UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

FEDERAL FINANCIAL COMPANY,

Assignee of the Federal Deposit

Insurance Company as Receiver for

the National Bank of Washington,

No. 99-2516

Plaintiff-Appellant,

v.

JOHN L. KNOTT, JR.,

Defendant-Appellee.

Appeal from the United States District Court

for the District of Maryland, at Greenbelt.

Alexander Williams, Jr., District Judge.

(CA-96-4007-AW)

Argued: June 6, 2000

Decided: July 10, 2000

Before NIEMEYER and WILLIAMS, Circuit Judges, and

Robert R. BEEZER, Senior Circuit Judge of the

United States Court of Appeals for the Ninth Circuit,

sitting by designation.

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Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: Audra Joy Small, BROMBERG, ROSENTHAL, SIEGEL

& GOODMAN, Rockville, Maryland, for Appellant. Robert Olin
Johnston, JOHNSTON & WESTERFIELD, P.C., Washington, D.C.,

for Appellee. ON BRIEF: Jonathan R. Bromberg, Barry J. Rosenthal,

BROMBERG, ROSENTHAL, SIEGEL & GOODMAN, Rockville,

Maryland, for Appellant. Mark Westerfield, JOHNSTON &

WESTERFIELD, P.C., Washington, D.C., for Appellee.

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Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c).

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OPINION

PER CURIAM:

Federal Financial Company (FFC) filed suit in the United States

District Court for the District of Maryland seeking to recover the balance of a loan that John Knott, Jr. (Knott) had unconditionally guaranteed on behalf of Capitol Knolls Limited Partnership (Capitol

Knolls). After a bench trial, the district court ruled in favor of Knott

on the grounds that FFC had not met its burden of showing that Capitol Knolls was in default in its payments; that the National Bank of

Washington (NBW), the bank with whom Capitol Knolls entered the

loan agreement, breached the loan agreement prior to any default by

Capitol Knolls by failing to fund Capitol Knolls; and that the Federal

Deposit Insurance Company (FDIC) impaired the collateral. FFC

noted a timely appeal of this judgment. Finding no reversible error,

we affirm.

I.

In 1987, Capitol Knolls entered into various loan agreements with

NBW in order to acquire and construct a townhome community. In

December 1989, after unforeseen environmental problems delayed the

project, Capitol Knolls entered into a new loan agreement with NBW

under which NBW agreed to advance up to $5,000,000 to Capitol

Knolls through monthly payments. Knott unconditionally guaranteed

this loan on behalf of Capitol Knolls.1 In May 1990, Capitol Knolls

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1 Knott was the president of Phillips and Knott Community Developers,

Inc., which was a general partner of Capitol Knolls.

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was late on at least one of its monthly interest payments.2 During the

same time period, in either April or May 1990, NBW stopped funding

the project.3 In July 1990, NBW sent a letter to Capitol Knolls

expressing its concern over overdue payments, and strongly urging

Capitol Knolls to pay the amount due so that NBW would not have

to "consider the alternatives available." (J.A. at 490.) This letter did

not, however, formally notify Capitol Knolls that it was in default. On

August 10, 1990, the Comptroller of the Currency declared NBW

insolvent and appointed the FDIC as Receiver. In November 1990,

the FDIC sent Capitol Knolls a formal written notice of default. This

was the first formal written notice of default that Capitol Knolls or

Knott received relating to the loan agreement.4 On July 21, 1995, the

FDIC sold and assigned all right, title, and interest in and to the deed

of trust and loan guaranty to FFC. On February 19, 1996, FFC made

a formal demand upon Capitol Knolls for payment of the loan. On

March 26, 1996, FFC foreclosed upon the property.

On December 23, 1996, FFC filed a civil action against Knott to

recover the balance of the loan under the guaranty. At a bench trial,

Knott testified that in March or April of 1990,"NBW stopped funding

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2 On May 29, 1990, Capitol Knolls sent a check to NBW to cover the

overdue interest payment as of that month. The May check was later canceled and replaced by another check in June 1990. Knott testified that the

May check was canceled because NBW lost the check, while FFC maintains that the May check was replaced because it was dishonored, and

that even if the check was lost, Capitol Knolls was at least two months

late in its interest payments.

3 FFC's counsel conceded at oral argument that NBW stopped funding

the project in April or May 1990.

4 The loan agreement between Capitol Knolls and NBW provided that

upon an event of default by Capitol Knolls -- such as a failure by Capitol Knolls to make payments -- NBW had to give written notice of the

default to Capitol Knolls and stipulate a date by which Capitol Knolls

had to cure the default. NBW was required to give this notice if it wanted

to pursue its remedies under the agreement, and, if Capitol Knolls failed

to cure the default after the written notice, NBW could then "without further notice declare [Capitol Knolls] to be in default." (J.A. at 450.) As

noted above, Capitol Knolls received its first written notice of default

from the FDIC in November 1990, well after NBW had been declared

insolvent.

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the loan on a consistent basis," (J.A. at 189), that Capitol Knolls continued to pay its interest payments until the time that NBW was

declared insolvent, and that although Capitol Knolls was at one point

behind in its interest payments, it was current on its payments on

August 10, 1990, when NBW was declared insolvent. Knott also testified that shortly before NBW was declared insolvent, NBW and Capitol Knolls had been attempting to negotiate a means of moving the

project forward, but that the FDIC stalled the project after taking over

the loan by, among other things, failing to respond to Knott's requests

to find a way to complete the project. Knott stated that because the

FDIC stalled the project at a critical time, the project lost most of its

value. Thomas Helt, former president of McIntyre, a construction

company that worked on the project, corroborated Knott's testimony

concerning NBW's failure to fund Capitol Knolls, testifying that

McIntyre had received its last payment in March 1990. The district

court explicitly found Knott's testimony to be credible.

Relying upon Knott's testimony and stating that the documentary

evidence offered by FFC was inconclusive, the district court found

that FFC had not met its burden of proof in showing that Capitol

Knolls was in default in its payments. The district court also found

that NBW had initially breached the loan agreement and frustrated

Capitol Knoll's performance under the loan agreement by failing to

fund Capitol Knolls beginning in April or May 1990, and that the

FDIC impaired the collateral. On August 31, 1999, the district court

entered judgment in Knott's favor. On October 21, 1999, the district

court denied FFC's motion to alter or amend the judgment. On

November 8, 1999, FFC filed its notice of appeal.

FFC raises several issues on appeal. FFC argues that the district

court erred as a matter of law in considering Knott's affirmative

defenses because Knott failed to exhaust his administrative remedies

pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). FFC also argues that the district court

erred in relying upon Knott's and Helt's oral testimony rather than the

documentary evidence FFC offered at trial, and that the documentary

evidence clearly shows that Capitol Knolls was continuously in

default from April 1990. FFC also maintains that the district court

erred in concluding that NBW breached the loan agreement prior to

any default by Capitol Knolls by failing to fund the project, and that

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the district court erred in finding that the FDIC impaired the collateral

by refusing to cooperate with Capitol Knolls and allowing the collateral to deteriorate.

II.

"On appeal from a bench trial, we may only set aside findings of

fact if they are clearly erroneous, and we must give due regard to the

opportunity of the district court to judge the credibility of the witnesses." Scrimgeour v. Internal Revenue, 149 F.3d 318, 324 (4th Cir.

1998). A district court's factual finding is clearly erroneous "when

although there is evidence to support it, the reviewing court on the

entire evidence is left with the definite and firm conviction that a mistake has been committed." Id. (internal quotation marks omitted).

"[W]here there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Id. (internal quotation marks omitted) (alteration in original). We review the

district court's legal conclusions de novo. See Williams v. Sandman,

187 F.3d 379, 381 (4th Cir. 1999).

We have reviewed the record, briefs, and pertinent case law on this

matter, and we have had the benefit of oral argument. Our careful

review persuades us that the rulings of the district court were correct.5

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5 Although FFC argues that the district court should not have considered Knott's affirmative defenses because he did not exhaust his remedies prior to asserting those defenses, FIRREA's exhaustion requirement

does not encompass affirmative defenses. See Bolduc v. Beal Bank, SSB,

167 F.3d 667, 671-72 (1st Cir. 1999) (finding that the Bolducs' defense

"does not quite fit within the statutory language that delineates the

exhaustion requirement. It is not a claim by the Bolducs seeking any kind

of `payment' from any bank"); Tri-State Hotels, Inc. v. FDIC, 79 F.3d

707, 715 (8th Cir. 1996) (agreeing with other circuits "that true affirmative defenses may still be asserted" even though Tri-State did not exhaust

its remedies); Resolution Trust Corp. v. Love , 36 F.3d 972, 976-78 (10th

Cir. 1994) (concluding that exhaustion is not required for a court to have

jurisdiction over an affirmative defense); Resolution Trust Corp. v. Midwest Fed. Sav. Bank, 36 F.3d 785, 793 (9th Cir. 1994) (concluding that

defense of mutual mistake does not require exhaustion); National Union

Fire Ins. Co. v. City Sav., FSB, 28 F.3d 376, 393 (3d Cir. 1994) (concluding that "the statute does not create a jurisdictional bar to defenses

or affirmative defenses which a party seeks to raise in defending against

a claim").

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Accordingly, we affirm the judgment in favor of Knott on the reasoning set forth in the district court's oral ruling after trial.

AFFIRMED

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