Levy v. Weinhold

• Court: Court of Appeals for the First Circuit
• Decided: October 19, 1993
• Docket: 92-2135
• Status: Published

Opinion

USCA1 Opinion

United States Court of Appeals
                            United States Court of Appeals
                                For the First Circuit
                                For the First Circuit
                                 ____________________

        No. 92-2135

                  LESLIE LEVY, AS TRUSTEE OF 225 COMMONWEALTH TRUST,
                                 Plaintiff, Appellee,

                                          v.

                    FEDERAL DEPOSIT INSURANCE CORPORATION, ET AL.,
                                Defendants, Appellees.

                                 ____________________

                                 WOLF WEINHOLD, ETC.
                                Plaintiff, Appellant.

                                 ____________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                     [Hon. Joseph L. Tauro, U.S. District Judge]
                                            ___________________
                                 ____________________

                                        Before

                                 Selya, Circuit Judge,
                                        _____________
                           Feinberg,* Senior Circuit Judge,
                                      ____________________
                              and Stahl, Circuit Judge.
                                         _____________
                                 ____________________

            Thomas N.  O'Connor with whom  Michael G. Bongiorno  and Hale  and
            ___________________            ____________________      _________
        Dorr were on brief for Wolf Weinhold, etc.
        ____
            Mark P. Szpak with  whom William L. Patton, James L. Sigel,  Ropes
            _____________            _________________  ______________   _____
        &  Gray,  Bruce  V.  O'Donnell,  Managing  Attorney,  Ann  S.  Duross,
        _______   ____________________                        _______________
        Assistant  General Counsel, Colleen B. Bombardier, Senior Counsel, and
                                    _____________________
        Barbara S. Woodall, Counsel, were on brief for FDIC.
        __________________
                                 ____________________

                                   October 19, 1993
                                 ____________________
        ____________________
        *Of the Second Circuit, sitting by designation. 

STAHL,  Circuit  Judge.   Plaintiff-appellant  Wolf
                              ______________

            Weinhold1 commenced  suit in state  court against a  bank and

            its subsidiary for, inter alia, breach of a written  warranty
                                _____ ____

            agreement.   The  bank  counterclaimed, seeking  payment from

            Weinhold  of  a  facially  unqualified  promissory  note  and

            personal guarantee.  After the  bank failed, the FDIC, in its

            capacity  as receiver,  removed  the  proceedings to  federal

            court,  and  sought  summary  enforcement  of  the  note  and

            guarantee.  The district court granted  the FDIC's motion for

            summary judgment  on  the  note,  and,  in  the  same  order,

            dismissed  Weinhold's  warranty  claims  against  the  bank's

            subsidiary.  We affirm.

                                          I.
                                          I.
                                          __

                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
                       FACTUAL BACKGROUND AND PRIOR PROCEEDINGS
                       ________________________________________

                      The corporate affiliations of  the relevant parties

            are complex,  so we begin  by tracing  them in some  detail. 

            First  American  Bank  for  Savings  ("First   American"),  a

            federally  insured  savings  bank,  owned several  subsidiary

            corporations  which were engaged  in the development  of real

            estate projects  in the Boston  area.  One  such wholly-owned

            subsidiary, First American Development Corporation IV ("FADC-

____________________

            1.  Weinhold brought suit  in his individual capacity  and in
            his  capacity as  trustee  of  225  Commonwealth  Trust  (the
            Trust).  References to Weinhold will hereinafter apply to him
            in both capacities unless otherwise noted.

                                         -2-
                                          2

IV"),2 formed  a joint  venture with  H&P Associates  Limited

            Partnership   II  ("H&P").    The  joint  venture,  known  as

            Commonwealth-Marlboro   Associates   ("CMA"),   acquired   an

            apartment   building  at   225   Commonwealth  Avenue   ("the

            property")  in Boston, with  the intention of  converting the

            property to residential  condominiums.3  CMA hired  GVW, Inc.

            ("GVW"),  a  wholly-owned  subsidiary   of  H&P,  as  general

            contractor for renovation work on the property. 

                      During  April  1986,  Weinhold   and  Leslie  Levy4

            became interested in  buying the property from CMA.   To that

            end, they  formed 225 Commonwealth  Trust ("the Trust").   On

            June 30, 1986,  Weinhold, on behalf of the Trust, bought  the

            property from CMA.  GVW  had not yet completed renovations to

            the property,  and under the  terms of the purchase  and sale

            agreement  between CMA and  Weinhold, the work  of completing

            the  renovations was  left to  GVW.   Among other  terms, the

            purchase and sale agreement included the following paragraph:

                      [CMA]  and  [GVW]  shall   enter  into  a
                      supplementary  agreement with  [Weinhold]
                      warranting, in  favor of  [Weinhold]: (a)
                      the  construction  of   the  improvements

____________________

            2.  FADC-I  through  III,  and FADC-V  through  IX  were also
            wholly-owned  subsidiaries of First  American, and were named
            as defendants.  Weinhold does not appeal the rulings below as
            to these parties.

            3.  CMA  also acquired a second apartment building in Boston,
            which is not at issue in this case.

            4.  Levy, a party  below in her capacity as trustee, is not a
            party to this appeal.

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                                          3

constituting the Project  for a period of
                      one  (1)  year   after  the  Project   is
                      [s]ubstantially [c]ompleted, and  (b) the
                      structural improvements at the [property]
                      related  to the Project  for a  period of
                      five  (5)  years  after  the  Project  is
                      [s]ubstantially    [c]ompleted.       The
                      warranties   set  forth   in  such   side
                      agreement shall survive the Closing Date.

            On September  3, 1986,  in compliance  with this  contractual

            provision,  CMA executed  a document  in  which it  warranted

            GVW's  work on  the property.   Because  FADC-IV was  a joint

            venturer in CMA, both the purchase and sale agreement and the

            September  3, 1986,  warranty were  executed  by officers  of

            FADC-IV.

                      In  addition to  purchasing the property  from CMA,

            Weinhold  also obtained  financing for  his  purchase of  the

            property through  First American,  FADC-IV's parent  company,

            borrowing $2.4  million from  First American.   The loan  was

            evidenced by  a  promissory note  signed by  Weinhold in  the

            amount   of  $2.4  million,  and  repayment  was  secured  by

            Weinhold's personal guarantee and by a  first mortgage on the

            property. 

                      Shortly after  the  sale,  disputes  arose  between

            Weinhold and GVW regarding the completion of the renovations.

            As a result,  Weinhold terminated GVW as  general contractor.

            In June of 1987, based  on GVW's failure to properly complete

            the   required   renovations,   Weinhold   brought  suit   in

            Massachusetts's Suffolk  County Superior Court  against FADC-

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                                          4

IV, H&P and GVW alleging,  inter alia, breach of contract and
                                       _____ ____

            breach  of  warranty  by  all  defendants.    Foremost  among

            Weinhold's claims was his allegation that the renovations did

            not comply with relevant zoning provisions.  

                      Weinhold  subsequently added  First  American as  a

            defendant, arguing  that FADC-IV  was an  alter ego of  First

            American.   In essence,  Weinhold argued that  First American

            was  liable   for  FADC-IV's  actions,   including  FADC-IV's

            warranty   of   GVW's  renovation   work.     First  American

            counterclaimed, alleging  that  Weinhold had  failed to  make

            mortgage payments.  First American sought payment of the note

            and enforcement of Weinhold's guarantee.

                      On October  19, 1990,  First American was  declared

            insolvent  and the  FDIC  was appointed  receiver.   The FDIC

            removed  the case  to  federal  district  court,  and  sought

            summary judgment on the note and guarantee.   

                      In granting the FDIC's motion for summary judgment,

            the district court  ruled that Weinhold  had failed to  offer

            proof of  any defense  to payment on  the note  and guarantee

            sufficient to satisfy the requisites  of D'Oench, Duhme & Co.
                                                     ____________________

            v. FDIC, 315 U.S. 447 (1942).   In a second ruling, the court
               ____

            dismissed the breach  of warranty claims that  had originally

            been  brought against  FADC-IV.    The  court  reasoned  that

            Weinhold's warranty claims against FADC-IV, like his defenses

            to the FDIC's counterclaim, failed to satisfy the demands of 

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                                          5

the D'Oench doctrine.  Upon review, we affirm both rulings.
                _______

II.
                                         II.
                                         ___

                                      DISCUSSION
                                      DISCUSSION
                                      __________

            A.  Standard of Review
            ______________________

                      Our  review   of  summary  judgments   is  plenary.

            Rivera-Ruiz  v.  Gonzalez-Rivera, 983  F.2d 332,  333-34 (1st
            ___________      _______________

            Cir. 1993).  "[W]e read the record and indulge all inferences

            in a light  most favorable to the  nonmoving party."  Id.  at
                                                                  ___

            334.   Summary judgment  is appropriate only  if there  is no

            genuine issue as to any material fact and the moving party is

            entitled to  judgment  as a  matter  of  law.   Id.  at  333.
                                                            ___

            Moreover, we are free to affirm a district court's ruling "on

            any ground supported in the record  even if the issue was not

            pleaded, tried  or otherwise  referred to  in the  proceeding

            below."   De Casenave v. United  States, 991 F.2d  11, 12 n.2
                      ___________    ______________

            (1st Cir. 1993) (citations omitted).  

            B. Weinhold's Defenses to Payment of the Note
            _____________________________________________

                      In contending  that the  district court  improperly

            granted  the FDIC's motion for summary judgment, Weinhold has

            done no more than press his affirmative warranty claims.  The

            bulk  of Weinhold's appellate  brief is dedicated  to arguing

            that  his warranty claims against First American survive both

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                                          6

D'Oench and  12  U.S.C.    1823(e),  which has  been  loosely
            _______

            described as  D'Oench's codification.5   Apparently, Weinhold
                          _______

            assumes that  a viable  breach  of warranty  claim, based  on

            CMA's  written warranty  of  GVW's construction  work,  would

            excuse  payment on the  promissory note.   Because Weinhold's

            assumption in this  regard is erroneous,  we need not  linger

            long over this argument.

                      The possibility  of  valid  set-off  or  recoupment

            claims  does not  preclude the  summary  enforcement of  debt

            instruments.   See, e.g., Hunt  v. Bankers Trust Co.,  689 F.
                           ___  ____  ____     _________________

            Supp.  666,  672 (N.D.  Tex.  1987).   Weinhold's  breach  of

            warranty  claims are  no  more  than  set-off  or  recoupment

            claims.  They involve issues of zoning, workmanship and other

            matters relating  to GVW's  work on  the renovation  project,

            rather  than issues of  liability between Weinhold  and First

            American  on  the  note  and  guarantee.   Even  were  we  to

            disregard FADC-IV's  corporate  form, as  we  are  repeatedly

            urged to do by Weinhold,  we would find, at most,  that First

            American and Weinhold  entered two separate agreements.   The

            agreement regarding the loan of $2.4 million, on one hand, is

            evidenced   by  the  note,  the  mortgage  and  the  personal

____________________

            5.  Weinhold  argues  at  great  length  that  First American
            actually  "approved" both the purchase and sale agreement and
            the September  3 warranty  agreement, despite  the fact  that
            both agreements  were signed by  officers of FADC-IV.   As we
            understand it,  this contention  is aimed  solely at  showing
            that Weinhold's  affirmative warranty claims  survive D'Oench
                                                                  _______
            and   1823(e).

                                         -7-
                                          7

guarantee.   FADC-IV's obligation to convey title to Weinhold

            and  to warrant GVW's work, on the  other hand, arises out of

            the  entirely separate purchase  and sale agreement.   Simply

            put,  GVW's  allegedly   unacceptable  workmanship  does  not

            relieve  Weinhold of  his  obligations  under  the  note  and

            guarantee.6   Cf.  Koch v.  Koch, 903  F.2d 1333,  1335 (10th
                          ___  ____     ____

            Cir. 1990) (affirming summary judgment in favor of plaintiffs

            in real estate transaction notwithstanding defendant's claims

            based on separate stock transaction executed between the same

            parties on the  same day); Exchange Nat'l Bank  of Chicago v.
                                       _______________________________

            Daniels, 768 F.2d 140, 143 (7th Cir. 1985) (affirming summary
            _______

            judgment  on claim for payment of facially unconditional note

            where defendant's allegations did not constitute a defense to

            payment). 

                      To  the extent  that Weinhold's  appeal raises  any

            defenses  other than his mistaken reliance on his affirmative

            warranty claims, it  does so in an ineffective  manner.  This

            court  has   often  warned  litigants   that  issues   raised

____________________

            6.  To the extent  that the issue of GVW's  workmanship could
            ever provide a defense to payment  of the note, it could only
            constitute a  defense of fraud  in the inducement,  a defense
            which Weinhold raised in state  court.  However, the  Supreme
            Court has made clear that    1823(e) precludes the defense of
            fraud in the inducement where the FDIC is suing on a facially
            unqualified promissory note.   See Langley v.  FDIC, 484 U.S.
                                           ___ _______     ____
            86,  94 (1987).   See  also In  re 604  Columbus Ave.  Realty
                              ___  ____ _________________________________
            Trust, 968 F.2d 1332, 1346 (1st Cir. 1992).  Moreover, to the
            _____
            extent  that Weinhold  attempts to  resurrect  on appeal  his
            claims of deceit, negligent misrepresentation, and violations
            of  Massachusetts consumer protection  laws, such  claims are
            similarly barred by Langley.
                                _______

                                         -8-
                                          8

ineffectively  are deemed waived.   E.g., In  re: Nelson, No.
                                                ____  ______________

            92-2408, slip op. at 8 n.6 (1st Cir. June 3, 1993).  

                      In sum,  even  if Weinhold's  warranty  claims  are

            valid, they are nonetheless based solely on FADC-IV's written

            warranty of GVW's  work.  As such, they amount  to set-off or

            recoupment claims, rather than defenses to his obligations on

            the note and guarantee.  Thus, they do not preclude the entry

            of summary judgment  in favor of the FDIC  for enforcement of

            the note and guarantee.

            C.  Weinhold's Warranty Claims Against FADC-IV
            ______________________________________________

                      Relying on Howell v. Continental Credit Corp.,  655
                                 ______    ________________________

            F.2d  743,  746 (7th  Cir.  1981) and  its  progeny, Weinhold

            argues that his breach of warranty claims survive D'Oench due
                                                              _______

            to the fact  that they are based on  documents which evidence

            bilateral  obligations.  See, e.g., id. (holding that neither
                                     ___  ____  ___

            D'Oench nor     1823(e) apply  "where the  document the  FDIC
            _______

            seeks  to enforce  is  one  . .  .  which facially  manifests

            bilateral obligations and serves as the basis of the lessee's
            _________

            defense").

                      Weinhold's reliance on Howell is misplaced.  In the
                                             ______

            various  cases employing  the  Howell  exception, or  similar
                                           ______

            reasoning, the claims or  defenses which the non-governmental

            party  seeks to  enforce  are contained  either  in the  very
                                                     ______

            instrument which  the  governmental party  seeks to  enforce,

            see, e.g.,  Howell, 655 F.2d  at 747 (holding that  when "the
            ___  ____   ______

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                                          9

asset upon  which the  FDIC is attempting  to recover  is the
                                                                      ___

            very same agreement that the  makers allege has been breached
            ___________________

            by the FDIC's assignors,    1823(e) does not apply"); FDIC v.
                                                                  ____

            Panelfab Puerto Rico,  Inc., 739 F.2d 26, 30  (1st Cir. 1984)
            ___________________________

            (holding that the FDIC may not invoke   1823(e) to invalidate

            claims which arise from "the same agreement on which the FDIC

            brought  the  action  in  the first  place");  FDIC  v. Aetna
                                                           ____     _____

            Casualty and Sur.  Co., 947 F.2d 196, 206-07  (6th Cir. 1991)
            ______________________

            (applying  Howell's  reasoning   to  defenses  contained   in
                       ______

            bilateral  bond agreement which  FDIC sought to  enforce); or
                                                                       __

            they are  contained in  closely related,  or "integral"  loan

            documents.   See Resolution  Trust Corp.  v. Oaks  Apartments
                         ___ _______________________     ________________

            Joint   Venture,  966  F.2d  995,  1000-01  (5th  Cir.  1992)
            _______________

            (applying Howell  exception to a liability  limitation clause
                      ______

            contained  in loan  guarantee); FDIC  v.  Laguarta, 939  F.2d
                                            ____      ________

            1231, 1238-39 (5th Cir. 1991) (applying Howell-type rationale
                                                    ______

            to  a loan  agreement and  modification  agreement that  were

            "integral to the  loan transaction"); Baumann v.  Savers Fed.
                                                  _______     ___________

            Sav. &  Loan Ass'n, 934  F.2d 1506, 1517-18 (11th  Cir. 1991)
            __________________

            (applying Howell  exception to  claims based  on a  "schedule
                      ______

            dictated in the  loan documents"), cert.  denied, 112 S.  Ct.
                                               _____  ______

            1936 (1992).

                      To  the  extent  that  Weinhold   argues  that  the

            purchase and sale agreement in  this case is an integral part

            of  Weinhold's financing  arrangements,  we disagree.   Thus,

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                                          10

even were we  to disregard FADC-IV's status as  a corporation

            separate from its  parent, First American, we  are still left

            with  two distinct agreements, one which governs the purchase

            and renovation of  the property, and the  other which governs

            the financing thereof.  Cf.  Cardente v. Fleet Bank of Maine,
                                    ___  ________    ____________________

            Inc., 796  F. Supp. 603,  612-13 (D. Me. 1992)  (declining to
            ____

            apply Howell exception  to plaintiff's claims arising  from a
                  ______

            lease  between plaintiffs and  failed bank where  FDIC sought

            enforcement of a promissory  note and mortgage on  the leased

            property  which  were  facially  unrelated  to   the  lease).

            Accordingly, the Howell  exception to D'Oench does  not apply
                             ______               _______

            to Weinhold's claims.   Given that  Weinhold offers no  other

            basis for challenging  the district court's dismissal  of his

            warranty claims, we affirm that dismissal.

                                         III.
                                         III.
                                         ____

                                     CONCLUSION 
                                     CONCLUSION
                                     __________

                      For  the  foregoing  reasons,  the  order   of  the

            district court granting summary judgment in favor of the FDIC

            and dismissing Weinhold's breach of warranty claims is 

                      Affirmed.  No costs.
                      Affirmed   No costs
                      ________   ________

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