Court Opinion

ID: 184424
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:19:49+00
Date Added: 2024-06-11T17:26:08.405623
License: Public Domain

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 Insur-
ance Corporation, argued the cause for appellants/cross-

appellees, with whom Ann S. DuRoss, Assistant General 
Counsel, was on the briefs.

     Charles A. Gall argued the cause for appellee/cross-
appellant, 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 FDIC1 offered 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 Informa-
tion 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.

property being sold, and a warning that this information was 
liable to be inaccurate.  It soon thereafter provided a De-
tailed 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 bid-
ders 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 prop-
erty 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 delin-
quent real property taxes on included properties.  See Pur-
chase Agmt. ss 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. s 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 reme-
dy 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 

district court agreed largely with Beal's proffered interpreta-
tion 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., se-
cured 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 pro-
     ceeds 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 computa-
tion of an asset's DIV.  The FDIC takes the position that 

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 down-
ward, 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 remain-
ing 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 guaran-
ties.  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 Agree-
ment.

     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 unsur-
prisingly 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. 
p 6(b).  Reading this statement to allege that the sale oc-
curred 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 peri-
od 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 ad-
justed 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 meth-

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).  Fur-
ther, 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 Agree-
ment 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 proper-
ties 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 interpreta-
tion 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 mean-
ing 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 credit-
ed Beal with the appropriate amounts.  With respect to the 

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 Agree-
ment'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 ex-
penses to be prorated included, among other things, utility 
charges, rents, insurance premiums, and "related real estate 

taxes and all assessments (special and general)."  Purchase 
Agmt. s 11.2(b)(i).  Further, if the taxes had not been as-
sessed 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. s 11.2(b)(i).  The 
district court held that the term "related real estate taxes" 
includes "all real estate taxes and logically includes delin-
quent taxes," and found significant that "subsection (b) pro-
rates taxes which accrue 'both before and after the Real 
Property Closing Date[.]' "  Beal Mortgage, Inc. v. Resolu-
tion 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 argu-
ment implies that section 11.2(b) requires the purchase price 
to be adjusted to reflect "all real estate taxes and assess-
ments."  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 s 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. s 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. s 11.2(b)(i) (emphasis added).

     Indeed, the Purchase Agreement has other provisions gov-
erning transactions involving properties with tax liens or 

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. s 7.4(g).  Had the FDIC warrant-
ed 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] delin-
quent 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 prop-
erly 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 determina-
tion 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 re-
verse the rulings that hold the FDIC liable for money dam-
ages, we do not address at this stage whether section 10.2 of 
the Purchase Agreement limits the FDIC's liability for con-
tract damages in its capacity as receiver, nor whether a 
related Guaranty Agreement allows recovery of contract dam-
ages from the FDIC in its corporate capacity.  The judgment, 
therefore, is vacated and the matter remanded for further 
proceedings consistent with this opinion.