, in pertinent part to this appeal, that no

          agreement which tends to diminish the interest of the FDIC in any

          asset acquired by it as receiver, shall be valid against the FDIC

          unless  it  is  "approved  by  the  board  of  directors  of  the

          depository  institution or  its  loan committee,  which  approval

          shall be reflected in the minutes of said board or committee."

                    Grande  has  failed  to  prove that  the  exchange  was

          approved  by   the  relevant  BNE  credit   committee,  and  more
                              
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                      committee,   which   approval  shall   be
                      reflected in the minutes of said board or
                      committee, and

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

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importantly, that  this approval  was officially recorded  in the

          requisite committee minutes.   Rather, Grande proffers and relies

          upon  evidence of  negotiations  between BNE,  MPLP, and  Grande,

          regarding the proposed  exchange.  As  the district court  found,

          this evidence is insufficient to  satisfy the requirements of  12

          U.S.C.    1823(e).  Furthermore, Grande's  arguments that certain

          documents  were  incorporated  into  other  documents  that  were

          approved  by  the  credit  committee are  unsubstantiated.    Put

          simply,  the minutes of BNE's credit committee do not contain any

          mention  of  an agreement  permitting  the  exchange of  Grande's

          second mortgage for the condominium unit.  Therefore, 12 U.S.C.  

          1823(e) and  D'Oench, Duhme bar  Grande's claims against  the BNE
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          based on this alleged agreement.

                    Grande alternatively claims that even if his claims are

          barred by D'Oench, Duhme and 12 U.S.C.   1823(e), the doctrine of
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          equitable subordination requires that  Grande's mortgage be given

          priority.   To  make out  a  claim for  equitable  subordination,

          traditionally a bankruptcy  doctrine, a party must  prove that 1)

          the  claimant engaged in some sort of inequitable conduct; 2) the

          misconduct  resulted in  injury  to the  bankrupt's creditors  or

          conferred  an unfair advantage on the  claimant; and 3) equitable

          subordination  of   the  claim  is  not   inconsistent  with  the

          provisions  of  the Bankruptcy  Code.   In  re 604  Columbus Ave.
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          Realty Trust,  968 F.2d  1332, 1353  (1st  Cir. 1992)  (citations
          ____________

          omitted).  Thus, to support a claim in  this context, Grande must

          first prove that BNE engaged in some sort of inequitable conduct.

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As evidence of such inequitable conduct, Grande contends that the

          BNE  improperly  administered the  construction  loan  and, as  a

          result,  some $200,000  of construction  funds were  not properly

          disbursed.   The district court found, however, that there was no

          evidence  that these unaccounted for  funds did not,  in fact, go

          into the  project, and thus  there is no predicate  for a finding

          that any wrongdoing  occurred on  the part of  any BNE  employee.

          Additionally, the district court found that Grande did not suffer

          any harm  based on the alleged  inequitable conduct of BNE.    We

          see no reason to  disturb either of the district  court's factual

          findings.3   Grande has therefore failed to sustain his burden of

          proof on the equitable subordination claim, and we need not reach

          the question of whether Grande's equitable subordination claim is

          barred as a matter of law based on D'Oench, Duhme and 12 U.S.C.  
                                             ______________

          1823(e).4

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          3  We review a district court's finding of facts in a bench trial
          under the clear error  standard.  Dedham Water Co.  v. Cumberland
                                            ________________     __________
          Farms Dairy, 972 F.2d 453, 457 (1st Cir. 1992).
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          4   Grande also brought a claim under Mass. Gen. L. ch. 93A based
          upon alleged unfair  actions taken  by BNE.   The district  court
          found  that Grande failed to  satisfy his burden  of proving that
          BNE made misrepresentations  or otherwise  acted unfairly  toward
          MPLP  or Grande.  While  Grande argues that  the district court's
          factual  Mass. Gen. L. ch. 93A findings were "fatally flawed," he
          has  not pointed  to any  specific evidence  in the  record which
          demonstrates  that these  findings were  clearly erroneous.   The
          fact   that  certain   evidence   was   susceptible  of   another
          interpretation  is insufficient  to show that  the interpretation
          chosen  by the district court was erroneous.  Rather, where there
          are  two permissible  views of  the evidence,  the interpretation
          assigned  by the  district court  must be  adopted.   Williams v.
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          Poulos, 11  F.3d 271, 278 (1st Cir.  1993).  Therefore, we credit
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          the  district court's findings and affirm its ruling on the Mass.
          Gen. L. ch. 93A claim.

                                         -6-

Grande's third contention is a breach of contract claim

          to the effect  that language  in BNE's first  mortgage should  be

          read  as modifying  the  priorities of  the  mortgages to  permit

          Grande  to receive a portion  of the proceeds  of the foreclosure

          sale.    We  agree with  the  district  court's  ruling that  the

          language in the documents that Grande relies upon simply does not

          support  his interpretation  that the  priority of  the mortgages

          should  be altered.  For  instance, Grande points  to language in

          Schedule A of  the first  mortgage deed, which  provided for  the

          payment   of  release   fees  to   Grande  under   the  following

          circumstances:

                      The   Mortgagee   shall   issue   partial
                      releases of this mortgage for  each newly
                      constructed unit upon  the payment to  it
                      by  the  Mortgagor   of  ninety   percent
                      (90.0%) of the  proceeds, net  reasonable
                      costs of conveyance  and partial  release
                      fee of Forty-seven  thousand two  hundred
                      twenty-two   and    22/100   ($47,222.22)
                      dollars  per  unit   to  the   Mortgagee,
                      Vincent Grande, Trustee . . .

          This language cannot reasonably be read to change the priority so

          that  the first mortgage is  subordinated to the  interest of the

          second  mortgagee.    Rather,   the  provision  seems  to  simply

          anticipate  the payment of release fees on completed units at the

          time  they were  sold.   No  units were  completed  prior to  the

          default.   Moreover, upon foreclosure, Grande's  rights under the

          second  mortgage, including  the  payment of  release fees,  were

          extinguished.  See Duff v. United States Trust Co., 327 Mass. 17,
                         ___ ____    _______________________

          20, 97 N.E.2d  189, 191 (1951)  (an agreement to  give a  partial

          release is only effective until default under the mortgage).

                                         -7-

Grande's  final contention  is that  he is  entitled to

          recovery based  upon BNE's negligent supervision  of construction

          on  the project, causing a  loss of approximately  $200,000.  The

          district  court  found that  Grande  failed  to proffer  credible

          evidence   demonstrating   that    BNE   negligently    inspected

          construction  on  the project  and/or  improperly advanced  funds

          under the construction loan  agreement.  The district  court also

          found that  Grande failed to prove  that he was damaged,  or that

          the  value  of  the  property  was  impaired,  by  BNE's  alleged

          negligence.  Again,  we have not been  shown any evidence  in the

          record  which  demonstrates  why  these  findings   were  clearly

          erroneous.     Therefore,  Grande's  claim   based  on  negligent

          supervision also fails.

                    For the foregoing reasons, the decision of the district

          court is affirmed.
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