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Parties Involved:
Beal Mortgage, Incorporated
Appellant
Federal Deposit Insurance Corporation
Appellee

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 27, 1997 Decided January 9, 1998 

No. 97-5016

BEAL MORTGAGE, INCORPORATED, F/K/A BSB MORTGAGE,

INC., APPELLEE/CROSS-APPELLANT

v.

FEDERAL DEPOSIT INSURANCE CORPORATION,

AS RECEIVER FOR BELL FEDERAL SAVINGS BANK AND

FEDERAL DEPOSIT INSURANCE CORPORATION, AS MANAGER FOR THE

FSLIC RESOLUTION FUND,

APPELLANTS/CROSS-APPELLEES

Consolidated with

No. 97-5029

Appeals from the United States District Court 

for the District of Columbia 

(No. 95cv00164)

Lawrence H. Richmond, Counsel, Federal Deposit Insurance Corporation, argued the cause for appellants/crossUSCA Case #97-5029 Document #321658 Filed: 01/09/1998 Page 1 of 10
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appellees, with whom Ann S. DuRoss, Assistant General 

Counsel, was on the briefs.

Charles A. Gall argued the cause for appellee/crossappellant, with whom James W. Bowen, Amy Loeserman 

Klein and John McJunkin were on the brief.

Before: GINSBURG, SENTELLE and TATEL, Circuit Judges.

Opinion for the court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge: Beal Mortgage, Inc. ("Beal") 

brought suit under a contract with the Resolution Trust 

Corporation, later assumed by the Federal Deposit Insurance 

Corporation ("FDIC"), to purchase for over $7 million several 

mortgages and real properties of a failed institution taken 

over by the agency. After stipulation by the parties as to 

certain facts, the district court granted summary judgment 

for Beal, holding that the contract obligated the FDIC to pay 

Beal credits for all pre-closing sales of loan collateral, and to 

bear responsibility for delinquent property taxes on some of 

the properties, subject to contractual limitations of liability. 

We hold that the contract language affords Beal a credit only 

when collateral property was sold between specified dates, 

and that contract language pro-rating property taxes does not 

make the FDIC liable for delinquent taxes, and remand for 

further proceedings consistent with this opinion.

I

In January 1993, the FDIC1offered to sell by sealed bid a 

portfolio of loans and real property that it took over from the 

failed Bell Federal Savings Bank. It provided a Bid Information Package to prospective bidders, which included certain 

representations and warranties regarding the loans and real 

__________

1 For simplicity, this opinion refers to the relevant agency as the 

FDIC, currently a party to this litigation, although the court 

recognizes that the contract was initially drafted and executed by 

its predecessor in interest, the Resolution Trust Corporation.

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property being sold, and a warning that this information was 

liable to be inaccurate. It soon thereafter provided a Detailed Information Package, which included a valuation known 

as a Derived Investment Value ("DIV") for each asset, which 

it described as a value computed "for the sole purpose of 

allocating the Bid Purchase Price among" the assets in each 

pool to provide a way to determine the repurchase price in 

the event that any of the loans in the package had to be 

repurchased by the FDIC as the result of certain defects. 

Purchase Agmt., Art I. The FDIC specifically warned bidders not to use the DIV as a basis for formulating their bids. 

Many of the loans involved were in default, so that their value 

derived from a purchaser's right to foreclose and sell the 

underlying collateral.

Until the Bid Information Date of April 13, 1993, the FDIC 

provided updated information about the assets in the pool, to 

allow bidders to conduct and adjust their own valuation of the 

assets at issue. On April 20, 1993, Beal submitted the 

highest bid, and entered a Purchase Agreement with the 

FDIC. This began a six-month due diligence period during 

which Beal could determine if there were any breaches of the 

representations or warranties made with respect to the property it acquired. For example, the Purchase Agreement 

warranted that the disclosures in the Detailed Information 

Package accurately reflected the information contained in 

Bell Savings' files, and that there were no undisclosed delinquent real property taxes on included properties. See Purchase Agmt. §§ 7.3-7.4. It provided limited remedies against 

the FDIC for any breach of these warranties, generally 

giving the FDIC the option to cure the defect or repurchase 

the defective mortgage. See Purchase Agmt. § 5.2. At the 

Closing Date, Beal closed the transactions but noted that it 

reserved the right to pursue (through the instant litigation) 

certain credits and back taxes it thought it was due under the 

contract.

The FDIC has consistently asserted that Beal's only remedy for allegedly defective mortgage loans is via recourse to 

the contract provisions for breach of warranty. However, 

applying New York law as required by the Agreement, the 

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district court agreed largely with Beal's proffered interpretation of the Purchase Agreement, and awarded Beal nearly 

$2.4 million in damages under the provisions for credits and 

property taxes. In each instance, the district court held the 

contract unambiguous and entered judgment as a matter of 

law. Our review of the entry of judgment as a matter of law 

is de novo. Diamond v. Atwood, 43 F.3d 1538, 1540 (D.C. 

Cir. 1995). Neither party before us argues that the Purchase 

Agreement is ambiguous, so we do our best to draw clear 

meaning out of its murky provisions.

II

The first dispute involves whether credits were due to Beal 

under section 2.3(a)(iii) of the Purchase Agreement with 

respect to three "Non-Affiliate Mortgage Loans" (i.e., secured by collateral owned by a third party), called "JEMAC," 

"Ocean Juno," and "Royal Cove." The relevant portions of 

section 2.3(a) provide the following:

The Purchaser shall receive, on the Closing Date, a 

credit against the Bid Purchase Price in an amount equal 

to the sum of the following:

(i) with respect to the Non-Affiliate Mortgage Loans ... 

all principal payments received by the Seller thereon 

(including for this purpose, prepayments, sales proceeds, 

scheduled principal payments, and condemnation proceeds and insurance proceeds allocated to principal that 

are not used to restore the Mortgaged Property) after 

the Pricing Date [March 31, 1993] and prior to the 

Closing Date ...;

...

(iii) amounts received on any Mortgage Loan that were 

disclosed as being included in the determination of such 

Mortgage Loan's Initial Derived Investment Value....

Beal argues essentially that section 2.3(a)(iii) entitles it to a 

credit for all sales proceeds, whenever received, deriving from 

items of collateral that were included in the FDIC's computation of an asset's DIV. The FDIC takes the position that 

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Beal's interpretation would read out of the contract the time 

limitation explicit in section 2.3(a)(i), and that section 

2.3(a)(iii) only allows a credit for "amounts received ... that 

were disclosed," not amounts deriving from sales of items 

that were disclosed, as included in DIV. Thus, the FDIC 

contends that Beal is only entitled to a credit if the sale 

occurred after the Pricing Date. Otherwise, if the fact of the 

sale was disclosed, Beal should have adjusted its bid downward, and if not disclosed, Beal must pursue a breach of 

warranty remedy as defined by the contract.

The JEMAC Loan was assigned a DIV of $306,662, based 

on security of twelve lots. Before the Pricing Date, the 

FDIC sold eight lots for $704,000 and applied the proceeds to 

the loan's principal. The FDIC disclosed the sale prior to the 

Bid Information Date. After the Pricing Date, the FDIC 

sold the remaining four lots for $100,000 and again applied 

the proceeds against the principal. Because the second sale 

occurred between the Pricing Date and the Closing Date, the 

FDIC credited Beal $100,000 pursuant to section 2.3(a)(i).

The Ocean Juno Loan had a DIV of $329,533, secured by 

two lots. Before the Pricing Date, the FDIC sold one of the 

lots for $150,000 and applied the proceeds to the loan's 

principal. After the Pricing Date, the FDIC sold the remaining lot for $170,873 and again applied the proceeds against 

the principal. The FDIC credited Beal $170,873 because the 

second sale occurred between the Pricing Date and the 

Closing Date.

The Royal Cove Loan had a DIV of $2,546,152, based in 

part on collateral including a $650,000 certificate of deposit 

("CD"), a subordinated note for $793,400, and certain guaranties. Prior to the Closing Date, the FDIC discovered and 

notified Beal that the asset files indicated that the CD had 

been cashed and applied to the loan several years earlier by 

the now-defunct Bell Savings. Thus, the FDIC claimed that 

the cash had been shown by mistake, and in response to 

Beal's complaints, advised Beal to file a claim of defective 

mortgage loan under section 5.2(b) of the Purchase Agreement.

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As to the subordinated note and guaranties, the district 

court found without objection that they had been sold to a 

third party. The record does not reflect the evidence upon 

which this finding was based, though it might be a reasonable 

inference from the fact that these items, disclosed as part of 

the Royal Cove collateral, were never delivered to Beal. 

Lacking specific evidence of a sale, the district court unsurprisingly made no finding regarding when such a transaction 

occurred. Beal's complaint alleges that the sale occurred 

prior to the Closing Date, and that the FDIC "failed to 

disclose that the Subordinated Note and Interest Guaranties 

had been sold prior to the Bid Information Date." Cplt. 

¶ 6(b). Reading this statement to allege that the sale occurred before the Bid Information Date (April 13) does not 

necessarily imply that the sale occurred before the Pricing 

Date (March 31). Thus, we cannot on the present record 

determine whether this transaction occurred during the period contemplated by section 2.3(a)(i).

Beal bases its arguments on its view of the role of the DIV. 

Beal claims that bidders were required to formulate bids 

based upon a percentage of the aggregate DIV. In a past 

transaction with the agency, Beal noted that the FDIC adjusted the DIV immediately prior to the Bid Information 

Date to reflect changes in the collateral and the properties in 

the package. Because the FDIC did not adjust the DIV in 

this case, Beal asserts that it therefore believed it would be 

entitled to credits under section 2.3(a)(iii) for items included 

in DIV calculations that the FDIC disclosed had been sold 

and applied against principal. The district court, agreeing 

with Beal, held that section 2.3(a)(iii) allowed a credit for all 

proceeds, whenever received, deriving from the sale of assets 

disclosed as being included in the computation of a loan's 

DIV. Although perhaps a reasonable reading of the cloudy 

contract provisions at issue, we think this interpretation does 

not best fit the language and structure of the Purchase 

Agreement.

The Purchase Agreement states that DIVs are provided 

"for the sole purpose of allocating the Bid Purchase Price 

among the individual Mortgage Loans ... to provide a methUSCA Case #97-5029 Document #321658 Filed: 01/09/1998 Page 6 of 10
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od of determining the Repurchase Price or Adjusted Schedule 

Price in the event any Mortgage Loans are repurchased or 

revalued." Purchase Agmt., Art. I (emphasis added). Further, the Bid Package noted that any reliance on DIV "shall 

be solely at the risk of the bidders.... [DIVs] are being 

provided without any representation or warranty, express or 

implied, as to their content, suitability for any purpose, 

accuracy, truthfulness or completeness...." In light of this 

language, a party could not have reasonably relied upon DIV 

values to compute credits actually payable under the contract, 

never mind infer that the inclusion of an item in a DIV 

calculation automatically entitled it to a credit for that item.

Both the language and structure of the Purchase Agreement support the FDIC. Section 2.3(a)(iii) on its face allows 

a credit for "amounts received ... that were disclosed as 

being included" in the DIV, not amounts received for properties disclosed as being included. Literally, section 2.3(a)(iii) 

does not apply to the various properties sold before the 

Closing Date. The structure of section 2.3 also suggests a 

more limited reading of subsection (iii): unlike subsection (i), 

subsection (iii) is not restricted to certain types of payments 

(a limited list of types of principal payments), to a limited 

period of time (payments received between the Pricing Date 

and the Closing Date), or to a single category of mortgage 

loans ("Non-Affiliate Mortgage Loans"). Beal's interpretation essentially reads the more specific subsection (i) out of 

the contract in favor of the generally worded, though literally 

inapplicable, subsection (iii). We will not adopt such an 

interpretation, which would be inconsistent with the cardinal 

interpretive principle that we read a contract "to give meaning to all of its provisions and to render them consistent with 

each other." United States v. Insurance Co. of North Am.,

83 F.3d 1507, 1511 (D.C. Cir. 1996); Rentways, Inc. v. O'Neill 

Milk & Cream Co., 126 N.E.2d 271, 273 (N.Y. 1955).

Thus, the only credits possibly due to Beal under section 

2.3(a)(i) involve the proceeds of sales which occurred between 

the Pricing Date and the Closing Date. With respect to the 

JEMAC and Ocean Juno loans, the FDIC has already credited Beal with the appropriate amounts. With respect to the 

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Royal Cove loan, if the subordinated note and guaranties 

were sold and the proceeds applied to the principal of the 

loan, and if the sale occurred between the Pricing Date and 

the Closing Date, Beal could be entitled to an additional 

credit. Without a finding as to the date of this sale, we 

cannot determine whether Beal is entitled to such a credit. 

Beal was not on notice that these assets, included in the 

Detailed Information Package, would not be delivered at 

closing; but if the sale occurred before the Pricing Date, 

Beal's only remedy is that which the Purchase Agreement 

provides for breach of warranty.

Under section 2.3(a)(iii), the only "amount" disclosed as 

being included in DIV was the $650,000 CD included in the 

Royal Cove Loan package. However, this CD had been 

applied to the loan's principal before the FDIC took over Bell 

Savings, and thus the $650,000 cannot be deemed an "amount 

received" by the FDIC within the meaning of section 

2.3(a)(iii). Again, Beal's only remedy against the FDIC for 

failure to deliver the CD is found in the Purchase Agreement's provisions for breach of warranty.

III

Beal also claims that the Purchase Agreement requires 

that the FDIC pay $686,465.82 in delinquent property taxes 

on four real properties transferred under the Purchase 

Agreement. These taxes, in the form of tax liens against the 

properties, were disclosed by the FDIC prior to the Bid 

Information Date. Beal's argument, adopted by the district 

court, relies completely on a strained interpretation of a 

single provision of the Purchase Agreement.

Section 11.2(b) provides that the purchase price for each 

Real Property would be $100, adjusted by "expenses (both 

before and after the Real Property Closing Date)" which 

would be "prorated as between the Seller and the Purchaser 

as of midnight of the day immediately preceding the Real 

Property Closing Date for each Real Property." The expenses to be prorated included, among other things, utility 

charges, rents, insurance premiums, and "related real estate 

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taxes and all assessments (special and general)." Purchase 

Agmt. § 11.2(b)(i). Further, if the taxes had not been assessed by the Closing Date, the adjustment would be based 

on "the rate for the preceding fiscal year applied to the latest 

assessed valuation...." Purchase Agmt. § 11.2(b)(i). The 

district court held that the term "related real estate taxes" 

includes "all real estate taxes and logically includes delinquent taxes," and found significant that "subsection (b) prorates taxes which accrue 'both before and after the Real 

Property Closing Date[.]' " Beal Mortgage, Inc. v. Resolution Trust Corp., No. 95-0164, slip op. at 11 (D.D.C. March 

21, 1996) (brackets in original). This interpretation cannot be 

deemed consistent with the language and structure of section 

11.2(b) or with other provisions of the Purchase Agreement.

We find the FDIC's reading more natural. Beal's argument implies that section 11.2(b) requires the purchase price 

to be adjusted to reflect "all real estate taxes and assessments." But this provision involves adjusting the "purchase 

price" based on "items of expense" including "related real 

estate taxes." This language implements nothing more than 

the apportionment of the current year's real estate taxes, a 

standard procedure in any real estate closing. "[I]f real 

estate taxes are paid in arrears, buyer should receive credit 

for the portion of the current real estate tax fiscal year 

during which seller had possession." 12 THOMPSON ON REAL 

PROPERTY § 99.11(e) (David A. Thomas ed., 1994).

A parallel provision of section 11.2(b) strongly supports this 

conclusion. If the "amount of such taxes" is not fixed by the 

Closing Date, then the Purchase Agreement specifies that the 

adjustment is to be computed by applying the "rate for the 

preceding fiscal year" to the "latest assessed valuation" of the 

property. Purchase Agmt. § 11.2(b)(i). This formula would 

never take into account unpaid taxes from a prior fiscal tax 

year. Further, this amount would be again adjusted "when 

the rate and valuation for the current fiscal year is fixed." 

Purchase Agmt. § 11.2(b)(i) (emphasis added).

Indeed, the Purchase Agreement has other provisions governing transactions involving properties with tax liens or 

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otherwise subject to delinquent property taxes. Section 7.4 

warrants that "there will be no delinquent ad valorem real 

estate taxes" except "as specified in Exhibit J attached 

hereto." Purchase Agmt. § 7.4(g). Had the FDIC warranted that the properties were not subject to any delinquent 

taxes, Beal might have a claim for breach of that warranty

but all of the tax liens at issue were indeed listed in Exhibit J. 

In any event, the parties explicitly provided a mechanism for 

handling delinquent property taxes, and reading section 

11.2(b) to include "all real estate taxes ... includ[ing] delinquent taxes" is inconsistent with the overall scheme of the 

Purchase Agreement. Thus, Beal is not entitled to any 

credits for these delinquent property taxes which were properly disclosed by the FDIC prior to closing.

CONCLUSION

We hold that Beal is not entitled to credits for properties 

and other assets sold prior to the Pricing Date; nor is Beal 

entitled to a credit for a CD mistakenly included in the 

computation of DIV, because an item never received by the 

FDIC cannot be deemed an "amount received" within the 

meaning of the Purchase Agreement. Further, we hold that 

Beal is not entitled to an adjustment in purchase price for 

properties subject to delinquent property taxes, where the tax 

liability was disclosed by the FDIC. Because the district 

court did not determine when the Royal Cove subordinated 

note and guaranties were sold, we remand for a determination on whether the sale occurred between the Pricing Date 

and the Closing Date.

We therefore vacate the district court's order granting 

summary judgment and damages to Beal. Because we reverse the rulings that hold the FDIC liable for money damages, we do not address at this stage whether section 10.2 of 

the Purchase Agreement limits the FDIC's liability for contract damages in its capacity as receiver, nor whether a 

related Guaranty Agreement allows recovery of contract damages from the FDIC in its corporate capacity. The judgment, 

therefore, is vacated and the matter remanded for further 

proceedings consistent with this opinion.

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