NE Comm. Dev. Group v . FDIC CV-92-236-JD 06/06/95 P UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Northeast Community Development Group, et a l .
v. Civil N o . 92-236-JD
Federal Deposit Insurance Corporation, et a l .
O R D E R
The plaintiffs, Northeast Community Development Group
("Northeast"), CCI Associates ("CCI"), Concord Comfort Inn, Inc.
("Inn, I n c . " ) , Stephen M . Duprey, Timothy M . Duprey, and
Christopher W . Duprey, bring this action against the defendants,
Federal Deposit Insurance Corporation (FDIC), as liquidating
agent and/or receiver of New Hampshire Savings Bank ("Bank"), and
New Dartmouth Bank ("NDB"), now or formerly as servicing agent
for the FDIC and/or as successor to or assignee of the Bank or
the FDIC,1 pursuant to 12 U.S.C. § 1819(b) and 28 U.S.C. §§ 1331,
1 The plaintiffs allege
[NDB] . . . . now or formerly served as the Servicing Agent for FDIC and now or formerly is or was, or may be or may have been, the successor to or assignee of the Bank or the FDIC with respect to some or all of the Loans.
Amended Complaint, ¶ 1 1 . In their answers, the defendants
den[y] that the term "Servicing Agent" accurately describes any relationship which [NDB] has had with the 1345, 1367, 2201 and 2202, seeking damages for breach of
contract, negligent misrepresentation, fraud in the factum,
promissory estoppel, equitable estoppel and breach of the New
Hampshire Consumer Protection Act, New Hampshire Revised Statutes
Annotated ("RSA") c h . 358-A (1984 & Supp. 1994) (Counts I-IX).
The plaintiffs also seek a declaratory judgment to establish
complete defenses of setoff, recoupment, counterclaim, accord and
satisfaction, waiver and estoppel, and the statute of
limitations, with respect to certain loans made by the Bank to
the plaintiffs (Count X ) . Before the court are ( 1 ) the FDIC's
motion for summary judgment as to each of the claims and defenses
in the amended complaint except for the claim for declaratory
relief as to the statute of limitations ("FDIC's Motion for
Summary Judgment") (document n o . 6 3 ) ; ( 2 ) NDB's motion for
summary judgment as to each of the claims and defenses in the
amended complaint except for the claim for declaratory relief as
to the statute of limitations ("NDB's Motion for Summary
FDIC in any of its capacities. NDB's Answer to Amended Complaint, ¶ 11; FDIC's Answer to Amended Complaint, ¶ 11.
2 Judgment") (document n o . 64); 2 and (3) the plaintiffs' motion for
summary judgment as to Count X (document n o . 6 9 ) .
Background
On October 1 0 , 1991, the FDIC was appointed as the
liquidating agent to act as receiver of the Bank, in which
capacity it is the successor to the Bank's rights, titles, powers
and privileges with respect to the loans at issue. 12 U.S.C.A. §
1821(d)(2)(A). The FDIC "entered into a purchase-and-assumption
transaction with [NDB] as the assuming bank." Defendants'
Memorandum, Exhibit A (Affidavit of [Banc One New Hampshire Asset
Management Corporation ("BONHAM") employee] Robert Thunstrom)
("Thunstrom A f f . " ) , ¶ 3 .
I. The Governor's Woods Loan
In 1987 the Bank entered into one or more loan agreements
with Northeast for a project located in Concord, New Hampshire,
known as Governor's Woods. According to the plaintiffs, the Bank
2 The court notes that the motions for summary judgment contained in documents 63 and 64 are based on identical legal grounds. Compare Memorandum of Law of Defendants FDIC and New Dartmouth Bank in Support of their Motions for Summary Judgment (document n o . 65) ("Defendants' Memorandum") with Joint Supplemental Memorandum of Defendants FDIC and New Dartmouth Bank in Support of their Respective Motions for Summary Judgment (document n o . 76) ("Defendants' Joint Supplemental Memorandum").
3 "entered into a development, construction and working capital
loan with Northeast" for the Governor's Woods project in the
amount of $2,350,000 ("Governor's Woods Loan"). Amended
Complaint, ¶ 1 9 . Payment for the amount due under the Governor's
Woods Loan was guaranteed by plaintiffs Timothy Duprey,
Christopher Duprey, and Stephen Duprey. The plaintiffs allege
the loan agreement and other loan documents for the Governor's
Woods Loan "permitted and were intended to provide for the
payment of accrued interest through additional loan advances."
Id.
The plaintiffs allege that in early 1989 the Bank "breached
its agreement and course of dealing to fund interest payments
from the Governor's Woods Loan and induced Northeast to fund the
debt service on the Governor's Woods Project from Northeast's own
internal and affiliate sources." Amended Complaint, ¶ 2 0 . The
plaintiffs have not presented the court with evidence of a
written agreement signed by the Bank in which the Bank is
committed to fund interest payments from the Governor's Woods
Loan, rather they state that "the loan documents permitted the
funding of interest payments with advances from the line of
credit," Plaintiffs' Objection Memorandum at 15 (emphasis added),
that "[t]he Bank committed to allowing [Northeast] to make
interest payments in this manner," id. at 1 6 , and that "the
4 Bank's officers made this commitment as a part of their course of
dealing." Id. (emphasis added).
The plaintiffs have submitted copies of the Bank's
Investment Committee minutes dated January 1 9 , 1988, and March
1 5 , 1988. Plaintiffs' Supplemental Memorandum of Law Examining
Newly Disclosed Information in Support of Plaintiffs' Objections
to the Defendants' Motions for Summary Judgment ("Plaintiffs'
Supplemental Memorandum"), Supplemental Exhibits 1-2 (Bank
Document Numbers 060418 and 060416) (January 1 9 , 1988, minutes)
and 3-4 (Bank Document Numbers 059876 and 059870) (March 1 5 ,
1988, minutes). These minutes reflect votes by the committee to
approve changes in the status of certain portfolio loans. Id.
The January 19 minutes state:
The following properties were released from mortgage securing loans: . . .
December 2 4 , 1987 - Loan #05048, 05049 - Northeast Community Development Group - realty in Concord - consideration $283,848.91 - balance revolving - no valuation - no new monthly payment.
Supplemental Exhibit 2 . The March 1 5 , 1988, minutes state:
February 1 0 , 1988 - Loan #05048, #05059 - Northeast Community Development Group - realty in Concord - consideration $162,237.74 - revolving balance - no valuation - no new monthly payment.
Supplemental Exhibit 4 . The plaintiffs contend that these
minutes "confirm the approval of the conversion of the Governor's
5 Woods Loan to a revolving note, and document that the Bank was
not expecting or requiring the Plaintiffs to make any new monthly
payments, including interest payments." Plaintiffs' Supplemental
Memorandum at 2 .
The plaintiffs further allege that a duly authorized loan
officer of the Bank made "explicit promises that if Northeast
funded the Governor's Woods Loan through June 3 0 , 1989 and if
Northeast proceeded with other actions in the liquidation of its
Loans, the Bank would make future accommodations to and for the
benefit of Northeast and the other Plaintiffs." Amended
Complaint, ¶ 2 1 . The plaintiffs allege that they "relied on
these promises by exhausting Northeast's working capital and
other liquid assets to meet the interest payments through June of
1989, by drastically reducing staff and other operating expenses
and by undertaking exhaustive efforts to sell, lease or otherwise
maximize the value of Northeast's assets." Id., ¶ 2 2 .
A search of the Bank's documents pertaining to the
Governor's Woods Loan conducted by BONHAM employee Robert
Thunstrom, Thunstrom Aff., ¶ 6, and FDIC3 employees Mary Moody,
Defendants' Memorandum, Exhibit B (Affidavit of Mary Moody)
3 The Bank's documents regarding the loans at issue are contained at the BONHAM facility at 77 Sundial Avenue in Manchester, New Hampshire, and at the FDIC's facilities in East Hartford, Connecticut, and vicinity. Affidavit of Robert Thunstrom, ¶ 4 .
6 ("Moody A f f . " ) , ¶ 5 , and Robert Newby, Defendants' Memorandum,
Exhibit C (Affidavit of Robert Newby) ("Newby A f f . " ) , ¶ 5 , failed
to produce any written agreement signed by the Bank which
specifically sets forth ( 1 ) any commitment or promise by the Bank
"to provide for the payment of accrued interest through
additional loan advances," Thunstrom Aff., ¶ 9; Moody Aff., ¶ 7 ;
Newby Aff., ¶ 7 ; ( 2 ) any commitment or promise by the Bank "to
fund interest payments from [the Governor's Woods Loan],"
Thunstrom Aff., ¶ 1 0 ; Moody Aff., ¶ 8 ; Newby Aff., ¶ 8 ; ( 3 ) any
commitment or promise by the Bank" to make future accommodations
to and for the benefit of Northeast and the other plaintiffs,"
Thunstrom Aff., ¶ 1 1 ; Moody Aff., ¶ 9; Newby Aff., ¶ 9; or "'the
Bank's separate promise of further accommodations to and for the
benefit of Plaintiffs,'" Thunstrom Aff., ¶ 12 (quoting Amended
Complaint, ¶ 2 4 ) ; Moody Aff., ¶ 10 (same); Newby Aff., ¶ 10
(same) or ( 4 ) "'the Bank's further promise and agreement to
approve and follow the Liquidation Plan'", Thunstrom Aff., ¶ 12
(quoting Amended Complaint, ¶ 2 4 ) ; Moody Aff., ¶ 10 (same); Newby
Aff., ¶ 10 (same).
II. Loans Related to the "Hotel"
The plaintiffs allege that on or about May 1 7 , 1988, the
Bank entered into a loan agreement with CCI and Inn, Inc. ("Hotel
7 Loan") to finance the construction and operation of the Concord
Comfort Inn ("Hotel") located in Concord, New Hampshire. Amended
Complaint, ¶ 2 7 . According to the plaintiffs, "[t]he Hotel Loan
was guaranteed by each of the Dupreys." Id.
The plaintiffs further allege that this loan agreement
included an undertaking by the Bank to provide a $150,000 working
capital loan or line of credit ("Hotel Working Capital Loan") to
CCI and Inn, Inc. Id., ¶ 2 8 . The plaintiffs allege that "[w]ith
the full knowledge and consent of the Bank [they] relied on these
agreements and commenced and completed construction of the Hotel
before completing the final documentation of the Hotel Working
Capital Loan." Id., ¶ 2 9 . The plaintiffs also allege that they
"commenced operations at the Hotel before completion of the final
documentation for the Hotel Working Capital Loan" based on
"further assurances" by the Bank that it would fund the Hotel
Working Capital Loan. Id., ¶ 3 0 . The plaintiffs allege that
despite these assurances the Bank refused to make or fund the
Hotel Working Capital Loan. Id., ¶ 3 1 .
A search of the Bank's documents pertaining to the loans
related to the Hotel conducted by BONHAM employee Robert
Thunstrom and FDIC employees Mary Moody and Robert Newby failed
specifically sets forth ( 1 ) "'an undertaking by the Bank to
8 provide a working capital loan or line of credit to CCI and Inn,
Inc. in the amount of $150,000" Thunstrom Aff., ¶ 14 (quoting
Amended Complaint, ¶ 2 8 ) ; Moody Aff., ¶ 12 (same); Newby Aff., ¶
12 (same); 4 or (2) "any `further assurances,' `repeated
assurances,' or `promises' by the Bank that `the Bank would fund
the Hotel Working Capital Loan . . . ' or that `the Hotel Working
Capital Loan would be finalized and funded." Thunstrom Aff., ¶
15 (quoting Amended Complaint, ¶¶ 30-31; Moody Aff., ¶ 13
(same); Newby Aff., ¶ 1 3 .
Regarding the alleged Hotel Working Capital Loan, the
plaintiffs have presented no evidence of a written agreement
signed by the Bank in which the Bank is committed to providing a
$150,000 working capital loan or line of credit, rather the
plaintiffs assert that "[i]n the ordinary course of business, the
Bank's loan officers, acting within the scope of their Director-
approved authority . . . committed to make working capital loans
to C C I , as so contemplated by the loan documents." Plaintiffs'
Objection Memorandum at 1 7 .
4 "Plaintiffs refer to this alleged undertaking as the 'Hotel Working Capital Loan.'" Id.
9 III. The Liquidation Plan
The plaintiffs allege that during the period from October
through December of 1989 they proposed in writing, and the Bank
accepted, a liquidation plan which provided for
the orderly sale by Northeast and/or the Bank of virtually all projects (including the Governor's Woods Project but excluding the Hotel) in which the Bank held a mortgage or other interest, in consideration for the settlement and satisfaction of all debt and other obligations owed by Plaintiffs and/or their affiliates to the Bank [("Liquidation Plan")].
Amended Complaint, ¶ 3 4 . The debt and obligations at issue
included the Governor's Woods Loan, the Hotel Working Capital
Loan, and other loans originated by the bank to Northeast, C C I ,
the Dupreys and their affiliates between 1980 and 1988
(collectively referred to as "Loans"). Id., ¶ 3 3 .
The plaintiffs allege they "carried out" the Liquidation
Plan
and confirmed in writing with the Bank, [NDB], and/or the FDIC or their agents in April 1990, that all deficiency claims would be converted to specified fixed, limited-recourse obligations (which after such restructuring would be without recourse to the individual assets of the Dupreys).
Amended Complaint, ¶ 3 5 . The plaintiffs allege that in
subsequent correspondence they further confirmed these promises.
Id., ¶ 3 6 . The plaintiffs allege that "the Bank, its successors,
receivers, agents and/or assigns ha[ve] dishonored this agreement
and continue[] to seek payment/collection of the previously
10 satisfied Loans," id., ¶ 3 7 , and that the defendants "each ha[ve]
claimed and/or still claim[] that the Plaintiffs and/or their
affiliates are still liable and obligated on a deficiency claim
with respect to the foregoing Loans in the approximate aggregate
of $3 million." Id., ¶ 3 8 . The plaintiffs further allege that
each of the defendants has "breached the terms, conditions and
other provisions of [the] Liquidation Plan." Id., ¶ 2 5 .
Documents in the Bank's files indicate that a number of lots
at the Governor's Woods project were sold by Northeast at auction
in December 1989. According to the plaintiffs, the Bank
compelled Northeast to sell such lots "at less than their fair
value." Amended Complaint, ¶ 2 3 . The plaintiffs allege that
they complied with this requirement, "but only in consideration
for the Bank's separate promise of further accommodations to and
for the benefit of Plaintiffs and the Bank's further promise and
agreement to approve and follow" the Liquidation Plan. Id., ¶¶
24, 34.
A search of the Bank's documents conducted by BONHAM
employee Robert Thunstrom and FDIC employees Mary Moody and
Robert Newby failed to produce (1) any written agreement signed
by the Bank which specifically sets forth "terms providing that
`the orderly sale by Northeast and/or the Bank of virtually all
projects (including the Governor's Woods Project but excluding
11 the Hotel) in which the Bank held a mortgage or other interest
. . . ' is `in consideration for the settlement and satisfaction
of all debt or other obligations owed by Plaintiffs and/or their
affiliates to the Bank." Thunstrom Aff., ¶ 17 (quoting Amended
Complaint, ¶ 3 4 ) ; Moody Aff., ¶ 15 (same); Newby Aff., ¶ 15
(same); (2) any written agreement signed by the Bank, the FDIC or
NDB which specifically sets forth "terms providing that `all
deficiency claims would be converted to specified fixed, limited-
recourse obligations (which after such restructuring would be
without recourse to the individual assets of the Dupreys),'"
Thunstrom Aff., ¶¶ 1 8 , 19 (quoting Amended Complaint, ¶ 3 5 ) ;
Moody Aff., ¶¶ 1 6 , 17 (same); Newby Aff., ¶ 1 6 , 17 (same).
The plaintiffs assert that the Liquidation Plan "was
developed in three stages," Plaintiffs' Objection Memorandum at
1 9 , and consisted of an "Initial Workout Plan" purportedly
contained in Exhibits 1 1 , 12 and 1 3 , id. at 1 9 , a "Workout Plan"
purportedly contained in Plaintiffs' Exhibits 1 6 , 16-1, 17 and
1 8 , id., and a "Final Plan" purportedly contained in Plaintiffs'
Exhibit 2 7 . Id. at 2 0 . None of the documents comprising
Exhibits 11-13 contain the Liquidation Plan terms alleged in the
Amended Complaint. None of the documents comprising Plaintiffs'
Exhibits 1 6 , 16-1, 1 7 , 1 8 , and 27 constitute a written agreement
12 signed by the Bank. The plaintiffs assert that "the Workout Plan
was clearly executed by the Bank . . . because the plan was
carried out and performed, when the Bank overtly received and
accepted the cash benefits of the Final Plan." Plaintiffs'
Objection Memorandum at 1 9 . The plaintiffs further contend that
"[t]he Bank's loan officers accepted th[e] Final Plan, in the
ordinary course of their authorized duties . . . through their
verbal representations, conduct and acquiescence," id. at 2 0 , and
that "[t]he Plaintiffs further confirmed the Bank's acceptance of
this Final Plan in their correspondence to the Bank dated October
1 8 , 1990." Id. at 21 (emphasis added).
In his affidavit, Stephen Duprey states,
2 1 . In connection with the Liquidation Plan, it has become clear that at the time that we proposed it and during its implementation, we did not have knowledge of the true purpose of the Bank and its officers in approving and implementing of [sic] such Plan. It has only become clear to me in the period since October 1991 that the true nature of the Plan, as envisioned by NDB, that FDIC and their agents, was to deny the validity and effectiveness of the non-recourse features of the Liquidation Plan.
2 4 . It was not until October 1991, after the Bank had failed and the FDIC had taken over, that we learned for the first time that the successor holder(s) and/or servicer(s) of the Loans did not intend to honor the non-recourse terms and conditions of the Liquidation Plan. Officials or representatives of New Dartmouth Bank, the FDIC and BONHAM from time to time and at various times then made it clear that they intended to enforce the original loan terms without regard to the
13 amendments that we and the Bank had executed and performed. In this regard, New Dartmouth Bank, the FDIC and BONHAM breached their duties and obligations under the loan documents to u s .
Plaintiffs' Objection Memorandum, Exhibit C (Affidavit of Stephen
Duprey), ¶¶ 2 1 , 2 4 .
Discussion
Summary judgment is appropriate when the "pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law." Fed. R. Civ. P.
56(c). "The burden is on the moving party to establish the lack
of a genuine, material factual issue, and the court must view the
record in the light most favorable to the nonmovant, according
the nonmovant all beneficial inferences discernable from the
evidence." Snow v . Harnischfeger Corp., 12 F.3d 1154, 1157 (1st
Cir. 1993) (citations omitted), cert. denied, 115 S . C t . 56
(1994). Once the moving party has met its burden, the nonmoving
party "must set forth specific facts showing that there is a
genuine issue for trial[,]" Anderson v . Liberty Lobby, Inc., 477
U.S. 2 4 2 , 256 (1986) (citing Fed. R. Civ. P. 56 ( e ) ) , or suffer
the "swing of the summary judgment scythe." Jardines Bacata,
Ltd. v . Diaz-Marquez, 878 F.2d 1555, 1561 (1st Cir. 1989). "In
14 this context, `genuine' means that the evidence about the fact is
such that a reasonable jury could resolve the point in favor of
the nonmoving party, Anderson, 477 U.S. at 248; `material' means
that the fact is one `that might affect the outcome of the suit
under the governing law.'" United States v . One Parcel of Real
Property, 960 F.2d 2 0 0 , 204 (1st Cir. 1992) (quoting Anderson,
477 U.S. at 2 4 8 ) .
I. The D'Oench Doctrine
In D'Oench[, Duhme & C o . v . FDIC, 315 U.S. 447 (1942)], the Supreme Court held that in a suit brought by the FDIC to collect on a borrower's promissory note, in which the FDIC was successor in interest to the original lender, the borrower was not entitled to rely on agreements outside the documents contained in the lender bank's records to defeat the FDIC's claim. 315 U.S. at 460-61 . . . The Supreme Court announced a federal common law doctrine of equitable estoppel preventing the borrower from using a "secret agreement" with the original lender as a defense to the FDIC's demand for payment. Id. D'Oench did not require that the borrower have an intent to defraud: "The test is whether the note was designed to deceive creditors or the public authority, or would tend to have that effect. . . ." Id. at 460.
In re Columbus Ave. Realty Trust, 968 F.2d 1332, 1344 (1st Cir.
1992). "The D'Oench Duhme doctrine prohibits bank borrowers and
others from relying upon secret pacts or unrecorded side
agreements to diminish the FDIC's interest in an asset by, say,
attempting to thwart its efforts to collect under promissory
notes, guarantees, and kindred instruments from a failed bank."
15 Vasapolli v . Rostoff, 39 F.3d 2 7 , 33 (1st Cir. 1994).
"Borrowers' claims and affirmative defenses are treated the same
under the [D'Oench Duhme] doctrine." Id.
Re-examination and elaboration of the D'Oench doctrine have expanded it far "beyond the factual background of the D'Oench case itself, so that it `now applies in virtually all cases where a federal depository institution regulatory agency is confronted with an agreement not documented in the institution's records.'" OPS Shopping Center, Inc. v . FDIC, 992 F.2d 306, 308 (11th Cir. 1993) (quoting Baumann [v. Savers Fed. Sav. & Loan Ass'n, 934 F.2d 1506, 1510 (11th Cir. 1991), cert. denied, 112 S . C t . 1936 (1992)]).
Resolution Trust Corp. v . Dunmar Corp., 43 F.3d 5 8 7 , 593 (11th
Cir. 1995). "In particular, D'Oench bars the use of unrecorded
agreements between the borrower and the bank as the basis for
defenses or claims against the FDIC. The agreement need not
implicate a specific obligation, such as a note or other asset
held by the FDIC. Simply put, transactions not reflected on the
bank's books do not appear on the judicial radar screen." Bowen
v . FDIC, 915 F.2d 1013, 1015-16 (5th Cir. 1990).
"[The] requirements of D'Oench are not met where written
provisions reflect only [an] intent to loan additional funds but
not [an] obligation to do so." Sweeney v . Resolution Trust
Corporation, 16 F.3d 1 , 5 (1st Cir. 1994), cert. denied, 115 S .
C t . 291 (1994). The D'Oench doctrine bars any defense to an FDIC
claim where such defense is not reflected in "a reasonably
explicit written agreement in [the failed bank's] records." FDIC
16 v . Bay Street Development Corp., 32 F.3d 636, 639 (1st Cir. 1994)
(emphasis in original).
"D'Oench, Duhme can be applied for the benefit of an
assignee or a transferee/purchaser from FDIC." Federal Sav. &
Loan Ins. Corp. v . Griffin, 935 F.2d 6 9 1 , 698 (5th Cir. 1991),
cert. denied, 502 U.S. 1092 (1992).
"The D'Oench doctrine also applies to transferee banks for essentially the same reason it applies to the FDIC. See Porras v . Petroplex Sav. Ass'n, 903 F.2d 379, 381 (5th Cir. 1990) (D'Oench promotes purchase and assumption transactions by offering the purchaser protection from secret agreements); Federal Deposit Ins. Corp. v . Newhart, 892 F.2d 4 7 , 49-50 (8th Cir. 1989) (without the protection of D'Oench, the market for assets of a failed bank would be greatly diminished because prospective purchasers would have little or no incentive to acquire their assets)."
Community Bank of the Ozarks v . FDIC, 984 F.2d 2 5 4 , 257 (8th Cir.
1993).
II. Section 1823(e)
In relevant part, title 12 U.S.C.A. § 1823(e) 5 provides,
(e) Agreements against interests of Corporation
(1) In general
No agreement which tends to diminish or defeat the interest of the Corporation in any asset acquired by it
5 "[S]ection 1823(e) is 'somewhat loosely described as the codification' of the D'Oench doctrine." Villafane-Neriz v . FDIC, 20 F.3d 3 5 , 37 n . 1 (1st Cir. 1994) (quoting McCullough v . FDIC, 987 F.2d 8 7 0 , 874 (1st Cir. 1993)).
17 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 Corporation unless such agree- ment--
(A) is in writing,
(B) 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,
(C) was 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, and
(D) has been, continuously, from the time of its execution, an official record of the depository institution.
12 U.S.C.A. § 1823(e)(1) (Supp. 1995). 6
Pursuant to 12 U.S.C.A. § 1821(9)(A), "any agreement which
does not meet the requirements set forth in section 1823(e) of
this title shall not form the basis o f , or substantially
6 The remaining portion of section 1823(e) provides,
(2) Public deposits
An agreement to provide for the lawful collateralization of deposits of a Federal, State, or local governmental entity or of any depositor referred to in section 1821(a)(2) of this title shall not be deemed to be invalid pursuant to paragraph (1)(B) solely because such agreement was not executed contemporaneously with the acquisition of the collateral or with any changes in the collateral made in accordance with such agreement.
12 U.S.C.A. § 1823(e)(2) (Supp. 1995).
18 comprise, a claim against the receiver or the Corporation." 12
U.S.C.A. § 1821(9)(A) (West 1989).
"One purpose of § 1823(e) is to allow federal and state bank
examiners to rely on a bank's records in evaluating the worth of
the bank's assets." Langley v . FDIC, 484 U.S. 8 6 , 91 (1987).
A second purpose of § 1823(e) is implicit in its requirements that the "agreement" not merely be on file in the bank's records at the time of an examination, but also have been executed and become a bank record "contemporaneously" with the making of the note and have been approved by officially recorded action of the bank's board or loan committee. These latter requirements ensure mature consideration of unusual loan transactions by senior bank officials, and prevent fraudulent insertion of new terms, with the collusion of bank employees, when a bank appears headed for failure.
Langley, 484 U.S. at 9 2 .
"The common meaning of the word `agreement' must be assigned
to its usage in § 1823(e) if that section is to fulfill its
intended purposes." Langley v . FDIC, 484 U.S. at 9 1 . Therefore,
the word "agreement" in section 1823(e) is not limited to an
express promise to perform an act in the future but includes the
bargain of the parties as reflected in the conditions upon their
performance. Id. "Certainly, one who signs a facially
unqualified note subject to an unwritten and unrecorded condition
upon its repayment has lent himself to a scheme or arrangement
that is likely to mislead the banking authorities, whether the
condition consists of performance of a counterpromise (as in
19 D'Oench, Duhme) or of the truthfulness of a warranted fact." Id.
at 9 3 .
Although the word "executed" in section 1823(e) can "have
two meanings: (1) that both sides have fully performed any
obligations contained in the agreement; and (2) that both sides
have signed the agreement," Twin Const., Inc. v . Boca Raton,
Inc., 925 F.2d 3 7 8 , 384 (11th Cir. 1991), the purposes of section
1823(e) and the D'Oench doctrine require that for purposes of
section 1823(e), "`executed' must mean that the depository
institution has `signed' the agreement." Id. "[A]n unsigned
document might mislead the banking authority," id., and "[a]t the
very least . . . makes it very difficult for bank examiners . . .
to determine whether the banking authority will be bound." Id.
Further, "[i]f a bank has not signed a document that purports to
impose on it certain obligations, there is no clear evidence that
the bank considered the obligations, much less that it prudently
considered them." Id. Section 1823(e) sets forth a
"categorical recording scheme." Langley v . FDIC, 484 U.S. at 9 5 .
"The short of the matter is that Congress opted for the certainty
of the requirements set forth in § 1823(e). An agreement that
meets them prevails even if the FDIC did not know of i t ; and an
agreement that does not meet them fails even if the FDIC knew."
20 III. The "No Asset" Exception
"The `no asset' exception to D'Oench, Duhme and 1823(e) is
widely recognized." FDIC v . McFarland, 33 F.3d 5 3 2 , 537 (5th
Cir. 1994) (citing see, e.g., FDIC v . Zook Bros. Constr. Co., 973
F.2d 1448, 1452 (9th Cir. 1992); Commerce Federal Savings Bank v .
FDIC, 872 F.2d 1240, 1244 (6th Cir. 1989); Beighly v . FDIC, 868
F.2d 776 (5th Cir. 1989); FDIC v . P.L.M. International, Inc., 834
F.2d 248 (1st Cir. 1987); Howell v . Continental Credit Corp., 655
F.2d 743 (7th Cir. 1981); c f . Langley v . FDIC, 484 U.S. 8 6 , 93-
94 (1987)).
"The `no asset' exception is generally defined as precluding the
application of 1823(e) where `the parties contend that no asset
exists or an asset is invalid and that such invalidity is caused
by acts independent of any understanding or side agreement.'"
FDIC v . McFarland, 33 F.3d 5 3 2 , 537 (5th Cir. 1994) (quoting FDIC
v . Merchants Nat'l Bank, 725 F.2d 6 3 4 , 639 (11th Cir. 1984),
cert. denied, 469 U.S. 829 (1984)). "The `no asset' exception
will not . . . be applied where the agreement is not reflected in
the official records of the bank. An overriding concern of §
1823 and D'Oench is that FDIC be able to rely on the official
records of the bank. Therefore, when a defendant seeks to apply
the `no asset' exception based on an unrecorded agreement, the
exception will not apply." FDIC v . McFarland, 33 F.3d at 537-38.
21 IV. FDIC's Motion for Summary Judgment; NDB's Motion for
Summary Judgment; Plaintiffs' Motion for Summary Judgment as to
Count X
The defendants assert that 12 U.S.C. §§ 1821(d)(9)(A) and
1823(e) bar all of the plaintiffs' claims "except the claims
regarding loan arrangments with respect to the Hotel (Counts III
and IV, and the portions of Counts IX and X regarding the Hotel),
and the claim for declaratory relief regarding the statute of
limitations." Defendants' Memorandum at 18 (emphasis in
original). The defendants further assert that the D'Oench
doctrine bars "all of the plaintiffs' claims except the claim for
declaratory relief regarding the statute of limitations."7 Id.
(emphasis in original). In response, the plaintiffs contend that
the evidence before the court is sufficient to satisfy the
requirements of section 1823(e) and the D'Oench doctrine with
respect to each of these counts. Plaintiffs' Memorandum of Law
in Support of Plaintiffs' Objections to Defendants' Motions for
Summary Judgment ("Plaintiffs' Objection Memorandum").
A. Contract Claims
In Count I the plaintiffs allege claims for breach of
contract based on "(a) the Bank's breach of its agreement to fund
7 This claim will be addressed in a subsequent order.
22 interest payments on the Governor's Woods Loan; (b) the Bank's
further breach of its promise to make accommodations to and for
the benefit of the Plaintiffs; and (c) the Bank's breach of its
agreement to approve and follow the Liquidation Plan." Amended
Complaint, ¶ 4 2 .
In Count III the plaintiffs allege claims for breach of
contract for the Bank's alleged breach of its agreement to
provide and fund the Hotel Working Capital Loan. Amended
Complaint, ¶ 4 8 .
In Count V the plaintiffs allege claims for breach of
contract based on "(a) the Bank's breach of its agreement to
approve and follow the Liquidation Plan; (b) the Bank's further
breach of its promise to convert the Loans to specific fixed,
limited recourse obligations; and (c) the Bank's breach of its
agreement that the Loans would be without recourse to the
individual assets of the Dupreys." Amended Complaint, ¶ 5 4 .
In Count VII the plaintiffs seek recovery upon a claim of
promissory estoppel based on alleged promises by the Bank, NDB
and FDIC "regarding approval of the Liquidation Plan and
conversion of the Loans so that they would be without recourse to
the Dupreys and with only limited recourse against the other
Plaintiffs." Amended Complaint, ¶ 6 0 .
23 1. The Alleged Agreement to Fund Interest
Payments on the Governor's Woods Loan
The court finds that the plaintiffs have failed to present
evidence sufficient for a finding that there exists a written
agreement signed by the Bank which sets forth a commitment or
promise by the Bank to fund interest payments from the Governor's
Woods Loan. Accordingly, the claim in Count I for breach of the
alleged agreement to fund interest payments on the Governor's
Woods Loan is barred by section 1823(e)(1) and the D'Oench
doctrine.
2. The Alleged Promise to Make Accommodations to
and for the Benefit of the Plaintiffs
evidence sufficient for a finding that there exists a written
agreement signed by the Bank which sets forth a commitment or
promise by the Bank to make accommodations to and for the benefit
of the plaintiffs. Accordingly, the claim in Count I for breach
of the alleged promise to make accommodations to and for the
benefit of the plaintiffs is barred by section 1823(e)(1) and the
D'Oench doctrine.
24 3. The Alleged Agreement to Approve and Follow
the Liquidation Plan
evidence sufficient for a finding that there exists a written
agreement signed by the Bank which sets forth a promise by the
Bank to approve and follow the Liquidation Plan. Accordingly,
the claims in Counts I , V and VII for breach of the alleged
agreement to approve and follow the Liquidation Plan are barred
by section 1823(e)(1) and the D'Oench doctrine.
4. The Alleged Agreement to Provide and Fund the
Hotel Working Capital Loan
evidence sufficient for a finding that there exists a written
agreement signed by the Bank which sets forth (1) an undertaking
by the Bank to provide a working capital loan or line of credit
to CCI and Inn, Inc. in the amount of $150,000; (2) any
commitment or promise by the Bank that it would provide and fund
the Hotel Capital Loan. Accordingly, the claim in Count III for
breach of the alleged agreement to provide and fund the Hotel
Working Capital Loan is barred by section 1823(e)(1) and the
25 5. The Alleged Promise to Convert the Loans to
Specific Fixed, Limited Recourse Obligations Which Would be
Without Recourse to the Individual Assets of the Dupreys
evidence sufficient for a finding that there exists a written
agreement signed by the Bank which sets forth terms providing
that all deficiency claims would be converted to specific fixed,
limited recourse obligations which would be without recourse to
the individual assets of the Dupreys. Accordingly, the claims in
Counts V and VII for breach of the alleged promise to convert the
Loans to specific fixed, limited recourse obligations which would
be without recourse to the individual assets of the Dupreys are
barred by section 1823(e)(1) and the D'Oench doctrine.
B. Tort Claims
The D'Oench doctrine "`bars defenses and affirmative claims
whether cloaked in terms of contract or tort, as long as those
claims arise out of an alleged secret agreement.'" McCullough v .
FDIC, 987 F.2d 8 7 0 , 874 (1st Cir. 1993) (quoting Timberland
Design, Inc. v . First Service Bank for Savings, 932 F.2d 4 6 , 50
(1st Cir. 1991)). Likewise, section 1823(e) "`bars defenses and
affirmative claims'" arising out of an agreement which fails to
meet its requirements "`whether cloaked in contract or tort.'"
26 McCullough, 987 F.2d at 874 (quoting Timberland Design Inc., 932
F.2d at 5 0 ) , 874 n . 6.
1. Negligent Misrepresentation and Fraud in the
Factum
It is settled that claims of misrepresentation and
fraudulent inducement are within D'Oench Duhme's sphere of
influence." Vasapolli v . Rostoff, 39 F.3d at 3 3 . Claims of
negligent misrepresentation "based on alleged misrepresentations
relating to the formation of an agreement with [a] bank" are also
within the purview of D'Oench. Id. at 35. 8 However, "[a] claim
premised on fraud in the factum is not foreclosed by the D'Oench
Duhme rule." Id.
Fraud in the factum occurs when a party is tricked into signing an instrument without knowledge of its true nature or contents. Thus, to constitute fraud in the factum a misrepresentation must go to the essential character of the document signed, not merely to its terms. For example, if a person signs a contract, having been led to believe that it is only a receipt, the stage may be set for the emergence of fraud in the factum.
8 "[N]egligent misrepresentations and intentional misrepresentations are sisters under the skin. Each partakes of the flavor of the secret agreements at which the D'Oench Duhme rule is aimed. And plaintiffs cannot evade the rule by the simple expedient of creatively relabelling what are essentially misrepresentation claims as claims of negligence. . . . To hold otherwise would defy common sense and eviscerate the D'Oench Duhme doctrine." Vasapolli, 39 F.3d at 3 5 .
27 Vasapolli, 39 F.3d at 35 (citations omitted). 9
Counts I I , IV, and VI contain claims for negligent
misrepresentation and fraud in the factum. The negligent
misrepresentation claims in Count II are based on the defendants'
alleged representations "regarding the accommodations that the
Bank would make in exchange for Plaintiffs' payment of interest
and the auction of the Governor's Woods lots, and the
accommodations the Bank, [NDB] and/or the FDIC would make to
Plaintiffs in exchange for the approval of the Liquidation Plan."
Amended Complaint, ¶ 4 5 . According to the plaintiffs "these
negligent misrepresentations amounted to fraud in the factum."
The negligent misrepresentation claims in Count IV are based
on the defendants' alleged representations "regarding the
availability of the Hotel Working Capital Loan after completion
of construction of the Hotel." Id., ¶ 5 1 . According to the
plaintiffs "those misrepresentations amounted to fraud in the
factum." Id.
9 In Vasapolli, the First Circuit held that the plaintiffs' allegations "that they were victims of fraud in the factum because they thought they were signing long-term notes when they actually signed short-term notes" could not be deemed fraud in the factum because the "alleged disparity goes to the transactional terms, not to the very nature of the agreements." Id., 39 F.3d at 3 5 .
28 The negligent misrepresentation claims in Count VI are based
on the defendants' alleged representations "regarding approval of
the Liquidation Plan and conversion of the Loans so that they
would be without recourse to the Dupreys and with only limited
recourse against the other Plaintiffs." Amended Complaint, ¶ 5 7 .
The plaintiffs allege that "these misrepresentations amounted to
fraud in the factum." Id.
The court notes that all of the plaintiffs' claims for
negligent misrepresentation are based on alleged
misrepresentations relating to the formation of an agreement with
the Bank. See Plaintiffs' Objection Memorandum at 27. 10
10 The plaintiffs assert,
[t]he Plaintiffs' affidavit establishes that neither Northeast nor [CCI] had knowledge, at the time of closing the 1988 amendment of the Governor's Woods Loan or the Hotel Loan, respectively, of the true nature of the written instruments, or of the novel interpretation now being given to them by NDB and the FDIC. The Plaintiffs reasonably and in good faith believed that the Hotel Loan included an agreement by the Bank to fund a $150,000 working capital loan, and that the 1988 amendment to the Governor's Woods Loan provided for the funding by the Bank of interest payments on that Loan. Nor did the Plaintiffs, in connection with the Liquidation Plan, have knowledge of the true purpose (which has become apparent only in hindsight) of the Bank and the FDIC's agents to deny the validity and effectiveness of the non-recourse feature of the Final Plan.
Plaintiffs' Objection Memorandum at 27 (citing Plaintiffs' Objection Memorandum, Exhibit C (Affidavit of Stephen Duprey), ¶ 21.)
29 The plaintiffs have failed to present evidence sufficient
for a finding that there exists a written agreement signed by the
Bank which sets forth either (1) a commitment or promise by the
Bank to make accommodations to and for the benefit of the
plaintiffs or (2) a promise by the Bank to approve and follow the
Liquidation Plan. Thus, the court finds that the negligent
misrepresentation claim in Count II is barred by section
1823(e)(1) and the D'Oench doctrine. Considering that the
plaintiffs have failed to present evidence sufficient to find
that there exists a written agreement signed by the Bank which
sets forth either (1) an undertaking by the Bank to provide a
working capital loan or line of credit to CCI and Inn, Inc. in
the amount of $150,000 or (2) any commitment or promise by the
Bank that it would provide and fund the Hotel Capital Loan, the
court finds that the claim for negligent misrepresentation in
Count IV is barred by section 1823(e)(1) and the D'Oench
The plaintiffs have failed to present evidence sufficient
for a finding that there exists a written agreement signed by the
Bank which sets forth either (1) a promise by the Bank to approve
and follow the Liquidation Plan or (2) terms providing that all
deficiency claims would be converted to specific fixed, limited
recourse obligations which would be without recourse to the
30 individual assets of the Dupreys. As such, the claims for
negligent misrepresentation in Count VI are barred by section
1823(e)(1) and the D'Oench doctrine.
Further, because the plaintiffs have failed to present
evidence sufficient for a finding that any of the defendants made
a misrepresentation with respect to the essential character of
any signed document, the court finds that the defendants are
entitled to summary judgment as to the claims in Counts I I , IV
and VI for fraud in the factum.
C. Consumer Protection Act Claims
In Count IX the plaintiffs allege that "[t]he Defendants'
acts or practices with respect to the Loans and the Plaintiffs'
assets and businesses were and continue to be willfully and
knowingly unfair or deceptive, in violation of the New Hampshire
Consumer Protection Act, RSA 358-A:2." Amended Complaint, ¶ 65. 11
Because (1) the alleged acts or practices with respect to
the Loans and the plaintiffs' assets and businesses involve the
alleged formation of an agreement between the plaintiffs and the
11 Section 358-A:2 provides, "[i]t shall be unlawful for any person to use any unfair method of competition or any unfair or deceptive act or practice in the conduct of any trade or commerce within this state." (Supp. 1994).
31 Bank and (2) the plaintiffs have failed to present evidence
sufficient for a finding that such alleged acts or practices are
reflected in a written agreement signed by the Bank, the court
finds that the plaintiffs claims for the violation of RSA 358-A:2
are barred by section 1823(e)(1) and the D'Oench doctrine.
D. Equitable Estoppel Claim
Count VIII contains a claim for equitable estoppel based on
"the Defendants' representations regarding the approval of the
Liquidation Plan and conversion of the Loans so that they would
be without recourse to the Dupreys and with only limited recourse
against the other Plaintiffs." Amended Complaint, ¶ 6 3 .
Because (1) the representations alleged as the basis for the
equitable estoppel claim involve the alleged formation of an
agreement between the plaintiffs and the Bank and (2) the
plaintiffs have failed to present evidence sufficient for a
finding that such representations are reflected in a written
agreement signed by the Bank, the court finds that the plaintiffs
claim in Count VIII for equitable estoppel is barred by section
32 E. Count X : Defenses of Setoff, Recoupment,
Counterclaim, Accord and Satisfaction, Waiver and Estoppel
In Count X the plaintiffs seek a declaratory judgment "that
the Dupreys and other Plaintiffs have no liability to any of
[the] Defendants of any kind or in any amount for the Loans,"
Amended Complaint, ¶ 7 3 , based on the defenses of setoff,
recoupment, counterclaim, accord and satisfaction, waiver and
estoppel, and the statute of limitations. Id., ¶¶ 69-72. The
defendants' motions for summary judgment address all of these
defenses except for that based on the statute of limitations.
Despite the multiplicity of defenses alleged in the amended
complaint, the plaintiffs' memorandum in support of their motion
for summary judgment as to Count X addresses only the accord and
satisfaction defense. See Plaintiffs' Memorandum of Law in
Support of Plaintiffs' Motion for Summary Judgment with Respect
to Count X . With respect to the defenses at issue, the
plaintiffs allege
6 9 . On account of the losses suffered and incurred by Plaintiffs due to Defendants' negligent misrepresentations and breach of its various agreements and promises to Plaintiffs regarding or relating to the Loans, Plaintiffs have a valid offset, setoff, recoupment or counterclaim, for and against the total amounts purportedly due under or with respect to the Loans, which offset, setoff, recoupment or counterclaim, serves as a complete defense to any and all liability of Plaintiffs to any Defendants under or with respect to the Loans.
33 7 0 . Under all the circumstances, the Loans have been satisfied by the common law doctrine of accord and satisfaction, and Defendants are barred from collecting the Loans pursuant to such common law and by the statutory codifications of this doctrine at RSA §§382- A:1-207 and 382-A:9-505.
7 1 . Under all the circumstances, each of the Defendants has waived its rights and is estopped to collect any amounts purportedly due under or with respect to the Loans, which waiver and estoppel serve as a complete defense to any and all liability of Plaintiffs to any Defendants under or with respect to the Loans.
Amended Complaint, ¶¶ 69-71.
1. Setoff, Recoupment and/or Counterclaim
The court has ruled, supra, that the plaintiffs' claims for
negligent misrepresentation, fraud in the factum and breach of
contract are barred by section 1823(e)(1) and the D'Oench
doctrine. Accordingly, the court finds that the plaintiffs'
claim for a declaratory judgment as set forth in paragraph sixty-
nine of the amended complaint, i.e., that they have a valid
offset, setoff, recoupment or counterclaim which serves as a
complete defense to their liability under the Loans, is likewise
barred.
2. Waiver and Estoppel
The court has determined that the plaintiffs' claim for
equitable estoppel is barred by section 1823(e)(1) and the
34 D'Oench doctrine. Further, the plaintiffs have failed to present
evidence sufficient for a finding that any defendant waived its
rights with respect to the Loans in a manner which complies with
the requirements of section 1823(e)(1) and/or the D'Oench
doctrine. Accordingly, the court finds that the plaintiffs'
claim for a declaratory judgment as stated in paragraph seventy-
one of the amended complaint fails to withstand the defendants'
motions for summary judgment.
3. Accord and Satisfaction
The plaintiffs assert that the Liquidation Plan constituted
an accord and satisfaction between the bank and the plaintiffs
which extinguished the Governor's Woods Loan and other Loans
except for the non-recourse claims against Plaintiff Northeast.
See Plaintiffs' Memorandum of Law in Support of Plaintiffs'
Motion for Summary Judgment with Respect to Count X at 2 , 6-10,
1 3 , 17-18, 20-26.
"An accord and satisfaction may properly be defined as `a
method of discharging a contract, or setting aside a cause of
action . . . by substituting for such contract or cause of action
an agreement for the satisfaction thereof and the execution of
such subsequent agreement.' DeCato Brothers, Inc. v .
Westinghouse Credit Corp., 129 N.H. 5 0 4 , 506, 529 A.2d 9 5 2 , 953
(1987). "The following are the essential elements of an accord
35 and satisfaction: (1) proper subject matter; (2) competent
parties; (3) an assent or meeting of the minds; (4) a
consideration." Id., 129 N.H. at 506-07, 529 A.2d at 953.
Because the plaintiffs have failed to present evidence
sufficient for a finding that there exists a written agreement
signed by the Bank which sets forth a promise by the Bank to
approve and follow the Liquidation Plan, the plaintiffs' claim in
Count X with respect to the accord and satisfaction issue is
Conclusion
For the reasons stated above the court (1) grants the FDIC's
Motion for Summary Judgment (document n o . 6 3 ) ; (2) grants NDB's
Motion for Summary Judgment (document n o . 6 4 ) ; and (3) denies the
plaintiffs' motion for summary judgment as to Count X (document
no. 6 9 ) .
SO ORDERED.
Joseph A . DiClerico, J r . Chief Judge June 6, 1995
cc: Charles A . Szypszak, Esquire Steven E . Hengen, Esquire