Simon v. FDIC

• Court: Court of Appeals for the First Circuit
• Decided: February 23, 1995
• Docket: 93-2319
• Status: Published

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT

                                 ____________________
        No. 93-2319

                                  FRANKLIN W. SIMON,
                            WEBB PLACE CONDOMINIUMS, INC.
                          and GREYSTONE CONDOMINIUMS, INC.,

                               Plaintiffs, Appellants,

                                          v.

                        FEDERAL DEPOSIT INSURANCE CORPORATION,
                    as Receiver of 1st American Bank for Savings,

                                 Defendant, Appellee.

                                 ____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

                          FOR THE DISTRICT OF MASSACHUSETTS

                 [Hon. A. David Mazzone, Senior U.S. District Judge]
                                         __________________________

                                 ____________________

                                        Before

                                 Cyr, Circuit Judge,
                                      _____________

                            Bownes, Senior Circuit Judge,
                                    ____________________

                              and Stahl, Circuit Judge.
                                         _____________

                                 ____________________

Lee H.  Kozol, with whom  David A.  Rich and Friedman  & Atherton
             _____________             ______________     ____________________
        were on brief for appellants.
             J. Scott Watson, with whom Ann S. DuRoss and Richard J. Osterman,
             _______________            _____________     ____________________
        Jr. were on brief for appellee.
        ___

                                                     
                                 ____________________

                                  February 23, 1995
                                                     
                                 ____________________

CYR,  Circuit Judge.  Plaintiffs-appellants Franklin W.
                    CYR,  Circuit Judge.
                          _____________

          Simon ("Simon"), Webb Place Condominiums, Inc. ("Webb Place") and

          Greystone Condominiums, Inc.  ("Greystone") initiated this action

          in Massachusetts  state court against the  Federal Deposit Insur-

          ance  Corporation ("FDIC"),  receiver  of 1st  American Bank  for

          Savings  ("Bank"),  seeking   declaratory  and  equitable  relief

          relating to  two real estate loan  agreements between plaintiffs-

          appellants  and the Bank.   Following removal,  the United States

          District Court  for the  District of Massachusetts  dismissed the

          action  on  jurisdictional  grounds  pursuant  to  the  Financial

          Institutions Reform, Recovery, and Enforcement Act ("FIRREA"), 12

          U.S.C.   1821(d)(13)(D) (1994).  We affirm.

                                          I
                                          I

                                      BACKGROUND
                                      BACKGROUND
                                      __________

                    In January 1988, Simon,  president and sole stockholder

          of Greystone and Webb Place (collectively:  "Borrowers"), entered

          into  two mortgage loan  agreements with the  Bank, whereby Grey-

          stone  borrowed $2,500,000  and Webb  Place borrowed  a total  of

          $3,150,000  with which  to  finance condominium  development pro-

          jects.  The loans were secured by mortgages on the  properties to

          be developed and by Simon's personal guaranty.  

                    When the loans matured on January 31, 1990, the Borrow-

          ers sought  extensions and further advances  to enable completion

          of  the projects.  On August 14,  1990, with the outstanding loan

          balances at $2,500,000  on the Greystone  loan and $2,295,490  on

          the Webb Place loan, the Borrowers entered into two separate Loan

2



Modification Agreements ("Modification Agreements"),  whereby the

          Bank  waived all  accrued  and future  interest  on the  original

          January 1988 loans and  extended their maturity dates to  May 31,

          1992.   The Bank further agreed to lend an additional $816,000 to

          Greystone  and $520,942 to Webb  Place, to be  disbursed upon the

          Borrowers' request, for completion of the projects.  Finally, the

          Bank agreed to provide end-loan financing to individual buyers of

          the completed condominium units.

                    The Borrowers  in turn agreed to  complete construction

          of the mortgaged properties under the supervision of an  indepen-

          dent engineer, to devise a marketing plan acceptable to the Bank,

          and to pay the Bank 100% of the net proceeds from the sale of any

          unit  in the mortgaged properties in return for a partial release

          of the Bank's mortgage  lien.  Simon secured his  loan guaranties

          with two certificates of  deposit and with mortgages on  two real

          estate properties  owned by him.   In return, the Bank  agreed to

          limit Simon's total  liability on the personal guaranty  to $900-

          ,000.

                    All  construction  loan requisitions  by  the Borrowers

          were honored in  due course by  the Bank until October  18, 1990,

          when a  requisition for $204,657  was dishonored.   The following

          day, the Bank closed and FDIC was appointed receiver.

                    On October 24, FDIC published notice of its appointment

          as receiver,  alerting creditors that all claims against the Bank

          were  to be submitted  to FDIC by January  23, 1991 ("bar date").

          On October 25,  FDIC mailed  notice to all  known Bank  creditors

3



and, on  October 31, notice of FDIC's  appointment as liquidating

          agent of the Bank was  mailed to plaintiffs-appellants.  Although

          plaintiffs-appellants did not  receive FDIC's  notice, they  were

          aware prior to the bar date that FDIC had been appointed receiver

          of the Bank.

                    On  October  31,  plaintiffs-appellants requested  that

          FDIC advise as to its position  respecting further loan disburse-

          ments under the Modification Agreements.  FDIC did not reply.  On

          November 27,  plaintiffs-appellants informed  FDIC that  the Bank

          was  in default  under the  Modification Agreements  for refusing

          their October  18 requisition.   Their  letter demanded  that the

          Borrowers' requisitions  be met and that  the collateral securing

          Simon's personal guaranty  be released due to the Bank's default.

          FDIC did not reply.

                    The present  action was commenced on April 21, 1992, in

          state court.   Simon sued  to recover all  collateral pledged  to

          secure  his personal guaranty and for a judicial declaration that

          his personal obligations under the guaranty had been extinguished

          as a result of the Bank's and FDIC's defaults under the Modifica-

          tion  Agreements.   The Borrowers  sought a  judicial declaration

          entitling  them to a "priority position"  among Bank creditors on

          all obligations incurred  by the Borrowers to third parties after

          FDIC took possession of the Bank's assets.

                    After removal, the  federal district court granted  the

          FDIC  motion for summary judgment.   It found  that neither Simon

          nor the Borrowers  had filed  proofs of claim  with FDIC  despite

4



having received actual notice of FDIC's appointment.  Plaintiffs-

          appellants  thus having  failed to  exhaust their  administrative

          remedies, the district court ruled that their claims  were barred

          under 12 U.S.C.   1821(d)(13)(D)(i).

II
                                          II

                                      DISCUSSION
                                      DISCUSSION
                                      __________

Summary  judgment  rulings  are  reviewed  de  novo  to
                                                               __  ____

          determine whether the "'pleadings, depositions, answers to inter-

          rogatories, 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 judgment  as a

          matter of law.'"  Gaskell v. The Harvard Coop. Soc'y, 3 F.3d 495,
                            _______    _______________________

          497 (1st Cir. 1993) (quoting Fed. R. Civ. P. 56(c)).  We view the

          evidence  in the  light  most favorable  to  the party  resisting

          summary  judgment.  Velez-Gomez v. SMA Life Assurance Co., 8 F.3d
                              ___________    ______________________

          873, 874-75 (1st Cir. 1993).

A.   The Simon Guaranty
          A.   The Simon Guaranty
               __________________

                    Simon contends that FDIC  surrendered all claims to the

          collateral pledged  to secure  his personal guaranty  because the

          Bank's (and FDIC's subsequent)  breach of the Modification Agree-

          ments discharged Simon from all liability.

                    Section 1821(d)(13)(D)(i)  bars all claims  against the

          assets  of  a failed  financial institution  which have  not been

          presented  under  the  administrative  claims  review  process (-

5



"ACRP"), see  12 U.S.C.   1821(d)(3)-(10), governing  the filing,
                   ___

          determination, and payment of claims against the assets of failed

          financial institutions following  FDIC's appointment as receiver.

          Heno v.  FDIC, 20 F.3d 1204,  1206-07 (1st Cir. 1994).   Upon its
          ____     ____

          appointment as receiver, FDIC is required to  publish notice that

          the failed  institution's creditors must file claims with FDIC by

          a specified  date not  less than  ninety days after  the date  of

          publication.  12 U.S.C.    1821(d)(3)(B).  FDIC is  also required

          to  mail notice to all known creditors of the failed institution.

          Id.   1821(d)(3)(C).  It has 180 days from the date  of filing to
          ___

          allow or  disallow claims.   Id.    1821(d)(5)(A)(i).   Claimants
                                       ___

          have  sixty days  from  the date  of  disallowance, or  from  the

          expiration  of  the  180-day  administrative  decision  deadline,

          within  which to seek  judicial review  in an  appropriate United

          States district court.   Id.   1821(d)(6)(A).  Failure  to comply
                                   ___

          with the ACRP deprives the courts  of subject matter jurisdiction

          over any  claim to  assets of the  failed financial  institution.

          See id.   1821(d)(13)(D)(i).
          ___ ___

                    Simon argues  that the instant claim for  the return of

          all collateral securing  his personal guaranty is  not subject to

          the ACRP because  it is not a creditor's claim against the Bank's

          assets  but merely a defense to the contingent loan guaranty held

          by the Bank.  Cf. In re Purcell, 141 B.R. 480, 485 (Bankr. D. Vt.
                        ___ _____________

          1992), aff'd, 150  B.R. 111 (D. Vt. 1993).   But see Deera Homes,
                 _____                                 ___ ___ ____________

          Inc. v. Metrobank for Sav., FSB, 812 F.  Supp. 375, 377-78 (E.D.-
          ____    _______________________

          N.Y.  1993).  As  Simon sees it,  therefore, he is  entitled to a

6



judgment declaring that the Modification Agreements were breached

          by the  Bank and,  consequently, his  personal guaranty  is unen-

          forceable and the collateral pledged to secure it must be surren-

          dered. 

                    Throughout  the litigation,  Simon has  maintained that

          the Bank  breached the Modification Agreements the day before the
                                                                 ______

          Bank  closed,  by refusing  to  honor the  Borrowers'  October 18

          construction  loan requisition.   At  oral argument,  he conceded

          that  the personal guaranty was  no longer executory  by the time

          FDIC  became receiver  on October  19, 1990.   Cf.  infra Section
                                                         __   _____

          II.B.    Similarly, his  claim  to  the collateral  securing  the

          personal  guaranty  consistently has  been  based  on the  Bank's

          October  18 breach  of  the Modification  Agreements.   Moreover,

          Simon's  November 27 letter to  FDIC demanded both  that the Bank
                                                        ____

          release the  collateral securing  his personal guaranty  and that
                                                                   ___

          the Bank honor the Borrowers' requisitions from October 18.  

                    Thus,  Simon's position is and always has been that the

          Bank's  pre-receivership refusal to  honor the Borrowers' October
                  ___

          18 loan requisition constituted a material breach of the  Modifi-

          cation Agreements, entitling  him to recover his  collateral.  It

          is clear,  therefore, that the  claim to the  collateral securing

          the personal guaranty is barred as a "claim or action for payment

          from .  . .  the assets" of  a failed  financial institution  for

          which  FDIC has  been  appointed  receiver.    See  12  U.S.C.   
                                                         ___

          1821(d)(13)(D)(i).  

                    Simon  concedes  that  the  two  real  estate mortgages

7



securing his personal guaranty are bank "assets."  Claims for the

          recovery of  bank assets  are barred  absent compliance  with the

          ACRP.  Id.  Simon was  aware of FDIC's appointment as receiver on
                 ___

          October  19, 1990, well before  the ACRP bar  date.  Furthermore,

          Simon concededly knew,  before the bar date, that he  had a claim

          against FDIC for the return of the collateral.   In these circum-

          stances,  the failure to comply  with the ACRP  deprived the dis-

          trict  court of jurisdiction  over Simon's claim  for recovery of

          the collateral securing his personal guaranty.1
                              
          ____________________

               1Notwithstanding the jurisdictional bar to Simon's claim for
          the return of his collateral, he contends that the district court
          should  have declared  his  personal guaranty  discharged by  the
          Bank's material  breach of  its Modification Agreements  with the
          Borrowers, see, e.g., Ward  v. American Mut. Liab. Ins.  Co., 443
                     ___  ____  ____     _____________________________
          N.E.2d 1342, 1344 (Mass.  App. 1983), and that  such a claim  for
          declaratory relief is not  barred because it does not  seek "pay-
          ment  from" the Bank's  "assets."   Simon's complaint  demanded a
          declaration  extinguishing any  personal liability  arising under
          his  loan  guaranty;  that  is, precluding  any  future  judgment
          against  him for any deficiency over and above the amounts recov-
          erable by FDIC on the collateral  securing his personal guaranty.
          Although the claim  to the  collateral is barred  as one  against
                                      __________
          "the [Bank's] assets,"  12 U.S.C.   1821(d)(13)(D)(i), the  judi-
          cial declaration requested by  Simon is said to be  purely defen-
          sive, designed  to preempt any obligation on the part of Simon to
          make future payments  to FDIC.   See, e.g.,  National Union  Fire
                                __         ___  ____   ____________________
          Ins.  Co. v. City Sav., FSB, 28  F.3d 376 (3d Cir. 1994) (holding
          _________    ______________
          that    1821(d)(13)(D)(i) bars contracting party  from preemptive
          judicial  declaration that  contracting  party is  not liable  on
          contract  with failed  institution, even  though claim  cannot be
          brought under ACRP; contracting party must await suit by receiver
          to  enforce contract, at  which time contracting  party may raise
          rescission as affirmative defense to receiver's contract action).
          Simon urges  us to reject  the Third Circuit's  interpretation in
          National Union, 28 F.3d  at 386-89, that the alternate  clause in
          ______________
            1821(d)(13)(D)  (viz.,  "action[s] seeking  a  determination of
                             ___
          rights  with respect to []  the [bank's] assets,")  bars his pre-
          emptive claim for declaratory relief.  
               We  find this  an  inappropriate setting  for resolving  the
          question  in  National Union,  which was  not  raised below.   In
                        ______________
          addition,  dismissal of these claims by the district court was in
          all events proper, since Simon's claimed entitlement to discharge

                                          8



B.   The Borrowers' Claims
          B.   The Borrowers' Claims
               _____________________

                    The  Borrowers  seek  compensatory  damages  for FDIC's

          alleged  post-bar-date  repudiation  of   their  pre-receivership

          Modification Agreements with  the Bank.  See id.   1821(e)(3)(i).
                                                   ___ ___

          The Borrowers assert that all obligations they  incurred to third

          parties after FDIC was appointed receiver are entitled to priori-
                  _____

          ty status against Bank  assets, on the theory that  the Modifica-

          tion Agreements remained executory at the time FDIC was appointed

          receiver.    Consequently,  the Borrowers  argue,  the  executory

          Modification Agreements remained  open to affirmance or  repudia-

          tion by  FDIC within a  reasonable period following  its appoint-

          ment.   See id.   1821(e)(1)-(2).   Since FDIC has  yet to affirm
                  ___ ___

          the  Modification  Agreements, the  Borrowers  conclude that  the

          agreements have been repudiated.  

                    Their  claim  is  premature,  for  failure  to  exhaust

                              
          ____________________

          fails as a matter of Massachusetts law.  See Levy v. FDIC, 7 F.3d
                                                   ___ ____    ____
          1054, 1056 (1st Cir. 1993) (appellate court is "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'")  (citations omitted).   The Massachu-
          setts cases cited by  Simon stand only for the  generic contract-
          law proposition that a material breach excuses future performance
          by  the non-breaching party.  These cases do not purport to hold,
          however, that  a loan guarantor  is relieved  from liability  for
          delinquent  pre-breach  loan  advances  to the  borrowers.    The
          outstanding balances due by the Borrowers total well in excess of
          Simon's  $900,000 unconditional  guaranty.   See  generally Fleet
                                                       ___  _________ _____
          Nat'l Bank v. Liuzzo, 766 F. Supp. 61, 65 (D.R.I. 1991) (describ-
          __________    ______
          ing  nonmutality of promise to  repay loan).   Finally, Simon not
          only cites no contractual provision that even purports to entitle
          him to such blanket relief, but his January 1988 personal guaran-
          ty,  incorporated  by  reference  in the  modified  guaranty,  is
          couched in  unconditional language.  ("The  Guarantor's liability
          hereunder is absolute and unlimited . . . .").  Thus, the request
          for declaratory relief was properly rejected. 

                                          9



administrative  remedies.  See Heno  v. FDIC, 20  F.3d at 1212-13
                                     ___ ____     ____

          (publishing  FDIC internal  manual procedures  for filing  claims

          arising from FDIC's  post-bar-date repudiation of executory  pre-

          receivership  contracts with  failed institution).   In  Heno, we
                                                                   ____

          deferred  to  FDIC's  construction  of its  enabling  statute  as

          according the agency first  opportunity to evaluate alleged post-

          bar-date  claims, including  those arising  after  the ninety-day

          period following notice of FDIC's appointment as receiver, id. at
                                                                     ___

          1209.   As the Borrowers have yet to exhaust their administrative

          remedies pursuant to the  internal agency procedures published in

          Heno, we affirm the district court judgment, without prejudice to
          ____

          Borrowers' subsequent  submission of an  administrative claim  to

          FDIC.  

                    The district  court judgment is affirmed.   The parties
                    The district  court judgment is affirmed.   The parties
                    ________________________________________    ___________

          are to bear their own costs.
          are to bear their own costs.
          ___________________________

10