Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-94-07020/USCOURTS-caDC-94-07020-0/pdf.json

Nature of Suit Code: 430
Nature of Suit: Banks and Banking
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 13, 1995 Decided July 18, 1995

No. 94-7020

NASHVILLE LODGING CO., ET AL.,

APPELLANTS

v.

RESOLUTION TRUST CORPORATION, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(92cv01615)

Gary A. Ahrens argued the cause for appellants. With him on the briefs were Charles E. Raley and

Timothy E. Heffernan.

P. MatthewSutko, Counsel, ResolutionTrust Corporation, argued the cause for appellee RTC. With

himon the briefwere BruceC. Taylor, Counsel, RTC; Barbara E. Nicastro, Robert E. Craddock and

William E. Long.

Hunter T. Carter argued the cause for appellees Southeast Real Estate Operating Company, L.P., et

al. With him on the brief were Howard B. Possick and Jason S. Palmer.

Before: BUCKLEY, WILLIAMS and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge WILLIAMS.

WILLIAMS, Circuit Judge: A partnership borrowed money from a thrift to finance the

construction of a hotel. Because the loan required the partnership to make a large balloon repayment

of principal at the end of the loan's term, the partnership secured a second agreement with the thrift

by which it would refinance the balloon payment at then-prevailing interest rates. The thrift went

under, and ultimately the Resolution Trust Corporation took control. The RTC repudiated the

refinancing agreement and sold the original loan to outside investors. The partnership sued the RTC

to recover as damages the amounts paid to secure the refinancing agreement; in addition, it sought

a declaratory judgment against the outside investors entitling it to set off these amounts against its

obligation to repay the original loan.

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The district court granted summary judgment to all defendants on all claims. We reverse the

grant of summary judgment in favor of the RTC on the damages claims and remand for further

proceedings. We affirm the summary judgment against the partnership on its claims for declaratory

relief.

I. Background

In 1983, the predecessor-in-interest to plaintiff Nashville Lodging Company ("Nashville")

borrowed $9.5 million from the Savers Federal Savings and Loan Association to finance the

construction and operation of a hotel in Tennessee. The transaction was structured so that the

borrower had to repay only a portion of the loan over the course of itsfifteen-year term; the balance

was due in a lump-sum payment at the end of the fifteen years. The parties executed a second

agreement, under which the thrift agreed to refinance this lump sum at the loan's maturity at market

interest rates. In consideration for the thrift's obligation to refinance, the borrower agreed to pay fees

of about $7000 per month on top of its principal and interest payments for the original loan.

Nashville and its predecessors paid the fees regularly through October 1991.

Savers Federal became insolvent and wastaken over by the federal government in 1989. The

thrift was reorganized and operated under federal conservatorship until the RTC was appointed

receiver on September 20, 1991. On October 7 the RTC sent Nashville a letter telling it to make all

future loan payments directly to the agency. Nashville responded a week later, on October 15, asking

the RTC whether it planned to assume or repudiate the companion refinancing agreement. Nashville

paid no refinancing fees while it awaited the RTC's response.

The RTC did not reply until December 19, 1991, when it repudiated the refinancing

agreement. In February 1992 Nashville filed an administrative claim for damages, seeking a return

of all of the fees paid under the refinancing agreement and pre-judgment interest. The RTC denied

the claim three months later. In the meanwhile, the RTC sold Nashville's loan to the Southeast Real

Estate Operating Company ("SREOC") as part of a larger portfolio of mortgage loans.

In July 1992 Nashville and its general partners filed suit in federal district court against the

RTC, SREOC, and SREOC'sshareholders. Nashville sought "direct compensatory damages" against

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the RTC in an amount equivalent to all of the payments made under the repudiated refinancing

agreement since 1983. Complaint at 7. It also sought a declaratory judgment stating that it had the

rightsto recoup and set offthese damages against the amount it owed on the original loan. Id. at 8-9.

The district court granted summary judgment to all defendants on all counts ofthe complaint.

Nashville Lodging Co. v. RTC, 839 F. Supp. 58 (D.D.C. 1993). It held first that Nashville was not

entitled to any relief against the RTC because it had been in default under the refinancing agreement

at the time the agency repudiated the contract: Nashville had materially breached the agreement by

failing to pay the required refinancing fees in November and December 1991. Id. at 61-62. Even if

the company had not been in default, the court further held, it would still be barred from recovering

damages because its rights under the refinancing agreement had not yet "vested" when the RTC

became the thrift'sreceiver: Nashville could not have had "an unqualified right to expect performance

of the refinancing agreement on the date that [the receiver] was appointed" because it had not yet

made the fullfifteen years' payments of refinancing fees. Id. at 62. Finally, the district court held that

Nashville possessed no rights of recoupment or setoff against SREOC because the purchasers of

assetsfrom a failed thrift do not become liable for the thrift's conduct unlessthat liability is expressly

transferred and assumed. Id.

Nashville appealed. We reverse the judgment in favor of the RTC on Nashville's claim to

damages, disagreeing with both the district court's grounds, but we affirm the denial of a declaratory

judgment.

II. The Repudiation and Nashville's Claim for Damages

TheFinancialInstitutionsReform,Recoveryand Enforcement Act of1989 ("FIRREA") gives

the receivers of failed savings and loan institutions wide-ranging powersto consolidate and liquidate

those institutions. Receivers have broad authority under FIRREA to repudiate any contract or lease

"(A) to which such institution is a party; (B) the performance of which the ... receiver, in [its]

discretion, determines to be burdensome; and (C) the disaffirmance or repudiation of which the ...

receiver determines, in [its] discretion, will promote the orderly administration of the institution's

affairs." 12 U.S.C. § 1821(e)(1). The receiver is liable to the non-breaching parties to these

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contracts for damages resulting from its repudiation; however, in the interest of maximizing the

number of creditors who can recover some portion of what they are owed, see DPJ Co. Ltd.

Partnership v. FDIC, 30 F.3d 247, 248 (1st Cir. 1994), the receiver's liability on an individual

contract is limited to "actual direct compensatory damages," 12 U.S.C. § 1821(e)(3)(A), and is

subject to other qualifications.

The RTC makesthree argumentsin support ofthe district court's grant ofsummary judgment

in itsfavor on the claim for damages. The first two, variations on the district court's conclusions, are

that Nashville wasin default under the refinancing agreement when the RTC repudiated it and hence

was disabled from recovering damages for the agency's breach, and that Nashville's claims were not

provable and vested at the time of the repudiation. Finally, it argues that the monetary relief sought

by the plaintiffsrestitution of the amounts already paid under the refinancing agreementdoes not

qualify as "actual direct compensatory damages" permitted by § 1821(e)(3)(A). We address each

argument in turn.

A. Nashville's Default

Nashville's last payment of refinancing fees was the installment due on October 1, 1991; it

did not pay the fees for the two months between then and the RTC's December 19 repudiation of the

refinancing agreement. The RTC contends that Nashville's failure to make the November and

December payments constituted a material breach of the agreement, one sufficient to bar its claimfor

damages. In response, Nashville denies that it was in default: the company claims that it had simply

exercised its right under Tennessee law, which the Refinancing Agreement explicitly selected as

governing law, to suspend its performance of the agreement pending adequate assurances from the

RTC that the agency would uphold its end of the bargain.

Tennessee case law on the subject is sparse, but what existssuggeststhat Tennessee adheres

to the view that a party to an agreement who has reason to fear that his counterpart may fail to

perform may demand assurances that performance will be forthcoming and may, without breaching,

suspend his own performance until those assurances are received. In a dictum in Harlan v.

Hardaway, 796 S.W.2d 953, 958 (Tenn. App. 1990), the court said that a condominium purchaser

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who feared breach by the developer should have demanded assurances of the developer's future

performance rather than repudiating the purchase agreement, citing the Restatement (Second) of

Contracts. The relevant sections of the Restatement read as follows:

§ 251. When a Failure to Give Assurance May Be Treated as a Repudiation. 

(1) Where reasonable grounds arise to believe that the obligor will commit a

breach by non-performance that would of itself give the obligee a claim for damages

for total breach ..., the obligee may demand adequate assurance of due performance

and may, if reasonable, suspend any performance for which he has not already

received the agreed exchange until he receives such assurance.

....

§ 252. Effect of Insolvency

(1) Where the obligor's insolvency gives the obligee reasonable grounds to

believe that the obligor will commit a breach [as above], the obligee may suspend any

performance for which he has not already received the agreed exchange until he

receives assurance in the form of performance itself, an offer of performance, or

adequate security.

Under the Restatement, if the obligor fails to give adequate assurances of his performance

within a reasonable time, the obligee may treat that failure as a repudiation of the contract. Id. at §

251(2). The principle seems entirely sensible and one that Tennessee would likely turn from dictum

to holding if the occasion presented itself. Cf. C.L. Maddox, Inc. v. Coalfield Svcs., Inc., 51 F.3d

76, 81 (7th Cir. 1995) (concluding, even in the absence of case support, that Illinois would apply §

251 on the ground that its principle was sound).

If these principles apply in the present case, Nashville was not in material breach of the

refinancing agreement on the date the RTC repudiated. The company's October 15, 1991 letter,

asking the RTC whether it was "assuming this obligation," is fairly read as a demand for adequate

assurances from the agency that it would honor the refinancing agreement; the RTC's appointment

as receiver, combined with its failure by the middle of October to assume the refinancing contract

explicitly as it had the underlying loan, gave Nashville reasonable grounds to believe that the agency

would not perform. Moreover, the company had not yet received "the agreed exchange" for its own

performance, i.e., the refinancing of the balloon payment that would come at the end of the loan's

fifteen-year term. Under the common law as we believe the courts of Tennessee would understand

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it, Nashville was entitled to suspend its own performance while it awaited adequate assurances that

the agency would perform on the contractin effect, a final decision from the RTC that it would not

repudiate the refinancing agreement.

The RTC's response is that Tennessee law does not governthat the ordinary doctrines of

contract law are swept aside by FIRREA. While courts have issued general pronouncements that

FIRREA is "the most sweeping thrift reform law in the nation's history," Praxis Properties, Inc. v.

Colonial Sav. Bank, 947 F.2d 49, 62 (3d Cir. 1991), and that its repudiation mechanism

"supersedesor preemptsvolumes of state law," RTC v. Diamond, 45 F.3d 665, 671 (2d Cir.

1995), no court has ever suggested that FIRREA totally obliterates state contract law as it applies

to any and all agreements with institutions that have been brought under a federal receiver's wing.

Cf. O'Melveny & Myers v. FDIC, 114 S. Ct. 2048, 2052-53 (1994) (describing as "plainly wrong"

the contention that FIRREA and federal common law wholly supplant state doctrines of agency).

Rather, FIRREA displaces state law with federal rules of decision only where there is "an explicit

federal statutory provision," id. at 2054, or in those "few and restricted" cases where there is a

"significant conflict between some federal policy or interest and the use of state law," id. at 2055

(quoting Wallis v. Pan American Petroleum Corp., 384 U.S. 63, 68 (1966); Wheeldin v. Wheeler,

373 U.S. 647, 651 (1963)).

The RTC argues that common-law rights of suspension are specifically preempted by 12

U.S.C. § 1821(e)(12), which gives the receiver the authority to "enforce any contract ... entered into

by the depository institution notwithstanding any provision ofthe contract providing for termination,

default, acceleration, or exercise of rights upon ... insolvency or the appointment of a conservator or

receiver." The RTC says that the suspension of performance pending adequate assurances constitutes

the sort of "exercise of rights" that is preempted by this section of FIRREA. But this argument

ignores the explicit text of the statute. Section 1821(e)(12) states only that the receiver's power to

enforce contracts exists "notwithstanding any provision of the contract " purporting to alter the

parties' rights upon insolvency or federal takeover. Nashville asserts a right to suspend performance

and demand adequate assurances based on general contract law, however; it does not invoke any

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provision of the refinancing contract at all. Its right therefore falls outside the specific preemption

of § 1821(e)(12).

The RTC'sfallback position isthat the recognition ofstate-law rightsto suspend performance

would generally interfere with the RTC's power to "collect all obligations and money due the

institution," 12 U.S.C. § 1821(d)(2)(B)(ii), and its ability to "promote the orderly administration of

the institution's affairs"the explicit goal of FIRREA's repudiation mechanism, id. at §

1821(e)(1)(C). The Second Circuit found such a conflict in RTC v. Diamond, 45 F.3d at 674-75,

holding that the RTC's power to repudiate leases trumps state rent-control regulations that protect

a tenant for a term of years from eviction so long asthe tenant paysthe rent. But the state-law rights

in question in the present case do not conflict with the federal statutethey merely allow those

affected by the RTC's broad powers to accommodate themselves to the 800-pound gorilla's

appearance on the block. The RTC suggests that the right to suspend performance, if preserved,

would allow all contractors with an insolvent institution to repudiate their contracts unilaterally once

a receiver was appointed, but this is not how suspension operates. As soon as the nonsuspending

party timely delivers adequate assurances of performance (in our context, when the RTC

communicates its final decision not to repudiate the contract), the suspension doctrine allows that

party to "collect all obligations and money" that came due during the period of suspension,

consistently with the mandate of § 1821(d)(2)(B)(ii). See also Harlan v. Hardaway, 796 S.W.2d at

958 (contrasting suspension with anticipatory repudiation). The RTC's fear that it will be stampeded

into making premature repudiation decisions is likewise misplaced: the "reasonable time" within

which it must give assuranceslest the obligee be entitled to treat the contract asrepudiated, Rest. (2d)

of Contracts § 251(2), would necessarily be construed congruentlywith theRTC's existing obligation

under FIRREA to exercise itsrepudiation rights within a "reasonable period following [the receiver's]

appointment," 12 U.S.C. § 1821(e)(2). Hence, the operation of the common-law suspension right

would not interfere with the receiver's ability to repudiate or affirm contracts, the timing of its

decisions, or its ability to collect on whatever contracts it ultimately chooses to enforce.

In fact, the only aspect of the RTC's work that would be affected by the operation of these

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1FIRREA specifies different methods of calculating the receiver's liability for leases, contracts

to sell real estate, and certain classes of financial contracts not at issue here. See 12 U.S.C. §

1821(e)(3)(C) and (e)(4) to (e)(6). 

state-law rights is the agency's ability to collect, on agreements it ultimately decides to repudiate,

contract payments due in the period between the appointment of the receiver and the final decision

to repudiate. And here the effect is only to prevent FIRREA's repudiation scheme from bringing

about what is at best an anomaly, at worst a stark injustice. As noted above, the non-breaching party

to a repudiated contract may recover damages resulting from the repudiation; for most contracts,1

however, FIRREA specifies that the receiver's liability is "determined as of ... the date of [its]

appointment," not the date of the actual repudiation, 12 U.S.C. § 1821(e)(3)(A)(ii). Although we

do not decide the question, this could have the effect of making damages incurred in the period

between the appointment of the receiver and the repudiation unrecoverable. If a contractor who

correctly believed that the RTC planned to repudiate his agreement could not suspend performance,

he would be obligated to perform on the contractin effect, to throw good money after badfor

however long it took the RTC to make itsfinal decision, lest he be in breach once the agency actually

repudiated. Yet § 1821(e)(3)(A)(ii) may well deny him any recovery of these additional payments.

Suspension saves contractors from having to pour money down a black hole.

In sum, we hold that Nashville properly exercised its rights under Tennessee law to suspend

its payments of monthly fees while awaiting the RTC's final decision on the refinancing agreement.

The company was therefore not in breach at the moment of repudiation, and its claim for damages

cannot be denied on these grounds. We have no need to consider Nashville's alternative theories by

which its seeming breach could be excused.

B. "Vesting" and "Provability"

Pre-FIRREA banking law held that claims against the receivers of insolvent national banks

were recoverable only if they were provable and vestedthat is, "the liability of the bank ... accrued

and bec[a]me unconditionally fixed on or before the time it [was] declared insolvent." Kennedy v.

Boston-Continental Nat'l Bank, 84 F.2d 592, 597 (1936). SREOC and the RTC assert that this

requirement survives the adoption of FIRREA and applies to claims arising out of the receiver's

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repudiation of an insolvent thrift's contracts. They argue that Nashville's claims fail to meet this

requirement because on the date the RTC became receiver, Nashville's rights under the refinancing

agreement were contingent rather than "accrued and ... unconditionally fixed": the company would

only receive the refinancing if (1) it made the monthly payments of refinancing feesfor the remaining

term of the underlying loan, (2) it paid the thrift's normal loan fees and submitted all the applications

and documentation required for the refinancing, and (3)its application, insurance, and financialpapers

were all in order. In the RTC's words, these contingencies left Nashville with a mere "right to apply

to Savers Savings for a new loan at "market rate' in 1998," a right that had no fixed or recoverable

value when the RTC became receiver in September 1991.

The idea that an obligation must have become absolute by the time of insolvency had clearly

weakened even before FIRREA's adoption, however, and it plainly has not survived the statute's

specification of claims recoverable upon repudiation in 12 U.S.C. § 1821(e)(3). Even in a

pre-FIRREA insolvency, for example, creditors could recover for a receiver's breach of a "standby"

(and thus contingent) letter of credit. See Citizens State Bank v. FDIC, 946 F.2d 408 (5thCir. 1991).

We followed Citizens State Bank in applying FIRREA in Office and Professional Employees Int'l

Union, Local 2 v. FDIC, 27 F.3d 598 (D.C. Cir. 1994), where we found that dismissed employees

of an insolvent bank could recover severance benefits promised under their repudiated collective

bargaining agreement even though they had not been fired when the receiver was appointed and had

only contingent rights to the benefits at that time. To show that the claim had "accrued," it was

enough that if the bank had remained solvent and had unilaterally repudiated the severance

obligations, the employees could have sued successfully in court for the value of those benefits. The

contingencies surrounding the right (events that might have terminated a worker's employment

without triggering severance liability) went only to the present value of the right to the benefits as of

the date the receiver took over, not to the right's existence on that date. Id. at 601-02. In short, the

question of whether the employees' rights were sufficiently vested on the relevant date (and their

claims sufficiently provable) turned on whether the insolvent bank's promise was "binding and

enforceable under contract law" at that time. Id. at 602.

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Nashville's claims meet this standard. Tennessee courts have long held that a party may sue

and recover damages from a bank that breaches a contract to make a loan. See, e.g., FarabeeTreadwell Co. v. Union & Planters' Bank & Trust Co., 186 S.W. 92 (Tenn. 1916). The fact that

Nashville had not at the time of repudiation paid the full fifteen years' worth of refinancing fees is

irrelevant: it is well settled at common law that even a party who has not yet begun to satisfy his

duties under a contract maysue for anticipatorybreachwhen the other partyunequivocallyannounces

his intent not to perform. See, e.g., Roehm v. Horst, 178 U.S. 1 (1900) (collecting cases). Finally,

no matter how contingent Nashville's eventual right to refinance may have been (and the defendants

overstate the contingency when they characterize it as a mere right to file a loan application:

businessmen do not normally pay $7000 a month for the privilege of doing what they could have done

without express permission), the RTC has offered no reason to believe the right had no positive

present value in December 1991. The burden is on RTC as repudiator to show that the value of the

right Nashville bought was worth less than what it had paid as of October 1991. See Charles T.

McCormick, Handbook on the Law of Damages § 142 at 584 and n.8 (1935) (courts presume that

a breached contract would have benefited the non-breaching party by at least as much as that party

was willing to lay out to secure its performance; breaching party must prove otherwise). We

therefore reject the RTC's arguments that Nashville's claim for damages must fail for lack of

provability or vestedness.

C. "Actual Direct Compensatory Damages"

FIRREA explicitly limits a receiver's liability on a repudiated contract to "actual direct

compensatory damages," 12 U.S.C. § 1821(e)(3)(A)(i). The statute does not define this term

expressly; in its next section, however, FIRREA does exclude a number of items, explaining that "the

term "actual direct compensatory damages' does not include(i) punitive or exemplary damages;

(ii) damages for lost profits or opportunity; or (iii) damages for pain and suffering." Id. at §

1821(e)(3)(B).

Nashville's complaint sought what it termed "direct compensatory damages" in an amount

equivalent to the monthly fees that it and its predecessors-in-interest had paid under the repudiated

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agreement. The RTC contends that Nashville is in effect seeking the remedy of restitution, which it

saysfalls outside the scope of "actual direct compensatory damages." (The RTC makes no claim that

the proposed remedy falls within any of the specific exclusions of § 1821(e)(3)(B).) The distinction

(it argues) is that damages are a forward-looking remedy, the purpose of which is "to put the party

in as good a position as he would have been had the contract been completed," while restitution looks

backwards and attempts to "restore[ ] the injured party to the position he occupied prior to the

contract being made."

We grant that the remedy Nashville requested for its injuries is calculated retrospectively

rather than prospectively, but we do not agree that this renders it non-compensatory. It is true that

the ordinary measure of damages for breach of contract is forward-looking and seeks to protect the

non-breaching party's "expectation interest": the plaintiff in such a case is given the "the value of the

expectancy which the [breached] promise created," just as if the contract had gone through to

completion. L.L. Fuller & William R. Perdue, Jr., The Reliance Interest in Contract Damages (Part

1), 46 Yale L.J. 52, 54 (1936); see also Rest. (2d) of Contracts § 344(a). But where the prospective,

"benefit ofthe bargain" damages prove too difficult orspeculative to calculate, courts commonlygive

the plaintiff damages measured retrospectively, protecting the plaintiff's "reliance interest" by

"undoing the harm which hisreliance on the defendant's promise has caused him" and "put[ting] him

in as good a position as he was in before the promise was made." Fuller & Perdue at 54; see also

Rest. (2d) of Contracts § 344(b). This back-up remedy gives the plaintiff "the repayment of his

expendituresin preparing to performand in part performance." McCormick, Damages § 142 at 583;

see also United States v. Behan, 110 U.S. 338, 344-45 (1884) (non-breaching party may always

recover "his loss of actual outlay and expense," even if lost profits are incapable of proof).

The fact that reliance damages are backward-looking does not destroy their pedigree as a

species of compensatory relief. McCormick emphasizes that

This recovery is strictly upon the contract. True, it is not measured according to the

principle that the contracting party should be placed in the condition he would be in

if the contract had been performed, but is more analogousto the classical measure of

"out-of-pocket' loss.... It does, however, conform to the more general aim of

awarding compensation in all cases, and departs from the standard of value of

performance only because of the difficulty in applying it.

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Damages, § 142 at 583-84. For this reason, remedies calibrated to putting the claimant back in the

position he occupied before making the repudiated agreement are "actual direct compensatory

damages" no less than those aimed to put him where he would have been if the contract had been

fulfilled. Both are presumptively recoverable under FIRREA. See DPJ Co. v. FDIC, 30 F.3d at 249-

50 (holding that claims for "reliance damages" are not barred by FIRREA).

Although all the parties have, in their briefs, referred to Nashville's claim as one for

"restitution"which implies that the company is seeking to force the RTC to disgorge a specific

benefit conferred on it, thereby avoiding the agency's unjust enrichment, see Rest. (2d) of Contracts

§ 344 cmt. awe need not consider whether relief that is solely restitutionary could be recovered

under FIRREA. Nashville is seeking compensation for the out-of-pocket expenses (or at least the

portion paid asrefinancing fees) that the company incurred in reliance on the thrift's original promise

to refinance its loan at the end of the fifteen-year term. Such payments qualify as reliance damages.

DPJ Co. v. FDIC, 30 F.3d at 248-50 (holding that commitment fees paid to an insolvent bank to

secure a line of credit were recoverable under FIRREA asreliance damages once receiver repudiated

loan); Hidalgo Properties, Inc. v. Wachovia Mortgage Co., 617 F.2d 196, 198-99 (10th Cir. 1980)

(allowing plaintiff in ordinary breach-of-contract suit to recover fees paid to defendant lender to

secure a repudiated standby loan commitment and characterizing these fees as "expensesincurred by

[plaintiff] in performing the contract," the epitome of reliance damages). Nashville's complaint

correctly characterized its claim for these expenses as one for "direct compensatory damages." The

company's bid to recover themdoes not run afoul of FIRREA'slimitation to compensatory damages.

The district court thus erred in granting the RTC summary judgment on Nashville's claimsfor

damages. We vacate the judgment in RTC's favor and remand the claims for further proceedings.

III. Claims for Declaratory Judgment

Nashville's complaint also asked for a declaration that the companywas entitled to recoup and

set off its damages under the repudiated refinancing agreements against its future obligations under

the original loan. Although Nashville asked for a declaratory judgment against all defendants, its

rights against the RTC do not fit the concepts of recoupment or setoff. Both are procedural devices

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by which a defendant seeks to reduce the amount he owes to a plaintiff by the value of the plaintiff's

cross-obligations to the defendant. They differ in that recoupment involves the balancing of

reciprocal obligations incurred as part of a single transaction, while setoff refers to the balancing of

obligations that the parties incurred in wholly separate transactions. See, e.g., United Structures v.

G.R.G. Engineering, 9 F.3d 996, 998-99 (1st Cir. 1993). Clearly, a party can have recoupment and

setoff rights only against one asserting claims against himself. As the RTC has sold Nashville's loan,

it can no longer have any claim on that contract against the company, and no one suggests that it has

any other claims up its sleeve. Recoupment and setoff therefore have no place in the two parties'

relationship; the declaratory relief that Nashville sought against the agency is moot and was properly

denied.

Recoupment and setoff might, of course, come into play as between Nashville and SREOC,

the current holder of the loan. But we agree with the district court that SREOC did not become

affirmatively liable for the RTC's repudiation of the refinancing agreement simply by purchasing the

underlying loan. FIRREA empowers the RTC to organize thrift institutions to "take over such assets

or such liabilities as [the RTC] may determine to be appropriate." 12 U.S.C. § 1821(d)(F)(i). The

courts have read this as showing that the statute more generally "contemplates that RTC will

determine which assets and liabilities of a failed thrift should be sold and transferred, and which it

should keep." Payne v. Security Sav. & Loan Ass'n, 924 F.2d 109, 111 (7th Cir. 1991); see also

First Ind. Fed. Sav. Bank v. FDIC, 964 F.2d 503, 506-07 (5th Cir. 1992). The rule enhances the

receiver's ability to wind up the affairs of insolvent institutions expeditiously and at minimal public

expense "by allowing the RTC to absorb liabilities itself and guarantee potential purchasers that the

assets they buy are not encumbered by additional financial obligations." Payne, 924 F.2d at 111.

Although (as Nashville correctly notes) this rule is most frequently applied in the context of

large-scale purchase and assumption agreementsin which the receiver agrees to sellsubstantially

all of the assets of a failed institution to a solvent one in a single transactionthe principle has

nothing to do with the scale ofthe transaction and is equallyapplicable to contractsto transfersmaller

subsets of the insolvent institution's assets, such as the RTC's agreement in the present case to sell

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SREOC the portfolio of loans of which Nashville's was a part.

This rule, allowing the RTC in effect to split what would have been a borrower's

counterclaims against the insolvent institution from claims that it could have brought against the

borrower, applies even when the original claimand the counterclaims arise out ofrelated agreements.

In FSLIC v. Mackie, 962 F.2d 1144 (5th Cir. 1992), plaintiff Mackie received a construction loan

from Lamar Federal Savings; at the same time, Mackie and Lamar entered into a supplemental

permanent loan commitment. Mackie defaulted, and Lamar sued to foreclose on the loan. Mackie

filed counterclaims on several theories, including a contention that Lamar had breached the loan

commitment agreement. Id. at 1146. During the litigation, Lamar went into federal receivership, and

the receiver transferred all of Lamar's assetsto a solvent institution, Southwest Savings Association;

Southwest continued the suit against Mackie for default on the construction loan and ultimatelywon.

On appeal, the FifthCircuit held that "Mackie [could not] bring any counterclaims or claimsfor offset

against Southwest because Southwest did not assume any of the [receiver's] liabilities; it only

purchased the assets." Id. at 1150.

In the present case, the parties do not dispute the fact that SREOC bought Nashville's loan

without expressly assuming the RTC's liability to the company for repudiating the refinancing

agreement. The situation therefore seems analogous to Mackie, and we find that a similar rule should

apply. Nashville cannot counterclaim against SREOC to recoup or set off its damages from the

repudiation against its remaining obligations on its loan; the company may recover these amounts

only from the RTC in its primary claim for damages.

The Mackie court suggested that the same theories and factual circumstances underlying a

borrower's forbidden counterclaims against the purchaser of an insolvent institution's loans might

nonetheless be raised as affirmative defenses against the purchaser's suit to enforce the loan

obligation. Id. at 1150. Although the request for relief in Nashville's brief occasionally slips from a

declaration on available counterclaims to one on available defenses, we need not here consider the

possibility of recasting Nashville's counterclaim theories as defenses. We addressed the company's

potential counterclaims against SREOC because, without much alteration, theymight well have been

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brought (equally unsuccessfully, we might add) asstand-alone affirmative actionsin parallel with the

damages claims against the RTC. But it would require too much speculation on our part for us to

make pronouncements on the availability of potential defenses in hypothetical litigation that the

plaintiff has not even suggested it contemplates precipitating, especially where the specific context

ofthe litigation might bear critically on the validity of any potential defense. See Public Svc. Comm'n

v. Wycoff Co., 344 U.S. 237, 244 (1952) (for request for declaratory relief to be ripe, the would-be

litigants' dispute "must not be nebulous or contingent but must have taken on fixed and final shape

so that a court can see what legal issues it is deciding, what effect its decision will have on the

adversaries, and some useful purpose to be achieved in deciding them"). We therefore affirm the

district court's denial of declaratory relief against both defendants.

* * *

The district court's denial of declaratory relief is affirmed for the reasons stated above; the

grant ofsummary judgment in favor of the RTC on Nashville's claim for damagesisreversed and the

case is remanded to the district court for further proceedings.

So ordered.

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