Court Opinion

ID: 194612
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:21:12+00
Date Added: 2024-06-11T09:43:09.420855
License: Public Domain

March 18, 1993    UNITED STATES COURT OF APPEALS
                      For The First Circuit
                                           

No. 92-1770

              FEDERAL DEPOSIT INSURANCE CORPORATION,

                       Plaintiff, Appellee,

                                v.

                 LONGLEY I REALTY TRUST, ET AL.,

                      Defendants, Appellees,

                                           

                    ANGELINE A. KOPKA, ET AL.,

                     Defendants, Appellants.

                                           

                           ERRATA SHEET

     The  opinion  of this  Court issued  on  March 10,  1993, is
amended as follows:

     Page  9, Line  8,  should read:  "district  court's .  .  ."
instead of "district court . . . "

March 10, 1993    UNITED STATES COURT OF APPEALS
                      For The First Circuit
                                           

No. 92-1770

              FEDERAL DEPOSIT INSURANCE CORPORATION,

                       Plaintiff, Appellee,

                                v.

                 LONGLEY I REALTY TRUST, ET AL.,

                      Defendants, Appellees,

                                           

                    ANGELINE A. KOPKA, ET AL.,

                     Defendants, Appellants.

                                           

           APPEAL FROM THE UNITED STATES DISTRICT COURT

                FOR THE DISTRICT OF NEW HAMPSHIRE

      [Hon. Martin F. Loughlin, Senior U.S. District Judge]
                                                          

                                           

                              Before

                    Torruella, Circuit Judge,
                                            

                  Coffin, Senior Circuit Judge,
                                              

                     and Cyr, Circuit Judge.
                                           

                                           

     William E. Aivalikles for appellants.
                          
     E. Whitney Drake, Special Counsel,  with whom Ann S. DuRoss,
                                                                
Assistant General  Counsel, and Richard J.  Osterman, Jr., Senior
                                                         
Counsel, Federal Deposit Insurance Corporation, were on brief for
appellee Federal Deposit Insurance Corporation.
                                           
                          March 10, 1993
                                           

          TORRUELLA,   Circuit  Judge.     The   Federal  Deposit
                                     

Insurance Corporation ("FDIC"), as receiver of First Service Bank

("Bank"),  sued appellants,  Angeline Kopka  and David  Beach, to

collect on promissory  notes made  out to the  Bank.   Appellants

responded that they  did not owe the FDIC the  amount promised in

the  notes because  they had  entered settlement  agreements over

these notes  with the Bank before the FDIC took over as receiver.

The district court granted summary judgment in favor of the FDIC,

finding  that the doctrine established in D'Oench, Duhme & Co. v.
                                                              

FDIC,  315 U.S.  447  (1942), and  12  U.S.C.    1823(e)  (1989),
    

forbids the assertion of this alleged agreement against the FDIC.

In addition,  the district court  granted attorney's fees  to the

FDIC  pursuant  to provisions  of  appellants' promissory  notes.

Because  we agree that    1823(e) protects the  FDIC in this case

and that  the district court granted a reasonable attorney's fees

award, we affirm the district court's judgment.

                            BACKGROUND
                                      

          Appellants  borrowed money from  the Bank  and executed

promissory notes in  the amount of the loans.   The notes matured

in May  and June of 1989.  Appellants contend that they reached a

settlement  of these loans on March 15, 19891 which required them

to  convey to  the  Bank  the  real  estate  that  secured  their

promissory notes, free of all liens.

                    

1  Although appellants name December 21, 1988 as their settlement
date,  they  maintain  that  the  Bank  refused  to  fulfill  the
agreement,  forcing them to bring suit in the Hillsborough County
Superior Court, which the court dismissed without prejudice on an
unrelated ground.   Consequently, they argue, they  entered a new
settlement agreement on March 15, 1989.

          On March 31,  1989, the Commissioner  of Banks for  the

Commonwealth  of Massachusetts  declared the  Bank insolvent  and

appointed  the FDIC as receiver.2  As receiver, the FDIC demanded

payment of all debts owed  to the Bank when the Bank  failed.  No

evidence of appellants' alleged settlement agreement was found in

the Bank's  records.  As such,  on March 3, 1991, as  part of its

debt  collection  campaign,  the  FDIC  sued  appellants  on  the

promissory  notes.    Appellants  argued  that  their  settlement

agreement with the Bank binds the FDIC as receiver and  that they

therefore do not owe the FDIC the amount claimed.   The FDIC then

moved for summary  judgment, arguing that under  D'Oench, Duhme &
                                                                 

Co.  and 12 U.S.C.   1823(e), any  unwritten agreement alleged by
   

appellants cannot bind  the FDIC.   The district court  initially

denied the motion but granted it upon reconsideration.

                            DISCUSSION
                                      

I.  SUMMARY JUDGMENT

          Summary judgments receive  plenary review  in which  we

read  the record  and indulge  all inferences  in the  light most

favorable to  the non-moving party.   E.H. Ashley & Co.  v. Wells
                                                                 

Fargo Alarm Services, 907 F.2d 1274, 1277 (1st Cir. 1990).
                    

II.  THE D'OENCH DOCTRINE AND 12 U.S.C.   1823(e) (1989)
                

          Under  D'Oench, Duhme & Co.,  315 U.S. at  460, a party
                                     

may not  defend against a claim  by the FDIC for  collection on a

promissory note based on an agreement that is not memorialized in

                    

2   Massachusetts uses the  term "liquidating  agent" instead  of
receiver.   According to 12 U.S.C.   1813(j) (1989), however, the
term "receiver" includes liquidating agents.

                               -3-

some  fashion in the failed bank's records.3  The parties' reason

for failing to  exhibit the  agreement in the  bank's records  is

irrelevant,  as is the FDIC's actual  knowledge of the agreement.

Timberland  Design, Inc. v. First  Serv. Bank for  Sav., 932 F.2d
                                                       

46, 48-50 (1st Cir. 1991).

          Congress embraced  the D'Oench  doctrine  in 12  U.S.C.
                                        

  1823(e).  Bateman v. FDIC,  970 F.2d 924, 926 (1st  Cir. 1992).
                           

Section 1823(e)  requires any  agreement that would  diminish the

FDIC's interest in an asset acquired as receiver to be in writing

and executed by the failed bank.4

                    

3   Although  D'Oench, Duhme  & Co.  dealt with  the FDIC  in its
                                   
corporate capacity, the D'Oench doctrine equally applies in cases
                               
involving the FDIC as  receiver.  See Timberland Design,  Inc. v.
                                                              
First Serv. Bank for Sav., 932 F.2d 46, 48-49 (1st Cir. 1991).
                         

4  Section 1823(e) provides:

          No  agreement  which  tends  to  diminish  or
          defeat  the interest  of  the  [FDIC] in  any
          asset  acquired by  it . . .  as  receiver of
          any insured depository institution,  shall be
          valid   against   the   [FDIC]  unless   such
          agreement -

            (1) is in writing,

            (2)  was  executed   by  the   depository
            institution  and  any person  claiming an
            adverse  interest  thereunder,  including
            the  obligor, contemporaneously  with the
            acquisition   of   the   asset   by   the
            depository institution,

            (3)   was  approved   by  the   board  of
            directors  of the  depository institution
            or its loan committee . . ., and

            (4) has been, continuously, from the time
            of  its execution, an  official record of
            the depository institution.

                               -4-

          Appellants concede that no writing executed by the Bank

exists.  Appellants argue, however, that   1823(e) does not apply

to  this case for two  reasons.  First,  when Congress originally

enacted    1823(e), the section applied  to the FDIC  only in its

corporate  capacity.    It was  not  until  August  of 1989  that

Congress  amended    1823(e), through the  Financial Institutions

Reform,  Recovery,   and  Enforcement  Act  ("FIRREA"),  to  make

  1823(e)  directly  applicable  to  the  FDIC  in  its  receiver

capacity.  Appellants argue that  since they reached a settlement

with the Bank on March 15, 1989,   1823(e) does not apply to this

case.

          Second,  appellants argue  that  even if    1823(e), as

amended by FIRREA, applied to cases prior to August 1989, it does

not  reach the present case because the FDIC acquired no interest

in the promissory  notes as  required by   1823(e).   We  address

these arguments in turn.

          A.  Retroactivity of FIRREA

          In  general, district  courts apply  the law  in effect

when they  render their decisions, "unless doing  so would result

in  manifest  injustice  or   there  is  statutory  direction  or

legislative  history to the contrary."   Bradley v. Richmond Sch.
                                                                 

Bd., 416 U.S.  696, 711  (1974).5   Since the  FDIC brought  this
   

                    

5   In Kaiser Aluminum &  Chem. Corp. v. Bonjorno,  494 U.S. 827,
                                                 
836 (1990), the Supreme Court noted a tension between Bradley and
                                                             
Bowen  v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988), which
                                
stated a  presumption against retroactivity.   However, the Court
declined  to reconcile the cases.  Kaiser Aluminum & Chem. Corp.,
                                                                
494 U.S. at 854.

                               -5-

action on March 3,  1991, almost two years after  the application

of    1823(e) to  the FDIC  as receiver,    1823(e) presumptively

applies to this case.

          Thus,  we examine  the  two exceptions  to the  general

rule.   First,  the statute  itself and  the legislative  history

offer little  guidance as  to Congress'  intent  with respect  to

retroactivity.   Under  Bradley, this  lack of  guidance supports
                               

retroactive application.   Bradley,  416 U.S. at  715-16 (stating
                                  

that  when legislative  history  is  inconclusive, courts  should

apply the statute retroactively).

          Second, to determine whether a manifest  injustice will

result from  the retroactive application  of a  statute, we  must

balance  the  disappointment of  private  expectations caused  by

retroactive   application   against   the   public   interest  in

enforcement of the statute.  Demars v. First Serv. Bank for Sav.,
                                                                

907  F.2d 1237,  1240  (1st Cir.  1990).   In  the present  case,

appellants' disappointed expectations are small.   Appellants had

notice  that their agreement had  to meet certain  criteria to be

valid  against   the  FDIC.    The  D'Oench   doctrine  was  well
                                           

                    

   The Seventh  and Eight  circuits have expressly  addressed the
issue of retroactivity with respect to the substantive provisions
of FIRREA.   Both of these circuits applied FIRREA retroactively.
See FDIC v. Wright, 942 F.2d 1089, 1095-97 (7th  Cir. 1991); FDIC
                                                                 
v. Kasal, 913 F.2d 487, 493 (8th Cir. 1990), cert. denied, 111 S.
                                                         
Ct. 1072 (1991).

   In light  of the muddled  state of  the law in  this area,  we
apply  Bradley  which  is  well-established  precedent   in  this
              
circuit.   We  find  no  prejudice in  this  application  because
Bradley permits  retroactive application only  where no  manifest
       
injustice will result.  See FDIC v. Wright, 942 F.2d at 1095 n.6.
                                          

                               -6-

established  when  appellants  were negotiating  with  the  Bank.

Although  D'Oench,  Duhme &  Co.  did  not explicitly  require  a
                                

writing executed by the  Bank, it did require that  any agreement

be clearly documented in  the Bank's records to be  valid against

the FDIC.

          In  addition, even  if  D'Oench, Duhme  &  Co. did  not
                                                        

provide  appellants  with  sufficient  notice  of  the  statute's

requirements, appellants' failure to  meet these requirements did

not result from reasonable reliance on the D'Oench doctrine.  See
                                                                 

Van Dorn Plastic  Machinery Co. v. NLRB,  939 F.2d 402,  404 (6th
                                       

Cir.  1991)  (manifest  injustice  requires  parties'  reasonable

reliance on preexisting law).   Appellants did all they  could to

advance settlement of the debt.  In fact, they sent the necessary

documents, with their signatures, to the Bank for execution.  The

Bank,  however,   refused  to  sign  the   papers.    Appellants,

therefore, could have  done nothing  more to  satisfy either  the

D'Oench or the statutory requirements.
       

          Finally, there is no  evidence that appellants made any

attempt to  perform under  this  agreement during  the two  years

between the time that appellants allegedly entered this agreement

and the  time the FDIC filed  suit.  As such,  we cannot conclude

that appellants reasonably expected this agreement to shield them

from liability on their notes.

          On the other hand,    1823(e) promotes important public

policies.   Congress amended    1823(e), through FIRREA,  to "aid

the  FDIC  in  its  immediate responsibilities  of  dealing  with

                               -7-

mounting bank failures  in this  country."  FDIC  v. Wright,  942
                                                           

F.2d 1089, 1096 (7th  Cir. 1991).  The FDIC cannot protect public

funds held  in  failed banks  unless it  can rely  on the  bank's

records.  FDIC v. McCullough, 911 F.2d 593, 600 (11th Cir. 1990),
                            

cert. denied,  111 S. Ct. 2235  (1991).  Accordingly, we  find no
            

manifest injustice, and we apply   1823(e), as amended by FIRREA,

to the present case.

          B.  Acquisition of the promissory notes 

          In  order to  receive protection  under    1823(e), the

FDIC must first  acquire the  asset in question  from the  failed

bank.  In FDIC v. Nemecek, 641 F. Supp. 740, 743 (D. Kan.  1986),
                         

the district court found that the FDIC acquired no interest in  a

bank's promissory note  because the parties reached an accord and

satisfaction  of  the  note  prior to  the  FDIC's  receivership.

Consequently, the  court found that   1823(e) did not protect the

FDIC  against   the  asserted  accord  and   satisfaction.    Id.
                                                                

Appellants argue  that  in the  present  case, their  notes  were

similarly  extinguished by their  settlement agreement before the

Bank failed.

          Even assuming  that we  agree with the  Kansas district

court's interpretation  of    1823(e), however, Nemecek  does not
                                                       

assist appellants.   In Nemecek, the bank authorized its attorney
                               

to  enter into an accord and satisfaction with the promisors; the

bank's attorney had already received the promisors' consideration

before the bank failed; and the bank and the promisors considered

the case settled.

                               -8-

          In  the present  case,  nothing in  the bank's  records

indicated that  the bank  authorized its  attorney to  accept the

settlement, and no consideration changed hands.  It  would render

  1823(e) a  nullity to hold unwritten  agreements, without more,

valid against the FDIC as long as the parties reach the agreement

before the FDIC  takes over.  Banks and debtors  would be able to

defraud the FDIC through secret agreements simply by reaching the

agreement  before  the FDIC  took over.    This is  precisely the

situation that D'Oench and   1823(e) were intended to prevent.
                      

          Section 1823(e) precludes  appellants from binding  the

FDIC to  their alleged  settlement.   Accordingly, we  affirm the

district  courts judgment with respect to the FDIC's claim on the

promissory notes.6 

III.  ATTORNEYS FEES

          We  review   the  district  court's   determination  of

attorney's  fees  only  for  abuse  of   discretion.    Nydam  v.
                                                             

Lennerton,  948  F.2d 808,  812 (1st  Cir.  1991).   The district
         

court's order exhibits a careful review of the fees and expenses.

Indeed, the  judge rejected  $5,182  of the  claimed expenses  as

unreasonable.   In addition,  the fees amounted  to approximately

two percent  of the total judgment.   We cannot find  an abuse of

discretion in this award.

          Affirmed.
                  

                    

6  Because we find  that   1823(e) applies in this case,  we need
not reach  the issue of  whether D'Oench Duhme  & Co. would  have
                                                     
protected the FDIC in this situation on its own.

                               -9-