No. 95-111

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1995

DELCO DEVELOPMENT COMPANY, INC.,
ET AL., PETITIONERS

v.

MECHANICS AND FARMERS SAVINGS BANK, FSB

ON PETITION FOR A WRIT OF CERTIORARI
TO THE CONNECTICUT SUPREME COURT

BRIEF FOR THE
FEDERAL DEPOSIT INSURANCE CORPORATION,
AS RECEIVER,  IN OPPOSITION

WILLIAM F. KROENER, III
General Counsel

JACK D. SMITH
Deputy General Counsel

ANN S. DUROSS
Assistant General Counsel

ROBERT D. MCGILLICUDDY
CHRISTOPHER J. BELLOTTO
Counsel

Federal Deposit Insurance
Corporation
Washington, D.C. 20429

DREW S. DAYS, III
Solicitor General
Department of Justice
Washington, D.C. 20530
(202)514-2217


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QUESTION PRESENTED

Whether, in a suit by the Federal Deposit
Insurance Corporation, as receiver, to enforce peti-
tioners' loan guaranties, the Connecticut Supreme
Court correctly rejected petitioners' assertion of a
defense based on a co-guarantor's satisfaction agree-
ment with the failed savings bank.

(I)

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TABLE OF CONTENTS

Page

Opinions below . . . . 1 
Jurisdiction . . . . 1
Statement . . . . 2
Argument . . . . 5
Conclusion . . . . 10

TABLE OF AUTHORITIES

Cases:

Enquire Printing & Publishing Co. v. O'Reilly,
477 A.2d 648 (Corm. 1984)  . . . .7 
FDIC v. Kasal, 913 F.2d 487 (8th Cir. 1990),
cert. denied, 498 U.S. 1119(1991)  . . . .6 
FDIC v. Longley I Realty Trust, 988 F.2d 270
(lst Cir. 1993)  . . . . 6
FDIC v. Wright, 942 F.2d 1089 (7th Cir. 1991),
cert. denied, 504 U.S. 909 (1992)  . . . .6, 8 
Fox Film Corp. v. Muller, 296 U.S.207 (1935)...7
Hartford Fed. Sav. & Loan Ass'n v. Tucker,
436 A.2d 1259 (Conn. 1980) . . . . 8
Hathorn v. Lovorn, 457 U.S. 255 (1982) . . . .7 
Langley v. FDIC, 484 U.S. 86 (1987) . . . . 9
Michigan v. Long, 463 U. S. 1032 (1983)  . . . . 6
Oklahoma Radio Associates v. FDIC, 987 F.2d
685, motion to vacate denied, 3 F.3d 1436 (10th
Cir. 1993) . . . . 6, 8, 9
Skrzypiec v. Noonan, 633 A.2d 716 (Conn.
1993) . . . . 7
Texaco, Inc. v. Golart, 538 A.2d 1017 (Conn.
1988) . . . . 7, 8
Webb v. Webb, 451 U.S. 493 (1981) . . . .7 

Statutes:

Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, Pub. L. No. 101-73,
103 Stat. 183 . . . .5
 
(III)

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IV

Statutes-Continued:  		            

Page

12 U.S.C. 1823(e) (Supp. V 1993) . . . .  3, 4, 5, 6, 7, 8, 9
12 U.S.C. 1823(e)(3) (Supp. V 1993) . . . . 10

Miscellaneous:

Connecticut Practice Book  4185 . . . . 7

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OCTOBER TERM, 1995

No. 95-111

DELCO DEVELOPMENT COMPANY, INC.,
   ET AL., PETITIONERS

v.

MECHANICS AND FARMERS SAVINGS BANK, FSB

ON PETITION FOR A WRIT OF CERTIORARI
TO THE CONNECTICUT SUPREME COURT
 
      BRIEF FOR THE
FEDERAL DEPOSIT INSURANCE CORPORATION,
   AS RECEIVER, IN OPPOSITION

OPINIONS BELOW

The opinion of the Connecticut Supreme Court
(Pet. App. 1A-5A) is reported at 656 A.2d 1034. The
opinion of the Connecticut Superior Court (Pet. App.
6A-22A) is reported at 656 A.2d 1075.

JURISDICTION

The judgment of the Connecticut Supreme Court
was entered on April 11, 1995. The petition for a writ
of certiorari was filed on July 10, 1995. The jurisdic-
tion of this Court is invoked under 28 U.S.C. 1257.

(1)

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2

STATEMENT

1. On May 17, 1988, petitioner Delco Development
Company borrowed $3,500,000 from Mechanics and
Farmers Savings Bank (the Bank). The loan was
evidenced by a variable rate promissory note (the
Note), and secured by a mortgage on real property
(the Mortgage), both dated May 17, 1988. Dennis
Nicotra, and petitioners Robert Ginsburg and Gary
Ginsberg, who were shareholders in Delco, each exe-
cuted an unconditional written guaranty of all of the
obligations due under the Note. Pet. App. 2A, 8A. On
February 21, 1990, Delco and the Bank executed a
modification agreement, altering the interest rate on
the Note and extending the maturity date of the loan.
The guarantors consented in writing to those mod-
ifications, and each expressly guaranteed Delco's
prompt payment of the Note, as modified. Id. at 2A,
8A-9A. Shortly thereafter, Delco defaulted on the
loan. Id. at 2A, 9A.
2. On or about August 28, 1990, the Bank com-
menced foreclosure proceedings in Connecticut
Superior Court, and sought a deficiency judgment
against Delco and the guarantors. FDIC C.A. Br. 3;
Pet. App. 2A-3A. On August 9, 1991, the Federal De-
posit Insurance Corporation (FDIC) was appointed
receiver for the Bank; the FDIC was substituted as
plaintiff on March 9, 1992. Pet. App. 8A.
Petitioners pleaded five special defenses. Pet. App.
3A, 9A. The first four alleged, on various grounds,
that the loan transaction was ultra vires and
unenforceable. Ibid. The fifth special defense was
based on a July, 1991, agreement among Nicotra, the
Bank, and Nicotra's other creditors (the Nicotra
Agreement), which restructured, modified, compro-

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3           

mised, and liquidated Nicotra's various debts. Ibid.;
FDIC C.A. Br. 4. Petitioners were not parties to the
Nicotra Agreement. They claimed, however, that the
Bank stood to receive a $2 million benefit from that
agreement, and they contended, on that ground, that
Nicotra's execution of the agreement constituted a
$2 million partial payment of the outstanding balance
on the Delco loan. Pet. App. 3A.
After a bench trial, the court rejected all five
special defenses 1. and entered a Judgment of Strict
Foreclosure.  Pet. App. 6A-22A. Addressing peti-
tioners' fifth special defense, the trial court disagreed
with petitioners' contention that the execution of
the Nicotra Agreement was tantamount to a partial
payment of the loan. In the court's view, petitioners
had "no legal or equitable basis * * * upon which
*** [to] argue that an agreement negotiated by
Nicotra to satisfy his debts, [an agreement] which
apparently failed in the end, [could be] applicable to
them." Id. at 19A. The court also ruled, in the
alternative, that petitioners could not raise the
Nicotra Agreement as a defense to the FDIC's
enforcement of their guaranties because the agree-
ment did not comply with the requirements of 12
U.S.C. 1823(e) (Supp. V 1993). 2. The court noted that

___________________(footnotes)

1 Petitioners did not appeal the trial court's rejection of
their first four special defenses, Pet. App. 3A, and those
determinations are therefore no longer at issue,

2  12 U.S.C. 1823(e) (Supp. V 1993) provides:

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

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4

the Nicotra Agreement was neither signed by peti-
tioners, nor executed contemporaneously with ac-
quisition of the asset being foreclosed, i.e., the 1988
Note, as modified in 1990. Additionally, the court was
not persuaded that the Nicotra Agreement was ever
approved by the Bank's board of directors or reflected
in the board's minutes, since petitioners offered no
copies of actual minutes into evidence at trial. Pet.
App. 20A.
3. Petitioners appealed to the Connecticut Ap-
pellate Court. While their appeals were pending,
petitioners filed with the trial court a Motion for
Articulation, inquiring whether the court had held
that a 1989 amendment to Section 1823(e), which
extended the protections of the statute to the FDIC,
in its capacity as receiver, was retroactively appli-
cable to the loan transaction. The trial court refused
to rule, at that stage of the proceedings, on the
retroactivity question:
       
___________________(footnotes) 

 insured depository institution, shall be valid against the 
Corporation unless such agreement-

(1) is in writing,
(2) was executed by the depository institution and
any person claiming an adverse interest thereunder,
including the obligor, contemporaneously with the ac-
quisition of the asset by the depository institution,
(3) 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
(4) has been, continuously, from the time of
its execution, an official record of the depository
institution.

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5

The Defendants, despite ample opportunity by way
of pre-trial and post-trial briefs and arguments,
did not claim at trial that 1823(e) was inapplicable
to the transactions in question, nor did they raise
any issue of retroactivity. Therefore, this court
declines to answer the question presented in the
Motion for Articulation.

FDIC C.A. Br. 7-8.
4. The Connecticut Supreme Court took juris-
diction of the case from the Appellate Court and
affirmed. Pet. App. 2A. It observed that the trial
court had rejected petitioners' fifth special defense as
both (i) unfounded in law or equity and (ii) barred by
Section 1823(e). Id. at 4A. Agreeing with those
conclusions, it adopted the trial court's decision "as a
statement of the facts and applicable law." Id. at 5A.
The court declined to address petitioners' retro-
activity argument, because of petitioners' failure to
raise the claim at trial. Id. at 5A n.3.

ARGUMENT

1. Petitioners argue (Pet. 12-26) that the Con-
necticut Supreme Court erred in concluding that 12
U.S.C. 1823(e) (Supp. V 1993) barred their assertion of
the Nicotra Agreement as a defense to enforcement of
their guaranties. Petitioners point out (Pet. 14) that,
while the Note was executed in 1988, the protections
of Section 1823(e) were not extended to the FDIC, in
its capacity as receiver, until Congress amended
the statute in the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (FIRREA),
Pub. L. No. 101-73, 103 Stat. 183. In petitioners' view,
Section 1823(e) cannot lawfully be applied "to defeat
defenses relating to a transaction whose genesis pre-
dated the effective date of [FIRREA]." Pet. 22.

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6

There is some disagreement among the courts
of appeals respecting the retroactive application of
Section 1823(e) to bar defenses against claims made
by the FDIC, as receiver. Compare FDIC v. Wright,
942 F.2d 1089, 1095-1097 (7th Cir. 1991) (applying
Section 1823(e), to bar assertion of pre-FIRREA
agreement as defense against the FDIC, as receiver),
cert. denied, 504 U.S. 909 (1992); FDIC v. Kasal, 913
F.2d 487, 493 (8th Cir. 1990) (same), cert. denied, 498
U.S. 1119 (1991); and FDIC v. Longley I Realty Trust,
988 F.2d 270, 273-274 (lst Cir. 1993) (same) with
Oklahoma Radio Associates v. FDIC, 987 F.2d 685,
695-696 (rejecting retroactive application of the
statute), motion to vacate denied, 3 F.3d 1436 (lOth
Cir. 1993). That issue, however, is not presented in
this case.
a. The trial, court rejected petitioners' assertion
that the Nicotra Agreement decreased petitioners'
exposure on the Delco loan by $2 million, because the
court concluded that "[t]here [wa]s simply no legal or
equitable basis * * * upon which [petitioners] c[ould]
argue that an agreement negotiated by Nicotra to
satisfy his debts * * * [wa]s applicable to them."
Pet. App. 19A. In light of the court's observation
(ibid.) that the Nicotra Agreement "apparently failed
in the end," its conclusion that the execution of the
agreement did not affect petitioners' obligations on
the loan appears sound. The court's state-law-based
ruling in that regard was, in all events, a sufficient
ground for its "rejection of petitioners' defense. The
court's alternative holding respecting the preclusive
effect of Section 1823(e) was, therefore, not neces-
sary to its disposition of the case. That holding
is accordingly not subject to further review. see
Michigan v. Long, 463 U.S. 1032, 1038 n.4 (1983)

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7

(Court lacks jurisdiction over the judgment of a state
court that rests on both federal and non-federal
grounds "if the non-federal ground is independent
of the federal ground and adequate to support the
judgment") (quoting Fox Film Corp. v. Muller, 296
US. 207,210 (1935)).
b. Petitioners are, moreover, procedurally barred
from protesting that the trial court erred in apply-
ing Section 1823(e) retroactively. When a petitioner
seeks review of a state court determination, "[a]t a
minimum, * * * there should be no doubt from the
record that a claim under a federal statute or the
Federal Constitution was presented in the state
courts and that those courts were apprised of the
nature ox substance of [their] federal claim at the
time and in the manner required by the state law."
Webb v. Webb, 451 U.S. 493, 501 (1981). In this case,
the Connecticut Supreme Court declined to address
petitioners' retroactivity argument, in accord with
well-settled Connecticut law, because of petitioners'
failure to raise that argument at trial. Pet. App. 5A
n.3. See Connecticut Practice Book  4185; Skrzypiec
v. Noonan, 633 A.2d 716, 722 (Corm. 1993) (supreme
court will not address claims not raised before trial
court); Texaco, Inc. v. Golart, 538 A.2d 1017, 1020
(Corm. 1988) (same); Enquire Printing & Publishing
Co. v. O'Reilly, 477 A.2d 648, 652-653 (Corm. 1984)
(same).
Petitioners correctly note (Pet. 13) that this Court
may, on due process grounds, disregard a state
court's application of a procedural bar when the bar is
not applied "evenhanded y to all similar claims ,"
Hathorn v. Lovorn, 457 U.S. 255, 262-265 (1982),
but petitioners have made no showing that the
Connecticut Supreme Court's refusal to consider

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8

their retroactivity argument in this case conflicts
with that court's treatment of procedural default in
any similar case. While petitioners claim that the
retroactive application of Section 1823(e) was cog-
nizable as "plain error," the plain error doctrine
is generally reserved, under Connecticut law, for
circumstances in which there has been "[a]n
oversight of a clearly applicable statute," Hartford
Fed. Sav. & Loan Ass'n v. Tucker, 436 A.2d 1259,
1260 (Corm. 1980), or an error that "implicate[s] a
constitutional right or an important, general in-
terest," Golart, 538 A.2d at 1020. As we have noted,
three of the four courts of appeals that have addressed
the retroactive `application of Section 1823(e) have
concluded that the statute applies retroactively to bar
defenses against claims made by the FDIC, as re-
ceiver. Regardless of whether those decisions are
correct (as we believe they are 3.) they constitute the
clear weight of authority, and it is difficult to see how
the trial court could have committed "plain error" by
following them.
c. In any event, even if there were not an indepen-
dent and adequate state ground for the judgment, and
even if petitioners had not waived the argument
through procedural default, this case would still be an
inappropriate vehicle for resolving whether the 1989
amendment to Section 1823(e) applies retroactively
because, in this case, the trial court applied the stat-
ute prospectively. This case bears no resemblance to
Oklahoma Radio Associates v. FDIC, supra, where
the execution of the relevant agreement and the
appointment of the FDIC as receiver both pre-dated
      
___________________(footnotes)

3 See Wright, 942 F.2d at 1095-1097 (explaining rationale  for
retroactive application).

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9

FIRREA. 987 F.2d at 688. Here, the agreement at
issue-the Nicotra Agreement-was executed in
July, 1991, Pet. App. 3A, and the FDIC was not
appointed as receiver until August, 1991, ibid. The
events that triggered the application of Section
1823(e), therefore, occurred almost two years after
the statute was amended by FIRREA. 4.
2. Petitioners also argue (Pet. 26-27) that the
Connecticut Supreme Court erred in concluding that
the Nicotra Agreement failed to satisfy Section
1823(e). As noted, because the state court's judgment
rested on independent and adequate state grounds,
its application of Section 1823(e) to the facts of this
case is not subject to further review. In all events,
petitioners' are incorrect in asserting that the
Nicotra Agreement satisfied Section 1823(e). As this
Court has observed, a party asserting the existence of
an agreement as the basis for a claim or defense
against the FDIC must demonstrate compliance with
all of the statute's requirements. Langley v. FDIC,
484 U.S. 86, 95 (1987). Those requirements include
the requirement that the agreement have been
"approved by the board of directors of the depository

___________________(footnotes)

4  It is irrelevant that the underlying loan transaction was
initiated prior to FIRREA. The trial court did not prevent
petitioners from asserting a defense based on the Note or the
Mortgage, and it did not hold that either of those documents
failed to comply with Section 1823(e). But even if the date of
the underlying transaction were somehow relevant to the
analysis, the original loan documents were modified, and the
guarantors tendered written consents to those modifications,
in February, 1990. Pet. App. 8A-9A. As petitioners. observe
(Pet. 23), the 1988 and 1990 transactions were essentially "one
transaction," and that transaction was completed only after
FIRREA's 1989 enactment.

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10

institution or its loan committee, * * * [and]
reflected in the minutes of. said board or committee."
12 U.S.C. 1823(e)(3) (Supp. V 1993). Here, although
petitioners' counsel testified that the Nicotra agree-
ment was approved by the Bank's board of directors or
loan committee and reflected in the minutes, the trial
court was not convinced by that testimony, see Pet.
App. 20A, and petitioners failed to offer into evidence
actual minutes to substantiate their claim, ibid.

CONCLUSION

The petition for a writ of certiorari should be
denied.

Respectfully submitted.

DREW S. DAYS; III
Solicitor General

WILLIAM F. KROENER, III
General Counsel

JACK D. SMITH
Deputy General Counsel

ANN S. DUROSS
Assistant General Counsel

ROBERT D. MCGILLICUDDY
CHRISTOPHER J. BELLOTTO
Counsel
Federal Deposit Insurance
Corporation

SEPTEMBER 1995