Source: http://openjurist.org/967/f2d/832
Timestamp: 2017-07-29 12:00:10
Document Index: 418426198

Matched Legal Cases: ['§ 1441', '§ 2201', '§ 1441', '§ 1819', '§ 1291', '§ 1819', '§ 9', '§ 9', '§ 1823', '§ 1441', '§ 1441']

967 F2d 832 Central Rental Co Cte v. Horizon Leasing Division of Horizon Financial | OpenJurist
967 F. 2d 832 - Central Rental Co Cte v. Horizon Leasing Division of Horizon Financial HomeFederal Reporter, Second Series 967 F.2d.
967 F2d 832 Central Rental Co Cte v. Horizon Leasing Division of Horizon Financial 967 F.2d 832
17 UCC Rep.Serv.2d 915
CENTRAL W. RENTAL CO. d/b/a CTE Leasing Corp., William J.Simmers and his wife Cassandra Simmersv.HORIZON LEASING, a DIVISION OF HORIZON FINANCIAL, F.A.FEDERAL DEPOSIT INSURANCE CORPORATION, Exclusive Manager ofthe Resolution Trust Corporation as Receiver forHorizon Financial, F.A., HorizonLeasing, Counter Claimants, Appellees,v.William J. SIMMERS and Cassandra Simmers, CounterDefendants, Appellants.
Argued Jan. 27, 1992.Decided June 11, 1992.
CTE is in the business of selling and leasing motor vehicles to the general public. To finance its business, CTE entered into certain loan agreements with Horizon in October 1985 and March 1989. Sometime in March 1990, the FDIC notified CTE that it had failed to pay its obligations under the loan agreements and that it intended to take action to enforce its rights. On May 1, 1990, CTE filed a Complaint in Equity for Declaratory Judgment in the Court of Common Pleas of Westmoreland County. CTE sought to enjoin the FDIC from taking legal action to collect any indebtedness allegedly owed by CTE to Horizon and sought a judicial declaration that its loan obligations to Horizon were not in default.2 The FDIC removed the action to the United States District Court for the Eastern District of Pennsylvania pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), 12 U.S.C.A. § 1441a(l )(3) (West Supp.1992).
[The Simmers] hereby unconditionally guarantee[ ] to [Horizon] the prompt payment to [Horizon] at maturity or on acceleration of every note, check, bill of exchange, draft, trade acceptance, loan, advance, ... and all other obligations, in connection with which, either as maker, drawer, guarantor, endorser or otherwise, whether directly or contingently, [CTE] is or shall hereafter become liable to [Horizon] whether created directly or acquired by [Horizon] by assignment or otherwise ... together with all attorney's fees, costs and expenses of collection incurred by [Horizon] in connection with any matter covered by this Agreement....
The district court had jurisdiction over CTE's complaint for declaratory relief under 28 U.S.C.A. § 2201 (West Supp.1992). It had jurisdiction over the FDIC's counterclaims under 12 U.S.C.A. § 1441a(l )(1) (West Supp.1992) and 12 U.S.C.A. § 1819(b)(2)(A) (West 1989). On January 24, 1992, the district court certified its order denying the Simmers' Rule 60(b) motion for relief from the judgment as a final judgment under Federal Rule of Civil Procedure 54(b). Accordingly, we have appellate jurisdiction under 28 U.S.C.A. § 1291 (West Supp.1992).
Procedurally, a motion to open or strike a judgment entered by confession in a federal court is governed by Rule 60(b). See Girard Trust Bank v. Martin, 557 F.2d 386, 389 (3d Cir.), cert. denied, 434 U.S. 985, 98 S.Ct. 612, 54 L.Ed.2d 479 (1977); Amquip Corp. v. Pearson, 101 F.R.D. 332, 336 (E.D.Pa.1984). But see FDIC v. Barness, 484 F.Supp. 1134, 1141 & n. 5 (E.D.Pa.1980).
Fed.R.Civ.P. 60(b). We review the district court's denial of a Rule 60(b) motion for abuse of discretion. United States v. 27.93 Acres of Land, 924 F.2d 506, 516 (3d Cir.1991); Harad v. Aetna Cas. and Sur. Co., 839 F.2d 979, 982 (3d Cir.1988).
We have not found any independent federal substantive law on opening a confessed judgment pursuant to Rule 60(b). In the analogous context of a motion to set aside a default judgment under Rule 60(b), we have required the district court to consider the following factors in exercising its discretion: "whether vacating the ... judgment will visit prejudice on the plaintiff, whether the defendant has a meritorious defense, and whether the default was the result of the defendant's culpable conduct." Harad, 839 F.2d at 982; see United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 195 (3d Cir.1984). The "threshold question" is whether the defendant has alleged facts which, if established at trial, would constitute a meritorious defense to the cause of action. $55,518.05 in U.S. Currency, 728 F.2d at 195.3
A. Entitlement to Notice
The Simmers' defense that CTE, and they themselves as guarantors, were entitled to notice of the sale of certain repossessed vehicles by Horizon, if proven, would have merit. The parties have assumed that Pennsylvania's version of the Uniform Commercial Code controls in this case. Jurisdiction is not, however, based on diversity of citizenship. The FDIC's counterclaim in confession of judgment against which the Simmers have asserted their notice of defense was brought pursuant to 12 U.S.C.A. § 1819(b)(2)(A). Accordingly, this suit "arises under" federal law, and we will look to federal common law for guidance. See Adams v. Madison Realty & Development, Inc., 937 F.2d 845, 855 (3d Cir.1991); FDIC v. Blue Rock Shopping Center, Inc., 766 F.2d 744, 747 (3d Cir.1985). Because this case involves a secured transaction, we look to Article Nine of the Uniform Commercial Code (UCC) and those cases "which best supplement the UCC and further its purposes and design." Blue Rock, 766 F.2d at 749 (quoting United States v. Unum, 658 F.2d 300, 304 & n. 2 (5th Cir.1981)). We note, however, that Pennsylvania has adopted verbatim the provisions of the UCC we now consider and that no Pennsylvania case we have been able to find is inconsistent with our reasoning. Accordingly, we are satisfied that even if Pennsylvania law continues to govern the FDIC's rights as Horizon's assignee, the same result would be reached on the facts of this case.
Article Nine of the UCC states: "[a] secured party after default may sell ... the collateral." U.C.C. § 9-504(1), 3A U.L.A. 356 (1981). Section 9-504(3) of that article states, in relevant part: "reasonable notification of the time and place of any public sale or reasonable notification of the time after which any private sale or other intended disposition is to be made shall be sent by the secured party to the debtor." Id. § 9-504(3), 3A U.L.A. 257 (1981) (emphasis added). Article Nine of the UCC defines "debtor" as follows:
Rushton v. Shea, 423 F.Supp. 468 (D.Del.1976), is instructive on this point. Rushton was the founder of Diamond State Tank Car Corporation (Tank Car). Over the years, Tank Car entered into various loan agreements with Delaware Investment Company (DIC). Under the terms of the loan at issue, Rushton had been released from personal liability. The loan was secured, however, by Tank Car's assets and Rushton's stock in another company called Delaware Railcar Leasing, Inc. Id. at 470. In the event of a deficiency after the sale of Tank Car's assets, Rushton's stock was subject to sale. DIC foreclosed on the assets of Tank Car without notice to Rushton and Rushton contended he was a debtor entitled to notice under section 9-105(d). The district court held that he met the definition of debtor because "[i]n the literal terms of the statute, he still owed 'performance of the obligation secured.' " Id. In this case, if the sale of a leased vehicle upon default did not yield the residual value, CTE was obligated to pay any deficiency. Thus, CTE meets the definition of debtor "in the literal terms of the statute." Id.
We also believe the form of this transaction is analogous to transactions in which lease payments are guaranteed by a third party. A number of courts have recognized that the guarantor of a debtor in default is entitled to notice under UCC section 9-504(3). See, e.g., Ford Motor Credit Co. v. Lototsky, 549 F.Supp. 996, 1003 (E.D.Pa.1982) (collecting cases); Commercial Credit Corp. v. Lane, 466 F.Supp. 1326, 1332 (M.D.Fla.1979) (same). In State Bank v. All-American Sub, Inc., 289 N.W.2d 772 (N.D.1980), a lessor sued a lessee in default and the guarantors of its lease payments for the accelerated sums due on the lease. The court held that the guarantors were entitled to notice of the disposition of the leased property. Id. at 779; see Commercial Discount Corp. v. Bayer, 57 Ill.App.3d 295, 14 Ill.Dec. 647, 650, 372 N.E.2d 926, 929 (1978) (guarantor of lessee's lease obligations entitled to notice of disposition of leased property); A.L.C. Financial Corp. v. Ray, 437 N.W.2d 593, 595 (Iowa App.1989) (same); Chemlease Worldwide Inc. v. Brace, Inc., 338 N.W.2d 428, 433 (Minn.1983) (same). Similarly, CTE owed a conditional duty of payment upon lessee default in the present case.
The purpose of requiring notice is threefold. It gives the debtor an opportunity to exercise the right of redemption of the repossessed collateral.... It also gives him the chance to challenge any aspect of the disposition before it is made. Finally, it offers the debtor the opportunity to seek out persons who might be interested in purchasing the collateral. Particularly the last two of these purposes serve the ultimate goal of allowing the debtor to maximize the sale price of the collateral and, thus, minimize any deficiency for which he may be liable.... Guarantors[,] accommodation makers and others in similar positions have an equal or greater interest in seeing that the collateral is sold for the best price since their resources will be called upon to meet the deficiency.
Rushton, 423 F.Supp. at 469-70 (citation and footnotes omitted). Since the Schedule provided that the proceeds of the sale of a leased vehicle would be applied first to reduce CTE's obligations to pay the residual value of the leased property, CTE obviously had an interest in maximizing the sale proceeds. Any other conclusion would make little economic sense since an automobile whose lease is terminated before the end of the lease term would be quite likely to have an actual value in excess of the projected residual values, unless it has been abused or subjected to unreasonable wear and tear, poor maintenance or excessive use by the defaulting lessee. In fact, since the FDIC began providing notice of sales of repossessed vehicles, "CTE has bid the residual value on all vehicles either at the time of the expiration of the lease or at the time of repossession by [the] FDIC." Brief for Appellant at 7.
If CTE is a debtor entitled to notice, the Simmers were likewise entitled to notice as the guarantors of CTE's obligations under section 9504(c). See Lototsky, 549 F.Supp. at 1003. Accordingly, we hold that the Simmers have asserted a meritorious defense based on lack of notice that is sufficient to require opening the judgment against them.4
B. Oral Agreements and the D'Oench Doctrine
Even if true, the Simmers' attempts to use these oral, undocumented agreements are barred by the D'Oench Doctrine. See D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S.Ct. 676, 86 L.Ed. 956 (1942). Under that doctrine, undocumented side agreements with a failed institution taken over by the FDIC are legally inadmissible to diminish or defeat the interests of the FDIC. Id. at 461; see Adams, 937 F.2d at 852. Congress has also enacted detailed standards for testing whether an agreement is enforceable against the FDIC. See 12 U.S.C.A. § 1823(e) (West 1989); Blue Rock, 766 F.2d at 753 (purpose of section 1823(e) was to codify the rule of D'Oench ). Section 1823(e) generally requires that the agreement: (1) be in writing; (2) be executed by the depository institution and the person claiming an adverse interest thereunder; (3) be approved by the board of directors of the depository institution; and (4) have been an official record of the depository institution since its execution. The policy rationale behind the doctrine and section 1823(e) is that regulators assessing a financial institution's safety and soundness will not be aware of a bank's oral undertakings. See Langley v. FDIC, 484 U.S. 86, 91-92, 108 S.Ct. 396, 401-02, 98 L.Ed.2d 340 (1987). The alleged oral agreements at issue in this case do not meet these requirements. Therefore, the Simmers cannot assert them as a defense to the judgment FDIC has here obtained against them.
On June 8, 1989, the Federal Savings and Loan Insurance Corporation (FSLIC) was appointed as Conservator of Horizon. Effective August 9, 1989, the Resolution Trust Corporation (RTC) succeeded the FSLIC as Conservator of Horizon. On May 25, 1990, the Office of Thrift Supervision closed Horizon and appointed the RTC as Receiver of Horizon. As Receiver, the RTC has succeeded to all the rights, titles, powers and privileges of Horizon. See 12 U.S.C.A. § 1441a(b)(4)(A) (West Supp.1992). Pursuant to 12 U.S.C.A. § 1441a(b)(1)(C) (West Supp.1992), the Federal Deposit Insurance Company (FDIC) is the exclusive manager for and is authorized to perform all the responsibilities of the RTC. Thus, the FDIC is the appellee in this case
Despite the FDIC's repeated reference to "findings of fact" of the district court "fully supported by the evidence," see Brief for Appellee at 8, 11, the district court denied the Simmers' Rule 60(b) motion in a one sentence order with no explanation of its reasons. Because confessions of judgment are customarily entered by the clerk of court without consideration by the district court, our task is made more difficult by the district court's ruling on the Simmers' Rule 60(b) motion without explanation. See Sowell v. Butcher & Singer, Inc., 926 F.2d 289, 295 (3d Cir.1991) (addressing difficulties posed by district court's ruling without explanation)