Hachikian v. FDIC

• Court: Court of Appeals for the First Circuit
• Decided: September 11, 1996
• Docket: 96-1230
• Status: Published

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS

                                FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT



                              _________________________


No. 96-1230


KENNETH V. HACHIKIAN,



                                Plaintiff, Appellant,



                                          v.



                        FEDERAL DEPOSIT INSURANCE CORPORATION,



                                 Defendant, Appellee.



                              _________________________



                     APPEAL FROM THE UNITED STATES DISTRICT COURT



                          FOR THE DISTRICT OF MASSACHUSETTS



                  [Hon. George A. O'Toole, Jr., U.S. District Judge]
                                                ___________________



                              _________________________



                                        Before



                                Selya, Circuit Judge,
                                       _____________



                        Torres* and Saris,** District Judges.
                                             _______________



                              _________________________



               W.  Paul Needham,  with  whom Kevin  Hensley  and Needham  &
               ________________              ______________      __________

          Warren were on brief, for appellant.
          ______

               Karen  A.  Caplan,  with  whom  Ann S.  Duross,  Richard  J.
               _________________               ______________   ___________

          Osterman, Jr., Clark  Van Der Velde, and Thomas R. Paxman were on
          _____________  ____________________      ________________

          brief, for appellee.



                              _________________________


September 11, 1996

                              _________________________


_______________

          *Of the District of Rhode Island, sitting by designation.

          **Of the District of Massachusetts, sitting by designation.



SELYA, Circuit Judge.   Plaintiff-appellant Kenneth  V.
                    SELYA, Circuit Judge.
                           _____________



          Hachikian  seeks to  enforce,  or in  the  alternative to  obtain



          damages  for the breach of,  an oral agreement  that he allegedly



          made   with   defendant-appellee   Federal    Deposit   Insurance



          Corporation (FDIC).    The district  court  dashed his  hopes  by



          granting  the FDIC's  motion  for summary  judgment.   The  court



          reasoned  that, even if a  contract had been  formed, it violated



          the statute of frauds.  We affirm, albeit on a different ground.



          I.  BACKGROUND
          I.  BACKGROUND



                    Adhering  to  the   familiar  praxis,  we  recite   the



          pertinent  facts in  the light  most favorable  to the  party who



          unsuccessfully resisted summary judgment.



                    In  his halcyon  days the appellant  borrowed liberally



          from two  Massachusetts-based  financial institutions:    Olympic



          Bank and Bank Five for Savings.  At the times relevant hereto the



          Olympic debt consisted of (i) a  $200,000 promissory note secured



          by a third mortgage on the appellant's residence, (ii) a $115,000



          promissory  note secured by a  pledge of shares  in Chestnut Hill



          Bank  & Trust Co. (the CHBT stock), and (iii) personal guarantees



          of  two business loans which  totaled over $3,100,000.   The Bank



          Five debt consisted  of (i) a $168,750  loan secured by  a fourth



          mortgage  on  the  appellant's  residence, and  (ii)  a  personal



          guarantee of  a  business loan  having  a deficiency  balance  of



          approximately  $500,000.    As luck  would  have  it,  both banks



          foundered.    In  each instance  the  FDIC  (a government  agency



          operating under federal statutory authority, see, e.g., 12 U.S.C.
                                                       ___  ____


2



1814-1883  (1994))  was  appointed  as  the  receiver.     It



          administered  the  Olympic  receivership  from  its  Westborough,



          Massachusetts  consolidated  office  (WCO)  and   the  Bank  Five



          receivership from its Franklin, Massachusetts consolidated office



          (FCO).



                    With  the specter  of personal bankruptcy  looming, the



          appellant commenced negotiations for the settlement of his debts.



          His attorney, Michael McLaughlin,  wrote several letters to Kathy



          Callen, a WCO  account officer.   After months  of haggling  over



          possible settlement models, McLaughlin received  a telephone call



          from Callen  on June 3, 1993, in which she stated that her agency



          had  approved the  appellant's  latest proposal.   The  next day,



          McLaughlin  wrote to Callen outlining  the details of the bargain



          that he believed had just been struck:  in exchange for a release



          of the appellant's indebtedness to both Olympic and Bank Five and



          the discharge of the  third and fourth mortgages  that encumbered



          his residence, the appellant  agreed to (i) pay the  FDIC $17,500



          in cash, (ii)  transfer to it the CHBT stock,  and (iii) sell his



          residence and remit  the net  sale proceeds (estimated  to be  in



          excess of $100,000).   The  FDIC did not  respond immediately  to



          McLaughlin's  communique,  but  it  later  asserted  (before  any



          performance took place)  that, while it had approved a settlement



          paradigm,  it  had  never  assented  to,  and  Callen  had  never



          acquiesced in, the settlement described by McLaughlin.1

                              
          ____________________



               1Although  the FDIC  did not  contemporaneously provide  the

          appellant  with a written description  of the terms  that in fact

          had  been approved  on  June 3,  1993,  it told  the  appellant's



                                          3



By  October of  1993 the appellant  knew that  the FDIC



          refused to  abide by the  terms that McLaughlin  said constituted



          the agreed  settlement.  In  November, the  appellant proposed  a



          new, more circumscribed agreement.  This proposal envisioned that



          the FDIC  would discharge the two  mortgages that it held  on the



          appellant's residence in return for the net proceeds derived from



          a  sale  of  that property.    The  appellant characterized  this



          proposal  as being in mitigation of the damages stemming from the



          FDIC's "breach" of the earlier "settlement agreement."



                    Peter Frazier, Callen's replacement as  the WCO account



          officer  responsible  for  supervising  the   appellant's  debts,



          responded  to the new proposal  by letters dated  November 30 and



          December 21, respectively.   The letters stated in substance that



          while the FDIC agreed  to release the third and  fourth mortgages



          on  the appellant's residence in  exchange for the  avails of the



          anticipated sale, the  proceeds would merely  be credited to  the



          appellant's  account  and the  excess  indebtedness  would remain



          "open and payable  in full."  Against  this contentious backdrop,



          the  FDIC  discharged both  mortgages  in December  of  1993; the



          appellant  sold his home; and the FDIC received net sale proceeds



          of approximately $103,000.



                    In  January of  1994,  the  appellant's attorney  again



          wrote  to  the  FDIC,  reiterating  his  view that  the  December



          transaction was  accomplished merely as a means of mitigating the

                              
          ____________________



          counsel  that the  sanctioned  settlement called  solely for  the

          discharge of the indebtedness administered through the WCO, i.e.,

          the appellant's obligations to Olympic.



                                          4



damages  caused by  the FDIC's repudiation  of the  earlier (June



          1993)  pact.   He  also demanded  that  the FDIC  cancel  all the



          appellant's  notes and guarantees.  The agency refused to grant a



          global  release.  In short  order, the appellant  sued in federal



          district court seeking money damages, specific performance, and a



          declaratory judgment upholding the supposed June 1993 agreement.



                    The  FDIC   denied  the  material  allegations  of  the



          complaint and  moved for  brevis disposition.   It argued,  among
                                    ______



          other things, that the district court lacked jurisdiction because



          the appellant had failed to comply with the administrative claims



          review process; that no agreement came into being in June of 1993



          because  there had been no meeting of the minds; that, regardless



          of  what  Callen  may have  stated,  it  never  had approved  the



          settlement terms chronicled by McLaughlin;  and that, even if  an



          oral  contract had  been formed,  it was unenforceable  under the



          statute  of  frauds.   The  district  court  rejected the  FDIC's



          jurisdictional argument2 but  determined that  the oral  contract



          violated the  statute of  frauds,  Mass. Gen.  L.  ch. 259,     1



          (1996), and granted judgment accordingly.  See Hachikian v. FDIC,
                                                     ___ _________    ____



          914 F. Supp. 14, 17 (D. Mass. 1996).  This appeal ensued.



          II.  ANALYSIS
          II.  ANALYSIS



                    The  Civil  Rules  provide that  summary  judgment  may



          flourish when "there is no genuine issue as to any material  fact



          and  . . . the moving party is entitled to a judgment as a matter



                              
          ____________________



               2The  FDIC has not pursued this issue on appeal, and we take

          no view of it.



                                          5



of  law."  Fed. R.  Civ. P. 56(c).   On appeal from  the entry of



          summary judgment we review the district court's decision de novo,



          construing  the  record  in  the  light  most  congenial  to  the



          nonmovant and resolving all reasonable inferences in that party's



          favor.   See Maldonado-Denis v. Castillo-Rodriguez,  23 F.3d 576,
                   ___ _______________    __________________



          581  (1st Cir.  1994).   We  are  not wed  to  the lower  court's



          rationale,  but may affirm the  entry of summary  judgment on any



          alternate ground made  manifest by  the record.   See Garside  v.
                                                            ___ _______



          Osco  Drug,   Inc.,  895   F.2d  46,   48-49  (1st   Cir.  1990);
          __________________



          Polyplastics,  Inc., v.  Transconex, Inc.,  827 F.2d  859, 860-61
          ___________________      ________________



          (1st Cir. 1987).



                    The statute  of frauds question is  freighted with com-



          plexity, see generally Restatement (Second) of Contracts   147(2)
                   ___ _________



          (1979) (explaining that when the duty to  perform those "promises



          in a contract which  subject it to the [statute of frauds]  . . .



          has been discharged,"  the statute  of frauds  "does not  prevent



          enforcement of the remaining promises"), and we need not reach it



          here.  The short  answer to the appellant's importunings  is that



          the  purported agreement  on which the  appellant bases  his suit



          never came into being.  To be sure, the FDIC approved a potential



          settlement  on   June  3,  1993      but  the   agency's  records



          conclusively   demonstrate   that  the   contemplated  settlement



          involved only  that portion of the  appellant's indebtedness that



          came under  the aegis of  the WCO.   The appellant has  not shown



          (and,  indeed, does  not aver)  that the  FDIC duly  authorized a



          global  settlement   of  his  aggregate  (i.e.,   WCO  plus  FCO)


6



indebtedness.  He claims only that a representative of the FDIC  



          Callen   assured  his attorney  that such a  settlement had  been



          approved by the appropriate plenipotentiaries  within the agency.



          Even assuming,  as  we  must, the  accuracy  of  the  appellant's



          version  of  Callen's  statement,  this is  simply  too  porous a



          foundation  on  which  to  posit  liability  on  the  part  of  a



          government agency.



                    Dealing with the sovereign brings to bear a special set



          of rules  that are more demanding than  those that apply when one



          deals  with a private party.  See,  e.g., Rock Island, Ark. & La.
                                        ___   ____  _______________________



          R.R. Co. v. United States, 254 U.S.  141, 143 (1920) (Holmes, J.)
          ________    _____________



          (warning  that citizens "must turn square  corners when they deal



          with the  Government").   Thus, for  example, parties seeking  to



          recover  against the United States in an action ex contractu have
                                                          __ _________



          the  burden of  demonstrating  affirmatively that  the agent  who



          purported to bind the  government had actual authority to  do so.



          See  H. Landau &  Co. v. United  States, 886 F.2d  322, 324 (Fed.
          ___  ________________    ______________



          Cir. 1989).  This rule is dispositive here.



                    The FDIC's  board of directors is  permitted by statute



          to authorize agents and employees  to exercise the powers granted



          to the agency by Congress.   See 12 U.S.C.    1819(a).  The  FDIC
                                       ___



          asserts without contradiction that  its board passed a resolution



          concerning the  delegation of  authority to dispose  of corporate



          assets (like the debts  Hachikian owed to failed banks  and which



          were  inherited  by  the  FDIC  qua   receiver),  and  that  this
                                          ___



          resolution  was in effect at  all relevant times.   By its terms,


7



the resolution  delegates authority to a  Credit Review Committee



          (CRC)  to approve  the  settlement  of  debts  on  the  order  of



          magnitude owed  by the appellant.   In  contrast, the  resolution



          cedes no  authority  to  account officers  (such  as  Callen)  to



          approve such  settlements.   This description of  the settlement-



          approving process is uncontradicted,  and, in fact, the appellant



          admits  that  Callen had  no  authority to  approve  a settlement



          herself.   He also acknowledges that he understood all along that



          only  the  CRC could  accept his  settlement  offer and  bind the



          agency to it.   On a record  that is barren of any  evidence that
                                                         ___



          the CRC approved a  settlement embodying a global release  of the



          appellant's obligations, no  reasonable factfinder could conclude



          that  the  purported agreement  on  which  the appellant's  claim



          depends ever materialized.



                    Perusing the record in the light most flattering to the



          appellant, we are left with this scenario:  on June  3, 1993, the



          CRC  approved a  settlement applicable  only to  the indebtedness



          managed by  the WCO for  the consideration limned  by McLaughlin,



          and on the  same day Callen  mistakenly informed McLaughlin  that



          the  CRC had approved a global settlement that included the debts



          administered through both  the WCO  and the FCO.   This  scenario



          cannot support  a breach-of-contract claim because  the CRC (and,



          hence,  the  FDIC)  never  accepted  the  terms  offered  by  the



          appellant.



                    Nevertheless,  the appellant  has a  fallback position:



          Callen, he says,  may have lacked actual authority  to compromise


8



debts  but  she had  actual  authority to  communicate  the CRC's



          wishes  to debtors.    The government  is  therefore bound,  this



          thesis runs, by  her communication.   The thesis  will not  wash.



          Callen's miscommunication  of the  CRC's position could  not bind



          the FDIC inasmuch as the federal  government may only be bound by



          officials vested  with lawful authority  to do so.   As the Court



          has held:



                    [C]ontracts,  express  or  implied,   may  be

                    judicially enforced against the Government of

                    the United States.   But such a liability can

                    be  created  only  by  some  officer  of  the

                    Government  lawfully  invested with  power to

                    make such contracts or  to perform acts  from

                    which they may be lawfully implied.



          Eastern Extension, Australasia & China Tel. Co. v. United States,
          _______________________________________________    _____________



          251 U.S. 355, 366 (1920).



                    Nor  can  the  appellant rewardingly  rely  on Callen's



          authority to  communicate the CRC's  decisions to debtors  as the



          tie  that  binds the  FDIC to  the  global settlement.   Callen's



          authority  was restricted to  communicating what the  CRC in fact



          decided.  Though her mistaken  communication may well have seemed



          to  be authorized  at the time,  the upshot  of the  web of legal



          rules requiring proof of a government actor's actual authority is



          that  apparent authority cannot serve  as a means  of holding the



          federal sovereign to  a contract.   The Supreme Court  succinctly



          stated this principle of contract formation:



                    Whatever  the form  in  which the  Government

                    functions,    anyone    entering   into    an

                    arrangement  with  the  Government takes  the

                    risk of having accurately ascertained that he

                    who purports to act for the Government  stays

                    within the bounds of his authority.



                                          9



Federal Crop Ins.  Corp. v.  Merrill, 332 U.S.  380, 384  (1947).
          ________________________     _______



          This  means  that if  the federal  actor  did not  possess actual



          authority, the claimed contract fails.  See, e.g.,  United States
                                                  ___  ____   _____________



          v.  Beebe, 180 U.S. 343, 351-55 (1901); Urso v. United States, 72
              _____                               ____    _____________



          F.3d 59,  60 (7th Cir. 1995); Caci, Inc. v. Stone, 990 F.2d 1233,
                                        __________    _____



          1236 (Fed. Cir. 1993); Prater v. United States, 612 F.2d 157, 160
                                 ______    _____________



          (5th Cir. 1980).  So it is here.



                    If more  were needed   and we doubt that it is   policy



          rationales for  this rule  can be  extrapolated from  the closely



          related theory that equitable estoppel  is generally inapplicable



          to the federal  government when its employees  induce reliance by



          their unauthorized  actions.3  See,  e.g., Merrill,  332 U.S.  at
                                         ___   ____  _______



          384-85.   Judicial enforcement  of  unauthorized contracts  would



          "expand   the  power   of  federal   officials   beyond  specific



          legislative limits," thereby raising serious separation of powers



          concerns.  Falcone v. Pierce, 864  F.2d 226, 229 (1st Cir. 1988).
                     _______    ______



          Furthermore, enforcing such agreements would put the public purse



          at undue risk.  See id. (explaining that "in order to protect the
                          ___ ___



          resources essential to maintain government for all people, it may



          be  necessary   in  some   instances  to  deny   compensation  to



          individuals harmed by government misconduct").



                              
          ____________________



               3In all events, estoppel is  not a viable alternative  here.

          In  the  first  place,  the appellant  expressly  disclaimed  any

          reliance on an estoppel theory.  In the second place, estoppel as

          a  means  of  binding  the  federal  government  to  unauthorized

          agreements has been almost universally rejected.  See, e.g., Utah
                                                            ___  ____  ____

          Power & Light Co. v. United States, 243 U.S. 389,  408-09 (1917);
          _________________    _____________

          FDIC v. Roldan Fonseca,  795 F.2d 1102, 1107-08 (1st  Cir. 1986);
          ____    ______________

          Phelps v. FEMA, 785 F.2d 13, 17 (1st Cir. 1986).
          ______    ____



                                          10



III.  CONCLUSION
          III.  CONCLUSION



                    We  need  go no  further.4   Not  only did  Callen lack



          actual  authority to bind the FDIC,  but the appellant understood



          that  reality throughout the negotiations.  In the absence of any



          significantly probative  evidence either that  the delegation  of



          authority extended further than the documentary submissions show,



          or that the CRC  approved a global settlement, the  "contract" on



          which the appellant sues is nothing more than wishful thinking.


Affirmed.
          Affirmed.
          ________


____________________



               4The  FDIC  contests  the  federal  courts'  subject  matter

          jurisdiction over  the appellant's  claims for  equitable relief,

          e.g.,  specific performance.   Its  objection is  premised on  12

          U.S.C.   1821(j),  a statute  that, with  certain exceptions  not

          relevant here, prohibits courts  from "tak[ing] any action .  . .

          to restrain or affect the exercise  of powers or functions of the

          [FDIC] as a conservator or receiver."   Since "[i]t is a familiar

          tenet that when an appeal presents a jurisdictional quandary, yet

          the merits of the underlying issue, if reached, will in any event

          be  resolved  in  favor  of  the  party  challenging  the court's

          jurisdiction,  then  the  court  may forsake  the  jurisdictional

          riddle  and simply dispose of  the appeal on  the merits," United
                                                                     ______

          States v. Stoller, 78  F.3d 710, 715 (1st Cir.  1996) (collecting
          ______    _______

          cases), petition for cert. filed, 64 U.S.L.W. 3823 (May 29, 1996)
                  ________________________

          (No. 95-1936),  we leave  the FDIC's jurisdictional  argument for

          another day.



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